-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0IfM34jErj0gFH6NAYx5v0w3QyUdshpM5mdAwohdyWCmQOdtUYFAV9cFrjIZ8fW 7++IwOxjDB1sy8D2nPFqFg== 0000892712-96-000059.txt : 19961031 0000892712-96-000059.hdr.sgml : 19961031 ACCESSION NUMBER: 0000892712-96-000059 CONFORMED SUBMISSION TYPE: N-1A EL/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961011 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTEGRA FUNDS INC CENTRAL INDEX KEY: 0001014913 STANDARD INDUSTRIAL CLASSIFICATION: FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-1A EL/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07305 FILM NUMBER: 96642442 BUSINESS ADDRESS: STREET 1: THREE FIRST NATIONAL PLAZA STREET 2: 70 WEST MADISON SUITE 1400 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3122143160 MAIL ADDRESS: STREET 1: THREE FIRST NATIONAL PLAZA STREET 2: 70 WEST MADISON SUITE 1400 CITY: CHICAGO STATE: IL ZIP: 60602 POS AM 1 As filed with the Securities and Exchange Commission on October 11, 1996 Securities Act Registration No. 333-7305 Investment Company Act Registration No. 811-7685 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. 1 [X] Post-Effective Amendment No. -- [ ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 1 [X] FRONTEGRA FUNDS, INC. (Exact Name of Registrant as Specified in Charter) 400 Skokie Blvd. Suite 500 60062 Northbrook, Illinois (Zip Code) (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: 1-(847) 509-9860 William D. Forsyth III 400 Skokie Blvd., Suite 500 Northbrook, Illinois 60062 (Name and Address of Agent for Service) Copies to: Carol A. Gehl Godfrey & Kahn, S.C. 780 North Water Street Milwaukee, Wisconsin 53202 Approximate date of proposed public offering: As soon as practicable after the Registration Statement becomes effective. In accordance with Rule 24f-2 under the Investment Company Act of 1940, Registrant declares that an indefinite number of shares of its common stock, $.01 par value, is being registered by this Registration Statement. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CROSS REFERENCE SHEET (Pursuant to Rule 481 showing the location in the Prospectus and the Statement of Additional Information of the responses to the Items of Parts A and B of Form N-1A). Caption or Subheading in Prospectus or Statement Item No. on Form N-1A of Additional Information PART A - INFORMATION REQUIRED IN PROSPECTUS 1. Cover Page Cover Page 2. Synopsis Summary; Summary of Portfolio Expenses 3. Condensed Financial * Information 4. General Description of Organization; Investment Registrant Objectives and Policies; Investment Techniques and Risks; Investment Restrictions 5. Management of the Fund Management; Portfolio Expenses 5A. Management's Discussion of Fund Performance * 6. Capital Stock and Other Dividends, Capital Gain Securities Distributions and Tax Treatment; Organization 7. Purchase of Securities How to Purchase Shares; Being Offered Determination of Net Asset Value; Exchange Privilege 8. Redemption or Repurchase How to Redeem Shares; Determination of Net Asset Value; Exchange Privilege 9. Pending Legal Proceedings * PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information Included in Prospectus and History under the heading Organization 13. Investment Investment Restrictions; Objectives and Policies Investment Policies and Techniques 14. Management of the Directors and Officers Fund 15. Control Persons and Principal Shareholders; Principal Holders of Directors and Officers; Securities Investment Adviser 16. Investment Advisory Investment Adviser; and Other Services Management (in Prospectus); Custodian; Transfer Agent and Dividend-Disbursing Agent; Independent Accountants 17. Brokerage Allocation Portfolio Transactions and Other Practices and Brokerage 18. Capital Stock and Included in Prospectus Other Securities under the heading Organization 19. Purchase, Redemption Included in Prospectus and Pricing of under the headings How Securities Being Offered to Purchase Shares; Determination of Net Asset Value; How to Redeem Shares; Exchange Privilege; and in the Statement of Additional Information under the heading Investment Adviser 20. Tax Status Included in Prospectus under the heading Dividends, Capital Gain Distributions and Tax Treatment 21. Underwriters * 22. Calculations of Performance Information Performance Data 23. Financial Financial Statements Statements ________________________ * Answer Negative or inapplicable. PROSPECTUS ______, 1996 FRONTEGRA FUNDS, INC. 400 Skokie Blvd. Suite 500 Northbrook, Illinois 60062 1-888-825-2100 FRONTEGRA FUNDS, INC. is an open-end, diversified, management investment company, known as a mutual fund (the "Company"). The Company is currently comprised of two separate portfolios, the FRONTEGRA TOTAL RETURN BOND FUND (the "Total Return Bond Fund") and the FRONTEGRA OPPORTUNITY FUND (the "Opportunity Fund") (hereinafter collectively referred to as the "Funds"). The investment objective of the Total Return Bond Fund is a high level of total return, consistent with the preservation of capital. The Total Return Bond Fund invests primarily in a diversified portfolio of fixed income securities of varying maturities. The investment objective of the Opportunity Fund is capital appreciation. The Opportunity Fund invests primarily in a diversified portfolio of equity securities of companies with small to mid-sized market capitalizations. The Funds are 100% no-load. There are no sales, redemption or 12b-1 fees. This Prospectus sets forth concisely the information that you should be aware of prior to investing in the Funds. Please read this Prospectus carefully and retain it for future reference. Additional information regarding the Company and the Funds is included in the Statement of Additional Information dated ___________, which has been filed with the Securities and Exchange Commission ("SEC") and is incorporated in this Prospectus by reference. A copy of the Company's Statement of Additional Information is available without charge by writing to the Company at the address listed above or by calling, toll-free, 1-888-825-2100. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Page SUMMARY 3 Investment Objective 3 Risk Factors 3 Investment Adviser 3 Purchases and Redemptions 3 Shareholder Services 3 SUMMARY OF EXPENSES 4 Fee Tables 4 Example 4 INVESTMENT OBJECTIVES AND POLICIES 5 TOTAL RETURN BOND FUND 5 OPPORTUNITY FUND 5 INVESTMENT TECHNIQUES AND RISKS 6 TOTAL RETURN BOND FUND 6 Fixed Income Securities 6 Reverse Repurchase Agreements and Mortgage Dollar Rolls 9 When-Issued Securities 10 Illiquid Securities 10 Repurchase Agreements 10 Foreign Securities and Currencies 10 Derivative Instruments 11 Portfolio Turnover 11 OPPORTUNITY FUND 11 Small Companies 11 Short-Term Fixed Income Securities 12 Illiquid Securities 12 Repurchase Agreements 12 Foreign Securities and Currencies 13 Derivative Instruments 13 Portfolio Turnover 13 MANAGEMENT 14 HOW TO PURCHASE SHARES 15 Initial Investment - Minimum $100,000 15 Subsequent Investments - Minimum $1,000 16 HOW TO REDEEM SHARES 16 Written Redemption 16 Signature Guarantees 16 EXCHANGE PRIVILEGE 16 TAX-SHELTERED RETIREMENT PLANS 17 Individual Retirement Account 17 Simplified Employee Pension Plan 17 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX TREATMENT 17 FUND EXPENSES 18 DETERMINATION OF NET ASSET VALUE 18 SHAREHOLDER REPORTS 18 ORGANIZATION 19 ADMINISTRATOR AND FUND ACCOUNTANT 19 CUSTODIAN AND TRANSFER AGENT 19 COMPARISON OF INVESTMENT RESULTS 19 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus and the Statement of Additional Information, and if given or made, such information or representations may not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell securities in any state to any person to whom it is unlawful to make such offer in such state. SUMMARY Investment Objective Frontegra Funds, Inc. currently is comprised of the Frontegra Total Return Bond Fund and the Frontegra Opportunity Fund. The investment objective of the Total Return Bond Fund is a high level of total return, consistent with the preservation of capital. The Total Return Bond Fund invests primarily in a diversified portfolio of fixed income securities of varying maturities. The investment objective of the Opportunity Fund is capital appreciation. The Opportunity Fund invests primarily in a diversified portfolio of equity securities of companies with small to mid-sized market capitalizations. Each Fund's investments are subject to market risk and the value of its shares will fluctuate with changing market valuations of its portfolio holdings. See "INVESTMENT OBJECTIVES AND POLICIES" and "INVESTMENT TECHNIQUES AND RISKS." Risk Factors The Funds are suitable for long-term investors only and are not designed as a short-term investment. The share price of each Fund is expected to fluctuate and may, at redemption, be worth more or less than the initial purchase price. Market risks associated with equity investment include the possibility that stock prices in general will decline over short or even extended periods. This risk is in addition to the risks inherent in individual stock selections. Market risks associated with fixed income investments include the possibility that bond prices in general will decline when interest rates increase. While fixed income securities normally fluctuate less in price than stocks, there have been extended periods of increases in interest rates that have caused significant declines in fixed income securities prices. In addition to market risks associated with fixed income investments, individual issues of fixed income securities may be subject to credit risk of the issuer. See "Investment Techniques and Risks," for more information. Investment Adviser The Funds are managed by Frontegra Asset Management, Inc. ("Frontegra"), which supervises the management of each Fund's portfolio by the sub-adviser and administers the Company's business affairs. Investment advisory services are provided to the Funds by Reams Asset Management Company, LLC ("Reams"). The firm operated as a corporation (Reams Asset Management Company, Inc.) from its founding in 1981 until March 31, 1994, when it became an Indiana limited liability company (LLC), with no change in principals, employees or clients. Reams primarily acts as investment adviser to institutional clients with investment portfolios totaling approximately $2.5 billion. See "MANAGEMENT." Purchases and Redemptions Shares of the Funds are sold and redeemed at net asset value without the imposition of any sales or redemption charges. The minimum initial investment required by each Fund is $100,000. The minimum subsequent investment is $1,000. These minimums may be changed or waived at any time at the discretion of the Funds. See "HOW TO PURCHASE SHARES" and "HOW TO REDEEM SHARES." Shares in one Fund may be exchanged without any charge for shares in another Fund at their respective net asset values. Shareholder Services Questions regarding either of the Funds may be directed to the Company at the address and telephone number on the front page of this Prospectus. SUMMARY OF EXPENSES Fee Tables Shareholder Transaction Expenses Total Return Bond Opportunity Fund Fund Sales Load Imposed on Purchases NONE NONE Sales Load Imposed on Reinvested Dividends NONE NONE Deferred Sales Load Imposed on Redemptions NONE NONE Redemption Fees NONE NONE Exchange Fees NONE NONE Annual Operating Expenses (after waivers or reimbursements) (as a percentage of average net assets) Total Return Bond Opportunity Fund Fund Management Fees 0.40% 0.65% 12b-1 Fees NONE NONE Other Expenses (Net of Reimbursements) 0.10% 0.25% TOTAL OPERATING EXPENSES 0.50% 0.90% (after Waivers or Reimbursements) For the Funds' first twelve months of operation, Frontegra has agreed to waive its management fee and/or reimburse each Fund's operating expenses to the extent necessary to ensure that the Total Return Bond Fund's and the Opportunity Fund's Total Operating Expenses do not exceed 0.50% and 0.90% respectively of the Fund's average daily net assets. Since the Funds did not commence operations until _________, 1996, other expenses have been estimated and are presented net of reimbursements. Absent these reimbursements, the Other Expenses and Total Operating Expenses for the Total Return Bond Fund are estimated to be 0.36% and .76%, respectively; Other Expenses and Total Operating Expenses for the Opportunity Fund are estimated to be 0.35% and 1.00%, respectively. For additional information concerning fees and expenses, see "MANAGEMENT." The Fund will charge a service fee of $9 for redemptions effected via wire transfer, and $20 for checks that do not clear. See "HOW TO REDEEM SHARES." Example You would pay the following expenses on a $1,000 investment, assuming (i) 5% annual return and (ii) redemption at the end of each time period: Total Return Bond Opportunity Fund Fund 1 Year $ 5 $ 9 3 Years $16 $30 The Fee Tables, including the Example, are included to assist you in understanding the various costs and expenses that an investor in the Funds bears directly or indirectly. The Example is based on the Total Operating Expenses specified in the table above. The amounts in the Example may increase absent the waivers or reimbursements. Please remember that the Example should not be considered representative of past or future expenses and that actual expenses may be greater or lesser than those shown. The assumption in the Example of a 5% annual rate of return is required by regulations of the SEC applicable to all mutual funds. This return is hypothetical and should not be considered representative of past or future performance of the Funds. INVESTMENT OBJECTIVES AND POLICIES The investment objectives presented below may not be changed without shareholder approval. Since all investments are subject to inherent market risks, there is no assurance that these objectives will be realized. Other investment restrictions which may not be changed without shareholder approval are contained in the Company's Statement of Additional Information. Except for each Fund's investment objective and the investment restrictions enumerated in the Company's Statement of Additional Information, a Fund's policies may be changed without a vote of the Fund's shareholders. TOTAL RETURN BOND FUND The Total Return Bond Fund's investment objective is a high level of total return, consistent with the preservation of capital. The Total Return Bond Fund will seek, under normal market conditions, to achieve its investment objective by investing in a diversified portfolio of fixed income securities of varying maturities. The Fund will invest at least 65% of its net assets in bonds. The Fund considers a bond to be any debt instrument. These instruments include: short-term fixed income securities; U.S. government securities; corporate debt securities, including convertible securities and corporate commercial paper; mortgage-backed and other asset-backed securities; structured notes and loan participations; bank certificates of deposit, fixed time deposits and bankers' acceptances; repurchase agreements; obligations of foreign governments or their subdivisions, agencies and instrumentalities; and obligations of international agencies or supranational entities. Although the Fund primarily will invest in investment grade fixed income securities, the Fund may invest up to 25% of its assets in fixed income securities that are rated below investment grade. The Fund may invest up to 20% of its assets in securities denominated in foreign currencies and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. The portfolio duration of the Fund will normally fall between three to seven years based on market conditions. Duration is a measure of a fixed income security's average life that reflects the present value of the security's cash flow, and accordingly is a measure of price sensitivity to interest rate changes. Reams attempts to maximize total return over a long- term horizon through opportunistic investing in a broad array of eligible securities. The investment process combines active duration and yield-curve management with bottom-up issue selection, focusing on undervalued issues in the fixed income market. Reams employs a two- step process in managing the Total Return Bond Fund. The first step is to establish the portfolio's duration on the basis of whether the bond market is under or over priced. Emphasis is placed on inflation and monetary policy in the formulation of Reams' strategies. Reams determines market attractiveness by comparing current interest rates to historical interest rates. Once Reams has determined an overall market strategy, the second step is to select the most attractive bonds for the Fund. The portfolio management team screens hundreds of issues to determine how each will perform in various interest-rate environments. The firm's outlook for interest rates, fundamental credit analysis and option-adjusted spread analysis are the primary tools used when constructing these scenarios. Investment opportunities are compared and the Fund's portfolio is assembled from the best available values. OPPORTUNITY FUND The Opportunity Fund's investment objective is capital appreciation. The Opportunity Fund will seek, under normal market conditions, to achieve its investment objective by investing its assets primarily in equity securities of companies with small to mid-sized market capitalizations. The Fund will invest at least 80% of its net assets in equity securities. These securities include: common stocks; preferred stocks; warrants to purchase common stocks or preferred stocks; depositary receipts; and securities convertible into common or preferred stocks, such as convertible bonds and debentures rated Baa or higher by Moody's Investors Service ("Moody's") or BBB or higher by Standard & Poor's ("S&P"), Duff & Phelps, Inc. ("D&P") or Fitch Investors Service, Inc. ("Fitch"). At least 65% of the Opportunity Fund's total assets will normally be invested in equity securities of small to mid-sized market capitalization companies, which for the purposes of this Fund are those companies with a market capitalization of $2 billion or less at the time of the Fund's investment. In general, smaller-capitalization companies often involve greater risks than investments in larger capitalized companies. (See "INVESTMENT TECHNIQUES AND RISKS - Small Companies"). The Fund may invest up to 15% of its net assets directly in the securities of foreign issuers. It may also invest, without limitation, in foreign securities in domestic markets through depositary receipts. However, as a matter of policy, the Opportunity Fund intends to limit its total foreign exposure, including both direct investments and depositary receipts, to no more than 25% of the Fund's net assets. In addition, the Fund may invest up to 20% of its total assets in cash and short-term fixed income securities for any purpose and up to 100% of its total assets may be invested in such instruments for temporary defensive purposes. In seeking to achieve the Opportunity Fund's investment objective, Reams uses a value-oriented discipline. Reams evaluates the small and mid-cap markets by using a number of valuation criteria, including both current and historical measures, for ratios comparing price to earnings, price to book value, and price to sales. The portfolio management team then constructs a focus list based in part on each company's competitive position, capital structure, cash flow and management. The team then determines a target price for the stock, thus providing a specific expected rate of return. The approximately 75 securities with the highest expected rates of return would be among those securities selected for the Fund's portfolio. On average, a security will be held by the Fund for approximately 12 months. Ultimately, securities will be sold due to the emergence of superior alternatives. INVESTMENT TECHNIQUES AND RISKS In addition to the investment policies described above (and subject to certain restrictions described below), the Funds may invest in the following securities and employ the following investment techniques, some of which may present special risks as described below. A more complete discussion of certain of these securities and investment techniques and the associated risks is contained in the Company's Statement of Additional Information. TOTAL RETURN BOND FUND Fixed Income Securities The Fund may invest in a wide variety of fixed income securities. Issuers of fixed income securities have a contractual obligation to pay interest at a specified rate on specified dates and to repay principal on a specified maturity date. Certain securities (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call such securities during periods of falling interest rates. As a result, the Fund may be required to invest the unanticipated proceeds of the called security at lower interest rates, which may cause the Fund's income to decline. In general, the longer the maturity of a fixed income security the higher its yield and the greater its sensitivity to changes in interest rates. Conversely, the shorter the maturity the lower the yield but the greater the price stability. The values of fixed income securities also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, issuers deemed to be less creditworthy generally must offer investors higher interest rates than do issuers with better credit ratings. Commercial paper generally is considered the shortest form of fixed income security. Notes whose original maturities are one year or less are considered short-term obligations. The term "bond" generally refers to securities with maturities longer than two years. Bonds with maturities of three years or less are considered short-term, bonds with maturities between three and seven years are considered intermediate-term, and bonds with maturities greater than seven years are considered long-term. Investment Grade Debt Obligations. Investment grade debt obligations include: (i) U.S. government securities (ii) commercial paper rated in one of the three highest rating categories (e.g., A-2 or higher by S&P); (iii) short-term notes rated in one of the three highest rating categories (e.g., SP-2 or higher by S&P); (iv) bonds rated in one of the four highest rating categories (e.g., rated BBB or higher by S&P); and (v) unrated securities determined by Reams to be of comparable quality. Investment grade securities are generally believed to have relatively low degrees of credit risk. However, certain investment- grade securities may have some speculative characteristics, since their issuers' capacity for repayment may be more vulnerable to adverse economic conditions or changing circumstances than that of higher-rated issuers. Non-investment Grade Debt Obligations. Non- investment grade debt obligations, also referred to as "junk bonds", are those securities that are rated lower than investment grade and unrated securities of comparable quality. Although they generally offer higher yields than investment grade securities with similar maturities, lower-quality securities involve greater risks, including the possibility of default or bankruptcy. In general, they are regarded to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. For a more extensive discussion of debt ratings, see the Company's Statement of Additional Information. Debt Obligations-General. Debt obligations include: (i) corporate debt securities, including bonds, debentures, and notes; (ii) bank obligations, such as certificates of deposit, banker's acceptances and time deposits of domestic and foreign banks, domestic savings associations and their subsidiaries and branches (in amounts in excess of the current $100,000 per account insurance coverage provided by the Federal Deposit Insurance Corporation); (iii) commercial paper (including variable-amount master demand notes); (iv) repurchase agreements; (v) loan interests; (vi) foreign debt obligations issued by foreign issuers traded either in foreign markets or in domestic markets through depositary receipts; (vii) convertible securities - debt obligations convertible into or exchangeable for equity securities or debt obligations that carry with them the right to acquire equity securities, as evidenced by warrants attached to such securities, or acquired as part of units of the securities; (viii) preferred stocks - securities that represent an ownership interest in a corporation and that give the owner a prior claim over common stock on the company's earnings or assets; (ix) U.S. government securities; (x) mortgage-backed securities, collateralized mortgage obligations and similar securities; and (xi) municipal obligations. Short-Term Fixed Income Securities. Short-term fixed income securities must be rated at least A or higher by S&P, Moody's or Fitch or A- or higher by D&P. These securities (each of which has a stated maturity of one year or less from the date of purchase unless otherwise indicated) include: U.S. government securities, including bills, notes and bonds, differing as to maturity and rate of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. governmental agencies or instrumentalities; certificates of deposit issued against funds deposited in a U.S. bank or savings and loan association; bank time deposits, which are monies kept on deposit with U.S. banks or savings and loan associations for a stated period of time at a fixed rate of interest; bankers' acceptances which are short-term credit instruments used to finance commercial transactions; commercial paper and commercial paper master notes (which are demand instruments without a fixed maturity bearing interest at rates which are fixed to known lending rates and automatically adjusted when such lending rates change) rated A-1 or better by S&P, Prime- 1 or better by Moody's, Duff 2 or higher by D&P, or Fitch 2 or higher by Fitch; or repurchase agreements entered into only with respect to obligations of the U.S. government, its agencies or instrumentalities. The Fund may also invest in the short-term investment fund of its custodial bank. U.S. Government Securities. U.S. government securities are issued or guaranteed by the U.S. government or its agencies or instrumentalities. Securities issued or guaranteed by government agencies or instrumentalities include: (i) the Federal Housing Administration, Farmers Home Administration, Export- Import Bank of the United States, Small Business Administration and Government National Mortgage Association ("GNMA"), including GNMA pass-through certificates, whose securities are supported by the full faith and credit of the United States; (ii) the Federal Home Loan Banks, Federal Intermediate Credit Banks and the Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (iii) the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, whose securities are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (iv) the Student Loan Marketing Association, the Interamerican Development Bank and International Bank for Reconstruction and Development, whose securities are supported only by the credit of such agencies. Although the U.S. government provides financial support to these U.S. government-sponsored agencies and instrumentalities, no assurance can be given that it will always do so. The U.S. government and its agencies and instrumentalities do not guarantee the market value of their securities. Consequently, the value of these securities will fluctuate. Corporate Debt Securities. Corporate debt securities include investment grade and non-investment grade corporate bonds, debentures, notes and other similar corporate debt instruments, including convertible securities. Corporate debt securities may be acquired with warrants attached. Income producing corporate debt securities may also include forms of preferred or preference stock. The rate of interest on a corporate debt security may be fixed, floating or variable, and may vary inversely with respect to a reference rate. See "Variable and Floating Rate Securities" below. Variable and Floating Rate Securities. The Fund may invest in variable, floating and inverse floating rate debt instruments. Variable and floating rate securities provide for a periodic adjustment of the interest rate paid on the obligations. These obligations must provide that interest rates are adjusted periodically based on a specified interest rate adjustment index. The adjustment intervals may be regular (ranging from daily to annually) or may be based on certain events (such as a change in the prime rate). The interest rate on a floating rate security is a variable rate which is tied to another interest rate, such as a money-market index or U.S. Treasury bill rate and resets periodically, typically every six months. While floating rate securities provide the Fund with a certain degree of protection against rises in interest rates because of the interest rate reset feature, the Fund will be subject to any decline in interest rates as well. The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality. The Fund will not invest more than 5% of its net assets in any combination of inverse floaters, interest only or principal only securities. See "Mortgage- and Other Asset-Backed Securities" for a discussion of interest only and principal only securities. Mortgage- and Other Asset-Backed Securities. Mortgage-backed securities represent direct or indirect participation in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. Such securities may be issued or guaranteed by U.S. government agencies or instrumentalities or by private issuers, generally originators in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities (collectively, "private lenders"). Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are directly or indirectly guaranteed by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Asset-backed securities have structural characteristics similar to mortgage-backed securities. However, the underlying assets are not first-lien mortgage loans or interests therein. Instead, they include assets such as motor vehicle installment sales contracts, installment loan contracts, home equity loans, leases of various types of property and receivables from credit card issuers or other revolving credit arrangements. Payments or distributions of principal and interest on asset-backed securities may be supported by non-governmental credit enhancements similar to those utilized in connection with mortgage- backed securities. The yield characteristics of mortgage- and asset- backed securities differ from those of traditional debt obligations. Among the principal differences are that interest and principal payments are made more frequently on mortgage- and asset-backed securities, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if the Fund purchases these securities at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing the yield to maturity. Conversely, if the Fund purchases these securities at a discount, a prepayment rate that is faster than expected will increase yield to maturity, while a prepayment rate that is slower than expected will reduce yield to maturity. Accelerated prepayments on securities purchased by the Fund at a premium also impose a risk of loss of principal because the premium may not have been fully amortized at the time the principal is prepaid in full. The market for privately issued mortgage- and asset-backed securities is smaller and less liquid than the market for government sponsored mortgage-backed securities. The Fund may invest in stripped mortgage- or asset- backed securities, which receive differing proportions of the interest and principal payments from the underlying assets. The market value of such securities generally is more sensitive to changes in prepayment and interest rates than is the case with traditional mortgage- and asset-backed securities, and in some cases the market value may be extremely volatile. With respect to certain stripped securities, such as interest only and principal only classes, a rate of prepayment that is faster or slower than anticipated may result in the Fund failing to recover all or a portion of its investment, even though the securities are rated investment grade. Loan Interests. The Fund may invest its assets in loan interests, which are interests in amounts owed by a corporate, governmental or other borrower to lenders or lending syndicates. Loan interests purchased by the Fund may have a maturity of any number of days or years and may be secured or unsecured. Loan interests, which may take the form of interests in, assignments of, or novations of a loan, may be acquired from U.S. and foreign banks, insurance companies, finance companies or other financial institutions that have made loans or are members of a lending syndicate or from the holders of loan interests. Loan interests involve the risk of loss in the case of default or bankruptcy of the borrower and, in the case of participation interests, involve a risk of insolvency of the agent lending bank or other financial intermediary. Loan interests are not rated by any nationally recognized statistical rating organization, and are, at present, not readily marketable and may be subject to contractual restrictions on resale. Zero-Coupon, Step-Coupon and Pay-In-Kind Securities. The Fund may invest in zero-coupon, step- coupon and pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon and step-coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, their price can be volatile when interest rates fluctuate. Federal income tax law requires the holders of zero-coupon, step-coupon and pay-in-kind securities to include in income each year the portion of the original issue discount (or deemed discount) and other non-cash income on such securities accrued during that year. In order to qualify for treatment as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code") and avoid a certain excise tax, the Fund may be required to distribute a portion of such discount and income and may be required to dispose of other portfolio securities (which may occur in periods of adverse market prices) in order to generate cash to meet these distribution requirements. Reverse Repurchase Agreements and Mortgage Dollar Rolls The Total Return Bond Fund may engage in reverse repurchase agreements to facilitate portfolio liquidity (a practice common in the mutual fund industry) or for arbitrage transactions. In a reverse repurchase agreement, the Fund would sell a security and enter into an agreement to repurchase the security at specified future date and price. The Fund generally retains the right to interest and principal payments on the security. Since the Fund receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. When required by SEC guidelines, the Fund will set aside permissible liquid assets in a segregated account to secure its obligation to repurchase the security. The Total Return Bond Fund also may enter into mortgage dollar rolls, in which the Fund would sell mortgage-backed securities for delivery in the current month and simultaneously contract to purchase substantially similar securities on a specified future date. While the Fund would forego principal and interest paid on the mortgage-backed securities during the roll period, it would be compensated by the difference between the current sale price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The Fund also could be compensated through the receipt of fee income equivalent to a lower forward price. When required by SEC guidelines, the Fund will set aside permissible liquid assets in a segregated account to secure its obligation for the forward commitment to buy mortgage-backed securities. Mortgage dollar roll transactions may be considered a borrowing by the Fund. The mortgage dollar rolls and reverse repurchase agreements entered into by the Fund may be used as arbitrage transactions in which the Fund will maintain an offsetting position in investment grade debt obligations or repurchase agreements that mature on or before the settlement date of the related mortgage dollar roll or reverse repurchase agreement. Since the Fund will receive interest on the securities or repurchase agreements in which it invests the transaction proceeds, the transactions may involve leverage. When-Issued Securities The Fund may invest without limitation in securities purchased on a when-issued or delayed delivery basis ("When-Issued Securities"). Although the payment and terms of these securities are established at the time the purchaser enters into the commitment, these securities may be delivered and paid for at a future date, generally within 45 days. Purchasing When-Issued Securities allows the Fund to lock in a fixed price on a security it intends to purchase. The Fund will segregate and maintain cash, cash equivalents, U.S. government securities, or other liquid securities in an amount at least equal to the amount of outstanding commitments for When-Issued Securities at all times. Such securities involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Illiquid Securities The Total Return Bond Fund may invest up to 15% of the value of its net assets in illiquid securities. Illiquid securities include: restricted securities (securities the disposition of which is restricted under the federal securities laws); securities which may only be resold pursuant to Rule 144A under the Securities Act of 1933; and repurchase agreements with maturities in excess of seven days. Risks associated with restricted securities include the potential obligation to pay all or part of the registration expenses in order to sell restricted securities. A considerable period of time may elapse between the time of the decision to sell a restricted security and the time the Fund may be permitted to sell under an effective registration statement or otherwise. If, during such a period, adverse conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. The Board of Directors of the Company, or its delegate, has the ultimate authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid. Rule 144A securities will be treated as illiquid securities, subject to the liquidity guidelines. The Board of Directors has adopted guidelines and delegated this determination to Frontegra. Repurchase Agreements The Fund may enter into repurchase agreements with certain banks and non-bank dealers. In a repurchase agreement, a Fund buys a security at one price and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. The Fund may enter into repurchase agreements with respect to any security in which it may invest. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. Under certain circumstances, the Fund may deem repurchase agreements collateralized by U.S. government securities to be investments in U.S. government securities. Foreign Securities and Currencies The Fund may invest directly or indirectly in foreign securities. Investments in securities of foreign issuers involve risks which are in addition to the usual risks inherent in domestic investment. In many countries there is less publicly available information about issuers than is available in the reports and ratings published about companies in the U.S. Additionally, foreign companies are not subject to the same uniform accounting, auditing and financial reporting standards as companies in the U.S. Other risks inherent in foreign investment include: expropriation; confiscatory taxation; capital gains taxes; withholding taxes on dividends and interest; less extensive regulation of foreign brokers, securities markets and issuers; costs incurred in conversions between currencies; the possibility of delays in settlement in foreign securities markets; limitations on the use or transfer of assets (including suspension of the ability to transfer currency from a given country); the difficulty of enforcing obligations in other countries; diplomatic developments; and political or social instability. Foreign economies may differ favorably or unfavorably from the U.S. economy in various respects, and many foreign securities are less liquid and their prices are more volatile than comparable U.S. securities. From time to time, foreign securities may be difficult to liquidate rapidly without adverse price effects. Certain costs attributable to foreign investing, such as custody charges and brokerage costs, are higher than those attributable to domestic investing. Because most foreign securities are denominated in non-U.S. currencies, the investment performance of the Fund could be affected by changes in foreign currency exchange rates to some extent. The value of the Fund's assets denominated in foreign currencies will increase or decrease in response to fluctuations in the value of those foreign currencies relative to the U.S. dollar. Currency exchange rates can be volatile at times in response to various political and economic conditions. In addition, the Fund may purchase and sell foreign currency on a spot basis and may engage in forward currency contracts, currency options and futures transactions for hedging or any other lawful purpose. (See "Derivative Instruments.") Derivative Instruments The Fund may engage in options, futures and options on futures transactions which are sometimes referred to as derivative transactions. Derivative transactions may also include short sales against the box, in which the Fund sells a security it owns for delivery at a future date; swaps, in which two parties agree to exchange a series of cash flows in the future, such as interest-rate payments; interest-rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; and interest- rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor". Derivative transactions may also include forward currency contracts and foreign currency exchange-related securities. Derivative instruments may be used by the Fund for any lawful purpose consistent with the Fund's investment objective, including hedging or managing risk but not for speculation. Derivative instruments are securities or agreements whose value is derived from the value of some underlying asset, for example, securities, currencies, reference indexes, or commodities. Derivatives generally have investment characteristics that are based upon either forward contracts or option contracts. The change in value of a forward-based derivative generally is proportional to the change in value of the underlying asset while the change in value of an option-based derivative generally is related to favorable movements in the price of the underlying asset, without the corresponding exposure to adverse movements in the value of the underlying asset. The seller of an option-based derivative generally will receive fees or premiums but is exposed to losses due to changes in the value of the underlying asset. When required by guidelines of the SEC, the Fund will set aside permissible liquid assets in a segregated account to secure its potential obligations under its derivative positions. Such liquid assets may include cash, U.S. government securities and high grade liquid debt securities. The ability of the Fund to use derivatives effectively is largely dependent upon Reams' ability to use such instruments correctly which may involve different skills than are associated with securities generally. For a further discussion of derivative transactions, please see the Statement of Additional Information. Portfolio Turnover Under normal market conditions, the Fund anticipates that its portfolio turnover rate will generally not exceed 125% and is expected to be between 75% and 125%. A portfolio turnover rate of 100% would occur, for example, if all of the securities held by the Fund were replaced within one year. In the event the Fund has a portfolio turnover rate of 100% or more in any year, it would result in the payment by the Fund of increased brokerage costs and could result in the payment by shareholders of increased taxes on realized investment gains. OPPORTUNITY FUND Small Companies The Opportunity Fund may invest a substantial portion of its assets in small companies. While smaller companies generally have the potential for rapid growth, investments in smaller companies often involve greater risks than investments in larger, more established companies because smaller companies may lack the management experience, financial resources, product diversification and competitive strengths of larger companies. In addition, in many instances the securities of smaller companies are traded only over- the-counter or on a regional securities exchange, and the frequency and volume of their trading is substantially less than is typical of larger companies. Therefore, the securities of smaller companies may be subject to greater and more abrupt price fluctuations. When making large sales, the Opportunity Fund may have to sell portfolio holdings at discounts from quoted prices or may have to make a series of small sales over an extended period of time due to the trading volume of smaller company securities. An investment in the Opportunity Fund may be subject to greater price fluctuations than an investment in a fund that invests primarily in larger companies. Short-Term Fixed Income Securities The Fund may invest in short-term fixed income securities. Short-term fixed income securities must be rated at least A or higher by S&P, Moody's or Fitch or A- or higher by D&P. These securities (each of which has a stated maturity of one year or less from the date of purchase unless otherwise indicated) include: U.S. government securities, including bills, notes and bonds, differing as to maturity and rate of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. governmental agencies or instrumentalities; certificates of deposit issued against funds deposited in a U.S. bank or savings and loan association; bank time deposits, which are monies kept on deposit with U.S. banks or savings and loan associations for a stated period of time at a fixed rate of interest; bankers' acceptances which are short- term credit instruments used to finance commercial transactions; commercial paper and commercial paper master notes (which are demand instruments without a fixed maturity bearing interest at rates which are fixed to known lending rates and automatically adjusted when such lending rates change) rated A-1 or better by S&P, Prime-1 or better by Moody's, Duff 2 or higher by D&P, or Fitch 2 or higher by Fitch; or repurchase agreements entered into only with respect to obligations of the U.S. government, its agencies or instrumentalities. The Fund may also invest in the short-term investment fund of its custodial bank. Illiquid Securities The Opportunity Fund may invest up to 5% of the value of its net assets in illiquid securities. Illiquid securities include restricted securities (securities the disposition of which is restricted under the federal securities laws); and repurchase agreements with maturities in excess of seven days. Risk associated with restricted securities include the potential obligation to pay all or part of the registration expenses in order to sell restricted securities. A considerable period of time may elapse between the time of the decision to sell a restricted security and the time the Fund may be permitted to sell under an effective registration statement or otherwise. If, during such a period, adverse conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. The Board of Directors of the Company, or its delegate, has the ultimate authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid. Rule 144A securities will be treated as illiquid, subject to the liquidity guidelines. The Board of Directors has adopted guidelines and delegated this determination to Frontegra. Repurchase Agreements The Fund may enter into repurchase agreements with certain banks and non-bank dealers. In a repurchase agreement, a Fund buys a security at one price and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. The Fund may enter into repurchase agreements with respect to any security in which it may invest. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. Under certain circumstances, the Fund may deem repurchase agreements collateralized by U.S. government securities to be investments in U.S. government securities. Foreign Securities and Currencies The Fund may invest directly or indirectly in foreign securities or indirectly through depositary receipts. Depositary receipts are typically issued by banks or trust companies evidencing ownership of the underlying foreign security. Investments in securities of foreign issuers involve risks which are in addition to the usual risks inherent in domestic investment. In many countries there is less publicly available information about issuers than is available in the reports and ratings published about companies in the U.S. Additionally, foreign companies are not subject to the same uniform accounting, auditing and financial reporting standards as companies in the U.S. Other risks inherent in foreign investment include: expropriation; confiscatory taxation; capital gains taxes; withholding taxes on dividends and interest; less extensive regulation of foreign brokers, securities markets and issuers; costs incurred in conversions between currencies; the possibility of delays in settlement in foreign securities markets; limitations on the use or transfer of assets (including suspension of the ability to transfer currency from a given country); the difficulty of enforcing obligations in other countries; diplomatic developments; and political or social instability. Foreign economies may differ favorably or unfavorably from the U.S. economy in various respects, and many foreign securities are less liquid and their prices are more volatile than comparable U.S. securities. From time to time, foreign securities may be difficult to liquidate rapidly without adverse price effects. Certain costs attributable to foreign investing, such as custody charges and brokerage costs, are higher than those attributable to domestic investing. Because most foreign securities are denominated in non-U.S. currencies, the investment performance of the Fund could be affected by changes in foreign currency exchange rates to some extent. The value of the Fund's assets denominated in foreign currencies will increase or decrease in response to fluctuations in the value of those foreign currencies relative to the U.S. dollar. Currency exchange rates can be volatile at times in response to various political and economic conditions. Derivative Instruments The Fund may engage in options, futures and options on futures transactions which are sometimes referred to as derivative transactions. Derivative transactions may also include forward currency contracts and foreign currency exchange-related securities. Derivative instruments may be used by the Fund for any lawful purpose consistent with the Fund's investment objective, including hedging or managing risk but not for speculation. Derivative instruments are securities or agreements whose value is derived from the value of some underlying asset, for example, securities, currencies, reference indexes, or commodities. Derivatives generally have investment characteristics that are based upon either forward contracts or option contracts. The change in value of a forward-based derivative generally is proportional to the change in value of the underlying asset, while the change in value of an option-based derivative generally is related to favorable movements in the price of the underlying asset, without the corresponding exposure to adverse movements in the value of the underlying asset. The seller of an option-based derivative generally will receive fees or premiums but is exposed to losses due to changes in the value of the underlying asset. When required by guidelines of the SEC, the Fund will set aside permissible liquid assets in a segregated account to secure its potential obligations under its derivative positions. Such liquid assets may include cash, U.S. government securities and high grade liquid debt securities. The ability of the Fund to use derivatives effectively is largely dependent upon Reams' ability to use such instruments correctly which may involve different skills than are associated with securities generally. For a further discussion of derivative transactions, please see the Statement of Additional Information. Portfolio Turnover Under normal market conditions, the Fund anticipates that its portfolio turnover rate will generally not exceed 125% and is expected to be between 75% and 125%. A portfolio turnover rate of 100% would occur, for example, if all of the securities held by the Fund were replaced within one year. In the event the Fund has a portfolio turnover rate of 100% or more in any year, it would result in the payment by the Fund of increased brokerage costs and could result in the payment by shareholders of increased taxes on realized investment gains. MANAGEMENT Under the laws of the State of Maryland, the Board of Directors of the Company (the "Board of Directors") is responsible for managing the Company's business and affairs. The Board of Directors also oversees duties required by applicable state and federal law. The Company has entered into an investment advisory agreement with Frontegra Asset Management, Inc. dated __________, 1996 (the "Investment Advisory Agreement") pursuant to which Frontegra supervises the management of each Fund's investments and business affairs, subject to the supervision of the Company's Board of Directors. Frontegra has entered into an agreement with Reams Asset Management Company, LLC under which Reams serves as each Fund's portfolio manager and, subject to Frontegra's supervision, manages the Funds' portfolio assets. Frontegra provides office facilities for the Funds and pays the salaries, fees, and expenses of all officers and directors of the Funds who are interested persons of Frontegra. Frontegra was organized in 1996 and is located at 400 Skokie Blvd., Suite 500, Northbrook, Illinois 60062. Mr. William D. Forsyth III and Mr. Thomas J. Holmberg, Jr. each own 50% of Frontegra. Under the Investment Advisory Agreement, the Opportunity Fund compensates Frontegra for its management services at the annual rate of 0.65% of the Opportunity Fund's average daily net assets; and the Total Return Bond Fund compensates Frontegra at the annual rate of 0.40% of that Fund's average daily net assets. Frontegra has voluntarily agreed to waive its management fee and/or reimburse each Fund's operating expenses to the extent necessary to ensure that the Opportunity Fund's Total Operating Expenses for the first twelve months do not exceed 0.90% of the Fund's average daily net assets and the Total Return Bond Fund's Total Operating Expenses for the first twelve months do not exceed 0.50% of the Fund's average daily net assets. Any such waiver or reimbursement will have the effect of lowering the overall expense ratio for a Fund and increasing the Fund's overall return to investors at the time any such amounts are waived and/or reimbursed. Reams operated as a corporation (Reams Asset Management Company, Inc.) from its founding in 1981 until March 31, 1994, when it became an Indiana limited liability company (LLC), with no change in principals, employees or clients. Reams is located at 227 Washington Street, Columbus, Indiana 47201. Under the subadvisory agreement, and with certain exceptions described herein, Reams is compensated by Frontegra for its investment advisory services at the annual rate of 0.45% of the Opportunity Fund's average daily net assets; and 0.20% of the Total Return Bond Fund's average daily net assets. In recognition of the economies of scale that will be gained by the Funds and Frontegra, and with the exception of defined contribution or 401(k) investments in the Funds, for initial investments of over $15 million Frontegra will compensate Reams an extra 0.10% on the average daily net assets of such investments. Reams provides continuous advice and recommendations concerning each Fund's investments and is responsible for selecting the broker/dealers who execute the portfolio transactions. In executing such transactions, Reams seeks to obtain the best net results for the Funds. While Reams has not previously provided investment advice to a mutual fund, Reams serves as investment adviser to pension and profit-sharing plans, and other institutional investors. As of October 1, 1996, Reams had approximately $2.5 billion under management. Mr. Fred W. Reams owns units representing a majority of the voting rights of Reams. The day-to-day management responsibilities for the Funds' portfolios are primarily handled by Reams' portfolio management teams. The portfolio management teams are managed primarily by Mr. Reams, Mr. Robert A. Crider, Mr. David R. Milroy and Mr. Mark M. Egan. Mr. Reams, as chief investment officer, is involved in all aspects of the firm's investment activities on a strategic level. The firm's global economic forecast is a collaborative effort by Mr. Reams, Mr. Crider, the firm's senior fixed income portfolio manager, Mr. Milroy, the firm's senior equity portfolio manager and Mr. Egan, the firm's fixed- income portfolio manager. The prior five year business experience history for these individuals is as follows: Mr. Reams has been President of Reams from April, 1994 until the present and was President of Reams Asset Management Company, Inc. until March, 1994; Mr. Crider has been Senior Vice President, Fixed Income Management, of Reams since April, 1994 until the present and was Senior Vice President, Fixed Income Management, of Reams Asset Management, Inc. until March, 1994; Mr. Milroy has been Senior Vice President, Equity management, of Reams since April, 1994, was Vice President and Senior Vice President, Equity Management, of Reams Asset Management Company, Inc. from June, 1990 until March, 1994, and was Portfolio Manager of Loomis, Sayles & Co. until May, 1990; and Mr. Egan has been Vice President, Portfolio Manager of Reams since April, 1994, was Vice President, Portfolio Manager, of Reams Asset Management Company, Inc. from June, 1990 until March, 1994, and was Portfolio Manager of National Investment Services, until May, 1990. The global economic forecast is incorporated into the construction of scenarios firm-wide. With respect to the Opportunity Fund, the portfolio management team approves scenarios established for individual securities submitted by each analyst, and makes the final buy and sell decisions. With respect to the Total Return Bond Fund, the fixed income portfolio managers implement decisions on a team basis with respect to the Fund's portfolio structure and issue selection. Portfolio strategy is reviewed weekly by the fixed income committee. HOW TO PURCHASE SHARES Shares of the Funds are sold on a continuous basis at the next offering price after receipt of the order by the Fund. This price is the net asset value of the Fund and is determined as of the close of trading (currently 4:00 p.m., Eastern Standard Time) on each day the New York Stock Exchange is open. See "DETERMINATION OF NET ASSET VALUE." The price at which your purchase will be effected is based on the Fund's net asset value next determined after the Fund receives your request in proper form. A confirmation indicating the details of the transaction will be sent to you promptly. Shares are credited to your account, but certificates are not issued. However, you will have full shareholder rights. The minimum initial investment required by each Fund is $100,000. Subsequent investments may be made by mail or wire with a minimum subsequent investment of $1,000. Each Fund reserves the right to change or waive these minimums at any time. Shareholders will be given at least 30 days' notice of any increase in the minimum dollar amount of purchases. If you purchase shares of either Fund by check and request the redemption of such shares within 15 days of the initial purchase, the Fund will not forward the portion of your redemption proceeds which has not been collected by the Fund. This is a security precaution only and does not affect your investment. Initial Investment - Minimum $100,000 You may purchase shares of the Funds by completing an application and mailing it along with a check or money order payable to "Frontegra Funds" to: Frontegra Funds, Inc., c/o Sunstone Financial Group, Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142. For overnight deliveries, please use 207 E. Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202. Purchases must be made in U.S. dollars and all checks must be drawn on a U.S. bank. If your check does not clear, you will be charged a $20 service fee. You will also be responsible for any losses suffered by a Fund as a result. All applications to purchase shares of the Funds are subject to acceptance by the Company and are not binding until so accepted. The Company reserves the right to decline to accept a purchase order application in whole or in part. In addition, you may purchase shares of the Funds by wire. To establish a new account by wire transfer, please call the Transfer Agent at 1-888-825-2100. The Transfer Agent will assign an account number to you at that time. Funds should be wired through the Federal Reserve System as follows: United Missouri Bank ABA Number 101000 695 For credit to Frontegra Funds, Inc. Account Number 9870610221 For further credit to Frontegra Funds, Inc. (investor account number) (name or account registration) (social security or tax identification number) (identify which Fund to purchase) The Funds are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire system. Subsequent Investments - Minimum $1,000 Additions to your account in amounts of $1,000 or more may be made by mail or by wire. When making an additional purchase by mail, enclose a check payable to "Frontegra Funds" along with the Additional Investment Form provided on the lower portion of your account statement. To make an additional purchase by wire, please follow the instructions listed above. HOW TO REDEEM SHARES You may request redemption of part or all of your Fund shares at any time. The price you receive will be the net asset value next determined after the Fund receives your request in proper form. Once your redemption request is received in proper form, the Fund normally will mail or wire your redemption proceeds the next business day and, in any event, no later than seven days after receipt of a redemption request. However, the Fund may hold payment of that portion of an investment which was made by check which has not been collected. Written Redemption To request redemption of Fund shares, you must furnish a written, unconditional request to: Frontegra Funds, Inc., c/o Sunstone Financial Group, Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142. For written redemption requests sent via overnight delivery, please use 207 E. Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202. The request must (i) be signed exactly as the shares are registered, including the signature of each owner and (ii) specify the number of Fund shares or dollar amount to be redeemed. Additional documentation may be requested from corporations, executors, administrators, trustees, guar dians, agents or attorneys-in-fact. Redemption proceeds may be wired to a commercial bank authorized on your account application. However, you will be charged a $9 service fee for such redemptions. Signature Guarantees Signature guarantees are required for: (i) redemption requests to be mailed or wired to a person other than the registered owner(s) of the shares and (ii) redemption requests to be mailed or wired to other than the address of record. A signature guarantee may be obtained from any eligible guarantor institution, as defined by the SEC. These institutions include banks, savings associations, credit unions, brokerage firms and others. Your account may be terminated by a Fund on not less than 30 days' notice if, at the time of any redemption of shares in your account, the value of the remaining shares in the account falls below $10,000. Upon any such termination, a check for the redemption proceeds will be sent to the account of record within seven days of the redemption. EXCHANGE PRIVILEGE You may exchange your shares in a Fund for shares in any other Fund of the Company at any time by written request. The value of the shares to be exchanged and the price of the shares being purchased will be the net asset value next determined after receipt of instructions for exchange. An exchange from one Fund to another is treated the same as an ordinary sale and purchase for federal income tax purposes and you will realize a capital gain or loss. This is not a tax-free exchange. Exchange requests should be directed to: Frontegra Funds, Inc., c/o Sunstone Financial Group, Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142. For written exchange requests sent via overnight delivery, please use 207 E. Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202. Exchange requests may be subject to limitations, including those relating to frequency, that may be established from time to time to ensure that the exchanges do not disadvantage the Funds or their investors. The Company reserves the right to modify or terminate the exchange privilege upon 60 days' written notice to each shareholder prior to the modification or termination taking effect. TAX-SHELTERED RETIREMENT PLANS The Company offers through its Custodian, United Missouri Bank, n.a., certain qualified retirement plans for adoption by individuals and employers. Participants in these plans can accumulate shares of a Fund on a tax-deferred basis. Contributions to these plans are tax-deductible as provided by law and earnings are tax-deferred until distributed. Individual Retirement Account Individuals who receive compensation or earned income, even if they are active participants in a qualified retirement plan (or certain similar retirement plans), may establish their own tax- sheltered Individual Retirement Account ("IRA"). The Company offers a prototype IRA plan which may be adopted by individuals to establish a new IRA or to roll-over funds from an existing IRA. There may be a charge for establishing an IRA account and there is also an annual maintenance fee. Earnings on amounts held in an IRA are not taxed until withdrawn. However, the amount of deduction, if any, allowed for IRA contributions is limited for an individual who is, or whose spouse is, an active participant in an employer-sponsored retirement plan and whose income exceeds specific limits. Simplified Employee Pension Plan The Company also offers a simplified employee pension ("SEP") plan for employers, including self- employed individuals, who wish to purchase Fund shares with tax-deductible contributions. Under the SEP plan, employer contributions are made directly to the IRA accounts of eligible participants. A complete description of the above plans and other plans, including 401(k) plans, as well as a description of the applicable service fees may be obtained by calling, toll-free, 1-888-825-2100 or writing to Frontegra Funds, Inc. at 400 Skokie Blvd., Suite 500, Northbrook, Illinois 60062. Please note that early withdrawals from a retirement plan may result in adverse tax consequences. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX TREATMENT Each Fund intends to operate as a "Regulated Investment Company" under Subchapter M of the Internal Revenue Code, and therefore will not be liable for federal income taxes to the extent earnings are distributed on a timely basis. For federal income tax purposes, all dividends paid by the Funds and net realized short-term capital gains are taxable as ordinary income whether reinvested or received in cash unless you are exempt from taxation or entitled to a tax deferral. Distributions paid by a Fund from net realized long-term capital gains, whether received in cash or reinvested in additional shares, are taxable as a capital gain unless you are exempt from taxation or entitled to a tax deferral. The capital gain holding period is determined by the length of time the Fund has held the security and not the length of time you have held shares in the Fund. Investors are informed annually as to the amount and nature of all dividends and capital gains paid during the prior year. Such capital gains and dividends may also be subject to state or local taxes. If you are not required to pay taxes on your income, you are generally not required to pay federal income taxes on the amounts distributed to you. Dividends are usually distributed annually by the Opportunity Fund and quarterly by the Total Return Bond Fund. Capital gains are usually distributed annually in December. When a dividend or capital gain is distributed, a Fund's net asset value decreases by the amount of the payment. If you purchase shares shortly before a distribution, you will, nonetheless, be subject to income taxes on the distribution, even though the value of your investment (plus cash received, if any) remains the same. All dividends or capital gain distributions will automatically be reinvested in shares of the Funds at the then prevailing net asset value unless an investor specifically requests that either dividends or capital gains or both be paid in cash. The election to receive dividends or reinvest them may be changed by writing to: Frontegra Funds, Inc., c/o Sunstone Financial Group, Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201- 2142. For overnight deliveries, please use 207 E. Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202. Such notice must be received at least five days prior to the record date of any dividend or capital gain distribution. If you do not furnish a Fund with your correct social security number or employer identification number, the Fund is required by federal law to withhold federal income tax from your distributions and redemption proceeds at a rate of 31%. This section is not intended to be a full discussion of federal income tax laws and the effect of such laws on you. There may be other federal, state, or local tax considerations applicable to a particular investor. You are urged to consult your own tax advisor. FUND EXPENSES Each Fund is responsible for its own expenses, including, without limitation: interest charges; taxes; brokerage commissions; organizational expenses; expenses of registering or qualifying shares for sale with the states and the SEC; expenses of issue, sale, repurchase or redemption of shares; expenses of printing and distributing prospectuses and annual and semi-annual reports to existing shareholders; charges of custodians; expenses for accounting, administrative, audit, and legal services; fees for directors who are not interested persons of Frontegra; expenses of fidelity bond coverage and other insurance; expenses of indemnification; extraordinary expenses; and costs of shareholder and director meetings. DETERMINATION OF NET ASSET VALUE Each Fund's net asset value per share is determined as of the close of trading (currently 4:00 p.m., Eastern Standard Time) on each day the New York Stock Exchange is open for business. A Fund's net asset value may not be calculated on days during which a Fund receives no orders to purchase shares and no shares are tendered for redemption. Net asset value is calculated by taking the fair value of the Fund's total assets, including interest or dividends accrued, but not yet collected, less all liabilities, and dividing by the total number of shares outstanding. The result, rounded to the nearest cent, is the net asset value per share. In determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. Common stocks and other equity- type securities are valued at the last trade price on the national securities exchange or Nasdaq on which such securities are primarily traded; however, securities traded on a national securities exchange or Nasdaq for which there were no transactions on a given day or securities not listed on a national securities exchange or Nasdaq are valued at the most recent bid prices. Debt securities are valued by a pricing service that utilizes electronic data processing techniques to determine values for normal institutional- sized trading units of debt securities without regard to the existence of sale or bid prices when such values are believed by Reams to reflect more accurately the fair market value of such securities; otherwise, actual sale or bid prices are used. Debt securities having remaining maturities of 60 days or less when purchased are valued by the amortized cost method when the Board of Directors determines that the fair market value of such securities is their amortized cost. Under this method of valuation, a security is initially valued at its acquisition cost, and thereafter, amortization of any discount or premium is assumed each day, regardless of the impact of fluctuating interest rates on the market value of the security. Any securities for which market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Directors or its delegate. SHAREHOLDER REPORTS You will be provided at least semi-annually with a report showing the Fund's holdings and annually after the close of the Company's fiscal year, which ends October 31, with an annual report containing audited financial statements. An individual account statement will be sent to you by the Transfer Agent after each purchase or redemption of Fund shares as well as on a monthly basis. You will also receive an annual statement after the end of the calendar year listing all transactions during such year. If you have questions about your account(s), you should call the Funds' Transfer Agent at 1-847-509- 9860. Investors who have general questions about the Funds or the Company or desire additional information should write to Frontegra Funds, Inc., 400 Skokie Blvd, Suite 500, Northbrook, Illinois 60062. ORGANIZATION The Company was organized as a Maryland corporation on May 24, 1996. The Company is authorized to issue 300,000,000, $.01 par value shares, in addition to the 100,000,000, $.01 par value shares of the Total Return Bond Fund and the 100,000,000, $.01 par value shares of the Opportunity Fund. The assets belonging to each Fund will be held separately by the Custodian, and if the Company issues additional series, each additional series will be held separately. In effect, each series will be a separate fund. Each share, irrespective of series, is entitled to one vote on all questions, except that certain matters must be voted on separately by the series of shares affected, and matters affecting only one series are voted upon only by that series. Shares have non- cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Directors can elect all of the Directors if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any person or persons to the Board of Directors. The Company will not hold annual shareholders meetings except when required by the Investment Company Act of 1940. The Company has adopted procedures in its Bylaws for the removal of Directors by the shareholders as well as by the Board of Directors. As of September 30, 1996, Frontegra and Reams each owned a controlling interest in the Company. ADMINISTRATOR AND FUND ACCOUNTANT Pursuant to an Administration and Fund Accounting Agreement, Sunstone Financial Group, Inc. (the "Administrator"), 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202, calculates the daily net asset value of each Fund and provides administrative services (which include clerical, compliance and regulatory services such as filing all federal income and excise tax returns and state income tax returns, assisting with regulatory filings, preparing financial statements and monitoring expense accruals). For the foregoing, the Administrator receives from the Funds a fee, computed daily and payable monthly based on each Fund's average net assets at the annual rate of 17.5 basis points on the first $50,000,000 of average net assets and 4.0 basis points of average net assets in excess of $50,000,000, subject to an annual minimum of $60,000 per Fund, plus out of pocket expenses. CUSTODIAN AND TRANSFER AGENT United Missouri Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141 acts as Custodian of each Fund's assets. Sunstone Investor Services, LLC, 207 E. Buffalo Street, Suite 315, P.O. Box 2142, Milwaukee, Wisconsin 53201-2142 acts as Dividend-Disbursing and Transfer Agent for the Funds. COMPARISON OF INVESTMENT RESULTS Each Fund may from time to time compare its investment results to various passive indices or other mutual funds and cite such comparisons in reports to shareholders, sales literature, and advertisements. The results may be calculated on the basis of average annual total return, total return or cumulative total return. All total return figures assume the reinvestment of all dividends and measure the net investment income generated by, and the effect of, any realized and unrealized appreciation or depreciation of the underlying investments in each Fund over a specified period of time. Average annual total return figures are annualized and therefore represent the average annual percentage change over the specified period. Total return figures are not annualized and represent the aggregate percentage or dollar value change over the period. Cumulative total return simply reflects a Fund's performance over a stated period of time. Quotations of yield for the Total Return Bond Fund will be based on the net investment income per share (as defined by the SEC) during a particular 30-day (or one month) period (including dividends and interest), less expenses accrued during the period, and will be computed by dividing net investment income by the public offering price per share on the last day of the period. Average annual total return, total return, cumulative total return, and yield are based upon the historical results of the respective Fund and are not necessarily representative of the future performance of the Fund. Additional information concerning the performance of each Fund appears in the Statement of Additional Information. The Company reserves the right to change any of the policies, practices and procedures described in this Prospectus with respect to either Fund, including the Statement of Additional Information, without shareholder approval except in those instances where shareholder approval is expressly required. DIRECTORS William D. Forsyth III Thomas J. Holmberg, Jr. David L. Heald OFFICERS William D. Forsyth III Thomas J. Holmberg, Jr. INVESTMENT ADVISER Frontegra Asset Management, Inc. 400 Skokie Blvd. Suite 500 Northbrook, IL 60062 SUB-ADVISER Reams Asset Management Company, LLC 227 Washington Street Columbus, IN 47201 CUSTODIAN United Missouri Bank, n.a. 928 Grand Avenue Kansas City, Missouri 64141 DIVIDEND-DISBURSING AND TRANSFER AGENT Sunstone Investor Services, LLC 207 East Buffalo Street, Suite 315 P.O. Box 2142 Milwaukee, WI 53201-2142 ADMINISTRATOR AND FUND ACCOUNTANT Sunstone Financial Group, Inc. 207 East Buffalo Street, Suite 400 Milwaukee, WI 53202 AUDITORS Ernst & Young, LLP Sears Tower 233 South Wacker Drive Chicago, IL 60606-6301 LEGAL COUNSEL Godfrey & Kahn, S.C. 780 North Water Street Milwaukee, WI 53202 STATEMENT OF ADDITIONAL INFORMATION FRONTEGRA FUNDS, INC. Frontegra Total Return Bond Fund Frontegra Opportunity Fund 400 Skokie Blvd. Suite 500 Northbrook, Illinois 60062 1-888-825-2100 This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus of Frontegra Funds, Inc. (the "Company"), dated __________, 1996. Requests for copies of the Prospectus should be made by writing to the Company at the address listed above; or by calling 1-888-825-2100. This Statement of Additional Information is dated ________, 1996. TABLE OF CONTENTS Page No. INVESTMENT RESTRICTIONS 1 INVESTMENT POLICIES AND TECHNIQUES 3 Illiquid Securities 3 Short-Term Fixed Income Securities 4 Short Sales Against the Box 5 Warrants 5 Variable- or Floating-Rate Securities 6 When-Issued Securities 7 Unseasoned Companies 7 Non-Investment Grade Debt Securities (Junk Bonds) 7 Hedging Strategies 9 Foreign Investment Companies 17 Depositary Receipts 17 Lending of Portfolio Securities 18 Mortgage-and Asset-Backed Securities 18 Mortgage Dollar Rolls and Reverse Repurchase Agreements 19 Repurchase Agreements 20 DIRECTORS AND OFFICERS 20 PRINCIPAL SHAREHOLDERS 22 INVESTMENT ADVISER 22 FUND TRANSACTIONS AND BROKERAGE 23 CUSTODIAN 24 AGENT AND DIVIDEND-DISBURSING AGENT 25 TAXES 25 DETERMINATION OF NET ASSET VALUE 25 SHAREHOLDER MEETINGS 25 PERFORMANCE INFORMATION 26 Total Return 26 Yield 27 Volatility 27 Comparisons 28 INDEPENDENT AUDITORS 28 FINANCIAL STATEMENTS 29 APPENDIX - BOND RATINGS A-1 No person has been authorized to give any information or to make any representations other than those contained in this Statement of Additional Information and the Prospectus dated ________, 1996, and if given or made, such information or representations may not be relied upon as having been authorized by the Company. This Statement of Additional Information does not constitute an offer to sell securities in any state to any person to whom it is unlawful to make such offer in such state. INVESTMENT RESTRICTIONS The investment objective of the Frontegra Total Return Bond Fund (the "Total Return Bond Fund") is a high level of total return, consistent with the preservation of capital. The investment objective of the Frontegra Opportunity Fund (the "Opportunity Fund") is capital appreciation. The investment objective and policies of each Fund are described in detail in the Prospectus under the captions "Total Return Bond Fund" and "Opportunity Fund". The following is a complete list of each Fund's fundamental investment limitations which cannot be changed without shareholder approval. Each Fund: 1.May not with respect to 75% of its total assets, purchase the securities of any issuer (except securities issued or guaranteed by the U.S. government or its agencies or instrumentalities) if, as a result, (i) more than 5% of the Fund's total assets would be invested in the securities of that issuer or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. 2.May (i) borrow money from banks and (ii) make other investments or engage in other transactions permissible under the Investment Company Act of 1940 (the "1940 Act") which may involve a borrowing, provided that the combination of (i) and (ii) shall not exceed 33- 1/3% of the value of the Fund's total assets (including the amount borrowed), less the Fund's liabilities (other than borrowings). The Fund may also borrow money from other Frontegra Funds or other persons to the extent permitted by applicable law. 3.May not issue senior securities, except as permitted under the 1940 Act. 4.May not act as an underwriter of another issuer's securities, except to the extent the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of portfolio securities. 5.May not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this limitation shall not prevent the Fund from purchasing or selling options, futures contracts, or other derivative instruments, or from investing in securities or other instruments backed by physical commodities). 6.May not make loans if, as a result, more than 33-1/3% of the Fund's total assets would be lent to other persons, except through (i) purchases of debt securities or other debt instruments or (ii) engaging in repurchase agreements. 7.May not purchase the securities of any issuer if, as a result, more than 25% of the Fund's total assets would be invested in the securities of issuers, the principal business activities of which are in the same industry. 8.May not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this limitation shall not prohibit the Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities). 9.May, notwithstanding any other fundamental investment policy or restriction, invest all of its assets in the securities of a single open- end management investment company with substantially the same fundamental investment objective, policies, and restrictions as the Fund. With the exception of the investment restriction set out in item 2 above, if a percentage restriction is adhered to at the time of investment, a later increase in percentage resulting from a change in market value of the investment or the total assets will not constitute a violation of that restriction. The following are the Funds' non-fundamental operating policies which may be changed by the Board of Directors of the Company (the "Board of Directors") without shareholder approval. Each Fund may not: 1.Sell securities short, unless the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold short or unless it covers such short sale as required by the current rules and positions of the Securities and Exchange Commission or its staff, and provided that transactions in options, futures contracts, options on futures contracts, or other derivative instruments are not deemed to constitute selling securities short. 2.Purchase securities on margin, except that the Fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin deposits in connection with futures contracts, options on futures contracts, or other derivative instruments shall not constitute purchasing securities on margin. 3.Invest in illiquid securities if, as a result of such investment, more than 15% of its net assets would be invested in illiquid securities, or such other amounts as may be permitted under the 1940 Act. 4.Purchase securities of other investment companies except in compliance with the 1940 Act and applicable state law. 5.Invest all of its assets in the securities of a single open-end investment management company with substantially the same fundamental investment objective, restrictions and policies as the Fund. 6.Purchase the securities of any issuer (other than securities issued or guaranteed by domestic or foreign governments or political subdivisions thereof) if, as a result, more than 5% of its total assets would be invested in the securities of issuers that, including predecessor or unconditional guarantors, have a record of less than three years of continuous operation. This policy does not apply to securities of pooled investment vehicles or mortgage or asset-backed securities. 7.Invest in direct interests in oil, gas, or other mineral exploration programs or leases; however, the Fund may invest in the securities of issuers that engage in these activities. 8.Engage in futures or options on futures transactions which are impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in accordance with Rule 4.5, will use futures or options on futures transactions solely for bona fide hedging transactions (within the meaning of the Commodity Exchange Act), provided, however, that the Fund may, in addition to bona fide hedging transactions, use futures and options on futures transactions if the aggregate initial margin and premiums required to establish such positions, less the amount by which any such options positions are in the money (within the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net assets. In addition, (i) the aggregate value of securities underlying call options on securities written by the Fund or obligations underlying put options on securities written by the Fund determined as of the date the options are written will not exceed 50% of the Fund's net assets; (ii) the aggregate premiums paid on all options purchased by the Fund and which are being held will not exceed 20% of the Fund's net assets; (iii) the Fund will not purchase put or call options, other than hedging positions if, as a result thereof, more than 5% of its total assets would be so invested; and (iv) the aggregate margin deposits required on all futures and options on futures transactions being held will not exceed 5% of the Fund's total assets. 9.Pledge, mortgage or hypothecate any assets owned by the Fund except as may be necessary in connection with permissible borrowings or investments and then such pledging, mortgaging, or hypothecating may not exceed 33-1/3% of the Fund's total assets at the time of the borrowing or investment. 10. Purchase warrants, valued at the lower of cost or market value, in excess of 5% of the Fund's net assets. Included in that amount, but not to exceed 2% of the Fund's net assets, may be warrants that are not listed on any stock exchange. Warrants acquired by the Fund in units or attached to securities are not subject to these restrictions. 11. Borrow money, except (i) from banks or (ii) through reverse repurchase agreements or mortgage dollar rolls, and will not purchase securities when bank borrowings exceed 5% of its total assets. 12. Make any loans other than loans of portfolio securities, except through (i) purchases of debt securities or other debt instruments, or (ii) engaging in repurchase agreements. INVESTMENT POLICIES AND TECHNIQUES The following information supplements the discussion of the Funds' investment objectives, policies, and techniques that are described in the Prospectus under the captions "Total Return Bond Fund," and "Opportunity Fund," and "INVESTMENT TECHNIQUES AND RISKS." Illiquid Securities The Funds may invest in illiquid securities (i.e., securities that are not readily marketable). For purposes of this restriction, illiquid securities include, but are not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities which may only be resold pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and repurchase agreements with maturities in excess of seven days. However, neither Fund will acquire illiquid securities if, as a result, such securities would comprise more than 15% of the value of the Fund's net assets. The Opportunity Fund does not currently intend to invest more than 5% of its net assets in illiquid securities. Rule 144A securities will be treated as illiquid securities, subject to the liquidity guidelines. The Board of Directors or its delegate has the ultimate authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid for purposes of this 15% limitation. The Board of Directors has delegated to Frontegra Asset Management, Inc. ("Frontegra") the day-to-day determination of the liquidity of any security, although it has retained oversight and ultimate responsibility for such determinations. Although no definitive liquidity criteria are used, the Board of Directors has directed Frontegra to look to such factors as (i) the nature of the market for a security (including the institutional private resale market), (ii) the terms of certain securities or other instruments allowing for the disposition to a third party or the issuer thereof (e.g., certain repurchase obligations and demand instruments), (iii) the availability of market quotations (e.g., for securities quoted in the PORTAL system) and (iv) other permissible relevant factors. Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. Where registration is required, a Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the Board of Directors. If, through the appreciation of restricted securities or the depreciation of unrestricted securities, the Opportunity Fund and the Total Return Bond Fund should be in a position where more than 5% and 15% of the value of their respective net assets are invested in illiquid securities, including restricted securities which are not readily marketable, the affected Fund will take such steps as is deemed advisable, if any, to protect liquidity. Short-Term Fixed Income Securities The Total Return Bond Fund may invest without limitation in cash and short-term fixed income securities. The Opportunity Fund may invest up to 20% of its total assets in cash and short-term fixed income securities for any purpose and up to 100% of its total assets may be invested in such instruments for temporary defensive purposes. Short-term fixed income securities are defined to include without limitation, the following: 1.U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government agency securities include securities issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks and the Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, whose securities are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association, whose securities are supported only by its credit. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities and consequently the value of such securities may fluctuate. 2.Certificates of Deposit issued against funds deposited in a bank or savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return and are normally negotiable. If such certificates of deposit are non-negotiable, they will be considered illiquid securities and be subject to each Fund's restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $100,000; therefore, certificates of deposit purchased by a Fund may not be fully insured. 3.Bankers' acceptances which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. 4.Repurchase agreements which involve purchases of debt securities. In such an action, at the time a Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for the Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Funds may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities, certificates of deposit, or bankers acceptances in which the Funds may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Funds is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date. In the event of default, the repurchase agreement provides that the affected Fund is entitled to sell the underlying collateral. However, if the value of the collateral declines after the agreement is entered into, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The Fund monitors the value of the collateral at the time the transaction is entered into and at all times during the term of the repurchase agreement and does so in an effort to determine that the value of the collateral always equals or exceeds the agreed- upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of a Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws. 5.Bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced. 6.Commercial paper consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between a Fund and a corporation. There is no secondary market for the notes. However, they are redeemable by the Funds at any time. The Funds will consider the financial condition of the corporation (e.g., earning power, cash flow and liquidity ratios) and will continuously monitor the corporation's ability to meet all of its financial obligations, because a Fund's liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the two highest categories by a major rating agency or unrated commercial paper which is, in the opinion of Frontegra, of comparable quality. Short Sales Against the Box When Reams believes that the price of a particular security held by the Total Return Bond Fund may decline, it may make "short sales against the box" to hedge the unrealized gain on such security. Selling short against the box involves selling a security which the Fund owns for delivery at a specified date in the future. The Total Return Bond Fund will limit its transactions in short sales against the box to 5% of its net assets. Warrants Each Fund may invest in warrants if, after giving effect thereto, not more than 5% of its net assets will be invested in warrants other than warrants acquired in units or attached to other securities. Of such 5%, not more than 2% of its assets at the time of purchase may be invested in warrants that are not listed on the New York Stock Exchange or the American Stock Exchange. Investing in warrants is purely speculative in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. Warrants basically are options to purchase equity securities at a specific price for a specific period of time. They do not represent ownership of the securities but only the right to buy them. Warrants are issued by the issuer of the security, which may be purchased on their exercise. The prices of warrants do not necessarily parallel the prices of the underlying securities. Variable- or Floating-Rate Securities The Total Return Bond Fund may invest in securities which offer a variable- or floating-rate of interest. Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. The interest rate on variable- or floating-rate securities is ordinarily determined by reference to or is a percentage of a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or bank certificates of deposit, an index of short-term interest rates, or some other objective measure. Variable- or floating-rate securities frequently include a demand feature entitling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time on 7 days notice; in other cases, the demand feature is exercisable at any time on 30 days notice or on similar notice at intervals of not more than one year. Some securities which do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. When considering the maturity of any instrument which may be sold or put to the issuer or a third party, the Fund may consider that instrument's maturity to be shorter than its stated maturity. Variable-rate demand notes include master demand notes which are obligations that permit the Fund to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the Fund, as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. The interest rate on a floating-rate demand obligation is based on a known lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable-rate demand obligation is adjusted automatically at specified intervals. Frequently, such obligations are secured by letters of credit or other credit support arrangements provided by banks. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments will generally be traded. There generally is not an established secondary market for these obligations, although they are redeemable at face value. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. The Total Return Bond Fund will not invest more than 5% of its net assets in variable- and floating-rate demand obligations that are not readily marketable (a variable- or floating-rate demand obligation that may be disposed of on not more than seven days notice will be deemed readily marketable and will not be subject to this limitation). In addition, each variable- or floating-rate obligation must meet the credit quality requirements applicable to all the Fund's investments at the time of purchase. When determining whether such an obligation meets the Fund's credit quality requirements, the Fund may look to the credit quality of the financial guarantor providing a letter of credit or other credit support arrangement. In determining the Fund's weighted average portfolio maturity, the Fund will consider a floating or variable rate security to have a maturity equal to its stated maturity (or redemption date if it has been called for redemption), except that it may consider (i) variable rate securities to have a maturity equal to the period remaining until the next readjustment in the interest rate, unless subject to a demand feature, (ii) variable rate securities subject to a demand feature to have a remaining maturity equal to the longer of (a) the next readjustment in the interest rate or (b) the period remaining until the principal can be recovered through demand, and (iii) floating rate securities subject to a demand feature to have a maturity equal to the period remaining until the principal can be recovered through demand. Variable and floating rate securities generally are subject to less principal fluctuation than securities without these attributes since the securities usually trade at par following the readjustment in the interest rate. When-Issued Securities The Total Return Bond Fund may from time to time purchase securities on a "when-issued" basis. The price of securities purchased on a when-issued basis is fixed at the time the commitment to purchase is made, but delivery and payment for the securities take place at a later date. Normally, the settlement date occurs within 45 days of the purchase. During the period between the purchase and settlement, no payment is made by the Fund to the issuer and no interest is accrued on debt securities or dividend income is earned on equity securities. Forward commitments involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in value of the Fund's other assets. While when-issued securities may be sold prior to the settlement date, the Fund intends to purchase such securities with the purpose of actually acquiring them. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the value of the security in determining its net asset value. The Fund does not believe that net asset value will be adversely affected by purchases of securities on a when-issued basis. The Fund will maintain cash, U.S. government securities and liquid securities equal in value to commitments for when-issued securities. Such segregated securities either will mature or, if necessary, be sold on or before the settlement date. When the time comes to pay for when-issued securities, the Fund will meet its obligations from then available cash flow, sale of the securities held in the separate account, described above, sale of other securities or, although it would not normally expect to do so, from the sale of the when-issued securities themselves (which may have a market value greater or less than the Fund's payment obligation). Unseasoned Companies Neither Fund may invest more than 5% of its net assets in unseasoned companies. While smaller companies generally have potential for rapid growth, they often involve higher risks because they lack the management experience, financial resources, product diversification and competitive strengths of larger corporations. In addition, in many instances, the securities of smaller companies are traded only over- the-counter or on regional securities exchanges, and the frequency and volume of their trading is substantially less than is typical of larger companies. Therefore, the securities of smaller companies may be subject to wider price fluctuations. When making large sales, the Funds may have to sell portfolio holdings of small companies at discounts from quoted prices or may have to make a series of smaller sales over an extended period of time due to the trading volume in smaller company securities. Non-Investment Grade Debt Securities (Junk Bonds) The Total Return Bond Fund may invest up to 25% of its net assets in junk bonds. While generally offering higher yields than investment grade securities with similar maturities, non-investment grade debt securities involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. Refer to the Appendix of this Statement of Additional Information for a discussion of securities ratings. Effect of Interest Rates and Economic Changes. The junk bond market is relatively new and its growth has paralleled a long economic expansion. As a result, it is not clear how this market may withstand a prolonged recession or economic downturn. Such an economic downturn could severely disrupt the market for and adversely affect the value of such securities. All interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of junk bond securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Junk bond securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of junk bond securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The risk of loss due to default by an issuer of these securities is significantly greater than issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a junk bond security defaulted, a Fund might incur additional expenses to seek recovery. Periods of economic uncertainty and changes would also generally result in increased volatility in the market prices of these securities and thus in the Fund's net asset value. As previously stated, the value of a junk bond security will generally decrease in a rising interest rate market, and accordingly so will the Fund's net asset value. If the Fund experiences unexpected net redemptions in such a market, it may be forced to liquidate a portion of its portfolio securities without regard to their investment merits. Due to the limited liquidity of junk bond securities, the Fund may be forced to liquidate these securities at a substantial discount. Any such liquidation would reduce the Fund's asset base over which expenses could be allocated and could result in a reduced rate of return for the Fund. Payment Expectations. Junk bond securities typically contain redemption, call or prepayment provisions which permit the issuer of such securities containing such provisions to redeem the securities at its discretion. During periods of falling interest rates, issuers of these securities are likely to redeem or prepay the securities and refinance them with debt securities with a lower interest rate. To the extent an issuer is able to refinance the securities, or otherwise redeem them, the Fund may have to replace the securities with a lower yielding security, which could result in a lower return for the Fund. Credit Ratings. Credit ratings issued by credit- rating agencies evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of junk bond securities and, therefore may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Investments in junk bond securities will be more dependent on the subadviser's credit analysis than would be the case with investments in investment-grade debt securities. The subadviser employs its own credit research and analysis, which includes a study of existing debt, capital structure, ability to service debt and to pay dividends, the issuer's sensitivity to economic conditions, its operating history and the current trend of earnings. The subadviser continually monitors the Fund's investments and carefully evaluates whether to dispose of or to retain junk bond securities whose credit ratings or credit quality may have changed. Liquidity and Valuation. The Fund may have difficulty disposing of certain junk bond securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all junk bond securities there is no established retail secondary market for many of these securities. The Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher-rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund. Market quotations are generally available on many junk bond issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. During periods of thin trading, the spread between bid and asked prices is likely to increase significantly. In addition, adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of junk bond securities, especially in a thinly traded market. New and Proposed Legislation. Recent legislation has been adopted and, from time to time, proposals have been discussed regarding new legislation designed to limit the use of certain junk bond securities by certain issuers. An example of such legislation is a law which requires federally insured savings and loan associations to divest their investments in these securities over time. It is not currently possible to determine the impact of the recent legislation or the proposed legislation on the junk bond securities market. However, it is anticipated that if additional legislation is enacted or proposed, it could have a material affect on the value of these securities and the existence of a secondary trading market for the securities. Hedging Strategies General Description of Hedging Strategies. The Funds may engage in hedging activities, including options, futures contracts (sometimes referred to as "futures") and options on futures contracts to attempt to hedge a Fund's holdings. Hedging instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a Fund owns or intends to acquire. Hedging instruments on stock indices, in contrast, generally are used to hedge against price movements in broad equity market sectors in which a Fund has invested or expects to invest. The use of hedging instruments is subject to applicable regulations of the Securities and Exchange Commission (the "SEC"), the several options and futures exchanges upon which they are traded, the Commodity Futures Trading Commission (the "CFTC") and various state regulatory authorities. In addition, a Fund's ability to use hedging instruments will be limited by tax considerations. General Limitations on Futures and Options Transactions. The Company has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the CFTC and the National Futures Association, which regulate trading in the futures markets. Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act (the "CEA"), the notice of eligibility for the Funds includes the representation that the Funds will use futures contracts and related options solely for bona fide hedging purposes within the meaning of CFTC regulations, provided that the Funds may hold other positions in futures contracts and related options that do not fall within the definition of bona fide hedging transactions (i.e., for speculative purposes) if aggregate initial margins and premiums paid do not exceed 5% of the net asset value of the respective Funds. In addition, neither Fund will enter into futures contracts and options transactions if more than 50% of its net assets would be committed to such instruments. The foregoing limitations are not fundamental policies of the Funds and may be changed without shareholder approval as regulatory agencies permit. Various exchanges and regulatory authorities have undertaken reviews of options and futures trading in light of market volatility. Among the possible actions that have been presented are proposals to adopt new or more stringent daily price fluctuation limits for futures and options transactions and proposals to increase the margin requirements for various types of futures transactions. Asset Coverage for Futures and Options Positions. Each Fund will comply with the regulatory requirements of the SEC and the CFTC with respect to coverage of options and futures positions by registered investment companies and, if the guidelines so require, will set aside cash, U.S. government securities, high grade liquid debt securities and/or other liquid assets permitted by the SEC and CFTC in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures or options position is outstanding, unless replaced with other permissible assets, and will be marked-to-market daily. Stock Index Options. Each Fund may (i) purchase stock index options for any purpose, (ii) sell stock index options in order to close out existing positions, and/or (iii) write covered options on stock indexes for hedging purposes. Stock index options are put options and call options on various stock indexes. In most respects, they are identical to listed options on common stocks. The primary difference between stock options and index options occurs when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market values of the stocks included in the index. For example, some stock index options are based on a broad market index, such as the Standard & Poor's 500 or the Value Line Composite Index or a narrower market index, such as the Standard & Poor's 100. Indexes may also be based on an industry or market segment, such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indexes are currently traded on the following exchanges: the Chicago Board of Options Exchange, the New York Stock Exchange, the American Stock Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange. A Fund's use of stock index options is subject to certain risks. Successful use by the Funds of options on stock indexes will be subject to the ability of the subadviser to correctly predict movements in the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities. In addition, a Fund's ability to effectively hedge all or a portion of the securities in its portfolio, in anticipation of or during a market decline through transactions in put options on stock indexes, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by a Fund. Inasmuch as a Fund's securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, each Fund will bear the risk that the prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indexes. It is also possible that there may be a negative correlation between the index and a Fund's securities which would result in a loss on both such securities and the options on stock indexes acquired by the Fund. The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of stock index options involves the risk that the premium and transaction costs paid by a Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities comprising the stock index on which the option is based. Certain Considerations Regarding Options. There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If a Fund is unable to close out a call option on securities that it has written before the option is exercised, the Fund may be required to purchase the optioned securities in order to satisfy its obligation under the option to deliver such securities. If a Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities. The writing and purchasing of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. Imperfect correlation between the options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for the Funds. Federal Tax Treatment of Options. Certain option transactions have special tax results for the Funds. Expiration of a call option written by a Fund will result in short-term capital gain. If the call option is exercised, the Fund will realize a gain or loss from the sale of the security covering the call option and, in determining such gain or loss, the option premium will be included in the proceeds of the sale. If a Fund writes options other than "qualified covered call options," as defined in Section 1092 of the Internal Revenue Code of 1986, as amended (the "Code"), or purchases puts, any losses on such options transactions, to the extent they do not exceed the unrealized gains on the securities covering the options, may be subject to deferral until the securities covering the options have been sold. In the case of transactions involving "nonequity options," as defined in Code Section 1256, the Funds will treat any gain or loss arising from the lapse, closing out or exercise of such positions as 60% long- term and 40% short-term capital gain or loss as required by Section 1256 of the Code. In addition, such positions must be marked-to-market as of the last business day of the year, and gain or loss must be recognized for federal income tax purposes in accordance with the 60%/40% rule discussed above even though the position has not been terminated. A "nonequity option" includes an option with respect to any group of stocks or a stock index if there is in effect a designation by the CFTC of a contract market for a contract based on such group of stocks or indexes. For example, options involving stock indexes such as the Standard & Poor's 500 and 100 indexes would be "nonequity options" within the meaning of Code Section 1256. Futures Contracts. The Funds may enter into futures contracts (hereinafter referred to as "Futures" or "Futures Contracts"), including index and interest rate Futures as a hedge against movements in the equity and bond markets, in order to establish more definitely the effective return on securities held or intended to be acquired by the Funds or for other purposes permissible under the CEA. Each Fund's hedging may include sales of Futures as an offset against the effect of expected declines in stock prices and purchases of Futures as an offset against the effect of expected increases in stock or bond prices. The Funds will not enter into Futures Contracts which are prohibited under the CEA and will, to the extent required by regulatory authorities, enter only into Futures Contracts that are traded on national futures exchanges and are standardized as to maturity date and underlying financial instrument. The principal interest rate Futures exchanges in the United States are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and trading are regulated under the CEA by the CFTC. An index Futures Contract is an agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index Futures Contract was originally written. An interest rate futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g. debt security) for a specified price at a designated date, time, and place. Transaction costs are incurred when a Futures Contract is bought or sold and margin deposits must be maintained. A Futures Contract may be satisfied by delivery or purchase, as the case may be, of the instrument or by payment of the change in the cash value of the index. More commonly, Futures Contracts are closed out prior to delivery by entering into an offsetting transaction in a matching Futures Contract. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of those securities is made. If the offsetting purchase price is less than the original sale price, a gain will be realized; if it is more, a loss will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be realized. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Funds will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the Futures Contract. Margin is the amount of funds that must be deposited by each Fund with its custodian in a segregated account in the name of the futures commission merchant in order to initiate Futures trading and to maintain the Fund's open positions in Futures Contracts. A margin deposit is intended to ensure the Fund's performance of the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract. Futures Contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the Futures Contract being traded. If the price of an open Futures Contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the Futures Contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the Futures Contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. In computing daily net asset value, each Fund will mark to market the current value of its open Futures Contracts. The Funds expect to earn interest income on their margin deposits. Because of the low margin deposits required, Futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a Futures Contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the Futures Contract is deposited as margin, a subsequent 10% decrease in the value of the Futures Contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the Futures Contract were closed out. Thus, a purchase or sale of a Futures Contract may result in losses in excess of the amount initially invested in the Futures Contract. However, a Fund would presumably have sustained comparable losses if, instead of the Futures Contract, it had invested in the underlying financial instrument and sold it after the decline. Most United States Futures exchanges limit the amount of fluctuation permitted in Futures Contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a Futures Contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of Futures Contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures Contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of Futures positions and subjecting some Futures traders to substantial losses. There can be no assurance that a liquid market will exist at a time when the Funds seek to close out a Futures position. The Funds would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Funds' net asset value. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. A public market exists in Futures Contracts covering a number of indexes, including, but not limited to, the Standard & Poor's 500 Index, the Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite Index and the New York Stock Exchange Composite Index. Options on Futures. The Funds may also purchase or write put and call options on Futures Contracts and enter into closing transactions with respect to such options to terminate an existing position. A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a Futures Contract at a specified exercise price prior to the expiration of the option. Upon exercise of a call option, the holder acquires a long position in the Futures Contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Prior to exercise or expiration, a futures option may be closed out by an offsetting purchase or sale of a futures option of the same series. The Funds may use options on Futures Contracts in connection with hedging strategies. Generally, these strategies would be employed under the same market and market sector conditions in which the Funds use put and call options on securities or indexes. The purchase of put options on Futures Contracts is analogous to the purchase of puts on securities or indexes so as to hedge the Funds' securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option on a Futures Contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's holdings of securities. If the futures price when the option is exercised is above the exercise price, however, the Fund will incur a loss, which may be offset, in whole or in part, by the increase in the value of the securities held by the Fund that were being hedged. Writing a put option or purchasing a call option on a Futures Contract serves as a partial hedge against an increase in the value of the securities the Fund intends to acquire. As with investments in Futures Contracts, each Fund is required to deposit and maintain margin with respect to put and call options on Futures Contracts written by it. Such margin deposits will vary depending on the nature of the underlying Futures Contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. The Funds will set aside in a segregated account at the Funds' custodian liquid assets, such as cash, U.S. government securities or other high grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked to market daily, and additional assets will be placed in the segregated account whenever the total value of the segregated account falls below the amount due on the underlying obligation. The risks associated with the use of options on Futures Contracts include the risk that a Fund may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. The Funds' successful use of options on Futures Contracts depends on the subadviser's ability to correctly predict the movement in prices of Futures Contracts and the underlying instruments, which may prove to be incorrect. In addition, there may be imperfect correlation between the instruments being hedged and the Futures Contract subject to the option. For additional information, see "Futures Contracts." Federal Tax Treatment of Futures Contracts. For federal income tax purposes, each Fund is required to recognize as income for each taxable year its net unrealized gains and losses on Futures Contracts as of the end of the year, as well as gains and losses actually realized during the year. Except for transactions in Futures Contracts that are classified as part of a "mixed straddle" under Code Section 1256, any gain or loss recognized with respect to a Futures Contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the Futures Contract. In the case of a Futures transaction not classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Sales of Futures Contracts that are intended to hedge against a change in the value of securities held by a Fund may affect the holding period of such securities and, consequently, the nature of the gain or loss on such securities upon disposition. Each Fund intends to operate as a "Regulated Investment Company" under Subchapter M of the Code, and therefore will not be liable for federal income taxes to the extent earnings are timely distributed. As a result of being a Regulated Investment Company, net capital gain that the Funds distribute to shareholders will retain their original capital gain character in the shareholders' individual tax returns. In order for each Fund to qualify for federal income tax treatment as a Regulated Investment Company, at least 90% of the gross income of each Fund for a taxable year must be derived from qualifying income; i.e., dividends, interest, income derived from loans of securities and gains from the sale of securities, and other income (including gains on options and futures contracts) derived with respect to the Fund's business of investing in stock or securities. In addition, gains realized on the sale or other disposition of securities or Futures Contracts held for less than three months must be limited to less than 30% of the Fund's annual gross income. It is anticipated that any net gain realized from the closing out of Futures Contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. For purposes of applying these tests, any increase in value on a position that is part of a designated hedge will be offset by any decrease in value (whether or not realized) on any other position that is part of such hedge. It is anticipated that unrealized gains on Futures Contracts which have been open for less than three months as of the end of a Fund's fiscal year and which are recognized for tax purposes will not be considered gains on securities held less than three months for purposes of the 30% test. The Funds will distribute to shareholders annually any net capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the Fund's fiscal year) on Futures transactions. Such distributions will be combined with distributions of capital gains realized on the Funds' other investments and shareholders will be advised of the nature of the payments. Foreign Currency - Related Derivative Strategies - Special Considerations. The Funds may purchase and sell foreign currency on a spot basis, and may use currency-related derivatives instruments such as options on foreign currencies, futures on foreign currencies, options on futures on foreign currencies and forward currency contracts (i.e., an obligation to purchase or sell a specific currency at a specified future date, which may be any fixed number of days from the contract date agreed upon by the parties, at a price set at the time the contract is entered into). The Funds may use these instruments for hedging or any other lawful purpose consistent with its investment objective, including transaction hedging, anticipatory hedging, cross hedging, proxy hedging, and position hedging. A Fund's use of currency-related derivative instruments will be directly related to the Fund's current or anticipated portfolio securities, and the Fund may engage in transactions in currency-related derivative instruments as a means to protect against some or all of the effects of adverse changes in foreign currency exchange rates on its portfolio investments. In general, if the currency in which a portfolio investment is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a decline in the exchange rate of the currency would adversely affect the value of the portfolio investment expressed in U.S. dollars. For example, a Fund might use currency-related derivative instruments to "lock in" a U.S. dollar price for a portfolio investment, thereby enabling the Fund to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date the security is purchased or sold and the date on which payment is made or received. The Fund also might use currency-related derivative instruments when the Advisor believes that one currency may experience a substantial movement against another currency, including the U.S. dollar, and it may use currency-related derivative instruments to sell or buy the amount of the former foreign currency, approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Fund may use currency-related derivative instruments to hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. The use of this basket hedging technique may be more efficient and economical than using separate currency-related derivative instruments for each currency exposure held by a Fund. Furthermore, currency-related derivative instruments may be used for short hedges - for example, a Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security denominated in a foreign currency. In addition, a Fund may use a currency-related derivative instrument to shift exposure to foreign currency fluctuations from one foreign country to another foreign country where it's anticipated that the foreign currency exposure purchased will appreciate relative to the U.S. dollar and thus better protect the Fund against the expected decline in the foreign currency exposure sold. For example, if a Fund owns securities denominated in a foreign currency and it is anticipated that the currency will decline, it might enter into a forward contract to sell an appropriate amount of the first foreign currency, with payment to be made in a second foreign currency that would better protect the Fund against the decline in the first security than would a U.S. dollar exposure. Hedging transactions that use two foreign currencies are sometimes referred to as "cross hedges." The effective use of currency-related derivative instruments by a Fund in a cross hedge is dependent upon a correlation between price movements of the two currency instruments and the underlying security involved, and the use of two currencies magnifies the risk that movements in the price of one instrument may not correlate or may correlate unfavorably with the foreign currency being hedged. Such a lack of correlation might occur due to factors unrelated to the value of the currency instruments used or investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. The Funds also might seek to hedge against changes in the value of a particular currency when no hedging instruments on that currency are available or such hedging instruments are more expensive than certain other hedging instruments. In such cases, a Fund may hedge against price movements in that currency by entering into transactions using currency-related derivative instruments on another foreign currency or a basket of currencies, the values of which are believed to have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the hedging instrument will not correlate perfectly with movements in the price of the currency being hedged is magnified when this strategy is used. The use of currency-related derivative instruments by a Fund involves a number of risks. The value of currency-related derivative instruments depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a Fund could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots (generally consisting of transactions of greater than $1 million). There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the derivative instruments until they re-open. Settlement of transactions in currency-related derivative instruments might be required to take place within the country issuing the underlying currency. Thus, a Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. When a Fund engages in a transaction in a currency- related derivative instrument, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract or otherwise complete the contract. In other words, a Fund will be subject to the risk that a loss may be sustained by the Fund as a result of the failure of the counterparty to comply with the terms of the transaction. The counterparty risk for exchange-traded instruments is generally less than for privately-negotiated or OTC currency instruments, since generally a clearing agency, which is the issuer or counterparty to each instrument, provides a guarantee of performance. For privately- negotiated instruments, there is no similar clearing agency guarantee. In all transactions, a Fund will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the transaction and possibly other losses to the Fund. The Fund will enter into transactions in currency-related derivative instruments only with counterparties that are reasonably believed to be capable of performing under the contract. Purchasers and sellers of currency-related derivative instruments may enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that a Fund will in fact be able to close out a forward currency contract (or any other currency-related derivative instrument) at a time and price favorable to the Fund. In addition, in the event of insolvency of the counterparty, a Fund might be unable to close out a forward currency contract at any time prior to maturity. In the case of an exchange-traded instrument, the Fund will be able to close the position out only on an exchange which provides a market for the instruments. The ability to establish and close out positions on an exchange is subject to the maintenance of a liquid market, and there can be no assurance that a liquid market will exist for any instrument at any specific time. In the case of a privately-negotiated instrument, the Fund will be able to realize the value of the instrument only by entering into a closing transaction with the issuer or finding a third party buyer for the instrument. While the Funds will enter into privately-negotiated transactions only with entities who are expected to be capable of entering into a closing transaction, there can be no assurance that a Fund will in fact be able to enter into such closing transactions. The precise matching of currency-related derivative instrument amounts and the value of the portfolio securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the currency- related derivative instrument position has been established. Thus, a Fund might need to purchase or sell foreign currencies in the spot (cash) market. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Permissible foreign currency options will include options traded primarily in the OTC market. Although options on foreign currencies are traded primarily in the OTC market, the Funds will normally purchase or sell OTC options on foreign currency only when it is believed that a liquid secondary market will exist for a particular option at any specific time. There will be a cost to the Funds of engaging in transactions in currency-related derivative instruments that will vary with factors such as the contract or currency involved, the length of the contract period, and the market conditions then prevailing. A Fund may have to pay a fee or commission or, in cases where the instruments are entered into on a principal basis, foreign exchange dealers or other counterparties will realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, for example, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. When required by the SEC guidelines, a Fund will set aside permissible liquid assets in segregated accounts or otherwise cover its potential obligations under currency-related derivatives instruments. To the extent a Fund's assets are so set aside, they cannot be sold while the corresponding currency position is open, unless they are replaced with similar assets. As a result, if a large portion of a Fund's assets are so set aside, this could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. The decision to engage in a particular currency- related derivative instrument will reflect the portfolio manager's judgment that the transaction will provide value to the Fund and its shareholders and is consistent with the Fund's objective and policies. In making such a judgment, the benefits and risks of the transaction will be weighed in the context of the Fund's entire portfolio and objective. The effectiveness of any transaction in a currency-related derivative instrument is dependent on a variety of factors, including the portfolio manager's skill in analyzing and predicting currency values and upon a correlation between price movements of the currency instrument and the underlying security. There might be imperfect correlation, or even no correlation, between price movements of an instrument and price movements of investments being hedged. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. In addition, a Fund's use of currency-related derivative instruments is always subject to the risk that the currency in question could be devalued by the foreign government. In such a case, any long currency positions would decline in value and could adversely affect any hedging position maintained by a Fund. A Fund's dealing in currency-related derivative instruments will generally be limited to the transactions described above. However, the Funds reserve the right to use currency-related derivatives instruments for different purposes and under different circumstances. It also should be realized that use of these instruments does not eliminate, or protect against, price movements in a Fund's securities that are attributable to other (i.e., non-currency related) causes. Moreover, while the use of currency-related derivatives instruments may reduce the risk of loss due to a decline in the value of a hedged currency, at the same time the use of these instruments tends to limit any potential gain which may result from an increase in the value of that currency. Foreign Investment Companies Some of the countries in which the Funds may invest may not permit direct investment by outside investors. Investments in such countries may only be permitted through foreign government-approved or - authorized investment vehicles, which may include other investment companies. Investing through such vehicles may involve frequent or layered fees or expenses and may also be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may invest up to 10% of its assets in shares of investment companies and up to 5% of its assets in any one investment company as long as the investment does not represent more than 3% of the voting stock of the acquired investment company. Depositary Receipts As indicated in the Prospectus, the Opportunity Fund may invest in foreign securities by purchasing depositary receipts, including American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities convertible into securities or issuers based in foreign countries. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. Generally, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets, while EDRs, in bearer form, may be denominated in other currencies and are designed for use in European securities markets. ADRs are receipts typically issued by a U.S. Bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. For purposes of the Fund's investment policies, ADRs and EDRs are deemed to have the same classification as the underlying securities they represent. Thus, an ADR or EDR representing ownership of common stock will be treated as common stock. ADR facilities may be established as either "unsponsored" or "sponsored." While ADRs issued under these two types of facilities are in some respects similar, there are distinctions between them relating to the rights and obligations of ADR holders and the practices of market participants. A depositary may establish an unsponsored facility without participation by (or even necessarily the acquiescence of) the issuer of the deposited securities, although typically the depositary requests a letter of non-objection from such issuer prior to the establishment of the facility. Holders of unsponsored ADRs generally bear all the costs of such facilities. The depositary usually charges fees upon the deposit and withdrawal of the deposited securities, the conversion of dividends into U.S. dollars, the disposition of non-cash distribution, and the performance of other services. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited securities or to pass through voting rights to ADR holders in respect of the deposited securities. Sponsored ADR facilities are created in generally the same manner as unsponsored facilities, except that the issuer of the deposited securities enters into a deposit agreement with the depositary. The deposit agreement sets out the rights and responsibilities of the issuer, the depositary and the ADR holders. With sponsored facilities, the issuer of the deposited securities generally will bear some of the costs relating to the facility (such as dividend payment fees of the depositary), although ADR holders continue to bear certain other costs (such as deposit and withdrawal fees). Under the terms of most sponsored arrangements, depositaries agree to distribute notices of shareholder meetings and voting instructions, and to provide shareholder communications and other information to the ADR holders at the request of the issuer of the deposited securities. Lending of Portfolio Securities Each Fund is authorized to lend up to 33 1/3% of the total value of its portfolio securities to broker- dealers or institutional investors, but only when the borrower maintains with the Fund's custodian bank collateral either in cash or money market instruments in an amount at least equal to the market value of the securities loaned, plus accrued interest and dividends, determined on a daily basis and adjusted accordingly. However, the Funds do not presently intend to engage in such lending. In determining whether to lend securities to a particular broker-dealer or institutional investor, the portfolio manager will consider, and during the period of the loan will monitor, all relevant facts and circumstances, including the creditworthiness of the borrower. The Fund will retain authority to terminate any loans at any time. The Funds may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The Funds will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest or other distributions on the securities loaned. The Funds will retain record ownership of loaned securities to exercise beneficial rights, such as voting and subscription rights and rights to dividends, interest or other distributions, when retaining such rights is considered to be in a Fund's interest. Mortgage-and Asset-Backed Securities Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. Such securities may be issued or guaranteed by U.S. government agencies or instrumentalities, such as the Government National Mortgage Association and the Federal National Mortgage Association, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities (collectively, "private lenders"). Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Asset-backed securities have structural characteristics similar to mortgage-backed securities. However, the underlying assets are not first lien mortgage loans or interests therein, but include assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. Payments or distributions of principal and interest on asset-backed securities may be supported by non-governmental credit enhancements similar to those utilized in connection with mortgage- backed securities. The yield characteristics of mortgage- and asset- backed securities differ from those of traditional debt securities. Among the principal differences are that interest and principal payments are made more frequently on mortgage- and asset-backed securities, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if the Total Return Bond Fund purchases these securities at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing the yield to maturity. Conversely, if the Fund purchases these securities at a discount, a prepayment rate that is faster than expected will increase yield to maturity, while a prepayment rate that is slower than expected will reduce yield to maturity. Amounts available for reinvestment by the Fund are likely to be greater during a period of declining interest rates and, as a result are likely to be reinvested at lower interest rates than during a period of rising interest rates. Accelerated prepayments on securities purchased by the Fund at a premium also impose a risk of loss of principal because the premium may not have been fully amortized at the time the principal is prepaid in full. The market for privately issued mortgage- and asset- backed securities is smaller and less liquid than the market for government-sponsored mortgage-backed securities. The Total Return Bond Fund may also invest in stripped mortgage- or asset-backed securities, which receive differing proportions of the interest and principal payments from the underlying assets. The market value of such securities generally is more sensitive to changes in prepayment and interest rates than is the case with traditional mortgage- and asset- backed securities, and in some cases such market value may be extremely volatile. With respect to certain stripped securities, such as interest only and principal only classes, a rate of prepayment that is faster or slower than anticipated may result in the Fund failing to recover all or a portion of its investment, even though the securities are rated investment grade. Mortgage Dollar Rolls and Reverse Repurchase Agreements The Total Return Bond Fund may engage in reverse repurchase agreements to facilitate portfolio liquidity, a practice common in the mutual fund industry, or for arbitrage transactions discussed below. In a reverse repurchase agreement, a Fund would sell a security and enter into an agreement to repurchase the security at a specified future date and price. The Fund generally retains the right to interest and principal payments on the security. Since the Fund receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. When required by guidelines of the SEC, a Fund will set aside permissible liquid assets in a segregated account to secure its obligations to repurchase the security. The Total Return Bond Fund may also enter into mortgage dollar rolls, in which the Fund would sell mortgage-backed securities for delivery in the current month and simultaneously contract to purchase substantially similar securities on a specified future date. While the Fund would forego principal and interest paid on the mortgage-backed securities during the roll period, the Fund would be compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The Fund also could be compensated through the receipt of fee income equivalent to a lower forward price. At the time the Fund would enter into a mortgage dollar roll, it would set aside permissible liquid assets in a segregated account to secure its obligation for the forward commitment to buy mortgage-backed securities. Mortgage dollar roll transactions may be considered a borrowing by the Fund. The mortgage dollar rolls and reverse repurchase agreements entered into by the Fund may be used as arbitrage transactions in which the Fund will maintain an offsetting position in investment grade debt obligations or repurchase agreements that mature on or before the settlement date on the related mortgage dollar roll or reverse repurchase agreements. Since the Fund will receive interest on the securities or repurchase agreements in which it invests the transaction proceeds, such transactions may involve leverage. However, since such securities or repurchase agreements will be high quality and will mature on or before the settlement date of the mortgage dollar roll or reverse repurchase agreement, the portfolio manager believes that such arbitrage transactions do not present the risks to the Fund that are associated with other types of leverage. Repurchase Agreements The Funds may enter into repurchase agreements with certain banks or non-bank dealers. In a repurchase agreement, a Fund buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement, thereby, determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. The portfolio manager will monitor, on an ongoing basis, the value of the underlying securities to ensure that the value always equals or exceeds the repurchase price plus accrued interest. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. Although no definitive creditworthiness criteria are used, the portfolio manager reviews the creditworthiness of the banks and non-bank dealers with which the Fund enters into repurchase agreements to evaluate those risks. The Funds may, under certain circumstances, deem repurchase agreements collateralized by U.S. government securities to be investments in U.S. government securities. DIRECTORS AND OFFICERS The directors and officers of the Company, together with information as to their principal business occupations during the last five years, and other information, are shown below. Each director who is deemed an "interested person," as defined in the Investment Company Act of 1940 ("Investment Company Act"), is indicated by an asterisk. *William D. Forsyth, III, Co-President, Treasurer, Assistant Secretary and a Director of the Company. Mr. Forsyth was born in 1963 and received his B.S. in Finance from the University of Illinois in 1986 and his M.B.A. from the University of Chicago in 1988. Mr. Forsyth has served as Co-President, Treasurer, Assistant Secretary, Portfolio Manager and a Director of Frontegra since May 1996. From July 1993 until the present, Mr. Forsyth has also served as a Partner of Frontier Partners, Inc., a consulting/marketing firm. From April 1987 until June 1993, Mr. Forsyth served as a Partner of Brinson Partners, Inc., an investment advisor, and from June 1986 until April 1987, he served as a product marketing representative of Harris Trust & Savings Bank. Mr. Forsyth received his CFA designation in 1991. *Thomas J. Holmberg, Jr., Co-President, Secretary, Assistant Treasurer and a Director of the Company. Mr. Holmberg was born in 1958 and received his B.A. in Economics from the College of William and Mary in 1980 and his M.P.P.M. from Yale University in 1987. Mr. Holmberg has served as Co-President, Secretary, Assistant Treasurer, Portfolio Manager and a Director of Frontegra since May 1996. From July 1993 until the present, Mr. Holmberg has also served as a Partner of Frontier Partners, Inc., a consulting/marketing firm. From February 1989 until July 1993, Mr. Holmberg served as a Partner of, and Account Manager for, Brinson Partners, Inc., an investment advisor. From July 1987 until January 1989, Mr. Holmberg served as an associate in the fixed income sales area of Goldman, Sachs, and from May 1986 until August 1986, he served as a summer associate in the corporation finance area of Lehman Brothers. Mr. Holmberg received his CFA designation in 1991. David L. Heald, a Director of the Company. Mr. Heald was born in 1943 and received his B.A. in English from Denison University in 1966 and his J.D. from Vanderbilt University School of Law in 1969. Mr. Heald has been a principal of Consulting Fiduciaries, Inc. ("CFI"), a registered investment adviser, since August of 1994. CFI provides professional, independent, fiduciary decision making, consultation and alternative dispute resolution services to ERISA plans, plan sponsors and investment managers. Between April 1994 and August 1994, Mr. Heald engaged in the private practice of law. From August 1992 until April 1994, Mr. Heald was a managing director and the chief administrative officer of Calamos Asset Management, Inc., a registered investment adviser specializing in convertible securities, and he served as an officer and director of CFS Investment Trust, a registered investment company comprised of four series. From January 1990 until August 1992, Mr. Heald was a partner in the Chicago based law firm of Gardner, Carton & Douglas. The address of Mr. Forsyth and Mr. Holmberg is Frontegra Asset Management, Inc., 400 Skokie Blvd., Suite 500, Northbrook, Illinois 60062. Mr. Heald's address is 2745 Riverwoods Road, Riverwoods, Illinois 60015. As of September 30, 1996, officers and directors of the Company did not own any shares of common stock of the Total Return Bond Fund or the Opportunity Fund. Directors and officers of the Company who are also officers, directors, employees, or shareholders of Frontegra do not receive any remuneration from either of the Funds for serving as directors or officers. The following table provides information relating to compensation intended to be paid to directors of the Company for their services as such for the fiscal year ending September 30, 1997: Name Cash Compensation1 Other Compensation Total David L. Heald $ 2,000 $ 0 $ 2,000 All directors as a $ 2,000 $ 0 $ 2,000 group (3 persons) _____________________ PRINCIPAL SHAREHOLDERS As of September 30, 1996, the following persons owned of record or are known by the Company to own of record or beneficially 5% or more of the outstanding shares of each Fund: Name and Address Fund No. Shares Percentage Frontegra Asset Management, Inc. Total Return 1,666.667 50% 400 Skokie Blvd., Suite 500 Bond Fund Northbrook, IL 60062 Reams Asset Management Company, LLC Total Return 1,666.666 50% 227 Washington Street Bond Fund Columbus, IN 47201 As of September 30, 1996, Frontegra and Reams each owned a controlling interest in the Company. Shareholders with a controlling interest could effect the outcome of proxy voting or the direction of management of the Company. INVESTMENT ADVISER Frontegra Asset Management, Inc. ("Frontegra") is the investment adviser to the Funds. Mr. William D. Forsyth III and Mr. Thomas J. Holmberg, Jr., each own 50% of Frontegra. A brief description of the Funds' investment advisory agreement is set forth in the Prospectus under "MANAGEMENT." The Funds' advisory agreement is dated ____________________, 1996 (the "Advisory Agreement"). The Advisory Agreement has an initial term of two years and thereafter is required to be approved annually by the Board of Directors of the Company or by vote of a majority of each of the Fund's outstanding voting securities (as defined in the Investment Company Act). Each annual renewal must also be approved by the vote of a majority of the Company's directors who are not parties to the Advisory Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement was approved by the vote of a majority of the Company's directors who are not parties to the Advisory Agreement or interested persons of any such party on October 9, 1996 and by the initial shareholders of each Fund on October 9, 1996. The Advisory Agreement is terminable without penalty, on 60 days' written notice by the Board of Directors of the Company, by vote of a majority of each of the Fund's outstanding voting securities or by Frontegra, and will terminate automatically in the event of its assignment. Under the terms of the Advisory Agreement, Frontegra supervises the management of the Funds' investments and business affairs, subject to the supervision of the Company's Board of Directors. At its expense, Frontegra provides office space and all necessary office facilities, equipment and personnel for servicing the investments of the Funds. As compensation for its services, the Opportunity Fund pays to Frontegra a monthly advisory fee at the annual rate of 0.65% of the average daily net asset value of the Fund and the Total Return Bond Fund pays to Frontegra a monthly advisory fee at the annual rate of 0.40% of the average daily net asset value of the Fund. From time to time, Frontegra may voluntarily waive all or a portion of its management fee for the Funds. In fact, Frontegra has agreed to waive its management fee and/or reimburse each Fund's operating expenses to the extent necessary to ensure that the Opportunity and Total Return Bond Fund's total operating expenses do not exceed 0.90% and 0.50% of the respective Fund's average daily net assets for the first twelve months of each Fund's operations. The organizational expenses of each Fund were advanced by Frontegra and will be reimbursed by the Funds over a period of not more than 60 months. The organizational expenses were approximately $40,000 for the Total Return Bond Fund. The Advisory Agreement requires Frontegra to reimburse the Funds in the event that the expenses and charges payable by the Funds in any fiscal year, including the advisory fee but excluding taxes, interest, brokerage commissions, and similar fees, exceed those set forth in any statutory or regulatory formula prescribed by any state in which shares of the Funds are registered. Such excess is determined by valuations made as of the close of each business day of the year. The most restrictive percentage limitation currently applicable to the Funds will be 2-1/2% of each Fund's average net asset value up to $30,000,000, 2% on the next $70,000,000 of each Fund's average net asset value and 1-1/2% of each Fund's average net asset value in excess of $100,000,000. Reimbursement of expenses in excess of the applicable limitation will be made on a monthly basis and will be paid to the Funds by reduction of Frontegra's fee, subject to later adjustment, month by month, for the remainder of the Funds' fiscal year. Frontegra may from time to time voluntarily absorb expenses for the Funds in addition to the reimbursement of expenses in excess of applicable limitations. Frontegra has entered into an agreement with Reams Asset Management Company, LLC ("Reams") under which Reams serves as each Fund's portfolio manager and, subject to Frontegra's supervision, manages the Funds' portfolio assets. (Reams operated as a corporation (Reams Asset Management Company, Inc.) from its founding in 1981 until March 31, 1994, when it became an Indiana limited liability company (LLC), with no change in principals, employees or clients.) Under this agreement, and with certain exceptions described herein, Reams is compensated by Frontegra for its investment advisory services at the annual rate of 0.45% of the Opportunity Fund's average daily net assets; and 0.20% of the Total Return Bond Fund's average daily net assets. In recognition of the economies of scale that will be gained by the Funds and Frontegra, and with the exception of defined contribution or 401(k) investments in the Funds, for initial investments of over $15 million Frontegra will compensate Reams an extra 0.10% on the average daily net assets of such investments. Frontier Partners, Inc. acts as a third party solicitor on behalf of Reams and has a 2.2% nonvoting ownership interest in Reams. [/R] FUND TRANSACTIONS AND BROKERAGE Reams is responsible for decisions to buy and sell securities for the Funds and for the placement of the Funds' securities business, the negotiation of the commissions to be paid on such transactions and the allocation of portfolio brokerage and principal business. Reams seeks the best execution at the best security price available with respect to each transaction, in light of the overall quality of brokerage and research services provided to Reams or the Funds. The best price to the Funds means the best net price without regard to the mix between purchase or sale price and commission, if any. Purchases may be made from underwriters, dealers and, on occasion, the issuers. Commissions will be paid on the Funds' futures and options transactions. The purchase price of portfolio securities purchased from an underwriter or dealer may include underwriting commissions and dealer spreads. The Funds may pay mark-ups on principal transactions. In selecting broker-dealers and in negotiating commissions, Reams considers the firm's reliability, the quality of its execution services on a continuing basis and its financial condition. Brokerage will not be allocated based on the sale of a Fund's shares. Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer who supplies brokerage and research services a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction. Brokerage and research services include (a) furnishing advice as to the value of securities, the advisability of investing, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; (b) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and (c) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In selecting brokers, Reams considers investment and market information and other research, such as economic, securities and performance measurement research provided by such brokers and the quality and reliability of brokerage services, including execution capability, performance and financial responsibility. Accordingly, the commissions charged by any such broker may be greater than the amount another firm might charge if Reams determines in good faith that the amount of such commissions is reasonable in relation to the value of the research information and brokerage services provided by such broker to the Funds. Reams believes that the research information received in this manner provides the Funds with benefits by supplementing the research otherwise available to the Funds. The Subadvisory Agreement provides that such higher commissions will not be paid by the Funds unless (a) Reams determines in good faith that the amount is reasonable in relation to the services in terms of the particular transaction or in terms of Reams' overall responsibilities with respect to the accounts as to which it exercises investment discretion; (b) such payment is made in compliance with the provisions of Section 28(e), other applicable state and federal laws, and the Subadvisory Agreement; and (c) in the opinion of Reams, the total commissions paid by the Funds will be reasonable in relation to the benefits to the Funds over the long term. The investment advisory fees paid by the Funds under the Advisory Agreement are not reduced as a result of Reams' receipt of research services. Reams places portfolio transactions for other advisory accounts managed by Reams. Research services furnished by firms through which the Funds effect their securities transactions may be used by Reams in servicing all of its accounts; not all of such services may be used by Reams in connection with the Funds. Reams believes it is not possible to measure separately the benefits from research services to each of the accounts (including the Funds) managed by it. Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of those charged by another broker paid by each account for brokerage and research services will vary. However, Reams believes such costs to the Funds will not be disproportionate to the benefits received by the Funds on a continuing basis. Reams seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Funds and another advisory account. In some cases, this procedure could have an adverse effect on the price or the amount of securities available to the Funds. In making such allocations between the Fund and other advisory accounts, the main factors considered by Reams are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment and the size of investment commitments generally held. Each Fund anticipates that its portfolio turnover rate will not exceed 125%, and is expected to be between 75% and 125%. The annual portfolio turnover rate indicates changes in each Fund's securities holdings; for instance, a rate of 100% would result if all the securities in a portfolio (excluding securities whose maturities at acquisition were one year or less) at the beginning of an annual period had been replaced by the end of the period. The turnover rate may vary from year to year, as well as within a year, and may be affected by portfolio sales necessary to meet cash requirements for redemptions of the Funds' shares. CUSTODIAN As custodian of the Funds' assets, United Missouri Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141, has custody of all securities and cash of each Fund, delivers and receives payment for securities sold, receives and pays for securities purchased, collects income from investments and performs other duties, all as directed by the officers of the Company. TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT Sunstone Investor Services, LLC ("SIS") acts as transfer agent and dividend-disbursing agent for the Funds. SIS is compensated based on an annual fee per open account per $14, plus out of pocket expenses such as postage and printing expenses inc connection with share- holder communications, subject to a minimum fee of $12,000. TAXES Each Fund will be treated as a separate entity for Federal income tax purposes since the Tax Reform Act of 1986 requires that all portfolios of a series fund be treated as separate taxpayers. As indicated under "DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAX STATUS" in the Prospectus, each Fund intends to qualify annually as a "regulated investment company" under the Code. This qualification does not involve government supervision of the Funds' management practices or policies. A dividend or capital gain distribution received shortly after the purchase of shares reduces the net asset value of shares by the amount of the dividend or distribution and, although in effect a return of capital, will be subject to income taxes. Net gains on sales of securities when realized and distributed are taxable as capital gains. If the net asset value of shares were reduced below a shareholder's cost by distribution of gains realized on sales of securities, such distribution would be a return of investment although taxable as stated above. DETERMINATION OF NET ASSET VALUE As set forth in the Prospectus under the same caption, the net asset value of each of the Funds will be determined as of the close of trading on each day the New York Stock Exchange is open for trading. The Funds do not determine net asset value on days the New York Stock Exchange is closed and at other times described in the Prospectus. The New York Stock Exchange is closed on New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned holidays falls on a Saturday, the New York Stock Exchange will not be open for trading on the preceding Friday and when such holiday falls on a Sunday, the New York Stock Exchange will not be open for trading on the succeeding Monday, unless unusual business conditions exist, such as the ending of a monthly or the yearly accounting period. SHAREHOLDER MEETINGS Maryland law permits registered investment companies, such as the Company, to operate without an annual meeting of shareholders under specified circumstances if an annual meeting is not required by the Investment Company Act. The Company has adopted the appropriate provisions in its Bylaws and may, at its discretion, not hold an annual meeting in any year in which the election of directors is not required to be acted on by shareholders under the Investment Company Act. The Company's Bylaws also contain procedures for the removal of directors by shareholders of the Company. At any meeting of shareholders, duly called and at which a quorum is present, the shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. Upon the written request of the holders of shares entitled to not less than ten percent (10%) of all the votes entitled to be cast at such meeting, the Secretary of the Company shall promptly call a special meeting of shareholders for the purpose of voting upon the question of removal of any director. Whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least one percent (1%) of the total outstanding shares, whichever is less, shall apply to the Company's Secretary in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting as described above and accompanied by a form of communication and request which they wish to transmit, the Secretary shall within five business days after such application either: (1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Company; or (2) inform such applicants as to the approximate number of shareholders of record and the approximate cost of mailing to them the proposed communication and form of request. If the Secretary elects to follow the course specified in clause (2) of the last sentence of the preceding paragraph, the Secretary, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books unless within five business days after such tender the Secretary shall mail to such applicants and file with the SEC, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Board of Directors to the effect that, in their opinion, either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the SEC may, and if demanded by the Board of Directors or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the SEC shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the SEC shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Secretary shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender. PERFORMANCE INFORMATION As described in the "COMPARISON OF INVESTMENT RESULTS" section of the Funds' Prospectus, the Funds' historical performance or return may be shown in the form of various performance figures. The Funds' performance figures are based upon historical results and are not necessarily representative of future performance. Factors affecting the Funds' performance include general market conditions, operating expenses and investment management. Total Return The average annual total return of each Fund is computed by finding the average annual compounded rates of return over the periods that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1+T)n = ERV P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the stated periods at the end of the stated periods. Performance for a specific period is calculated by first taking an investment (assumed to be $1,000) ("initial investment") in a Fund's shares on the first day of the period and computing the "ending value" of that investment at the end of the period. The total return percentage is then determined by subtracting the initial investment from the ending value and dividing the remainder by the initial investment and expressing the result as a percentage. The calculation assumes that all income and capital gains dividends paid by a Fund have been reinvested at the net asset value of the Fund on the reinvestment dates during the period. Total return may also be shown as the increased dollar value of the hypothetical investment over the period. Cumulative total return represents the simple change in value of an investment over a stated period and may be quoted as a percentage or as a dollar amount. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship between these factors and their contributions to total return. Yield The Total Return Bond Fund's yield is computed in accordance with a standardized method prescribed by rules of the SEC. Under that method, the current yield quotation for the Fund is based on a one month or 30- day period. The yield is computed by dividing the net investment income per share earned during the 30-day or one month period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD=2[(a-b +1)6-1] cd Where: a=dividends and interest earned during the period. b=expenses accrued for the period (net of reimbursements). c=the average daily number of shares outstanding during the period that were entitled to receive dividends. d=the maximum offering price per share on the last day of the period. Volatility Occasionally statistics may be used to specify a Fund's volatility or risk. Measures of volatility or risk are generally used to compare a Fund's net asset value or performance relative to a market index. One measure of volatility is beta. Beta is the volatility of a fund relative to the total market as represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility greater than the market, and a beta of less than 1.00 indicates volatility less than the market. Another measure of volatility or risk is standard deviation. Standard deviation is used to measure variability of net asset value or total return around an average, over a specified period of time. The premise is that greater volatility connotes greater risk undertaken in achieving performance. Comparisons From time to time, in marketing and other Fund literature, the Funds' performance may be compared to the performance of other mutual funds in general or to the performance of particular types of mutual funds with similar investment goals, as tracked by independent organizations. Among these organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets, may be cited. Lipper performance figures are based on changes in net asset value, with all income and capital gains dividends reinvested. Such calculations do not include the effect of any sales charges imposed by other funds. The Funds will be compared to Lipper's appropriate fund category, that is, by fund objective and portfolio holdings. The Funds' performance may also be compared to the performance of other mutual funds by Morningstar, Inc., which ranks funds on the basis of historical risk and total return. Morningstar's rankings range from five stars (highest) to one star (lowest) and represent Morningstar's assessment of the historical risk level and total return of a fund as a weighted average for 3, 5 and 10 year periods. Rankings are not absolute or necessarily predictive of future performance. Evaluations of Fund performance made by independent sources may also be used in advertisements concerning the Funds, including reprints of or selections from, editorials or articles about the Funds. Sources for Fund performance and articles about the Funds may include publications such as Money, Forbes, Kiplinger's, Financial World, Business Week, U.S. News and World Report, the Wall Street Journal, Barron's and a variety of investment newsletters. The Funds may compare their performance to a wide variety of indices and measures of inflation including the Standard & Poor's Index of 500 Stocks, the NASDAQ Over-the-Counter Composite Index, the Russell 2500 Index and the Lehman Aggregate Bond Index. There are differences and similarities between the investments that the Funds may purchase for their respective portfolios and the investments measured by these indices. Investors may want to compare the Funds' performance to that of certificates of deposit offered by banks and other depositary institutions. Certificates of deposit may offer fixed or variable interest rates and principal is guaranteed and may be insured. Withdrawal of the deposits prior to maturity normally will be subject to a penalty. Rates offered by banks and other depositary institutions are subject to change at any time specified by the issuing institution. Investors may also want to compare performance of the Funds to that of money market funds. Money market fund yields will fluctuate and shares are not insured, but share values usually remain stable. INDEPENDENT AUDITORS Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, IL 60606-6301, have been selected as the independent auditors for the Funds. Ernst & Young will audit and report on the Funds' annual financial statements, review certain regulatory reports and the Funds' federal income tax returns, and perform other professional accounting auditing, tax and advisory services when engaged to do so by the Funds. FINANCIAL STATEMENTS The following financial statements of the Total Return Bond Fund are contained herein: (a) Report of Independent Auditors. Report of Independent Auditors To the Shareholders and Board of Directors of Frontegra Funds, Inc. We have audited the accompanying statement of assets and liabilities of the Total Return Bond Fund, comprising the Frontegra Funds, Inc. (the "Company"), as of September 30, 1996. This statement of assets and liabilities is the responsibility of the Company's management. Our responsibility is to express an opinion on this statement of assets and liabilities based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets and liabilities. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of assets and liabilities presentation. We believe that our audit of the statement of assets and liabilities provides a reasonable basis for our opinion. In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of the Total Return Bond Fund at September 30, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois September 30, 1996 (b) Statement of Assets and Liabilities. FRONTEGRA FUNDS, INC. Total Return Bond Fund Statement of Assets and Liabilities September 30, 1996 Assets: Cash $100,000 Unamortized organization costs 39,762 Prepaid initial registration expense 5,888 Total assets 145,650 Liabilities: Accrued organizational costs 28,042 Payable to Adviser 17,608 Total liabilities 45,650 Net assets $100,000 Represented by: Capital stock, $0.01 par value (100,000 000 shares authorized and 3,333 shares outstanding) $ 33 Additional paid-in capital 99,967 Net assets $100,000 Offering price, redemption price and net asset value per share (based on 3,333 shares of capital stock) $30.00 See accompanying notes to Statement of Assets and Liabilities. (c) Notes to Statement of Assets and Liabilities. Frontegra Funds, Inc. Notes to Statement of Assets and Liabilities September 30, 1996 (1) Organization Frontegra Funds, Inc. ("Frontegra") was organized in May, 1996 as a Maryland corporation and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its shares in series, each series representing a distinct portfolio with its own investment objectives and policies. The only series presently authorized is the Total Return Bond Fund (the "Fund"). The Fund has had no operations other than those relating to organizational matters, including the sale of 3,333 shares to capitalize the Fund of which 1,667 shares were sold to Frontegra Asset Management, Inc. (the "Adviser") and 1,666 shares were sold to Reams Asset Management LLC (the "Sub-Adviser") on September 30, 1996 for cash in the amount of $50,000 each. (2)Significant Accounting Policies (a)Organization Costs Costs incurred by the Fund in connection with their organization, registration and the initial public offering of shares have been deferred and will be amortized over the period of benefit, but not to exceed five years from the date upon which the Fund commenced its investment activities. If any of the original shares of the Fund purchased by the Adviser or Sub-Adviser are redeemed by any holder thereof prior to the end of the amortization period, the redemption proceeds will be reduced by the pro rata share of the unamortized costs as of the date of redemption. The pro rata share by which the proceeds are reduced will be derived by dividing the number of original shares of the Fund being redeemed by the total number of original shares outstanding at the time of redemption. (b)Federal Income Taxes The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and to make the requisite distributions of income to its shareholders which will be sufficient to relieve it from all or substantially all Federal income taxes. (3) Investment Adviser The Fund has an agreement with the Adviser to furnish investment advisory services to the Fund. Under the terms of this agreement, the Adviser is compensated at 0.40% of average daily net assets of the Fund. The Adviser has agreed to voluntarily reduce its fees for expenses (exclusive of brokerage, interest, taxes and extraordinary expenses) that exceed the expense limitation of 0.50% for the Fund during the first twelve months of operations. (4)Sub-Adviser The Adviser has entered into an agreement with the Sub-Adviser to serve as the Fund's portfolio manager, subject to the Adviser's supervision. Under the terms of the agreement, the Sub-Adviser is compensated by the Adviser at 0.20% of average daily net assets of the Fund. For initial investments of over $15 million, the Adviser will compensate the Sub-Adviser an extra 0.10% on the average daily net assets of such investments (excluding defined contribution or 401(k) investments). (5)Administrator Sunstone Financial Group, Inc. (the "Administrator") acts as Administrator for the Fund. As compensation for its administrative services and the assumption of certain administrative expenses, the Administrator is entitled to a fee computed daily and payable monthly, at an annual rate of 0.20% on the first $50,000,000 of average net assets and 0.07% in excess of $50,000,000 of average net assets subject to an annual minimum of $65,000 per Fund, plus out of pocket expenses. The Administrator may periodically volunteer to reduce all or a portion of its administrative fee with respect to the Fund. These waivers may be terminated at any time at the Administrator's discretion. The Administrator may not seek reimbursement of such voluntarily reduced fees at a later date. The reduction of such fee will cause the yield of the Fund to be higher than it would be in the absence of such reduction. (6)Capital Stock Frontegra is authorized to issue a total of 500,000,000 shares of common stock in series with a par value of $0.01 per share. 100,000,000 of these shares have been authorized by the Board of Directors to be issued in total for the series designated as Total Return Bond shares. The Board of Directors is empowered to issue other series of Frontegra's shares without shareholder approval. Each share of stock will have a pro rata interest in the assets of the Fund to which the stock of that series relates and will have no interest in the assets of any other Fund. APPENDIX BOND RATINGS Standard & Poor's Debt Ratings A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell or hold a security, as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: 1. Likelihood of default -- capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; 2.Nature of and provisions of the obligation; and 3.Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. Investment Grade AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rated 'AA' has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated 'A' has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Speculative grade Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. 'BB' indicates the least degree of speculation and 'C' the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB- ' rating. B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC Debt rated 'CC' typically is applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C Debt rated 'C' typically is applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. CI The rating 'CI' is reserved for income bonds on which no interest is being paid. D Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Moody's Long-Term Debt Ratings Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper- medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa - Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such Bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes Bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Fitch Investors Service, Inc. Bond Ratings Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Bonds that have the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of the issuers is generally rated 'F- 1+'. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an assessment of the ultimate recovery value through reorganization or liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the same rating are of similar but not necessarily identical credit quality since the rating categories cannot fully reflect the differences in the degrees of credit risk. BB Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C Bonds are in imminent default in payment of interest or principal. DDD, DD and D Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery of these bonds, and 'D' represents the lowest potential for recovery. Duff & Phelps, Inc. Long-Term Debt Ratings These ratings represent a summary opinion of the issuer's long-term fundamental quality. Rating determination is based on qualitative and quantitative factors which may vary according to the basic economic and financial characteristics of each industry and each issuer. Important considerations are vulnerability to economic cycles as well as risks related to such factors as competition, government action, regulation, technological obsolescence, demand shifts, cost structure, and management depth and expertise. The projected viability of the obligor at the trough of the cycle is a critical determination. Each rating also takes into account the legal form of the security, (e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating dispersion among the various classes of securities is determined by several factors including relative weightings of the different security classes in the capital structure, the overall credit strength of the issuer, and the nature of covenant protection. The Credit Rating Committee formally reviews all ratings once per quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall within the definition of investment grade securities, as defined by bank and insurance supervisory authorities. Structured finance issues, including real estate, asset- backed and mortgage-backed financings, use this same rating scale. Duff & Phelps Credit Rating claims paying ability ratings of insurance companies use the same scale with minor modification in the definitions. Thus, an investor can compare the credit quality of investment alternatives across industries and structural types. A "Cash Flow Rating" (as noted for specific ratings) addresses the likelihood that aggregate principal and interest will equal or exceed the rated amount under appropriate stress conditions. Rating Scale Definition AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA+ High credit quality. Protection factors are strong. Risk is modest, but may AA vary slightly from time to time because of economic conditions. AA- A+ Protection factors are average but adequate. However, risk factors are more A variable and greater in periods of economic stress. A- BBB+ Below average protection factors but still considered sufficient for prudent BBB investment. Considerable variability in risk during economic cycles. BBB- BB+ Below investment grade but deemed likely to meet obligations when due. BB Present or prospective financial protection factors fluctuate according to BB- industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+ Below investment grade and possessing risk that obligations will not be met B when due. Financial protection factors will fluctuate widely according to B- economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade. CCC Well below investment grade securities. Considerable uncertainty exists as to timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. DP Preferred stock with dividend arrearages. SHORT-TERM RATINGS Standard & Poor's Commercial Paper Ratings A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings graded into several categories, ranging from 'A-1' for the highest quality obligations to 'D' for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated 'A-1'. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated 'B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. Moody's Commercial Paper Ratings The term "commercial paper" as used by Moody's means promissory obligations not having an original maturity in excess of nine months. Moody's makes no representation as to whether such commercial paper is by any other definition "commercial paper" or is exempt from registration under the Securities Act of 1933, as amended. Moody's commercial paper ratings are opinions on the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's makes no representation that such obligations are exempt from registration under the Securities Act of 1933, nor does it represent that any specific note is a valid obligation of a rated issuer or issued in conformity with any applicable law. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: (i) leading market positions in well established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structures with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Fitch Investors Service, Inc. Short-Term Ratings Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1+ Exceptionally Strong Credit Quality Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated 'F-1+'. F-2 Good Credit Quality Issues assigned this rating have a satisfactory degree of assurance for timely payment but the margin of safety is not as great as for issues assigned 'F-1+' and 'F-1' ratings. F-3 Fair Credit Quality Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes could cause these securities to be rated below investment grade. F-S Weak Credit Quality Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D Default Issues assigned this rating are in actual or imminent payment default. LOC The symbol LOC indicates that the rating is based on a letter of credit issued by a commercial bank. Duff & Phelps, Inc. Short-Term Debt Ratings Duff & Phelps' short-term ratings are consistent with the rating criteria used by money market participants. The ratings apply to all obligations with maturities of under one year, including commercial paper, the uninsured portion of certificates of deposit, unsecured bank loans, master notes, bankers acceptances, irrevocable letters of credit, and current maturities of long-term debt. Asset-backed commercial paper is also rated according to this scale. Emphasis is placed on liquidity which is defined as not only cash from operations, but also access to alternative sources of funds including trade credit, bank lines, and the capital markets. An important consideration is the level of an obligor's reliance on short-term funds on an ongoing basis. The distinguishing feature of Duff & Phelps Credit Ratings' short-term ratings is the refinement of the traditional '1' category. The majority of short-term debt issuers carry the highest rating, yet quality differences exist within that tier. As a consequence, Duff & Phelps Credit Rating has incorporated gradations of '1+' (one plus) and '1-' (one minus) to assist investors in recognizing those differences. These ratings are recognized by the SEC for broker- dealer requirements, specifically capital computation guidelines. These ratings meet Department of Labor ERISA guidelines governing pension and profit sharing investments. State regulators also recognize the ratings of Duff & Phelps Credit Rating for insurance company investment portfolios. Rating Scale: Definition High Grade D-1+ Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk-free U.S. Treasury short- term obligations. D-1 Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. D-1- High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. Good Grade D-2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. Satisfactory Grade D-3 Satisfactory liquidity and other protection factors qualify issue as to investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Non-investment Grade D-4 Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt service. Operating factors and market access may be subject to a high degree of variation. Default D-5 Issuer failed to meet scheduled principal and/or interest payments. PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements (All included in Parts A and B) Financial Statements - Total Return Bond Fund Report of Independent Auditors Notes to Statements of Assets and Liabilities (b) Exhibits (1) Registrant's Articles of Incorporation (2) Registrant's By-Laws (3) None (4) None (5.1) Investment Advisory Agreement (5.2) Subadvisory Agreement (6) None (7) None (8) Custodian Agreement with United Missouri Bank, n.a. (9.1) Transfer Agency Agreement with Sunstone Investor Services, LLC (9.2) Administration and Fund Accounting Agreement with Sunstone Financial Group, Inc. (10) Opinion and Consent of Godfrey & Kahn, S.C. (11) Consent of Ernst & Young LLP (12) None (13) Subscription Agreements (14) Individual Retirement Trust Account (15) None (16) None (17) None (18) None (19) Powers of Attorney for Directors and Officers (see signature page) Item 25. Persons Controlled by or under Common Control with Registrant Registrant neither controls any person nor is under common control with any other person. Item 26. Number of Holders of Securities Number of Record Holders Title of Securities as of September 30, 1996 Common Stock, $.01 par value 2 Item 27. Indemnification Article VI of Registrant's By-Laws provides as follows: ARTICLE VI INDEMNIFICATION The Corporation shall indemnify (a) its Directors and officers, whether serving the Corporation or at its request any other entity, to the full extent required or permitted by (i) Maryland law now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law, and (ii) the Investment Company Act of 1940, as amended, and (b) other employees and agents to such extent as shall be authorized by the Board of Directors and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. Item 28. Business and Other Connections of Investment Adviser None. Item 29. Principal Underwriters (a) None (b) None (c) None Item 30. Location of Accounts and Records All accounts, books or other documents required to be maintained by section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the possession of Frontegra Asset Management, Inc., Registrant's investment adviser, at Registrant's corporate offices, except (1) records held and maintained by United Missouri Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141, relating to its function as custodian and (2) records held and maintained by Sunstone Financial Group, Inc., 207 E. Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202, relating to its function as transfer agent, administrator, and fund accountant. Item 31. Management Services All management-related service contracts entered into by Registrant are discussed in Parts A and B of this Registration Statement. Item 32. Undertakings. (a) Registrant undertakes to call a meeting of shareholders, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, for the purpose of voting upon the question of removal of a director or directors. The Registrant also undertakes to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940; and (b) Registrant undertakes to file a post- effective amendment to this Registration Statement within four to six months of the effective date of this Registration Statement which will contain financial statements (which need not be certified) as of and for the time period reasonably close or as soon as practicable to the date of such post- effective amendment. (c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge, when information relating to management's discussion of fund performance is contained in the latest annual report to shareholders. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 9th day of October, 1996. FRONTEGRA FUNDS, INC. (Registrant) By: /s/ William D. Forsyth III ____________________________ William D. Forsyth III Co-President Each person whose signature appears below constitutes and appoints William D. Forsyth III and Thomas J. Holmberg, Jr., and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all pre-effective amendments to this Registration Statement and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission and any other regulatory body, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A has been signed below by the following persons in the capacities and on the date(s) indicated. Name Title Date /s/ William D. Forsyth III Co-President and a Director October 9, 1996 - - - -------------------------- William D. Forsyth III /s/ Thomas J. Holmberg, Jr. Co-President and a Director October 9, 1996 - - - --------------------------- Thomas J. Holmberg, Jr. /s/ David L. Heald Director October 9, 1996 ___________________________ David L. Heald EXHIBIT INDEX Exhibit No. Exhibit (1) Registrant's Articles of Incorporation (previously filed as Exhibit No. 1 to the Registration Statement on Form N-1A; File Nos. 333-703 and 811-7685) (2) Registrant's By-Laws (previously filed as Exhibit No. 2 to the Registration Statement on Form N-1A; File Nos. 333-7305 and 811-7685) (3) None (4) None (5.1) Investment Advisory Agreement (5.2) Subadvisory Agreement (6) None (7) None (8) Custodian Agreement with United Missouri Bank, n.a. (9.1) Transfer Agency Agreement with Sunstone Investor Services, LLC (9.2) Administration and Fund Accounting Agreement with Sunstone Financial Group,Inc. (10) Opinion and Consent of Godfrey & Kahn, S.C. (11) Consent of Ernst & Young LLP (12) None (13.1) Subscription Agreement (Reams Asset Management Company, LLC) (13.2) Subscription Agreement (Frontegra Asset Management, Inc.) (14) Individual Retirement Trust Account (15) None (16) None (17) None (18) None (19) Powers of Attorney for Directors and Officers (see signature page) _______________________________ 1 The director who is not deemed an "interested person," as defined in the Investment Company Act, will receive $500 for each board of directors meeting attended by that person. At such time as the Company's assets equal or exceed $100,000,000, the disinterested director will receive $2,500 for each board of directors meeting attended. The board intends to hold 4 meetings during fiscal 1997, and the Funds are not expected to have assets equal to or exceeding $100,000,000 at such time. Thus, the disinterested director described above is expected to receive $2,000 during such time period from the Company. EX-5.1 2 FRONTEGRA FUNDS, INC. INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT is entered into as of the ____ day of _________, 1996, between Frontegra Funds, Inc., a Maryland corporation (the "Corporation"), and Frontegra Asset Management, Inc., an Illinois corporation ("Frontegra"). W I T N E S S E T H WHEREAS, the Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Act"). The Corporation is authorized to create separate series, each with its own separate investment portfolio (the "Funds"), and the beneficial interest in each such series will be represented by a separate series of shares (the "Shares"). WHEREAS, Frontegra is a registered investment adviser, engaged in the business of rendering investment advisory services. WHEREAS, in managing the Corporation's assets, as well as in the conduct of certain of its affairs, the Corporation seeks the benefit of Frontegra's services and its assistance in performing certain managerial functions. Frontegra desires to furnish such services and to perform the functions assigned to it under this Agreement for the consideration provided for herein. NOW THEREFORE, the parties mutually agree as follows: 1. Appointment. The Corporation hereby appoints Frontegra as investment adviser for each of the Funds of the Corporation on whose behalf the Corporation executes an Exhibit to this Agreement, and Frontegra, by execution of each such Exhibit, accepts the appointments. Subject to the direction of the Board of Directors (the "Directors") of the Corporation, Frontegra shall manage the investment and reinvestment of the assets of each Fund in accordance with the Fund's investment objective and policies and limitations, for the period and upon the terms herein set forth. The investment of funds shall also be subject to all applicable restrictions of the Articles of Incorporation and Bylaws of the Corporation as may from time to time be in force. Frontegra is hereby authorized to delegate its duties hereunder to a subadviser pursuant to a written agreement under which the subadviser shall furnish the services specified therein to Frontegra. Frontegra will continue to have responsibility for all investment advisory services furnished pursuant to any agreement with a subadviser. 2. Management Functions. In addition to the expenses which Frontegra may incur in the performance of its responsibilities under this Agreement, and the expenses which it may expressly undertake to incur and pay, Frontegra shall incur and pay the following expenses: (a) Reasonable compensation, fees and related expenses of the Corporation's officers and its Directors, except for such Directors who are not interested persons (as that term is defined in Section 2(a)(19) of the Act) of Frontegra; (b) Rental of offices of the Corporation; and (c) All expenses of promoting the sale of Shares of the Funds other than expenses incurred in complying with federal and state laws and the law of any foreign country applicable to the issue, offer, or sale of Shares of the Funds. 3. Investment Advisory Functions. In its capacity as investment adviser, Frontegra shall have the following responsibilities: (a) To furnish continuous advice and recommendations to the Funds, as to the acquisition, holding or disposition of any or all of the securities or other assets which the Funds may own or contemplate acquiring from time to time; (b) To cause its officers to attend meetings and furnish oral or written reports, as the Corporation may reasonably require, in order to keep the Directors and appropriate officers of the Corporation fully informed as to the condition of the investments of the Funds, the investment recommendations of Frontegra, and the investment considerations which have given rise to those recommendations; and (c) To supervise the purchase and sale of securities or other assets as directed by the appropriate officers of the Corporation. The services of Frontegra are not to be deemed exclusive and Frontegra shall be free to render similar services to others as long as its services for others does not in any way hinder, preclude or prevent Frontegra from performing its duties and obligations under this Agreement. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of Frontegra, Frontegra shall not be subject to liability to the Corporation, the Funds, or to any shareholder for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 4. Obligations of the Corporation. The Corporation shall have the following obligations under this Agreement: (a) To keep Frontegra continuously and fully informed as to the composition of the Funds' investments and the nature of all of its assets and liabilities; (b) To furnish Frontegra with a copy of any financial statement or report prepared for it by certified or independent public accountants, and with copies of any financial statements or reports made to the Funds' shareholders or to any governmental body or securities exchange; (c) To furnish Frontegra with any further materials or information which Frontegra may reasonably request to enable it to perform its functions under this Agreement; and (d) To compensate Frontegra for its services in accordance with the provisions of paragraph 5 hereof. 5. Compensation. Each Fund shall pay to Frontegra for its services a monthly fee, as set forth on the Exhibits hereto, payable on the last day of each month during which or during part of which this Agreement is in effect. For the month during which this Agreement becomes effective and any month during which it terminates, however, there shall be an appro priate proration of the fee payable for such month based on the number of calendar days of such month during which this Agreement is effective. Frontegra may from time to time and for such periods as it deems appropriate reduce its compensation (and/or assume expenses) for one or more of the Funds. 6. Expenses Paid by Corporation. (a) Except as provided in this paragraph, nothing in this Agreement shall be construed to impose upon Frontegra the obligation to incur, pay, or reimburse the Corporation for any expenses not specifically assumed by Frontegra under paragraph 2 above. Each Fund shall pay or cause to be paid all of its expenses and the Fund's allocable share of the Corporation's expenses, including, but not limited to, investment adviser fees; any compensation, fees, or reimbursements which the Corporation pays to its Directors who are not interested persons (as that phrase is defined in Section 2(a)(19) of the Act) of Frontegra; fees and expenses of the custodian, transfer agent, registrar or dividend disbursing agent; current legal, accounting and printing expenses; administrative, clerical, recordkeeping and bookkeeping expenses; brokerage commissions and all other expenses in connection with the execution of Fund transactions; interest; all federal, state and local taxes (including stamp, excise, income and franchise taxes); expenses of shareholders' meetings and of preparing, printing and distributing proxy statements, notices and reports to shareholders; expenses of preparing and filing reports and tax returns with federal and state regulatory authorities; and all expenses incurred in complying with all federal and state laws and the laws of any foreign country applicable to the issue, offer, or sale of Shares of the Funds, including but not limited to, all costs involved in the registration or qualification of Shares of the Funds for sale in any jurisdiction and all costs involved in preparing, printing and distributing prospectuses and statements of additional information to existing shareholders of the Funds. (b) if expenses borne by a Fund in any fiscal year (including Frontegra's fee, but excluding interest, taxes, fees incurred in acquiring and disposing of Fund securities and, to the extent permitted, extraordinary expenses), exceed those set forth in any statutory or regulatory formula prescribed by any state in which Shares of a Fund are registered at such time, Frontegra will reimburse the Fund for any excess. 7. Brokerage Commissions. For purposes of this Agreement, brokerage commissions paid by a Fund upon the purchase or sale of securities shall be considered a cost of the securities of the Fund and shall be paid by the respective Fund. Frontegra is authorized and directed to place Fund transactions only with brokers and dealers who render satisfactory service in the execution of orders at the most favorable prices and at reasonable commission rates, provided, however, that Frontegra may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if Frontegra determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of either that particular transaction or the overall responsibilities of Frontegra. In placing Fund business with such broker or dealers, Frontegra shall seek the best execution of each transaction, and all such brokerage placement shall be made in compliance with Section 28(e) of the Securities Exchange Act of 1934 and other applicable state and federal laws. Notwithstanding the foregoing, the Corporation shall retain the right to direct the placement of all Fund transactions, and the Directors may establish policies or guidelines to be followed by Frontegra in placing Fund transactions for the Funds pursuant to the foregoing provisions. 8. Proprietary Rights. Frontegra has proprietary rights in each Fund's name and the Corporation's name. Frontegra may withdraw the use of such names from the Fund or the Corporation. 9. Termination. This Agreement may be terminated at any time, without penalty, by the Directors of the Corporation or by the shareholders of a Fund acting by the vote of at least a majority of its outstanding voting securities (as that phrase is defined in Section 2(a)(42) of the Act), provided in either case that 60 days' written notice of termination be given to Frontegra at its principal place of business. This Agreement may be terminated by Frontegra at any time by giving 60 days' written notice of termination to the Corporation, addressed to its principal place of business. 10. Assignment. This Agreement shall terminate automatically in the event of any assignment (as the term is defined in Section 2(a)(4) of the Act) of this Agreement. 11. Term. This Agreement shall begin for each Fund as of the date of execution of the applicable Exhibit and shall continue in effect with respect to each Fund (and any subsequent Funds added pursuant to an Exhibit during the initial term of this Agreement) for two years from the date of this Agreement and thereafter for successive periods of one year, subject to the provisions for termination and all of the other terms and conditions hereof if such continuation shall be specifically approved at least annually by the vote of a majority of the Directors of the Corporation, including a majority of the Directors who are not parties to this Agreement or interested persons of any such party (other than as Directors of the Corporation), cast in person at a meeting called for that purpose. If a Fund is added after the first approval by the Directors as described above, this Agreement will be effective as to that Fund upon execution of the applicable Exhibit and will continue in effect until the next annual approval of this Agreement by the Directors and thereafter for successive periods of one year, subject to approval as described above. 12. Amendments. This Agreement may be amended by the mutual consent of the parties, provided that the terms of each such amendment shall be approved by the Directors or by of the affirmative vote of a majority of the outstanding voting securities (as that phrase is defined in Section 2(a)(42) of the Act) of each Fund. This Agreement will become binding on the parties hereto upon their execution of the Exhibits to this Agreement. EXHIBIT A to the Investment Advisory Agreement FRONTEGRA OPPORTUNITY FUND For all services rendered by Frontegra hereunder, the above-named Fund of the Corporation shall pay Frontegra and Frontegra agrees to accept as full compensation for all services rendered hereunder, an annual investment advisory fee equal to 0.65 of 1% of the average daily net assets of the Fund. The portion of the fee based upon the average daily net assets of the Fund shall be accrued daily at the rate of 1/365th of 0.65 of 1% applied to the daily net assets of the Fund. The advisory fee so accrued shall be paid to Frontegra monthly. Executed this _____ day of _________________, 19___. FRONTEGRA ASSET MANAGEMENT, INC. By:________________________________ William D. Forsyth, Co-President FRONTEGRA FUNDS, INC. By:________________________________ Thomas J. Holmberg, Co-President EXHIBIT B to the Investment Advisory Agreement FRONTEGRA TOTAL RETURN BOND FUND For all services rendered by Frontegra hereunder, the above-named Fund of the Corporation shall pay Frontegra and Frontegra agrees to accept as full compensation for all services rendered hereunder, an annual investment advisory fee equal to 0.40 of 1% of the average daily net assets of the Fund. The portion of the fee based upon the average daily net assets of the Fund shall be accrued daily at the rate of 1/365th of 0.40 of 1% applied to the daily net assets of the Fund. The advisory fee so accrued shall be paid to Frontegra monthly. Executed this _____ day of _________________, 19___. FRONTEGRA ASSET MANAGEMENT, INC. By:________________________________ William D. Forsyth, Co-President FRONTEGRA FUNDS, INC. By:________________________________ Thomas J. Holmberg, Co-President EX-5.2 3 SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT dated ____________, 1996, between Frontegra Asset Management, Inc., an Illinois corporation (the "Adviser"), and Reams Asset Management Company, LLC, a limited liability company organized under the laws of the State of Indiana (the "Sub-Adviser"). WHEREAS the Adviser has entered into an Investment Advisory Agreement dated ____________, 1996 (the "Advisory Agreement") with Frontegra Funds, Inc. (the "Fund"), an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to certain of the Fund's investment portfolios; and WHEREAS the Adviser wishes to retain the Sub- Adviser to furnish certain investment advisory services to such portfolios, and the Sub-Adviser is willing to furnish those services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. Appointment. The Adviser hereby appoints the Sub-Adviser as an investment sub-adviser with respect to each of the Fund's portfolios named on an Exhibit to this Agreement (each, a "Portfolio") for the period and on the terms set forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Duties as Sub-Adviser. (a) Subject to the supervision of and any guidelines adopted by the Fund's Board of Directors (the "Board") and the Adviser, the Sub-Adviser will provide a continuous investment program for the Portfolios, including investment research and management. The Sub-Adviser will determine from time to time what investments will be purchased, retained or sold by the Portfolios. The Sub-Adviser will be responsible for placing purchase and sell orders for investments and for other related transactions. The Sub-Adviser will provide services under this Agreement in accordance with each Portfolio's investment objectives, policies and restrictions as stated with respect to such Portfolio in the Fund's Registration Statement on Form N-1A. (b) The Sub-Adviser agrees that, in placing orders with brokers, it will obtain the best net result in terms of price and execution; provided that, on behalf of the Portfolio's, the Sub-Adviser may, in its discretion, use brokers who provide the Sub-Adviser with research, analysis, advice and similar services to execute transactions with respect to a Portfolio, and the Sub-Adviser may pay to those brokers in return for brokerage and research services a higher commission than may be charged by other brokers, so long as (i) such commission is paid in compliance with all applicable state and Federal laws and in accordance with this Agreement and (ii) the Sub-Adviser has determined in good faith that such commission is reasonable in terms either of the particular transaction or of the overall responsibility of the Sub- Adviser to such Portfolio and its other clients and that the total commissions paid by such Portfolio will be reasonable in relation to the benefits to such Portfolio over the long term. In no instance will securities of any Portfolio be purchased from or sold to the Sub-Adviser, or any affiliated person thereof except in accordance with the Federal securities laws and the rules and regulations thereunder. The Sub- Adviser may aggregate sales and purchase orders with respect to the assets of the Portfolios with similar orders being made simultaneously for other accounts advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or sell the same security on behalf of a Portfolio and one or more other accounts advised by the Sub-Adviser, the orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable over time to each such account. The Adviser recognizes that in some cases this procedure may adversely affect the results obtained for such Portfolio. (c) The Sub-Adviser will maintain all books and records required to be maintained by the Sub- Adviser pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions by the Sub-Adviser on behalf of the Portfolios, and will furnish the Board and the Adviser with such periodic and special reports as the Board or the Adviser may reasonably request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains for the Portfolios are the property of the Fund, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for the Fund and which are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Fund any records which it maintains for the Portfolios upon request by the Fund. (d) At such times as shall be reasonably requested by the Board or the Adviser, the Sub-Adviser will provide the Board and the Adviser with economic and investment analyses and reports as well as quarterly reports setting forth the performance of the Portfolios and make available to the Board and the Adviser any economic, statistical and investment services normally available to institutional or other customers of the Sub-Adviser. Upon reasonable advance notice, twice each calendar year the Sub-Adviser will make its officers and employees available to meet with the Board and employees of the Fund at the Fund's principal place of business or another mutually agreed upon location to review the securities of the Portfolios. (e) In accordance with procedures adopted by the Board, as amended from time to time, the Sub- Adviser is responsible for assisting in the fair valuation of all securities constituting the Portfolios and will use its reasonable efforts to arrange for the provision of a price from a party or parties independent of the Sub-Adviser for each security constituting part of a Portfolio for which the Fund or the Fund's administrator is unable to obtain prices in the ordinary course of business from an automated pricing service. 3. Further Duties. In all matters relating to the performance of this Agreement, the Sub-Adviser will act in conformity with the Fund's Articles of Incorporation, By-laws and currently effective registration statement under the 1940 Act and any amendments or supplements thereto (the "Registration Statement") and with the written instructions and written directions of the Board and the Adviser and will comply with the requirements of the 1940 Act, the Investment Advisers Act of 1940, as amended (the "Advisers Act"), the rules under each, Subchapter M of the Internal Revenue Code of 1986 (the "Code") as applicable to regulated investment companies, the diversification requirements applicable to the Portfolios under Section 817(h) of the Code and all other applicable Federal and state laws and regulations. The Adviser agrees to provide to the Sub- Adviser copies of the Fund's Articles of Incorporation, By-laws, Registration Statement, written instructions and directions of the Board and the Adviser, and any amendments or supplements to any of these materials as soon as practicable after such materials become available; provided, however, that the Sub-Adviser's duty under this Agreement to act in conformity with any document, instruction or guidelines produced by the Fund or the Adviser shall not arise until it has been delivered to the Sub-Adviser. In making any changes to a Portfolio's objectives, policies or restrictions the Board will make due allowance for the time within which the Sub-Adviser shall have to bring such Portfolio into compliance with such changes. 4. Proxies. The Sub-Adviser shall have the power to vote all securities constituting a Portfolio and shall not be required to seek or take instruction from the Adviser or the Fund with respect to any such vote. 5. Expenses. During the term of this Agreement, the Sub-Adviser will bear all expenses incurred by it in connection with its services under this Agreement other than commissions, taxes, fees or other charges or expenses directly related to the purchase, sale or exchange of any securities for the Portfolios. The Sub-Adviser shall not be responsible for any expenses incurred by the Fund, the Portfolios or the Adviser. 6. Compensation. (a) For the services provided by the Sub-Adviser with respect to a Portfolio pursuant to this Agreement, the Adviser will pay to the Sub-Adviser a fee, computed daily and payable monthly, at an annual rate of (i) the fee percentage of such Portfolio's average daily net assets (computed in the manner specified in the Advisory Agreement) set forth on the Exhibit relating to such Portfolio plus (ii) 0.10% of the average daily net assets of such Portfolio attributable to investors in such Portfolio whose initial investment in such Portfolio (other than defined contribution or 401(k) plan investments) was equal to or greater than $15,000,000, regardless of the value of such investments following their initial investment. (b) The fee due the Sub-Advisor with respect to each Portfolio shall be computed daily and shall be paid monthly to the Sub-Adviser on or before the last business day of the next succeeding calendar month. Along with each such monthly payment the Adviser shall provide the Sub-Adviser with a schedule showing the manner in which such fee was computed. (c) If during a Portfolio's first twelve months of operation the Adviser waives any portion of the management fee due to the Adviser pursuant to the terms of the Advisory Agreement for the purpose of limiting such Portfolio's total operating expenses to the maximum expense percentage of such Portfolio's average daily net assets for such period set forth on the Exhibit relating to such Portfolio, and the resulting net management fee received by the Adviser is less than the compensation due to the Sub-Adviser pursuant to subparagraph (a) above (the difference between such net management fee and such compensation being hereinafter referred to as the "Difference"), the Sub-Adviser shall refund to the Adviser an amount equal to the Difference; provided, however, that (i) the Sub- Adviser shall not be required to refund to the Adviser an amount greater than the fees paid by the Adviser to the Sub-Adviser during such 12-month period; and (ii) such Difference shall be reduced to the extent that in such 12-month period the net management fee received by the Adviser with respect to all Portfolios exceeds the compensation due to the Sub-Adviser with respect to such Portfolios. (d) If this Agreement becomes effective or terminates with respect to a Portfolio before the end of any month, the fee relating to such Portfolio for the period from the effective date with respect to such Portfolio to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 7. Limitation of Liability. The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Portfolio, the Fund or its shareholders or by the Adviser in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. 8. Representations of Sub-Adviser. The Sub- Adviser represents, warrants and agrees as follows: (a) The Sub-Adviser (i) is registered as an Investment Adviser under the Advisers Act and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will seek to continue to meet for so long as this Agreement remains in effect, any other applicable Federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; and (v) will promptly notify the Adviser of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. (b) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and will provide the Adviser and the Board with a copy of such code of ethics, together with evidence of its adoption. Within 15 calendar days of the end of the last calendar quarter of each year that this Agreement is in effect, the President of the Sub-Adviser shall certify to the Adviser that the Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous year and that there has been no violation of the Sub-Adviser's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of the Adviser, the Sub-Adviser shall permit the Adviser, its employees or its agents to examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1) and all other records relevant to the Sub-Adviser's code of ethics. (c) The Sub-Adviser has provided the Adviser with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and promptly will furnish a copy of all amendments to the Adviser at least annually. 9. Trademark. The Sub-Adviser shall have no rights relating to the name of the Fund or the word "Frontegra" used in connection with investment products, services or otherwise, and shall make no use of such names without the express written consent of the Fund or Adviser, as the case may be. 10. Services Not Exclusive. The Sub-Adviser may act as an investment adviser to any other person, firm or corporation, excluding any registered investment company, and may perform management and any other services for any other person, association, corporation, firm or other entity, excluding any registered investment company, pursuant to any contract or otherwise, and take any action or do anything in connection therewith or related thereto, except as prohibited by applicable law; and no such performance of management or other services or taking of any such action or doing of any such thing shall be in any manner restricted or otherwise affected by any aspect of any relationship of the Sub-Adviser to or with the Fund, the Portfolios or the Adviser or deemed to violate or give rise to any duty or obligation of the Sub-Adviser to the Fund, the Portfolios or the Adviser except as otherwise imposed by law or by this Agreement. 11. Duration and Termination. (a) This Agreement shall become effective with respect to a Portfolio upon the date of execution of the Exhibit relating to such Portfolio; provided that this Agreement shall not take effect unless it has first been approved (i) by a vote of a majority of those members of the Board who are not parties to this Agreement or interested persons of the Adviser, the Sub- Adviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the outstanding voting securities issued by such Portfolio. (b) Unless sooner terminated with respect to a Portfolio as provided herein, this Agreement shall continue in effect for two years from its effective date. Thereafter, if not terminated, this Agreement shall continue automatically for successive periods of 12 months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of those members of the Board who are not parties to this Agreement or interested persons of the Adviser, the Sub-Adviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or by vote of a majority of the outstanding voting securities issued by such Portfolio. (c) Notwithstanding the foregoing, this Agreement may be terminated with respect to a Portfolio at any time, without the payment of any penalty, by vote of the Board or by a vote of a majority of the outstanding voting securities issued by such Portfolio upon 60 calendar days written notice to the Sub- Adviser. This Agreement may also be terminated, without the payment of any penalty, by either party hereto upon 180 calendar days written notice. This Agreement will terminate automatically in the event of its assignment or upon termination of the Advisory Agreement. 12. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No amendment of this Agreement with respect to a Portfolio shall be effective until approved (a) by a vote of a majority of those members of the Board who are not parties to this Agreement or interested persons of the Adviser, the Sub-Adviser or the Fund, and (b) if required by the 1940 Act, by a vote of a majority of the outstanding voting securities issued by such Portfolio (in the case of (b), the Fund may rely upon an SEC order or no-action letter permitting it to modify this Agreement without such vote). 13. Governing Law. This Agreement shall be construed in accordance with the 1940 Act and the laws of the State of Indiana, without giving effect to the conflicts of laws principles thereof. To the extent that the applicable laws of the State of Indiana conflict with the applicable provisions of the 1940 Act, the latter shall control. 14. Independent Contractor. In performing its duties under this Agreement the Sub-Adviser shall act as an independent contractor and unless otherwise expressly provided herein or authorized in writing, the Sub-Adviser will have no authority to represent the Fund, the Portfolios or the Adviser in any way or otherwise be deemed an agent of the Fund, the Portfolio or the Adviser. 15. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the SEC by any rule, regulation or order. Where the effect of a requirement of the Federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart. 16. Notices. Any written notice herein required to be given to the Sub-Adviser or the Adviser shall be deemed to have been given upon receipt of the same at their respective addresses set forth below. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. FRONTEGRA ASSET MANAGEMENT, INC. 400 Skokie Boulevard Suite 500 Northbrook, Illinois 69062 by__________________________ Name: Title: Attest:_______________________ REAMS ASSET MANAGEMENT COMPANY, LLC 227 Washington Street Columbus, Indiana 47201 by__________________________ Name: Title: Attest:______________________ Exhibit A to the Sub-Advisory Agreement FRONTEGRA OPPORTUNITY FUND Fee percentage: 0.45% Maximum expense percentage: not to exceed 0.90% for the first 12 months Executed this ___ day of ___________, 19__. FRONTEGRA ASSET MANAGEMENT, INC. by __________________________ Name: Title: REAMS ASSET MANAGEMENT COMPANY, LLC by__________________________ Name: Title: Exhibit B to the Sub-Advisory Agreement FRONTEGRA TOTAL RETURN BOND FUND Fee percentage: 0.20% Maximum expense percentage: not to exceed 0.50% for the first 12 months Executed this ___ day of ___________, 19__. FRONTEGRA ASSET MANAGEMENT, INC. by__________________________ Name: Title: REAMS ASSET MANAGEMENT COMPANY, LLC by__________________________ Name: Title: EX-8 4 CUSTODY AGREEMENT Dated , 1995 Between UMB BANK, N.A. and FRONTEGRA FUNDS, INC. Prototype Custody Agreement for Registered Investment Companies Table of Contents SECTION PAGE 1. Appointment of Custodian 1 2. Definitions 1 (a) Securities 1 (b) Assets 2 (c) Instructions and Special Instructions 2 3. Delivery of Corporate Documents 2 4. Powers and Duties of Custodian and Domestic Subcustodian 3 (a) Safekeeping 3 (b) Manner of Holding Securities 4 (c) Free Delivery of Assets 5 (d) Exchange of Securities 6 (e) Purchases of Assets 6 (f) Sales of Assets 7 (g) Options 7 (h) Futures Contracts 8 (i) Segregated Accounts 8 (j) Depositary Receipts 9 (k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9 (l) Interest Bearing Deposits 10 (m) Foreign Exchange Transactions 10 (n) Pledges or Loans of Securities 11 (o) Stock Dividends, Rights, Etc. 12 (p) Routine Dealings 12 (q) Collections 12 (r) Bank Accounts 12 (s) Dividends, Distributions and Redemptions 13 (t) Proceeds from Shares Sold 13 (u) Proxies and Notices; Compliance with the Shareholders Communication Act of 1985 13 (v) Books and Records 14 (w) Opinion of Fund's Independent Certified Public Accountants 14 (x) Reports by Independent Certified Public Accountants 14 (y) Bills and Others Disbursements 14 5. Subcustodians 14 (a) Domestic Subcustodians 15 (b) Foreign Subcustodians 15 (c) Interim Subcustodians 16 (d) Special Subcustodians 17 (e) Termination of a Subcustodian 17 (f) Certification Regarding Foreign Subcustodians 17 6. Standard of Care 17 (a) General Standard of Care 17 (b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Armed Conflict, Sovereign Risk, Etc. 17 (c) Liability for Past Records 18 (d) Advice of Counsel 18 (e) Advice of the Fund and Others 18 (f) Instructions Appearing to be Genuine 18 (g) Exceptions from Liability 19 7. Liability of the Custodian for Actions of Others 19 (a) Domestic Subcustodians 19 (b) Liability for Acts and Omissions of Foreign Subcustodians 19 (c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities Depositories and Clearing Agencies 19 (d) Defaults or Insolvencies of Brokers, Banks, Etc. 20 (e) Reimbursement of Expenses 20 8. Indemnification 20 (a) Indemnification by Fund 20 (b) Indemnification by Custodian 20 9. Advances 21 10. Liens 21 11. Compensation 22 12. Powers of Attorney 22 13. Termination and Assignment 22 14. Additional Funds 22 15. Notices 23 16. Miscellaneous 23 CUSTODY AGREEMENT This agreement made as of this day of , 199 , between UMB Bank, n.a., a national banking association with its principal place of business located at Kansas City, Missouri (hereinafter "Custodian"), and each of the Funds which have executed the signature page hereof together with such additional Funds which shall be made parties to this Agreement by the execution of a separate signature page hereto (individually, a "Fund" and collectively, the "Funds"). WITNESSETH: WHEREAS, each Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended; and WHEREAS, each Fund desires to appoint Custodian as its custodian for the custody of Assets (as hereinafter defined) owned by such Fund which Assets are to be held in such accounts as such Fund may establish from time to time; and WHEREAS, Custodian is willing to accept such appointment on the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows: 1. APPOINTMENT OF CUSTODIAN. Each Fund hereby constitutes and appoints the Custodian as custodian of Assets belonging to each such Fund which have been or may be from time to time deposited with the Custodian. Custodian accepts such appointment as a custodian and agrees to perform the duties and responsibilities of Custodian as set forth herein on the conditions set forth herein. 2. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings so indicated: (a) "Security" or "Securities" shall mean stocks, bonds, bills, rights, script, warrants, interim certificates and all negotiable or nonnegotiable paper commonly known as Securities and other instruments or obligations. (b) "Assets" shall mean Securities, monies and other property held by the Custodian for the benefit of a Fund. (c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a written (including, without limitation, facsimile transmission) request, direction, instruction or certification signed or initialed by or on behalf of a Fund by an Authorized Person; (ii) a telephonic or other oral communication from a person the Custodian reasonably believes to be an Authorized Person; or (iii) a communication effected directly between an electro-mechanical or electronic device or system (including, without limitation, computers) on behalf of a Fund. Instructions in the form of oral communications shall be confirmed by the appropriate Fund by tested telex or in writing in the manner set forth in clause (i) above, but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral Instructions prior to the Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to record any and all telephonic or other oral Instructions communicated to the Custodian. (2) "Special Instructions", as used herein, shall mean Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of a Fund or any other person designated by the Treasurer of such Fund in writing, which countersignature or confirmation shall be included on the same instrument containing the Instructions or on a separate instrument relating thereto. (3) Instructions and Special Instructions shall be delivered to the Custodian at the address and/or telephone, facsimile transmission or telex number agreed upon from time to time by the Custodian and each Fund. (4) Where appropriate, Instructions and Special Instructions shall be continuing instructions. 3. DELIVERY OF CORPORATE DOCUMENTS. Each of the parties to this Agreement represents that its execution does not violate any of the provisions of its respective charter, articles of incorporation, articles of association or bylaws and all required corporate action to authorize the execution and delivery of this Agreement has been taken. Each Fund has furnished the Custodian with copies, properly certified or authenticated, with all amendments or supplements thereto, of the following documents: (a) Certificate of Incorporation (or equivalent document) of the Fund as in effect on the date hereof; (b) By-Laws of the Fund as in effect on the date hereof; (c) Resolutions of the Board of Directors of the Fund appointing the Custodian and approving the form of this Agreement; and (d) The Fund's current prospectus and statements of additional information. Each Fund shall promptly furnish the Custodian with copies of any updates, amendments or supplements to the foregoing documents. In addition, each Fund has delivered or will promptly deliver to the Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and all amendments or supplements thereto, properly certified or authenticated, designating certain officers or employees of each such Fund who will have continuing authority to certify to the Custodian: (a) the names, titles, signatures and scope of authority of all persons authorized to give Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of each Fund, and (b) the names, titles and signatures of those persons authorized to countersign or confirm Special Instructions on behalf of each Fund (in both cases collectively, the "Authorized Persons" and individually, an "Authorized Person"). Such Resolutions and certificates may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Custodian of a similar Resolution or certificate to the contrary. Upon delivery of a certificate which deletes or does not include the name(s) of a person previously authorized to give Instructions or to countersign or confirm Special Instructions, such persons shall no longer be considered an Authorized Person authorized to give Instructions or to countersign or confirm Special Instructions. Unless the certificate specifically requires that the approval of anyone else will first have been obtained, the Custodian will be under no obligation to inquire into the right of the person giving such Instructions or Special Instructions to do so. Notwithstanding any of the foregoing, no Instructions or Special Instructions received by the Custodian from a Fund will be deemed to authorize or permit any director, trustee, officer, employee, or agent of such Fund to withdraw any of the Assets of such Fund upon the mere receipt of such authorization, Special Instructions or Instructions from such director, trustee, officer, employee or agent. 4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN. Except for Assets held by any Subcustodian appointed pursuant to Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the powers and duties hereinafter set forth in this Section 4. For purposes of this Section 4 all references to powers and duties of the "Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to Section 5(a). (a) Safekeeping. The Custodian will keep safely the Assets of each Fund which are delivered to it from time to time. The Custodian shall not be responsible for any property of a Fund held or received by such Fund and not delivered to the Custodian. (b) Manner of Holding Securities. (1) The Custodian shall at all times hold Securities of each Fund either: (i) by physical possession of the share certificates or other instruments representing such Securities in registered or bearer form; or (ii) in book-entry form by a Securities System (as hereinafter defined) in accordance with the provisions of sub-paragraph (3) below. (2) The Custodian may hold registrable portfolio Securities which have been delivered to it in physical form, by registering the same in the name of the appropriate Fund or its nominee, or in the name of the Custodian or its nominee, for whose actions such Fund and Custodian, respectively, shall be fully responsible. Upon the receipt of Instructions, the Custodian shall hold such Securities in street certificate form, so called, with or without any indication of fiduciary capacity. However, unless it receives Instructions to the contrary, the Custodian will register all such portfolio Securities in the name of the Custodian's authorized nominee. All such Securities shall be held in an account of the Custodian containing only assets of the appropriate Fund or only assets held by the Custodian as a fiduciary, provided that the records of the Custodian shall indicate at all times the Fund or other customer for which such Securities are held in such accounts and the respective interests therein. (3) The Custodian may deposit and/or maintain domestic Securities owned by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust Company; (b) The Participants Trust Company; and (c) any book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially in the form of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may deposit and/or maintain domestic Securities owned by a Fund in any other domestic clearing agency registered with the Securities and Exchange Commission ("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the SEC to serve in the capacity of depository or clearing agent for the Securities or other assets of investment companies) which acts as a Securities depository. Each of the foregoing shall be referred to in this Agreement as a "Securities System", and all such Securities Systems shall be listed on the attached Appendix A. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and SEC rules and regulations, if any, and subject to the following provisions: (i) The Custodian may deposit the Securities directly or through one or more agents or Subcustodians which are also qualified to act as custodians for investment companies. (ii)The Custodian shall deposit and/or maintain the Securities in a Securities System, provided that such Securities are represented in an account ("Account") of the Custodian in the Securities System that includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. (iii)The books and records of the Custodian shall at all times identify those Securities belonging to any one or more Funds which are maintained in a Securities System. (iv)The Custodian shall pay for Securities purchased for the account of a Fund only upon (a) receipt of advice from the Securities System that such Securities have been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund. The Custodian shall transfer Securities sold for the account of a Fund only upon (a) receipt of advice from the Securities System that payment for such Securities has been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of such Fund. Copies of all advices from the Securities System relating to transfers of Securities for the account of a Fund shall be maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund on the next succeeding business day daily transaction reports which shall include each day's transactions in the Securities System for the account of such Fund. Such transaction reports shall be delivered to such Fund or any agent designated by such Fund pursuant to Instructions, by computer or in such other manner as such Fund and Custodian may agree. (v)The Custodian shall, if requested by a Fund pursuant to Instructions, provide such Fund with reports obtained by the Custodian or any Subcustodian with respect to a Securities System's accounting system, internal accounting control and procedures for safeguarding Securities deposited in the Securities System. (vi)Upon receipt of Special Instructions, the Custodian shall terminate the use of any Securities System on behalf of a Fund as promptly as practicable and shall take all actions reasonably practicable to safeguard the Securities of such Fund maintained with such Securities System. (c) Free Delivery of Assets. Notwithstanding any other provision of this Agreement and except as provided in Section 3 hereof, the Custodian, upon receipt of Special Instructions, will undertake to make free delivery of Assets, provided such Assets are on hand and available, in connection with a Fund's transactions and to transfer such Assets to such broker, dealer, Subcustodian, bank, agent, Securities System or otherwise as specified in such Special Instructions. (d) Exchange of Securities. Upon receipt of Instructions, the Custodian will exchange portfolio Securities held by it for a Fund for other Securities or cash paid in connection with any reorganization, recapitalization, merger, consolidation, or conversion of convertible Securities, and will deposit any such Securities in accordance with the terms of any reorganization or protective plan. Without Instructions, the Custodian is authorized to exchange Securities held by it in temporary form for Securities in definitive form, to surrender Securities for transfer into a name or nominee name as permitted in Section 4(b)(2), to effect an exchange of shares in a stock split or when the par value of the stock is changed, to sell any fractional shares, and, upon receiving payment therefor, to surrender bonds or other Securities held by it at maturity or call. (e) Purchases of Assets. (1) Securities Purchases. In accordance with Instructions, the Custodian shall, with respect to a purchase of Securities, pay for such Securities out of monies held for a Fund's account for which the purchase was made, but only insofar as monies are available therein for such purpose, and receive the portfolio Securities so purchased. Unless the Custodian has received Special Instructions to the contrary, such payment will be made only upon receipt of Securities by the Custodian, a clearing corporation of a national Securities exchange of which the Custodian is a member, or a Securities System in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection with a repurchase agreement, the Custodian may release funds to a Securities System prior to the receipt of advice from the Securities System that the Securities underlying such repurchase agreement have been transferred by book-entry into the Account maintained with such Securities System by the Custodian, provided that the Custodian's instructions to the Securities System require that the Securities System may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the Securities underlying the repurchase agreement into such Account; (ii) in the case of Interest Bearing Deposits, currency deposits, and other deposits, foreign exchange transactions, futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before receipt of an advice of transaction; and (iii) in the case of Securities as to which payment for the Security and receipt of the instrument evidencing the Security are under generally accepted trade practice or the terms of the instrument representing the Security expected to take place in different locations or through separate parties, such as commercial paper which is indexed to foreign currency exchange rates, derivatives and similar Securities, the Custodian may make payment for such Securities prior to delivery thereof in accordance with such generally accepted trade practice or the terms of the instrument representing such Security. (2) Other Assets Purchased. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall pay for and receive other Assets for the account of a Fund as provided in Instructions. (f) Sales of Assets. (1) Securities Sold. In accordance with Instructions, the Custodian will, with respect to a sale, deliver or cause to be delivered the Securities thus designated as sold to the broker or other person specified in the Instructions relating to such sale. Unless the Custodian has received Special Instructions to the contrary, such delivery shall be made only upon receipt of payment therefor in the form of: (a) cash, certified check, bank cashier's check, bank credit, or bank wire transfer; (b) credit to the account of the Custodian with a clearing corporation of a national Securities exchange of which the Custodian is a member; or (c) credit to the Account of the Custodian with a Securities System, in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities held in physical form may be delivered and paid for in accordance with "street delivery custom" to a broker or its clearing agent, against delivery to the Custodian of a receipt for such Securities, provided that the Custodian shall have taken reasonable steps to ensure prompt collection of the payment for, or return of, such Securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent or for any related loss arising from delivery or custody of such Securities prior to receiving payment therefor. (2) Other Assets Sold. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall receive payment for and deliver other Assets for the account of a Fund as provided in Instructions. (g) Options. (1) Upon receipt of Instructions relating to the purchase of an option or sale of a covered call option, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the purchase or writing of the option by a Fund; (b) if the transaction involves the sale of a covered call option, deposit and maintain in a segregated account the Securities (either physically or by book-entry in a Securities System) subject to the covered call option written on behalf of such Fund; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any notices or other communications evidencing the expiration, termination or exercise of such options which are furnished to the Custodian by the Options Clearing Corporation (the "OCC"), the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. (2) Upon receipt of Instructions relating to the sale of a naked option (including stock index and commodity options), the Custodian, the appropriate Fund and the broker-dealer shall enter into an agreement to comply with the rules of the OCC or of any registered national securities exchange or similar organizations(s). Pursuant to that agreement and such Fund's Instructions, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the writing of the option; (b) deposit and maintain in a segregated account, Securities (either physically or by book-entry in a Securities System), cash and/or other Assets; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any such agreement and with any notices or other communications evidencing the expiration, termination or exercise of such option which are furnished to the Custodian by the OCC, the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. The appropriate Fund and the broker-dealer shall be responsible for determining the quality and quantity of assets held in any segregated account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract. (h) Futures Contracts. Upon receipt of Instructions, the Custodian shall enter into a futures margin procedural agreement among the appropriate Fund, the Custodian and the designated futures commission merchant (a "Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (a) receive and retain confirmations, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by such Fund; (b) deposit and maintain in a segregated account cash, Securities and/or other Assets designated as initial, maintenance or variation "margin" deposits intended to secure such Fund's performance of its obligations under any futures contracts purchased or sold, or any options on futures contracts written by such Fund, in accordance with the provisions of any Procedural Agreement designed to comply with the provisions of the Commodity Futures Trading Commission and/or any commodity exchange or contract market (such as the Chicago Board of Trade), or any similar organization(s), regarding such margin deposits; and (c) release Assets from and/or transfer Assets into such margin accounts only in accordance with any such Procedural Agreements. The appropriate Fund and such futures commission merchant shall be responsible for determining the type and amount of Assets held in the segregated account or paid to the broker-dealer in compliance with applicable margin maintenance requirements and the performance of any futures contract or option on a futures contract in accordance with its terms. (i) Segregated Accounts. Upon receipt of Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred Assets of such Fund, including Securities maintained by the Custodian in a Securities System pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained (i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by such Fund with the procedures required by the SEC Investment Company Act Release Number 10666 or any subsequent release or releases relating to the maintenance of segregated accounts by registered investment companies, or (iii) for such other purposes as may be set forth, from time to time, in Special Instructions. The Custodian shall not be responsible for the determination of the type or amount of Assets to be held in any segregated account referred to in this paragraph, or for compliance by the Fund with required procedures noted in (ii) above. (j) Depositary Receipts. Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered Securities to the depositary used for such Securities by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter referred to, collectively, as "ADRs"), against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the organization surrendering the same that the depositary has acknowledged receipt of instructions to issue ADRs with respect to such Securities in the name of the Custodian or a nominee of the Custodian, for delivery in accordance with such instructions. Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered ADRs to the issuer thereof, against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the organization surrendering the same that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the Securities underlying such ADRs in accordance with such instructions. (k) Corporate Actions, Put Bonds, Called Bonds, Etc. Upon receipt of Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or similar Securities to the issuer or trustee thereof (or to the agent of such issuer or trustee) for the purpose of exercise or sale, provided that the new Securities, cash or other Assets, if any, acquired as a result of such actions are to be delivered to the Custodian; and (b) deposit Securities upon invitations for tenders thereof, provided that the consideration for such Securities is to be paid or delivered to the Custodian, or the tendered Securities are to be returned to the Custodian. Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary in Instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall notify the appropriate Fund of such action in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing. The Fund agrees that if it gives an Instruction for the performance of an act on the last permissible date of a period established by any optional offer or on the last permissible date for the performance of such act, the Fund shall hold the Bank harmless from any adverse consequences in connection with acting upon or failing to act upon such Instructions. (l) Interest Bearing Deposits. Upon receipt of Instructions directing the Custodian to purchase interest bearing fixed term and call deposits (hereinafter referred to, collectively, as "Interest Bearing Deposits") for the account of a Fund, the Custodian shall purchase such Interest Bearing Deposits in the name of such Fund with such banks or trust companies, including the Custodian, any Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter referred to as "Banking Institutions"), and in such amounts as such Fund may direct pursuant to Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars or other currencies, as such Fund may determine and direct pursuant to Instructions. The responsibilities of the Custodian to a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a similar deposit. With respect to Interest Bearing Deposits other than those issued by the Custodian, (a) the Custodian shall be responsible for the collection of income and the transmission of cash to and from such accounts; and (b) the Custodian shall have no duty with respect to the selection of the Banking Institution or for the failure of such Banking Institution to pay upon demand. (m) Foreign Exchange Transactions. (l) Each Fund hereby appoints the Custodian as its agent in the execution of all currency exchange transactions. The Custodian agrees to provide exchange rate and U.S. Dollar information, in writing, to the Funds. Such information shall be supplied by the Custodian at least by the business day prior to the value date of the foreign exchange transaction, provided that the Custodian receives the request for such information at least two business days prior to the value date of the transaction. (2) Upon receipt of Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund with such currency brokers or Banking Institutions as such Fund may determine and direct pursuant to Instructions. If, in its Instructions, a Fund does not direct the Custodian to utilize a particular currency broker or Banking Institution, the Custodian is authorized to select such currency broker or Banking Institution as it deems appropriate to execute the Fund's foreign currency transaction. (3) Each Fund accepts full responsibility for its use of third party foreign exchange brokers and for execution of said foreign exchange contracts and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred as a result of the failure or delay of its third party broker to deliver foreign exchange. The Custodian shall have no responsibility or liability with respect to the selection of the currency brokers or Banking Institutions with which a Fund deals or the performance of such brokers or Banking Institutions. (4) Notwithstanding anything to the contrary contained herein, upon receipt of Instructions the Custodian may, in connection with a foreign exchange contract, make free outgoing payments of cash in the form of U.S. Dollars or foreign currency prior to receipt of confirmation of such foreign exchange contract or confirmation that the countervalue currency completing such contract has been delivered or received. (5) The Custodian shall not be obligated to enter into foreign exchange transactions as principal. However, if the Custodian has made available to a Fund its services as a principal in foreign exchange transactions and subject to any separate agreement between the parties relating to such transactions, the Custodian shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of the Fund, with the Custodian as principal. (n) Pledges or Loans of Securities. (1) Upon receipt of Instructions from a Fund, the Custodian will release or cause to be released Securities held in custody to the pledgees designated in such Instructions by way of pledge or hypothecation to secure loans incurred by such Fund with various lenders including but not limited to UMB Bank, n.a.; provided, however, that the Securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure existing borrowings, further Securities may be released or delivered, or caused to be released or delivered for that purpose upon receipt of Instructions. Upon receipt of Instructions, the Custodian will pay, but only from funds available for such purpose, any such loan upon re-delivery to it of the Securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing such loan. In lieu of delivering collateral to a pledgee, the Custodian, on the receipt of Instructions, shall transfer the pledged Securities to a segregated account for the benefit of the pledgee. (2) Upon receipt of Special Instructions, and execution of a separate Securities Lending Agreement, the Custodian will release Securities held in custody to the borrower designated in such Instructions and may, except as otherwise provided below, deliver such Securities prior to the receipt of collateral, if any, for such borrowing, provided that, in case of loans of Securities held by a Securities System that are secured by cash collateral, the Custodian's instructions to the Securities System shall require that the Securities System deliver the Securities of the appropriate Fund to the borrower thereof only upon receipt of the collateral for such borrowing. The Custodian shall have no responsibility or liability for any loss arising from the delivery of Securities prior to the receipt of collateral. Upon receipt of Instructions and the loaned Securities, the Custodian will release the collateral to the borrower. (o) Stock Dividends, Rights, Etc. The Custodian shall receive and collect all stock dividends, rights, and other items of like nature and, upon receipt of Instructions, take action with respect to the same as directed in such Instructions. (p) Routine Dealings. The Custodian will, in general, attend to all routine and mechanical matters in accordance with industry standards in connection with the sale, exchange, substitution, purchase, transfer, or other dealings with Securities or other property of each Fund except as may be otherwise provided in this Agreement or directed from time to time by Instructions from any particular Fund. The Custodian may also make payments to itself or others from the Assets for disbursements and out-of-pocket expenses incidental to handling Securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the appropriate Fund. (q) Collections. The Custodian shall (a) collect amounts due and payable to each Fund with respect to portfolio Securities and other Assets; (b) promptly credit to the account of each Fund all income and other payments relating to portfolio Securities and other Assets held by the Custodian hereunder upon Custodian's receipt of such income or payments or as otherwise agreed in writing by the Custodian and any particular Fund; (c) promptly endorse and deliver any instruments required to effect such collection; and (d) promptly execute ownership and other certificates and affidavits for all federal, state, local and foreign tax purposes in connection with receipt of income or other payments with respect to portfolio Securities and other Assets, or in connection with the transfer of such Securities or other Assets; provided, however, that with respect to portfolio Securities registered in so-called street name, or physical Securities with variable interest rates, the Custodian shall use its best efforts to collect amounts due and payable to any such Fund. The Custodian shall notify a Fund in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing if any amount payable with respect to portfolio Securities or other Assets is not received by the Custodian when due. The Custodian shall not be responsible for the collection of amounts due and payable with respect to portfolio Securities or other Assets that are in default. (r) Bank Accounts. Upon Instructions, the Custodian shall open and operate a bank account or accounts on the books of the Custodian; provided that such bank account(s) shall be in the name of the Custodian or a nominee thereof, for the account of one or more Funds, and shall be subject only to draft or order of the Custodian. The responsibilities of the Custodian to any one or more such Funds for deposits accepted on the Custodian's books shall be that of a U.S. bank for a similar deposit. (s) Dividends, Distributions and Redemptions. To enable each Fund to pay dividends or other distributions to shareholders of each such Fund and to make payment to shareholders who have requested repurchase or redemption of their shares of each such Fund (collectively, the "Shares"), the Custodian shall release cash or Securities insofar as available. In the case of cash, the Custodian shall, upon the receipt of Instructions, transfer such funds by check or wire transfer to any account at any bank or trust company designated by each such Fund in such Instructions. In the case of Securities, the Custodian shall, upon the receipt of Special Instructions, make such transfer to any entity or account designated by each such Fund in such Special Instructions. (t) Proceeds from Shares Sold. The Custodian shall receive funds representing cash payments received for shares issued or sold from time to time by each Fund, and shall credit such funds to the account of the appropriate Fund. The Custodian shall notify the appropriate Fund of Custodian's receipt of cash in payment for shares issued by such Fund by facsimile transmission or in such other manner as such Fund and the Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all federal funds received by the Custodian in payment for shares as may be set forth in such Instructions and at a time agreed upon between the Custodian and such Fund; and (b) make federal funds available to a Fund as of specified times agreed upon from time to time by such Fund and the Custodian, in the amount of checks received in payment for shares which are deposited to the accounts of such Fund. (u) Proxies and Notices; Compliance with the Shareholders Communication Act of 1985. The Custodian shall deliver or cause to be delivered to the appropriate Fund all forms of proxies, all notices of meetings, and any other notices or announcements affecting or relating to Securities owned by such Fund that are received by the Custodian, any Subcustodian, or any nominee of either of them, and, upon receipt of Instructions, the Custodian shall execute and deliver, or cause such Subcustodian or nominee to execute and deliver, such proxies or other authorizations as may be required. Except as directed pursuant to Instructions, neither the Custodian nor any Subcustodian or nominee shall vote upon any such Securities, or execute any proxy to vote thereon, or give any consent or take any other action with respect thereto. The Custodian will not release the identity of any Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and any such Fund unless a particular Fund directs the Custodian otherwise in writing. (v) Books and Records. The Custodian shall maintain such records relating to its activities under this Agreement as are required to be maintained by Rule 31a-1 under the Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open for inspection by duly authorized officers, employees or agents (including independent public accountants) of the appropriate Fund during normal business hours of the Custodian. The Custodian shall provide accountings relating to its activities under this Agreement as shall be agreed upon by each Fund and the Custodian. (w) Opinion of Fund's Independent Certified Public Accountants. The Custodian shall take all reasonable action as each Fund may request to obtain from year to year favorable opinions from each such Fund's independent certified public accountants with respect to the Custodian's activities hereunder and in connection with the preparation of each such Fund's periodic reports to the SEC and with respect to any other requirements of the SEC. (x) Reports by Independent Certified Public Accountants. At the request of a Fund, the Custodian shall deliver to such Fund a written report prepared by the Custodian's independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including, without limitation, the Custodian's accounting system, internal accounting control and procedures for safeguarding cash, Securities and other Assets, including cash, Securities and other Assets deposited and/or maintained in a Securities System or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by such Fund and as may reasonably be obtained by the Custodian. (y) Bills and Other Disbursements. Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all bills, statements, or other obligations of a Fund. 5. SUBCUSTODIANS. From time to time, in accordance with the relevant provisions of this Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are hereinafter defined) to act on behalf of any one or more Funds. A Domestic Subcustodian, in accordance with the provisions of this Agreement, may also appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to act on behalf of any one or more Funds. For purposes of this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim Subcustodians shall be referred to collectively as "Subcustodians". (a) Domestic Subcustodians. The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity, any of which meet the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act for the Custodian on behalf of any one or more Funds as a subcustodian for purposes of holding Assets of such Fund(s) and performing other functions of the Custodian within the United States (a "Domestic Subcustodian"). Each Fund shall approve in writing the appointment of the proposed Domestic Subcustodian; and the Custodian's appointment of any such Domestic Subcustodian shall not be effective without such prior written approval of the Fund(s). Each such duly approved Domestic Subcustodian shall be listed on Appendix A attached hereto, as it may be amended, from time to time. (b) Foreign Subcustodians. The Custodian may at any time appoint, or cause a Domestic Subcustodian to appoint, any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules and regulations thereunder to act for the Custodian on behalf of any one or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic Subcustodian) for purposes of holding Assets of the Fund(s) and performing other functions of the Custodian in countries other than the United States of America (hereinafter referred to as a "Foreign Subcustodian" in the context of either a subcustodian or a sub-subcustodian); provided that the Custodian shall have obtained written confirmation from each Fund of the approval of the Board of Directors or other governing body of each such Fund (which approval may be withheld in the sole discretion of such Board of Directors or other governing body or entity) with respect to (i) the identity of any proposed Foreign Subcustodian (including branch designation), (ii) the country or countries in which, and the securities depositories or clearing agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any, through which, the Custodian or any proposed Foreign Subcustodian is authorized to hold Securities and other Assets of each such Fund, and (iii) the form and terms of the subcustodian agreement to be entered into with such proposed Foreign Subcustodian. Each such duly approved Foreign Subcustodian and the countries where and the Securities Depositories and Clearing Agencies through which they may hold Securities and other Assets of the Fund(s) shall be listed on Appendix A attached hereto, as it may be amended, from time to time. Each Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Foreign Subcustodian is authorized to act, in order that there shall be sufficient time for the Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements with a proposed Foreign Subcustodian, including obtaining approval as provided in this Section 5(b). In connection with the appointment of any Foreign Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian agreement with the Foreign Subcustodian in form and substance approved by each such Fund. The Custodian shall not consent to the amendment of, and shall cause any Domestic Subcustodian not to consent to the amendment of, any agreement entered into with a Foreign Subcustodian, which materially affects any Fund's rights under such agreement, except upon prior written approval of such Fund pursuant to Special Instructions. (c) Interim Subcustodians. Notwithstanding the foregoing, in the event that a Fund shall invest in an Asset to be held in a country in which no Foreign Subcustodian is authorized to act, the Custodian shall notify such Fund in writing by facsimile transmission or in such other manner as such Fund and the Custodian shall agree in writing of the unavailability of an approved Foreign Subcustodian in such country; and upon the receipt of Special Instructions from such Fund, the Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve an entity (referred to herein as an "Interim Subcustodian") designated in such Special Instructions to hold such Security or other Asset. (d) Special Subcustodians. Upon receipt of Special Instructions, the Custodian shall, on behalf of a Fund, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act for the Custodian on behalf of such Fund as a subcustodian for purposes of: (i) effecting third-party repurchase transactions with banks, brokers, dealers or other entities through the use of a common custodian or subcustodian; (ii) providing depository and clearing agency services with respect to certain variable rate demand note Securities, (iii) providing depository and clearing agency services with respect to dollar denominated Securities, and (iv) effecting any other transactions designated by such Fund in such Special Instructions. Each such designated subcustodian (hereinafter referred to as a "Special Subcustodian") shall be listed on Appendix A attached hereto, as it may be amended from time to time. In connection with the appointment of any Special Subcustodian, the Custodian shall enter into a subcustodian agreement with the Special Subcustodian in form and substance approved by the appropriate Fund in Special Instructions. The Custodian shall not amend any subcustodian agreement entered into with a Special Subcustodian, or waive any rights under such agreement, except upon prior approval pursuant to Special Instructions. (e) Termination of a Subcustodian. The Custodian may, at any time in its discretion upon notification to the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance with the termination provisions under the applicable subcustodian agreement, and upon the receipt of Special Instructions, the Custodian will terminate any Subcustodian in accordance with the termination provisions under the applicable subcustodian agreement. (f) Certification Regarding Foreign Subcustodians. Upon request of a Fund, the Custodian shall deliver to such Fund a certificate stating: (i) the identity of each Foreign Subcustodian then acting on behalf of the Custodian; (ii) the countries in which and the Securities Depositories and Clearing Agencies through which each such Foreign Subcustodian is then holding cash, Securities and other Assets of such Fund; and (iii) such other information as may be requested by such Fund, and as the Custodian shall be reasonably able to obtain, to evidence compliance with rules and regulations under the 1940 Act. 6. STANDARD OF CARE. (a) General Standard of Care. The Custodian shall be liable to a Fund for all losses, damages and reasonable costs and expenses suffered or incurred by such Fund resulting from the gross negligence or willful misfeasance of the Custodian; provided, however, in no event shall the Custodian be liable for special, indirect or consequential damages arising under or in connection with this Agreement. (b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Sovereign Risk, Etc. In no event shall the Custodian or any Domestic Subcustodian incur liability hereunder (i) if the Custodian or any Subcustodian or Securities System, or any subcustodian, Securities System, Securities Depository or Clearing Agency utilized by the Custodian or any such Subcustodian, or any nominee of the Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of: (a) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction (and neither the Custodian nor any other Person shall be obligated to take any action contrary thereto); or (b) any event beyond the control of the Custodian or other Person such as armed conflict, riots, strikes, lockouts, labor disputes, equipment or transmission failures, natural disasters, or failure of the mails, transportation, communications or power supply; or (ii) for any loss, damage, cost or expense resulting from "Sovereign Risk." A "Sovereign Risk" shall mean nationalization, expropriation, currency devaluation, revaluation or fluctuation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting a Fund's Assets; or acts of armed conflict, terrorism, insurrection or revolution; or any other act or event beyond the Custodian's or such other Person's control. (c) Liability for Past Records. Neither the Custodian nor any Domestic Subcustodian shall have any liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian or any Domestic Subcustodian in reliance upon records that were maintained for such Fund by entities other than the Custodian or any Domestic Subcustodian prior to the Custodian's employment hereunder. (d) Advice of Counsel. The Custodian and all Domestic Subcustodians shall be entitled to receive and act upon advice of counsel of its own choosing on all matters. The Custodian and all Domestic Subcustodians shall be without liability for any actions taken or omitted in good faith pursuant to the advice of counsel. (e) Advice of the Fund and Others. The Custodian and any Domestic Subcustodian may rely upon the advice of any Fund and upon statements of such Fund's accountants and other persons believed by it in good faith to be expert in matters upon which they are consulted, and neither the Custodian nor any Domestic Subcustodian shall be liable for any actions taken or omitted, in good faith, pursuant to such advice or statements. (f) Instructions Appearing to be Genuine. The Custodian and all Domestic Subcustodians shall be fully protected and indemnified in acting as a custodian hereunder upon any Resolutions of the Board of Directors or Trustees, Instructions, Special Instructions, advice, notice, request, consent, certificate, instrument or paper appearing to it to be genuine and to have been properly executed and shall, unless otherwise specifically provided herein, be entitled to receive as conclusive proof of any fact or matter required to be ascertained from any Fund hereunder a certificate signed by any officer of such Fund authorized to countersign or confirm Special Instructions. (g) Exceptions from Liability. Without limiting the generality of any other provisions hereof, neither the Custodian nor any Domestic Subcustodian shall be under any duty or obligation to inquire into, nor be liable for: (i)the validity of the issue of any Securities purchased by or for any Fund, the legality of the purchase thereof or evidence of ownership required to be received by any such Fund, or the propriety of the decision to purchase or amount paid therefor; (ii)the legality of the sale of any Securities by or for any Fund, or the propriety of the amount for which the same were sold; or (iii)any other expenditures, encumbrances of Securities, borrowings or similar actions with respect to any Fund's Assets; and may, until notified to the contrary, presume that all Instructions or Special Instructions received by it are not in conflict with or in any way contrary to any provisions of any such Fund's Declaration of Trust, Partnership Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the shareholders, trustees, partners or directors of any such Fund, or any such Fund's currently effective Registration Statement on file with the SEC. 7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS. (a) Domestic Subcustodians The Custodian shall be liable for the acts or omissions of any Domestic Subcustodian to the same extent as if such actions or omissions were performed by the Custodian itself. (b) Liability for Acts and Omissions of Foreign Subcustodians. The Custodian shall be liable to a Fund for any loss or damage to such Fund caused by or resulting from the acts or omissions of any Foreign Subcustodian to the extent that, under the terms set forth in the subcustodian agreement between the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian has failed to perform in accordance with the standard of conduct imposed under such subcustodian agreement and the Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under the applicable subcustodian agreement. (c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities Depositories and Clearing Agencies. The Custodian shall not be liable to any Fund for any loss, damage or expense suffered or incurred by such Fund resulting from or occasioned by the actions or omissions of a Securities System, Interim Subcustodian, Special Subcustodian, or Securities Depository and Clearing Agency unless such loss, damage or expense is caused by, or results from, the gross negligence or willful misfeasance of the Custodian. (d) Defaults or Insolvencies of Brokers, Banks, Etc. The Custodian shall not be liable for any loss, damage or expense suffered or incurred by any Fund resulting from or occasioned by the actions, omissions, neglects, defaults or insolvency of any broker, bank, trust company or any other person with whom the Custodian may deal (other than any of such entities acting as a Subcustodian, Securities System or Securities Depository and Clearing Agency, for whose actions the liability of the Custodian is set out elsewhere in this Agreement) unless such loss, damage or expense is caused by, or results from, the gross negligence or willful misfeasance of the Custodian. (e) Reimbursement of Expenses. Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses incurred by the Custodian in connection with this Agreement, but excluding salaries and usual overhead expenses. 8. INDEMNIFICATION. (a) Indemnification by Fund. Subject to the limitations set forth in this Agreement, each Fund agrees to indemnify and hold harmless the Custodian and its nominees from all losses, damages and expenses (including attorneys' fees) suffered or incurred by the Custodian or its nominee caused by or arising from actions taken by the Custodian, its employees or agents in the performance of its duties and obligations under this Agreement, including, but not limited to, any indemnification obligations undertaken by the Custodian under any relevant subcustodian agreement; provided, however, that such indemnity shall not apply to the extent the Custodian is liable under Sections 6 or 7 hereof. If any Fund requires the Custodian to take any action with respect to Securities, which action involves the payment of money or which may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to such Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. (b) Indemnification by Custodian. Subject to the limitations set forth in this Agreement and in addition to the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify and hold harmless each Fund from all losses, damages and expenses suffered or incurred by each such Fund caused by the gross negligence or willful misfeasance of the Custodian. 9. ADVANCES. In the event that, pursuant to Instructions, the Custodian or any Subcustodian, Securities System, or Securities Depository or Clearing Agency acting either directly or indirectly under agreement with the Custodian (each of which for purposes of this Section 9 shall be referred to as "Custodian"), makes any payment or transfer of funds on behalf of any Fund as to which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of any such Fund, the Custodian may, in its discretion without further Instructions, provide an advance ("Advance") to any such Fund in an amount sufficient to allow the completion of the transaction by reason of which such payment or transfer of funds is to be made. In addition, in the event the Custodian is directed by Instructions to make any payment or transfer of funds on behalf of any Fund as to which it is subsequently determined that such Fund has overdrawn its cash account with the Custodian as of the close of business on the date of such payment or transfer, said overdraft shall constitute an Advance. Any Advance shall be payable by the Fund on behalf of which the Advance was made on demand by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall accrue interest from the date of the Advance to the date of payment by such Fund to the Custodian at a rate agreed upon in writing from time to time by the Custodian and such Fund. It is understood that any transaction in respect of which the Custodian shall have made an Advance, including but not limited to a foreign exchange contract or transaction in respect of which the Custodian is not acting as a principal, is for the account of and at the risk of the Fund on behalf of which the Advance was made, and not, by reason of such Advance, deemed to be a transaction undertaken by the Custodian for its own account and risk. The Custodian and each of the Funds which are parties to this Agreement acknowledge that the purpose of Advances is to finance temporarily the purchase or sale of Securities for prompt delivery in accordance with the settlement terms of such transactions or to meet emergency expenses not reasonably foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund of any Advance. Such notification shall be sent by facsimile transmission or in such other manner as such Fund and the Custodian may agree. 10. LIENS. The Bank shall have a lien on the Property in the Custody Account to secure payment of fees and expenses for the services rendered under this Agreement. If the Bank advances cash or securities to the Fund for any purpose or in the event that the Bank or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of its duties hereunder, except such as may arise from its or its nominee's negligent action, negligent failure to act or willful misconduct, any Property at any time held for the Custody Account shall be security therefor and the Fund hereby grants a security interest therein to the Bank. The Fund shall promptly reimburse the Bank for any such advance of cash or securities or any such taxes, charges, expenses, assessments, claims or liabilities upon request for payment, but should the Fund fail to so reimburse the Bank, the Bank shall be entitled to dispose of such Property to the extent necessary to obtain reimbursement. The Bank shall be entitled to debit any account of the Fund with the Bank including, without limitation, the Custody Account, in connection with any such advance and any interest on such advance as the Bank deems reasonable. 11. COMPENSATION. Each Fund will pay to the Custodian such compensation as is agreed to in writing by the Custodian and each such Fund from time to time. Such compensation, together with all amounts for which the Custodian is to be reimbursed in accordance with Section 7(e), shall be billed to each such Fund and paid in cash to the Custodian. 12. POWERS OF ATTORNEY. Upon request, each Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement. 13. TERMINATION AND ASSIGNMENT. Any Fund or the Custodian may terminate this Agreement by notice in writing, delivered or mailed, postage prepaid (certified mail, return receipt requested) to the other not less than 90 days prior to the date upon which such termination shall take effect. Upon termination of this Agreement, the appropriate Fund shall pay to the Custodian such fees as may be due the Custodian hereunder as well as its reimbursable disbursements, costs and expenses paid or incurred. Upon termination of this Agreement, the Custodian shall deliver, at the terminating party's expense, all Assets held by it hereunder to the appropriate Fund or as otherwise designated by such Fund by Special Instructions. Upon such delivery, the Custodian shall have no further obligations or liabilities under this Agreement except as to the final resolution of matters relating to activity occurring prior to the effective date of termination. This Agreement may not be assigned by the Custodian or any Fund without the respective consent of the other, duly authorized by a resolution by its Board of Directors or Trustees. 14. ADDITIONAL FUNDS. An additional Fund or Funds may become a party to this Agreement after the date hereof by an instrument in writing to such effect signed by such Fund or Funds and the Custodian. If this Agreement is terminated as to one or more of the Funds (but less than all of the Funds) or if an additional Fund or Funds shall become a party to this Agreement, there shall be delivered to each party an Appendix B or an amended Appendix B, signed by each of the additional Funds (if any) and each of the remaining Funds as well as the Custodian, deleting or adding such Fund or Funds, as the case may be. The termination of this Agreement as to less than all of the Funds shall not affect the obligations of the Custodian and the remaining Funds hereunder as set forth on the signature page hereto and in Appendix B as revised from time to time. 15. NOTICES. As to each Fund, notices, requests, instructions and other writings delivered to Frontegra Funds, Inc., 400 North Skokie Boulevard, Suite 500, Northbrook, Il, 60602 postage prepaid, or to such other address as any particular Fund may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given to a Fund. Notices, requests, instructions and other writings delivered to the Securities Administration Department of the Custodian at its office at 928 Grand Boulevard, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's Securities Administration Department, Post Office Box 419226, Kansas City, Missouri 64141, or to such other addresses as the Custodian may have designated to each Fund in writing, shall be deemed to have been properly delivered or given to the Custodian hereunder; provided, however, that procedures for the delivery of Instructions and Special Instructions shall be governed by Section 2(c) hereof. 16. MISCELLANEOUS. (a) This Agreement is executed and delivered in the State of Missouri and shall be governed by the laws of such state. (b) All of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by the respective successors and assigns of the parties hereto. (c) No provisions of this Agreement may be amended, modified or waived, in any manner except in writing, properly executed by both parties hereto; provided, however, Appendix A may be amended from time to time as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities Depositories and Clearing Agencies are approved or terminated according to the terms of this Agreement. (d) The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (e) This Agreement shall be effective as of the date of execution hereof. (f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. (g) The following terms are defined terms within the meaning of this Agreement, and the definitions thereof are found in the following sections of the Agreement: Term Section Account 4(b)(3)(ii) ADR'S 4(j) Advance 9 Assets 2 Authorized Person 3 Banking Institution 4(1) Domestic Subcustodian 5(a) Foreign Subcustodian 5(b) Instruction 2 Interim Subcustodian 5(c) Interest Bearing Deposit 4(1) Liability 10 OCC 4(g)(2) Person 6(b) Procedural Agreement 4(h) SEC 4(b)(3) Securities 2 Securities Depositories and 5(b) Clearing Agencies Securities System 4(b)(3) Shares 4(s) Sovereign Risk 6(b) Special Instruction 2 Special Subcustodian 5(c) Subcustodian 5 1940 Act 4(v) (h) If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid by any court of competent jurisdiction, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular part, term or provision held to be illegal or invalid. (i) This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof, and accordingly supersedes, as of the effective date of this Agreement, any custodian agreement heretofore in effect between the Fund and the Custodian. IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be executed by their respective duly authorized officers. FRONTEGRA FUNDS, INC. ATTEST: By:_________________________ Name: Title: Date: UMB BANK, N.A. ATTEST: By:__________________________ Name: Title: Date: APPENDIX A CUSTODY AGREEMENT DOMESTIC SUBCUSTODIANS: United Missouri Trust Company of New York Morgan Stanley Trust Company (Foreign Securities Only) SECURITIES SYSTEMS: Federal Book Entry Depository Trust Company Participant's Trust Company SPECIAL SUBCUSTODIANS: SECURITIES DEPOSITORIES COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES Euroclear Frontegra Funds, Inc. UMB Bank, n.a. By:___________________________ By:____________________________ Name: Name: Title: Title: Date: Date: APPENDIX B CUSTODY AGREEMENT The following open-end management investment companies ("Funds") are hereby made parties to the Custody Agreement dated , 199 , with UMB Bank, n.a. ("Custodian") and Frontegra Funds, Inc. and agree to be bound by all the terms and conditions contained in said Agreement: LIST THE FUNDS Frontegra Total Return Bond Fund ATTEST:____________________ FRONTEGRA FUNDS, INC. By:__________________________ Name: Title: Date: ATTEST:_____________________ UMB BANK, N.A. By:____________________________ Name: Title: Date: EX-9.1 5 TRANSFER AGENCY AGREEMENT THIS AGREEMENT made as of the ___ day of October, 1996 by and between Frontegra Funds, Inc., a Maryland corporation (the "Corporation"), and Sunstone Investor Services, LLC, a Wisconsin limited liability company ("Sunstone"): WHEREAS, the Corporation is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company and is authorized to issue shares of common stock ("Shares") in separate series with each such series representing the interests in a separate portfolio of securities and other assets; WHEREAS, the Corporation desires to retain Sunstone to render the transfer agency and other services contemplated hereby with respect to each of the investment portfolios of the Corporation as are listed on Schedule A hereto and any additional investment portfolios the Corporation and Sunstone may agree upon and include on Schedule A as such Schedule may be amended from time to time (such investment portfolios and any additional investment portfolios are individually referred to as a "Fund" and collectively the "Funds"), and Sunstone is willing to render such services. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE I APPOINTMENT OF TRANSFER AGENT A. Appointment. 1. The Corporation hereby constitutes and appoints Sunstone as transfer agent and dividend disbursing agent of all the Shares of the Funds during the period of this Agreement, and Sunstone hereby accepts such appointment as transfer agent and dividend disbursing agent and agrees to perform the duties thereof as hereinafter set forth. 2. Sunstone shall perform the transfer agent and dividend disbursing agent services described on Schedule B hereto. To the extent that the Corporation requests Sunstone to perform any additional services in a manner not consistent with Sunstone's usual processing procedures, Sunstone and the Corporation shall mutually agree as to the services to be accomplished, the manner of accomplishment and the compensation to which Sunstone shall be entitled with respect thereto. 3. Sunstone may, in its discretion, appoint in writing other parties qualified to perform transfer agency and shareholder services reasonably acceptable to the Corporation (individually, a "Sub-transfer Agent") to carry out some or all of its responsibilities under this Agreement with respect to a Fund; provided, however, that unless the Corporation shall enter into a written agreement with such Sub- transfer Agent, the Sub-transfer Agent shall be the agent of Sunstone and not the agent of the Corporation or such Fund and, in such event Sunstone shall be fully responsible for the acts or omissions of such Sub- transfer Agent and shall not be relieved of any of its responsibilities hereunder by the appointment of such Sub-transfer Agent. 4. Subject to Sunstone's duty to act in good faith with respect to the services described in this Agreement, Sunstone shall have no duties or responsibilities whatsoever hereunder except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Sunstone. B. Documents/Records. 1. In connection with such appointment, the Corporation shall deliver or cause to be delivered the following documents to Sunstone: a) A copy of the Articles of Incorporation and By-laws of the Corporation and all amendments thereto, and a copy of the resolutions of the Board of Directors of the Corporation appointing Sunstone and authorizing the execution of this Transfer Agency Agreement on behalf of the Funds, each certified by the Secretary of the Corporation; b) A certificate signed by a Co-President and Secretary of the Corporation specifying: the number of authorized Shares and the number of such authorized Shares issued and currently outstanding, if any; the names and specimen signatures of the officers of the Corporation authorized to sign written stock certificates, if any, and the individuals authorized to provide oral instructions and to sign written instructions and requests on behalf of the Corporation (hereinafter referred to as "Authorized Persons"). c) In the event the Corporation issues Share certificates, specimen Share certificates for each Fund in the form approved by the Board of Directors of the Corporation (and in a format compatible with Sunstone's operating system), together with a Certificate signed by the Secretary of the Corporation as to such approval; d) Copies of the Corporation's Registration Statement, as amended to date, and the most recently filed Post-Effective Amendment thereto, filed by the Corporation with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "1933 Act"), and under the 1940 Act, as amended, together with any applications filed in connection therewith; and e) Opinion of counsel for the Corporation with respect to the Corporation's organization and existence under the laws of its state of organization, the validity of the authorized and outstanding Shares, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable federal law or regulation (i.e., if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor.) 2. The Corporation agrees to deliver or to cause to be delivered to Sunstone in Milwaukee, Wisconsin, at the Corporation's expense, all of its shareholder account records relating to the Funds in a format acceptable to Sunstone and all such other documents, records and information as Sunstone may reasonably request in order for Sunstone to perform its services hereunder. ARTICLE II COMPENSATION & EXPENSES A. Compensation. In consideration for its services hereunder as transfer agent and dividend disbursing agent, each Fund will pay to Sunstone such compensation as shall be set forth in a separate fee schedule to be agreed to by each Fund and Sunstone from time to time. A copy of the initial fee schedule is attached hereto as Schedule C. B. Expenses. The Corporation on behalf of each Fund also agrees to promptly reimburse Sunstone for all reasonable out-of-pocket expenses or disbursements incurred by Sunstone in connection with the performance of services under this Agreement including, but not limited to, expenses for postage, express delivery services, freight charges, envelopes, checks, drafts, forms (continuous or otherwise), specially requested reports and statements, bank account service fees and charges, telephone calls, telegraphs, stationery supplies, outside printing and mailing firms, magnetic tapes, reels or cartridges (if sent to a Fund or to a third party at a Fund's request) and magnetic tape handling charges, off-site record storage, media for storage of records (e.g., microfilm, microfiche, optical platters, computer tapes and disks), computer equipment installed at a Fund's request at a Fund's or a third party's premises, telecommunications equipment, telephone/telecommunication lines between the Corporation and its agents, on one hand, and Sunstone on the other, proxy soliciting, processing and/or tabulating costs, second site back-up computer facility, transmission of statement data for remote printing or processing, and transaction fees to the extent any of the foregoing are paid by Sunstone. Such expenses shall not include personnel charges except with the prior approval of an Authorized Person. If requested by Sunstone, postage and other out-of-pocket expenses are payable in advance, and in the event requested, postage is due at least seven days prior to the anticipated mail date. Other out-of pocket expenses are payable in advance if so requested by Sunstone. In the event Sunstone requests advance payment, Sunstone shall not be obligated to incur such expenses or perform the related service(s) until payment is received. Sunstone may, at its option, arrange to have various service providers submit invoices directly to the Corporation for payment of out-of pocket expenses reimbursable hereunder. C. Payment Procedures. 1. Amounts due hereunder shall be due and paid by the respective Fund on or before the thirtieth (30th) day after the date of the statement therefor (the "Due Date"). Service fees are billed monthly, and out-of-pocket expenses are billed as incurred (unless prepayment is requested by Sunstone). Sunstone may, at its option, arrange to have various service providers submit invoices directly to the Funds for payment of out-of-pocket expenses reimbursable hereunder. The Corporation is aware that its failure to pay all amounts in a timely fashion so that they will be received by Sunstone on or before the Due Date will give rise to costs to Sunstone not contemplated by this Agreement, including but not limited to carrying, processing and accounting charges. Accordingly, in the event that any amounts due hereunder are not received by Sunstone by the Due Date, the Corporation shall pay a late charge equal to one percent (1.0%) per month or the maximum amount permitted by law, whichever is less, until paid in full. In addition, the Corporation shall pay reasonable attorney's fees and court costs of Sunstone if any amounts due Sunstone are collected by or through an attorney. The parties hereby agree that such late charge represents a fair and reasonable computation of the costs incurred by reason of late payment or payment of amounts not properly due. Acceptance of such late charge shall in no event constitute a waiver of a Fund's default or prevent Sunstone from exercising any other rights and remedies available to it. 2. In the event that any charges are disputed, the Fund shall, on or before the Due Date, pay all undisputed amounts due hereunder and notify Sunstone in writing of any disputed charges for out-of-pocket expenses which it is disputing in good faith. Payment for such disputed charges shall be due on or before the close of the fifth (5th) business day after the day on which Sunstone provides to the Corporation documentation which an objective observer would agree reasonably supports the disputed charges (the "Revised Due Date"). Late charges shall not begin to accrue as to charges disputed in good faith until the first day after the Revised Due Date. ARTICLE III PROCESSING AND PROCEDURES A. Issuance, Redemption and Transfer of Shares 1. Sunstone acknowledges that it has received a copy of each Fund's Prospectus (as hereinafter defined), which Prospectus describes how sales and redemptions of shares of each Fund shall be made and Sunstone agrees to accept purchase orders and redemption requests with respect to Fund shares on each Fund Business Day in accordance with such Prospectus. "Fund Business Day" shall be deemed to be each day on which the New York Stock Exchange is open for trading, and "Prospectus" shall mean the last Fund prospectus actually received by Sunstone from the Fund with respect to which the Fund has indicated a registration statement under the 1933 Act has become effective, including the Statement of Additional Information, incorporated by reference therein. 2. On each Fund Business Day Sunstone shall, as of the time at which the net asset value of each Fund is computed, issue to and redeem from the accounts specified in a purchase order or redemption request in proper form and accepted by the Corporation, which in accordance with the Prospectus is effective on such day, the appropriate number of full and fractional Shares based on the net asset value per Share of the respective Fund specified in an advice received on such Fund Business Day from or on behalf of the Fund. 3. Upon the issuance of any Shares in accordance with this Agreement, Sunstone shall not be responsible for the payment of any original issue or other taxes required to be paid by the Fund in connection with such issuance of any Shares. 4. Sunstone shall not be required to issue any Shares after it has received from an Authorized Person or from an appropriate federal or state authority written notification that the sale of Shares has been suspended or discontinued, and Sunstone shall be entitled to rely upon such written notification. 5. Upon receipt of a proper redemption request and monies paid to it by the Custodian in connection with a redemption of Shares, Sunstone shall cancel the redeemed Shares and after making appropriate deduction for any withholding of taxes required of it by applicable law, make payment in accordance with the Fund's redemption and payment procedures described in the Prospectus. 6. (a) Except as otherwise provided in sub- paragraph (b) of this paragraph, Shares will be transferred or redeemed upon presentation to Sunstone of Share certificates, if any, or instructions properly endorsed for transfer or redemption, accompanied by such documents as Sunstone deems necessary to evidence the authority of the person making such transfer or redemption, and bearing satisfactory evidence of the payment of stock transfer taxes. Sunstone reserves the right to refuse to transfer or redeem Shares until it is satisfied that the endorsement on the stock certificate, if any, or instructions is valid and genuine, and for that purpose it will require, unless otherwise instructed by an Authorized Person or except as provided in sub-paragraph (b) of this paragraph, a guarantee of signature by an "Eligible Guarantor Institution" as that term is defined by SEC Rule 17Ad- 15. Sunstone also reserves the right to refuse to transfer or redeem Shares until it is satisfied that the requested transfer or redemption is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or redemptions which Sunstone, in its judgment, deems improper or unauthorized, or until it is satisfied that there is no reasonable basis to any claims adverse to such transfer or redemption. Sunstone may, in effecting transfers and redemptions of Shares, rely upon those provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be amended from time to time, applicable to the transfer of securities, and the applicable Fund or Funds shall indemnify Sunstone for any act done or omitted by it in good faith in reliance upon such laws. In no event will a Fund indemnify Sunstone for any act done by it as a result of willful misfeasance, bad faith, negligence or reckless disregard of its duties. (b) Notwithstanding the foregoing or any other provision contained in this Agreement to the contrary, Sunstone shall be fully protected by each Fund in not requiring any instruments, documents, assurances, endorsements or guarantees, including, without limitation, any signature guarantees, in connection with a redemption, or transfer, of Shares whenever Sunstone reasonably believes that requiring the same would be inconsistent with the transfer and redemption procedures as described in the Prospectus. 7. Notwithstanding any provision contained in this Agreement to the contrary, Sunstone shall not be required or expected to require, as a condition to any transfer or redemption of any Shares pursuant to paragraph 6 of this Article or any redemption of shares pursuant to a computer tape or electronic data transmission, any documents to evidence the authority of the person requesting the transfer or redemption and/or the payment of any stock transfer taxes, unless Sunstone has some reasonable basis upon which to question said authority, and shall be fully protected in acting in accordance with the applicable provisions of this Article. 8. In connection with each purchase and each redemption of Shares, Sunstone shall send such statements as are prescribed by the Federal securities laws applicable to transfer agents or as described in the Prospectus. If the Prospectus indicates that certificates for Shares are available and if specifically requested in writing by any shareholder, or if otherwise required hereunder, Sunstone will countersign, issue and mail to such shareholder at the address set forth in the records of Sunstone a Share certificate for any full Share requested. 9. On each Fund Business Day Sunstone shall supply the Corporation with a statement specifying with respect to the immediately preceding Fund Business Day: the total number of Shares of the Funds (including fractional Shares) issued and outstanding at the opening of business on such day; the total number of Shares of the Funds sold on such day; the total number of Shares of the Funds and the dollar amount redeemed from Shareholders by Sunstone on such day; and the total number of Shares of the Funds issued and outstanding. 10. Procedures for effecting purchase, redemption or transfer transactions accepted from investors by telephone or other methods shall be established by mutual agreement between the Corporation and Sunstone consistent with the terms of the Prospectus. Sunstone upon written notice to the Corporation may establish such additional procedures, rules and regulations governing the transfer or registration of Share certificates, if any, or the purchase, redemption or transfer of Shares, as it may deem advisable and consistent with such rules and regulations generally adopted by mutual fund transfer agents. B. Dividends and Distributions. 1. The Corporation shall furnish to Sunstone a copy of a resolution of its Board of Directors, certified by the Secretary or any Assistant Secretary, either (i) setting forth the date of the declaration of a dividend or distribution, the date of accrual or payment, as the case may be, thereof, the record date as of which shareholders entitled to payment, or accrual, as the case may be, shall be determined, the amount per Share of such dividend or distribution, the payment date on which all previously accrued and unpaid dividends are to be paid, and the total amount, if any, payable to Sunstone on such payment date, or (ii) authorizing the declaration of dividends and distributions on a daily or other periodic basis and authorizing Sunstone to rely on a certificate of an Authorized Person setting forth the information described in subsection (i) of this paragraph. 2. In connection with a reinvestment of a dividend or distribution of Shares of a Fund, Sunstone shall as of each Fund Business Day, as specified in a certificate or resolution described in paragraph 1, issue Shares of the Fund based on the net asset value per Share of such Fund specified in an advice received from or on behalf of the Fund on such Fund Business Day. 3. Upon the mail date specified in such certificate or resolution, as the case may be, the Corporation shall, in the case of a cash dividend or distribution, cause the Custodian to deposit in an account in the name of Sunstone on behalf of a Fund, an amount of cash, if any, sufficient for Sunstone to make the payment, as of the mail date, specified in such Certificate or resolution, as the case may be, to the Shareholders who were of record on the record date. Sunstone will, upon receipt of any such cash, make payment of such cash dividends or distributions to the shareholders of record as of the record date. Sunstone shall not be liable for any improper payments made in good faith and without negligence, in accordance with a certificate or resolution described in the preceding paragraph. If Sunstone shall not receive from the Custodian sufficient cash to make payments of any cash dividend or distribution to all shareholders of a Fund as of the record date, Sunstone shall, upon notifying the Fund, withhold payment to all shareholders of record as of the record date until sufficient cash is provided to Sunstone. 4. It is understood that Sunstone in its capacity as transfer agent and dividend disbursing agent shall in no way be responsible for the determination of the rate or form of dividends or capital gain distributions due to the shareholders pursuant to the terms of this Agreement. It is expressly agreed and understood that Sunstone is not liable for any loss as a result of processing a distribution based on information provided in the Certificate that is incorrect. The Funds agree to pay Sunstone for any and all costs, both direct and out-of- pocket expenses, incurred in such corrective work as necessary to remedy such error, provided that Sunstone has acted in good faith and without negligence. 5. It is understood that Sunstone shall file with the Internal Revenue Service and deliver to shareholders such appropriate federal tax forms concerning the payment of dividend and capital gain distributions but shall in no way be responsible for the collection or withholding of taxes due on such dividends or distributions due to shareholders, except and only to the extent, required by applicable law. C. Authorization and Issuance of Shares; Recapitalization or Capital Adjustment. 1. Prior to the effective date of any increase or decrease in the total number of Shares authorized to be issued, or the issuance of any additional Shares of a Fund pursuant to stock dividends, stock splits, recapitalizations, capital adjustments or similar transactions, the Corporation agrees to deliver to Sunstone such documents, certificates, reports and legal opinions as Sunstone may reasonably request. 2. In the event a Fund issues Share certificates, the Corporation at its expense shall furnish Sunstone with a sufficient supply of blank Share certificates in the new form and from time to time will replenish such supply upon the request of Sunstone. Such blank Share certificates shall be compatible with Sunstone's system and shall be properly signed by facsimile or otherwise by officers of the Corporation authorized by law or by the By-Laws to sign Share certificates and, if required, shall bear the corporate Seal or facsimile thereof. The Corporation agrees to indemnify and exonerate, save and hold Sunstone harmless, from and against any and all claims or demands that may be asserted against Sunstone with respect to the genuineness of any Share certificate supplied to Sunstone pursuant to this section. 3. Sunstone may issue new Share certificates in place of certificates represented to have been lost, stolen, or destroyed upon receiving written instructions from the shareholder accompanied by proof of an indemnity or surety bond issued by a recognized insurance institution specified by the Corporation or Sunstone. If Sunstone receives written notification from the shareholder or broker dealer that the certificate issued was never received, and such notification is made within 30 days of the date of issuance, Sunstone may reissue the certificate without requiring a surety bond. Sunstone may also reissue certificates which are represented as lost, stolen, or destroyed without requiring a surety bond provided that the notification is in writing and accompanied by an indemnification signed on behalf of a member firm of the New York Stock Exchange and signed by an officer of said firm with the signature guaranteed. Notwithstanding the foregoing, Sunstone will reissue a certificate upon written authorization from an Authorized Person. D. Records. 1. Sunstone shall keep such records as are specified in Schedule D hereto in the form and manner, and for such period, as it may deem advisable but not inconsistent with the rules and regulations of appropriate government authorities, in particular Rules 31a-2 and 31a-3 under the 1940 Act. Sunstone may deliver to the Corporation from time to time at its discretion, for safekeeping or disposition by the Corporation in accordance with law, such records, papers and documents accumulated in the execution of its duties as such transfer agent, as Sunstone may deem expedient, other than those which Sunstone is itself required to maintain pursuant to applicable laws and regulations. The Corporation shall assume all responsibility for any failure thereafter to produce any record, paper, canceled Share certificate, or other document so returned, if and when required. To the extent required by Section 31 of the 1940 Act and the rules and regulations thereunder, the records specified in Schedule D hereto maintained by Sunstone, which have not been previously delivered to the Corporation pursuant to the foregoing provisions of this paragraph, shall be considered to be the property of the Corporation, shall be made available upon request for inspection by the officers, employees, and auditors of the Corporation, and shall be delivered to the Corporation promptly upon request and in any event upon the date of termination of this Agreement, in the form and manner kept by Sunstone on such date of termination or such earlier date as may be requested by the Corporation. 2. Sunstone agrees to keep all records and other information relative to the Corporation, the Funds and their shareholders confidential. In case of any requests or demands for the inspection of the shareholder records of a Fund, Sunstone will endeavor to notify the Fund promptly and to secure instructions from an Authorized Person as to such inspection. Sunstone reserves the right, however, to exhibit the shareholder records to any person whenever it receives advice from its counsel that there is a reasonable likelihood that Sunstone will be held liable for the failure to exhibit the shareholder records to such person; provided, however, that in connection with any such disclosure Sunstone shall promptly notify the Corporation that such disclosure has been made or is to be made. Notwithstanding the foregoing, Sunstone may disclose information when requested by a shareholder concerning an account as to which such shareholder claims a legal or beneficial interest or when requested by the Corporation, the shareholder or the dealer of record as to such account. ARTICLE IV CONCERNING THE CORPORATION A. Representations. The Corporation represents and warrants to Sunstone that: (a) It is a corporation duly organized and existing under the laws of the State of Maryland, it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement, and all requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. (b) It is an investment company registered under the 1940 Act. (c) A registration statement under the 1933 Act with respect to the Shares is effective. B. Covenants. 1. The Corporation will provide to Sunstone copies of all amendments to its Articles of Incorporation and By-laws made after the date of this Agreement. If requested by Sunstone, each copy of the Articles of Incorporation of the Corporation and copies of all amendments thereto shall be certified by the Secretary of the Corporation. Each copy of the By-Laws and copies of all amendments thereto, and copies of resolutions of the Board of Directors, shall be certified by the Secretary of the Corporation, if requested by Sunstone. 2. The Corporation shall promptly deliver to Sunstone written notice of any change in the Authorized Persons, together with a specimen signature of each new Authorized Person. In the event any Officer who shall have signed manually or whose facsimile signature shall have been affixed to blank Share certificates shall die, resign or be removed prior to issuance of such Share certificates, Sunstone may issue such Share certificates of the Fund notwithstanding such death, resignation or removal, and the Corporation shall promptly deliver to Sunstone such approval, adoption or ratification as may be required by law. 3. The Corporation shall deliver to Sunstone the Fund's currently effective Prospectus and, for purposes of this Agreement, Sunstone shall not be deemed to have notice of any information contained in such Prospectus until five (5) business days after it is actually received by Sunstone. 4. All requisite steps will be taken by the Corporation from time to time when and as necessary to register the Corporation's shares for sale in all states in which the Corporation's shares shall at the time be offered for sale and require registration. If at any time the Corporation receives notice of any stop order or other proceeding in any such state affecting such registration or the sale of the Corporation's shares, or of any stop order or other proceeding under the federal securities laws affecting the sale of the Corporation's shares, the Corporation will give prompt notice thereof to Sunstone. 5. The Corporation will comply with all applicable requirements of the 1933 Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, blue sky laws, and any other applicable laws, rules and regulations. 6. The Corporation agrees that prior to effecting any change in the Prospectus which would increase or alter the duties and obligations of Sunstone hereunder, it shall advise Sunstone of such proposed change at least 30 days prior to the intended date of the same, and shall proceed with such change only if it shall have received the written consent of Sunstone thereto, which shall not be unreasonably withheld. ARTICLE V CONCERNING THE TRANSFER AGENT A. Representations. Sunstone represents and warrants to the Fund that: (a) It is a corporation duly organized and existing under the laws of the State of Wisconsin, is empowered under applicable law and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement, and all requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. (b) It is duly registered as a transfer agent under Section 17A of the Securities Exchange Act of 1934, as amended, to the extent required. B. Limitation of Liability. 1. Sunstone shall not be liable for any loss or damage, including counsel fees, resulting from its actions or omissions to act or otherwise, except for any loss or damage arising out of its bad faith, willful misfeasance, negligence or reckless disregard of its duties under this Agreement. Sunstone shall not be liable and shall be indemnified in acting upon any writing or document reasonably believed by it to be genuine and to have been signed or made by an Authorized Person or verbal instructions which the individual receiving the instructions on behalf of Sunstone reasonably believes in good faith to have been given by an Authorized Person, and Sunstone shall not be held to have any notice of any change of authority of any person until receipt of written notice thereof from a Fund or such person. It shall also be protected in processing Share certificates, if any, which bear the proper countersignature of Sunstone and which it reasonably believes to bear the proper manual or facsimile signature of the officers. 2. Sunstone assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, errors, delay or any other loss whatsoever caused by events beyond its reasonable control. Sunstone will, however, take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond Sunstone's control. 3. In no event and under no circumstances shall either party to this Agreement be liable to anyone, including, without limitation to the other party, for consequential or punitive damages for any act or failure to act under any provision of this Agreement even if advised of the possibility thereof. C. Indemnification. 1. The Corporation shall indemnify and exonerate, save and hold harmless Sunstone from and against any and all claims (whether with or without basis in fact or law), demands, expenses (including reasonable attorney's fees) and liabilities of any and every nature which the Indemnified Party (as defined below) may sustain or incur or which may be asserted against the Indemnified Party by any person by reason of or as a result of any action taken or omitted to be taken by any prior transfer agent of the Corporation or as a result of any action taken or omitted to be taken by the Indemnified Party in good faith and without negligence or willful misconduct or in reliance upon (i) any provision of this Agreement; (ii) the Prospectus; (iii) any instrument, order or Share certificate reasonably believed by it to be genuine and to be signed, countersigned or executed by an Authorized Person; (iv) any Certificate or other instructions of an Authorized Person; or (v) any opinion of legal counsel for the Corporation or, if approved by the Corporation, for the Indemnified Party. The Corporation shall indemnify and exonerate, save and hold the Indemnified Party harmless from and against any and all claims (whether with or without basis in fact or law), demands, expenses (including reasonable attorney's fees) and liabilities of any and every nature which the Indemnified Party may sustain or incur or which may be asserted against the Indemnified Party by any person by reason of or as a result of any action taken or omitted to be taken by the Indemnified Party in good faith in connection with its appointment or in reliance upon any law, act, regulation or any interpretation of the same. 2. Sunstone shall indemnify and hold the Corporation harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by Sunstone as a result of Sunstone's lack of good faith, negligence or willful misconduct. 3. The party seeking indemnification under this Section (C) (the "Indemnified Party") shall not settle any claim, demand, expense or liability to which it may seek indemnity (each, an "Indemnifiable Claim") without the express written consent of the party against which indemnification is sought (the "Indemnifying Party"). The Indemnified Party shall notify the Indemnifying Party promptly after receipt of notification of an Indemnifiable Claim, provided that the failure to furnish such notification shall not impair the Indemnified Party's right to seek indemnification unless the Indemnifying Party is unable to adequately defend the Indemnifiable Claim as a result of such failure, and further provided, that if as a result of the failure to provide timely notice of the institution of litigation a judgment by default is entered, prior to seeking indemnification, the Indemnified Party, at its own cost and expense, shall open such judgment. The Indemnifying Party shall have the right to defend any Indemnifiable Claim at its own expense, provided that such defense shall be conducted by counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party. The Indemnified Party may join in such defense at its own expense, but to the extent that it shall so desire the Indemnifying Party shall direct such defense. The Indemnifying Party shall not settle any Indemnifiable Claim without the express written consent of the Indemnified Party if the Indemnified Party determines that such settlement would have an adverse effect on the Indemnified Party beyond the scope of this Agreement. In such event, each of the Indemnifying Party and the Indemnified Party shall be responsible for their own defense at their own cost and expense, and such claim shall not be deemed an Indemnifiable Claim hereunder. If the Indemnifying Party shall fail or refuse to defend an Indemnifiable Claim, the Indemnified Party may provide its own defense at the cost and expense of the Indemnifying Party. Anything in this Agreement to the contrary notwithstanding, the Indemnifying Party shall not indemnify the Indemnified Party against any liability or expense arising out of the Indemnified Party's willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. 4. The indemnity and defense provisions provided hereunder shall indefinitely survive the termination of this Agreement. D. Procedures. 1. At any time Sunstone may apply to an Authorized Person of the Corporation for written instructions with respect to any matter arising in connection with Sunstone's duties and obligations under this Agreement, and Sunstone shall not be liable for any action taken or permitted by it in good faith in accordance with such written instructions. Such application by Sunstone for written instructions from an Authorized Person of the Corporation may set forth in writing any action proposed to be taken or omitted by Sunstone with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken. Sunstone shall not be liable for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein unless, prior to taking or omitting any such action, Sunstone has received written instructions in response to such application specifying the action to be taken or omitted. Sunstone may consult counsel of the Corporation, or upon notice and approval from the Corporation, its own counsel, at the expense of the Corporation and shall be fully protected with respect to anything done or omitted by it in good faith in accordance with the advice or opinion of counsel to the Corporation or its own counsel. 2. Notwithstanding any of the foregoing provisions of this Agreement, Sunstone shall be under no duty or obligation under this Agreement to inquire into, and shall not be liable for: (a) The legality of the issue or sale of any Shares, the sufficiency of the amount to be received therefor, or the authority of the Corporation, as the case may be, to request such sale or issuance; (b) The legality of a transfer of Shares, or of a redemption of any Shares, the propriety of the amount to be paid therefor, or the authority of the Corporation, as the case may be, to request such transfer or redemption; (c) The legality of the declaration of any dividend by the Corporation, on behalf of a Fund or Funds, or the legality of the issue of any Shares in payment of any stock dividend; or (d) The legality of any recapitalization or readjustment of Shares. ARTICLE V TERM 1. This Agreement shall remain in full force and effect for a one-year period from the date hereof (the "Initial Term"), and thereafter shall automatically extend for additional, successive twelve (12) month terms unless earlier terminated as provided below. Each party, in addition to any other rights and remedies, shall have the right to terminate this Agreement at any time upon the material breach of this Agreement by the other party. In the event of a material breach, the non-breaching party shall notify the breaching party in writing of such breach and upon receipt of such notice, the breaching party shall have 45 days to remedy the breach or the non-breaching party may forthwith terminate this Agreement upon the expiration of said period. 2. Either of the parties hereto may terminate this Agreement only after the Initial Term, except as noted in paragraph 1 above, by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of receipt of such notice. In the event such notice is given by the Corporation, it shall be accompanied by a copy of a resolution of the Board of Directors of the Corporation, certified by the Secretary or any Assistant Secretary, electing to terminate this Agreement and designating the successor transfer agent or transfer agents. In the event such notice is given by Sunstone, the Corporation shall on or before the termination date, deliver to Sunstone a copy of a resolution of its Board of Directors certified by the Secretary or any Assistant Secretary designating a successor transfer agent or transfer agents. In the absence of such designation by the Corporation, the Corporation shall upon the date specified in the notice of termination of this Agreement and delivery of the records maintained hereunder, be deemed to be its own transfer agent and Sunstone shall thereby be relieved of all duties and responsibilities pursuant to this Agreement. Fees and out-of-pocket expenses incurred by Sunstone, but unpaid by the Corporation upon such termination, shall be immediately due and payable upon and notwithstanding such termination. 3. In the event this Agreement is terminated as provided herein, Sunstone, upon the written request of the Corporation, shall deliver the records of the Corporation to the Corporation or its successor transfer agent in the form maintained by Sunstone. The Corporation shall be responsible to Sunstone for all out-of-pocket expenses and for the reasonable costs and expenses associated with the preparation and delivery of such media, including: (a) any custom programming requested by the Corporation in connection with the preparation of such media; (b) transportation of forms and other Corporation materials used in connection with the processing of Fund transactions by Sunstone; and (c) transportation of the Corporation's records and files in the possession of Sunstone. Sunstone shall not reduce the level of service provided to the Corporation following notice of termination by the Corporation. ARTICLE VI MISCELLANEOUS A. Notices. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Corporation with respect to any Fund shall be sufficiently given if addressed to the Corporation and mailed and delivered to a Co-President at 400 Skokie Blvd, Northbrook, Illinois 60062, or at such other place as the Corporation may from time to time designate in writing. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Sunstone shall be sufficiently given if addressed to Sunstone and mailed or delivered to the President at 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202, or at such other place as Sunstone may from time to time designate in writing. B. Amendments/Assignments. 1. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the formality of this Agreement. 2. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns. This Agreement shall not be assignable by either party without the written consent of the other party except that Sunstone may assign this Agreement to an affiliate with advance written notice to the Corporation; provided, however, the personnel of the affiliate have the same or better qualifications and experience as Sunstone. C. Wisconsin Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. If any part, term or provision of this Agreement is determined by the courts or any regulatory authority having jurisdiction over the issue to be illegal, in conflict with any law or otherwise invalid, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular part, term or provision held to be illegal or invalid. D. Counterparts. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. E. Back-up Facility. During the terms of this Agreement, Sunstone shall provide a facility capable of safeguarding the transfer agency and dividend disbursing records of the Corporation in case of damage to the primary facility providing those services (the "Back-Up Facility"). Transfer of the transfer agency and dividend records of the Fund to the Back-Up Facility shall commence as soon as practicable after damage to the primary facility results in an inability to provide the transfer agency and dividend disbursing services. After the primary facility has recovered, Sunstone shall again utilize it to provide the transfer agency and dividend disbursing services to the Fund. Sunstone shall use reasonable efforts to provide the services described in this Agreement from the Back-Up Facility. This space intentionally left blank. F. Non-Exclusive; Other Agreements. The services of Sunstone hereunder are not deemed exclusive and Sunstone shall be free to render similar services to others. Except as specifically provided herein, this Agreement does not in any way affect any other agreements entered into among the parties hereto and any actions taken or omitted by any party hereunder shall not affect any rights or obligations of any other party hereunder. G. Captions. The captions in the Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officer, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as the day and year first above written. SUNSTONE INVESTOR SERVICES, LLC FRONTEGRA FUNDS, INC. By:______________________________ By:________________________________ (Signature) (Signature) ______________________________ ________________________________ (Name) (Name) ______________________________ ________________________________ (Title) (Title) ______________________________ ________________________________ (Date Signed) (Date Signed) SCHEDULE A Frontegra Total Return Bond Fund SCHEDULE B SERVICES Maintenance of shareholder accounts Maintain records for each shareholder account; Scan account documents for electronic storage; Issue customer statements; Record changes to shareholder account information; Maintain account documentation files for each shareholder; and Establish and maintain IRA accounts. Shareholder servicing and shareholder transactions Respond to written and telephone (recorded lines) inquiries from shareholders for information about their accounts; Process shareholder purchase and redemption orders; Set up account information, including address, dividend options, taxpayer identification numbers and wire instructions; Issue transaction confirmations; Process transfers and exchanges; and Process dividend and capital gain payments by check, wire or ACH or purchase new shares through dividend reinvestment. Compliance reporting Provide required reports to the Securities and Exchange Commission, the National Association of Securities Dealers and the states in which each fund is registered; Prepare and distribute to the Internal Revenue Service required Internal Revenue Service forms 1099, 1042, 5498 and 945 relating to earned income and capital gains; and Issue tax withholding reports to the Internal Revenue Service. Telephone service representatives on-line access Respond to shareholder or dealer inquiries related to: Account registration; Share balances; Account options; Dividend and capital gain distribution status; Withholding status; Transaction dates and types; Shares traded; Social security number/tax ID number; External account number; Address; Customer or account type; Dollars available/not available in the account; Shares purchased/redeemed today; Dividend accrual, current dividend period; and Market value of shares. Standard reports Shareholder base analysis (monthly) New account listing (weekly) Purchases, redemptions, exchanges (monthly) Servicing summary (monthly) Other Service Features In addition to the standard features listed above, Sunstone's system offers additional features to meet specialized needs which are available at additional cost. SCHEDULE C FEE SCHEDULE Base fees Annual Shareholder Account Fee Minimum Annual Fee Per (open/closed) Fund Year 1 $ 14.00 $ 12,000 Year 2 + 14.00 14,000 The base fee assumes a single class of shares, no load or 12b-1 plan; availability of automatic investment plans and systematic withdrawal plans (using Sunstone's regular processing date); quarterly or less frequent dividend distributions for equity, fixed income and balanced funds; monthly dividend distributions for money market funds; annual capital gains distributions; and all standard reports. The minimum annual fees per fund are subject to an annual escalation of 6% per year. Additional fees to be added to base fee Type of Service or Annual Shareholder Minimum Annual Fund Function Account Fee Fee Per Fund Front-end load $ 1.50 $ 2,000 CDSC or back-end load 2.00 3,000 12b-1 plan 1.00 1,000 Monthly dividends on non-daily accrual funds 2.00 2,000 Check writing privilege 2.00 2,000 One-time set-up fees Per fund set-up (for future funds) $ 2,000 NSCC FundSERV set-up (per fund group) 2,500 NSCC networking (per fund group) 1,500 Remote access set-up (per location) 500 Voice Response Unit (VRU) 2,000 Account maintenance and processing fees (per occurrence) Shareholder account set-up 2.00 Check writing signature verification .50 Omnibus account transaction 2.50 Locating lost shareholders 8.00 Taxpayer ID number solicitation 1.50 Monthly remote access user charge First user and password 250.00 Additional users and passwords (each) 100.00 VRU transaction .25 Fund Serve/Networking transaction .20 Out-of-pocket expenses Per check processing (dividend, capital gains, redemption) .25 Per statement and confirm processing .25 Per tax form processing .15 Production of ad hoc reports starting at $ 100.00 Bulk mailings/insert handling charges 1 insert .25 2-3 inserts (per piece) .20 4 or more inserts (per piece) .15 Bank account service fees and any other bank charges At cost Check stock At cost Statement paper At cost Envelopes At cost Tax forms At cost Postage and express delivery charges At cost Telephone and long distance charges At cost Fax charges At cost P.O. box rental At cost 800-phone number At cost Inventory and records storage At cost FundSERV charges At cost Additional fees which may be passed on to shareholders Outgoing wire fee Varies by bank Telephone exchange fee $ 5.00 Check writing transaction fees Stop payments Varies by bank Non-sufficient funds Varies by bank Check copy 2.50 Account transcripts older than 2 years (per year, per fund) 5.00 Non-sufficient funds Varies by bank IRA/SEP processing Annual maintenance or custodial fee (per account) 15.00 Account termination (transfer or rollover) 15.00 Custom Programming Additional fees may apply for special programming to meet your servicing requirements or to create custom reports. SCHEDULE D RECORDS MAINTAINED BY SUNSTONE Account applications Canceled certificates plus stock powers and supporting documents Checks including check registers, reconciliation records, any adjustment records and tax withholding documentation Indemnity bonds for replacement of lost or missing stock certificates and checks Liquidation, redemption, withdrawal and transfer requests including stock powers, signature guarantees and any supporting documentation Shareholder correspondence Shareholder transaction records Share transaction history of the Funds EX-9.2 6 ADMINISTRATION AND FUND ACCOUNTING AGREEMENT THIS AGREEMENT is made as of this ___ day of October, 1996, by and between Frontegra Funds, Inc., a Maryland corporation (the "Corporation"), and Sunstone Financial Group, Inc., a Wisconsin corporation (the "Administrator"). WHEREAS, the Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") and is authorized to issue shares of common stock (the "Shares") in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Corporation and the Administrator desire to enter into an agreement pursuant to which the Administrator shall provide administration and fund accounting services to such investment portfolios of the Corporation as are listed on Schedule A hereto and any additional investment portfolios the Corporation and Administrator may agree upon and include on Schedule A as such Schedule may be amended from time to time (such investment portfolios and any additional investment portfolios are individually referred to as a "Fund" and collectively the "Funds"). NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. Appointment The Corporation hereby appoints the Administrator as administrator and fund accountant of the Funds for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Services as Administrator (a) Subject to the direction and control of the Corporation's Board of Directors and utilizing information provided by the Corporation and its agents, the Administrator will: (1) provide office space, facilities, equipment and personnel to carry out its services hereunder; (2) compile data for and prepare with respect to the Funds timely Notices to the Securities and Exchange Commission (the "Commission") required pursuant to Rule 24f-2 under the 1940 Act and Semi-Annual Reports on Form N-SAR; (3) assist in the preparation of for execution by the Corporation and file all federal income and excise tax returns and state income tax returns (and such other required tax filings as may be agreed to by the parties) other than those required to be made by the Corporation's custodian or transfer agent, subject to review and approval of the Corporation and the Corporation's independent accountants; (4) prepare and/or file securities registration compliance filings with the states identified by the Corporation to maintain the Funds' securities registrations with the advice of the Corporation's legal counsel; (5) prepare the financial statements for the Annual and Semi-Annual Reports required pursuant to Section 30(d) under the 1940 Act; (6) assist the Corporation's legal counsel in the preparation of the Registration Statement for the Corporation (on Form N-1A or any replacement therefor) and any amendments thereto; (7) determine and periodically monitor each Fund's income and expense accruals and cause all appropriate expenses to be paid from Corporation assets on proper authorization from the Corporation; (8) calculate daily net asset values and income factors of each Fund; (9) maintain all general ledger accounts and related subledgers; (10) perform security valuations in accordance with the terms of the Funds' then current Prospectus and instructions of the Corporation's Board of Directors; (11) assist in the acquisition of the Corporation's fidelity bond required by the 1940 Act, monitor the amount of the bond and make the necessary Commission filings related thereto; (12) from time to time as the Administrator deems appropriate, check each Fund's compliance with the policies and limitations of each Fund relating to the portfolio investments as set forth in the Prospectus, Statement of Additional Information, Articles and By-Laws and monitor each Fund's status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (but these functions shall not relieve the Corporation's investment adviser and sub-advisers, if any, of their primary day-to-day responsibility for assuring such compliance); (13) maintain, and/or coordinate with the other service providers the maintenance of, the accounts, books and other documents required pursuant to Rule 31a-1(a) and (b) under the 1940 Act; (14) develop with legal counsel and secretary of the Corporation an agenda for each board meeting and, if requested by the Directors, attend board meetings and prepare minutes; (15) prepare Form 1099s for directors and other Fund vendors; (16) calculate dividend and capital gains distributions subject to review and approval by the Corporation and its independent accountants; and (17) generally assist in the Corporation's administrative operations as mutually agreed to by the parties. The duties of the Administrator shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Administrator hereunder. (b) The Directors of the Corporation shall cause the officers, investment adviser, legal counsel, independent accountants, transfer agent and custodian for the Funds to cooperate with the Administrator and to provide the Administrator, upon request, with such information, documents and advice relating to the Funds and the Corporation as is within the possession or knowledge of such persons, in order to enable the Administrator to perform its duties hereunder. In connection with its duties hereunder, the Administrator shall be entitled to rely, and shall be held harmless by the Corporation when acting in reliance, upon the instruction, advice, information or any documents relating to the Funds provided to the Administrator by an officer or representative of the Funds or by any of the aforementioned persons. Fees charged by such persons shall be an expense of the respective Fund. The Administrator shall be entitled to rely on any document which it reasonably believes to be genuine and to have been signed or presented by the proper party. The Administrator shall not be held to have notice of any change of authority of any officer, agent, representative or employee of the Corporation until receipt of written notice thereof from the Corporation. The Administrator shall cooperate with the Corporation and its legal counsel, independent accountants, custodian and transfer agent upon reasonable request in order to enable the Corporation's service providers to perform their duties with respect to the Funds. (c) In compliance with the requirements of Rule 31a- 3 under the 1940 Act, the Administrator hereby agrees that all records which it maintains for the Corporation are the property of the Corporation and further agrees to surrender promptly to the Corporation any of such records upon the Corporation's request free of any liens and charges. Subject to the terms of Section 6, the Administrator further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records described in (a) above which are maintained by the Administrator for the Corporation. (d) It is understood that in determining security valuations, the Administrator employs one or more pricing services to determine valuations of portfolio securities for purposes of calculating net asset values of the Funds. The Administrator shall identify to the Corporation and the Board of Directors any such pricing service utilized on behalf of the Corporation. The Administrator is authorized to rely on the prices provided by such service(s) or by the Funds' investment adviser or other authorized representative of the Funds, and shall not be liable for losses to the Corporation or its securityholders as a result of its reliance on the valuations provided by the approved pricing service(s) or the representative. (e) The Administrator shall perform its duties hereunder in compliance with all applicable laws. 3. Fees; Delegation; Expenses (a) In consideration of the services rendered pursuant to this Agreement, the Corporation will pay the Administrator a fee, computed daily and payable monthly, as provided in Schedule B hereto, plus out-of- pocket expenses. The Corporation shall also pay the Administrator for organizational start-up services provided on behalf of the Funds as specified in Schedule B. Out-of-pocket expenses include, but are not limited to, travel, lodging and meals in connection with travel on behalf of the Corporation, programming and related expenses (previously incurred or to be incurred by Administrator) in connection with providing electronic transmission of data between the Administrator and the Funds' other service providers, brokers, dealers and depositories, and photocopying, postage and overnight delivery expenses. Fees shall be paid by each Fund at a rate that would aggregate at least the applicable minimum fee for each Fund. (b) For the purpose of determining fees payable to the Administrator, net asset value shall be computed in accordance with the Corporation's Prospectuses and resolutions of the Corporation's Board of Directors. The fee for the period from the day of the month this Agreement is entered into until the end of that month shall be pro-rated according to the proportion which such period bears to the full monthly period. Upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro- rated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. Should the Corporation be liquidated, merged with or acquired by another fund or investment company, any accrued fees shall be immediately payable. Such fee as is attributable to each Fund shall be a separate charge to each Fund and shall be the several (and not joint or joint and several) obligation of each such Fund. (c) The Administrator will bear all expenses in connection with the performance of its services under this Agreement except as otherwise provided herein. Other costs and expenses to be incurred in the operation of the Funds, including, but not limited to: taxes; interest; brokerage fees and commissions, if any; salaries, fees and expenses of officers and Directors; Commission fees and state Blue Sky fees; advisory fees; charges of custodians, transfer agents, dividend disbursing and accounting services agents; security pricing services; insurance premiums; outside auditing and legal expenses; costs of organization and maintenance of corporate existence; typesetting, printing, proofing and mailing of prospectuses, statements of additional information, supplements, notices and proxy materials for regulatory purposes and for distribution to current shareholders; typesetting, printing, proofing and mailing and other costs of shareholder reports; expenses in connection with the electronic transmission of documents and information including electronic filings with the Commission and the states: expenses incidental to holding meetings of the Fund's shareholders and Directors; and any extraordinary expenses; will be borne by the Funds or their investment adviser. Expenses incurred for distribution of shares, including the typesetting, printing, proofing and mailing of prospectuses for persons who are not shareholders of the Corporation, will be borne by the investment adviser, except for such expenses permitted to be paid by the Corporation under a distribution plan adopted in accordance with applicable laws. 4. Proprietary and Confidential Information The Administrator agrees on behalf of itself and its employees to treat confidentially and as proprietary information of the Corporation all records and other information relative to the Funds and prior, present or potential shareholders of the Corporation (and clients of said shareholders), and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Corporation, which approval shall not be unreasonably withheld and may not be withheld where the Administrator may be exposed to civil or criminal proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, when subject to governmental or regulatory audit or investigation, or when so requested by the Corporation. 5. Limitation of Liability (a) The Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which this Agreement relates, except for a loss resulting from the Administrator's willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. Furthermore, the Administrator shall not be liable for any action taken or omitted to be taken in accordance with instructions received by the Administrator from an officer or representative of the Corporation. (b) The Administrator assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, errors, delay or any other loss whatsoever caused by events beyond its reasonable control. The Administrator will, however, take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond its control. 6. Term (a) This Agreement shall become effective with respect to each Fund listed on Schedule A hereof as of the date hereof and, with respect to each Fund not in existence on that date, on the date an amendment to Schedule A to this Agreement relating to that Fund is executed. This Agreement shall continue in effect with respect to each Fund for a period of one-year from the date hereof (the "Initial Term"). Thereafter, if not terminated as provided herein, this Agreement shall continue automatically in effect as to each Fund for successive annual periods. (b) This Agreement may be terminated with respect to any one or more particular Funds without penalty after the Initial Term (i) upon mutual consent of the parties, or (ii) by either party upon not less than ninety (90) days' written notice to the other party (which notice may be waived by the party entitled to the notice). The terms of this Agreement shall not be waived, altered, modified, amended or supplemented in any manner whatsoever except by a written instrument signed by the Administrator and the Corporation. (c) Notwithstanding anything herein to the contrary, upon the termination of this Agreement or the liquidation of a Fund or the Corporation, the Administrator shall deliver the records of the Fund(s) and/or Corporation as the case may be to the Corporation or person(s) designated by the Corporation and thereafter the Corporation or its designee shall be solely responsible for preserving the records for the periods required by all applicable laws, rules and regulations. In addition, in the event of termination of this Agreement, or the proposed liquidation or merger of the Corporation or a Fund(s), and the Corporation requests the Administrator to provide services in connection therewith, the Administrator shall provide such services and be entitled to such compensation as the parties may mutually agree. 7. Non-Exclusivity The services of the Administrator rendered to the Corporation are not deemed to be exclusive. The Administrator may render such services and any other services to others, including other investment companies. The Corporation recognizes that from time to time directors, officers and employees of the Administrator may serve as trustees, directors, officers and employees of other entities (including other investment companies), that such other entities may include the name of the Administrator as part of their name and that the Administrator or its affiliates may enter into investment advisory or other agreements with such other entities. 8. Governing Law; Invalidity This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the Commission thereunder. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9. Notices Any notice required or to be permitted to be given by either party to the other shall be in writing and shall be deemed to have been given when sent by registered or certified mail, postage prepaid, return receipt requested, as follows: Notice to the Administrator shall be sent to Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, WI, 53202, Attention Miriam M. Allison, and notice to the Corporation shall be sent to Frontegra Funds, Inc., 400 Skokie Blvd, Suite 500 Northbrook, Illinois 60062, Attn: Co-Presidents. 10. Entire Agreement This Agreement constitutes the entire Agreement of the parties hereto. 11. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original agreement but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer as of the day and year first above written. FRONTEGRA FUNDS, INC. (the Corporation) By:____________________________________________ Co-President SUNSTONE FINANCIAL GROUP,INC. ("Administrator") By:____________________________________________ President Schedule A to the Administration and Fund Accounting Agreement by and between FRONTEGRA FUNDS, INC. and Sunstone Financial Group, Inc. Frontegra Total Return Bond Fund Schedule B to the Administration and Fund Accounting Agreement by and between FRONTEGRA FUNDS, INC. and Sunstone Financial Group, Inc. Minimum Name of Fund Annual Fees Annual Fee Total Return Bond Up to $50 Million 20.0 basis points $65,000 Over $50 Million 7.0 basis points The fees quoted assume a single class of shares. In addition to the foregoing, the Corporation shall pay to the Administrator $32,000 for organizational start-up services provided by the Administrator on behalf of the Funds. The Corporation shall also pay/reimburse the Administrator's out-of-pocket expenses as described in the Agreement. The minimum annual fee is subject to annual escalation in the amount of 6% with the first escalation to be effective one-year from the date hereof. Fees for additional series shall be determined separately and reflected in an amended Schedule B. EX-10 7 GODFREY & KAHN, S.C. ATTORNEYS AT LAW 780 NORTH WATER STREET MILWAUKEE, WISCONSIN 53202 PHONE (414) 273-3500 FAX: (414) 273-5198 October 9, 1996 Frontegra Funds, Inc. 400 N. Skokie Boulevard, Suite 500 Northbrook, IL 60062 Ladies and Gentlemen: We have acted as your counsel in connection with the preparation of a Registration Statement on Form N-1A (Registration Nos. 333-7305 and 811-7685) (the "Registration Statement") relating to the sale by you of an indefinite number of shares of Frontegra Funds, Inc. (the "Company") common stock, $0.01 par value (the "Shares"), in the manner set forth in the Registration Statement (and the prospectus included therein). We have examined: (a) the Registration Statement (and the prospectus included therein), (b) the Company's Articles of Incorporation, and By-Laws, (c) certain resolutions of the Company's Board of Directors, and (d) such other proceedings, documents and records as we have deemed necessary to enable us to render this opinion. Based upon the foregoing, we are of the opinion that the Shares, when sold as contemplated in the Registration Statement, will be duly authorized and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement. In giving this consent, however, we do not admit that we are "experts" within the meaning of Section 11 of the Securities Act of 1933, as amended, or within the category of persons whose consent is required by Section 7 of said Act. Very truly yours, /s/ Godfrey & Kahn, S.C. GODFREY & KAHN, S.C. EX-11 8 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our report dated September 30, 1996 for the Total Return Bond Fund in the Registration Statement (Form N-1A) and related Prospectus of the Frontegra Funds, Inc. filed with the Securities and Exchange Commission in this Pre- Effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933 (Registration No. 33- 37305) and in this Amendment No. 1 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-7685). ERNST & YOUNG LLP /s/ Ernst & Young LLP Chicago, Illinois October 7, 1996 EX-13 9 FRONTEGRA FUNDS, INC. STOCK SUBSCRIPTION AGREEMENT To the Board of Directors of Frontegra Funds, Inc.: The undersigned purchaser (the "Purchaser") hereby subscribes to 1,666.666 shares (the "Shares") of common stock, $.01 par value (the "Common Stock"), of Frontegra Funds, Inc. (the "Company") in consideration for which the Purchaser agrees to transfer to you upon demand Fifty Thousand Dollars ($50,000) in cash. The Purchaser desires to invest the $50,000 in the Frontegra Total Return Bond Fund. Accordingly, the Purchaser will receive 1,666.666 Shares of the Frontegra Total Return Bond Fund. It is understood that a certificate representing the Shares shall not be issued to the undersigned, but such ownership shall be recorded on the books and records of the Company's transfer agent. Notwithstanding the fact that a certificate representing ownership will not be issued, said Shares shall be deemed fully paid and nonassessable. The Purchaser agrees that the Shares are being purchased for investment with no present intention of reselling or redeeming said Shares. The Purchaser acknowledges that costs incurred by the Company in connection with its organization, registration and initial public offering of Shares of the Company have been deferred and are being amortized over a period of five years from the date upon which the Company commences its investment activities. The Purchaser agrees that in the event any of the Shares purchased hereunder are redeemed during such five year period, the Company is authorized to reduce the redemption proceeds to cover any unamortized organizational expenses in the same proportion as the number of Shares being redeemed bears to the number of Shares outstanding at the time of the redemption. If, for any reason, said reduction of redemption proceeds is not in fact made by the Company in the event of such a redemption, the Purchaser agrees to reimburse the Company immediately for any unamortized organizational expenses in the proportion stated above. Dated and effective this 30th day of September, 1996. REAMS ASSET MANAGEMENT COMPANY, LLC /s/ L. Paul Berman ____________________________________ By: L. Paul Berman Its: Senior Vice President ACCEPTANCE The foregoing subscription is hereby accepted. Dated and effective as of this 30th day of September, 1996. FRONTEGRA FUNDS, INC. /s/ William D. Forsyth, III ________________________________________ By: William D. Forsyth, III Its: Co-President /s/ Thomas J. Holmberg, Jr. ________________________________________ Attest: Thomas J.Holmberg, Jr. Co-President EX-13 10 FRONTEGRA FUNDS, INC. STOCK SUBSCRIPTION AGREEMENT To the Board of Directors of Frontegra Funds, Inc.: The undersigned purchaser (the "Purchaser") hereby subscribes to 1,666.667 shares (the "Shares") of common stock, $.01 par value (the "Common Stock"), of Frontegra Funds, Inc. (the "Company") in consideration for which the Purchaser agrees to transfer to you upon demand Fifty Thousand Dollars ($50,000) in cash. The Purchaser desires to invest the $50,000 in the Frontegra Total Return Bond Fund. Accordingly, the Purchaser will receive 1,666.667 Shares of the Frontegra Total Return Bond Fund. It is understood that a certificate representing the Shares shall not be issued to the undersigned, but such ownership shall be recorded on the books and records of the Company's transfer agent. Notwithstanding the fact that a certificate representing ownership will not be issued, said Shares shall be deemed fully paid and nonassessable. The Purchaser agrees that the Shares are being purchased for investment with no present intention of reselling or redeeming said Shares. The Purchaser acknowledges that costs incurred by the Company in connection with its organization, registration and initial public offering of Shares of the Company have been deferred and are being amortized over a period of five years from the date upon which the Company commences its investment activities. The Purchaser agrees that in the event any of the Shares purchased hereunder are redeemed during such five year period, the Company is authorized to reduce the redemption proceeds to cover any unamortized organizational expenses in the same proportion as the number of Shares being redeemed bears to the number of Shares outstanding at the time of the redemption. If, for any reason, said reduction of redemption proceeds is not in fact made by the Company in the event of such a redemption, the Purchaser agrees to reimburse the Company immediately for any unamortized organizational expenses in the proportion stated above. Dated and effective this 30th day of September, 1996. FRONTEGRA ASSET MANAGEMENT, INC. /s/ William D. Forsyth, III _________________________________ By: William D. Forsyth, III Its: Co-President ACCEPTANCE The foregoing subscription is hereby accepted. Dated and effective as of this 30th day of September, 1996. FRONTEGRA FUNDS, INC. /s/ William D. Forsyth, III _______________________________________ By: William D. Forsyth, III Its: Co-President ________________________________________ Attest: Thomas J.Holmberg, Jr. Co-President EX-14 11 For Fund information, prices, literature, account balances and other information about your Frontegra Funds account, call 1-888-825-2100. IRA Disclosure Statement and Custodial Agreement Frontegra Funds, Inc. Investment Adviser The Frontegra Funds P.O. Box 2142 Milwaukee, WI 53201-2142 Table of Contents Disclosure Statement 2 Power to Revoke 2 Legal Requirements with Respect to Your IRA 2 Tax Treatment of Contributions to Your IRA 3 Tax Treatment of Distributions from Your IRA 3 Tax Treatment of Your IRA 4 Limits on Contributions to Your Account 4 Spousal IRA 4 Rollover 5 Rollover Contributions and Tax-Free Transfers 5 Excess Contributions 6 Use of Your Account as Security for a Loan 6 Prohibited Transactions 7 Estate Taxation 7 Effect of Divorce 8 Withdrawals Prior to Age 59 1/2 8 Minimum Distributions Required Starting at Age 70 1/2 9 Penalty Tax for Failure to Meet Minimum Distribution Requirements 9 Excess Distribution Penalty 9 Designation of a Beneficiary or Beneficiaries 10 Distributions Following Death of Grantor 10 Investment of Account 11 Financial Guarantees and Projections 11 Trustee Not Liable 11 Termination of This Account 11 Duty to File Tax Returns 12 Internal Revenue Service Approval 12 Additional Information 12 Custodial Agreement 13 Article I 13 Article II 13 Article III 14 Article IV 14 Article V 16 Article VI 16 Article VII 17 Article VIII 17 Section 1 -- Investment of Account 17 Section 2 -- Beneficiary Designations 19 Section 3 -- Miscellaneous 21 Schedule of Fees 25 Disclosure Statement Power to Revoke. For a period of seven (7) days following the date on which you enter into an IRA or Custodial Trust Agreement with UMB Bank, n.a. (i.e. "UMB"), you have the right to revoke the Trust. To effect revocation, please write or call The Frontegra Funds, P.O. Box 2142, Milwaukee, WI 53201-2142 or 1-888- 825-2100. In the event notice is mailed, the postmark date (or date of certification or registration, if sent by certified or registered mail) will be deemed the date of delivery, provided that normal mailing procedures are followed. If you revoke your account, you are entitled to a return of the entire amount deposited to your account without reduction for any fees, expenses or commissions and without any adjustment for any investment gain or loss. Legal Requirements with Respect to Your IRA Current tax law requires that your trust agreement be in writing and that it contain the following provisions. 1.All contributions must be in the form of cash and cannot be in excess of the lesser of your compensation or $2,000 per year, unless the contribution is a rollover contribution as defined in the Internal Revenue Code. Employer contributions to a Simplified Employee Pension plan may exceed the limitations applicable to individuals. 2.The Trustee must be a bank such as UMB, or other institution (or person) that has satisfied the Secretary of the Treasury that it is able to administer your account in accordance with tax laws. 3.None of the funds of your account may be invested in life insurance contracts. 4.Your interest in the balance of the account cannot be forfeited. 5.With the exception of investments in a common trust fund or common investment fund such as a mutual fund, none of your account assets may be commingled. 6.Distribution of your interest in the account must begin no later than the April 1 next following the year in which you attain age 70 1/2. Any balance in the account at that time must be distributed to you in a lump sum or commence to be paid in a series of payments which do not exceed your life expectancy or the joint and survivor life expectancies of yourself and your designated beneficiary. However, you may increase withdrawals. If you should die prior to receiving the entire account, the balance must be distributed to your beneficiary in accordance with Treasury Department regulations (unless the beneficiary is your spouse and elects to treat the account as his or her own IRA). Tax Treatment of Contributions to Your IRA Without regard to qualifying rollover contributions or to contributions made by your employer to a Simplified Employee Pension plan, under present tax law you are permitted to make an annual contribution to your account in any amount up to the lesser of your compensation or $2,000. Such annual contributions may be made anytime during the year (and up to your tax return due date for the taxable year, not including extensions). If you are not covered by an employer- sponsored retirement plan (e.g., a profit-sharing plan, ESOP, pension plan, etc.) and (if you file a joint return) your spouse is not covered by such a plan, you may deduct your full contribution. If you or your spouse (if a joint return is filed) are covered by such a plan you may still be entitled to deduct either all or a portion of your contribution, depending upon the amount of your Adjusted Gross Income ("AGI"). If you are married and filing a joint return you may deduct the full contribution if your AGI is under $40,000. If you are single the full deduction is available if your AGI is under $25,000. No deduction at all is available if you are married (if a joint return is filed) and your AGI is $50,000 or more or if you are unmarried and your AGI is $35,000 or more. (Special rules apply if you are married but you and your spouse are filing separate returns.) If your AGI is above the amount where a full deduction applies but less than the amount where no deduction is available a partial deduction can be taken. The amount of the partial deduction can be approximately determined by taking 20% of the difference between your AGI and the applicable dollar amount ($25,000 if single; $40,000 if married) and subtracting the result from $2,000. For example, assume an unmarried individual has AGI of $30,000 and contributes $2,000 to his IRA. 20% of the difference between his AGI ($30,000) and the applicable dollar amount ($25,000) is $1,000. $1,000 subtracted from $2,000 is $1,000. Therefore, he is entitled to deduct $1,000 of his $2,000 contribution. He may, of course, limit his contribution to the amount deductible if he wishes to do so. Even if your contribution is only partially deductible -- or not deductible at all -- there is still a tax advantage for making it. As long as contributions remain in your IRA they may grow and increase in value without the braking effect of current taxation of earnings. Tax Treatment of Distributions from Your IRA Amounts distributed to you from the account (except for refunds of certain excess contributions and non- deductible contributions which are discussed below) will be taxable as ordinary income in the year received. The benefits of capital gain treatment and 5- year and 10-year forward averaging (now being phased out) which may apply to distributions from your employer's qualified plan, are not available with respect to distributions from your account. Distributions of non-deductible contributions are not taxable. If you have made non-deductible contributions to an IRA, then distributions from the IRA will be excluded from tax in the proportion that all non- deductible contributions to your IRAs bear to the aggregate balances of all your IRAs at the end of the year of distribution. All distributions are subject to federal income tax withholding requirements unless the recipient elects not to have withholding apply by written notice to the Trustee at the time such distribution is requested. Tax Treatment of Your IRA The funds in your IRA are not subject to income tax until distributed to you. The earnings accumulate on a tax-deferred basis to compound the growth of your account. Limits on Contributions to Your Account Except in the case of a rollover contribution, during any year the maximum contribution you can make is $2,000 or 100% of your compensation, whichever is less. For purposes of determining the amount of your contributions, "compensation" means wages, commissions, salaries, tips, professional fees, bonuses and other amounts you receive for providing personal services. Alimony is also treated as compensation which you may contribute to your IRA. No contributions can be made in the year that you attain age 70 1/2 or subsequent years. Spousal IRA If your spouse is employed, he or she can establish his or her own IRA subject to the same rules as are applicable to your IRA. If you file a joint return with a spouse who either has no compensation for the taxable year or elects to be treated as having none, the maximum contribution amount is the lesser of $2,250 or 100% of your compensation for the year. In such case the amount contributed can be divided between your IRA and the spousal IRA in any manner you desire, provided that no more than $2,000 can be contributed to either IRA. For example, the $2,250 (or such lesser amount as you contribute) can be divided equally between the two IRAs or $2,000 may be contributed to one and $250 to the other. No contributions may be made to a spousal IRA during or after the year in which he or she reaches age 70 1/2. However, if you are ineligible to make contributions to your own IRA because of age, you may (if you have sufficient compensation) nevertheless make contributions of up to $2,000 to an IRA for your non- working spouse if he or she has not reached age 70 1/2. Rollover If your account represents a rollover from a pension or profit-sharing plan qualified under Section 401(a) of the Internal Revenue Code, you should not make non- rollover additional contributions to the same account if you desire to preserve its eligibility for future rollover to another qualified plan. Similarly, if your account represents a rollover from a Section 403(b) annuity or custodial account, you should not make non- rollover additional contributions to the same account if you desire to preserve its eligibility for future rollover to another Section 403(b) annuity or custodial account. A rollover IRA is eligible to accept future rollover contributions. In addition, you may establish another IRA to which non-rollover annual cash contributions may be made. Rollover Contributions and Tax-Free Transfers A rollover contribution is a contribution to your IRA of cash and/or property other than cash which you received as a distribution from another IRA or as a qualified distribution from a Section 403(b) annuity, or a qualified employer-sponsored retirement plan, such as a profit-sharing plan, 401(k) plan, an ESOP, etc. In the case of a tax-free transfer, the transfer is made directly between the fiduciaries, that is the trustees, custodian, etc. of the IRAs and/or the qualified plan, as the case may be. If you receive a distribution from another IRA you may make a tax-free rollover contribution of all or part of the assets you receive to your UMB IRA, provided that you complete the rollover within 60 days of the date you receive the distribution. You may make only one such rollover during any 12-month period. A direct transfer from the trustee or custodian of another IRA to your UMB IRA may be made without regard to the 12-month limitation applicable to IRA rollovers. If you receive a distribution from your employer's qualified retirement plan, or a Section 403(b) annuity, you may be eligible to make a rollover contribution to your UMB IRA of all or part of the distribution, less the amount of any non-deductible contributions to the plan. Most distributions, with the notable exception of installments paid over a ten or more year period, are eligible for rollover. The rollover contribution must be made within 60 days of the date you receive the distribution. If the distribution included property other than cash, the property itself (or the proceeds from its sale) must be included in the rollover contribution to the extent possible, before any cash received in the distribution may be included. In order to avoid 20% federal income tax withholding on the amount distributed from the qualified retirement plan or Section 403(b) annuity, you should direct that the distribution be transferred to your UMB IRA in a "direct rollover." You should receive information about the "direct rollover" option from your plan administrator prior to distribution of your account. You may not roll over any minimum distribution amounts you are required to receive after age 70 1/2. Excess Contributions An excess contribution is any contribution amount which exceeds your contribution limit, excluding rollover and direct transfer amounts. In addition, any contributions that are made to an IRA for the year in which the IRA owner reaches age 70 1/2, or for any later year, are considered excess contributions. If excess contributions are made to your account in any year and the excess (including income attributed to that excess) is withdrawn prior to the due date for your tax return for that year (including extensions), no penalty tax will be imposed on the amount contributed. Income attributed to such excess contributions refunded is taxable, and is also subject to a 10% additional income tax unless you are older than age 59 1/2 or are disabled. If the withdrawal of excess contributions occurs after the due date for your tax return (including extensions), a 6% cumulative penalty tax will be imposed on the excess. A further 10% additional income tax will be imposed upon the withdrawn excess amount if a deduction was allowed for the excess contribution and the total contributions for the year exceeded the maximum deductible amount, unless you have reached age 59 1/2 or are disabled by the time of the withdrawal. If excess contributions have been made, you can correct the situation by reducing your contributions in subsequent years. Excess contributions left in the account and applied to a later tax year's contributions are still subject to the 6% penalty tax and will continue to remain so until the excess has been corrected. Use of Your Account as Security for a Loan You may not pledge any part of your account as security for a loan. If you use all or any part of your account as security for a loan, the portion used for that purpose is treated as though it were distributed to you and you must include that amount in your gross income for the year in which that transaction takes place. If the pledge occurs prior to your attaining age 591U2, an additional income tax equal to 10% of the amount included in your taxable income is added to your tax liability. Prohibited Transactions Tax laws also prohibit certain other transactions between a "Disqualified Person" and your account. A "Disqualified Person" includes UMB, you, a beneficiary of your account, members of your family or of a beneficiary's family or any business or trust in which a controlling interest is held by any of these individuals. The prohibited transactions are as follows: 1.sale or exchange or leasing of property between your account and a Disqualified Person; 2.lending of money or other extension of credit between your account and a Disqualified Person; 3.furnishing of goods, services or facilities between your account and a Disqualified Person; 4.transfer to or use by or for the benefit of a Disqualified Person of the income or assets of your account; 5.any act by a Disqualified Person who is a fiduciary whereby he or she deals with the income or assets of your account in his or her own interest or for his or her own account; or 6.receipt of any consideration for his or her own personal account by any Disqualified Person who is a fiduciary from any party dealing with your account in connection with a transaction involving the income or assets of the account. If either you or your beneficiary engages in a prohibited transaction, your IRA will lose its tax exemption, and its full value will be added to your other taxable income for the year in which the transaction takes place. If any of these transactions occur prior to your attaining age 59 1/2, an additional income tax equal to 10% of the amount included in your taxable income is added to your tax liability. Estate Taxation If there is a balance in your account at the time of your death, that balance will be included in your estate for federal estate tax purposes. Your estate will have to pay an additional 15% federal estate tax on any excess retirement accumulation at your death. An excess retirement accumulation exists if, at the time of your death, the value of all your interests in qualified plans, tax-sheltered annuities and IRAs exceeds the present value of an annuity with annual payments of $155,000 (adjusted periodically for inflation) payable over your life expectancy immediately before your death. An exception to the excess retirement accumulations tax may apply if your spouse is the designated beneficiary. Please consult your tax adviser. Effect of Divorce The general rule is that the Grantor will be liable for income tax and any penalties on any amount distributed from his or her IRA to meet the obligation specified in a divorce decree. The transfer may be structured so as to avoid taxation to the Grantor if the requirements of Code Section 408(d)(6) are met. Those requirements are: 1.a written court order clearly specifying the amount to be transferred into an IRA of the spouse or former spouse, and 2.(a) a direct transfer of the funds to the IRA of the spouse or former spouse; (b) changing the name on the IRA from your name to the name of your spouse or former spouse; or (c) moving a rollover of IRA assets from your IRA to your spouse or former spouse. Withdrawals Prior to Age 59 1/2 You may make withdrawals from your IRA at any time. However, amounts withdrawn (except for the return of non-deductible contributions) are includible in your taxable income for the year of withdrawal. If you have not yet reached age 59 1/2 when a withdrawal is made, 10% additional income tax must be paid on the amount withdrawn. After age 59 1/2 you may make such withdrawals as you wish, free of any penalty tax. Until you reach age 70 1/2 you are not required to make a withdrawal. A withdrawal from your IRA before you reach age 59 1/2 will not be subject to the penalty tax if it is made on account of your permanent and total disability, death, a qualifying rollover, a direct transfer, the timely withdrawal of an excess contribution or if the distribution is a part of a series of substantially equal periodic payments (at least annually) made over your life expectancy or the joint life expectancies of you and your beneficiary. Minimum Distributions Required Starting at Age 70 1/2 You must begin withdrawals from your IRA by April 1 of the year following the year in which you reach age 70 1/2. With respect to the year during which age 70 1/2 is reached and each subsequent year you must withdraw at least an amount sufficient to cause the entire balance of your IRA to be distributed over your remaining life expectancy or the joint life expectancies of you and your designated beneficiary, determined by actuarial tables. If you elect to receive your first required distribution between January 1 and April 1 following the year in which you reach age 70 1/2, you must receive a second required distribution prior to the end of that year. You may choose (within the limits set forth in the IRS distribution rules) how you want your required minimum distributions structured. You must make your payment election no later than April 1 following your 70 1/2 year. If you do not make an election by that date, we will determine your required minimum distribution each year based on your single life expectancy (if a beneficiary is not named) or joint life expectancies (if there is a designated beneficiary) -- and pay those distributions to you. For this purpose, all life expectancies, except that of a non-spouse beneficiary, will be recalculated. If you name someone other than your spouse as your beneficiary, and your beneficiary is more than 10 years younger than you, your required minimum distributions must satisfy the Minimum Distribution Incidental Benefit rule (which calculates your distributions as if your beneficiary were exactly 10 years younger than you). Penalty Tax for Failure to Meet Minimum Distribution Requirements If the amount distributed to you with respect to any year in which you are at least age 70 1/2 is less than the minimum required distribution, a penalty tax of 50% of the difference between the actual distribution and the minimum required distributions will be imposed. Excess Distribution Penalty You will be taxed an additional 15% on any amount received and included in your income during a calendar year from qualified retirement plans, tax-sheltered annuities and IRAs which exceeds $155,000 (adjusted periodically for inflation). Certain exceptions may apply. Consult your tax adviser if you receive an excess distribution. Designation of a Beneficiary or Beneficiaries You have the right to designate one or more beneficiaries to whom your account, or any undistributed portion thereof, is to be paid in the event of your death. You may also at any time revoke a prior beneficiary designation and, if desired, designate different individuals as beneficiaries. You may designate your beneficiary(ies) on the IRA Application, or in a form acceptable to the Trustee. Write or call The Frontegra Funds, P.O. Box 2142, Milwaukee, WI 53201-2142 (Telephone 1-888-825-2100). In the absence of a valid beneficiary designation, the Trustee will make distribution of any death benefit to your surviving legal spouse; but, if none, then to your surviving natural and adoptive children in equal shares, but if none, then to your personal representative. Notwithstanding the foregoing sentence, the Trustee may, in any case where reasonable doubt exists as to the proper course of action, request instructions from a court of competent jurisdiction. All costs and expenses (including time expended by the Trustee) in such cases will be charged against your account. Distributions Following Death of Grantor As a general rule, the entire balance of the IRA must be distributed to beneficiaries by December 31 of the year in which the 5th anniversary of the Grantor's death falls. If this rule is violated, a penalty tax equal to 50% of the undistributed balance will be imposed. There are three exceptions to the general rule: (1) If the Grantor's designated beneficiary is the surviving spouse of the Grantor, such spouse may elect to treat the Grantor's IRA as his or her own IRA. In that case the 5-year limitation will not apply. (2) Where installment payments have commenced over the life expectancies of the Grantor and designated beneficiary before the Grantor's death then payments will continue to the surviving beneficiary at a rate at least as rapidly as in effect at the time of the Grantor's death, and the 5-year limitation does not apply. In such case, the surviving beneficiary has the same right to designate beneficiaries as the Grantor had while living. (The 5-year limitation will apply to distributions to any such second-level beneficiaries.) (3) If the Grantor dies before his or her required beginning date and the designated beneficiary elects that the account balance be distributed in substantially equal payments over his or her life expectancy, the beneficiary must make this election and commence distributions by December 31 of the year following the year of the Grantor's death (distributions need not commence for a surviving spouse beneficiary until December 31 of the year the Grantor would have attained age 70 1/2). Trustee to Assume Grantor is Calendar Year Taxpayer Unless Otherwise Informed and until specifically notified that you make your federal income tax returns on another basis, the Trustee will assume for all purposes, including the preparation and furnishing of accounting statements, reports, etc., that such tax returns are made on the basis of calendar years. Trustee Not Legal Adviser or Tax Counselor -- Grantor Should Consult Own Adviser UMB expressly disclaims any right, duty, authority or responsibility to furnish legal or tax advice respecting any matter or matters concerning or relating to your account including present or future federal income tax consequences to you or others which may arise or result from the establishment or maintenance of your account, the selection of payment options, beneficiaries, and any other matter whatsoever. You are advised and encouraged to consult with professional counsel of your own selection respecting all such matters. Investment of Account Your account may be invested only in accordance with your direction in The Frontegra Funds or any other mutual fund designated by Frontegra as a permissible investment alternative. None of the funds held in your account may be used to purchase life insurance. Financial Guarantees and Projections The value of your account at any point in time will, of course, depend upon the then current market value of the investments, retained investment earnings, if any, etc. No guarantees or projections of any nature concerning earnings rates or future security values are made. Trustee Not Liable The Trustee has no responsibility or liability for any losses or expenses relating to any investment or to the sale or exchange of any asset of your account. Termination of This Account The Trustee may resign at any time upon 60 days' notice in writing to you, and may be removed by you at any time upon 60 days' written notice. In either such event you must appoint a qualified successor trustee or qualified custodian to whom the Trustee, upon receipt of written acceptance of the appointment, shall transfer the assets (less any amounts deemed necessary for payment of fees, costs or expenses) and records of your account. Duty to File Tax Returns In any year in which you incur liability for a penalty tax by reason of making excess contributions, by making early withdrawals (premature distributions), or by failure to withdraw the minimum amount from your account, you are obligated to file Internal Revenue Service Form 5329 "Return for Individual Retirement Arrangement Taxes" with your Form 1040 at the time it is filed. Deductible contributions in any year are reported on your Form 1040. Non-deductible contributions must be reported on Form 8606. Internal Revenue Service Approval The Individual Retirement Trust Agreement is comprised of eight articles. The first seven articles constitute Internal Revenue Service Form 5305 (REV. OCTOBER, 1992) "Individual Retirement Trust Account." Under Treasury Department regulations prototype trusts which use the provisions of this Form are considered to meet the requirements of the Internal Revenue Code. The addition of Article VIII by UMB does not negate the approval status of the prototype. The Individual Retirement Trust Agreement, on IRS Form 5305, has been approved as to form by the Internal Revenue Service. However, in approving the form, the IRS does not consider the investment merits of the program. Additional Information Additional information about individual retirement accounts is contained in IRS Publication 590, which can be obtained from the office of the District Director of Internal Revenue. Custodial Agreement This Agreement is made between UMB Bank, n.a., as trustee or its successor (hereinafter referred to as "Trustee") and the individual whose name appears on the IRA Application or other Adoption Agreement (hereinafter referred to as "Grantor"). If the Grantor has previously adopted this Individual Retirement Trust Account ("IRA") in any earlier form, by signature to the IRA Application, he or she adopts the amended IRA in the form as hereby restated. The Grantor is establishing (or adopting an amendment to) an individual retirement account (under Section 408(a) of the Internal Revenue Code) to provide for his or her retirement, and for the support of his or her beneficiaries after death. The Trustee has given the Grantor the disclosure statement required under the Income Tax Regulations under Section 408(i) of the Code. Unless this Agreement is adopted for an existing IRA, the Grantor has made an initial cash contribution to the IRA concurrently with the execution of the IRA Application or other Adoption Agreement. The Grantor and Trustee make the following agreement: Article I The Trustee may accept additional cash contributions on behalf of the Grantor for a tax year of the Grantor. The total cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in Section 402(c) (but only after December 31, 1992), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code or an employer contribution to a Simplified Employee Pension plan as described in Section 408(k). Rollover contributions before January 1, 1993 include rollovers described in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code or an employer contribution to a Simplified Employee Pension plan as described in Section 408(k). Article II The Grantor's interest in the balance of the trust account is nonforfeitable. Article III 1.No part of the trust funds may be invested in life insurance contracts; nor may the assets of the trust account be commingled with other property except in a common trust fund or a common investment fund (within the meaning of Section 408(a)(5) of the Code). 2.No part of the trust funds may be invested in collectibles (within the meaning of Section 408(m) of the Code), except as otherwise permitted by Section 408(m)(3) which provides an exception for certain gold and silver coins issued under the laws of any state. Article IV 1. Notwithstanding any provision of this agreement to the contrary, the distribution of the Grantor's interest in the trust account shall be made in accordance with the following requirements and shall otherwise comply with Section 408(a)(6) and Proposed Regulations Section 1.408-8, including the incidental death benefit provisions of Proposed Regulations Section 1.401(a)(9)-2, the provisions of which are incorporated by reference. 2. Unless otherwise elected by the time distributions are required to begin to the Grantor under paragraph 3, or to the surviving spouse under paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Grantor and the surviving spouse and shall apply to all subsequent years. The life expectancy of a non-spouse beneficiary may not be recalculated. 3. The Grantor's entire interest in the trust account must be, or begin to be, distributed by the Grantor's required beginning date, the April 1 following the calendar year in which the Grantor reaches age 70 1/2. By that date, the Grantor may elect, in a manner acceptable to the Trustee, to have the balance in the trust account distributed in: (a) a single sum payment. (b) an annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life of the Grantor. (c) an annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Grantor and his or her designated beneficiary. (d) equal or substantially equal annual payments over a specified period that may not be longer than the Grantor's life expectancy. (e) equal or substantially equal annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Grantor and his or her designated beneficiary. 4. If the Grantor dies before his or her entire interest is distributed to him or her, the entire remaining interest will be distributed as follows: (a) If the Grantor dies on or after distribution of his or her interest has begun, distribution must continue to be made in accordance with paragraph 3. (b) If the Grantor dies before distribution of his or her interest has begun, the entire remaining interest will, at the election of the Grantor, or if the Grantor has not so elected, at the election of the beneficiary or beneficiaries, either (i) be distributed by December 31 of the year containing the fifth anniversary of the Grantor's death, or (ii) be distributed in equal or substantially equal payments over the life expectancy of the designated beneficiary or beneficiaries starting by December 31 of the year following the year of the Grantor's death. If, however, the beneficiary is the Grantor's surviving spouse, then this distribution is not required to begin before December 31 of the year in which the Grantor would have turned age 70 1/2. (c) Except where distribution in the form of an annuity meeting the requirements of Section 408(b)(3) and its related regulations has irrevocably commenced, distributions are treated as having begun on the Grantor's required beginning date, even though payments may actually have been made before that date. (d) If the Grantor dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash contributions or rollover contributions may be accepted in the account. 5. In the case of distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment of each year, divide the Grantor's entire interest in the trust as of the close of business on December 31 of the preceding year by the life expectancy of the Grantor (or the joint life and last survivor expectancy of the Grantor and the Grantor's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). In the case of distributions under paragraph 3, determine the initial life expectancy (or joint life and last survivor expectancy) using the attained ages of the Grantor and designated beneficiary as of their birthdays in the year the Grantor reaches age 70 1/2. In the case of distribution in accordance with paragraph 4(b)(ii), determine life expectancy using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence. 6. The owner of two or more individual retirement accounts may use the "alternate method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above. This method permits an individual to satisfy these requirements by taking from one individual retirement account the amount required to satisfy the requirement of another. Article V 1. The Grantor agrees to provide the Trustee with information necessary for the Trustee to prepare any reports required under Section 408(i) of the Code and Regulations Sections 1.408-5 and 1.408-6. 2. The Trustee agrees to submit reports to the Internal Revenue Service and the Grantor as prescribed by the Internal Revenue Service. Article VI Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through III and this sentence will be controlling. Any additional articles that are not consistent with Section 408(a) of the Code and related regulations will be invalid. Article VII This agreement will be amended, from time to time, to comply with the provisions of the Code and related regulations. Other amendments may be made with the consent of the persons whose signatures appear below. Article VIII Section 1 -- Investment of Account 1. The Grantor has the sole authority and discretion, fully and completely, to select and to direct the investment of all assets in the trust account, but only in the The Frontegra Funds portfolios or any other mutual fund designated by Frontegra as a permissible investment alternative. 2. Subject to the right and duty of the Grantor to direct the investments of his or her trust account, the Trustee shall have full authority and power: (a) to invest and reinvest the trust account in such Mutual Funds as described in paragraph 1 of this article; (b) to sell, assign, exchange, convey, or otherwise transfer any part or all of the securities or other property of the trust account, upon such terms and conditions as the Grantor shall direct, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or inquire into the validity, expediency, or propriety of such transaction; (c) to sue or defend any suit or legal proceeding by or against the trust account and to compromise, settle, submit to arbitration, or adjust any suit or legal proceeding, claim, debt, damage, or undertaking due or owing from or to the trust account but the Trustee shall not be obligated to take any action which would subject it to expense or liability unless it be first indemnified in an amount and manner satisfactory to it or be furnished with funds sufficient, in its sole judgment, to cover the same; d) to acquire and hold any securities or other property of the trust account without disclosing its fiduciary capacity, or in the name of any other person, with or without a power of attorney for transfer thereto attached; (e) to employ attorneys, accountants, and others as it may deem advisable for the best interest of the trust account, and to pay their reasonable expenses and compensation out of the trust account; (f) to make, execute and deliver, as Trustee, any and all instruments in writing necessary or proper for the effective exercise of any of the Trustee's powers as stated herein or otherwise necessary to accomplish the purpose of the trust account. 3. The following shall constitute charges upon the trust account and shall be paid by the Trustee out of the trust account unless, and to the extent, paid by the Grantor: (a) all taxes of whatever kind or character that may be imposed, levied or assessed under existing or future laws upon or in respect of the trust account, or upon the Trustee in its capacity as such, or upon the assets or income of the trust account; (b) all expenses incurred by the Trustee in the performance of its duties hereunder, including the fees of attorneys, accountants and other persons engaged by the Trustee for services in connection with the trust account; and (c) the fees and other compensation of the Trustee for its services hereunder in the amounts agreed upon from time to time by the Grantor and Trustee. 4. The Grantor shall not borrow any money from the trust account nor pledge any part thereof as security for a loan. Furthermore, neither the Grantor nor the Trustee shall engage, either directly or indirectly, in any of the following transactions: (a) the sale or exchange, or leasing, of any property between the trust account and a Disqualified Person; (b) the lending of money or other extension of credit between the trust account and a Disqualified Person; (c) the furnishings of goods, services or facilities between the trust account and a Disqualified Person; (d) the transfer to, or use by or for the benefit of, a Disqualified Person of the income or assets of the Trust Account; (e) an act by a Disqualified Person who is a fiduciary whereby he or she deals with the income or assets of the trust account in his or her own interest or for his or her own account; or (f) receipt of any consideration for his or her own personal account by any Disqualified Person who is a fiduciary from any party dealing with the trust account in connection with a transaction involving the income or assets of the trust account. For purposes of this paragraph, "Disqualified Person" shall have the meaning ascribed to that term under Section 4975(e)(2) of the Code. Section 2 -- Beneficiary Designations 1. At any time and from time to time the Grantor shall have the right to designate one or more beneficiaries to whom distribution of his or her trust account, or the previously undistributed portion thereof, shall be made in the event of his or her death prior to the complete distribution of his or her trust account. This right shall extend to the Grantor's surviving spouse in the event he or she dies while receiving distributions under the provisions of Sections 3(e) or 4(b) of Article IV. Any such beneficiary designation shall be deemed legally valid only when submitted fully complete, duly executed, and on a form provided by or acceptable to the Trustee. Subject to the foregoing sentence, any such beneficiary designation shall be effective upon receipt by the Trustee. Any such beneficiary designation may be revoked by the Grantor at any time, and shall be automatically revoked upon receipt by the Trustee of a subsequent beneficiary designation or beneficiary designations in valid form bearing a later execution date. 2. In the absence of a valid beneficiary designation on file with the Trustee at the time of the Grantor's death, the Trustee shall, upon receipt of notice of the death of the Grantor supported by a certified copy of the death certificate or other appropriate evidence of the fact of death satisfactory to the Trustee, make distribution of the Grantor's trust account to the beneficiary or beneficiaries of the Grantor in the following order of preference: (a) to the Grantor's legal spouse; but if no such legal spouse shall survive the Grantor, then to (b) the surviving natural and adoptive children of the Grantor in equal shares per capita and not per stirpes; but if there shall be no such surviving child or children then to (c) the personal representative of the Grantor, provided, however, that the Trustee shall have no duty, obligation, or responsibility to make any inquiry or conduct any investigation concerning the identification, address, or legal status of any individual or individuals alleging the status of beneficiary (designated or otherwise) nor to make inquiry or investigation concerning the possible existence of any beneficiary not reported to the Trustee within a reasonable period after the notification of the Grantor's death (or that of his or her surviving spouse) and previous to the distribution of the trust account. The Trustee may conclusively rely upon the veracity and accuracy of all matters reported to it by any source ordinarily presumed to be knowledgeable respecting the matters so reported. With respect to any distribution made by reason of the death of the Grantor (or his or her surviving spouse) the Trustee shall have no higher duty than the exercise of good faith, shall incur no liability by reason of any action taken in reliance upon erroneous, inaccurate or fraudulent information reported by any source assumed to be reliable, or by reason of incomplete information in its possession at the time of such distribution. Upon full and complete distribution of the trust account pursuant to the provisions of this Section, the Trustee shall be fully and forever discharged from all liability respecting such trust account. 3. Any distribution pursuant to the provisions of this Section may be made in cash or in kind or partly in both, at the sole discretion of the Trustee, and shall be made within 30 days following receipt by the Trustee of information deemed by it sufficient upon which to base such distribution; provided, however, that the Trustee shall incur no liability respecting fluctuations in the value of the trust account in the event of a delay occasioned by Trustee's good faith decision to await additional evidence or information bearing on the beneficiary or beneficiaries. 4. Whenever any distribution hereunder is payable to a minor or to a person known by the Trustee to be under a legal disability, the Trustee in its absolute discretion may make all or any part of such distribution to (a) a legal guardian or conservator for such person, (b) a custodian under the Uniform Transfers to Minors Act, (c) a parent of such person, or (d) such person directly. 5. Anything to the contrary herein notwithstanding, in the event of reasonable doubt respecting the proper course of action to be taken, the Trustee may in its sole and absolute discretion resolve such doubt by judicial determination which shall be binding on all parties claiming any interest in the trust account. In such event all court costs, legal expenses, reasonable compensation for the time expended by the Trustee in the performance of its duties, and other appropriate and pertinent expenses and costs, shall be collected by the Trustee from the trust account. Section 3 -- Miscellaneous 1. The Trustee may make further amendments to this Agreement, in order to make said Agreement acceptable in form to the Secretary of the Treasury and the Secretary of Labor, or for any other purpose. Any such amendments shall be effective without the signature of the Grantor to a new Adoption Agreement or IRA Application and shall, if for the purpose of initially qualifying the trust account pursuant to the Code, be retroactively effective to the date of the captioned Agreement. The Trustee will mail a copy of any such amendment to the Grantor. 2. The Trustee shall deliver, or cause to be executed and delivered, to the Grantor all proxies, prospectuses and notices pertaining to securities held in the account. The Trustee shall not vote any such securities except pursuant to written instructions from the Grantor. Any notice sent from the Trustee to the Grantor shall be effective, if sent by mail to the Grantor's last address of record. 3. The Trustee, within 30 days after the close of each calendar year, shall provide the Grantor a record of activity in the trust account during such year, including the date and the dollar amount of contributions, any earnings on such contributions, the date and dollar amount of any distributions, a beginning balance and an ending balance. The Trustee may meet its recordkeeping and reporting requirements by adopting the records of any investment facility permitted by this Agreement, and it may delegate ministerial duties of keeping such records to such facilities or their managers. 4. Confirmation of transactions and records or statements of activity in the Grantor's account shall be conclusive if the Grantor does not object within ten days after mailing to the Grantor. In such case, the Trustee and its officers and employees shall be forever released and discharged from any liability with respect to any claim arising out of any action or omission reflected on such confirmation or record. 5. The Trustee does not guarantee the trust account from loss or depreciation. The liability of the Trustee to make any payment from the trust account at any time is limited to the then available assets of the trust account. 6. Subject to the limitations contained in paragraph 1 of Section 1 of this Article VIII, the Grantor shall have the sole power, right and duty to direct the Trustee from time to time with respect to the investment and reinvestment of the assets of the trust account. The Trustee shall comply promptly with all such directions, providing such directions are clearly stated in writing executed by the Grantor, and in form acceptable to the Trustee. The Trustee shall not have any duty to inquire into the propriety of any such direction nor into its effect upon the trust account or the beneficiary or beneficiaries thereof, nor to apply to a court for instructions notwithstanding the fact that the Trustee has, or with reasonable inquiry should have, actual or constructive notice that any action taken or omitted pursuant to, or as a result of, the exercise of such directive power constitutes, or may constitute, a breach of the terms of the trust account or a violation of any law applicable to the investment of the funds held hereunder. Any such direction so given the Trustee shall be deemed to be continuing until revoked or modified by a subsequent direction in writing, notwithstanding the occurrence of any event or other development of which the Trustee has or should have knowledge. The Trustee shall not be liable or responsible for any loss resulting to the trust account or to any present or future beneficiary thereof by reason of: (a) any sale or investment made or other action taken pursuant to and in accordance with the direction of the Grantor; or (b) the retention of any asset, including cash, the acquisition or retention of which has been directed by the Grantor. 7. This Agreement shall be binding upon all persons entitled to benefits under the trust account, their respective heirs and legal representative, and upon the Trustee and its successors. 8. Words used in the masculine shall apply to the feminine where applicable, and wherever the context of the Agreement dictates, the plural shall be read as the singular and the singular as the plural. 9. As the context requires, the term "Grantor" shall be deemed to include any beneficiary of this Account following the death of the Grantor. 10. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Missouri except to the extent federal statutes supersede Missouri law. To the extent permitted by law, none of the creditors of the Grantor or any beneficiary shall have any power to execute any levy, lien, assignment, garnishment, alienation, attachment, or other voluntary or involuntary transfer on any of the assets of the IRA; and all sums payable to the Grantor or any beneficiary shall be free and clear of all liabilities for debts, levies, attachments and proceedings of any kind, at law or in equity. 11. The Trustee shall receive reasonable annual compensation as may be agreed upon from time to time between the Grantor and Trustee. The Trustee shall pay all expenses reasonably incurred by it in its administration from the trust account unless the Grantor pays the expenses. 12. The Trustee may resign at any time for any reason, including but not limited to, the determination in the Trustee's sole discretion that the account cannot be managed on a profitable basis, upon 60 days' notice in writing to the Grantor and may be removed by the Grantor at any time upon 60 days' notice in writing to the Trustee. Upon such resignation or removal, the Grantor shall appoint a successor Trustee, which successor shall be a bank or other qualified person as required by the Internal Revenue Code so as to permit the trust account to continue as qualified under the Internal Revenue Code. Upon receipt by the Trustee of written acceptance of such appointment by the successor Trustee, the Trustee shall transfer and pay over to such successor Trustee the assets of the trust account and all records pertaining thereto. The Trustee is authorized, however, to retain from the assets of the trust account such amounts as it may deem advisable for payment of all its fees, compensation, costs and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the trust account or on or against the Trustee, with any balance of such reserve remaining after the payment of all such items to be paid over to the successor Trustee. The successor Trustee shall hold the assets paid over to it under terms similar to those of this Agreement that qualify under the Internal Revenue Code. If, within 60 days after the Trustee's resignation or removal, the Grantor has not appointed a successor Trustee, which has accepted such appointment, the Trustee may pay the Grantor's interest to the Grantor. 13. The Trustee shall not be responsible for determining the permissible amount of contributions to the account, or for the amount or timing of distributions from the account, or for any other actions taken at the request of the Grantor. The Grantor shall indemnify and hold the Trustee harmless from any and all liability, claims and expenses arising from any actions taken at the Grantor's request or in connection with this Agreement, except for any liability, claims, or expenses caused by the negligence of the Trustee. 14. The Grantor agrees to pay to the Trustee fees for services performed under this Agreement in an amount specified from time to time by the Trustee. The Trustee shall have the right to change such fees at any time without prior written notice to the Grantor. As soon as practicable after any change in fees, the Trustee shall make available to the Grantor a new fee schedule. All fees may be billed to the Grantor or deducted from the Custodial Account, at the discretion of the Grantor. The Trustee shall also be entitled to reimbursement for all reasonable and necessary costs, expenses and disbursements incurred by it in the performance of services. Such fees and reimbursement shall be paid from the Account if not paid directly by the Grantor and shall constitute a lien upon the Account until paid. Schedule of Fees The Trustee will charge the following fees for servicing your IRA account: Annual maintenance fee $15 per account Distribution (including rollover or direct transfers) $15 each Refund of excess contribution $15 each Any outgoing wire transfer $10 each The annual maintenance fee will be deducted from your account. The charge for refund of excess contribution will be deducted from your account at the time of the refund. These fees are subject to change. -----END PRIVACY-ENHANCED MESSAGE-----