Securities Act Registration No. 333-12745
Investment Company Act Reg. No. 811-7831
__________________________________________________________________________
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]
(Check appropriate box or boxes.)
______________________
FMI FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
225 East Mason Street
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 226-4555
(Registrant's Telephone Number, including Area Code)
Copy to:
Ted D. Kellner W. David Knox, II
Fiduciary Management, Inc. Foley & Lardner
225 East Mason Street 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, the Registrant declares that an indefinite number or amount of
shares of its common stock, $0.0001 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.
<PAGE>
FMI FUNDS, INC.
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 of
Item No. on Form N-1A Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Financial Highlights Performance Information
4. General Description of Introduction, Investment
Registrant Objective and Policies
5. Management of the Fund Management of the Fund;
Brokerage Transactions
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other Dividends, Distributions
Securities and Taxes; Capital
Structure; Shareholder
Reports
7. Purchase of Securities Being Purchase of Shares;
Offered Dividend Reinvestment;
Automatic Investment Plan;
Individual Retirement
Account and Simplified
Employee Pension Plan;
Retirement Plan
8. Redemption of Repurchase Redemption of Shares,
Systematic Withdrawal Plan,
Exchange Privilege
9. 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 and *
History
13. Investment Objectives and Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Principal Stockholders
Principal Holders of
Securities
16. Investment Advisory and Investment Adviser and
Other Services Administrator; Distribution
of Shares; Custodian;
Independent Accountants
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Included in Prospectus
Securities under "CAPITAL STRUCTURE"
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under "DETERMINATION OF NET
Offered ASSET VALUE"; "PURCHASE OF
SHARES"; "DIVIDEND
REINVESTMENT"; "AUTOMATIC
INVESTMENT PLAN";
"SYSTEMATIC WITHDRAWAL
PLAN"; "EXCHANGE
PRIVILEGE"; "INDIVIDUAL
RETIREMENT ACCOUNT AND
SIMPLIFIED EMPLOYEE PENSION
PLAN"; "RETIREMENT PLAN";
"Determination of Net Asset
Value and Performance";
Distribution of Shares
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Determination of Net Asset
Data Value and Performance
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
<PAGE>
P R O S P E C T U S November __, 1996
FMI FOCUS FUND
_______________
FMI Funds, Inc. (the "Company") is an open-end, non-diversified management
investment company - a mutual fund. The Company presently consists of a
single portfolio, the FMI Focus Fund (the "Fund"). The Fund's investment
objective is capital appreciation. In seeking its investment objective of
capital appreciation, the Fund will invest primarily in common stocks and
warrants, engage in short sales, invest in foreign securities which are
publicly traded in the United States and effect transactions in stock
index futures contracts, options on stock index futures contracts, and
options on securities and stock indexes. The Fund may leverage its
investments.
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.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. Investors are advised
to read this Prospectus and retain it for future reference. This
Prospectus does not set forth all of the information included in the
Registration Statement and Exhibits thereto which the Fund has filed with
the Securities and Exchange Commission. A Statement of Additional
Information, dated November __, 1996, which is a part of such Registration
Statement is incorporated by reference in this Prospectus. Copies of the
Statement of Additional Information will be provided without charge to
each person to whom a Prospectus is delivered upon written or oral request
made by writing to the address or calling the telephone number, stated
below. All such requests should be directed to the attention of the
Corporate Secretary.
_______________
FMI Focus Fund
225 East Mason Street
Milwaukee, Wisconsin 53202
(414) 226-4555
FMI Focus Fund
Table of Contents
Page Page
No. No.
Expense Information . 1 Exchange Privilege . . . 19
Introduction . . . . 2 Individual Retirement
Account and Simplified
Employee Pension Plan . 20
Investment Objective Retirement Plan . . . . . 21
and Policies . . . 2
Management of the Fund 12 Dividends, Distributions
and Taxes . . . . . . . 21
Determination of Net Brokerage Transactions . 22
Asset Value . . . . 13
Purchase of Shares . 14 Capital Structure . . . . 22
Redemption of Shares 16 Shareholder Reports . . . 23
Dividend Reinvestment 17 Performance Information . 23
Automatic Investment 18 Share Purchase
Plan . . . . . . . Application . . . . . .
Systematic Withdrawal 18
Plan . . . . . . .
_______________
Expense Information
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases or Reinvested Dividends None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . None(1)
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . .1.00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%(2)
Other expenses (net of reimbursements) . . . . . . . . . . . 1.50%(3)
-----
Total Fund Operating Expenses (net of reimbursements) . . . . 2.75%(3)
=====
_______________
(1) A fee of $10.00 is charged for each wire redemption.
(2) The maximum level of distribution expenses is 0.25% per annum of the
Fund's average net assets. See "Purchase of Shares" for further
information. The distribution expenses for long-term shareholders may
total more than the maximum sales charge that would have been permissible
if imposed entirely as an initial sales charge.
(3) Other expenses are estimated and reflect the fact that the Fund's
investment adviser, Fiduciary Management, Inc., has agreed to reimburse
the Fund to ensure that Total Fund Operating Expenses do not exceed 2.75%
for the fiscal year ending September 30, 1997. Absent reimbursement,
Other expenses and Total Fund Operating Expenses for the Fund for the
fiscal year ending September 30, 1997 are estimated to be 1.75% and 3.00%,
respectively, of average net assets.
Example: 1 Year 3 Years
An investor would pay the
following expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period: $28 $85
The purpose of the preceding table is to assist investors in
understanding the various costs that an investor in the Fund will bear,
directly or indirectly. They should not be considered to be a
representation of past or future expenses. Actual expenses may be greater
or lesser than those shown. The example assumes a 5% annual rate of
return pursuant to requirements of the Securities and Exchange Commission.
This hypothetical rate of return is not intended to be representative of
past or future performance of the Fund.
INTRODUCTION
FMI Funds, Inc. (the "Company") was incorporated under the laws
of Maryland on September 5, 1996 and is an open-end non-diversified
management investment company registered under the Investment Company Act
of 1940 (the "Act"). The Company presently consists of a single
portfolio, the FMI Focus Fund (the "Fund"). The Fund obtains its assets
by continuously selling shares to the public. Proceeds from such sales
are invested by the Fund in securities of other companies and certain
other instruments. In this manner, the resources of many investors are
combined and each individual investor has an interest in every one of the
securities and instruments owned by the Fund. The Fund furnishes
experienced management to select and watch over its investments. As an
open-end investment company, the Fund will redeem any of its outstanding
shares on demand of the owner at their net asset value.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital appreciation. In
seeking its investment objective of capital appreciation, the Fund will
invest primarily in common stocks and warrants, engage in short sales,
invest in foreign securities which are publicly traded in the United
States and effect transactions in stock index futures contracts, options
on stock index futures contracts, and options on securities and stock
indexes. Dividend income and other income are not factors considered in
selecting these investments. The Fund may leverage its investments.
Warrants, stock index futures contracts, options on stock index future
contracts and options on securities and stock indexes are derivatives.
In managing the investment portfolio for the Fund, the Fund's
investment adviser, Fiduciary Management, Inc. (the "Adviser") may focus
on a relatively limited number of securities (i.e., generally 25 or less,
other than money market instruments). The Adviser believes this focused
investment strategy has the potential for higher total returns than an
investment strategy calling for investment in a large number of
securities. However, the use of this focused investment strategy may
increase the volatility of the Fund's investment performance.
Additionally, the Fund could incur greater losses than it would have had
it invested in a greater number of securities if the securities in which
the Fund invests perform poorly.
The Adviser will invest in securities which it believes will
appreciate significantly over a one to two-year period. In doing so, it
will employ a diverse investment approach. For example, it may purchase
stocks of any size market capitalization or in any industry sector. As a
consequence, the performance of the Fund will be more dependent on the
Adviser's ability to make good investment decisions than on whether a
particular sector of the market is performing well or "in favor" with
investors.
The Fund may invest in the following portfolio securities and
may engage in the following investment techniques.
Common Stocks
The Fund's long common stock investments primarily will be made
in companies in which the Adviser believes to be underpriced relative to
the issuing corporation's future growth prospects. The Adviser will also
purchase common stocks where the price is significantly below the
estimated market value of the issuing corporation's assets less its
liabilities on a per share basis.
The Fund may invest in companies with modest capitalization, as
well as start-up companies. Such companies often involve greater risks
than larger companies because they lack the management experience,
financial resources, product diversification, markets, distribution
channels and competitive strengths of larger companies. Additionally, in
many instances, the frequency and volume of their trading is substantially
less than is typical of larger companies. Therefore, the securities of
smaller companies as well as start-up companies may be subject to wider
price fluctuations. The spreads between the bid and asked prices of the
securities of these companies in the U.S. over-the-counter market
typically are larger than the spreads for more actively traded securities.
As a result, the Fund could incur a loss if it determined to sell such a
security shortly after its acquisition. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may
have to make a series of small sales over an extended period of time due
to the trading volume of smaller company securities.
Foreign Securities
The Fund may invest without limitation in common stocks of
foreign issuers which are publicly traded on U.S. exchanges or in the U.S.
over-the-counter market either directly or in the form of American
Depository Receipts ("ADRs"). The Fund will only invest in ADRs that are
issuer sponsored. Sponsored ADRs typically are issued by a U.S. bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. Investments in foreign securities involve risks
which are in addition to the risks inherent in domestic investments.
Foreign companies are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available information
about issuers than is available in the reports and ratings published about
companies in the United States. Additionally, foreign companies are not
subject to uniform accounting, auditing and financial reporting standards.
Dividends and interest on foreign securities may be subject to foreign
withholding taxes. To the extent such taxes are not offset by credits or
deductions allowed to investors under U.S. federal income tax laws, such
taxes may reduce the net return to shareholders. Although the Fund
intends to invest in securities of foreign issuers domiciled in nations
which the Adviser considers as having stable and friendly governments,
there is the possibility of expropriation, confiscation, taxation,
currency blockage or political or social instability which could affect
investments of foreign issuers domiciled in such nations.
Short Sales
The Fund may engage in short sales transactions, including short
sales transactions in which the Fund sells a security the Fund does not
own. To complete such a transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing the security at the market price at the
time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To
borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet the
margin requirements, until the short position is closed out.
Until the Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated account
containing cash or liquid securities at such a level that the amount
deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short; or (b)
otherwise cover the Fund's short position. Up to 100% of the Fund's
assets may be used to cover the Fund's short positions.
The Fund may also engage in short sales when, at the time of the
short sale, the Fund owns or has the right to acquire an equal amount of
the security being sold at no additional cost ("selling short against the
box"). The Fund may make a short sale against the box when the Fund wants
to sell the security the Fund owns at a current attractive price, but also
wishes to defer recognition of a gain or loss for Federal income tax
purposes and for purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code.
Futures Contracts and Options Thereon
The Fund may purchase and write (sell) stock index futures
contracts as a substitute for a comparable market position in the
underlying securities. A futures contract obligates the seller to deliver
(and the purchaser to take delivery of) the specified commodity on the
expiration date of the contract. A stock index futures contract obligates
the seller to deliver (and the purchaser to take) an amount of cash equal
to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made. It is the practice of holders of
futures contracts to close out their positions on or before the expiration
date by use of offsetting contract positions and physical delivery is
thereby avoided.
The Fund may purchase put and call options and write call
options on stock index futures contracts. When the Fund purchases a put
or call option on a futures contract, the Fund pays a premium for the
right to sell or purchase the underlying futures contract for a specified
price upon exercise at any time during the options period. By writing a
call option on a futures contract, the Fund receives a premium in return
for granting to the purchaser of the option the right to buy from the Fund
the underlying futures contract for a specified price upon exercise at any
time during the option period.
Some futures and options strategies tend to hedge the Fund's
equity positions against price fluctuations, while other strategies tend
to increase market exposure. Whether the Fund realizes a gain or loss
from futures activities depends generally upon movements in the underlying
stock index. The extent of the Fund's loss from an unhedged short
position in futures contracts or call options on futures contracts is
potentially unlimited. The Fund may engage in related closing
transactions with respect to options on futures contracts. The Funds will
purchase or write options only on futures contracts that are traded on a
United States exchange or board of trade. In addition to the uses set
forth hereunder, the Fund may also engage in futures and futures options
transactions in order to hedge or limit the exposure of its position and
for satisfying certain tests applicable to regulated investment companies
under the Internal Revenue Code.
Although the Fund intends to sell futures contracts only if
there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the day. Futures
contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to substantial
losses. If trading is not possible, or the Fund determines not to close a
futures position in anticipation of adverse price movements, the Fund will
be required to make daily cash payments of variation margin. The risk
that the Fund will be unable to close out a futures position will be
minimized by entering into such transactions on a national exchange with
an active and liquid secondary market.
Index Options Transactions
The Fund may purchase put and call options and write call
options on stock indexes. A stock index fluctuates with changes in the
market values of the stock included in the index. Options on stock
indexes give the holder the right to receive an amount of cash upon
exercise of the options. Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put)
the exercise price of the option. The amount of cash received, if any,
will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple.
The writer (seller) of the option is obligated, in return for the premiums
received from the purchaser of the option, to make delivery of this amount
to the purchaser. Unlike the options on securities discussed below, all
settlements of index options transactions are in cash.
Some stock index options are based on a broad market index such
as the S&P 500 Index, the NYSE Composite Index or the AMEX Major Market
Index, or on a narrower index such as the Philadelphia Stock Exchange
Over-the-Counter Index. Options currently are traded on the Chicago Board
of Options Exchange, the AMEX and other exchanges. Over-the-counter index
options, purchased over-the-counter options and the cover for any written
over-the-counter options would be subject to the Fund's 15% limitation on
investment in illiquid securities. See "Illiquid Securities."
The Adviser may utilize index options as a technique to leverage
the portfolio of the Fund. If the Adviser is correct in its assessment of
the future direction of stock prices, the share price of the Fund will be
enhanced. If the Adviser has the Fund take a position in options and
stock prices move in a direction contrary to the Adviser's forecast
however, the Fund would incur losses greater than the Fund would have
incurred without the options position.
Options on Securities
The Fund may buy put and call options and write (sell) call
options on securities. By writing a call option and receiving a premium,
the Fund may become obligated during the term of the option to deliver the
securities underlying the option at the exercise price if the option is
exercised. By buying a put option, the Fund has the right, in return for
a premium paid during the term of the option, to sell the securities
underlying the option at the exercise price. By buying a call option, the
Fund has the right, in return for a premium paid during the term of the
option, to purchase the securities underlying the option at the exercise
price. Options on securities written by the Fund will be traded on
recognized securities exchanges.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call option previously written by the Fund
if the premium, plus commission costs, paid by the Fund to purchase the
put option is less (or greater) than the premium, less commission costs,
received by the Fund on the sale of the call option. The Fund also will
realize a gain if a call option which the Fund has written lapses
unexercised, because the Fund would retain the premium.
The Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a call or a put option previously purchased by
the Fund if the premium, less commission costs, received by the Fund on
the sale of the call or the put option is greater (or less) than the
premium, plus commission costs, paid by the Fund to purchase the call or
the put option. If a put or a call option which the Fund has purchased
expires out-of-the-money, the option will become worthless on the
expiration date, and the Fund will realize a loss in the amount of the
premium paid, plus commission costs.
Although certain securities exchanges attempt to provide
continuously liquid markets in which holders and writers of options can
close out their positions at any time prior to the expiration of the
option, no assurance can be given that a market will exist at all times
for all outstanding options purchased or sold by the Fund. In such event,
the Fund would be unable to realize its profits or limit its losses until
the Fund would exercise options it holds and the Fund would remain
obligated until options it wrote were exercised or expired.
Because option premiums paid or received by the Fund are small
in relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in common stocks.
U.S. Treasury Securities
The Fund may invest in U.S. Treasury securities as "cover" for
the investment techniques the Fund employs. The Fund may also invest in
U.S. Treasury Securities as part of a cash reserve or for liquidity
purposes. U.S. Treasury securities are backed by the full faith and
credit of the U.S. Treasury. U.S. Treasury securities differ only in
their interest rates, maturities and dates of issuance. Treasury Bills
have maturities of one year or loss. Treasury Notes have maturities of
one to ten years and Treasury Bonds generally have maturities of greater
than ten years at the date of issuance. Yields on short-, intermediate-
and long-term U.S. Treasury Securities are dependent on a variety of
factors, including the general conditions of the money and bond markets,
the size of a particular offering and the maturity of the obligation.
Debt securities with longer maturities tend to produce higher yields and
are generally subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower yields.
The market value of U.S. Treasury Securities generally varies inversely
with changes in market interest rates. An increase in interest rates,
therefore, would generally reduce the market value of the Fund's portfolio
investments in U.S. Treasury Securities, while a decline in interest rates
would generally increase the market value of a Fund's portfolio in
investments in these securities.
U.S. Treasury Securities may be purchased at a discount. Such
securities, when retired, may include an element of capital gain. Capital
losses may be realized when such securities purchased at a premium are
called or redeemed at a price lower than their purchase price. Capital
gains or losses also may be realized upon the sale of U.S. Treasury
Securities.
Repurchase Agreements
The Fund, as part of a cash reserve or to "cover" investment
strategies, may purchase repurchase agreements secured by U.S. Government
Securities. Under a repurchase agreement, the Fund purchases a debt
security and simultaneously agrees to sell the security back to the seller
at a mutually agreed-upon future price and date, normally one day or a few
days later. The resale price is greater than the purchase price,
reflecting an agreed-upon market interest rate during the purchaser's
holding period. While the maturities of the underlying securities in
repurchase transactions may be more than one year, the term of each
repurchase agreement will always be less than one year. The Fund will
enter into repurchase agreements only with member banks of the Federal
Reserve system or primary dealers of U.S. Government Securities. The
Adviser will monitor the creditworthiness of each of the firms which is a
party to a repurchase agreement with the Fund. In the event of a default
or bankruptcy by the seller, the Fund will liquidate those securities
(whose market value, including accrued interest, must be at least equal to
100% of the dollar amount invested by the Fund in each repurchase
agreement) held under the applicable repurchase agreement, which
securities constitute collateral for the seller's obligation to pay.
However, liquidation could involve costs or delays and, to the extent
proceeds from the sale of these securities were less than the agreed-upon
repurchase price the Fund would suffer a loss. The Fund also may
experience difficulties and incur certain costs in exercising its rights
to the collateral and may lose the interest the Fund expected to receive
under the repurchase agreement. Repurchase agreements usually are for
short periods, such as one week or less, but may be longer. It is the
current policy of the Fund to treat repurchase agreements that do not
mature within seven days as illiquid for the purposes of its investment
policies.
Borrowing
The Fund may borrow money, including borrowing for investment
purposes. Borrowing for investment is known as leveraging. Leveraging
investments, by purchasing securities with borrowed money, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of the Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be
fixed, the net asset value per share of the Fund when it leverages its
investments will increase more when the Fund's portfolio assets increase
in value and decrease more when the Fund's portfolio assets decrease in
value than would otherwise be the case. Moreover, interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the returns on the borrowed funds. Under
adverse conditions, the Fund might have to sell portfolio securities to
meet interest or principal payments at a time investment considerations
would not favor such sales. The Fund intends to use leverage during
periods when the Advisor believes that the Fund's investment objective
would be furthered by increasing the Fund's investments in common stocks.
The Fund may borrow money to facilitate management of the Fund's
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous. Such borrowing is not for investment purposes and will
be repaid by the Fund promptly.
As required by the Act, the Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds,
less liabilities exclusive of borrowings) of 300% of all amounts borrowed.
If, at any time, the value of the Fund's assets should fail to meet this
300% coverage test, the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund's borrowings to the extent
necessary to meet this 300% coverage. Maintenance of this percentage
limitation may result in the sale of portfolio securities at a time when
investment considerations otherwise indicate that it would be
disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow
money from a bank as a temporary measure for extraordinary or emergency
purposes in amounts not in excess of 5% of the value of the Fund's total
assets. This borrowing is not subject to the foregoing 300% asset
coverage requirement. The Fund is authorized to pledge portfolio
securities as the Adviser deems appropriate in connection with any
borrowings.
Warrants
The Fund may invest in warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified
price during a specified period of time. The purchase of warrants involve
the risks that the Fund could lose the purchase value of a warrant if the
right to subscribe to additional shares is not exercised prior to the
warrants expiration. Also the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price
of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the
underlying security.
Money Market Instruments
The Fund, as part of a cash reserve or to "cover" investment
strategies, may invest in short-term, high quality money market
instruments in addition to repurchase agreements and U.S. Treasury
securities with a remaining maturity of 13 months or less. The Fund may
invest in commercial paper and other cash equivalents rated A-1 or A-2 by
Standard & Poor's Corporation ("S&P") or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. ("Moody's"), including commercial paper master
notes (which are demand instruments bearing interest at rates which are
fixed to known lending rates and automatically adjusted when such lending
rates change) of issuers whose commercial paper is rated A-1 or A-2 by S&P
or Prime-1 or Prime-2 by Moody's.
The Fund may also invest in securities issued by other
investment companies that invest in high quality, short-term debt
securities (i.e., money market instruments). In addition to the advisory
fees and other expenses the Fund bears directly in connection with its own
operations, as a shareholder of another investment company, the Fund would
bear its pro rata portion of the other investment company's advisory fees
and other expenses, and such fees and other expenses will be borne
indirectly by the Fund's shareholders.
Illiquid Securities
While the Fund does not anticipate doing so, it may purchase
illiquid securities, including restricted securities. The Fund will not
invest more than 15% of its net assets in illiquid securities. Securities
eligible to be resold pursuant to Rule 144A under the Securities Act of
1933 may be considered liquid. The Board of Directors of the Company has
delegated to the Adviser the day-to-day determination of the liquidity of
a security although it has retained oversight and ultimate responsibility
for such determinations. Although no definite quality criteria are used,
the Board of Directors has directed the Adviser to consider such factors
as (i) the nature of the market for a security (including the
institutional private resale markets); (ii) the terms of these 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; and (iv) other
permissible factors. Investing in Rule 144A securities could have the
effect of decreasing the liquidity of the Fund to the extent that
qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Portfolio Turnover
The Fund will generally purchase and sell securities and effect
transactions in futures contracts without regard to the length of time the
security has been held or the futures contract open and, accordingly, it
can be expected that the rate of portfolio turnover may be substantial.
In selling a security or closing a futures contract, the Adviser will
consider that profits from sales of securities held less than three months
must be limited in order to meet the requirements of Subchapter M of the
Internal Revenue Code. Subject to the foregoing, the Fund may sell a
given security or close a futures contract, no matter for how long or
short a period it has been held in the portfolio, and no matter whether
the sale is at a gain or loss, if the Adviser believes that it is not
fulfilling its purpose. Since investment decisions are based on the
anticipated contribution of the security in question to the Fund's
investment objective, the rate of portfolio turnover is irrelevant when
the Adviser believes a change is in order to achieve those objectives, and
the Fund's annual portfolio turnover rate may vary from year to year. The
Fund's portfolio turnover rate will generally not exceed 200%. Pursuant
to Securities and Exchange Commission requirements, the portfolio turnover
rate of the Fund is calculated without regard to securities, including
short sales, options and futures contracts, having a maturity of less than
one year. The Fund may have a significant portion of its assets in short-
term options and futures contracts which are excluded for purposes of
calculating portfolio turnover.
High portfolio turnover in any year will result in the payment
by the Fund of above-average transaction costs and could result in the
payment by shareholders of above-average amounts of taxes on realized
investment gains. Distributions to shareholders of such investment gains,
to the extent they consist of net short-term capital gains, will be
considered ordinary income for federal income tax purposes.
Additional Risks
In addition to the risks discussed above, investors should
understand that there can be no assurance that the Fund will achieve its
investment objective. Many of the investments made by the Fund are
subject to significant volatility. The Fund is intended for investors who
can accept this risk. An investment in the Fund does not constitute a
complete investment program. Investors may wish to complement an
investment in the Fund with other types of investments. The fact that the
Fund has no operating history should be considered a risk factor.
As a result of the investment techniques used by the Fund, the
Fund may have a significant portion (up to 100%) of its assets held in a
segregated account as "cover" for the investment techniques the Fund
employs. The securities maintained in the segregated account of the Fund
will be liquid securities. These assets may not be sold while the
position in the corresponding instrument or transaction (e.g. short sale,
option or futures contract) is open unless they are replaced by similar
assets. As a result, the commitment of a large portion of the Fund's
assets to "cover" investment techniques could impede portfolio management
or the Fund's ability to meet redemption requests or other current
obligations.
Participation in the options or futures markets by the Fund
involves investment risks and transaction costs to which the Fund would
not be subject absent the use of these strategies. In particular, the
loss from investing in futures contracts is potentially unlimited. Risks
inherent in the use of options, futures contracts and options on futures
contracts include: (1) adverse changes in the value of such instruments;
(2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the price of the underlying
securities, index or futures contracts; (3) the fact that the skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; and (5) the possible
need to defer closing out certain positions to avoid adverse tax
consequences.
Investment Restrictions
The Fund has adopted certain fundamental investment restrictions
that may be changed only with the approval of a majority of the Fund's
outstanding shares. These restrictions include the Fund's limitations on
borrowing described under the caption "INVESTMENT OBJECTIVE AND POLICIES"
and the following restrictions:
(1) The Fund will not purchase the securities of any issuer
if the purchase would cause more than 5% of the value of the Fund's
total assets to be invested in securities of such issuer (except
securities of the U.S. government or any agency or instrumentality
thereof), or purchase more than 10% of the outstanding voting
securities of any one issuer, except that up to 50% of the Fund's
total assets may be invested without regard to these limitations. As
such the Fund is classified as a non-diversified investment company
under the Act. A non-diversified portfolio may be more volatile than
a diversified portfolio.
(2) The Fund will not invest 25% or more of its total assets
at the time of purchase in securities of issuers whose principal
business activities are in the same industry.
A list of the Fund's policies and restrictions, both fundamental
and nonfundamental, is set forth in the Statement of Additional
Information. In order to provide a degree of flexibility, the Fund's
investment objective, as well as other policies which are not deemed
fundamental, may be modified by the Board of Directors without shareholder
approval. Any change in the Fund's investment objective may result in the
Fund having an investment objective different from the investment
objective which the shareholder considered appropriate at the time of
investment in the Fund. However the Fund will not change its investment
objective without sending written notice to shareholders at least 30 days
in advance of any such change.
MANAGEMENT OF THE FUND
As a Maryland corporation, the business and affairs of the Fund
are managed by its Board of Directors. Under an investment advisory
agreement (the "Advisory Agreement") with the Fund, Fiduciary Management,
Inc. (the "Adviser"), 225 East Mason Street, Milwaukee, Wisconsin 53202,
furnishes continuous investment advisory services and management to the
Fund. The Adviser is the investment adviser to individuals and
institutional clients (including investment companies) with substantial
investment portfolios. The Adviser was organized in 1980 and is wholly
owned by Ted D. Kellner and Donald S. Wilson. Since that time,
Mr. Kellner has served as Chairman of the Board and Chief Executive
Officer and Mr. Wilson has served as President and Treasurer of the
Adviser. Messrs. Kellner and Wilson are primarily responsible for the
day-to-day management of the Fund's portfolio. They have held this
responsibility since the Fund commenced operations. Mr. Kellner has been
President, Treasurer and a Director of the Fund and Mr. Wilson has been
Vice President, Secretary and a Director of the Fund during the same
period.
The Adviser supervises and manages the investment portfolio of
the Fund and subject to such policies as the Board of Directors of the
Fund may determine, directs the purchase or sale of investment securities
in the day to day management of the Fund's investment portfolio. Under
the Advisory Agreement, the Adviser, at its own expense and without
reimbursement from the Fund, furnishes office space, and all necessary
office facilities, equipment and executive personnel for managing the
Fund's investments, and bears all sales and promotional expenses of the
Fund, other than distribution expenses paid by the Fund pursuant to the
Service and Distribution Plan and expenses incurred in complying with laws
regulating the issue or sale of securities. For the foregoing, the
Adviser receives a monthly fee of 1/12th of 1% (1% per annum) of the daily
net assets of the Fund.
Under an Administration Agreement (the "Administration
Agreement") with the Fund, the Adviser supervises all aspects of the
Fund's operations except those performed by it pursuant to the Advisory
Agreement. Under the Administration Agreement, the Adviser at its own
expense and without reimbursement from the Fund, furnishes office space,
and all necessary office facilities, equipment and executive personnel for
supervising the fund's operations. For the foregoing, the Adviser
receives a monthly fee of 1/12 of .2% (.2% per annum) of the first
$30,000,000 of daily net assets of the Fund, 1/12 of .1% (.1% per annum)
on the next $70,000,000 of daily net assets of the Fund and 1/12 of .05
(0.05% per annum) of the daily net assets of the Fund over $100,000,000,
subject to a fiscal year minimum of $20,000.
The Fund pays all of its expenses not assumed by the Adviser
pursuant to the Advisory Agreement or the Administration Agreement
described below including, but not limited to, the professional costs of
preparing and the cost of printing its registration statements required
under the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expense of registering its shares with the
Securities and Exchange Commission and in the various states, the printing
and distribution cost of prospectuses mailed to existing shareholders,
director and officer liability insurance, reports to shareholders, reports
to government authorities and proxy statements, interest charges,
brokerage commissions and expenses in connection with portfolio
transactions. The Fund also pays the fees of directors who are not
interested persons of the Adviser or officers or employees of the Fund,
salaries of administrative and clerical personnel, association membership
dues, auditing and accounting services, fees and expenses of any custodian
or trustees having custody of Fund assets, expenses of repurchasing and
redeeming shares, printing and mailing expenses, charges and expenses of
dividend disbursing agents, registrars and stock transfer agents,
including the cost of keeping all necessary shareholder records and
accounts and handling any problems related thereto.
DETERMINATION OF NET ASSET VALUE
The per share net asset value of the Fund is determined by
dividing the total value of its net assets (meaning its assets less its
liabilities excluding capital and surplus) by the total number of its
shares outstanding at that time. The net asset value is determined as of
the close of regular trading (currently 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the New York Stock Exchange is open for
trading. This determination is applicable to all transactions in shares
of the Fund prior to that time and after the previous time as of which net
asset value was determined. Accordingly, purchase orders accepted or
shares tendered for redemption prior to the close of regular trading on a
day the New York Stock Exchange is open for trading will be valued as of
the close of trading, and purchase orders accepted or shares tendered for
redemption after that time will be valued as of the close of the next
trading day.
Common stocks and securities sold short that are listed on any
national stock exchange or quoted on the Nasdaq Stock Market will be
valued at the last sale price on the date valuation is made. Price
information on listed securities is taken from the exchange where the
security is primarily traded. Common stocks and securities sold short
which are listed on any national stock exchange or the NASDAQ Stock Market
but which are not traded on the valuation date are valued at the average
of the current bid and asked prices. Unlisted equity securities for which
market quotations are readily available will be valued at the average of
the current bid and asked prices. Options purchased or written by the
Fund are valued at the average of the current bid and asked prices. The
value of a futures contract equals the unrealized gain or loss on the
contract that is determined by marking the contract to the current
settlement price for a like contract acquired on the day on which the
futures contract is being valued. A settlement price may not be moved if
the market makes a limit move in which event the futures contract will be
valued at its fair value as determined by the Adviser in accordance with
procedures approved by the Board of Directors. Debt securities are valued
at the latest bid prices furnished by independent pricing services. Any
securities for which there are no readily available market quotations and
other assets will be valued at their fair value as determined in good
faith by the Board of Directors. Short-term instruments (those with
remaining maturities of 60 days or less) are valued at amortized cost,
which approximates market.
PURCHASE OF SHARES
Shares of the Fund may be purchased directly from the Fund.
Share purchase application forms are included at the back of the
Prospectus. The price per share is the next determined per share net
asset value after receipt of an application. Additional purchase
applications may be obtained from the Fund. Purchase applications should
be mailed directly to: FMI Focus Fund, c/o Firstar Trust Company,
P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The U.S. Postal Service
and other independent delivery services are not agents of the Fund.
Therefore, deposit of purchase applications in the mail or with such
services does not constitute receipt by Firstar Trust Company or the Fund.
PLEASE DO NOT mail letters by overnight courier to the Post Office Box
address. To purchase shares by overnight or express mail, please use the
following street address: FMI Focus Fund, c/o Firstar Trust Company,
Mutual Fund Services, 615 East Michigan Street, Milwaukee,
Wisconsin 53202. All applications must be accompanied by payment in the
form of a check made payable to FMI Focus Fund, or by direct wire
transfer. All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. No cash will be accepted. Firstar Trust Company
will charge a $20 fee against a shareholder's account for any payment
check returned by the custodian. The shareholder will also be responsible
for any losses suffered by the Fund as a result. When a purchase is made
by check (other than a cashiers or certified check), the Fund may delay
the mailing of a redemption check until it is satisfied that the check has
cleared. (It will normally take up to 3 days to clear local personal or
corporate checks and up to 7 days to clear other personal and corporate
checks.) To avoid redemption delays, purchases may be made by cashiers or
certified check or by direct wire transfers. Funds should be wired
to: Firstar Bank Milwaukee, NA, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, ABA #75000022, Firstar Trust Company, Account #112-952137, for
further credit to: FMI Focus Fund, "name of shareholder and existing
account number" if any. The establishment of a new account by wire
transfer should be preceded by a phone call to Firstar Trust Company 1-
800-811-5311, to provide information for the setting up of the account. A
follow up application should be sent for all new accounts opened by wire
transfer. Applications are subject to acceptance by the Fund, and are not
binding until so accepted. The Fund does not accept telephone orders for
purchase of shares and reserves the right to reject applications in whole
or in part. The Board of Directors of the Fund has established $1,000 as
the minimum initial purchase price and $100 as the minimum for any
subsequent purchase (except through dividend reinvestment and the
automatic investment plan), which minimum amounts are subject to change at
any time. Shareholders will be advised at least thirty days in advance of
any increases in such minimum amounts. Stock certificates for shares are
not issued.
Shares may be purchased through registered broker-dealers who
may charge a fee, either at the time of purchase or redemption. The fee,
if charged, is retained by the broker-dealer and not remitted to the Fund
or the Adviser.
The Fund had adopted a Service and Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. The Plan authorizes
payments by the Fund in connection with the distribution of its shares at
an annual rate, as determined from time to time by the Board of Directors,
of up to 0.25% of the Fund's average daily net assets. Payments made
pursuant to the Plan may only be used to pay distribution expenses in the
year incurred. Amounts paid under the Plan by the Fund may be spent by
the Fund on any activities or expenses primarily intended to result in the
sale of shares of the Fund, including but not limited to, advertising,
compensation for sales and marketing activities of financial institutions
and others such as dealers and distributors, shareholder account
servicing, the printing and mailing of prospectuses to other than current
shareholders and the printing and mailing of sales literature. The Plan
permits the Fund to employ a distributor of its shares, in which event
payments under the Plan will be made to the distributor and may be spent
by the distributor on any activities or expenses primarily intended to
result in the sale of shares of the Fund, including but not limited to,
compensation to, and expenses (including overhead and telephone expenses)
of, employees of the distributor who engage in or support distribution of
the Fund's shares, printing of prospectuses and reports for other than
existing shareholders, advertising and preparation and distribution of
sales literature. Allocation of overhead (rent, utilities, etc.) and
salaries will be based on the percentage of utilization in, and time
devoted to, distribution activities. If a distributor is employed by the
Fund, the distributor will directly bear all sales and promotional
expenses of the Fund, other than expenses incurred in complying with laws
regulating the issue or sale of securities. (In such event, the Fund will
indirectly bear sales and promotional expenses to the extent it makes
payments under the Plan.) The Fund has no present plans to employ a
distributor. Pending the employment of a distributor, the Fund's
distribution expenses will be authorized by the officers of the Company.
To the extent any activity is one which the Fund may finance without a
plan pursuant to Rule 12b-1, the Fund may also make payments to finance
such activity outside of the Plan and not subject to its limitations.
REDEMPTION OF SHARES
A shareholder may require the Fund to redeem his shares in whole
or part at any time during normal business hours. Redemption requests
must be made in writing and directed to: FMI Focus Fund, c/o Firstar
Trust Company, P. O. Box 701, Milwaukee, Wisconsin 53202-0701. The U.S.
Postal Service and other independent delivery services are not agents of
the Fund. Therefore, deposit of redemption requests in the mail or with
such services does not constitute receipt by Firstar Trust Company or the
Fund. PLEASE DO NOT mai letters by overnight courier to the Post Office
Box address. Redemption requests sent by overnight or express mail should
be directed to: FMI Focus Fund, c/o Firstar Trust Company, Mutual Fund
Services, 3rd Floor, 615 East Michigan Street, Milwaukee, Wisconsin
53202. If a redemption request is inadvertently sent to the Fund, it will
be forwarded to Firstar Trust Company, but the effective date of
redemption will be delayed until the request is received by Firstar Trust
Company. Requests for redemption by telephone or telegram and requests
which are subject to any special conditions or which specify an effective
date other than as provided herein cannot be honored.
Redemption requests should specify the name of the Fund, the
number of shares or dollar amount to be redeemed, shareholder's name,
account number and the additional requirements listed below that apply to
the particular account.
Type of Registration Requirements
Individual, Joint Tenants Redemption request signed by all person(s)
Sole Proprietor, Custodial required to sign for the account, exactly
(Uniform Gift to Minors as it is registered.
Act), General Partnership
Corporations, Associations Redemption request and a corporate
resolution, signed by person(s) required
to sign for the account, accompanied by
signature guarantee(s).
Trusts Redemption request signed by the
trustee(s) with a signature guarantee.
(If the trustee's name is not registered
on the account, a copy of the trust
document certified within the last 60 days
is also required.)
Redemption requests from shareholders in an Individual
Retirement Account must include instructions regarding federal income tax
withholding. Unless otherwise indicated, these redemptions, as well as
redemptions of other retirement plans not involving a direct rollover to
an eligible plan, will be subject to federal income tax withholding. If a
shareholder is not included in any of the above registration categories
(e.g., executors, administrators, conservators or guardians), the
shareholder should call the transfer agent, Firstar Trust Company
(1-800-811-5311), for further instructions.
Signatures need not be guaranteed unless the proceeds of
redemption are requested to be sent by wire transfer, to a person other
than the registered holder or holders of the shares to be redeemed, or to
be mailed to other than the address of record, in which cases each
signature on the redemption request must be guaranteed by a commercial
bank or trust company in the United States, a member firm of the New York
Stock Exchange or other eligible guarantor institution. Redemptions will
not be effective or complete until all of the foregoing conditions,
including receipt of all required documentation by Firstar Trust Company
in its capacity as transfer agent, have been satisfied.
The redemption price is the net asset value next determined
after receipt by Firstar Trust Company in its capacity as transfer agent
of the written request in proper form with all required documentation.
The amount received will depend on the market value of the investments in
the Fund's portfolio at the time of determination of net asset value, and
may be more or less than the cost of the shares redeemed. A check in
payment for shares redeemed will be mailed to the holder no later than the
seventh day after receipt of the redemption request in proper form and all
required documentation except as indicated in "Purchase of Shares" for
certain redemptions of shares purchased by check.
The right to redeem shares of the Fund will be suspended for any
period during which the New York Stock Exchange is closed because of
financial conditions or any other extraordinary reason and may be
suspended for any period during which (a) trading on the New York Stock
Exchange is restricted pursuant to rules and regulations of the Securities
and Exchange Commission, (b) the Securities and Exchange Commission has by
order permitted such suspension, or (c) an emergency, as defined by rules
and regulations of the Securities and Exchange Commission, exists as a
result of which it is not reasonably practicable for the Fund to dispose
of its securities or fairly to determine the value of its net assets.
DIVIDEND REINVESTMENT
Shareholders may elect to have all income dividends and capital
gains distributions reinvested or paid in cash, or elect to have income
dividends reinvested and capital gains distributions paid in cash or
capital gains distributions reinvested and income dividends paid in cash.
See the Share Purchase Application included at the back of this Prospectus
for further information. If the shareholder does not specify an election,
all income dividends and capital gains distributions will automatically be
reinvested in full and fractional shares of the Fund, calculated to the
nearest 1,000th of a share. Shares are purchased at the net asset value
in effect on the business day after the dividend record date and are
credited to the shareholder's account on the dividend payment date. As in
the case of normal purchases, stock certificates are not issued.
Shareholders will be advised of the number of shares purchased and the
price following each reinvestment. An election to reinvest or receive
dividends and distributions in cash will apply to all shares of the Fund
registered in the same name, including those previously purchased.
A shareholder may change an election at any time by notifying
the Fund in writing or by calling Firstar Trust Company at 1-800-811-5311.
If such a notice is received between a dividend declaration date and
payment date, it will become effective on the day following the payment
date. The Fund may modify or terminate its dividend reinvestment program
at any time on thirty days' notice to participants.
AUTOMATIC INVESTMENT PLAN
Shareholders wishing to invest fixed dollar amounts in the Fund
on a regular basis can make automatic purchases in amounts of $50 or more,
on any date specified by the shareholder each month or calendar quarter by
using the Fund's Automatic Investment Plan. If such date is a weekend or
holiday, such purchase shall be made on the next business day. There is
no service fee for participating in this Plan. A $20 fee will be charged
by Firstar Trust Company if sufficient funds are not available in the
shareholder's account at the time of the automatic transaction. To use
this service, the shareholder must authorize the transfer of funds from
his checking or NOW account by completing the Automatic Investment Plan
application included as part of the Share Purchase Application located at
the back of the Prospectus or by calling the Fund's office at
(414) 226-4555. The Automatic Investment Plan must be implemented with a
financial institution that is a member of the Automated Clearing House.
Shareholders may change the date or amount of investments at any time by
writing to or calling Firstar Trust Company at 1-800-811-5311. The Fund
reserves the right to suspend, modify or terminate the Automatic
Investment Plan without notice.
The Automatic Investment Plan is designed to be a method to
implement dollar cost averaging. Dollar cost averaging is an investment
approach providing for the investment of a specific dollar amount on a
regular basis thereby precluding emotions dictating investment decisions.
Dollar cost averaging does not insure a profit nor protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
The Fund has available to shareholders a Systematic Withdrawal
Plan, pursuant to which a shareholder who owns Fund shares worth at least
$10,000 at current net asset value may provide that a fixed sum will be
distributed to him at regular intervals. To participate in the Systematic
Withdrawal Plan, a shareholder deposits his Fund shares with the Fund and
appoints it as his agent to effect redemptions of Fund shares held in his
account for the purpose of making monthly or quarterly withdrawal payments
of a fixed amount to him out of his account. The Systematic Withdrawal
Plan does not apply to Fund shares held in Individual Retirement Accounts
or defined contribution retirement plans. An application for
participation in the Systematic Withdrawal Plan is included as part of the
Share Purchase Application located at the back of this Prospectus or may
be obtained by calling the Fund at (414) 226-4555.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemption of shares
in the account at net asset value. Redemptions will be made at periodic
intervals no more frequent than monthly on the date specified by the
shareholder or, if that day is a weekend or holiday, on the next business
day. See the Share Purchase Application located in the back of this
Prospectus for further information. Participation in the Systematic
Withdrawal Plan constitutes an election by the shareholder to reinvest in
additional Fund shares, at net asset value all income dividends and
capital gains distributions payable by the Fund on shares held in such
account, and shares so acquired will be added to such account. The
shareholder may deposit additional Fund shares in his account at any time.
Withdrawal payments cannot be considered as yield or income on
the shareholder's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the shareholder's account.
The shareholder may vary the amount or frequency of withdrawal
payments or temporarily discontinue them by notifying Firstar Trust
Company in writing or by telephone at 1-800-811-5311. To change the
designated payee or payee's address, you must notify Firstar Trust Company
in writing.
EXCHANGE PRIVILEGE
A shareholder may redeem all or any portion of his Fund shares
and use the proceeds to purchase shares of Fiduciary Capital Growth Fund,
Inc., another mutual fund managed by the Adviser, or Portico Money Market
Fund, a money market mutual fund not affiliated with the Fund or the
Adviser, if such shares are offered in his state of residence. The
redemption of shares of the Fund and the purchase of shares of Fiduciary
Capital Growth Fund, Inc. and/or Portico Money Market Fund will be
effected at the respective net asset values of such funds. An exchange
transaction is a sale and purchase of shares for federal income tax
purposes and may result in the realization of a capital gain or loss.
Prior to exercising the Exchange Privilege a shareholder should obtain and
carefully read the prospectus for Fiduciary Capital Growth Fund, Inc.
and/or Portico Money Market Fund. The Exchange Privilege does not in any
way constitute an offering of, or recommendation on the part of the
Adviser or the Fund or Fiduciary Capital Growth Fund, Inc. of, an
investment in Portico Money Market Fund. The registration of both the
account from which the exchange is being made and the account to which the
exchange is made must be identical.
Exchange requests must be made in writing. Exchange request
forms may be obtained by writing the Fund or by calling (414) 226-4555.
Written requests should include the account numbers for both the Fund and
Fiduciary Capital Growth Fund, Inc. or Portico Money Market Fund, if an
account is already opened, and the amount of the exchange. If a new
account is to be opened by the exchange, the registration must be
identical to that of the original account.
The Fund reserves the right upon prior notice (except as
provided below) to suspend, limit, modify or terminate the Exchange
privilege or its use in any manner by any person or class. In particular,
since an excessive number of exchanges may be disadvantageous to the Fund,
the Fund reserves the right to terminate the Exchange Privilege of any
shareholder who makes more than five exchanges of shares in a year or
three in a calendar quarter. The Fund will not notify any such
shareholder in advance of terminating its Exchange Privilege.
INDIVIDUAL RETIREMENT ACCOUNT AND
SIMPLIFIED EMPLOYEE PENSION PLAN
Individual shareholders may establish their own tax-sheltered
Individual Retirement Account ("IRA"). The Fund has a prototype IRA plan
using IRS Form 5305-A. An individual may contribute to the IRA an annual
amount equal to the lesser of 100% of annual earned income or $2,000
($2,250 maximum ($4,000 in 1997 and later tax years) in the case of a
married couple where one spouse is not working and certain other
conditions are met).
Earnings on amounts held under the IRA accumulate free of
federal income taxes. Distributions from the IRA may begin at age 59-1/2,
and must begin by April 1 following the calendar year end in which a
person reaches age 70-1/2. Excess contributions, certain distributions
prior to age 59-1/2 and failure to begin distribution after age 70-1/2 may
result in adverse tax consequences.
Under current IRS regulations, an IRA applicant must be
furnished a disclosure statement containing information specified by the
IRS. The applicant has the right to revoke his account within seven days
after receiving the disclosure statement in accordance with IRS
regulations and obtain a full refund of his contribution should he so
elect. The custodian may, in its discretion, hold the initial
contribution uninvested until the expiration of the seven-day revocation
period. It anticipates that it will not so exercise its discretion but
reserves the right to do so.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian
and furnishes the services provided for in the IRA plan as required by the
Employee Retirement Income Security Act of 1974 ("ERISA"). The custodian
invests all cash contributions, dividends and capital gains distributions
in shares of the Fund. For such services, the following fees are charged
against the accounts of the participants: $12.50 annual maintenance fee;
$15 for transferring to a successor trustee; $15 for distribution(s) to a
participant; and $15 for refunding any contribution in excess of the
deductible limit.
The Fund's prototype IRA plan may also be used to establish a
Simplified Employee Pension Plan ("SEP/IRA"). The SEP/IRA is available to
employers and employees, including self-employed individuals, who wish to
purchase shares with tax deductible contributions not exceeding annually
for any one participant the lesser of $30,000 or 15% of earned income.
Under this plan, employer contributions are made directly to the IRA
accounts of eligible participants.
Requests for information and forms concerning the IRA and
SEP/IRA should be directed to the Fund. Included with the forms is a
disclosure statement which the IRS requires to be furnished to individuals
who are considering an IRA or SEP/IRA. Consultation with a competent
financial and tax adviser regarding the IRA and SEA/IRA is recommended.
RETIREMENT PLAN
A prototype defined contribution plan is available for employers
who wish to purchase shares of the Fund with tax-deductible contributions
not exceeding annually the lesser of $30,000 or 25% of earned income.
This plan includes a cash or deferred 401(k) arrangement for employers who
wish to allow employees to elect to reduce their compensation and have
such amounts contributed to the plan, not to exceed $9,500 annually (as
adjusted for cost-of-living increases). The Fund has received an opinion
letter from the Internal Revenue Service that the prototype defined
contribution retirement plan is acceptable for use under Section 401 of
the Internal Revenue Code, as amended (the "Code").
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian
and furnishes the services provided for in the retirement plan. The
custodian invests all cash contributions, dividends and capital gains
distributions in shares of the Fund. For such services, the following
fees will be charged against the accounts of the participants: $12.50 for
annual maintenance fee per participation account; $15 for a transfer to
successor trustee; $15 for distribution(s) to a participant; and $15 for a
refund of an excess contribution.
Requests for information and forms concerning the retirement
plan should be directed to the Fund. Consultation with a competent
financial and tax adviser regarding the retirement plan is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund will endeavor to qualify annually for and elect tax
treatment applicable to a registered investment company under Subchapter M
of the Code. Pursuant to the requirements of the Code, the Fund intends
normally to distribute substantially all of its net investment income and
net realized capital gains, if any, less any available capital loss
carryover, to its shareholders annually so as to avoid paying income tax
on its net investment income and net realized capital gains or being
subject to a federal excise tax on undistributed net investment income and
net realized capital gains. For federal income tax purposes,
distributions by the Fund, whether invested in additional shares of Common
Stock or received in cash, will be taxable to the Fund's shareholders
except those shareholders that are not subject to tax on their income.
Shareholders will be notified annually as to the federal tax
status of dividends and distributions. For federal income tax purposes, a
shareholder's cost of his shares is his basis and on redemption his gain
or loss is the difference between such basis and the redemption price.
Distributions and redemptions may also be taxed under state and local tax
laws which may differ from the Code.
BROKERAGE TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sale of the Fund's
portfolio securities. In placing purchase and sale orders for the Fund,
it is the policy of the Adviser to seek the best execution of orders at
the most favorable price in light of the overall quality of brokerage and
research services provided.
The Advisory Agreement permits the Adviser to cause the Fund to
pay a broker which provides brokerage and research services to the Adviser
a commission for effecting securities transactions in excess of the amount
another broker would have charged for executing the transaction, provided
the Adviser believes this to be in the best interests of the Fund. The
Fund may place portfolio orders with broker-dealers who recommend the
purchase of Fund shares to clients if the Adviser believes the commission
and transaction quality are comparable to that available from other
brokers and allocate portfolio brokerage on that basis.
CAPITAL STRUCTURE
The Company's Articles of Incorporation permit the Board of
Directors to issue 500,000,000 shares of common stock. The Board of
Directors has the power to designate one or more classes ("series") of
shares of common stock and to classify or reclassify any unissued shares
with respect to such series. Currently the shares of the Fund are the
only class of shares being offered by the Company. Shareholders are
entitled: (i) to one vote per full share; (ii) to such distributions as
may be declared by the Company's Board of directors out of funds legally
available; and (iii) upon liquidation, to participate ratably in the
assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares, and the holders have no
preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of the
Fund voting for the election of directors can elect the entire Board of
Directors and in such event the holders of the remaining shares voting for
the election of directors will not be able to elect any person or persons
to the Board of Directors. The shares are redeemable and are
transferable. All shares issued and sold by the Fund will be fully paid
and nonassessable. Fractional shares entitle the holder to the same
rights as whole shares. The Fund will not issue certificates evidencing
shares. Instead the shareholder's account will be credited with the
number of shares purchased, relieving shareholders of responsibility for
safekeeping of certificates and the need to deliver them upon redemption.
Written confirmations are issued for all purchases of shares. Firstar
Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202 acts
as the Fund's transfer agent and dividend disbursing agent.
The Maryland Business Corporation Law permits registered
investment companies, such as the Fund, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting
is not required by the Act. The Fund has adopted the appropriate
provisions in its Bylaws and does not anticipate holding an annual meeting
of shareholders to elect directors unless otherwise required by the Act.
The Fund has also adopted provisions in its Bylaws for the removal of
directors by its shareholders.
SHAREHOLDER REPORTS
Shareholders will be provided at least semi-annually with a
report showing the Fund's portfolio and other information and annually
after the close of the Fund's fiscal year, which ends September 30, with
an annual report containing audited financial statements. Shareholders
who have questions about the Fund should call Firstar Trust Company,
1-800-811-5311 or (414) 765-4124 or write to: FMI Focus Fund, 225 East
Mason Street, Milwaukee, Wisconsin 53202, Attention: Secretary.
PERFORMANCE INFORMATION
The Fund may provide from time to time in advertisements,
reports to shareholders and other communications with shareholders its
average annual total return. An average annual total return refers to the
rate of return which, if applied to an initial investment in the Fund at
the beginning of a stated period and compounded over the period, would
result in the redeemable value of the investment in the Fund at the end of
the stated period assuming reinvestment of all dividends and distributions
and reflecting the effect of all recurring fees. The Fund may also
provide "aggregate" total return information for various periods,
representing the cumulative change in value of an investment in the Fund
for a specific period (again reflecting changes in share price and
assuming reinvestment of dividends and distributions).
Any reported performance results will be based on historical
earnings and should not be considered as representative of the performance
of the Fund in the future. An investment in the Fund will fluctuate in
value and at redemption its value may be more or less than the initial
investment. The Fund may compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as
reported by Lipper Analytical Services, Inc. Money, Forbes, Business Week
and Barron's magazines and The Wall Street Journal. (Lipper Analytical
Services, Inc. is an independent service that ranks over 1,000 mutual
funds based upon total return performance.) The Fund may also compare its
performance to the Dow Jones Industrial Average, Nasdaq Composite Index,
Nasdaq Industrials Index, Value Line Composite Index, the Standard &
Poor's 500 Stock Index and the Consumer Price Index. Such comparisons may
be made in advertisements, shareholder reports or other communications to
shareholders.
<PAGE>
FMI FOCUS FUND
225 East Mason Street
Milwaukee, Wisconsin 53202
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
TED D. KELLNER
THOMAS W. MOUNT
DONALD S. WILSON
INVESTMENT ADVISER AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-811-5311
or
414-765-4124
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
P R O S P E C T U S
FMI FOCUS FUND
A NO-LOAD
MUTUAL FUND
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION November __, 1996
FMI FUNDS, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of FMI Funds, Inc.,
dated November __, 1996. Requests for copies of the Prospectus should be
made by writing to FMI Funds, Inc., 225 East Mason Street, Milwaukee,
Wisconsin 53202, Attention: Secretary or by calling (414) 226-4555.
FMI FUNDS, INC.
Table of Contents
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . 8
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT ADVISER AND ADMINISTRATOR . . . . . . . . . . . . . . . . 11
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE . . . . . . . . . . 12
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 13
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 13
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . 18
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 19
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 19
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 November __, 1996 and, if
given or made, such information or representations may not be relied upon
as having been authorized by FMI Funds, Inc..
This Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated November __, 1996 of FMI
Funds, Inc. (the "Corporation") under the caption "Investment Objective
and Policies", the investment objective of FMI Focus Fund (the "Fund") is
capital appreciation. Consistent with its investment objective, the Fund
has adopted the following investment restrictions which are matters of
fundamental policy and cannot be changed without approval of the holders
of the lesser of: (i) 67% of the Fund's shares present or represented at
a stockholders meeting at which the holders of more than 50% of such
shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. The Fund will not purchase securities on margin (except for
such short term credits as are necessary for the clearance of
transactions); provided, however, that the Fund may (i) borrow money to
the extent set forth in investment restriction no. 3; (ii) purchase or
sell futures contracts and options on futures contracts; (iii) make
initial and variation margin payments in connection with purchases or
sales of futures contracts or options on futures contracts; and (iv) write
or invest in put or call options.
2. The Fund may sell securities short and write put and call
options to the extent permitted by the Investment Company Act of 1940 (the
"Act").
3. The Fund may borrow money or issue senior securities to the
extent permitted by the Act.
4. The Fund may pledge or hypothecate its assets to secure its
borrowings.
5. The Fund will not lend money (except by purchasing publicly
distributed debt securities, purchasing securities of a type acquired by
institutional investors or entering into repurchase agreements) and will
not lend its portfolio securities.
6. The Fund will not make investments for the purpose of
exercising control or management of any company.
7. The Fund will not purchase securities of any issuer (other
than the United States or an instrumentality of the United States) if, as
a result of such purchase,the Fund would hold more than 10% of any class
of securities, including voting securities, of such issuer or more than 5%
of the Fund's assets, taken at current value, would be invested in
securities of such issuer, except that up to 50% of the Fund's total
assets may be invested without regard to these limitations.
8. The Fund will not invest 25% or more of the value of its
total assets, determined at the time an investment is made, exclusive of
U.S. government securities, in securities issued by companies primarily
engaged in the same industry. In determining industry classifications the
Fund will use the current Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission except to the extent permitted
by the Act.
9. The Fund will not acquire or retain any security issued by
a company, an officer or director of which is an officer or director of
the Fund or an officer, director or other affiliated person of its
investment adviser.
10. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in the
disposition of restricted securities).
11. The Fund will not purchase any interest in any oil, gas or
other mineral leases or any interest in any oil, gas or any other mineral
exploration or development program.
12. The Fund will not purchase or sell real estate or real
estate mortgage loans or real estate limited partnerships.
13. The Fund will not purchase or sell commodities or commodity
contracts, except that the Fund may enter into futures contracts and
options on futures contracts.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Corporation's
Board of Directors without stockholder approval. These additional
restrictions are as follows:
1. The Fund will not invest more than 15% of the value of its
net assets in illiquid securities.
2. The Fund's investments in warrants will be limited to 5% of
the Fund's net assets. Included within such 5%, but not to exceed 2% of
the value of the Fund's net assets, may be warrants which are not listed
on either the New York Stock Exchange or the American Stock Exchange.
3. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of the Fund;
(b) securities of registered open-end investment companies that invest
exclusively in high quality, short-term debt securities; or (c) securities
of registered closed-end investment companies on the open market where no
commission results, other than the usual and customary broker's
commission. No purchases described in (b) and (c) will be made if as a
result of such purchases (i) the Fund and its affiliated persons would
hold more than 3% of any class of securities, including voting securities,
of any registered investment company; (ii) more than 5% of the Fund's net
assets would be invested in shares of any one registered investment
company; and (iii) more than 10% of the Fund's net assets would be
invested in shares of registered investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions (other than those relating to borrowing of
money or issuing senior securities) are adhered to at the time an
investment is made, and such percentage subsequently changes as a result
of changing market values or some similar event, no violation of the
Fund's fundamental restrictions will be deemed to have occurred. Any
changes in the Fund's investment restrictions made by the Board of
Directors will be communicated to stockholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
Illiquid Securities
The Fund may invest up to 15% of its net assets in securities
for which there is no readily available market ("illiquid securities").
The 15% limitation includes certain securities whose disposition would be
subject to legal restrictions ("restricted securities"). However certain
restricted securities that may be resold pursuant to Rule 144A under the
Securities Act may be considered liquid. The Board of Directors of the
Corporation has delegated to the Adviser the day-to-day determination of
the liquidity of a security although it has retained oversight and
ultimate responsibility for such determinations. Although no definite
quality criteria are used, the Board of Directors has directed the Adviser
to consider such factors as (i) the nature of the market for a security
(including the institutional private resale markets); (ii) the terms of
these 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; and (iv)
other permissible factors.
Restricted securities may be sold in private negotiated or other
exempt transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. When
registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable time may elapse between the
decision to sell and the sale date. If, during such period, adverse
market conditions were to develop, the Fund might obtain a less favorable
price than the price 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.
Futures Contracts and Options Thereon
The Fund may purchase and write (sell) stock index futures
contracts as a substitute for a comparable market position in the
underlying securities. A futures contract obligates the seller to deliver
(and the purchaser to take delivery of) the specified commodity on the
expiration date of the contract. A stock index futures contract obligates
the seller to deliver (and the purchaser to take) an amount of cash equal
to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made. It is the practice of holders of
futures contracts to close out their positions on or before the expiration
date by use of offsetting contract positions and physical delivery is
thereby avoided.
The Fund may purchase put and call options and write call
options on stock index futures contracts. When the Fund purchases a put
or call option on a futures contract, the Fund pays a premium for the
right to sell or purchase the underlying futures contract for a specified
price upon exercise at any time during the options period. By writing a
call option on a futures contract, the Fund receives a premium in return
for granting to the purchaser of the option the right to buy from the Fund
the underlying futures contract for a specified price upon exercise at any
time during the option period.
Some futures and options strategies tend to hedge the Fund's
equity positions against price fluctuations, while other strategies tend
to increase market exposure. Whether the Fund realizes a gain or loss
from futures activities depends generally upon movements in the underlying
stock index. The extent of the Fund's loss from an unhedged short
position in futures contracts or call options on futures contracts is
potentially unlimited. The Fund may engage in related closing
transactions with respect to options on futures contracts. The Funds will
purchase or write options only on futures contracts that are traded on a
United States exchange or board of trade. In addition to the uses set
forth hereunder, the Fund may also engage in futures and futures options
transactions in order to hedge or limit the exposure of its position and
for satisfying certain tests applicable to regulated investment companies
under the Internal Revenue Code.
The Fund may purchase and sell futures contracts and options
thereon only to the extent that such activities would be consistent with
the requirements of Section 4.5 of the regulations under the Commodity
Exchange Act promulgated by the Commodity Futures Trading Commission (the
"CFTC Regulations"), under which the Fund would be excluded from the
definition of a "commodity pool operator." Under Section 4.5 of the CFTC
Regulations, the Fund may engage in futures transactions, either for "bona
fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial
margins and premiums required to establish such non-hedging positions do
not exceed 5% of the liquidation value of the Fund's portfolio. In the
case of an option on a futures contract that is "in-the-money" at the time
of purchase (i.e., the amount by which the exercise price of the put
option exceeds the current market value of the underlying instrument or
the amount by which the current market value of the underlying instrument
exceeds the exercise price of the call option), the in-the-money amount
may be excluded in calculating this 5% limitation.
When the Fund purchases or sells a stock index futures contract,
the Fund "covers" its position. To cover its position, the Fund may
maintain with its custodian bank (and mark-to-market on a daily basis) a
segregated account consisting of cash or liquid securities that, when
added to any amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract or otherwise
cover its position. If the Fund continues to engage in the described
securities trading practices and properly segregates assets, the
segregated account will function as a practical limit on the amount of
leverage which the Fund may undertake and on the potential increase in the
speculative character of the Fund's outstanding portfolio securities.
Additionally, such segregated accounts will assure the availability of
adequate funds to meet the obligations of the Fund arising from such
investment activities.
The Fund may cover its long position in a futures contract by
purchasing a put option on the same futures contract with a strike price
(i.e., an exercise price) as high or higher than the price of the futures
contract, or, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or
high-grade liquid debt securities equal in value to the difference between
the strike price of the put and the price of the futures contract. The
Fund may also cover its long position in a futures contract by taking a
short position in the instruments underlying the futures contract, or by
taking positions in instruments the prices of which are expected to move
relatively consistently with the futures contract. The Fund may cover its
short position in a futures contract by taking a long position in the
instruments underlying the futures contract, or by taking positions in
instruments the prices of which are expected to move relatively
consistently with the futures contract.
The Fund may cover its sale of a call option on a futures
contract by taking a long position in the underlying futures contract at a
price less than or equal to the strike price of the call option, or, if
the long position in the underlying futures contract is established at a
price greater than the strike price of the written call, the Fund will
maintain in a segregated account cash or high-grade liquid debt securities
equal in value to the difference between the strike price of the call and
the price of the futures contract. The Fund may also cover its sale of a
call option by taking positions in instruments the prices of which are
expected to move relatively consistently with the call option.
Although the Fund intends to sell futures contracts only if
there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the day. Futures
contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to substantial
losses. If trading is not possible, or the Fund determines not to close a
futures position in anticipation of adverse price movements, the Fund will
be required to make daily cash payments of variation margin. The risk
that the Fund will be unable to close out a futures position will be
minimized by entering into such transactions on a national exchange with
an active and liquid secondary market.
Index Options Transactions
The Fund may purchase put and call options and write call
options on stock indexes. A stock index fluctuates with changes in the
market values of the stock included in the index. Options on stock
indexes give the holder the right to receive an amount of cash upon
exercise of the options. Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put)
the exercise price of the option. The amount of cash received, if any,
will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple.
The writer (seller) of the option is obligated, in return for the premiums
received from the purchaser of the option, to make delivery of this amount
to the purchaser. Unlike the options on securities discussed below, all
settlements of index options transactions are in cash.
Some stock index options are based on a broad market index such
as the S&P 500 Index, the NYSE Composite Index or the AMEX Major Market
Index, or on a narrower index such as the Philadelphia Stock Exchange
Over-the-Counter Index. Options currently are traded on the Chicago Board
of Options Exchange, the AMEX and other exchanges. Over-the-counter index
options, purchased over-the-counter options and the cover for any written
over-the-counter options would be subject to the Fund's 15% limitation on
investment in illiquid securities. See "Illiquid Securities."
Each of the exchanges has established limitations governing the
maximum number of call or put options on the same index which may be
bought or written (sold) by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts
or through one or more brokers). Under these limitations, options
positions of certain other accounts advised by the same investment adviser
are combined for purposes of these limits. Pursuant to these limitations,
an exchange may order the liquidation of positions and may impose other
sanctions or restrictions. These position limits may restrict the number
of listed options which the Fund may buy or sell; however, the Adviser
intends to comply with all limitations.
Index options are subject to substantial risks, including the
risk of imperfect correlation between the option price and the value of
the underlying securities comprising the stock index selected and the risk
that there might not be a liquid secondary market for the option. Because
the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than upon movements in the price of a particular stock.
Trading in index options requires different skills and techniques than are
required for predicting changes in the prices of individual stocks. The
Fund will not enter into an option position that exposes the Fund to an
obligation to another party, unless the Fund either (i) owns an offsetting
position in securities or other options; and/or (ii) maintains with the
Fund's custodian bank (and marks-to-market, on a daily basis) a segregated
account consisting of cash or liquid securities that, when added to the
premiums deposited with respect to the option, are equal to the market
value of the underlying stock index not otherwise covered.
The Adviser may utilize index options as a technique to leverage
the portfolio of the Fund. If the Adviser is correct in its assessment of
the future direction of stock prices, the share price of the Fund will be
enhanced. If the Adviser has the Fund take a position in options and
stock prices move in a direction contrary to the Adviser's forecast
however, the Fund would incur losses greater than the Fund would have
incurred without the options position.
Options on Securities
The Fund may buy put and call options and write (sell) call
options on securities. By writing a call option and receiving a premium,
the Fund may become obligated during the term of the option to deliver the
securities underlying the option at the exercise price if the option is
exercised. By buying a put option, the Fund has the right, in return for
a premium paid during the term of the option, to sell the securities
underlying the option at the exercise price. By buying a call option, the
Fund has the right, in return for a premium paid during the term of the
option, to purchase the securities underlying the option at the exercise
price. Options on securities written by the Fund will be traded on
recognized securities exchanges.
When writing call options on securities, the Fund may cover its
position by owning the underlying security on which the option is written.
Alternatively, the Fund may cover its position by owning a call option on
the underlying security, on a share for share basis, which is deliverable
under the option contract at a price no higher than the exercise price of
the call option written by the Fund or, if higher, by owning such call
option and depositing and maintaining in a segregated account cash or
liquid securities equal in value to the difference between the two
exercise prices. In addition, the Fund may cover its position by
depositing and maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Fund. The principal reason for the Fund to write call options on
stocks held by the Fund is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone.
When the Fund wishes to terminate the Fund's obligation with
respect to an option it has written, the Fund may effect a "closing
purchase transaction." The Fund accomplishes this by buying an option of
the same series as the option previously written by the Fund. The effect
of the purchase is that the writer's position will be canceled. However,
a writer may not effect a closing purchase transaction after the writer
has been notified of the exercise of an option. When the Fund is the
holder of an option, it may liquidate its position by effecting a "closing
sale transaction." The Fund accomplishes this by selling an option of the
same series as the option previously purchased by the Fund. There is no
guarantee that either a closing purchase or a closing sale transaction can
be effected. If any call or put option is not exercised or sold, the
option will become worthless on its expiration date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call option previously written by the Fund
if the premium, plus commission costs, paid by the Fund to purchase the
put option is less (or greater) than the premium, less commission costs,
received by the Fund on the sale of the call option. The Fund also will
realize a gain if a call option which the Fund has written lapses
unexercised, because the Fund would retain the premium.
The Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a call or a put option previously purchased by
the Fund if the premium, less commission costs, received by the Fund on
the sale of the call or the put option is greater (or less) than the
premium, plus commission costs, paid by the Fund to purchase the call or
the put option. If a put or a call option which the Fund has purchased
expires out-of-the-money, the option will become worthless on the
expiration date, and the Fund will realize a loss in the amount of the
premium paid, plus commission costs.
Although certain securities exchanges attempt to provide
continuously liquid markets in which holders and writers of options can
close out their positions at any time prior to the expiration of the
option, no assurance can be given that a market will exist at all times
for all outstanding options purchased or sold by the Fund. In such event,
the Fund would be unable to realize its profits or limit its losses until
the Fund would exercise options it holds and the Fund would remain
obligated until options it wrote were exercised or expired.
Because option premiums paid or received by the Fund are small
in relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in common stocks.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, address principal occupations during the past five
years and other information with respect to each of the directors and
offices of the Fund are as follows:
BARRY K. ALLEN Age 48
30 South Wacker Drive
Suite 3800
Chicago, IL 60606
(A DIRECTOR OF THE FUND)
Mr. Allen is Executive Vice President, Communications &
Information Products, Ameritech, Chicago, Illinois and has served in that
capacity since August, 1995. From September, 1993 to August 1995, Mr.
Allen was President and Chief Operating Officer of Marquette Electronics,
Inc., a manufacturer of medical electronic equipment and systems,
Milwaukee, Wisconsin. From July, 1993 to September, 1993, Mr. Allen was
President and Chief Executive Officer of Ameritech Illinois and from July,
1989 to July, 1993, Mr. Allen was President and Chief Executive Officer of
Wisconsin Bell. Mr. Allen is a director of Harley-Davidson Inc. Mr.
Allen is also a director of Fiduciary Capital Growth Fund, Inc., an
investment company for which the Adviser serves as investment adviser.
TED D. KELLNER* Age 50
225 East Mason Street
Milwaukee, Wisconsin
(PRESIDENT, TREASURER AND A DIRECTOR OF THE FUND)
Mr. Kellner is Chairman of the Board and Chief Executive Officer
of Fiduciary Management, Inc., an investment advisory firm, which he
co-founded with Mr. Donald S. Wilson in 1980. Mr. Kellner is also
President, Treasurer and a director of Fiduciary Capital Growth Fund, Inc.
THOMAS W. MOUNT Age 65
401 Pine Terrace
Oconomowoc, Wisconsin
(A DIRECTOR OF THE FUND)
Mr. Mount is retired Chairman and a director of Stokely
USA, Inc., a canned and frozen food processor and was employed by such
firm in various capacities since 1957. Mr. Mount is also a director of
Fiduciary Capital Growth Fund, Inc.
DONALD S. WILSON* Age 53
225 East Mason Street
Milwaukee, Wisconsin
(VICE PRESIDENT, SECRETARY AND A DIRECTOR OF THE FUND)
Mr. Wilson is President and Treasurer of Fiduciary Management,
Inc. Mr. Wilson is also Vice President, Secretary and a director of
Fiduciary Capital Growth Fund, Inc.
GARY G. WAGNER Age 53
225 East Mason Street
Milwaukee, Wisconsin
(VICE PRESIDENT AND ASSISTANT SECRETARY OF THE FUND)
Mr. Wagner has been Executive Vice President of Fiduciary
Management, Inc. since July 1, 1987. Mr. Wagner is also Vice President
and Assistant Secretary of Fiduciary Capital Growth Fund, Inc.
PATRICK ENGLISH Age 36
225 East Mason Street
Milwaukee, Wisconsin
(VICE PRESIDENT OF THE FUND)
Mr. English is Senior Vice President of Fiduciary Management,
Inc. and has been employed by such firm in various capacities since
December, 1986. Mr. English is also Vice President of Fiduciary Capital
Growth Fund, Inc.
The Fund plans to pay each director who is not an officer of the
Fund a fee of $150 for each meeting of the Board of Directors attended.
____________________
* Messrs. Kellner and Wilson are directors who are "interested persons" of
the Fund as that term is defined in the Investment Company Act of 1940.
The Corporation was organized on September 5, 1996. The table
below sets forth the compensation anticipated to be paid by the
Corporation to each of the directors of the Corporation during the fiscal
year ending September 30, 1997:
COMPENSATION TABLE
Total
Compensation
Pension or from
Retirement Estimated Corporation
Aggregate Benefits Annual and Fund
Compensation Accrued as Benefits Complex
Name of from Part of Fund Upon Paid to
Person Corporation Expenses Retirement Directors(1)
Barry K. Allen $600 0 0 $3,000
Ted D. Kellner 0 0 0 0
Thomas W. Mount $600 0 0 $3,000
Donald S. Wilson 0 0 0 0
____________________
(1) Fiduciary Capital Growth Fund, Inc. and the Corporation are the
only investment companies in the Fund Complex.
PRINCIPAL STOCKHOLDERS
As of the date hereof, Fiduciary Management, Inc. owns 100% of
the Fund's outstanding shares. As of such date it controls the Fund and
the Corporation and owns sufficient shares of the Fund to approve or
disapprove all matters brought before stockholders of the Corporation,
including the election of directors of the Corporation and the approval of
auditors. The Corporation does not control any person.
INVESTMENT ADVISER AND ADMINISTRATOR
As set forth in the Prospectus under the caption "Management of
the Fund" the investment adviser and administrator to the Fund is
Fiduciary Management, Inc. (the "Adviser"). The Adviser is wholly-owned
by Ted D. Kellner and Donald S. Wilson. The Adviser's executive officers
include Messrs. Kellner, Wilson, Wagner, English, Ms. Maria Blanco, Senior
Vice President and Secretary, Mr. John Brandser, Vice President - Fixed
Income, Ms. Camille Wildes, Vice President and Ms. Jody Reckard, Vice
President. The directors of the Adviser are Messrs. Kellner and Wilson.
The Adviser has undertaken to reimburse the Fund to the extent
that the aggregate annual operating expenses, including the investment
advisory fee and the administration fee but excluding interest, taxes,
brokerage commissions and extraordinary items, exceed that percentage of
the daily net assets of the Fund for such year, as determined by
valuations made as of the close of each business day of the year, which is
the most restrictive percentage provided by the state laws of the various
states in which its shares are qualified for sale or, if the states in
which its shares are qualified for sale impose no such restrictions,
2.75%. As of the date of this Statement of Additional Information the
percentage applicable to the Fund is 2.75%. The Fund monitors its expense
ratio on a monthly basis. If the accrued amount of the expenses of the
Fund exceeds the expense limitation, the Fund creates an account
receivable from the Adviser for the amount of such excess. In such a
situation the monthly payment of the Adviser's fee will be reduced by the
amount of such excess, subject to adjustment month by month during the
balance of the Fund's fiscal year if accrued expenses thereafter fall
below this limit.
As set forth in the Prospectus under the caption "Management of
the Fund" the Adviser is also the administrator to the Fund. Pursuant to
an administration agreement (the "Administration Agreement") between the
Fund and the Adviser, the Adviser supervises all aspects of the Fund's
operations except those performed by it as investment adviser. In
connection with such supervision the Adviser prepares and maintains the
books, accounts and other documents required by the Investment Company Act
of 1940 (the "Act"), calculates the Fund's net asset value, responds to
shareholder inquiries, prepares the Fund's financial statements and excise
tax returns, prepares reports and filings with the Securities and Exchange
Commission and with state Blue Sky authorities, furnishes statistical and
research data, clerical, accounting and bookkeeping services and
stationery and office supplies, keeps and maintains the Fund's financial
accounts and records and generally assists in all respects of the Fund's
operations.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually, by (i) the Board
of Directors of the Corporation, or by the vote of a majority (as defined
in the Act) of the outstanding shares of the Fund, and (ii) by the vote of
a majority of the directors of the Corporation who are not parties to the
Advisory Agreement or interested persons of the Adviser, cast in person at
a meeting called for the purpose of voting on such approval. The
Administration Agreement will remain in effect as long as its continuance
is specifically approved at least annually by the Board of Directors of
the Corporation. Both the Advisory Agreement and the Administration
Agreement provide that they may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of a majority of the Fund's stockholders, on sixty days' written
notice to the Adviser, and by the Adviser on the same notice to the
Corporation and that they shall be automatically terminated if they are
assigned.
The Advisory Agreement and the Administration Agreement provide
that the Adviser shall not be liable to the Fund or its stockholders for
anything other than willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties. The Advisory Agreement
and the Administration Agreement also provide that the Adviser and its
officers, directors and employees may engage in other businesses, devote
time and attention to any other business whether of a similar or
dissimilar nature, and render services to others.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
As set forth in the Prospectus under the caption "Determination
of Net Asset Value" the net asset value of the Fund will be determined as
of the close of regular trading (4:00 P.M. Eastern Time) on each day the
New York Stock Exchange is open for trading. The New York Stock Exchange
is open for trading Monday through Friday except New Year's Day,
Washington's Birthday, 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 any 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.
Any total rate of return quotation for the Fund will be for a
period of three or more months and will assume the reinvestment of all
dividends and capital gains distributions which were made by the Fund
during that period. Any period total rate of return quotation of the Fund
will be calculated by dividing the net change in value of a hypothetical
shareholder account established by an initial payment of $1,000 at the
beginning of the period by 1,000. The net change in the value of a
shareholder account is determined by subtracting $1,000 from the product
obtained by multiplying the net asset value per share at the end of the
period by the sum obtained by adding (A) the number of shares purchased at
the beginning of the period plus (B) the number of shares purchased during
the period with reinvested dividends and distributions. Any average
annual compounded total rate of return quotation of the Fund will be
calculated by dividing the redeemable value at the end of the period
(i.e., the product referred to in the preceding sentence) by $1,000. A
root equal to the period, measured in years, in question is then
determined and 1 is subtracted from such root to determine the average
annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
n
P(1 + T) = 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
DISTRIBUTION OF SHARES
The Fund has adopted a Service and Distribution Plan (the
"Plan") in anticipation that the Fund will benefit from the Plan through
increased sales of shares, thereby reducing the Fund's expense ratio and
providing the Adviser with greater flexibility in management. The Plan
may be terminated by the Fund at any time by a vote of the directors of
the Corporation who are not interested persons of the Corporation and who
have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 Directors") or by a vote of a majority of
the outstanding shares of the Fund. Messrs. Allen and Mount are currently
the Rule 12b-1 Directors. Any change in the Plan that would materially
increase the distribution expenses of the Fund provided for in the Plan
requires approval of the stockholders of the Fund and the Board of
Directors, including the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors. The Fund did not begin
operations until November __, 1996, and thus, the Fund had not incurred
any distribution costs as of that date.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by
the Adviser subject to review by the Corporation's Board of Directors. In
placing purchase and sale orders for portfolio securities for the Fund, it
is the policy of the Adviser to seek the best execution of orders at the
most favorable price in light of the overall quality of brokerage and
research services provided, as described in this and the following
paragraph. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations.
Among these are the Adviser's evaluation of the broker's efficiency in
executing and clearing transactions, block trading capability (including
the broker's willingness to position securities and the broker's financial
strength and stability). The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Over-the-counter securities are generally
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price. In some
instances, the Adviser feels that better prices are available from
non-principal market makers who are paid commissions directly. The Fund
may place portfolio orders with broker-dealers who recommend the purchase
of Fund shares to clients if the Adviser believes the commissions and
transaction quality are comparable to that available from other brokers
and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which it exercises investment discretion. The Fund
did not commence operations until November ___, 1996.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Fund. As such, Firstar Trust
Company holds all securities and cash of the 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 officers of the Fund. Firstar Trust Company does not exercise
any supervisory function over the management of the Fund, the purchase and
sale of securities or the payment of distributions to shareholders.
Firstar Trust Company also acts as the Fund's transfer agent and dividend
disbursing agent.
TAXES
As set forth in the Prospectus under the caption "Dividends,
Distributions and Taxes" the Fund will endeavor to qualify annually for
and elect tax treatment applicable to a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
Under the Code, the Fund will not qualify as a regulated
investment company for any taxable year if more than 30% of the Fund's
gross income for that year is derived from gains on the sale of securities
held less than three months (the "30% Test"). These requirements may also
restrict the extent of the Fund's activities in option and other portfolio
transactions. Specifically, the 30% Test will limit the extent to which
the Fund may: (i) sell securities held for less than three months; (ii)
write options which expire in less than three months; (iii) effect closing
transactions with respect to call or put options that have been written or
purchased within the preceding three months; and (iv) effect short sales.
If a call option written by the Fund expires, the amount of the
premium received by the Fund for the option will be short-term or long-
term capital gain to the Fund depending on the Fund's holding period for
the underlying security or underlying futures contract. If such an option
is closed by the Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term or long-term
capital gain or loss depending on the Fund's holding period for the
underlying security or underlying futures contract. If the holder of a
call option exercises the holder's right under the option, any gain or
loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term
or long-term capital gain or loss to the Fund depending on the Fund's
holding period for the underlying security or underlying futures contract.
With respect to call options purchased by the Fund, the Fund
will realize short-term or long-term capital gain or loss if such option
is sold and will realize short-term or long-term capital loss if the
option is allowed to expire depending on the Fund's holding period for the
call option. If such a call option is exercised, the amount paid by the
Fund for the option will be added to the basis of the stock or futures
contract so acquired.
The Fund has available to it a number of elections under the
Code concerning the treatment of option transactions for tax purposes.
The Fund will utilize the tax treatment that, in the Fund's judgment, will
be most favorable to a majority of investors in the Fund. Taxation of
these transactions will vary according to the elections made by the Fund.
These tax considerations may have an impact on investment decisions made
by the Fund.
The Fund will utilize options on stock indexes. Options on
"broadbased" stock indexes are classified as "nonequity options" under the
Code. Gains and losses resulting from the expiration, exercise or closing
of such nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term capital gain
or loss to the extent of 60% thereof and short-term capital gain or loss
to the extent of 40% thereof (hereinafter "blended gain or loss"). In
addition, any nonequity option held by the Fund on the last day of a
fiscal year will be treated as sold for market value on that date, and
gain or loss recognized as a result of such deemed sale will be blended
gain or loss. These tax considerations may have an impact on investment
decisions made by the Fund.
The trading strategies of the Fund involving nonequity options
on stock indexes may constitute "straddle" transactions. "Straddles" may
affect the taxation of such instruments and may cause the postponement of
recognition of losses incurred in certain closing transactions.
Dividends from the Fund's net investment income and
distributions from the Fund's net realized capital gains are taxable to
stockholders as ordinary income, whether received in cash or in additional
shares. The 70% dividends-received deduction for corporations will apply
to such dividends and distributions, subject to proportionate reductions
if the aggregate dividends received by the Fund from domestic corporations
in any year are less than 100% of the net investment company income
taxable distributions made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of the Fund, will have the effect of reducing the per
share net asset value of such shares by the amount of the dividend or
distribution. Furthermore, if the net asset value of the shares of the
Fund immediately after a dividend or distribution is less than the cost of
such shares to the stockholder, the dividend or distribution will be
taxable to the stockholder even though it results in a return of capital
to him.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
The Fund may be required to withhold Federal income tax at a
rate of 31% ("backup withholding") from dividend payments and redemption
proceeds if a shareholder fails to furnish the Fund with his social
security or other tax identification number and certify under penalty of
perjury that such number is correct and that he is not subject to backup
withholding due to the under reporting of income. The certification form
is included as part of the share purchase application and should be
completed when the account is opened.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland Business Corporation Law permits registered
investment companies, such as the Fund, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting
is not required by the Act. The Corporation 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 upon by the stockholders under the Act.
The Corporation's bylaws also contain procedures for the removal
of directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders 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 Corporation shall promptly call a
special meeting of stockholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more stockholders 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 Corporation's
Secretary in writing, stating that they wish to communicate with other
stockholders 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 stockholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of stockholders 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 stockholders
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 Securities and Exchange Commission, 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 Securities and Exchange Commission
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 Securities and Exchange
Commission 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 Securities and Exchange Commission 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 stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Corporation's Prospectus, the Fund may
invest in commercial paper and commercial paper master notes assigned
ratings of either Standard & Poor's Corporation ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's"). A brief description of the
ratings symbols and their meanings follows:
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 are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. The categories rated A-3
or higher are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers 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 issuers designed "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
designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt
ratings are opinions of the ability of issuers to repay punctually senior
debt obligations which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters-of-credit and
bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202 has been selected as the independent
accountants for the Fund. As such Price Waterhouse LLP performs an audit
of the Fund's financial statement and considers the Fund's internal
control structure.
FINANCIAL STATEMENTS
The following financial statements for the Fund are attached
hereto:
- Report of Independent Accountants
- Statement of Assets and Liabilities
- Notes to the Financial Statement
REPORT OF INDEPENDENT ACCOUNTANT
To the Stockholders and Board of
Directors of FMI Funds, Inc.:
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of FMI
Focus Fund (the "Fund"), a series of FMI Funds, Inc. at ____________,
1996, in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Fund's management; our
responsibility is to express an opinion on this financial statement based
on our audit. We conducted our audit of this financial statement in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion express above.
Price Waterhouse LLP
Milwaukee, Wisconsin
________, 1996
FMI FUNDS, INC.
FMI FOCUS FUND
Statement of Assets and Liabilities
__________, 1996
FMI Focus Fund
ASSETS
Cash $100,000
Unamortized organizational costs
Prepaid initial registration expenses
--------
Total Assets
--------
LIABILITIES
Payable to Adviser
--------
Total Liabilities $100,000
========
NET ASSETS
Capital Stock, $0.0001 par value; 500,000,000 shares $100,000
authorized; 10,000 shares outstanding ========
Offering and redemption price/net asset value per $10.00
share (based on 10,000 shares of capital stock ======
issued and outstanding)
The accompanying notes to the financial statement are an integral part of
this statement.
FMI FUNDS, INC.
FMI FOCUS FUND
NOTES TO FINANCIAL STATEMENT
1. FMI Funds, Inc. (the "Company") was incorporated under the laws
of the state of Maryland on September 5, 1996 and has had no
operations to date other than those relating to organizational
matters and the sale of 10,000 shares of its common stock to its
original stockholder, Fiduciary Management, Inc. The Company is
an open-end non-diversified management investment company
registered under the Investment Company Act of 1940 (the "1940
Act").
2. FMI Funds, Inc., which consists solely of the FMI Focus Fund
(the "Fund"), has an agreement with Fiduciary Management, Inc.
(the "Adviser"), with whom certain officers and directors of FMI
Funds, Inc. are affiliated, to furnish investment advisory
services to the Fund. Under the terms of this agreement, the
Fund will pay the Adviser a monthly fee based on the Fund's
average daily net assets at the annual rate of 1.00%.
Under the investment advisory agreement, if the aggregate annual
operating expenses (including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage commissions
and other costs incurred in connection with the purchase or sale of
portfolio securities and extraordinary items) exceed the lowest
limitations imposed by state securities administrators, the Advisor will
reimburse the Fund for the amount of such excess.
3. Organizational costs and initial registration expenses are being
deferred and amortized over the period of benefit, but not to
exceed sixty months from the Fund's commencement of operations.
These costs were advanced by the Adviser and will be reimbursed
by the Fund. The proceeds of any redemption of the initial
shares by the original stockholder or any transferee will be
reduced by a pro-rata portion of any then unamortized
organizational expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial
shares outstanding at the time of such redemption.
4. Pursuant to Rule 12b-1 under the Investment Company Act of 1940,
the Fund has adopted a Service and Distribution Plan (the
"Plan"). Under the Plan, the Fund is authorized to pay expenses
incurred for the purpose of financing activities intended to
result in the sale of shares of the Fund at an annual rate of up
to 0.25% of the Fund's average daily net assets.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statement (included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
Notes to Financial Statement
(b.) Exhibits
(1) Registrant's Articles of Incorporation (Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(2) Registrant's Bylaws (Exhibit 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(3) None
(4) None
(5) Investment Advisory Agreement with Fiduciary Management,
Inc. relating to FMI Focus Fund (Exhibit 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (Exhibit
8 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(9.1) Fund Administration Servicing Agreement with Fiduciary
Management, Inc. relating to FMI Focus Fund.
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to FMI Focus Fund (Exhibit 9.2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of Price Waterhouse LLP (to be filed by
amendment).
(12) None
(13) Subscription Agreement (Exhibit 13 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(14) Individual Retirement Custodial Account (Exhibit 14 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(15) Service and Distribution Plan (Exhibit 15 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(16) None
(17) Financial Data Schedule (to be filed by amendment).
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Fiduciary Management, Inc. which
owns 100% of Registrant's voting securities as of __________, 1996.
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 Class as of , 1996
Class A Common Stock, $0.0001 1
par value (FMI Focus Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 4 through 6 of the Statement
of Additional Information pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant's Treasurer, Ted D. Kellner, at
Registrant's corporate offices, 225 East Mason Street, Milwaukee,
Wisconsin 53202.
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
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.
With respect to stockholder meetings, Registrant undertakes to
call stockholder meetings in accordance with the provisions of Article I
of its Bylaws, which are discussed in Parts A and B of this Registration
Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
amended Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukee and State
of Wisconsin on the 19th day of November, 1996.
FMI FUNDS, INC.
(Registrant)
By: /s/ Ted D. Kellner
Ted D. Kellner, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
/s/ Ted D. Kellner (Principal Executive, November 19, 1996
Ted D. Kellner Financial and Accounting
Officer) and a Director
/s/ Barry K. Allen Director November 19, 1996
Barry K. Allen
Director November __, 1996
Thomas W. Mount
Director November 19, 1996
/s/ Donald S. Wilson
Donald S. Wilson
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of
Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with
Fiduciary Management, Inc.
relating to FMI Focus Fund*
(6) None
(7) None
(8) Custodian Agreement with Firstar
Trust Company*
(9.1) Fund Administration Servicing
Agreement with Fiduciary
Management, Inc. relating to FMI
Focus Fund
(9.2) Transfer Agent Agreement with
Firstar Trust Company*
(10) Opinion of Foley & Lardner,
counsel for Registrant
(11) Consent of Price Waterhouse LLP**
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial
Account*
(15) Service and Distribution Plan*
(16) None
(17) Financial Data Schedule**
(18) None
__________________________________
* Incorporated by reference.
** To be filed by amendment.
ADMINISTRATION AGREEMENT
Agreement made this ____ day of _________, 1996, between FMI
Funds, Inc., a Maryland corporation (the "Company"), and Fiduciary
Management, Inc., a Wisconsin corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
initially of one series FMI Focus Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Administrator to be
the Administrator for the Fund and as such to perform the services set
forth in this Agreement.
NOW, THEREFORE, the Company and the Administrator do mutually
promise and agree as follows:
1. Employment. The Company hereby employs the Administrator
to be the Administrator for the Fund for the period and on the terms set
forth in this Agreement. The Administrator hereby accepts such employment
for the compensation herein provided and agrees during such period to
render the services and to assume the obligations herein set forth.
2. Authority and Duties of the Administrator. The
Administrator shall supervise all aspects of the operations of the Fund
except those performed by the Fund's investment adviser under the Fund's
investment advisory agreement, subject to such policies as the board of
directors of the Company may determine. The Administrator shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the Fund in any way or otherwise be
deemed to be an agent of the Company or the Fund. However, one or more
shareholders, officers, directors or employees of the Administrator may
serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company
to take any action contrary to its Articles of Incorporation or any
applicable statute or regulation, or to relieve or deprive the board of
directors of the Company of its responsibility for and control of the
affairs of the Fund.
In connection with its supervision of the operations of the
Fund, the Administrator shall perform the following services for the Fund:
(a) Prepare and maintain the books, accounts and other
documents specified in Rule 31a-1, under the Act in accordance
with the requirements of Rule 31a-1 and Rule 31a-2 under the
Act;
(b) Calculate the Fund's net asset value in accordance
with the provisions of the Company's Articles of Incorporation
and By-Laws and its Registration Statement;
(c) Respond to stockholder inquiries forwarded to it by
the Fund:
(d) Prepare the financial statements contained in reports
to stockholders of the Fund:
(e) Prepare for execution by the Company and file all of
the Fund's federal and state tax returns;
(f) Prepare reports to and filings with the Securities and
Exchange Commission;
(g) Prepare reports to and filings with state Blue Sky
authorities;
(h) Furnish statistical and research data, clerical,
accounting and bookkeeping services and stationery and office
supplies; and
(i) Keep and maintain the Fund's financial accounts and
records, and generally assist in all aspects of the Fund's
operations to the extent agreed to by the Administrator and the
Company.
3. Expenses. The Administrator, at its own expense and
without reimbursement from the Company or the Fund, shall furnish office
space, and all necessary office facilities, equipment and executive
personnel for performing the services required to be performed by it under
the Agreement. The Administrator shall not be required to pay any
expenses of the Fund. The expenses of the Fund's operations borne by the
Fund include by way of illustration and not limitation, directors fees
paid to those directors who are not officers of the Company, the
professional costs of preparing and the costs of printing its registration
statements required under the Securities Act of 1933 and the Act (and
amendments thereto), the expense of registering its shares with the
Securities and Exchange Commission and in the various states, the printing
and distribution cost of prospectuses mailed to existing shareholders, the
cost of stock certificates (if any), director and officer liability
insurance, the printing and distribution and distribution costs of reports
to stockholders, reports to government authorities and proxy statements,
interest charges, taxes, legal expenses, association membership dues,
auditing services, insurance premiums, brokerage and other expenses
connected with the execution of portfolio securities transactions, fees
and expenses of the custodian of the Fund's assets, printing and mailing
expenses and charges and expenses of dividend disbursing agents,
registrars and stock transfer agents.
4. Compensation of the Administrator. For the services to be
rendered by the Administrator hereunder, the Company, through and on
behalf of, the Fund shall pay to the Administrator an administration fee,
paid monthly, based on the average net assets of the Fund, as determined
by valuations made as of the close of each business day of the month. The
administration fee shall be 1/12 of 0.2% of such average net assets up to
and including $30,000,000, 1/12 of 0.1% of the next $70,000,000 of such
average net assets and 1/12 of 0.05% of such average net assets of the
Company in excess of $100,000,000; provided, however, that for any month
in which this Agreement is not in effect for the entire month, such fee
shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee computed upon the daily net
assets of the business days during which it is so in effect.
5. Ownership of Shares of the Company. Except in connection
with the initial capitalization of the Fund, the Administrator shall not
take an ownership position in the Fund, and shall not permit any of its
shareholders, officers, directors or employees to take a long or short
position in the shares of the Fund, except for the purchase of shares of
the Fund for investment purposes at the same price as that available to
the public at the time of purchase.
6. Exclusivity. The services of the Administrator to the Fund
hereunder are not to be deemed exclusive and the Administrator shall be
free to furnish similar services to others as long as the services
hereunder are not impaired thereby. During the period that this Agreement
is in effect, the Administrator shall be the Fund's sole administrator.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Administrator, the Administrator shall not be
subject to liability to the Fund or to any shareholder of the Fund 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.
8. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Company in
the manner required by the Act.
9. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the
Company or by a vote of the majority of the outstanding voting securities
of the Company as defined in the Act, upon the giving of sixty (60) days'
written notice to the Administrator. This Agreement may be terminated by
the Administrator at any time upon the giving of sixty (60) days' written
notice to the Company. This Agreement shall terminate automatically in
the event of its assignment (as defined in Section 2(a)(4) of the Act).
Subject to prior termination as hereinbefore provided, the Agreement shall
continue in effect for two (2) years from the date hereof and indefinitely
thereafter, but only so long as the continuance after such two (2) year
period is specifically approved annually by (i) the board of directors of
the Company. Upon termination of the Agreement the Administrator shall
deliver to the Company all books, accounts and other documents then
maintained by it pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
FIDUCIARY MANAGEMENT, INC.
(the "Administrator")
By:
President
FMI FUNDS, INC.
(the "Fund")
By:
President
F O L E Y & L A R D N E R
A T T O R N E Y S A T L A W
CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C.
SACRAMENTO WEST PALM BEACH
November 21, 1996
FMI Funds, Inc.
225 East Mason Street
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel for you in connection with the
preparation of a Registration Statement on Form N-1A relating to the sale
by you of an indefinite amount of FMI Funds, Inc. Common Stock, $0.0001
par value (such Common Stock being hereinafter referred to as the "Stock")
in the manner set forth in the Registration Statement to which reference
is made. In this connection we have examined: (a) the Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization
for issuance of the Stock; 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
of Stock when sold as contemplated in the Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, 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,
FOLEY & LARDNER
