Securities Act Registration No. 333-12745
Investment Company Act Reg. No. 811-07831
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 6 |X|
(Check appropriate box or boxes.)
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FMI FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
225 East Mason Street
Milwaukee, Wisconsin 53202
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(Address of Principal Executive Offices) (Zip Code)
(414) 226-4555
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(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, WI 53202 Milwaukee, Wisconsin 53202
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
|X| on January 31, 2000 pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<PAGE>
P R O S P E C T U S
January 31, 2000
FMI Focus Fund
FMI Focus Fund is a no load mutual fund seeking capital appreciation
by investing in a limited number of securities.
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how FMI Focus Fund
invests and the services it offers to shareholders.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Questions Every Investor Should Ask
Before Investing in the FMI Focus Fund..... __
Fees and Expenses........................... __
FMI Funds, Inc. Investment Objective and Strategies......... __
225 East Mason Street Management of the Fund...................... __
Milwaukee, Wisconsin 53202 The Fund's Share Price ..................... __
(414) 226-4555 Purchasing Shares........................... __
Redeeming Shares............................ __
Exchanging Shares........................... __
Dividends, Distributions and Taxes.......... __
Financial Highlights........................ __
Share Purchase Application.................. __
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN FMI FOCUS FUND
1. What are the Fund's Goals?
FMI Focus Fund seeks capital appreciation.
2. What are the Fund's Principal Investment Strategies?
The Fund invests in small to mid-cap (i.e., less than $3.0 billion of
market capitalization) companies that have substantial capital appreciation
potential. These companies frequently have little or no following by the
major stock brokerage firms. We look for stocks of good businesses that are
selling at what we believe are substantial discounts to prices that
accurately reflect their future earnings prospects. We take a "focused"
approach to investing meaning the Fund will usually invest in a limited
number of securities and its top ten holdings may constitute 50% or more of
the Fund's assets.
Our portfolio managers actively trade the Fund's portfolio. It's annual
portfolio turnover usually will exceed 200%. Our portfolio managers may
also use the following investment techniques:
o Effect "short sales" of a security when they think it will decline in
value.
o Purchase securities with borrowed funds.
o Purchase put and call and write call options on securities and stock
indexes.
3. What are the Principal Risks in Investing in the Fund?
Investors in the Fund may lose money. There are risks associated with the
types of securities in which the Fund invests. These risks include:
o Market Risk: The prices of the securities in which the Fund invests
may decline for a number of reasons. The price declines of common
stocks, in particular, may be steep, sudden and/or prolonged.
o Smaller Capitalization Companies Risk: Smaller capitalization
companies typically have relatively lower revenues, limited product
lines and lack of management depth, and may have a smaller share of
the market for their products or services, than larger capitalization
companies. The stocks of smaller capitalization companies tend to have
less trading volume than stocks of larger capitalization companies.
Less trading volume may make it more difficult for our portfolio
managers to sell securities of smaller capitalization companies at
quoted market prices. Finally there are periods when investing in
smaller capitalization
-2-
<PAGE>
company stocks falls out of favor with investors and the stocks of
smaller companies underperform.
o Value Investing Risk: Our portfolio managers may be wrong in their
assessment of a company's value and the stocks the Fund holds may not
reach what the portfolio managers believe are their full values. From
time to time "value" investing falls out of favor with investors.
During these periods, the Fund's relative performance may suffer.
o Non-Diversification Risk: The Fund is a non-diversified investment
company. It likely will invest in fewer securities than diversified
investment companies and its performance may be more volatile. If the
securities in which the Fund invests perform poorly, the Fund could
incur greater losses than it would have had it invested in a greater
number of securities.
o Leverage Risk: When our portfolio managers purchase securities with
borrowed funds, they engage in a speculative investment practice
called "leverage." When the Fund engages in "leverage," its net asset
value will tend to increase or decrease more than otherwise would be
the case.
o Options Investing Risk: If the Fund purchases an option and the price
of the underlying stock or index moves in the wrong direction, the
Fund will lose most or all of the amount the Fund paid for the option,
plus commission costs. Similarly, the Fund likely will lose money if
the underlying stock or index of a call option it has written
increases in value. It is possible that there may be times when a
market for the Fund's outstanding options does not exist.
o High Portfolio Turnover Risk: High portfolio turnover necessarily
results in corresponding greater transaction costs (such as brokerage
commissions or markups or markdowns) which the Fund must pay and
increased realized gains (or losses) to investors. Distribution to
shareholders of short-term capital gains are taxed as ordinary income
under Federal income tax laws.
o Short Sales Risk: The Fund's investment performance will suffer if a
security that it has sold short appreciates in value. The Fund's
investment performance may also suffer if the Fund is required to
close out a short position earlier than it had intended. This would
occur if the securities lender required it to deliver the securities
the Fund borrowed at the commencement of the short sale and the Fund
was unable to borrow the securities from other securities lenders.
Because of these risks the Fund is a suitable investment only for
those investors who have long-term investment goals. Prospective
investors who are uncomfortable with an investment that will increase
and decrease in value should not invest in the Fund.
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<PAGE>
4. How has the Fund Performed?
The bar chart and table that follow provide some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from
year to year and how its average annual returns over various periods
compare to those of the Standard & Poor's Composite Index of 500 Stocks
("S&P 500") and the Russell 2000 Index. Please remember that the Fund's
past performance is not necessarily an indication of its future
performance. It may perform better or worse in the future.
[GRAPHIC OMITTED]
70% 69.74%
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60%
50%
40% 35.46%
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30%
20%
10%
0% ____%
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-10%
1997 1998 1999
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Note: During the three-year period shown on the bar chart, the Fund's highest
total return for a quarter was 32.16% (quarter ended September 30, 1997)
and the lowest total return for a quarter was -9.45% (quarter ended
September 30, 1998).
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<PAGE>
Average Annual Total
Returns Since the inception date
(for the periods ending Past of the Fund
December 31, 1999) Year (December 16, 1996)
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FMI Focus Fund ____% ____%
S&P 500* ____% ____%
Russell 2000 Index** ____% ____%
* The S&P 500 consists of 500 common stocks, most of which are listed on the
New York Stock Exchange. A particular stock's weighting in the index is
based on its relative total market value (i.e., its market price times the
number of shares outstanding).
** The Russell 2000 Index is an index comprised of 2000 publicly traded small
capitalization common stocks that are ranked in terms of capitalization
below the large and mid-range capitalization sectors of the United States
equity market.
-5-
<PAGE>
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)................ No Sales Charge
Maximum Deferred Sales Charge (Load)........... No Deferred Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and Distributions............................ No Sales Charge
Redemption Fee................................. None*
Exchange Fee................................... None
ANNUAL FUND OPERATING EXPENSES Before fee
(expenses that are deducted from Fund assets) waivers
Management Fees................................ 1.25%
Distribution and/or Service (12b-1) Fees....... None
Other Expenses.................................
Interest Expenses............................ 0.16%
All Other Expenses........................... 0.56%
Total Other Expenses......................... 0.72%
Total Annual Fund Operating Expenses........... 1.97%
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* Our transfer agent charges a fee of $12.00 for each wire redemption.
EXAMPLE
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
$200 $618 $1,062 $2,296
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<PAGE>
INVESTMENT OBJECTIVE AND STRATEGIES
The Fund seeks capital appreciation. Although we have no intention of
doing so, the Fund may change its investment objective without obtaining
shareholder approval. Please remember that an investment objective is not a
guarantee. An investment in the Fund might not appreciate and investors could
lose money.
The Fund may, in response to adverse market, economic, political or
other conditions, take temporary defensive positions. This means the Fund will
invest in money market instruments (like U.S. Treasury Bills, commercial paper
or repurchase agreements). The Fund will not be able to achieve its investment
objective of capital appreciation to the extent that it invests in money market
instruments since these securities do not appreciate in value. When the Fund is
not taking a temporary defensive position, it still will hold some cash and
money market instruments so that it can pay its expenses, satisfy redemption
requests or take advantage of investment opportunities.
MANAGEMENT OF THE FUND
Fiduciary Management, Inc. manages the Fund's investments.
Fiduciary Management, Inc. (the "Adviser") is the Fund's investment
adviser. The Adviser's address is:
225 East Mason Street
Milwaukee, WI 53202
The Adviser has been in business since 1980 and has been the Fund's
only investment adviser. As the investment adviser to the Fund, the Adviser
manages the investment portfolio for the Fund. It makes the decisions as to
which securities to buy and which securities to sell. The Fund pays the Adviser
an annual investment advisory fee equal to 1.25% of its average net assets.
Ted D. Kellner and Richard E. Lane are primarily responsible for the
day-to-day management of the Fund's portfolio. They are our portfolio managers.
Mr. Kellner has held this responsibility since the Fund commenced operations on
December 16, 1996 and Mr. Lane has held this responsibility since October 1,
1997. Mr. Kellner has been employed by the Adviser in various capacities since
1980, and Mr. Lane has been employed by the Adviser in various capacities since
1994. Their current positions with the Adviser are:
Ted D. Kellner Chairman of the Board and Chief Executive Officer
Richard E. Lane Vice President
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<PAGE>
Year 2000
The Fund is aware of the "Year 2000" issue. The "Year 2000" issue
stems from the use of a two-digit format to define the year in certain
date-sensitive computer application systems rather than the use of a four digit
format. As a result, date-sensitive software programs could recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
major systems or process failures or the generation of erroneous data, which
would lead to disruptions in the Fund's business operations.
The Fund has no application systems of its own and is entirely
dependent on its service providers' systems and software. The Fund is working
with its service providers (including the Adviser, and its transfer agent and
custodian) to identify and remedy any Year 2000 issues. However, the Fund cannot
guarantee that all Year 2000 issues will be identified and remedied, and the
failure to successfully identify and remedy all Year 2000 issues could result in
an adverse impact on the Fund. The Year 2000 issue could also have a negative
impact on the companies in which the Fund invests, which could hurt the Fund's
investment returns.
THE FUND'S SHARE PRICE
The price at which investors purchase shares of the Fund and
at which shareholders redeem shares of the Fund is called its net asset value.
The Fund calculates its net asset value as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the
New York Stock Exchange is open for trading. The Fund calculates its net asset
value based on the market prices of the securities (other than money market
instruments) it holds. It values most money market instruments it holds at their
amortized cost. The Fund will process purchase orders that it receives and
accepts and redemption orders that it receives prior to the close of regular
trading on a day in which the New York Stock Exchange is open at the net asset
value determined later that day. It will process purchase orders that it
receives and accepts and redemption orders that it receives after the close of
regular trading at the net asset value determined at the close of regular
trading on the next day the New York Stock Exchange is open.
PURCHASING SHARES
How to Purchase Shares from the Fund
1. Read this Prospectus carefully
2. Determine how much you want to invest keeping in mind the following
minimums:
a. New accounts
o All Accounts $ 1,000
b. Existing accounts
o Dividend reinvestment No Minimum
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<PAGE>
o Automatic Investment Plan $ 50
o All other accounts $100
3. Complete the Purchase Application included in this Prospectus,
carefully following the instructions. For additional investments,
complete the remittance form attached to your individual account
statements. (The Fund has additional Purchase Applications and
remittance forms if you need them.) If you have any questions, please
call 1-800-811-5311.
4. Make your check payable to "FMI Focus Fund." All checks must be drawn
on U.S. banks. The Fund will not accept cash or third party checks.
Firstar Mutual Fund Services, LLC, the Fund's transfer agent, will
charge a $25 fee against a shareholder's account for any payment check
returned for insufficient funds. The shareholder will also be
responsible for any losses suffered by the Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
FMI Focus Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE OR REGISTERED MAIL
FMI Focus Fund
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Please do not mail letters by overnight delivery service or registered
mail to the Post Office Box address.
6. If you wish to open an account by wire, please call 1-800-811-5311
prior to wiring funds in order to obtain a confirmation number and to
ensure prompt and accurate handling of funds. You should wire funds:
Firstar Bank, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
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<PAGE>
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
FMI Focus Fund
(shareholder registration)
(shareholder account number)
You should then send a properly signed Purchase Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank, N.A. must receive your wired funds prior to the close of regular
trading on the New York Stock Exchange for you to receive same day pricing. The
Fund and Firstar Bank, N.A. are not responsible for the consequences of delays
resulting from the banking or Federal Reserve Wire system, or from incomplete
wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Fund. These broker-dealers
may charge investors 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. Some broker-dealers may purchase and redeem shares on a three
day settlement basis.
The Fund may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Fund as an investment alternative in the programs they offer or administer.
Servicing agents may:
o Become shareholders of record of the Fund. This means all
requests to purchase additional shares and all redemption
requests must be sent through the Servicing Agent. This also
means that purchases made through Servicing Agents are not
subject to the Fund's minimum purchase requirement.
o Use procedures and impose restrictions that may be in addition
to, or different from, those applicable to investors purchasing
shares directly from the Fund.
o Charge fees to their customers for the services they provide
them. Also, the Fund and/or the Adviser may pay fees to Servicing
Agents to compensate them for the services they provide their
customers.
o Be allowed to purchase shares by telephone with payment to follow
the next day. If the telephone purchase is made prior to the
close of regular trading on the New York Stock Exchange, it will
receive same day pricing.
o Be authorized to accept purchase orders on the Fund's behalf.
This means that the Fund will process the purchase order at the
net asset value which is
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<PAGE>
determined following the Servicing Agent's acceptance of the
customer's order.
If you decide to purchase shares through Servicing Agents, please
carefully review the program materials provided to you by the Servicing Agent.
When you purchase shares of the Fund through a Servicing Agent, it is the
responsibility of the Servicing Agent to place your order with the Fund on a
timely basis. If the Servicing Agent does not, or if it does not pay the
purchase price to the Fund within the period specified in its agreement with the
Fund, it may be held liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Fund
The Fund may reject any Purchase Applications for any reason. The Fund
will not accept purchase orders made by telephone, unless they are from a
Servicing Agent which has an agreement with the Fund.
The Fund will not issue certificates evidencing shares purchased. The
Fund will send investors a written confirmation for all purchases of shares.
The Fund offers an automatic investment plan allowing shareholders to
make purchases on a regular and convenient basis. The Fund also offers the
following retirement plans:
o Traditional IRA
o Roth IRA
o Education IRA
o SEP - IRA
o Simple IRA
o 401(k) Plan
o Defined Contribution Retirement Plan
o 403(b)(7) Custodial Accounts
Investors can obtain further information about the automatic
investment plan and the retirement plans by calling the Fund at 1-800-811-5311.
The Fund recommends that investors consult with a competent financial and tax
advisor regarding the retirement plans before investing through them.
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<PAGE>
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Fund may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Fund's transfer agent, Firstar
Mutual Fund Services, LLC, in advance, at 1-800-811-5311 if you
have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. Have the signatures 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 in the following situations:
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than
the address of record
A notarized signature is not an acceptable substitute for a signature
guarantee.
4. Send the letter of instruction to:
BY FIRST CLASS MAIL
FMI Focus Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
-12-
<PAGE>
BY OVERNIGHT DELIVERY SERVICE OR REGISTERED MAIL
FMI Focus Fund
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Please do not mail letters by overnight delivery service or registered
mail to the Post Office Box address.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your
shares through the Servicing Agent. Contact the Servicing Agent for instructions
on how to do so.
Payment of Redemption Proceeds
The redemption price per share you receive for redemption requests is
the next determined net asset value after:
o Firstar Mutual Fund Services, LLC receives your written request
in proper form with all required information.
o A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Fund receives your request in
accordance with its procedures.
Firstar Mutual Fund Services, LLC will mail a check in the amount of
the redemption proceeds no later than the seventh day after it receives the
written request in proper form with all required information. If you request in
the letter of instruction, Firstar Mutual Fund Services, LLC will transfer the
redemption proceeds to your designated bank account by either Electronic Funds
Transfer or wire. An Electronic Funds Transfer generally takes up to 3 business
days to reach the shareholder's account whereas Firstar Mutual Fund Services,
LLC generally wires redemption proceeds on the business day following the
calculation of the redemption price. Firstar Mutual Fund Services, LLC currently
charges $12 for each wire redemption but does not charge a fee for Electronic
Funds Transfers. Those shareholders who redeem shares through Servicing Agents
will receive their redemption proceeds in accordance with the procedures
established by the Servicing Agent.
Other Redemption Considerations
When redeeming shares of the Fund, shareholders should consider the
following:
o The redemption may result in a taxable gain.
o Shareholders who redeem shares held in an IRA must indicate on
their redemption request whether or not to withhold federal
income taxes. If not,
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<PAGE>
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.
o The Fund may delay the payment of redemption proceeds for up to
seven days in all cases.
o If you purchased shares by check, the Fund may delay the payment
of redemption proceeds until it is reasonably satisfied the check
has cleared (which may take up to 15 days from the date of
purchase).
o Firstar Mutual Fund Services, LLC will transfer the redemption
proceeds by Electronic Funds Transfer or by wire only if the
shareholder has sent in a written request with signatures
guaranteed.
o The Fund reserves the right to refuse a telephone redemption
request (which may be made only through Servicing Agents) if it
believes it is advisable to do so. Both the Fund and Firstar
Mutual Fund Services, LLC may modify or terminate its procedures
for telephone redemptions at any time. Neither the Fund nor
Firstar Mutual Fund Services, LLC will be liable for following
instructions for telephone redemption transactions that they
reasonably believe to be genuine, provided they use reasonable
procedures to confirm the genuineness of the telephone
instructions. They may be liable for unauthorized transactions if
they fail to follow such procedures. These procedures include
requiring some form of personal identification prior to acting
upon the telephone instructions and recording all telephone
calls. During periods of substantial economic or market change,
telephone redemptions may be difficult to implement. If a
Servicing Agent cannot contact Firstar Mutual Fund Services, LLC
by telephone, it should make a redemption request in writing in
the manner described earlier.
o If your account balance falls below $1,000 because you redeem
shares, you will be given 60 days to make additional investments
so that your account balance is $1,000 or more. If you do not,
the Fund may close your account and mail the redemption proceeds
to you.
o The Fund may pay redemption requests "in kind". This means that
the Fund may pay redemption requests entirely or partially with
securities rather than cash.
EXCHANGING SHARES
Shares of the Fund may be exchanged for shares of:
o Fiduciary Capital Growth Fund
o Firstar Money Market Fund
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<PAGE>
at their relative net asset values (Fiduciary Capital Growth Fund is another
mutual fund managed by the Adviser. An affiliate of Firstar Mutual Fund
Services, LLC advises Firstar Money Market Fund, which is not affiliated with
the Fund or the Adviser.) You may have a taxable gain or loss as a result of an
exchange because the Internal Revenue Code treats an exchange as a sale of
shares. The registration of both the account from which the exchange is being
made and the account to which the exchange is being made must be identical.
How to Exchange Shares.
1. Read this Prospectus carefully.
2. Determine the number of shares you want to exchange keeping in mind
that exchanges are subject to a $1,000 minimum.
3. Write to FMI Focus Fund, c/o Firstar Mutual Fund Services, LLC, 3rd
Floor, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment income
quarterly and substantially all of its capital gains annually. You have four
distribution options:
o All Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o Partial Reinvestment Option - Dividends will be paid in cash and
capital gains distributions will be reinvested in additional Fund
shares.
o Partial Reinvestment Option - Dividends will be reinvested in
additional Fund shares and capital gains distributions will be
paid in cash.
o All Cash Option - Both dividend and capital gains distributions
will be paid in cash.
You may make this election on the Purchase Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-811-5311.
The Fund's distributions, whether received in cash or additional
shares of the Fund, may be subject to federal and state income tax. These
distributions may be taxed as ordinary income and capital gains (which may be
taxed at different rates depending on the length of time the Fund holds the
assets generating the capital gains). In managing the Fund, our Adviser
considers the tax effects of its investment decisions to be of secondary
importance.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects
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<PAGE>
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are included in the Annual Report which is
available upon request.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Years Ended
September 30
- -----------------------------------------------------------------------------------------------------------------------
December 16, 1996 (1)
1999 1998 through Sept. 30, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................................ $15.15 $14.74 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss(2).............................................. (0.18) (0.17) (0.04)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments.................... 7.21 1.06 6.69
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations.................................... 7.03 0.89 6.65
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
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Dividend from net investment income................................. ---- ---- (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains............................... (0.62) (0.48) (1.90)
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------
Total from distributions............................................ (0.62) (0.48) (1.91)
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period...................................... $21.56 $15.15 $14.74
====== ====== ======
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Total investment return............................................. 47.9% 6.2% 68.0%(3)
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Ratios/Supplemental Data:
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Net assets, end of period (in 000s $) 36,170 19,264 5,156
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before interest expense and dividends on
short positions (after reimbursement) to average net assets(5) 1.81% 2.34% 2.75%(4)
- -----------------------------------------------------------------------------------------------------------------------
Ratio of interest expense and dividends on
short positions to average net assets............................. 0.16% 0.33% 0.17%(4)
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (6) (1.28%) (1.94%) (1.85%)(4)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate............................................. 238.8% 402.2% 298.2%
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</TABLE>
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(1) Commencement of operations.
(2) Net investment loss before interest expense and dividends on short
positions for the years ended September 30, 1999 and 1998 and for the
period ended September 30, 1997 was ($0.16), ($0.14) and ($0.04),
respectively. In 1999 and 1998,
-16-
<PAGE>
net investment loss per share was calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.
(3) Not annualized.
(4) Annualized.
(5) Computed after giving effect to the adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the period ended
September 30, 1997, the ratio would have been 6.38% (annualized).
(6) Computed after giving effect to the adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the period ended
September 30, 1997 the ratio would have been (5.48%) (annualized).
-17-
<PAGE>
To learn more about FMI Focus Fund you may want to read FMI Focus
Fund's Statement of Additional Information (or "SAI") which contains additional
information about the Fund. FMI Focus Fund has incorporated by reference the SAI
into the Prospectus. This means that you should consider the contents of the SAI
to be part of the Prospectus.
You also may learn more about FMI Focus Fund's investments by reading
the Fund's annual and semi-annual reports to shareholders. The annual report
includes a discussion of the market conditions and investment strategies that
significantly affected the performance of FMI Focus Fund during its last fiscal
year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling Firstar
Mutual Fund Services, LLC at 1-800-811-5311.
Prospective investors and shareholders who have questions about FMI
Focus Fund may also call the following number or write to the following address.
FMI Focus Fund
225 East Mason Street
Milwaukee, Wisconsin 53202
1-800-811-5311
www.fiduciarymgt.com
The general public can review and copy information about FMI Focus
Fund (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about FMI Focus Fund are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to FMI Focus Fund's Investment Company Act File No.
811-07831 when seeking information about the Fund from the Securities and
Exchange Commission.
-18-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION January 31, 2000
- -----------------------------------
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
January 31, 2000. Requests for copies of the Prospectus should be made by
writing to FMI Funds, Inc., 225 East Mason Street, Milwaukee, Wisconsin 53202,
Attention: Corporate Secretary or by calling (414) 226-4555.
The following financial statements are incorporated by reference to
the Annual Report, dated September 30, 1999, of FMI Funds, Inc. (File No.
811-7831) as filed with the Securities and Exchange Commission on November 19,
1999:
Report of Independent Accountants
Statement of Assets and Liabilities
Schedule of Investments
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Shareholders may obtain a copy of the Annual Report, without charge, by calling
1-800-811-5311.
<PAGE>
FMI FUNDS, INC.
Table of Contents
-----------------
Page No.
--------
FUND HISTORY AND CLASSIFICATION ...............................................1
INVESTMENT RESTRICTIONS .......................................................1
INVESTMENT CONSIDERATIONS .....................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION ....................................12
PRINCIPAL SHAREHOLDERS .......................................................15
INVESTMENT ADVISER AND ADMINISTRATOR .........................................16
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE .............................18
DISTRIBUTION OF SHARES .......................................................20
RETIREMENT PLANS .............................................................21
AUTOMATIC INVESTMENT PLAN ....................................................24
REDEMPTION OF SHARES .........................................................24
SYSTEMATIC WITHDRAWAL PLAN ...................................................25
ALLOCATION OF PORTFOLIO BROKERAGE ............................................25
CUSTODIAN ....................................................................26
TAXES ........................................................................27
SHAREHOLDER MEETINGS .........................................................28
CAPITAL STRUCTURE ............................................................29
DESCRIPTION OF SECURITIES RATINGS.............................................29
INDEPENDENT ACCOUNTANTS ......................................................31
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 January 31, 2000 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.
i
<PAGE>
FUND HISTORY AND CLASSIFICATION
FMI Funds, Inc., a Maryland corporation incorporated on September 5,
1996 (the "Corporation"), is an open-end management investment company
consisting of one non-diversified portfolio, FMI Focus Fund (the "Fund"). The
Corporation is registered under the Investment Company Act of 1940 (the "Act").
INVESTMENT RESTRICTIONS
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 shareholders 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 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 normally 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.
<PAGE>
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 shareholder 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 shareholders of the Fund; (b) securities of
registered open-end investment companies; 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
2
<PAGE>
deemed to have occurred. Any changes in the Fund's investment restrictions made
by the Board of Directors will be communicated to shareholders 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. Rule 144A permits certain qualified institutional buyers
to trade in privately placed securities not registered under the Securities Act.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable market values for Rule 144A
securities and the ability to liquidate these securities to satisfy redemption
requests. However an insufficient number of qualified institutional buyers
interested in purchasing Rule 144A securities held by the Fund could adversely
affect their marketability, causing the Fund to sell securities at unfavorable
prices. 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 privately 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
3
<PAGE>
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.
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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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 call 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
7
<PAGE>
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.
Short Sales
The Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, the Fund incurs an obligation
to replace the security borrowed at whatever its price may be at the time the
Fund purchases it for delivery to the lender. 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 the lender amounts equal to
any dividend 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 margin requirements,
until the short position is closed.
Until a 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.
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
less. 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
8
<PAGE>
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 the Fund's portfolio 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 gains
or losses also may be realized upon the sale of U.S. Treasury Securities.
Borrowing
The Fund may borrow money for investment purposes. Borrowing for
investment purposes 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 portfolio
assets decrease in value than would otherwise be the case. Interest costs on
borrowings 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. 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 business days 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 as a time when investment considerations otherwise indicate that it
would be disadvantageous to do so.
In addition to borrowing for investment purposes, the Fund is
authorized to borrow money from banks 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. For example 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 investments would be inconvenient or disadvantageous.
Such borrowings will be promptly repaid and are not subject to the foregoing
300% asset coverage requirement.
Foreign Securities and American Depository Receipts
The Fund may invest 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"). ADRs are
receipts issued by an American bank
9
<PAGE>
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. ADR prices are denominated in United States dollars; the
underlying security may be denominated in a foreign currency. Investments in
such securities also involve certain inherent risks, such as political or
economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations. In addition, there may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. 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.
The Fund will invest only in ADRs which are "sponsored". Sponsored
facilities are based on an agreement with the issuer that sets out rights and
duties of the issuer, the depository and the ADR holder. This agreement also
allocates fees among the parties. Most sponsored agreements also provide that
the depository will distribute shareholder notices, voting instruments and other
communications.
Warrants
The Fund may purchase rights and warrants to purchase equity
securities. Investments in rights and warrants are pure speculation in that they
have no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. Rights and warrants basically are
options to purchase equity securities at a specific price valid for a specific
period of time. They do not represent ownership of the securities, but only the
right to buy them. Rights and warrants differ from call options in that rights
and warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of rights (if traded independently) and warrants do not necessarily move
parallel to the prices of the underlying securities. Rights and warrants involve
the risk that a Fund could lose the purchase value of the warrant if the warrant
is not exercised prior to its expiration. They also involve the risk that the
effective price paid for the warrant added to the subscription price of the
related security may be greater than the value of the subscribed security's
market price.
Money Market Instruments
The Fund may invest in cash and money market securities. The Fund may
do so to "cover" investment techniques, when taking a temporary defensive
position or to have assets available to pay expenses, satisfy redemption
requests or take advantage of investment
10
<PAGE>
opportunities. The money market securities in which the Fund invests include
U.S. Treasury Bills, commercial paper, commercial paper master notes and
repurchase agreements.
The Fund may invest in commercial paper or commercial paper master
notes rated, at the time of purchase, A-1 or A-2 by Standard & Poor's
Corporation or Prime-1 or Prime-2 by Moody's Investors Service, Inc. Commercial
paper master notes are demand instruments without a fixed maturity bearing
interest at rates that are fixed to known lending rates and automatically
adjusted when such lending rates change.
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 investments policies.
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.
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. 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
11
<PAGE>
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. 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 generally are excluded for purposes of calculating portfolio
turnover.
Additional Risks
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.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. The
name, address and principal occupations during the past five years and other
information with respect to each of the directors and officers of the
Corporation are as follows:
BARRY K. ALLEN Age 51
- --------------
30 South Wacker Drive
Suite 3800
Chicago, IL 60606
(A DIRECTOR OF THE FUND)
Mr. Allen is President of Ameritech, Chicago, Illinois and has served
as an officer of Ameritech since August, 1995. From September, 1993 to August
1995, Mr. Allen was President and Chief Operating Officer of Marquette Medical
Systems, Inc., a manufacturer of medical electronic equipment and systems,
Milwaukee, Wisconsin. Mr. Allen is a director of Harley-Davidson Inc. and First
Business Bank-Milwaukee. Mr. Allen is also a director of Fiduciary Capital
Growth Fund, Inc., an investment company for which the Adviser serves as
investment adviser.
12
<PAGE>
GEORGE D. DALTON Age 71
- ----------------
255 Fiserv Drive
Brookfield, WI 53045
(A DIRECTOR OF THE FUND)
Mr. Dalton is Chairman of the Board and a director of Fiserv, Inc., a
provider of financial data processing services to financial institutions, and
has served in that capacity since 1984. Mr. Dalton is also a member of the Board
of Directors of ARI, Inc., a provider of standard-based Internet-enabled
electronic commerce services, APAC TeleServices, Inc., a provider of out-sourced
telephone-based marketing, sales and customer management solutions, Clark/Bardes
Inc., a distributor of life insurance/compensation programs, and Wisconsin
Wireless, Inc. Mr. Dalton is also a director of Fiduciary Capital Growth Fund,
Inc.
PATRICK ENGLISH* Age 39
- ---------------
225 East Mason Street
Milwaukee, Wisconsin
(VICE PRESIDENT AND A DIRECTOR 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 and a director of Fiduciary Capital Growth Fund,
Inc.
TED D. KELLNER* Age 53
- --------------
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. 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 68
- ---------------
401 Pine Terrace
Oconomowoc, Wisconsin
(A DIRECTOR OF THE FUND)
Mr. Mount is retired Chairman of Stokely USA, Inc., a canned and
frozen food processor, and was employed by such firm in various capacities from
1957 to 1993. Mr. Mount is also a director of Fiduciary Capital Growth Fund,
Inc.
13
<PAGE>
DONALD S. WILSON* Age 56
- ----------------
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 56
- --------------
225 East Mason Street
Milwaukee, Wisconsin
(VICE PRESIDENT AND ASSISTANT SECRETARY OF THE FUND)
Mr. Wagner is Executive Vice President of Fiduciary Management, Inc.
- --------------------
* Messrs. English, Kellner and Wilson are directors who are "interested persons"
of the Fund as that term is defined in the Investment Company Act of 1940.
During the fiscal year ended September 30, 1999, the Corporation paid
$450 in director's fees. For the fiscal year ending September 30, 2000 the
Corporation's standard method of compensating directors is to pay each director
who is not an officer of the Corporation a fee of $350 for each meeting of the
Board of Directors attended.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Total Compensation
Aggregate Retirement Benefits Estimated from Corporation
Compensation Accrued as Part of Annual Benefits and Fund Complex
Name of Person from Corporation Fund Expenses Upon Retirement Paid to Directors(1)
-------------- ---------------- ------------------- --------------- --------------------
<S> <C> <C> <C> <C>
Barry K. Allen $150 0 0 $750
George D. Dalton $150 0 0 $750
Patrick J. English 0 0 0 0
Ted D. Kellner 0 0 0 0
Thomas W. Mount $150 0 0 $750
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.
</TABLE>
The Corporation and the Adviser have adopted separate codes of ethics
pursuant to Rule 17j-1 under the Act. Each code of ethics permits personnel
subject thereto to invest in
14
<PAGE>
securities, including securities that may be purchased or held by the Fund. Each
code of ethics prohibits, among other things, persons subject thereto from
purchasing or selling securities if they know at the time of such purchase or
sale that the security is being considered for purchase or sale by the Fund or
is being purchased or sold by the Fund.
PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of the
Fund's Common Stock who as of October 31, 1999 owned of record or beneficially
owned more than 5% of the then outstanding shares of the Fund's Common Stock as
well as the number of shares of the Fund's Common Stock beneficially owned by
Ted D. Kellner, Donald S. Wilson and all officers and directors of the Fund as a
group, indicating in each case whether the person has sole or shared power to
vote or dispose of such shares.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- ----------------------------------------------------------- -----------------
Sole Power Shared Power Aggregate
---------- ------------ ---------
<S> <C> <C> <C> <C>
Ted D. Kellner 11,810 304,662(1)(2)(3)(4) 316,472(1)(2)(3)(4) 16.56%
225 East Mason Street
Milwaukee, WI 53202
Donald S. Wilson 3,475 230,108(3)(4) 202,929(3)(4) 12.23%
225 East Mason Street
Milwaukee, WI 53202
Charles Schwab & Co. Inc. -- 202,929 202,929 10.62%
101 Montgomery Street
San Francisco, CA 94111
H. M. Baskerville, Jr. 104,069 --- 104,069 5.45%
6889 Rowland Road, Suite 200
Eden Prairie, MN 55344
Officers & Directors as -- -- 325,267(1)(2)(3)(4) 17.02%
a group (7 persons)
- ---------------
(1) Includes 31,268 shares held by two investment partnerships over which Mr. Kellner has voting and investment
authority.
(2) Includes 37,191 shares held in trust for which Mr. Kellner is a co-trustee and co-beneficiary and 6,095 shares held
in partnership of which Mr. Kellner is a partner.
(3) Includes 230,108 shares owned by the Adviser, retirement plans of the Adviser and clients (other than H. M.
Baskerville, Jr.) of the Adviser for whom the Adviser exercises investment discretion.
(4) Messrs. Kellner and Wilson share the power to vote and dispose of the same 230,108 shares.
</TABLE>
No person is deemed to "control," as that term is defined in the Act,
the Fund and the Corporation. The Corporation does not control any person. The
shares owned by Charles Schwab & Co., Inc. were owned of record only.
15
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
The investment adviser and administrator to the Fund is Fiduciary
Management, Inc. (the "Adviser"). The Adviser is controlled 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, Ms. Jody Reckard, Vice President and Richard E. Lane, Vice President.
The directors of the Adviser are Messrs. Kellner and Wilson.
Pursuant to an investment advisory agreement between the Fund and the
Adviser (the "Advisory Agreement"), the Adviser furnishes continuous investment
advisory services to the Fund. The Adviser supervises and manages the investment
portfolio of the Fund and subject to such policies as the Board of Directors 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 Fund's Service and Distribution Plan, if any, and expenses
incurred in complying with laws regulating the issue or sale of securities.
During the fiscal years ended September 30, 1999 and September 30, 1998 and
during the period from December 16, 1996 (commencement of operations) through
September 30, 1997, the Fund paid the Adviser advisory fees of $386,611,
$172,533 and $10,941, respectively.1
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 Act 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, and
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.
- ---------------
1 For the foregoing, the Adviser receives an annual fee of 1.25% of the
average daily net assets of the Fund. Prior to January 1, 1998, the Adviser
received an annual fee of 1.00% of the average daily net assets of the Fund.
16
<PAGE>
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, reimbursement payments to
securities lenders for dividend and interest payments on securities sold short,
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 shares of the Fund are not qualified for sale in any
state which imposes an expense limitation. Accordingly, 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. During the fiscal years ended
September 30, 1999 and September 30, 1998 no expense reimbursement was required.
During the period from December 16, 1996 (commencement of operations) through
September 30, 1997, the Adviser reimbursed the Fund $39,748 for excess expenses.
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 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. For the
foregoing the Adviser receives an annual fee of 0.2% on the first $30,000,000 of
the average daily net assets of the Fund, 0.1% on the next $70,000,000 of the
average daily net assets of the Fund, and 0.05% on the average daily net assets
of the Fund in excess of $100,000,000. During the fiscal years ended September
30, 1999 and September 30, 1998 and during the period from December 16, 1996
(commencement of operations) through September 30, 1997, the Fund paid the
Adviser fees of $59,027, $28,354 and $3,718, respectively, pursuant to the
Administration Agreement.
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
17
<PAGE>
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
shareholders, 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 shareholders 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
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, Dr. Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when 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.
The Fund's net asset value per share is determined by dividing the
total value of its investments and other assets, less any liabilities, by the
number of its outstanding shares. Common stocks and securities sold short that
are listed on any national stock exchange or quoted on the Nasdaq Stock Market
are valued at the last sale price on the date of valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Common stocks which are listed on any national stock
exchange or quoted on the Nasdaq Stock Market but which are not traded on the
valuation date are valued at the most recent bid price. Securities sold short
which are listed on any national stock exchange or quoted on the Nasdaq Stock
Market but which are not traded on the valuation date are valued at the most
recent asked price. Unlisted equity securities for which market quotations are
readily available are valued at the most recent bid price. Options purchased or
written by the Fund are valued at the average of the current bid and actual
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 limited 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 are valued at their fair
value as determined by the Adviser in accordance with procedures approved by the
Board of Directors.
18
<PAGE>
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 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 $10,000 at the beginning of the period by 10,000. The net
change in the value of a shareholder account is determined by subtracting
$10,000 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 $10,000. 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:
P(1 + T)n = ERV
P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $10,000 payment made at
the beginning of the stated period
at the end of the stated period
The Fund's average annual compounded returns for the one-year period
ended September 30, 1999 and for the period from the Fund's commencement of
operations (December 16, 1996) through September 30, 1999 were 47.93% and
41.58%, respectively.
The results below show the value of an assumed initial investment of
$10,000 made on December 16, 1996 through December 31, 1999, assuming the
reinvestment of all dividends and distributions.
19
<PAGE>
Value of Cumulative
December 31 $10,000 Investment % Change
----------- ------------------ ----------
1996 $10,245 + 2.45%
1997 17,391 + 73.91
1998 23,557 +135.57
1999 +
The foregoing performance results are 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, Russell 2000 Index, and the Consumer Price Index. Such
comparisons may be made in advertisements, shareholder reports or other
communications to shareholders.
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 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
20
<PAGE>
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
Corporation. 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.
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, Dalton 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 shareholders 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 has not incurred any distribution costs as of the date of this
Statement of Additional Information.
RETIREMENT PLANS
The Fund offers the following retirement plans that may be funded with
purchases of shares of the Fund and may allow investors to reduce their income
taxes:
Individual Retirement Accounts
Individual shareholders may establish their own Individual Retirement
Account ("IRA"). The Fund currently offers a Traditional IRA, a Roth IRA and an
Education IRA, that can be adopted by executing the appropriate Internal Revenue
Service ("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts contributed to the IRA
may be tax deductible at the time of contribution depending on whether the
shareholder is an "active participant" in an employer-sponsored retirement plan
and the shareholder's income. Distributions from a Traditional IRA will be taxed
at distribution except to the extent that the distribution represents a return
of the shareholder's own contributions for which the shareholder did not claim
(or was not eligible to claim) a deduction. Distributions prior to age 59-1/2
may be subject to an additional 10% tax applicable to certain premature
distributions. Distributions must commence by April 1 following the calendar
year in which the shareholder attains age 70-l/2. Failure to begin distributions
by this date (or distributions that do not equal certain minimum thresholds) may
result in adverse tax consequences.
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<PAGE>
Roth IRA. In a Roth IRA, amounts contributed to the IRA are taxed at
the time of contribution, but distributions from the IRA are not subject to tax
if the shareholder has held the IRA for certain minimum periods of time
(generally, until age 59-1/2). Shareholders whose incomes exceed certain limits
are ineligible to contribute to a Roth IRA. Distributions that do not satisfy
the requirements for tax-free withdrawal are subject to income taxes (and
possibly penalty taxes) to the extent that the distribution exceeds the
shareholder's contributions to the IRA. The minimum distribution rules
applicable to Traditional IRAs do not apply during the lifetime of the
shareholder. Following the death of the shareholder, certain minimum
distribution rules apply.
For Traditional and Roth IRAs, the maximum annual contribution
generally is equal to the lesser of $2,000 or 100% of the shareholder's
compensation (earned income). An individual may also contribute to a Traditional
IRA or Roth IRA on behalf of his or her spouse provided that the individual has
sufficient compensation (earned income). Contributions to a Traditional IRA
reduce the allowable contribution under a Roth IRA, and contributions to a Roth
IRA reduce the allowable contribution to a Traditional IRA.
Education IRA. In an Education IRA, contributions are made to an IRA
maintained on behalf of a beneficiary under age 18. The maximum annual
contribution is $500 per beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain educational purposes,
neither the contributor nor the beneficiary of the IRA are taxed upon
distribution. The beneficiary is subject to income (and possibly penalty taxes)
on amounts withdrawn from an Education IRA that are not used for qualified
educational purposes. Shareholders whose income exceeds certain limits are
ineligible to contribute to an Education IRA.
Under current IRS regulations, an IRA applicant must be furnished a
disclosure statement containing information specified by the IRS. The applicant
generally has the right to revoke his account within seven days after receiving
the disclosure statement and obtain a full refund of his contributions. The
custodian may, in its discretion, hold the initial contribution uninvested until
the expiration of the seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction with a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution of
Form 5305-SEP together with a Traditional IRA established for each eligible
employee. Generally, a SEP-IRA allows an employer (including a self-employed
individual) to purchase shares with tax deductible contributions, not exceeding
annually for any one participant, 15% of compensation (disregarding for this
purpose compensation in excess of $170,000 per year). The $170,000 compensation
limit applies for 2000 and is adjusted periodically for cost of living
increases. A number of special rules apply to SEP Plans, including a requirement
that contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
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<PAGE>
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan established
by the shareholder's employer (or by a self-employed individual). When this is
done, the IRA is known as a SIMPLE IRA, although it is similar to a Traditional
IRA with the exceptions described below. Under a SIMPLE Plan, the shareholder
may elect to have his or her employer make salary reduction contributions of up
to $6,000 per year to the SIMPLE IRA. The $6,000 limit applies for 2000 and is
adjusted periodically for cost of living increases. In addition, the employer
will contribute certain amounts to the shareholder's SIMPLE IRA, either as a
matching contribution to those participants who make salary reduction
contributions or as a non-elective contribution to all eligible participants
whether or not making salary reduction contributions. A number of special rules
apply to SIMPLE Plans, including (1) a SIMPLE Plan generally is available only
to employers with fewer than 100 employees; (2) contributions must be made on
behalf of all employees of the employer (other than bargaining unit employees)
who satisfy certain minimum participation requirements; (3) contributions are
made to a special SIMPLE IRA that is separate and apart from the other IRAs of
employees; (4) the distribution excise tax (if otherwise applicable) is
increased to 25% on withdrawals during the first two years of participation in a
SIMPLE IRA; and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into another SIMPLE IRA (and not
to a Traditional IRA or to a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for each eligible employee.
403(b)(7) Custodial Account
A 403(b)(7) Custodial Account is available for use in conjunction with
the 403(b)(7) program established by certain educational organizations and other
organizations that are exempt from tax under 501(c)(3) of the Internal Revenue
Code, as amended (the "Code"). Amounts contributed to the custodial account in
accordance with the employer's 403(b)(7) program will be invested on a
tax-deductible basis in shares of the Fund. Various contribution limits apply
with respect to 403(b)(7) arrangements.
Defined Contribution Retirement Plan (401(k))
A prototype defined contribution plan is available for employers who
wish to purchase shares of any Fund with tax deductible contributions. The plan
consists of both profit sharing and money purchase pension components. The
profit sharing component includes a Section 401(k) cash or deferred arrangement
for employers who wish to allow eligible employees to elect to reduce their
compensation and have such amounts contributed to the plan. The limit on
employee salary reduction contributions is $10,500 annually (as adjusted for
cost-of-living increases) although lower limits may apply as a result of
non-discrimination requirements incorporated into the plan. The Corporation has
received an opinion letter from the IRS holding that the form of the prototype
defined contribution retirement plan is acceptable under Section 401 of the
Code. The maximum annual contribution that may be allocated to the account of
any participant is generally the lesser of $30,000 or 25% of compensation
(earned income). Compensation in excess of $170,000 (as
23
<PAGE>
periodically indexed for cost-of-living increases) is disregarded for this
purpose. The maximum amount that is deductible by the employer depends upon
whether the employer adopts both the profit sharing and money purchase
components of the plan, or only one component.
Retirement Plan Fees
Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, serves as trustee
or custodian of the retirement plans. Firstar Bank Milwaukee, N.A. 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
participants; $12.50 annual maintenance fee per participant account; $15 for
transferring to a successor trustee or custodian; $15 for distribution(s) to a
participant; and $15 for refunding any contribution in excess of the deductible
limit. The fee schedule of Firstar Bank Milwaukee, N.A. may be changed upon
written notice.
Requests for information and forms concerning the retirement plans
should be directed to the Corporation. Because a retirement program may involve
commitments covering future years, it is important that the investment objective
of the Fund be consistent with the participant's retirement objectives.
Premature withdrawal from a retirement plan will result in adverse tax
consequences. Consultation with a competent financial and tax adviser regarding
the retirement plans is recommended.
AUTOMATIC INVESTMENT PLAN
Shareholders wishing to invest fixed dollar amounts in the Fund
monthly or quarterly can make automatic purchases in amounts of $50 or more on
any day they choose by using the Corporation's Automatic Investment Plan. If
such day 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. To use
this service, the shareholder must authorize the transfer of funds from their
checking account or savings account by completing the Automatic Investment Plan
application included as part of the share purchase application. Additional
application forms may be obtained by calling the Corporation'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. The Corporation
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.
REDEMPTION OF SHARES
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
24
<PAGE>
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.
SYSTEMATIC WITHDRAWAL PLAN
The Corporation has available to shareholders a Systematic Withdrawal
Plan, pursuant to which a shareholder who owns shares of the Fund worth at least
$10,000 at current net asset value may provide that a fixed sum will be
distributed to him or her at regular intervals. To participate in the Systematic
Withdrawal Plan, a shareholder deposits his or her shares with the Corporation
and appoints it as his or her agent to effect redemptions of shares held in his
or her account for the purpose of making monthly or quarterly withdrawal
payments of a fixed amount to him or her out of the account. To utilize the
Systematic Withdrawal Plan, the shares cannot be held in certificate form. The
Systematic Withdrawal Plan does not apply to shares of the Fund held in
Individual Retirement Accounts or retirement plans. An application for
participation in the Systematic Withdrawal Plan is included as part of the share
purchase application. Additional application forms may be obtained by calling
the Corporation's office 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 Fund shares in the
account at net asset value. Redemptions will be made on such day (no more than
monthly) as a shareholder chooses or, if that day is a weekend or holiday, on
the next business day. 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 Corporation on shares held in such account, and shares so
acquired will be added to such account. The shareholder may deposit additional
shares in his or her 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, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Mutual Fund Services, LLC, the Funds'
transfer agent.
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
25
<PAGE>
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 (i.e. "markups" when the market maker sells a security and "markdowns"
when the market maker purchases a security). 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.
During the fiscal years ended September 30, 1999 and September 30, 1998 and
during the period from December 16, 1996 (commencement of operations) through
September 30, 1997, the Fund paid brokerage commissions of $207,052 on
transactions having a total value of $87,496,155, $187,923 on transactions
having a total value of $89,945,537, and $12,156 on transactions having a total
value of $5,340,120, respectively. All of the brokers to whom the Fund paid
commissions provided research services to the Adviser.
CUSTODIAN
Firstar Bank, N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Fund. As such, Firstar Bank, N.A. 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
26
<PAGE>
officers of the Fund. Firstar Bank, N.A. 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 Mutual Fund Services, LLC,
an affiliate of Firstar Bank, N.A., acts as the Fund's transfer agent and
dividend disbursing agent.
TAXES
The Fund intends to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Code. The
Fund has so qualified in each of its fiscal years. If the Fund fails to qualify
as a regulated investment company under Subchapter M in any fiscal year, it will
be treated as a corporation for federal income tax purposes. As such the Fund
would be required to pay income taxes on its net investment income and net
realized capital gains, if any, at the rates generally applicable to
corporations. Shareholders of the Fund would not be liable for income tax on the
Fund's net investment income or net realized capital gains in their individual
capacities. Distributions to shareholders, whether from the Fund's net
investment income or net realized capital gains, would be treated as taxable
dividends to the extent of current or accumulated earnings and profits of the
Fund.
The Fund intends to distribute substantially all of its net investment
income and net capital gain each fiscal year. Dividends from net investment
income and short-term capital gains are taxable to investors as ordinary income,
while distributions of net long-term capital gains are taxable as long-term
capital gain regardless of the shareholder's holding period for the shares.
Distributions from the Fund are taxable to investors, whether received in cash
or in additional shares of the Fund. A portion of the Fund's income
distributions may be eligible for the 70% dividends-received deduction for
domestic corporate shareholders.
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
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
The 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.
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This section is not intended to be a complete 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.
SHAREHOLDER MEETINGS
The Maryland Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders 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 shareholders under
the Act.
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Corporation shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Corporation's Secretary in writing, stating that they wish to communicate
with other shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the 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
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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 shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
CAPITAL STRUCTURE
The Corporation'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 Corporation. Shareholders are entitled: (i) to one vote per full
share; (ii) to such distributions as may be declared by the Corporation'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.
DESCRIPTION OF SECURITIES RATINGS
The Fund may invest in commercial paper and commercial paper master
notes assigned ratings of A-1 or A-2 by Standard & Poor's Corporation ("Standard
& Poor's") or Prime-1 or Prime-2 by 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
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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.
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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
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202 has served as the independent accountants for the
Fund since the Fund's inception. As such PricewaterhouseCoopers LLP performs an
audit of the Fund's financial statements and considers the Fund's internal
controls.
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PART C
OTHER INFORMATION
Item 23. Exhibits
--------
(a) Registrant's Articles of Incorporation. (1)
(b) Registrant's Bylaws. (1)
(c) None
(d) Investment Advisory Agreement with Fiduciary Management,
Inc. relating to FMI Focus Fund. (2)
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company (predecessor
to Firstar Bank, N.A.). (1)
(h)(i) Fund Administration Servicing Agreement with Fiduciary
Management, Inc. relating to FMI Focus Fund. (1)
(h)(ii) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC) relating
to FMI Focus Fund. (1)
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j) Consent of PricewaterhouseCoopers LLP.
(k) None.
(l) Subscription Agreement. (1)
(m) Service and Distribution Plan. (1)
(n) None.
(p)(i) Code of Ethics of Registrant
(p)(ii) Code of Ethics of Fiduciary Management, Inc.
- ---------------
(1) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A and incorporated by
reference thereto. Pre-
S-1
<PAGE>
Effective Amendment No. 1 was filed on November 22, 1996 and its accession
number is 0000897069-96-000411.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A and incorporated by
reference thereto. Post-Effective Amendment No. 2 was filed on December 31,
1997 and its accession number is 0000897069-97-000512.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Registrant is not controlled by any person. Registrant neither
controls any person nor is any person under common control with Registrant.
Item 25. 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
S-2
<PAGE>
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
S-3
<PAGE>
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 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Incorporated by reference to pages 12 through 14 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
----------------------
Not Applicable.
Item 28. 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 29. Management Services
-------------------
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
------------
Registrant undertakes to provide its Annual Report to shareholders
upon request without charge to any recipient of a Prospectus.
S-4
<PAGE>
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 20th day
of October, 1999.
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, Financial and October 20, 1999
- ------------------------- Accounting Officer) and a Director
Ted D. Kellner
- ------------------------- Director October 20, 1999
Barry K. Allen
/s/ George D. Dalton Director October 20, 1999
- -------------------------
George D. Dalton
/s/ Patrick J. English Director October 20, 1999
- -------------------------
Patrick J. English
- ------------------------- Director October 20, 1999
Thomas W. Mount
/s/ Donald S. Wilson Director October 20, 1999
- -------------------------
Donald S. Wilson
S-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
----------- ------- --------
(a) Registrant's Articles of Incorporation*
(b) Registrant's Bylaws*
(c) None
(d) Investment Advisory Agreement with Fiduciary Management, Inc. *
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company (predecessor to Firstar
Bank, N.A.)*
(h)(i) Fund Administration Servicing Agreement with Fiduciary Management,
Inc. relating to FMI Focus Fund*
(h)(ii) Transfer Agent Agreement with Firstar Trust Company (predecessor to
Firstar Mutual Fund Services, LLC)*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of PricewaterhouseCoopers LLP
(k) None
(l) Subscription Agreement*
(m) Service and Distribution Plan*
(n) None
(p)(i) Code of Ethics of Registrant
(p)(ii) Code of Ethics of Fiduciary Management, Inc.
- --------
* Incorporated by reference.
FOLEY & LARDNER
ATTORNEYS AT LAW
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
WRITER'S DIRECT LINE
EMAIL ADDRESS CLIENT/MATTER NUMBER
072603/0101
November 29, 1999
FMI Funds, Inc.
225 East Mason Street
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of FMI Funds, Inc. Common Stock, $.01 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 Amended Registration Statement on Form N-1A; (b) your
Articles of Incorporation and By-Laws, 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 Amended Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Amended Registration Statement on Form N-1A. 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,
/s/ FOLEY & LARDNER
FOLEY & LARDNER
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 4 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 28, 1999, relating to the financial
statements and financial highlights appearing in the September 30, 1999 Annual
Report to Shareholders of FMI Focus Fund, portions of which are incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the heading "Independent Accountants" in the Statement of Additional
Information and to the reference to us under the heading "Financial Highlights"
in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 24, 1999
FIDUCIARY CAPITAL GROWTH FUND, INC.
and
FMI FUNDS, INC.
Code of Ethics
Amended effective as of October 20, 1999
I. DEFINITIONS
A. "Access person" means any director, officer or advisory person of the
Fund.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Advisory person" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund, who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of Covered
Securities by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of Covered Securities by the Fund.
D. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
E. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
F. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
G. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
<PAGE>
(iii) Shares issued by open-end registered investment companies.
H. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act.
I. "Fund" means Fiduciary Capital Growth Fund, Inc., FMI Funds, Inc. or
any series of FMI Funds, Inc.
J. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
K. "Investment personnel" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund who, in connection with
his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by
the Fund; and (ii) any natural person who controls the Fund and who
obtains information concerning recommendations made to the Fund
regarding the purchase or sale of securities by the Fund.
L. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
M. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. CODE OF ETHICS OF INVESTMENT ADVISER
------------------------------------
A. Prior to retaining the services of an investment adviser to the Fund,
the Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve the code of ethics adopted by
such investment adviser pursuant to Rule 17j-1 under the Act. The
Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve any material changes to any
such code of ethics within six months after the adoption of the
material change. Prior to approving any such code of ethics or
amendment thereto, the Board of Directors shall receive a
certification from such investment adviser that it has adopted such
procedures as are reasonably necessary to prevent access persons of
such investment adviser from violating such code. Prior to approving
this Code of Ethics and the code of ethics of an investment adviser,
and any material changes thereto, the Board of Directors must
determine that any such code of ethics contain provisions reasonably
necessary to prevent the applicable access persons from violating Rule
17j-1(b) of the Act.
2
<PAGE>
B. No less frequently than annually, the officers of the Fund and the
officers of the investment adviser to the Fund shall furnish a report
to the Board of Directors of the Fund:
1. Describing issues arising under the applicable code of ethics
since the last report to the Board of Directors, including, but
not limited to, information about material violations of the code
and sanctions imposed in response to such material violations.
Such report shall also include a list of access persons under the
code of ethics.
2. Certifying that the Fund or investment adviser as applicable has
adopted such procedures as are reasonably necessary to prevent
access persons from violating the code of ethics.
C. The officers of the investment adviser to the Fund shall furnish a
written report to the Board of Directors of the Fund describing any
material changes made to the code of ethics of such investment adviser
within ten (10) days after making any such material change.
D. This Code of Ethics, the code of ethics of the investment adviser, the
certifications required by Sections II.A. and II.B.(2), and the
reports required by Sections II.B.(1), II.C and V. shall be maintained
by the Fund's Administrator.
III. EXEMPTED TRANSACTIONS
---------------------
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible
for purchase or sale by either Fund; provided, however, that the
prohibitions of Section IV.B of this Code of Ethics shall apply
to such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(f) Purchases or sales which receive the prior approval of the Board
of Directors of the Fund because they are only remotely
potentially harmful
3
<PAGE>
to a Fund because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related
economically to the securities to be purchased, sold or held by
the Funds.
IV. PROHIBITED ACTIVITIES
---------------------
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by a Fund or is being purchased or
sold by a Fund. The code of ethics of the investment adviser for the
Fund shall contain a similar prohibition.
B. Except in a transaction exempted by Section III of this Code of
Ethics, Investment Personnel of the Fund must obtain approval from the
Board of Directors before directly or indirectly acquiring beneficial
ownership in any securities in an Initial Public Offering or in a
Limited Offering. Prior approval shall not be given if the Board of
Directors believes that the investment opportunity should be reserved
for the Fund or is being offered to the individual by reason of his or
her position with the Fund. The code of ethics of the investment
adviser for the Fund shall contain a similar prohibition, but may
provide for prior approval of an officer of the investment adviser.
V. REPORTING
---------
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report to the Fund the information described in
Section V.C., Section V.D. and Section V.E. of this Code of Ethics.
All reports shall be filed with the Fund's Administrator.
B. 1. A Disinterested director of the Fund need not make a report
pursuant to Section V.C. and V.E. of this Code of Ethics and need
only report a transaction in a Covered Security pursuant to
Section V.D. of this Code of Ethics if such Disinterested
director, at the time of such transaction, knew or, in the
ordinary course of fulfilling his official duties as a director
of the Fund, should have known that, during the 15-day period
immediately preceding the date of the transaction by the
director, such Covered Security was purchased or sold by the Fund
or was being considered by the Fund or its investment adviser for
purchase or sale by the Fund.
2. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
4
<PAGE>
3. An access person need not make a quarterly transaction report
pursuant to Section V.D. of this Code of Ethics if the report
would duplicate information contained in broker trade
confirmations or account statements received by the Fund with
respect to the access person in the time period required by
Section V.D., provided that all of the information required by
Section V.D. is contained in the broker trade confirmations or
account statements or in the records of the Fund.
4. An access person that is required to file reports pursuant to the
code of ethics of the investment adviser need not make any report
pursuant to Section V.C., Section V.D. and Section V.E. of this
Code of Ethics if such access person makes comparable reports
pursuant to the code of ethics of the investment adviser.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
5
<PAGE>
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding December 31:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Fund's Administrator shall review all reports filed pursuant to
Section V.C., Section V.D. or Section V.E. of this Code of Ethics. The
Fund's Administrator shall identify all access persons who are
required to file reports pursuant to this Section V of this Code of
Ethics and must inform such access persons of their reporting
obligation.
VI. SANCTIONS
---------
Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Fund may impose such sanctions as it deems appropriate.
6
FIDUCIARY MANAGEMENT, INC.
Code of Ethics
Amended effective as of October 20, 1999
I. DEFINITIONS
-----------
A. "Access person" means any director, officer or advisory person of the
Adviser.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Adviser" means Fiduciary Management, Inc.
D. "Advisory person" means: (i) any employee of the Adviser or of any
company in a control relationship to the Adviser, who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of Covered
Securities by Managed Accounts, or whose functions relate to the
making of any recommendations with respect to such purchases or sales;
and (ii) any natural person in a control relationship to the Adviser
who obtains information concerning recommendations made to Managed
Accounts with regard to the purchase or sale of Covered Securities by
Managed Accounts.
E. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicate and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
F. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
G. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
H. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
<PAGE>
(iii) Shares issued by open-end registered investment companies.
I. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act and the rules and regulations promulgated thereunder.
J. "Fund" means Fiduciary Capital Growth Fund, Inc., FMI Funds, Inc. or
any series of FMI Funds, Inc.
K. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934.
L. "Investment personnel" means: (i) any employee of the Adviser or of
any company in a control relationship to the Adviser who, in
connection with his or her regular functions or duties, makes or
participates in making recommendations regarding the purchase or sale
of securities by Managed Accounts; and (ii) any natural person who
controls the Adviser and who obtains information concerning
recommendations made to Managed Accounts regarding the purchase or
sale of securities by Managed Accounts.
M. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
N. "Managed Accounts" include the Fund and any other client account for
which the Adviser provides investment management services.
O. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. APPROVAL OF CODE OF ETHICS
--------------------------
A. The Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve this Code of Ethics and any
material changes thereto.
B. No less frequently than annually, the President of the Adviser shall
furnish a report to the Board of Directors of the Fund:
1. Describing issues arising under the Code of Ethics since the last
report to the Board of Directors, including, but not limited to,
information about material violations of the Code of Ethics and
sanctions imposed in response to such material violations. Such
report shall also include a list of access persons under the Code
of Ethics.
2
<PAGE>
2. Certifying that the Adviser has adopted such procedures as are
reasonably necessary to prevent access persons from violating the
Code of Ethics.
C. The President of the Adviser shall furnish a written report to the
Board of Directors of the Fund describing any material changes to this
Code of Ethics within ten (10) days after making any such material
change.
III. EXEMPTED TRANSACTIONS
---------------------
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible
for purchase or sale by any Managed Account; provided, however,
that the prohibitions of Section IV.B of this Code of Ethics
shall apply to such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either
the access person or Managed Accounts.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
IV. PROHIBITED ACTIVITIES
---------------------
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by Managed Accounts or is being
purchased or sold by Managed Accounts. Before an access person so
purchases or sells a Covered Security, he or she shall report the
proposed purchase or sale to the Adviser's President. The Adviser's
President or designee shall review all Managed Accounts to determine
whether the Covered Security is then being considered for purchase or
sale or is then being purchased or sold for any Managed Accounts. The
access person shall delay so purchasing or selling a Covered Security
until such time as he or she has been informed by the Adviser's
President or designee that the proposed purchase or sale would not
violate this Section IV.A.
3
<PAGE>
B. Except in a transaction exempted by Section III of this Code of
Ethics, Investment Personnel (other than the Adviser's President) must
obtain approval from the Adviser's President before directly or
indirectly acquiring beneficial ownership in any securities in an
Initial Public Offering or in a Limited Offering. The Adviser's
President must obtain approval from a majority of the Disinterested
directors before directly or indirectly acquiring beneficial ownership
in any securities in an Initial Public Offering or in a Limited
Offering. Prior approval shall not be given if (i) the Initial Public
Offering involves common stock; or (ii) the Adviser's President or the
Disinterested directors, as applicable, believe(s) that the investment
opportunity should be reserved for Managed Accounts or is being
offered to the individual by reason of his or her position with the
Fund or the Adviser.
C. No access persons shall borrow money or securities from a client of
the Adviser.
D. No access person shall make any recommendation to any client of the
Adviser without reasonable grounds to believe that the recommendation
is suitable for such client based on information provided by the
client after reasonable inquiry by the access person.
V. REPORTING AND COMPLIANCE PROCEDURES
-----------------------------------
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report the information described in Section V.C.,
Section V.D. and Section V.E. of this Code of Ethics. All reports
shall be filed with the Adviser's President.
B. 1. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
2. An access person need not make a quarterly transaction report
pursuant to Section V.D. of this Code of Ethics if the report
would duplicate information contained in broker trade
confirmations or account statements received by the Adviser's
President with respect to the access person in the time period
required by Section V.D., provided that all of the information
required by Section V.D. is contained in the broker trade
confirmations or account statements or in the records of the
Adviser.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
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1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding December 31:
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1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Adviser's President shall review all reports filed pursuant to
Section V.C., Section V.D. or Section V.E. of this Code of Ethics. The
Adviser's President shall identify all access persons who are required
to file reports pursuant to this Section V of this Code of Ethics and
must inform such access persons of their reporting obligation.
VI. SANCTIONS
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Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Adviser may impose such sanctions as it deems appropriate.
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