-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4Fd7Drjjvb86B8PU+lxqw0BsGkTpVpfTB9J50WG/9RGIVjLgtgnY/PvTpDep+Qe G3CjuA+Q1ToPHkL4sQW0rw== 0000897069-96-000325.txt : 19960927 0000897069-96-000325.hdr.sgml : 19960927 ACCESSION NUMBER: 0000897069-96-000325 CONFORMED SUBMISSION TYPE: N-1A EL PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960926 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FMI FUNDS INC CENTRAL INDEX KEY: 0001023391 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 391861095 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-1A EL SEC ACT: 1933 Act SEC FILE NUMBER: 333-12745 FILM NUMBER: 96634929 FILING VALUES: FORM TYPE: N-1A EL SEC ACT: 1940 Act SEC FILE NUMBER: 811-07831 FILM NUMBER: 96634930 BUSINESS ADDRESS: STREET 1: 225 EAST MASON STREET CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142264556 MAIL ADDRESS: STREET 1: 225 EAST MASON STREET CITY: MILWAUKEE STATE: WI ZIP: 53202 FORMER COMPANY: FORMER CONFORMED NAME: FMI FOCUS FUND DATE OF NAME CHANGE: 19960921 N-1A EL 1 FMI FUNDS, INC. FORM N-1A Securities Act Registration No. 33-_____ Investment Company Act Reg. No. 811-____ __________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 __________________________ FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. __ [_] Post-Effective Amendment No. __ [_] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. __ [_] (Check appropriate box or boxes.) ______________________ FMI FUNDS, INC. (Exact Name of Registrant as Specified in Charter) 225 East Mason Street Milwaukee, Wisconsin 53202 (Address of Principal Executive Offices) (Zip Code) (414) 226-4555 (Registrant's Telephone Number, including Area Code) Copy to: Ted D. Kellner W. David Knox, II Fiduciary Management, Inc. Foley & Lardner 225 East Mason Street 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective. In accordance with Rule 24f-2(a)(1) under the Investment Company Act of 1940, the Registrant declares that an indefinite number or amount of shares of its common stock, $0.0001 par value, is being registered by this Registration Statement. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine. FMI FUNDS, INC. CROSS REFERENCE SHEET (Pursuant to Rule 481 showing the location in the Prospectus and the Statement of Additional Information of the responses to the Items of Parts A and B of Form N-1A.) Caption or Subheading in Prospectus or Statement of Item No. on Form N-1A Additional Information PART A - INFORMATION REQUIRED IN PROSPECTUS 1. Cover Page Cover Page 2. Synopsis Expense Information 3. Financial Highlights Performance Information 4. General Description of Introduction, Investment Registrant Objectives and Policies 5. Management of the Fund Management of the Fund; Brokerage Transactions 5A. Management's Discussion of * Fund Performance 6. Capital Stock and Other Dividends, Distributions Securities and Taxes; Capital Structure; Shareholder Reports 7. Purchase of Securities Being Purchase of Shares, Offered Dividend Reinvestment, Automatic Investment Plan, Individual Retirement Account and Simplified Employee Pension Plan, Retirement Plan 8. Redemption of Repurchase Redemption of Shares, Systematic Withdrawal Plan, Exchange Privilege 9. Legal Proceedings * PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and * History 13. Investment Objectives and Investment Restrictions; Policies Investment Considerations 14. Management of the Fund Directors and Officers of the Corporation 15. Control Persons and Principal Stockholders Principal Holders of Securities 16. Investment Advisory and Investment Adviser and Other Services Administrator; Distribution of Shares; Custodian; Independent Accountants 17. Brokerage Allocation Allocation of Portfolio Securities 18. Capital Stock and Other Included in Prospectus Securities under "CAPITAL STRUCTURE" 19. Purchase, Redemption and Included in Prospectus Pricing of Securities Being under "DETERMINATION OF NET Offered ASSET VALUE"; "PURCHASE OF SHARES"; "DIVIDEND REINVESTMENT"; "AUTOMATIC INVESTMENT PLAN"; "SYSTEMATIC WITHDRAWAL PLAN"; "EXCHANGE PRIVILEGE"; "INDIVIDUAL RETIREMENT ACCOUNT AND SIMPLIFIED EMPLOYEE PENSION PLAN"; "RETIREMENT PLAN"; "Determination of Net Asset Value and Performance"; Distribution of Shares 20. Tax Status Taxes 21. Underwriters * 22. Calculations of Performance Determination of Net Asset Data Value and Performance 23. Financial Statements Financial Statements _______________________ * Answer negative or inapplicable P R O S P E C T U S October __, 1996 FMI FOCUS FUND _______________ FMI Funds, Inc. (the "Company") is an open-end, non-diversified management investment company - a mutual fund. The Company presently consists of a single portfolio, the FMI Focus Fund (the "Fund"). The Fund's investment objective is capital appreciation. In seeking its investment objective of capital appreciation, the Fund will invest primarily in common stocks and warrants, engage in short sales, invest in foreign securities which are publicly traded in the United States and effect transactions in stock index futures contracts, options on stock index futures contracts, and options on securities and stock indexes. The Fund may leverage its investments. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus sets forth concisely the information about the Fund that prospective investors should know before investing. Investors are advised to read this Prospectus and retain it for future reference. This Prospectus does not set forth all of the information included in the Registration Statement and Exhibits thereto which the Fund has filed with the Securities and Exchange Commission. A Statement of Additional Information, dated October __, 1996, which is a part of such Registration Statement is incorporated by reference in this Prospectus. Copies of the Statement of Additional Information will be provided without charge to each person to whom a Prospectus is delivered upon written or oral request made by writing to the address or calling the telephone number, stated below. All such requests should be directed to the attention of the Corporate Secretary. _______________ FMI Focus Fund 225 East Mason Street Milwaukee, Wisconsin 53202 (414) 226-4555 FMI Focus Fund Table of Contents Page No. Page No. Expense Information . 1 Exchange Privilege . 20 Introduction . . . . 2 Individual Retirement Account and Simplified Employee Pension Plan . . . 21 Investment Objective Retirement Plan . . . 22 and Policies . . . 2 Management of the Fund 14 Dividends, Distributions and Taxes . . . . . . 22 Determination of Net Brokerage Asset Value . . . 15 Transactions . . . 23 Purchase of Shares . 15 Capital Structure . . 23 Redemption of Shares 17 Shareholder Reports . 24 Dividend Reinvestment 18 Performance 24 Information . . . Automatic Share Purchase Investment Plan . 19 Application . . . Systematic Withdrawal 19 Plan . . . . . . . _______________ Expense Information Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases or Reinvested Dividends . . . . . . . . . . . . . . . . . . . . . . . . . None Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . None Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . None(1) Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . None Annual Fund Operating Expenses (as a percentage of average net assets) Management Fees . . . . . . . . . . . . . . . . . . . . . . .1.00% 12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%(2) Other expenses (net of reimbursements) . . . . . . . . . . . 1.50%(3) ----- Total Fund Operating Expenses (net of reimbursements) . . . 2.75%(3) ===== _______________ (1) A fee of $10.00 is charged for each wire redemption. (2) The maximum level of distribution expenses is 0.25% per annum of the Fund's average net assets. See "Purchase of Shares" for further information. The distribution expenses for long-term shareholders may total more than the maximum sales charge that would have been permissible if imposed entirely as an initial sales charge. (3) Other expenses and Total Fund Operating Expenses are estimated and reflect the fact that the Fund's investment adviser, Fiduciary Management, Inc., has agreed to reimburse the Fund to ensure that Total Fund Operating Expenses do not exceed 2.75%. Absent reimbursement, Other expenses and Total Fund Operating Expenses for the Fund for the fiscal year ending September 30, 1997 are estimated to be 1.75% and 3.00%, respectively, of average net assets. Example: 1 Year 3 Years An investor would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period: $28 $85 The purpose of the preceding table is to assist investors in understanding the various costs that an investor in the Fund will bear, directly or indirectly. They should not be considered to be a representation of past or future expenses. Actual expenses may be greater or lesser than those shown. The example assumes a 5% annual rate of return pursuant to requirements of the Securities and Exchange Commission. This hypothetical rate of return is not intended to be representative of past or future performance of the Fund. INTRODUCTION FMI Funds, Inc. (the "Company") was incorporated under the laws of Maryland on September 5, 1996 and is an open-end non-diversified management investment company registered under the Investment Company Act of 1940 (the "Act"). The Company presently consists of a single portfolio, the FMI Focus Fund (the "Fund"). The Fund obtains its assets by continuously selling shares to the public. Proceeds from such sales are invested by the Fund in securities of other companies and certain other instruments. In this manner, the resources of many investors are combined and each individual investor has an interest in every one of the securities and instruments owned by the Fund. The Fund furnishes experienced management to select and watch over its investments. As an open-end investment company, the Fund will redeem any of its outstanding shares on demand of the owner at their net asset value. INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is capital appreciation. In seeking its investment objective of capital appreciation, the Fund will invest primarily in common stocks and warrants, engage in short sales, invest in foreign securities which are publicly traded in the United States and effect transactions in stock index futures contracts, options on stock index futures contracts, and options on securities and stock indexes. The Fund may leverage its investments. Warrants, stock index futures contracts, options on stock index future contracts and options on securities and stock indexes are derivatives. In managing the investment portfolio for the Fund, the Fund's investment adviser, Fiduciary Management, Inc. (the "Adviser") may focus on a relatively limited number of securities (i.e., generally 25 or less, other than money market instruments). The Adviser believes this focused investment strategy has the potential for higher total returns than an investment strategy calling for investment in a large number of securities. However, the use of this focused investment strategy may increase the volatility of the Fund's investment performance. Additionally, the Fund could incur greater losses than it would had it invested in a greater number of securities if the securities in which the Fund invests perform poorly. The Adviser will invest in securities which it believes will appreciate significantly over a one to two-year period. In doing so, it will employ a diverse investment approach. For example, it may purchase stocks of any size market capitalization or in any industry sector. As a consequence, the performance of the Fund will be more dependent on the Adviser's ability to make good investment decisions than on whether a particular sector of the market is performing well or "in favor" with investors. The Fund may invest in the following portfolio securities and may engage in the following investment techniques. Common Stocks The Fund's long common stock investments primarily will be made in companies in which the Adviser believes to be underpriced relative to the issuing corporation's future growth prospects. The Adviser will also purchase common stocks where the price is significantly below the estimated market value of the issuing corporation's assets less its liabilities on a per share basis. Dividend income is not a factor in selecting common stocks. The Fund may invest in companies with modest capitalization, as well as start-up companies. Such companies often involve greater risks than larger companies because they lack the management experience, financial resources, product diversification, markets, distribution channels and competitive strengths of larger companies. Additionally, in many instances, the frequency and volume of their trading is substantially less than is typical of larger companies. Therefore, the securities of smaller companies as well as start-up companies may be subject to wider price fluctuations. The spreads between the bid and asked prices of the securities of these companies in the U.S. over-the-counter market typically are larger than the spreads for more actively traded securities. As a result, the Fund could incur a loss if it determined to sell such a security shortly after its acquisition. When making large sales, the Fund may have to sell portfolio holdings at discounts from quoted prices or may have to make a series of small sales over an extended period of time due to the trading volume of smaller company securities. Foreign Securities The Fund may invest without limitation in securities of foreign issuers which are publicly traded on U.S. exchanges or in the U.S. over-the-counter market either directly or in the form of American Depository Receipts ("ADRs"). The Fund will only invest in ADRs that are issuer sponsored. Sponsored ADRs typically are issued by a U.S. bank or trust company and evidence ownership of underlying securities issued by a foreign corporation. Investments in foreign securities involve risks which are in addition to the risks inherent in domestic investments. Foreign companies are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about issuers than is available in the reports and ratings published about companies in the United States. Additionally, foreign companies are not subject to uniform accounting, auditing and financial reporting standards. Dividends and interest on foreign securities may be subject to foreign withholding taxes. To the extent such taxes are not offset by credits or deductions allowed to investors under U.S. federal income tax laws, such taxes may reduce the net return to shareholders. Although the Fund intends to invest in securities of foreign issuers domiciled in nations which the Adviser considers as having stable and friendly governments, there is the possibility of expropriation, confiscation, taxation, currency blockage or political or social instability which could affect investments of foreign issuers domiciled in such nations. Short Sales The Fund may engage in short sales transactions, including short sales transactions in which the Fund sells a security the Fund does not own. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position is closed out. Until the Fund closes its short position or replaces the borrowed security, the Fund will: (a) maintain a segregated account containing cash or liquid high grade debt securities at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; or (b) otherwise cover the Fund's short position. Up to 100% of the Fund's assets may be used to cover the Fund's short positions. The Fund may also engage in short sales when, at the time of the short sale, the Fund owns or has the right to acquire an equal amount of the security being sold at no additional cost ("selling short against the box"). The Fund may make a short sale against the box when the Fund wants to sell the security the Fund owns at a current attractive price, but also wishes to defer recognition of a gain or loss for Federal income tax purposes and for purposes of satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. Futures Contracts and Options Thereon The Fund may purchase and write (sell) stock index futures contracts as a substitute for a comparable market position in the underlying securities. A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified commodity on the expiration date of the contract. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. It is the practice of holders of futures contracts to close out their positions on or before the expiration date by use of offsetting contract positions and physical delivery is thereby avoided. The Fund may purchase put and call options and write call options on stock index futures contracts. When the Fund purchases a put or call option on a futures contract, the Fund pays a premium for the right to sell or purchase the underlying futures contract for a specified price upon exercise at any time during the options period. By writing a call option on a futures contract, the Fund receives a premium in return for granting to the purchaser of the option the right to buy from the Fund the underlying futures contract for a specified price upon exercise at any time during the option period. Some futures and options strategies tend to hedge the Fund's equity positions against price fluctuations, while other strategies tend to increase market exposure. Whether the Fund realizes a gain or loss from futures activities depends generally upon movements in the underlying stock index. The extent of the Fund's loss from an unhedged short position in futures contracts or call options on futures contracts is potentially unlimited. The Fund may engage in related closing transactions with respect to options on futures contracts. The Funds will purchase or write options only on futures contracts that are traded on a United States exchange or board of trade. In addition to the uses set forth hereunder, the Fund may also engage in futures and futures options transactions in order to hedge or limit the exposure of its position and for satisfying certain tests applicable to regulated investment companies under the Internal Revenue Code. 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 high-quality liquid debt instruments, including U.S. Government Securities or repurchase agreements secured by U.S. Government Securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise cover its position. If the Fund continues to engage in the described securities trading practices and properly segregates assets, the segregated account will function as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund's outstanding portfolio securities. Additionally, such segregated accounts will assure the availability of adequate funds to meet the obligations of the Fund arising from such investment activities. The Fund may cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an exercise price) as high or higher than the price of the futures contract, or, if the strike price of the put is less than the price of the futures contract, the Fund will maintain in a segregated account cash or high-grade liquid debt securities equal in value to the difference between the strike price of the put and the price of the futures contract. The Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments the prices of which are expected to move relatively consistently with the futures contract. The Fund may cover its short position in a futures contract by taking a long position in the instruments underlying the futures contract, or by taking positions in instruments the prices of which are expected to move relatively consistently with the futures contract. The Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option, or, if the long position in the underlying futures contract is established at a price greater than the strike price of the written call, the Fund will maintain in a segregated account cash or high-grade liquid debt securities equal in value to the difference between the strike price of the call and the price of the futures contract. The Fund may also cover its sale of a call option by taking positions in instruments the prices of which are expected to move relatively consistently with the call option. Although the Fund intends to sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Fund to substantial losses. If trading is not possible, or the Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk that the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market. Index Options Transactions The Fund may purchase put and call options and write call options on stock indexes. A stock index fluctuates with changes in the market values of the stock included in the index. Options on stock indexes give the holder the right to receive an amount of cash upon exercise of the options. Receipt of this cash amount will depend upon the closing level of the stock index upon which the option is based being greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. The amount of cash received, if any, will be the difference between the closing price of the index and the exercise price of the option, multiplied by a specified dollar multiple. The writer (seller) of the option is obligated, in return for the premiums received from the purchaser of the option, to make delivery of this amount to the purchaser. Unlike the options on securities discussed below, all settlements of index options transactions are in cash. Some stock index options are based on a broad market index such as the S&P 500 Index, the NYSE Composite Index or the AMEX Major Market Index, or on a narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index. Options currently are traded on the Chicago Board of Options Exchange, the AMEX and other exchanges ("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, U.S. Government Securities, or other liquid high-grade debt 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 greater than then the Fund would have incurred without the options position. Options on Securities The Fund may buy put and call options and write (sell) call options on securities. By writing a call option and receiving a premium, the Fund may become obligated during the term of the option to deliver the securities underlying the option at the exercise price if the option is exercised. By buying a put option, the Fund has the right, in return for a premium paid during the term of the option, to sell the securities underlying the option at the exercise price. By buying a call option, the Fund has the right, in return for a premium paid during the term of the option, to purchase the securities underlying the option at the exercise price. Options on securities written by the Fund will be traded on recognized securities exchanges. When writing call options on securities, the Fund may cover its position by owning the underlying security on which the option is written. Alternatively, the Fund may cover its position by owning a call option on the underlying security, on a share for share basis, which is deliverable under the option contract at a price no higher than the exercise price of the call option written by the Fund or, if higher, by owning such call option and depositing and maintaining in a segregated account cash or liquid high-grade debt 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 high- grade debt securities equal in value to the exercise price of the call option written by the Fund. The principal reason for the Fund to write call options on stocks held by the Fund is to attempt to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. When the Fund wishes to terminate the Fund's obligation with respect to an option it has written, the Fund may effect a "closing purchase transaction." The Fund accomplishes this by buying an option of the same series as the option previously written by the Fund. The effect of the purchase is that the writer's position will be canceled. However, a writer may not effect a closing purchase transaction after the writer has been notified of the exercise of an option. When the Fund is the holder of an option, it may liquidate its position by effecting a "closing sale transaction." The Fund accomplishes this by selling an option of the same series as the option previously purchased by the Fund. There is no guarantee that either a closing purchase or a closing sale transaction can be effected. If any call or put option is not exercised or sold, the option will become worthless on its expiration date. The Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call option previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the put option is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call option. The Fund also will realize a gain if a call option which the Fund has written lapses unexercised, because the Fund would retain the premium. The Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put option previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put option is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put option. If a put or a call option which the Fund has purchased expires out-of-the-money, the option will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Although certain securities exchanges attempt to provide continuously liquid markets in which holders and writers of options can close out their positions at any time prior to the expiration of the option, no assurance can be given that a market will exist at all times for all outstanding options purchased or sold by the Fund. In such event, the Fund would be unable to realize its profits or limit its losses until the Fund would exercise options it holds and the Fund would remain obligated until options it wrote were exercised or expired. Because option premiums paid or received by the Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in common stocks. U.S. Treasury Securities The Fund may invest in U.S. Treasury securities as "cover" for the investment techniques the Fund employs. The Fund may also invest in U.S. Treasury Securities as part of a cash reserve or for liquidity purposes. U.S. Treasury securities are backed by the full faith and credit of the U.S. Treasury. U.S. Treasury securities differ only in their interest rates, maturities and dates of issuance. Treasury Bills have maturities of one year or loss. Treasury Notes have maturities of one to ten years and Treasury Bonds generally have maturities of greater than ten years at the date of issuance. Yields on short-, intermediate- and long-term U.S. Treasury Securities are dependent on a variety of factors, including the general conditions of the money and bond markets, the size of a particular offering and the maturity of the obligation. Debt securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market value of U.S. Treasury Securities generally varies inversely with changes in market interest rates. An increase in interest rates, therefore, would generally reduce the market value of the Fund's portfolio investments in U.S. Treasury Securities, while a decline in interest rates would generally increase the market value of a Fund's portfolio in investments in these securities. U.S. Treasury Securities may be purchased at a discount. Such securities, when retired, may include an element of capital gain. Capital losses may be realized when such securities purchased at a premium are called or redeemed at a price lower than their purchase price. Capital gains or losses also may be realized upon the sale of U.S. Treasury Securities. Repurchase Agreements The Fund, as part of a cash reserve or to "cover" investment strategies, may purchase repurchase agreements secured by U.S. Government Securities. Under a repurchase agreement, the Fund purchases a debt security and simultaneously agrees to sell the security back to the seller at a mutually agreed-upon future price and date, normally one day or a few days later. The resale price is greater than the purchase price, reflecting an agreed-upon market interest rate during the purchaser's holding period. While the maturities of the underlying securities in repurchase transactions may be more than one year, the term of each repurchase agreement will always be less than one year. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve system or primary dealers of U.S. Government Securities. The Adviser will monitor the creditworthiness of each of the firms which is a party to a repurchase agreement with the Fund. In the event of a default or bankruptcy by the seller, the Fund will liquidate those securities (whose market value, including accrued interest, must be at least equal to 100% of the dollar amount invested by the Fund in each repurchase agreement) held under the applicable repurchase agreement, which securities constitute collateral for the seller's obligation to pay. However, liquidation could involve costs or delays and, to the extent proceeds from the sale of these securities were less than the agreed-upon repurchase price the Fund would suffer a loss. The Fund also may experience difficulties and incur certain costs in exercising its rights to the collateral and may lose the interest the Fund expected to receive under the repurchase agreement. Repurchase agreements usually are for short periods, such as one week or less, but may be longer. It is the current policy of the Fund to treat repurchase agreements that do not mature within seven days as illiquid for the purposes of its investment policies. Borrowing The Fund may borrow money, including borrowing for investment purposes. Borrowing for investment is known as leveraging. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique which increases investment risk, but also increases investment opportunity. Since substantially all of the Fund's assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the net asset value per share of the Fund will increase more when the Fund's portfolio assets increase in value and decrease more when the Fund's portfolio assets decrease in value than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds. Under adverse conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time investment considerations would not favor such sales. The Fund intends to use leverage during periods when the Advisor believes that the Fund's investment objective would be furthered. The Fund may borrow money to facilitate management of the Fund's portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Such borrowing is not for investment purposes and will be repaid by the Fund promptly. As required by the Act, the Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the value of the Fund's assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Fund's borrowings to the extent necessary to meet this 300% coverage. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. In addition to the foregoing, the Fund is authorized to borrow money from a bank as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of the Fund's total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Fund is authorized to pledge portfolio securities as the Adviser deems appropriate in connection with any borrowings. Warrants The Fund may invest in warrants and similar rights, which are privileges issued by corporations enabling the owners to subscribe to and purchase a specified number of shares of the corporation at a specified price during a specified period of time. The purchase of warrants involve the risks that the Fund could lose the purchase value of a warrant if the right to subscribe to additional shares is not exercised prior to the warrants expiration. Also the purchase of warrants involves the risk that the effective price paid for the warrant added to the subscription price of the related security may exceed the value of the subscribed security's market price such as when there is no movement in the level of the underlying security. Money Market Instruments The Fund, as part of a cash reserve or to "cover" investment strategies, may invest in short-term, high quality money market instruments in addition to repurchase agreements and U.S. Treasury securities with a remaining maturity of 13 months or less. The Fund may invest in commercial paper and other cash equivalents rated A-1 or A-2 by Standard & Poor's Corporation ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"), including commercial paper master notes (which are demand instruments bearing interest at rates which are fixed to known lending rates and automatically adjusted when such lending rates change) of issuers whose commercial paper is rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's. The Fund may also invest in securities issued by other investment companies that invest in high quality, short-term debt securities (i.e., money market instruments). In addition to the advisory fees and other expenses the Fund bears directly in connection with its own operations, as a shareholder of another investment company, the Fund would bear its pro rata portion of the other investment company's advisory fees and other expenses, and such fees and other expenses will be borne indirectly by the Fund's shareholders. Illiquid Securities While the Fund does not anticipate doing so, it may purchase illiquid securities, including restricted securities. The Fund will not invest more than 15% of its net assets in illiquid securities. Securities eligible to be resold pursuant to Rule 144A under the Securities Act of 1933 may be considered liquid. Additional Risks In addition to the risks discussed above, investors should understand that there can be no assurance that the Fund will achieve its investment objective. Many of the investments made by the Fund are subject to significant volatility. The Fund is intended for investors who can accept this risk. An investment in the Fund does not constitute a complete investment program. Investors may wish to complement an investment in the Fund with other types of investments. 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 high- grade liquid debt in a segregated account as "cover" for the investment techniques the Fund employs. The Fund anticipates that the securities maintained in the segregated account of the Fund will be U.S. Government Securities and repurchase agreements secured by such securities. These assets may not be sold while the position in the corresponding instrument or transaction (e.g. short sale, option or futures contract) is open unless they are replaced by similar assets. As a result, the commitment of a large portion of the Fund's assets to "cover" investment techniques could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. Participation in the options or futures markets by the Fund involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. Risks inherent in the use of options, futures contracts and options on futures contracts include: (1) adverse changes in the value of such instruments; (2) imperfect correlation between the price of options and futures contracts and options thereon and movements in the price of the underlying securities, index or futures contracts; (3) the fact that the skills needed to use these strategies are different from those needed to select portfolio securities; (4) the possible absence of a liquid secondary market for any particular instrument at any time; and (5) the possible need to defer closing out certain positions to avoid adverse tax consequences. Investment Restrictions The Fund has adopted certain fundamental investment restrictions that may be changed only with the approval of a majority of the Fund's outstanding shares. These restrictions include the Fund's limitations on borrowing described under the caption "INVESTMENT OBJECTIVE AND POLICIES" and the following restrictions: (1) The Fund will not purchase the securities of any issuer if the purchase would cause more than 5% of the value of the Fund's total assets to be invested in securities of such issuer (except securities of the U.S. government or any agency or instrumentality thereof), or purchase more than 10% of the outstanding voting securities of any one issuer, except that up to 50% of the Fund's total assets may be invested without regard to these limitations. As such the Fund is classified as a non-diversified investment company under the Act. A non-diversified portfolio may be more volatile than a diversified portfolio. (2) The Fund will not invest 25% or more of its total assets at the time of purchase in securities of issuers whose principal business activities are in the same industry. A list of the Fund's policies and restrictions, both fundamental and nonfundamental, is set forth in the Statement of Additional Information. In order to provide a degree of flexibility, the Fund's investment objective, as well as other policies which are not deemed fundamental, may be modified by the Board of Directors without shareholder approval. Any change in the Fund's investment objective may result in the Fund having an investment objective different from the investment objective which the shareholder considered appropriate at the time of investment in the Fund. However the Fund will not change its investment objective without sending written notice to shareholders at least 30 days in advance of any such change. MANAGEMENT OF THE FUND As a Maryland corporation, the business and affairs of the Fund are managed by its Board of Directors. Under an investment advisory agreement (the "Advisory Agreement") with the Fund, Fiduciary Management, Inc. (the "Adviser"), 225 East Mason Street, Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services and management to the Fund. The Adviser is the investment adviser to individuals and institutional clients (including investment companies) with substantial investment portfolios. The Adviser was organized in 1980 and is wholly owned by Ted D. Kellner and Donald S. Wilson. Since that time, Mr. Kellner has served as Chairman of the Board and Chief Executive Officer and Mr. Wilson has served as President and Treasurer of the Adviser. Messrs. Kellner and Wilson are primarily responsible for the day-to-day management of the Fund's portfolio. They have held this responsibility since the Fund commenced operations. Mr. Kellner has been President, Treasurer and a Director of the Fund and Mr. Wilson has been Vice President, Secretary and a Director of the Fund during the same period. The Adviser supervises and manages the investment portfolio of the Fund and subject to such policies as the Board of Directors of the Fund may determine, directs the purchase or sale of investment securities in the day to day management of the Fund's investment portfolio. Under the Advisory Agreement, the Adviser, at its own expense and without reimbursement from the Fund, furnishes office space, and all necessary office facilities, equipment and executive personnel for managing the Fund's investments, and bears all sales and promotional expenses of the Fund, other than distribution expenses paid by the Fund pursuant to the Service and Distribution Plan and expenses incurred in complying with laws regulating the issue or sale of securities. For the foregoing, the Adviser receives a monthly fee of 1/12th of 1% (1% per annum) of the daily net assets of the Fund. The rate of the annual advisory fee is higher than that paid by many mutual funds. Under an Administration Agreement (the "Administration Agreement") with the Fund, the Adviser supervises all aspects of the Fund's operations except those performed by it pursuant to the Advisory Agreement. Under the Administration Agreement, the Adviser at its own expense and without reimbursement from the Fund, furnishes office space, and all necessary office facilities, equipment and executive personnel for supervising the fund's operations. For the foregoing, the Adviser receives a monthly fee of 1/12 of .1% (.1% per annum) of the first $30,000,000 of daily net assets of the Fund and 1/12 of .05 (0.5% per annum) of the daily net assets of the Fund over $30,000,000, subject to a fiscal year minimum of $20,000. The Fund pays all of its expenses not assumed by the Adviser pursuant to the Advisory Agreement or the Administration Agreement described below including, but not limited to, the professional costs of preparing and the cost of printing its registration statements required under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments thereto, the expense of registering its shares with the Securities and Exchange Commission and in the various states, the printing and distribution cost of prospectuses mailed to existing shareholders, the cost of stock certificates, director and officer liability insurance, reports to shareholders, reports to government authorities and proxy statements, interest charges, brokerage commissions and expenses in connection with portfolio transactions. The Fund also pays the fees of directors who are not interested persons of the Adviser or officers or employees of the Fund, salaries of administrative and clerical personnel, association membership dues, auditing and accounting services, fees and expenses of any custodian or trustees having custody of Fund assets, expenses of repurchasing and redeeming shares, printing and mailing expenses, charges and expenses of dividend disbursing agents, registrars and stock transfer agents, including the cost of keeping all necessary shareholder records and accounts and handling any problems related thereto. DETERMINATION OF NET ASSET VALUE The per share net asset value of the Fund is determined by dividing the total value of its net assets (meaning its assets less its liabilities excluding capital and surplus) by the total number of its shares outstanding at that time. The net asset value is determined as of the close of regular trading (currently 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the New York Stock Exchange is open for trading. This determination is applicable to all transactions in shares of the Fund prior to that time and after the previous time as of which net asset value was determined. Accordingly, purchase orders accepted or shares tendered for redemption prior to the close of regular trading on a day the New York Stock Exchange is open for trading will be valued as of the close of trading, and purchase orders accepted or shares tendered for redemption after that time will be valued as of the close of the next trading day. Common stocks and securities sold short that are listed on any national stock exchange or quoted on the Nasdaq Stock Market will be valued at the last sale price on the date valuation is made. Price information on listed securities is taken from the exchange where the security is primarily traded. Common stocks and securities sold short which are listed on any national stock exchange or the NASDAQ Stock Market but which are not traded on the valuation date are valued at the average of the current bid and asked prices. Unlisted equity securities for which market quotations are readily available will be valued at the average of the current bid and asked prices. Options purchased or written by the Fund are valued at the average of the current bid and asked prices. The value of a futures contract equals the unrealized gain or loss on the contract that is determined by marking the contract to the current settlement price for a like contract acquired on the day on which the futures contract is being valued. A settlement price may not be moved if the market makes a limit move in which event the futures contract will be valued at its fair value as determined by the Adviser in accordance with procedures approved by the Board of Directors. Debt securities are valued at the latest bid prices furnished by independent pricing services. Any securities for which there are no readily available market quotations and other assets will be valued at their fair value as determined in good faith by the Board of Directors. Short-term instruments (those with remaining maturities of 60 days or less) are valued at amortized cost, which approximates market. PURCHASE OF SHARES Shares of the Fund may be purchased directly from the Fund. Share purchase application forms are included at the back of the Prospectus. The price per share is the next determined per share net asset value after receipt of an application. Additional purchase applications may be obtained from the Fund. Purchase applications should be mailed directly to: FMI Focus Fund, c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. To purchase shares by overnight or express mail, please use the following street address: FMI Focus Fund, c/o Firstar Trust Company, Mutual Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202. All applications must be accompanied by payment in the form of a check made payable to FMI Focus Fund, or by direct wire transfer. All purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. No cash will be accepted. Firstar Trust Company will charge a $15 fee against a shareholder's account for any payment check returned by the custodian. The shareholder will also be responsible for any losses suffered by the Fund as a result. When a purchase is made by check (other than a cashiers or certified check), the Fund may delay the mailing of a redemption check until it is satisfied that the check has cleared. (It will normally take up to 3 days to clear local personal or corporate checks and up to 7 days to clear other personal and corporate checks.) To avoid redemption delays, purchases may be made by cashiers or certified check or by direct wire transfers. Funds should be wired to: Firstar Bank Milwaukee, NA, 777 East Wisconsin Avenue, Milwaukee, Wisconsin, ABA #75000022, Firstar Trust Company, Account #_________, for further credit to: FMI Focus Fund, "name of shareholder and existing account number" if any. The establishment of a new account by wire transfer should be preceded by a phone call to the Fund's office, (414) 226-4555 to provide information for the setting up of the account. A follow up application should be sent for all new accounts opened by wire transfer. Applications are subject to acceptance by the Fund, and are not binding until so accepted. The Fund does not accept telephone orders for purchase of shares and reserves the right to reject applications in whole or in part. The Board of Directors of the Fund has established $1,000 as the minimum initial purchase price and $100 as the minimum for any subsequent purchase (except through dividend reinvestment and the automatic investment plan), which minimum amounts are subject to change at any time. Shareholders will be advised at least thirty days in advance of any increases in such minimum amounts. Stock certificates for shares are not issued. Shares may be purchased through registered broker-dealers who may charge a fee, either at the time of purchase or redemption. The fee, if charged, is retained by the broker-dealer and not remitted to the Fund or the Adviser. The Fund had adopted a Service and Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan authorizes payments by the Fund in connection with the distribution of its shares at an annual rate, as determined from time to time by the Board of Directors, of up to 0.25% of the Fund's average daily net assets. Payments made pursuant to the Plan may only be used to pay distribution expenses in the year incurred. Amounts paid under the Plan by the Fund may be spent by the Fund on any activities or expenses primarily intended to result in the sale of shares of the Fund, including but not limited to, advertising, compensation for sales and marketing activities of financial institutions and others such as dealers and distributors, shareholder account servicing, the printing and mailing of prospectuses to other than current shareholders and the printing and mailing of sales literature. The Plan permits the Fund to employ a distributor of its shares, in which event payments under the Plan will be made to the distributor and may be spent by the distributor on any activities or expenses primarily intended to result in the sale of shares of the Fund, including but not limited to, compensation to, and expenses (including overhead and telephone expenses) of, employees of the distributor who engage in or support distribution of the Fund's shares, printing of prospectuses and reports for other than existing shareholders, advertising and preparation and distribution of sales literature. Allocation of overhead (rent, utilities, etc.) and salaries will be based on the percentage of utilization in, and time devoted to, distribution activities. If a distributor is employed by the Fund, the distributor will directly bear all sales and promotional expenses of the Fund, other than expenses incurred in complying with laws regulating the issue or sale of securities. (In such event, the Fund will indirectly bear sales and promotional expenses to the extent it makes payments under the Plan.) The Fund has no present plans to employ a distributor. Pending the employment of a distributor, the Fund's distribution expenses will be authorized by the officers of the Company. To the extent any activity is one which the Fund may finance without a plan pursuant to Rule 12b-1, the Fund may also make payments to finance such activity outside of the Plan and not subject to its limitations. REDEMPTION OF SHARES A shareholder may require the Fund to redeem his shares in whole or part at any time during normal business hours. Redemption requests must be made in writing and directed to: FMI Focus Fund, c/o Firstar Trust Company, Mutual Fund Services, 615 East Michigan Avenue, Milwaukee, Wisconsin 53202. If a redemption request is inadvertently sent to the Fund, it will be forwarded to Firstar Trust Company, but the effective date of redemption will be delayed until the request is received by Firstar Trust Company. Requests for redemption by telephone or telegram and requests which are subject to any special conditions or which specify an effective date other than as provided herein cannot be honored. Redemption requests should specify the name of the Fund, the number of shares or dollar amount to be redeemed, shareholder's name, account number and the additional requirements listed below that apply to the particular account. Type of Registration Requirements Individual, Joint Redemption request signed by all person(s) Tenants Sole required to sign for the account, exactly Proprietor, Custodial as it is registered. (Uniform Gift to Minors Act), General Partnership Corporations, Redemption request and a corporate Associations resolution, signed by person(s) required to sign for the account, accompanied by signature guarantee(s). Trusts Redemption request signed by the trustee(s) with a signature guarantee. (If the trustee's name is not registered on the account, a coy of the trust document certified within the last 60 days is also required.) Redemption requests from shareholders in an Individual Retirement Account must include instructions regarding federal income tax withholding. Unless otherwise indicated, these redemptions, as well as redemptions of other retirement plans not involving a direct rollover to an eligible plan, will be subject to federal income tax withholding. If a shareholder is not included in any of the above registration categories (e.g., executors, administrators, conservators or guardians), the shareholder should call the transfer agent, Firstar Trust Company (1-800-338-1579), for further instructions. Signatures need not be guaranteed unless the proceeds of redemption are requested to be sent by wire transfer, to a person other than the registered holder or holders of the shares to be redeemed, or to be mailed to other than the address of record, in which cases each signature on the redemption request must be guaranteed by a commercial bank or trust company in the United States, a member firm of the New York Stock Exchange or other eligible guarantor institution. Redemptions will not be effective or complete until all of the foregoing conditions, including receipt of all required documentation by Firstar Trust Company in its capacity as transfer agent, have been satisfied. The redemption price is the net asset value next determined after receipt by Firstar Trust Company in its capacity as transfer agent of the written request in proper form with all required documentation. The amount received will depend on the market value of the investments in the Fund's portfolio at the time of determination of net asset value, and may be more or less than the cost of the shares redeemed. A check in payment for shares redeemed will be mailed to the holder no later than the seventh day after receipt of the redemption request in proper form and all required documentation except as indicated in "Purchase of Shares" for certain redemptions of shares purchased by check. The right to redeem shares of the Fund will be suspended for any period during which the New York Stock Exchange is closed because of financial conditions or any other extraordinary reason and may be suspended for any period during which (a) trading on the New York Stock Exchange is restricted pursuant to rules and regulations of the Securities and Exchange Commission, (b) the Securities and Exchange Commission has by order permitted such suspension, or (c) an emergency, as defined by rules and regulations of the Securities and Exchange Commission, exists as a result of which it is not reasonably practicable for the Fund to dispose of its securities or fairly to determine the value of its net assets. DIVIDEND REINVESTMENT Shareholders may elect to have all income dividends and capital gains distributions reinvested or paid in cash, or elect to have income dividends reinvested and capital gains distributions paid in cash or capital gains distributions reinvested and income dividends paid in cash. See the Share Purchase Application included at the back of this Prospectus for further information. If the shareholder does not specify an election, all income dividends and capital gains distributions will automatically be reinvested in full and fractional shares of the Fund, calculated to the nearest 1,000th of a share. Shares are purchased at the net asset value in effect on the business day after the dividend record date and are credited to the shareholder's account on the dividend payment date. As in the case of normal purchases, stock certificates are not issued. Shareholders will be advised of the number of shares purchased and the price following each reinvestment. An election to reinvest or receive dividends and distributions in cash will apply to all shares of the Fund registered in the same name, including those previously purchased. A shareholder may change an election at any time by notifying the Fund in writing or by calling Firstar Trust Company at 1-800-338-1579. If such a notice is received between a dividend declaration date and payment date, it will become effective on the day following the payment date. The Fund may modify or terminate its dividend reinvestment program at any time on thirty days' notice to participants. AUTOMATIC INVESTMENT PLAN Shareholders wishing to invest fixed dollar amounts in the Fund on a regular basis can make automatic purchases in amounts of $50 or more, on any date specified by the shareholder each month or calendar quarter by using the Fund's Automatic Investment Plan. If such date is a weekend or holiday, such purchase shall be made on the next business day. There is no service fee for participating in this Plan. To use this service, the shareholder must authorize the transfer of funds from his checking or NOW account by completing the Automatic Investment Plan application included as part of the Share Purchase Application located at the back of the Prospectus or by calling the Fund's office at (414) 226-4555. Shareholders may change the date or amount of investments at any time by writing to or calling Firstar Trust Company at 1-800-338-1579. The Fund reserves the right to suspend, modify or terminate the Automatic Investment Plan without notice. The Automatic Investment Plan is designed to be a method to implement dollar cost averaging. Dollar cost averaging is an investment approach providing for the investment of a specific dollar amount on a regular basis thereby precluding emotions dictating investment decisions. Dollar cost averaging does not insure a profit nor protect against a loss. SYSTEMATIC WITHDRAWAL PLAN The Fund has available to shareholders a Systematic Withdrawal Plan, pursuant to which a shareholder who owns Fund shares worth at least $10,000 at current net asset value may provide that a fixed sum will be distributed to him at regular intervals. To participate in the Systematic Withdrawal Plan, a shareholder deposits his Fund shares with the Fund and appoints it as his agent to effect redemptions of Fund shares held in his account for the purpose of making monthly or quarterly withdrawal payments of a fixed amount to him out of his account. To utilize the Systematic Withdrawal Plan, the shares cannot be held in certificate form. The Systematic Withdrawal Plan does not apply to Fund shares held in Individual Retirement Accounts or defined contribution retirement plans. An application for participation in the systematic Withdrawal Plan is included as part of the Share Purchase Application located at the back of this Prospectus or may be obtained by calling the Fund at (414) 226-4555. The minimum amount of a withdrawal payment is $100. These payments will be made from the proceeds of periodic redemption of shares in the account at net asset value. Redemptions will be made at periodic intervals no more frequent than monthly on the date specified by the shareholder or, if that day is a weekend or holiday, on the next business day. See the Share Purchase Application located in the back of this Prospectus for further information. Participation in the Systematic Withdrawal Plan constitutes an election by the shareholder to reinvest in additional Fund shares, at net asset value all income dividends and capital gains distributions payable by the Fund on shares held in such account, and shares so acquired will be added to such account. The shareholder may deposit additional Fund shares in his account at any time. Withdrawal payments cannot be considered as yield or income on the shareholder's investment, since portions of each payment will normally consist of a return of capital. Depending on the size or the frequency of the disbursements requested, and the fluctuation in the value of the Fund's portfolio, redemptions for the purpose of making such disbursements may reduce or even exhaust the shareholder's account. The shareholder may vary the amount or frequency of withdrawal payments or temporarily discontinue them by notifying Firstar Trust Company in writing or by telephone at 1-800-338-1579. To change the designated payee or payee's address, you must notify Firstar Trust Company in writing. EXCHANGE PRIVILEGE A shareholder may redeem all or any portion of his Fund shares and use the proceeds to purchase shares of Fiduciary Capital Growth Fund, Inc., another mutual fund managed by the Adviser, or Portico Money Market Fund, a money market mutual fund not affiliated with the Fund or the Adviser, if such shares are offered in his state of residence. The redemption of shares of the Fund and the purchase of shares of Fiduciary Capital Growth Fund, Inc. and/or Portico Money Market Fund will be effected at the respective net asset values of such funds. An exchange transaction is a sale and purchase of shares for federal income tax purposes and may result in the realization of a capital gain or loss. Prior to exercising the Exchange Privilege a shareholder should obtain and carefully read the prospectus for Fiduciary Capital Growth Fund, Inc. and/or Portico Money Market Fund. The Exchange Privilege does not in any way constitute an offering of, or recommendation on the part of the Adviser or the Fund or Fiduciary Capital Growth Fund, Inc. of, an investment in Portico Money Market Fund. The registration of both the account from which the exchange is being made and the account to which the exchange is made must be identical. Exchange requests must be made in writing. Exchange request forms may be obtained by writing the Fund or by calling (414) 226-4555. Written requests should include the account numbers for both the Fund and Fiduciary Capital Growth Fund, Inc. or Portico Money Market Fund, if an account is already opened, and the amount of the exchange. If a new account is to be opened by the exchange, the registration must be identical to that of the original account. The Fund reserves the right, at any time without prior notice, to suspend, limit, modify or terminate the Exchange privilege or its use in any manner by any person or class. In particular, since an excessive number of exchanges may be disadvantageous to the Fund, the Fund reserves the right to terminate the Exchange Privilege of any shareholder who makes more than five exchanges of shares in a year or three in a calendar quarter. INDIVIDUAL RETIREMENT ACCOUNT AND SIMPLIFIED EMPLOYEE PENSION PLAN Individual shareholders may establish their own tax-sheltered Individual Retirement Account ("IRA"). The Fund has a prototype IRA plan using IRS Form 5305-A. An individual may contribute to the IRA an annual amount equal to the lesser of 100% of annual earned income or $2,000 ($2,250 maximum the case of a married couple where one spouse is not working and certain other conditions are met). Earnings on amounts held under the IRA accumulate free of federal income taxes. Distributions from the IRA may begin at age 59-1/2, and must begin by April 1 following the calendar year end in which a person reaches age 70-1/2. Excess contributions, certain distributions prior to age 59-1/2 and failure to begin distribution after age 70-1/2 may result in adverse tax consequences. Under current IRS regulations, an IRA applicant must be furnished a disclosure statement containing information specified by the IRS. The applicant has the right to revoke his account within seven days after receiving the disclosure statement in accordance with IRS regulations and obtain a full refund of his contribution should he so elect. The custodian may, in its discretion, hold the initial contribution uninvested until the expiration of the seven-day revocation period. It anticipates that it will not so exercise its discretion but reserves the right to do so. Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes the services provided for in the IRA plan as required by the Employee Retirement Income Security Act of 1974 ("ERISA"). The custodian invests all cash contributions, dividends and capital gains distributions in shares of the Fund. For such services, the following fees are charged against the accounts of the participants: $12.50 annual maintenance fee; $15 for transferring to a successor trustee; $15 for distribution(s) to a participant; and $15 for refunding any contribution in excess of the deductible limit. The Fund's prototype IRA plan may also be used to establish a Simplified Employee Pension Plan ("SEP/IRA"). The SEP/IRA is available to employers and employees, including self-employed individuals, who wish to purchase shares with tax deductible contributions not exceeding annually for any one participant the lesser of $30,000 or 15% of earned income; provided that no more than $9,500 annually (as adjusted for cost-of-living increases) may be contributed through elective deferrals. Requests for information and forms concerning the IRA and SEP/IRA should be directed to the Fund. Included with the forms is a disclosure statement which the IRS requires to be furnished to individuals who are considering an IRA or SEP/IRA. Consultation with a competent financial and tax adviser regarding the IRA and SEA/IRA is recommended. RETIREMENT PLAN A prototype defined contribution plan is available for employers who wish to purchase shares of the Fund with tax-deductible contributions not exceeding annually the lesser of $30,000 or 25% of earned income. This plan includes a cash or deferred 401(k) arrangement for employers who wish to allow employees to elect to reduce their compensation and have such amounts contributed to the plan, not to exceed $9,500 annually (as adjusted for cost-of-living increases). The Fund has received an opinion letter from the Internal Revenue Service that the prototype defined contribution retirement plan is acceptable for use under Section 401 of the Internal Revenue Code, as amended (the "Code"). Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes the services provided for in the retirement plan. The custodian invests all cash contributions, dividends and capital gains distributions in shares of the Fund. For such services, the following fees will be charged against the accounts of the participants: $12.50 for annual maintenance fee per participation account; $15 for a transfer to successor trustee; $15 for distribution(s) to a participant; and $15 for a refund of an excess contribution. Requests for information and forms concerning the retirement plan should be directed to the Fund. Consultation with a competent financial and tax adviser regarding the retirement plan is recommended. DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund will endeavor to qualify annually for and elect tax treatment applicable to a registered investment company under Subchapter M of the Code. Pursuant to the requirements of the Code, the Fund intends normally to distribute substantially all of its net investment income and net realized capital gains, if any, less any available capital loss carryover, to its shareholders annually so as to avoid paying income tax on its net investment income and net realized capital gains or being subject to a federal excise tax on undistributed net investment income and net realized capital gains. For federal income tax purposes, distributions by the Fund, whether invested in additional shares of Common Stock or received in cash, will be taxable to the Fund's shareholders except those shareholders that are not subject to tax on their income. Shareholders will be notified annually as to the federal tax status of dividends and distributions. For federal income tax purposes, a shareholder's cost of his shares is his basis and on redemption his gain or loss is the difference between such basis and the redemption price. Distributions and redemptions may also be taxed under state and local tax laws which may differ from the Code. BROKERAGE TRANSACTIONS The Advisory Agreement authorizes the Adviser to select the brokers or dealers that will execute the purchases and sale of the Fund's portfolio securities. In placing purchase and sale orders for the Fund, it is the policy of the Adviser to seek the best execution of orders at the most favorable price in light of the overall quality of brokerage and research services provided. The Advisory Agreement permits the Adviser to cause the Fund to pay a broker which provides brokerage and research services to the Adviser a commission for effecting securities transactions in excess of the amount another broker would have charged for executing the transaction, provided the Adviser believes this to be in the best interests of the Fund. The Fund may place portfolio orders with broker-dealers who recommend the purchase of Fund shares to clients if the Adviser believes the commission and transaction quality are comparable to that available from other brokers and allocate portfolio brokerage on that basis. CAPITAL STRUCTURE The Company's Articles of Incorporation permit the Board of Directors to issue 500,000,000 shares of common stock. The Board of Directors has the power to designate one or more classes ("series") of shares of common stock and to classify or reclassify any unissued shares with respect to such series. Currently the shares of the Fund are the only class of shares being offered by the Company. Shareholders are entitled: (i) to one vote per full share; (ii) to such distributions as may be declared by the Company's Board of directors out of funds legally available; and (iii) upon liquidation, to participate ratably in the assets available for distribution. There are no conversion or sinking fund provisions applicable to the shares, and the holders have no preemptive rights and may not cumulate their votes in the election of directors. Consequently the holders of more than 50% of the shares of the Fund voting for the election of directors can elect the entire Board of Directors and in such event the holders of the remaining shares voting for the election of directors will not be able to elect any person or persons to the Board of Directors. The shares are redeemable and are transferable. All shares issued and sold by the Fund will be fully paid and nonassessable. Fractional shares entitle the holder to the same rights as whole shares. The Fund will not issue certificates evidencing shares. Instead the shareholder's account will be credited with the number of shares purchased, relieving shareholders of responsibility for safekeeping of certificates and the need to deliver them upon redemption. Written confirmations are issued for all purchases of shares. Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202 acts as the Fund's transfer agent and dividend disbursing agent. The Maryland Business Corporation Law permits registered investment companies, such as the Fund, to operate without an annual meeting of shareholders under specified circumstances if an annual meeting is not required by the Act. The Fund has adopted the appropriate provisions in its Bylaws and does not anticipate holding an annual meeting of shareholders to elect directors unless otherwise required by the Act. The Fund has also adopted provisions in its Bylaws for the removal of directors by its shareholders. SHAREHOLDER REPORTS Shareholders will be provided at least semi-annually with a report showing the Fund's portfolio and other information and annually after the close of the Fund's fiscal year, which ends September 30, with an annual report containing audited financial statements. Shareholders who have questions about the Fund should call Firstar Trust Company, 1-800-338-1579 or (414) 765-4124 or write to: FMI Focus Fund, 225 East Mason Street, Milwaukee, Wisconsin 53202, Attention: Secretary. PERFORMANCE INFORMATION The Fund may provide from time to time in advertisements, reports to shareholders and other communications with shareholders its average annual total return. An average annual total return refers to the rate of return which, if applied to an initial investment in the Fund at the beginning of a stated period and compounded over the period, would result in the redeemable value of the investment in the Fund at the end of the stated period assuming reinvestment of all dividends and distributions and reflecting the effect of all recurring fees. The Fund may also provide "aggregate" total return information for various periods, representing the cumulative change in value of an investment in the Fund for a specific period (again reflecting changes in share price and assuming reinvestment of dividends and distributions). Any reported performance results will be based on historical earnings and should not be considered as representative of the performance of the Fund in the future. An investment in the Fund will fluctuate in value and at redemption its value may be more or less than the initial investment. The Fund may compare its performance to other mutual funds with similar investment objectives and to the industry as a whole, as reported by Lipper Analytical Services, Inc. Money, Forbes, Business Week and Barron's magazines and The Wall Street Journal. (Lipper Analytical Services, Inc. is an independent service that ranks over 1,000 mutual funds based upon total return performance.) The Fund may also compare its performance to the Dow Jones Industrial Average, Nasdaq Composite Index, Nasdaq Industrials Index, Value Line Composite Index, the Standard & Poor's 500 Stock Index and the Consumer Price Index. Such comparisons may be made in advertisements, shareholder reports or other communications to shareholders. FMI FOCUS FUND 225 East Mason Street Milwaukee, Wisconsin 53202 414-226-4555 BOARD OF DIRECTORS BARRY K. ALLEN TED D. KELLNER THOMAS W. MOUNT DONALD S. WILSON INVESTMENT ADVISER AND ADMINISTRATOR FIDUCIARY MANAGEMENT, INC. 225 East Mason Street Milwaukee, Wisconsin 53202 CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FIRSTAR TRUST COMPANY 615 East Michigan Street Milwaukee, Wisconsin 53202 1-800-338-1579 or 414-765-4124 INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP 100 East Wisconsin Avenue Suite 1500 Milwaukee, Wisconsin 53202 LEGAL COUNSEL FOLEY & LARDNER 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 P R O S P E C T U S FMI FOCUS FUND A NO-LOAD MUTUAL FUND STATEMENT OF ADDITIONAL INFORMATION October __, 1996 FMI FUNDS, INC. 225 East Mason Street Milwaukee, Wisconsin 53202 This Statement of Additional Information is not a prospectus and should be read in conjunction with the prospectus of FMI Funds, Inc., dated October __, 1996. Requests for copies of the Prospectus should be made by writing to FMI Funds, Inc., 225 East Mason Street, Milwaukee, Wisconsin 53202, Attention: Secretary or by calling (414) 226-4555. FMI FUNDS, INC. Table of Contents Page No. INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 1 INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 3 DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . 4 PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 6 INVESTMENT ADVISER AND ADMINISTRATOR . . . . . . . . . . . . . . . . 6 DETERMINATION OF NET ASSET VALUE AND PERFORMANCE . . . . . . . . . . 8 DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 9 ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 9 CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 13 DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . 14 INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 15 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 15 No person has been authorized to give any information or to make any representations other than those contain in this Statement of Additional Information and the Prospectus dated October __, 1996 and, if given or made, such information or representations may not be relied upon as having been authorized by FMI Funds, Inc.. This Statement of Additional Information does not constitute an offer to sell securities. INVESTMENT RESTRICTIONS As set forth in the Prospectus dated October __, 1996 of FMI Funds, Inc. (the "Corporation") under the caption "Investment Objective and Policies", the investment objective of FMI Focus Fund (the "Fund") is capital appreciation. Consistent with its investment objective, the Fund has adopted the following investment restrictions which are matters of fundamental policy and cannot be changed without approval of the holders of the lesser of: (i) 67% of the Fund's shares present or represented at a stockholders meeting at which the holders of more than 50% of such shares are present or represented; or (ii) more than 50% of the outstanding shares of the Fund. 1. The Fund will not purchase securities on margin (except for such short term credits as are necessary for the clearance of transactions); provided, however, that the Fund may (i) borrow money to the extent set forth in investment restriction no. 3; (ii) purchase or sell futures contracts and options on futures contracts; (iii) make initial and variation margin payments in connection with purchases or sales of futures contracts or options on futures contracts; and (iv) write or invest in put or call options. 2. The Fund may sell securities short and write put and call options to the extent permitted by the Investment Company Act of 1940 (the "Act"). 3. The Fund may borrow money or issue senior securities to the extent permitted by the Act. 4. The Fund may pledge or hypothecate its assets to secure its borrowings. 5. The Fund will not lend money (except by purchasing publicly distributed debt securities, purchasing securities of a type acquired by institutional investors or entering into repurchase agreements) and will not lend its portfolio securities. 6. The Fund will not make investments for the purpose of exercising control or management of any company. 7. The Fund will not purchase securities of any issuer (other than the United States or an instrumentality of the United States) if, as a result of such purchase,the Fund would hold more than 10% of any class of securities, including voting securities, of such issuer or more than 5% of the Fund's assets, taken at current value, would be invested in securities of such issuer, except that up to 50% of the Fund's total assets may be invested without regard to these limitations. 8. The Fund will not concentrate more than 25% of the value of its assets, determined at the time an investment is made, exclusive of government securities, in securities issued by companies primarily engaged in the same industry. 9. The Fund will not acquire or retain any security issued by a company, an officer or director of which is an officer or director of the Fund or an officer, director or other affiliated person of its investment adviser. 10. The Fund will not act as an underwriter or distributor of securities other than shares of the Fund (except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), in the disposition of restricted securities). 11. The Fund will not purchase any interest in any oil, gas or other mineral leases or any interest in any oil, gas or any other mineral exploration or development program. 12. The Fund will not purchase or sell real estate or real estate mortgage loans or real estate limited partnerships. 13. The Fund will not purchase or sell commodities or commodity contracts, except that the Fund may enter into futures contracts and options on futures contracts. The Fund has adopted certain other investment restrictions which are not fundamental policies and which may be changed by the Corporation's Board of Directors without stockholder approval. These additional restrictions are as follows: 1. The Fund will not purchase illiquid securities if, as a result of such purchase, more than 15% of the total value of its total assets would be invested in such securities. 2. The Fund's investments in warrants will be limited to 5% of the Fund's net assets. Included within such 5%, but not to exceed 2% of the value of the Fund's net assets, may be warrants which are not listed on either the New York Stock Exchange or the American Stock Exchange. 3. The Fund will not purchase the securities of other investment companies except: (a) as part of a plan of merger, consolidation or reorganization approved by the stockholders of the Fund; (b) securities of registered open-end investment companies that invest exclusively in high quality, short-term debt securities; or (c) securities of registered closed-end investment companies on the open market where no commission results, other than the usual and customary broker's commission. No purchases described in (b) and (c) will be made if as a result of such purchases (i) the Fund and its affiliated persons would hold more than 3% of any class of securities, including voting securities, of any registered investment company; (ii) more than 5% of the Fund's net assets would be invested in shares of any one registered investment company; and (iii) more than 10% of the Fund's net assets would be invested in shares of registered investment companies. The aforementioned percentage restrictions on investment or utilization of assets refer to the percentage at the time an investment is made. If these restrictions are adhered to at the time an investment is made, and such percentage subsequently changes as a result of changing market values or some similar event, no violation of the Fund's fundamental restrictions will be deemed to have occurred. Any changes in the Fund's investment restrictions made by the Board of Directors will be communicated to stockholders prior to their implementation. INVESTMENT CONSIDERATIONS Illiquid Securities The Fund may invest up to 15% of its net assets in securities for which there is no readily available market ("illiquid securities"). The 15% limitation includes certain securities whose disposition would be subject to legal restrictions ("restricted securities"). However certain restricted securities that may be resold pursuant to Rule 144A under the Securities Act may be considered liquid. The Board of Directors of the Corporation has delegated to the Adviser the day-to-day determination of the liquidity of a security although it has retained oversight and ultimate responsibility for such determinations. Although no definite quality criteria are used, the Board of Directors has directed the Adviser to consider such factors as (i) the nature of the market for a security (including the institutional private resale markets); (ii) the terms of these securities or other instruments allowing for the disposition to a third party or the issuer thereof (e.g. certain repurchase obligations and demand instruments); (iii) the availability of market quotations; and (iv) other permissible factors. Restricted securities may be sold in private negotiated or other exempt transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. When registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable time may elapse between the decision to sell and the sale date. If, during such period, adverse market conditions were to develop, the Fund might obtain a less favorable price than the price which prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the Board of Directors. Portfolio Turnover The Fund will generally purchase and sell securities and effect transactions in futures contracts without regard to the length of time the security has been held or the futures contract open and, accordingly, it can be expected that the rate of portfolio turnover may be substantial. In selling a security or closing a futures contract, the Adviser will consider that profits from sales of securities held less than three months must be limited in order to meet the requirements of Subchapter M of the Internal Revenue Code. Subject to the foregoing, the Fund may sell a given security or close a futures contract, no matter for how long or short a period it has been held in the portfolio, and no matter whether the sale is at a gain or loss, if the Adviser believes that it is not fulfilling its purpose. Since investment decisions are based on the anticipated contribution of the security in question to the Fund's investment objective, the rate of portfolio turnover is irrelevant when the Adviser believes a change is in order to achieve those objectives, and the Fund's annual portfolio turnover rate may vary from year to year. The Fund's portfolio turnover rate will generally not exceed 200%. Pursuant to Securities and Exchange Commission requirements, the portfolio turnover rate of the Fund is calculated without regard to securities, including short sales, options and futures contracts, having a maturity of less than one year. The Fund may have a significant portion of its assets in short- term options and futures contracts which are excluded for purposes of calculating portfolio turnover. High portfolio turnover in any year will result in the payment by the Fund of above-average transaction costs and could result in the payment by shareholders of above-average amounts of taxes on realized investment gains. Distributions to shareholders of such investment gains, to the extent they consist of net short-term capital gains, will be considered ordinary income for federal income tax purposes. DIRECTORS AND OFFICERS OF THE CORPORATION The name, address principal occupations during the past five years and other information with respect to each of the directors and offices of the Fund are as follows: BARRY K. ALLEN Age 48 30 South Wacker Drive Suite 3800 Chicago, IL 60606 (A DIRECTOR OF THE FUND) Mr. Allen is Executive Vice President, Communications & Information Products, Ameritech, Chicago, Illinois and has served in that capacity since August, 1995. From September, 1993 to August 1995, Mr. Allen was President and Chief Operating Officer of Marquette Electronics, Inc., a manufacturer of medical electronic equipment and systems, Milwaukee, Wisconsin. From July, 1989 to July, 1995, Mr. Allen was President and Chief Executive Officer of Wisconsin Bell and from July, 1993 to September, 1993, Mr. Allen was President and Chief Executive Officer of Ameritech Illinois. Mr. Allen is a director of Harley-Davidson Inc. Mr. Allen is also a director of Fiduciary Capital Growth Fund, Inc., an investment company for which the Adviser serves as investment adviser. TED D. KELLNER* Age 50 225 East Mason Street Milwaukee, Wisconsin (PRESIDENT, TREASURER AND A DIRECTOR OF THE FUND) Mr. Kellner is Chairman of the Board and Chief Executive Officer of Fiduciary Management, Inc., an investment advisory firm, which he co-founded with Mr. Donald S. Wilson in 1980. Mr. Kellner is also President, Treasurer and a director of Fiduciary Capital Growth Fund, Inc. THOMAS W. MOUNT Age 65 401 Pine Terrace Oconomowoc, Wisconsin (A DIRECTOR OF THE FUND) Mr. Mount is retired Chairman and a director of Stokely USA, Inc., a canned and frozen food processor and was employed by such firm in various capacities since 1957. Mr. Mount is also a director of Fiduciary Capital Growth Fund, Inc. DONALD S. WILSON* Age 53 225 East Mason Street Milwaukee, Wisconsin (VICE PRESIDENT, SECRETARY AND A DIRECTOR OF THE FUND) Mr. Wilson is President and Treasurer of Fiduciary Management, Inc. Mr. Wilson is also Vice President, Secretary and a director of Fiduciary Capital Growth Fund, Inc. GARY G. WAGNER Age 53 225 East Mason Street Milwaukee, Wisconsin (VICE PRESIDENT AND ASSISTANT SECRETARY OF THE FUND) Mr. Wagner has been Executive Vice President of Fiduciary Management, Inc. since July 1, 1987. Mr. Wagner is also Vice President and Assistant Secretary of Fiduciary Capital Growth Fund, Inc. PATRICK ENGLISH Age 35 225 East Mason Street Milwaukee, Wisconsin (VICE PRESIDENT OF THE FUND) Mr. English is Senior Vice President of Fiduciary Management, Inc. and has been employed by such firm in various capacities since December, 1986. Mr. English is also Vice President of Fiduciary Capital Growth Fund, Inc. The Fund plans to pay each director who is not an officer of the Fund a fee of $150 for each meeting of the Board of Directors attended. ____________________ * Messrs. Kellner and Wilson are directors who are "interested persons" of the Fund as that term is defined in the Investment Company Act of 1940. The Corporation was organized on September 5, 1996. The table below sets forth the compensation anticipated to be paid by the Corporation to each of the directors of the Corporation during the fiscal year ending September 30, 1997: COMPENSATION TABLE Total Compensa- Pension or tion from Retirement Estimated Corporation Aggregate Benefits Annual and Fund Compensation Accrued as Benefits Complex from Part of Fund Upon Paid to Name of Person Corporation Expenses Retirement Directors(1) Barry K. Allen $600 0 0 $3,000 Ted D. Kellner 0 0 0 0 Thomas W. Mount $600 0 0 $3,000 Donald S. Wilson 0 0 0 0 ____________________ (1) Fiduciary Capital Growth Fund, Inc. and the Corporation are the only investment companies in the Fund Complex. PRINCIPAL STOCKHOLDERS As of the date hereof, Fiduciary Management, Inc. owns 100% of the Fund's outstanding shares. As of such date it controls the Fund and the Corporation and owns sufficient shares of the Fund to approve or disapprove all matters brought before stockholders of the Corporation, including the election of directors of the Corporation and the approval of auditors. The Corporation does not control any person. INVESTMENT ADVISER AND ADMINISTRATOR As set forth in the Prospectus under the caption "Management of the Fund" the investment adviser and administrator to the Fund is Fiduciary Management, Inc. (the "Adviser"). The Adviser is wholly-owned by Ted D. Kellner and Donald S. Wilson. The Adviser's executive officers include Messrs. Kellner, Wilson, Mr. Gary G. Wagner, Executive Vice President, Ms. Maria Blanco, Senior Vice President and Secretary, Mr. Patrick English, Senior Vice President, Mr. John Brandser, Vice President - Fixed Income, Ms. Camille Wildes, Vice President and Ms. Jody Reckard, Vice President. The directors of the Adviser are Messrs. Kellner and Wilson. The Adviser has undertaken to reimburse the Fund to the extent that the aggregate annual operating expenses, including the investment advisory fee and the administration fee but excluding interest, taxes, brokerage commissions and extraordinary items, exceed that percentage of the daily net assets of the Fund for such year, as determined by valuations made as of the close of each business day of the year, which is the most restrictive percentage provided by the state laws of the various states in which it shares are qualified for sale or, if the states in which its shares are qualified for sale impose no such restrictions, 2.75%. As of the date of this Statement of Additional Information the percentage applicable to the Fund is 2-1/2% on the first $30,000,000 of its daily net assets, 2% on the next $70,000,000 of its daily net assets and 1-1/2% on daily net assets in excess of $100,000,000. The Fund monitors its expense ratio on a monthly basis. If the accrued amount of the expenses of the Fund exceeds the expense limitation, the Fund creates an account receivable from the Adviser for the amount of such excess. In such a situation the monthly payment of the Adviser's fee will be reduced by the amount of such excess, subject to adjustment month by month during the balance of the Fund's fiscal year if accrued expenses thereafter fall below this limit. As set forth in the Prospectus under the caption "Management of the Fund" the Adviser is also the administrator to the Fund. Pursuant to an administration agreement (the "Administration Agreement") between the Fund and the Adviser, the Adviser supervises all aspects of the Fund's operations except those performed by it as investment adviser. In connection with such supervision the Adviser prepares and maintains the books, accounts and other documents required by the Investment Company Act of 1940 (the "Act"), calculates the Fund's net asset value, responds to shareholder inquiries, prepares the Fund's financial statements and tax returns, prepares reports and filings with the Securities and Exchange Commission and with state Blue Sky authorities, furnishes statistical and research data, clerical, accounting and bookkeeping services and stationery and office supplies, keeps and maintains the Fund's financial accounts and records and generally assists in all respects of the Fund's operations. The Advisory Agreement will remain in effect as long as its continuance is specifically approved at least annually, by (i) the Board of Directors of the Corporation, or by the vote of a majority (as defined in the Act) of the outstanding shares of the Fund, and (ii) by the vote of a majority of the directors of the Corporation who are not parties to the Advisory Agreement or interested persons of the Adviser, cast in person at a meeting called for the purpose of voting on such approval. The Administration Agreement will remain in effect as long as its continuance is specifically approved at least annually by the Board of Directors of the Corporation. Both the Advisory Agreement and the Administration Agreement provide that they may be terminated at any time without the payment of any penalty, by the Board of Directors of the Corporation or by vote of a majority of the Fund's stockholders, on sixty days' written notice to the Adviser, and by the Adviser on the same notice to the Corporation and that they shall be automatically terminated if they are assigned. The Advisory Agreement and the Administration Agreement provide that the Adviser shall not be liable to the Fund or its stockholders for anything other than willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties. The Advisory Agreement and the Administration Agreement also provide that the Adviser and its officers, directors and employees may engage in other businesses, devote time and attention to any other business whether or a similar or dissimilar nature, and render services to others. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE As set forth in the Prospectus under the caption "Determination of Net Asset Value" the net asset value of the Fund will be determined as of the close of regular trading (4:00 P.M. Eastern Time) on each day the New York Stock Exchange is open for trading. The New York Stock Exchange is open for trading Monday through Friday except New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned holidays falls on a Saturday, the New York Stock Exchange will not be open for trading on the preceding Friday and when any such holiday falls on a Sunday, the New York Stock Exchange will not be open for trading on the succeeding Monday, unless unusual business conditions exist, such as the ending of a monthly or the yearly accounting period. Any total rate of return quotation for the Fund will be for a period of three or more months and will assume the reinvestment of all dividends and capital gains distributions which were made by the Fund during that period. Any period total rate of return quotation of the Fund will be calculated by dividing the net change in value of a hypothetical shareholder account established by an initial payment is $1,000 at the beginning of the period by 1,000. The net change in the value of a shareholder account is determined by subtracting $1,000 from the product obtained by multiplying the net asset value per share at the end of the period by the sum obtained by adding (A) the number of shares purchased at the beginning of the period plus (B) the number of shares purchased during the period with reinvested dividends and distributions. Any average annual compounded total rate of return quotation of the Fund will be calculated by dividing the redeemable value at the end of the period (i.e., the product referred to in the preceding sentence) by $1,000. A root equal to the period, measured in years, in question is then determined and 1 is subtracted from such root to determine the average annual compounded total rate of return. The foregoing computation may also be expressed by the following formula: n P(1 + T) = ERV P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the stated periods at the end of the stated periods DISTRIBUTION OF SHARES The Fund has adopted a Service and Distribution Plan (the "Plan") in anticipation that the Fund will benefit from the Plan through increased sales of shares, thereby reducing the Fund's expense ratio and providing the Adviser with greater flexibility in management. The Plan may be terminated by the Fund at any time by a vote of the directors of the Corporation who are not interested persons of the Corporation and who have no direct or indirect financial interest in the Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by a vote of a majority of the outstanding shares of the Fund. Messrs. Allen and Mount are currently the Rule 12b-1 Directors. Any change in the Plan that would materially increase the distribution expenses of the Fund provided for in the Plan requires approval of the stockholders of the Fund and the Board of Directors, including the Rule 12b-1 Directors. While the Plan is in effect, the selection and nomination of directors who are not interested persons of the Corporation will be committed to the discretion of the directors of the Corporation who are not interested persons of the Corporation. The Board of Directors of the Corporation must review the amount and purposes of expenditures pursuant to the Plan quarterly as reported to it by a Distributor, if any, or officers of the Corporation. The Plan will continue in effect for as long as its continuance is specifically approved at least annually by the Board of Directors, including the Rule 12b-1 Directors. The Fund did not begin operations until October __, 1996, and thus, the Fund had not incurred any distribution costs as of that date. ALLOCATION OF PORTFOLIO BROKERAGE Decisions to buy and sell securities for the Fund are made by the Adviser subject to review by the Corporation's Board of Directors. In placing purchase and sale orders for portfolio securities for the Fund, it is the policy of the Adviser to seek the best execution of orders at the most favorable price in light of the overall quality of brokerage and research services provided, as described in this and the following paragraph. In selecting brokers to effect portfolio transactions, the determination of what is expected to result in best execution at the most favorable price involves a number of largely judgmental considerations. Among these are the Adviser's evaluation of the broker's efficiency in executing and clearing transactions, block trading capability (including the broker's willingness to position securities and the broker's financial strength and stability). The most favorable price to the Fund means the best net price without regard to the mix between purchase or sale price and commission, if any. Over-the-counter securities are generally purchased and sold directly with principal market makers who retain the difference in their cost in the security and its selling price. In some instances, the Adviser feels that better prices are available from non-principal market makers who are paid commissions directly. The Fund may place portfolio orders with broker-dealers who recommend the purchase of Fund shares to clients if the Adviser believes the commissions and transaction quality are comparable to that available from other brokers and may allocate portfolio brokerage on that basis. In allocating brokerage business for the Fund, the Adviser also takes into consideration the research, analytical, statistical and other information and services provided by the broker, such as general economic reports and information, reports or analyses of particular companies or industry groups, market timing and technical information, and the availability of the brokerage firm's analysts for consultation. While the Adviser believes these services have substantial value, they are considered supplemental to the Adviser's own efforts in the performance of its duties under the Advisory Agreement. Other clients of the Adviser may indirectly benefit from the availability of these services to the Adviser, and the Fund may indirectly benefit from services available to the Adviser as a result of transactions for other clients. The Advisory Agreement provides that the Adviser may cause the Fund to pay a broker which provides brokerage and research services to the Adviser a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting the transaction, if the Adviser determines in good faith that such amount of commission is reasonable in relation to the value of brokerage and research services provided by the executing broker viewed in terms of either the particular transaction or the Adviser's overall responsibilities with respect to the Fund and the other accounts as to which it exercises investment discretion. The Fund did not commence operations until October ___, 1996. CUSTODIAN Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202, acts as custodian for the Fund. As such, Firstar Trust Company holds all securities and cash of the Fund, delivers and receives payment for securities sold, receives and pays for securities purchased, collects income from investments and performs other duties, all as directed by officers of the Fund. Firstar Trust Company does not exercise any supervisory function over the management of the Fund, the purchase and sale of securities or the payment of distributions to shareholders. Firstar Trust Company also acts as the Fund's transfer agent and dividend disbursing agent. TAXES As set forth in the Prospectus under the caption "Dividends, Distributions and Taxes" the Fund will endeavor to qualify annually for and elect tax treatment applicable to a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Code, the Fund will not qualify as a regulated investment company for any taxable year if more than 30% of the Fund's gross income for that year is derived from gains on the sale of securities held less than three months (the "30% Test"). These requirements may also restrict the extent of the Fund's activities in option and other portfolio transactions. Specifically, the 30% Test will limit the extent to which a Fund may: (i) sell securities held for less than three months; (ii) write options with expire in less than three months; (iii) effect closing transactions with respect to call or put options that have been written or purchased within the preceding three months; and (iv) effect short sales. If a call option written by the Fund expires, the amount of the premium received by the Fund for the option will be short-term or long- term capital gain to the Fund depending on the Fund's holding period for the underlying security or underlying futures contract. If such an option is closed by the Fund, any gain or loss realized by the Fund as a result of the closing purchase transaction will be short-term or long-term capital gain or loss depending on the Fund's holding period for the underlying security or underlying futures contract. If the holder of a call option exercises the holder's right under the option, any gain or loss realized by the Fund upon the sale of the underlying security or underlying futures contract pursuant to such exercise will be short-term or long-term capital gain or loss to the Fund depending on the Fund's holding period for the underlying security or underlying futures contract. With respect to call options purchased by the Fund, the Fund will realize short-term or long-term capital gain or loss if such option is sold and will realize short-term or long-term capital loss if the option is allowed to expire depending on the Fund's holding period for the call option. If such a call option is exercised, the amount paid by the Fund for the option will be added to the basis of the stock or futures contract so acquired. The Fund has available to it a number of elections under the Code concerning the treatment of option transactions for tax purposes. The Fund will utilize the tax treatment that, in the Fund's judgment, will be most favorable to a majority of investors in the Fund. Taxation of these transactions will vary according to the elections made by the Fund. These tax considerations may have an impact on investment decisions made by the Fund. The Fund will utilize options on stock indexes. Options on "broadbased" stock indexes are classified as "nonequity options" under the Code. Gains and losses resulting from the expiration, exercise or closing of such nonequity options, as well as gains and losses resulting from futures contract transactions, will be treated as long-term capital gain or loss to the extent of 60% thereof and short-term capital gain or loss to the extent of 40% thereof (hereinafter "blended gain or loss"). In addition, any nonequity option held by the Fund on the last day of a fiscal year will be treated as sold for market value on that date, and gain or loss recognized as a result of such deemed sale will be blended gain or loss. These tax considerations may have an impact on investment decisions made by the Fund. The trading strategies of the Fund involving nonequity options on stock indexes may constitute "straddle" transactions. "Straddles" may affect the taxation of such instruments and may cause the postponement of recognition of losses incurred in certain closing transactions. Dividends from the Fund's net investment income and distributions from the Fund's net realized capital gains are taxable to stockholders as ordinary income, whether received in cash or in additional shares. The 70% dividends-received deduction for corporations will apply to such dividends and distributions, subject to proportionate reductions if the aggregate dividends received by the Fund from domestic corporations in any year are less than 100% of the net investment company income taxable distributions made by the Fund. Any dividend or capital gain distribution paid shortly after a purchase of shares of the Fund, will have the effect of reducing the per share net asset value of such shares by the amount of the dividend or distribution. Furthermore, if the net asset value of the shares of the Fund immediately after a dividend or distribution is less than the cost of such shares to the stockholder, the dividend or distribution will be taxable to the stockholder even though it results in a return of capital to him. Redemption of shares will generally result in a capital gain or loss for income tax purposes. Such capital gain or loss will be long term or short term, depending upon the holding period. However, if a loss is realized on shares held for six months or less, and the investor received a capital gain distribution during that period, then such loss is treated as a long-term capital loss to the extent of the capital gain distribution received. The Fund may be required to withhold Federal income tax at a rate of 31% ("backup withholding") from dividend payments and redemption proceeds if a shareholder fails to furnish the Fund with his social security or other tax identification number and certify under penalty of perjury that such number is correct and that he is not subject to backup withholding due to the under reporting of income. The certification form is included as part of the share purchase application and should be completed when the account is opened. This section is not intended to be a full discussion of present or proposed federal income tax laws and the effect of such laws on an investor. Investors are urged to consult with their respective tax advisers for a complete review of the tax ramifications of an investment in the Fund. STOCKHOLDER MEETINGS The Maryland Business Corporation Law permits registered investment companies, such as the Fund, to operate without an annual meeting of stockholders under specified circumstances if an annual meeting is not required by the Act. The Corporation has adopted the appropriate provisions in its bylaws and may, at its discretion, not hold an annual meeting in any year in which the election of directors is not required to be acted upon by the stockholders under the Act. The Corporation's bylaws also contain procedures for the removal of directors by its stockholders. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. Upon the written request of the holders of shares entitled to not less than ten percent (10%) of all the votes entitled to be cast at such meeting, the Secretary of the Corporation shall promptly call a special meeting of stockholders for the purpose of voting upon the question of removal of any director. Whenever ten or more stockholders or record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least one percent (1%) of the total outstanding shares, whichever is less, shall apply to the Corporation's Secretary in writing, stating that they wish to communicate with other stockholders with a view to obtaining signatures to a request for a meeting as described above and accompanied by a form of communication and request which they wish to transmit, the Secretary shall within five business days after such application either: (1) afford to such applicants access to a list of the names and addresses of all stockholders as recorded on the books of the Corporation; or (2) inform such applicants as to the approximate number of stockholders of record and the approximate cost of ailing to them the proposed communication and form of request. If the Secretary elects to follow the course specified in clause (2) of the last sentence of the preceding paragraph, the Secretary, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all stockholders of record at their addresses as recorded on the books unless within five business days after such tender the Secretary shall mail to such applicants and file with the Securities and Exchange Commission, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Board of Directors to the effect that in their opinion either such material contains untrue statements of factor omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so file, the Securities and Exchange Commission may, and if demanded by the Board of Directors or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the Securities and Exchange Commission shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the Securities and Exchange Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Secretary shall mail copies of such material to all stockholders with reasonable promptness after the entry of such order and the renewal of such tender. DESCRIPTION OF SECURITIES RATINGS As set forth in the Corporation's Prospectus, the Fund may invest in commercial paper and commercial paper master notes assigned ratings of either Standard & Poor's Corporation ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"). A brief description of the ratings symbols and their meanings follows: Standard & Poor's Commercial Paper Ratings. A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. The categories rated A-3 or higher are as follows: A-1. This highest category indicates that the degree of safety regarding timely payment is strong. Those issuers determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2. Capacity for timely payment on issues with this designation is satisfactory. However the relative degree of safety is not as high as for issuers designed "A-1." A-3. Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designation. Moody's Short-Term Debt Ratings. Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subjection variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500, Milwaukee, Wisconsin 53202 has been selected as the independent accountants for the Fund. As such Price Waterhouse LLP performs an audit of the Fund's financial statement and considers the Fund's internal control structure. FINANCIAL STATEMENTS The following financial statements for the Fund are attached hereto: - Report of Independent Accountants - Statement of Assets and Liabilities - Notes to the Financial Statement REPORT OF INDEPENDENT ACCOUNTANT To the Stockholders and Board of Directors of FMI Funds, Inc.: In our opinion, the accompanying statement of assets and liabilities presents fairly, in all material respects, the financial position of FMI Focus Fund (the "Fund"), a series of FMI Funds, Inc. at ____________, 1996, in conformity with generally accepted accounting principles. This financial statement is the responsibility of the Fund's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this financial statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion express above. Price Waterhouse LLP Milwaukee, Wisconsin ________, 1996 FMI FUNDS, INC. FMI FOCUS FUND Statement of Assets and Liabilities __________, 1996 FMI Focus Fund ASSETS Cash $100,000 Unamortized organizational costs Prepaid initial registration expenses -------- Total Assets -------- LIABILITIES Payable to Adviser -------- Total Liabilities $100,000 ======== NET ASSETS Capital Stock, $0.0001 par value; 500,000,000 shares authorized; 10,000 shares outstanding $100,000 ======== Offering and redemption price/net asset value per share (based on 10,000 shares of capital stock issued and outstanding) $10.00 ====== The accompanying notes to the financial statement are an integral part of this statement. FMI FUNDS, INC. FMI FOCUS FUND NOTES TO FINANCIAL STATEMENT 1. FMI Funds, Inc. (the "Company") was incorporated under the laws of the state of Maryland on September 5, 1996 and has had no operations to date other than those relating to organizational matters and the sale of 10,000 shares of its common stock to its original stockholder, Fiduciary Management, Inc. The Company is an open-end diversified management investment company registered under the Investment Company Act of 1940 (the "1940 Act"). 2. FMI Funds, Inc., which consists solely of the FMI Focus Fund (the "Fund"), has an agreement with Fiduciary Management, Inc. (the "Adviser"), with whom certain officers and directors of FMI Funds, Inc. are affiliated, to furnish investment advisory services to the Fund. Under the terms of this agreement, the Fund will pay the Adviser a monthly fee based on the Fund's average daily net assets at the annual rate of 1.00%. Under the investment advisory agreement, if the aggregate annual operating expenses (including the investment advisory fee and the administration fee but excluding interest, taxes, brokerage commissions and other costs incurred in connection with the purchase or sale of portfolio securities and extraordinary items) exceed the lowest limitations imposed by state securities administrators, the Advisor will reimburse the Fund for the amount of such excess. 3. Organizational costs and initial registration expenses are being deferred and amortized over the period of benefit, but not to exceed sixty months from the Fund's commencement of operations. These costs were advanced by the Adviser and will be reimbursed by the Fund. The proceeds of any redemption of the initial shares by the original stockholder or any transferee will be reduced by a pro-rata portion of any then unamortized organizational expenses in the same proportion as the number of initial shares being redeemed bears to the number of initial shares outstanding at the time of such redemption. 4. Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund has adopted a Service and Distribution Plan (the "Plan"). Under the Plan, the Fund is authorized to pay expenses incurred for the purpose of financing activities intended to result in the sale of shares of the Fund at an annual rate of up to 0.25% of the Fund's average daily net assets. PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a.) Financial Statement (included in Part B) Report of Independent Accountants Statement of Assets and Liabilities Notes to Financial Statement (b.) Exhibits (1) Registrant's Articles of Incorporation. (2) Registrant's Bylaws. (3) None (4) None (5) Investment Advisory Agreement with Fiduciary Management, Inc. relating to FMI Focus Fund (submitted in draft form). (6) None (7) None (8) Custodian Agreement with Firstar Trust Company (submitted in draft form). (9.1) Fund Administration Servicing Agreement with Fiduciary Management, Inc. relating to FMI Focus Fund (submitted in draft form). (9.2) Transfer Agent Agreement with Firstar Trust Company relating to FMI Focus Fund (submitted in draft form). (10) Opinion of Foley & Lardner, counsel for Registrant (submitted in draft form). (11) Consent of Price Waterhouse LLP (to be filed by amendment). (12) None (13) Subscription Agreement (submitted in draft form). (14) Individual Retirement Custodial Account. (15) Service and Distribution Plan. (16) None (17) Financial Data Schedule (to be filed by amendment). (18) None Item 25. Persons Controlled by or under Common Control with Registrant Registrant is controlled by Fiduciary Management, Inc. which owns 100% of Registrant's voting securities as of __________, 1996. Registrant neither controls any person nor is under common control with any other person. Item 26. Number of Holders of Securities Number of Record Holders Title of Class as of , 1996 Class A Common Stock, $0.0001 1 par value (FMI Focus Fund) Item 27. Indemnification Pursuant to the authority of the Maryland General Corporation Law, particularly Section 2-418 thereof, Registrant's Board of Directors has adopted the following bylaw which is in full force and effect and has not been modified or cancelled: Article VII GENERAL PROVISIONS Section 7. Indemnification. A. The Corporation shall indemnify all of its corporate representatives against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with the defense of any action, suit or proceeding, or threat or claim of such action, suit or proceeding, whether civil, criminal, administrative, or legislative, no matter by whom brought, or in any appeal in which they or any of them are made parties or a party by reason of being or having been a corporate representative, if the corporate representative acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal proceeding, if he had no reasonable cause to believe his conduct was unlawful provided that the corporation shall not indemnify corporate representatives in relation to matters as to which any such corporate representative shall be adjudged in such action, suit or proceeding to be liable for gross negligence, willful misfeasance, bad faith, reckless disregard of the duties and obligations involved in the conduct of his office, or when indemnification is otherwise not permitted by the Maryland General Corporation Law. B. In the absence of an adjudication which expressly absolves the corporate representative, or in the event of a settlement, each corporate representative shall be indemnified hereunder only if there has been a reasonable determination based on a review of the facts that indemnification of the corporate representative is proper because he has met the applicable standard of conduct set forth in paragraph A. Such determination shall be made: (i) by the board of directors, by a majority vote of a quorum which consists of directors who were not parties to the action, suit or proceeding, or if such a quorum cannot be obtained, then by a majority vote of a committee of the board consisting solely of two or more directors, not, at the time, parties to the action, suit or proceeding and who were duly designated to act in the matter by the full board in which the designated directors who are parties to the action, suit or proceeding may participate; or (ii) by special legal counsel selected by the board of directors or a committee of the board by vote as set forth in (i) of this paragraph, or, if the requisite quorum of the full board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full board in which directors who are parties to the action, suit or proceeding may participate. C. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall create a rebuttable presumption that the person was guilty of willful misfeasance, bad faith, gross negligence or reckless disregard to the duties and obligations involved in the conduct of his or her office, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. D. Expenses, including attorneys' fees, incurred in the preparation of and/or presentation of the defense of a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section 2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an undertaking by or on behalf of the corporate representative to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this bylaw; and (ii) a written affirmation by the corporate representative of the corporate representative's good faith belief that the standard of conduct necessary for indemnification by the corporation has been met. E. The indemnification provided by this bylaw shall not be deemed exclusive of any other rights to which those indemnified may be entitled under these bylaws, any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person subject to the limitations imposed from time to time by the Investment Company Act of 1940, as amended. F. This corporation shall have power to purchase and maintain insurance on behalf of any corporate representative against any liability asserted against him or her and incurred by him or her in such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under this bylaw provided that no insurance may be purchased or maintained to protect any corporate representative against liability for gross negligence, willful misfeasance, bad faith or reckless disregard of the duties and obligations involved in the conduct of his or her office. G. "Corporate Representative" means an individual who is or was a director, officer, agent or employee of the corporation or who serves or served another corporation, partnership, joint venture, trust or other enterprise in one of these capacities at the request of the corporation and who, by reason of his or her position, is, was, or is threatened to be made, a party to a proceeding described herein. Insofar as indemnification for and with respect to liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person or Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 28. Business and Other Connections of Investment Adviser Incorporated by reference to pages 4 through 6 of the Statement of Additional Information pursuant to Rule 411 under the Securities Act of 1933. Item 29. Principal Underwriters Not Applicable. Item 30. Location of Accounts and Records The accounts, books and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the physical possession of Registrant's Treasurer, Ted D. Kellner, at Registrant's corporate offices, 225 East Mason Street, Milwaukee, Wisconsin 53202. Item 31. Management Services All management-related service contracts entered into by Registrant are discussed in Parts A and B of this Registration Statement. Item 32. Undertakings Registrant undertakes to file a post-effective amendment to this Registration Statement within four to six months of the effective date of this Registration Statement which will contain financial statements (which need not be certified) as of and for the time period reasonably close or as soon as practicable to the date of such post-effective amendment. With respect to stockholder meetings, Registrant undertakes to call stockholder meetings in accordance with the provisions of Article I of its Bylaws, which are discussed in Parts A and B of this Registration Statement. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this 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 5th day of September, 1996. FMI FUNDS, INC. (Registrant) By: /s/ Ted D. Kellner Ted D. Kellner, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated. Name Title Date /s/ Ted D. Kellner (Principal Executive, September 5, 1996 Ted D. Kellner Financial and Accounting Officer) and a Director /s/ Barry K. Allen Director September 9, 1996 Barry K. Allen /s/ Thomas W. Mount Director September 11, 1996 Thomas W. Mount Director September 5, 1996 /s/ Donald S. Wilson Donald S. Wilson EXHIBIT INDEX Exhibit No. Exhibit Page No. (1) Registrant's Articles of Incorporation (2) Registrant's Bylaws (3) None (4) None (5) Investment Advisory Agreement with Fiduciary Management, Inc. relating to FMI Focus Fund* (6) None (7) None (8) Custodian Agreement with Firstar Trust Company* (9.1) Fund Administration Servicing Agreement with Fiduciary Management, Inc. relating to FMI Focus Fund* (9.2) Transfer Agent Agreement with Firstar Trust Company* (10) Opinion of Foley & Lardner, counsel for Registrant* (11) Consent of Price Waterhouse LLP** (12) None (13) Subscription Agreement* (14) Individual Retirement Custodial Account (15) Service and Distribution Plan (16) None (17) Financial Data Schedule** (18) None __________________________________ * Submitted in draft form. ** To be filed by amendment. EX-99.B1 2 EXHIBIT 1 - ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION OF FMI FUNDS, INC. The undersigned sole incorporator, being at least eighteen years of age, hereby adopts the following Articles of Incorporation for the purpose of forming a Maryland corporation under the general laws of the State of Maryland: ARTICLE I The name of the corporation (hereinafter called "Corporation") is: FMI FUNDS, INC. ARTICLE II The period of existence shall be perpetual. ARTICLE III The purposes for which the Corporation is formed are to engage in any lawful business for which corporations may be organized under the Maryland General Corporation Law. ARTICLE IV A. The aggregate number of shares of capital stock which the Corporation shall have authority to issue is Five Hundred Million (500,000,000) shares, all with a par value of One Hundredth of a Cent ($0.0001) per share, to be known and designated as "Common Stock." The aggregate par value of the authorized shares of the Corporation is Fifty Thousand Dollars ($50,000). The Board of Directors of the Corporation may increase or decrease the aggregate number of authorized shares of Common Stock pursuant to Section 2-105 of the Maryland General Corporation Law or any successor provision thereto. The Board of Directors of the Corporation may classify or reclassify any unissued shares of Common Stock and may designate or redesignate the name of any class of outstanding Common Stock. The Board of Directors may fix the number of shares of Common Stock in any such class and, except as specifically set forth in these Articles of Incorporation, may set or change the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption of any class of unissued shares of Common Stock. A total of One Hundred Million (100,000,000) shares of Common Stock shall initially be classified as "Class A Common Stock" (the "FMI Focus Fund" or such other name designated by the Corporation's Board of Directors). B. Notwithstanding the authority granted to the Board of Directors of the Corporation with respect to the designation, classification and reclassification of the unissued shares of Common Stock of the Corporation, each class of Common Stock shall have the following preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption: 1. Each holder of shares of Common Stock of the Corporation, irrespective of the class, shall be entitled to one (1) vote for each full share (and a fractional vote for each fractional share) then standing in his or her name on the books of the Corporation; provided, however, that shares of any class of Common Stock owned, other than in a fiduciary capacity, by the Corporation or by another corporation in which the Corporation owns shares entitled to cast a majority of all the votes entitled to be cast by all shares outstanding and entitled to vote of such corporation, shall not be voted at any meeting of stockholders. On any matter submitted to a vote of stockholders all shares of the Corporation's Common Stock then issued and outstanding and entitled to vote, irrespective of the class, shall be voted in the aggregate and not by class, except that: (a) when otherwise expressly provided by the Maryland General Corporation Law, the Investment Company Act of 1940 and the regulations thereunder, or other applicable law, shares shall be voted by individual class; and (b) when the matter to be acted upon does not affect any interest of a particular class of the Corporation's Common Stock, then only shares of the affected class shall be entitled to vote thereon. At all elections of directors of the Corporation, each stockholder shall be entitled to vote the shares owned of record by him for as many persons as there are directors to be elected, but shall not be entitled to exercise any right of cumulative voting. 2. All consideration received by the Corporation for the issue or sale of shares of any class of the Corporation's Common Stock, together with all assets in which such consideration is invested and reinvested, income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any such funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the class of the Corporation's Common Stock with respect to which such assets, payments or funds were received by the Corporation for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any assets derived from any reinvestment of such proceeds in whatever form, are herein referred to as "assets belonging to" such class. Any assets, income, earnings, profits and proceeds thereof, funds or payments which are not readily attributable to any particular class of the Corporation's Common Stock shall be allocable among any one or more of the classes of the Corporation's Common Stock in such manner and on such basis as the Board of Directors, in its sole discretion, shall deem fair and equitable. The power to make such allocations may be delegated by the Board of Directors from time to time to one or more of the officers of the Corporation. 3. The assets belonging to any class of the Corporation's Common Stock shall be charged with the liabilities in respect of such class of the Corporation's Common Stock, and shall also be charged with the share of the general liabilities of the Corporation allocated to such class determined as hereinafter provided. The determination of the Board of Directors shall be conclusive as to: (a) the amount of such liabilities, including the amount of accrued expenses and reserves; (b) any allocation of the same to a given class; and (c) whether the same are allocable to one or more classes. The liabilities so allocated to a class are herein referred to as "liabilities belonging to" such class. Any liabilities which are not readily attributable to any particular class of the Corporation's Common Stock shall be allocable among any one or more of the classes of the Corporation's Common Stock in such manner and on such basis as the Board of Directors, in its sole discretion, shall deem fair and equitable. The power to make such allocations may be delegated by the Board of Directors from time to time to one or more of the officers of the Corporation. 4. Shares of a class of the Corporation's Common Stock shall be entitled to such dividends and distributions, in stock or in cash or both, as may be declared from time to time by the Board of Directors, acting in its sole discretion, with respect to such class; provided, however, that dividends and distributions on shares of a class of the Corporation's Common Stock shall be paid only out of the lawfully available "assets belonging to" such class as such phrase is defined in this Article IV. 5. In the event of the liquidation or dissolution of the Corporation, stockholders of a class of the Corporation's Common Stock shall be entitled to receive, as a class, out of the assets of the Corporation available for distribution to stockholders, but other than general assets not belonging to any particular class, the assets belonging to such class, and the assets so distributable to the holders of any class of the Corporation's Common Stock shall be distributed among such holders in proportion to the number of shares of such class of the Corporation's Common Stock held by them and recorded on the books of the Corporation. In the event that there are any general assets not belonging to any particular class of the Corporation's Common Stock and available for distribution, such distribution shall be made to the holders of all classes of the Corporation's Common Stock in proportion to the net asset values of the respective classes of the Corporation's Common Stock determined as set forth in the Bylaws of the Corporation. 6. Each share of each class of Common Stock of the Corporation now or hereafter issued shall be subject to redemption by the stockholders of the Corporation and, subject to the suspension of such right of redemption as provided in the Bylaws, each holder of shares of any class of Common Stock of the Corporation, upon request to the Corporation accompanied by surrender of the appropriate stock certificate or certificates, if any, in proper form for transfer and after complying with any other redemption procedures established by the Board of Directors, shall be entitled to require the Corporation to redeem all or any part of the shares of such class of Common Stock standing in the name of such holder on the books of the Corporation at the net asset value of such shares. In the event that no certificates have been issued to the holder, the Board of Directors may require the submission of a stock power with an appropriate signature guarantee. All shares of any class of its Common Stock redeemed by the Corporation shall be deemed to be cancelled and restored to the status of authorized but unissued shares. The method of computing the net asset value of shares of each class of Common Stock of the Corporation for purposes of the issuance and sale, or redemption, thereof, as well as the time as of which such net asset value shall be computed, shall be as set forth in the Bylaws. Payment of the net asset value of each share of each class of Common Stock of the Corporation surrendered to it for redemption shall be made by the Corporation within seven (7) days after surrender of such stock to the Corporation for such purpose, or within such other reasonable period as may be determined from time to time by the Board of Directors. The Board of Directors of the Corporation may, upon reasonable notice to the stockholders of the Corporation, impose a fee for the privilege of redeeming shares, such fee to be not in excess of two percent (2.0%) of the proceeds of any such redemption. The Board shall have discretionary authority to rescind the imposition of any such fee and to reimpose the redemption fee from time to time upon reasonable notice. Any fee so imposed shall be uniform as to all stockholders to the extent required by the Investment Company Act of 1940. 7. If, at any time when a request for transfer or redemption of the shares of any class of Common Stock is received by the Corporation or its agent, the value (computed as set forth in the Bylaws) of the shares of such class in a stockholder's account is less than One Thousand Dollars ($1,000.00), after giving effect to such transfer or redemption, the Corporation may cause the remaining shares of such class in such stockholder's account to be redeemed in accordance with such procedures as the Board of Directors shall adopt. 8. Each holder of shares of the Corporation's Common Stock, irrespective of the class, may, upon request to the Corporation accompanied by surrender of the appropriate stock certificate or certificates, if any, in proper form for transfer and after complying with any other conversion procedures established by the Board of Directors, convert such shares into shares of any other class of the Corporation's Common Stock on the basis of their relative net asset values (determined in accordance with the Bylaws of the Corporation) less a conversion charge or discount determined by the Board of Directors. Any fee so imposed shall be uniform as to all stockholders to the extent required by the Investment Company Act of 1940. 9. No holder of shares of any class of Common Stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any shares of any class of the Common Stock of the Corporation which it may issue or sell (whether out of the number of shares authorized by these Articles of Incorporation, or out of any shares of any class of Common Stock of the Corporation acquired by it after the issue thereof, or otherwise) other than such right, if any, as the Board of Directors, in its discretion, may determine. ARTICLE V The number of directors constituting the Board of Directors shall initially be three (3), and the names of the initial directors are Ted D. Kellner, Thomas W. Mount and Donald S. Wilson. Thereafter, the number of directors shall be such number as is fixed from time to time by the Bylaws. ARTICLE VI The Corporation reserves the right to enter into, from time to time, investment advisory and administration agreements providing for the management and supervision of the investments of the Corporation, the furnishing of advice to the Corporation with respect to the desirability of investing in, purchasing or selling securities or other property and the furnishing of clerical and administrative services to the Corporation. Such agreements shall contain such other terms, provisions and conditions as the Board of Directors of the Corporation may deem advisable and as are permitted by the Investment Company Act of 1940. The Corporation may designate custodians, transfer agents, registrars and/or disbursing agents for the stock and assets of the Corporation and employ and fix the powers, rights, duties, responsibilities and compensation of each such custodian, transfer agent, registrar and/or disbursing agent. ARTICLE VII The following provisions define, limit and regulate the powers of the Corporation, the Board of Directors and the stockholders: A. The Corporation may issue and sell shares of any class of its own Common Stock in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration now or hereafter permitted by the laws of the State of Maryland, the Bylaws and these Articles of Incorporation, as its Board of Directors may determine; provided, however, that the consideration per share to be received by the Corporation upon the sale of any shares of any class of its Common Stock shall not be less than the net asset value per share of such class of Common Stock outstanding at the time as of which the computation of said net asset value shall be made. B. The Board of Directors may, in its sole and absolute discretion, reject in whole or in part orders for the purchase of shares of any class of Common Stock and may, in addition, require such orders to be in such minimum amounts as it shall determine. C. The holders of any fractional shares of any class Common Stock shall be entitled to the payment of dividends on such fractional shares, to receive the net asset value thereof upon redemption, to share in the assets of the Corporation upon liquidation and to exercise voting rights with respect thereto. D. The Board of Directors shall have full power in accordance with good accounting practice: (a) to determine what receipts of the Corporation shall constitute income available for payment of dividends and what receipts shall constitute principal and to make such allocation of any particular receipt between principal and income as it may deem proper; and (b) from time to time, in its discretion (i) to determine whether any and all expenses and other outlays paid or incurred (including any and all taxes, assessments or governmental charges which the Corporation may be required to pay or hold under any present or future law of the United States of America or of any other taxing authority therein) shall be charged to or paid from principal or income or both, and (ii) to apportion any and all of said expenses and outlays, including taxes, between principal and income. E. The Board of Directors shall have the power to determine from time to time whether and to what extent and at what time and places and under what conditions and regulations the books, accounts and documents of the Corporation or any of them, shall be open to the inspection of stockholders, except as otherwise provided by applicable law; and except as so provided, no stockholder shall have any right to inspect any book, account or document of the Corporation unless authorized to do so by resolution of the Board of Directors. ARTICLE VIII The address of the principal office of the Corporation in Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. ARTICLE IX The address of the initial registered office is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. ARTICLE X The name of the initial registered agent at such address is The Corporation Trust Incorporated, a Maryland corporation. ARTICLE XI The name and address of the sole incorporator is: Name Address Richard L. Teigen c/o Foley & Lardner 777 East Wisconsin Avenue Milwaukee, WI 53202 IN WITNESS WHEREOF, the undersigned incorporator who executed the foregoing Articles of Incorporation hereby acknowledges the same to be his act and further acknowledges that, to the best of his knowledge, the matters and facts set forth therein are true in all material respects under the penalties of perjury. Dated this 3rd day of September, 1996. Richard L. Teigen Sole Incorporator EX-99.B2 3 EXHIBIT 2 - BYLAWS BYLAWS OF FMI FUNDS, INC. ARTICLE I STOCKHOLDERS' MEETINGS Section 1. Place of Meetings. All meetings of stockholders shall be held at such location as the Board of Directors shall direct. Section 2. Annual Meeting. (a) The annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before it, if the annual meeting shall be held, shall be held during the month of December of each year (or during such other month as the Board of Directors shall determine), commencing in 1997, at such date and time as shall be fixed by the Board of Directors and stated in the notice of such meeting, but in no event more than one hundred twenty (120) days after the occurrence of the event requiring the meeting to elect directors. Any business of the corporation may be transacted at the annual meeting without being specifically designated in the notice, except such business as is specifically required by statute to be stated in the notice. (b) The corporation shall not be required to hold an annual meeting in any year in which the election of directors is not required to be acted on by stockholders under the Investment Company Act of 1940. Section 3. Special Meeting. Special meetings of the stockholders may be called by the board of directors, the president, any vice president, or the secretary, and shall be called by the secretary 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; provided that such holders prepay the costs to the corporation of preparing and mailing the notice of the meeting. The business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 4. Notice of Meeting. Not less than ten (10) days nor more than ninety (90) days before the date of every stockholders' meeting, the secretary shall give to each stockholder entitled to vote at such meeting and to each other stockholder entitled to notice of such meeting under applicable law, written or printed notice stating the time and place of the meeting, and in the case of a special meeting (or where required by applicable law) the purpose or purposes for which the meeting is called, either by mail, by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the corporation, with postage thereon prepaid. Section 5. Quorum. At any meeting of stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum; but this section shall not affect any requirement under statute or under the charter for the vote necessary for the adoption of any measure. If at any meeting a quorum is not present or represented, the chairman of the meeting or the holders of a majority of the stock present or represented may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally called. Section 6. Stock Entitled to Vote. Each issued share of each class of stock shall be entitled to vote at any meeting of stockholders except shares owned, other than in a fiduciary capacity, by the corporation or by another corporation in which the corporation owns shares entitled to cast a majority of all the votes entitled to be cast by all shares outstanding and entitled to vote of such corporation. Section 7. Voting. Each outstanding share of each class of stock entitled to vote at a meeting of stockholders shall be entitled to one vote on each matter submitted to a vote. In all elections for directors every stockholder shall have the right to vote the shares of each class owned of record by him for as many persons as there are directors to be elected, but shall not be entitled to exercise any right of cumulative voting. A stockholder may vote the shares owned of record by him either in person or by proxy executed in writing by the stockholder or by his authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from its date unless otherwise provided in the proxy. At all meetings of stockholders, unless the voting is conducted by inspectors, all questions relating to the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. A majority of the votes cast at a meeting of stockholders, duly called and at which a quorum is present, shall be sufficient to take or authorize any action which may properly come before the meeting, unless a greater number is required by statute or by the charter. Section 8. Informal Action. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, if a consent in writing, setting forth such action, is signed by all the stockholders entitled to vote on the subject matter thereof and such consent is filed with the records of the corporation. ARTICLE II DIRECTORS Section 1. Number. The number of directors of the corporation shall be three (3). By vote of a majority of the entire board of directors, the number of directors fixed by the charter or by these bylaws may be increased or decreased from time to time to not more than fifteen nor less than three, but the tenure of office of a director shall not be affected by any decrease in the number of directors so made by the board. Section 2. Election and Qualification. Until the first annual meeting of stockholders and until successors are duly elected and qualify, the board of directors shall consist of the persons named as such in the charter. At the first annual meeting of stockholders, the stockholders shall elect directors to hold office until their successors are elected and qualify. A director need not be a stockholder of the corporation, but must be eligible to serve as a director of a registered investment company under the Investment Company Act of 1940. Section 3. Vacancies. Any vacancy on the board of directors occurring between stockholders' meetings called for the purpose of electing directors may be filled, if immediately after filling any such vacancy at least two-thirds of the directors then holding office shall have been elected to such office at an annual or special meeting of stockholders, in the following manner: (i) for a vacancy occurring other than by reason of an increase in directors, by a majority of the remaining members of the board, although such majority is less than a quorum; and (ii) for a vacancy occurring by reason of an increase in the number of directors, by action of a majority of the entire board. A director elected by the board to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualified. If by reason of the death, disqualification or bona fide resignation of any director or directors, more than sixty percent (60%) of the members of the board of directors are interested persons of the corporation, as defined in the Investment Company Act of 1940, such vacancy shall be filled within thirty (30) days if it may be filled by the board, or within sixty (60) days if a vote of stockholders is required to fill such vacancy; provided that such vacancy may be filled within such longer period as the Securities and Exchange Commission may prescribe by rules and regulations, upon its own motion or by order upon application. In the event that at any time less than a majority of the directors were elected by the stockholders, the board or proper officer shall forthwith cause to be held as promptly as possible, and in any event within sixty (60) days, a meeting of the stockholders for the purpose of electing directors to fill any existing vacancies in the board, unless the Securities and Exchange Commission shall by order extend such period. Section 4. Powers. The business and affairs of the corporation shall be managed under the direction of the board of directors, which may exercise all of the powers of the corporation, except such as are by law or by the charter or by these bylaws conferred upon or reserved to the stockholders. Section 5. Removal. (a) At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. (b) Notwithstanding any other provisions of these bylaws, the secretary of the corporation shall promptly call a special meeting of stockholders for the purpose of voting upon the question of removal of any director 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. (c) Whenever ten or more stockholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least one percent (1%) of the total outstanding shares, whichever is less, shall apply to the corporation's secretary in writing, stating that they wish to communicate with other stockholders with a view to obtaining signatures to a request for a meeting pursuant to subsection (b) above and accompanied by a form of communication and request which they wish to transmit, the secretary shall within five business days after such application either: (1) afford to such applicants access to a list of the names and addresses of all stockholders as recorded on the books of the corporation; or (2) inform such applicants as to the approximate number of stockholders of record and the approximate cost of mailing to them the proposed communication and form of request. (d) If the secretary elects to follow the course specified in clause (2) of subsection (c) above, the secretary, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all stockholders of record at their addresses as recorded on the books, unless within five (5) business days after such tender the secretary shall mail to such applicants and file with the Securities and Exchange Commission, together with a copy of the material to be mailed, a written statement signed by at least a majority of the board of directors to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. (e) 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. Section 6. Place of Meetings. Meetings of the board of directors, regular or special, may be held at any place in or out of the State of Maryland as the board may from time to time determine or as may be specified in the notice of meeting. Section 7. First Meeting of Newly Elected Board. The first meeting of each newly elected board of directors shall be held without notice immediately after and at the same general place as the annual meeting of the stockholders, for the purpose of organizing the board, electing officers and transacting any other business that may properly come before the meeting. Section 8. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and place as shall from time to time be determined by the board. Section 9. Special Meetings. Special meetings of the board of directors may be called at any time either by the board, the president, a vice president or a majority of the directors in writing with or without a meeting. Notice of special meetings shall either be mailed by the secretary to each director at least three (3) days before the meeting or shall be given personally or telegraphed to each director at least one (1) day before the meeting. Such notice shall set forth the time and place of such meeting but need not, unless otherwise required by law, state the purposes of the meeting. Section 10. Quorum and Vote Required for Action. At all meetings of the board of directors a majority of the entire board shall constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meetings at which a quorum is present shall be the action of the board of directors unless the concurrence of a greater proportion is required for such action by statute, the articles of incorporation or these bylaws. If at any meeting a quorum is not present, a majority of the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Members of the board of directors or a committee of the board may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time; provided, however, that a director may not participate in a meeting by means of a conference telephone or similar communications equipment if the purpose of the meeting is to approve the corporation's investment advisory agreement and/or to approve the selection of the corporation's auditors, or if participation in such a manner would otherwise violate the Investment Company Act of 1940 or other applicable laws. Except as set forth in the preceding sentence, participation in a meeting by these means constitutes presence in person at the meeting. Section 11. Executive and Other Committees. The board of directors may appoint from among its members an executive and other committees composed of two (2) or more directors. The board may delegate to such committees in the intervals between meetings of the board any of the powers of the board to manage the business and affairs of the corporation, except the power to: (i) declare dividends or distributions upon the stock of the corporation; (ii) issue stock of the corporation; (iii) recommend to the stockholders any action which requires stockholder approval; (iv) amend the bylaws; (v) approve any merger or share exchange which does not require stockholder approval; or (vi) take any action required by the Investment Company Act of 1940 to be taken by the independent directors of the corporation or by the full board of directors. Section 12. Informal Action. Except as set forth in the following sentence, any action required or permitted to be taken at any meeting of the board of directors or of a committee of the board may be taken without a meeting, if a written consent to such action is signed by all members of the board or the committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. Notwithstanding the preceding sentence, no action may be taken by the board of directors pursuant to a written consent with respect to the approval of the corporation's investment advisory agreement, the approval of the selection of the corporation's auditors, or any action required by the Investment Company Act of 1940 or other applicable law to be taken at a meeting of the board of directors to be held in person. ARTICLE III OFFICERS AND EMPLOYEES Section 1. Election and Qualification. At the first meeting of each newly elected board of directors there shall be elected a president, one or more vice presidents, a secretary and a treasurer. The board may also elect one or more assistant secretaries and assistant treasurers. No officer need be a director. Any two or more offices, except the offices of president and vice president, may be held by the same person but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law, charter or these bylaws to be executed, acknowledged or verified by two or more officers. Each officer must be eligible to serve as an officer of a registered investment company under the Investment Company Act of 1940. Nothing herein shall preclude the employment of other employees or agents by the corporation from time to time without action by the board. Section 2. Term, Removal and Vacancies. The officers shall be elected to serve until the next first meeting of a newly elected board of directors and until their successors are elected and qualified. Any officer may be removed by the board, with or without cause, whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. A vacancy in any office shall be filled by the board for the unexpired term. Section 3. Bonding. Each officer and employee of the corporation who singly or jointly with others has access to securities or funds of the corporation, either directly or through authority to draw upon such funds, or to direct generally the disposition of such securities shall be bonded against larceny and embezzlement by a reputable fidelity insurance company. Each such bond, which may be in the form of an individual bond, a schedule or blanket bond covering the corporation's officers and employees and the officers and employees of the investment adviser to the corporation and other corporations to which said investment adviser also acts as investment adviser, shall be in such form and for such amount (determined at least annually) as the board of directors shall determine in compliance with the requirements of Section 17(g) of the Investment Company Act of 1940, as amended from time to time, and the rules, regulations or orders of the Securities and Exchange Commission thereunder. Section 4. President. The president shall be the principal executive officer of the corporation. He shall preside at all meetings of the stockholders and directors, have general and active management of the business of the corporation, see that all orders and resolutions of the board of directors are carried into effect, and execute in the name of the corporation all authorized instruments of the corporation, except where the signing shall be expressly delegated by the board to some other officer or agent of the corporation. Section 5. Vice Presidents. The vice president, or if there be more than one, the vice presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president, and shall have such other duties and powers as the board may from time to time prescribe or the president delegate. Section 6. Secretary and Assistant Secretaries. The secretary shall give notice of, attend and record the minutes of meetings of stockholders and directors, keep the corporate seal and, when authorized by the board, affix the same to any instrument requiring it, attesting to the same by his signature, and shall have such further duties and powers as are incident to his office or as the board may from time to time prescribe. The assistant secretary, if any, or, if there be more than one, the assistant secretaries in the order determined by the board, shall in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary, and shall have such other duties and powers as the board may from time to time prescribe or the secretary delegate. Section 7. Treasurer and Assistant Treasurers. The treasurer shall be the principal financial and accounting officer of the corporation. He shall be responsible for the custody and supervision of the corporation's books of account and subsidiary accounting records, and shall have such further duties and powers as are incident to his office or as the board of directors may from time to time prescribe. The assistant treasurer, if any, or, if there be more than one, the assistant treasurers in the order determined by the board, shall in the absence or disability of the treasurer, perform all duties and exercise the powers of the treasurer, and shall have such other duties and powers as the board may from time to time prescribe or the treasurer delegate. ARTICLE IV RESTRICTIONS ON COMPENSATION TRANSACTIONS AND INVESTMENTS Section 1. Salary and Expenses. Directors and executive officers as such shall not receive any salary for their services or reimbursement for expenses from the corporation; provided that the corporation may pay fees in such amounts and at such times as the board of directors shall determine to directors who are not interested persons of the corporation for attendance at meetings of the board of directors. Clerical employees shall receive compensation for their services from the corporation in such amounts as are determined by the board of directors. Section 2. Compensation and Profit from Purchase and Sales. No affiliated person of the corporation, as defined in the Investment Company Act of 1940, or affiliated person of such person, shall, except as permitted by Section 17(e) of the Act, or the rules, regulations or orders of the Securities and Exchange Commission thereunder, (i) acting as agent, accept from any source any compensation for the purchase or sale of any property or securities to or for the corporation or any controlled company of the corporation, as defined in such Act, or (ii) acting as a broker, in connection with the sale of securities to or by the corporation or any controlled company of the corporation, receive from any source a commission, fee or other remuneration for effecting such transaction. Section 3. Transactions with Affiliated Person. No affiliated person of the corporation, as defined in the Investment Company Act of 1940, or affiliated person of such person shall knowingly (i) sell any security or other property to the corporation or to any company controlled by the corporation, as defined in the Act, except shares of stock of the corporation or securities of which such person is the issuer and which are part of a general offering to the holders of a class of its securities, (ii) purchase from the corporation or any such controlled company any security or property except shares of stock of the corporation or securities of which such person is the issuer, (iii) borrow money or other property from the corporation or any such controlled company, or (iv) acting as a principal effect any transaction in which the corporation or controlled company is a joint or joint and several participant with such person; provided, however, that this section shall not apply to any transaction permitted by Sections 17(a), (b), (c), (d) or 21(b) of the Investment Company Act of 1940 or the rules, regulations or orders of the Securities and Exchange Commission thereunder, and shall not prohibit the joint participation by the corporation and an affiliate in a fidelity bond arrangement. Section 4. Investment Adviser. The corporation shall employ one or more investment advisers, the employment of which shall be pursuant to written agreements in accordance with Section 15 of the Investment Company Act of 1940, as amended from time to time. ARTICLE V STOCK CERTIFICATES AND TRANSFER BOOKS Section 1. Certificates. Each holder of shares of any class of stock of the corporation shall be entitled to a certificate or certificates, in such form as the board of directors shall from time to time approve, representing and certifying the number of shares of such class of stock owned by him in the corporation. Each certificate shall be signed, manually or by facsimile signature, by the president or a vice president, countersigned, manually or by facsimile signature, by the secretary, an assistant secretary, the treasurer or an assistant treasurer and sealed with the corporate seal or facsimile thereof. In case any officer who has signed any certificate, or whose facsimile signature appears thereon, ceases to be an officer of the corporation before the certificate is issued, the certificate may nevertheless be issued with the same effect as if the officer had not ceased to be such officer as of the date of its issue. Each certificate shall contain on its face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms of each class of stock of the corporation or shall state that the corporation will furnish such information to the stockholder on request and without charge. Any certificate representing stock which is restricted or limited as to transferability also shall have a full statement of such restriction or limitation plainly stated thereon or shall state that the corporation will furnish such information to the stockholder on request and without charge. Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, destroyed or mutilated (or may delegate such authority to one or more officers of the corporation) upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, destroyed or mutilated. The board or such officer may, in its or his discretion, require the owner of such certificate or his legal representative to give bond with sufficient surety to the corporation to indemnify it against any loss or claim which may arise or expense which may be incurred by reason of the issuance of a new certificate. Section 3. Stock Ledger. The corporation shall maintain at its office or at the office of its principal transfer agent, if any, an original or duplicate stock ledger containing the names and addresses of all stockholders and the number of shares of each class of stock held by each stockholder. Section 4. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as such, as the owner of shares for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. Section 5. Transfer Agent and Registrar. The corporation may maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the board of directors, where the shares of each class of stock of the corporation shall be transferable. The corporation may also maintain one or more registry offices, each in charge of a registrar designated by the board, where the shares of such classes of stock shall be registered. Section 6. Transfers of Stock. Upon surrender to the corporation or a transfer agent of a certificate for shares of any class duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 7. Fixing of Record Dates and Closing of Transfer Books. The board of directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall be not more than ninety (90) days, and in case of a meeting of stockholders not less than ten (10) days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the board may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed or a record date is fixed for the purpose of determining stockholders entitled to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such action. ARTICLE VI ACCOUNTS, REPORTS, CUSTODIAN AND INVESTMENT ADVISER Section 1. Inspection of Books. The board of directors shall determine from time to time whether, and, if allowed, when and under what conditions and regulations the accounts and books of the corporation (except such as may by statute be specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be limited accordingly. Section 2. Reliance on Records. Each director and officer shall, in the performance of his duties, be fully protected in relying in good faith on the books of account or reports made to the corporation by any of its officials or by an independent public accountant. Section 3. Preparation and Maintenance of Accounts, Records and Statements. The president, a vice president or the treasurer shall prepare or cause to be prepared annually, a full and correct statement of the affairs of the corporation, including a balance sheet or statement of financial condition and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the stockholders and filed within twenty (20) days thereafter at the principal office of the corporation. If the corporation is not required to hold an annual meeting of stockholders, the statement of affairs shall be placed on file at the corporation's principal office within one hundred twenty (120) days after the end of the fiscal year. The proper officers of the corporation shall also prepare, maintain and preserve or cause to be prepared, maintained and preserved the accounts, books and other documents required by Section 2-111 of the Maryland General Corporation Law and Section 31 of the Investment Company Act of 1940 and shall prepare and file or cause to be prepared and filed the reports required by Section 30 of such Act. No financial statement shall be filed with the Securities and Exchange Commission unless the officers or employees who prepared or participated in the preparation of such financial statement have been specifically designated for such purpose by the board of directors. Section 4. Auditors. No independent public accountant shall be retained or employed by the corporation to examine, certify or report on its financial statements for any fiscal year unless such selection: (i) shall have been approved by a majority of the entire board of directors within thirty (30) days before or after the beginning of such fiscal year or before the annual ratification by the stockholders; (ii) shall have been ratified by the stockholders, provided that any vacancy occurring between such annual ratification due to the death or resignation of such accountant may be filled by the board of directors; and (iii) shall otherwise meet the requirements of Section 32 of the Investment Company Act of 1940. Section 5. Custodianship. All securities owned by the corporation and all cash, including, without limiting the generality of the foregoing, the proceeds from sales of securities owned by the corporation and from the issuance of shares of the capital stock of the corporation, payments of principal upon securities owned by the corporation, and distributions in respect of securities owned by the corporation which at the time of payment are represented by the distributing corporation to be capital distributions, shall be held by a custodian or custodians which shall be a bank, as that term is defined in the Investment Company Act of 1940, having capital, surplus and undivided profits aggregating not less than $2,000,000. The terms of custody of such securities and cash shall include provisions to the effect that the custodian shall deliver securities owned by the corporation only (a) upon sales of such securities for the account of the corporation and receipt by the custodian of payment therefor, (b) when such securities are called, redeemed or retired or otherwise become payable, (c) for examination by any broker selling any such securities in accordance with "street delivery" custom, (d) in exchange for or upon conversion into other securities alone or other securities and cash whether pursuant to any plan of merger, consolidation, reorganization, recapitalization or readjustment, or otherwise, (e) upon conversion of such securities pursuant to their terms into other securities, (f) upon exercise of subscription, purchase or other similar rights represented by such securities, (g) for the purpose of exchanging interim receipts or temporary securities for definitive securities, (h) for the purpose of redeeming in kind shares of the capital stock of the corporation, or (i) for other proper corporate purposes. Such terms of custody shall also include provisions to the effect that the custodian shall hold the securities and funds of the corporation in a separate account or accounts and shall have sole power to release and deliver any such securities and draw upon any such account, any of the securities or funds of the corporation only on receipt by such custodian of written instruction from one or more persons authorized by the board of directors to give such instructions on behalf of the corporation, and that the custodian shall deliver cash of the corporation required by this Section 5 to be deposited with the custodian only upon the purchase of securities for the portfolio of the corporation and the delivery of such securities to the custodian, for the purchase or redemption of shares of the capital stock of the corporation, for the payment of interest, dividends, taxes, management or supervisory fees or operating expenses, for payments in connection with the conversion, exchange or surrender of securities owned by the corporation, or for other proper corporate purposes. Upon the resignation or inability to serve of any such custodian the corporation shall (a) use its best efforts to obtain a successor custodian, (b) require the cash and securities of the corporation held by the custodian to be delivered directly to the successor custodian, and (c) in the event that no successor custodian can be found, submit to the stockholders of the corporation, before permitting delivery of such cash and securities to anyone other than a successor custodian, the question whether the corporation shall be dissolved or shall function without a custodian; provided, however, that nothing herein contained shall prevent the termination of any agreement between the corporation and any such custodian by the affirmative vote of the holders of a majority of all the shares of the capital stock of the corporation at the time outstanding and entitled to vote. Upon its resignation or inability to serve, the custodian may deliver any assets of the corporation held by it to a qualified bank or trust company selected by it, such assets to be held subject to the terms of custody which governed such retiring custodian, pending action by the corporation as set forth in this Section 5. Section 6. Termination of Custodian Agreement. Any employment agreement with a custodian shall be terminable on not more than sixty (60) days' notice in writing by the board of directors or the custodian and upon any such termination the custodian shall turn over only to the succeeding custodian designated by the board of directors all funds, securities and property and documents of the corporation in its possession. Section 7. Checks and Requisitions. Except as otherwise authorized by the board of directors, all checks and drafts for the payment of money shall be signed in the name of the corporation by a custodian, and all requisitions or orders for the payment of money by a custodian or for the issue of checks and drafts therefore, all promissory notes, all assignments of stock or securities standing in the name of the corporation, and all requisitions or orders for the assignment of stock or securities standing in the name of a custodian or its nominee, or for the execution of powers to transfer the same, shall be signed in the name of the corporation by not less than two persons (who shall be among those persons, not in excess of five, designated for this purpose by the board of directors) at least one of which shall be an officer. Promissory notes, checks or drafts payable to the corporation may be endorsed only to the order of a custodian or its nominee by the treasurer or president or by such other person or persons as shall be thereto authorized by the board of directors. Section 8. Investment Advisory Contract. Any investment advisory contract in effect after the first annual meeting of stockholders of the corporation, to which the corporation is or shall become a party, whereby, subject to the control of the board of directors of the corporation, the investment portfolio with respect to any class of Common Stock of the corporation shall be managed or supervised by the other party to such contract, shall be effective and binding only upon the affirmative vote of a majority of the outstanding voting securities of such class of Common Stock of the corporation (as defined in the Investment Company Act of 1940), and the investment advisory contract currently in effect with respect to any class of Common Stock shall be submitted to the holders of shares of such class of Common Stock for ratification by the affirmative vote of such majority. Any investment advisory contract to which the corporation shall be a party whereby, subject to the control of the board of directors of the corporation, the investment portfolio with respect to any class of Common Stock of the corporation shall be managed or supervised by the other party to such contract, shall provide, among other things, that such contract cannot be assigned. Such investment advisory contract shall prohibit the other party thereto from making short sales of shares of capital stock of the corporation; and such investment advisory contract shall prohibit such other party from purchasing shares otherwise than for investment, and shall require such other party to advise the corporation of any sales of shares of the capital stock of the corporation made by such person or organization less than two months after the date of any purchase by him or it of shares of the capital stock of the corporation. Unless any such contract shall expressly otherwise provide, any provisions therein for the termination thereof by action of the board of directors of the corporation shall be construed to require that such termination can be accomplished only upon the vote of a majority of the entire board. ARTICLE VII GENERAL PROVISIONS Section 1. Offices. The registered office of the corporation in the State of Maryland shall be in the City of Baltimore. The corporation may also have offices at such other places within and without the State of Maryland as the board of directors may from time to time determine. Except as otherwise required by statute, the books and records of the corporation may be kept outside the State of Maryland. Section 2. Seal. The corporate seal shall have inscribed thereon the name of the corporation, and the words "Corporate Seal" and "Maryland". The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed by the board of directors. Section 4. Notice of Waiver of Notice. Whenever any notice of the time, place or purpose of any meeting of stockholders or directors is required to be given under the statute, the charter or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, either before or after the holding thereof, or actual attendance at the meeting of stockholders in person or by proxy or at the meeting of directors in person, shall be deemed equivalent to the giving of such notice to such person. No notice need be given to any person with whom communication is made unlawful by any law of the United States or any rule, regulation, proclamation or executive order issued by any such law. Section 5. Voting of Stock. Unless otherwise ordered by the board of directors, the president shall have full power and authority, in the name and on behalf of the corporation, (i) to attend, act and vote at any meeting of stockholders of any company in which the corporation may own shares of stock of record, beneficially (as the proxy or attorney-in-fact of the record holder) or of record and beneficially, and (ii) to give voting directions to the record stockholder of any such stock beneficially owned. At any such meeting, he shall possess and may exercise any and all rights and powers incident to the ownership of such shares which, as the holder or beneficial owner and proxy of the holder thereof, the corporation might possess and exercise if personally present, and may delegate such power and authority to any officer, agent or employee of the corporation. Section 6. Dividends. Dividends upon any class of stock of the corporation, subject to the provisions of the charter, if any, may be declared by the board of directors in any lawful manner. The source of each dividend payment shall be disclosed to the stockholders receiving such dividend, to the extent required by the laws of the State of Maryland and by Section 19 of the Investment Company Act of 1940 and the rules and regulations of the Securities and Exchange Commission thereunder. Section 7. Indemnification. A. The corporation shall indemnify all of its corporate representatives against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with the defense of any action, suit or proceeding, or threat or claim of such action, suit or proceeding, whether civil, criminal, administrative, or legislative, no matter by whom brought, or in any appeal in which they or any of them are made parties or a party by reason of being or having been a corporate representative, if the corporate representative acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal proceeding, if he had no reasonable cause to believe his conduct was unlawful provided that the corporation shall not indemnify corporate representatives in relation to matters as to which any such corporate representative shall be adjudged in such action, suit or proceeding to be liable for gross negligence, willful misfeasance, bad faith, reckless disregard of the duties and obligations involved in the conduct of his office, or when indemnification is otherwise not permitted by the Maryland General Corporation Law. B. In the absence of an adjudication which expressly absolves the corporate representative, or in the event of a settlement, each corporate representative shall be indemnified hereunder only if there has been a reasonable determination based on a review of the facts that indemnification of the corporate representative is proper because he has met the applicable standard of conduct set forth in paragraph A. Such determination shall be made: (i) by the board of directors, by a majority vote of a quorum which consists of directors who were not parties to the action, suit or proceeding, or if such a quorum cannot be obtained, then by a majority vote of a committee of the board consisting solely of two or more directors, not, at the time, parties to the action, suit or proceeding and who were duly designated to act in the matter by the full board in which the designated directors who are parties to the action, suit or proceeding may participate; or (ii) by special legal counsel selected by the board of directors or a committee of the board by vote as set forth in (i) of this paragraph, or, if the requisite quorum of the full board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full board in which directors who are parties to the action, suit or proceeding may participate. C. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall create a rebuttable presumption that the person was guilty of willful misfeasance, bad faith, gross negligence or reckless disregard to the duties and obligations involved in the conduct of his or her office, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. D. Expenses, including attorneys' fees, incurred in the preparation of and/or presentation of the defense of a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section 2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an undertaking by or on behalf of the corporate representative to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this bylaw; and (ii) a written affirmation by the corporate representative of the corporate representative's good faith belief that the standard of conduct necessary for indemnification by the corporation has been met. E. The indemnification provided by this bylaw shall not be deemed exclusive of any other rights to which those indemnified may be entitled under these bylaws, any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person subject to the limitations imposed from time to time by the Investment Company Act of 1940, as amended. F. This corporation shall have power to purchase and maintain insurance on behalf of any corporate representative against any liability asserted against him or her and incurred by him or her in such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under this bylaw provided that no insurance may be purchased or maintained to protect any corporate representative against liability for gross negligence, willful misfeasance, bad faith or reckless disregard of the duties and obligations involved in the conduct of his or her office. G. "Corporate Representative" means an individual who is or was a director, officer, agent or employee of the corporation or who serves or served another corporation, partnership, joint venture, trust or other enterprise in one of these capacities at the request of the corporation and who, by reason of his or her position, is, was, or is threatened to be made, a party to a proceeding described herein. Section 8. Amendments. A. These bylaws may be altered, amended or repealed and new bylaws may be adopted by the stockholders by affirmative vote of not less than a majority of the shares of all classes of stock present or represented at any annual or special meeting of the stockholders at which a quorum is in attendance. B. These bylaws may also be altered, amended or repealed and new bylaws may be adopted by the Board of Directors by affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; but no bylaw adopted by the stockholders shall be amended or repealed by the Board of Directors if the bylaws so adopted so provides. C. Any action taken or authorized by the stockholders or by the Board of Directors, which would be inconsistent with the bylaws then in effect but is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the bylaws so that the bylaws would be consistent with such action, shall be given the same effect as though the bylaws had been temporarily amended or suspended so far, but only so far, as was necessary to permit the specific action so taken or authorized. Section 9. Reports to Stockholders. The books of account of the corporation shall be examined by an independent firm of public accountants at the close of each annual fiscal period of the corporation and at such other times, if any, as may be directed by the Board of Directors of the corporation. A report to the stockholders based upon each such examination shall be mailed to each stockholder of the corporation of record on such date with respect to each report as may be determined by the Board of Directors at his address as the same appears on the books of the corporation. Each such report shall include the financial information required to be transmitted to stockholders by rules or regulations of the Securities and Exchange Commission under the Investment Company Act of 1940 and shall be in such form as the Board of Directors shall determine pursuant to rules and regulations of the Securities and Exchange Commission. Section 10. Information to Accompany Dividends. At the time of the payment by the corporation of any dividend to the holders of any class of stock of the corporation, each stockholder to whom such dividend is paid shall be notified of the account or accounts from which it is paid and the amount thereof paid from each such account. ARTICLE VIII SALES, REDEMPTION AND NET ASSET VALUE OF SHARES Section 1. Sales of Shares. Shares of any class of Common Stock of the corporation shall be sold by it for the net asset value per share of such class of Common Stock outstanding at the time as of which the computation of said net asset value shall be made as hereinafter provided in these bylaws. Section 2. Periodic Investment and Dividend Reinvestment Plans. The corporation acting by and through the Board of Directors shall have the right to adopt and to offer to the holders of each class of stock and to the public a periodic investment plan and an automatic reinvestment of dividend plan subject to the limitations and restrictions imposed thereon and as set forth in the Investment Company Act of 1940 and any rule or regulation adopted or issued thereunder. Section 3. Shares Issued for Securities. In the case of shares of any class of stock of the corporation issued in whole or in part in exchange for securities, there may, at the discretion of the board of directors of the corporation, be included in the value of said securities, for the purpose of determining the number of shares of such class stock of the corporation issuable in exchange therefor, the amount, if any, of brokerage commissions (not exceeding an amount equal to the rates payable in connection with the purchase of comparable securities on the New York Stock Exchange) or other similar costs of acquisition of such securities paid by the holder of said securities in acquiring the same. Section 4. Redemption of Shares. Each share of each class of Common Stock of the corporation now or hereafter issued shall be subject to redemption, as provided in the Articles of Incorporation of the corporation. Section 5. Suspension of Right of Redemption. The Board of Directors of the corporation may suspend the right of the holders of any class of Common Stock of the corporation to require the corporation to redeem shares of such class: (1) for any period (a) during which the New York Stock Exchange is closed other than customary weekend and holiday closings, or (b) during which trading on the New York Stock Exchange is restricted; (2) for any period during which an emergency, as defined by rules of the Securities and Exchange Commission or any successor thereto, exists as a result of which (a) disposal by the corporation of securities owned by it is not reasonably practicable, or (b) it is not reasonably practicable for the corporation fairly to determine the value of its net assets; or (3) for such other periods as the Securities and Exchange Commission or any successor thereto may by order permit for the protection of security holders of the corporation. Section 6. Computation of Net Asset Value. For purposes of these bylaws, the following rules shall apply: A. The net asset value of each share of each class of Common Stock of the corporation shall be determined at such time or times as may be disclosed in the then currently effective Prospectus relating to such class of Common Stock of this corporation. The Board of Directors may also, from time to time by resolution, designate a time or times intermediate of the opening and closing of trading on the New York Stock Exchange on each day that said Exchange is open for trading as of which the net asset value of each share of each class of Common Stock of the corporation shall be determined or estimated. Any determination or estimation of net asset value as provided in this subparagraph A shall be effective at the time as of which such determination or estimation is made. The net asset value of each share of each class of Common Stock of the corporation for purposes of the issue of such class of Common Stock shall be the net asset value which becomes effective as provided in this Subparagraph A, next succeeding receipt of the subscription to such share of such class Common Stock. The net asset value of each share of each class of Common Stock of the corporation tendered for redemption shall be the net asset value which becomes effective as provided in this Subparagraph A, next succeeding the tender of such share of such class of Common Stock for redemption. B. The net asset value of each share of each class of Common Stock of the corporation, as of the close of business on any day, shall be the quotient obtained by dividing the value at such close of the net assets belonging to such class (meaning the assets belonging to such class and any other assets allocated to such class less the liabilities belonging to such class and any other liabilities allocated to such class excluding capital and surplus) of the corporation by the total number of shares of such class outstanding at such close. (i) The assets belonging to any class of Common Stock shall be that portion of the total assets of the corporation as determined in accordance with the provisions of Article IV of the Articles of Incorporation of the corporation. The assets of the corporation shall be deemed to include (a) all cash on hand, on deposit, or on call, (b) all bills and notes and accounts receivable, (c) all shares of stock and subscription rights and other securities owned or contracted for by the corporation, other than its own common stock, (d) all stock and cash dividends and cash distributions, to be received by the corporation, and not yet received by it but declared to stockholders of record on a date on or before the date as of which the net asset value is being determined, (e) all interest accrued on any interest-bearing securities owned by the corporation, and (f) all other property of every kind and nature including prepaid expenses; the value of such assets to be determined in accordance with the corporation's registration statement filed with the Securities and Exchange Commission. (ii) The liabilities belonging to any class of Common Stock shall be that portion of the total liabilities of the corporation as determined in accordance with the provisions of Article IV of the Articles of Incorporation of the corporation. The liabilities of the corporation shall be deemed to include (a) all bills and notes and accounts payable, (b) all administration expenses payable and/or accrued (including investment advisory fees), (c) all contractual obligations for the payment of money or property including the amount of any unpaid dividend declared upon the corporation's stock and payable to stockholders of record on or before the day as of which the value of the corporation's stock is being determined, (d) all reserves, if any, authorized or approved by the Board of Directors for taxes, including reserves for taxes at current rates based on any unrealized appreciation in the value of the assets of the corporation, and (e) all other liabilities of the corporation of whatever kind and nature except liabilities represented by outstanding capital stock and surplus of the corporation. (iii) For the purposes hereof: (a) shares of each class of Common Stock subscribed for shall be deemed to be outstanding as of the time of acceptance of any subscription and the entry thereof on the books of the corporation and the net price thereof shall be deemed to be an asset belonging to such class; and (b) shares of each class of Common Stock surrendered for redemption by the corporation shall be deemed to be outstanding until the time as of which the net asset value for purposes of such redemption is determined or estimated. C. The net asset value of each share of each class of Common Stock of the corporation, as of any time other than the close of business on any day, may be determined by applying to the net asset value as of the close of business on the preceding business day, computed as provided in Paragraph B of this Section of these bylaws, such adjustments as are authorized by or pursuant to the direction of the Board of Directors and designed reasonably to reflect any material changes in the market value of securities and other assets held and any other material changes in the assets or liabilities of the corporation and in the number of its outstanding shares which shall have taken place since the close of business on such preceding business day. D. In addition to the foregoing, the Board of Directors is empowered, in its absolute discretion, to establish other bases or times, or both, for determining the net asset value of each share of each class of the Common Stock of the corporation. EX-99.B5 4 EXHIBIT 5 - INVESTMENT ADVISORY AGMT. INVESTMENT ADVISORY AGREEMENT Agreement made this day of , 1996 between FMI Funds, Inc., a Maryland corporation (the "Company"), and Fiduciary Management, Inc., a Wisconsin corporation (the "Adviser"). W I T N E S S E T H: WHEREAS, the Company is in the process of registering with the Securities and Exchange Commission under the Investment Company Act of 1940 (the "Act") as an open-end management investment company consisting initially of one series FMI Focus Fund (the "Fund"); and WHEREAS, the Company desires to retain the Adviser, which is an investment adviser registered under the Investment Advisers Act of 1940, as the investment adviser for the Fund. NOW, THEREFORE, the Company and the Adviser do mutually promise and agree as follows: 1. Employment. The Company hereby employs the Adviser to manage the investment and reinvestment of the assets of the Fund for the period and on the terms set forth in this Agreement. The Adviser hereby accepts such employment for the compensation herein provided and agrees during such period to render the services and to assume the obligations herein set forth. 2. Authority of the Adviser. The Adviser shall supervise and manage the investment portfolio of the Fund, and, subject to such policies as the directors of the Company may determine, direct the purchase and sale of investment securities in the day-to-day management of the Fund. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Company or the Fund in any way or otherwise be deemed an agent of the Company or the Fund. However, one or more shareholders, officers, directors or employees of the Adviser may serve as directors and/or officers of the Company, but without compensation or reimbursement of expenses for such services from the Company. Nothing herein contained shall be deemed to require the Company to take any action contrary to its Articles of Incorporation or By-Laws or any applicable statute or regulation, or to relieve or deprive the directors of the Company of their responsibility for, and control of, the affairs of the Fund. 3. Expenses. The Adviser, at its own expense and without reimbursement from the Company or the Fund, shall furnish office space, and all necessary office facilities, equipment and executive personnel for managing the investments of the Fund. The Fund shall bear all expenses initially incurred by it, provided that the total expenses borne by the Fund, including the Adviser's fee but excluding all federal, state and local taxes, interest, brokerage commissions and extraordinary items, shall not in any year exceed that percentage of the average net assets of the Fund for such year, as determined by valuations made as of the close of each business day, which is the most restrictive percentage provided by the state laws of the various states in which the Fund's shares are qualified for sale or, if the states in which the Fund's shares are qualified for sale impose no such restrictions, 2.75%. The expenses of the Fund's operations borne by the Fund include by way of illustration and not limitation, director's fees paid to those directors who are not officers of the Company, the costs of preparing and printing its registration statements required under the Securities Act of 1933 and the Act (and amendments thereto), the expense of registering its shares with the Securities and Exchange Commission and in the various states, payments made pursuant to the Service and Distribution Plan, the printing and distribution cost of prospectuses mailed to existing shareholders, the cost of share certificates (if any), director and officer liability insurance, reports to shareholders, reports to government authorities and proxy statements, interest charges, taxes, legal expenses, salaries of administrative and clerical personnel, association membership dues, auditing and accounting services, insurance premiums, brokerage and other expenses connected with the execution of portfolio securities transactions, fees and expenses of the custodian of the Fund's assets, expenses of calculating the net asset value and repurchasing and redeeming shares, charges and expenses of dividend disbursing agents, registrars and stock transfer agents and the cost of keeping all necessary shareholder records and accounts. The Company shall monitor the expense ratio of the Fund on a monthly basis. If the accrued amount of the expenses of the Fund exceeds the expense limitation established herein, the Company shall create 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 Company's fiscal year if accrued expenses thereafter fall below the expense limitation. 4. Compensation of the Adviser. For the services and facilities to be rendered and the charges and expenses to be assumed by the Adviser hereunder, the Company, through and on behalf of the Fund shall pay to the Adviser an advisory fee, paid monthly, based on the average net assets of the Fund, as determined by valuations made as of the close of each business day of the month. The advisory fee shall be 1/12 of 1% (1% per annum) of such average net assets. For any month in which this Agreement is not in effect for the entire month, such fee shall be reduced proportionately on the basis of the number of calendar days during which it is in effect and the fee computed upon the average net assets of the business days during which it is so in effect. 5. Ownership of Shares of the Fund. Except in connection with the initial capitalization of the Fund, the Adviser shall not take, and shall not permit any of its shareholders, officers, directors or employees to take, a long or short position in the shares of the Fund, except for the purchase of shares of the Fund for investment purposes at the same price as that available to the public at the time of purchase. 6. Exclusivity. The services of the Adviser to the Fund hereunder are not to be deemed exclusive and the Adviser shall be free to furnish similar services to others as long as the services hereunder are not impaired thereby. Although the Adviser has permitted and is permitting the Fund and the Company to use the name "FMI," it is understood and agreed that the Adviser reserves the right to use and to permit other persons, firms or corporations, including investment companies, to use such name, and that the Fund and the Company will not use such name if the Adviser ceases to be the Fund's sole investment adviser. During the period that this Agreement is in effect, the Adviser shall be the Fund's sole investment adviser. 7. Liability. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Adviser, the Adviser shall not be subject to liability to the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendering services hereunder, or for any losses that may be sustained in the purchase, holding or sale of any security. 8. Brokerage Commissions. The Adviser may cause the Fund to pay a broker-dealer which provides brokerage and research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to the Adviser a commission for effecting a securities transaction in excess of the amount another broker-dealer would have charged for effecting such 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-dealer viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion (as defined in Section 3(a)(35) of the Exchange Act). 9. Amendments. This Agreement may be amended by the mutual consent of the parties; provided, however, that in no event may it be amended without the approval of the directors of the Company in the manner required by the Act, and, if required by the Act, by the vote of the majority of the outstanding voting securities of the Fund, as defined in the Act. 10. Termination. This Agreement may be terminated at any time, without the payment of any penalty, by the directors of the Company or by a vote of the majority of the outstanding voting securities of the Fund, as defined in the Act, upon giving sixty (60) days' written notice to the Adviser. This Agreement may be terminated by the Adviser at any time upon the giving of sixty (60) days' written notice to the Company. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the Act). Subject to prior termination as hereinbefore provided, this Agreement shall continue in effect for two (2) years from the date hereof and indefinitely thereafter, but only so long as the continuance after such two (2) year period is specifically approved annually by (i) the directors of the Company or by the vote of the majority of the outstanding voting securities of the Fund, as defined in the Act, and (ii) the directors of the Company in the manner required by the Act, provided that any such approval may be made effective not more than sixty (60) days thereafter. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day first above written. FIDUCIARY MANAGEMENT, INC. FMI FUNDS, INC. (the "Adviser") (the "Company") By: By: President President EX-99.B8 5 EXHIBIT 8 - CUSTODIAN AGMT. CUSTODIAN AGREEMENT THIS AGREEMENT made on __________________, 1996, between FMI Funds,Inc., a Maryland corporation currently consisting of the FMI Focus Fund (hereinafter called the ("Fund"), and FIRSTAR TRUST COMPANY, a corporation organized under the laws of the State of Wisconsin (hereinafter called "Custodian"), WHEREAS, the Fund desires that its securities and cash shall be hereafter held and administered by Custodian pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian agree as follows: 1. Definitions The word "securities" as used herein includes stocks, shares, bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or in any property or assets. The words "officers' certificate" shall mean a request or direction or certification in writing signed in the name of the Fund by any two of the President, a Vice President, the Secretary and the Treasurer of the Fund, or any other persons duly authorized to sign by the Board of Directors. The word "Board" shall mean Board of Directors of FMI Funds Inc. 2. Names, Titles, and Signatures of the Fund's Officers An officer of the Fund will certify to Custodian the names and signatures of those persons authorized to sign the officers' certificates described in Section 1 hereof, and the names of the members of the Board of Directors, together with any changes which may occur from time to time. Additional Series. FMI Funds, Inc. is authorized to issue separate series of shares of beneficial interest representing interests in separate investment portfolios. The parties intend that each portfolio established by the trust, now or in the future, be covered by the terms and conditions of this agreement. 3. Receipt and Disbursement of Money A. Custodian shall open and maintain a separate account or accounts in the name of the Fund, subject only to draft or order by Custodian acting pursuant to the terms of this Agreement. Custodian shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund. Custodian shall make payments of cash to, or for the account of, the Fund from such cash only: (a) for the purchase of securities for the portfolio of the Fund upon the delivery of such securities to Custodian, registered in the name of the Fund or of the nominee of Custodian referred to in Section 7 or in proper form for transfer; (b) for the purchase or redemption of shares of the common stock of the Fund upon delivery thereof to Custodian, or upon proper instructions from the Fiduciary Focus Fund, Inc.; (c) for the payment of interest, dividends, taxes, investment adviser's fees or operating expenses (including, without limitation thereto, fees for legal, accounting, auditing and custodian services and expenses for printing and postage); (d) for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Fund held by or to be delivered to Custodian; or (e) for other proper corporate purposes certified by resolution of the Board of Directors of the Fund. Before making any such payment, Custodian shall receive (and may rely upon) an officers' certificate requesting such payment and stating that it is for a purpose permitted under the terms of items (a), (b), (c), or (d) of this Subsection A, and also, in respect of item(e), upon receipt of an officers' certificate specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made, provided, however, that an officers' certificate need not precede the disbursement of cash for the purpose of purchasing a money market instrument, or any other security with same or next-day settlement, if the President, a Vice President, the Secretary or the Treasurer of the Fund issues appropriate oral or facsimile instructions to Custodian and an appropriate officers' certificate is received by Custodian within two business days thereafter. B. Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received by Custodian for the account of the Fund. C. Custodian shall, upon receipt of proper instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for shares of the Fund which are deposited into the Fund's account. 4. Segregated Accounts Upon receipt of proper instructions, the Custodian shall establish and maintain a segregated account(s) for and on behalf of the portfolio, into which account(s) may be transferred cash and/or securities. 5. Transfer, Exchange, Redelivery, etc. of Securities Custodian shall have sole power to release or deliver any securities of the Fund held by it pursuant to this Agreement. Custodian agrees to transfer, exchange or deliver securities held by it hereunder only: (a) for sales of such securities for the account of the Fund upon receipt by Custodian of payment therefore; (b) when such securities are called, redeemed or retired or otherwise become payable; (c) for examination by any broker selling any such securities in accordance with "street delivery" custom; (d) in exchange for, or upon conversion into, other securities alone or other securities and cash whether pursuant to any plan of merger, consolidation, reorganization, recapitalization or readjustment, or otherwise; (e) upon conversion of such securities pursuant to their terms into other securities; (f) upon exercise of subscription, purchase or other similar rights represented by such securities; (g) for the purpose of exchanging interim receipts or temporary securities for definitive securities; (h) for the purpose of redeeming in kind shares of common stock of the Fund upon delivery thereof to Custodian; or (i) for other proper corporate purposes. As to any deliveries made by Custodian pursuant to items (a), (b), (d), (e), (f), and (g), securities or cash receivable in exchange therefore shall be deliverable to Custodian. Before making any such transfer, exchange or delivery, Custodian shall receive (and may rely upon) an officers' certificate requesting such transfer, exchange or delivery, and stating that it is for a purpose permitted under the terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and also, in respect of item (i), upon receipt of an officers' certificate specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made, provided, however, that an officers' certificate need not precede any such transfer, exchange or delivery of a money market instrument, or any other security with same or next-day settlement, if the President, a Vice President, the Secretary or the Treasurer of the Fund issues appropriate oral or facsimile instructions to Custodian and an appropriate officers' certificate is received by Custodian within two business days thereafter. 6. Custodian's Acts Without Instructions Unless and until Custodian receives an officers' certificate to the contrary, Custodian shall: (a) present for payment all coupons and other income items held by it for the account of the Fund, which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund; (b) collect interest and cash dividends received, with notice to the Fund, for the account of the Fund; (c) hold for the account of the Fund hereunder all stock dividends, rights and similar securities issued with respect to any securities held by it hereunder; and (d) execute, as agent on behalf of the Fund, all necessary ownership certificates required by the Internal Revenue Code or the Income Tax Regulations of the United States Treasury Department or under the laws of any state now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so. 7. Registration of Securities Except as otherwise directed by an officers' certificate, Custodian shall register all securities, except such as are in bearer form, in the name of a registered nominee of Custodian as defined in the Internal Revenue Code and any Regulations of the Treasury Department issued hereunder or in any provision of any subsequent federal tax law exempting such transaction from liability for stock transfer taxes, and shall execute and deliver all such certificates in connection therewith as may be required by such laws or regulations or under the laws of any state. Custodian shall use its best efforts to the end that the specific securities held by it hereunder shall be at all times identifiable in its records. The Fund shall from time to time furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any securities which it may hold for the account of the Fund and which may from time to time be registered in the name of the Fund. 8. Voting and Other Action Neither Custodian nor any nominee of Custodian shall vote any of the securities held hereunder by or for the account of the Fund, except in accordance with the instructions contained in an officers' certificate. Custodian shall deliver, or cause to be executed and delivered, to the Corporation all notices, proxies and proxy soliciting materials with relation to such securities, such proxies to be executed by the registered holder of such securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted. 9. Transfer Tax and Other Disbursements The Fund shall pay or reimburse Custodian from time to time for any transfer taxes payable upon transfers of securities made hereunder, and for all other necessary and proper disbursements and expenses made or incurred by Custodian in the performance of this Agreement. Custodian shall execute and deliver such certificates in connection with securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any state, to exempt from taxation any exemptable transfers and/or deliveries of any such securities. 10. Concerning Custodian Custodian shall be paid as compensation for its services pursuant to this Agreement such compensation as may from time to time be agreed upon in writing between the two parties. Until modified in writing, such compensation shall be as set forth in Exhibit A attached hereto. Custodian shall not be liable for any action taken in good faith upon any certificate herein described or certified copy of any resolution of the Board, and may rely on the genuineness of any such document which it may in good faith believe to have been validly executed. The Fund agrees to indemnify and hold harmless Custodian and its nominee from all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or by its nominee in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct. Custodian is authorized to charge any account of the Fund for such items. In the event of any advance of cash for any purpose made by Custodian resulting from orders or instructions of the Fund, or in the event that Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefore. Custodian agrees to indemnify and hold harmless Fund from all charges, expenses, assessments, and claims/liabilities (including counsel fees) incurred or assessed against it in connection with the performance of this agreement, except such as may arise from the Fund's own negligent action, negligent failure to act, or willful misconduct. 11. Subcustodians Custodian is hereby authorized to engage another bank or trust company as a Subcustodian for all or any part of the Fund's assets, so long as any such bank or trust company is a bank or trust company organized under the laws of any state of the United States, having an aggregate capital, surplus and undivided profit, as shown by its last published report, of not less than Two Million Dollars ($2,000,000) and provided further that, if the Custodian utilizes the services of a Subcustodian, the Custodian shall remain fully liable and responsible for any losses caused to the Fund by the Subcustodian as fully as if the Custodian was directly responsible for any such losses under the terms of the Custodian Agreement. Notwithstanding anything contained herein, if the Fund requires the Custodian to engage specific Subcustodians for the safekeeping and/or clearing of assets, the Fund agrees to indemnify and hold harmless Custodian from all claims, expenses and liabilities incurred or assessed against it in connection with the use of such Subcustodian in regard to the Fund's assets, except as may arise from its own negligent action, negligent failure to act or willful misconduct. 12. Reports by Custodian Custodian shall furnish the Fund periodically as agreed upon with a statement summarizing all transactions and entries for the account of Fund. Custodian shall furnish to the Fund, at the end of every month, a list of the portfolio securities showing the aggregate cost of each issue. The books and records of Custodian pertaining to its actions under this Agreement shall be open to inspection and audit at reasonable times by officers of, and of auditors employed by, the Fund. 13. Termination or Assignment This Agreement may be terminated by the Fund, or by Custodian, on ninety (90) days notice, given in writing and sent by registered mail to Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at 225 East Mason Street, Milwaukee, Wisconsin53202, as the case may be. Upon any termination of this Agreement, pending appointment of a successor to Custodian or a vote of the shareholders of the Fund to dissolve or to function without a custodian of its cash, securities and other property, Custodian shall not deliver cash, securities or other property of the Fund to the Fund, but may deliver them to a bank or trust company of its own selection, having an aggregate capital, surplus and undivided profits, as shown by its last published report of not less than Two Million Dollars ($2,000,000) as a Custodian for the Fund to be held under terms similar to those of this Agreement, provided, however, that Custodian shall not be required to make any such delivery or payment until full payment shall have been made by the Fund of all liabilities constituting a charge on or against the properties then held by Custodian or on or against Custodian, and until full payment shall have been made to Custodian of all its fees, compensation, costs and expenses, subject to the provisions of Section 10 of this Agreement. This Agreement may not be assigned by Custodian without the consent of the Fund, authorized or approved by a resolution of its Board of Directors. 14. Deposits of Securities in Securities Depositories No provision of this Agreement shall be deemed to prevent the use by Custodian of a central securities clearing agency or securities depository, provided, however, that Custodian and the central securities clearing agency or securities depository meet all applicable federal and state laws and regulations, and the Board of Directors of the Fund approves by resolution the use of such central securities clearing agency or securities depository. 15. Records To the extent that Custodian in any capacity prepares or maintains any records required to be maintained and preserved by the Fund pursuant to the provisions of the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder, Custodian agrees to make any such records available to the Fund upon request and to preserve such records for the periods prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and their respective corporate seals to be affixed hereto as of the date first above-written by their respective officers thereunto duly authorized. Executed in several counterparts, each of which is an original. Attest: FIRSTAR TRUST COMPANY _________________________ By ____________________________ Assistant Secretary Vice President Attest: FMI FUNDS, INC. ________________________________ By ____________________________ EX-99.B9.1 6 EXHIBIT 9.1 - FUND ADMIN. SERVICING AGMT. ADMINISTRATION AGREEMENT Agreement made this ____ day of _________, 1996, between FMI Funds, Inc., a Maryland corporation (the "Company"), and Fiduciary Management, Inc., a Wisconsin corporation (the "Administrator"). W I T N E S S E T H: WHEREAS, the Company is in the process of registering with the Securities and Exchange Commission under the Investment Company Act of 1940 (the "Act") as an open-end management investment company consisting initially of one series FMI Focus Fund (the "Fund"); and WHEREAS, the Company desires to retain the Administrator to be the Administrator for the Fund and as such to perform the services set forth in this Agreement. NOW, THEREFORE, the Company and the Administrator do mutually promise and agree as follows: 1. Employment. The Company hereby employs the Administrator to be the Administrator for the Fund for the period and on the terms set forth in this Agreement. The Administrator hereby accepts such employment for the compensation herein provided and agrees during such period to render the services and to assume the obligations herein set forth. 2. Authority and Duties of the Administrator. The Administrator shall supervise all aspects of the operations of the Fund except those performed by the Fund's investment adviser under the Fund's investment advisory agreement, subject to such policies as the board of directors of the Company may determine. The Administrator shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Company or the Fund in any way or otherwise be deemed to be an agent of the Company or the Fund. However, one or more shareholders, officers, directors or employees of the Administrator may serve as directors and/or officers of the Company, but without compensation or reimbursement of expenses for such services from the Company. Nothing herein contained shall be deemed to require the Company to take any action contrary to its Articles of Incorporation or any applicable statute or regulation, or to relieve or deprive the board of directors of the Company of its responsibility for and control of the affairs of the Fund. In connection with its supervision of the operations of the Fund, the Administrator shall perform the following services for the Fund: (a) Prepare and maintain the books, accounts and other documents specified in Rule 31a-1, under the Act in accordance with the requirements of Rule 31a-1 and Rule 31a-2 under the Act; (b) Calculate the Fund's net asset value in accordance with the provisions of the Company's Articles of Incorporation and By-Laws and its Registration Statement; (c) Respond to stockholder inquiries forwarded to it by the Fund: (d) Prepare the financial statements contained in reports to stockholders of the Fund: (e) Prepare for execution by the Company and file all of the Fund's federal and state tax returns; (f) Prepare reports to and filings with the Securities and Exchange Commission; (g) Prepare reports to and filings with state Blue Sky authorities; (h) Furnish statistical and research data, clerical, accounting and bookkeeping services and stationery and office supplies; and (i) Keep and maintain the Fund's financial accounts and records, and generally assist in all aspects of the Fund's operations to the extent agreed to by the Administrator and the Company. 3. Expenses. The Administrator, at its own expense and without reimbursement from the Company or the Fund, shall furnish office space, and all necessary office facilities, equipment and executive personnel for performing the services required to be performed by it under the Agreement. The Administrator shall not be required to pay any expenses of the Fund. The expenses of the Fund's operations borne by the Fund include by way of illustration and not limitation, directors fees paid to those directors who are not officers of the Company, the professional costs of preparing and the costs of printing its registration statements required under the Securities Act of 1933 and the Act (and amendments thereto), the expense of registering its shares with the Securities and Exchange Commission and in the various states, the printing and distribution cost of prospectuses mailed to existing shareholders, the cost of stock certificates (if any), director and officer liability insurance, the printing and distribution and distribution costs of reports to stockholders, reports to government authorities and proxy statements, interest charges, taxes, legal expenses, association membership dues, auditing services, insurance premiums, brokerage and other expenses connected with the execution of portfolio securities transactions, fees and expenses of the custodian of the Fund's assets, printing and mailing expenses and charges and expenses of dividend disbursing agents, registrars and stock transfer agents. 4. Compensation of the Administrator. For the services to be rendered by the Administrator hereunder, the Company, through and on behalf of, the Fund shall pay to the Administrator an administration fee, paid monthly, based on the average net assets of the Fund, as determined by valuations made as of the close of each business day of the month. The administration fee shall be 1/12 of 0.1% of such average net assets up to and including $30,000,000, and 1/12 of 0.05% of such average net assets of the Company in excess of $30,000,000; provided, however, that for any month in which this Agreement is not in effect for the entire month, such fee shall be reduced proportionately on the basis of the number of calendar days during which it is in effect and the fee computed upon the daily net assets of the business days during which it is so in effect. 5. Ownership of Shares of the Company. Except in connection with the initial capitalization of the Fund, the Administrator shall not take an ownership position in the Fund, and shall not permit any of its shareholders, officers, directors or employees to take a long or short position in the shares of the Fund, except for the purchase of shares of the Fund for investment purposes at the same price as that available to the public at the time of purchase. 6. Exclusivity. The services of the Administrator to the Fund hereunder are not to be deemed exclusive and the Administrator shall be free to furnish similar services to others as long as the services hereunder are not impaired thereby. During the period that this Agreement is in effect, the Administrator shall be the Fund's sole administrator. 7. Liability. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Administrator, the Administrator shall not be subject to liability to the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendering services hereunder, or for any losses that may be sustained in the purchase, holding or sale of any security. 8. Amendments. This Agreement may be amended by the mutual consent of the parties; provided, however, that in no event may it be amended without the approval of the board of directors of the Company in the manner required by the Act. 9. Termination. This Agreement may be terminated at any time, without the payment of any penalty, by the board of directors of the Company or by a vote of the majority of the outstanding voting securities of the Company as defined in the Act, upon the giving of sixty (60) days' written notice to the Administrator. This Agreement may be terminated by the Administrator at any time upon the giving of sixty (60) days' written notice to the Company. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the Act). Subject to prior termination as hereinbefore provided, the Agreement shall continue in effect for two (2) years from the date hereof and indefinitely thereafter, but only so long as the continuance after such two (2) year period is specifically approved annually by (i) the board of directors of the Company. Upon termination of the Agreement the Administrator shall deliver to the Company all books, accounts and other documents then maintained by it pursuant to Section 2 hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day first above written. FIDUCIARY MANAGEMENT, INC. (the "Administrator") By: President FMI FUNDS, INC. (the "Fund") By: President EX-99.B9.2 7 EXHIBIT 9.2 - TRANSFER AGENT AGMT. TRANSFER AGENT AGREEMENT THIS AGREEMENT is made and entered into on this ________________ day of _________________________, 1996, by and between FMI Funds, Inc. currently consisting of the FMI Focus Fund (hereinafter referred to as the "Fund") and Firstar Trust Company, a corporation organized under the laws of the State of Wisconsin (hereinafter referred to as the "Agent"). WHEREAS, the Fund is an open-ended management investment company which is registered under the Investment Company Act of 1940; and WHEREAS, the Agent is a trust company and, among other things, is in the business of administering transfer and dividend disbursing agent functions for the benefit of its customers; NOW, THEREFORE, the Fund and the Agent do mutually promise and agree as follows: 1. Terms of Appointment; Duties of the Agent Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints the Agent to act as transfer agent and dividend disbursing agent. The Agent shall perform all of the customary services of a transfer agent and dividend disbursing agent, and as relevant, agent in connection with accumulation, open account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: A. Receive orders for the purchase of shares; B. Process purchase orders and issue the appropriate number of certificated or uncertificated shares with such uncertificated shares being held in the appropriate shareholder account; C. Process redemption requests received in good order; D. Pay monies; E. Process transfers of shares in accordance with the shareowner's instructions; F. Process exchanges between funds within the same family of funds; G. Issue and/or cancel certificates as instructed; replace lost, stolen or destroyed certificates upon receipt of satisfactory indemnification or surety bond; H. Prepare and transmit payments for dividends and distributions declared by the Fund; I. Make changes to shareholder records, including, but not limited to, address changes in plans (i.e., systematic withdrawal, automatic investment, dividend reinvestment, etc.); J. Record the issuance of shares of the Fund and maintain, pursuant to Securities Exchange Act of 1934 Rule 17ad-10(e), a record of the total number of shares of the Fund which are authorized, issued and outstanding; K. Prepare shareholder meeting lists and, if applicable, mail, receive and tabulate proxies; L. Mail shareholder reports and prospectuses to current shareholders; M. Prepare and file U.S. Treasury Department forms 1099 and other appropriate information returns required with respect to dividends and distributions for all shareholders; N. Provide shareholder account information upon request and prepare and mail confirmations and statements of account to shareholders for all purchases, redemptions and other confirmable transactions as agreed upon with the Fund; and O. Provide a Blue Sky System which will enable the Fund to monitor the total number of shares sold in each state. In addition, the Fund shall identify to the Agent in writing those transactions and assets to be treated as exempt from the Blue Sky reporting to the Fund for each state. The responsibility of the Agent for the Fund's Blue Sky state registration status is solely limited to the initial compliance by the Fund and the reporting of such transactions to the Fund. 2. Compensation The Fund agrees to pay the Agent for performance of the duties listed in this Agreement; the fees and out-of-pocket expenses include, but are not limited to the following: printing, postage, forms, stationery, record retention, mailing, insertion, programming, labels, shareholder lists and proxy expenses. These fees and reimbursable expenses may be changed from time to time subject to mutual written agreement between the Fund and the Agent. The Fund agrees to pay all fees and reimbursable expenses within ten (10) business days following the mailing of the billing notice. 3. Representations of Agent The Agent represents and warrants to the Fund that: A. It is a trust company duly organized, existing and in good standing under the laws of Wisconsin; B. It is a registered transfer agent under the Securities Exchange Act of 1934 as amended. C. It is duly qualified to carry on its business in the state of Wisconsin; D. It is empowered under applicable laws and by its charter and bylaws to enter into and perform this Agreement; E. All requisite corporate proceedings have been taken to authorize it to enter and perform this Agreement; and F. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. G. It will comply with all applicable requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, the Investment Company Act of 1940, as amended, and any laws, rules, and regulations of governmental authorities having jurisdiction. 4. Representations of the Fund The Fund represents and warrants to the Agent that: A. The Fund is an open-ended diversified investment company under the Investment Company Act of 1940; B. The Fund is a corporation or business trust organized, existing, and in good standing under the laws of Maryland; C. The Fund is empowered under applicable laws and by its Corporate Charter and bylaws to enter into and perform this Agreement; D. All necessary proceedings required by the Corporate Charter have been taken to authorize it to enter into and perform this Agreement; E. The Fund will comply with all applicable requirements of the Securities and Exchange Acts of 1933 and 1934, as amended, the Investment Company Act of 1940, as amended, and any laws, rules and regulations of governmental authorities having jurisdiction; and F. A registration statement under the Securities Act of 1933 is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all shares of the Fund being offered for sale. 5. Covenants of Fund and Agent The Fund shall furnish the Agent a certified copy of the resolution of the Board of Directors of the Fund authorizing the appointment of the Agent and the execution of this Agreement. The Fund shall provide to the Agent a copy of the Corporate Charter, bylaws of the Corporation, and all amendments. The Agent shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the rules thereunder, the Agent agrees that all such records prepared or maintained by the Agent relating to the services to be performed by the Agent hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such section and rules and will be surrendered to the Fund on and in accordance with its request. 6. Indemnification; Remedies Upon Breach The Agent shall exercise reasonable care in the performance of its duties under this Agreement. The Agent shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with matters to which this Agreement relates, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond the Agent's control, except a loss resulting from the Agent's refusal or failure to comply with the terms of this Agreement or from bad faith, negligence, or willful misconduct on its part in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, the Fund shall indemnify and hold harmless the Agent from and against any and all claims, demands, losses, expenses, and liabilities (whether with or without basis in fact or law) of any and every nature (including reasonable attorneys' fees) which the Agent may sustain or incur or which may be asserted against the Agent by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to the Agent by any duly authorized officer of the Fund, such duly authorized officer to be included in a list of authorized officers furnished to the Agent and as amended from time to time in writing by resolution of the Board of Directors of the Fund. Further, the Fund will indemnify and hold the Agent harmless against any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action, or suit as a result of the negligence of the Fund or the principal underwriter (unless contributed to by the Agent's breach of this Agreement or other Agreements between the Fund and the Agent, or the Agent's own negligence or bad faith); or as a result of the Agent acting upon telephone instructions relating to the exchange or redemption of shares received by the Agent and reasonably believed by the Agent under a standard of care customarily used in the industry to have originated from the record owner of the subject shares; or as a result of acting in reliance upon any genuine instrument or stock certificate signed, countersigned, or executed by any person or persons authorized to sign, countersign, or execute the same. In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, the Agent shall take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond the Agent's control. The Agent will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of the Agent. The Agent agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Fund shall be entitled to inspect the Agent's premises and operating capabilities at any time during regular business hours of the Agent, upon reasonable notice to the Agent. Regardless of the above, the Agent reserves the right to reprocess and correct administrative errors at its own expense. In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the Fund may be asked to indemnify or hold the Agent harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Agent will use all reasonable care to notify the Fund promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Fund. The Fund shall have the option to defend the Agent against any claim which may be the subject of this indemnification. In the event that the Fund so elects, it will so notify the Agent and thereupon the Fund shall take over complete defense of the claim, and the Agent shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The Agent shall in no case confess any claim or make any compromise in any case in which the Fund will be asked to indemnify the Agent except with the Fund's prior written consent. The Agent shall indemnify and hold the Fund harmless from and against any and all claims, demands, losses, expenses, and liabilities (whether with or without basis in fact or law) of any and every nature (including reasonable attorneys' fees) which may be asserted against the Fund by any person arising out of any action taken or omitted to be taken by the Agent as a result of the Agent's refusal or failure to comply with the terms of this Agreement, its bad faith, negligence, or willful misconduct. 7. Confidentiality The Agent agrees on behalf of itself and its employees to treat confidentially all records and other information relative to the Fund and its shareholders and shall not be disclosed to any other party, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Agent may be exposed to civil or criminal contempt proceedings for failure to comply after being requested to divulge such information by duly constituted authorities. Additional Series. FMI Funds, Inc. is authorized to issue separate series of shares of beneficial interest representing interests in separate investment portfolios. The parties intend that each portfolio established by the trust, now or in the future, be covered by the terms and conditions of this agreement. 8. Records The Agent shall keep records relating to the services to be performed hereunder, in the form and manner, and for such period as it may deem advisable and is agreeable to the Fund but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of The Investment Company Act of 1940 as amended (the "Investment Company Act"), and the rules thereunder. The Agent agrees that all such records prepared or maintained by The Agent relating to the services to be performed by The Agent hereunder are the property of the Fund and will be preserved, maintained, and made available with such section and rules of the Investment Company Act and will be promptly surrendered to the Fund on and in accordance with its request. 9. Wisconsin Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the state of Wisconsin. 10. Amendment, Assignment, Termination and Notice A. This Agreement may be amended by the mutual written consent of the parties. B. This Agreement may be terminated upon ninety (90) day's written notice given by one party to the other. C. This Agreement and any right or obligation hereunder may not be assigned by either party without the signed, written consent of the other party. D. Any notice required to be given by the parties to each other under the terms of this Agreement shall be in writing, addressed and delivered, or mailed to the principal place of business of the other party. If to the agent, such notice should to be sent to _______________. If to the Fund, such notice should be sent to ________________. E. In the event that the Fund gives to the Agent its written intention to terminate and appoint a successor transfer agent, the Agent agrees to cooperate in the transfer of its duties and responsibilities to the successor, including any and all relevant books, records and other data established or maintained by the Agent under this Agreement. F. Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be paid by the Fund. FMI Funds, Inc. Firstar Trust Company By: ________________________ By: __________________________ Attest: ____________________ Attest: _____________________ Assistant Secretary EX-99.B10 8 EXHIBIT 10 - OPINION OF F&L F O L E Y & L A R D N E R A T T O R N E Y S A T L A W CHICAGO FIRSTAR CENTER SAN DIEGO JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE MADISON TELEPHONE (414) 271-2400 TAMPA ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C. SACRAMENTO WEST PALM BEACH WRITER'S DIRECT LINE October __, 1996 FMI Funds, Inc. 225 East Mason Street Milwaukee, WI 53202 Gentlemen: We have acted as counsel for you in connection with the preparation of a Registration Statement on Form N-1A relating to the sale by you of an indefinite amount of FMI Funds, Inc. Common Stock, $0.0001 par value (such Common Stock being hereinafter referred to as the "Stock") in the manner set forth in the Registration Statement to which reference is made. In this connection we have examined: (a) the Registration Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as amended to date; (c) corporate proceedings relative to the authorization for issuance of the Stock; and (d) such other proceedings, documents and records as we have deemed necessary to enable us to render this opinion. Based upon the foregoing, we are of the opinion that the shares of Stock when sold as contemplated in the Registration Statement will be legally issued, fully paid and nonassessable. We hereby consent to the use of this opinion as an exhibit to the Form N-1A Registration Statement. In giving this consent, we do not admit that we are experts within the meaning of Section 11 of the Securities Act of 1933, as amended, or within the category of persons whose consent is required by Section 7 of said Act. Very truly yours, FOLEY & LARDNER EX-99.B13 9 EXHIBIT 13 - SUBSCRIPTION AGMT. EXHIBIT 13 SUBSCRIPTION AGREEMENT FMI Funds, Inc. 225 East Mason Street Milwaukee, WI 53202 Gentlemen: The undersigned hereby subscribes to 10,000 shares of the Common Stock, $0.0001 par value of FMI Funds, Inc., and agrees to pay to said corporation the sum of $100,000 in cash. It is understood that upon acceptance hereof by said corporation the shares subscribed for shall be issued to the undersigned and that said shares shall be deemed to be fully paid and nonassessable. The undersigned agrees that the shares are being purchased for investment with no present intention of reselling or redeeming said shares. Dated and effective as of this ____ day of October, 1996. FIDUCIARY MANAGEMENT, INC. By: ________________________________ Ted D. Kellner, Chairman The foregoing subscription is hereby accepted. Dated and effective as of this ____ day of October, 1996. FMI FUNDS, INC. By: ______________________________________ Ted D. Kellner, President EX-99.B14 10 EXHIBIT 14 - INDIVIDUAL RETIREMENT ACCOUNT FIDUCIARY FUNDS INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT The following constitutes an agreement establishing an Individual Retirement Account (under Section 408(a) of the Internal Revenue Code) between the Depositor and the Custodian. ARTICLE I The Custodian may accept additional cash contributions on behalf of the Depositor for a tax year of the Depositor. The total cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in Section 402(c) (but only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified employee pension plan as described in Section 408(k). Rollover contributions before January 1, 1993, include rollovers described in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified employee pension plan as described in Section 408(k). ARTICLE II The Depositor's interest in the balance in the custodial account is nonforfeitable. ARTICLE III 1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of Section 408(a)(5)). 2. No part of the custodial funds may be invested in collectibles (within the meaning of Section 408(m)) except as otherwise permitted by Section 408(m)(3) which provides an exception for certain gold and silver coins and coins issued under the laws of any state. ARTICLE IV 1. Notwithstanding any provision of this agreement to the contrary, the distribution of the Depositor's interest in the custodial account shall be made in accordance with the following requirements and shall otherwise comply with Section 408(a)(6) and Proposed Regulations Section 1.408-8, including the incidental death benefit provisions of Proposed Regulations Section 1.401(a)(9)-2, the provisions of which are incorporated by reference. 2. Unless otherwise elected by the time distributions are required to begin to the Depositor under Paragraph 3, or to the surviving spouse under Paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Depositor and the surviving spouse and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated. 3. The Depositor's entire interest in the custodial account must be, or begin to be, distributed by the Depositor's required beginning date, (April 1 following the calendar year end in which the Depositor reaches age 70 1/2). By that date, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in: (a) A single sum payment. (b) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life of the Depositor. (c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Depositor and his or her designated beneficiary. (d) Equal or substantially equal annual payments over a specified period that may not be longer than the Depositor's life expectancy. (e) Equal or substantially equal annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Depositor and his or her designated beneficiary. 4. If the Depositor dies before his or her entire interest is distributed to him or her, the entire remaining interest will be distributed as follows: (a) If the Depositor dies on or after distribution of his or her interest has begun, distribution must continue to be made in accordance with Paragraph 3. (b) If the Depositor dies before distribution of his or her interest has begun, the entire remaining interest will, at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either (i) Be distributed by the December 31 of the year containing the fifth anniversary of the Depositor's death, or (ii) Be distributed in equal or substantially equal payments over the life or life expectancy of the designated beneficiary or beneficiaries starting by December 31 of the year following the year of the Depositor's death. If, however, the beneficiary is the Depositor's surviving spouse, then this distribution is not required to begin before December 31 of the year in which the Depositor would have turned age 70 1/2. (c) Except where distribution in the form of an annuity meeting the requirements of Section 408(b)(3) and its related regulations has irrevocably commenced, distributions are treated as having begun on the Depositor's required beginning date, even though payments may actually have been made before that date. (d) If the Depositor dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash contributions or rollover contributions may be accepted in the account. 5. In the case of a distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment for each year, divide the Depositor's entire interest in the custodial account as of the close of business on December 31 of the preceding year by the life expectancy of the Depositor (or the joint life and last survivor expectancy of the Depositor and the Depositor's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). In the case of distributions under Paragraph 3, determine the initial life expectancy (or joint life and last survivor expectancy) using the attained ages of the Depositor and designed beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2. In the case of a distribution in accordance with Paragraph 4(b)(ii), determine life expectancy using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence. 6. The owner of two or more individual retirement accounts may use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above. This method permits an individual to satisfy these requirements by taking from one individual retirement account the amount required to satisfy the requirement for another. ARTICLE V 1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under Section 408(i) and Regulations Section 1.408-5 and 1.408-6. 2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor prescribed by the Internal Revenue Service. ARTICLE VI Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through III and this sentence will be controlling. Any additional articles that are not consistent with Section 408(a) and related regulations will be invalid. ARTICLE VII This agreement will be amended from time to time to comply with the provisions of the Code and related regulations. Other amendments may be made with the consent of the persons whose signatures appear below. ARTICLE VIII 1. Investment of Account Assets. (a) All contributions to the custodial account shall be invested in the shares of any regulated investment company ("Investment Company") for which Fiduciary Management, Inc. serves as investment advisor, or any other regulated investment company designated by the investment advisor. Shares of stock of an Investment Company shall be referred to as Investment Company Shares." (b) Each contribution to the custodial account shall identify the Depositor's account number and be accompanied by a signed statement directing the investment of that contribution. The Custodian may return to the Depositor, without liability for interest thereon, any contribution which is not accompanied by adequate account identification or an appropriate signed statement directing investment of that contribution. (c) Contributions shall be invested in whole and fractional Investment Company Shares at the price and in the manner such shares are offered to the public. All distributions received on Investment Company Shares held in the custodial account shall be reinvested in like shares. If any distribution of Investment Company Shares may be received in additional like shares or in cash or other property, the Custodian shall elect to receive such distribution in additional like Investment Company Shares. (d) All Investment Company Shares acquired by the Custodian shall be registered in the name of the Custodian or its nominee. The Depositor shall be the beneficial owner of all Investment Company Shares held in the custodial account and the Custodian shall not vote any such shares, except upon written direction of the Depositor. The Custodian agrees to forward to the Depositor each prospectus, report, notice, proxy and related proxy soliciting materials applicable to Investment Company Shares held in the custodial account received by the Custodian. (e) The Depositor may, at any time, by written notice to the Custodian, redeem any number of shares held in the custodial account and reinvest the proceeds in the shares of any other Investment Company. Such redemptions and reinvestments shall be done at the price and in the manner such shares are then being redeemed or offered by the respective Investment Companies. 2. Amendment and Termination. (a) The Custodian may amend the Custodial Account (including retroactive amendments) by delivering to the Depositor written notice of such amendment setting forth the substance and effective date of the amendment. The Depositor shall be deemed to have consented to any such amendment not objected to in writing by the Depositor within thirty (30) days of receipt of the notice, provided that no amendment shall cause or permit any part of the assets of the custodial account to be diverted to purposes other than for the exclusive benefit of the Depositor or his or her beneficiaries. (b) The Depositor may terminate the custodial account at any time by delivering to the Custodian a written notice of such termination. (c) The custodial account shall automatically terminate upon distribution to the Depositor or his or her beneficiaries of its entire balance. 3. Taxes and Custodial Fees. Any income taxes or other taxes levied or assessed upon or in respect of the assets or income of the custodial account and any transfer taxes incurred shall be paid from the custodial account. All administrative expenses incurred by the Custodian in the performance of its duties, including fees for legal services rendered to the Custodian, and the Custodian's compensation shall be paid from the custodial account, unless otherwise paid by the Depositor or his or her beneficiaries. The Custodian's fees are set forth in a schedule provided to the Depositor. Extraordinary charges resulting from unusual administrative responsibilities not contemplated by the schedule will be subject to such additional charges as will reasonably compensate the Custodian. Fees for refund of excess contributions, transferring to a successor trustee or custodian, or redemption/reinvestment of Investment Company Shares will be deducted from the refund or redemption proceeds and the remaining balance will be remitted to the Depositor, or reinvested or transferred in accordance with the Depositor's instructions. 4. Reports and Notices. (a) The Custodian shall keep adequate records of transactions it is required to perform hereunder. After the close of each calendar year, the Custodian shall provide to the Depositor or his or her legal representative a written report or reports reflecting the transactions effected by it during such year and the assets and liabilities of the Custodial Account at the close of the year. (b) All communications or notices shall be deemed to be given upon receipt by the Custodian at Post Office Box 701, Milwaukee, Wisconsin 53201-0701 or the Depositor at his most recent address shown in the Custodian's records. The Depositor agrees to advise the Custodian promptly, in writing, of any change of address. 5. Designation of Beneficiary. The Depositor may designate a beneficiary or beneficiaries to receive benefits from the custodial account in the event of the Depositor's death. In the event the Depositor has not designated a beneficiary, or if all beneficiaries shall predecease the Depositor, the following persons shall take in the order named: (a) The spouse of the Depositor; (b) If the spouse shall predecease the Depositor or if the Depositor does not have a spouse, then to the personal representative of the Depositor's estate. 6. Multiple Individual Retirement Accounts. In the event the Depositor maintains more than one individual retirement account (as defined in Section 408(a)) and elects to satisfy his or her minimum distribution requirements described in Article IV above by making a distribution for another individual retirement account in accordance with Paragraph 6 thereof, the Depositor shall be deemed to have elected to calculate the amount of his or her minimum distribution under this custodial account in the same manner as under the individual retirement account from which the distribution is made. 7. Inalienability of Benefits. The benefits provided under this custodial account shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind and any attempt to cause such benefits to be so subjected shall not be recognized except to the extent as may be required by law. 8. Rollover Contributions and Transfers. The Custodian shall have the right to receive rollover contributions and to receive direct transfers from other custodians or trustees. All contributions must be made in cash or check. 9. Conflict in Provisions. To the extent that any provisions of this Article VIII shall conflict with the provisions of Articles IV, V and/or VII, the provisions of this Article VIII shall govern. 10. Applicable State Law. This custodial account shall be construed, administered and enforced according to the laws of the State of Wisconsin. EX-99.B15 11 EXHIBIT 15 - SERVICE AND DISTRIBUTION PLAN EXHIBIT 15 SERVICE AND DISTRIBUTION PLAN OF FMI FUNDS, INC. WHEREAS, FMI Funds, Inc. (the "Fund") is registered with the Securities and Exchange Commission as an open-end management investment company under the Investment Company Act of 1940, as amended (the "Act"); WHEREAS, the Fund intends to act as a distributor of shares of its Common Stock, $.0001 par value ("Common Stock"), as defined in Rule 12b-1 under the Act, and desires to adopt a distribution plan pursuant to such Rule, and the Board of Directors has determined that there is a reasonable likelihood that adoption of this Service and Distribution Plan will benefit the Fund and its shareholders; and WHEREAS, the Fund may enter into agreements with dealers and other financial service organizations to obtain various distribution- related and/or shareholder services for the Fund, all as permitted and contemplated by Rule 12b-1 under the Act; it being under that to the extent any activity is one in which the Fund may finance without a Rule 12b-1 plan, the Fund may also make payments to finance such activity outside such a plan and not subject to its limitations. NOW, THEREFORE, the Fund hereby adopts this Service and Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act on the following terms and conditions: 1. Distribution and Service Fee. The Fund may charge a distribution expense and service fee on an annualized basis of 0.25% of the Fund's average daily net assets. Such fee shall be calculated and accrued daily and paid at such intervals as the Board of Directors of the Fund shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. 2. Permitted Expenditures. The amount set forth in paragraph 1 of this Plan shall be paid for services or expenses primarily intended to result in the sale of the Fund's shares. The Fund may pay all or a portion of this fee to any securities dealer, financial institution or any other person (the "Shareholder Organization(s)") who renders personal service to shareholders, assists in the maintenance of shareholder accounts or who renders assistance in distributing or promoting the sale of the Fund's shares pursuant to a written agreement approved by the Board of Directors (the "Related Agreement"). To the extent such fee is not paid to such persons, the Fund may use the fee to pay expenses of distribution of its shares including, but not limited to, payment by the Fund of the cost of preparing, printing and distributing Prospectuses and Statements of Additional Information to prospective investors and of implementing and operating the Plan as well as payment of capital or other expenses of associated equipment, rent, salaries, bonuses, interest and other overhead costs. 3. Effective Date of Plan. This Plan shall not take effect until (a) it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding shares of Common Stock and (b) (together with any related agreements) by votes of a majority of both (i) the Board of Directors of the Fund and (ii) those Directors of the Fund who are not "interested persons" of the Fund (as defined in the Act) and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements. 4. Continuance. Unless otherwise terminated pursuant to paragraph 6 below, this Plan shall continue in effect for as long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3(b). 5. Reports. Any person authorized to direct the disposition of monies paid or payable by the Fund pursuant to this Plan or any related agreement shall provide to the Fund's Board of Directors and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 6. Termination. This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors, or by a vote of a majority of the outstanding shares of Common Stock. 7. Amendments. This Plan may not be amended to increase materially the amount of payments provided for in paragraph 1 hereof unless such amendment is approved in the manner provided for initial approval in paragraph 3 hereof. No other amendment to the Plan may be made unless approved in the manner provided for approval of this Plan in paragraph 3(b). 8. Selection of Directors. While this Plan is in effect, the selection and nomination of Directors who are not interested persons (as defined in the Act) of the Fund shall be committed to the discretion of the Directors who are not interested persons. 9. Records. The Fund shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of this Plan, or the agreements or such report, as the case may be, the first two years in an easily accessible place. -----END PRIVACY-ENHANCED MESSAGE-----