The Company consists of separate mutual funds series (each, a “Fund,” and collectively, the “Funds”): Thompson Plumb Growth Fund (the “Growth Fund”), Thompson Plumb MidCap Fund (the “MidCap Fund”) and Thompson Plumb Bond Fund (the “Bond Fund”). The assets and liabilities of each Fund are segregated and a shareholder’s interest is limited to the Fund in which the shareholder owns shares.
SECURITY VALUATION - Each Fund’s investments are valued at their market prices (generally the last reported sales price on the exchange where the securities are primarily traded or, for Nasdaq listed securities, at their Nasdaq Official Closing Prices) or, where market quotations are not readily available or are unreliable, at fair value as determined in good faith pursuant to procedures established by the Funds’ Board of Directors (the “Funds’ Board”). Market quotations for the common stocks in which the Funds invest are nearly always readily available; however, market quotations for debt securities are often not readily available. Fair values of debt securities are typically based on valuations published by an independent pricing service, which uses various valuation methodologies such as matrix pricing and other analytical pricing models as well as market transactions and dealer quotations. Debt securities with remaining maturities of 60 days or less are valued at amortized cost basis.
When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the Pricing Policies and Procedures adopted by the Funds’ Board, which includes factors such as fundamental analytical data relating to the investment, which may include consideration of yields or prices of securities of comparable quality, coupon rate, maturity and type of issue, nature and duration of any restrictions on disposition of the security and an evaluation of forces that influence the market in which the securities are purchased or sold. Fair value pricing is an inherently subjective process, and no single standard exists for determining fair value. Different funds could reasonably arrive at different values for the same security.
As of May 31, 2008, a corporate bond held by the Bond Fund was fair valued and the value of the security represented approximately 0.54% of the net assets of the Fund.
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Funds’ net assets as of May 31, 2008:
| NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) | |
| May 31, 2008 | |
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Investment securities transactions are accounted for on the trade date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities on the same basis for book and tax purposes. Dividend income is recorded on the ex-dividend date. Interest income is recorded as earned.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED-DELIVERY BASIS - Each Fund may purchase securities on a when-issued or delayed-delivery basis. When-issued securities are securities purchased with delivery to occur at a later date at a stated price and/or yield, thereby involving the risk that the price and/or yield obtained may be more or less than those available in the market when delivery takes place. At the time a Fund makes a commitment to purchase a security on a when-issued basis, the Fund records the transaction and reflects the value of the security in determining net asset value. Each Fund designates and maintains cash and marketable securities at least equal in value to commitments for when-issued securities.
MORTGAGE DOLLAR ROLLS - The Bond Fund may enter into mortgage dollar roll transactions in which the fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Each mortgage dollar roll is treated as a financing transaction; therefore, any gain or loss is considered unrealized until the roll reaches completion. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Income is generated as consideration for entering into these transactions and is included in interest income on the accompanying financial statements.
VARIABLE-RATE DEMAND NOTES - The Funds invest in short-term, variable-rate demand notes, which are unsecured instruments. The Funds may be susceptible to credit risk with respect to these instruments to the extent the issuer defaults on its payment obligation.
PERMANENT BOOK AND TAX DIFFERENCES - Generally accepted accounting principles require that permanent financial reporting and tax differences relating to shareholder distributions be reclassified in the capital accounts.
EXPENSES - Each Fund is charged for those expenses that are directly attributed to it. Expenses that are not readily identifiable to a specific Fund are generally allocated among the Funds in proportion to the relative sizes of the Funds.
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders from net investment income and realized gains on securities for the Growth Fund and MidCap Fund normally are declared at least annually. Bond Fund distributions to shareholders from net investment income normally are declared on a quarterly basis, and distributions to shareholders from realized gains on securities normally are declared at least annually. Distributions are recorded on the ex-dividend date.
FEDERAL INCOME TAXES - No provision has been made for federal income taxes since the Funds have elected to be taxed as regulated investment companies and intend to distribute substantially all income to shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies.
DIRECTED BROKERAGE ARRANGEMENTS - The Funds have directed brokerage arrangements with Fidelity Capital Markets, BNY Brokerage and Trade Manage Capital, Inc. Upon purchase and/or sale of the investment securities at best execution, the Funds pay brokerage commissions to Fidelity Capital Markets, BNY Brokerage and Trade Manage Capital, Inc. These commission payments generate non-refundable cumulative credits, which are available to pay certain expenses of the Funds. There were no directed brokerage credits during the six-month period ended May 31, 2008.
LINE OF CREDIT - The Funds have established a line of credit (“LOC”) with U.S. Bank N.A. which expires November 15, 2008, used for temporary liquidity needs. The LOC is used primarily to finance redemption payments. Each of the individual Fund’s borrowing under the LOC is limited to either 5% of the market value of the Fund’s total assets or any explicit borrowing limits imposed by the Funds’ Board, whatever is less. As of May 31, 2008, the limits established by the Funds’ Board are: Growth Fund - $20,000,000, MidCap Fund - $750,000 and Bond Fund - $1,000,000. The LOC was drawn upon during the year;
30
| NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) | |
| May 31, 2008 | |
however, as of May 31, 2008, there were no borrowings by the Funds outstanding under the LOC. The following table shows the average balance, average interest rate and interest expense incurred by the Funds on borrowings under the LOC for the six-month period ended May 31, 2008.
| | | Average | | Average | | Interest |
| Fund | | Balance | | Interest Rate | | Expense |
| Growth Fund | | $ | 593,579 | | 6.125 | % | | $ | 19,069 |
| Bond Fund | | $ | 1,279 | | 5.000 | % | | $ | 33 |
GUARANTEES AND INDEMNIFICATIONS - In the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims against the Funds that have not yet occurred. Based on experience, the Funds expect the risk of loss to be remote.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds’ tax return to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Funds have reviewed the tax positions for each of the three open tax years as of November 30, 2007 and have determined that no provision for income tax is required in the Funds’ financial statements. The Funds’ federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
NOTE 3 - INVESTMENT ADVISORY AND ADMINISTRATIVE AND ACCOUNTING SERVICES AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Investment Advisory Agreement pursuant to which Thompson Investment Management, Inc. (“TIM”) is retained by the Funds provides for compensation to TIM (computed daily and paid monthly) at the following annual rates: for the Growth Fund and MidCap Fund - 1.00% of the first $50 million of average daily net assets and 0.90% of average daily net assets in excess of $50 million; and for the Bond Fund - 0.65% of the first $50 million of average daily net assets and 0.60% of average daily net assets in excess of $50 million.
The Advisor is contractually bound to waive management fees and/or reimburse expenses incurred by the MidCap Fund from March 31, 2008 through March 31, 2009, so that the annual operating expenses of the Fund do not exceed 1.30% of its average daily net assets. The Advisor is contractually bound to waive management fees and/or reimburse expenses incurred by the Bond Fund through March 31, 2009 so that the annual operating expenses of the Bond Fund do not exceed 0.59% of average daily net assets.
For the period from March 31, 2008 through May 31, 2008, the Advisor reimbursed expenses incurred by the MidCap Fund in the amount of $27,931 so that that annual operating expenses did not exceed 1.30% of its average daily net assets. For the six-month period ended May 31, 2008, the Advisor reimbursed expenses incurred by the Bond Fund in the amount of $140,044 so that that annual operating expenses did not exceed 0.59% of its average daily net assets.
Pursuant to an Administrative and Accounting Services Agreement, TIM maintains the Funds’ financial records in accordance with the 1940 Act, prepares all necessary financial statements of the Funds and calculates the net asset value per share of the Funds on a daily basis. As compensation for its services, each Fund pays TIM a fee computed daily and payable monthly at the annual rate of 0.15% of average daily net assets up to $30 million, 0.10% of the next $70 million of average daily net assets and 0.025% of average daily net assets in excess of $100 million, with an annual minimum fee of $30,000 per Fund. The calculations of daily net asset value are subcontracted to U.S. Bancorp Fund Services, resulting in fees paid by TIM in the amounts of $33,556, $5,000 and $15,000 for the Growth Fund, MidCap Fund and Bond Fund, respectively, for the six-month period ended May 31, 2008.
31
| NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) |
| May 31, 2008 |
NOTE 4 - FUND SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows:
| (In thousands) | | | | | | | | | | | | | |
| | Six-Month Period Ended | | Year Ended |
| | May 31, 2008 (Unaudited) | | November 30, 2007 |
| | Shares | | Dollars | | Shares | | Dollars |
| Growth Fund | | | | | | | | | | | | | |
| Shares sold | 325 | | | $ | 11,810 | | | 1,576 | | | $ | 77,304 | |
| Shares issued in reinvestment of dividends | 102 | | | | 3,909 | | | 92 | | | | 4,548 | |
| Shares issued in reinvestment of realized gains | 1,659 | | | | 63,695 | | | 483 | | | | 23,727 | |
| Shares redeemed | (4,805 | ) | | | (187,166 | ) | | (5,705 | ) | | | (280,794 | ) |
| Net decrease | (2,719 | ) | | $ | (107,752 | ) | | (3,554 | ) | | $ | (175,215 | ) |
| |
| |
| | Period Ended | | | | | | | |
| | May 31, 2008 (Unaudited)* | | | | | | | |
| | Shares | | Dollars | | | | | | | |
| MidCap Fund | | | | | | | | | | | | | |
| Shares sold | 249 | | | $ | 2,652 | | | | | | | | |
| Shares issued in reinvestment of dividends | - | | | | - | | | | | | | | |
| Shares issued in reinvestment of realized gains | - | | | | - | | | | | | | | |
| Shares redeemed | - | | | | - | | | | | | | | |
| Net increase | 249 | | | $ | 2,652 | | | | | | | | |
| |
| |
| | Six-Month Period Ended | | Year Ended |
| | May 31, 2008 (Unaudited) | | November 30, 2007 |
| | Shares | | Dollars | | Shares | | Dollars |
| Bond Fund | | | | | | | | | | | | | |
| Shares sold | 1,930 | | | $ | 19,910 | | | 2,036 | | | $ | 20,809 | |
| Shares issued in reinvestment of dividends | 107 | | | | 1,089 | | | 148 | | | | 1,499 | |
| Shares issued in reinvestment of realized gains | - | | | | - | | | - | | | | - | |
| Shares redeemed | (1,183 | ) | | | (12,163 | ) | | (1,041 | ) | | | (10,639 | ) |
| Net increase | 854 | | | $ | 8,836 | | | 1,143 | | | $ | 11,669 | |
* For the period March 31, 2008 (inception) through May 31, 2008.
32
| NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) |
| May 31, 2008 |
NOTE 5 - PURCHASE AND SALE OF SECURITIES
Investment transactions for the six-month period ended May 31, 2008 were as follows:
| | Securities other than U. S. | | | | | | |
| | Government and Short-term | | | | | | |
| | Investments | | U. S. Government Securities |
| | Purchases | | Sales | | Purchases | | Sales |
| Growth Fund | | $ | 58,988,227 | | $ | 236,413,838 | | $ | – | | $ | – |
| MidCap Fund* | | $ | 2,656,112 | | $ | 13,138 | | $ | – | | $ | – |
| Bond Fund | | $ | 16,790,729 | | $ | 1,895,424 | | $ | 29,054,922 | | $ | 40,917,090 |
* For the period March 31, 2008 (inception) through May 31, 2008.
NOTE 6 - INCOME TAX INFORMATION
At May 31, 2008, the investment cost and aggregate unrealized appreciation and depreciation on investments for federal income tax purposes were as follows:
| | | | | | | | | | | | | Net unrealized |
| | | | | | Unrealized | | Unrealized | | appreciation |
| | Federal tax cost | | appreciation | | depreciation | | (depreciation) |
| Growth Fund | | $ | 337,033,033 | | | $ | 32,988,825 | | $ | (56,357,372 | ) | | $ | (23,368,547 | ) |
| MidCap Fund | | $ | 2,655,579 | | | $ | 110,417 | | $ | (44,989 | ) | | $ | 65,428 | |
| Bond Fund | | $ | 54,346,435 | | | $ | 520,757 | | $ | (709,720 | ) | | $ | (188,963 | ) |
The tax basis of investments for tax and financial reporting purposes differ principally due to wash sales.
The tax components of distributions paid during the six-month period ended May 31, 2008 (Unaudited) are:
| | | | | | Long-term |
| | Ordinary income | | capital gains |
| | distributions | | distributions |
| Growth Fund | | $ | 4,172,247 | | | $ | 65,286,994 |
| Bond Fund | | $ | 1,194,097 | | | $ | – |
The tax components of distributions paid during the fiscal year ended November 30, 2007, capital loss carryforward as of November 30, 2007 and tax basis post-October losses as of November 30, 2007, which are not recognized for tax purposes until the first day of the following fiscal year are:
| | | | | | Long-term | | | | | | | |
| | Ordinary income | | capital gains | | Net capital loss | | Post-October |
| | distributions | | distributions | | carryforward* | | losses |
| Growth Fund | | $ | 11,295,040 | | | $ | 18,429,147 | | $ | – | | | $ | 1,096,652 |
| Bond Fund | | $ | 1,682,368 | | | $ | – | | $ | 223,897 | | | $ | 18,433 |
* $90,180 expires November 30, 2014 and $133,717 expires November 30, 2015.
33
The following table presents information relating to a share of capital stock outstanding for the entire period.
| | Six-Month Period | | Year Ended November 30, |
| | Ended May 31, 2008 | | | | | | | | | | | | | | | |
| | (Unaudited) | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 |
| GROWTH FUND | | | | | | | | | | | | | | | | | | | |
| |
| Net Asset Value, Beginning of Period | | | $45.86 | | | $49.95 | | | $45.85 | | | $46.03 | | | $42.45 | | | $37.85 | |
| Income from Investment Operations | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.16 | | | 0.36 | | | 0.35 | | | 0.27 | | | 0.46 | | | 0.13 | |
| Net realized and unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
| on investments | | | (3.96 | ) | | (2.49 | ) | | 5.14 | | | 0.54 | | | 3.26 | | | 4.83 | |
| Total from Investment Operations | | | (3.80 | ) | | (2.13 | ) | | 5.49 | | | 0.81 | | | 3.72 | | | 4.96 | |
| Less Distributions | | | | | | | | | | | | | | | | | | | |
| Distributions from net investment income | | | (0.41 | ) | | (0.34 | ) | | (0.27 | ) | | (0.44 | ) | | (0.14 | ) | | (0.25 | ) |
| Distributions from net realized gains | | | (6.40 | ) | | (1.62 | ) | | (1.12 | ) | | (0.55 | ) | | – | | | (0.11 | ) |
| Total Distributions | | | (6.81 | ) | | (1.96 | ) | | (1.39 | ) | | (0.99 | ) | | (0.14 | ) | | (0.36 | ) |
| |
| Net Asset Value, End of Period | | | $35.25 | | | $45.86 | | | $49.95 | | | $45.85 | | | $46.03 | | | $42.45 | |
| |
| Total Return | | | (9.50% | )(a) | | (4.52% | ) | | 12.32% | | | 1.76% | | | 8.77% | | | 13.28% | |
| |
| Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (millions) | | | $314.5 | | | $533.9 | | | $759.0 | | | $1,030.7 | | | $1,485.9 | | | $875.6 | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | |
| Ratio of expenses | | | 1.23% | (b) | | 1.13% | | | 1.12% | | | 1.08% | | | 1.05% | | | 1.07% | |
| Ratio of expenses without reimbursement† | | | 1.23% | (b) | | 1.13% | | | 1.12% | | | 1.09% | | | 1.06% | | | 1.11% | |
| Ratio of net investment income | | | 0.52% | (b) | | 0.62% | | | 0.63% | | | 0.50% | | | 1.12% | | | 0.47% | |
| Ratio of net investment income | | | | | | | | | | | | | | | | | | | |
| without reimbursement† | | | 0.52% | (b) | | 0.62% | | | 0.63% | | | 0.49% | | | 1.11% | | | 0.42% | |
| Portfolio turnover rate | | | 15.29% | (a) | | 28.60% | | | 17.44% | | | 20.48% | | | 28.54% | | | 41.01% | |
| † | Before directed brokerage credits.. |
| (a) | Calculated on a non-annualized basis. |
| (b) | Calculated on an annualized basis. |
See Notes to Financial Statements.
34
| FINANCIAL HIGHLIGHTS (Continued) |
| |
The following table presents information relating to a share of capital stock outstanding for the entire period.
| | March 31, 2008 | |
| | (inception) | |
| | through | |
| | May 31, 2008 | |
| | (Unaudited) | |
| MIDCAP FUND | | | | | |
| | | |
| Net Asset Value, Beginning of Period | | | $10.00 | | |
| Income from Investment Operations | | | | | |
| Net investment income | | | – | | |
| Net realized and unrealized gains | | | | | |
| on investments | | | 0.91 | | |
| Total from Investment Operations | | | 0.91 | | |
| Less Distributions | | | | | |
| Distributions from net investment income | | | – | | |
| Distributions from net realized gains | | | – | | |
| Total Distributions | | | – | | |
| | | |
| Net Asset Value, End of Period | | | $10.91 | | |
| | | |
| Total Return | | | 9.10% | (a) | |
| | | |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of period (millions) | | | $2.7 | | |
| Ratios to average net assets: | | | | | |
| Ratio of expenses | | | 1.30% | (b) | |
| Ratio of expenses without reimbursement | | | 11.90% | (b) | |
| Ratio of net investment income | | | 0.46% | (b) | |
| Ratio of net investment loss | | | | | |
| without reimbursement | | | (10.14%) | (b) | |
| Portfolio turnover rate | | | 0.63% | (a) | |
| (a) | Calculated on a non-annualized basis. |
| (b) | Calculated on an annualized basis. |
See Notes to Financial Statements.
35
| FINANCIAL HIGHLIGHTS (Continued) |
| |
The following table presents information relating to a share of capital stock outstanding for the entire period.
| | Six-Month Period | | Year Ended November 30, |
| Ended May 31, 2008 | | | | | | | | | | | | | | | |
| | (Unaudited) | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 |
| BOND FUND | | | | | | | | | | | | | | | | | | | |
| | |
| Net Asset Value, Beginning of Period | | | $10.34 | | | $10.26 | | | $10.21 | | | $10.68 | | | $10.86 | | | $10.09 | |
| Income from Investment Operations | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.26 | | | 0.48 | | | 0.44 | | | 0.39 | | | 0.57 | | | 0.58 | |
| Net realized and unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
| on investments | | | – | | | 0.08 | | | 0.11 | | | (0.36 | ) | | (0.16 | ) | | 0.77 | |
| Total from Investment Operations | | | 0.26 | | | 0.56 | | | 0.55 | | | 0.03 | | | 0.41 | | | 1.35 | |
| Less Distributions | | | | | | | | | | | | | | | | | | | |
| Distributions from net investment income | | | (0.25 | ) | | (0.48 | ) | | (0.41 | ) | | (0.42 | ) | | (0.59 | ) | | (0.58 | ) |
| Distributions from net realized gains | | | – | | | – | | | (0.09 | ) | | (0.08 | ) | | – | | | – | |
| Total Distributions | | | (0.25 | ) | | (0.48 | ) | | (0.50 | ) | | (0.50 | ) | | (0.59 | ) | | (0.58 | ) |
| | |
| Net Asset Value, End of Period | | | $10.35 | | | $10.34 | | | $10.26 | | | $10.21 | | | $10.68 | | | $10.86 | |
| | |
| Total Return | | | 2.60% | (a) | | 5.64% | | | 5.64% | | | 0.29% | | | 3.90% | | | 13.75% | |
| | |
| Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (millions) | | | $53.4 | | | $44.5 | | | $32.5 | | | $30.6 | | | $29.7 | | | $41.9 | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | |
| Ratio of expenses | | | 0.59% | (b) | | 0.59% | | | 0.72% | | | 0.80% | | | 0.80% | | | 0.80% | |
| Ratio of expenses without reimbursement | | | 1.16% | (b) | | 1.24% | | | 1.30% | | | 1.28% | | | 1.20% | | | 1.05% | |
| Ratio of net investment income | | | 5.56% | (b) | | 4.92% | | | 4.42% | | | 3.80% | | | 5.00% | | | 5.49% | |
| Ratio of net investment income | | | | | | | | | | | | | | | | | | | |
| without reimbursement | | | 4.99% | (b) | | 4.26% | | | 3.84% | | | 3.31% | | | 4.60% | | | 5.24% | |
| Portfolio turnover rate | | | 80.10% | (a) | | 85.58% | | | 50.55% | | | 25.93% | | | 23.52% | | | 29.89% | |
| (a) | Calculated on a non-annualized basis. |
| (b) | Calculated on an annualized basis. |
See Notes to Financial Statements.
36
| ADDITIONAL INFORMATION (Unaudited) |
| |
| THOMPSON PLUMB FUNDS |
| |
| DIRECTORS | INVESTMENT ADVISOR |
| John W. Feldt | Thompson Investment Management, Inc. |
| Donald A. Nichols | 1200 John Q. Hammons Drive |
| Patricia Lipton | Madison, Wisconsin 53717 |
| John W. Thompson - Chairman | |
| DISTRIBUTOR |
| OFFICERS | Quasar Distributors, LLC |
| John W. Thompson, CFA | 615 East Michigan Street |
| Chief Executive Officer | Milwaukee, Wisconsin 53202 |
| |
| John C. Thompson, CFA | TRANSFER AGENT |
| President & Chief Operating Officer | U.S. Bancorp Fund Services, LLC |
| 615 East Michigan Street |
| Penny M. Hubbard | Milwaukee, Wisconsin 53202 |
| Chief Financial Officer & Treasurer | |
| INDEPENDENT REGISTERED |
| Nedra S. Pierce | PUBLIC ACCOUNTING FIRM |
| Chief Compliance Officer | PricewaterhouseCoopers LLP |
| 100 East Wisconsin Avenue |
| Jason L. Stephens, CFA | Milwaukee, Wisconsin 53202 |
| Secretary | |
| LEGAL COUNSEL |
| Quarles & Brady LLP |
| 411 East Wisconsin Avenue |
| Milwaukee, Wisconsin 53202 |
The Statement of Additional Information contains additional information about the directors and officers of Thompson Plumb Funds, Inc. and is available without charge, upon request, by calling 1-800-999-0887.
Proxy Voting Policy
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities and information regarding how the Funds actually voted proxies during the most recent 12-month period ended June 30 are available without charge, upon request, by calling 1-800-999-0887, through the Funds’ website at www.thompsonplumb.com and on the SEC’s website at www.sec.gov.
Information About Portfolio Securities
The Funds file complete schedules of the portfolio holdings with the Securities and Exchange Commission for the Funds’ first and third quarters of its fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Securities and Exchange Commission’s website at www.sec.gov. You may also review and copy those documents by visiting the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Funds’ Forms N-Q are also available without charge, upon request, by calling 1-800-999-0887.
37
| ADDITIONAL INFORMATION (Unaudited) (Continued) |
| |
Board Approval of Investment Advisory Agreement
At its meeting on January 24, 2008, the Board of Directors of Thompson Plumb Funds, Inc. (the “Funds”), including the Directors who are not “interested persons” of the Funds as that term is defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), unanimously voted to approve an investment advisory agreement (“Advisory Agreement”) between the Funds, on behalf of the Thompson Plumb MidCap Fund (the “Fund”), and Thompson Investment Management, Inc. (the “Advisor”) with respect to the Fund. Since the Fund was newly organized and had not commenced operations, the Fund had no performance history. However, the Board had the benefit of experience with the Advisor’s management of, and the performance of, the other two series of the Funds, the Thompson Plumb Growth Fund and the Thompson Plumb Bond Fund.
The Board’s approval was based on its consideration and evaluation of a variety of factors, including: (1) the nature, extent and quality of the services provided by the Advisor; (2) the performance of the Thompson Plumb Growth Fund and the Thompson Plumb Bond Fund, which are both advised by the Advisor; (3) the management fees and total operating expenses projected for the Fund, including comparative information; (4) the extent to which economies of scale may be realized as the Fund grows; and (5) whether fee breakpoint levels reflect these economies of scale for the benefit of the Fund’s shareholders.
In connection with the approval process, the Board, including each of the Independent Directors, met by telephone on January 4, 2008 and in person on January 24, 2008 to consider information relevant to the approval process.
The information reviewed by the Board included a comparison of the proposed management fee, operating expenses and fee breakpoints of the Fund to a peer group of comparable funds; information regarding the types of services to be furnished to the Fund and the manner in which such services are being and have been furnished to the other series of the Funds; information regarding the personnel providing the services; and information regarding the financial and other resources of the Advisor.
The Board has also previously received and reviewed extensive information from the Advisor with respect to the organization, investment philosophy, portfolio manager and other personnel, and facilities, as well as a copy of the Advisor’s Form ADV filing with the SEC.
Throughout the process, the Independent Directors were represented and obtained assistance from counsel, including a memorandum from counsel summarizing the responsibilities of the Independent Directors under the Investment Company Act of 1940, as amended, in reviewing and approving the Advisory Agreement.
Nature, Extent and Quality of Services Provided by Advisor
At previous quarterly meetings of the Board of Directors, management had presented information describing the services furnished by the Advisor to the Funds, which services are similar to those services expected to be provided to the Fund. During these meetings, management reported on the investment management, trading and compliance functions provided to the other series of the Funds under its current advisory agreement, all of which will function in the same manner for the Fund.
The Board considered the biographical information of the portfolio manager, other relevant management personnel and the history, organization, resources and regulatory history of the Advisor. In addition, the Board received information describing the compliance functions performed by the Advisor. The Board considered the importance of the compliance and the oversight functions to the successful operation of the Fund.
The Board concluded that the Advisor was well qualified; that the Advisor would be able to provide services comparable to those provided by other advisors to similar funds; that the nature and extent of services to be provided by the Advisor were appropriate for the investment objective and program of the Fund; and that the Advisor had appropriate and sufficient knowledge to manage the Fund.
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| ADDITIONAL INFORMATION (Unaudited) (Continued) |
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Investment Performance
The Fund had not commenced operations and, therefore, had no performance history. However, at previous quarterly meetings, the Board reviewed the performance history of the other series of the Funds, which have similar management processes and which share management personnel with the Fund. In addition, at the Funds meetings held in January 2008, the Board reviewed quarterly information as well as the long-term performance track record for the other series of the Funds.
Cost of Services and Profitability to the Advisor
The Board considered the contractual advisory fee for the Fund as well as the Advisor’s intent to waive and/or reimburse certain expenses for the Fund until March 31, 2009. The Board relied on the competitive level of the advisory fee compared to other comparable funds and the level of services provided by the Advisor. Based on this information, the Board concluded that the advisory fee to be charged to the Fund was reasonable.
With respect to profitability, the Board noted that the Advisor’s profitability with respect to the other series of the Funds ranked near the median for comparable firms and that the operating margins of the Advisor seemed to be reasonable. After reviewing information provided by Lipper, Inc. and the Advisor’s own analysis, the Board concluded that the anticipated profit to be earned by the Advisor for investment management was reasonable in light of the fee charged.
Economies of Scale and Breakpoints
The Board considered whether economies of scale might be realized as the Fund’s assets increase. The Board reviewed information provided by the Advisor relating to the proposed breakpoints in the Advisory Agreement, which reduce the advisory fees as the Fund’s asset level increases and may assist with the realization of economies of scale. Although it is difficult to anticipate the effect of economies of scale based on breakpoints since the Fund is new, the Board noted that the breakpoints were competitive with those of other funds in the Fund’s comparison group.
Based on the factors discussed above, the Board, including all of the Independent Directors, approved the Advisory Agreement with the Advisor with respect to the Fund.
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07/08 | 
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Item 2. Code of Ethics.
Not required in Semi-Annual Reports on Form N-CSR.
Item 3. Audit Committee Financial Expert.
Not required in Semi-Annual Reports on Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Not required in Semi-Annual Reports on Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable to this Registrant because it is not a “listed issuer” within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934.
Item 6. Schedule of Investments.
The required Schedules of Investments in securities of unaffiliated issuers is included as part of the Registrant’s Semi-Annual Report to shareholders dated as of May 31, 2008 provided under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant because it is not a closed-end management investment company.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to this Registrant because it is not a closed-end management investment company.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable to this Registrant because it is not a closed-end management investment company.
Item 10. Submission of Matters to a Vote of Securities Holders.
The Registrant has not made any material changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Directors.
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Item 11. Controls and Procedures.
| (a) | | Disclosure Controls and Procedures. Based on an evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) carried out under the supervision and with the participation of the Registrant’s management, including its principal executive and financial officers, within 90 days prior to the filing date of this report on Form N-CSR, the Registrant’s principal executive and financial officers have concluded that the design and operation of the Registrant’s disclosure controls and procedures are effective in providing reasonable assurance that the information required to be disclosed on Form N-CSR is recorded, processed, summarized and reported within the applicable time periods. |
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| (b) | | Change in Internal Controls Over Financial Reporting. There were no significant changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this Form N-CSR that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Exhibits
The following exhibits are attached to this Form N-CSR:
| Exhibit No. | | Description of Exhibit | |
| 12(a)(1) | | The Code of Ethics for the Registrant’s Principal Executive Officer, Principal Financial Officer and Principal Accounting Officers referred to in Item 2 was filed as Exhibit 12(a)(1) to the Registrant’s Certified Shareholder Report on Form N-CSR filed on January 28, 2005, and is incorporated herein by reference |
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| 12(a)(2)-1 | | Certification of Principal Executive Officer Required by Section 302 of the Sarbanes-Oxley Act of 2002 |
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| 12(a)(2)-2 | | Certification of Principal Financial Officer Required by Section 302 of the Sarbanes-Oxley Act of 2002 |
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| 12(b) | | Certification of Chief Executive Officer and Chief Financial Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 24th day of July, 2008.
| THOMPSON PLUMB FUNDS, INC. |
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| By: | /s/ John W. Thompson |
| John W. Thompson, Chairman and |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 24th day of July, 2008.
| By: | | /s/ John W. Thompson |
| | | John W. Thompson, Chairman and |
| | | Chief Executive Officer (Principal |
| | | Executive Officer) |
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| By: | | /s/ Penny Hubbard |
| | | Penny Hubbard, Chief Financial |
| | | Officer (Principal Financial Officer) |
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