UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
811-04722
FMI Mutual Funds, Inc.
----------------------
(Exact name of registrant as specified in charter)
100 East Wisconsin Avenue
Suite 2200
Milwaukee, WI 53202
--------------------
(Address of principal executive offices) (Zip code)
Ted D. Kellner
Fiduciary Management, Inc.
100 East Wisconsin Avenue
Suite 2200
Milwaukee, WI 53202
--------------------
(Name and address of agent for service)
(414) 226-4555
--------------
(Registrant's telephone number, including area code)
Date of fiscal year end: September 30
Date of reporting period: March 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
SEMIANNUAL REPORT
MARCH 31, 2006
FMI Provident Trust
Strategy Fund
A NO-LOAD MUTUAL FUND
FMI Provident Trust Strategy Fund
April 27, 2006
Dear Fellow Shareholders:
As detailed by Scott and his team, the FMI Provident Trust Strategy Fund
enjoyed a strong first six months for the period ended March 31, 2006. Your
Fund, and the equity markets in general, continue to trend higher, despite the
fifteenth increase in interest rates by the Federal Reserve; soaring energy and
commodity prices; consumer debt, which is at record levels; and the beginning of
what would appear to be a slowing in the U.S. housing market. Historically,
this would seem to be an environment against which equities would not fair
favorably, but as is often the case, equity markets, in the short-term, can
confound investors. The current market advance, moderately long by historic
standards, was born in the fourth quarter of 2002 and has yet to experience a
correction of more than eight percent. It is also our belief that we are
probably in the seventh or eighth inning of the economic expansion, and while
corporate profits have been extremely strong for the last several years, the
rate of growth is likely to slow.
We think that this is exactly the type of environment that favors a portfolio
of companies like those in the FMI Provident Trust Strategy Fund, which is
comprised of companies that are extremely financially strong, with excellent
balance sheets and strong cash flows. The valuations appear reasonable, and we
feel that the long-term prospects for our portfolio are very promising.
As always, we thank all of you for your interest and investment in the FMI
Provident Trust Strategy Fund, and look forward to years of successful investing
alongside all of you.
Sincerely,
/s/Ted D. Kellner
Ted D. Kellner, CFA
President
100 E. Wisconsin Ave. o Milwaukee, WI 53202 o 414-226-4555
www.fmifunds.com
March 31, 2006
Dear Shareholder,
FMI Provident Trust Strategy Fund gained 10.80% for the six months ended
March 31, 2006, outperforming the Standard & Poor's 500's(1)<F1> (S&P) 6.38%
gain. Our performance was aided by our significant allocation to industrial
companies.
The S&P's current dividend yield of 1.8%, combined with net corporate share
repurchases in 2005 equal to 2.8% of shares outstanding, equals a total stock
market "cash yield" of 4.6%. We favor stocks, where yields, share repurchases
and earnings lead to rising prices over time versus static paying bonds yielding
4.5%-5.0%. Bonds appear to us as overbought as large-cap growth stocks were in
2000. Our relative valuation analysis favors mid-to-larger growth stocks with
an emphasis toward industrials, financials and, more recently, retailers.
Cash flow trends also favor stocks in 2006. Equity mutual fund assets are at
an all-time record $5 trillion plus, compounding at a 16% annual growth rate
since 1995, well ahead of the S&P's 11.4%. The reason for this growing mountain
of cash is not equity mutual fund performance, which routinely lags the stock
market indexes, but burgeoning 401(k) contributions by baby boomers saving
furiously for retirement.
We attempt to flexibly allocate the FMI Provident Trust Strategy Fund based
on our analysis of economic, relative valuation and corporate trends. Negative
events which would lead us to a more conservative invested position include
declining consumer confidence, an inverted yield curve and trade protectionism.
Thank you for your interest in and support of FMI Provident Trust Strategy Fund.
Best regards,
/s/J. Scott Harkness
J. Scott Harkness, CFA
Portfolio Manager
(1)<F1> The Standard & Poor's 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
Standard & Poor's Ratings Group designates the stocks to be included
in the Index on a statistical basis. A particular stock's weighting
in the Index is based on its relative total market value (i.e., its
market price per share times the number of shares outstanding).
Stocks may be added or deleted from the Index from time to time.
FMI Provident Trust Strategy Fund
COST DISCUSSION
As a shareholder of the FMI Provident Trust Strategy Fund, you incur ongoing
costs, including management fees and other Fund expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing in
the Fund, and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from October 1, 2005 through March 31,
2006.
INDUSTRY SECTORS AS OF MARCH 31, 2006
Retail Trade 18.1%
Finance 16.5%
Health Technology 11.3%
Commercial Services 9.9%
Producer Manufacturing 8.8%
Technology Services 7.8%
Energy Minerals 5.8%
Health Services 5.3%
Industrial Services 4.6%
Transportation 3.5%
Cash & Cash Equivalents 8.4%
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
In addition to the costs highlighted and described below, the only Fund
transaction costs you might currently incur would be wire fees ($15 per wire),
if you choose to have proceeds from a redemption wired to your bank account
instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with the Fund. To determine
your total costs of investing in the Fund, you would need to add any applicable
wire or IRA processing fees you've incurred during the period to the costs
provided in the example below.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption or exchange fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Account Ending Account Expenses Paid During
Value 10/01/05 Value 03/31/06 Period*<F2> 10/01/05-3/31/06
-------------- -------------- -----------------------------
FMI Provident Trust Strategy Fund $1,000.00 $1,108.00 $5.26
Hypothetical (5% return before expenses) $1,000.00 $1,019.90 $5.04
*<F2> Expenses are equal to the Fund's annualized expense ratio of 1.00%,
multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period between October 1, 2005
and March 31, 2006).
FMI Provident Trust Strategy Fund
STATEMENT OF NET ASSETS
March 31, 2006 (Unaudited)
SHARES COST VALUE
------ ---- -----
COMMON STOCKS -- 91.6% (A)<F4>
COMMERCIAL SERVICES SECTOR -- 9.9%
- ----------------------------------
PERSONNEL SERVICES -- 9.9%
40,000 Manpower Inc. $ 1,852,264 $ 2,287,200
27,100 Robert Half International Inc. 1,012,804 1,046,331
----------- -----------
2,865,068 3,333,531
ENERGY MINERALS SECTOR -- 5.8%
- ------------------------------
OIL & GAS PRODUCTION -- 5.8%
30,000 Apache Corp. 1,797,647 1,965,300
FINANCE SECTOR -- 16.5%
- -----------------------
INVESTMENT BANKS/BROKERS -- 11.9%
3,200 Chicago Mercantile
Exchange Holdings Inc. 616,127 1,432,000
150,000 Charles Schwab Corp. 2,304,729 2,581,500
----------- -----------
2,920,856 4,013,500
INVESTMENT MANAGERS -- 4.6%
20,000 T. Rowe Price Group Inc. 1,202,862 1,564,200
HEALTH SERVICES SECTOR -- 5.3%
- ------------------------------
HEALTH INDUSTRY SERVICE -- 5.3%
20,500 Express Scripts, Inc.*<F3> 963,571 1,801,950
HEALTH TECHNOLOGY SECTOR -- 11.3%
- ---------------------------------
MEDICAL SPECIALTIES -- 11.3%
70,000 Biomet, Inc. 2,670,559 2,486,400
26,000 Medtronic, Inc. 1,357,813 1,319,500
----------- -----------
4,028,372 3,805,900
INDUSTRIAL SERVICES SECTOR -- 4.6%
- ----------------------------------
ENGINEERING & CONSTRUCTION -- 4.6%
17,800 Jacobs Engineering
Group Inc.*<F3> 794,358 1,543,972
PRODUCER MANUFACTURING SECTOR -- 8.8%
- -------------------------------------
INDUSTRIAL MACHINERY -- 4.2%
15,000 Illinois Tool Works Inc. 1,315,812 1,444,650
MISCELLANEOUS MANUFACTURING -- 4.6%
38,000 Pentair, Inc. 1,310,193 1,548,500
RETAIL TRADE SECTOR -- 18.1%
- ----------------------------
DEPARTMENT STORES -- 4.7%
29,900 Kohl's Corp.*<F3> 1,553,978 1,584,999
DRUGSTORE CHAINS -- 6.4%
50,000 Walgreen Co. 2,053,452 2,156,500
HOME IMPROVEMENT CHAINS -- 7.0%
50,000 Fastenal Co. 1,420,557 2,367,000
TECHNOLOGY SERVICES SECTOR -- 7.8%
- ----------------------------------
DATA PROCESSING SERVICES -- 3.0%
16,900 Affiliated Computer
Services, Inc.*<F3> 854,597 1,008,254
INFORMATION TECHNOLOGY SERVICES -- 4.8 %
54,000 Accenture Ltd. 1,693,510 1,623,780
TRANSPORTATION SECTOR -- 3.5%
- -----------------------------
TRUCKING -- 3.5%
54,000 Heartland Express, Inc. 1,070,856 1,176,660
----------- -----------
Total common stocks 25,845,689 30,938,696
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 9.7% (A)<F4>
VARIABLE RATE DEMAND NOTES -- 9.7%
$ 179,309 American Family Financial
Services, 4.47% 179,309 179,309
1,600,000 U.S. Bank, N.A., 4.57% 1,600,000 1,600,000
1,490,000 Wisconsin Corporate Central
Credit Union, 4.49% 1,490,000 1,490,000
----------- -----------
Total short-term investments 3,269,309 3,269,309
----------- -----------
Total investments $29,114,998 34,208,005
Liabilities, less cash and
receivables -- (1.3%) (A)<F4> (417,875)
-----------
NET ASSETS $33,790,130
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 300,000,000
shares authorized), offering
and redemption price
($33,790,130 / 4,405,831
shares outstanding) $ 7.67
-----------
-----------
*<F3> Non-income producing security.
(a)<F4> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Provident Trust Strategy Fund
STATEMENT OF OPERATIONS
For the Six Month Period Ending March 31, 2006 (Unaudited)
INCOME:
Dividends $ 70,229
Interest 105,550
----------
Total income 175,779
----------
EXPENSES:
Management fees 104,406
Administrative services 28,818
Professional fees 25,152
Registration fees 10,269
Transfer agent fees 9,520
Board of Directors fees 5,000
Custodian fees 3,795
Printing and postage expense 1,953
Insurance expense 815
Other expenses 1,378
----------
Total expenses before reimbursement 191,106
Less expenses reimbursed by advisor (51,555)
----------
Net expenses 139,551
----------
NET INVESTMENT INCOME 36,228
----------
NET REALIZED GAIN ON INVESTMENTS 139,864
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 2,692,656
----------
NET GAIN ON INVESTMENTS 2,832,520
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,868,748
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
FMI Provident Trust Strategy Fund
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED) FOR THE
FOR THE PERIOD FROM
SIX MONTH JULY 1, 2005 FOR THE
PERIOD ENDING TO YEAR ENDED
MARCH 31, SEPTEMBER 30, JUNE 30,
2006 2005 2005
---- ---- ----
OPERATIONS:
Net investment income (loss) $ 36,228 $ (2,867) $ (32,824)
Net realized gain on investments 139,864 772,670 972,661
Net increase (decrease) in unrealized appreciation
on investments 2,692,656 (88,036) 1,202,596
----------- ----------- -----------
Net increase in net assets resulting from operations 2,868,748 681,767 2,142,433
----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($0.20588, $0.2316 and
$0.49243 per share, respectively) (761,195) (665,312)*<F5> (686,434)*<F5>
----------- ----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,253,379, 493,070 and
1,494,440 shares, respectively) 9,283,899 3,534,633 9,881,374
Net asset value of shares issued in distributions reinvested
(101,007, 88,054 and 105,400 shares, respectively) 728,261 638,394 659,146
Cost of shares redeemed (191,554, 87,830 and
99,059 shares, respectively) (1,429,897) (623,147) (649,476)
----------- ----------- -----------
Net increase in net assets derived from Fund
share activities 8,582,263 3,549,880 9,891,044
----------- ----------- -----------
TOTAL INCREASE 10,689,816 3,566,335 11,347,043
NET ASSETS AT THE BEGINNING OF THE PERIOD 23,100,314 19,533,979 8,186,936
----------- ----------- -----------
NET ASSETS AT THE END OF THE PERIOD (including undistributed
net investment income (loss) of $36,228, $0 and
($7,821), respectively) $33,790,130 $23,100,314 $19,533,979
----------- ----------- -----------
----------- ----------- -----------
*<F5> See Note 7.
The accompanying notes to financial statements are an integral part of these
statements.
FMI Provident Trust Strategy Fund
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each period)
(UNAUDITED)
FOR THE FOR THE
SIX MONTH PERIOD FROM
PERIOD ENDING JULY 1, 2005 TO YEARS ENDED JUNE 30,
MARCH 31, SEPTEMBER 30, ------------------------------------------------------
2006 2005 2005 2004 2003 2002 2001
---- ---- ---- ---- ---- ---- ----
PER SHARE
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.12 $ 7.10 $ 6.56 $ 5.22 $ 6.04 $14.02 $23.59
Income from investment operations:
Net investment income (loss) (a)<F6> 0.01 (0.00)*<F10> (0.02) (0.03) (0.02) 0.06 (0.04)
Net realized and unrealized
gains (losses) on investments 0.75 0.25 1.05 1.37 (0.14)(d) (1.33) (5.64)
<F9>
------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.76 0.25 1.03 1.34 (0.16) (1.27) (5.68)
Less distributions:
Dividends from
net investment income -- -- -- (0.00)*<F10> (0.01) -- --
Distributions from
net realized gains (0.21) (0.23) (0.49) -- (0.65) (6.71) (3.89)
------ ------ ------ ------ ------ ------ ------
Total from distributions (0.21) (0.23) (0.49) (0.00)*<F10> (0.66) (6.71) (3.89)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 7.67 $ 7.12 $ 7.10 $ 6.56 $ 5.22 $ 6.04 $14.02
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN 10.80%** 3.49%** 16.96% 25.74% (2.45%) (15.68%) (27.01%)
<F11> <F11>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 33,790 23,100 19,534 8,187 5,802 1,765 12,265
Ratio of expenses
(after reimbursement) to
average net assets (b)<F7> 1.00%*** 1.00%*** 1.20% 1.20% 1.21% 1.30% 1.30%
Ratio of net investment <F12> <F12>
income (loss) to
average net assets (c)<F8> 0.26%*** (0.05%)*** (0.28%) (0.54%) (0.54%) 0.65% (0.12%)
<F12> <F12>
Portfolio turnover rate 19.6% 8.3% 38.5% 48.8% 51.8% 161.7% 120.3%
(a)<F6> In 2006, 2005, 2004, 2003 and 2002, net investment income (loss) per
share is calculated using average shares outstanding. In 2001, net
investment loss per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.
(b)<F7> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been, for the six month period ending March 31, 2006, for
the period from July 1, 2005 to September 30, 2005, and for the years
ended June 30, 2005, 2004, 2003, 2002 and 2001, as follows:
1.37%***<F12>, 2.18%***<F12>, 1.82%, 1.89%, 3.11%, 3.06% and 1.56%,
respectively.
(c)<F8> If the Fund had paid all of its expenses, the ratios would have been,
for the six month period ending March 31, 2006, for the period from
July 1, 2005 to September 30, 2005, and for the years ended June 30,
2005, 2004, 2003, 2002 and 2001, as follows: (0.11%)***<F12>,
(1.23%)***<F12>, (0.90%), (1.23%), (2.44%), (1.11%) and (0.38%),
respectively.
(d)<F9> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
*<F10> Amount less than $0.005 per share.
**<F11> Not Annualized.
***<F12> Annualized.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Provident Trust Strategy Fund
NOTES TO FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the FMI
Mutual Funds, Inc. (the "Company"), which is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended. This Company consists of one non-diversified fund - FMI Provident
Trust Strategy Fund (the "Fund"). The Company was incorporated under the
laws of Wisconsin on May 23, 1986.
The investment objective of the Fund is to realize a combination of
capital appreciation and income which will result in the highest total
return by investing in a combination of equity and debt securities, while
assuming reasonable risks.
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the
issue is traded. Securities that are traded on the Nasdaq National
Market or the Nasdaq SmallCap Market are valued at the Nasdaq Official
Closing Price, or if no sale is reported, the latest bid price.
Securities which are traded over-the-counter are valued at the latest
bid price. Securities for which quotations are not readily available
are valued at fair value as determined by the investment adviser under
the supervision of the Board of Directors. The fair value of a
security may differ from the last quoted price and the Fund may not be
able to sell a security at the fair value. Market quotations may not
be available, for example, if trading in particular securities has
halted during the day and not resumed prior to the close of trading on
the New York Stock Exchange. Short-term investments with maturities of
60 days or less are valued at amortized cost which approximates value.
For financial reporting purposes, investment transactions are recorded
on the trade date.
(b) The Fund may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the purchaser enters into the agreement, these
securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities
and reflects the value of such securities in determining net asset
value in the same manner as other portfolio securities.
(c) Net realized gains and losses on sales of securities are computed on
the identified cost basis.
(d) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes,
which are unsecured instruments. The Fund may be susceptible to credit
risk with respect to these notes to the extent the issuer defaults on
its payment obligation. The Fund's policy is to monitor the
creditworthiness of the issuer and nonperformance by these
counterparties is not anticipated.
(f) Accounting principles generally accepted in the United States of
America ("GAAP") require that permanent differences between income for
financial reporting and tax purposes be reclassified in the capital
accounts.
(g) The preparation of financial statements in conformity with GAAP
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.
(h) Provision has not been made for Federal income taxes since the Fund
has elected to be taxed as a "regulated investment company" and
intends to distribute substantially all net investment company taxable
income and net capital gains to shareholders and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Fund has entered into a management agreement with Fiduciary
Management, Inc. ("FMI"), with whom certain officers and a director of the
Fund are affiliated, to serve as investment adviser and manager. Under the
terms of the agreement, the Fund pays 0.75% on the first $30,000,000 of the
daily net assets and 0.65% on the daily net assets in excess of $30,000,000
and less than $100,000,000 and 0.60% on the daily net assets over
$100,000,000.
The Adviser entered into a sub-advisory agreement with Provident Trust
Company ("PTC") to assist it in the day-to-day management of the Fund. PTC
determines which securities will be purchased, retained or sold for the
Fund. The Adviser pays PTC a fee equal to 0.60% up to $30,000,000 and
0.50% of the daily net assets over $30,000,000.
FMI is contractually obligated to reimburse the Fund for expenses over
2.00% of the daily net assets of the Fund. In addition to the reimbursement
required under the management agreement, FMI has voluntarily reimbursed the
Fund for expenses over 1.0% of the Fund's average daily net assets. These
reimbursements amounted to $51,555 for the six month period ending March
31, 2006.
The Fund has an administrative agreement with FMI to supervise all
aspects of the Fund's operations except those performed by FMI pursuant to
the management agreement. Under the terms of the agreement, the Fund will
pay FMI a monthly administrative fee at the annual rate of 0.2% on the
first $25,000,000 of the daily net assets of the Fund, 0.1% on the daily
net assets of the Fund on the next $20,000,000 and 0.05% on the daily net
assets of the Fund over $45,000,000, subject to a fiscal year minimum of
twenty thousand dollars.
The Fund has entered into a Distribution Plan (the "Plan"), pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Plan provides that
the Fund may incur certain costs which may not exceed the lesser of a
monthly amount equal to 0.25% of the Fund's daily net assets or the actual
distribution costs incurred during the year. Amounts payable under the Plan
are paid monthly for any activities or expenses primarily intended to
result in the sale of shares of the Fund. For the six month period ending
March 31, 2006, no such expenses were incurred.
In the normal course of business the Fund enters into contracts with
service providers that contain general indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, based on experience, the Fund expects the risk of loss to be
remote.
As of September 30, 2005, the Fund changed its fiscal year from June 30
to September 30.
(3) DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. On December 29, 2005, the Fund distributed
$348,505 from net short-term realized gains ($0.09426 per share) and $412,690
from net long-term realized gains ($0.11162 per share). The distributions
were paid on December 29, 2005 to shareholders of record on December 28, 2005.
(4) INVESTMENT TRANSACTIONS --
For the six month period ending March 31, 2006, purchases and proceeds of
sales of investment securities (excluding short-term securities) were
$12,711,602 and $4,552,804, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of March 31, 2006, liabilities of the Fund included the following:
Payable to brokers for securities purchased $854,112
Payable to FMI for management fees and administrative fees 25,453
Payable for shareholder redemptions 3,920
Other liabilities 2
(6) SOURCES OF NET ASSETS --
As of March 31, 2006 the sources of net assets were as follows:
Fund shares issued and outstanding $28,521,060
Net unrealized appreciation on investments 5,093,007
Undistributed net realized gains on investments 139,835
Undistributed net investment income 36,228
-----------
$33,790,130
-----------
-----------
(7) INCOME TAX INFORMATION --
The following information for the Fund is presented on an income tax
basis as of March 31, 2006:
GROSS GROSS NET UNREALIZED
COST OF UNREALIZED UNREALIZED APPRECIATION
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS
----------- ------------ ------------ --------------
$29,114,998 $5,505,468 $412,461 $5,093,007
The following information for the Fund is presented on an income tax basis as
of September 30, 2005:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------ -------------
$20,126,243 $2,961,532 $561,181 $2,400,351 $348,489 $412,670
The difference between the cost amounts for financial statement and
federal income tax purposes, if any, is due primarily to timing differences
in recognizing certain gains and losses in security transactions.
The tax components of dividends paid during the period from July 1, 2005
to September 30, 2005 and during the years ended June 30, 2005 and June 30,
2004, capital loss carryovers, which may be used to offset future capital
gains, subject to Internal Revenue Code limitations, as of September 30,
2005, and tax basis post-October losses as of September 30, 2005, which are
not recognized for tax purposes until the first day of the following fiscal
year are:
JULY 1, 2005 TO SEPTEMBER 30, 2005 JUNE 30, 2005 JUNE 30, 2004
------------------------------------------------------------ ------------------------------- -----------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ---------- ------ ------------- ------------- ------------- -------------
$ -- $665,312 $ -- $ -- $49,207 $637,227 $3,764 $3
Since there were no ordinary distributions paid for the period July 1, 2005
to September 30, 2005, there were no distributions designated as qualifying
for the dividends received deduction for corporate shareholders nor as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003.
ADDITIONAL INFORMATION
For additional information about the Directors and Officers or for a description
of the policies and procedures that the Fund uses to determine how to vote
proxies relating to portfolio securities, please call (800) 811-5311 and request
a Statement of Additional Information. One will be mailed to you free of
charge. The Statement of Additional Information is also available on the
website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov. Information on how the Fund voted proxies relating to
portfolio securities is available on the Fund's website at
http://www.fmifunds.com or the website of the Commission no later than August 31
for the prior 12 months ending June 30. The Fund files its complete schedule of
portfolio holdings with the Commission for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Form N-Q is available on the Commission's
website. The Fund's Form N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, D.C., and that information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
FMI Provident Trust Strategy Fund
ADVISORY AGREEMENT
On December 16, 2005, the Board of Directors of the FMI Provident Trust
Strategy Fund approved the continuation of the Fund's investment advisory
agreement with Fiduciary Management, Inc. and its sub-advisory agreement with
Provident Trust Company. Prior to approving the continuation of the agreements,
the Board considered:
o the nature, extent and quality of the services provided by Fiduciary
Management, Inc. and Provident Trust Company
o the investment performance of the Fund
o the cost of the services to be provided and profits to be realized by
Fiduciary Management, Inc. and Provident Trust Company from their
relationship with the Fund
o the extent to which economies of scale would be realized as the Fund
grew and whether fee levels reflect these economies of scale
o the expense ratio of the Fund
o the manner in which portfolio transactions for the Fund are conducted,
including the use of soft dollars
In considering the nature, extent and quality of the services provided by
Fiduciary Management, Inc. and Provident Trust Company, the Board of Directors
reviewed a report describing the portfolio management, shareholder communication
and servicing, prospective shareholder assistance and regulatory compliance
services provided by Fiduciary Management, Inc. and Provident Trust Company to
the Fund. In connection with the Board's review of the performance of the Fund,
the Board considered the quality of portfolio management services provided by
Provident Trust Company. The Board concluded that Fiduciary Management, Inc. and
Provident Trust Company were providing essential services to the Fund. In
particular, the Board concluded that Fiduciary Management, Inc. and Provident
Trust Company were preparing reports to shareholders in addition to those
required by law, and were providing services to the Fund that were in addition
to the services investment advisers typically provided non-mutual fund clients.
The Directors compared the performance of the Fund to benchmark indices over
various periods of time and concluded that the performance of the Fund warranted
the continuation of the agreements.
In concluding that the advisory fees payable by the Fund were reasonable, the
Directors reviewed a report that concluded that Fiduciary Management, Inc. was
not realizing a profit from its relationship with the Fund because of the Fund's
small size and the reimbursement being made by Fiduciary Management, Inc. The
Directors also reviewed reports comparing the Fund's expense ratio and advisory
fees paid by the Fund to those of other comparable mutual funds and concluded
that the advisory fee paid by the Fund and the Fund's expense ratio were within
the range of comparable mutual funds. The Directors noted that the investment
advisory fee did adjust if economies of scale were realized as the Fund grew,
and considered that factor to be significant.
Finally, the Board reviewed reports discussing the manner in which portfolio
transactions for the Fund were conducted, including the use of soft dollars.
Based on these reports, the Board concluded that the research obtained by
Provident Trust Company was beneficial to the Fund and that Provident Trust
Company was executing the Fund's portfolio transactions in a manner designed to
obtain best execution for the Fund.
FMI PROVIDENT TRUST STRATEGY FUND
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
www.fmifunds.com
414-226-4555
INVESTMENT ADVISER AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
100 East Wisconsin Avenue, Suite 2200
Milwaukee, Wisconsin 53202
PORTFOLIO MANAGER
PROVIDENT TRUST COMPANY
N16 W23217 Stone Ridge Drive, Suite 310
Waukesha, Wisconsin 53188
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
U.S. BANCORP FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
800-811-5311 or 414-765-4124
CUSTODIAN
U.S. BANK, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1800
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of FMI Provident Trust Strategy Fund unless accompanied
or preceded by the Fund's current prospectus. Performance data quoted represents
----------------------------------
past performance; past performance does not guarantee future results. The
- ---------------------------------------------------------------------
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Investment returns do not reflect deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares. Current
performance of the Fund may be lower or higher than the performance quoted.
Performance data current to the most recent month end may be obtained by
visiting www.fmifunds.com.
ITEM 2. CODE OF ETHICS.
- -----------------------
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- -------------------------------
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
- -------------------------------------------------------------------------
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- ---------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 11. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The disclosure controls and procedures of the FMI Mutual Funds, Inc. are
periodically evaluated. As of March 24, 2006, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the FMI Mutual Funds, Inc. are periodically
evaluated. There were no changes to FMI Mutual Funds' internal control
over financial reporting that occurred during the first fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, such controls.
ITEM 12. EXHIBITS.
- -----------------
(a) Any code of ethics or amendment thereto. Not applicable.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
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.
FMI Mutual Funds, Inc.
----------------------
Registrant
By /s/ Ted D. Kellner
------------------
Ted D. Kellner, Principal Executive Officer
Date May 4, 2006
-------------------------------------------------
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 and on the
dates indicated.
FMI Mutual Funds, Inc.
----------------------
Registrant
By /s/ Ted D. Kellner
------------------
Ted D. Kellner, Principal Financial Officer
Date May 4, 2006
-------------------------------------------------