QUARTERLY REPORT
June 30, 1997
FMI
FOCUS FUND
A NO-LOAD
MUTUAL FUND
FMI FOCUS FUND
July 22, 1997
Dear Fellow Shareholder:
The market advanced sharply in the second quarter as investors reacted both
to better than expected first quarter earnings and evidence suggesting slower
economic growth, which took the pressure off the Fed to raise rates. Following a
substantial divergence between the broader market and the S&P 500 in the first
quarter, all segments participated in the advance in the June quarter.
Nonetheless, the stock market remains very narrow, with the large capitalization
issues still heavily favored by investors. The big cap stocks have hardly been
touched by corrections; less than 3% of large cap stocks are down more than 30%
from their twelve month highs, while 41% of small cap stocks are down over 30%.
We are pleased with the solid gains in the portfolios, especially considering
our universe has not been the favored class of stocks. For the quarter ended
June 30, FMI Focus Fund increased 18.4%. The latest run in this bull market has
rendered nearly every valuation measurement obsolete, but only if one is looking
at the very largest stocks. The small to mid-cap universe continues to provide
viable, reasonably valued investment ideas.
THE ECONOMY
Following an extremely strong first quarter real GDP growth of 5.9%, the
second quarter appears much more subdued. Time will tell whether this is, in
essence, a payback from the outsized gains of the first quarter, or the first
signs of a slowdown. The continuous flow of economic statistics is sending
erratic signals. The constants over recent quarters have been strong job growth
and low inflation. The economy has apparently been doing a wonderful tightrope
act labeled "Growth Without Inflation." Other popular monikers are "The
Goldilocks Economy," i.e. not too hot, not too cold, and simply, "Perfect." The
obvious risk to the market is that the economy falls off the tightrope, either
to the side of inflation, or to a downturn. While it is certainly possible that
this apparent nirvana will continue, history suggests a few bumps in the road
are likely.
The "too hot" thesis would seem logical this late in the cycle, with a 30
year low in the unemployment rate and relatively strong economic growth. The
apparent lack of wage pressure is an anomaly. The government's wage survey,
however, only measures a sample of hourly workers in the manufacturing sector,
so it is certainly plausible that the official measurement is unrepresentative.
There have been huge increases in both management compensation and stock
options, which are effectively wage increases, but neither of these show up in
the statistics. We are not sure where the wage situation stands, but investors
seem to be increasingly confident that inflation can remain subdued.
The "too cold" argument is born out of the highly indebted consumer balance
sheet (see Chart 1). After many years of borrowing and spending at a greater
rate than income growth, the consumer is not positioned to further drive the
economy. The second quarter showed some evidence that the consumer is pulling
in his horns. Retail spending slowed and consumer bankruptcies hit an all time
high (see Chart 2). Banks and credit card companies have begun to reign in their
expansion, as defaults escalate.
<TABLE>
<CAPTION>
CHART 1
CONSUMER INSTALLMENT DEBT AS A PERCENT OF D.P.I.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dec 61 15.81557 Jan 70 18.25001 Jan 78 16.9867 Jan 86 18.83731 Jan 94 17.58936
Jan 62 15.88041 Feb 70 18.20998 Feb 78 17.00083 Feb 86 18.93401 Feb 94 17.44526
Feb 62 15.89376 Mar 70 18.10284 Mar 78 17.0145 Mar 86 18.95088 Mar 94 17.58565
Mar 62 15.88068 Apr 70 17.65417 Apr 78 17.01387 Apr 86 19.08521 Apr 94 17.74212
Apr 62 15.96684 May 70 17.7226 May 78 17.17254 May 86 19.18799 May 94 17.66458
May 62 16.13744 Jun 70 17.8434 Jun 78 17.39966 Jun 86 19.23166 Jun 94 17.84622
Jun 62 16.21334 Jul 70 17.37518 Jul 78 17.43567 Jul 86 19.22897 Jul 94 17.93779
Jul 62 16.22411 Aug 70 17.31818 Aug 78 17.50718 Aug 86 19.25918 Aug 94 18.14397
Aug 62 16.34956 Sep 70 17.29207 Sep 78 17.55941 Sep 86 19.37983 Sep 94 18.27231
Sep 62 16.37878 Oct 70 17.31763 Oct 78 17.50572 Oct 86 19.67857 Oct 94 18.38941
Oct 62 16.46013 Nov 70 17.24862 Nov 78 17.62768 Nov 86 19.64639 Nov 94 18.56544
Nov 62 16.54921 Dec 70 17.18937 Dec 78 17.61984 Dec86 19.65076 Dec94 18.68416
Dec 62 16.59515 Jan 71 17.27643 Jan 79 17.66587 Jan 87 19.40917 Jan 95 18.73165
Jan 63 16.56674 Feb 71 17.33085 Feb 79 17.73666 Feb 87 19.23723 Feb 95 18.82094
Feb 63 16.8745 Mar 71 17.27638 Mar 79 17.74418 Mar 87 19.17949 Mar 95 19.05115
Mar 63 16.98448 Apr 71 17.2923 Apr 79 17.89059 Apr 87 19.99405 Apr 95 19.31928
Apr 63 17.05653 May 71 17.25403 May 79 17.95731 May 87 19.19859 May 95 19.4138
May 63 17.10951 Jun 71 16.94098 Jun 79 17.98799 Jun 87 19.24335 Jun 95 19.55045
Jun 63 17.07648 Jul 71 16.82263 Jul 79 17.8939 Jul 87 19.37629 Jul 95 19.65153
Jul 63 17.2221 Aug 71 16.85431 Aug 79 17.95412 Aug 87 19.35205 Aug 95 19.8514
Aug 63 17.34363 Sep 71 16.95913 Sep 79 18.02358 Sep 87 19.33877 Sep 95 20.02361
Sep 63 17.37271 Oct 71 17.04673 Oct 79 18.03316 Oct 87 19.21434 Oct 95 20.06395
Oct 63 17.41939 Nov 71 17.1685 Nov 79 18.03031 Nov 87 19.21039 Nov 95 20.1936
Nov 63 17.49542 Dec 71 17.13294 Dec 79 17.7374 Dec 87 19.11923 Dec 95 20.23067
Dec 63 17.54306 Jan 72 17.17254 Jan 80 17.33335 Jan 88 19.159 Jan 96 20.3808
Jan 64 17.65005 Feb 72 17.06934 Feb 80 17.32184 Feb 88 19.09329 Feb 96 20.455
Feb 64 17.70648 Mar 72 17.2272 Mar 80 17.28751 Mar 88 19.14445 Mar 96 20.60021
Mar 64 17.58671 Apr 72 17.25991 Apr 80 17.19658 Apr 88 19.32228 Apr 96 20.86432
Apr 64 17.61952 May 72 17.28367 May 80 17.01758 May 88 19.26991 May 96 20.69046
May 64 17.74488 Jun 72 17.61235 Jun 80 16.78476 Jun 88 19.19152 Jun 96 20.64706
Jun 64 17.7664 Jul 72 17.36901 Jul 80 16.51414 Jul 88 19.13024 Jul 96 20.88269
Jul 64 17.84325 Aug 72 17.32295 Aug 80 16.42198 Aug 88 19.19378 Aug 96 20.91457
Aug 64 17.88859 Sep 72 17.34884 Sep 80 16.23374 Sep 88 19.15025 Sep 96 20.82037
Sep 64 17.98937 Oct 72 17.1473 Oct 80 16.01611 Oct 88 19.12307 Oct 96 20.93578
Oct 64 18.08381 Nov 72 17.07927 Nov 80 15.86961 Nov 88 19.16444 Nov 96 20.8928
Nov 64 18.06599 Dec 72 17.16613 Dec 80 15.76591 Dec 88 19.32489 Dec 96 20.80667
Dec 64 18.07462 Jan 73 17.39786 Jan 81 15.61712 Jan 89 19.53035 Jan 97 20.93735
Jan 65 18.29007 Feb 73 17.39573 Feb 81 15.53814 Feb 89 19.39622 Feb 97 20.91745
Feb 65 18.52609 Mar 73 17.38498 Mar 81 15.54175 Mar 89 10.886 Mar 97 20.86465
Mar 65 18.57725 Apr 73 17.40841 Apr 81 15.63873 Apr 89 19.56604 Apr 97 20.97911
Apr 65 18.7162 May 73 17.44909 May 81 15.64337 May 89 19.55907
May 65 18.64769 Jun 73 17.49738 Jun 81 15.58632 Jun 89 19.49904
Jun 65 18.73511 Jul 73 17.58966 Jul 81 15.28554 Jul 89 19.52562
Jul 65 18.7008 Aug 73 17.58977 Aug 81 15.17556 Aug 89 19.56416
Aug 65 18.73328 Sep 73 17.49166 Sep 81 15.28796 Sep 89 19.63169
Sep 65 18.37535 Oct 73 17.36394 Oct 81 15.22067 Oct 89 19.58082
Oct 65 18.59475 Nov 73 17.32987 Nov 81 15.23095 Nov 89 19.49976
Nov 65 18.5592 Dec 73 17.31086 Dec 81 15.25457 Dec 89 19.53046
Dec 65 18.53514 Jan 74 17.40051 Jan 82 15.26189 Jan 90 19.32326
Jan 66 18.72161 Feb 74 17.47885 Feb 82 15.19742 Feb 90 19.2171
Feb 66 18.74865 Mar 74 17.48651 Mar 82 15.20208 Mar 90 19.1357
Mar 66 18.74928 Apr 74 17.5219 Apr 82 15.01966 Apr 90 18.99143
Apr 66 18.80438 May 74 17.45586 May 82 15.02817 May 90 18.82404
May 66 18.84519 Jun 74 17.39457 Jun 82 15.08781 Jun 90 19.01057
Jun 66 18.786 Jul 74 17.24155 Jul 82 14.92952 Jul 90 18.92158
Jul 66 18.72391 Aug 74 17.23132 Aug 82 14.93332 Aug 90 18.92611
Aug 66 18.65383 Sep 74 17.1449 Sep 82 14.95811 Sep 90 18.81631
Sep 66 18.51083 Oct 74 17.0019 Oct 82 14.86351 Oct 90 18.88146
Oct 66 18.44848 Nov 74 17.0222 Nov 82 14.84903 Nov 90 18.83933
Nov 66 18.42111 Dec 74 16.91515 Dec 82 14.95421 Dec 90 18.64387
Dec 66 18.45883 Jan 75 16.88331 Jan 83 14.91621 Jan 91 18.56801
Jan 67 18.34264 Feb 75 16.85034 Feb 83 14.86413 Feb 91 18.52801
Feb 67 18.35866 Mar 75 16.77163 Mar 83 14.95652 Mar 91 18.46851
Mar 67 18.22932 Apr 75 16.35972 Apr 83 14.91256 Apr 91 18.35551
Apr 67 18.21883 May 75 15.37162 May 83 14.86429 May 91 18.25904
May 67 18.18123 Jun 75 15.82411 Jun 83 15.01897 Jun 91 18.08541
Jun 67 18.15486 Jul 75 16.03463 Jul 83 14.94484 Jul 91 18.08205
Jul 67 18.11091 Aug 75 15.90089 Aug 83 15.13528 Aug 91 17.98037
Aug 67 18.10003 Sep 75 15.85908 Sep 83 15.11243 Sep 91 17.85871
Sep 67 18.15273 Oct 75 15.77783 Oct 83 15.18194 Oct 91 17.801
Oct 67 18.15031 Nov 75 15.78895 Nov 83 15.27329 Nov 91 17.66669
Nov 67 18.14646 Dec 75 15.8831 Dec 83 15.41171 Dec 91 17.49604
Dec 67 18.03817 Jan 76 15.82976 Jan 84 15.37003 Jan 92 17.39044
Jan 68 17.91257 Feb 76 15.80259 Feb 84 15.47367 Feb 92 17.24365
Feb 68 17.80411 Mar 76 15.86912 Mar 84 15.55777 Mar 92 17.16698
Mar 68 17.78854 Apr 76 15.96469 Apr 84 15.56549 Apr 92 17.03144
Apr 68 17.79595 May 76 15.94608 May 84 15.67128 May 92 16.93991
May 68 17.76406 Jun 76 15.99428 Jun 84 16.02061 Jun 92 16.86177
Jun 68 17.75012 Jul 76 15.94137 Jul 84 16.12028 Jul 92 16.86922
Jul 68 17.93838 Aug 76 15.92368 Aug 84 16.18278 Aug 92 16.96686
Aug 68 17.96996 Sep 76 16.00442 Sep 84 16.19222 Sep 92 16.79898
Sep 68 18.08136 Oct 76 16.1329 Oct 84 16.48117 Oct 92 16.66797
Oct 68 18.15537 Nov 76 16.12046 Nov 84 16.55873 Nov 92 16.62274
Nov 68 18.20647 Dec 76 16.19101 Dec 84 16.74649 Dec 92 16.13396
Dec 68 18.29339 Jan 77 16.14707 Jan 85 16.74752 Jan 93 16.81134
Jan 69 18.41787 Feb 77 16.41608 Feb 85 17.10342 Feb 93 16.85588
Feb 69 18.59483 Mar 77 16.39099 Mar 85 17.49553 Mar 93 16.8625
Mar 69 18.57266 Apr 77 16.49708 Apr 85 17.37172 Apr 93 16.75126
Apr 69 18.64707 May 77 16.61336 May 85 17.13732 May 93 16.6643
May 69 18.5099 Jun 77 16.66902 Jun 85 18.29801 Jun 93 16.75141
Jun 69 18.43407 Jul 77 16.66039 Jul 85 18.41053 Jul 93 16.86281
Jul 69 18.38055 Aug 77 16.72447 Aug 85 18.82221 Aug 93 16.85656
Aug 69 18.31833 Sep 77 16.76317 Sep 85 18.71875 Sep 93 16.97102
Sep 69 18.33381 Oct 77 16.8754 Oct 85 18.70764 Oct 93 17.06798
Oct 69 18.30527 Nov 77 16.90654 Nov 85 18.82125 Nov 93 17.14105
Nov 69 18.30846 Dec 77 16.83712 Dec 85 18.7896 Dec 93 16.93422
Dec 69 18.25445
Sources: Bureau of Economic Analysis; Federal Reserve Board o Crandall, Pierce &
Company
Shaded areas represent recessionary period.
</TABLE>
CHART 2
NET CREDIT CARD CHARGE-OFF RATES
AND PERSONAL BANKRUPTCY FILINGS
1985 - 1st Quarter 1997
Credit Card Bankruptcy
Charge-Offs Filings
Mar 85 0.0198 285,597
Jun 85 0.0231 297,885
Sep 85 0.0265 314,411
Dec 85 0.0295 341,233
Mar 86 0.0321 371,434
Jun 86 0.0328 401,575
Sep 86 0.0335 429,885
Dec 86 0.0338 449,713
Mar 87 0.0346 465,203
Jun 87 0.0337 473,508
Sep 87 0.0309 481,339
Dec 87 0.0326 492,544
Mar 88 0.0318 507,678
Jun 88 0.0322 523,234
Sep 88 0.0312 537,927
Dec 88 0.0317 549,733
Mar 89 0.031 560,732
Jun 89 0.0321 580,442
Sep 89 0.0301 594,577
Dec 89 0.0328 616,766
Mar 90 0.0308 638,749
Jun 90 0.0334 660,737
Sep 90 0.035 685,392
Dec 90 0.0386 717,860
Mar 91 0.0416 764,079
Jun 91 0.0472 811,989
Sep 91 0.0479 848,812
Dec 91 0.0463 872,100
Mar 92 0.0484 893,160
Jun 92 0.0497 897,964
Sep 92 0.0431 903,811
Dec 92 0.0457 898,783
Mar 93 0.0403 871,061
Jun 93 0.0402 851,386
Sep 93 0.0359 831,694
Dec 93 0.0342 812,199
Mar 94 0.0325 798,635
Jun 94 0.0307 788,249
Sep 94 0.0293 783,228
Dec 94 0.03 780,306
Mar 95 0.0289 767,102
Jun 95 0.0333 806,382
Sep 95 0.0358 832,229
Dec 95 0.0398 874,137
Mar 96 0.0418 927,395
Jun 96 0.0448 988,479
Sep 96 0.0441 1,057,645
Dec 96 0.0472 1,124,286
Mar 97 0.0493 1,192,767
Note: The year ending 1st Quarter 1997 produced a record, 1,192,767 personal
bankruptcies.
Net Credit Card Charge-Off Rates are credit card loans charged off (removed from
the balance sheet due to uncollectibility), less amounts recovered that were
previously charged off, as a percent of total credit card loans outstanding.
Sources: Federal Deposit Insurance Corporation; Administrative Office of the
United States Courts; Commercial Bank Call Reports; Crandall, Pierce & Company
The information presented herein was compiled from sources believed to be
reliable. It is intended for illustrative purposes only, and is furnished
without responsibility for completeness or accuracy. Past performance does not
guarantee future results.
Copyright (c) 1997 CRANDALL, PIERCE & COMPANY All rights reserved 14047 West
Petronella Drive #103 Libertyville, Illinois 60048 1-800-272-6355
Internet: www.crandallpierce.com
While it is certainly possible the Fed could eventually raise rates in
response to the too-hot scenario, we think this will be short-lived; the longer
term case seems to point to a weaker economy.
CORPORATE EARNINGS
Over the long term stock prices have tracked the earnings growth of the
underlying companies. In the case of the S&P 500, earnings have grown at about
6% a year over the past 50 years, but in the short run, earnings cycles can be
very pronounced. From the prior earnings peak in the second quarter of 1989,
earnings have grown at 8.8% per year, reflecting sales growth of about 6%, and
profit margin expansion to record levels. However, since the most recent trough
in earnings in 1991, the S&P 500 earnings have grown at a dramatic 19% per year.
This growth has been the driving force in the strong rise in the S&P 500 Index.
During the same period the top line revenue growth for the S&P 500 has been 7%,
just slightly higher than its long term average. The difference, obviously, has
been rapid margin expansion, resulting from the cyclical rebound in earnings
from the 1991 recession and the benefits from corporate restructurings, write-
offs and share repurchases.
The major gains from restructuring appear to be behind the largest companies.
Operating profit margins have generally flattened-out since the third quarter of
1995. Since that time, S&P 500 earnings have grown at just under 9% a year,
less than half the annualized increase since the earnings trough in 1991.
Earnings have been growing about one and one-half times the rate of corporate
cash flow and about three times the rate of sales over the past five years, and
as we have often said in the past, that is an unsustainable situation;
ultimately these three numbers grow at approximately the same rate.
THE STOCK MARKET
Second quarter returns were fantastic across the board, yet few managers
exceeded the S&P 500 Index. The S&P 500 is up 100% in the past ten quarters,
while earnings have increased just 30%. This divergence between Main Street
earnings and Wall Street returns is staggering, yet the public and the pundits
appear convinced it will continue. We have reexamined the large capitalization
thesis in an effort to better understand our own universe of investments, as
well as to put this bull market into context.
Large cap stocks have outperformed for several reasons; some fundamental,
some psychological and technical. On the fundamental front, the big companies
have benefited more from the corporate restructurings mentioned above. They
have also done a better job overseas, especially taking advantage of a weak
dollar and poor performance from Japanese and Western European competitors. Big
companies have flexed their muscles against smaller companies, pressuring them
to lower prices in order to maintain their own margins. EVA and other capital
optimizing techniques have resulted in relatively large share repurchases for
big companies, which have also helped earnings per share.
From the psychological and technical perspective, we have seen a massive
movement of money into equity mutual funds, with index funds especially popular.
The money has had to be put to work quickly, therefore the liquid issues have
benefited the most. With performance concerns paramount, mutual fund managers
have tended to mimic or shadow the S&P 500. The public sees the big visible
stocks working and they put their money in the same names, too. The whole
scenario has become a self-fulfilling prophesy. The result, of course, is
companies such as Coca-Cola, a 12-13% grower when you strip away the flak,
selling at 45 times estimated earnings; or General Electric, a 10-12% grower,
selling at 27 times estimated earnings. These two stocks' historical multiples
have averaged 20 and 15 times, respectively. The market value of all US stocks
is expected to exceed 130% of GDP, far and away a record high (see Chart 3).
<TABLE>
<CAPTION>
CHART 3
THE MARKET OF VALUE OF EQUITIES
As A Percent of Gross Domestic Product
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dec 24 0.31963 Jan 39 0.64042 Jan 54 0.38273 Jan 68 0.77274 Jan 82 0.42656 Jan 96 1.03656
Jan 25 0.30028 Feb 39 0.65856 Feb 54 0.38725 Feb 68 0.7502 Feb 82 0.40484 Feb 96 1.04833
Feb 25 0.30278 Mar 39 0.55548 Mar 54 0.39891 Mar 68 0.74142 Mar 82 0.38338 Mar 96 1.04074
Mar 25 0.28889 Apr 39 0.55279 Apr 54 0.41332 Apr 68 0.80091 Apr 82 0.40843 Apr 96 1.07666
Apr 25 0.29726 May 39 0.5806 May 54 0.42213 May 68 0.81595 May 82 0.39451 May 96 1.1168
May 25 0.3124 Jun 39 0.5564 Jun 54 0.42692 Jun 68 0.80742 Jun 82 0.38151 Jun 96 1.10037
Jun 25 0.31896 Jul 39 0.59727 Jul 54 0.44453 Jul 68 0.79344 Jul 82 0.3739 Jul 96 1.04192
Jul 25 0.32659 Aug 39 0.56344 Aug 54 0.43511 Aug 68 0.80642 Aug 82 0.41094 Aug 96 1.07831
Aug 25 0.329 Sep 39 0.62642 Sep 54 0.45724 Sep 68 0.81969 Sep 82 0.41228 Sep 96 1.12134
Sep 25 0.33433 Oct 39 0.6257 Oct 54 0.45064 Oct 68 0.82849 Oct 82 0.4528 Oct 96 1.13878
Oct 25 0.36234 Nov 39 0.60537 Nov 54 0.48457 Nov 68 0.87367 Nov 82 0.4684 Nov 96 1.21226
Nov 25 0.35908 Dec 39 0.61584 Dec 54 0.50169 Dec 68 0.82755 Dec 82 0.46888 Dec 96 1.18056
Dec 25 0.37045 Jan 40 0.5903 Jan 55 0.5201 Jan 69 0.80934 Jan 83 0.50699 Jan 97 1.24625
Jan 26 0.36267 Feb 40 0.59489 Feb 55 0.53173 Feb 69 0.77119 Feb 83 0.51863 Feb 97 1.2468
Feb 26 0.35602 Mar 40 0.54651 Mar 55 0.52321 Mar 69 0.77415 Mar 83 0.52617 Mar 97 1.17424
Mar 26 0.33269 Apr 40 0.54726 Apr 55 0.53759 Apr 69 0.794 Apr 83 0.56304
Apr 26 0.34492 May 40 0.44623 May 55 0.54131 May 69 0.79624 May 83 0.56534
May 26 0.35104 Jun 40 0.46825 Jun 55 0.55877 Jun 69 0.73671 Jun 83 0.57366
Jun 26 0.36706 Jul 40 0.48028 Jul 55 0.56841 Jul 69 0.69519 Jul 83 0.56093
Jul 26 0.37924 Aug 40 0.48733 Aug 55 0.56782 Aug 69 0.7273 Aug 83 0.56175
Aug 26 0.38283 Sep 40 0.4951 Sep 55 0.55337 Sep 69 0.69889 Sep 83 0.55668
Sep 26 0.38454 Oct 40 0.50678 Oct 55 0.54166 Oct 69 0.73402 Oct 83 0.54264
Oct 26 0.37419 Nov 40 0.49862 Nov 55 0.57089 Nov 69 0.712 Nov 83 0.56022
Nov 26 0.3818 Dec 40 0.49904 Dec 55 0.56576 Dec 69 0.68946 Dec 83 0.53898
Jan 41 0.47069
Feb 41 0.46198
Mar 41 0.37135
Apr 41 0.35568
May 41 0.35651
Jun 41 0.37066
Jul 41 0.38681
Aug 41 0.38537
Sep 41 0.37152
Oct 41 0.36631
Nov 41 0.35704
Dec 41 0.34049
Dec 26 0.39563 Jan 42 0.34786 Jan 56 0.56217 Jan 70 0.6335 Jan 84 0.53409
Jan 27 0.40677 Feb 42 0.34002 Feb 56 0.57957 Feb 70 0.66778 Feb 84 0.51034
Feb 27 0.42114 Mar 42 0.2518 Mar 56 0.60458 Mar 70 0.65776 Mar 84 0.49985
Mar 27 0.42283 Apr 42 0.24316 Apr 56 0.60647 Apr 70 0.59593 Apr 84 0.50169
Apr 27 0.42684 May 42 0.25223 May 56 0.57614 May 70 0.55836 May 84 0.47472
May 27 0.44815 Jun 42 0.25535 Jun 56 0.58389 Jun 70 0.52575 Jun 84 0.46601
Jun 27 0.44219 Jul 42 0.26169 Jul 56 0.60926 Jul 70 0.56524 Jul 84 0.45646
Jul 27 0.47323 Aug 42 0.26434 Aug 56 0.58993 Aug 70 0.58942 Aug 84 0.50447
Aug 27 0.47978 Sep 42 0.26888 Sep 56 0.5574 Sep 70 0.60533 Sep 84 0.49049
Sep 27 0.50168 Oct 42 0.28201 Oct 56 0.56113 Oct 70 0.5962 Oct 84 0.48733
Oct 27 0.48503 Nov 42 0.27983 Nov 56 0.56063 Nov 70 0.62379 Nov 84 0.477
Nov 27 0.51134 Dec 42 0.28872 Dec 56 0.57129 Dec 70 0.66266 Dec 84 0.47737
Dec 27 0.52409 Jan 43 0.31747 Jan 57 0.5424 Jan 71 0.68869 Jan 85 0.51654
Jan 28 0.50665 Feb 43 0.33064 Feb 57 0.53263 Feb 71 0.69846 Feb 85 0.5219
Feb 28 0.49984 Mar 43 0.28108 Mar 57 0.53455 Mar 71 0.71459 Mar 85 0.51056
Mar 28 0.53991 Apr 43 0.28283 Apr 57 0.55537 Apr 71 0.73826 Apr 85 0.509
Apr 28 0.56514 May 43 0.29415 May 57 0.57108 May 71 0.71221 May 85 0.53605
May 28 0.57459 Jun 43 0.29636 Jun 57 0.56193 Jun 71 0.70044 Jun 85 0.53094
Jun 28 0.54567 Jul 43 0.28982 Jul 57 0.56636 Jul 71 0.67724 Jul 85 0.52937
Jul 28 0.5539 Aug 43 0.29048 Aug 57 0.5397 Aug 71 0.69962 Aug 85 0.52466
Aug 28 0.59161 Sep 43 0.29553 Sep 57 0.50516 Sep 71 0.6873 Sep 85 0.49313
Sep 28 0.61167 Oct 43 0.29284 Oct 57 0.48544 Oct 71 0.66003 Oct 85 0.51386
Oct 28 0.62965 Nov 43 0.27733 Nov 57 0.49471 Nov 71 0.65737 Nov 85 0.5444
Nov 28 0.68158 Dec 43 0.26886 Dec 57 0.47959 Dec 71 0.70275 Dec 85 0.55605
Dec 28 0.69565 Jan 44 0.30042 Jan 58 0.51339 Jan 72 0.7201 Jan 86 0.56081
Jan 29 0.68511 Feb 44 0.30091 Feb 58 0.50516 Feb 72 0.74191 Feb 86 0.59965
Feb 29 0.69241 Mar 44 0.27582 Mar 58 0.52042 Mar 72 0.73313 Mar 86 0.61991
Mar 29 0.67216 Apr 44 0.2724 Apr 58 0.53399 Apr 72 0.73322 Apr 86 0.61365
Apr 29 0.7102 May 44 0.28284 May 58 0.54428 May 72 0.75138 May 86 0.64284
May 29 0.68325 Jun 44 0.29242 Jun 58 0.55781 Jun 72 0.71967 Jun 86 0.64279
Jun 29 0.74436 Jul 44 0.28976 Jul 58 0.57868 Jul 72 0.71522 Jul 86 0.60567
Jul 29 0.78583 Aug 44 0.28245 Aug 58 0.58521 Aug 72 0.74121 Aug 86 0.63781
Aug 29 0.86386 Sep 44 0.29179 Sep 58 0.60707 Sep 72 0.7188 Sep 86 0.58685
Sep 29 0.83894 Oct 44 0.2925 Oct 58 0.62165 Oct 72 0.72528 Oct 86 0.61478
Oct 29 0.68132 Nov 44 0.2948 Nov 58 0.6362 Nov 72 0.75041 Nov 86 0.62207
Nov 29 0.61261 Dec 44 0.30054 Dec 58 0.65991 Dec 72 0.74936 Dec 86 0.59609
Dec 29 0.62339 Jan 45 0.32292 Jan 59 0.65746 Jan 73 0.73529 Jan 87 0.66952
Jan 30 0.66483 Feb 45 0.33701 Feb 59 0.66021 Feb 73 0.6997 Feb 87 0.70042
Feb 30 0.68215 Mar 45 0.32143 Mar 59 0.6479 Mar 73 0.67297 Mar 87 0.70939
Mar 30 0.83508 Apr 45 0.33986 Apr 59 0.67103 Apr 73 0.64399 Apr 87 0.69615
Apr 30 0.82661 May 45 0.34404 May 59 0.68105 May 73 0.62795 May 87 0.70173
May 30 0.82348 Jun 45 0.34497 Jun 59 0.66282 Jun 73 0.60547 Jun 87 0.72149
Jun 30 0.70134 Jul 45 0.33872 Jul 59 0.6847 Jul 73 0.63762 Jul 87 0.7528
Jul 30 0.73789 Aug 45 0.35249 Aug 59 0.67461 Aug 73 0.61723 Aug 87 0.77906
Aug 30 0.74337 Sep 45 0.36481 Sep 59 0.63386 Sep 73 0.63322 Sep 87 0.75132
Sep 30 0.66019 Oct 45 0.37599 Oct 59 0.64306 Oct 73 0.6353 Oct 87 0.58216
Oct 30 0.60401 Nov 45 0.39019 Nov 59 0.65095 Nov 73 0.5568 Nov 87 0.53771
Nov 30 0.5852 Dec 45 0.39483 Dec 59 0.65872 Dec 73 0.54978 Dec 87 0.56284
Dec 30 0.53809 Jan 46 0.4105 Jan 60 0.61537 Jan 74 0.54939 Jan 88 0.58781
Jan 31 0.57148 Feb 46 0.39122 Feb 60 0.62171 Feb 74 0.54852 Feb 88 0.61223
Feb 31 0.62629 Mar 46 0.40924 Mar 60 0.60502 Mar 74 0.52514 Mar 88 0.58852
Mar 31 0.69812 Apr 46 0.42276 Apr 60 0.69719 Apr 74 0.50112 Apr 88 0.59424
Apr 31 0.63573 May 46 0.43669 May 60 0.61332 May 74 0.48131 May 88 0.59009
May 31 0.55673 Jun 46 0.4227 Jun 60 0.62079 Jun 74 0.45911 Jun 88 0.60524
Jun 31 0.62064 Jul 46 0.41463 Jul 60 0.60971 Jul 74 0.42679 Jul 88 0.60037
Jul 31 0.58145 Aug 46 0.39314 Aug 60 0.6261 Aug 74 0.39839 Aug 88 0.57908
Aug 31 0.5836 Sep 46 0.35951 Sep 60 0.58676 Sep 74 0.33872 Sep 88 0.58663
Sep 31 0.42313 Oct 46 0.35614 Oct 60 0.58334 Oct 74 0.3929 Oct 88 0.59544
Oct 31 0.44825 Nov 46 0.35446 Nov 60 0.60521 Nov 74 0.37425 Nov 88 0.58338
Nov 31 0.40714 Dec 46 0.36729 Dec 60 0.62885 Dec 74 0.357 Dec 88 0.57572
Dec 31 0.3494 Jan 47 0.36739 Jan 61 0.68292 Jan 75 0.40679 Jan 89 0.61064
Jan 32 0.34526 Feb 47 0.36385 Feb 61 0.70361 Feb 75 0.42799 Feb 89 0.5969
Feb 32 0.36107 Mar 47 0.34777 Mar 61 0.72248 Mar 75 0.43031 Mar 89 0.59444
Mar 32 0.41812 Apr 47 0.33431 Apr 61 0.72798 Apr 75 0.44982 Apr 89 0.62113
Apr 32 0.34674 May 47 0.3305 May 61 0.74391 May 75 0.4725 May 89 0.63893
May 32 0.27644 Jun 47 0.33497 Jun 61 0.72054 Jun 75 0.48693 Jun 89 0.62198
Jun 32 0.26678 Jul 47 0.34696 Jul 61 0.74229 Jul 75 0.45703 Jul 89 0.66611
Jul 32 0.34974 Aug 47 0.34193 Aug 61 0.75789 Aug 75 0.44527 Aug 89 0.67597
Aug 32 0.4741 Sep 47 0.33326 Sep 61 0.73656 Sep 75 0.41986 Sep 89 0.66179
Sep 32 0.45623 Oct 47 0.33896 Oct 61 0.75684 Oct 75 0.44199 Oct 89 0.64298
Oct 32 0.40001 Nov 47 0.33119 Nov 61 0.78553 Nov 75 0.45448 Nov 89 0.65217
Nov 32 0.37985 Dec 47 0.32893 Dec 61 0.77249 Dec 75 0.43816 Dec 89 0.65214
Dec 32 0.38653 Jan 48 0.31878 Jan 62 0.73342 Jan 76 0.54076 Jan 90 0.60439
Jan 33 0.39374 Feb 48 0.3068 Feb 62 0.74851 Feb 76 0.54202 Feb 90 0.60982
Feb 33 0.33619 Mar 48 0.31799 Mar 62 0.72894 Mar 76 0.53865 Mar 90 0.61363
Mar 33 0.35436 Apr 48 0.32799 Apr 62 0.68655 Apr 76 0.53217 Apr 90 0.59685
Apr 33 0.47714 May 48 0.34573 May 62 0.63088 May 76 0.52756 May 90 0.64713
May 33 0.57781 Jun 48 0.33589 Jun 62 0.56968 Jun 76 0.53313 Jun 90 0.63421
Jun 33 0.64677 Jul 48 0.32247 Jul 62 0.60469 Jul 76 0.5311 Jul 90 0.62817
Jul 33 0.58974 Aug 48 0.32172 Aug 62 0.61468 Aug 76 0.53245 Aug 90 0.56885
Aug 33 0.65249 Sep 48 0.30431 Sep 62 0.57614 Sep 76 0.52917 Sep 90 0.52982
Sep 33 0.58238 Oct 48 0.31781 Oct 62 0.5775 Oct 76 0.51868 Oct 90 0.52166
Oct 33 0.5359 Nov 48 0.29241 Nov 62 0.63274 Nov 76 0.519 Nov 90 0.55456
Nov 33 0.57905 Dec 48 0.29264 Dec 62 0.6326 Dec 76 0.53482 Dec 90 0.56285
Dec 33 0.58887 Jan 49 0.29522 Jan 63 0.66529 Jan 77 0.51239 Jan 91 0.59749
Jan 34 0.66486 Feb 49 0.26724 Feb 63 0.6501 Feb 77 0.60104 Feb 91 0.63035
Feb 34 0.65227 Mar 49 0.29271 Mar 63 0.66233 Mar 77 0.48615 Mar 91 0.64348
Mar 34 0.5569 Apr 49 0.28891 Apr 63 0.69215 Apr 77 0.48863 Apr 91 0.64841
Apr 34 0.55284 May 49 0.28033 May 63 0.70281 May 77 0.48268 May 91 0.67373
May 34 0.51315 Jun 49 0.27981 Jun 63 0.68305 Jun 77 0.49093 Jun 91 0.64011
Jun 34 0.52261 Jul 49 0.29216 Jul 63 0.68174 Jul 77 0.4842 Jul 91 0.6731
Jul 34 0.46665 Aug 49 0.29726 Aug 63 0.71304 Aug 77 0.47489 Aug 91 0.69012
Aug 34 0.49496 Sep 49 0.30651 Sep 63 0.69534 Sep 77 0.46077 Sep 91 0.67750
Sep 34 0.49043 Oct 49 0.31366 Oct 63 0.71346 Oct 77 0.44316 Oct 91 0.69281
Oct 34 0.47972 Nov 49 0.31567 Nov 63 0.70417 Nov 77 0.45843 Nov 91 0.66847
Nov 34 0.51423 Dec 49 0.33029 Dec 63 0.70853 Dec 77 0.44748 Dec 91 0.73447
Dec 34 0.51493 Jan 50 0.34288 Jan 64 0.73005 Jan 78 0.42689 Jan 92 0.73251
Jan 35 0.50062 Feb 50 0.34549 Feb 64 0.73961 Feb 78 0.4205 Feb 92 0.74397
Feb 35 0.48832 Mar 50 0.34689 Mar 64 0.73905 Mar 78 0.42141 Mar 92 0.71904
Mar 35 0.4232 Apr 50 0.35779 Apr 64 0.74688 Apr 78 0.4517 Apr 92 0.7305
Apr 35 0.45894 May 50 0.36971 May 64 0.75626 May 78 0.45635 May 92 0.73846
May 35 0.47262 Jun 50 0.34527 Jun 64 0.75378 Jun 78 0.43702 Jun 92 0.71265
Jun 35 0.49558 Jul 50 0.35019 Jul 64 0.76865 Jul 78 0.45889 Jul 92 0.7417
Jul 35 0.53233 Aug 50 0.36135 Aug 64 0.75863 Aug 78 0.4731 Aug 92 0.72817
Aug 35 0.54447 Sep 50 0.36306 Sep 64 0.76672 Sep 78 0.45572 Sep 92 0.72648
Sep 35 0.55375 Oct 50 0.36254 Oct 64 0.77341 Oct 78 0.40966 Oct 92 0.73445
Oct 35 0.58826 Nov 50 0.36601 Nov 64 0.76691 Nov 78 0.41938 Nov 92 0.7596
Nov 35 0.61492 Dec 50 0.36549 Dec 64 0.75795 Dec 78 0.41057 Dec 92 0.76221
Dec 35 0.64221 Jan 51 0.39315 Jan 65 0.78856 Jan 79 0.43256 Jan 93 0.77391
Jan 36 0.68625 Feb 51 0.39622 Feb 65 0.79102 Feb 79 0.41961 Feb 93 0.77799
Feb 36 0.70043 Mar 51 0.37209 Mar 65 0.77269 Mar 79 0.42795 Mar 93 0.7904
Mar 36 0.61804 Apr 51 0.38714 Apr 65 0.7969 Apr 79 0.43001 Apr 93 0.7712
Apr 36 0.67146 May 51 0.37861 May 65 0.79239 May 79 0.42254 May 93 0.79404
May 36 0.59807 Jun 51 0.35648 Jun 65 0.74207 Jun 79 0.42871 Jun 93 0.79303
Jun 36 0.609 Jul 51 0.37732 Jul 65 0.75519 Jul 79 0.433 Jul 93 0.79316
Jul 36 0.64673 Aug 51 0.38884 Aug 65 0.77377 Aug 79 0.45617 Aug 93 0.82528
Aug 36 0.6523 Sep 51 0.37858 Sep 65 0.78271 Sep 79 0.44365 Sep 93 0.81826
Sep 36 0.65915 Oct 51 0.37111 Oct 65 0.80433 Oct 79 0.41407 Oct 93 0.8348
Oct 36 0.69985 Nov 51 0.37072 Nov 65 0.80139 Nov 79 0.43527 Nov 93 0.8226
Nov 36 0.71794 Dec 51 0.37079 Dec 65 0.7905 Dec 79 0.43405 Dec 93 0.83452
Dec 36 0.71625 Jan 52 0.37819 Jan 66 0.79348 Jan 80 0.47113 Jan 94 0.86708
Jan 37 0.74057 Feb 52 0.36904 Feb 66 0.78323 Feb 80 0.46927 Feb 94 0.84228
Feb 37 0.74902 Mar 52 0.37651 Mar 66 0.74784 Mar 80 0.40894 Mar 94 0.79621
Mar 37 0.68048 Apr 52 0.36131 Apr 66 0.76468 Apr 80 0.4273 Apr 94 0.80417
Apr 37 0.6314 May 52 0.36954 May 66 0.72593 May 80 0.44858 May 94 0.81001
May 37 0.62444 Jun 52 0.37634 Jun 66 0.7016 Jun 80 0.45344 Jun 94 0.77759
Jun 37 0.59785 Jul 52 0.38017 Jul 66 0.69459 Jul 80 0.48346 Jul 94 0.79887
Jul 37 0.64699 Aug 52 0.37639 Aug 66 0.64372 Aug 80 0.49044 Aug 94 0.8284
Aug 37 0.61682 Sep 52 0.36716 Sep 66 0.62456 Sep 80 0.49685 Sep 94 0.80018
Sep 37 0.53414 Oct 52 0.3658 Oct 66 0.65089 Oct 80 0.50403 Oct 94 0.81019
Oct 37 0.4866 Nov 52 0.38057 Nov 66 0.65818 Nov 80 0.55107 Nov 94 0.7765
Nov 37 0.44353 Dec 52 0.38332 Dec 66 0.64788 Dec 80 0.52012 Dec 94 0.7706
Dec 37 0.42341 Jan 53 0.37867 Jan 67 0.7181 Jan 81 0.50067 Jan 95 0.79348
Jan 38 0.54514 Feb 53 0.37662 Feb 67 0.72354 Feb 81 0.50514 Feb 95 0.82335
Feb 38 0.56617 Mar 53 0.36554 Mar 67 0.74096 Mar 81 0.50829 Mar 95 0.83226
Mar 38 0.49662 Apr 53 0.35633 Apr 67 0.76994 Apr 81 0.50181 Apr 95 0.84932
Apr 38 0.54326 May 53 0.36772 May 67 0.73744 May 81 0.50509 May 95 0.86525
May 38 0.52836 Jun 53 0.34509 Jun 67 0.74344 Jun 81 0.4855 Jun 95 0.89989
Jun 38 0.61434 Jul 53 0.35201 Jul 67 0.77665 Jul 81 0.48447 Jul 95 0.9348
Jul 38 0.6471 Aug 53 0.33823 Aug 67 0.7712 Aug 81 0.4583 Aug 95 0.94151
Aug 38 0.63245 Sep 53 0.33239 Sep 67 0.78362 Sep 81 0.41599 Sep 95 0.96557
Sep 38 0.63246 Oct 53 0.34547 Oct 67 0.76195 Oct 81 0.43527 Oct 95 0.96054
Oct 38 0.67291 Nov 53 0.35089 Nov 67 0.76565 Nov 81 0.45113 Nov 95 1.00055
Nov 38 0.66219 Dec 53 0.34911 Dec 67 0.77829 Dec 81 0.42793 Dec 95 1.00778
Dec 38 0.6786
Value Date
Latest 117.42% Mar-97
Maximum 124.68% Feb-97
Average 55.87%
Median 55.62%
Minimum 24.32% Apr-42
Shaded areas represent Bear Markets.
The Market Value of Equities includes the market value of the New York, American
and Nasdaq Stock Exchanges.
Sources: The New York Stock Exchange; The American Stock Exchange; The National
Association of Securities Dealers; TheBureau of Economic Analysis
Copyright (c) 1997 CRANDALL, PIERCE & COMPANY
</TABLE>
One would have to either be wildly optimistic about big caps or very naive to
expect a continuation of what we have seen. A new survey by Montgomery Asset
Management found mutual fund owners expecting 26% per year from their funds over
the next decade, far more than the 10% long term average for stocks. It is
ironic that investors are so optimistic today, when all appears "perfect,"
versus fifteen years ago, when little was going right and they were very
pessimistic. We all know what has transpired in these fifteen years and today,
at least for the big caps, we are left with unprecedented valuations. When
valuations become excessive, investors justify the situation with rational
arguments showing why the future will be different from the past. Warren Buffet
said, "You pay a high price for a rosy outlook." Indeed.
Despite our obvious negative bias toward big caps, particularly the top 100
of the S&P 500, we are not holed-up waiting for Armageddon. In fact, we have
been quite active in the less traveled portion of the stock market. Strong,
niche companies with solid balance sheets are trading up to five multiple points
lower than the S&P 500. Expected growth rates are twice to three times that of
the S&P 500 over the next three to five years. There is strong relative value
in these stocks and we are more confident than ever that these investments will,
once again, outperform the large caps over a reasonable investment time horizon.
As the performance wanes in the S&P 500, investors should refocus on smaller
caps and FMI Focus Fund shareholders should benefit.
Thank you for your continued confidence in the Fund.
Sincerely,
/s/ Ted D. Kellner /s/ Donald S. Wilson
Ted D. Kellner, C.F.A. Donald S. Wilson, C.F.A.
President Vice President
225 E. Mason St. Milwaukee, WI 53202 414-226-4555
FMI Focus Fund
STATEMENT OF NET ASSETS
June 30, 1997 (Unaudited)
SHARES QUOTED
OR PRINCIPAL MARKET
AMOUNT VALUE (B)<F2>
------- ---------
COMMON STOCKS -- 99.5% (A) <F1>
BANKS/SAVINGS & LOANS -- 3.1%
1,500 Merchants Bancshares, Inc. $31,312
CONSUMER PRODUCTS-NON-DURABLES -- 9.8%
2,500 Jostens, Inc. 66,875
2,000 Racing Champions Corporation 31,000
---------
97,875
ELECTRONICS -- 18.4%
700 Berg Electronics Corp. 25,157
650 Fluke Corp. 38,512
2,000 Methode Electronics, Inc. 39,750
1,500 MicroTouch Systems, Inc. 34,500
2,000 Tollgrade Communications Inc. 45,750
---------
183,669
HEALTH INDUSTRIES -- 21.2%
3,500 Covance Inc. 67,596
1,100 Patterson Dental Co. 37,744
1,300 Pharmaceutical
Development, Inc. 28,600
2,000 Quest Diagnostics Incorporated 41,126
2,000 Sullivan Dental Products, Inc. 36,500
---------
211,566
INDUSTRIAL SERVICES -- 1.6%
1,000 Comfort Systems U.S.A. 15,625
INSURANCE -- 2.6%
500 Executive Risk Inc. 26,000
LEISURE/RESTAURANTS -- 5.4%
4,000 WSMP, Inc. 54,500
MISCELLANEOUS-FINANCE -- 7.0%
700 Aames Financial Corp. 12,950
600 First Security Corp. 16,388
2,000 Ocwen Asset Investment Corp. 40,500
---------
69,838
MISCELLANEOUS-TECHNOLOGY
MANUFACTURING -- 9.2%
350 Corning Inc. 19,469
1,500 II-VI Inc. 31,500
550 Raychem Corp. 40,906
---------
91,875
PRODUCER MANUFACTURING -- 19.3%
10,800 Bucyrus International, Inc. 114,750
1,000 Durco International 29,250
1,900 General Cable Corp. 48,687
---------
192,687
RETAIL TRADE -- 1.9%
900 Casey's General Stores, Inc. 19,378
---------
Total common stocks 994,325
VARIABLE RATE DEMAND NOTES -- 1.2%
$11,777 Wisconsin Electric Power
Company 11,777
---------
Total investments 1,006,102
Liabilities, less cash and
receivables (0.7%) (A)<F1>(C)<F3> (6,908)
---------
NET ASSETS $999,194
=========
Net Asset Value Per Share
($0.0001 par value
500,000,000 shares
authorized), offering
and redemption price
($999,194 / 78,758
shares outstanding) $12.69
======
(a)<F1>Percentages for the various classifications relate to net assets.
(b)<F2>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, or if no sale is reported, the latest bid price. Securities which are
traded over-the-counter are valued at the latest bid price. Short-term
investments are valued at cost which approximates quoted market value.
(c)<F3>Includes $40,500 of short sales (proceeds $33,314).
FMI FOCUS FUND
225 East Mason Street
Milwaukee, Wisconsin 53202
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
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
