QUARTERLY REPORT
JUNE 30, 1999
FMI
FOCUS FUND
A NO-LOAD
MUTUAL FUND
FMI FOCUS FUND
THE VALUE OF A $10,000 INVESTMENT IN THE FMI FOCUS FUND FROM ITS INCEPTION
(12/16/96) TO 6/30/99 AS COMPARED TO THE STANDARD & POOR'S 500 AND THE RUSSELL
2000
FMI FOCUS FUND STANDARD & POOR'S 500 RUSSELL 2000
-------------- --------------------- ------------
12/16/96 $10,000 $10,000 $10,000
12/31/96 $10,245 $10,280 $10,350
3/31/97 $10,736 $10,549 $9,815
6/30/97 $12,709 $12,390 $11,406
9/30/97 $16,796 $13,333 $13,103
12/31/97 $17,391 $13,712 $12,664
3/31/98 $19,876 $15,626 $13,938
6/30/98 $19,687 $16,145 $13,289
9/30/98 $17,838 $14,553 $10,611
12/31/98 $23,561 $17,654 $12,342
3/31/99 $22,826 $18,533 $11,673
6/30/99 $27,450 $19,840 $13,488
RESULTS FROM FUND INCEPTION (12/16/96) THROUGH 6/30/99
Annualized
Total Return*<F1>
Total Return*<F1> Through 6/30/99
Total Return*<F1> For the Year From Fund
Last 3 Months Ended 6/30/99 Inception 12/16/96
----------------- ------------- ------------------
FMI Focus Fund 20.3% 39.4% 48.9%
Standard & Poor's 500 7.0% 22.8% 31.0%
Russell 2000 15.6% 1.5% 12.5%
*<F1> Total return includes change in share prices and in each case includes
reinvestments of any dividends, interest and capital gain distributions.
August 24, 1999
Dear Fellow Shareholders:
The FMI Focus Fund surged ahead by more than twenty percent during the
quarter as the market began to broaden out to small-cap and value stocks. We
hope that the results displayed in the first column of the table below continue
throughout the year. That way investors will not have to consistently read or
hear us whine about the disparity between large and small company stock
performance.
2ND QUARTER LAST TWELVE
RETURN MONTHS RETURN
-------- ---------------
S&P 500 7.05% 22.75%
S&P Mid-Cap 400 14.16% 17.18%
S&P Small-Cap 600 15.42% -2.32%
FMI Focus Fund 20.26% 39.42%
Although the Fund outperformed the S&P 500 Index in the quarter, so did many
of our peers. In fact, almost 70% of active managers beat this benchmark in the
quarter. Over the last twelve months, more than 35% of active managers outdid
the Index (the highest percentage since 1993). We must admit that we are not
satisfied with our performance for the quarter or the first half of the calendar
year. We missed acting on some good ideas and also picked a few bad apples.
Those of you who know us understand our competitive spirit. There is definitely
a fire in our bellies and we are focusing on the next thirty months (which
coincidentally marks our five year record). Our advice to shareholders has not
changed: "Hang In There!!"
VALUATION AND CONSOLIDATION
Valuation and consolidation are two themes that drove the portfolio ahead
over the past three months. In April, it became apparent that money was flowing
into value stocks. The U.S. industrial economy improved a bit and the world did
not come to an end (which was the market's greatest fear last year). The threat
of higher interest rates led institutional investors to lower price/earnings
multiple stocks. Valuation began to matter. Your FMI Focus Fund, being a
flexible and nimble product due to its size, quickly capitalized on the value
bias by positioning a portion of the portfolio in economically sensitive stocks.
We did not have to look very far from home for bargains. The Manitowoc Company
(Manitowoc, WI) OshKosh Truck (Oshkosh, WI), Regal-Beloit, Inc. (Beloit, WI),
and Superior Services (Milwaukee, WI) are all in our backyard. Unfortunately,
we were not able to purchase a full position in Superior before Vivendi, a
French conglomerate, acquired the waste hauler for $26 per share.
Merger & acquisition activity in the communications sector (one of our focus
areas) continued on its torrid pace. Convergys Corp. made a tender offer for
Wiztec Solutions, Inc., a little European satellite/pay TV customer care/bill
processing company. Cable television system valuations increased as companies
build regional groups of subscribers, or clusters, that they can serve more
efficiently. Microsoft co-founder and billionaire Paul Allen's Charter
Communications has been on a spending spree this year buying ten systems (Avalon
Cable TV, Vista Broadband, Helicon Cable, Renaissance Media, Greater Media,
Rifkin & Associates, InterMedia Partners, American Cable, Fanch Communications,
Falcon Cable TV, and Bresnan Communications) for over $8 billion dollars.
Although these are private operators we believe that the purchase prices fell in
a range of $3,500-$4,500 per subscriber. Cox Communications purchased Media
General's systems in Virginia for $1.4 billion (approximately $5,400 per
subscriber) and TCA Cable TV for $4 billion (approximately $4,100 per
subscriber). Adelphia Communications which acquired Century Cable (a Focus Fund
holding) toward the end of the first quarter, bought Harron Communications for
$1.17 billion (approximately $3,900 per subscriber) in April. The largest deal
of the quarter was AT&T's $58 billion bid for Media One which topped Comcast's
$45 billion offer. We figure AT&T paid more than twenty times cash flow for
these properties. Our largest holding, Jones Intercable, Inc., is selling at a
significant discount to the recent transactions. The Fund directly benefited
from merger mania in the wireless communications sector. Voicestream Wireless,
a spin off from Western Wireless, agreed to purchase Omnipoint for approximately
$32 per share making them the largest independent player using GSM (Global
System for Mobile Communications technology).
In the electronic component distribution industry, Avnet Inc. acquired
Marshall Industries for roughly $39 per share, or approximately 50% of sales.
This transaction increased investor awareness to two of our holdings: Arrow
Electronics and Pioneer-Standard Electronics. As we send this letter to the
printer, another one of our stocks, Ziff-Davis announced that it has hired
Morgan Stanley Dean Witter to explore the possible sale of the company or
divisions of the company. Ziff is a leading technology media company with
print/publishing, internet, television, education, and consulting businesses.
The announcement was triggered by Softbank of Japan's (the largest shareholder)
desire to concentrate its investment dollars on pure Internet companies. One of
Ziff's competitors, CMP Media was recently acquired by United News & Media at
15-16 times adjusted enterprise value/EBITDA. We believe Ziff has a valuable
franchise worth $25-$30 to a strategic buyer and we are looking forward to more
positive news by the end of the year.
CONSOLIDATION OF THE PORTFOLIO
While we are on the topic of consolidation, it is worth mentioning that we
are well aware that the number of stocks in the portfolio has increased over the
last several quarters. Some of you have expressed concern regarding the
expansion and asked some very good questions. We greatly appreciate your
questions and comments!!! This trend is already reversing as some of the
holdings are being acquired. As well, a number of recent additions have ran up
on us in the "hot 2nd quarter market" before we could establish full positions.
We expect to consolidate holdings and "fill in" positions with the recent market
pull back. Also, although there are more names in the portfolio, the fund
remains concentrated in our power industries.
A LITTLE RECOGNITION
Enclosed is a copy of a letter that we recently received from Mutual Funds
Magazine. We are excited to have received a "5 Star" rating from this esteemed
publication, especially since it is based on risk-adjusted return. We will
strive to uphold that ranking in the midst of a volatile market.
As always, thank you for your continued support and we are looking forward to
our fiscal year end report.
Sincerely,
/s/Ted. D. Kellner /s/Richard E. Lane
Ted D. Kellner, C.F.A. Richard E. Lane, C.F.A.
Portfolio Manager Portfolio Manager
**<F2> We would like to acknowledge the loss of a shareholder, Dr. Edward Job,
Richard Lane's father-in-law of Janesville, Wisconsin. He was a legend in his
hometown and delivered over 10,000 babies over the course of his 30 year career.
He was upbeat throughout his battle with cancer, and was and will continue to be
an inspiration to all who knew him. Our condolences to the family.
225 E. Mason St. o Milwaukee, WI 53202 o 414-226-4555
FMI FOCUS FUND
STATEMENT OF NET ASSETS
June 30, 1999 (Unaudited)
QUOTED
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE(B)<F4>
- ---------------- ------
COMMON STOCKS -- 90.0% (A)<F3>
CHEMICAL/SPECIALTY MATERIALS -- 2.0%
29,500 Georgia Gulf Corp. $ 497,812
12,000 Solutia Inc. 255,750
-------------
753,562
COMMUNICATIONS EQUIPMENT -- 5.9%
31,000 ADC Telecommunications, Inc. 1,412,438
36,000 Anicom, Inc. 378,000
16,500 Channell Commercial Corp. 165,000
14,500 Tollgrade Communications Inc. 221,125
-------------
2,176,563
COMMUNICATION SERVICES/CABLE -- 21.1%
21,600 Bell & Howell Co. 816,750
14,000 Century Communications Corp. 644,000
10,000 CSG Systems International, Inc. 261,875
14,500 Fox Entertainment Group, Inc. 390,594
40,500 Hyperion
Telecommunications, Inc. 761,906
28,900 Imax Corp. 650,250
3,500 Jones Intercable, Inc. 168,000
40,800 Jones Intercable Inc. Cl A 1,999,200
15,000 Omnipoint Corp. 434,062
70,500 PRIMEDIA Inc. 1,194,094
30,500 Ziff-Davis Inc. 470,844
-------------
7,791,575
COMPUTERS & ELECTRONICS -- 13.2%
39,000 Arrow Electronics, Inc. 741,000
10,000 Celestica Inc. 433,125
22,000 The DII Group, Inc. 820,875
35,000 General Semiconductor, Inc. 319,375
20,900 HNC Software Inc. 643,981
20,000 Methode Electronics, Inc. 457,500
22,500 MicroTouch Systems, Inc. 334,688
38,500 Pioneer-Standard Electronics, Inc. 462,000
31,250 Vishay Intertechnology, Inc. 656,250
-------------
4,868,794
CONSUMER PRODUCTS & RETAIL -- 3.0%
21,500 Casey's General Stores, Inc. 322,500
26,000 Jostens, Inc. 547,625
4,500 Ross Stores, Inc. 226,687
-------------
1,096,812
ELECTRONICS -- 0.9%
14,500 LeCroy Corp. 343,469
ENERGY/ENERGY SERVICES -- 5.1%
22,000 Noble Affiliates, Inc. 620,125
66,250 Pride International, Inc. 699,766
75,000 Santa Fe Snyder Corp. 571,875
-------------
1,891,766
FINANCIAL SERVICES -- 4.6%
57,500 AMCORE Financial, Inc. 1,326,094
10,500 SunGard Data Systems Inc. 362,250
-------------
1,688,344
FINANCIAL SERVICES & BANKS -- 8.5%
19,450 Affiliated Managers Group, Inc. 587,147
20,000 Associated Banc-Corp. 830,000
36,200 Blackhawk Bancorp, Inc. 479,650
26,000 Heller Financial, Inc. 723,125
10,000 Prime Bancshares, Inc. 178,750
12,000 Union Bankshares Ltd. 180,000
10,000 Willis Lease Finance Corp. 163,125
-------------
3,141,797
HEALTH INDUSTRIES -- 9.1%
38,475 Covance Inc. 920,995
37,000 Henry Schein, Inc. 1,172,438
10,900 Millipore Corp. 442,131
10,500 PAREXEL International Corp. 139,781
5,000 Pharmaceutical Product
Development, Inc. 136,875
20,000 Quest Diagnostics Inc. 547,500
-------------
3,359,720
INDUSTRIAL & TRANSPORTATION PRODUCTS -- 12.2%
36,000 The Alpine Group, Inc. 578,250
27,000 Dura Automotive Systems, Inc. 897,750
20,000 Inco Limited 360,000
27,275 The Manitowoc Company, Inc. 1,135,322
16,000 Oshkosh Truck Corp. Cl B 805,000
30,400 Regal-Beloit Corp. 718,200
500 Tower Automotive, Inc. 12,719
-------------
4,507,241
INSURANCE -- 3.4%
26,600 CNA Surety Corp. 407,312
25,000 Reinsurance Group Of
America, Inc. Non Voting 837,500
-------------
1,244,812
PRINTING/PUBLISHING/FORMS -- 1.0%
23,000 Mail-Well, Inc. 372,312
-------------
Total common stocks 33,236,767
SHORT-TERM INVESTMENTS -- 6.1% (A)<F3>
VARIABLE RATE DEMAND NOTES
$1,700,000 Firstar Bank U.S.A., N.A. 1,700,000
557,856 General Mills, Inc. 557,856
-------------
Total short-term investments 2,257,856
-------------
Total investments 35,494,623
Cash and receivables, less
liabilities 3.9% (A)<F3> 1,423,456
-------------
Net Assets $36,918,079
-------------
-------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($36,918,079 / 1,644,819
shares outstanding) $ 22.45
-------------
-------------
(a)<F3> Percentages of various classifications relate to net assets.
(b)<F4> Each security, including securities sold short, but excluding short-
term investments, is valued at the last sale price reported by the principal
security exchange on which the issue is traded. Common stocks which are listed
on a national securities exchange or the Nasdaq Stock Market but which were not
traded on the valuation date are valued at the most recent bid price.
Securities sold short which are listed on a national securities exchange or the
Nasdaq Stock Market but which were not traded on the valuation date are valued
at the most recent ask price. Unlisted equity securities for which market
quotations are readily available are valued at the most recent bid price.
Options purchased or written by the Fund are valued at the average of the most
recent bid and ask prices. 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. Short-term investments are valued at
amortized cost which approximates quoted market value.
FMI FOCUS FUND
225 East Mason Street
Milwaukee, Wisconsin 53202
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
GEORGE D. DALTON
PATRICK J. ENGLISH
TED D. KELLNER
THOMAS W. MOUNT
DONALD S. WILSON
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
800-811-5311 or 414-765-4124
CUSTODIAN
FIRSTAR BANK MILWAUKEE, NA
615 East Michigan Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
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 Focus Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance is not indicative of future
performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
