QUARTERLY REPORT
JUNE 30, 2000
FMI
Focus Fund
A NO-LOAD
MUTUAL FUND
FMI Focus Fund
September 8, 2000
THE VALUE OF A $10,000 INVESTMENT IN THE FMI FOCUS FUND FROM ITS INCEPTION
(12/16/96) TO 6/30/00 AS COMPARED TO THE STANDARD & POOR'S 500 AND THE RUSSELL
2000
Date 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
9/30/99 $26,372 $18,599 $12,634
12/31/99 $36,304 $21,387 $14,965
3/31/00 $46,687 $21,858 $16,025
6/30/00 $47,924 $21,277 $15,419
RESULTS FROM FUND INCEPTION (12/16/96) THROUGH 6/30/00
Annualized
Total Return*<F1>
Total Return*<F1> Through 6/30/00
Total Return*<F1> For the Year From Fund's
Last 3 Months Ended 6/30/00 Inception 12/16/96
--------------------------------------------------------------------------------
FMI Focus Fund 2.6% 74.6% 55.7%
Standard & Poor's 500 -2.7% 7.2% 23.8%
Russell 2000 -3.8% 14.3% 13.0%
*<F1> Total return includes change in share prices and in each case includes
reinvestments of any dividends, interest and capital gain
distributions.
Dear Fellow Investor:
Our FMI Focus Fund nimbly maneuvered through another turbulent quarter. The
16% NASDAQ slide in April was #3 on a one month crash list behind the 20% global
meltdown of August '98, and the record October '87, 27% smackdown. We would
like to thank those FMI Focus Fund passengers that fastened their seatbelts, put
their tray tables up, put their seatbacks in the upright position, and
maintained their long-term investment horizon. The cockpit was stocked with
plenty of oxygen and air sickness bags. We were also fortunate to have Peter
Griffiths, a client and informal advisor to us, sitting in the control tower.
Peter was one of the original Janus Fund partners and keeps close tabs on the
market. In the middle of March, he convinced us to make a short-term tactical
throttling back adjustment due to storm clouds and choppiness, especially in the
technology sector. We don't do this very often, but in this case it helped
dampen volatility by reinvesting some tech profits into other areas, and helped
set the stage for a good fiscal year end finish (Note: as of the date of this
printing the Fund is up over 40% year-to-date). Thank you Peter!! Your unique
perspective aided the FMI Focus Fund to a smooth landing, a 2.6% return for the
quarter. This compares favorably to most mutual funds given that the S&P 500
was off almost 3% as well as the average stock fund covered by Lipper was down
slightly more than 3% this quarter.
As we refuel for our fourth fiscal quarter and head into 2001 many investors
inquire about where their investment dollars are going. Ironically, we are
spending more time analyzing the energy and aerospace/defense industries.
Petroleum and natural gas prices have increased greatly from last year's
depressed levels. In the Midwest, we experienced prices at the pump above the
$2.00 per gallon mark. Saudi Arabia has been trying to move oil prices back to
the low-$20s per barrel from the $30 level by turning some spigots. Thus far,
the futures market has not cooperated with the strategy and this may not be a
good long-term solution given the strength of the U.S. economy, the growth in
China, and a pickup in Europe and Japan. The world consumes almost 80 million
barrels of oil each day and demand is growing. Natural gas prices have risen
with demand while supply has been retarded. Natural gas cannot be easily
imported. On the demand side, power plants prefer to burn natural gas and oil
for environmental reasons. Exploration and Production (E&P) companies as well
as oil service companies that provide the necessary equipment (i.e. rigs, pipes,
seismic data,...) to find more oil and natural gas are beneficiaries of the
current supply/demand imbalance.
The electric power generation and distribution sector (utilities) have
outperformed the market this year. This industry reminds us of the
telecommunications market in that it is just as large, convergence of energy
sources and delivery mechanisms is beginning to take place and there is
competition on the horizon (spurred by deregulation) which usually leads to huge
investment and innovation. Entrenched monopolies will face new competition from
rivals with smaller and cleaner technologies involving fuel cells and gas
turbines. We believe the impact of energy deregulation continues to have far-
reaching consequences in the marketplace and will, well into the future. Cost
effective energy solutions have never been more important to corporations as
well as individuals. We are working very hard to understand the changes
occurring in the energy sector and finding ideas that have good risk reward
characteristics.
Our investment thesis for the aerospace/defense business is much less
complicated than energy. Boeing and Airbus Industries, the only builders of
airliners, together have almost 600 orders so far this year, the number many
analysts had projected for the full year. Airbus is working on luxury planes
that will include more bells & whistles than anything we have seen in the air.
Air traffic growth is forecast at roughly 5% per annum over the next 5 years. A
recovery in Asia and a record U.S. economic expansion is giving airlines cash to
buy new planes. Additionally, the market for all services necessary to operate
airline fleets and dispose of surplus is approximately $100 billion, growing at
a low single digit rate per annum. Services include maintenance, spares,
modifications, crew training, airport fees and planning services. These
products and services are currently provided by a multitude of suppliers which
we think will consolidate in upcoming years.
Finally, defense spending this year is expected to be $50 billion. Some
analysts estimate that defense procurement will grow to $75 billion in 5 years,
which roughly equates to an 8% growth rate. Aging aircraft and missile systems
need to be replaced regardless of whether a Republican or a Democrat is in the
White House. We believe that this could be the first phase of a new earnings
cycle.
Since the aforementioned industries are still under evaluation, it is too
early to mention any stocks. However, we will mention MKS Instruments, Inc. and
Metron Technology N.V., a couple of small-cap semiconductor capital equipment
ideas. The semiconductor equipment industry is in the second year of what we
think will be a three to four year cyclical upturn. MKS designs and
manufactures components that are used to measure, control and analyze gases in
semiconductor manufacturing and other advanced manufacturing applications.
Semiconductor Original Equipment Manufacturers (OEMs), led in large
part by Applied Materials, are outsourcing an increasing amount of their
component design, manufacture and assembly in order to reduce system cycle
times. This trend benefits MKS, and the company intends to gain market share
with leading OEMs, design instruments for next-generation semiconductor
fabrication, and grow faster than the industry. Metron is the largest worldwide
outsource service provider and distributor of semiconductor equipment and
materials. The company is a prime beneficiary of the move toward outsourcing of
services, support, and inventory management by semiconductor companies. The
company's strong equipment bookings visibility in the near term is masking the
potential upside of its higher margin services business. The stock is trading
under ten times earnings and is a very inexpensive, high leverage play on the
semiconductor cycle. It is our opinion that the recent semiconductor sell-off
was a seasonal and mid-cycle correction that gave us an opportunity to buy these
stocks cheaply.
You have now arrived at the end of another quarterly report. On behalf of
our supporting crew members at Fiduciary Management, Inc., we would like to
thank you for riding the FMI Focus Fund toward your investment horizon. We look
forward to providing you with another update at the end of the fiscal year.
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
225 E. Mason St. o Milwaukee, WI 53202 o 414-226-4555
FMI Focus Fund
STATEMENT OF NET ASSETS
June 30, 2000 (Unaudited)
QUOTED
MARKET
SHARES VALUE (B)<F3>
------ -------------
COMMON STOCKS -- 81.8% (A)<F2>
BANKS -- 1.3%
17,500 AMCORE Financial, Inc. $ 320,469
36,200 Blackhawk Bancorp, Inc. 362,000
48,500 FirstMerit Corp. 1,036,687
------------
1,719,156
CHEMICAL/SPECIALTY MATERIALS -- 2.6%
39,500 Georgia Gulf Corp. 822,094
71,500 Rogers Corp. 2,502,500
------------
3,324,594
COMMUNICATIONS EQUIPMENT -- 13.2%
59,770 ADC Telecommunications, Inc. 5,013,209
36,500 Andrew Corp. 1,225,031
30,000 Anicom, Inc. 112,500
57,200 Arguss Communications, Inc. 1,079,650
55,000 Channell Commercial Corp. 660,000
37,500 Mitel Corp. 787,500
27,000 Stamford International Inc. 253,125
8,000 Tekelec 385,500
80,000 TESSCO Technologies Inc. 2,240,000
34,500 Tollgrade Communications Inc. 4,571,250
57,600 Westell Technologies, Inc. 864,000
------------
17,191,765
COMMUNICATIONS SERVICES/CABLE -- 9.8%
30,000 ACTV, Inc. 448,125
49,848 Adelphia Communications Corp. 2,336,625
46,000 Adelphia Business Solutions, Inc. 1,066,625
25,000 Bell Canada International Inc. 723,437
46,600 Classic Communications, Inc. 416,488
28,000 CSG Systems International, Inc. 1,569,750
37,500 ICG Communications, Inc. 827,344
25,000 Insight Communications Co., Inc. 390,625
35,000 Objective Systems Integrators, Inc. 374,063
16,194 VoiceStream Wireless Corp. 1,883,310
50,000 Western Wireless Corp. 2,725,000
------------
12,761,392
COMMUNICATIONS SERVICES/MEDIA -- 7.4%
17,000 Interwoven, Inc. 1,869,733
34,500 LodgeNet Entertainment Corp. 836,625
87,000 PRIMEDIA Inc. 1,979,250
54,500 StarMedia Network, Inc. 1,028,688
24,000 True North Communications, Inc. 1,056,000
42,000 World Wrestling Federation
Entertainment, Inc. 874,125
226,000 Ziff-Davis Inc. Series ZD 2,034,000
------------
9,678,421
COMPUTERS & ELECTRONICS -- 13.0%
24,000 Arrow Electronics, Inc. 744,000
51,000 Daisytek International Corp. 481,312
118,000 General Semiconductor, Inc. 1,740,500
19,000 GenRad, Inc. 171,000
25,150 Giga-tronics Inc. 238,925
55,250 SBE, Inc. 1,146,438
43,000 Teledyne Technologies Inc. 720,250
83,700 Varian Inc. 3,860,663
299,500 Viasystems Group, Inc. 4,848,156
58,500 Vishay Intertechnology, Inc. 2,219,344
22,000 Wind River Systems, Inc. 833,250
------------
17,003,838
CONSUMER PRODUCTS & RETAIL -- 2.8%
99,300 Retek Inc. 3,177,600
30,000 Ross Stores, Inc. 511,875
------------
3,689,475
CONSUMER SERVICES -- 1.0%
25,000 Hall, Kinion & Associates, Inc. 832,812
90,500 Pfsweb Inc. 424,219
------------
1,257,031
ELECTRONICS -- 0.9%
25,000 ACT Manufacturing, Inc. 1,160,937
ENERGY/ENERGY SERVICES -- 5.3%
39,000 Noble Affiliates, Inc. 1,452,750
106,250 Pride International, Inc. 2,629,687
20,000 Remington Oil & Gas Corp. 150,000
103,000 Santa Fe Snyder Corp. 1,171,625
49,000 Valero Energy Corp. 1,555,750
------------
6,959,812
FINANCIAL SERVICES -- 9.5%
45,100 CNA Surety Corp. 538,381
47,000 Heller Financial, Inc. 963,500
66,900 HNC Software Inc. 4,131,075
53,700 MGIC Investment Corp. 2,443,350
25,000 Protective Life Corp. 665,625
35,000 SAFECO Corp. 695,625
96,500 SunGard Data Systems Inc. 2,991,500
------------
12,429,056
HEALTH INDUSTRIES -- 3.6%
19,000 Covance Inc. 167,437
61,000 Quest Diagnostics Inc. 4,559,750
------------
4,727,187
INDUSTRIAL & TRANSPORTATION PRODUCTS -- 3.7%
68,000 The Manitowoc Company, Inc. 1,819,000
25,000 Oshkosh Truck Corp. 893,750
46,200 Zebra Technologies Corp. 2,047,238
------------
4,759,988
INDUSTRIAL SERVICES -- 2.2%
30,000 Morrison Knudsen Corp. 217,500
87,000 Republic Services, Inc. 1,392,000
54,500 Tetra Tech, Inc. 1,246,688
------------
2,856,188
PRINTING/PUBLISHING/FORMS -- 0.1%
25,500 ImageX.com, Inc. 154,594
SEMICONDUCTOR & RELATED -- 5.3%
35,000 ANADIGICS, Inc. 1,192,187
26,000 Burr-Brown Corp. 2,253,875
30,000 Mentor Graphics Corp. 596,250
93,000 Metron Technology N.V. 1,172,665
42,000 MKS Instruments, Inc. 1,643,250
------------
6,858,227
SOFTWARE/SERVICE -- 0.1%
40,000 Sideware Systems, Inc. 160,000
------------
Total common stocks 106,691,661
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 14.3% (A)<F2>
VARIABLE RATE DEMAND NOTES
$1,350,110 American Family
Financial Services 1,350,110
5,602,366 Firstar Bank U.S.A., N.A. 5,602,366
5,725,941 Sara Lee Corp. 5,725,941
6,000,000 Wisconsin Corporate Central
Credit Union 6,000,000
------------
Total short-term investments 18,678,417
------------
Total investments 125,370,078
Cash and receivables, less
liabilities -- 3.9% (A)<F2> (C)<F4> (D)<F5> 5,133,717
------------
Net Assets $130,503,795
------------
------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($130,503,795 / 3,783,896
shares outstanding) $ 34.49
------------
------------
(a)<F2> Percentages for the various classifications relate to net assets.
(b)<F3> Each security, including securities sold short, but excluding short-
term investments, is value 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 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.
(c)<F4> The Fund may write call options on securities. By writing a call
option, and receiving a premium, the Fund may be obligated during the
term of the option to deliver the securities underlying the option at
the exercise price if the option is exercised.
(d)<F5> Includes ($5,625) of options sold short (proceeds received of
$52,194).
For the period ending June 30, 2000, the FMI Focus Fund has shorted
the following call options:
# OF
CONTRACTS COST
--------- ----
Balance at April 1, 2000 0 $ 0
Options written (Westell 08/00) (100) (5,625)
Options exercised -- --
Options expired -- --
Options closed -- --
---- -------
Balance at June 30, 2000 (100) $(5,625)
---- -------
---- -------
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, N.A.
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.
