ANNUAL REPORT
SEPTEMBER 30, 2000
FMI
Focus Fund
A NO-LOAD
MUTUAL FUND
FMI Focus Fund
NOVEMBER 27, 2000
THE VALUE OF A $10,000 INVESTMENT IN THE FMI FOCUS FUND FROM ITS INCEPTION
(12/16/96) TO 9/30/00 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 $36,309 $21,367 $14,965
3/31/00 $46,693 $21,858 $16,025
6/30/00 $47,926 $21,277 $15,419
9/30/00 $50,634 $21,071 $15,590
RESULTS FROM FUND INCEPTION (12/16/96) THROUGH 9/30/00
Annualized
Total Return*<F1>
Total Return*<F1> Through 9/30/00
Total Return*<F1> For the Year From Fund
Last 3 Months Ended 9/30/00 Inception 12/16/96
------------- ------------- ------------------
FMI Focus Fund 5.7% 92.0% 53.4%
Standard & Poor's 500 -1.0% 13.3% 21.7%
Russell 2000 1.1% 23.4% 12.4%
*<F1> Total return includes change in share prices and in each case includes
reinvestments of any dividends, interest and capital gain
distributions.
Dear Fellow Shareholders:
The September quarter marked the close of our 4th successful fiscal year.
We finished the period with a 92% return which compares favorably to the S&P 500
and the Russell 2000. Our quarterly results also topped the aforementioned
indexes as shown in the table below. This has been an extremely challenging and
volatile year that has left most of our brethren barely above water. Although
our performance has been strong, we certainly believe there is plenty of room
for improvement. Towards that end, lessons learned this year have been applied
to the investment process. The manufacturing world has a term for this
"continuous improvement". We really believe this and have fully embraced the
concept. The remaining months of 2000 are likely to remain volatile, thus our
focus is on "reloading the gun" for 2001. While each and every year is
important, we realize that a five year track record is an important metric among
mutual fund rating agencies. Next year marks the fifth year anniversary of the
Fund, and we are anxious to continue our pace setting performance.
QUARTER ENDED YEAR-TO-DATE
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
FMIOX 5.7% 39.5%
S&P 500 -1.0% -1.4%
Russell 2000 1.1% 4.2%
THE ELECTION SPECIAL
We attempted to time the printing of this piece with the presidential
election. To date, our great country doesn't have a new leader and our great
shareholders do not have their fourth quarter report. In our third quarter
report, the energy and aerospace defense industries were highlighted as
investment themes. If George W. Bush is the next president it would certainly
increase investor sentiment in those sectors. If Al Gore is the next president,
well-managed companies that benefit from increased state, local, and federal
spending should outperform the market (as well as chad manufacturers). In
either case, the technology revolution will live on, albeit with a battle field
strewn with casualties. We believe our selective criteria will identify some
currently out of favor heroes. Enough with the politics and lets dive right
into our focus stocks: Primedia Inc. and Tetra Tech, Inc.
Primedia is a targeted media company with print, video, and Internet
businesses focused on consumer and business-to-business audiences. The Company
publishes more than 200 magazines, and owns and operates approximately 300
websites. Among its notable titles are Seventeen, Automobile Magazine, Fly
Fisherman, and the Apartment Guides. The stock has been a core position in our
portfolio for quite some time. On October 30, Primedia announced its plans to
acquire internet portal About.com for 2.3409 shares of stock or roughly $690
million. Shortly after the announcement, Primedia stock fell to 10 from the
high-teens. The outlook for advertising spending, especially internet
advertising is pretty gloomy. However, most of Primedia's advertising dollars
is endemic. This type of advertising connects buyers and sellers, and has
proven to be much more resilient to economic downturns. We like the prospects
of the combined company and recently added to our position.
The business rationale for this transaction is compelling since it
accelerates Primedia's internet strategy, thus reducing investment expenses, and
can potentially accelerate About.com's penetration of traditional advertisers as
Primedia's 1,600 strong salesforce can sell targeted on-line inventory more
--------
completely than About.coms 125 strong salesforce. In addition, the combined
entity will be able to cross-promote magazine subscriptions on About.com's sites
and the web property in its print publications, increasing sales across niche
topics. In many ways, these organizations are the mirror image of each other,
but one in print and one online. About.com's editors are paid based on the
amount of traffic their site generates, which creates an attractive variable
cost structure. The deal is accretive even when applying management's prudent
and conservative assumptions. Finally, we believe in the management team.
Primedia's Chief Executive Officer, Tom Rogers, took over the helm about a year
ago. He has quickly turned around an assortment of undervalued media assets
into a focused integrated targeted media company. We think we can make a lot of
money in this stock if he executes. Good Luck Tom!!!
For those interactive Focus Fund shareholders interested in doing some
research, and we have quite a few, we encourage you to do some surfing at
About.com. There are more than 700 topic sites to choose from, each overseen by
a professional Guide. Tell us about (no pun intended) your experience/comments
via e-mail to [email protected].
Tetra Tech is a leading provider of specialized management consulting and
technical services in three principal business areas: resource management,
infrastructure, and communications. The Company's customers include Federal and
state government municipalities as well as major communications providers like
AT&T, Broadband and Wireless. We were originally attracted to this Company due
to the growth of its communications division which helps wireless and broadband
wireline customers design and build their networks. Investors are beginning to
understand that there is hidden value in that piece of the business and we
believe that the wireless assets will be spun out of the Company in the near
future. The wireline portion has synergies with the infrastructure division
since many public and private schools, airports, and corporate centers are being
designed and built with the latest and greatest communications wiring. The
resource management business is steady and we think can provide additional
growth as the EPA and state/local municipalities increase their spending. The
environment has been an issue in the recent election and Tetra Tech addresses
solutions for pollution control, clean water and global warming analysis. We
started buying the stock roughly a year ago as investors questioned if the
Company could grow at a double digit rate without making acquisitions. We have
always been impressed with and comfortable investing with Li-San Hwang, the
company's CEO and President, and continued to nibble on the stock throughout the
year. After participating in the latest quarterly conference call, we think the
Company can grow the top line "internally" close to twenty percent. Management
also guided 2001 earnings per share in the $1.10 to $1.13 range, which is
greater than 30% growth.
This concludes our delayed 4th quarter "Election Special" report. We look
forward to providing you with a timely update at the end of the year. Recall
that at year end we present awards to our favorite management teams (FMI Focus
Fund 5-Star Management of the Year Awards) and ballots will be cast shortly.
The voting process will be quick and easy. Thank you for "hanging in there"
during a very volatile environment and we accept and realize the responsibility
of being elected to be one of your money management representatives.
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
P.S. The FMI Focus Fund was featured in the November 20th edition of Barrons
(Mutual Fund Section) and will also be highlighted in several upcoming editions
of Kiplingers magazine.
225 E. Mason St. o Milwaukee, WI 53202 o 414-226-4555
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The first two quarters of fiscal 2000 (October 1, 1999 through March 31,
2000) accounted for the lion's share of the gain for the fiscal year. This gain
was driven by a strong stock market overall, as well as a handful of
particularly strong stocks in the Fund, including Tollgrade Communications,
Quest Diagnostics, Retek, Inc., and MGIC Investment Corp. In addition, the Fund
reduced its exposure to technology in March, just before a significant market
correction, thus holding on to some of the gains. The second half of the fiscal
year witnessed much more muted gains as the market was flattish, and the Fund
was up modestly, largely driven by its exposure to energy and financial
services.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FMI FOCUS FUND, STANDARD & POOR'S 500 INDEX, AND RUSSELL 2000 INDEX
Standard & Poor's Russell 2000
Date FMI Focus Fund 500 Index(1)<F3> Index(2)<F4>
---- -------------- ---------------- ------------
12/16/96*<F2> $10,000 $10,000 $10,000
9/30/97 $16,796 $13,333 $13,103
9/30/98 $17,827 $14,553 $10,611
9/30/99 $26,372 $18,599 $12,634
9/30/00 $50,634 $21,071 $15,590
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1-Year Since inception 12/16/96
------ ------------------------
+92.0% +53.4%
*<F2> inception date 12/16/96
Past performance is not predictive of future performance.
(1)<F3> 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.
(2)<F4> The Russell 2000 Index is an index comprised of 2,000 publicly traded
small capitalization common stocks that are ranked in terms of
capitalization below the large and mid-range capitalization sectors of
the United States equity market. The Russell 2000 Index is a
trademark/service mark of the Frank Russell Company.
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
FMI Focus Fund
REPORT OF INDEPENDENT ACCOUNTANTS
(PRICEWATERHOUSECOOPERS LOGO)
October 27, 2000
To the Shareholders and Board of Directors
of FMI Focus Fund
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
FMIFocus Fund (the "Fund") at September 30, 2000, the results of its operations
for the year then ended and the changes in its net assets and the financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at September 30, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
FMI Focus Fund
STATEMENT OF NET ASSETS
September 30, 2000
QUOTED
MARKET
SHARES COST VALUE
------ ---- -----
COMMON STOCKS -- 81.9% (A)<F6>
BANKS -- 0.8%
27,500 AMCORE Financial, Inc. $ 538,490 $ 539,688
36,200 Blackhawk Bancorp, Inc. 526,556 362,000
23,500 FirstMerit Corp. 375,313 539,031
30,000 Prosperity
Bancshares, Inc. 502,500 551,250
------------ ------------
1,942,859 1,991,969
CHEMICAL/SPECIALTY MATERIALS -- 1.5%
39,400 Cytec Industries Inc.*<F5> 1,329,116 1,317,437
73,200 Rogers Corp.*<F5> 2,274,058 2,314,950
------------ ------------
3,603,174 3,632,387
COMMUNICATIONS EQUIPMENT -- 7.1%
152,540 ADC Telecommunications,
Inc.*<F5> 3,546,031 4,101,892
111,500 Andrew Corp.*<F5> 2,766,450 2,919,906
30,000 Anicom, Inc.*<F5> 154,063 3
30,000 Artesyn
Technologies, Inc.*<F5> 901,251 873,750
55,000 Channell
Commercial Corp.*<F5> 634,536 725,313
15,000 Concurrent
Computer Corp.*<F5> 217,266 285,000
47,500 Mitel Corp.*<F5> 755,776 973,750
27,000 Stamford
International Inc.*<F5> 369,307 124,875
28,000 Tekelec*<F5> 899,025 920,500
84,000 TESSCO Technologies
Inc.*<F5> 1,848,937 2,142,000
26,500 Tollgrade
Communications, Inc.*<F5> 1,701,577 3,678,531
37,600 Westell
Technologies, Inc.*<F5> 339,580 484,100
------------ ------------
14,133,799 17,229,620
COMMUNICATIONS SERVICES/CABLE -- 4.3%
20,000 ACTV, Inc.*<F5> 409,017 275,000
31,000 Adelphia Business
Solutions, Inc.*<F5> 415,587 366,187
48,248 Adelphia Communications
Corp.*<F5> 1,706,886 1,329,836
67,200 Arguss Communications,
Inc.*<F5> 1,174,418 1,373,400
40,000 Bell Canada
International Inc.*<F5> 728,813 865,000
128,600 Classic Communications,
Inc.*<F5> 1,224,054 651,037
20,000 Completel Europe N.V.*<F5> 220,000 142,500
26,500 CSG Systems
International, Inc.*<F5> 636,787 768,500
25,000 Insight Communications
Co., Inc.*<F5> 632,016 396,875
57,000 LCC International, Inc.*<F5> 1,331,370 826,500
35,000 Objective Systems
Integrators, Inc.*<F5> 451,800 304,063
85,000 Western Wireless Corp.*<F5> 4,035,522 3,028,125
------------ ------------
12,966,270 10,327,023
COMMUNICATIONS SERVICES/MEDIA -- 6.7%
47,000 Interwoven, Inc.*<F5> 2,197,220 5,313,937
140,500 Key3Media Group, Inc.*<F5> 498,728 1,536,719
34,500 LodgeNet
Entertainment Corp.*<F5> 565,497 996,187
112,500 Motient Corp.*<F5> 1,301,746 1,589,063
66,000 PRIMEDIA Inc.*<F5> 831,260 1,080,750
60,500 SignalSoft Corp.*<F5> 1,957,847 2,457,813
46,000 World Wrestling
Federation
Entertainment, Inc.*<F5> 708,500 698,625
321,000 Ziff-Davis Inc. Series ZD 2,985,726 2,608,125
------------ ------------
11,046,524 16,281,219
COMPUTERS & ELECTRONICS -- 14.5%
30,000 ACT Manufacturing, Inc.*<F5> 1,729,719 1,582,500
55,000 APW Ltd.*<F5> 2,435,717 2,681,250
39,000 Arrow Electronics, Inc.*<F5> 850,490 1,328,437
45,000 AVX Corp. 1,091,501 1,172,812
60,000 CTS Corp. 3,087,988 3,037,500
71,000 Daisytek International
Corp.*<F5> 603,250 448,188
188,000 General Semiconductor,
Inc.*<F5> 2,653,628 2,291,250
19,000 GenRad, Inc.*<F5> 306,231 209,000
25,150 Giga-tronics Inc.*<F5> 310,885 170,547
40,500 Molex Inc. 1,478,579 1,678,219
15,000 Sawtek Inc.*<F5> 676,875 577,734
55,250 SBE, Inc.*<F5> 800,683 587,031
116,000 Stratos Lightwave, Inc.*<F5> 4,556,167 3,741,000
42,400 Teledyne
Technologies Inc.*<F5> 525,307 1,234,900
98,200 Varian Inc.*<F5> 2,542,994 4,228,738
457,400 Viasystems Group, Inc.*<F5> 7,262,142 7,775,800
80,500 Vishay
Intertechnology, Inc.*<F5> 1,641,829 2,475,375
------------ ------------
32,553,985 35,220,281
CONSUMER PRODUCTS & RETAIL -- 5.2%
239,300 Retek Inc.*<F5> 7,100,695 12,682,900
DEFENSE -- 0.5%
92,400 Ladish Co, Inc.*<F5> 1,111,737 1,212,750
ENERGY/ENERGY SERVICES -- 15.1%
67,500 Atwood Oceanics, Inc.*<F5> 2,846,363 2,813,906
75,000 Chesapeake Energy
Corp.*<F5> 579,156 539,062
93,000 Coflexip SA ADR 5,776,439 5,789,250
45,760 Devon Energy Corp. 2,034,696 2,752,464
115,000 Grey Wolf, Inc.*<F5> 643,159 661,250
20,000 Hanover Compressor Co.*<F5> 680,876 658,750
25,000 Key Energy Services, Inc.*<F5> 270,838 245,312
83,000 Kinder Morgan, Inc. 3,069,713 3,397,813
85,000 Maverick Tube Corp.*<F5> 2,386,288 2,289,688
20,000 McMoRan Exploration Co.*<F5> 247,876 232,000
50,000 Newpark Resources, Inc.*<F5> 486,434 462,500
79,000 Noble Affiliates, Inc. 2,425,012 2,932,875
40,000 Offshore Logistics, Inc.*<F5> 717,500 715,000
95,000 Parker Drilling Co.*<F5> 649,313 665,000
239,250 Pride International, Inc.*<F5> 4,656,763 6,340,125
50,000 Remington Oil &
Gas Corp.*<F5> 364,687 521,875
6,000 The Shaw Group Inc.*<F5> 377,529 423,000
79,000 Valero Energy Corp. 2,277,991 2,779,813
70,000 Veritas DGC Inc.*<F5> 1,762,094 2,025,625
45,000 Willbros Group, Inc.*<F5> 317,200 292,500
------------ ------------
32,569,927 36,537,808
FINANCIAL SERVICES -- 8.7%
45,100 CNA Surety Corp. 597,570 518,650
57,000 Heller Financial, Inc. 1,201,510 1,628,063
106,900 HNC Software Inc.*<F5> 4,687,568 8,745,756
58,700 MGIC Investment Corp. 2,326,204 3,588,037
40,000 SAFECO Corp. 994,844 1,090,000
126,500 SunGard Data
Systems Inc.*<F5> 3,942,703 5,415,781
------------ ------------
13,750,399 20,986,287
HEALTH INDUSTRIES -- 5.7%
26,500 Covance Inc.*<F5> 336,228 216,969
25,000 Laboratory Corporation
of America Holdings*<F5> 2,276,712 2,993,750
23,500 Molecular Devices Corp.*<F5> 2,070,251 2,308,875
72,700 Quest Diagnostics Inc.*<F5> 4,714,420 8,342,325
------------ ------------
9,397,611 13,861,919
INDUSTRIAL & TRANSPORTATION PRODUCTS -- 1.6%
40,000 General Cable Corp. 385,188 302,500
19,500 Oshkosh Truck Corp. 524,500 755,625
56,200 Zebra Technologies Corp.*<F5> 2,656,803 2,701,113
------------ ------------
3,566,491 3,759,238
INDUSTRIAL SERVICES -- 3.6%
132,000 Republic Services, Inc.*<F5> 2,083,726 1,732,500
81,600 Robbins & Myers, Inc. 1,959,329 1,927,800
144,500 Tetra Tech, Inc.*<F5> 3,405,637 4,127,281
80,000 Washington Group
International, Inc.*<F5> 784,276 915,000
------------ ------------
8,232,968 8,702,581
INSURANCE -- 3.5%
27,600 CNA Financial Corp.*<F5> 1,054,063 1,055,700
142,000 Old Republic
International Corp. 3,023,415 3,416,875
51,700 PartnerRe Ltd. 2,134,260 2,452,519
59,000 UnumProvident Corp. 1,360,417 1,607,750
------------ ------------
7,572,155 8,532,844
SEMICONDUCTOR & RELATED -- 3.1%
16,000 Alpha Industries, Inc.*<F5> 621,661 545,000
40,000 ANADIGICS, Inc.*<F5> 1,127,750 885,000
231,000 Metron Technology N.V.*<F5> 2,782,065 1,848,000
158,000 MKS Instruments, Inc.*<F5> 4,749,566 4,325,250
------------ ------------
9,281,042 7,603,250
------------ ------------
Total common stocks 168,829,636 198,562,076
SHORT-TERM INVESTMENTS -- 17.6% (A)<F6>
VARIABLE RATE DEMAND NOTES -- 17.6%
$ 8,835,018 American Family
Financial Services 8,835,018 8,835,018
12,000,000 Firstar Bank U.S.A., N.A. 12,000,000 12,000,000
11,000,000 Sara Lee Corp. 11,000,000 11,000,000
4,400,000 Wisconsin Electric
Power Co. 4,400,000 4,400,000
6,400,000 Wisconsin Corporate
Central Credit Union 6,400,000 6,400,000
------------ ------------
Total variable rate
demand notes 42,635,018 42,635,018
------------ ------------
Total investments $211,464,654 241,197,094
------------
------------
Cash and receivables, less
liabilities -- 0.5% (A)<F6> 1,260,463
------------
NET ASSETS $242,457,557
------------
------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($242,457,557 / 6,655,994
shares outstanding) $36.43
------
------
*<F5> Non-income producing security.
(a)<F6> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2000
INCOME:
Dividends $ 1,075,741
Interest 734,658
-----------
Total income 1,810,399
-----------
EXPENSES:
Management fees 1,230,206
Administrative services 117,312
Registration fees 63,235
Custodian fees 41,133
Transfer agent fees 38,596
Professional fees 36,598
Printing and postage expenses 20,492
Amortization of organizational expenses 5,954
Board of Directors fees 1,400
Other expenses 5,917
-----------
Total operating expenses before interest expense 1,560,843
Interest expense 49,736
-----------
Total expenses 1,610,579
-----------
NET INVESTMENT INCOME 199,820
-----------
REALIZED GAINS AND (LOSSES) ON INVESTMENTS:
Net realized gain on securities $20,869,443
Net realized gain on options 49,686
-----------
NET REALIZED GAIN ON INVESTMENTS 20,919,129
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 23,650,659
-----------
NET GAIN ON INVESTMENTS 44,569,788
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $44,769,608
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2000 and 1999
<TABLE>
2000 1999
-------- --------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 199,820 $ (395,062)
Net realized gain on investments 20,919,129 4,586,177
Net increase in unrealized appreciation on investments 23,650,659 6,156,767
------------ -----------
Net increase in net assets resulting from operations 44,769,608 10,347,882
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($2.53337 and $0.61821 per share, respectively) (4,277,241)*<F7> (794,289)
------------ -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (5,774,572 and 797,147 shares, respectively) 194,365,258 15,195,513
Net asset value of shares issued in distributions (220,843 and 42,878
shares, respectively) 4,103,266 683,037
Cost of shares redeemed (1,017,203 and 433,982 shares, respectively) (32,673,526) (8,525,659)
------------ -----------
Net increase in net assets derived from Fund share activities 165,794,998 7,352,891
------------ -----------
TOTAL INCREASE 206,287,365 16,906,484
NET ASSETS AT THE BEGINNING OF THE YEAR 36,170,192 19,263,708
------------ -----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income of $204,286 and $0, respectively) $242,457,557 $36,170,192
------------ -----------
------------ -----------
</TABLE>
*<F7> See Note 9.
The accompanying notes to financial statements are an integral part of these
statements.
FMI Focus Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
YEARS ENDED SEPTEMBER 30, FOR THE PERIOD FROM
---------------------------------- DECEMBER 16, 1996+<F8> TO
2000 1999 1998 SEPTEMBER 30, 1997
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $21.56 $15.15 $14.74 $10.00
Income from investment operations:
Net investment income (loss) (a)<F11> 0.06 (0.18) (0.17) (0.04)
Net realized and unrealized gains on investments 17.34 7.21 1.06 6.69
------ ------ ------ ------
Total from investment operations 17.40 7.03 0.89 6.65
Less distributions:
Dividend from net investment income -- -- -- (0.01)
Distributions from net realized gains (2.53) (0.62) (0.48) (1.90)
------ ------ ------ ------
Total from distributions (2.53) (0.62) (0.48) (1.91)
------ ------ ------ ------
Net asset value, end of period $36.43 $21.56 $15.15 $14.74
------ ------ ------ ------
------ ------ ------ ------
TOTAL INVESTMENT RETURN 92.0% 47.9% 6.2% 68.0%*<F9>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 242,458 36,170 19,264 5,156
Ratio of operating expenses before interest
expense and dividends on shorts (after
reimbursement) to average net assets (b)<F12> 1.59% 1.81% 2.34% 2.75%**<F10>
Ratio of interest expense and dividends on short
positions to average net assets 0.05% 0.16% 0.33% 0.17%**<F10>
Ratio of net investment income (loss)
to average net assets (c)<F13> 0.20% (1.28%) (1.94%) (1.85%)**<F10>
Portfolio turnover rate 198.7% 238.8% 402.2% 298.2%
</TABLE>
+<F8> Commencement of operations.
*<F9> Not annualized.
**<F10> Annualized.
(a)<F11> Net investment income (loss) before interest expense and dividends
on short positions for the years ended September 30, 2000, 1999 and
1998 and for the period ended September 30, 1997 was $0.08,
($0.16), ($0.14) and ($0.04), respectively. In 2000, net
investment income per share was calculated using average shares
outstanding. In 1999 and 1998, net investment loss per share is
calculated using ending balances prior to consideration of
adjustments for permanent book and tax differences.
(b)<F12> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the
period ended September 30, 1997, the ratio would have been
6.38%**<F10>.
(c)<F13> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the
period ended September 30, 1997, the ratio would have been
(5.48%)**<F10>.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
FMI Focus Fund (the "Fund"), a portfolio of FMI Funds, Inc. (the "Company")
which is registered as a non-diversified, open-end management investment
company under the Investment Company Act of 1940. The Company was
incorporated under the laws of Maryland on September 5, 1996 and the Fund
commenced operations on December 16, 1996. The investment objective of the
Fund is to seek capital appreciation principally through investing in
common stocks and warrants, engaging in short sales, investing in foreign
securities and effecting transactions in stock index futures contracts,
options on stock index futures contracts, and options on securities and
stock indexes.
(a) 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 (securities with
maturities of 60 days or less) are valued at amortized cost which
approximates quoted market value. For financial reporting purposes,
investment transactions are recorded on trade date. Cost amounts, as
reported on the statement of net assets, are substantially the same
for Federal income tax purposes.
(b) Net realized gains and losses on common stock are computed on the
identified cost basis.
(c) 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 its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies.
(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 the Fund does not anticipate
nonperformance by these counterparties.
(f) Generally accepted accounting principles 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 generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
(h) The Fund may sell securities short. For financial statement purposes,
an amount equal to the settlement amount would be included in the
statement of net assets as a liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the
short position. Subsequent fluctuations in the market prices of
securities sold, but not yet purchased, may require purchasing the
securities at prices which may differ from the market value reflected
on the statement of net assets. The Fund is liable for any dividends
payable on securities while those securities are in a short position.
Under the 1940 Act, the Fund is required to maintain collateral for
its short positions consisting of liquid securities. The collateral is
required to be adjusted daily to reflect changes in the value of the
securities sold short.
The Fund may write covered call options and purchase put options that
are traded on recognized U.S. exchanges and enter into closing
transactions with respect to such options. The Fund may enter into
option transactions for hedging purposes, and will not use these
instruments for speculation.
For the year ended September 30, 2000, the Fund had the following
transactions in written covered call options:
NUMBER OF CONTRACTS PREMIUM AMOUNT
------------------- --------------
Balance at September 30, 1999 -- --
Options opened (Westell Inc. 8/00) 100 $ 52,194
Options expired (Westell Inc. 8/00) 100 (52,194)
Options closed -- --
--- --------
Balance at September 30, 2000 -- --
--- --------
--- --------
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Fund has a management agreement with Fiduciary Management, Inc.
("FMI"), with whom certain officers and directors of the Fund are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreement, the Fund paid FMI a monthly management fee of 1.25% of the
daily net assets. The Fund has an administrative agreement with FMI to
supervise all aspects of the Fund's operations FMI Focus Fund except those
performed by FMI pursuant to the management agreement. Under the terms of
the agreement, the Fund pays FMI a monthly administrative fee at the annual
rate of 0.2% of the daily net assets up to and including $30,000,000, 0.1%
on the next $70,000,000 and 0.05% of the daily net assets of the Fund in
excess of $100,000,000.
Under the management agreement, FMI will reimburse the Fund for
expenses over 2.75% of the daily net assets of the Fund. No such
reimbursements were required for the year ended September 30, 2000.
(3) CREDIT FACILITY --
Firstar Bank, N.A. had made available to the Fund a credit facility
pursuant to a Credit Agreement ("Agreement") dated August 21, 1997
(subsequently amended) for the purpose of purchasing portfolio securities.
Principal and interest of each loan under the Agreement were due not more
than 90 days after the date of the loan. Amounts under the credit facility
bore interest at a rate per annum equal to the current prime rate on the
amount borrowed. Additionally, the Fund paid a commitment fee of 0.25% of
the commitment and an unused line fee of 0.25% of the unused amount of the
facility. Advances were collateralized by securities owned by the Fund.
During the year ended September 30, 2000, the Fund had an outstanding
average daily balance of $506,615 under the Agreement. The maximum amount
outstanding during that period was $3,000,000. Interest expense amounted
to $49,736 for the year ended September 30, 2000. At September 30, 2000,
the Fund no longer had an Agreement.
(4) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed
to shareholders. On October 30, 2000, the Fund will distribute $204,286
from net investment income ($0.028373 per share), $15,839,207 from net
short-term realized gains ($2.19987 per share) and $9,387,235 from net
long-term realized gains ($1.30377 per share). The distributions were
declared on October 27, 2000 to shareholders of record on October 26, 2000.
(5) DEFERRED EXPENSES --
Organizational expenses were deferred and are being amortized on a
straight-line basis over a period of five years beginning with the date of
sales of shares to the public. These expenses were advanced by the Adviser
who will be reimbursed by the Fund over a period of five years. The
proceeds of any redemption of the initial shares by the original
shareholder will be reduced by a pro-rata portion of any then unamortized
deferred expenses in the same proportion as the number of initial shares
being redeemed bears to the number of initial shares outstanding at the
time of such redemption. The unamortized organizational expenses at
September 30, 2000 were $7,441.
(6) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2000, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$296,315,137 and $178,033,294, respectively.
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2000, liabilities of the Fund included the
following:
Payable to brokers for securities purchased $ 11,091,380
Payable to FMI for management, administrative
fees and deferred expenses 255,799
Payable to shareholders for redemptions 73,218
Other liabilities 49,460
(8) SOURCES OF NET ASSETS --
As of September 30, 2000, the sources of net assets were as follows:
Fund shares issued and outstanding $192,278,502
Net unrealized appreciation on investments 29,732,440
Undistributed net investment income 204,286
Accumulated net realized gains on
investments and put options 20,242,329
------------
$242,457,557
------------
------------
Aggregate net unrealized appreciation as of September 30, 2000,
consisted of the following:
Aggregate gross unrealized appreciation $ 40,585,743
Aggregate gross unrealized depreciation (10,853,303)
------------
Net unrealized appreciation $ 29,732,440
------------
------------
(9) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 2000, shareholders received information regarding all
distributions paid to them by the Fund during the fiscal year ended
September 30, 2000. The Fund hereby designates the following amount as
long-term capital gains distributions.
Capital gains taxed at 20% $ 78,513
The percentage of ordinary income which is eligible for the corporate
dividend received deduction for the fiscal year ended
September 30, 2000 was 4%.
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.
425 Walnut Street
Cincinnati, Ohio 45202
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.
