SEMIANNUAL REPORT
MARCH 31, 2000
FMI
Focus Fund
A NO-LOAD
MUTUAL FUND
FMI Focus Fund
MAY 18, 2000
THE VALUE OF A $10,000 INVESTMENT IN THE FMI FOCUS FUND FROM ITS INCEPTION
(12/16/96) TO 3/31/00 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
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
RESULTS FROM FUND INCEPTION (12/16/96) THROUGH 3/31/00
Annualized
Total Return*<F1>
Total Return*<F1> Through 3/31/00
Total Return*<F1> For the Year From Fund
Last 3 Months Ended 3/31/00 Inception 12/16/96
- -------------------------------------------------------------------------------
FMI Focus Fund 28.6% 104.6% 59.7%
Standard & Poor's 500 2.3% 17.9% 26.8%
Russell 2000 7.1% 37.3% 15.4%
*<F1> Total return includes change in share prices and in each case includes
reinvestments of any dividends, interest and capital gain distributions.
Dear Fellow Shareholder:
The FMI Focus Fund gained 28.6% for the three months ending March 31, 2000
and 77.0% for the first six months of our fiscal year. These results compare
favorably to benchmark indices:
3 MOS. ENDING 6 MOS. ENDING
3/31/00 3/31/00
------------- -------------
S&P 500 2.3% 17.5%
S&P Mid-Cap 400 12.7% 32.1%
S&P SmallCap 600 5.8% 18.9%
We are proud of our relative performance, but do not have time to celebrate
because of the recent sharp sell-off in the market, especially technology
stocks. Some of you have called us to express your bear market
scenarios/concerns. Although we are not technicians, it is safe to state that
the stock market has not shown much direction in April. Rising interest rates,
a lack of liquidity, and lofty valuations have put downward pressure on the
indexes. A few trading days reminded us of Chicken Little, a classic childrens
--------------
story. Chicken Little ran to warn the King and everyone she met along the way:
"The sky is falling!! The sky is falling!!" after being struck in the head by an
acorn. The wise King discovered the acorn in Chicken Little's tail feathers and
everyone enjoyed a good laugh. The moral of the story is don't jump to
conclusions. Well, a similar situation occurred in the stock market. We heard
the following cries: "Interest rates are rising!! Interest rates are rising!!
Abby Joseph Cohen said to underweight tech stocks!! The market is crashing!!"
We understand these concerns and incorporate them into our decision making
process. Meanwhile, the domestic economy is chugging along while European,
Japanese, and Latin American economies are recovering/improving. This set a
backdrop for impressive first quarter earnings. Our investment focus is to
discover solid business models with positive underlying fundamentals, not on
macroeconomics. Inflation is a near term issue, but how exactly can inflation
be measured given technology related productivity gains and global competitive
pressures. We don't know the answer. However, we do like investing in
industries that are experiencing unit volume growth and improved pricing due to
supply/demand imbalances, and one such industry is electronics.
Vishay Intertechnology, Inc., is a leading manufacturer of passive electronic
components and discreet semiconductors. Passive electronic components
(capacitors, resistors, and magnetics) reduce electrical currents, store
electric energy, or filter frequencies. Increasing demand of these products are
being driven by the explosive growth of cell phones and other wireless devices,
as well as increased electronic content in laptop computer, automotive,
consumer, medical, and military markets. In 1998, management made a smart
strategic decision to add active devices (diodes, transistors, and integrated
circuits) to its product mix. Actives amplify electrical currents, convert
currents, or switch electronic and optical signals. In effect, Vishay has
become a "one-stop shop" for its customer base and dampened the cyclicality of
its business. Business has been booming due to excellent supply/demand
dynamics. On the supply side, industry capacity has been flat to down since the
dramatic overbuild of the last semiconductor cycle. Therefore, average pricing
which usually trends lower on an annual basis is actually on the rise while unit
demand is growing. The company recently pre-announced two positive earnings
surprises for the first quarter and still handily beat the consensus estimates.
General Semiconductor and Arrow Electronics are two more well-managed electronic
component companies experiencing similar fundamentals.
Tollgrade Communications Inc. is a classic FMI Focus Fund type holding. The
Company's core MCU (metallic channel unit) product enables Regional Bell
Operating Companies to use test systems that were originally designed for
copper-based networks to test over digital loop carrier systems networks that
are both copper and fiber optic based. Management has done a great job of
leveraging its core competency in order to develop two solutions for different
markets. Lighthouse, a cable status monitoring system, is designed to help
cable operators better manage their coaxial cable networks. Digitest is a next
generation test system that conducts local loop prequalification for deployment
of Digital Subscriber Loop (DSL) technology. Tollgrade has been in our
portfolio since it came public, and now the business is really cooking.
Chairman and CEO Chris Allison and his team have done a great job of executing
on the growth initiatives of their organization and Chris is a prime candidate
for this year's 5-Star Award (see last quarter's shareholder letter).
Interestingly enough and hard to believe, not every "winner" in the portfolio
was technology-related. Quest Diagnostics Inc. provides diagnostic testing,
information and services to doctors, hospitals, managed care organizations,
employers and government agencies. The Company nearly doubled in size last year
when it acquired the clinical labs division of Smithkline Beecham PLC. We met
with the management team, led by Ken Freeman, shortly after the transaction.
They put together a plan to reduce costs and did a terrific job of working down
expenses and repricing contracts. Volume has picked up over the last few
quarters because of the increased need for diagnostic testing as the population
ages and as an increased emphasis is placed on "prevention." Although, the
growth in earnings over the next three years is enough of a catalyst to make the
stock appreciate, we believe that the Company's clinical lab database could be
worth more than the current testing business.
A RECENT ADDITION
MGIC Investment Corp., affectionately known as "Magic", is a recent addition
to the portfolio. In our opinion, this has been and continues to be one of the
best managed publicly held companies. We made a lot of money in 1997, the last
time we owned the stock. Rick used to cover Magic and the industry when he was
a sell-side analyst at Cleary, Gull, Reiland and McDevitt (aka Tucker Anthony
Sutro). MGIC is the market share leader in private mortgage insurance (PMI).
PMI is typically required by a lender when a prospective homeowner buys a house
with less than a 20% down payment. The insurance protects the lender. This
industry has facilitated the first-time home buyer in the United States and it
can be arguably stated that it has been a major element/factor in why the home
ownership rates are so much higher in the U.S. than most other countries.
Simply put, PMI increases affordability for first-time home buyers. Altruism
aside, we came back to MGIC because the stock fell to absurdly low levels (in
the low 30s). At that price, MGIC was selling at 5.75 times next years earnings
which is pretty attractive for a firm that typically has visibility on over 80%
of its revenue in advance (renewal premium and investment income). The stock
has since recovered to the mid-to-high 40s and certainly helped this quarter.
The MGIC investment is a good example of one our strengths: maintain a watch
or wish list of well-managed companies and pounce on them when the market gives
us chances. For more information about your mutual fund enclosed is a recent
article from Mutual Funds Magazine. The recognition is great but in this
---------------------
volatile market there is no time to rest. As always, Hang in There!!
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
March 31, 2000 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
------ ---- -----
COMMON STOCKS -- 84.1% (A)<F3>
BANKS -- 1.3%
17,500 AMCORE Financial, Inc. $ 360,677 $ 312,813
36,200 Blackhawk Bancorp, Inc. 526,556 325,800
26,000 FirstMerit Corp. 417,188 479,375
----------- -----------
1,304,421 1,117,988
CHEMICAL/SPECIALTY MATERIALS -- 1.5%
49,500 Georgia Gulf Corp. 815,039 1,287,000
COMMUNICATIONS EQUIPMENT -- 15.3%
26,948 ADC Telecommunications,
Inc.*<F2> 247,901 1,451,823
44,000 Andrew Corp.*<F2> 797,874 1,006,500
30,000 Arguss Holdings, Inc.*<F2> 515,430 671,250
24,000 Channell Commercial Corp.*<F2> 250,878 330,000
8,000 Osicom Technologies, Inc.*<F2> 1,044,177 898,000
104,000 PairGain Technologies, Inc.*<F2> 1,903,188 1,943,500
21,000 Scientific-Atlanta, Inc. 604,795 1,332,188
30,000 Stamford International Inc. 469,988 517,500
78,000 Tollgrade Communications
Inc.*<F2> 811,304 4,134,000
15,000 Wegener Corp.*<F2> 68,990 89,063
39,600 Westell Technologies, Inc.*<F2> 357,875 1,262,250
----------- -----------
7,072,400 13,636,074
COMMUNICATIONS SERVICES/CABLE -- 14.1%
30,000 ACTV, Inc.*<F2. 709,017 1,051,875
39,348 Adelphia Communications
Corp.*<F2> 1,871,532 1,928,052
33,500 Adelphia Business
Solutions, Inc.*<F2> 625,629 2,064,437
18,350 Allied Riser
Communications Corp.*<F2> 356,885 637,662
25,000 Bell Canada International
Inc.*<F2> 324,688 718,750
21,500 Classic Communications,
Inc.*<F2> 587,522 338,625
31,000 CSG Systems International,
Inc.*<F2> 750,487 1,513,188
10,000 ICG Communications, Inc.*<F2> 172,917 361,250
25,000 Insight Communications
Co., Inc.*<F2> 632,016 515,625
17,000 MasTec, Inc.*<F2> 504,831 1,513,000
14,694 VoiceStream Wireless Corp.*<F2> 954,698 1,892,771
----------- -----------
7,490,222 12,535,235
COMMUNICATIONS SERVICES/MEDIA -- 8.1%
34,500 LodgeNet Entertainment
Corp.*<F2> 565,497 692,156
20,000 Objective Systems
Integrators, Inc.*<F2> 303,750 303,750
2,000 Playboy Enterprises,
Inc. Cl B*<F2> 45,408 39,750
101,000 PRIMEDIA Inc.*<F2> 1,352,719 3,232,000
15,000 StarMedia Network, Inc.*<F2> 547,650 450,938
20,000 True North
Communications, Inc. 733,501 786,250
47,000 World Wrestling Federation
Entertainment, Inc.*<F2> 738,125 833,512
56,000 Ziff-Davis Inc. Series ZD*<F2> 893,046 875,000
----------- -----------
5,179,696 7,213,356
COMPUTERS & ELECTRONICS -- 18.1%
29,000 Arrow Electronics, Inc.*<F2> 365,159 1,022,250
500 ArrowPoint
Communications, Inc.*<F2> 17,000 59,242
60,000 Daisytek International
Corp.*<F2> 1,054,756 948,750
40,000 General Semiconductor,
Inc.*<F2> 342,662 690,000
19,000 GenRad, Inc.*<F2> 306,231 235,125
14,000 Giga-tronics Inc.*<F2> 193,122 156,625
30,000 Mentor Graphics Corp.*<F2> 384,375 453,750
10,000 Metron Technology N.V.*<F2> 229,562 210,000
12,500 MicroTouch Systems, Inc.*<F2> 143,625 160,156
20,000 Mitel Corp.*<F2> 163,700 491,250
36,500 MKS Instruments, Inc.*<F2> 988,365 1,843,250
24,500 Rogers Corp.*<F2> 1,498,008 1,537,375
12,000 Sawtek Inc.*<F2> 684,500 630,750
25,250 SBE, Inc.*<F2> 340,313 391,375
25,000 Teledyne Technologies Inc.*<F2> 237,583 434,375
58,000 Varian Inc.*<F2> 1,156,072 2,225,750
100,000 Viasystems Group, Inc.*<F2> 1,730,796 1,550,000
36,250 Vishay Intertechnology,
Inc.*<F2> 536,988 2,016,406
20,200 Zebra Technologies Corp.*<F2> 938,463 1,010,000
----------- -----------
11,311,280 16,066,429
CONSUMER PRODUCTS & RETAIL -- 0.4%
15,000 Ross Stores, Inc. 282,187 360,937
CONSUMER SERVICES -- 1.1%
23,200 Retek Inc.*<F2> 1,171,259 955,550
ENERGY/ENERGY SERVICES -- 6.0%
15,000 Burlington Resources Inc. 443,400 555,000
39,000 Noble Affiliates, Inc. 945,780 1,279,688
76,250 Pride International, Inc.*<F2> 834,358 1,739,453
103,000 Santa Fe Snyder Corp.*<F2> 763,397 991,375
24,000 Valero Energy Corp. 626,816 735,000
----------- -----------
3,613,751 5,300,516
FINANCIAL SERVICES -- 9.3%
45,100 CNA Surety Corp. 597,570 628,581
43,000 Heller Financial, Inc. 892,218 994,375
34,900 HNC Software Inc.*<F2> 1,911,758 2,514,981
49,700 MGIC Investment Corp. 1,796,453 2,168,162
25,000 Protective Life Corp. 639,000 793,750
31,500 SunGard Data Systems Inc. 828,296 1,189,125
----------- -----------
6,665,295 8,288,974
HEALTH INDUSTRIES -- 3.6%
41,100 Advanced Neuromodulation
Systems, Inc.*<F2> 636,619 780,900
19,000 Covance Inc.*<F2> 264,528 204,250
55,000 Quest Diagnostics Inc.*<F2> 1,502,708 2,186,250
----------- -----------
2,403,855 3,171,400
INDUSTRIAL & TRANSPORTATION PRODUCTS -- 3.1%
15,500 Dura Automotive
Systems, Inc.*<F2> 350,516 266,406
63,000 The Manitowoc
Company, Inc. 1,636,323 1,704,938
25,000 Oshkosh Truck Corp. 660,281 776,563
----------- -----------
2,647,120 2,747,907
INDUSTRIAL SERVICES -- 1.1%
30,000 Morrison Knudsen Corp.*<F2> 241,800 221,250
22,000 Republic Services, Inc.*<F2> 366,977 240,625
22,000 Tetra Tech, Inc.*<F2> 330,188 522,500
----------- -----------
938,965 984,375
PRINTING/PUBLISHING/FORMS -- 0.7%
33,000 ImageX.com, Inc.*<F2> 844,125 664,125
SOFTWARE/SERVICE -- 0.4%
40,000 Sideware Systems, Inc.*<F2> 379,106 395,000
----------- -----------
Total common stocks 52,118,721 74,724,866
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 13.6% (A)<F3>
VARIABLE RATE DEMAND NOTES
$4,000,000 American Family Financial
Services $ 4,000,000 $ 4,000,000
4,000,000 Firstar Bank U.S.A., N.A. 4,000,000 4,000,000
134,291 Warner-Lambert Co. 134,291 134,291
4,000,000 Wisconsin Corporate Central
Credit Union 4,000,000 4,000,000
----------- -----------
Total short-term
investments 12,134,291 12,134,291
----------- -----------
Total investments $64,253,012 86,859,157
-----------
-----------
Cash and receivables, less
liabilities -- 2.3%(A)<F3> 2,037,259
-----------
NET ASSETS $88,896,416
-----------
-----------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($88,896,416 / 2,646,496
shares outstanding) $33.59
------
------
*<F2> Non-income producing security.
(a)<F3> Percentages for the various classifications relate to net assets.
(b)<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.
For the period ending March 31, 2000, the FMI Focus Fund has expired
the following call options:
# OF (B)<F4>
CONTRACTS COST
--------- ----
Balance at January 1, 2000 11 $2,508
Options written -- --
Options exercised -- --
Options expired (11) (2,508)
Options closed -- --
--- ------
Balance at March 31, 2000 0 $ 0
--- ------
--- ------
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
STATEMENT OF OPERATIONS
For the Period Ending March 31, 2000 (Unaudited)
INCOME:
Dividends $ 86,122
Interest 39,477
-----------
Total income 125,599
-----------
EXPENSES:
Management fees 347,372
Administrative services 42,789
Registration fees 15,285
Professional fees 14,311
Custodian fees 14,224
Printing and postage expenses 9,832
Transfer agent fees 9,817
Amortization of organizational expenses 2,977
Board of Directors fees 700
Other expenses 1,480
-----------
Total operating expenses before interest expense 458,787
Interest expense 44,258
-----------
Total expenses 503,045
-----------
NET INVESTMENT LOSS (377,446)
-----------
REALIZED GAINS AND (LOSSES) ON INVESTMENTS:
Net realized gain on securities $14,612,955
Net realized loss on put options (2,508)
-----------
NET REALIZED GAIN ON INVESTMENTS 14,610,447
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 16,524,364
-----------
NET GAIN ON INVESTMENTS 31,134,811
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $30,757,365
-----------
-----------
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending March 31, 2000 (Unaudited) and For the Year Ended
September 30, 1999
2000 1999
----------- -----------
OPERATIONS:
Net investment loss $ (377,446) $ (395,062)
Net realized gain on investments 14,610,447 4,586,177
Net increase in unrealized appreciation
on investments 16,524,364 6,156,767
----------- -----------
Net increase in net assets resulting
from operations 30,757,365 10,347,882
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains
($2.53337 and $0.61821 per share,
respectively) (4,277,241) (794,289)*<F5>
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (995,360 and
797,147 shares, respectively) 28,461,421 15,195,513
Net asset value of shares issued in
distributions (220,843 and 42,878
shares, respectively) 4,103,265 683,037
Cost of shares redeemed (247,489 and
433,982 shares, respectively) (6,318,586) (8,525,659)
----------- -----------
Net increase in net assets derived
from Fund share activities 26,246,100 7,352,891
----------- -----------
TOTAL INCREASE 52,726,224 16,906,484
NET ASSETS AT THE BEGINNING OF THE PERIOD 36,170,192 19,263,708
----------- -----------
NET ASSETS AT THE END OF THE PERIOD $88,896,416 $36,170,192
----------- -----------
----------- -----------
*<F5> 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>
(UNAUDITED) YEARS ENDED SEPTEMBER 30, FOR THE PERIOD FROM
FOR THE PERIOD ENDING ------------------------- DECEMBER 16, 1996+<F6> TO
MARCH 31, 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 loss (a)<F9> (0.18) (0.18) (0.17) (0.04)
Net realized and unrealized gains on investments 14.74 7.21 1.06 6.69
------- ------- ------- -------
Total from investment operations 14.56 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 $ 33.59 $ 21.56 $ 15.15 $ 14.74
------- ------- ------- -------
------- ------- ------- -------
TOTAL INVESTMENT RETURN 77.0%*<F7> 47.9% 6.2% 68.0%*<F7>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 88,896 36,170 19,264 5,156
Ratio of operating expenses before interest expense
and dividends on shorts (after reimbursement)
to average net assets (b)<F10> 1.65%**<F8> 1.81% 2.34% 2.75%**<F8>
Ratio of interest expense and dividends on short
positions to average net assets 0.16%**<F8> 0.16% 0.33% 0.17%**<F8>
Ratio of net investment loss to average
net assets (c)<F11> (1.36%)**<F8> (1.28%) (1.94%) (1.85%)**<F8>
Portfolio turnover rate 124.4% 238.8% 402.2% 298.2%
</TABLE>
+<F6> Commencement of operations.
*<F7> Not annualized.
**<F8> Annualized.
(a)<F9> Net investment loss before interest expense and dividends on short
positions for the period ending March 31, 2000, and for the years
ended September 30, 1999 and 1998 and for the period ended
September 30, 1997 was ($0.16), ($0.16), ($0.14) and ($0.04),
respectively. In 2000, net investment loss 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)<F10> 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%**<F8>.
(c)<F11> 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%)**<F8>.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
NOTES TO FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
(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 schedule of investments, 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 Assets and Liabilities 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 Assets and Liabilities. The Fund
is liable for any dividends payable on securities while those
securities are in a short position. As collateral for its short
positions, the Fund is required under the 1940 Act to maintain
segregated assets consisting of liquid securities. The collateral is
required to be adjusted daily to reflect changes in the value of the
securities sold short. There were no short positions in the Fund
during the period ending March 31, 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 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 period ending March 31, 2000.
(3) CREDIT FACILITY --
Firstar Bank, NA has made available to the Fund a $1,000,000 credit
facility pursuant to a Credit Agreement ("Agreement") dated August 21, 1997
(subsequently amended) for the purpose of purchasing portfolio securities.
The Agreement is renewed annually. Principal and interest of each loan
under the Agreement are due not more than 90 days after the date of the
loan. Amounts under the credit facility bear interest at a rate per annum
equal to the prime rate (9.00% on March 31, 2000) on the amount borrowed.
Additionally, the Fund pays 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
are collateralized by securities owned by the Fund. During the period
ending March 31, 2000, the Fund had an outstanding average daily balance of
$899,727 under the Agreement. The maximum amount outstanding during that
period was $3,000,000. Interest expense amounted to $44,258 for the period
ending March 31, 2000. At March 31, 2000, the Fund had no borrowings
outstanding under the Agreement.
(4) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed
to shareholders.
(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, 1999 were $10,418.
(6) INVESTMENT TRANSACTIONS --
For the period ending March 31, 2000, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$75,180,747 and $67,301,144, respectively.
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of March 31, 2000, liabilities of the Fund included the following:
Loan payable $ --
Payable to brokers for securities purchased 5,263,298
Payable to FMI for management, administrative
fees and deferred expenses 109,726
Interest payable on loan payable 6,922
Other liabilities 26,915
(8) SOURCES OF NET ASSETS --
As of March 31, 2000, the sources of net assets were as follows:
Fund shares issued and outstanding $52,734,070
Net unrealized appreciation on investments 22,606,145
Accumulated net realized gains on investments
and put options 13,556,201
-----------
$88,896,416
-----------
-----------
Aggregate net unrealized appreciation as of March 31, 2000, consisted
of the following:
Aggregate gross unrealized appreciation $25,548,603
Aggregate gross unrealized depreciation (2,942,458)
-----------
Net unrealized appreciation $22,606,145
-----------
-----------
(9) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 1999, shareholders received information regarding all
distributions paid to them by the Fund during the fiscal year ended
September 30, 1999. The Fund hereby designates the following amount as
long-term capital gains distributions.
Capital gains taxed at 20% $ 24,296
The percentage of ordinary income which is eligible for the corporate
dividend received deduction for the fiscal year ended
September 30, 1999 was 8%.
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, 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.
