UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
811-03235
FMI Common Stock Fund, Inc.
---------------------------
(Exact name of registrant as specified in charter)
225 East Mason Street
Milwaukee, WI 53202
--------------------
(Address of principal executive offices) (Zip code)
Ted D. Kellner
Fiduciary Management, Inc.
225 East Mason Street
Milwaukee, WI 53202
--------------------
(Name and address of agent for service)
(414) 226-4555
--------------
Registrant's telephone number, including area code:
Date of fiscal year end: 09/30/2003
Date of reporting period: 09/30/2003
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
ANNUAL REPORT
SEPTEMBER 30, 2003
FMI
Common Stock
Fund, Inc.
A NO-LOAD
MUTUAL FUND
FMI
Common Stock
Fund, Inc.
October 1, 2003
Dear Fellow Shareholders,
The FMI Common Stock Fund advanced 2.2% in the September quarter compared to
9.1% for the benchmark Russell 2000. The exceptionally strong performance of
the Russell 2000 has been the story all year, as it has been driven by the so-
called "high beta" stocks, which typically are the most speculative. The July
shareholder letter addressed this phenomenon in some detail and there isn't much
we can add to this commentary other than to remind our fellow shareholders that
stock prices and fundamentals can diverge widely in the short run but eventually
come together. No one can predict the timing, but the notion that it is
possible to ride a speculative wave and get off before the crash is dangerous.
Richard Bernstein, Merrill Lynch's Chief Strategist, recently related the
findings of Dr. Vernon Smith, the 2002 Nobel Prize winner in Economics. Dr.
Smith is best known for his work in experimental economics related to investment
bubbles. Even after experiencing a bubble (and crash) in the first round of
trading, participants in his studies consistently produced another bubble
(albeit smaller) and subsequent crash. When asked why they took part in the
second bubble, their responses were uniform in that they thought they could make
money in the rally, yet get out in time to avoid the crash.
Since many consultants use the Russell 2000 as a benchmark for the FMI Common
Stock Fund, we thought it would be instructive to take you inside this Index.
As a preface, however, we hasten to state that our investment strategy is to
seek durable business franchises trading at a significant discount to their
intrinsic value. We broadly diversify the Fund to gain exposure to major
economic sectors and industries. We pay little attention to the Russell 2000,
despite it being generally considered our benchmark. Although the cumulative
22-year return of the FMI Common Stock Fund vastly exceeds the Russell 2000, we
have lagged the benchmark by as much as 15 percentage points (1999) and have
outpaced it by as many as 22 percentage points (2000). No one could accuse us of
being closet indexers! So far this year FMI Common Stock Fund has been a
laggard.
By way of background, the Frank Russell Company sets the Russell 2000
constituents in May of each year, with the actual reconstitution taking place on
June 30. Without getting into the nitty-gritty details, roughly speaking, the
1000 largest market capitalization stocks become the Russell 1000, and the next
2000 largest become the Russell 2000. All the Russell indices are market
capitalization weighted, meaning the larger capitalization stocks carry
proportionately more weight. Thus, today, Gateway, the largest company in the
Russell 2000 at $1.8 billion in market capitalization, has 36 times the weight
of Oneida, the smallest, at approximately $50 million.
Since anyone can buy an index fund that approximately tracks the Russell
2000, what exactly do you get for your money? Following is a table outlining
some relevant characteristics of the Russell 2000 at the beginning of the
calendar year, and at September 30.
P/E EV/EBITDA*<F1> P/B ROIC
--- -------------- --- ----
12/31/02 <negative> 12.2 1.7 3.5%
09/30/03 <negative> 15.0 2.3 3.5%
Source: Factset, Compustat
*<F1> EV= Enterprise value (total equity market cap plus net debt)
EBITDA= Earnings before interest, taxes, depreciation and amortization
The cumulative trailing twelve months net income for the Russell 2000 was
negative at year-end 2002 and at September 30, 2003. These are based on GAAP
reported earnings. Some analysts use "operating" earnings, which we've come to
describe as "earnings before bad stuff." Even on this basis, the Russell 2000
P/E was approximately 26 at the start of the year and is currently about 33. At
year-end 2002, there were 682 companies in the Russell 2000 that were losing
money; today there are 523. The return on invested capital (ROIC) was a very low
3.5%, well below the true cost of capital. The irony is that the Russell 2000,
when viewed as a stock, looked expensive and unappealing at the beginning of the
year, yet it outperformed the FMI Common Stock Fund through September 30, 2003.
As investors, one must always look into the future, and while it is conceivable
that investors have correctly anticipated a dramatic rebound in the fortunes of
the Russell 2000 constituents, the price of this bet today appears to be
enormously high.
The Fund, on the other hand, trades at a much more reasonable level and has a
more attractive fundamental profile. To wit, the P/E of the Fund is 16.5 times
trailing 12 months earnings. It is 7.7 times trailing EV/EBITDA and 2.0 times
book value. The ROIC is 10%. Thus, despite the frustration that always comes
from lagging a benchmark, even for a short period of time, there is comfort in
knowing we would much rather own the Fund than the Russell 2000!
As is customary in our October letters, we will review a few FMI Common Stock
Fund holdings. All four of the stocks listed below were added to the Fund this
year, and in the case of BISYS, the weighting was recently increased in response
to a sharp decline in the stock.
ALBANY INTERNATIONAL CORP.
DESCRIPTION:
- ------------
Albany International is the world's leading designer, manufacturer, and
marketer of paper machine clothing (PMC) for each section of the paper machine.
PMC consists of large continuous belts of custom-designed and custom-
manufactured, engineered fabrics that are installed on paper machines and carry
the paper stock through each stage of the paper production process. PMC is
custom-designed for each user depending on the type, size, and speed of the
paper machine, the machine section, the grade of paper being produced, and the
quality of the pulp stock used.
GOOD BUSINESS:
- --------------
o Albany is the global leader in PMC, a niche market. This is the result
of its ongoing technological innovation and fostering of customer
relationships. New products introduced within the last five years
accounted for approximately 50% of sales in 2002.
o PMC is a consumable product, resulting in a stream of recurring revenues.
o Industry consolidation has resulted in capacity rationalization and
improved pricing. Albany has a leaner cost structure, and capital
intensity should decline next year. This positions the Company for
improving returns on invested capital.
VALUATION:
- ----------
o Albany trades at the middle of its historical valuation range on a
price/book basis (2.02x) and at the upper end on a price/sales basis
(1.05x). However, the stock trades at a trailing P/E multiple of 13x
(low end), an EV/EBITDA multiple of 6.5x, and a free cash flow yield of
9.7% -- a compelling valuation, given the investment positives.
MANAGEMENT:
- -----------
o Frank Schmeler is Chairman and CEO of Albany. He is a solid operator who
has instilled much needed financial discipline at the Company. Unlike
the prior two CEOs, Schmeler will not accept a dilutive transaction.
Also, the Company has done a great job of reducing its working capital
intensity on his watch.
o Although Albany has a dual class stock structure, Standish family members
no longer occupy the executive ranks.
INVESTMENT THESIS:
- ------------------
One of the major attractions to this company is the recurring nature of its
business. Additionally, Albany has attractive return on invested capital
prospects given the changed competitive landscape, declining capital intensity,
leaner cost structure, and improved financial discipline. The Company will be a
beneficiary of a rebound in the paper industry as the economy begins to improve.
IMATION CORP.
DESCRIPTION:
- ------------
Imation develops, manufactures and markets magnetic and optical-based
removable data storage products through both distributors and leading OEMs. The
Company was formed in 1996 as a result of the spin-off of 3M's data storage and
imaging systems business. Products include magnetic tape cartridges for high-
end data center applications, mid-range open-system applications, and floppy
disks and optical media (CD-RW, DVD) for personal storage.
GOOD BUSINESS:
- --------------
o Imation is the world's leader with a great brand name in removable
storage media.
o The removable media business provides an annuity-like revenue stream.
o Tape should remain an important portion of the storage, back-up and
archiving market for the foreseeable future. Cost, durability and
retrieval are the main attributes.
o Imation has a strong manufacturing expertise that is highly automated.
o This business has high barriers to entry.
o The ROIC is superior. Excluding the large amount of cash on the balance
sheet, the Company generates returns in the high teens.
o The cash flow and balance sheet are strong. Currently, Imation has
approximately $470 million in net cash on the balance sheet (over
$12.50/share).
VALUATION:
- ----------
o Excluding cash, Imation trades at approximately 10x 2003 estimates, which
is attractive on an absolute and relative basis. On an EV/Sales and EV/
EBITDA basis, the Company trades at less than 1.0x and 5.8, respectively.
MANAGEMENT:
- -----------
o Imation is led by Chairman, President, and CEO William Monahan. He has
been with the Company since its formation and spin-off from 3M in 1996.
Mr. Monahan is a 23-year veteran of 3M.
o The rest of the management team has had a long history with Imation
and/or 3M.
INVESTMENT THESIS:
- ------------------
At current valuations, Imation is an attractive way to participate in the
growth of storage for corporations and consumers. Imation has the broadest
product offering in the industry and is now exclusively focused on storage media
after divesting a number of non-core businesses. The balance provides
flexibility with respect to acquisitions, share repurchases and dividends. We
think revenue and EPS will grow about 5% and 10%, respectively.
MICHAELS STORES, INC.
DESCRIPTION:
- ------------
Michaels Stores operates approximately 840 Michaels Stores in 48 states and
Canada along with 150 Aaron Brothers Stores primarily on the West Coast.
Michaels is the largest craft store operator in the world. It offers framing,
floral and a wide range of craft and home decor items. Aaron Brothers Stores
are focused on art and framing products along with prints.
GOOD BUSINESS:
- --------------
o Michaels is by far the number one retail participant in the industry.
o Revenue at Michaels tends to be fairly predictable and recurring. The
Company sells low ticket, higher margin products in an industry that
historically has been fairly stable and has limited exposure to economic
slowdowns.
o Michaels has built reasonable barriers when compared to other craft
retailers including: a broad assortment of products and categories, good
prices and good locations.
o Compared to most retailers, Michaels experiences less competition from
Wal Mart and Target.
o Return on capital at Michaels is approximately 10% and growing. This
exceeds its cost of capital and is generally higher than competitors.
o The Company has a strong balance sheet and cash flow profile.
Debt/capital is under 20%, free cash flow approximates $150 million and
the Company pays a dividend.
VALUATION:
- ----------
o The Company trades at 17.2x and 14.5x 2003 and 2004 EPS estimates,
respectively.
o Historically, Michaels has had a P/E range of 10-30x.
o Given the characteristics of this business, a P/E multiple in the 20
range seems more reasonable.
MANAGEMENT:
- -----------
o Michael Rouleau joined the Company as President in 1996 and became the
CEO in 2001. Prior to joining Michaels, Mr. Rouleau served as EVP at
Lowe's and held executive positions with Office Warehouse and Target.
Mr. Rouleau has been responsible for the transformation of the chain and
the strong financial turnaround.
o Jeff Boyer, CFO, joined the Company in January of 2003. Prior to this he
held a variety of senior financial positions at Sears, Pillsbury and
Kraft.
INVESTMENT THESIS:
- ------------------
Michaels is a solid business that is unlikely to face head-on competition
with Wal Mart or Target. The Company's business model is based on high gross
margins and relatively low turnover of inventory. This contrasts the high
turnover, low gross margin models of the large discount chains. Additionally,
the Company is currently implementing new inventory technology, which should
increase revenues, margins and return on invested capital.
THE BISYS GROUP, INC.
DESCRIPTION:
- ------------
BISYS provides business process outsourcing solutions to 20,000 customers in
the fields of investments, insurance and banking. The Investment Services
division (50% of sales, 37% of profits) provides accounting and administrative
services for mutual funds and retirement plans. The Insurance group (25% of
sales, 33% of profits) is the largest distributor of life insurance in the
country. The Information Services division (25% of sales 30% of profits) sells
bank processing software and services.
GOOD BUSINESS:
- --------------
o All three businesses have recurring revenue features, either through
long-term contracts or highly consistent repeat sales.
o The Company is a leader in most of its niches.
o The ROIC is well above average. Cash flow dynamics are quite positive.
o The balance sheet is sound.
VALUATION:
- ----------
o BISYS typically trades at a high multiple of earnings due to delivering
strong consistent results over the past decade. Recently the Company
stumbled in the insurance area. The P/E multiple is approximately ten
points below its normal trading range over the past ten years.
o The EV/EBITDA ratio is 8.3 times fiscal (June) 2004 estimates. This is a
substantial discount to its peer group and the market.
MANAGEMENT:
- -----------
o Lynn Mangum, Chairman, recently gave up the CEO position after holding it
since the Company was founded in 1989. We have known Lynn for over ten
years and feel he is a highly competent individual.
o Dennis Sheehan, President and CEO, has held various positions within the
Company, including CFO, since 1992. He is a growth driven executive.
o James Fox was recently named CFO. He is a 25-year veteran of the
financial services industry, including a long tenure as CFO of the
Investors Services Group at First Data.
INVESTMENT THESIS:
- ------------------
BISYS has an attractive business model with above average predictability.
The slowdown in insurance provides the opportunity to increase our position at
an attractive valuation.
As of October 29, 2003, our Board of Directors declared a distribution from
net short-term capital gains of $0.07989, which will be treated as ordinary
income, and $0.35076 from net long-term capital gains, payable October 30, 2003,
to shareholders of record on October 28, 2003.
Thank you for your support and confidence in the FMI Common Stock Fund. We
value and appreciate your commitment.
Sincerely,
/s/Ted D. Kellner /s/Donald S. Wilson /s/Patrick J. English
Ted D. Kellner, C.F.A Donald S. Wilson, C.F.A Patrick J. English, C.F.A.
President and Vice President Vice President and
Portfolio Manager Portfolio Manager
225 E. Mason St. o Milwaukee, WI 53202 o 414-226-4555
www.fiduciarymgt.com
FMI Common Stock Fund, Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
During the fiscal year ended September 30, 2003, the FMI Common Stock Fund had a
total return of 17.78%. The performance of the Fund was driven by non-cyclical
consumer goods stocks, particularly health care related issues, and cyclical
services equities. Insurance and information technology stocks also performed
well. General industrial and energy related stocks were below average. The stock
market continued to be highly volatile, yet appreciated dramatically during the
fiscal year. The Russell 2000 gained 36.5% in the fiscal year ending September
30, 2003. The Russell 2000 was largely driven by low priced (not low valued)
stocks, technology issues and companies not earning money. The managers of the
Fund do not feel these types of stocks will retain their value over the long
run. The spectacular rise in the stock market over the last twelve months has
created an environment with a large number of overvalued stocks, since the
underlying fundamentals have lagged. Earnings growth will have to be
exceptional over several years to justify current general market valuations.
The managers believe rapid, sustained earnings growth will be difficult due to
international and domestic competition, higher raw material prices and
escalating human resource costs. The Fund companies are also subject to these
negatives, however, the managers believe the business franchises of the Fund
companies are stronger than average. Additionally, the valuation level of the
Fund is significantly lower than the Russell 2000 or other widely recognized
benchmarks for the general stock market. The Fund's absolute performance over
the next few years is likely to be below historical norms. In light of the
Fund's valuation level compared to that of the Russell 2000, we believe the
Fund's relative performance is likely to be superior.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FMI COMMON STOCK FUND, NASDAQ COMPOSITE
INDEX(1)<F2> AND THE RUSSELL 2000 INDEX(2)<F3>
Date FMI Common Stock Fund Nasdaq Composite Index Russell 2000 Index
---- --------------------- ---------------------- ------------------
9/30/93 $10,000 $10,000 $10,000
9/30/94 $10,410 $10,020 $10,150
9/30/95 $12,773 $13,677 $12,525
9/30/96 $14,395 $16,085 $14,166
9/30/97 $19,923 $22,100 $18,869
9/30/98 $16,413 $22,206 $15,280
9/30/99 $19,101 $36,003 $18,194
9/30/00 $22,606 $48,150 $22,450
9/30/01 $25,093 $19,649 $17,688
9/30/02 $25,639 $15,366 $16,043
9/30/03 $30,197 $23,427 $21,899
AVERAGE ANNUAL TOTAL RETURN
1-Year 5-Year 10-Year
------ ------ -------
17.78% 12.97% 11.69%
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F2> NASDAQ Composite Index covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily influenced by about
100 of the largest NASDAQ stocks. It is a value-weighted index
calculated on price change only and does not include income.
(2)<F3> 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 market of the Frank Russell Company.
FMI Common Stock Fund, Inc.
(PRICEWATERHOUSECOOPERS LOGO)
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
414-212-1600
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of FMI Common Stock Fund, Inc.
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
FMICommon Stock Fund, Inc. (the "Fund") at September 30, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, 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, 2003 by correspondence with the custodian,
provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
October 28, 2003
STATEMENT OF NET ASSETS
September 30, 2003
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
COMMON STOCKS -- 89.0% (A)<F5>
COMMERCIAL SERVICES SECTOR -- 12.9%
- -----------------------------------
BUSINESS SERVICES -- 9.3%
302,000 ABM Industries Inc. $ 4,773,980 $ 4,273,300
213,000 G & K Services, Inc. 6,386,170 7,433,700
127,000 Manpower Inc. 4,135,473 4,711,700
186,000 Watson Wyatt &
Company Holdings*<F4> 4,241,986 4,186,860
------------ ------------
19,537,609 20,605,560
INDUSTRIAL SERVICES -- 3.6%
357,000 Republic Services, Inc. 6,679,857 8,082,480
CONSUMER DISCRETIONARY SECTOR -- 20.4%
- --------------------------------------
ADVERTISING SERVICES -- 2.3%
192,800 Valassis
Communications, Inc.*<F4> 5,254,827 5,089,920
CONSUMER DURABLES -- 2.1%
163,000 Snap-on Inc. 4,851,583 4,506,950
PUBLISHING-MISCELLANEOUS -- 4.2%
231,000 ProQuest Co.*<F4> 5,957,694 6,075,300
115,000 Scholastic Corp.*<F4> 4,197,520 3,310,850
------------ ------------
10,155,214 9,386,150
RETAIL TRADE -- 6.6%
500,000 Casey's General
Stores, Inc. 6,009,376 7,010,000
98,000 Michaels Stores, Inc. 4,184,516 3,994,480
130,000 Tuesday Morning Corp.*<F5> 2,427,021 3,620,500
------------ ------------
12,620,913 14,624,980
TEXTILE-APPAREL MANUFACTURERS -- 5.2%
209,000 Liz Claiborne, Inc. 5,695,242 7,116,450
350,000 Paxar Corp.*<F5> 4,427,982 4,480,000
------------ ------------
10,123,224 11,596,450
CONSUMER STAPLES SECTOR -- 1.7%
- -------------------------------
FOODS & BEVERAGES -- 1.7%
94,000 Lancaster Colony Corp. 3,537,530 3,750,600
ENERGY SECTOR -- 2.5%
- ---------------------
MACHINE OILWELL EQUIPMENT -- 0.9%
82,000 Oceaneering
International, Inc.*<F4> 2,133,139 1,928,640
OIL & GAS PRODUCERS -- 1.6%
100,000 Stone Energy Corp.*<F4> 3,722,949 3,528,000
FINANCIAL SERVICES SECTOR -- 7.6%
- ---------------------------------
LIFE INSURANCE -- 2.9%
215,000 Protective Life Corp. 6,464,511 6,417,750
MULTI-LINE INSURANCE -- 4.7%
96,000 Delphi Financial
Group, Inc. 3,504,641 4,465,920
182,000 Old Republic
International Corp. 4,188,868 6,022,380
------------ ------------
7,693,509 10,488,300
HEALTHCARE SECTOR -- 17.3%
- --------------------------
ANIMAL HEALTH -- 1.0%
49,000 IDEXX Laboratories, Inc.*<F4> 1,239,733 2,084,950
DENTAL -- 4.3%
106,000 DENTSPLY
International Inc. 3,241,085 4,753,040
194,000 Sybron Dental
Specialties, Inc.*<F4> 3,169,664 4,863,580
------------ ------------
6,410,749 9,616,620
HEALTHCARE PRODUCTS -- 4.8%
338,000 Apogent
Technologies Inc.*<F4> 5,703,404 7,050,680
159,000 Cambrex Corp. 4,166,246 3,609,300
------------ ------------
9,869,650 10,659,980
HEALTHCARE SERVICES -- 7.2%
68,000 Charles River
Laboratories
International, Inc.*<F4> 2,060,656 2,086,920
284,000 Covance Inc.*<F4> 5,234,065 6,355,920
98,000 Lincare Holdings Inc.*<F4> 3,099,961 3,587,780
117,000 Renal Care Group, Inc.*<F4> 3,318,498 3,995,550
------------ ------------
13,713,180 16,026,170
MATERIALS & PROCESSING SECTOR -- 10.9%
- --------------------------------------
CHEMICALS -- 6.4%
101,800 Albemarle Corp. 2,867,915 2,794,410
222,000 Engelhard Corp. 5,209,986 6,142,740
106,000 Minerals
Technologies Inc. 4,509,861 5,395,400
------------ ------------
12,587,762 14,332,550
CONTAINERS & PACKAGING-PAPER & PLASTIC -- 4.5%
193,000 AptarGroup, Inc. 6,028,478 7,081,170
136,000 Spartech Corp. 2,843,657 2,896,800
------------ ------------
8,872,135 9,977,970
PRODUCER DURABLES SECTOR -- 4.6%
- --------------------------------
BUSINESS EQUIPMENT -- 1.5%
135,600 Global Imaging
Systems, Inc.*<F4> 2,789,661 3,337,116
MACHINERY-INDUSTRIAL/SPECIALTY -- 3.1%
77,000 Albany International Corp. 2,201,927 2,374,680
121,000 IDEX Corp. 3,709,340 4,409,240
------------ ------------
5,911,267 6,783,920
TECHNOLOGY SECTOR -- 10.2%
- --------------------------
COMPUTER SERVICES SOFTWARE & SYSTEMS -- 7.4%
500,000 The BISYS Group, Inc.*<F4> 7,832,569 6,575,000
148,000 Imation Corp. 5,344,454 4,832,200
300,000 MPS Group, Inc.*<F4> 1,905,775 2,700,000
713,000 Parametric
Technology Corp.*<F4> 2,797,047 2,245,950
------------ ------------
17,879,845 16,353,150
MISCELLANEOUS TECHNOLOGY -- 2.8%
345,000 Arrow Electronics, Inc.*<F4> 5,032,256 6,344,550
UTILITIES SECTOR -- 0.9%
- ------------------------
TELECOMMUNICATION -- 0.9%
50,000 Commonwealth Telephone
Enterprises, Inc.*<F4> 2,118,170 2,006,000
------------ ------------
Total common stocks 179,199,273 197,528,756
SHORT-TERM INVESTMENTS -- 8.2% (A)<F5>
VARIABLE RATE DEMAND NOTES -- 8.2%
$10,750,000 U.S. Bank, N.A. 10,750,000 10,750,000
7,528,152 Wisconsin Corporate
Central Credit Union 7,528,152 7,528,152
------------ ------------
Total short-term
investments 18,278,152 18,278,152
------------ ------------
Total investments $197,477,425 215,806,908
------------
------------
Cash and receivables, less
liabilities -- 2.8% (A)<F5> 6,111,982
------------
NET ASSETS $221,918,890
------------
------------
Net Asset Value Per Share
($0.01 par value, indefinite
shares authorized), offering
and redemption price
($221,918,890 / 10,841,127
shares outstanding) $20.47
------
------
*<F4> Non-income producing security.
(a)<F5> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Common Stock Fund, Inc.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2003
INCOME:
Dividends $ 937,271
Interest 164,938
-----------
Total income 1,102,209
-----------
EXPENSES:
Management fees 1,344,223
Transfer agent fees 112,542
Administrative services 85,389
Printing and postage expense 53,818
Registration fees 48,596
Professional fees 41,074
Custodian fees 33,764
Board of Directors fees 9,000
Other expenses 24,006
-----------
Total expenses 1,752,412
-----------
NET INVESTMENT LOSS (650,203)
-----------
NET REALIZED GAIN ON INVESTMENTS 6,043,991
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 16,642,461
-----------
NET GAIN ON INVESTMENTS 22,686,452
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,036,249
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2003 and 2002
2003 2002
---------- ----------
OPERATIONS:
Net investment loss $ (650,203) $ (23,141)
Net realized gain on investments 6,043,991 1,013,927
Net increase (decrease) in unrealized appreciation on investments 16,642,461 (4,911,925)
------------ -----------
Net increase (decrease) in net assets resulting from operations 22,036,249 (3,921,139)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($2.68206 per share) -- (7,410,548)*<F6>
------------ -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (6,733,392 and 3,206,602 shares, respectively) 130,037,819 62,435,228
Net asset value of shares issued in distributions (395,430 shares) -- 7,126,131
Cost of shares redeemed (1,264,001 and 885,628 shares, respectively) (23,491,080) (16,942,878)
------------ -----------
Net increase in net assets derived from Fund share activities 106,546,739 52,618,481
------------ -----------
TOTAL INCREASE 128,582,988 41,286,794
NET ASSETS AT THE BEGINNING OF THE YEAR 93,335,902 52,049,108
------------ -----------
NET ASSETS AT THE END OF THE YEAR $221,918,890 $93,335,902
------------ -----------
------------ -----------
*<F6> See Note 7
The accompanying notes to financial statements are an integral part of these
statements.
FMI Common Stock Fund, Inc.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year $17.38 $19.60 $18.77 $16.32 $18.49
Income from investment operations:
Net investment (loss) income (0.09)*<F7> (0.01)*<F7> 0.00 (0.03) (0.03)
Net realized and unrealized
gains on investments 3.18 0.47**<F8> 1.90 2.91 2.57
------ ------ ------ ------ ------
Total from investment operations 3.09 0.46 1.90 2.88 2.54
Less distributions:
Dividend from net investment income -- -- -- -- --
Distributions from net realized gains -- (2.68) (1.07) (0.43) (4.71)
------ ------ ------ ------ ------
Total from distributions -- (2.68) (1.07) (0.43) (4.71)
------ ------ ------ ------ ------
Net asset value, end of year $20.47 $17.38 $19.60 $18.77 $16.32
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 17.78% 2.18% 10.99% 18.35% 16.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 221,919 93,336 52,049 47,015 39,115
Ratio of expenses to average net assets 1.25% 1.14% 1.23% 1.25% 1.26%
Ratio of net investment (loss) income
to average net assets (0.46%) (0.03%) 0.00% (0.20%) (0.19%)
Portfolio turnover rate 34.0% 28.8% 46.8% 46.7% 75.9%
*<F7> In 2003 and 2002, net investment loss per share is calculated using
average shares outstanding.
**<F8> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Common Stock Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
FMICommon Stock Fund, Inc. (the "Fund"), which is registered as a
diversified, open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund was incorporated under the laws
of Wisconsin on July 29, 1981. The investment objective of the Fund is to
produce long-term capital appreciation principally through investing in
common stocks.
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the
issue is traded, or if no sale is reported, the latest bid price.
Securities which are traded over-the-counter are valued at the latest
bid price. 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
with maturities of 60 days or less are valued at amortized cost which
approximates market value. For financial reporting purposes,
investment transactions are recorded on trade date.
(b) Net realized gains and losses on common stock are computed on the
identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(d) 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 nonperformance by these
counterparties is not anticipated.
(e) Accounting principles generally accepted in the United States of
America ("GAAP") require that permanent differences between income for
financial reporting and tax purposes be reclassified in the capital
accounts.
(f) The preparation of financial statements in conformity with GAAP
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.
(g) 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.
(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, for the period from October 1, 2002
through January 31, 2003, a monthly management fee at the annual rate of 1%
of the daily net assets up to and including $30,000,000 and 0.75% of the
daily net assets of the Fund in excess of $30,000,000. Effective February
1, 2003, the Fund will pay FMIa monthly management fee at the annual rate
of 1% 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 will pay FMI a monthly administrative fee at the
annual rate of 0.1% of the daily net assets up to and including $30,000,000
and 0.05% of the daily net assets of the Fund in excess of $30,000,000.
Under the management agreement, FMI will reimburse the Fund for
expenses over 1.3% of the daily net assets of the Fund. No such
reimbursements were required for the year ended September 30, 2003.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed
to shareholders at least annually. On October 29, 2003, the Fund will
distribute $916,901 from net short-term realized gains ($0.07989 per share)
and $4,025,963 from long-term realized gains ($0.35076 per share). The
distributions will be paid on October 30, 2003 to shareholders of record on
October 28, 2003.
(4) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2003, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$137,699,750 and $43,014,153, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2003, liabilities of the Fund included the
following:
Payable to FMI for management and administrative fees $168,829
Payable to shareholders for redemptions 4,767
Other liabilities 58,057
(6) SOURCES OF NET ASSETS --
As of September 30, 2003, the sources of net assets were as follows:
Fund shares issued and outstanding $198,730,647
Net unrealized appreciation on investments 18,329,483
Undistributed net realized gains on investments 4,858,760
------------
$221,918,890
------------
------------
(7) INCOME TAX INFORMATION --
The following information for the Fund is presented on an income tax
basis as of September 30, 2003:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$197,561,531 $26,145,758 $7,900,381 $18,245,377 $916,901 $4,025,963
The difference between the cost amount for financial statement and
federal income tax purposes is due primarily to timing differences in
recognizing certain gains and losses in security transactions.
The tax components of dividends paid during the years ended September
30, 2003 and 2002, capital loss carryovers as of September 30, 2003, and
tax basis post-October losses as of September 30, 2003, which are not
recognized for tax purposes until the first day of the following fiscal
year are:
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------------------------------------ -----------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ---------- ------------ ------------- -------------
$0 $0 $0 $0 $559,512 $6,851,036
The Fund has utilized $440,699 of its post-October losses from the
prior year to offset current year net capital gains.
Since there were no ordinary distributions paid for the year ended
September 30, 2003, there were no distributions designated as qualifying
for the dividends received deduction for corporate shareholders.
FMI Common Stock Fund, Inc.
DIRECTORS AND OFFICERS
OTHER
TERM OF PRINCIPAL # OF FUNDS DIRECTORSHIPS
POSITION OFFICE AND OCCUPATION IN COMPLEX HELD BY
NAME, AGE HELD WITH LENGTH OF DURING PAST OVERSEEN DIRECTOR
AND ADDRESS THE FUND TIME SERVED FIVE YEARS BY DIRECTOR OR OFFICER
- ----------- --------- ----------- ----------- ----------- --------------
"DISINTERESTED PERSONS" OF THE FUND:
Barry K. Allen, 55 Director Indefinite Term Mr. Allen is Executive Vice President 8 Harley-Davidson,
1801 California Street Since October of Qwest Communications International, Inc., Qwest
Denver, CO 80202 1996 Inc. a global communications company Communications
since September, 2002. Prior to this, International, Inc.,
Mr. Allen had served as President of FMI Funds, Inc. and
Allen Enterprises, LLC, a private equity FMI Mutual Funds,
investments management company he Inc.
founded after retiring from Ameritech in
July 2000. Mr. Allen served as an officer
of Ameritech from August 1995 to July
2000.
George D. Dalton, 75 Director Indefinite Term Mr. Dalton is Chairman and Chief 8 Clark Consulting,
20825 Swenson Drive Since January Executive Officer of Call_Solutions.com, Inc., FMI Funds,
Waukesha, WI 53186 1998 Inc. Prior to January 2000, Mr. Dalton Inc., and FMI Mutual
was Chairman of the Board and Chief Funds, Inc.
Executive Officer of Fiserv, Inc., and had
served in that capacity since 1984.
Gordon H. Director Indefinite Term Mr. Gunnlaugsson retired from M&I 8 Renaissance Learning
Gunnlaugsson, 59 Since March Corporation. He was employed by Systems, Inc., FMI
c/o Fiduciary 2001 M&I Corporation from June 1, 1970 to Funds, Inc. and FMI
Management, Inc. December 31, 2000 where he most Mutual Funds, Inc.
225 E. Mason St. recently held the positions of Executive
Milwaukee, WI 53202 Vice President and Chief Financial Officer.
Paul S. Shain, 40 Director Indefinite Term Mr. Shain is President and Chief Operating 8 FMI Funds, Inc. and
5520 Research Since March Officer of Berbee Information Networks, FMI Mutual Funds,
Park Drive 2001 and has been employed by such firm since Inc.
Madison, WI 53711 January 2000. Prior to joining Berbee
Information Networks, Mr. Shain spent
12 years at Robert W. Baird & Co.,
Incorporated, most recently as Managing
Director and Director of Equity Research.
"INTERESTED PERSONS" OF THE FUND:
Ted D. Kellner,*<F9> 57 Director Indefinite Term Mr. Kellner is Chairman of the Board 3 Marshall & Ilsley
c/o Fiduciary Since July 1981 and Chief Executive Officer of Fiduciary Corporation and
Management, Inc. President One Year Term Management, Inc. which he co-founded FMI Funds, Inc.
225 E. Mason St. and Since 1981 in 1980.
Milwaukee, WI 53202 Treasurer
Donald S. Wilson,*<F9> 60 Director Indefinite Term Mr. Wilson is Vice Chairman and 6 FMI Mutual Funds,
c/o Fiduciary Since July 1981 Treasurer of Fiduciary Management, Inc. Inc.
Management, Inc. Vice One Year Term which he co-founded in 1980.
225 E. Mason St. President Since 1981
Milwaukee, WI 53202 and
Secretary
Patrick J. English,*<F9> 42 Director Indefinite Term Mr. English is President of Fiduciary 3 FMI Funds, Inc.
c/o Fiduciary Since January Management, Inc. and has been employed
Management, Inc. 1998 by the investment adviser in various
225 E. Mason St. Vice One Year Term capacities since December, 1986.
Milwaukee, WI 53202 President Since 1996
Camille F. Wildes, 51 Vice One Year Term Ms. Wildes is a Vice-President of N/A None
c/o Fiduciary President Since December Fiduciary Management, Inc. and has
Management, Inc. and 1999 been employed by the investment adviser
225 E. Mason St. Assistant in various capacities since December, 1982.
Milwaukee, WI 53202 Treasurer
*<F9> Messrs. Kellner, Wilson and English are "interested persons" of the Fund
because they are officers of the Fund and the investment adviser.
For additional information about the Directors and Officers or for a description
of the policies and procedures that the Fund uses to determine how to vote
proxies relating to portfolio securities, please call (800) 811-5311 and request
a Statement of Additional Information. One will be mailed to you free of
charge. The Statement of Additional Information is also available on the
website of the Securities and Exchange Commission at http://www.sec.gov. After
------------------
August 31, 2004 information on how the Fund voted proxies relating to portfolio
securities during the twelve month period ending June 30, 2004 will be available
at the Fund's website at http://www.fiduciarymgt.com or the website of the
---------------------------
Securities and Exchange Commission.
FMI COMMON STOCK FUND, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
www.fiduciarymgt.com
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
GEORGE D. DALTON
PATRICK J. ENGLISH
GORDON H. GUNNLAUGSSON
TED D. KELLNER
PAUL S. SHAIN
DONALD S. WILSON
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
U.S. BANCORP FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
800-811-5311
or
414-765-4124
CUSTODIAN
U.S. BANK, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
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 Common Stock 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.
ITEM 2. CODE OF ETHICS.
- -----------------------
Registrant has adopted a code of ethics. See attached Exhibit 10 (a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
Registrant's Board of Directors has determined that Mr. Gordon Gunnlaugsson, a
member of its audit committee, is an audit committee financial expert. Mr.
Gunnlaugsson is "independent" as such term is defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not required for annual reports filed for periods ending before December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. [RESERVED]
- ------------------
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- -------------------------------
Not applicable.
ITEM 8. [RESERVED]
- ------------------
ITEM 9. CONTROLS AND PROCEDURES.
- --------------------------------
(a) The disclosure controls and procedures of the FMI Common Stock Fund, Inc.
are periodically evaluated. As of October 20, 2003, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the FMI Common Stock Fund, Inc. are periodically
evaluated. Since, October 20, 2003, the date of the last evaluation, there
have been no significant changes in the FMI Common Stock Fund's internal
controls or in other factors that could have had a significant effect on
such controls. There have also been no significant deficiencies or
material weaknesses identified since the last evaluation that required any
corrective action.
ITEM 10. EXHIBITS.
- -----------------
(a) Any code of ethics or amendment thereto. Filed herewith.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FMI Common Stock Fund, Inc.
---------------------------
Registrant
By /s/Ted D. Kellner
-------------------------------------------
Ted D. Kellner, Principal Executive Officer
Date 11-19-03
-----------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
FMI Common Stock Fund, Inc.
---------------------------
Registrant
By /s/Ted D. Kellner
--------------------------------------------
Ted D. Kellner, Principal Financial Officer
Date 11-19-03
--------------------------------------------