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
811-07831
FMI Funds, Inc.
----------------
(Exact name of registrant as specified in charter)
100 East Wisconsin Avenue, Suite 2200
Milwaukee, WI 53202
--------------------
(Address of principal executive offices) (Zip code)
Ted D. Kellner
Fiduciary Management, Inc.
100 East Wisconsin Avenue, Suite 2200
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: September 30
Date of reporting period: 09/30/2004
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
ANNUAL REPORT
SEPTEMBER 30, 2004
FMI
Focus Fund
A NO-LOAD
MUTUAL FUND
FMI Focus Fund
November 12, 2004
Dear Fellow Shareholders:
Neither the stock market nor the economy provided much excitement through the
first nine months of 2004. Recently released economic data indicate that the
economy has currently hit a "soft patch." Factors weighing on the economy
include the sharp spike in oil prices, to a recent high of $55.00 a barrel;
consumers who have added significant debt to their balance sheets while real
wages have been weak for the past few years; and an environment in Iraq that is
unstable at best. Despite the short term negatives, both our economy and the
world economy continue to grow. The International Monetary Fund's recently
published economic survey predicts 5% worldwide Gross Domestic Product growth in
2004 - the fastest in over 20 years. Additionally, core inflation remains
reasonably benign in this environment, and corporate balance sheets have
continued to improve while corporate profits are still growing at a double digit
rate. When all of these factors shake out against the backdrop of a market that
we believe is fairly valued, your portfolio management team continues to search
for individual securities that we feel will deliver above average returns.
While the environment is difficult in that regard, we believe that our long term
returns will prove to be very satisfactory to all of us as shareholders.
As detailed by Glenn and Rick in the attached letter, the short term
environment has been difficult for both the market and the Fund; however, the
long term performance record remains very strong, and we believe that our long
term, time-tested philosophy will continue to yield above average results, as
has been true since the Fund's inception in December of 1996.
As always, we thank you for your continued confidence in the FMI Focus Fund.
Sincerely,
/s/Ted D. Kellner
Ted D. Kellner, CFA
President
100 E. Wisconsin Ave., Suite 2200 o Milwaukee, WI 53202 o 414-226-4555
www.fmifunds.com
October 25, 2004
Dear Fellow Shareholders,
The fiscal fourth quarter proved to be challenging amid choppy markets. The
FMI Focus Fund declined by 5.22%. This compared to the negative 2.86% return
for the Russell 2000 and the -6.01% for the Russell 2000 Growth Index. Value
stocks held up better with the Russell 2000 Value Index up a mere 0.15%.
This year has continued to be frustrating for us given the strong results for
the calendar year ended 2003 (up 48%) and the solid start the Fund had in early
January. Last quarter's shareholder letter outlined some of the issues this
year, yet a quick review is warranted to put the full year-to-date performance
into perspective and set the stage for how we are thinking about the year ahead.
Recall how the Fund took advantage of the two severe market declines in the
technology sector in the spring and fall of 2002. We committed a substantial
percentage of the Fund's assets to "wrecked tech" via a basket of about 35
technology companies. Many of these stocks were extraordinarily cheap, selling
just above cash on the balance sheet in some cases. The strategy worked well,
helping drive our strong 2003 results. As we moved into early 2004, the
"wrecked tech" segment of the portfolio continued to perform well. As some of
the component stocks approached our sell targets, we were faced with a difficult
decision. Do we sell into a really strong market, or hold on a while longero
Recall that in early January the world looked pretty good and the stock market
was in gear.
THE VALUE OF A $10,000 INVESTMENT IN THE FMI FOCUS FUND FROM ITS INCEPTION
(12/16/96) TO 9/30/04 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
12/31/00 $44,803 $19,424 $14,513
3/31/01 $40,107 $17,121 $13,568
6/30/01 $45,270 $18,123 $15,507
9/30/01 $35,815 $15,463 $12,283
12/31/01 $45,939 $17,116 $14,874
3/31/02 $48,707 $17,163 $15,466
6/30/02 $42,035 $14,863 $14,174
9/30/02 $32,363 $12,295 $11,141
12/31/02 $35,721 $13,332 $11,827
3/31/03 $33,933 $12,912 $11,296
6/30/03 $42,160 $14,901 $13,942
9/30/03 $45,643 $15,295 $15,207
12/31/03 $52,906 $17,159 $17,416
3/31/04 $53,466 $17,448 $18,506
6/30/04 $52,735 $17,749 $18,593
9/30/04 $49,982 $17,417 $18,061
RESULTS FROM FUND INCEPTION (12/16/96) THROUGH 9/30/04
Annualized Total Annualized Total Return*<F1>
Total Return*<F1> Total Return*<F1> For the Return*<F1> For the 5 Through 9/30/04 From
Last 3 Months Year Ended 9/30/04 Years Ended 9/30/04 Fund Inception12/16/96
----------------- ------------------------- --------------------- ----------------------------
FMI Focus Fund -5.22% 9.51% 13.64% 22.94%
Standard & Poor's 500 -1.87% 13.87% -1.31% 7.38%
Russell 2000 -2.86% 18.77% 7.41% 7.88%
*<F1> Total return includes change in share prices and in each case includes
reinvestments of any dividends, interest and capital gain distributions.
Performance data quoted represents past performance; past performance
---------------------------------------------------------------------
does not guarantee future results. 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. Current
performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be
obtained by visiting www.fmifunds.com. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
The FMI Focus Fund investment team reviewed the investment landscape in mid-
January and came to the conclusion that the wrecked tech portfolio still had
another 10% to 15% appreciation potential (within the context of a good market)
and that we would "ride it" through the spring. At the time, we felt the
economy was picking up steam, business confidence was improving. This
combination would finally unleash pent-up spending in areas like information
technology (computers, software, and related services) and advertising, our two
overweighted sectors. Further, Presidential election years have historically
been favorable to the equity markets.
Unfortunately, the environment did not play out that way. Since mid-January,
rising energy prices, Federal Reserve interest rate hikes and increased
terrorist activity proved to be just enough on the margin to cause company
managements to hesitate with respect to IT and advertising spending. While the
economy has continued to improve during this period, it wasn't enough to get IT
and advertising out of "first gear." Companies in the IT and advertising
industries have thus struggled from an earnings perspective. We ended up "round
tripping" some of our holdings in the "wrecked tech" portfolio. Our advertising
related stocks in radio and television have also struggled.
The decline in these two segments also obscured many outstanding individual
performers. Alamosa Holdings, Inc., the Texas based wireless service provider
has nearly tripled this year. We also bought Royal Caribbean Cruises Ltd., the
cruise line operator, just after the markets opened following 9/11 at prices as
low as $9 per share. The stock is now nearly $47. Jos. A. Banks Clothiers,
Inc., and Milwaukee based companies Brady Corp. and Rockwell Automation Inc.
have also been strong performers.
So, having "round tripped" some of our biggest performers of last year, what
nowo Our answer is a definitive "hold on" because, ironically, these stocks are
very, very cheap again. While the immediate economic outlook may not provide
instant gratification, the 12-15 month outlook should be conducive to the
rebound of these companies' fortunes.
With respect to our outlook, we believe that the economy is likely to
decelerate as it adjusts to much higher energy prices. But, barring other
exogenous events, we believe the U.S. economy is in reasonably solid shape.
This cycle has been fairly unique in that the downturn following the internet
bust was quite mild. The Federal Reserve's aggressive interest rate reductions
kept the consumption side of the economy (housing, autos, retailing and the
like) from having much of a downturn at all. While it is true that businesses
experienced a fairly significant downturn in 2001 and 2002, the consumer side is
more important, representing two-thirds of the economy.
So we had a very mild recession from which emerged the very mild upturn we
are now experiencing. The good news is that this particular business/economic
cycle has been sufficiently mild that very few excesses have developed (with the
possible exception of housing). In any event, this particular upturn has the
potential to last longer, but the trajectory may be flatter.
In addition to higher energy prices, the U.S. has had to adjust to the
emergence of China, a subject we have covered in previous shareholder letters.
In the intermediate term, we believe the potentially enormous but still
developing Chinese consumer market will present many opportunities for American
companies. In the short-term, however, Chinese demand for things like copper,
cement, and especially energy have driven the prices of these commodities
through the roof. As well, many U.S. manufacturing companies have been
balancing their geographical locations, closing factories here and opening new
ones in China. As this has been a painful process, we believe much of that
balancing has now largely taken place and is likely to be less of a headwind
going forward. Higher energy prices and emerging China certainly represent
near-term challenges. We believe they are more likely to temper the ongoing
economic cycle than end it.
Another factor to consider is that unemployment bottomed at a much lower rate
this past recession than in previous recessions. The most recent recession
bottomed in November 2001 at a 5.6% unemployment rate compared to 6.8% in March
1991, 10.8% in November 1982 and 8.6% in March 1975. Again, the point is that
this past downturn was mild, and so far the upturn has proven to be mild as
well.
Ironically, we view the stock market in a similar vein. While the most
recent bear market certainly corrected the excesses of the internet bubble,
equity valuations only returned to "fair value." It was from this base of fair-
value that the strong "mini" bull market of 2003-2004 was launched, yielding, in
our opinion, a richly valued market again. In other words, it is very hard to
find bargains in this market.
Another way to look at it, corporate profits have risen, on average, about 6%
to 7% per year. Over the long term, combined with dividends, return from stocks
have been about 8% to 9% per year. The U.S. stock market went up so fast in the
years immediately preceding and during the internet bubble, that even the fairly
severe 2001/2002 bear market brought equities back down to the 6% to 7% long-
term uptrend. It was from that fair-valued base that the enormous 40% to 50%
run in 2003 happened.
While we may still be above the 6% to 7% long-term trend line, an adjustment
should be made, in our opinion, for the extraordinarily low level of interest
rates. After all, a stream of earnings is worth more when interest rates are at
3% than when they are at 6% or 8%.
Given our outlook on the economy and our view of stock market valuations, we
are in a very patient mood. Long time Focus Fund investors know that we
consider ourselves opportunistic, special situation investors, willing and able
to step into volatile markets. We prefer to buy when "blood is running in the
streets," when other investors are losing their heads. Clearly, this is not the
environment we are currently in. Stocks, in our opinion are fairly valued.
That's fine! But, it doesn't present the opportunities that get us excited. As
Warren Buffet would observe, there is not much of a margin for error when buying
stocks that are fairly valued.
We are currently carrying about 15% cash and will patiently wait for
opportunities that meet our criteria; a 20% discount to private market value,
growing earnings and a strong strategic industry position. Yes, 2004 is not
likely to go down as one of our great years, and, yes, the environment did not
break our way, but, we are committed to our time-tested philosophy. Since our
beginning in December of 1996, we have certainly had a few below-par years, but
the nearly 8 year-old record has been one of the best in the industry. We
really appreciate our partners, our shareholders, and believe patience will be
rewarded.
As of October 28, 2004, our Board of Directors declared a distribution of
$1.20968 from net long-term capital gains, payable October 29, 2004 to
shareholders of record on October 27, 2004. Please note that 100% of this
distribution represents long-term capital gains which are taxable at favorable
rates.
Sincerely,
/s/Richard E. Lane /s/Glenn W. Primack
Richard E. Lane, CFA Glenn W. Primack
Portfolio Manager Portfolio Manager
FMI Focus Fund
COST DISCUSSION
INDUSTRY SECTORS AS OF SEPTEMBER 30, 2004
Information Technology 24.5%
Industrials 20.4%
Consumer Discretionary 9.2%
Energy 8.5%
Materials 6.4%
Healthcare 5.1%
Financials 5.0%
Other 4.1%
Telecommunications 0.9%
Consumer Staples 0.3%
Cash 15.6%
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in FMI Focus Fund and to compare these costs with the ongoing costs of investing
in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from March 31, 2004 through September
30, 2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
In addition to the costs highlighted and described below, the only Fund
transaction costs you might currently incur would be wire fees ($15 per wire),
if you choose to have proceeds from a redemption wired to your bank account
instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with the Fund. To determine
your total costs of investing in the Fund, you would need to add any applicable
wire or IRA processing fees you've incurred during the period to the costs
provided in the example at the end of this article.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption or exchange fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Account During Period*<F2>
Value 3/31/04 Value 9/30/04 3/31/04-9/30/04
------------- ------------- -----------------
FMI Focus Fund Actual $1,000 $1,000.00 $ 934.80 $6.91
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $7.24
*<F2> Expenses are equal to the Funds' annualized expense ratio of 1.43%,
multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period between March 31, 2004 and
September 30, 2004).
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
In Fiscal 2003 we transitioned the portfolio out of less economically
sensitive sectors that we thought were fully valued and into more economically
sensitive sectors such as industrials and technology. As we discussed in the
shareholder letter, we believed this strategy would continue to pay off into
Fiscal 2004. We felt the economy was picking up steam and business confidence
was increasing in a Presidential election year. Unfortunately, the environment
did not play out as anticipated. Rising energy prices, Federal Reserve interest
rate hikes, and increased terrorist activity all negatively impacted our over-
weighted positions in the economically sensitive technology and media sectors.
While we have lightened up our exposure to these two sectors, special situations
and a return to low valuations have led us to "hang on" to some of our biggest
performers of the previous fiscal year with the expectation of a rebound over
the next 12-15 months.
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)<F4> Index(2)<F5>
---- -------------- ---------------- ------------
12/16/96*<F3> $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
9/30/01 $35,815 $15,463 $12,283
9/30/02 $32,363 $12,295 $11,141
9/30/03 $45,643 $15,295 $15,207
9/30/04 $49,982 $17,417 $18,061
*<F3> inception date 12/16/96
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.
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 12/16/96
------ ------ ---------------
+9.51% +13.64% +22.94%
(1)<F4> 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)<F5> 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.
FMI Focus Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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
FMI Focus Fund (a series of FMI Funds, Inc.) (the "Fund") at September 30, 2004,
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 standards of the Public Company Accounting Oversight Board (United States).
These standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 29, 2004
FMI Focus Fund
STATEMENT OF NET ASSETS
September 30, 2004
SHARES OR PRINCIPAL AMOUNT COST VALUE
- -------------------------- ---- -----
LONG-TERM INVESTMENTS -- 84.4% (A)<F7>
COMMON STOCKS -- 80.3% (A)<F7>
CONSUMER DISCRETIONARY SECTOR -- 9.2%
- -------------------------------------
HOTELS RESTAURANTS & LEISURE -- 1.1%
525,300 Darden Restaurants, Inc. $ 10,682,588 $ 12,249,996
LEISURE -- 0.6%
437,300 Northwest Airlines Corp.*<F6> 4,131,149 3,590,233
60,000 Royal Caribbean Cruises Ltd. 656,838 2,616,000
------------ --------------
4,787,987 6,206,233
MEDIA -- 3.8%
660,600 Emmis Communications Corp.*<F6> 13,395,932 11,930,436
309,200 Hearst-Argyle Television, Inc. 6,552,539 7,559,940
221,956 Mediacom Communications Corp.*<F6> 1,539,952 1,449,373
293,900 Pinnacle Systems, Inc.*<F6> 2,464,666 1,225,563
778,900 PRIMEDIA Inc.*<F6> 1,479,975 1,830,415
165,500 Radio One, Inc. CL D*<F6> 2,807,835 2,355,065
342,700 Sinclair Broadcast Group, Inc. 3,872,376 2,501,710
485,000 Spanish Broadcasting System, Inc.*<F6> 3,755,120 4,772,400
678,200 Young Broadcasting Inc.*<F6> 7,302,786 7,372,034
------------ --------------
43,171,181 40,996,936
SPECIALTY RETAIL -- 3.7%
395,000 Gymboree Corp.*<F6> 6,038,606 5,688,000
396,875 Jos. A. Bank Clothiers, Inc.*<F6> 9,635,246 10,985,500
475,000 Polo Ralph Lauren Corp. 11,314,269 17,275,750
220,000 The Sports Authority, Inc.*<F6> 4,291,424 5,104,000
------------ --------------
31,279,545 39,053,250
CONSUMER STAPLES SECTOR -- 0.3%
- -------------------------------
FOOD & DRUG RETAILING -- 0.3%
117,400 SUPERVALU INC. 1,647,273 3,234,370
ENERGY SECTOR -- 8.5%
- ---------------------
OIL & GAS -- 3.0%
121,400 Kerr-McGee Corp. 5,239,894 6,950,150
433,800 Noble Energy, Inc. 17,449,882 25,264,512
------------ --------------
22,689,776 32,214,662
OIL & GAS EQUIPMENT & SERVICES -- 5.5%
310,600 Grant Prideco, Inc.*<F6> 2,759,944 6,364,194
846,000 Hanover Compressor Co.*<F6> 10,277,585 11,378,700
206,000 National-Oilwell, Inc.*<F6> 3,407,880 6,769,160
1,180,150 Pride International, Inc.*<F6> 18,518,453 23,355,168
232,500 Transocean Inc.*<F6> 4,478,807 8,318,850
160,600 Willbros Group, Inc.*<F6> 1,256,090 2,394,546
------------ --------------
40,698,759 58,580,618
FINANCIAL SERVICES SECTOR -- 5.0%
- ---------------------------------
BANKS -- 1.5%
363,825 Associated Banc-Corp 7,809,686 11,667,868
204,500 Midwest Banc Holdings, Inc. 4,163,984 3,930,490
------------ --------------
11,973,670 15,598,358
INSURANCE -- 3.5%
255,000 PartnerRe Ltd. 12,534,181 13,945,950
564,400 Reinsurance Group of America, Inc. 18,283,804 23,253,280
------------ --------------
30,817,985 37,199,230
HEALTHCARE SECTOR -- 5.1%
- -------------------------
BIOTECHNOLOGY -- 1.3%
169,800 Genitope Corp.*<F6> 1,443,300 1,684,416
373,000 ICON PLC -SP - ADR*<F6> 13,522,543 12,275,430
------------ --------------
14,965,843 13,959,846
EQUIPMENT & SUPPLIES -- 3.8%
137,000 Bausch & Lomb Inc. 4,344,558 9,103,650
725,000 PerkinElmer, Inc. 13,990,752 12,484,500
866,900 PSS World Medical, Inc.*<F6> 7,650,708 8,703,676
280,000 Varian Inc.*<F6> 10,197,320 10,603,600
------------ --------------
36,183,338 40,895,426
INDUSTRIALS SECTOR -- 20.4%
- ---------------------------
COMMERCIAL SERVICES & SUPPLIES -- 6.9%
1,393,700 Casella Waste Systems, Inc.*<F6> 13,255,119 16,501,408
534,100 Manpower Inc. 23,113,788 23,762,109
640,000 ProQuest Co.*<F6> 14,663,276 16,448,000
548,800 Republic Services, Inc. 8,971,554 16,332,288
------------ --------------
60,003,737 73,043,805
INDUSTRIAL ELECTRONIC EQUIPMENT & MACHINERY -- 13.0%
797,200 Airgas, Inc. 13,352,571 19,188,604
122,600 Baldor Electric Co. 2,782,659 2,900,716
216,000 Beacon Roofing Supply, Inc.*<F6> 2,844,890 3,542,400
127,900 Brady Corp. 4,805,581 6,237,683
480,600 CIRCOR International, Inc. 7,789,368 9,371,700
250,000 Grainger (W.W.), Inc. 12,703,650 14,412,500
374,200 Kennametal Inc. 12,648,335 16,895,130
427,400 Regal-Beloit Corp. 8,665,623 10,338,806
166,400 Robbins & Myers, Inc. 2,972,176 3,660,800
270,000 Rockwell Automation Inc. 3,660,773 10,449,000
253,500 Snap-on Inc. 5,962,748 6,986,460
253,000 The Timken Co. 4,509,141 6,228,860
1,385,500 UNOVA, Inc.*<F6> 17,790,600 19,466,275
459,900 Wabtec Corp. d/b/a Westinghouse Air Brake Technologies Corp. 7,398,487 8,595,531
------------ --------------
107,886,602 138,274,465
ROAD & RAIL -- 0.5%
352,500 Laidlaw International Inc.*<F6> 5,401,349 5,798,625
INFORMATION TECHNOLOGY SECTOR -- 24.5%
- --------------------------------------
COMMUNICATIONS EQUIPMENT -- 3.1%
910,000 Symbol Technologies, Inc. 13,619,206 11,502,400
713,900 Tekelec*<F6> 9,292,596 11,907,852
164,900 Tollgrade Communications, Inc.*<F6> 1,931,221 1,449,471
538,159 Ulticom, Inc.*<F6> 3,944,540 7,948,608
------------ --------------
28,787,563 32,808,331
COMPUTERS & PERIPHERALS -- 0.1%
50,000 QLogic Corp.*<F6> 1,490,000 1,480,500
CONSULTING & SERVICES -- 8.6%
607,500 The BISYS Group, Inc.*<F6> 8,179,038 8,875,575
1,554,800 CIBER, Inc.*<F6> 12,266,643 11,692,096
266,500 Fiserv, Inc.*<F6> 7,462,598 9,290,190
1,379,100 Ingram Micro Inc.*<F6> 16,988,876 22,203,510
921,400 Keane, Inc.*<F6> 13,120,175 14,152,704
379,100 Kforce Inc.*<F6> 1,864,509 3,176,858
490,000 SunGard Data Systems Inc.*<F6> 13,051,734 11,647,300
528,400 TNS Inc.*<F6> 10,568,000 10,250,960
------------ --------------
83,501,573 91,289,193
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.0%
200,000 Flextronics International Ltd.*<F6> 3,279,500 2,650,000
258,700 Mettler-Toledo International Inc.*<F6> 10,786,880 12,215,814
39,900 Rogers Corp.*<F6> 1,903,427 1,695,351
626,200 Sanmina-SCI Corp.*<F6> 6,852,796 4,414,710
------------ --------------
22,822,603 20,975,875
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 6.9%
314,500 Actel Corp.*<F6> 6,582,932 4,780,400
510,000 Altera Corp.*<F6> 9,981,948 9,980,700
189,200 Anaren, Inc.*<F6> 2,251,601 2,546,632
639,100 Asyst Technologies, Inc.*<F6> 4,407,291 3,265,801
1,120,200 Conexant Systems, Inc.*<F6> 2,641,640 1,803,522
601,800 Emulex Corp.*<F6> 13,016,388 6,932,736
672,000 Entegris Inc.*<F6> 7,683,001 5,604,480
543,800 Exar Corp.*<F6> 7,967,147 7,700,208
882,300 KEMET Corp.*<F6> 9,403,818 7,137,807
482,700 Methode Electronics, Inc. 6,396,779 6,173,733
565,700 Metron Technology N.V.*<F6> 4,490,734 2,455,138
445,000 MKS Instruments, Inc.*<F6> 6,163,862 6,817,400
606,524 Vishay Intertechnology, Inc.*<F6> 9,831,333 7,824,160
------------ --------------
90,818,474 73,022,717
SOFTWARE -- 3.8%
2,088,100 Aspen Technology, Inc.*<F6> 10,979,656 14,595,819
161,800 CSG Systems International, Inc.*<F6> 2,094,733 2,493,338
1,137,000 E.piphany, Inc.*<F6> 5,828,217 4,582,110
96,200 Fair Isaac Corp. 2,893,051 2,809,040
85,000 FileNET Corp.*<F6> 1,774,171 1,484,100
660,400 JDA Software Group, Inc.*<F6> 8,528,455 7,145,528
1,450,700 Parametric Technology Corp.*<F6> 5,160,690 7,659,696
------------ --------------
37,258,973 40,769,631
MATERIALS SECTOR -- 6.4%
- ------------------------
CHEMICALS -- 2.2%
8,600 H.B. Fuller Co. 239,655 235,640
514,950 Intertape Polymer Group Inc.*<F6> 3,776,671 3,934,218
340,000 Millennium Chemicals Inc.*<F6> 4,393,635 7,211,400
223,500 PolyOne Corp.*<F6> 984,874 1,680,720
467,600 Westlake Chemical Corp.*<F6> 6,841,371 10,427,480
------------ --------------
16,236,206 23,489,458
CONTAINERS & PACKAGING -- 1.3%
570,000 Packaging Corp of America 13,245,006 13,947,900
PAPER & FOREST PRODUCTS -- 2.9%
867,900 Kadant Inc.*<F6> 12,442,646 15,934,644
686,400 Smurfit-Stone Container Corp.*<F6> 10,065,297 13,295,568
63,900 Wausau-Mosinee Paper Corp. 831,710 1,063,935
------------ --------------
23,339,653 30,294,147
TELECOMMUNICATIONS SECTOR -- 0.9%
- ---------------------------------
WIRELESS SERVICES -- 0.9%
1,212,000 Alamosa Holdings, Inc.*<F6> 4,420,792 9,259,680
------------ --------------
Total common stocks 744,110,476 854,643,252
MUTUAL FUNDS -- 4.1% (A)<F7>
300,000 iShares S&P SmallCap 600 Index Fund 28,661,575 43,272,000
------------ --------------
Total long-term investments 772,772,051 897,915,252
SHORT-TERM INVESTMENTS -- 16.2% (A)<F7>
COMMERCIAL PAPER -- 15.3%
$18,000,000 Empire Corporate Federal Credit Union, 1.60%, due 10/04/04 17,997,600 17,997,600
15,000,000 Abbey National North America, LLC, 1.60%, due 10/05/04 14,997,333 14,997,333
21,500,000 Citigroup Global Markets, 1.60%, due 10/06/04 21,495,222 21,495,222
21,500,000 Caterpillar Financial Services, 1.60%, due 10/07/04 21,494,267 21,494,267
9,000,000 AIG Funding Inc., 1.67%, due 10/08/04 8,997,077 8,997,077
11,000,000 Toyota Motor Credit Corp., 1.64%, due 10/12/04 10,994,488 10,994,488
12,000,000 National Australia Funding (DE) Inc., 1.64%, due 10/13/04 11,993,440 11,993,440
14,000,000 Prudential Funding, LLC, 1.68%, due 10/14/04 13,991,507 13,991,507
9,000,000 General Electric Capital Corp., 1.62%, due 10/15/04 8,994,330 8,994,330
3,000,000 UBS Finance (DE), LLC, 1.70%, due 10/18/04 2,997,592 2,997,592
3,000,000 AIG Funding Inc., 1.69%, due 10/19/04 2,997,465 2,997,465
4,000,000 General Electric Capital Corp., 1.70%, due 10/20/04 3,996,411 3,996,411
11,000,000 Toyota Motor Credit Corp., 1.70%, due 10/21/04 10,989,611 10,989,611
11,000,000 The Royal Bank of Scotland PLC, 1.70%, due 10/25/04 10,987,533 10,987,533
------------ --------------
Total commercial paper 162,923,876 162,923,876
VARIABLE RATE DEMAND NOTE -- 0.9%
9,764,987 U.S. Bank, N.A., 1.59% 9,764,987 9,764,987
------------ --------------
Total short-term investments 172,688,863 172,688,863
------------ --------------
Total investments $945,460,914 1,070,604,115
------------
------------
Liabilities, less cash and receivables -- (0.6%) (A)<F7> (6,609,046)
--------------
NET ASSETS $1,063,995,069
--------------
--------------
Net Asset Value Per Share ($0.0001 par value, 100,000,000 shares authorized), offering and
redemption price ($1,063,995,069 / 33,109,612 shares outstanding) $32.14
------
------
*<F6> Non-income producing security.
(a)<F7> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
N.V. - Netherland Antilles Limited Liability Corporation
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, 2004
INCOME:
Dividends $ 4,766,718
Interest 1,887,658
------------
Total income 6,654,376
------------
EXPENSES:
Management fees 14,667,389
Transfer agent fees 789,683
Administrative services 673,180
Printing and postage expenses 244,746
Custodian fees 241,831
Professional fees 69,654
Registration fees 57,731
Insurance 50,886
Board of Directors fees 26,660
Other expenses 6,376
------------
Total operating expenses before interest expense 16,828,136
Interest expense 1,248
------------
Total expenses 16,829,384
------------
NET INVESTMENT LOSS (10,175,008)
------------
NET REALIZED GAIN ON INVESTMENTS 107,297,702
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (8,753,262)
------------
NET GAIN ON INVESTMENTS 98,544,440
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 88,369,432
------------
------------
STATEMENTS OF CHANGES IN NET ASSETS
For Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment loss $ (10,175,008) $ (4,726,243)
Net realized gain (loss) on investments 107,297,702 (11,365,811)
Net change in unrealized appreciation on investments (8,753,262) 235,082,244
-------------- ------------
Net increase in net assets resulting from operations 88,369,432 218,990,190
-------------- ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (14,396,716 and 30,693,686 shares, respectively) 474,752,165 758,793,828
Cost of shares redeemed (13,606,460 and 19,219,782 shares, respectively) (447,597,460) (463,112,217)
-------------- ------------
Net increase in net assets derived from Fund share activities 27,154,705 295,681,611
-------------- ------------
TOTAL INCREASE 115,524,137 514,671,801
NET ASSETS AT THE BEGINNING OF THE YEAR 948,470,932 433,799,131
-------------- ------------
NET ASSETS AT THE END OF THE YEAR $1,063,995,069 $948,470,932
-------------- ------------
-------------- ------------
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 year)
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 29.35 $ 20.81 $ 23.03 $ 36.43 $ 21.56
Income from investment operations:
Net investment (loss) income (a)<F8> (0.29) (0.18) (0.16) (0.13) 0.06
Net realized and unrealized
gains (losses) on investments 3.08 8.72 (2.06) (9.74) 17.34
------- ------- ------- ------- -------
Total from investment operations 2.79 8.54 (2.22) (9.87) 17.40
Less distributions:
Dividend from net investment income -- -- -- (0.03) --
Distributions from net realized gains -- -- -- (3.50) (2.53)
------- ------- ------- ------- -------
Total from distributions -- -- -- (3.53) (2.53)
------- ------- ------- ------- -------
Net asset value, end of year $ 32.14 $ 29.35 $ 20.81 $ 23.03 $ 36.43
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 9.51% 41.04% (9.64%) (29.27%) 92.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 1,063,995 948,471 433,799 261,549 242,458
Ratio of operating expenses before interest expense
and dividends on shorts to average net assets 1.43% 1.47% 1.46% 1.50% 1.59%
Ratio of interest expense and dividends on short
positions to average net assets 0.00% 0.00% 0.00% 0.00% 0.05%
Ratio of net investment (loss) income
to average net assets (0.87%) (0.71%) (0.60%) (0.55%) 0.20%
Portfolio turnover rate 63.8% 52.6% 92.8% 165.3% 198.7%
(a)<F8> Net investment (loss) income before interest expense and dividends on
short positions for the years ended September 30, 2004, 2003, 2002,
2001 and 2000 was ($0.29), ($0.18), ($0.16), ($0.13) and $0.08,
respectively. Net investment (loss) income per share is calculated
using average shares outstanding.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Focus Fund
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
(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 diversified, open-end management investment
company under the Investment Company Act of 1940, as amended. The Company
was incorporated under the laws of Maryland on September 5, 1996 and the
Fund commenced operations on December 16, 1996. The assets and liabilities
of each fund in the Company are segregated as a shareholder's interest is
limited to the fund in which the shareholder owns shares. 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 the liability for 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. Securities that are traded on the Nasdaq National Market or
the Nasdaq SmallCap Market are valued at the Nasdaq Official Closing
Price 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 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. The fair value of a security
is the amount which the Fund might reasonably expect to receive upon a
current sale. The fair value of a security may differ from the last
quoted price and the Fund may not be able to sell a security at the
fair value. Market quotations may not be available, for example, if
trading in particular securities was halted during the day and not
resumed prior to the close of trading on the New York Stock Exchange.
Short-term investments with maturities of 60 days or less are valued
at cost which approximates value. For financial reporting purposes,
investment transactions are recorded on the trade date.
(b) Net realized gains and losses on sale of securities are computed on
the identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on an 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) 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.
(h) The Fund may own certain securities that are restricted. Restricted
securities include Section 4(2) commercial paper, securities issued in
a private placement, or securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933. A restricted security
cannot be resold to the general public without prior registration
under the Securities Act of 1933 (the "Act") or pursuant to the resale
limitations provided by Rule 144A under the Act, or an exemption from
the registration requirements of the Act.
(i) No provision has 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 will pay FMI a monthly management fee at an annual
rate 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 will pay 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.
FMI entered into a sub-advisory agreement with Broadview Advisors,
LLC, to assist it in the day-to-day management of the Fund. Broadview
Advisors, LLC, determines which securities will be purchased, retained or
sold for the Fund. FMI pays Broadview Advisors, LLC 76% of the Fund's
management fee of 1.25% of average daily net assets.
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, 2004.
Each Director who is not affiliated with the Fund receives an annual
fee for service as a Director and is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Director's fees as if invested in the Fund. The
value of each Director's deferred compensation account will increase or
decrease as if it were invested in shares of the Fund. The Fund maintains
its proportionate share of the liability for deferred fees.
In the normal course of business the Fund enters into contracts with
service providers that contain general indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, based on experience, the Fund expects the risk of loss to be
remote.
(3) CREDIT AGREEMENT --
U.S. Bank, N.A. has made available to the Fund a $30,000,000 credit
facility pursuant to a Credit Agreement ("Agreement") dated November 18,
2002 for the purpose of having cash available to cover incoming redemptions
and to purchase portfolio securities. Principal and interest of such loan
under the Agreement are due not more than 31 days after the date of the
loan. Amounts under the credit facility bear interest at a rate per annum
equal to the current prime rate minus one on the amount borrowed. Advances
will be collateralized by securities owned by the Fund. During the year
ended September 30, 2004, the Fund did not borrow against the Agreement.
The Credit Agreement expires on June 5, 2005.
(4) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed
to shareholders at least annually. On October 28, 2004, the Fund
distributed $39,828,416 from long-term realized gains ($1.20968 per share).
The distribution will be paid on October 29, 2004 to shareholders of record
on October 27, 2004.
(5) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2004, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$630,526,310 and $666,515,699, respectively.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2004, liabilities of the Fund included the
following:
Payable to brokers for securities purchased $11,200,640
Payable to FMI for management and administrative fees 1,140,905
Payable to shareholders for redemptions 285,592
Due to custodian 113,755
Deferred compensation plan for Directors 11,660
Other liabilities 199,943
(7) SOURCES OF NET ASSETS --
As of September 30, 2004, the sources of net assets were as follows:
Fund shares issued and outstanding $ 919,279,248
Net unrealized appreciation on investments 125,143,201
Accumulated net realized gains on investments 19,584,280
Accumulated net investment loss (11,660)
--------------
$1,063,995,069
--------------
--------------
(8) INCOME TAX INFORMATION --
The following information for the Fund is presented on an income tax
basis as of September 30, 2004:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$965,361,598 $162,299,181 $57,398,240 $104,900,941 $ -- $39,828,416
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, 2004 and 2003, capital loss carryovers, which may be used to offset
future capital gains, subject to Internal Revenue Code limitations, as of
September 30, 2004, and tax basis post-October losses as of September 30,
2004, which are not recognized for tax purposes until the first day of the
following fiscal year are:
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
---------------------------------------------------------------- --------------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ------------ ------------ ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ --
The Fund has utilized $189,731 of its post-October losses from the
prior year to decrease current year net capital gains.
The Fund has also utilized $67,658,913 of its capital loss carryovers
during the year ended September 30, 2004.
Since there were no ordinary distributions paid for the year ended
September 30, 2004, there were no distributions designated as qualifying
for the dividends received deduction for corporate shareholders nor as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003.
FMI Focus Fund
DIRECTORS AND OFFICERS
# OF FUNDS OTHER
TERM OF PRINCIPAL IN COMPLEX DIRECTORSHIPS
POSITION OFFICE AND OCCUPATION OVERSEEN HELD BY
NAME, AGE HELD WITH LENGTH OF DURING PAST BY DIRECTOR DIRECTOR
AND ADDRESS THE FUND TIME SERVED FIVE YEARS OR OFFICER OR OFFICER
- ----------- --------- ----------- ----------- ----------- -------------
"DISINTERESTED PERSONS" OF THE FUND:
Barry K. Allen, 56 Director Indefinite Term Mr. Allen has been Executive Vice 8 Harley-Davidson,
1801 California Street Since December President of Qwest Communications Inc., FMI Common
Denver, CO 80202 1996 International, Inc. a global Stock Fund, Inc. and
communications company since FMI Mutual Funds,
September, 2002. Prior to this, Mr. Allen Inc.
had served as President of Allen
Enterprises, LLC, a private equity
investments management company he
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, 76 Director Indefinite Term Mr. Dalton is Chairman and Chief 8 Clark Consulting Inc.,
20825 Swenson Drive Since December Executive Officer of Call_Solutions.com, FMI Common Stock
Waukesha, WI 53186 1997 Inc. Prior to January 2000, Mr. Dalton Fund, Inc. and FMI
was Chairman of the Board and Chief Mutual 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, 60 Since December Corporation. He was employed by Systems, Inc., FMI
c/o Fiduciary 2001 M&I Corporation from June 1, 1970 to Common Stock Fund,
Management, Inc. December 31, 2000 where he most Inc. and FMI Mutual
100 E. Wisconsin Ave., recently held the positions of Executive Funds, Inc.
Suite 2200 Vice President and Chief Financial Officer.
Milwaukee, WI 53202
Paul S. Shain, 41 Director Indefinite Term Mr. Shain is President and Chief 8 FMI Common Stock
5520 Research Since December Operating Officer of Berbee Information Fund, Inc. and FMI
Park Drive 2001 Networks, and has been employed by such Mutual Funds, Inc.
Madison, WI 53711 firm since 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:
Richard E. Lane*<F9>, 48 Director Indefinite Term Mr. Lane is President of Broadview 2 None
100 E. Wisconsin Ave., Since December Advisors, LLC, the sub-adviser to the
Suite 2500 2001 Fund. Mr. Lane served as a portfolio
Milwaukee, WI 53202 manager and financial analyst with Fiduciary
Management, Inc. from September 1994
through April 2001.
Ted D. Kellner*<F9>, 58 Director Indefinite Term Mr. Kellner is Chairman of the Board 8 Marshall & Ilsley
c/o Fiduciary Since December and Chief Executive Officer of Fiduciary Corporation and FMI
Management, Inc. 1996 Management, Inc. which he co-founded Common Stock
100 E. Wisconsin Ave., President One Year Term in 1980. Fund, Inc.
Suite 2200 and Since 1996
Milwaukee, WI 53202 Treasurer
Patrick J. English*<F9>, 43 Director Indefinite Term Mr. English is President of Fiduciary 8 FMI Common Stock
c/o Fiduciary Since December Management, Inc. and has been employed Fund, Inc.
Management, Inc. 1996 by the investment adviser in various
100 E. Wisconsin Ave., Vice One Year Term capacities since December, 1986.
Suite 2200 President Since 1996
Milwaukee, WI 53202
Kathleen M. Lauters, 52 Chief At Discretion Ms. Lauters has been the Fund's Chief 8 None
c/o Fiduciary Compliance of Board Compliance Officer since September
Management, Inc. Officer Since September 2004. From June 1995 to September 2004
100 E. Wisconsin Ave. 2004 Ms. Lauters was employed by Strong
Suite 2200 Capital Management, most recently as
Milwaukee, WI 53202 Senior Compliance Analyst.
Camille F. Wildes, 52 Vice One Year Term Ms. Wildes is a Vice-President of 8 None
c/o Fiduciary President Since December Fiduciary Management, Inc. and has
Management, Inc. and 1999 been employed by the investment
100 E. Wisconsin Ave., Assistant adviser in various capacities since
Suite 2200 Treasurer December, 1982.
Milwaukee, WI 53202
Donald S. Wilson, 61 Vice One Year Term Mr. Wilson is Vice Chairman and 8 FMI Common Stock
c/o Fiduciary President Since December Treasurer of Fiduciary Management, Inc. Fund, Inc. and FMI
Management, Inc. and 1996 which he co-founded in 1980. Mutual Funds, Inc.
100 E. Wisconsin Ave., Secretary
Suite 2200
Milwaukee, WI 53202
*<F9> Mr. Lane is an "interested person" of the Fund because he is an officer
of the Fund's sub-adviser. Messrs. Kellner 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 (the "Commission") at
http://www.sec.gov. Information on how the Fund voted proxies relating to
- ------------------
portfolio securities during the twelve month period ending June 30, 2004 is
available on the Fund's website at http://www.fmifunds.com or the website of the
Commission. The Fund files its complete schedule of portfolio holdings with the
Commission for the first and third quarter of each fiscal year on Form N-Q; (ii)
the Fund's Form N-Q is available on the Commission's website; and (iii) the
Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference
Room in Washington, DC, and that information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
FMI FOCUS FUND
100 East Wisconsin Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.fmifunds.com
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
GEORGE D. DALTON
PATRICK J. ENGLISH
GORDON H. GUNNLAUGSSON
TED D. KELLNER
RICHARD E. LANE
PAUL S. SHAIN
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
100 East Wisconsin Avenue, Suite 2200
Milwaukee, Wisconsin 53202
PORTFOLIO MANAGER
BROADVIEW ADVISORS, LLC
100 East Wisconsin Avenue, Suite 2500
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 REGISTERED
PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER LLP
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.
ANNUAL REPORT
SEPTEMBER 30, 2004
FMI
Large Cap
Fund
A NO-LOAD
MUTUAL FUND
FMI
Large Cap
Fund
October 13, 2004
Dear Fellow Shareholders:
The September quarter was down slightly, modestly better than the benchmark
Standard & Poor's 500 Index. For the nine months ended September 30, the Fund
was up 5.8%, compared to a return of 1.5% for the Standard & Poor's 500. The
largest contributor to the relative performance was the underweight position in
technology, a group that declined significantly in the quarter. The materials
sector outperformed the benchmark considerably as strong cyclical demand
prevailed. The energy sector was up notably in absolute terms, although we
slightly underperformed the S&P 500 energy sector for the quarter. Oil tripped
$50 per barrel at the end of the quarter. Concern about slowing economic growth
was reflected in the bond market, with the 10 Year Treasury Bond rallying to
4.1% from 4.6%.
Although the government recently revised its second quarter Gross Domestic
Product (GDP) to 3.3% from the 2.8% figure originally reported, there was
widespread belief that the economy had hit a proverbial "soft patch." Several
high profile earnings misses seemed to remind investors that the elevated growth
rates experienced over the last few quarters were not sustainable. This was
especially true in the technology arena. High raw material prices, particularly
steel and energy, caused additional earnings problems. High gasoline prices were
cited as a significant factor in the numerous earnings misses among retailers.
The U.S. consumer is loaded with debt. Furthermore, the market appeared to be
rattled by continuing problems in Iraq.
Despite this litany of negatives, the economy still appears to be growing.
China and India continue to grow rapidly and worldwide GDP growth has improved.
The International Monetary Fund's recently published economic survey predicts 5%
worldwide GDP growth in 2004, the fastest rate in 20 years. Employment numbers,
while choppy, have generally been better. Real wages, which have been weak for a
few years, are showing nascent signs of improvement. Corporate balance sheets
continued to improve in the September quarter. The reported "core" inflation
rate is under control, but as we have discussed in the past, the official
measurement may significantly understate true inflation.
Last quarter's letter articulated our current thinking on some of these big
picture issues. Quickly summarizing, the consumer remains stretched due to a
weak balance sheet. Housing prices look inflated and the refinancing wave, which
positively impacted consumer spending in recent years, appears to be largely
over. Additionally, and perhaps most importantly, stock market valuations are
high by historical standards. This, along with the aforementioned factors, lead
us to remain cautious and careful.
As is our custom, we offer some comments on a few of the holdings in the
Fund. Below are two new additions to the portfolio, ARAMARK Corp. and Cardinal
Health, Inc.
ARAMARK CORP.
DESCRIPTION:
- ------------
ARAMARK is a leading business outsourcing company, providing managed food,
facility support, and uniform rental services in the United States and
internationally. The Company's business is segmented into two primary
divisions, Food & Support Services, and Uniform. The Food & Support division
(85% of revenues) includes the management of cafeterias, food courts, hotels and
conferencing centers, and providing custodial and maintenance services. The
Uniform division includes the rental and sale of uniforms, mats and safety
equipment. ARAMARK has approximately 200,000 employees serving clients in 18
countries.
GOOD BUSINESS:
- --------------
o ARAMARK enjoys a recurring revenue business model and is a leader in the
majority of the markets it serves.
o The Company should continue to benefit from the trend to outsource non-
strategic business functions. The markets ARAMARK serves are largely
under-penetrated.
o ARAMARK is a very strong cash generator, with free cash flow at net income
or above.
o Return on invested capital (ROIC) approximates 11%.
o An estimated 50% of the Company's end-customers are recession resilient.
VALUATION:
- ----------
o At current prices, the shares trade at 18x 2004 fiscal year end (September)
earnings per share (EPS) estimates and 15x 2005 estimates. The enterprise
value to earnings before interest, taxes, depreciation, and amortization
(EV/EBITDA) multiple is currently about 8x.
o As the Company is able to increase the profitability of newer contracts,
and lever recent revenue growth to the bottom-line, the shares should
obtain a higher multiple on next year's EPS. An 18x to 20x price-to-
earnings (P/E) multiple on 2005 puts the shares at $30 or higher.
MANAGEMENT:
- -----------
o Joseph Neubauer, Chief Executive Officer and Chairman, recently regained
the CEO title following the ouster of William Leonard. Mr. Neubauer held
the CEO position from 1983-2003, while Mr. Leonard had been President for
years prior to his appointment as CEO last year. The Board of Directors has
been disappointed with the execution and profitability of recent large
health care contracts. ARAMARK performed well under Mr. Neubauer before --
and his stake in the Company, at 25 million shares, aligns his interests
with ours.
o Fred Sutherland, Chief Financial Officer, has been with the Company since
1980.
INVESTMENT THESIS:
- ------------------
The recent disappointment in profit growth relative to revenue growth has
concerned investors. We believe the Company will improve its margins over the
next few years as the mix improves, and start-up contracts mature. The
valuation is attractive for a company with good growth prospects, high recurring
revenue, strong cash flow and double-digit ROIC.
CARDINAL HEALTH, INC.
DESCRIPTION:
- ------------
Cardinal Health is the second largest drug distributor (45% of income),
largest medical products distributor (26% of income), largest pharmacy
automation supplier (17% of income), and a niche player in numerous healthcare
products and services. Cardinal is a highly diversified health care company with
an outstanding track record of profitability, growth and financial strength.
GOOD BUSINESS:
- --------------
o Cardinal is a leader in important and enduring health care markets.
o Although drug distribution is in the midst of a transition, the inherent
nature of this - and most of their businesses - is that of very good
recurring revenue, and relatively inelastic demand.
o The ROIC has averaged 14-16% over the past 10 years, and is currently
approximately 14%.
o Very little of Cardinal's revenue is related to capital goods. Most of
their products and services are modestly priced and the businesses are not
terribly difficult to understand.
o The balance sheet is good, and operating cash flow is strong.
VALUATION:
- ----------
o On a P/E basis, the stock is 13.6x fiscal 2005 (June) earnings. The 10-year
mean P/E range is 14x to 44x. The price-to-sales ratio is 0.36x, in a 10-
year range of 0.36x to 0.77x.
o The stock is near historic lows in valuation, from both an absolute and
relative standpoint.
o The sum-of-the-parts valuation is approximately $66.
o Cardinal Health is trading at a significant discount to other health care
companies with similar financial characteristics.
MANAGEMENT:
- -----------
o Bob Walter has been Chairman and Chief Executive Officer since the Company
was formed in 1979. Cardinal has been built through a combination of
internal growth and acquisitions. While we do not prefer a strategy of
growth via acquisition, management's track record has been good.
o The leadership of the four divisions appears to have a good grasp of the
challenges and opportunities in their areas.
o A recent investigation by the Securities and Exchange Commission (SEC) and
U.S. Attorney's Office, and the recent resignation of the Chief Financial
Officer, cast a cloud over management; however, we believe the fallout from
this will be manageable.
INVESTMENT THESIS:
- ------------------
Cardinal's stock has fallen from the mid-$70s to the mid-$40s due to both the
SEC and U.S. Attorney's Office investigation, and significant changes in the
drug distribution model - which have negatively impacted results, and may
continue to do so. Furthermore, Cardinal has experienced setbacks in their
sterile technologies unit. We believe the investigations and the sterile
technologies problems will have little long term impact. The biggest uncertainty
is the ultimate profitability and growth of drug distribution, as the business
model changes. The risk versus reward appears attractive at this level.
As of October 28, 2004, our Board of Directors declared distributions of
$0.06075 per share from net investment income and $0.16347 per share from net
short-term capital gains, which will be treated as ordinary income, payable
October 29, 2004, to shareholders of record on October 27, 2004.
Thank you for your continued confidence in FMI Large Cap Fund.
Sincerely,
/s/Ted D. Kellner /s/Donald S. Wilson /s/Patrick J. English
Ted D. Kellner, CFA Donald S. Wilson, CFA Patrick J. English, CFA
President and Vice President Vice President and
Portfolio Manager Portfolio Manager
100 E. Wisconsin Ave., Suite 2200 o Milwaukee, WI 53202 o 414-226-4555
www.fmifunds.com
FMI Large Cap Fund
COST DISCUSSION
INDUSTRY SECTORS AS OF SEPTEMBER 30, 2004
Consumer Discretionary 14.8%
Consumer Staples 14.5%
Materials & Processing 12.0%
Energy/Utilities 10.0%
Commercial Services 8.6%
Financial Services 8.4%
Producer Durables 6.4%
Technology 5.8%
Healthcare 4.8%
Multi-Industry Companies 4.3%
Distribution 4.0%
Cash 6.4%
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in FMI Large Cap Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from March 31, 2004 through September 30,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
In addition to the costs highlighted and described below, the only Fund
transaction costs you might currently incur would be wire fees ($15 per wire),
if you choose to have proceeds from a redemption wired to your bank account
instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with the Fund. To determine
your total costs of investing in the Fund, you would need to add any applicable
wire or IRA processing fees you've incurred during the period to the costs
provided in the example at the end of this article.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption or exchange fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Account During Period*<F10>
Value 3/31/04 Value 9/30/04 3/31/04-9/30/04
------------- ------------- -------------------
FMI Large Cap Fund Actual $1,000 $1,000.00 $1,013.90 $5.18
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $5.21
*<F10> Expenses are equal to the Fund's annualized expense ratio of 1.03%,
multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period between March 31, 2004 and
September 30, 2004).
FMI Large Cap Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
During the fiscal year ended September 30, 2004, the FMI Large Cap Fund had a
total return of 17.96%. The gain was driven by the following sectors:
materials, healthcare and consumer. The S&P 500 gained 13.87% for the twelve
months ended September 30, 2004. The gain in the S&P 500 was driven by energy,
financials and industrials. Fiscal 2004 was characterized by a broad positive
move in almost all sectors of the stock market. Technology, which had been very
strong in fiscal 2003, was up modestly in fiscal 2004. Rising commodity prices,
particularly metals and energy, was a dominant economic feature in 2004.
Inflation, which had been relatively dormant for several years, began to
escalate. Worldwide economic growth accelerated in 2004. The Fund managers
believe the prospects for rapid U.S. economic growth are low due to excessive
consumer borrowing and the likelihood of higher interest rates and inflation.
Overall valuations for the S&P 500 remain well above historical averages. The
managers of the Fund do not believe the current fundamentals or valuations of
the S&P 500 will lead to above average performance in coming years. The FMI
Large Cap Fund sells at a discount valuation to the S&P 500. We expect the
relative performance of the Fund to be superior to the S&P 500 over the next few
years, however, the absolute performance may not exceed historical averages for
common stocks, which has been approximately 10%.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FMI LARGE CAP FUND AND STANDARD & POOR'S 500 INDEX
Date FMI Large Cap Fund Standard & Poor's 500 Index(1)<F12>
---- ------------------ -----------------------------------
12/31/2001*<F11> $10,000 $10,000
3/31/2002 $10,260 $10,028
6/30/2002 $9,210 $8,684
9/30/2002 $7,940 $7,184
12/31/2002 $8,500 $7,790
3/31/2003 $8,300 $7,544
6/30/2003 $9,550 $8,706
9/30/2003 $10,030 $8,937
12/31/2003 $11,182 $10,025
3/31/2004 $11,669 $10,194
6/30/2004 $11,912 $10,370
9/30/2004 $11,831 $10,176
TOTAL RETURN
Since Inception
1-Year 12/31/01
------ ---------------
17.96% 6.31%
*<F11> inception date
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)<F12> 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.
FMI Large Cap Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of FMI Large Cap 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
FMI Large Cap Fund (a series of FMI Funds, Inc.) (the "Fund") at September 30,
2004, 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 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 standards
of the Public Company Accounting Oversight Board (United States). These
standards 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, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 29, 2004
FMI Large Cap Fund
STATEMENT OF NET ASSETS
September 30, 2004
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
- --------- ---- -----
COMMON STOCKS -- 93.6% (A)<F14>
COMMERCIAL SERVICES SECTOR -- 8.6%
- ----------------------------------
DISTRIBUTION -- 4.6%
11,800 Grainger (W.W.), Inc. $ 593,284 $ 680,270
FACILITIES MANAGEMENT -- 4.0%
25,000 ARAMARK Corp. - CL B 622,717 603,500
CONSUMER DISCRETIONARY SECTOR -- 14.8%
- --------------------------------------
CONSUMER PRODUCTS -- 5.3%
16,200 V. F. Corp. 699,964 801,090
RESTAURANTS -- 4.8%
17,500 Yum! Brands, Inc. 550,017 711,550
RETAIL TRADE -- 4.7%
32,200 TJX Companies, Inc. 734,356 709,688
CONSUMER STAPLES SECTOR -- 14.5%
- --------------------------------
FOODS -- 6.9%
7,800 Diageo PLC-SP - ADR 420,553 393,354
41,800 Kroger Co.*<F13> 699,744 648,736
----------- -----------
1,120,297 1,042,090
HOUSEHOLD PRODUCTS -- 3.6%
27,000 Newell Rubbermaid Inc. 607,611 541,080
PERSONAL CARE -- 4.0%
9,200 Kimberly-Clark Corp. 533,165 594,228
DISTRIBUTION SECTOR -- 4.0%
- ---------------------------
HEALTHCARE -- 4.0%
13,700 Cardinal Health, Inc. 658,171 599,649
ENERGY SECTOR -- 6.3%
- ---------------------
OIL & GAS PRODUCERS -- 6.3%
11,300 ConocoPhillips 742,729 936,205
FINANCIAL SERVICES SECTOR -- 8.4%
- ---------------------------------
BANKS -- 4.4%
11,100 Comerica Inc. 609,075 658,785
PROPERTY & CASUALTY INSURANCE -- 4.0%
10,300 Loews Corp. 595,984 602,550
HEALTHCARE SECTOR -- 4.8%
- -------------------------
DRUGS & PHARMACEUTICALS -- 1.9%
11,700 Bristol-Myers Squibb Co. 283,248 276,939
HEALTHCARE PRODUCTS -- 2.9%
8,500 Becton, Dickinson & Co. 291,062 439,450
MATERIALS & PROCESSING SECTOR -- 12.0%
- --------------------------------------
CHEMICALS -- 7.4%
7,000 Avery Dennison Corp. 394,863 460,460
15,300 Praxair, Inc. 530,224 653,922
----------- -----------
925,087 1,114,382
MATERIALS & MINERALS MINING -- 4.6%
33,100 BHP Billiton Ltd. SP - ADR 494,385 686,825
MULTI-INDUSTRY COMPANIES SECTOR -- 4.3%
- ---------------------------------------
INDUSTRIAL CONGLOMERATE -- 4.3%
225 Berkshire
Hathaway Inc. Cl B*<F13> 612,681 645,975
PRODUCER DURABLES SECTOR -- 6.4%
- --------------------------------
POLLUTION CONTROL & ENVIRONMENTAL SERVICES 6.4%
34,900 Waste Management, Inc. 969,500 954,166
TECHNOLOGY SECTOR -- 5.8%
- -------------------------
COMPUTER SERVICES SOFTWARE & SYSTEMS -- 5.8%
36,500 SunGard Data Systems Inc.*<F13> 841,467 867,605
UTILITIES SECTOR -- 3.7%
- ------------------------
ELECTRICAL -- 3.7%
8,100 FPL Group, Inc. 518,981 553,392
----------- -----------
Total common stocks 13,003,781 14,019,419
SHORT-TERM INVESTMENTS -- 6.5% (A)<F14>
VARIABLE RATE DEMAND NOTES -- 6.5%
$740,000 U.S. Bank, N.A., 1.59% 740,000 740,000
231,676 Wisconsin Corporate Central
Credit Union, 1.51% 231,676 231,676
----------- -----------
Total short-term
investments 971,676 971,676
----------- -----------
Total investments $13,975,457 14,991,095
-----------
-----------
Liabilities, less cash and
receivables -- (0.1%) (A)<F14> (14,251)
-----------
NET ASSETS $14,976,844
-----------
-----------
Net Asset Value Per Share
($0.0001 par value, 100,000,000
shares authorized), offering
and redemption price
($14,976,844 / 1,285,000
shares outstanding) $11.66
------
------
*<F13> Non-income producing security.
(a)<F14> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
The accompanying notes to financial statements are an integral part of this
statement.
FMI Large Cap Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 166,500
Interest 8,833
----------
Total income 175,333
----------
EXPENSES:
Management fees 88,614
Professional fees 32,666
Registration fees 24,584
Administrative services 24,208
Transfer agent fees 19,988
Board of Directors fees 8,974
Printing and postage expense 6,405
Custodian fees 6,301
Insurance expense 333
Other expenses 3,727
----------
Total expenses before reimbursement 215,800
Less expenses reimbursed by adviser (116,037)
----------
Net expenses 99,763
----------
NET INVESTMENT INCOME 75,570
----------
NET REALIZED GAIN ON INVESTMENTS 278,737
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 790,365
----------
NET GAIN ON INVESTMENTS 1,069,102
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,144,672
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
FMI Large Cap Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment income $ 75,570 $ 15,349
Net realized gain on investments 278,737 87,098
Net increase in unrealized appreciation on investments 790,365 840,720
----------- ----------
Net increase in net assets resulting from operations 1,144,672 943,167
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividend from net investment income ($0.02700 per share) (15,350) --
Distribution from net realized gains ($0.12587 per share) (71,558) --
----------- ----------
Total distributions (86,908)*<F15> --
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (733,511 and 182,693 shares, respectively) 8,425,963 1,716,835
Net asset value of shares issued in distributions reinvested (8,096 shares) 84,361 --
Cost of shares redeemed (23,193 and 23,594 shares, respectively) (271,569) (215,951)
----------- ----------
Net increase in net assets derived from Fund share activities 8,238,755 1,500,884
----------- ----------
TOTAL INCREASE 9,296,519 2,444,051
NET ASSETS AT THE BEGINNING OF THE YEAR 5,680,325 3,236,274
----------- ----------
NET ASSETS AT THE END OF THE YEAR (including undistributed
net investment income of $79,543 and $15,349, respectively) $14,976,844 $5,680,325
----------- ----------
----------- ----------
*<F15> See Note 7
The accompanying notes to financial statements are an integral part of these
statements.
FMI Large Cap Fund
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each period)
FOR THE YEARS ENDED FOR THE PERIOD FROM
SEPTEMBER 30, DECEMBER 31, 2001+<F16> TO
2004 2003 SEPTEMBER 30, 2002
---- ---- --------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.03 $ 7.94 $10.00
Income from investment operations:
Net investment income (loss) 0.10 0.03 (0.01)
Net realized and unrealized gain (loss) on investments 1.68 2.06 (2.05)
------ ------ ------
Total from investment operations 1.78 2.09 (2.06)
Less distributions:
Dividend from net investment income (0.03) -- --
Distribution from net realized gains (0.12) -- --
------ ------ ------
Total from distributions (0.15) -- --
------ ------ ------
Net asset value, end of period $11.66 $10.03 $ 7.94
------ ------ ------
------ ------ ------
TOTAL RETURN 17.96% 26.32% (20.60%)*<F17>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 14,977 5,680 3,236
Ratio of expenses (after reimbursement) to average net assets (a)<F19> 1.13% 1.34% 1.75%**<F18>
Ratio of net investment gain (loss) to average net assets (b)<F20> 0.85% 0.36% (0.30%)**<F18>
Portfolio turnover rate 38.1% 54.4% 31.8%
+<F16> Commencement of operations.
*<F17> Not annualized.
**<F18> Annualized.
(a)<F19> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the years
ended September 30, 2004 and 2003 and for the period December 31,
2001+<F16> through September 30, 2002, the ratios would have been
2.44%, 3.07% and 3.71%**<F18>, respectively.
(b)<F20> If the Fund had paid all of its expenses for the years ended
September 30, 2004 and 2003 and for the period December 31,
2001+<F16> through September 30, 2002, the ratios would have been
(0.46%), (1.37%) and (2.26%)**<F18>, respectively.
The accompanying notes to financial statements are an integral part of this
statement.
FMI Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
FMI Large Cap Fund (the "Fund"), a series 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, as amended.
The Company was incorporated under the laws of Maryland on September 5,
1996 and the Fund commenced operations on December 31, 2001. The assets
and liabilities of each fund in the Company are segregated and a
shareholder's interest is limited to the fund in which the shareholder owns
shares. The investment objective of the Fund is to seek long-term capital
appreciation principally through investing in a limited number of large
capitalization value 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. Securities that are traded on the Nasdaq National
Market or the Nasdaq SmallCap Market are valued at the Nasdaq Official
Closing Price, or if no sale is reported, the latest bid price.
Securities that are traded over-the-counter are valued at the latest
bid price. Unlisted equity securities for which market quotations are
readily available are valued at the most recent 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. The fair value of a security is the amount
which the Fund might reasonably expect to receive upon a current sale.
The fair value of a security may differ from the last quoted price and
the Fund may not be able to sell a security at the fair value. Market
quotations may not be available, for example, if trading in particular
securities was halted during the day and not resumed prior to the
close of trading on the New York Stock Exchange. Short-term
investments with maturities of 60 days or less are valued at amortized
cost which approximates value. For financial reporting purposes,
investment transactions are recorded on the trade date.
(b) Net realized gains and losses on sales of securities are computed on
the identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on an 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) No provision has 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 will pay FMI a monthly management fee at the annual
rate of 1.0% 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 0.2% 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 1.75% of the daily net assets of the Fund. For the year
ended September 30, 2004, contractual reimbursements were $60,780. In
addition to the reimbursement required under the management agreement, FMI
has voluntarily reimbursed the Fund for expenses over 1.13%. For the year
ended September 30, 2004, FMIreimbursed the Fund $55,257 for these excess
expenses.
Each Director who is not affiliated with the Fund receives an annual
fee for service as a Director and is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Director's fees as if invested in the Fund. The
value of each Director's deferred compensation account will increase or
decrease as if it were invested in shares of the Fund. The Fund maintains
its proportionate share of the liability for deferred fees.
In the normal course of business the Fund enters into contracts with
service providers that contain general indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, based on experience, the Fund expects the risk of loss to be
remote.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed
to shareholders at least annually. On October 28, 2004, the Fund
distributed $79,543 from net investment income ($0.06075 per share) and
$214,039 from net short-term realized gains ($0.16347 per share). The
distributions were paid on October 29, 2004 to shareholders of record on
October 27, 2004.
(4) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2004, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$11,061,787 and $3,078,956, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2004, liabilities of the Fund included the
following:
Payable to FMIfor management and administrative fees $12,355
Other liabilities 12,637
Due to custodian 10,896
Deferred compensation plan for Directors 3,974
(6) SOURCES OF NET ASSETS --
As of September 30, 2004, the sources of net assets were as follows:
Fund shares issued and outstanding $13,704,489
Net unrealized appreciation on investments 1,015,638
Undistributed net realized gains on investments 181,148
Undistributed net investment income 75,569
-----------
$14,976,844
-----------
-----------
(7) INCOME TAX INFORMATION --
The following information for the Fund is presented on an income tax
basis as of September 30, 2004:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$14,008,347 $1,389,307 $406,559 $982,748 $293,582 $--
The difference, if any, between the cost amounts for financial
statement and federal income tax purposes is due primarily to timing
differences in recognizing certain gains and losses on security
transactions.
The tax components of dividends paid during the years ended September
30, 2004 and 2003, capital loss carryovers, which may be used to offset
future capital gains, subject to Internal Revenue Code limitations, as of
September 30, 2004, and tax basis post-October losses as of September 30,
2004, which are not recognized for tax purposes until the first day of the
following fiscal year are:
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
----------------------------------------------------------------- --------------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- -------------- ---------- ------------ ------------- -------------
$86,908 $ -- $ -- $ -- $ -- $ --
The Fund has utilized $97,586 of its post-October losses from the
prior year to reduce current year net capital gains.
For corporate shareholders in the Fund, the percentage of dividend
income distributed for the year ended September 30, 2004 which is
designated as qualifying for the dividends received deduction is 70%
(unaudited).
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended September 30, 2004 which is designated as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003,
is 70% (unaudited).
FMI Large Cap Fund
DIRECTORS AND OFFICERS
# OF FUNDS OTHER
TERM OF PRINCIPAL IN COMPLEX DIRECTORSHIPS
POSITION OFFICE AND OCCUPATION OVERSEEN HELD BY
NAME, AGE HELD WITH LENGTH OF DURING PAST BY DIRECTOR DIRECTOR
AND ADDRESS THE FUND TIME SERVED FIVE YEARS OR OFFICER OR OFFICER
- ----------- --------- ----------- ----------- ----------- -------------
"DISINTERESTED PERSONS" OF THE FUND:
Barry K. Allen, 56 Director Indefinite Term Mr. Allen has been Executive Vice 8 Harley-Davidson,
1801 California Street Since December President of Qwest Communications Inc., FMI Common
Denver, CO 80202 2001 International, Inc. a global Stock Fund, Inc. and
communications company since FMI Mutual Funds,
September, 2002. Prior to this, Mr. Allen Inc.
had served as President of Allen Enterprises,
LLC, a private equity investments
management company he 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, 76 Director Indefinite Term Mr. Dalton is Chairman and Chief 8 Clark Consulting
20825 Swenson Drive Since December Executive Officer of Call_Solutions.com, Inc., FMI Common
Waukesha, WI 53186 2001 Inc. Prior to January 2000, Mr. Dalton Stock Fund, Inc. and
was Chairman of the Board and Chief FMI Mutual Funds,
Executive Officer of Fiserv, Inc., and had Inc.
served in that capacity since 1984.
Gordon H. Director Indefinite Term Mr. Gunnlaugsson retired from M&I 8 Renaissance Learning
Gunnlaugsson, 60 Since December Corporation. He was employed by Systems, Inc., FMI
c/o Fiduciary 2001 M&I Corporation from June 1, 1970 to Common Stock Fund,
Management, Inc. December 31, 2000 where he most Inc. and FMI Mutual
100 E. Wisconsin Ave. recently held the positions of Executive Funds, Inc.
Suite 2200 Vice President and Chief Financial Officer.
Milwaukee, WI 53202
Paul S. Shain, 41 Director Indefinite Term Mr. Shain is President and Chief 8 FMI Common Stock
5520 Research Since December Operating Officer of Berbee Information Fund, Inc. and FMI
Park Drive 2001 Networks, and has been employed by such Mutual Funds, Inc.
Madison, WI 53711 firm since 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:
Richard E. Lane*<F21>, 48 Director Indefinite Term Mr. Lane is President of Broadview 2 None
100 E. Wisconsin Ave. Since December Advisors, LLC, the sub-adviser to the FMI
Suite 2500 2001 Focus Fund. Mr. Lane served as a portfolio
Milwaukee, WI 53202 manager and financial analyst with Fiduciary
Management, Inc. from September 1994
through April 2001.
Ted D. Kellner*<F21>, 58 Director Indefinite Term Mr. Kellner is Chairman of the Board 8 Marshall & Ilsley
c/o Fiduciary Since December and Chief Executive Officer of Fiduciary Corporation and FMI
Management, Inc. 2001 Management, Inc. which he co-founded Common Stock Fund,
100 E. Wisconsin Ave. President One Year Term in 1980. Inc.
Suite 2200 and Since 2001
Milwaukee, WI 53202 Treasurer
Patrick J. English*<F21>, 43 Director Indefinite Term Mr. English is President of Fiduciary 8 FMI Common Stock
c/o Fiduciary Since December Management, Inc. and has been employed Fund, Inc.
Management, Inc. 2001 by the investment adviser in various
100 E. Wisconsin Ave. Vice One Year Term capacities since December, 1986.
Suite 2200 President Since 2001
Milwaukee, WI 53202
Kathleen M. Lauters, 52 Chief At Discretion Ms. Lauters has been the Fund's Chief 8 None
c/o Fiduciary Compliance of Board Compliance Officer since September 2004.
Management, Inc. Officer Since September From June 1995 to September 2004 Ms.
100 E. Wisconsin Ave. 2004 Lauters was employed by Strong Capital
Suite 2200 Management, most recently as Senior
Milwaukee, WI 53202 Compliance Analyst.
Camille F. Wildes, 52 Vice One Year Term Ms. Wildes is a Vice-President of 8 None
c/o Fiduciary President Since December Fiduciary Management, Inc. and has
Management, Inc. and 2001 been employed by the investment adviser
100 E. Wisconsin Ave. Assistant in various capacities since December, 1982.
Suite 2200 Treasurer
Milwaukee, WI 53202
Donald S. Wilson, 61 Vice One Year Term Mr. Wilson is Vice Chairman and 8 FMI Common Stock
c/o Fiduciary President Since December Treasurer of Fiduciary Management, Inc. Fund, Inc. and FMI
Management, Inc. and 2001 which he co-founded in 1980. Mutual Funds, Inc.
100 E. Wisconsin Ave. Secretary
Suite 2200
Milwaukee, WI 53202
*<F21> Mr. Lane is an "interested person" of the Fund because he is an officer
of the FMI Focus Fund's sub-adviser. Messrs. Kellner 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 (the "Commission") at
http://www.sec.gov. Information on how the Fund voted proxies relating to
portfolio securities during the twelve month period ending June 30, 2004 is
available on the Fund's website at http://www.fmifunds.com or the website of the
Commission. The Fund files its complete schedule of portfolio holdings with the
Commission for the first and third quarter of each fiscal year on Form N-Q; (ii)
the Fund's Form N-Q is available on the Commission's website; and (iii) the
Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference
Room in Washington, D.C., and that information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
FMI LARGE CAP FUND
100 East Wisconsin Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.fmifunds.com
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
GEORGE D. DALTON
PATRICK J. ENGLISH
GORDON H. GUNNLAUGSSON
TED D. KELLNER
RICHARD E. LANE
PAUL S. SHAIN
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
100 East Wisconsin Avenue, Suite 2200
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 REGISTERED
PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER LLP
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 Large Cap Fund unless accompanied or preceded by
the Fund's current prospectus. Performance data quoted represents past
---------------------------------------
performance; past performance does not guarantee future results. The investment
- ----------------------------------------------------------------
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.fmifunds.com.
ITEM 2. CODE OF ETHICS.
- -----------------------
Registrant has adopted a code of ethics. See attached Exhibit 11 (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.
- -----------------------------------------------
(a) Audit Fees
$32,100 (FY 2004) and $30,550 (FY 2003) are the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the principal
accountant to the registrant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Audit-Related Fees
There were no fees billed in each of the last two fiscal years for Audit-Related
Fees.
(c) Tax Fees
$9,995 (FY 2004) and $10,775 (FY 2003) are the aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant to the registrant for tax compliance, tax advice, tax planning and
tax return preparation.
There were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant to registrant's investment adviser
for tax compliance, tax advice and tax planning that were required to be
approved by the audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X.
(d) All Other Fees
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to the registrant, other than the
services reported in paragraphs (a) - (c) of this Item 4.
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to registrant's investment
adviser, which were required to be approved by the audit committee pursuant to
paragraph (c)(7)(ii) or Rule 2-01 or Regulation S-X.
(e) (1) None
(e) (2) None
(f) Not applicable.
(g) See the tax fees disclosed in paragraph (c) of this Item 4.
(h) Not applicable, as no non-audit services were provided to registrant's
investment adviser.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- --------------------------------
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 10. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The disclosure controls and procedures of the FMI Funds, Inc. are
periodically evaluated. As of October 26, 2004, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the FMI Funds, Inc. are periodically evaluated.
Since, October 26, 2004, the date of the last evaluation, there have been
no significant changes in the FMI Funds' 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 11. 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 Funds, Inc.
----------------
Registrant
By /s/ Ted D. Kellner
-------------------------------------------
Ted D. Kellner, Principal Executive Officer
Date November 19, 2004
-----------------------------------------
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 Funds, Inc.
----------------
Registrant
By /s/ Ted D. Kellner
-------------------------------------------
Ted D. Kellner, Principal Financial Officer
Date November 19, 2004
------------------------------------------