FMI Funds, Inc.the higher number of big losers in their riskier portfolios; however, institutional constraints usually prevent investors from owning huge percentages of their portfolio

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QUARTERLY REPORTDecember 31, 2018

FMI Large Cap FundInvestor Class (FMIHX)

Institutional Class (FMIQX)

FMI Common Stock FundInvestor Class (FMIMX)

Institutional Class (FMIUX)

FMI International FundInvestor Class (FMIJX)

Institutional Class (FMIYX)

FMI Funds, Inc. Advised by Fiduciary Management, Inc. www.fmifunds.com

FMI Large Cap Fund

Shareholder Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statement of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

FMI Common Stock Fund



FMI International Fund



Schedule of Forward Currency Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Performance and Disclosure Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

FMI Funds, Inc.TABLE OF CONTENTS

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FMILarge CapFund

December 31, 2018

Dear Fellow Shareholders:

The FMI Large Cap Fund returned -9.56%1 in the December quarter comparedto -13.52% for the benchmark Standard & Poor’s 500 Index (S&P 500). Sectors thatboosted returns included Retail Trade, Electronic Technology and Finance. Sectorsthat hurt included Industrial Services, Communications and Technology Services.Dollar General, Omnicom and Twenty-First Century Fox-Cl B added to relativeperformance while Schlumberger, CenturyLink and Quest Diagnostics detracted. Theabnormally low volatility of the last several years appears to be over. Markets aremoving dramatically in both directions, although mostly downward since September. Itwas a tough quarter for stocks, and it pulled the year into negative territory.Value-oriented strategies such as ours outperformed growth-focused strategies and thebenchmark in the quarter. Perhaps this is the end of an astonishing run for growthstocks… the longest on record of outperforming value. Nearly a decade ago (March 9,2009) marked the bottom of the last stock market cycle, and approximately the nadir ofthe economy as well. The Fed has had an outsized role in financial and economicmatters ever since the Greenspan era, but the last decade has seen an unprecedentedlevel of Fed intervention, driving interest rates to roughly zero and essentiallyconjuring $4.5 trillion out of thin air. These central bank policies, copied the worldover, helped inflate assets – especially the more aggressive growth stocks, privatecompanies, bonds, real estate and art. Naturally, Fed defenders will point to the longeconomic expansion as justification for their policies, but it has been the slowestrecovery on record, and has left the government buried in debt. A large number ofpeople simply dropped out of the workforce, and the economy and society are now leftto deal with the aftermath of a misallocation of resources brought about by artificiallylow rates. We applaud the normalization of rates and hope the Powell Fed recognizesthe age-old axiom: “There is no such thing as a free lunch.”

The severe decline in the December quarter may have woken the complacent,reminding them that stocks go both ways. It remains to be seen whether thespeculative excesses of the last cycle will be wrung out in classic bear market fashionor if this is just another pause that refreshes (“buy the dip!”). It’s too early to saywhether the strong rebound on December 26th (roughly 5% in the S&P 500) is anotherwin for the “buy the dip” crowd. Since we believe our investments are moreconservative, we hope that the newfound volatility means we have entered a morediscerning era where balance sheets and bona fide earnings rule the roost, rather thanprofitless growth and made-for-Wall Street earnings. While a sizable number of stocks _____________1 The FMI Large Cap Fund Investor Class (FMIHX) and the FMI Large Cap Fund Institutional Class(FMIQX) had a return of -9.56% and -9.53%, respectively, for the fourth quarter of 2018.

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have declined significantly, most of the higher-quality equities have yet to reach anattractive zone from a valuation standpoint. In fact, overall valuations remain wellabove historical norms. Nevertheless, the rapid change in sentiment, saveDecember 26, has put many more interesting ideas into view, and the research team isexcited for the first time in a while. Additionally, while it might seem a bit unsporting,it is gratifying to see some of the rankly speculative stocks get crushed. Many of thesehigh-wire acts were performing without a net, so to speak. In a rough market, burningcash and losing money are not comforting words to investors, many of whom aretasting fear for the first time. The muscle memory of a 10-year growth-driven bullmarket doesn’t change in one quarter, however, so we expect sharp growth stock rallieswithin the context of a return to normal in valuations. Our working thesis is thatinvestors will capitalize the good growth companies at lower multiples and abandon therickety companies, both of which should work in our favor.

Rather than the typical narrative, below we have addressed the most commonquestions we have been getting over the past twelve months.

The changing nature of our economy, with more technology companies, favorsgrowth stocks. Why do you think value will outperform growth?

Human nature is unlikely to change. People like to feel smart, and owning themost popular stocks and the hippest companies makes them think they are. What theypay (valuation) for this luxury becomes an afterthought. Cognitive dissonance (thestate of having inconsistent thoughts, beliefs, or attitudes), prevents investors fromembracing the notion that these stocks are speculative, risky and possibly poorinvestments. Each year they “win” gives them more confidence and allows them toembrace a range of explanations and justifications for their positions. Thus, revenuegrowth or customer count trumps profit, adjusted earnings trumps real earnings, andmomentum trumps balance sheets. Value investors basically work away from thetendencies of the growth stock investors. They take advantage of the madness ofcrowds and understand that high growth is rarely sustainable. Most importantly, valueinvestors understand that hitting for average is more important than socking anoccasional home run. Growth stock investors typically rely on home runs to counterthe higher number of big losers in their riskier portfolios; however, institutionalconstraints usually prevent investors from owning huge percentages of their portfolio injust a few stocks, thus negating some of the benefits of owning big winners, and ofgrowth stock investing relative to value investing.

Why is the P/E ratio for the market that I hear on CNBC, Bloomberg or FactSet somuch different than FMI’s?

The price-to-earning (P/E) ratio used by the popular press and data providers aremost often an estimate of the following year’s earnings, adjusted for amortization ofintangibles, restructuring charges, one-time items, and other non-cash items such as stockcompensation. It is not based on generally accepted accounting principles (GAAP). Aswe have articulated in the past, the difference between adjusted earnings and GAAPearnings has grown enormously as the bull market has lengthened, and today is at least30% higher. Moreover, the way Standard & Poor’s (S&P) calculates the P/E ratio is(approximately) the summed market values of the companies divided by the summed

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float-adjusted earnings. When an investor buys an index fund, however, what they arereally buying is the P/E ratios of each individual constituent times its weighting in theindex, with the sum of these weighted P/E’s being the P/E ratio for the index. When thelargest market caps are also the most expensive, the S&P method can understate theactual P/E ratio. The following simplified example shows how the S&P method couldyield a P/E ratio approximately 30% lower than the weighted average P/E method. Thisphenomenon would be reversed if the bigger market caps had the lower P/E ratios.

Looking at the U.S. Russell indices, they have calculated index P/E’s using aninterquartile range to exclude outliers. This appears to ignore the money-losingcompanies, most of which are speculative and deserving of a high P/E ratio. In theiShares Russell 2000 ETF (essentially an identical proxy), for example, as of 12/31/18there are over 700 companies losing money! This methodology also eliminates ameaningful number of the highest P/E ratio companies. Based on a weighted averagemethodology that we have used for years using actual earnings (capping over-100 P/Estocks at 100, and money-losing companies at 40) the weighted average P/E ratio of theiShares Russell 2000 ETF is 30.8 times as of December 31, with a median of31.3 times. For the S&P 500, the weighted average P/E using our methodology is31.3 times, with a median of 20.2 times.

Even if we acknowledge that valuations are high, they’ve been high for many yearsand we’ve made a lot of money. Why do you think they are poised to fall?

Stock returns are a combination of earnings performance, multiple change anddividend yield. If multiples did not change, stocks would rise at the underlyingearnings growth rate. Over long periods of time, this has been approximately 6%.Recently, this rate has been slightly higher than the underlying growth rate of theeconomy, in nominal terms. Over the past ten years, despite starting from a trough(and having no recessions, and benefiting from lower tax rates, low interest rates andshare repurchases), the S&P 500 has grown earnings at a median rate of just 5.7%.2

Yields have slipped from approximately 3.3% to 2% over the past decade. Thus, theapproximate 13% compound return of the index over the past decade has benefitedfrom approximately 4.8% annualized growth in the multiple. The multiple expansionis even more extreme in the Russell 2000. As previously mentioned, valuations are stillquite high by historical standards. If growth struggles to reach 6% when aided bylower rates and share repurchases, how will the next several years look on this front, _____________2 Ten years ending November 2, 2018.

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with higher interest rates, perhaps higher tax rates, and maybe even a recession? Wehave just witnessed in the December quarter how sentiment can change rapidly. Willinvestors shrug off illogical valuations as they have for half a decade? Time will tell.

Why would stocks be declining when the economy appears strong?

We’ll start with the fact that the current growth rate is not actually strong byhistorical standards. Nevertheless, the market may be anticipating a tougher economicenvironment. There are numerous signs of worry, including several regionalPurchasing Managers’ Indices (PMI) falling, oil and industrial commodities dropping,World Bank and Atlanta Fed estimates of GDP growth slowing, core capitalexpenditure orders retreating, and auto and housing-related industries weakening.Maybe the market is starting to wise up to some shenanigans, including mostcompanies’ presentation of adjusted earnings – or just plain aggressive accounting, asexhibited by companies such as GE. In an October issue of Grant’s Interest RateObserver, Francine McKenna, a trained accountant and reporter for Dow Jones’MarketWatch, was quoted bemoaning the quality of today’s earnings: “Companies aredeliberately misleading investors in terms of their actual results, using these alternativemetrics because they gave up trying to do it via GAAP. It is much easier to just makestuff up.” The SEC is undoubtedly going to be more heavily scrutinizing adjustedearnings in coming years. Perhaps investors are beginning to consider that they wereon borrowed time, betting on money-losing companies and momentum stocks. Someinvestors are chart readers who see a technical breakdown and are simply hitting thesell button. Others are part of ETFs, index funds and other program trading. As TheWall Street Journal said recently, “Roughly 85% of all trading is on autopilot—controlled by machines, models or passive investing formulas, creating anunprecedented trading herd that moves in unison and is blazingly fast.” Maybegeopolitical tensions have become too intense to support high multiples. Finally, as wehave documented in previous letters, economic growth and stock market performanceare often not correlated in the short-to-intermediate term.

Profit margins are excellent and there doesn’t seem to be any reason to believe theywill be falling. Why do you feel differently?

This is an easy one. Margins have already dropped significantly. After-taxmargins are still near a peak but that includes lower interest expenses and lower taxes,which may be in the journal of irreproducible results. According to The LeutholdGroup, earnings before interest and taxes (EBIT) as a percentage of GDP peaked aboutfive years ago, and margins are already down roughly 200 basis points. The new yearwill lap the tax law change. Higher wage inflation will make for a more difficultmargin story, whether using EBIT or net income. The end result could be earningsgrowth that may actually trail sales growth, with both rates in a mid-single-digit growthrange… barring a recession.

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Why do you seem so concerned about debt levels when few else seem to be?

Debt as a percentage of GDP is at a 50-year high. The level is virtuallyunprecedented in non-wartime. Interest expense is 6.6% of the federal budget, andexpected deficits (approaching $1 trillion) and the debt (over $20 trillion) are escalatingrapidly. Astonishingly, the Office of Management and Budget (OMB) expects interestexpense to rise to 12% by 2023. This poses significant crowding-out effects and socialcosts, not to mention P/E multiple risk.

At the individual company level, high debt lowers the margin of error. Accordingto Moody’s, “Since 2009, the level of global nonfinancial companies rated asspeculative, or junk, has surged by 58 percent, to the highest proportion ever.” Thecapital markets might not always be receptive to rolling over one’s debt. Few thingsmatch the fear that comes from a debt market that seizes up. Higher interest expenseclearly dents earnings. Companies with levered balance sheets often see their stocksfall much harder when ill economic winds blow. Further, raising debt to buy backequity, the favored method of earnings growth in recent years, is simply much moredifficult given today’s balance sheets.

Why will active management outperform index funds?

One of the great mysteries of recent years is Warren Buffett’s advice to all investors:buy the S&P 500 Index Fund. On one level, the S&P 500 is perhaps a good thing to buyin the aftermath of a bear market when almost all stocks are discounted. Obviously, thatdoesn’t apply today, at least at the very moment we pen this! The S&P 500 is probablythe best index fund to own of all the various index funds and ETFs one could purchase.There appear to be higher-quality companies and balance sheets in this index than in theothers, especially the popular ones tracking the Russell 2000 and Nasdaq. PerhapsBuffett is thinking in very broad, long strokes… as in fifteen or twenty years.

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Considering how the typical investor deploys money (chasing performance and earning areturn that is less than half of the market’s return over the last 30 years, according toDALBAR), it may not be bad advice even from today’s relatively high valuation levels,as long as the holding period is sufficiently long. Perhaps Buffett recognizes that theaverage investor doesn’t live in Lake Wobegon (where “all the children are aboveaverage”), so rather than recommend some type of active management over others, hedefaults to recommending the index. Still, for someone who generally looks forwardrather than backward, and who made his career in active management, it’s a bit curious,especially with the market (using Buffett’s favorite valuation yardstick, market cap-to-GDP) recently touching the highest level ever, in August.

Buffett’s compatriot-in-arms is Jack Bogle, the long-time leader of Vanguard andindex fund espouser extraordinaire. Mr. Bogle has been a proponent of index fundinvesting regardless of valuations. In early 2000 the S&P 500 stood at approximately1530. Thirteen years later it was also 1530, with an intermediate stop at 673. Oneclipped a small dividend for the trouble but that was a pretty paltry return compared tomany active managers, particularly of the value persuasion. The setup looks eerilysimilar today, or at least it did a few months ago. As in the early 2000s, speculativejuices were (and probably still are) unsustainably high. When the most popularcompanies come under pressure, it is likely to have a disproportionate impact on theindex funds. The Russell 2000 and other small cap-focused index funds, wherespeculation and shaky balance sheets are the most rampant, will likely see astonishingdeclines. We win by having far fewer of these names than the index. The questionreally should be, “Why will some active managers beat the index?” Careful,discerning, value-oriented investors should beat an index that has heretofore benefited

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from years of nonfundamental money flow, causing it to be top-heavy with expensivestocks. We are confident that when the full story plays out over the long run, we shouldcomfortably outperform.

On December 14, 2018, the Fund’s Board of Directors declared a distributionpayable on December 14, 2018 to shareholders of record on December 13, 2018 asfollows:

Short-Term Long-Term TotalClass Ticker Income Capital Gains Capital Gains Distributions_____ ______ _______ ____________ ____________ ____________Investor Class FMIHX $0.28495797 $0.08958 $3.13549 $3.51002797Institutional Class FMIQX $0.32287040 $0.08958 $3.13549 $3.54794040

Thank you for your confidence in the FMI Large Cap Fund.

100 E. Wisconsin Ave., Suite 2200 • Milwaukee, WI 53202 • 414-226-4555www.fmifunds.com

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Shares Value (b) ______ ________

COMMON STOCKS — 96.0% (a)

COMMERCIAL SERVICES SECTOR — 3.0% Advertising/Marketing Services — 3.0% 1,935,000 Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 141,719,400

COMMUNICATIONS SECTOR — 2.2% Specialty Telecommunications — 2.2% 6,937,000 CenturyLink Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,095,550

CONSUMER DURABLES SECTOR — 2.9% Tools & Hardware — 2.9% 1,145,000 Stanley Black & Decker Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,102,300

CONSUMER NON-DURABLES SECTOR — 9.9% Beverages: Non-Alcoholic — 3.5% 1,530,000 PepsiCo Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,034,400 Food: Major Diversified — 3.3% 1,965,000 Nestlé S.A. – SP-ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,086,400 Household/Personal Care — 3.1% 2,815,000 Unilever PLC – SP-ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,083,750

CONSUMER SERVICES SECTOR — 8.8% Movies/Entertainment — 5.6% 5,575,000 Twenty-First Century Fox Inc. – Cl B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,373,500 Other Consumer Services — 3.2% 5,440,000 eBay Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,700,800

ELECTRONIC TECHNOLOGY SECTOR — 1.7% Electronic Components — 1.7% 1,110,000 TE Connectivity Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,949,300

FINANCE SECTOR — 16.7% Investment Managers — 1.2% 1,930,000 Franklin Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,243,800 Major Banks — 7.0% 3,025,000 Bank of New York Mellon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,386,750 1,948,000 JPMorgan Chase & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,163,760 _____________ 332,550,510 Multi-Line Insurance — 5.7% 1,335,000 Berkshire Hathaway Inc. – Cl B* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,580,300 Property/Casualty Insurance — 2.8% 1,025,000 Chubb Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,409,500

HEALTH SERVICES SECTOR — 8.2% Health Industry Services — 3.3% 1,870,000 Quest Diagnostics Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,714,900 Managed Health Care — 4.9% 945,000 UnitedHealth Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,418,400

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FMI Large Cap FundSTATEMENT OF NET ASSETSDecember 31, 2018 (Unaudited)

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Shares Value (b) ______ ________

COMMON STOCKS — 96.0% (a) (Continued)

HEALTH TECHNOLOGY SECTOR — 2.8% Medical Specialties — 2.8% 3,645,000 Smith & Nephew PLC – SP-ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,250,100

INDUSTRIAL SERVICES SECTOR — 2.4% Oilfield Services/Equipment — 2.4% 3,130,000 Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,930,400

PROCESS INDUSTRIES SECTOR — 4.5% Chemicals: Agricultural — 2.7% 2,800,000 Nutrien Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,600,000 Industrial Specialties — 1.8% 840,000 PPG Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,873,200

PRODUCER MANUFACTURING SECTOR — 9.7% Building Products — 3.2% 5,165,000 Masco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,024,600 Industrial Conglomerates — 4.3% 1,550,000 Honeywell International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,786,000 Trucks/Construction/Farm Machinery — 2.2% 1,815,000 PACCAR Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,709,100

RETAIL TRADE SECTOR — 11.3% Apparel/Footwear Retail — 3.0% 3,225,000 The TJX Companies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,286,500 Discount Stores — 8.3% 2,488,000 Dollar General Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,903,040 1,410,000 Dollar Tree Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,351,200 _____________ 396,254,240

TECHNOLOGY SERVICES SECTOR — 9.0% Information Technology Services — 6.2% 1,145,000 Accenture PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,456,450 2,539,000 Cerner Corp.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,145,160 _____________ 294,601,610 Packaged Software — 2.8% 2,939,000 Oracle Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,695,850

TRANSPORTATION SECTOR — 2.9% Air Freight/Couriers — 2.9% 2,050,000 Expeditors International of Washington Inc. . . . . . . . . . . . . . . . . . . . . . . 139,584,500 _____________ Total common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,581,658,910

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FMI Large Cap FundSTATEMENT OF NET ASSETS (Continued)December 31, 2018 (Unaudited)

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Principal Amount Value (b)______________ ________

SHORT-TERM INVESTMENTS — 4.1% (a) Bank Deposit Account — 4.1% $196,850,670 U.S. Bank N.A., 2.28%^ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,850,670 _____________ Total investments — 100.1% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,778,509,580

Other assets, less liabilities — (0.1%) (a) . . . . . . . . . . . . . . . . . . . . . . . . (3,168,273) _____________ TOTAL NET ASSETS — 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,775,341,307 _____________ _____________ Investor Class – Net Asset Value Per Share ($0.0001 par value, 400,000,000 shares authorized), offering and redemption price ($2,533,598,933 ÷ 147,010,257 shares outstanding) . . . . . . . . . . $ 17.23 _____________ _____________ Institutional Class – Net Asset Value Per Share ($0.0001 par value, 200,000,000 shares authorized), offering and redemption price ($2,241,742,374 ÷ 130,305,562 shares outstanding) . . . . . . . . . . $ 17.20 _____________ _____________

* Non-income producing security. ^ The rate shown is as of December 31, 2018.(a) Percentages for the various classifications relate to total net assets.(b) Each security is valued at the current day last sale price reported by the principal security exchange on

which the issue is traded. Securities that are traded on Nasdaq Markets are valued at the Nasdaq OfficialClosing Price, or if no sale is reported, the latest bid price. Securities that are traded over-the-counter,including U.S. Treasury securities are valued at the close price, if not close, then at the latest bid price.Bank deposits are valued at acquisition cost which approximates fair value.

PLC Public Limited CompanySP-ADR Sponsored American Depositary Receipt

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FMI Large Cap FundSTATEMENT OF NET ASSETS (Continued)December 31, 2018 (Unaudited)

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FMICommon Stock

FundDecember 31, 2018


The FMI Common Stock Fund returned -11.87%1 in the December quartercompared to -20.20% for the benchmark Russell 2000 Index. Sectors that boostedreturns included Producer Manufacturing, Consumer Services and CommercialServices. Sectors that hurt included Technology Services, Consumer Non-Durables, andElectronic Technology. Graham Holdings, Woodward and Argo Group added to relativeperformance while Allscripts Healthcare Solutions, Ryder System and Hain CelestialGroup detracted. The abnormally low volatility of the last several years appears to beover. Markets are moving dramatically in both directions, although mostly downwardsince September. It was a tough quarter for stocks, and it pulled the year into negativeterritory. Value-oriented strategies such as ours outperformed growth-focused strategiesand the benchmark in the quarter. Perhaps this is the end of an astonishing run forgrowth stocks… the longest on record of outperforming value. Nearly a decade ago(March 9, 2009) marked the bottom of the last stock market cycle, and approximatelythe nadir of the economy as well. The Fed has had an outsized role in financial andeconomic matters ever since the Greenspan era, but the last decade has seen anunprecedented level of Fed intervention, driving interest rates to roughly zero andessentially conjuring $4.5 trillion out of thin air. These central bank policies, copied theworld over, helped inflate assets – especially the more aggressive growth stocks, privatecompanies, bonds, real estate and art. Naturally, Fed defenders will point to the longeconomic expansion as justification for their policies, but it has been the slowestrecovery on record, and has left the government buried in debt. A large number ofpeople simply dropped out of the workforce, and the economy and society are now leftto deal with the aftermath of a misallocation of resources brought about by artificiallylow rates. We applaud the normalization of rates and hope the Powell Fed recognizesthe age-old axiom: “There is no such thing as a free lunch.”

The severe decline in the December quarter may have woken the complacent,reminding them that stocks go both ways. It remains to be seen whether thespeculative excesses of the last cycle will be wrung out in classic bear market fashionor if this is just another pause that refreshes (“buy the dip!”). It’s too early to saywhether the strong rebound on December 26th (roughly 5% in the S&P 500) is anotherwin for the “buy the dip” crowd. Since we believe our investments are moreconservative, we hope that the newfound volatility means we have entered a morediscerning era where balance sheets and bona fide earnings rule the roost, rather thanprofitless growth and made-for-Wall Street earnings. While a sizable number of stocks_____________1 The FMI Common Stock Fund Investor Class (FMIMX) and the FMI Common Stock Fund InstitutionalClass (FMIUX) had a return of -11.87% and -11.83%, respectively, for the fourth quarter of 2018.

have declined significantly, most of the higher-quality equities have yet to reach anattractive zone from a valuation standpoint. In fact, overall valuations remain wellabove historical norms. Nevertheless, the rapid change in sentiment, save December26, has put many more interesting ideas into view, and the research team is excited forthe first time in a while. Additionally, while it might seem a bit unsporting, it isgratifying to see some of the rankly speculative stocks get crushed. Many of thesehigh-wire acts were performing without a net, so to speak. In a rough market, burningcash and losing money are not comforting words to investors, many of whom aretasting fear for the first time. The muscle memory of a 10-year growth-driven bullmarket doesn’t change in one quarter, however, so we expect sharp growth stock rallieswithin the context of a return to normal in valuations. Our working thesis is thatinvestors will capitalize the good growth companies at lower multiples and abandon therickety companies, both of which should work in our favor.

Rather than the typical narrative, below we have addressed the most commonquestions we have been getting over the past twelve months.

The changing nature of our economy, with more technology companies, favorsgrowth stocks. Why do you think value will outperform growth?

Human nature is unlikely to change. People like to feel smart, and owning themost popular stocks and the hippest companies makes them think they are. What theypay (valuation) for this luxury becomes an afterthought. Cognitive dissonance (thestate of having inconsistent thoughts, beliefs, or attitudes), prevents investors fromembracing the notion that these stocks are speculative, risky and possibly poorinvestments. Each year they “win” gives them more confidence and allows them toembrace a range of explanations and justifications for their positions. Thus, revenuegrowth or customer count trumps profit, adjusted earnings trumps real earnings, andmomentum trumps balance sheets. Value investors basically work away from thetendencies of the growth stock investors. They take advantage of the madness ofcrowds and understand that high growth is rarely sustainable. Most importantly, valueinvestors understand that hitting for average is more important than socking anoccasional home run. Growth stock investors typically rely on home runs to counterthe higher number of big losers in their riskier portfolios; however, institutionalconstraints usually prevent investors from owning huge percentages of their portfolio injust a few stocks, thus negating some of the benefits of owning big winners, and ofgrowth stock investing relative to value investing.

Why is the P/E ratio for the market that I hear on CNBC, Bloomberg or FactSet somuch different than FMI’s?

The price-to-earning (P/E) ratio used by the popular press and data providers aremost often an estimate of the following year’s earnings, adjusted for amortization ofintangibles, restructuring charges, one-time items, and other non-cash items such as stockcompensation. It is not based on generally accepted accounting principles (GAAP). Aswe have articulated in the past, the difference between adjusted earnings and GAAPearnings has grown enormously as the bull market has lengthened, and today is at least30% higher. Moreover, the way Standard & Poor’s (S&P) calculates the P/E ratio is(approximately) the summed market values of the companies divided by the summed

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float-adjusted earnings. When an investor buys an index fund, however, what they arereally buying is the P/E ratios of each individual constituent times its weighting in theindex, with the sum of these weighted P/E’s being the P/E ratio for the index. When thelargest market caps are also the most expensive, the S&P method can understate theactual P/E ratio. The following simplified example shows how the S&P method couldyield a P/E ratio approximately 30% lower than the weighted average P/E method. Thisphenomenon would be reversed if the bigger market caps had the lower P/E ratios.

Looking at the U.S. Russell indices, they have calculated index P/E’s using aninterquartile range to exclude outliers. This appears to ignore the money-losingcompanies, most of which are speculative and deserving of a high P/E ratio. In theiShares Russell 2000 ETF (essentially an identical proxy), for example, as of 12/31/18there are over 700 companies losing money! This methodology also eliminates ameaningful number of the highest P/E ratio companies. Based on a weighted averagemethodology that we have used for years using actual earnings (capping over-100 P/Estocks at 100, and money-losing companies at 40) the weighted average P/E ratio of theiShares Russell 2000 ETF is 30.8 times as of December 31, with a median of31.3 times. For the S&P 500, the weighted average P/E using our methodology is31.3 times, with a median of 20.2 times.

Even if we acknowledge that valuations are high, they’ve been high for many yearsand we’ve made a lot of money. Why do you think they are poised to fall?

Stock returns are a combination of earnings performance, multiple change anddividend yield. If multiples did not change, stocks would rise at the underlyingearnings growth rate. Over long periods of time, this has been approximately 6%.Recently, this rate has been slightly higher than the underlying growth rate of theeconomy, in nominal terms. Over the past ten years, despite starting from a trough(and having no recessions, and benefiting from lower tax rates, low interest rates andshare repurchases), the S&P 500 has grown earnings at a median rate of just 5.7%.2

Yields have slipped from approximately 3.3% to 2% over the past decade. Thus, theapproximate 13% compound return of the index over the past decade has benefitedfrom approximately 4.8% annualized growth in the multiple. The multiple expansionis even more extreme in the Russell 2000. As previously mentioned, valuations are stillquite high by historical standards. If growth struggles to reach 6% when aided bylower rates and share repurchases, how will the next several years look on this front,_____________2 Ten years ending November 2, 2018.

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with higher interest rates, perhaps higher tax rates, and maybe even a recession? Wehave just witnessed in the December quarter how sentiment can change rapidly. Willinvestors shrug off illogical valuations as they have for half a decade? Time will tell.

Why would stocks be declining when the economy appears strong?

We’ll start with the fact that the current growth rate is not actually strong byhistorical standards. Nevertheless, the market may be anticipating a tougher economicenvironment. There are numerous signs of worry, including several regionalPurchasing Managers’ Indices (PMI) falling, oil and industrial commodities dropping,World Bank and Atlanta Fed estimates of GDP growth slowing, core capitalexpenditure orders retreating, and auto and housing-related industries weakening.Maybe the market is starting to wise up to some shenanigans, including mostcompanies’ presentation of adjusted earnings – or just plain aggressive accounting, asexhibited by companies such as GE. In an October issue of Grant’s Interest RateObserver, Francine McKenna, a trained accountant and reporter for Dow Jones’MarketWatch, was quoted bemoaning the quality of today’s earnings: “Companies aredeliberately misleading investors in terms of their actual results, using these alternativemetrics because they gave up trying to do it via GAAP. It is much easier to just makestuff up.” The SEC is undoubtedly going to be more heavily scrutinizing adjustedearnings in coming years. Perhaps investors are beginning to consider that they wereon borrowed time, betting on money-losing companies and momentum stocks. Someinvestors are chart readers who see a technical breakdown and are simply hitting thesell button. Others are part of ETFs, index funds and other program trading. As TheWall Street Journal said recently, “Roughly 85% of all trading is on autopilot—controlled by machines, models or passive investing formulas, creating anunprecedented trading herd that moves in unison and is blazingly fast.” Maybegeopolitical tensions have become too intense to support high multiples. Finally, as wehave documented in previous letters, economic growth and stock market performanceare often not correlated in the short-to-intermediate term.

Profit margins are excellent and there doesn’t seem to be any reason to believe theywill be falling. Why do you feel differently?

This is an easy one. Margins have already dropped significantly. After-taxmargins are still near a peak but that includes lower interest expenses and lower taxes,which may be in the journal of irreproducible results. According to The LeutholdGroup, earnings before interest and taxes (EBIT) as a percentage of GDP peaked aboutfive years ago, and margins are already down roughly 200 basis points. The new yearwill lap the tax law change. Higher wage inflation will make for a more difficultmargin story, whether using EBIT or net income. The end result could be earningsgrowth that may actually trail sales growth, with both rates in a mid-single-digit growthrange… barring a recession.

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Why do you seem so concerned about debt levels when few else seem to be?

Debt as a percentage of GDP is at a 50-year high. The level is virtuallyunprecedented in non-wartime. Interest expense is 6.6% of the federal budget, andexpected deficits (approaching $1 trillion) and the debt (over $20 trillion) are escalatingrapidly. Astonishingly, the Office of Management and Budget (OMB) expects interestexpense to rise to 12% by 2023. This poses significant crowding-out effects and socialcosts, not to mention P/E multiple risk.

At the individual company level, high debt lowers the margin of error. Accordingto Moody’s, “Since 2009, the level of global nonfinancial companies rated asspeculative, or junk, has surged by 58 percent, to the highest proportion ever.” Thecapital markets might not always be receptive to rolling over one’s debt. Few thingsmatch the fear that comes from a debt market that seizes up. Higher interest expenseclearly dents earnings. Companies with levered balance sheets often see their stocksfall much harder when ill economic winds blow. Further, raising debt to buy backequity, the favored method of earnings growth in recent years, is simply much moredifficult given today’s balance sheets.

Why will active management outperform index funds?

One of the great mysteries of recent years is Warren Buffett’s advice to all investors:buy the S&P 500 Index Fund. On one level, the S&P 500 is perhaps a good thing to buyin the aftermath of a bear market when almost all stocks are discounted. Obviously, thatdoesn’t apply today, at least at the very moment we pen this! The S&P 500 is probablythe best index fund to own of all the various index funds and ETFs one could purchase.There appear to be higher-quality companies and balance sheets in this index than in theothers, especially the popular ones tracking the Russell 2000 and Nasdaq. PerhapsBuffett is thinking in very broad, long strokes… as in fifteen or twenty years.

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Considering how the typical investor deploys money (chasing performance and earning areturn that is less than half of the market’s return over the last 30 years, according toDALBAR), it may not be bad advice even from today’s relatively high valuation levels,as long as the holding period is sufficiently long. Perhaps Buffett recognizes that theaverage investor doesn’t live in Lake Wobegon (where “all the children are aboveaverage”), so rather than recommend some type of active management over others, hedefaults to recommending the index. Still, for someone who generally looks forwardrather than backward, and who made his career in active management, it’s a bit curious,especially with the market (using Buffett’s favorite valuation yardstick, market cap-to-GDP) recently touching the highest level ever, in August.

Buffett’s compatriot-in-arms is Jack Bogle, the long-time leader of Vanguard andindex fund espouser extraordinaire. Mr. Bogle has been a proponent of index fundinvesting regardless of valuations. In early 2000 the S&P 500 stood at approximately1530. Thirteen years later it was also 1530, with an intermediate stop at 673. Oneclipped a small dividend for the trouble but that was a pretty paltry return compared tomany active managers, particularly of the value persuasion. The setup looks eerilysimilar today, or at least it did a few months ago. As in the early 2000s, speculativejuices were (and probably still are) unsustainably high. When the most popularcompanies come under pressure, it is likely to have a disproportionate impact on theindex funds. The Russell 2000 and other small cap-focused index funds, wherespeculation and shaky balance sheets are the most rampant, will likely see astonishingdeclines. We win by having far fewer of these names than the index. The questionreally should be, “Why will some active managers beat the index?” Careful,discerning, value-oriented investors should beat an index that has heretofore benefited

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from years of nonfundamental money flow, causing it to be top-heavy with expensivestocks. We are confident that when the full story plays out over the long run, we shouldcomfortably outperform.


Short-Term Long-Term TotalClass Ticker Income Capital Gains Capital Gains Distributions_____ ______ _______ ____________ ____________ ____________Investor Class FMIMX $0.09787281 $0.08952 $2.05865 $2.24604281Institutional Class FMIUX $0.13496736 $0.08952 $2.05865 $2.28313736

Thank you for your confidence in the FMI Common Stock Fund.


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Shares Value (b) ______ ________


COMMERCIAL SERVICES SECTOR — 12.7% Advertising/Marketing Services — 3.6% 1,430,000 Interpublic Group of Cos. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500,900 Financial Publishing/Services — 1.1% 44,000 FactSet Research Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,805,720 Miscellaneous Commercial Services — 4.5% 1,375,000 Genpact Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,111,250 Personnel Services — 3.5% 315,000 ManpowerGroup Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,412,000 145,000 Robert Half International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,294,000 ___________ 28,706,000

CONSUMER NON-DURABLES SECTOR — 1.0% Food: Specialty/Candy — 1.0% 520,000 Hain Celestial Group Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,247,200

CONSUMER SERVICES SECTOR — 7.5% Cable/Satellite TV — 2.1% 21,000 Cable One Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,222,100 Other Consumer Services — 5.4% 70,000 Graham Holdings Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,840,600

DISTRIBUTION SERVICES SECTOR — 7.7% Electronics Distributors — 4.3% 265,000 Arrow Electronics Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,271,750 245,000 ePlus Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,436,650 ___________ 35,708,400 Wholesale Distributors — 3.4% 308,000 Anixter International Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,727,480 145,000 MSC Industrial Direct Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,153,400 ___________ 27,880,880

ELECTRONIC TECHNOLOGY SECTOR — 2.2% Telecommunications Equipment — 2.2% 310,000 ViaSat Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,274,500

FINANCE SECTOR — 22.4% Finance/Rental/Leasing — 6.5% 450,000 FirstCash Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,557,500 446,000 Ryder System Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,474,900 ___________ 54,032,400 Property/Casualty Insurance — 9.3% 275,000 Argo Group International Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,493,750 377,000 W.R. Berkley Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,864,070 36,000 White Mountains Insurance Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 30,876,840 ___________ 77,234,660

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FMI Common Stock FundSTATEMENT OF NET ASSETSDecember 31, 2018 (Unaudited)

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Shares Value (b) ______ ________


FINANCE SECTOR — 22.4% (Continued) Real Estate Development — 5.3% 217,000 The Howard Hughes Corp.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,183,540 1,250,000 Kennedy-Wilson Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,712,500 ___________ 43,896,040 Regional Banks — 1.3% 263,000 Zions Bancorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,714,620

PROCESS INDUSTRIES SECTOR — 5.3% Containers/Packaging — 5.3% 488,000 Avery Dennison Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,837,040

PRODUCER MANUFACTURING SECTOR — 20.9% Auto Parts: OEM — 1.3% 104,000 WABCO Holdings Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,163,360 Building Products — 3.7% 525,000 Armstrong World Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,560,250 Industrial Machinery — 5.4% 228,000 EnPro Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,702,800 420,000 Woodward Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,201,800 ___________ 44,904,600 Metal Fabrication — 1.6% 120,000 Valmont Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,314,000 Miscellaneous Manufacturing — 7.2% 365,000 Carlisle Cos. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,689,800 840,000 TriMas Corp.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,923,600 ___________ 59,613,400 Trucks/Construction/Farm Machinery — 1.7% 685,000 Trinity Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,104,150

RETAIL TRADE SECTOR — 2.1% Specialty Stores — 2.1% 440,000 Penske Automotive Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,740,800

TECHNOLOGY SERVICES SECTOR — 1.4% Internet Software/Services — 1.4% 560,000 Cars.com Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,040,000 ___________ Total common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,452,870

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FMI Common Stock FundSTATEMENT OF NET ASSETS (Continued)December 31, 2018 (Unaudited)

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SHORT-TERM INVESTMENTS — 16.9% (a) Bank Deposit Account — 4.9% $40,670,668 U.S. Bank N.A., 2.28%^ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,670,668 U.S. Treasury Securities — 12.0% 25,000,000 U.S. Treasury Bills, 2.016%, due 01/17/19^ . . . . . . . . . . . . . . . . . . . . . . . 24,976,198 50,000,000 U.S. Treasury Bills, 2.289%, due 02/14/19^ . . . . . . . . . . . . . . . . . . . . . . . 49,856,966 25,000,000 U.S. Treasury Bills, 2.318%, due 03/14/19^ . . . . . . . . . . . . . . . . . . . . . . . 24,882,468 ___________ Total U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,715,632 ___________ Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,386,300 ___________ Total investments — 100.1% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829,839,170

Other assets, less liabilities — (0.1%) (a) . . . . . . . . . . . . . . . . . . . . . . . . (1,153,402) ___________ TOTAL NET ASSETS — 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $828,685,768 ___________ ___________

Investor Class – Net Asset Value Per Share ($0.0001 par value, 200,000,000 shares authorized), offering and redemption price ($491,443,726 ÷ 22,246,301 shares outstanding) . . . . . . . . . . . . . $ 22.09 ___________ ___________ Institutional Class – Net Asset Value Per Share ($0.0001 par value, 100,000,000 shares authorized), offering and redemption price ($337,242,042 ÷ 15,260,059 shares outstanding) . . . . . . . . . . . . . $ 22.10 ___________ ___________

* Non-income producing security. ^ The rate shown is as of December 31, 2018.(a) Percentages for the various classifications relate to total net assets.(b) Each security is valued at the current day last sale price reported by the principal security exchange on

which the issue is traded. Securities that are traded on Nasdaq Markets are valued at the Nasdaq OfficialClosing Price, or if no sale is reported, the latest bid price. Securities that are traded over-the-counter,including U.S. Treasury securities are valued at the close price, if not close, then at the latest bid price.Bank deposits are valued at acquisition cost which approximates fair value.

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FMI Common Stock FundSTATEMENT OF NET ASSETS (Continued)December 31, 2018 (Unaudited)

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FMIInternational

FundDecember 31, 2018


Global stock markets came under intense pressure in the fourth quarter as economicgrowth weakened, political and geopolitical tensions escalated, and monetary policytightened. The FMI International Fund (“Fund”) returned -9.08%1 in the period, whichcompares with an MSCI EAFE Index return of -12.20% in local currency (LOC)and -12.54% in U.S. Dollars (USD). The Producer Manufacturing, Consumer Durablesand Communications sectors helped the Fund’s relative performance, as IndustrialServices, Retail Trade, and Distribution Services each detracted. Solid stockperformance came from Millicom International, Smith & Nephew, and Jardine Strategic;while Schlumberger, Ferguson and WPP plc landed on the negative side of the ledger.

For the full calendar year, the Fund returned -9.46%,2 which is less than the MSCIEAFE’s decline of -10.99% in LOC and -13.79% in USD. Growth continued tooutperform value during the year, which has been an ongoing headwind. Ouroverweight exposure in South Korea (underperforming the market) also hurt ourrelative performance. Conversely, our overweight exposure in the United Kingdom(outperforming), underweight exposure in Japan (underperforming), currency hedging,and an elevated cash balance were positive contributors.

Even though the recent market sentiment might appear grim, we remain optimisticfor the long run. When opportunity knocks… we’ll answer. A lengthy period ofelevated valuations has made it difficult to find value, but opportunities are starting todevelop in a tougher market.

Together They Fall

For years, global central banks have been aggressively printing money, purchasingfinancial assets (aka Quantitative Easing, or QE), and suppressing interest rates atunsustainably low (or negative) levels. It is the ultimate in policy experiments, and itcomes with risks and unintended consequences, which we have highlighted in priorletters. Part of the objective was to drive up asset prices, and in this regard, centralbankers have “succeeded.” As major central bank balance sheets have ballooned to over$21 trillion (see chart on the next page), we have witnessed significant asset inflationacross a wide spectrum: stocks, bonds, real estate, private equity, alternativeinvestments, art, etc. Asset classes that, historically, were not highly-correlated, wererising in unison with little regard for fundamental valuation. The rich got richer, wealthinequality expanded, and Wall Street left Main Street in the dust._____________1 The FMI International Fund Investor Class (FMIJX) and the FMI International Fund Institutional Class(FMIYX) had a return of -9.08% and -9.03%, respectively, for the fourth quarter of 2018.

2 The FMI International Fund Investor Class (FMIJX) and the FMI International Fund Institutional Class(FMIYX) had a return of -9.46% and -9.32%, respectively, for the full calendar year 2018.

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The hope was that all this newfound wealth would filter into the economy anddrive better growth. Yet, the pace of economic recovery didn’t reach historical levels.While the full story has yet to be written, recent data points suggest that economicgrowth is now faltering. The Organisation for Economic Co-operation andDevelopment (OECD) writes that “growth has peaked amidst escalating risks,” andthey have lowered their GDP forecasts to 3.5% in 2019, from 3.7% in 2018. Tradegrowth has slowed, industrial production is softening, retail sales are decelerating,residential real estate prices are falling, and financial markets are correcting.3 The WallStreet Journal (WSJ) recently reported some remarkable data points: “All told, 90% ofthe 70 asset classes tracked by Deutsche Bank are posting negative total returns indollar terms for the year through mid-November. The previous high was in 1920, when84% of 37 asset classes were negative. Last year, just 1% of asset classes deliverednegative returns.” Furthermore, “Data show global stocks and bonds could both finishthe year in the red for the first time in at least a quarter-century,” according toBlackRock Inc.4 This actually did come to pass. Thanks to radical monetary policies,we have strayed far from what most people would consider normal times. The tidalwave of asset classes falling in harmony is alarming, to say the least. In moving from aperiod of euphoria and market manipulation, to one of fear and risk aversion, the assetreflation trade appears to be starting to play out in reverse. That said, we do not expectmarkets to move in a straight line, as the inevitable transition from growth to value willnot be smooth. Everything considered, this remains a time to proceed with caution.

_____________3 OECD Economic Outlook Presentation, November 21, 2018.4 Akane Otani and Michael Wursthorn. “No Refuge for Investors as 2018 Rout Sends Stocks, Bonds, OilLower.” The Wall Street Journal, November 25, 2018.

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Tighten Your Belt

While the Federal Reserve (Fed) has set the U.S. on a path toward normalizationthrough rising interest rates and balance sheet disposals, its counterparts overseas havemerely started taking baby steps. The European Central Bank (ECB) has officiallyended its QE program, and will no longer be growing its balance sheet throughgovernment and corporate bond purchases. That said, the ECB expects to reinvestmaturing securities for an “extended period of time” and “for as long as necessary.” Inother words, they will not be winding down their balance sheet any time soon. Inaddition, they plan to keep interest rates at current ultra-low levels at least through thesummer of 2019.5 While the Bank of Japan (BOJ) has yet to formally halt their QEprogram, they have tapered their asset purchases and hinted that tightening may be onthe horizon. It’s about time … the BOJ recently won the dubious honor of becomingthe first G7 central bank to own assets collectively worth more than the economy that itis trying to stimulate.6

Despite these attempts to tap the brakes on experimental monetary policies,somehow negative-yielding bonds have been on the rise in recent months, up over$2 trillion to $7.9 trillion, globally.7 One of the objectives of free money and low (ornegative) interest rates is to pull consumer demand from the future into the present. Ifindeed that has taken place over the last few years, helping to accelerate economicgrowth, what does that mean about expectations for future demand? We have ourreservations.

Political Crisis du Jour

There has been no shortage of drama on the political crisis front, with the U.S. andChina trade war intensifying; Brexit uncertainty reaching a fever pitch; yellow vestprotests, violence and tear gas in the streets of France; and the Italian government’sbudget deficit battle with Brussels, to name a few. We’ll save discussions on theturbulence in emerging markets (and their respective currencies) for another day.

It remains to be seen whether President Trump’s aggressive strategy with Chinawill work. If China blinks first and compromises, it could end up being anunequivocal positive for the U.S. and the rest of the world. However, if Trump raisestariffs to 25% and puts tariffs on the rest of U.S.-China trade, it would have asignificant negative impact on trade and GDP growth (see OECD chart below). Manyview this as the single biggest risk to the global economy. China is already feelingsome of the pain, as growth has slowed to 6.5% in the third quarter, the slowest pacesince the financial crisis. China’s factory output and retail sales came in weaker thanexpected, and the World Bank now expects GDP growth to slow to 6.2% in 2019.8 Wehope cooler heads will prevail, but with Presidents Trump and Xi Jinping at the helm,virtually anything is possible.

_____________5 Balazs Koranyi. “ECB formally ends QE, keeps reinvestments open-ended.” Reuters, December 13, 2018.6 Hideyuki Sano and Tomo Uetake. “Bank of Japan’s balance sheet now larger than country’s GDP.”Reuters, November 12, 2018.

7 Source: Bloomberg.8 Kevin Yao. “World Bank expects China’s economic growth to slow to 6.2 percent in 2019.” Reuters,December 19, 2018.

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Heretofore, we have had a favorable view of the UK’s decision to exit theEuropean Union (EU). As we articulated in our June 2016 letter, “Why would the UKwant to tie their future to the EU, which has demonstrated an inability to reform, a lackof desire to address their own structural problems, and where debt loads are off thecharts and growth is anemic?” That said, we were disappointed to see the Brexitagreement that Prime Minister May’s team negotiated. It makes sense that four ofMay’s cabinet members resigned, as the agreement all but undoes what the referendumsought to achieve in the first place: national sovereignty. Highlights include a $50billion divorce bill, a lengthy transition period where almost nothing changes until atleast the end of 2020 (at which point it can be renewed), continued oversight fromEU courts for 8 years from the end of the transition period,9 a “backstop” to ensure thatNorthern Ireland’s border with Ireland remains open, and inclusion in the EU’s customsunion, “not merely until the end of the transitional period […] but until a replacementtrade agreement can be negotiated, or (potentially) indefinitely if none can be agreed.”10

The EU is trying to make sure that no one else defects by punishing the UK, butperhaps they are overplaying their hand. In our opinion, the UK would be better offwith a hard Brexit rather than accepting these terms. Undoubtedly, the probability of ahard Brexit or a delay of an official agreement has increased, as the UK is unlikely tosubmit to these conditions. In either scenario, increased uncertainty and economic riskwill be a concern for some time.

_____________9 Christopher Caldwell. “Brexit: The empire strikes back.” The Weekly Standard, December 3, 2018.10 Frances Coppola. “Why Theresa May’s Brexit Deal Is Terrible For The U.K.” Forbes, November 23,2018.

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While the Fund has an overweight exposure to UK-traded stocks, at approximately26.3% of the portfolio versus the MSCI EAFE at 17.4%, it is important to note that anumber of these companies are multinational and have very little revenue generation inthe UK. According to FactSet estimates, the Fund’s revenue exposure to the UK isonly about 10.3% of the portfolio, compared with the MSCI EAFE, at 6.6%. As high-quality UK-traded stocks have been impacted by Brexit fears, we have looked tocapitalize. Some of the best buying opportunities arise in periods of maximumuncertainty, such as those in which we appear to be today.

Meanwhile, turmoil in France and Italy tie back to a lack of fiscal discipline. Bothcountries have made promises that are unsustainable over the long term, and any effortto dial back the welfare state is met with resistance. This is exacerbated by the effectsof recent monetary policies, wherein the wealth gap is widening, creating general unrestand animosity. The Financial Times reports that French president Macron’s recentconcessions of “a higher minimum wage paid by the state, tax breaks on overtime,higher pensions for poorer retirees plus the scrapping of fuel tax rises next year areexpected to cost up to €10bn in 2019. That would push France’s deficit to about 3.5 percent of gross domestic product next year, significantly higher than Italy’s and a clearbreach of EU limits. Rome is locked in a stand-off with Brussels over its plans for adeficit of 2.4 per cent of GDP.”11 France has acquiesced to the masses, despite lackingthe financial wherewithal. In Italy, regardless of their sky-high debt-to-GDP ratio ofover 130% (second in the eurozone to Greece), budget discipline is nowhere to befound. With debt crisis fears creeping back in, Italy’s bond yields have spiked, and theBank of Italy has warned that interest expenses could increase by €9bn in 2020.12

Unfortunately, neither France nor Italy are ready to make the hard decisions, and insteadcontinue to pass the buck to the next in line. No wonder the UK wanted out!

Holiday Wish List

As we detailed in our September letter, stock valuations remain elevated,especially for the high-quality compounding businesses that we hope to own. As wewait patiently for valuations to cooperate (i.e., stocks to get cheaper, providing amargin of safety), we maintain an active “Wish List” of about 75 companies that weknow reasonably well and that we’d like to own at the right price, but where thevaluation is 20-40% away from what we might be willing to pay. If we find ourselvesin the teeth of a bear market, this will be the first place we look for new ideas. If acompany falls within the 20% threshold, we move it to our “Monitor List,” which is asmaller subset of companies that we follow closely, or on which we are actively doingdeep-dive research for the Fund. Our Wish List and Monitor List are living andworking documents, updated by our research team weekly. Companies are oftenflipped from one list to the other, or removed entirely if the valuation is too high or welearn something new that is a story-killer. We formerly owned the following threecompanies (Schindler, Akzo Nobel, and Shimano), and they are currently on our Wish

_____________11 Ben Hall. “Macron reckons on surviving reputational hit to fiscal discipline.” Financial Times,December 11, 2018.

12 Kate Allen an, London Miles Johnson. “Bank of Italy warns higher bond yields will cost an extra €9bn ayear by 2020.” Financial Times, November 23, 2018.

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List; these are all stocks that we would love to own again, but where valuation is theprimary roadblock despite the recent pullback in the market.

Schindler Holding AG Pref (SCHP-CH)

Schindler is the world’s second largest player in the manufacturing, installation,modernization and servicing of elevators & escalators (E&E). More than 50% of thecompany’s revenue is believed to come from maintenance and modernization (service),which is recurring in nature and high margin. It is estimated that the top four E&Ecompanies account for around 70% of the new global installations. Schindler benefitsfrom economies of scale and the density of its install base, creating competitiveadvantages and barriers to entry. The company earns a return on invested capital (ROIC)of over 20%, creating economic value. Management has a strong long-term track record,and the Schindler family has significant skin in the game ($9.4 billion). The companyhas a robust balance sheet, with a net cash position. Schindler has room for marginexpansion and operates in a market with attractive growth prospects due to the globaltrend toward urbanization. However, the stock trades at an enterprise value-to-salesmultiple of 1.9 times, over a standard deviation above the long-term average of 1.1 times(see chart below), while sporting a trailing price-to-earnings ratio of 23.1 times.

Akzo Nobel N.V. (AKZA-NL)

Akzo Nobel is one of the largest manufacturers of paints and coatings in the world,with a diversified portfolio of products across consumer and industrial end-markets.The intensifying technical specifications and performance qualifications fromcustomers is an advantage for sophisticated companies like Akzo Nobel; industryconsolidation is leading to a critical mass in research and development (R&D) that fewcan replicate. Akzo Nobel’s products are used by customers to protect their assets fromcorrosion (thus extending useful lives) and for aesthetic and functional purposes. Theindustry has pricing power, as the cost of the product is typically small compared withthe labor or capital costs of the customer’s application process, but the product iscritical to the end-customer’s satisfaction. The business is capital-light and labor-intensive, and the supply chain is relatively short, making it easier for Akzo Nobel toreact to business cycles. ROIC exceeds the company’s cost of capital, and the balancesheet is investment grade-rated. Management has a meaningful opportunity to improvemargins, which lag peers. The long-term growth outlook for the business appears

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attractive. Unfortunately, the stock trades at an enterprise value-to-sales multiple of2.3 times, over two standard deviations above the long-term average of 1.1 times (seechart below), with a forward price-to-earnings ratio of roughly 23.7 times.

Shimano Inc. (7309-JP)

Shimano is the world’s leading manufacturer of bicycle components, with adominant market share of over 50% in the mid- and high-end portion of the market.The company benefits from economies of scale related to manufacturing, R&D spend,sales and marketing, and global distribution. There are significant barriers to entry, aspatents and advanced performance requirements make entry into the market verydifficult – as illustrated by a 3-player oligopoly (Shimano, SRAM and Campagnolo).The company has steadily earned a double-digit ROIC, well above its cost of capital.Management has an excellent long-term track record, and there is a high level of insiderownership. The company has a very strong balance sheet, with a net cash position. Theindustry has benefited from long-term structural growth, and with a rise in globalincome and increased awareness for the importance of exercise and healthy living,demand for high-quality bicycles is expected to continue to increase over time. Similarto the first two examples, the stock trades at an enterprise value-to-sales multiple of3.5 times, over a standard deviation above the long-term average of 2.2 times (see chartbelow), with a trailing price-to-earnings ratio of 28.6 times.

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As international stock markets have come unhinged (along with 90% of all assetclasses), the opportunity set is naturally starting to improve. Complacency is beingreplaced with trepidation, and even the most defensive equities are starting to crack.Investors all too often sell when times get tough and ask questions later. We hope tocapitalize on these emotions as we endlessly seek to upgrade the quality of the holdingsin the Fund, and look forward to deploying more capital when suitable candidatespresent themselves.


Short-Term Long-Term TotalClass Ticker Income Capital Gains Capital Gains Distributions_____ ______ _______ ____________ ____________ ____________Investor Class FMIJX $1.31768912 $0.22847 $0.58040 $2.12655912Institutional Class FMIYX $1.38198555 $0.22847 $0.58040 $2.19085555

Thank you for your support of the FMI International Fund.


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Shares Value (b) ______ ________

LONG-TERM INVESTMENTS — 91.1% (a)


COMMERCIAL SERVICES SECTOR — 10.6% Advertising/Marketing Services — 1.6% 9,400,000 WPP PLC (Jersey) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,300,134 Miscellaneous Commercial Services — 6.7% 3,600,000 Bureau Veritas S.A. (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,358,648 1,750,000 DKSH Holding AG (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,993,488 2,703,000 Secom Co. Ltd. (Japan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,215,372 _____________ 418,567,508 Personnel Services — 2.3% 3,080,000 Adecco Group AG (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,767,433

COMMUNICATIONS SECTOR — 2.8% Wireless Telecommunications — 2.8% 2,764,000 Millicom International Cellular S.A. (Luxembourg) . . . . . . . . . . . . . . . . . . 174,894,189

CONSUMER DURABLES SECTOR — 4.4% Electronics/Appliances — 2.2% 6,570,000 Electrolux AB – Series B (Sweden) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,487,266 Motor Vehicles — 2.2% 9,780,000 Isuzu Motors Ltd. (Japan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,185,080

CONSUMER NON-DURABLES SECTOR — 9.3% Food: Major Diversified — 3.2% 2,425,000 Nestlé S.A. (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,819,758 Household/Personal Care — 6.1% 2,320,000 Henkel AG & Co. KGaA (Germany) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,341,357 2,850,000 Unilever PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,632,988 _____________ 377,974,345

CONSUMER SERVICES SECTOR — 14.0% Broadcasting — 1.6% 7,750,000 Grupo Televisa S.A.B. – SP-ADR (Mexico) . . . . . . . . . . . . . . . . . . . . . . . . 97,495,000 Cable/Satellite TV — 1.0% 3,410,000 Shaw Communications Inc. (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,720,700 Movies/Entertainment — 4.1% 29,250,000 Merlin Entertainments PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,479,165 5,800,000 Vivendi S.A. (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,576,572 _____________ 259,055,737 Restaurants — 7.3% 7,375,000 Compass Group PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,205,651 5,150,000 Whitbread PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,743,668 _____________ 455,949,319

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FMI International FundSTATEMENT OF NET ASSETSDecember 31, 2018 (Unaudited)

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Shares Value (b) ______ ________

LONG-TERM INVESTMENTS — 91.1% (a) (Continued)


DISTRIBUTION SERVICES SECTOR — 5.4% Wholesale Distributors — 5.4% 4,610,000 Ferguson PLC (Jersey) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 294,570,815 3,228,000 Travis Perkins PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,007,902 _____________ 338,578,717

ELECTRONIC TECHNOLOGY SECTOR — 4.0% Aerospace & Defense — 2.6% 1,375,000 Safran S.A. (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,910,782 Electronic Components — 1.4% 1,180,000 TE Connectivity Ltd. (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,243,400

FINANCE SECTOR — 5.6% Property/Casualty Insurance — 5.6% 1,075,000 Chubb Ltd. (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,868,500 477,000 Fairfax Financial Holdings Ltd. (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . 209,982,025 _____________ 348,850,525

HEALTH TECHNOLOGY SECTOR — 2.5% Medical Specialties — 2.5% 8,300,000 Smith & Nephew PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,364,911

INDUSTRIAL SERVICES SECTOR — 2.3% Oilfield Services/Equipment — 2.3% 4,065,000 Schlumberger Ltd. (Curacao) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,665,200

PROCESS INDUSTRIES SECTOR — 2.9% Chemicals: Agricultural — 2.9% 3,870,000 Nutrien Ltd. (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,890,000

PRODUCER MANUFACTURING SECTOR — 8.9% Industrial Conglomerates — 8.9% 16,450,000 CK Hutchison Holdings Ltd. (Cayman Islands) . . . . . . . . . . . . . . . . . . . . . 157,890,568 4,790,000 Jardine Strategic Holdings Ltd. (Bermuda) . . . . . . . . . . . . . . . . . . . . . . . . 175,621,293 12,825,000 Smiths Group PLC (Britain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,270,016 _____________ 556,781,877

RETAIL TRADE SECTOR — 3.0% Department Stores — 1.6% 27,000,000 B&M European Value Retail S.A. (Luxembourg) . . . . . . . . . . . . . . . . . . . . 96,892,888 Specialty Stores — 1.4% 905,000 Dufry AG (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,176,277

TECHNOLOGY SERVICES SECTOR — 3.3% Information Technology Services — 3.3% 1,480,000 Accenture PLC (Ireland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,694,800

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FMI International FundSTATEMENT OF NET ASSETS (Continued)December 31, 2018 (Unaudited)

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Shares Value (b) ______ ________

LONG-TERM INVESTMENTS — 91.1% (a) (Continued)


TRANSPORTATION SECTOR — 3.9% Air Freight/Couriers — 1.5% 1,365,000 Expeditors International of Washington Inc. (United States) . . . . . . . . . . $ 92,942,850 Other Transportation — 2.4% 37,413,000 Bolloré (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,998,486 _____________ Total common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,182,207,182

PREFERRED STOCKS — 8.2% (a)

CONSUMER DURABLES SECTOR — 1.3% Motor Vehicles — 1.3% 1,210,000 Hyundai Motor Co. (South Korea) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,496,185

CONSUMER NON-DURABLES SECTOR — 3.5% Household/Personal Care — 3.5% 1,147,000 Amorepacific Corp. (South Korea) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,703,213 187,000 LG Household & Health Care Ltd. (South Korea) . . . . . . . . . . . . . . . . . . . 110,104,530 _____________ 215,807,743

ELECTRONIC TECHNOLOGY SECTOR — 3.4% Telecommunications Equipment — 3.4% 7,350,000 Samsung Electronics Co. Ltd. (South Korea) . . . . . . . . . . . . . . . . . . . . . . 210,016,420 _____________ Total preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,320,348 _____________ Total long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,691,527,530

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SHORT-TERM INVESTMENTS — 7.7% (a) Bank Deposit Account — 3.7% $234,750,564 U.S. Bank N.A., 2.28%^ (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 234,750,564 U.S. Treasury Securities — 4.0% 100,000,000 U.S. Treasury Bills, 2.016%, due 01/17/19^ . . . . . . . . . . . . . . . . . . . . . . . 99,904,792 150,000,000 U.S. Treasury Bills, 2.289%, due 02/14/19^ . . . . . . . . . . . . . . . . . . . . . . . 149,570,897 _____________ Total U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,475,689 _____________ Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484,226,253 _____________ Total investments — 98.8% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,175,753,783

Other assets, less liabilities — 1.2% (a) . . . . . . . . . . . . . . . . . . . . . . . . . 74,676,540 _____________ TOTAL NET ASSETS — 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,250,430,323 _____________ _____________ Investor Class – Net Asset Value Per Share ($0.0001 par value, 300,000,000 shares authorized), offering and redemption price ($2,765,182,210 ÷ 96,581,211 shares outstanding) . . . . . . . . . . . $ 28.63 _____________ _____________ Institutional Class – Net Asset Value Per Share ($0.0001 par value, 200,000,000 shares authorized), offering and redemption price ($3,485,248,113 ÷ 121,701,526 shares outstanding) . . . . . . . . . . $ 28.64 _____________ _____________

^ The rate shown is as of December 31, 2018.(a) Percentages for the various classifications relate to total net assets.(b) Each security is valued at the current day last sale price reported by the principal security exchange on

which the issue is traded. Securities that are traded on Nasdaq Markets are valued at the Nasdaq OfficialClosing Price, or if no sale is reported, the latest bid price. Securities that are traded over-the-counter,including U.S. Treasury securities are valued at the close price, if not close, then at the latest bid price.Bank deposits are valued at acquisition cost which approximates fair value. For securities that do nottrade during New York Stock Exchange hours, fair value determinations are based on analyses of marketmovements after the close of those securities’ primary markets, and may include reviews ofdevelopments in foreign markets, the performance of U.S. securities markets, and the performance ofinstruments trading in U.S. markets that represent foreign securities and baskets of foreign securities.The Board of Directors utilizes a service provided by an independent third party to assist in fair valuationof certain securities.

(c) As of December 31, 2018, $8,140,000 of this security is held as collateral for certain forwardcurrency contracts.

PLC Public Limited CompanySP-ADR Sponsored American Depositary Receipt

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U.S. $ Value on U.S. $ Value on December 31, December 31, 2018 2018 UnrealizedSettlement Currency to of Currency to Currency to of Currency to Appreciation Date Counterparty be Delivered be Delivered be Received be Received (Depreciation) _________ ____________ ____________ _____________ ____________ _____________ _____________ 1/25/19 State Street 1,120,000,000 $1,429,424,787 1,455,860,000 $1,455,860,000 $26,435,213 Bank and British Pound U.S. Dollar Trust Co.

1/25/19 JPMorgan 345,000,000 252,885,435 266,015,481 266,015,481 13,130,046 Chase Bank, Canadian Dollar U.S. Dollar N.A.

1/25/19 The Bank of 620,000,000 711,934,412 712,975,200 712,975,200 1,040,788 New York Euro U.S. Dollar Mellon

1/25/19 The Bank of 37,000,000,000 338,274,426 331,220,683 331,220,683 (7,053,743) New York Japanese Yen U.S. Dollar Mellon

1/25/19 The Bank of 1,100,000,000 55,743,338 55,843,233 55,843,233 99,895 New York Mexican Peso U.S. Dollar Mellon

1/25/19 State Street 500,000,000,000 448,475,087 440,683,941 440,683,941 (7,791,146) Bank and South Korea Won U.S. Dollar Trust Co.

1/25/19 Goldman 1,100,000,000 124,380,255 122,555,218 122,555,218 (1,825,037) Sachs & Swedish Krona U.S. Dollar Co. LLC

1/25/19 JPMorgan 505,000,000 515,003,381 511,314,737 511,314,737 (3,688,644) Chase Bank, Swiss Franc U.S. Dollar N.A. _____________ _____________ __________ $3,876,121,121 $3,896,468,493 $20,347,372 _____________ _____________ __________ _____________ _____________ __________

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FMI International FundSCHEDULE OF FORWARD CURRENCY CONTRACTSDecember 31, 2018 (Unaudited)

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FMI Funds, Inc.PERFORMANCE AND DISCLOSURE INFORMATION

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Performance for Period Ended December 31, 2018

Average Annual Total Returns

3 1 3 5 10 Since InceptionFMI FUND / INDEX Months1 Year Year Year Year Inception Date

Large Cap – Investor Class -9.56% -3.88% 9.24% 7.40% 12.13% 8.49% 12-31-01S&P 500 -13.52% -4.38% 9.26% 8.49% 13.12% 6.84% 12-31-01

Large Cap – Institutional Class -9.53% -3.71% N/A N/A N/A 10.13% 10-31-16S&P 500 -13.52% -4.38% 9.26% 8.49% 13.12% 10.10% 10-31-16

Common Stock – Investor Class -11.87% -8.65% 7.70% 4.38% 11.91% 11.44% 12-18-81Russell 2000 -20.20% -11.01% 7.36% 4.41% 11.97% 9.92% 12-18-81

Common Stock – Institutional Class -11.83% -8.55% N/A N/A N/A 6.88% 10-31-16Russell 2000 -20.20% -11.01% 7.36% 4.41% 11.97% 7.33% 10-31-16

International – Investor Class -9.08% -9.46% 4.76% 4.42% N/A 7.60% 12-31-10MSCI EAFE Net (USD) -12.54% -13.79% 2.87% 0.53% 6.32% 3.33% 12-31-10MSCI EAFE Net (LOC) -12.20% -10.99% 2.62% 3.81% 7.50% 5.86% 12-31-10

International – Institutional Class -9.03% -9.32% N/A N/A N/A 3.21% 10-31-16MSCI EAFE Net (USD) -12.54% -13.79% 2.87% 0.53% 6.32% 4.17% 10-31-16MSCI EAFE Net (LOC) -12.20% -10.99% 2.62% 3.81% 7.50% 3.85% 10-31-16

1 Returns for periods less than one year are not annualized.

Performance data quoted represents past performance; past performance does not guarantee future results.Investment return and principal value of an investment will fluctuate so that an investor’s shares, whenredeemed, may be worth more or less than their original cost. Current performance of a Fund may be loweror higher than the performance quoted. Performance data current to the most recent month end may beobtained by visiting www.fmifunds.com or by calling 1-800-811-5311. The returns do not reflect thededuction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Securities named in the Letters to Shareholders, but not listed in the Statements of Net Assets are not held inthe Funds as of the date of this disclosure. Portfolio holdings are subject to change without notice and arenot intended as recommendations of individual securities.

This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fundsunless accompanied or preceded by the Funds’ current prospectus.

As of the Funds’ Prospectus dated January 31, 2018 and supplemented on March 19, 2018 andDecember 28, 2018, the FMI Large Cap Fund, FMI Common Stock Fund and FMI International Funds’Investor Class annual operating expense ratios are: 0.80%, 0.99% and 0.91%, respectively. The FMI LargeCap Fund, FMI Common Stock Fund and FMI International Funds’ Institutional Class annual operatingexpense ratios are: 0.66%, 0.90%, and 0.77%, respectively.

Risks associated with investing in the Funds are as follows:

FMI Large Cap Fund: Stock Market Risk, Medium and Large Capitalization Companies Risks, Non-Diversification Risk (Non-Diversified funds are subject to higher volatility than funds that areinvested more broadly), Value Investing Risk, Foreign Securities Risk (fluctuation of currency,different financial standards, and political instability) and Liquidity Risk.

FMI Common Stock Fund: Stock Market Risk, Medium and Small Capitalization Companies Risks(which includes the potential for greater volatility and less financial resources than Large-CapCompanies), Value Investing Risk, Foreign Securities Risk (fluctuation of currency, differentfinancial standards, and political instability) and Liquidity Risk.

FMI International Fund: Stock Market Risk, Non-Diversification Risk (Non-Diversified funds aresubject to higher volatility than funds that are invested more broadly), Value Investing Risk, ForeignSecurities Risk (fluctuation of currency, different financial standards, and political instability),Geographic Concentration Risk, Currency Hedging Risk, Large Capitalization Companies Risk andLiquidity Risk.

For details regarding these risks, please refer to the Funds’ Statutory Prospectus (dated January 31, 2018 andsupplemented on March 19, 2018 and December 28, 2018) or Summary Prospectus for the FMI Large CapSummary Prospectus (dated January 31, 2018 and supplemented on December 28, 2018), FMI CommonStock Fund (dated January 31, 2018 and supplemented on December 28, 2018), and FMI International Fund(dated January 31, 2018 and supplemented on March 19, 2018).

For more information about the FMI Funds, call 1-800-811-5311 for a free Prospectus or SummaryProspectus. Please read these Prospectuses carefully to consider the investment objectives, risks, chargesand expenses, before investing or sending money. These Prospectuses contain this and more informationabout the FMI Funds. Please read the Prospectuses or Summary Prospectuses carefully before investing.

The Standard and Poor’s 500 Index (S&P 500) measures the large-cap segment of the U.S. equity marketusing a market-capitalization-weighted index composed of 500 constituent companies. Individual companiesmay change over time.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Indexwhich comprises the 3,000 largest U.S. companies based on total market capitalization. The Russell 2000Value Index includes equities that exhibit value characteristics and the Russell 2000 Growth Index includesequities that exhibit growth characteristics.

The iShares Russell 2000 ETF is an exchange-traded fund that seeks to track the investment results of theRussell 2000 Index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization indexthat is designed to measure the equity market performance of developed markets, excluding the U.S. andCanada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia,Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, theNetherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UnitedKingdom. The MSCI EAFE Index is unmanaged and investors cannot invest directly in the Index. Indexresults are inclusive of dividends and net of foreign withholding taxes. The reported figures includereinvestment of dividends and capital gains distributions and do not reflect any fees or expenses.

The MSCI EAFE Index is calculated in local currency (LOC) as well as in U.S. Dollars (USD). The conceptof a LOC calculation excludes the impact of currency fluctuations. All currencies of listing are considered inthe Index calculation in LOC where current prices (t) and previous day prices (t-1) are converted into USDusing the same exchange rate (exchange rate t-1) in the numerator and denominator. As a consequence, theFX factor drops out of the equation. The USD calculation includes exchange rates at t and t-1. Therefore,the LOC calculation only represents the price appreciation or depreciation of the securities, whereas the USDcalculation also accounts for the performance of the currency (or currencies) relative to the USD.

MSCI EAFE is a service mark of MSCI Barra.

The Nasdaq is a broad-based exchange including more than 3,000 companies, many of which are in the high-tech industry.

GLOSSARY

Earnings Before Interest & Tax (EBIT) – an indicator of a company’s profitability, calculated as revenueminus expenses, excluding tax and interest.

Enterprise-Value-To-Sales (EV/Sales) – a valuation measure that compares the enterprise value of a company tothe company’s sales. EV/sales gives investors an idea of how much it costs to buy the company’s sales.

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Gross Domestic Product (GDP) – the monetary value of all finished goods and services produced within acountry’s borders in a specific time period.

Price-to-earnings ratio (P/E Ratio) – the ratio for valuing a company that measures its current share pricerelative to its per-share earnings.

Purchasing Managers’ Index (PMI) – an indicator of economic health for manufacturing and service sectors,providing information about current business conditions to company decision makers, analysts, andpurchasing managers.

Reference definitions found at Investopedia.com

Distributed by Rafferty Capital Markets, LLC, 1010 Franklin Avenue, Garden City, NY 11530

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FMI Large Cap Fund FMI Common Stock Fund FMI International Fund100 East Wisconsin Avenue, Suite 2200

Milwaukee, Wisconsin 53202www.fmifunds.com414-226-4555

BOARD OF DIRECTORS BARRY K. ALLEN PATRICK J. ENGLISH ROBERT C. ARZBAECHER REBECCA W. HOUSE JOHN S. BRANDSER PAUL S. SHAIN LAWRENCE J. BURNETT ROBERT J. VENABLE

INVESTMENT ADVISERFIDUCIARY MANAGEMENT, INC.100 East Wisconsin Avenue, Suite 2200

Milwaukee, Wisconsin 53202

ADMINISTRATOR, ACCOUNTANT, TRANSFERAGENT AND DIVIDEND DISBURSING AGENT

U.S. BANCORP FUND SERVICES, LLC615 East Michigan Street

Milwaukee, Wisconsin 53202800-811-5311 or 414-765-4124

CUSTODIAN INDEPENDENT REGISTERED U.S. BANK, N.A. PUBLIC ACCOUNTING FIRM Milwaukee, Wisconsin COHEN & COMPANY, LTD. Milwaukee, Wisconsin DISTRIBUTOR RAFFERTY CAPITAL MARKETS, LLC LEGAL COUNSEL Garden City, New York FOLEY & LARDNER LLP Milwaukee, Wisconsin

FMI Funds, Inc.

1-800-811-5311

www.fmifunds.com

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FMI Funds, Inc.the higher number of big losers in their riskier portfolios; however, institutional constraints usually prevent investors from owning huge percentages of their portfolio