SEMIANNUAL REPORT
MARCH 31, 1996
Fiduciary
Capital Growth
Fund, Inc.
A NO-LOAD
MUTUAL FUND
Fiduciary
Capital Growth
Fund, Inc.
Dear Fellow Shareholder: May 6, 1996
The tug-o-war between the "tastes great" crowd (the economy is on sound
footing and should strengthen further later in the year), and the "less filling"
contingent (the economy is weak, and likely to get weaker) continues. The bond
market is in the "tastes great" camp, as interest rates have risen across the
board through the first quarter. The stock market was generally strong through
the first quarter, suggesting that investors have felt the economy is
sufficiently strong to support earnings growth, yet not so strong as to raise
the specter of rising inflation. The Fiduciary Capital Growth Fund's net asset
value rose 1.8%, lagging the major indices somewhat. We suspect that much of the
stock market move continues to be driven by substantial inflows of cash, which
have tended to be deployed into the larger market cap securities. Generally
speaking, during the first quarter, the broader the market index, the weaker the
results.
The comments from Alan Greenspan and the Fed notwithstanding, we lean towards
the "less filling" camp, and suspect that 1996 will show very modest growth in
the economy, and corporate earnings may well be flat to slightly down for the
year. In such an environment, the market should focus more on companies'
specific fundamentals, versus the recent propensity to throw dollars at the
biggest of the big companies. We continue to focus our efforts on finding and
investing in companies that should do relatively well fundamentally, and which
are priced attractively in the market. As is customary, below we discuss some
of our holdings, both old and new.
BELDEN INC.
Belden is a leading manufacturer and supplier of specialty products in the
wire and cable industry, focusing on 5 niches; computer networking cable (35% of
sales), cable television cable (10% of sales), cable for the audio/video market
(14% of sales), industrial applications including computers, robotics and
instrumentation (15% of sales) and electrical power cords (25% of sales).
International markets account for 35% of revenue, and present the Company with
exciting growth opportunities. Founded in 1902 and headquartered in St. Louis,
Belden was acquired by Cooper Industries in 1981, then spun-out as an
independent company again in an initial public offering in September of 1993.
The Company has seven manufacturing facilities in the U.S., and one in Europe,
which came from the acquisition of Netherlands-based Pope Cable and Wire. We
believe Belden represents a solid investment, based upon its attractive niche
businesses, high operating margins, quality management, and international growth
prospects. We believe Belden can grow earnings 15% a year through internal
growth, acquisitions, and operating margin improvement. Considering the positive
factors cited above, the valuation is very attractive at 14 times our $2.05
earnings per share estimate for this year.
DELUXE CORP.
Based in St. Paul, Minnesota, Deluxe Corp. is the nation's largest supplier
of checks, deposit tickets, and other magnetic encoded transaction forms. About
10 years ago, the Company recognized the slowing demand for checks, due largely
to electronic alternatives (ATMs, credit cards, debit cards, financial EDI,
etc.) and began providing software and processing for electronic payments.
While this was a logical strategic move, profitability from the electronics
payments business proved to be quite disappointing. Indeed, rather than
offsetting the slowdown in their paper-based check business, the newer,
electronic-based business exacerbated the slide in profit margins. Having been
considered a "blue chip" for many years, Deluxe's decline in fortunes was not
taken lightly by investors. Over the past several years, the stock fell from
nearly $50 all the way to the mid-twenties. About nine months ago, the
Company's board of directors acted decisively and brought in a new CEO, Gus
Blanchard. Blanchard is a tough, no-nonsense type, with experience turning
around troubled companies, most recently a business segment of AT&T. Having
reviewed Mr. Blanchard's plans for arresting the decline in check printing
margins and being more selective and strategic on the electronic payments side
of the business, we believe he can restore the "luster" to this franchise's name
over the course of the next 12-18 months. While we wait, the dividend provides
close to a 5% yield, limiting downside risk and enhancing the total return.
FISHER SCIENTIFIC INTERNATIONAL INC.
Fisher Scientific is the largest distributor of supplies, instruments,
equipment, and other products to the scientific community. They have thousands
of customers, including major industrial companies such as Merck, 3M, DuPont and
Kodak. With the recent acquisition of CMS from Fisons, Fisher established a
number one position in the industrial and scientific segment and a number two
position in the clinical lab segment. Fisher has established a well known
franchise in this growth industry. We are attracted to the stock for three
reasons. First, the industry has consolidated dramatically in recent years and
economic theory suggests the surviving players ought to gain pricing power.
Following VWR's purchase of a Baxter division and Fisher's purchase of CMS, the
industrial and scientific lab distribution segment has but two dominant players:
Fisher with about 26%, and VWR with about 24%; direct sales from manufacturers
have the remaining 50%. In the clinical lab segment, Baxter is number one with a
16% market share, followed by Fisher with 11%; other distributors have 20-25%
and direct sales have about 50%. Second, we like the characteristics of this
business. Roughly two-thirds of product sales are consumables or disposables.
Equipment sales are typically lower priced essentials. Increasingly, we believe
expansion-minded manufacturers will have to use one of the major distributors.
Finally, we believe earnings can exceed $3.00 within two years, making the stock
attractive.
POLICY MANAGEMENT SYSTEMS CORP.
Policy Management Systems was recently removed from your portfolio due
primarily to the declining quality of earnings. Over the past four quarters we
have been disturbed by the level of capitalization of both marketing and
software development expenses (this is the process of converting an expense to
an asset, then depreciating it over the expected life of the asset). While
these items are perfectly acceptable under FASB rules, they represent, in
essence, borrowing from the future growth of the Company, and if the software is
not commercially successful, write-offs will result. With the balance sheet
asset "capitalized software" approaching $150 million, and stagnant cash flow
growth (despite reported earnings growth), we felt it prudent to move to the
sidelines. Further cementing this move was the recent weakening in software
sales and our assessment that a rebound would not take place until 1997. Policy
Management Systems continues to be the dominant player in the insurance software
industry and we will revisit this stock at a later date, provided the quality of
earnings issues have been properly addressed.
Thank you for your continuing confidence in Fiduciary Capital Growth Fund,
Inc.
Sincerely,
/s/ Ted D. Kellner /s/ Donald S. Wilson
Ted D. Kellner, C.F.A. Donald S. Wilson, C.F.A.
President Vice President
225 E. Mason St. Milwaukee, WI 53202 414-226-4555
Fiduciary Capital Growth Fund, Inc.
STATEMENT OF NET ASSETS
March 31, 1996 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
- ------ ---- ------
LONG-TERM INVESTMENTS -- 83.8% (a)<F2>
COMMON STOCKS -- 79.3% (a)<F2>
BANKS/SAVINGS & LOANS -- 4.1%
14,000 Banknorth Group, Inc. (Del.) $479,500 $493,500
52,000 Marshall & Ilsley Corp. 693,945 1,358,500
--------- ---------
1,173,445 1,852,000
CHEMICAL/SPECIALTY MATERIALS -- 0.9%
12,000 Minerals Technologies Inc. 426,960 415,500
COMPUTERS -- 2.6%
42,000 Stratus Computer, Inc.*<F1> 1,483,860 1,165,500
CONSUMER PRODUCTS - NON-DURABLES -- 1.5%
25,000 Newell Co. 450,237 668,750
CONSUMER SERVICES -- 1.2%
18,000 Roto-Rooter, Inc. 274,950 553,500
DISTRIBUTION -- 4.1%
17,000 Arrow Electronics, Inc.*<F1> 634,950 799,000
26,500 Fisher Scientific
International Inc. 850,929 1,013,625
--------- ---------
1,485,879 1,812,625
ENERGY/ENERGY SERVICES -- 3.7%
45,000 Burlington Resources Inc. 1,703,625 1,670,625
HEALTH INDUSTRIES -- 6.4%
20,000 Dentsply International Inc. 632,500 805,000
48,800 Haemonetics Corp.*<F1> 1,013,645 805,200
25,000 Perrigo Co.*<F1> 281,250 337,500
38,000 Sybron International Corp.*<F1> 462,548 931,000
--------- ---------
2,389,943 2,878,700
INSURANCE -- 7.1%
20,000 John Alden Financial Corp. 406,960 352,500
32,000 Old Republic
International Corp. 760,194 1,040,000
19,000 Progressive Corp. (Ohio) 674,443 847,875
21,000 Providian Corp. 411,128 937,125
--------- ---------
2,252,725 3,177,500
LEISURE/RESTAURANTS -- 2.6%
128,500 Ryan's Family
Steak Houses, Inc.*<F1> 1,031,687 1,156,500
MISCELLANEOUS - BUSINESS SERVICES -- 3.0%
50,000 G & K Services, Inc. 443,875 1,337,500
MISCELLANEOUS - FINANCE -- 3.3%
46,400 Federal National
Mortgage Association 587,924 1,479,000
MISCELLANEOUS - TECHNOLOGY MANUFACTURING -- 6.3%
22,500 Corning Inc. 614,475 787,500
28,700 General Instrument Corp.*<F1> 629,248 774,900
19,600 Raychem Corp. 791,849 1,264,200
--------- ---------
2,035,572 2,826,600
PAPER/PACKAGING -- 2.5%
20,000 Liqui-Box Corp. 406,667 595,000
22,000 Wausau Paper Mills Co. 368,000 506,000
--------- ---------
774,667 1,101,000
POLLUTION CONTROL -- 4.5%
58,000 Browning-Ferris
Industries, Inc. 1,630,897 1,827,000
33,000 Harding Lawson Associates
Group, Inc.*<F1> (formerly
Harding Associates, Inc.) 506,575 198,000
--------- ---------
2,137,472 2,025,000
PRINTING/PUBLISHING/FORMS -- 3.2%
46,000 Deluxe Corp. 1,284,856 1,443,250
PRODUCER MANUFACTURING -- 9.3%
8,000 Bandag, Inc. Class A 419,464 414,000
7,600 Belden Inc. 184,680 224,200
46,000 Pall Corp. 728,276 1,178,750
57,000 Regal-Beloit Corp. 502,545 1,197,000
57,000 Watts Industries, Inc. 1,168,999 1,132,875
--------- ---------
3,003,964 4,146,825
RETAIL TRADE -- 5.8%
53,000 Casey's General Stores, Inc. 386,125 1,245,500
90,000 Family Dollar Stores, Inc. 1,443,350 1,327,500
--------- ---------
1,829,475 2,573,000
SOFTWARE/SERVICE -- 7.2%
58,000 Mentor Graphics Corp.*<F1> 482,750 826,500
15,500 Policy Management
Systems Corp.*<F1> 483,899 697,500
50,000 SunGard Data Systems Inc.*<F1> 420,745 1,712,500
--------- ---------
1,387,394 3,236,500
MISCELLANEOUS -- 0.0%
1,297 Windmere Corp. Warrants,
01/19/98*<F1> -- 2,918
--------- ---------
Total common stocks 26,158,510 35,522,793
U.S. TREASURY NOTES -- 4.5% (a)<F2>
2,000,000 U.S. Treasury Notes,
4.375%, due 08/15/96 2,012,812 1,992,500
--------- ---------
Total long-term
investments 28,171,322 37,515,293
SHORT-TERM INVESTMENTS -- 16.1% (a)<F2>
VARIABLE RATE DEMAND NOTES
2,150,000 American Family
Financial Services 2,150,000 2,150,000
786,631 General Mills, Inc. 786,631 786,631
2,150,000 Pitney Bowes Credit Corp. 2,150,000 2,150,000
2,150,000 Wisconsin Electric
Power Company 2,150,000 2,150,000
--------- ---------
Total short-term
investments 7,236,631 7,236,631
--------- ---------
Total investments $35,407,953 44,751,924
-----------
-----------
Cash and receivables, less
liabilities -- 0.1% (a)<F2> 42,003
-----------
NET ASSETS 44,793,927
-----------
-----------
Net Asset Value Per Share
($0.01 par value 10,000,000
shares authorized), offering
and redemption price
($44,793,927 / 2,188,374
shares outstanding) $20.47
------
------
*<F1> Non-income producing security.
(a)<F2> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Fiduciary Capital Growth Fund, Inc.
STATEMENT OF OPERATIONS
For the Period Ended March 31, 1996 (Unaudited)
INCOME:
Dividends $224,351
Interest 181,536
----------
Total income 405,887
----------
EXPENSES:
Management fees 198,956
Administrative services 18,264
Professional fees 10,165
Registration fees 9,425
Printing and postage expense 7,835
Transfer agent fees 7,300
Custodian fees 6,477
Other expenses 4,546
----------
Total expenses 262,968
----------
NET INVESTMENT INCOME 142,919
----------
NET REALIZED GAIN ON INVESTMENTS 2,053,204
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 343,363
----------
NET GAIN ON INVESTMENTS 2,396,567
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,539,486
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended March 31, 1996 (Unaudited) and For the Year Ended September
30, 1995
1996 1995
---- ----
OPERATIONS $142,919 $222,230
Net realized gain on investments 2,053,204 4,054,914
Net increase in unrealized appreciation
on investments 343,363 4,335,195
---------- ----------
Net increase in net assets
resulting from operations 2,539,486 8,612,339
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.11362 and $0.03683 per share, respectively) (222,238) (73,400)
Distributions from net realized gains
($2.07307 and $1.88352 per share, respectively) (4,054,872) (3,753,740)
---------- ----------
Total distributions (4,277,110)(3,827,140)*<F3>
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (116,862
and 381,983 shares, respectively) 2,329,336 7,197,877
Net asset value of shares issued in
distributions (223,475 and 212,856
shares, respectively) 4,149,937 3,731,370
Cost of shares redeemed (106,878 and
631,257 shares, respectively) (2,144,271)(12,388,732)
---------- ----------
Net increase (decrease) in net
assets derived from Fund share activities 4,335,002 (1,459,485)
---------- ----------
TOTAL INCREASE 2,597,378 3,325,714
NET ASSETS AT THE BEGINNING OF THE PERIOD 42,196,549 38,870,835
---------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income of $142,907 and $222,226, respectively) $44,793,927 $42,196,549
---------- ----------
---------- ----------
*<F3>Total distributions include $787,311 of ordinary income, of which 27% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of these
statements.
Fiduciary Capital Growth Fund, Inc.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE PERIOD
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $21.58 $19.52 $20.08 $18.65 $17.55 $14.16 $18.79 $15.19 $21.96 $22.51 $19.10
Income from
investment operations:
Net investment income 0.06 0.11 0.06 0.07 0.10 0.19 0.23 0.14 0.03 0.12 0.09
Net realized and unrealized
gains (losses) on
investments 1.01 3.87 0.72 3.33 2.39 4.35 (4.66) 3.49 (3.21) 3.11 3.54
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
investment operations 1.07 3.98 0.78 3.40 2.49 4.54 (4.43) 3.63 (3.18) 3.23 3.63
Less distributions:
Dividends from net
investment income (0.11) (0.04) (0.05) (0.11) (0.16) (0.23) (0.20) (0.03) (0.14) (0.10) (0.19)
Distributions from net
realized gains (2.07) (1.88) (1.29) (1.86) (1.23) (0.92) -- -- (3.45) (3.68) (0.03)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from distributions (2.18) (1.92) (1.34) (1.97) (1.39) (1.15) (0.20) (0.03) (3.59) (3.78) (0.22)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $20.47 $21.58 $19.52 $20.08 $18.65 $17.55 $14.16 $18.79 $15.19 $21.96 $22.51
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL INVESTMENT RETURN 12.4%*<F4>22.7% 4.1% 20.1% 15.3% 34.9% (23.8%) 24.0% (11.1%) 16.8% 19.2%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in 000's $) 44,794 42,197 38,871 47,420 38,476 30,684 19,460 40,387 41,606 55,154 51,880
Ratio of expenses to
average net assets 1.2%*<F4> 1.2% 1.2% 1.2% 1.3% 1.5% 1.4% 1.3% 1.3% 1.1% 1.2%
Ratio of net investment
income to average
net assets 0.7%*<F4> 0.5% 0.3% 0.4% 0.6% 1.2% 1.1% 0.8% 0.3% 0.6% 0.4%
Portfolio turnover
rate 18.8% 28.6% 20.9% 32.5% 58.9% 62.7% 55.1% 42.2% 43.4% 83.4% 56.5%
*<F4>Annualized.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Fiduciary Capital Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 (Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Fiduciary Capital Growth Fund, Inc. (the "Fund"), which is registered under
the Investment Company Act of 1940. The Fund was incorporated under the laws
of Wisconsin on July 29, 1981.
(a) Each security, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price. Securities
for which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Short-term investments are valued at amortized cost which
approximates quoted market value. Investment transactions are recorded no
later than the first business day after the trade date.
(b) Net realized gains and losses on common stock are computed on the basis of
the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(e) The Fund has significant 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 does not anticipate nonperformance by
these counterparties.
(f) Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified to capital stock.
(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% of the daily
net assets up to and including $30,000,000 and 0.75% of the daily net assets
of the Fund in excess of $30,000,000. The Fund has an administrative
agreement with FMI to supervise all aspects of the Fund's operations except
those performed by FMI pursuant to the management agreement. Under the terms
of the agreement, the Fund will pay FMI a monthly administrative fee at the
annual rate of 0.1% of the daily net assets up to and including $30,000,000
and 0.05% of the daily net assets of the Fund in excess of $30,000,000.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains are distributed to shareholders.
(4) INVESTMENT TRANSACTIONS --
For the period ended March 31, 1996, purchases and proceeds of sales of
investment securities (excluding short-term investments) were $7,128,334 and
$9,385,084, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of March 31, 1996, liabilities of the Fund included the following:
Payable to FMI for management and
administrative fees $37,955
Other liabilities 10,359
(6) SOURCES OF NET ASSETS --
As of March 31, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding $33,273,860
Net unrealized appreciation on investments 9,343,971
Accumulated net realized gains on investments 2,033,189
Undistributed net investment income 142,907
-----------
$44,793,927
-----------
-----------
Aggregate net unrealized appreciation as of March 31, 1996, consisted of the
following:
Aggregate gross unrealized appreciation $10,543,999
Aggregate gross unrealized depreciation (1,200,028)
-----------
Net unrealized appreciation $9,343,971
-----------
-----------
FIDUCIARY CAPITAL GROWTH FUND, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
BOARD OF DIRECTORS
TED D. KELLNER
THOMAS W. MOUNT
DONALD S. WILSON
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
