QUARTERLY REPORT
JUNE 30, 1996
FIDUCIARY
CAPITAL GROWTH
FUND, INC.
A NO-LOAD
MUTUAL FUND
FIDUCIARY
CAPITAL GROWTH
FUND, INC.
August 5, 1996
Dear Fellow Shareholder:
The June quarter saw virtually all stock market indices hitting new all-time
highs. The road to new highs, however, was characterized by some interesting
twists and turns. In the large cap area, there was a pronounced move to what
historically have been viewed as the more defensive stocks, e.g. food, drugs and
consumer non-durables. The small-cap sector, conversely, played host to some
speculative excesses not seen in a number of years. The Fund increased 3.7% for
the quarter, and 5.6% for the six months ended June 30, 1996.
The volume of initial public offerings (IPOs) surged to a record $18.6
billion in the second quarter, 50% greater than the previous record set in the
fourth quarter of 1995. Many of the IPOs were issued at prices above their
initial filing prices and promptly moved up substantially in price, this despite
limited operating histories, almost no revenues, and sizable operating losses
for the companies. In recent weeks the market's appetite for these offerings
has waned somewhat.
Reflective of a cooling of the speculative juices are significant declines in
many "story" stocks, as well as corrections in numerous stocks where there has
been some fundamental disappointment. Characteristic of the stock market in
recent years have been rolling corrections, where individual stocks, or industry
groups, have corrected in a generally benign overall market environment. This
has been the case over the past few quarters. With a modest rise in investor
skepticism, combined with a lack of interest in the "value" sector of the
market, we are seeing more stocks coming into view as potential purchase
candidates. Greater investor discernment generally helps value, and we expect
investors to become more discerning in coming quarters.
The economy continues to display resilience, with better than expected final
demand on the part of the consumer. Our view remains that the most serious
threat to a fairly valued market is a flattening or possible downturn in overall
corporate earnings, but recent employment growth, and the bond market's adverse
reaction, raise the specter of higher interest rates, another market negative.
An update on some of the themes on which we have focused during the past year
follows:
TECHNOLOGY
A year ago in this letter we discussed technology stocks and our opinion that
several sectors, particularly semiconductor, networking and software, appeared
to be extremely overvalued. Although we had little exposure to the most
distended sectors, even the more conservative names were sporting aggressive
multiples, and we therefore took the opportunity to realize some profits in July
and August of 1995. Since Fall of last year, a number of technology stocks,
especially in the semiconductor area, have had dramatic corrections.
Semiconductor indices are down over 40%, with many stocks down in excess of 50%.
Internet related and more speculative issues have dropped by over 40%.
Corrections in the networking and software areas have been much more selective,
with individual earnings disappointments treated severely while unblemished
stories remain at very high valuations.
The correction in technology stocks creates a more favorable investment
climate and we have been buying selectively in recent months. We still view
this area with some trepidation, however. Highly visible names such as Intel,
Oracle, Microsoft and Cisco remain relatively unscathed by the downdraft. If
any of these or other bellwether technology stocks stumble, there will likely be
another leg down in the group. Fundamentally, growth rates have slowed
dramatically in DRAMs, logic and passives. The PC market is slowing and
telecommunications isn't growing as expected. Uncertainty reigns as investors
try to figure out how long this cyclical downturn is likely to last. As
valuations better reflect this uncertainty, additional investment opportunities
will occur. We believe that there will continue to be areas of substantial
growth in high technology companies.
CONSUMER CREDIT
The growing consumer debt burden, and the potential effect on the economy of
the process of reliquefying consumers' balance sheets, has been a concern for
several quarters. Total consumer credit is now equal to almost 100% of
disposable personal income (Chart A). The proliferation of credit cards has
been a particular concern, and that appears to be an important factor in a
significant rise in personal bankruptcies. Personal bankruptcy filings are up
25% over the past year, and are at levels reached in the aftermath of the 1990-
91 recession. And these filings seem to be coming with little warning.
Outstanding credit card balances total about $366 billion, double the 1991
level, and delinquencies are at a 15-year high. While part of the growth in
card balances can be attributed to convenience usage (how many free airline
miles do you have?), there appears to be a segment of the population which is
maintaining lifestyle through expanded use of credit card balances. Upward
pressure on interest rates could be particularly dangerous to consumers burdened
by record debt, accumulated during a competitive rate environment.
CHART A
HOUSEHOLD DEBT AS A % OF DISPOSABLE PERSONAL INCOME
December 1972 61.1735
March 1973 61.2331
June 1973 61.8382
September 1973 62.4321
December 1973 61.6114
March 1974 61.3765
June 1974 62.5847
September 1974 62.1231
December 1974 62.0244
March 1975 61.4581
June 1975 59.2187
September 1975 60.4185
December 1975 60.4730
March 1976 59.7014
June 1976 60.8605
September 1976 61.3737
December 1976 62.1025
March 1977 62.2799
June 1977 63.3633
September 1977 64.0630
December 1977 65.0338
March 1978 64.5895
June 1978 85.1767
September 1978 66.4222
December 1978 67.1514
March 1979 66.7738
June 1979 68.0160
September 1979 68.6862
December 1979 68.8385
March 1980 67.9771
June 1980 68.5323
September 1980 68.0529
December 1980 67.1992
March 1981 65.7445
June 1981 66.6628
September 1981 65.7398
December 1981 66.0719
March 1982 65.8154
June 1982 65.3563
September 1982 64.9918
December 1982 65.3555
March 1983 64.3027
June 1983 64.7848
September 1983 65.3560
December 1983 65.8832
March 1984 64.6791
June 1984 65.2966
September 1984 65.7352
December 1984 67.4655
March 1985 69.1822
June 1985 69.8783
September 1985 72.0163
December 1985 73.7093
March 1986 72.8271
June 1986 74.3426
September 1986 76.0670
December 1986 78.2274
March 1987 77.1049
June 1987 80.1849
September 1987 80.7480
December 1987 80.2610
March 1988 79.7727
June 1988 80.7408
September 1988 81.0955
December 1988 82.0667
March 1989 81.0749
June 1989 82.1018
September 1989 83.1476
December 1989 84.3247
March 1990 83.9222
June 1990 84.5874
September 1990 84.9330
December 1990 85.8347
March 1991 85.6613
June 1991 85.7703
September 1991 85.9275
December 1991 86.5603
March 1992 85.1298
June 1992 84.6935
September 1992 85.6202
December 1992 84.8763
March 1993 85.7534
June 1993 85.6859
September 1993 86.9249
December 1993 87.2760
March 1994 88.7797
June 1994 88.1120
September 1994 88.9837
December 1994 90.0218
March 1995 89.4938
June 1995 90.9456
September 1995 91.9583
December 1995 92.8163
March 1996 92.4127
Sources: Federal Reserve Board; Bureau of Economic Analysis; Crandall, Pierce &
Company
CORPORATE EARNINGS
The updated chart showing trailing four quarter earnings for the S&P 500
(Chart B) reveals 4th quarter 1995 earnings were down 14% from the year earlier,
with the economy up a modest .5% as measured by real GDP. In a stronger first
quarter (GDP +2.2%) earnings rose .1%, and it appears as though second quarter
earnings growth will be sluggish, in spite of strong GDP growth. This
lackluster earnings pattern in the face of apparently strong economic results
reinforces earlier concerns that the margin improving "rabbits" are pretty much
"out of the hat" as far as corporate earnings are concerned. While it remains
to be seen, a cyclical peak in earnings may well have occurred in 1995.
CHART B
STANDARD & POOR'S 500 EARNINGS
December 1981 15.36
March 1982 14.81
June 1982 14.17
September 1982 13.56
December 1982 12.64
March 1983 12.42
June 1983 12.59
September 1983 13.30
December 1983 14.03
March 1984 15.26
June 1984 16.20
September 1984 16.56
December 1984 16.64
March 1985 16.39
June 1985 15.61
September 1985 15.23
December 1985 14.61
March 1986 14.52
June 1986 14.71
September 1986 14.85
December 1986 14.48
March 1987 15.10
June 1987 14.42
September 1987 15.86
December 1987 17.50
March 1988 18.59
June 1988 21.67
September 1988 22.73
December 1988 23.75
March 1989 24.96
June 1989 25.22
September 1989 23.69
December 1989 22.87
March 1990 21.67
June 1990 21.26
September 1990 21.74
December 1990 21.34
March 1991 20.94
June 1991 19.41
September 1991 17.82
December 1991 15.97
March 1992 16.19
June 1992 17.05
September 1992 18.04
December 1992 19.09
March 1993 19.84
June 1993 19.33
September 1993 20.41
December 1993 21.89
March 1994 22.71
June 1994 25.20
September 1994 27.33
December 1994 30.65
March 1995 32.55
June 1995 34.43
September 1995 35.15
December 1995 33.96
March 1996 34.05
Sources: Standard & Poor's Corporation Copyright 1996 Crandall, Pierce &
Company
We continue to emphasize holdings where we feel comfortable with the earnings
outlook, and especially where we feel that the stock price reflects reasonable
expectations for a company.
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. o Milwaukee, WI 53202 o 414-226-4555
FIDUCIARY CAPITAL GROWTH FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1996 (UNAUDITED)
QUOTED
PRINCIPAL AMOUNT OR MARKET
SHARES VALUE (B)<F2>
- ------- --------
LONG-TERM INVESTMENTS -- 92.0% (A)<F1>
COMMON STOCKS -- 87.7% (A)<F1>
BANKS/SAVINGS & LOANS -- 4.2%
14,000 Banknorth Group, Inc. (Del.) $479,500
52,000 Marshall & Ilsley Corp. 1,443,000
----------
1,922,500
CHEMICAL/SPECIALTY MATERIALS -- 0.9%
12,000 Minerals Technologies Inc. 411,000
COMPUTERS -- 2.6%
42,000 Stratus Computer, Inc. 1,218,000
CONSUMER SERVICES -- 3.2%
2,100 Grey Advertising Inc. 464,100
21,000 Jostens, Inc. 414,750
18,000 Roto-Rooter, Inc. 621,000
----------
1,499,850
DISTRIBUTION -- 5.5%
17,000 Arrow Electronics, Inc. 733,125
34,000 Black Box Corp. 807,500
26,500 Fisher Scientific
International Inc. 993,750
----------
2,534,375
ELECTRONICS -- 2.9%
31,600 Measurex Corp. 924,300
25,000 Methode Electronics, Inc. 425,000
----------
1,349,300
ENERGY/ENERGY SERVICES -- 4.2%
45,000 Burlington Resources Inc. 1,935,000
HEALTH INDUSTRIES -- 8.7%
72,000 Biomet, Inc. 1,035,000
20,000 Dentsply International Inc. 850,000
48,800 Haemonetics Corp. 890,600
25,000 Perrigo Co. 281,250
38,000 Sybron International Corp. 950,000
----------
4,006,850
INDUSTRIAL SERVICES -- 1.0%
21,000 W. H. Brady Co. 467,250
INSURANCE -- 8.4%
16,300 CapMAC Holdings Inc. 464,550
47,000 John Alden Financial Corp. 1,039,875
8,500 MGIC Investment Corp. 477,062
48,000 Old Republic
International Corp. 1,032,000
19,000 Progressive Corp. (Ohio) 878,750
----------
3,892,237
LEISURE/RESTAURANTS -- 2.6%
128,500 Ryan's Family
Steak Houses, Inc. 1,188,625
MISCELLANEOUS BUSINESS SERVICES -- 2.2%
35,000 G & K Services, Inc. 997,500
MISCELLANEOUS FINANCE -- 3.4%
46,400 Federal National
Mortgage Association 1,554,400
MISCELLANEOUS TECHNOLOGY
MANUFACTURING -- 6.7%
22,500 Corning Inc. 863,437
28,700 General Instrument Corp. 828,713
19,600 Raychem Corp. 1,408,750
----------
3,100,900
PAPER/PACKAGING -- 2.3%
21,800 Liqui-Box Corp. 654,000
22,000 Wausau Paper Mills Co. 434,500
----------
1,088,500
POLLUTION CONTROL -- 4.0%
58,000 Browning-Ferris
Industries, Inc. 1,682,000
33,000 Harding Lawson
Associates Group, Inc. 193,875
----------
1,875,875
PRINTING/PUBLISHING/FORMS -- 3.5%
46,000 Deluxe Corp. 1,633,000
PRODUCER MANUFACTURING -- 9.9%
8,000 Bandag, Inc. Class A 375,000
30,000 Belden Inc. 900,000
46,000 Pall Corp. 1,109,750
57,000 Regal-Beloit Corp. 1,125,750
57,000 Watts Industries, Inc. 1,061,625
----------
4,572,125
RETAIL TRADE -- 5.7%
53,000 Casey's General Stores, Inc. 1,053,375
90,000 Family Dollar Stores, Inc. 1,563,750
----------
2,617,125
SOFTWARE/SERVICE -- 5.8%
58,000 Mentor Graphics Corp. 942,500
43,600 SunGard Data Systems Inc. 1,749,450
----------
2,691,950
RIGHTS/WARRANTS -- 0.0%
1,297 Windmere Corp.
Warrants, 01/19/98 7,296
----------
Total common stocks 40,563,658
U. S. TREASURY NOTES -- 4.3% (A)<F1>
$2,000,000 U. S. Treasury Notes,
4.375%, 08/15/96 1,997,500
----------
Total long-term
investments 42,561,158
SHORT-TERM INVESTMENTS -- 7.9% (A)<F1>
VARIABLE RATE DEMAND NOTES
$1,335,531 Johnson Controls, Inc. $1,335,531
2,300,000 Wisconsin Electric
Power Company 2,300,000
----------
Total short-term
investments 3,635,531
---------
Total investments 46,196,689
Cash and receivables, less
liabilities -- 0.1% (A) 44,554
----------
NET ASSETS $46,241,243
Net Asset Value Per Share
($0.01 par value,
10,000,000 shares
authorized), offering
and redemption price
($46,241,243 / 2,179,363
shares outstanding) $21.22
-------
-------
(a)<F1>Percentages of various classifications relate to net assets.
(b)<F2>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. Short-term
investments are valued at cost which approximates quoted market value.
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
