SEMIANNUAL REPORT
MARCH 31, 1997
FIDUCIARY
CAPITAL GROWTH
FUND, INC.
A NO-LOAD
MUTUAL FUND
FIDUCIARY
CAPITAL GROWTH
FUND, INC.
April 25, 1997
Dear Fellow Shareholder:
After some early strength during the first quarter, the stock market began to
fade, driven mostly by concerns over interest rates, but also by increasing
reservations about the prospects for corporate earnings. Many individual stocks
were hit very hard during the quarter as they reported disappointing results for
last year or announced expected shortfalls for the first quarter of 1997. The
NASDAQ index, dominated by technology stocks, was down 5.4% for the quarter and
the Russell 2000 down 5.2%, while the S&P 500 held on to a small 2.6% gain.
Fiduciary Capital Growth Fund declined 0.4% for the quarter.
We have talked for some time about the difficulty that the S&P 500 companies
face in trying to tack on any significant earnings gains moving forward from
these levels. And while the market is concerned about further increases in
interest rates by the Fed, we continue to believe that rates a year from now
will be lower than today. This would be consistent with our view that the
economy is probably not as robust as recent economic data would suggest. We
continue to emphasize niche companies with above average growth prospects in a
slowing economy, and selling at a discount to the market.
As is customary in our April letter, we highlight a few of our present
holdings.
COMCAST CORP. -- Comcast is the third largest cable operator in the U.S.,
serving 4.5 million subscribers. It operates a cellular telephone business that
covers a population of 8 million, owns 57% of the highly profitable QVC Network,
and owns 15% of the Sprint PCS joint venture. Although the Company has a long
record of value creation, it has recently, along with the entire cable industry,
operated under a dark cloud. Competition from direct broadcast satellite, and
to a lesser degree phone companies and wireless cable, have impacted premium
services. These worries, along with delayed launches of digital services and an
unflattering perception of cable service (e.g., The Cable Guy) have resulted in
a heavily penalized multiple for both Comcast and the industry. Comcast's cash
flow multiple is currently approximately 25% below its historical range.
Despite the very real problems out there, we believe the better cable operators
are positioned to weather the storm and perhaps even become stronger in the
aftermath. Our confidence is based on cable's architecture, which provides the
capacity to offer high speed data, video and telephony, and their ability so far
to hold their own in the face of competition. Comcast's subscriber numbers
suggest very modest losses to direct satellite. Still, it is critical that
Comcast quickly roll-out both digital and high speed data services in order to
rebuild fundamental momentum and bring the valuation back into line. This is
indeed the Company's game plan, and its execution should result in an excellent
investment.
CORNING INC. -- Corning has gone through an amazing transformation these past
few years. The Company wrote off its original 50% ownership investment in Dow-
Corning due to Dow's Chapter 11 filing (breast implants litigation). Corning
appointed a new CEO, Roger Ackerman, replacing the long time head, James
Houghton, and recently spun off its two major health care businesses, Covance
Inc. and Quest Diagnostics Incorporated as separate, publicly traded
corporations.
Meanwhile, demand for Corning's principal remaining businesses, fiber optic
cable and related telecom products, exploded as the so-called "information
highway" gets "paved" with Corning's fiber. Nearly our entire wish list, with
respect to what could go right with our original, contrarian investment two
years ago, has now come to fruition. These significant events have not gone
unnoticed on Wall Street, as the stock has nearly doubled. While we certainly
believe Corning's future to be bright, given its focus on and position in fiber
optics (50% market share), at 23 times this year's earnings estimate, we
anticipate lightening up the position and investing some of the proceeds in
Corning's recent health care related spinoffs, Covance and Quest Diagnostics.
FAMILY DOLLAR STORES, INC. -- Family Dollar has been a long term holding and
continues to offer above average appreciation prospects over the next few years.
With over 2,600 stores, Family Dollar is the second largest variety discount
player in the U.S. The small format discount store offers interesting
advantages over the "category killers" and large discounters like Wal-Mart.
Smaller stores put them into lower cost strip centers and neighborhood free
standing locations and offer an abundance of locations for growth. The focus on
basic merchandise for low to moderate income customers and low overhead allows
them to price merchandise in-line or below Wal-Mart. In a sense, the
convenience is a throwback to the general store concept, except that Family
Dollar is a professionally managed $2 billion organization. We expect Family
Dollar to grow earnings 15% annually over the next three years. Although the
stock has moved up, it trades at just a market multiple.
PALL CORP. -- Pall is the world's leading supplier of filtration products
with sales of approximately $1.1 billion. The Company has a very good long term
record of growth and profitability, driven by the fact that 70% of sales are
consumable products. In the past few quarters, however, growth has been
interrupted by weakness in European industrial and health care markets and
microelectronics. The stronger dollar and the acquisition of Gelman have also
hurt and distracted the Company, respectively. All of these factors are leading
to flat earnings in the July fiscal year and a stagnant stock price. After an
extensive review with the top operating people, we have decided to stick with
Pall for the time being. The Company is currently restructuring the
underperforming areas and we remain confident of the long term growth dynamics
of both the Company and the industry. Continuous advancement in particle
separation and filtration is essential for the production of high value added
chemicals, semiconductors, blood filters and industrial products. We believe a
few more tough quarters are in the stock and look for an improvement in both the
fundamentals and stock price in fiscal 1998.
RAYCHEM CORP. -- Although Raychem has retraced some of its strong gain of the
past two years, we believe the outlook for the stock remains excellent. Much of
the restructuring and refocusing of the Company is now complete and the plans'
architect, CEO Dr. Richard Kashnow, has turned his attention to revenue growth
and operating margin improvement. A world leader in applying advanced material
science (especially in polymers) to the electronics, telecommunications,
utility, and automotive markets, we believe the Company can leverage 10% sales
growth into 16-18% earnings growth, in part through the redeployment of the
Company's enormous free cash flow and relatively debt-free balance sheet. We
look for further, significant share repurchases, strategic acquisitions, and
joint ventures. Further productivity in Raychem's various polymer closures
businesses, particularly in the telecom and utility areas, should also drive
operating profit margins. We have great respect for, and faith in, Raychem's
management and believe they will continue to deliver strong results. At 15
times our estimate for this year's earnings and free cash flow, valuation is
attractive as well.
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, 1997 (UNAUDITED)
QUOTED
MARKET
SHARES COST VALUE
------- ------ -----
COMMON STOCKS -- 97.9% (A)<F2>
BANKS/SAVINGS & LOANS -- 5.7%
14,000 Banknorth
Group, Inc. (Del.) $479,500 $567,000
24,000 Marshall & Ilsley Corp. 226,990 876,000
50,000 Southwest Bancorporation
of Texas, Inc.*<F1> 921,875 962,500
----------- ----------
1,628,365 2,405,500
CONSUMER SERVICES -- 4.5%
2,100 Grey Advertising Inc. 466,200 564,900
60,000 Jostens, Inc. 1,241,987 1,357,500
----------- ----------
1,708,187 1,922,400
DISTRIBUTION -- 7.1%
17,000 Arrow Electronics, Inc.*<F1> 634,950 958,375
33,500 Black Box Corp.*<F1> 776,500 900,312
26,500 Fisher Scientific
International Inc. 850,929 1,169,313
----------- ----------
2,262,379 3,028,000
ELECTRONICS -- 3.0%
16,600 Berg Electronics Corp.*<F1> 515,477 473,100
10,000 Fluke Corp. 380,500 443,750
25,000 Methode Electronics, Inc. 440,625 350,000
----------- ----------
1,336,602 1,266,850
ENERGY/ENERGY SERVICES -- 4.0%
40,000 Burlington Resources Inc. 1,507,220 1,710,000
HEALTH INDUSTRIES -- 9.7%
23,100 Covance Inc.*<F1> 412,941 372,488
30,000 Dentsply International Inc. 1,042,500 1,500,000
48,800 Haemonetics Corp.*<F1> 1,013,645 866,200
10,000 Patterson Dental Co.*<F1> 230,000 340,000
38,000 Sybron International Corp.*<F1> 462,548 1,054,500
----------- ----------
3,161,634 4,133,188
INSURANCE -- 6.7%
15,000 CapMAC Holdings Inc. 399,615 399,375
48,000 Old Republic
International Corp. 760,194 1,230,000
19,000 Progressive Corp. (Ohio) 674,443 1,213,625
----------- ----------
1,834,252 2,843,000
LEISURE/RESTAURANTS -- 2.4%
128,500 Ryan's Family Steak
Houses, Inc.*<F1> 1,031,687 1,003,970
MEDIA/COMMUNICATION -- 4.0%
30,000 Comcast Corp.
Special Cl A NV 457,500 506,250
40,000 Cox Communications, Inc.*<F1> 799,837 825,000
10,000 Sirrom Capital Corp. 390,000 362,500
----------- ----------
1,647,337 1,693,750
MISCELLANEOUS - BUSINESS SERVICES -- 1.3%
18,000 G & K Services, Inc. 159,000 540,000
MISCELLANEOUS - FINANCE -- 5.2%
14,500 Financial Security
Assurance Holdings Ltd. 416,984 480,313
40,000 Fannie Mae (formerly
Federal National
Mortgage Association) 506,500 1,445,000
35,500 MoneyGram Payment
Systems, Inc.*<F1> 426,000 292,875
----------- ----------
1,349,484 2,218,188
MISCELLANEOUS - TECHNOLOGY MANUFACTURING -- 7.2%
22,500 Corning Inc. 510,936 998,437
28,600 Quest Diagnostics
Incorporated*<F1> 466,933 425,425
19,600 Raychem Corp. 791,849 1,614,550
----------- ----------
1,769,718 3,038,412
PAPER/PACKAGING -- 4.2%
18,000 AptarGroup, Inc. 574,572 688,500
21,800 Liqui-Box Corp. 461,900 709,873
22,000 Wausau Paper Mills Co. 368,000 402,886
----------- ----------
1,404,472 1,801,259
POLLUTION CONTROL -- 4.0%
58,000 Browning-Ferris
Industries, Inc. 1,630,897 1,674,750
PRODUCER MANUFACTURING -- 16.3%
8,000 Bandag, Inc. Class A 419,464 386,000
30,000 Belden Inc. 830,472 1,068,750
27,000 Cuno Inc.*<F1> 411,750 415,125
68,000 Pall Corp. 1,250,558 1,572,500
57,000 Regal-Beloit Corp. 502,545 1,396,500
57,000 Watts Industries, Inc. 1,168,999 1,325,250
29,500 W. H. Brady Co. 644,750 741,188
----------- ----------
5,228,538 6,905,313
RETAIL TRADE -- 10.8%
53,000 Casey's General Stores, Inc. 386,125 1,020,250
90,000 Family Dollar Stores, Inc. 1,443,350 2,103,750
30,000 Mac Frugal's Bargainso
Close-outs Inc.*<F1> 736,980 795,000
22,000 Pep Boys-Manny,
Moe & Jack 650,540 660,000
----------- ----------
3,216,995 4,579,000
SOFTWARE/SERVICE -- 1.8%
17,600 SunGard Data Systems Inc.*<F1> 99,000 765,600
----------- ----------
Total common stocks 30,975,767 41,529,180
QUOTED
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ------ -----
VARIABLE RATE DEMAND NOTES -- 2.1% (A)<F2>
$402,244 Johnson Controls, Inc. $402,244 $402,244
490,000 Wisconsin Electric
Power Co. 490,000 490,000
----------- ----------
Total variable rate
demand notes 892,244 892,244
----------- ----------
Total investments $31,868,011 42,421,424
==========
Liabilities, less cash and
receivables (0.0%) (A)<F2> (6,656)
-----------
Net Assets $42,414,768
==========
Net Asset Value Per Share
($0.01 par value 10,000,000
shares authorized), offering
and redemption price
($42,414,768 / 2,054,209
shares outstanding) $20.65
======
*<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 ENDING MARCH 31, 1997 (UNAUDITED)
INCOME:
Dividends $232,067
Interest 71,907
---------
Total income 303,974
---------
EXPENSES:
Management fees 200,287
Administrative services 18,338
Professional fees 17,635
Registration fees 9,581
Printing and postage expense 8,283
Transfer agent fees 7,311
Custodian fees 5,087
Other expenses 6,704
---------
Total expenses 273,226
---------
NET INVESTMENT INCOME 30,748
---------
NET REALIZED GAIN ON INVESTMENTS 2,240,975
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 912,784
---------
NET GAIN ON INVESTMENTS 3,153,759
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,184,507
=========
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING MARCH 31, 1997 (UNAUDITED) AND FOR THE YEAR ENDED
SEPTEMBER 30, 1996
1997 1996
----------- ----------
OPERATIONS:
Net investment income $30,748 $280,398
Net realized gain on investments 2,240,975 4,399,359
Net increase in unrealized appreciation
on investments 912,784 640,021
----------- ----------
Net increase in net assets resulting
from operations 3,184,507 5,319,778
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1492 and $0.11362 per share, respectively) (309,757) (222,238)
Distributions from net realized gains ($2.50233
and $2.07307 per share, respectively) (5,193,478) (4,054,872)
----------- ----------
Total distributions (5,503,235)(4,277,110)*
<F3>
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (60,664 and
194,324 shares, respectively) 1,285,849 3,955,578
Net asset value of shares issued in
distributions (270,000 and 223,475 shares,
respectively) 5,367,989 4,149,937
Cost of shares redeemed (383,157 and 266,012
shares, respectively) (7,755,258) (5,509,816)
----------- ----------
Net (decrease) increase in net assets derived
from Fund share activities (1,101,420) 2,595,699
----------- ----------
TOTAL (DECREASE) INCREASE (3,420,148) 3,638,367
NET ASSETS AT THE BEGINNING OF THE PERIOD 45,834,916 42,196,549
----------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment income
of $1,377 and $280,386, respectively) $42,414,768 $45,834,916
========== ==========
*<F3>Total distributions include $912,199 of ordinary income, of which 40% 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
ENDING
MARCH 31, YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $21.76 $21.58 $19.52 $20.08 $18.65 $17.55
Income from
investment operations:
Net investment income 0.02 0.13 0.11 0.06 0.07 0.10
Net realized and unrealized
gains (losses) on
investments 1.52 2.24 3.87 0.72 3.33 2.39
------- ------- ------- ------- ------- -------
Total from
investment operations 1.54 2.37 3.98 0.78 3.40 2.49
Less distributions:
Dividends from net
investment income (0.15) (0.12) (0.04) (0.05) (0.11) (0.16)
Distributions from net
realized gains (2.50) (2.07) (1.88) (1.29) (1.86) (1.23)
------- ------- ------- ------- ------- -------
Total from distributions (2.65) (2.19) (1.92) (1.34) (1.97) (1.39)
------- ------- ------- ------- ------- -------
Net asset value, end of period $20.65 $21.76 $21.58 $19.52 $20.08 $18.65
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN 16.2%**<F5> 12.7% 22.7% 4.1% 20.1% 15.3%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in 000's $) 42,415 45,835 42,197 38,871 47,420 38,476
Ratio of expenses to
average net assets 1.3%**<F5> 1.2% 1.2% 1.2% 1.2% 1.3%
Ratio of net investment
income to average net assets 0.1%**<F5> 0.6% 0.5% 0.3% 0.4% 0.6%
Portfolio turnover rate 21.2% 43.7% 28.6% 20.9% 32.5% 58.9%
Average commission rate paid*<F4>$0.0688 $0.0601
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
1991 1990 1989 1988 1987
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $14.16 $18.79 $15.19 $21.96 $22.51
Income from
investment operations:
Net investment income 0.19 0.23 0.14 0.03 0.12
Net realized and unrealized
gains (losses) on
investments 4.35 (4.66) 3.49 (3.21) 3.11
------- ------- ------- -------- -------
Total from
investment operations 4.54 (4.43) 3.63 (3.18) 3.23
Less distributions:
Dividends from net
investment income (0.23) (0.20) (0.03) (0.14) (0.10)
Distributions from net
realized gains (0.92) -- -- (3.45) (3.68)
------- ------- ------- -------- -------
Total from distributions (1.15) (0.20) (0.03) (3.59) (3.78)
------- ------- ------- -------- -------
Net asset value, end of period $17.55 $14.16 $18.79 $15.19 $21.96
======= ======= ======= ======== ========
TOTAL INVESTMENT RETURN 34.9% (23.8%) 24.0% (11.1%) 16.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in 000's $) 30,684 19,460 40,387 41,606 55,154
Ratio of expenses to
average net assets 1.5% 1.4% 1.3% 1.3% 1.1%
Ratio of net investment
income to average net assets 1.2% 1.1% 0.8% 0.3% 0.6%
Portfolio turnover rate 62.7% 55.1% 42.2% 43.4% 83.4%
Average commission rate paid*<F4>
*<F4>Disclosure required for fiscal years beginning after September 1, 1995.
**<F5>Annualized.
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
FIDUCIARY CAPITAL GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (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. The investment objective of the Fund is to
produce long-term capital appreciation principally through investing in common
stocks.
(a) Each security, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price. Securities
for which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Short-term investments 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 net investment company taxable income and net
capital gains to its shareholders and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes which are
unsecured instruments. The Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of the
issuer and 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.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(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.
On December 27, 1996, a dividend from net investment income of $29,124
($0.0142 per share) was declared. In addition, the Fund distributed $424,261
from net short-term realized gains ($0.2054 per share) and $369,675 from net
long-term realized gains ($0.179 per share). The distributions were paid on
December 30, 1996, to shareholders of record on December 26, 1996.
(4) INVESTMENT TRANSACTIONS --
For the period ending March 31, 1997, purchases and proceeds of sales of
investment securities (excluding short-term investments) were $8,591,324 and
$10,692,231, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of March 31, 1997, liabilities of the Fund included the following:
Payable to FMI for management and administrative fees $37,411
Other liabilities 21,428
(6)SOURCES OF NET ASSETS --
As of March 31, 1997, the sources of net assets were as follows:
Fund shares issued and outstanding $30,433,137
Net unrealized appreciation on investments 10,553,413
Accumulated net realized gains on investments 1,426,841
Undistributed net investment income 1,377
-----------
$42,414,768
===========
Aggregate net unrealized appreciation as of March 31, 1997, consisted of the
following:
Aggregate gross unrealized appreciation $11,258,408
Aggregate gross unrealized depreciation (704,995)
-----------
Net unrealized appreciation $10,553,413
===========
FIDUCIARY CAPITAL GROWTH FUND, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
BOARD OF DIRECTORS
BARRY K. ALLEN
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
