SEMIANNUAL REPORT
MARCH 31, 2000
Fiduciary
Capital Growth
Fund, Inc.
A NO-LOAD
MUTUAL FUND
Fiduciary
Capital Growth
Fund, Inc.
April 26, 2000
Dear Fellow Shareholder:
That giant sucking sound you're hearing is not the outflow of U.S. jobs to
Mexico due to NAFTA as predicted by Ross Perot several years ago, but rather,
the air being let out of the technology and biotech "bubble" to which we've
referred in our last two letters. We have no way to know if this is just
another "buying opportunity" for the "growth at any price" and momentum
investors, but ultimately, the speculative stocks won't rebound - and in the end
it won't be pretty.
The shift in sentiment and decline in many of the overvalued stocks in
today's market over the last few weeks has been simply breathtaking. Over the
past month, the NASDAQ has declined 19.7%; the Interactive Week Internet Index
fell 24.3%; and the Merrill Lynch Biotech Holders Trust is down 24.3%.
Individual stock declines off their 52-week highs (for the most part in the last
6-8 weeks) have been stunning: Ariba, down 71%; Red Hat, down 82%; Commerce
One, down 72%; MicroStrategy, down 87%; and eBay, down 45%. Against that
backdrop, your portfolio did very well. In fact, as of this writing, your
portfolio has bested all of the averages, to include the Dow, S&P 500, NASDAQ
and Russell 2000. Indeed, we have witnessed a stunning reversal over the last
several weeks in favor of the value segment of the market where we are
positioned. Venerable market forecaster, Bob Farrell of Merrill Lynch, probably
summed it up best in the April 10th issue of Barron's when he said, "We're
seeing a sea-change in investor preference, away from so-called New Economy
stocks to so-called Old Economy stocks. This dramatic shift in the last few
weeks may foreshadow an extended period of under-performance by the NASDAQ and
particularly the technology sector."
Our view, as we have discussed with you in the past, is that technology,
including the Internet, will be an increasingly important part of most
companies. Your portfolio companies' technology strategies are key inputs to
our research. The stock market likes black and white stories like "new" versus
"old" economy, but in reality, all companies have to face a changing world and
figure out how to defend a niche and make money. Pure play "new economy"
companies heretofore have been too expensive and risky to own. Perhaps if the
markets cooperate, we will get a chance to own the better ones at a good price.
In our December quarterly report, we commented on the significant share
repurchase activity in your portfolio. Specifically, over 75% of the companies
in your portfolio have implemented active share repurchases. We also commented
that we felt there was a strong likelihood that the attractive valuations would
result in increased merger activity. In the first quarter, two of your
companies were acquired. Sterling Commerce was acquired by SBC at a 46%
premium, and Financial Security Assurance at a 52% premium, by Dexia.
Additionally, Consolidated Stores has engaged Credit Suisse First Boston to look
at possible ways of enhancing shareholder value. We believe that we will
continue to see acquisition activity continue at a high level because of the
strong underlying fundamentals of your companies and the extremely attractive
valuations - on a P/E multiple basis, your portfolio is still priced 55% cheaper
than the S&P 500!
On that score, we would like to highlight a few of the companies currently
held in your portfolio.
WHAT HAS WORKED
ARROW ELECTRONICS, INC.
Arrow is the world's number one distributor of semiconductors, passive
electronic components and mid-range computer systems. The Company has the
number one market share in the United States, Europe and the Far East. The
stock has recently broken out of a slump, having appreciated 41% this year, yet
still sells at just 14 times recently raised estimates. Despite widely held
views that the "Dell model" (a direct relationship between supplier and
customer) and business-to-business e-commerce would usurp the function of the
distributor, Arrow, and a handful of other top tier players including your
Pioneer-Standard Electronics holding - up 25% in the past nine months - are
currently thriving.
The last few years have been confusing and frustrating for investors as a
cyclical downturn in semiconductors over the 1996-1998 period began to
transition into a recovery. While the timing of the cycles is obviously not
perfectly predictable, distributors typically lag the semiconductor
manufacturers by one to four quarters. The absence of an immediate recovery by
Arrow and the other distributors last year seemed to scare investors into
thinking that the bigger secular issues previously mentioned were at work. This
caused the stock to underperform in 1999. Now that growth has resumed, the
stock has recovered strongly; yet this equity still trades at a significant
discount to its historical relative and absolute valuation range, suggesting a
nagging concern by the market that Arrow's success will be fleeting.
We have spent a great deal of time analyzing supply chain management, "BtoB
e-commerce," and vertical portals, particularly as they relate to the Internet.
We expect the more commodity aspects of distribution, the so-called demand
fulfillment business, to be negatively impacted by advanced supply chain
techniques employed by the likes of Ariba, Commerce One or VerticalNet. Value
added distribution, the so-called demand creation end of the business, should
continue to thrive as it involves a whole host of activities ancillary to the
delivery of a part, and in many cases, involves physical alteration of the part.
Furthermore, end customers are looking to outsource non-core tasks, and
distributors like Arrow have built the infrastructure to satisfy these demands.
Approximately 65% of Arrow's current business is demand creation and that
percentage has been growing steadily in recent years. As the market further
recognizes that top tier value added distributors have a defendable role in the
electronics supply chain, the P/E multiple should expand. We will obviously
keep a keen eye on the rapidly changing landscape, but in the meantime there is
a nice cyclical recovery in place and earnings are growing rapidly. Having the
patience to stick with this sound idea has paid off handsomely for you.
SUNGARD DATA SYSTEMS INC.
SunGard Data is the leading provider of investment software and services to
banks, brokerage firms, and investment institutions. SunGard is also the
leading provider of computer data disaster recovery solutions and recently added
an Application Service Provider (ASP) offering that leverages existing
processing infrastructure. SunGard's investment software products are diverse,
addressing complicated derivative applications, portfolio management systems,
on-line trading and trade adjudication. The disaster recovery business has
become an absolute necessity as information becomes the most valuable corporate
asset. These services are provided under multi-year contracts. The ASP
industry has recently captured Wall Street's attention, with companies such as
Exodus and USInternetworking, unprofitable and unproven, trading in excess of
100 times revenue. SunGard has a very robust model in the ASP area, selling to
Blue Chip customers who have come to rely on the Company's reputation in the
disaster recovery market. The irony is that SunGard can fund a wonderful growth
opportunity internally while still remaining highly profitable. SunGard's net
income of $200 million is roughly equal to Exodus' total revenues (Exodus lost
$130 million last year), yet has a market capitalization less than one-fifth
that of Exodus!
Most of the SunGard businesses are characterized by high degrees of recurring
revenue (83% for the firm as a whole), strong margins and superb free cash
flows. SunGard's cash flow exceeded $300 million last year and the balance
sheet sports no debt and a net cash position of nearly $400 million. Long-term
shareholders of the Fund know this Company well, as it was a big winner for us
during much of the 1990s, appreciating over 500% in the seven years during which
we owned it. Due to valuation and year 2000 concerns, we stepped to the
sidelines at the end of 1998. With those worries negatively impacting the stock
last year, we reinvested. This proved premature, as the Company missed, by four
cents, its first quarter in nine years last September. The stock was clobbered,
eventually dropping to 5.5 times earnings before interest, taxes, depreciation
and amortization (EBITDA).
This was an incredible valuation for a company of this quality and we took
that opportunity to make SunGard a very large position. With steady operating
performance in Q4 and a positive outlook for Q1, the stock rebounded nicely, up
59% through March. Even with this rebound, the stock still trades for less than
10 times EBITDA and 21 times earnings, a discount to the market and comparable
companies.
WHAT HASN'T WORKED...BUT WHAT WE BELIEVE WILL
CONSOLIDATED STORES CORP.
Consolidated Stores is the leading close-out merchandiser in the United
States with over 1,230 Odd Lots, Big Lots, Pic 'N' Save and MacFrugal's stores
and 1,320 KB Toys locations. The Company's KBkids.com is also one of the top
on-line toy retailers. The stock has been disappointing over the past two
years, due to problems integrating the MacFrugal's acquisition, bringing on a
new distribution center and inventory management system, and the start-up of the
Internet toy business. The issues regarding the core franchise are behind the
Company now and the closeout business is solidly back on the growth track. This
business earned $1.15 last year and is expected to earn $1.35 this year and
remains an excellent free cash story. Consolidated Stores is far and away the
leader in the closeout sector and achieves a superior margin and return on
capital.
Unfortunately, what was once excitement surrounding the KBkids.com Internet
venture has now turned 180 degrees as the market has soured on e-tailing.
eToys, for example, has gone from $86.00 to $8.00! The market appears to be
worried that KBkids.com will be a longer-term drag on overall Consolidated
Stores' earnings. Thus, the planned IPO of KBkids.com is now in jeopardy and is
likely the reason why the Company recently hired Credit Suisse First Boston to
"explore various options to increase shareholder value." We believe management
is highly motivated to do what it takes to deliver shareholder value, including
divestiture of KBkids.com. A reasonable valuation on the core business - a 15%+
growth story with excellent free cash characteristics - is 20 times earnings.
If the Company reaches the reasonable target of $1.35 this year (excluding
KBkids.com) and the market starts to look at $1.55-1.60 next year, the stock
could push toward $30.00 or higher. With the stock currently at $12.00, we are
very excited about the prospects. With Credit Suisse First Boston on board, the
catalyst is there to make it happen.
CASELLA WASTE SYSTEM, INC.
Casella Waste is a regional, integrated, non-hazardous solid waste services
company with current operations focused in the Northeastern part of the United
States. In most of its markets, Casella has the largest market share for both
collection and landfill of waste. The business model is sound, with strong
recurring revenues that are under contract and end-market demand that is
recession resistant. The Company closed on the acquisition of KTI Inc. in
December, which brought along scarce disposal capacity in the form of two waste-
to-energy facilities (incineration) in the Northeast. Additionally, KTI is
involved in the recycling of waste and the production of finished products,
where they convert recycled plastic and paper. Casella has established an
enviable position in solid waste in the Northeast, which is the region with the
highest internal growth in the country. In Q3 ending January 31, internal
growth (volume and price) increased over 9% and the outlook for the core
collection and disposal assets remains very bright. As expansions become more
difficult to obtain, the value of the Casella franchise increases.
Currently, the negatives that came along with the KTI acquisition,
specifically the businesses that have been slated for divestiture, have
overwhelmed the positives, sinking the stock. Earnings estimates have retreated
to $1.15 from $1.45 for the fiscal year ending April 30, 2001 and the stock is
down from $18.00 to $7.25. This appears to be a major overreaction, since the
problems seem to be transitory, and very fixable. The Company is going to
divest the unattractive businesses that came with KTI. We have been assured of
that and believe it will happen soon. Unless there is a significant change in
the economic landscape, the $1.15 estimate for April, 2001 looks conservative.
Moreover, proceeds from divestitures will be used to reduce debt. At current
share prices, the P/E multiple is 6.7x and the EBITDA multiple (market value
plus net debt, divided by earnings before interest, taxes, depreciation and
amortization) is 4.1x. We believe the stock will appreciate several-fold from
the current levels over the next few years.
G&K SERVICES, INC.
G&K Services is the third largest uniform rental company in North America.
Our longer-term shareholders will remember our first successful stint with this
stock in the early 1990s, when it appreciated fourfold. As was the case with
SunGard, our reentry last year into the stock was less than elegant.
Nonetheless, this is an excellent business that we not only know well, but are
confident can deliver solid operating margins and growth. Like SunGard, it is
characterized by recurring revenue. Best of all, and despite a modest bounce
off the bottom, the stock is wonderfully cheap right now - in fact, on a
valuation basis, very close to our purchase price in the early 1990s. We have
done a Leveraged Buy-Out (LBO) analysis of this Company that suggests attractive
returns even at a 75-100% premium to today's price. While we do not expect an
LBO, the exercise is useful in assessing downside risk. Currently the stock
trades for approximately 10x calendar 2000 estimated earnings and 5x EBITDA.
The nearest comparable public company, Cintas, trades at 27x earnings and 10x
EBITDA.
Every cheap stock has a story, and G&K is no exception. Theirs is a two-part
problem. First, they purchased National Linen Services two years ago and it
came with warts that have taken management longer to address than most expected.
Not coincidentally, when the Company announced the National Linen acquisition,
that is when we sold our original position. Problems getting these operations
up to G&K standards and growth rates hurt the stock last year. We felt the
Company was making steady progress even though the stock had fallen to
attractive levels; that is when we repurchased the stock. Unfortunately, all
were blind-sided in early 2000 by problem number two, which was the difficulties
encountered cranking up their direct sales business. Cintas has a wonderful
direct business and we applaud G&K's management for going after this attractive
market. Many mistakes were made, however, and there is much work left to be
done. The good news is that the Company has put Dick Fink, the current chairman
and long time former CEO, temporarily in charge of the direct business. The
situation is now stabilized and he will run it until a capable executive is
hired.
The depressed stock gave us the opportunity to double our positions. We will
continue to closely watch the progress of the Southeast division (where most of
the National Service problems were located) and the direct sales division.
Management has given Wall Street fairly conservative guidance for the next few
quarters and if this comes off without additional slippage, the stock should
start to recover. Ultimately, we hope to see G&K return to the land of premium
multiples, where the Company lived until 12 months ago. If so, the stock could
be fantastic.
As we said in our last two reports, we're extremely excited about the return
prospects for your portfolio for the next 12-36 months. Overall, your companies
should experience growth of over 16% in the first quarter, and 17%+ for the full
year. Whenever your companies have sold at roughly 12 times estimated earnings
and a 55% discount to the market, it has been a recipe for outstanding returns
going forward.
As always, thank you for your continued confidence in our investment style
and the disciplines we employ here at Fiduciary Capital Growth Fund, Inc.
Sincerely,
/s/ Ted D. Kellner /s/ Donald S. Wilson /s/ Patrick J. English
Ted D. Kellner, C.F.A Donald S. Wilson, C.F.A Patrick J. English, C.F.A.
President Vice President Portfolio Manager
225 E. Mason St. o Milwaukee, WI 53202 o 414-226-4555
Fiduciary Capital Growth Fund, Inc.
STATEMENT OF NET ASSETS
March 31, 2000 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
-------- ------ -------
LONG-TERM INVESTMENTS -- 93.9% (A)<F2>
COMMON STOCKS -- 90.0% (A)<F2>
BANKS/SAVINGS & LOANS -- 1.0%
15,000 Associated Banc-Corp. $ 450,250 $ 448,125
CHEMICAL/SPECIALTY MATERIALS -- 11.4%
50,700 Cambrex Corp. 1,260,984 2,205,450
29,000 Great Lakes Chemical Corp. 830,943 986,000
23,200 Minerals Technologies Inc. 894,569 1,033,850
37,300 Sigma-Aldrich Corp. 1,077,994 1,002,437
----------- -----------
4,064,490 5,227,737
DISTRIBUTION -- 5.9%
55,000 Arrow Electronics, Inc.*<F1> 887,653 1,938,750
50,000 Pioneer-Standard
Electronics, Inc. 412,188 787,500
----------- -----------
1,299,841 2,726,250
HEALTH INDUSTRIES -- 13.5%
93,000 Covance Inc.*<F1> 1,086,259 999,750
73,000 Dentsply International Inc. 1,362,812 2,071,375
30,000 Haemonetics Corp.*<F1> 521,182 675,000
16,600 IDEXX Laboratories, Inc.*<F1> 271,825 386,988
71,000 Sybron International Corp.*<F1> 931,995 2,059,000
----------- -----------
4,174,073 6,192,113
INDUSTRIAL SERVICES -- 4.3%
68,000 Casella Waste System, Inc.*<F1> 1,270,594 510,000
135,000 Republic Services, Inc.*<F1> 2,000,588 1,476,563
----------- -----------
3,271,182 1,986,563
INSURANCE -- 10.5%
46,957 Delphi Financial
Group, Inc.*<F1> 1,522,621 1,426,319
16,900 Financial Security
Assurance Holdings Ltd. 845,995 1,241,093
24,000 MGIC Investment Corp. 836,040 1,047,000
79,325 Old Republic
International Corp. 1,014,375 1,090,719
----------- -----------
4,219,031 4,805,131
MISCELLANEOUS BUSINESS SERVICES -- 10.9%
17,700 Cintas Corp. 417,130 693,619
80,000 G & K Services, Inc. 2,090,618 1,563,744
20,300 Keane, Inc.*<F1> 402,736 512,575
75,000 Modis Professional
Services, Inc.*<F1> 832,556 928,125
40,000 Morrison Management
Specialists, Inc. 760,866 1,110,000
24,600 Romac International, Inc.*<F1> 199,112 222,937
----------- -----------
4,703,018 5,031,000
MISCELLANEOUS-TECHNOLOGY MANUFACTURING -- 2.8%
18,500 Bell & Howell Co.*<F1> 529,562 578,125
75,100 Paxar Corp.*<F1> 642,400 722,838
----------- -----------
1,171,962 1,300,963
PAPER/PACKAGING -- 4.0%
51,300 AptarGroup, Inc. 1,349,718 1,369,069
35,000 Wausau-Mosinee
Paper Corp. 442,110 452,812
----------- -----------
1,791,828 1,821,881
PRINTING/PUBLISHING/FORMS -- 0.8%
32,500 Wallace Computer
Services, Inc. 576,239 383,906
PRODUCER MANUFACTURING -- 2.2%
59,000 Regal-Beloit Corp. 731,582 1,032,500
RETAIL TRADE -- 9.9%
131,000 Casey's General Stores, Inc. 1,062,687 1,424,625
125,000 Consolidated Stores Corp.*<F1> 1,765,605 1,421,875
75,000 Family Dollar Stores, Inc. 1,290,336 1,560,938
18,000 Stein Mart, Inc.*<F1> 117,875 148,500
----------- -----------
4,236,503 4,555,938
SOFTWARE/SERVICES -- 12.8%
31,000 Acxiom Corp.*<F1> 777,558 1,030,750
37,000 NOVA Corp./Georgia*<F1> 939,144 1,077,625
22,300 Reynolds & Reynolds Co. 456,644 602,100
84,000 SunGard Data Systems Inc.*<F1> 2,218,115 3,171,000
----------- -----------
4,391,461 5,881,475
----------- -----------
Total common stocks 35,081,460 41,393,582
REITS -- 3.9% (A)<F2>
92,500 Prologis Trust 1,915,109 1,780,625
----------- -----------
Total long-term
investments 36,996,569 43,174,207
PRINCIPAL
AMOUNT COST VALUE
- --------- ------ -------
SHORT-TERM INVESTMENTS -- 6.2% (A)<F2>
VARIABLE RATE DEMAND NOTE
$2,838,110 Firstar Bank U.S.A., N.A. 2,838,110 2,838,110
----------- -----------
Total investments $39,834,679 46,012,317
-----------
-----------
Liabilities, less cash and
receivables -- (0.1%) (A)<F2> (21,211)
-----------
NET ASSETS $45,991,106
-----------
-----------
Net Asset Value Per Share
($0.01 par value 10,000,000
shares authorized), offering
and redemption price
($45,991,106 / 2,561,452
shares outstanding) $17.96
------
------
*<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, 2000 (Unaudited)
INCOME:
Dividends $ 175,194
Interest 34,327
----------
Total income 209,521
----------
EXPENSES:
Management fees 189,386
Administrative services 17,626
Registration fees 15,670
Professional fees 11,320
Printing and postage expense 10,780
Transfer agent fees 10,390
Custodian fees 4,892
Board of Directors fees 800
Other expenses 1,048
----------
Total expenses 261,912
----------
NET INVESTMENT LOSS (52,391)
----------
NET REALIZED GAIN ON INVESTMENTS 2,065,369
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 3,180,291
----------
NET GAIN ON INVESTMENTS 5,245,660
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,193,269
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending March 31, 2000 (Unaudited) and For the Year Ended
September 30, 1999
2000 1999
----------- -----------
OPERATIONS:
Net investment loss $ (52,391) $ (77,119)
Net realized gain on investments 2,065,369 857,097
Net increase in unrealized appreciation
on investments 3,180,291 5,355,880
----------- -----------
Net increase in net assets resulting
from operations 5,193,269 6,135,858
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($0.43172
and $4.71103 per share, respectively) (1,033,403) (9,979,348)*
<F3>
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (468,991 and
110,952 shares, respectively) 7,787,579 1,867,672
Net asset value of shares issued in distributions
(64,902 and 597,484 shares, respectively) 964,443 8,836,792
Cost of shares redeemed (369,027 and 423,064
shares, respectively) (6,035,578) (6,792,793)
----------- -----------
Net increase in net assets derived from
Fund share activities 2,716,444 3,911,671
----------- -----------
TOTAL INCREASE 6,876,310 68,181
NET ASSETS AT THE BEGINNING OF THE PERIOD 39,114,796 39,046,615
----------- -----------
NET ASSETS AT THE END OF THE PERIOD $45,991,106 $39,114,796
----------- -----------
----------- -----------
*<F3> See Note 7.
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>
(UNAUDITED)
FOR THE PERIOD
ENDING YEARS ENDED SEPTEMBER 30,
MARCH 31, ------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $16.32 $18.49 $26.53 $21.76 $21.58 $19.52
Income from investment operations:
Net investment (loss) income (0.02) (0.03) (0.02) 0.03 0.13 0.11
Net realized and unrealized
gains (losses) on investments 2.09 2.57 (4.15) 7.39 2.24 3.87
------ ------ ------ ------ ------ ------
Total from investment operations 2.07 2.54 (4.17) 7.42 2.37 3.98
Less distributions:
Dividends from net investment income -- -- (0.01) (0.15) (0.12) (0.04)
Distributions from net realized gains (0.43) (4.71) (3.86) (2.50) (2.07) (1.88)
------ ------ ------ ------ ------ ------
Total from distributions (0.43) (4.71) (3.87) (2.65) (2.19) (1.92)
------ ------ ------ ------ ------ ------
Net asset value, end of period $17.96 $16.32 $18.49 $26.53 $21.76 $21.58
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 13.2%*<F4> 16.4% (17.6%) 38.4% 12.7% 22.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 45,991 39,115 39,047 52,678 45,835 42,197
Ratio of expenses to average net assets 1.3%**<F5> 1.3% 1.2% 1.2% 1.2% 1.2%
Ratio of net investment (loss) income
to average net assets (0.3%)**<F5> (0.2%) (0.1%) 0.1% 0.6% 0.5%
Portfolio turnover rate 32.9% 75.9% 54.3% 60.7% 43.7% 28.6%
</TABLE>
*<F4> Not Annualized.
**<F5> Annualized.
The accompanying notes to financial statements are an integral part of this
statement.
Fiduciary Capital Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000 (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 as a
diversified, open-end management investment company 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
(securities with maturities of 60 days or less) are valued at
amortized cost which approximates quoted market value. For financial
reporting purposes, investment transactions are recorded on trade
date. Cost amounts as reported on the statement of net assets are
substantially the same for Federal income tax purposes.
(b) Net realized gains and losses on common stock are computed on the
identified cost basis.
(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. The Fund has $244,219 of post-October
losses, which may be used to offset capital gains in future years to
the extent provided by tax regulations.
(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 the Fund does not anticipate
nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent
differences between income for financial reporting and tax purposes be
reclassified in the capital accounts.
(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, if any, are distributed
to shareholders.
(4) INVESTMENT TRANSACTIONS --
For the period ending March 31, 2000, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$14,112,499 and $13,017,512, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of March 31, 2000, liabilities of the Fund included the following:
Payable to FMI for management and administrative fees $37,091
Other liabilities 17,349
(6) SOURCES OF NET ASSETS --
As of March 31, 2000, the sources of net assets were as follows:
Fund shares issued and outstanding $38,053,920
Net unrealized appreciation on investments 6,177,638
Accumulated net realized gains on investments 1,759,548
-----------
$45,991,106
-----------
-----------
Aggregate net unrealized appreciation as of March 31, 2000, consisted
of the following:
Aggregate gross unrealized appreciation $ 9,525,655
Aggregate gross unrealized depreciation (3,348,017)
-----------
Net unrealized appreciation $ 6,177,638
-----------
-----------
(7) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 1999, shareholders received information regarding all
distributions paid to them by the Fund during the fiscal year ended
September 30, 1999. The Fund hereby designates the following amounts as
long-term capital gains distributions.
Capital gains taxed at 20% $ 7,780,616
The percentage of ordinary income which is eligible for the corporate
dividend received deduction for the fiscal year ended September 30, 1999
was 17%.
FIDUCIARY CAPITAL GROWTH FUND, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
414-226-4555
BOARD OF DIRECTORS
BARRY K. ALLEN
GEORGE D. DALTON
PATRICK J. ENGLISH
TED D. KELLNER
THOMAS W. MOUNT
DONALD S. WILSON
INVESTMENT ADVISER
AND ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
800-811-5311
or
414-765-4124
CUSTODIAN
FIRSTAR BANK, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of Fiduciary Capital Growth Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance is not indicative of
future performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
