ANNUAL REPORT
SEPTEMBER 30, 2000
Fiduciary
Capital Growth
Fund, Inc.
A NO-LOAD
MUTUAL FUND
Fiduciary
Capital Growth
Fund, Inc.
October 27, 2000
Dear Fellow Shareholder:
We are nine months through what is likely to be the most volatile year in
stock market history. According the Leuthold Group, 39% of the trading days for
the S&P 500 and 75% of the trading days for the NASDAQ have been "high
volatility." That is to say these indices were up or down by more than 1%. The
39% figure for the S&P compares to the post-1945 median of 16%, and the 75%
number for the NASDAQ is over four times more volatile than the median of 16.7%.
What a way to start the millennium! We are pleased to report that in spite of
the tremendous volatility, your portfolio has outperformed the popular indices,
including the benchmark Russell 2000, for the quarter and year-to-date periods,
respectively.
The years 1998 and 1999 were relatively difficult for value oriented managers
as investors sought risk, particularly in high valuation technology stocks, and
were rewarded for it. Even as the environment turns more favorable to our style
of investing and punishes some speculations, e.g. internet stocks, we continue
to see highly optimistic and arguably unrealistic valuations in various sectors.
Well-known stocks like Lucent, Microsoft and Dell have declined sharply this
year, over 50% on average, while others such as Ciena, Juniper and Siebel have
been rocket ships and sell at phenomenal valuations -- how does 400 times
earnings soundo Two weeks ago Intel blew up. Last week it was Apple, this
week, Dell - for a third time - and the stock still sells at 37 times earnings.
Each bomb sends the momentum crowd toward the ones that haven't blown yet.
Ultimately, this strikes us as a loser's game and it would all be quite amusing
except that the collateral damage affects everyone. All stocks are more
volatile as a consequence. With this sort of backdrop to the investment
landscape, it is no wonder our risk sensitive approach is regaining favor. We
see more investors seeking to escape the rat race of chasing technology stocks
and instead moving toward equities that offer solid growth at a reasonable
price.
The stocks that fit this bill have a long way to go to close the gap that
emerged several years ago between aggressive and conservative investment
results. We see at least two good things happening over the near term. One,
growth in many low valuation companies could exceed expectations. Two,
investors should migrate toward a more risk averse investment approach as
technology and high valuation stocks inevitably disappoint. Both of these
conditions should drive superior performance for your portfolio over the coming
years.
As is customary twice a year, we would like to highlight a few of your
portfolio investments. In boilerplate fashion, we would like to remind
shareholders that the stocks we highlight are not our "best ideas." If we knew
which ones were our best ideas, we'd have all of your money in only those!
While we like all of the stocks in your portfolio, it's impossible to predict
which ones will move first or by how much.
UPDATE
In the March letter we highlighted three stocks that hadn't performed, but
which we believed had strong prospects. Consolidated Stores is up 15% over the
past six months, despite awful performance in the retail sector. We think this
stock has a long way to go. Casella Waste System continues to struggle with the
disposition of noncore assets, yet the stock has gained over 30% since March 31.
Although it remains inexpensive, it is likely to remain quite volatile until the
dispositions take place and the Company is back delivering steady earnings
growth. G&K Services has gained 41% since March 31, yet still sells for just
11.5 times next year's earnings. We've had some real stinkers this year, too,
including Nova and Covance. Nova stumbled with an acquisition but continues to
have a terrific business in the transaction processing area. We think this
stock will perform nicely from here. Covance has been a combination of self-
inflicted wounds and changes by their largest customers, the big pharmaceutical
companies. We see no change in the bigger theme of continued outsourcing of
drug development activity by the large drug companies, but it will take some
time for Covance to adjust. The Company remains a leader in their core
franchise.
PROLOGIS TRUST
With more than 1600 facilities throughout North America and Europe, Prologis
is a leading global provider of integrated distribution centers and services.
The Company has distinguished itself from other industrial REITs by building a
worldwide network around the largest users of distribution space. Global
clients in the network can streamline the distribution and logistics procurement
process through standardization and benchmarking. Despite popular myths to the
contrary, the new economy needs warehouses and distribution. In fact, high
throughput distribution is a vital aspect to e-commerce, and Prologis is
literally at ground zero in this endeavor. We like the industrial sector of
the real estate market because of the versatility of the space and the growing
level of worldwide trade.
We are particularly pleased to be associated with the management of Prologis,
as they have repeatedly demonstrated an innovative yet conservative approach to
financing their business. The Prologis business model is becoming less capital
intensive and thus the return on invested capital continues to rise. As this
fact becomes more apparent to The Street, and the overall REIT sector continues
to regain favor, the stock should do well.
Prologis has grown funds from operations (the proxy for earnings in the REIT
world) consistently in the 10-12% range. We expect that rate to continue for
the next several years. Most of their customers have long-term leases with
price escalators, which locks in recurring revenue. As more customers utilize
the network, the leverage becomes attractive. The yield on Prologis is
currently 5.8%. With double-digit growth in funds from operations and a 5.8%
yield, we think the total return possibilities are quite attractive, even
without multiple expansion. The P/E ratio (price-to-funds from operations) is
just 10.5 and 9.5 times 2000 and 2001 estimates, respectively.
MGIC INVESTMENT CORP.
MGIC is the leading provider (with about 25% market share) of private
mortgage insurance (covering residential first mortgages) to lenders to protect
them from loss on low down payment loans. Long term clients may remember MGIC,
as it was a very successful holding in the mid 1990s. While MGIC is a national
player and is widely recognized as the highest quality company in the mortgage
insurance sector, it is also a local Milwaukee based institution. This has
afforded us the opportunity to know the people more intimately than is typical.
In MGIC's case, familiarity breeds respect. Management has done a wonderful job
so far dealing with Fannie Mae, Freddie Mac and the legislative side of this
business. They have also positioned themselves conservatively from a reserve
and exposure standpoint, which is not easy to do when times are good and others
are trying to grab market share. Additionally, MGIC has undertaken some
exciting technology initiatives, which we feel really puts them way out in front
of the industry.
We like the mortgage insurance business because the earnings are largely
recurring in nature. Over the next few years, we expect insurance in force to
grow in the high single digits and expenses to fall as a percent of revenue.
This should continue to drive solid earnings per share growth. While new
business written fluctuates due to interest rates, insurance in force remains
quite steady. Modest population growth, immigration, stronger household
formation, increasing home ownership rates and new products drive long term
growth. MGIC is well-reserved and has "stress tested" their book nearly every
conceivable way. That is not to say this company will never have any earnings
problems; it just means it is highly unlikely we will see "one-time" large
reserve additions.
Although MGIC has been a strong performer recently, we find the stock still
reasonable on a valuation basis. The Company is on track to earn $5.00 per
share this year and $5.60 per share or so next year. The P/E ratio of 11 times
next year's number is actually on the low end of MGIC's historical P/E trading
range of 9-19.
OLD REPUBLIC INTERNATIONAL CORP.
Old Republic has been a long term holding in the portfolio for a variety of
reasons. First, we know and we trust the management, which is a key factor in
any financial stock. Second, we understand their three lines of insurance, as
well as how and why they approach their markets. As Warren Buffet says, "It's
in our sphere of competency." Finally, the stock is significantly undervalued.
Despite sizeable assets of nearly $7 billion, Old Republic is a niche
insurance company based in Chicago. In terms of earnings, the biggest
contributor in recent years (about 60%) has been mortgage insurance, where they
are the sixth largest player (10% market share). This is a solid operation that
gets high marks from their competitor, MGIC. We think this business is worth
$17-19.00 per share as a stand-alone entity. Commercial trucking lines dominate
the general insurance operation, which generates just a third of the earnings,
even though it is over half of the revenue. This area has been weak in recent
years, primarily due to increased severity of losses. Management aggressively
repriced this business and screwed down the underwriting, and the results have
been impressive over the past two quarters. We think there is upside to next
year's numbers as this business improves rapidly. As a separate company, the
general insurance business could be worth $9-11.00 per share. The third
business, title insurance, is considerably more volatile as it fluctuates with
mortgage interest rates and refinancings, and thus carries a lower multiple. It
is, however, a good business with solid return characteristics. It is worth $2-
3.00 per share, in our opinion. In total, the Company appears to be worth $28-
33.00 versus the current price of $25.00.
We believe this value can grow at a double-digit clip over the next few years
as general insurance recovers. With a yield of 3.5% and a P/E ratio on 2001 of
10.6, we think the stock can appreciate another 30% over the next 12-18 months.
From time to time we have discussed with you the significance of share
buybacks by our portfolio companies. Currently, 27 of the 37 companies in the
portfolio are repurchasing shares. It would seem intuitive that when insiders
are buying the shares of a company either personally or with corporate funds it
would be indicative of a security that they felt may be undervalued.
But just how does that translate into positive wealth creation for us, as
shareholderso The following table shows you the impact of a 20% share
repurchase would have on Republic Services, which we believe to be significantly
undervalued. The stock is currently priced at $13.57 in the marketplace, which
we believe understates the true private market value of this company. Applying
various matrixes, we come up with a value of Republic Services of somewhere
between $22-25.00 per share. Assuming a $23.50 current private market value, a
20% repurchase would have the following impact on Republic's valuation (Republic
is currently in the throws of a $50 million share repurchase program):
CURRENT MARKET VALUE
TOTAL MARKET VALUE $2,382 MILLION
/ Shares Outstanding 175.6 Million
= Stock Price $13.57
CURRENT PRIVATE MARKET VALUE (AT $23.50 PER SHARE) $4,126.6 MILLION
/ Shares Outstanding 175.6 Million
= Stock Value $23.50
VALUE AFTER 20% SHARE REPURCHASE
NEW APPRAISED VALUE (Original $4,126.6 Million less $3,650.0 MILLION
$13.57 per share Repurchase Cost of $476.6 Million)
/ New Shares Outstanding 140.5 Million
= New Stock Value $25.98
If, as the exercise shows, we purchase 20% of the shares of Republic, the
number of shares outstanding will drop by 35.12 million. The nominal value, or
new appraised value, would go down accordingly for the shares repurchased, or
$476.5 million, leaving a new appraised value for the Company of $3,650 million.
The intrinsic worth of the Company with the share repurchase, in this case, goes
up by $2.48 per share, or 10.6%. The management teams of our companies
understand this exercise, and this is why, with excess funds, almost 75% of the
companies in your portfolio are exercising share repurchase exercises. Share
repurchases by companies, therefore, increase the value of the shares owned by
the remaining shareholders, with little incremental risk, as long as the
leverage is low. Long term, it will drive the value of the shares we own that
much higher.
"A-HA!" You say, "I see Microsoft continuing to buy shares in the open
market!" Not so fast! The flaw here is the underlying value of Microsoft. If
one believes, contrary to our current belief, that the private market value of
Microsoft is greater than the current stock price, then the above exercise would
hold. We, however, don't share that view, no matter how great a company
Microsoft may be. In the case of Microsoft, they are actually repurchasing
shares as a defensive measure to avoid dilution in earnings to remaining
shareholders.
The reason for this is the continued significant issuance of stock options to
management, in Microsoft's case, to lure attractive talent. When these
employees cash in their options to purchase stock, the number of shares
outstanding increases, resulting in a watering down of the earnings per share
and value for the remaining shareholders. This can hurt a company's stock
price. We believe, in situations such as Microsoft, and a lot of the technology
companies that continue to issue stock options as a form of compensation, that
the share buyback is actually a defensive counter-measure to avoid diluting
earnings and, potentially, shareholder value. Recently, Pat McConnell, the
highly respected accounting analyst at Bear Stearns, reported that S&P 500
earnings growth would have been 6% less if the options were figured as
compensation.
It is obvious from the above Republic Services example that share buybacks
can indeed be a good thing. However, one has to delve into what the intrinsic
value of the underlying company is before one can assuredly determine whether a
share repurchase is, as in the case of Republic Services, a move which enhances
shareholder value, or, as in the case of Microsoft and many of the technology
shares, a defensive measure.
As of September 30, 2000, with regard to the 27 companies we currently own
that are undergoing significant share repurchases, we feel very strongly that
the underlying value of the companies is substantially in excess of the current
market price, and that the share repurchases that are in place are adding
significant value to the stock that we own as shareholders.
The Board of Directors has declared a distribution of $0.65395 from net
short-term realized capital gains, and $0.39562 from net long-term realized
capital gains. Your distribution confirmation is enclosed.
As always, we thank you for your continued support and belief in our approach
to value investing 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.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
During the fiscal year ended September 30, 2000, the stock market exhibited
extreme volatility. A recent study by The Leuthold Group shows that over the
past two years, stocks have been more volatile than at any time since World War
II. Dramatic swings, particularly in the Nasdaq technology stocks, are
indicative of a highly speculative environment. During the December quarter and
most of the March quarter, the Fund's conservative posture caused it to
underperform. Following the spectacular rise in the Nasdaq Index in the first
half of fiscal 2000, a significant decline ensued. The Fund performed
dramatically better on a relative and absolute basis during this period of
decline. Despite the decline in the Nasdaq over the past six months, many of the
largest capitalization stocks, whose performance drives the Nasdaq (it is a
capitalization-weighted Index), remain substantially above historical valuation
benchmarks. Similar dynamics affected the Russell 2000 in the year ended
September 30, 2000. A large number of small internet and technology companies
were added to this Index in June of 1999 (the Index is reconstituted every June
30). Many smaller technology companies became very large market capitalization
stocks in the latter half of calendar 1999 and early 2000 and since the Russell
2000 is also a market capitalization weighted index, these companies had a
dominating influence on performance. The relative and absolute performance of
the Fund versus the Russell 2000 also improved dramatically as the speculative
technology sector declined following the early March peak. As was the case for
fiscal 1999, the majority of the Fund's fiscal 2000 performance of 18.35% came
from the underlying earnings growth of the companies as opposed to P/E multiple
expansion. This cannot be said of the large capitalization Nasdaq Index or the
smaller capitalization Russell 2000 Index, both of which experienced performance
well beyond the underlying growth of the constituent companies.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FIDUCIARY CAPITAL GROWTH FUND, NASDAQ COMPOSITE
INDEX(1)<F1> AND THE RUSSELL 2000 INDEX(2)<F2>
FIDUCIARY CAPITAL NASDAQ COMPOSITE RUSSELL 2000
DATE GROWTH FUND INDEX INDEX
---- ----------- ----- -----
9/30/90 $10,000 $10,000 $10,000
9/30/91 $13,490 $15,290 $14,490
9/30/92 $15,554 $16,941 $15,794
9/30/93 $18,680 $22,176 $21,022
9/30/94 $19,446 $22,221 $21,337
9/30/95 $23,861 $30,331 $26,330
9/30/96 $26,891 $35,669 $29,779
9/30/97 $37,217 $49,010 $39,666
9/30/98 $30,659 $49,245 $32,122
9/30/99 $35,681 $79,841 $38,247
9/30/00 $42,229 $106,779 $47,193
(1)<F1> NASDAQ Composite Index covers 4,500 stocks traded over the counter.
It represents many small company stocks but is heavily influenced by
about 100 of the largest NASDAQ stocks. It is a value-weighted index
calculated on price change only and does not include income.
(2)<F2> The Russell 2000 Index is an index comprised of 2,000 publicly traded
small capitalization common stocks that are ranked in terms of
capitalization below the large and mid-range capitalization sectors of
the United States equity market. The Russell 2000 Index is a
trademark/service market of the Frank Russell Company.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
18.4% 12.1% 15.5%
100 East Wisconsin Avenue
FIDUCIARY CAPITAL GROWTH FUND, INC. Suite 1500
REPORT OF INDEPENDENT ACCOUNTANTS Milwaukee, WI 53202
(PRICEWATERHOUSECOOPERS LOGO)
October 27, 2000
To the Shareholders and Board of Directors
of Fiduciary Capital Growth Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Fiduciary Capital Growth Fund, Inc. (the "Fund") at September 30, 2000, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
STATEMENT OF NET ASSETS
September 30, 2000
QUOTED
MARKET
SHARES COST VALUE
------ ---- -----
LONG-TERM INVESTMENTS -- 96.9% (A)<F4>
COMMON STOCKS -- 92.2% (A)<F4>
CHEMICAL/SPECIALTY MATERIALS -- 10.1%
43,700 Cambrex Corp. $ 1,044,912 $ 1,616,900
29,000 Great Lakes Chemical Corp. 830,943 850,062
23,200 Minerals Technologies Inc. 894,570 1,067,200
37,300 Sigma-Aldrich Corp. 1,077,993 1,230,900
----------- -----------
3,848,418 4,765,062
CONSUMER SERVICES -- 2.5%
32,100 H & R Block, Inc. 932,598 1,189,706
DISTRIBUTION -- 4.2%
37,700 Arrow Electronics, Inc.*<F3> 569,213 1,284,156
50,000 Pioneer-Standard
Electronics, Inc. 412,188 678,125
----------- -----------
981,401 1,962,281
HEALTH INDUSTRIES -- 14.7%
120,000 Covance Inc.*<F3> 1,296,990 982,500
63,000 DENTSPLY International Inc. 1,121,875 2,201,062
21,300 Haemonetics Corp.*<F3> 347,403 543,150
16,600 IDEXX Laboratories, Inc.*<F3> 271,825 444,050
39,100 Renal Care Group, Inc.*<F3> 835,780 728,238
83,300 Sybron International Corp.*<F3> 1,203,333 1,999,200
----------- -----------
5,077,206 6,898,200
INDUSTRIAL SERVICES -- 6.2%
104,000 Casella Waste System, Inc.*<F3> 1,486,594 1,053,000
142,300 Republic Services, Inc.*<F3> 2,095,926 1,867,688
----------- -----------
3,582,520 2,920,688
INSURANCE -- 11.2%
46,957 Delphi Financial Group, Inc.*<F3> 1,522,621 1,901,758
24,000 MGIC Investment Corp. 836,040 1,467,000
79,325 Old Republic
International Corp. 1,014,375 1,908,758
----------- -----------
3,373,036 5,277,516
MEDIA/COMMUNICATION -- 0.4%
27,000 Completel Europe N.V.*<F3> 472,133 192,375
MISCELLANEOUS-BUSINESS SERVICES -- 9.4%
80,000 G & K Services, Inc. 2,090,618 2,245,000
20,300 Keane, Inc.*<F3> 402,736 353,220
98,000 Modis Professional
Services, Inc.*<F3> 1,036,260 508,375
44,000 Morrison Management
Specialists, Inc. 760,866 1,300,200
----------- -----------
4,290,480 4,406,795
MISCELLANEOUS-TECHNOLOGY MANUFACTURING -- 4.3%
18,500 Bell & Howell Co.*<F3> 529,562 404,688
30,600 Brady Corp. 915,376 925,650
75,100 Paxar Corp.*<F3> 642,400 671,206
----------- -----------
2,087,338 2,001,544
PAPER/PACKAGING -- 2.5%
37,100 AptarGroup, Inc. 922,865 888,081
35,000 Wausau-Mosinee
Paper Corp. 442,110 271,250
----------- -----------
1,364,975 1,159,331
PRODUCER MANUFACTURING -- 2.1%
59,000 Regal-Beloit Corp. 731,582 1,000,640
REAL ESTATE -- 2.0%
50,100 Security Capital Group Inc.
CL B*<F3> 814,769 948,769
RETAIL TRADE -- 12.7%
131,000 Casey's General Stores, Inc. 1,062,688 1,703,000
150,000 Consolidated Stores Corp.*<F3> 2,070,550 2,025,000
116,800 Family Dollar Stores, Inc. 1,961,644 2,248,400
----------- -----------
5,094,882 5,976,400
SOFTWARE/SERVICES -- 9.9%
62,700 NOVA Corp./Georgia*<F3> 1,326,186 1,073,738
84,000 SunGard Data Systems Inc.*<F3> 2,218,115 3,596,250
----------- -----------
3,544,301 4,669,988
----------- -----------
Total common stocks 36,195,639 43,369,295
REITS -- 4.7% (A)<F4>
92,500 Prologis Trust 1,915,109 2,196,875
----------- -----------
Total long-term
investments 38,110,748 45,566,170
SHORT-TERM INVESTMENTS -- 2.6% (A)<F4>
VARIABLE RATE DEMAND NOTE -- 2.6%
$1,196,965 Firstar Bank U.S.A., N.A. 1,196,965 1,196,965
----------- -----------
Total investments $39,307,713 46,763,135
-----------
-----------
Cash and receivables, less
liabilities 0.5% (A)<F4> 252,203
-----------
NET ASSETS $47,015,338
-----------
-----------
Net Asset Value Per Share
($0.01 par value 10,000,000
shares authorized), offering
and redemption price
($47,015,338 / 2,504,238
shares outstanding) $18.77
------
------
*<F3> Non-income producing security.
(a)<F4> 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 Year Ended September 30, 2000
INCOME:
Dividends $ 369,815
Interest 85,945
----------
Total income 455,760
----------
EXPENSES:
Management fees 401,620
Administrative services 36,775
Professional fees 29,319
Transfer agent fees 22,805
Registration fees 21,202
Printing and postage expense 17,359
Custodian fees 10,096
Board of Directors fees 2,000
Other expenses 2,419
----------
Total expenses 543,595
----------
NET INVESTMENT LOSS (87,835)
----------
NET REALIZED GAIN ON INVESTMENTS 2,896,108
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 4,458,075
----------
NET GAIN ON INVESTMENTS 7,354,183
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,266,348
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2000 and 1999
2000 1999
---------- ----------
OPERATIONS:
Net investment loss $ (87,835) $ (77,119)
Net realized gain on investments 2,896,108 857,097
Net increase in unrealized
appreciation on investments 4,458,075 5,355,880
----------- -----------
Net increase in net assets
resulting from operations 7,266,348 6,135,858
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains
($0.43172 and $4.71103 per share,
respectively) (1,033,403)*<F5> (9,979,348)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (560,103
and 110,952 shares, respectively) 9,479,394 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 (517,353 and
423,064 shares, respectively) (8,776,240) (6,792,793)
----------- -----------
Net increase in net assets derived
from Fund share activities 1,667,597 3,911,671
----------- -----------
TOTAL INCREASE 7,900,542 68,181
NET ASSETS AT THE BEGINNING OF THE YEAR 39,114,796 39,046,615
----------- -----------
NET ASSETS AT THE END OF THE YEAR $47,015,338 $39,114,796
----------- -----------
----------- -----------
*<F5> 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 year)
<TABLE>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year $16.32 $18.49 $26.53 $21.76 $21.58
Income from investment operations:
Net investment (loss) income (0.03) (0.03) (0.02) 0.03 0.13
Net realized and unrealized
gains (losses) on investments 2.91 2.57 (4.15) 7.39 2.24
------ ------ ------ ------ ------
Total from investment operations 2.88 2.54 (4.17) 7.42 2.37
Less distributions:
Dividends from net investment income -- -- (0.01) (0.15) (0.12)
Distributions from net realized gains (0.43) (4.71) (3.86) (2.50) (2.07)
------ ------ ------ ------ ------
Total from distributions (0.43) (4.71) (3.87) (2.65) (2.19)
------ ------ ------ ------ ------
Net asset value, end of year $18.77 $16.32 $18.49 $26.53 $21.76
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 18.4% 16.4% (17.6%) 38.4% 12.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 47,015 39,115 39,047 52,678 45,835
Ratio of expenses to average net assets 1.2% 1.3% 1.2% 1.2% 1.2%
Ratio of net investment (loss) income
to average net assets (0.2%) (0.2%) (0.1%) 0.1% 0.6%
Portfolio turnover rate 46.7% 75.9% 54.3% 60.7% 43.7%
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Fiduciary Capital Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(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 utilized $244,219 of
post-October losses from the prior year to offset current year net
capital gains, as 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. On October 27, 2000, the Fund distributed $1,647,237 from
net short-term realized gains ($0.65395 per share) and $996,516 from long-
term realized gains ($0.39562 per share). The distributions will be paid
on October 30, 2000, to shareholders of record on October 26, 2000.
(4) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2000, purchases and proceeds of sales
of investment securities (excluding short-term investments) were
$21,023,184 and $19,644,757, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2000, liabilities of the Fund included the
following:
Payable to FMI for management
and administrative fees $ 37,709
Other liabilities 9,304
(6) SOURCES OF NET ASSETS --
As of September 30, 2000, the sources of net assets were as follows:
Fund shares issued and outstanding $37,005,073
Net unrealized appreciation on investments 7,455,422
Accumulated net realized gains on investments 2,554,843
-----------
$47,015,338
-----------
-----------
Aggregate net unrealized appreciation as of September 30, 2000, consisted
of the following:
Aggregate gross unrealized appreciation $10,858,443
Aggregate gross unrealized depreciation (3,403,021)
-----------
Net unrealized appreciation $ 7,455,422
-----------
-----------
(7) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 2000, shareholders received information regarding all
distributions paid to them by the Fund during the fiscal year ended
September 30, 2000. The Fund hereby designates the following amounts as
long-term capital gains distributions.
Capital gains taxed at 20% $ -0-
The percentage of ordinary income which is eligible for the corporate
dividend received deduction for the fiscal year ended September 30, 2000
was 30%.
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.
425 Walnut Street
Cincinnati, Ohio 45202
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.
