FAM Equity-Income Fund
Annual Report
December 31, 1996
A 100% No-Load Fund
Dear Shareholder: January 1997
1996 was another good year for stocks. Investors enjoyed a stable economy, low
interest rates, and low inflation. All these factors helped corporate earnings
increase to record levels. Stock returns, however, were skewed towards larger
companies. The Dow Jones Industrial Average and the S&P 500 advanced by 16.4%
and 15.2%, respectively, since April 1, 1996 (the inception date of the
Fund). Smaller companies, represented by the Russell 2000, only returned
10.3% over the same period.
We believe this trend of small companies lagging the overall market will
reverse in the future. Valuations for both the Dow and the S&P are near
historic highs, and earnings growth is expected to slow from last year. Small
companies, on the other hand, have greater earnings potential over the coming
months and are selling at significantly lower multiples of those earnings.
1996 Performance
The Fund was up 11.95% since April with 1.9% coming from dividends. This
represents a total return of 15.90% on an annualized basis. It also beats the
Russell 2000, which is the index most representative of our investment style.
Because the Fund is new, the cash balance is 30% of assets and is considered
to be quite high. The Fund is currently invested in 17 companies. We are
pleased to have performed so well against the Russell despite our cash
balance.
The performance of the Fund was led by Raven Industries, a Sioux Falls,
S.D.-based company which was up 44.7%. Raven manufactures flow control
devices, plastic sheeting, and large plastic tanks. Many of these products
serve the agricultural market. The company recently completed a transition
away from its heavy reliance on military related contracts. Raven replaced
those revenues with contract manufacturing for electronics companies and has
also benefited from the strong agricultural market. We believe the company
is now on track to grow its earnings by 20% or better per year. Raven has
minimal long term debt and should earn over 15% on equity this year. We still
feel the company is undervalued, trading at only 11x estimated earnings.
Financial stocks are the largest group in the portfolio and represent 17% of
the Fund. Two companies within the group - SouthTrust Corp. and Reliastar
Financial - posted outstanding results. SouthTrust Corp. is an Alabama- based
bank holding company. The bank has effectively executed its acquisition
strategy to grow its market share and has benefited from the strong loan
demand in the Southeast. SouthTrust returned 30.2% over the last nine months
and insiders continue to purchase shares.
Reliastar Financial, a life insurance company based in Minneapolis, returned
31.7% since our initial purchase at the end of April. The company is one of
the fastest growing in its peer group and also has the highest return on
equity. Despite these positive attributes, Reliastar was one of the cheapest
companies in the group. This undervaluation has not gone unrecognized and the
stock is trading more in line with the group.
The worst performing stock in the Fund is Versa Technologies (-1.1%), a
manufacturer of custom engineered silicon products. We began building our
position in Versa in September and it is the most recent addition to the
Fund. The company is attractive because it just spun off part of a division
that had been a drag on earnings. Versa also acquired Eder Industries in late
October which should help earnings in '97.
Another company that has not yet met our expectations is Jostens, Inc.
(+1.5%). This company is the market leader in class rings and yearbooks.
We like the company because the new management team has focused the company.
Last year, we saw positive unit growth for the first time in several years.
We expect this trend to continue.
Outlook
We believe the outlook for the Fund and small capitalized stocks in general
is favorable. Since small cap stocks have underperformed other groups for the
last three years, they now have very attractive valuations, and we feel the
Fund is well positioned to capitalize on any resurgence in small cap value
stocks. Many companies in the Fund are expected to report record earnings,
while others continue to build market share. Additionally, one third of the
companies in the Fund have insiders that are purchasing shares.
We still caution against unbridled optimism. The market has not had a major
decline since 1990 and appears to be close to the high end of historical
valuations. If interest rates rise or corporate earnings do not meet
expectations, we could see a decline in the market which would have a negative
impact on the Fund. In the past, however, stocks that have low Price to
Earnings ratios (P/Es) have held their value better during market declines
relative to stocks with much higher P/Es. Our value approach favors stocks
selling at lower multiples of earnings. In addition, we believe that if a
market correction occurs, our large cash balance will allow us to take
advantage of opportunities that may come along.
In 1997, we do expect to draw down the cash position to a more normal level
by expanding the holdings in the Fund. We continue to diligently research
companies that are niche oriented and dominate their markets. As always, we
will not buy shares in a company unless we are completely comfortable with
the business and its management.
As for the dividend, we anticipate that the yield will increase over time.
The Fund will capture more dividend income as it becomes fully invested. We
also foresee companies raising their dividends which will increase the
Fund's payout in real dollars.
We thank you for getting FAM Equity-Income off to a solid, first-year start.
Sincerely,
Thomas O. Putnam Paul C. Hogan, CFA
Companrison of Change in Value of $10,000 Investment in
FAM Equity-Income Fund, the S&P 500, and the Russell 2000 Index
(graphic)
Past performance is not indicative of future results. Investment return and
principal value fluctuate; the value of your investment upon redemption may
be more or less than the initial amount invested.
TOP TEN HOLDINGS as of 12/31/96
1) Atrion Corporation
2) New England Business Svcs.
3) Raven Industries
4) TrustCo Bank
5) Landauer, Inc.
6) Poe & Brown
7) Stanhome
8) Versa Technologies
9) WD-40 Company
10) Clarcor
Average Annual Returns
4/1/96 - 12/31/96
- --------------------------
FAM Equity-
Income Fund 11.9%
- --------------------------
S&P 500 16.5%
- --------------------------
Russell 2000 10.3%
- --------------------------
FAM Equity-Income Fund
Statement of Investments
December 31, 1996
COMMON STOCKS (73.36%) Shares/
Principal Value
--------- -------
Banking (8.68%)
SouthTrust Corp 2,600 $90,675
TrustCo Bank Corp. NY 5,640 120,555
-----------
211,230
-----------
Chemical (4.19%)
WD-40 Company 2,000 102,031
-----------
Consumer Products (7.98%)
Jostens Inc 4,300 90,838
Stanhome 3,900 103,350
-----------
194,188
-----------
Diversified Manufacturing (16.52%)
CLARCOR, Inc 4,200 92,925
Gorman-Rupp 5,800 79,025
Raven Industries 5,600 127,400
Versa Technologies, Inc 7,900 102,700
-----------
402,050
-----------
Health Care (15.08%)
ADAC Laboratories 3,500 83,563
Atrion Corporation 9,900 163,350
Landauer Inc. 4,900 120,050
-----------
366,963
-----------
Insurance (8.37%)
Poe & Brown Inc. 4,200 111,300
ReliaStar Financial 1,600 92,400
-----------
203,700
-----------
Printing (5.65%)
New England Business Services 6,400 137,600
-----------
Real Estate Investment Trusts (3.96%)
New Plan Realty 3,800 96,425
-----------
Regulated Investment Company (2.91%)
Allied Capital Corporation 4,500 70,875
-----------
Total Common Stocks (cost $1,591,608) $1,785,062
-----------
Short Term Obligations (26.64%)
U.S. Treasury Bills, 4.1 to 4.8%
with maturities to 2/6/97 (cost $648,286) 650,000 $ 648,286
-----------
Total Investments (Cost $2,239,894) $2,433,348
-----------
-----------
See Notes to Financial Statements
FAM Equity-Income Fund
Statement of Assets and Liabilities
December 31, 1996
ASSETS
Investment in securities at market value
(Cost $2,239,894) $2,433,348
Cash at interest 110,086
Dividends and interest receivable 8,851
Deferred registration fees 4,282
Deferred organization costs 12,611
-----------
Total Assets 2,569,178
-----------
LIABILITIES
Payable to investment advisor 2,919
Accrued management fees 10,953
Accrued expenses 16,783
-----------
Total Liabilities 30,655
-----------
NET ASSETS
Source of Net Assets:
Net capital paid in on shares of
beneficial interest $2,345,158
Undistributed net investment income (10)
Accumulated net realized gain/loss (79)
Net unrealized appreciation 193,454
-----------
Net Assets $ 2,538,523
-----------
-----------
Net asset value per share; 231,033 shares of
beneficial interest outstanding (Note 3) $ 10.99
-----------
-----------
See Notes to Financial Statements
FAM Equity-Income Fund
Statement of Operations
Period from April 1, 1996 (inception) to December 31, 1996
Investment Income
Income:
Dividends $35,801
Interest 19,536
-----------
Total Income 55,337
-----------
Expenses:
Investment advisory fee (Note 2) 12,076
Administative fee (Note 2) 302
Custodian fee 5,750
Organization costs 2,225
Shareholder servicing and related expenses (Note 2) 1,459
Registration fees 16,325
Professional fees 16,364
Trustees 5,256
Printing and mailing 1,167
Other 460
-----------
Total Expenses 61,384
Less: Investment advisory fee and other expenses waived or
assumed by advisor (Note 2) (43,270)
-----------
Net expenses 18,114
-----------
Net investment income 37,223
-----------
Realized and unrealized gain on investments
Net realized loss on investments (79)
Unrealized appreciation of investments 193,454
-----------
Net Gain on Investments 193,375
-----------
Net Increase in net assets from 230,598
-----------
-----------
See Notes to Financial Statements.
FAM Equity-Income Fund
Statement of Changes in Net Assets
Period from April 1, 1996 (inception) to December 31, 1996
CHANGE IN NET ASSETS FROM OPERATIONS:
Net investment income $37,223
Net realized loss on investments (79)
Unrealized appreciation of investments 193,454
-----------
Net Increase in Net Assets From Operations 230,598
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (37,233)
Capital share transactions (Note 3): 2,245,158
-----------
Total Increase in Net Assets 2,438,523
NET ASSETS:Beginning of period 100,000
-----------
End of period $2,538,523
-----------
-----------
FAM Equity-Income Fund
Notes to Financial Statements
Note 1. Summary of Accounting Policies
FAM Equity-Income Fund (the "Fund") is a series of Fenimore Asset Management
Trust, a no-load, diversified, open-end management investment company
registered under the Investment Company Act of 1940. The investment objective
of the Fund is to provide current income and long term capital appreciation
from investing primarily in income-producing securities. The following is a
summary of significant accounting policies followed in the preparation of its
financial statements.
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to trading
on NASDAQ are valued at the last reported sales price. Common stocks for
which no sale was reported, and over-the-counter securities, are valued at
the last reported bid price. Short term securities are carried at amortized
cost, which approximates market value.
b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to its shareholders. Therefore, no provision for
federal income tax is required.
c) Use of Estimates
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 on increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
D) Other
Securities transactions are recorded on the trade date basis. Interest is
accrued as earned and dividend income is recorded on the ex-dividend date.
Distributions to shareholders, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
Note 2. Investment Advisory Fees and Other Transactions with Affiliates
Under the Investment Advisory Contract, the Fund pays an investment
advisory fee to Fenimore Asset Management, Inc. (the "Advisor") equal, on
an annual basis, to 1% of the Fund's average daily net assets. Certain
officers and trustees of the Fund are also officers and directors of the
Advisor. The Advisor is required to reimburse the Fund for its expenses to
the extent that such expenses, including the advisory fee, for any fiscal
year exceed 2% of the average daily net assets. Although not required to do
so, the Advisor further waived fees and assumed expenses, aggregating
$43,270, so as to reduce the Fund's expense ratio to 1.5% of average daily
net assets. FAM Shareholder Services, Inc., a company under common control
with the Advisor, serves as a shareholder servicing agent for which it
receives a monthly fee of $1.75 per shareholder account. Additionally, FSS
serves as the fund administrative agent for which it receives a fee equal,
on an annual basis, to .025% of the Fund's average daily net assets.
Note 3. Shares of Beneficial Interest
At December 31, 1996, an unlimited number of $.001 par value shares of
beneficial interest were authorized. Transactions were as follows:
April 1, 1996 (inception)
to December 31, 1996
----------------------------
Shares Amount
--------- -----------
Shares sold 224,909 $2,284,587
Shares issued on reinvestment
of dividends 3,189 33,792
Shares redeemed (7,065) (73,221)
--------- -----------
Net increase 221,033 $2,245,158
--------- -----------
--------- -----------
Note 4. Investment Transactions
During the year ended December 31, 1996, purchases and sales of investment
securities, other than short term obligations, were $1,591,608 and $0. The
cost of securities for federal income tax purposes is the same as shown in
the investment portfolio. Realized gains and losses are reported on an
identified cost basis.
The aggregate gross unrealized appreciation of portfolio securities, based on
cost for federal income tax purposes, was as follows:
Unrealized appreciation $200,149
Unrealized depreciation (6,695)
---------
Net unrealized appreciation $193,454
---------
---------
Note 5. Selected Financial Information
Per share information April 1, 1996
(For a share outstanding (inception) to
throughout the period) December 31, 1996
---------------------
Net asset value, beginning of period $10.00
-------
Income from investment operations:
Net investment income 0.19
Net realized and unrealized gain on investments 0.99
-------
Total from investment operations 1.18
-------
Less distributions:
Dividends from net investment income 0.19
-------
Change in net asset value for the period 0.99
-------
Net asset value, end of period $10.99
-------
-------
Total Return* 15.90%
Ratios/supplemental data
Net assets, end of period (000) $2,539
Ratios to average net assets of:*
Expenses, total 5.04%
Expenses, net of fees waived and
expenses assumed by advisor 1.50%
Net investment income 3.05%
Portfolio turnover rate 0
Average commission rate paid
(per share) $0.0460
* Annualized
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and ShareholdersFAM Equity-Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of FAM Equity-Income Fund, a series of
Fenimore Asset Management Trust, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets, and the
selected financial information for the period from April 1, 1996 (inception)
to December 31, 1996. These financial statements and selected financial
information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
selected financial information are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of December 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of FAM Equity-Income Fund, as of December 31, 1996, the results of
its operations, the changes in its net assets and the selected financial
information for the period indicated, in conformity with generally accepted
accounting principles.
New York, New York
January 10, 1997
Notes
Investment Advisor
Fenimore Asset Management, Inc.
Cobleskill, NY
Custodian
Chase Manhattan Bank, N.A.
New York, NY
Accounting Firm
McGladrey & Pullen, LLP
New York, NY
Trustees
Joseph J. Bulmer
Roger A. Hannay
John W. Krueger, CLU
Thomas O. Putnam
Diane C. Van Buren
Bernard H. Zais, CLU
Legal Counsel
Dechert Price & Rhoads
Washington, DC
Shareholder Servicing Agent
FAM Shareholder Services, Inc.
Cobleskill, NY
Fam Funds
111 North Grand Street
P.O. Box 399
Cobleskill, NY 12043
(800) 932-3271
