Investment Advisor
- ------------------
Fenimore Asset Management, Inc.
Cobleskill, NY
Custodian
- ---------
Chase Manhattan Bank, N.A.
New York, NY
Independent Auditors
- --------------------
McGladrey & Pullen, LLP
New York, NY
Trustees
- --------
Joseph J. Bulmer, PhD
Roger A. Hannay
John W. Krueger, CLU
Fred "Chico" Lager
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
www.famfunds.com
<PAGE>
FAM
VALUE FUND
EQUITY-INCOME FUND
ANNUAL REPORT
December 31, 1998
100%
No-Load
Funds
FAM FUNDS
P.O. Box 399
Cobleskill, NY 12043
(800) 932-3271
www.famfunds.com
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
Dear Shareholder:
During a roller coaster year for stocks, your fund increased 6.2% for the
twelve months ending December 31, 1998. This compares favorably to the negative
2.6% return of the unmanaged Russell 2000 index - a composite of companies with
smaller market capitalizations which is representative of our holdings. However,
the S&P 500 index - an index composed of companies considerably larger than
those in the FAM Value Fund - ran away from the pack with an increase of 28.6%.
Most of the S&P's advance, however, was driven by a surprisingly short list of
big, fast-growing companies. If you did not own this index's top ten holdings,
the return would have been a more modest 15.31%.
While one-year performance returns become the focus at year-end, we believe
the Value Fund's long-term results are more representative of our long-term
performance goals. The FAM Value's five and ten year average annual returns of
16.0% and 16.1% respectively, are slightly above our own longer term
expectations of 12% - 15%, but represent reasonable accomplishments as the chart
below indicates.
<TABLE>
<CAPTION>
12% ANNUALIZED 15% ANNUALIZED FAM VALUE
-------------- -------------- ---------
<S> <C> <C> <C>
1986 $10,000.000 $10,000.00 10,000.00
1987 $11,200.00 $11,500.00 $8,280.00
1988 $12,544.00 $13,225.00 $11,219.00
1989 $14,049.00 $15,208.00 $13,497.00
1990 $15,735.00 $17,490.00 $12,768.00
1991 $17,623.00 $20,113.00 $18,807.00
1992 $19,738.00 $23,130.00 $23,528.00
1993 $22,106.00 $26,600.00 $23,575.00
1994 $24,759.00 $30,590.00 $25,178.00
1995 $27,730.00 $35,178.00 $30,138.00
1996 $31,058.00 $40,455.00 $33,514.00
1997 $34,785.00 $46,523.00 $46,618.00
1998 $38,959.00 $53,502.00 $49,620.00
</TABLE>
Our focus continues to be a five to six year time horizon with the
anticipation of doubling net asset value (NAV) over that span. This may appear
to be a modest goal given the recent history of stock prices, however, it is our
firm belief that stock prices cannot continue to sustain increases at rates
which are well in excess of the real growth of the business value of companies.
Due to the nature of our long-term "buy and hold" strategy, our stock
holdings typically change very little from year to year. We had one unavoidable
exception this year which is discussed below. Even given this exception, taxable
shareholders have benefited, since our net after-tax returns compare favorably
with most other funds which typically have higher turnover rates.
- 1 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
1998 PERFORMANCE DETAIL
A review of 1998 indicates that our successes slightly offset our
disappointments. Nevertheless, volatility produced more declining stock prices
than we experienced in recent years. Our largest disappointments - IFR Systems
(-70.1%), Modern Controls (-47.7%), and IDEX (-29.8%) - have been good stock
performers in the past. All declined because of a temporary slowdown in customer
delivery schedules. In many cases, orders are still in place and delivery
schedules have been extended. IFR also had the added burden of integrating a
major acquisition during the slowdown which put additional cost pressure on
short term earning results. We feel comfortable that the able management teams
of each company have made the appropriate adjustments to make these companies
more valuable in the future.
On the positive side, five stocks had a significant impact on your fund.
Protective Life (+33.2%), Essef (+32.3%), Conmed (+25.7%), Reynolds and Reynolds
(+24.4%), and Kaydon (+22.8%) all are growing businesses with a unique position
in their respective industries. Their superior management teams are dedicated to
enhancing shareholder value. While nothing remains static, we feel certain that
barring a merger or acquisition these companies will remain worthwhile
investments for a long holding period.
Change was also a contributor and a detractor to 1998's performance. A
stellar performer in 1997, Vesta Insurance, became a major disappointment in
1998. The company reported accounting irregularities which resulted in a
downward restatement of earnings for prior years as well as a substantial loss
in 1998. As a result, the stock's price had little support. Robert Huffman, the
CEO, resigned and the remaining management team became very uncommunicative.
When management fails to be responsive about a business that no longer maintains
the competitive advantage we assumed it had in the beginning, it is time to lick
our wounds and exit. We sold and have not looked back.
On a happier note, one of our largest holdings, Allied Group and its sister
company Allied Life, were purchased for cash in October of 1998 by Nationwide.
Allied was one of our original holdings in the FAM Value Fund with our first
shares purchased in 1987. Those original shares gave you, our shareholders, a
substantial return over approximately 111/2 years (25.4% compounded annualized
return from price appreciation excluding dividends). Since both companies were
purchased for cash, we were required to recognize and distribute an abnormally
large capital gain. In December we distributed $3.24 in capital gains, $2.25 of
which was attributable to the purchase of the two Allied companies. Our
preference would have been a share-for-share merger which would have created no
capital gains tax. Since Nationwide is a mutual insurance company, cash was the
only alternative. Regardless of the method of merger, these long term holdings
paid off handsomely. We have mixed feelings about saying goodbye to this good
friend. Good businesses with very capable management teams are difficult to
replace.
1999 AND BEYOND
The year 1998 proved to be one of contrasts. The stock market gains that
were accomplished through July were erased during August and September. However,
anxiety over global currency weakness, worldwide economic slowdown, and a
potential hedge fund melt down was short lived. By year end, the Dow Jones
Industrial Average almost equaled the high it had attained in July. Value
investing was not the place to be and as 1999 begins, it is apparent that high
flying internet stocks are still in vogue.
One might ask the question in this highly volatile environment, "What is
investment reality?" We would like to share a recent example with you as a way
of explanation. In early January a young intern visited our firm. He was very
bright, enthusiastic, and picked up our value oriented research methodology
quite rapidly.
- 2 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
However, it quickly became obvious that no matter how hard we tried, we
could not dampen his enthusiasm for internet stocks. So in a brilliant stoke of
genius Paul Hogan, co-manager of the FAM Equity-Income Fund, and John Fox, a
fellow research analyst, suggested that he do some homework on Amazon.com, Inc.,
his favorite internet stock.
Amazon.com is an internet book seller. Visit their internet site at
Amazon.com and I am sure you will be impressed. You can locate any book you wish
to read whether it is on the New York Times best seller list or a book that has
been around for years. If you want to send it as a gift, they will wrap it and
send it Federal Express with a note from you - all accomplished over the
internet with payment by credit card (American Express, we hope!). It could cost
more, but the convenience might outweigh the disadvantage.
Our intern discovered that Amazon.com performed astoundingly. The price of
the stock in little over a year rose from a split adjusted 81/2 low to a price
of $125 at the time of his analysis. All we could say was WOW! As he dug a
little further though, he got an impression that exuberance for this company
might be slightly overdone. (We were gaining - investment reality was making an
impression on him!) He discovered that at a price of $125, the market
capitalization of Amazon.com, Inc. is $19.8 billion. That means if he wanted to
own the whole company he would have to pay $19.8 billion today. What does he get
for that price? A company with a revenue stream of approximately $607 million
and losses last year of approximately $87 million. In comparison, for $19.8
billion he found he could buy Barnes & Noble, Borders, and Starbucks - three
well known retailers with combined sales of approximately $7 billion (not
million) and combined profits of almost $215 million. In addition, he would
spend only $9.7 billion for these three companies, which leaves $10.1 billion
remaining for additional investing. Furthermore, he discovered he could also buy
books through the internet web sites of both Barnes & Noble and Borders. And,
with his laptop he might be able to do this while having a cup of coffee at
Starbucks. We think he saw our point.
Rational investing requires a thorough understanding of how you will get a
future return and, conversely, of the risk that you may not. While Amazon.com,
Inc.'s future may be bright, our crystal ball only allows us to focus on more
predictable outcomes.
In 1999, we will remain dedicated to our value oriented investment
principles. The ownership of highly profitable, understandable businesses that
are guided by able management teams will produce highly respectable returns over
long investment horizons. Adherence to these principles may never create the
thrill or emotional rush that was experienced by the roller coaster ride of the
1998 marketplace, but we suspect that most of you (like us) prefer to give up a
little excitement for a good night's sleep.
We wish you a very joyous and peaceful New Year.
Sincerely,
/s/THOMAS O. PUTNAM /S/ DIANE C. VAN BUREN
- ------------------- ----------------------
Thomas O. Putnam Diane C. Van Buren
- 3 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Annual Total Investment Returns: January 2, 1987 to December 31, 1998
---------------------------------------------------------------------
FAM Value Fund Russell 2000 Index S&P 500 Index
Fiscal Year Total Return Total Return Total Return
---------------------------------------------------------------------
<S> <C> <C> <C>
1987 -17.2% - 8.8% 5.3%
1988 35.5% 24.9% 16.6%
1989 20.3% 16.2% 31.7%
1990 - 5.4% -19.5% - 3.1%
1991 47.6% 46.1% 30.5%
1992 25.1% 18.4% 7.6%
1993 0.2% 18.9% 10.1%
1994 6.8% - 1.8% 1.3%
1995 19.7% 28.4% 37.5%
1996 11.2% 16.6% 22.9%
1997 39.1% 22.2% 33.4%
1998 6.2% -2.6% 28.6%
---------------------------------------------------------------------
</TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN FAM VALUE FUND, THE S&P 500, AND THE RUSSELL 2000 INDEX.
<TABLE>
<CAPTION>
(IN THOUSANDS)
FAM VALUE RUSSELL 2000 S&P 500
--------- ------------ -------
<S> <C> <C> <C>
1987 8,280 9,123 10,526
1998 11,219 11,394 12,274
1989 13,497 13,245 16,163
1990 12,768 10,661 15,659
1991 18,807 15,571 20,433
1992 23,528 18,437 21,990
1993 23,575 21,923 24,201
1994 25,178 21,523 24,519
1995 30,138 27,645 33,722
1996 33,514 32,216 41,460
1997 46,618 39,422 55,287
1998 49,620 38,409 71,086
</TABLE>
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.
- 4 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO PROFILES
As of December 31, 1998
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS
- ------------------------------------------------------------------------
FAM Russell S&P
Value 2000 500
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Stocks 48 2000 500
Median Market Cap $945M $697M $6.0B
Price/Earnings Ratio 16.2*, 17.5 23.8 32.9
Price/Book Ratio 2.8 4.1 7.8
Earnings Growth Rate 17.8 19.5 20.5
Turnover Rate 16.67% N/A N/A
- ------------------------------------------------------------------------
VOLATILITY MEASURES
- ------------------------------------------------------------------------
FAM Russell S&P
Value 2000 500
- ------------------------------------------------------------------------
R-Squared 0.68 1.00 1.00
Beta 0.81 1.00 1.00
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF ASSETS
- --------------------------------------
<S> <C>
Cash/Short Term Obligations 18.2%
Other 16.6%
Machinery & Equipment 11.9%
Banking 11.7%
Life Insurance 11.5%
Financial Services 10.5%
Healthcare 7.2%
Diversified Manufacturing 6.4%
Property & Casualty Ins. 6.0%
- --------------------------------------
<FN>
FOR AN EXPLANATION OF THE TERMS USED IN THE ABOVE TABLES, PLEASE SEE PAGE 10.
DATASOURCE: MORNINGSTAR
</FN>
</TABLE>
- --------------------------------------
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
(% OF TOTAL NET ASSETS)
<S> <C>
CONMED Corporation 7.0%
Kaydon Corporation 6.7%
ReliaStar Financial 5.7%
Fund American Ent. 4.3%
Essef Corporation 3.8%
Protective Life Corporation 3.5%
Reynolds & Reynolds 2.8%
M & T Bancorp 2.4%
Centura Banks 2.3%
Farm Family Holdings 2.3%
- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1998
- ------------------------------------------------------------
1 5 10
Year Year Year
- ------------------------------------------------------------
<S> <C> <C> <C>
FAM Value Fund 6.2% 16.0% 16.1%
Russell 2000 -2.6% 11.9% 12.9%
S&P 500 28.6% 24.1% 19.2%
- ------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
10 Years Ended December 31, 1998
------------------------------------
Compounded Final Value of
Annual a $10,000
Growth Rate Initial Investment
- -----------------------------------------------------------
<S> <C> <C>
FAM Value Fund 16.1% $44,200
Russell 2000 Index 12.9% $33,709
S&P 500 Index 19.2% $57,915
- -----------------------------------------------------------
</TABLE>
- 5 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
Dear Shareholder:
The Equity-Income fund posted a gain of 4.7% for the year ended December
31, 1998. This compares favorably to our benchmark of small company stocks, the
Russell 2000, which declined by 2.6%. The S&P 500, an index composed of the
largest 500 companies in the US, advanced 28.6%. In retrospect, we view 1998 as
a year in which a select few large companies dominated the market along with
technology/internet stocks. Since the fund only contains a single company found
in the S&P 500, its performance bears little resemblance to the performance of
the S&P 500. Although value investing was not rewarded by the market over the
last 12 months, we believe that the dizzying heights of current market
valuations cannot be sustained. We remain confident that our portfolio is well
poised to produce respectable returns over the long-term.
1998 PERFORMANCE DETAILS
Among the best performing stocks in the portfolio was TrustCo Bank
(+31.7%), which continued its steady growth in earnings. At a recent analyst
meeting the CEO proudly displayed a chart of their stock performance against
another company in their neighborhood, General Electric. TrustCo's performance
bested GE over the last 10 years. Not bad for a small Upstate New York bank.
Reynolds & Reynolds (+26.8%) also turned in very good performance. This
business forms and software company has grown by making acquisitions and from
developing the premier software product for auto dealers. During the year the
company discontinued its Healthcare Information Systems business which had been
losing money for several years.
New England Business Services (+18.9%) remains on our list of best
performers for the second year in a row. The company continued its growth in its
core business of mail order forms for small business while completing the
acquisition of McBee. The company has successfully transformed its call center
staff from order-takers to salespeople who proactively sell products to the
customer. This company has developed an extremely loyal customer base.
There were also some disappointments in the portfolio. Redwood Trust,
(-30.5%) struggled through what was one of the most difficult years in history
for companies in the mortgage assets business. We witnessed a sharp drop in
interest rates which spurred a huge wave of refinancing in the home mortgage
market. Fortunately, Redwood anticipated this environment and pulled in the
reins on purchasing assets much earlier than most. We have seen an improvement
in the mortgage market over the last few weeks.
Raven Industries (-22.4%) had a tough year with two of its segments
performing poorly. Contract manufacturing of electronics components saw
customers pushing out delivery dates and delaying orders. This mirrors what is
happening in the rest of the electronics industry. Agriculture related products
were also in the doldrums. The agriculture market has been experiencing severe
price erosion which makes farmers reluctant to purchase new equipment. We
believe that both of these markets will improve over time, and Raven's profits
will again show strong growth.
- 6 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
Allied Capital Corp. (-16.4%) had a very good year despite the performance
of its stock price. This is a case where the fundamentals of the company have
improved, yet the stock price declined. The company reported record loan
originations (up 75%) and emerged from the summer's financial market turmoil in
better shape than when it went in. The most direct influence on Allied Capital's
stock price was the announcement by one of their competitors that they would
lose money in their second quarter. This loss was related to a few problem
loans. Allied Capital on the other hand pays particular attention to asset
quality.
OUTLOOK
We began 1998 with a 23% cash balance. We scoured the market for
opportunity in the spring, but found very little due to what we considered to be
high valuations. In the early summer the market gave us a break and declined by
more than 20%, giving us the chance to prudently deploy some of our cash. We
added to several existing positions in the portfolio that we feel are superior
in quality. Additionally, we purchased a few new companies that we have had our
eye on, but were too disciplined to purchase at higher prices. These companies
include ServiceMaster, IDEX, Regal Beloit, and Hickory Tech. We also improved
the quality of the fund holdings by selling some positions that did not measure
up to our standards such as Jostens, and Enesco, formerly known as Stanhome. The
current cash balance, including cash additions by shareholders, is half of what
it was at the beginning of the year. This will allow the fund to participate in
the market, while leaving enough cash to take advantage of new investment
opportunities.
We believe the fund is well positioned to achieve our long-term goals. The
portfolio holdings are stronger and of high quality. The cash balance is at a
more comfortable level. The portfolio valuation is also well below both the
Russell 2000 and the S&P 500. For these reasons, we are confident your fund is
on target to meet its objective of doubling every 5-6 years while providing a
growing quarterly income stream.
We thank you for your continued confidence in our investment ability. We
wish you a happy and healthy New Year.
Sincerely,
/S/ THOMAS O. PUTNAM /S/ PAUL C. HOGAN
- -------------------- ------------------
Thomas O. Putnam Paul C. Hogan, CFA
- 7 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Annual Total Investment Returns: April 1, 1996 to December 31, 1998
- --------------------------------------------------------------------------------
FAM Equity-Income Russell 2000 Index S&P 500 Index
Fiscal Year Total Return Total Return Total Return
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
4/1/96-12/31/96 11.8% 10.3% 15.2%
1997 26.9% 22.2% 33.4%
1998 4.7% -2.6% 28.6%
</TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN FAM EQUITY-INCOME FUND, THE S&P 500, AND THE RUSSELL 2000 INDEX.
<TABLE>
<CAPTION>
(IN THOUSANDS)
FAM EQUITY-INCOME RUSSELL 2000 S&P 500
----------------- ------------ -------
<S> <C> <C> <C>
4/1/96-12/31/96 11,190 11,085 11,668
1997 14,200 13,564 15,560
1998 14,865 13,215 20,006
</TABLE>
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.
- 8 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
As of December 31, 1998
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS
- --------------------------------------------------------------------------------
FAM
Equity- Russell S&P
Income 2000 500
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Stocks 22 2000 500
Median Market Cap $742M $697M $6.0B
Price/Earnings Ratio 13.9 23.8 32.9
Price/Book Ratio 3.6 4.1 7.8
Earnings Growth Rate 8.8 19.5 20.5
Turnover Rate 10.6% N/A N/A
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF ASSETS
- --------------------------------------
<S> <C>
Other 22.3%
Cash/Short Term Obligations 11.3%
Printing 10.1%
Banking 9.9%
Chemical 8.4%
Machinery & Equipment 8.4%
Real Estate Investment Trust 8.2%
Computer Software & Services 6.2%
Healthcare 5.3%
Life Insurance 5.0%
Diversified Manufacturing 4.9%
- --------------------------------------
</TABLE>
FOR AN EXPLANATION OF THE TERMS USED IN THE ABOVE TABLES, PLEASE SEE PAGE 10.
DATASOURCE: MORNINGSTAR
- --------------------------------------
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
(% OF TOTAL NET ASSETS)
<S> <C>
Reynolds & Reynolds 6.1%
New Plan Excel Realty 5.6%
New England Business Svcs. 5.5%
Landauer, Inc. 5.2%
ReliaStar Financial 4.9%
TrustCo Bank NY 4.8%
IDEX Corporation 4.6%
Deluxe Corporation 4.6%
RPM, Inc. 4.6%
Hickory Tech Corporation 4.4%
- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------
Since
1 Inception
Year (4/1/96)
- --------------------------------------
<S> <C> <C>
FAM Equity-Income 4.7% 15.5%
Russell 2000 -2.6% 10.7%
S&P 500 28.6% 28.7%
- --------------------------------------
</TABLE>
- 9 -
<PAGE>
--------
FAM FUND
- --------------------------------------------------------------------------------
DEFINITION OF TERMS
BETA. Beta is a measure of a fund's sensitivity to market movements. It measures
the relationship between a fund's excess return over T-bills and the excess
return of the benchmark index.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons.
The RUSSELL 2000 INDEX is our primary comparative index and it measures the
performance of the 2000 smallest of the 3,000 largest publicly traded U.S.
companies based on total market capitalization. Created by the Frank Russell
Company, it is considered to represent the performance of small-stocks in
general.
The S&P 500 is a capitalization-weighted index of the stocks of 500 publicly
traded U.S. companies that are considered to be leading firms in dominant
industries. Created by Standard & Poor's Corporation, the index is viewed as a
broad measure of U.S. stock market performance.
EARNINGS GROWTH RATE. The earnings growth rate is the annual average rate of
growth in earnings over the past three years for the stocks currently in a
portfolio.
EXPENSE RATIO. The expense ratio is the percentage of a portfolio's average net
assets used to pay its annual administrative and advisory expenses. These
expenses directly reduce returns to investors.
MEDIAN MARKET CAP. The median market cap is the midpoint of market
capitalization (market price times shares outstanding) of stocks in a portfolio.
NUMBER OF STOCKS. This is an indication of diversification. The more stocks a
portfolio holds, the more diversified, and the more likely it is to perform in
line with the overall stock market.
PRICE/BOOK RATIO. The share price of a stock, divided by its net worth, or book
value, per share. For a portfolio the weighted average price/book ratio of the
stocks it holds.
*PRICE/EARNINGS RATIO (P/E). We would like to take this opportunity to review
one fundamental concept, P/E, which, if not properly understood, can lead to
some confusion. This measure is included to give investors an idea of how much
is being paid for a company's earning power, and thereby, to assist in
evaluating a portfolio's risk. Typically, the higher the P/E, the more investors
are paying and the more growth they are expecting. Lower P/E stocks tend to be
in lower-growth industries, in stock groups that have fallen out of favor, or in
mature companies that have long records of earnings stability.
If you look at Morningstar, Lipper or Value Line mutual fund data, you will most
likely encounter P/E ratios that differ perhaps from each other, as well as from
the one that we have included in this report. The major reasons for
discrepancies are two-fold. One reason is that reporting services use unadjusted
data that is obtained from filed annual reports, 10Ks,10Qs and quarterly
reports; as such, this data is historically based, and does include current year
estimates. Some of this information may also come from Standard & Poor's
- 10 -
<PAGE>
--------
FAM FUND
- --------------------------------------------------------------------------------
DEFINITION OF TERMS
ComStock. While these databases are good sources for raw statistics, we have
observed that they do not carry all the data that is necessary to record every
relevant element that factors into operating earnings.
Secondly, we make adjustments to operating earnings to eliminate one time events
(if they are truly one time!). For example, we would eliminate the gain or loss
on an investment that has sold if it is obvious that the likelihood of this
recurring is remote. We also eliminate negative P/Es and P/Es of companies where
valuation has little to do with the company's reported earnings and most to do
with asset growth, i.e. Berkshire Hathaway. We believe that this methodology is
more representative of the relevant fundamentals of the P/E for the FAM Value
Fund and the FAM Equity-Income Fund and provides you with a better understanding
of what you own. Therefore, we believe that 16.2* is the more appropriate P/E
valuation for the FAM Value Fund.
RETURN ON EQUITY. The rate of return generated by a company during the past year
for each dollar or shareholder's equity (net income for the year divided by
shareholder's equity). For a portfolio, the weighted average return on equity
for the companies represented in the portfolio.
R-SQUARED. R-Squared reflects the percentage of a fund's movements that are
explained by movements in its benchmark index.
TURNOVER RATE. Indicates the trading activity during the past year. Portfolios
with high turnover rates incur higher transaction costs and are more likely to
realize and distribute capital gains (which are taxable to investors). The
average turnover rates for stock mutual funds is about 100%.
YIELD. This is the portfolio's income from interest and dividends. The yield,
expressed as a percentage of a portfolio's net asset value, is based on income
earned by the portfolio over the past 30 days and is annualized, or projected
forward for the coming year.
- 11 -
<PAGE>
--------
FAM FUND
- --------------------------------------------------------------------------------
YEAR 2000 (Y2K)
With the year 2000 rapidly approaching, we at FAM Funds are taking every
necessary step to ensure a smooth transition into the next century. Our Year
2000 Project Team headed by our technical specialist, Maribeth Batsford, has led
our firm wide effort to address the Year 2000 readiness of our computer systems,
physical facilities, communications systems, and critical vendors. At this
stage, we have successfully completed the programming changes to our in-house
developed computer systems and have begun internal testing procedures. While our
in-house developed systems are now fully Y2K compliant, we continue to focus on
the Year 2000 readiness of our external business vendors. As a mutual fund
company, we also have a responsibility to evaluate the Y2K readiness of
companies owned in our portfolios. We have formally requested information from
these companies that will assist us in evaluating their progress towards solving
the Y2K computer problem. Additionally, the Securities and Exchange Commission
(SEC) has required that we periodically provide status reports detailing our Y2K
compliance efforts.
Based on information currently available, we do not anticipate that Year
2000-related issues will have a material adverse impact on the Funds. There can
be no guarantee, however, that the steps we have taken will be sufficient to
avoid incomplete or untimely resolution of Y2K issues unknown to the Funds.
- 12 -
<PAGE>
--------
FAM FUND
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
AND FINANCIAL STATEMENTS
FAM Value Fund Page 14
FAM Equity-Income Fund Page 24
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of FAM Value Fund and FAM
Equity-Income Fund:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of FAM Value Fund and FAM Equity-Income Fund,
each a series of Fenimore Asset Management Trust, as of December 31, 1998, the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
selected financial information for each of the five years in the period then
ended. These financial statements and selected financial information are the
responsibility of each Fund's management. Our responsibility is to express an
opinion on these financial statements and selected financial information based
on our audits.
We conducted our audits 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, 1998, by correspondence with the custodian and brokers.
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 audits provide 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 the FAM Value Fund and the FAM Equity-Income Fund, as of December
31, 1998, the results of their operations, the changes in their net assets and
the selected financial information for the periods indicated, in conformity with
generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
- ---------------------------
McGladrey & Pullen, LLP
New York, New York
January 11, 1999
- 13 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCKS (86.1%)
<S> <C> <C>
Banking (12.3%)
Bank North Group .................................................... 115,430 $ 4,343,054
- - multi-bank holding company in Burlington, VT
Centura Banks ....................................................... 118,250 8,794,844
- - bank holding company located in North Carolina
M & T Bancorp ....................................................... 17,300 8,977,619
- - bank holding company located in Buffalo, NY
One Valley Bancorp .................................................. 36,800 1,209,800
- - largest bank holding company in West Virginia
Peoples Heritage Financial Group .................................... 208,650 4,173,000
- - a multi-bank holding co. operating 142 offices
throughout Northeast
Plumas Bank ......................................................... 57,024 919,512
- - bank holding company located in Northern California
SouthTrust Corporation .............................................. 213,000 7,867,688
- - bank holding company headquartered in Alabama
TrustCo Bank Corporation NY ......................................... 186,757 5,602,710
- - operates 48 bank offices in the Upstate NY region
U.S. Bancorp ........................................................ 62,772 2,228,406
- - bank holding company headquartered in -------- -----------
Minneapolis, Minnesota 44,116,633
-----------
CHEMICAL (0.4%)
WD-40 Company ....................................................... 50,800 1,454,150
- - manufactures and distributes lubricant products -----------
COMPUTER SOFTWARE & SERVICES (3.0%)
Reynolds & Reynolds ................................................. 462,200 10,601,713
- - software for automotive dealers and business forms -----------
CONSUMER SERVICES (0.9%)
* Franklin Covey Company ............................................ l190,800 3,195,900
- - time management products and training seminars -----------
DIVERSIFIED MANUFACTURING (6.8%)
CLARCOR, Inc. ....................................................... 273,750 5,475,000
- - manufactures filtration and container products
*+ ESSEF Corporation ................................................ 746,207 14,364,485
- - water treatment and systems, swimming pool, and spa equipment
+ Raven Industries .................................................. 274,441 4,425,361
- - manufactures plastics, electronics, and sewn products -----------
24,264,846
-----------
</TABLE>
See Notes to Financial Statements.
- 14 -
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONT'D)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
ELECTRICAL/ELECTRONICS (2.5%)
* C-COR Electronics, Inc. ........................................... 410,800 $ 5,648,500
- - electronic equipment for cable and broadband data
transmission systems
+ IFR Systems ....................................................... 684,050 3,163,731
- - communications, test and measurement, avionics,
fiber optic test instruments ...................................... -----------
8,812,231
FINANCIAL SERVICES (11.0%)
American Express .................................................... 80,000 8,180,000
- - financial, travel, and information services firm
Citigroup ........................................................... 152,550 7,551,225
- - P & C insurance, life insurance, Smith Barney & Salomon Brothers
Financial Secs Assurance Hldgs. Ltd. ................................ 76,800 4,166,400
- - financial guaranty insurer of municipal bonds and asset-backed
securities
Franklin Resources .................................................. 60,000 1,920,000
- - investment mgmt. company, offers Franklin Templeton
& Mutual Series Funds
Fund American Enterprises Hldgs., Inc. .............................. 116,275 16,285,767
- - financial guaranty, personal property and casualty, and reinsurance
Waddell & Reed ...................................................... 54,900 1,300,444
- - an underwriter and distributor of 36 mutual fund portfolios -----------
39,403,836
-----------
HEALTHCARE (7.6%)
*+ CONMED Corporation ............................................... 807,562 26,649,546
- - advanced electrosurgical and disposable medical products
*+ Hycor Biomedical ................................................. 581,964 609,258
- - specializes in allergy diagnostic products -----------
27,258,804
-----------
INSURANCE AGENCY (1.9%)
Poe & Brown ......................................................... 199,612 6,973,944
- - one of the largest independent general insurance agencies -----------
in the U.S.
LIFE INSURANCE (12.1%)
Protective Life Corporation ......................................... 334,400 13,313,300
- - individual and group life/health ins. and guaranteed investment
contracts
ReliaStar Financial ................................................. 466,200 21,503,475
- - life insurance, annuities, and mutual funds
UNUM Corporation .................................................... 146,760 8,567,115
- - leading provider of disability insurance in the U.S. and
United Kingdom -----------
43,383,890
-----------
</TABLE>
See Notes to Financial Statements.
- 15 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONT'D)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MACHINERY & EQUIPMENT (12.5%)
IDEX Corporation .................................................... 276,600 $ 6,776,700
- - proprietary, highly engineered industrial products & pumps
Kaydon Corporation .................................................. 631,850 25,313,491
- - custom-engineered products including bearings,
filters, and piston rings
+ Modern Controls, Inc. ............................................. 416,718 2,396,129
- - precision measurement, process sensing, and control
instruments/systems
Regal-Beliot Corporation ............................................ 98,000 2,254,000
- - supplier of power transmission equipment
and cutting tools
Tennant Corporation ................................................. 201,400 8,081,175
- - commercial and institutional floor maintenance -----------
equipment and products 44,821,495
-----------
MISCELLANEOUS SERVICES (0.2%)
ServiceMaster ....................................................... 30,000 661,875
- - commercial and residential service company -----------
NUTRITIONAL PRODUCTS (1.0%)
* Natural Alternatives .............................................. 227,200 2,499,200
- - manufactures nutritional supplements for private label accounts
Whole Food Market ................................................... 25,000 1,209,375
- - national grocery store selling organic and natural products -----------
3,708,575
-----------
PRINTING (4.1%)
CSS Industries, Inc. ................................................ 241,500 7,320,469
- - giftware, bows, Halloween and Easter novelty products
Deluxe Corporation .................................................. 25,300 925,031
- - leading producer of checks and deposit tickets in the
U.S., banking software
New England Business Services ....................................... 160,400 6,275,650
- - leading supplier of business forms/printed
products to small businesses in U.S. -----------
14,521,150
PROPERTY AND CASUALTY INSURANCE (6.3%)
* Berkshire Hathaway ................................................ 122 8,540,000
- holding company for various insurance and industrial companies
* Farm Family Holdings .............................................. 255,150 8,675,100
- insurance for members of Farm Bureau
+ Intercargo Corporation ............................................ 459,250 5,223,969
- specialty marine insurer -----------
22,439,069
-----------
PUBLISHING (0.7%)
Meredith Corporation ................................................ 65,000 2,461,875
- - media company involved in magazine publishing & tv broadcasting -----------
</TABLE>
See Notes to Financial Statements.
- 16 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONT'D)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (0.4%)
Redwood Trust ....................................................... 101,900 $ 1,426,600
- - acquires & manages residential real estate -----------
mortgage assets throughout U.S.
RECREATION AND ENTERTAINMENT (0.1%)
* International Speedway Corporation ................................ 6,000 243,000
- - owns and operates auto racing tracks including Daytona -----------
REGISTERED INVESTMENT COMPANY (2.1%)
Allied Capital Corporation .......................................... 436,391 7,555,016
- - small business loan and venture capital corporation -----------
TELECOMMUNICATIONS (0.2%)
* ADC Telecommunications ............................................ 21,700 754,075
-----------
Total Common Stocks (Cost $167,919,293).............................. 308,058,677
-----------
Short Term Obligations (13.9%) PRINCIPAL
- ------------------------------ ---------
U.S. Treasury Note 4.4%, due 2/4/99 (Cost $49,897,506).............. $50,000,000 49,897,506
-----------
Total Investments (Cost $217,816,799) (100%) $357,956,183
============
<FN>
* Non-income producing
+ See Note 5
</FN>
</TABLE>
See Notes to Financial Statements.
- 17 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
ASSETS
Investment in securities at market value
<S> <C>
(Cost $217,816,799) ................................. $357,956,183
Cash at interest ............................................ 18,857,020
Receivable for shares purchased ............................. 2,854,257
Dividends and interest receivable ........................... 327,619
------------
Total Assets ................................ 379,995,079
------------
LIABILITIES
Payable for investment securities purchased ................. 76,875
Payable for shares redeemed ................................. 202,092
Accrued management fees ..................................... 305,416
Accrued expenses ............................................ 142,093
------------
Total Liabilities ........................... 726,476
------------
NET ASSETS
Source of Net Assets:
Net capital paid in on shares of
beneficial interest ........... $239,126,823
Undistributed net investment income ... 822
Accumulated net realized gains ........ 1,574
Net unrealized appreciation ........... 140,139,384
------------
Net Assets .................................. $379,268,603
============
Net asset value per share; 11,012,970 shares of
beneficial interest outstanding (Note 3) ............ $34.44
======
</TABLE>
See Notes to Financial Statements.
- 18 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
INVESTMENT INCOME
Income:
<S> <C>
Dividends ...................................... $ 3,986,857
Interest ....................................... 2,180,651
------------
Total Income ............................... 6,167,508
------------
Expenses:
Investment advisory fee (Note 2) ............... 3,488,163
Administrative fee (Note 2) .................... 87,204
Shareholder servicing and related expenses
(Note 2)..................................... 284,814
Printing and mailing ........................... 110,989
Professional fees .............................. 70,390
Registration fees .............................. 57,045
Custodial fees ................................. 29,569
Trustees ....................................... 23,813
Other .......................................... 19,436
------------
Total Expenses ............................. 4,171,423
------------
Net Investment Income ...................... 1,996,085
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ....................... 32,029,307
Unrealized depreciation of investments ................. (10,390,510)
------------
Net Gain on Investments ........................ 21,638,797
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..................... $ 23,634,882
============
</TABLE>
See Notes to Financial Statements.
- 19 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
CHANGE IN NET ASSETS FROM OPERATIONS:
<S> <C> <C>
Net investment income ............................... $ 1,996,085 $ 675,281
Net realized gain on investments .................... 32,029,307 9,525,635
Unrealized appreciation (depreciation) of investments (10,390,510) 79,137,694
------------- -------------
Net Increase in Net Asset From Operations ... 23,634,882 89,338,610
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................... (1,995,464) (675,363)
Net realized gain on investments .................... (32,028,673) (9,525,314)
CAPITAL SHARE TRANSACTIONS (Note 3): ........................ 56,499,164 642,392
------------- -------------
Total Increase in Net Assets ................ 46,109,909 79,780,325
NET ASSETS:
Beginning of year ................................... 333,158,694 253,378,369
------------- -------------
End of year ......................................... $ 379,268,603 $ 333,158,694
============= =============
</TABLE>
See Notes to Financial Statements.
- 20 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES FAM Value 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 maximize
long term total return on capital. 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 of
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 income 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. No such reimbursement was required for the year ended December
31, 1998. FAM Shareholder Services, Inc. (FSS), a company under common
control with the Advisor, serves as a shareholder servicing agent for
which it received a monthly fee of $1.75 per shareholder account.
Additionally, FSS serves as the fund administrative agent for which it
received a fee equal, on an annual basis, to .025% of the Fund's average
daily net assets.
- 21 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 3. SHARES OF BENEFICIAL INTEREST
At December 31, 1998, an unlimited number of $.001 par value shares of
beneficial interest were authorized. Transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 3,874,977 $ 140,367,004 1,996,336 $ 66,431,872
Shares issued on reinvestment
of dividends .......... 938,933 31,689,009 268,172 9,587,161
Shares redeemed ............... (3,118,717) (115,556,849) (2,496,046) (75,376,641)
---------- ------------- ---------- -------------
Net increase (decrease) 1,695,193 $ 56,499,164 (231,538) $ 642,392
========== ============= ========== =============
</TABLE>
Note 4. INVESTMENT TRANSACTIONS
During the year ended December 31, 1998, purchases and sales of
investment securities, other than short term obligations, were
$50,923,919 and $61,264,252. 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 and depreciation of
portfolio securities, based on cost for federal income tax purposes, was
as follows:
Unrealized appreciation......................... $150,630,185
Unrealized depreciation......................... (10,490,801)
------------
Net unrealized appreciation..................... $140,139,384
============
Note 5. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio companies, 5% or more of whose outstanding
voting securities are held by the Fund, are defined in the Investment
Company Act of 1940 as affiliated companies. Investments in affiliated
companies as of December 31, 1998, amounted to $56,832,479. For the year
ended December 31, 1998, dividend income of $262,958 was received from
affiliated companies, as well as realized losses of $4,356,775 from the
sale of such companies.
- 22 -
<PAGE>
--------------
FAM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 6. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PER SHARE INFORMATION YEARS ENDED DECEMBER 31,
(For a share outstanding throughout the year) 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 35.76 $ 26.53 $ 24.58 $ 21.04 $ 20.40
---------- ---------- ---------- ----------- -----------
Income from investment operations:
Net investment income ............... .20 0.08 0.18 0.21 0.12
Net realized and unrealized gain
on investments ................... 1.94 10.29 2.58 3.94 1.27
---------- ---------- ---------- ----------- -----------
Total from investment operations .... 2.14 10.37 2.76 4.15 1.39
---------- ---------- ---------- ----------- -----------
Less distributions:
Dividends from net investment income (.20) (0.08) (0.18) (0.21) (0.12)
Distributions from net realized gains (3.26) (1.06) (0.63) (0.40) (0.63)
---------- ---------- ---------- ----------- -----------
Total distributions ................. (3.46) (1.14) (0.81) (0.61) (0.75)
---------- ---------- ---------- ----------- -----------
Change in net asset value for the year ...... (1.32) 9.23 1.95 3.54 0.64
---------- ---------- ---------- ----------- -----------
Net asset value, end of year ................ $ 34.44 $ 35.76 $ 26.53 $ 24.58 $ 21.04
========== ========== ========== =========== ===========
TOTAL RETURN ................................ 6.19% 39.06% 11.23% 19.71% 6.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) ............... $ 379,269 $ 333,159 $ 253,378 $ 267,158 $ 210,579
Ratios to average net assets of:
Expenses, total ..................... 1.19% 1.24% 1.27% 1.25% 1.39%
Net investment income ............... 0.57% 0.25% 0.64% 0.92% 0.58%
Portfolio turnover rate ..................... 16.67% 9.47% 12.48% 9.67% 2.15%
</TABLE>
- 23 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (92.2%)
BANKING (10.3%)
Home Port Bank ...................................................... 8,000 $ 196,000
- - single bank holding company for Nantucket Saving Bank
SouthTrust Corporation............................................... 3,900 144,056
- - bank holding company headquartered in Alabama
TrustCo Bank Corporation NY ......................................... 10,765 322,950
- - regional bank in the upstate New York area -----------
663,006
-----------
CHEMICAL (8.8%)
RPM, Inc. ........................................................... 19,125 306,000
- - specialized chemical protective coatings,
fabrics, and wall coverings
WD-40 Company ....................................................... 9,000 257,625
- - manufactures and distributes lubricant products -----------
563,625
-----------
COMPUTER SOFTWARE (6.4%)
Reynolds & Reynolds ................................................. 18,000 412,875
- - software for automotive dealers and business forms -----------
DIVERSIFIED MANUFACTURING (5.1%)
CLARCOR, Inc. ....................................................... 6,300 126,000
- - manufactures industrial filtration and container products
Raven Industries .................................................... 12,400 199,950
- - manufactures plastics, electronics, and sewn products -----------
325,950
-----------
FINANCIAL SERVICES (4.1%)
Waddell & Reed ...................................................... 11,000 260,563
- - an underwriter and distributor of 36 mutual fund portfolios -----------
HEALTH CARE (5.5%)
Landauer, Inc. ...................................................... 10,900 352,888
- - leader in radiation testing and personal dosimeters -----------
INSURANCE AGENCY (3.4%)
Poe & Brown, Inc. ................................................... 6,300 220,106
- - one of the largest independent general insurance -----------
agencies in the U.S.
LIFE INSURANCE (5.2%)
ReliaStar Financial ................................................. 7,200 332,100
- - life insurance, annuities, and mutual funds -----------
</TABLE>
See Notes to Financial Statements.
- 24 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONT'D)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MACHINERY & EQUIPMENT (8.7%)
IDEX Corporation .................................................... 12,500 $ 306,250
- - proprietary, highly engineered industrial products & pumps
Regal-Beloit ........................................................ 11,000 253,000
- - supplier of power transmission equipment and cutting tools -----------
559,250
-----------
MISCELLANEOUS SERVICES (3.4%)
Service Master ...................................................... 10,000 220,625
- - commercial and residential service company -----------
PRINTING (10.5%)
Deluxe Corporation .................................................. 8,400 307,125
- - leading producer of checks and deposit tickets
in the U.S., banking software
New England Business Services ....................................... 9,400 367,775
- - leading supplier of business forms/printed products -----------
to small businesses in U.S.
674,900
-----------
PROPERTY & CASUALTY INSURANCE (3.2%)
PXRE Corporation .................................................... 8,200 205,512
- - reinsurance company -----------
REAL ESTATE INVESTMENT TRUSTS (8.5%)
New Plan Excel Realty Trust ......................................... 17,100 379,406
- - oldest REIT specializing in apartments, strip shopping centers,
factory outlets
Redwood Trust ....................................................... 12,000 168,000
- - acquires & manages residential real estate mortgage assets -----------
throughout U.S.
547,406
-----------
REGULATED INVESTMENT COMPANIES (4.6%)
Allied Capital Corporation (NEW) .................................... 17,014 294,555
- - venture capital corporation for entrepreneurs and management -----------
TELECOMMUNICATIONS (4.6%)
Hickory Tech Corporation ............................................ 22,700 295,100
- - a small local telephone company in Minnesota -----------
Total Common Stocks (Cost $4,970,384)................................ 5,928,461
-----------
Short Term Obligations (7.8%) PRINCIPAL
---------
U.S. Treasury Bills, 4.4% with maturities to
1/21/99 (Cost $498,734)....................... $500,000 498,734
-----------
Total Investments (Cost $5,469,118) (100%) $ 6,427,195
===========
</TABLE>
See Notes to Financial Statements.
- 25 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
ASSETS
<S> <C>
Investment in securities at market value
(Cost $5,469,118) ................................... $ 6,427,195
Cash at interest ............................................ 255,625
Dividends and interest receivable ........................... 18,894
Deferred organization costs ................................. 9,643
Receivables for securities sold ............................. 65,637
-----------
Total Assets ........................................ 6,776,994
-----------
LIABILITIES
Payable to investment advisor ............................... 36,865
Accrued expenses ............................................ 15,195
-----------
Total Liabilities ................................... 52,060
-----------
NET ASSETS
Source of Net Assets:
Net capital paid in on shares of
beneficial interest .................. $ 5,787,052
Undistributed net investment income .......... 20
Accumulated net realized gain/loss ........... (20,215)
Net unrealized appreciation .................. 958,077
-----------
Net Assets .................................. $ 6,724,934
===========
Net asset value per share; 497,208 shares of
beneficial interest outstanding (Note 3) ............ $ 13.53
===========
</TABLE>
See Notes to Financial Statements.
- 26 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
INVESTMENT INCOME
INCOME:
<S> <C>
Dividends ......................................... $ 161,352
Interest .......................................... 51,629
---------
Total Income .................................. 212,981
---------
EXPENSES:
Investment advisory fee (Note 2) .................. 57,897
Administrative fee (Note 2) ....................... 1,447
Custodian fee ..................................... 2,584
Organization costs ................................ 2,968
Shareholder servicing and related expenses (Note 2) 4,553
Registration fees ................................. 13,538
Professional fees ................................. 13,115
Trustees .......................................... 22,892
Printing & Mailing Costs .......................... 876
Other ............................................. 1,454
---------
Total Expenses ................................ 121,324
---------
Less: Investment advisory fee waived or
assumed by advisor (Note 2) .............. (34,478)
---------
Net Expenses .................................. 86,846
---------
Net Investment Income ......................... 126,135
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss on investments .......................... (20,165)
Unrealized appreciation of investments .................... 147,358
---------
Net Gain on Investments ................... 127,193
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........................ $ 253,328
=========
</TABLE>
See Notes to Financial Statements.
- 27 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
CHANGE IN NET ASSETS FROM OPERATIONS:
<S> <C> <C>
Net investment income ............................ $ 126,135 $ 76,411
Net realized gain (loss) on investments .......... (20,165) 139,414
Unrealized appreciation of investments ........... 147,358 617,264
----------- -----------
Net Increase in Net Assets From Operations 253,328 833,089
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (126,135) (76,381)
Net realized gain on investments ................. -- (139,385)
CAPITAL SHARE TRANSACTIONS (Note 3): ..................... 2,211,959 1,229,936
----------- -----------
Total Increase in Net Assets ............. 2,339,152 1,847,259
----------- -----------
NET ASSETS:
Beginning of year ................................ 4,385,782 2,538,523
----------- -----------
End of year ...................................... $ 6,724,934 $ 4,385,782
=========== ===========
</TABLE>
See Notes to Financial Statements.
- 28 -
<PAGE>
----------------------
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
equity 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 of
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 income 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
aggregating $34,478, so as to reduce the Fund's expense ratio to 1.5% of
average daily net assets. FAM Shareholder Services, Inc. (FSS), a
company under common control with the Advisor, serves as a shareholder
servicing agent for which it received a monthly fee of $1.75 per
shareholder account. Additionally, FSS serves as the fund administrative
agent for which it received a fee equal, on an annual basis, to .025% of
the Fund's average daily net assets.
- 29 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 3. SHARES OF BENEFICIAL INTEREST
At December 31, 1998, an unlimited number of $.001 par value shares of
beneficial interest were authorized. Transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
--------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................. 213,214 $ 2,838,703 140,533 $ 1,699,500
Shares issued on reinvestment
of dividends ............ 8,310 109,718 15,428 197,459
Shares redeemed ............. (56,490) (736,462) (54,820) (667,024)
------- ----------- ------- -----------
Net increase ............ 165,034 $ 2,211,959 101,141 $ 1,229,935
======= =========== ======= ===========
</TABLE>
NOTE 4. INVESTMENT TRANSACTIONS
During the year ended December 31, 1998, purchases and sales of
investment securities, other than short term obligations, were
$2,999,399 and $505,011. 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 and depreciation of
portfolio securities, based on cost for federal income tax purposes, was
as follows:
Unrealized appreciation....................... $ 1,161,619
Unrealized depreciation....................... (203,542)
--------------
Net unrealized appreciation................... $ 958,077
==============
- 30 -
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 5. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED APRIL 1, 1996
PER SHARE INFORMATION DECEMBER 31, (INCEPTION) TO
(For a share outstanding throughout the year) 1998 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of year .......... $ 13.20 $ 10.99 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment income ............... 0.28 0.27 0.19
Net realized and unrealized gain
on investments ................... 0.33 2.65 0.99
------------ ------------ ------------
Total from investment operations .... 0.61 2.92 1.18
------------ ------------ ------------
Less distributions:
Dividends from net investment income (0.28) (0.27) (0.19)
Distributions from net realized gains -- (.44) --
------------ ------------ ------------
Total distributions ................. (0.28) (.71) (0.19)
------------ ------------ ------------
Change in net asset value for the year ...... 0.33 2.21 0.99
------------ ------------ ------------
Net asset value, end of year ................ $ 13.53 $ 13.20 $ 10.99
============ ============ ============
TOTAL RETURN ................................ 4.67% 26.90% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) ............... $ 6,725 $ 4,386 $ 2,539
Ratios to average net assets of:
Expenses, total ..................... 2.09% 2.50% 5.04%
Expenses, net of fees waived and
expenses assumed by advisor ...... 1.50% 1.50% 1.50%
Net investment income ............... 2.17% 2.27% 3.05%
Portfolio turnover rate ..................... 10.55% 15.63% 0.00%
</TABLE>
- 31 -
