ANNUAL REPORT
FASCIANO FUND, INC.
(FASCIANO FUND, INC. LOGO)
June 30, 1997
FASCIANO FUND, INC.
August 15, 1997
Dear Shareholder:
Fasciano Fund had a good year. For the twelve months ending June 30, 1997,
Fasciano Fund was up 15.8%. In the second half, we gained 5.1%, which was a bit
of a comeback performance considering the period got off to a rocky start. From
November 10, 1988 (our IPO date) to June 30, 1997, a little more than 8 1/2
years, Fasciano Fund appreciated 250%, equivalent to an average annual return of
15.6%.
Performance figures for the periods ending June 30, 1997 are summarized
below.
One Year Three Years** Five Years**
<F2> <F2>
-------- ------------- ------------
Fasciano Fund*<F1> 15.8% 22.6% 16.3%
Small Company Fund Average+<F3> 14.1% 21.8% 17.9%
S&P 500 Index 34.7% 28.9% 19.8%
Blue-chip stocks have outpaced the smaller-caps because S&P Index funds are
on a big-cap feeding frenzy. It seems self-sustaining--demand is creating
demand. The same phenomenon can be seen in the Beanie Baby mania. The only
difference is that Beanie Babies will last forever, and this big-cap bull market
will not.
Back in January, the collapse of Mercury Finance and the problems that
plagued two other sub-prime auto lenders clipped the Fund's performance by about
five percent. The incident reminded me, "If it sounds too good to be true, it
probably is." Mercury Finance, the reputed 24-karat industry standard and long-
time holding of Fasciano Fund, sadly turned out to be fool's gold.
I continue to be very excited about the long-term opportunities in the small-
cap sector although I am treading cautiously right now. On the plus side,
small-caps are relatively cheaper than large-caps (after all, they haven't gone
up as much) and smaller companies can grow at faster rates more easily than
larger companies can, especially in a slower economy. Unfortunately, many
small-caps are trading at nosebleed valuations too. In many cases, the high
growth rates that investors are assuming to rationalize those high valuations
are unrealistic. Few companies can successfully manage to grow at 30, 40 or 50
percent year after year. Yet these days, it is commonly assumed. Consider that
a company growing at 50% a year may mean 50% of the people working there don't
know what they are doing yet!
*<F1> Of course, past performance is no guarantee of future results. The
principal value and return on your investment will fluctuate and upon redemption
may be worth more than your original cost.
**<F2> Average annual total return
+<F3> Source: Morningstar, Inc. See Performance Distribution Summary.
<PAGE>
There are likely to be good buying opportunities ahead. With such lofty
expectations, investors get jittery even when faced with mildly disappointing
news. If a company reports earnings per share a penny or two below the First
Call estimate, the fast money wants out. Whenever the economy hiccups, traders
shout sell! If interest rates blip up or inflation rears its ugly head, market
timers cry bear market!! From time to time, they dump good companies, ones with
growing businesses run by proven managers. As prices fall, opportunities for
Fasciano Fund will arise.
In addition to staying with our growth-at-a-reasonable-price strategy, we
emphasize owning stocks for the long haul, where patience and conviction is
rewarded. We bought McClatchy Newspapers in 1988 at a split-adjusted price per
share of $11.18 (now at $30), International Speedway in 1989 at $1.63 (now $20),
International Dairy Queen in 1989 at $12 (now $24), and Concord EFS in 1991 at
$3.80 (now $26). Fasciano Fund still owns them today. Occasionally, the market
tests one's patience and conviction. For example, the Fund has an investment in
Richey Electronics, a specialty distributor of electronic components. Last
year, Richey earned $6.5 million or $0.72 per share on sales of $226 million.
As management went about its strategy of buying and consolidating other
distributors, industry sales softened. The stock climbed from $6.50 a share,
where we bought shares initially a little over two years ago, to a peak of $14.
Then the stock retreated to $8 with the prospect of flat 1997 earnings. I still
believe Richey has strong long-term fundamentals. I think Richey can grow by
20% annually. The company has a return on equity of 18%, and insiders own 41%
of the outstanding shares. Next year, I figure Richey can earn in the
neighborhood of $1.00 per share. With the shares trading at less than ten times
1998 earnings, I am adding to our position in Richey Electronics.
Thank you for selecting Fasciano Fund to achieve your long-term financial
goals.
Sincerely,
/s/ Michael F. Fasciano, CFA
Michael F. Fasciano, CFA
President
190 South LaSalle Street, Suite 2800, Chicago, Illinois 60603 o 800-848-6050
<PAGE>
PERFORMANCE AND DISTRIBUTION SUMMARY
<TABLE>
<CAPTION>
FASCIANO FUND
----------------------------------------------------
Distributions
------------------
Annual Small U.S.
Calendar Beginning Capital Ending Total S&P Company Treasury
Year NAV Income Gains NAV Return 500 Funds*<F4> Bills
- --------- --------- ------ ------- ------ ------ ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 $11.45 $0.24 $0.59 $13.16 22.5% 31.7% 23.6% 8.1%
1990 $13.16 $0.12 $0.38 $12.50 (1.2)% (3.1)% (9.5)% 7.5%
1991 $12.50 $0.02 $0.36 $16.40 35.1% 30.5% 50.3% 5.4%
1992 $16.40 $0.00 $0.46 $17.29 7.7% 7.6% 13.7% 3.5%
1993 $17.29 $0.00 $1.00 $17.68 8.1% 10.1% 17.1% 3.0%
1994 $17.68 $0.00 $1.14 $17.18 3.7% 1.3% (0.7)% 4.3%
1995 $17.18 $0.00 $1.34 $21.18 31.1% 37.5% 31.3% 5.5%
1996 $21.18 $0.00 $0.59 $26.20 26.5% 23.0% 20.1% 5.0%
*<F4> The Morningstar Small Company Funds Index consists of funds that seek capital appreciation by investing
primarily in stocks of companies with market capitalizations of less than $1 billion.
</TABLE>
FASCIANO FUND VS S&P 500
FASCIANO FUND
AVERAGE ANNUAL TOTAL RETURNS
1 Year 5 Years Life*<F5>
15.8% 16.3% 15.6%
date Fasciano Fund S&P 500**<F6>
11/10/88 $10,000 $10,000
6/30/89 $11,898 $11,899
6/30/90 $13,435 $13,861
6/30/91 $15,426 $14,885
6/30/92 $16,430 $16,882
6/30/93 $18,362 $19,183
6/30/94 $18,971 $19,453
6/30/95 $23,545 $24,524
6/30/96 $30,207 $30,901
6/30/97 $34,964 $41,623
*<F5> November 10, 1988 through June 30, 1997.
**<F6> The S&P 500 (Standard & Poor's 500 Stock Index) is a market-weighted
average of 500 blue-chip stocks with dividends reinvested.
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997
Market
Shares Common Stocks Value
- ----------------------------------------------------------------------
COMMON STOCKS - 78.5%
BUSINESS SERVICES - 14.6%
40,000 Keane, Inc. *<F7> $2,080,000
70,000 Concord EFS, Inc. *<F7> 1,811,250
20,000 Interim Services, Inc. *<F7> 890,000
15,000 G & K Services, Inc. - Class A 558,750
10,000 Envoy Corporation *<F7> 332,500
10,000 Lason Holdings, Inc. *<F7> 281,250
10,000 Alternative Resources Corp. *<F7> 203,750
-----------
6,157,500
-----------
HEALTH CARE PRODUCTS & SERVICES - 12.6%
30,000 Cardinal Health, Inc. 1,717,500
20,000 Dentsply International, Inc. 980,000
20,000 Vencor, Inc. *<F7> 845,000
30,000 Serologicals Corp. *<F7> 690,000
35,000 Sterile Recoveries, Inc. *<F7> 621,250
20,000 Landauer, Inc. 463,750
-----------
5,317,500
-----------
ENTERTAINMENT & LEISURE - 8.9%
50,625 Regal Cinemas, Inc. *<F7> 1,670,625
75,000 International Speedway Corp. - Class A 1,471,875
10,000 Marcus Corporation 256,250
10,000 Speedway Motorsports, Inc. *<F7> 217,500
4,100 Carmike Cinemas, Inc. - Class A *<F7> 134,275
-----------
3,750,525
-----------
COMMERCIAL PRODUCTS AND SERVICES - 7.9%
30,000 Zebra Technologies Corp. - Class A *<F7> 836,250
15,000 IDEX Corp. 495,000
20,000 ABC Rail Products Corp. *<F7> 342,500
20,000 Juno Lighting, Inc. 325,000
10,000 Modine Manufacturing Co. 297,500
10,000 Trimas Corp. 281,250
10,000 Superior Services, Inc. *<F7> 237,500
10,000 Simon Transportation Services, Inc. *<F7> 198,750
10,000 Arnold Industries, Inc. 170,000
10,000 Communications Systems, Inc. 142,500
-----------
3,326,250
-----------
The Accompanying notes to financial statements are an integral part of
this statement.
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS - Continued
June 30, 1997
SPECIALTY FINANCE - 7.9%
30,000 Ocwen Financial Corporation *<F7> 978,750
35,000 Resource America, Inc. - Class A 875,000
20,000 United Companies Financial Corp. 565,000
16,500 American Business Financial Services, Inc. 330,000
30,000 Mego Mortgage Corp. *<F7> 300,000
20,000 MLC Holdings, Inc. *<F7> 265,000
-----------
3,313,750
-----------
COMMUNICATIONS & MEDIA - 7.1%
30,000 Pulitzer Publishing Co. 1,590,000
20,000 McClatchy Newspapers - Class A 587,500
10,000 Emmis Broadcasting Corporation *<F7> 436,250
5,000 Central Newspapers, Inc. 358,125
-----------
2,971,875
-----------
SAVINGS & LOAN - 5.9%
75,000 ITLA Capital Corporation *<F7> 1,218,750
20,000 Alliance Bancorp., Inc. 602,500
12,500 First Financial Corporation - Wisc. 367,188
6,250 Advantage Bancorp., Inc. 239,062
3,000 Southwest Bancshares, Inc. 62,250
-----------
2,489,750
-----------
CONSUMER PRODUCTS AND SERVICES - 5.4%
35,000 Central Parking Corp. 1,218,437
20,000 International Dairy Queen, Inc. *<F7> 480,000
15,000 LaCrosse Footwear, Inc. 195,000
10,000 Viking Office Products, Inc. *<F7> 190,000
10,500 Monro Muffler Brake, Inc. *<F7> 181,125
-----------
2,264,562
-----------
BANK & BANK HOLDING - 2.9%
35,000 Atlantic Bank & Trust Company *<F7> 415,625
14,000 Cass Commercial Corporation 381,500
10,000 Corus Bankshares, Inc. 282,500
7,500 Heritage Financial Services, Inc. 154,687
-----------
1,234,312
-----------
The accompanying notes to financial statements are an integral part of
this statement.
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS - Continued
June 30, 1997
ELECTRONICS - 2.4%
33,000 Methode Electronics, Inc. - Class A 655,875
42,500 Richey Electronics, Inc. *<F7> 355,938
-----------
1,011,813
-----------
DISTRIBUTOR - 1.6%
22,000 Miami Computer Supply Corp. *<F7> 258,500
10,000 TESSCO Technologies, Inc. *<F7> 216,250
20,000 Valley National Gases Corporation *<F7> 210,000
-----------
684,750
-----------
MACHINERY - INDUSTRIAL - 0.8%
10,000 Robbins & Myers, Inc. 325,000
-----------
TELECOMMUNICATIONS - 0.5%
10,000 LCI International, Inc. *<F7> 218,750
-----------
MISCELLANEOUS - 0.0%
6,667 FRM Nexus, Inc. *<F7> 6,667
20,000 Programming & Systems Inc. *<F7> 5,000
-----------
11,667
-----------
TOTAL COMMON STOCKS (cost: $20,403,535) 33,078,004
-----------
Principal Market
Amount Short-Term Investments Value
- -----------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 21.5%
VARIABLE RATE DEMAND NOTES - 21.5%
$2,000,000 American Family Financial
Services, Inc., 5.26% 2,000,000
2,000,000 Johnson Controls, 5.28% 2,000,000
2,000,000 Warner Lambert 5.23% 2,000,000
1,500,000 Sara Lee Corporation 5.24% 1,500,000
1,000,000 Eli Lilly & Company, 5.12% 1,000,000
406,750 Wisconsin Electric Power Co., 5.30% 406,750
134,652 Pitney Bowes 5.26% 134,652
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost: $9,041,402) 9,041,402
-----------
TOTAL INVESTMENTS - 100.0%
(cost: $29,444,937) 42,119,406
OTHER ASSETS, LESS LIABILITIES - 0.0% 1,317
-----------
TOTAL NET ASSETS - 100.0% $42,120,723
===========
*<F7> non-income producing security
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
ASSETS
Common stocks, at market value (cost: $20,403,535) $33,078,004
Variable rate demand notes, at market value
(cost: $9,041,402) 9,041,402
Receivables
Dividends 20,937
Interest 38,872
Prepaid expenses 15,856
Other assets 4,442
-----------
Total assets $42,199,513
===========
LIABILITIES AND NET ASSETS
Payables and accrued expenses
Payable for securities purchased $24,390
Accrued expenses 20,756
Due to adviser 33,644
-----------
Total liabilities 78,790
-----------
Net assets
Common stock, $.01 par value; 10,000,000 shares authorized,
1,529,837 shares issued and outstanding, and
paid-in capital 27,259,890
Accumulated net investment loss (372,566)
Accumulated undistributed net realized gain 2,558,930
Net unrealized appreciation on investments 12,674,469
-----------
Total net assets 42,120,723
-----------
Total liabilities and net assets $42,199,513
===========
Net asset value per share $27.53
======
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
INCOME
Dividends $ 194,207
Interest 164,282
----------
358,489
----------
EXPENSES
Management fee 334,647
Transfer and disbursing agent fees 25,041
Registration fees 23,939
Accounting fee 23,097
Printing expense 21,653
Legal fees 18,786
Audit and tax consulting fees 12,439
Administration fees 8,427
Custodian fees 7,157
Other operating expenses 4,605
----------
Total expenses 479,791
----------
Net investment (loss) (121,302)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,418,008
Net change in unrealized appreciation 2,910,692
----------
Net gain on investments 5,328,700
----------
Net increase in net assets resulting
from operations $5,207,398
==========
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended June 30, 1997 and June 30, 1996
June 30, June 30,
1997 1996
-------- --------
OPERATIONS:
Net investment (loss) $(121,302) $(79,306)
Net realized gain on investments 2,418,008 2,013,802
Net change in unrealized appreciation 2,910,692 4,232,542
----------- -----------
Net increase in net assets resulting
from operations 5,207,398 6,167,038
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income 0 0
Distributions from net capital gains (742,586) (1,454,764)
----------- -----------
Total distributions (742,586) (1,454,764)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (395,751
and 153,853 shares, respectively) 10,121,818 3,463,138
Increase in shares issued in reinvested
distributions (27,861 and 66,035
shares, respectively) 716,874 1,391,353
Cost of shares redeemed (84,925 and 63,325
shares, respectively) (2,163,323) (1,453,876)
----------- -----------
Net increase in assets derived
from capital share transactions 8,675,369 3,400,615
----------- -----------
Net increase in net assets 13,140,181 8,112,889
----------- -----------
NET ASSETS AT BEGINNING OF PERIOD 28,980,542 20,867,653
----------- -----------
NET ASSETS AT END OF PERIOD (including accumulated
undistributed net investment loss of ($372,566)
and ($251,264), respectively) $42,120,723 $28,980,542
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
FINANCIAL HIGHLIGHTS
Condensed financial information per share of capital stock outstanding
throughout the period is presented below:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $24.33 $20.17 $17.34 $17.74 $16.30
Income from investment operations:
Net investment (loss) (0.03) (0.05) (0.24) (0.05) (0.05)
Net realized and unrealized gain on
securities 3.82 5.55 4.21 0.65 1.95
------ ------ ------ ------ ------
Total from investment operations 3.79 5.50 3.97 0.60 1.90
Less distribution:
Dividends from net investment income 0.00 0.00 0.00 0.00 0.00
Distributions from realized gains on
securities (0.59) (1.34) (1.14) (1.00) (0.46)
------ ------ ------ ------ ------
Total distributions (0.59) (1.34) (1.14) (1.00) (0.46)
------ ------ ------ ------ ------
Net asset value at end of period $27.53 $24.33 $20.17 $17.34 $17.74
====== ====== ====== ====== ======
Total return 15.8% 28.3% 24.1% 3.3% 11.8%
Ratios/Supplemental Data:
Net assets at end of period (in thousands) $42,121 $28,981 $20,868 $16,582 $15,458
Expenses, excluding provision for
taxes, to average net assets 1.4% 1.5% 1.7% 1.7% 1.7%
Net investment income (loss) before
taxes to average net assets (0.4)% (0.3)% (0.6)% (0.3)% (0.3)%
Portfolio turnover rate 41.0% 45.6% 37.9% 99.0% 43.2%
Average commission rate per share $0.0634 n/a n/a n/a n/a
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(1) SIGNIFICANT ACCOUNTING POLICIES:
Fasciano Fund, Inc. (the "Fund"), a Maryland corporation, commenced
operations on August 1, 1987 as a private investment company. On June 30, 1988,
the Fund registered with the Securities and Exchange Commission as a diversified
open-end management investment company under the Investment Company Act of 1940
and began offering its shares to the public on November 10, 1988. The primary
objective of the Fund is long-term capital growth.
The fiscal year end of the Fund is June 30. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements in accordance with generally accepted accounting
principles.
(a) Investment and shareholder transactions are recorded on a trade date
basis.
(b) Each security traded on a national securities exchange or traded over the
counter and quoted on the Nasdaq National Market will be valued at the last sale
price on the day of valuation. Securities for which there was no sale on the
day of valuation will be valued at the current bid prices. Each money market
instrument having a maturity of 60 days or less from the date of purchase is
valued on an amortized cost basis, which approximates market value. Other assets
and securities will be valued at a fair value, as determined in good faith by
the Board of Directors.
(c) Dividends are recognized as income on the ex-dividend date. Interest
income and operating expenses are recorded on the accrual basis.
(d) 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.
(2) RELATED PARTIES:
Michael F. Fasciano is an officer and director of the Fund and also an
officer, director and sole shareholder of the investment adviser, Fasciano
Company, Inc. Mr. Fasciano held 14,659 shares or 1.0% of the outstanding common
stock of the Fund at June 30, 1997.
The non-affiliated directors receive a fee of $2,000 annually.
The management fee was paid to Fasciano Company, Inc. for its services as
investment adviser. This fee is paid monthly at the rate of 1/12 of 1% (an
annual rate of 1.0%) of the average daily net asset value of the Fund.
Total annual operating expenses of the Fund shall not exceed 2% of average
net assets, and the adviser has agreed to pay any excess operating expenses or
to reimburse the Fund for any sums expended for such expenses in excess of that
amount. For this purpose, brokers' commissions and other charges relative to the
purchase and sale of portfolio securities, interest charges, taxes and
litigation and other extraordinary expense shall not be regarded as operating
expenses.
<PAGE>
(3) INVESTMENTS:
During the year ended June 30, 1997, purchases of securities other than
short-term investments were $12,532,674. Sales of such securities for that
period were $12,933,557.
Cost of investments is the same for financial reporting purposes as for
Federal income tax purposes. At June 30, 1997, on a tax basis, gross unrealized
appreciation of investments was $13,157,487 and unrealized depreciation of
investments was $483,018.
(4) INCOME TAXES:
No provision for federal income taxes has been made. The Fund has complied
to date with the provisions of the Internal Revenue Code applicable to regulated
investment companies and intends to distribute substantially all of its net
investment income and realized capital gains in order to avoid payment of all
future federal income taxes.
(5) DISTRIBUTIONS TO SHAREHOLDERS:
On December 27, 1996, the Fund distributed short-term and long-term capital
gains of approximately $0.33 and $0.26 per share, respectively.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Fasciano Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
FASCIANO FUND, INC. (a Maryland corporation), including the schedule of
portfolio investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in 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. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial
highlights 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 June
30, 1997, 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fasciano Fund, Inc. as of June 30, 1997, 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 generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 15, 1997
<PAGE>
THIS PAGE LEFT INTENTIONALLY BLANK.
<PAGE>
INVESTMENT ADVISER
Fasciano Company, Inc.
ADDRESS OF FUND & ADVISER
190 South LaSalle Street
Suite 2800
Chicago, Illinois 60603
(312) 444-6050
(800) 848-6050
TRANSFER AGENT, DIVIDEND DISBURSING
AGENT, ADMINISTRATOR AND CUSTODIAN
Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201
(414) 765-4124
(800) 982-3533
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
This report is submitted for the information
of shareholders of the Fund. It is not
authorized for distribution to prospective
investors unless preceded or accompanied
by an effective prospectus.
MEMBER OF 100% NO-LOAD TM
MUTUAL FUND
COUNCIL
Printed on Recycled Paper
