STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
Supplemented April 25, 2000
FASCIANO FUND, INC.
190 S. LaSalle Street
Suite 2800
Chicago, Illinois 60603
(312) 444-6050
(800) 848-6050
www.fascianofunds.com
[email protected]
This statement of additional information is not a prospectus, but provides
information about Fasciano Fund, Inc. (the "Fund") that should be read in
conjunction with the Fund's prospectus dated November 1, 1999 (and any
supplements thereto).
To obtain the prospectus and additional copies of the annual report without
charge, write or telephone the Fund at the addresses or telephone numbers set
forth above.
<PAGE>
TABLE OF CONTENTS
Page
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History of the Fund 3
Shareholder Voting Rights 3
Investment Strategies and Risks 3
Investment Policies and Restrictions 8
Performance Information 10
Investment Adviser 12
Directors and Officers 12
Certain Shareholders 14
Purchasing and Redeeming Shares 15
Additional Tax Information 16
Portfolio Transactions 17
Administrator, Custodian and Transfer Agent 18
Independent Public Accountants 20
Financial Statements 20
Appendix 21
<PAGE>
HISTORY OF THE FUND
The Fund was incorporated in Maryland on May 28, 1987, and commenced
operations as a private investment company, not registered under the Investment
Company Act of 1940 (the "1940 Act"), on August 1, 1987 at $10.00 per share. On
June 30, 1988, the Fund registered as a diversified, open-end management
investment company under the 1940 Act and began offering its shares to the
public on November 10, 1988.
SHAREHOLDER VOTING RIGHTS
Each share of the Fund's capital stock, $.01 par value, is entitled to share
pro rata in any dividends and other distributions on shares the board of
directors declares, to one vote per share in elections of directors and other
matters presented to shareholders, and to equal rights per share in the event of
liquidation. There are no preemptive rights or conversion rights relating to
the Fund's shares.
INVESTMENT STRATEGIES AND RISKS
The primary investment objective of the Fund is long-term capital growth.
The Fund invests in common stocks and securities having common stock
characteristics, including securities convertible into common stocks, and rights
and warrants to purchase common stocks based on their potential for capital
appreciation. The Fund's investment adviser, Fasciano Company, Inc. (the
"Adviser") looks for companies with:
o strong business franchises that are likely to sustain long-term
rates of earnings growth for a three to five year time horizon, and
o stock prices that the market has undervalued relative to the value
of similar companies and that offer excellent potential to
appreciate in price over a three to five year time horizon.
The Adviser invests the Fund primarily in smaller companies (generally
having market capitalizations of less than $2.0 billion) that the Adviser
believes have strong business franchises and are likely to sustain higher long-
term rates of growth. The Adviser also will invest in smaller companies that
are under-followed by major Wall Street brokerage houses and large asset
management firms and thereby may have greater potential to appreciate in price.
However, the Fund may hold the stocks of small companies that grow into
medium-size companies, and may invest in larger companies that present
attractive opportunities for long-term capital growth.
The Fund invests in companies on a long-term basis and emphasizes long-term
investment performance. From time to time, however, the Fund may invest on a
short-term basis or may sell within a few months securities that it had
originally intended to be a long-term investment if the security no longer
meets the quality or valuation requirements of the Fund.
<PAGE>
DEBT SECURITIES
The Fund may invest in debt securities, including debt securities that the
recognized rating agencies do not rate or rate below investment grade (i.e., BBB
or higher by Standard & Poor's Corporation ("S&P") or Baa or higher by Moody's
Investor Services, Inc. ("Moody's")). There are no restrictions as to the
ratings of debt securities the Fund acquires or the portion of the Fund's assets
that the Fund may invest in debt securities in a particular ratings category,
except that the Fund will not invest more than 5% of its assets in securities
rated below investment grade ("junk bonds"). The Fund has no present intention
of investing in junk bonds. Although the Fund does not presently intend to
invest in debt securities, it may invest in convertible bonds that present a
good value because they are convertible into equity securities and have an
attractive yield.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than higher-
quality instruments and generally are more sensitive to adverse economic changes
or individual corporate developments. During a period of adverse economic
changes, including a period of rising interest rates, issuers of such bonds may
experience difficulty in servicing their principal and interest payment
obligations.
To the extent the Fund invests in lower-rated debt securities, the Fund's
achievement of its investment objective will be more dependent on the Adviser's
credit analysis than would be the case if the Fund were investing in higher-
quality debt securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser employs its own
credit research and analysis. These analyses may take into consideration such
quantitative factors as an issuer's present and potential liquidity,
profitability, internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology, and foreign
business exposure.
Medium- and lower-quality debt securities tend to be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and the Fund may have greater difficulty selling its
portfolio securities. Adverse publicity and investor perceptions may affect the
market value of these securities and their liquidity.
A description of the ratings S&P and Moody's uses is included as an
appendix to this statement of additional information.
<PAGE>
FOREIGN SECURITIES
The Fund may invest in foreign securities, which may entail a greater
degree of risk (including risks relating to exchange rate fluctuations, exchange
controls, tax provisions, political instability, expropriation of assets, other
governmental restrictions and regulations and less available financial
information) than does investment in securities of domestic issuers.
The Fund will not invest more than 5% of its assets in foreign securities,
and will not invest in securities traded only or primarily in emerging markets.
For this purpose, foreign securities do not include American Depository Receipts
(ADRs) or securities a United States person guarantees. ADRs are receipts an
American bank or trust company typically issues evidencing ownership of the
underlying securities.
To the extent positions in portfolio securities are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
affects the Fund's investment performance. For example, if the dollar falls in
value relative to the Japanese yen, the dollar value of a Japanese stock held in
the portfolio will rise even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen, the dollar value
of the Japanese stock will fall. (See discussion of transaction hedging under
"Currency Exchange Transactions.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, which are generally
denominated in foreign currencies, and utilization of forward foreign currency
exchange contracts involve both risks and opportunities not typically associated
with investing in U.S. securities. These considerations include: fluctuations
in exchange rates of foreign currencies; possible imposition of exchange control
regulation or currency restrictions that would prevent cash from being brought
back to the United States; less public information with respect to issuers of
securities; less governmental supervision of stock exchanges,
securities brokers, and issuers of securities; lack of uniform accounting,
auditing, and financial reporting standards; lack of uniform settlement periods
and trading practices; less liquidity and frequently greater price volatility in
foreign markets than in the United States; possible imposition of foreign taxes;
possible investment in securities of companies in developing as well as
developed countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial arrangements.
Although the Fund intends to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social, or
diplomatic developments that could affect investment in these nations.
Currency Exchange Transactions. Currency exchange transactions may be
------------------------------
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest and serve as hedges against possible
variations in the exchange rate between these currencies. The currency
transactions of the Fund are limited to transaction hedging involving specific
transactions. Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of a Fund accruing in
connection with the purchase and sale of its portfolio securities or the receipt
of dividends or interest thereon. The Fund's intention not to invest more than
5% of its assets in foreign securities effectively limits the extent of its
transactions in foreign currencies.
If the Fund enters into a forward contract, the Fund's custodian will
segregate assets of the Fund having a value equal to the Fund's commitment under
such forward contract. At the maturity of the forward contract, the Fund may
either sell the portfolio security related to the contract and deliver the
currency, or it may retain the security and either acquire the currency on the
spot market or terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader obligating it to
purchase on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the value of a portfolio security traded in that currency or
prevent a loss if the value of the security declines. Hedging transactions also
preclude the opportunity for gain if the value of the hedged currency should
rise. Moreover, it may not be possible for the Fund to hedge against a
devaluation that is so generally anticipated that the Fund is not able to
contract to sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period, and prevailing market conditions. Since currency exchange transactions
are usually conducted on a principal basis, no fees or commissions are involved.
<PAGE>
UNSEASONED ISSUERS
The Fund has the authority to invest up to 10% of its total assets in the
securities of unseasoned issuers, but has no present intention of investing more
than 5% of its total assets in such securities. An unseasoned issuer is an
issuer that, together with predecessors, has been in operation less than three
years. The Adviser believes that investment in securities of unseasoned issuers
may provide opportunities for long-term capital growth, although the risks of
investing in such securities are greater than with common stocks of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets, taken at market value, in
securities for which there is no ready market ("illiquid securities"), including
any securities that are not readily marketable either because they are
restricted securities or for other reasons. Restricted securities are
securities that have not been registered under the Securities Act of 1933 and
are thus subject to restrictions on resale. A position in restricted securities
might adversely affect the liquidity and marketability of a portion of the
Fund's portfolio, and the Fund might not be able to dispose of its holdings in
such securities promptly or at reasonable prices. In those instances where the
Fund is required to have its holdings of restricted securities registered prior
to sale by the Fund and the Fund does not have a contractual commitment from the
issuer or seller to pay the costs of such registration, the gross proceeds from
the sale of securities would be reduced by the registration costs and
underwriting discounts. Any such registration costs are not included in the 10%
limitation on the Fund's investment in restricted securities. The Fund does not
expect to invest in illiquid securities during the next fiscal year.
REPURCHASE AGREEMENTS
The Fund may enter into "repurchase agreements" pertaining to U.S.
Government securities with member banks of the Federal Reserve System or primary
dealers (as the Federal Reserve Bank of New York designates) in such securities.
A repurchase agreement arises when the Fund purchases a security and
simultaneously agrees to resell it to the vendor at an agreed upon future date.
The resale price is greater than the purchase price, reflecting an agreed upon
market rate of return that is effective for the period of time the Fund holds
the security and that is not related to the coupon rate on the purchased
security. Such agreements generally have maturities of no more than seven days
and could be used to permit the Fund to earn interest on assets awaiting long
term investment. The Fund requires the custodian to continuously maintain the
Fund's account in the Federal Reserve/Treasury Book Entry System of
collateral in an amount equal to, or in excess of, the market value of the
securities that are the subject of a repurchase agreement. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including (i) possible decline in the value of the collateral during the
period while the Fund seeks to enforce its rights thereto, (ii) possible
subnormal levels of income and lack of access to income during this period, and
(iii) expenses of enforcing its rights. The Fund will monitor the
creditworthiness of firms with which it enters into repurchase agreements.
Repurchase agreements maturing in more than seven days are considered illiquid
securities. The Fund does not intend to invest in repurchase agreements during
the next fiscal year.
The Adviser generally does not attempt to invest the Fund based on a market
timing strategy. Rather, the Adviser will invest in a company when the Adviser
believes the Company meets the Fund's requirements for long-term growth
prospects and price appreciation potential.
The Fund generally seeks to be fully invested in common stocks. However,
at times, the Adviser may invest a large portion of the Fund's assets in cash
if the Adviser is unable to locate and invest in a sufficient number of
companies that meet the Fund's quality and valuation requirements.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The primary investment objective of the Fund is long-term capital growth.
Current income is considered in selecting securities for the portfolio, but its
importance is secondary to capital growth. The board of directors may change
the Fund's investment objective without shareholder approval.
The Fund has adopted the following fundamental investment restrictions,
which cannot be changed without the approval of the holders of a majority of its
shares, as defined in the Investment Company Act of 1940:
1. The Fund will not invest more than 5% of its assets (valued at the
time of investment) in securities of any one issuer, except in U.S. government
obligations.
2. The Fund will not acquire securities of any one issuer which at the
time of investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the outstanding
securities of the issuer.
3. The Fund will not invest more than 10% of its assets (valued at the
time of investment) in securities of issuers with less than three years'
operation (including predecessors).
4. The Fund will not invest more than 10% of its net assets (valued at
the time of investment) in securities for which there is no ready market
(including restricted securities and repurchase agreements maturing in more than
seven days).
5. The Fund will not participate in a joint trading account, purchase
securities on margin or sell securities short (unless the Fund owns an equal
amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into an equal amount of
such securities).1<F5>
6. The Fund will not act as an underwriter or distributor of securities
other than its own capital stock, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale.
7. The Fund will not lend money, but this restriction shall not prevent
the Fund from investing in (i) a portion of an issue of publicly distributed
debt securities or (ii) repurchase agreements.
8. The Fund will not purchase or sell real estate or interests in real
estate, although it may invest in marketable securities of issuers that invest
in real estate or interests in real estate.
9. The Fund will not borrow, except that the Fund may borrow from banks
as a temporary measure amounts up to 10% of its total assets (at the lower of
cost or market at the time of the borrowing), provided (i) that the total of
reverse repurchase agreements2<F6> and such borrowings will not exceed 10% of
the Fund's total assets and (ii) the Fund will not purchase securities when its
borrowings exceed 5% of total assets.
10. The Fund will not pledge any of its assets, except to secure
indebtedness the Fund's investment restrictions permits.
11. The Fund will not invest for the purpose of exercising control or
management of any company.
12. Not more than 25% of the value of the Fund's total assets, taken at
market value at the time of the investment, will be concentrated in companies of
any one industry.
13. The Fund will not purchase and sell commodities or commodity
contracts, except that it may enter into forward contracts to hedge securities
transactions made in foreign currencies.
14. The Fund will not issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
In addition to the fundamental restrictions listed above, the 1940 Act
provides that the Fund may neither purchase more than 3% of the voting
securities of any one investment company nor invest more than 10% of the Fund's
assets (valued at time of investment) in all investment company securities the
Fund purchases.
1<F5> The Fund does not currently intend to sell securities short even
under the conditions described in investment restriction 5.
2<F6> The Fund does not currently intend to enter into reverse
repurchase agreements.
<PAGE>
DEFENSIVE INVESTMENTS
If the Adviser considers a temporary defensive position advisable in
response to adverse market, economic, political, or other conditions, the
Adviser may invest the Fund exclusively in investment grade corporate or
government debt obligations, or hold cash or cash equivalents. A consequence
of the Fund taking such a temporary defensive position is that it may not be
able to achieve its investment objective.
PERFORMANCE INFORMATION
From time to time, the Fund may quote total return figures in
advertisements and sales literature when giving information about its
performance. "Total return" for a period is the percentage change in value of an
investment in Fund shares, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average annual
total return" is the average annual compounded rate of change in value the total
return for the period represents.
Average annual total return is computed as follows:
ERV = P(1+T)n
Where: P = the amount of an assumed initial investment in Fund shares
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = ending redeemable value of shares held at the end of the
period
The Fund's Total Return and Average Annual Total Return for various periods
ended June 30, 1999 is shown below:
Average Annual
Total Return Total Return
------------ --------------
1 year (5.17)% (5.17)%
5 years 132.78% 18.40%
10 years 271.15% 14.00%
Life of Fund3<F7> 404.02% 14.53%
3<F7> From August 1, 1987. The performance data shown includes the
performance of the Fund for the period before November 10, 1988,
the date the Fund's registration statement became effective with
the Securities and Exchange Commission. The Fund began
operations as a private investment company on August 1, 1987.
Prior to November 10, 1988, the Fund was not registered under
the 1940 Act and therefore was not subject to certain
requirements and restrictions that are imposed by the 1940 Act
and the Internal Revenue Code. If the Fund had been registered
during that period, the Fund's return might have been lower.
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes shareholders must pay are not taken into account. The Fund's
performance is a result of conditions in the securities markets, portfolio
management, and operating expenses. Although information such as that described
above may be useful in reviewing the Fund's past performance and in providing
some basis for comparison with other investment alternatives, it is not
necessarily indicative of future performance and should not be used for
comparison with other investments using different reinvestment assumptions or
time periods.
The Fund also may compare its performance to various stock indices (groups
of unmanaged common stocks), including the New York Stock Exchange Composite
Index, Standard & Poor's 500 Stock Index, the NASDAQ Composite (OTC) Index, the
Russell 2000 Index and the Dow Jones Industrial Average, or to the Consumer
Price Index or groups of comparable mutual funds, including rankings of Lipper
Analytical Services, Inc., an independent service that monitors the performance
of mutual funds, or that of another independent service, including Morningstar,
Inc.
The Fund may cite its rating, recognition, or other mention by Morningstar
or any other entity. Morningstar's rating system is based on risk-adjusted
total return performance and is expressed in a star-rating format. The risk-
adjusted number is computed by subtracting a fund's risk score (which is a
function of the fund's monthly returns less the 3-month T-bill return) from the
fund's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star, and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk or both.
Statistical Information. The Fund may use the statistical measures beta,
R-squared and standard deviation to quantify aspects of risk or volatility.
Beta is a measure of the Fund's sensitivity to market movements. It measures
the relationship between the Fund's excess return over the risk-free rate (90-
day Treasury bill) and the excess return of the benchmark index. The beta is
calculated regressing the excess return for the Fund against the excess return
for the benchmark index. By definition, the beta of the benchmark index is
1.00. Accordingly, a portfolio with a beta greater than 1.00 displays more
volatility than the market, and a portfolio with a beta less than 1.00 displays
less volatility than the market.
R-squared reflects the percentage of the Fund's movements that movements in
the benchmark index explain. An R-squared of 100 indicates that movements in
the index explain all movements of the Fund. Conversely, a low R-squared means
that movements in the benchmark index explain very few of the Fund's movements.
An R-squared of 45, for example, reveals that movements in its benchmark index
explain only 45% of the Fund's movements. R-squared can also be used to
ascertain the significance of a particular beta. Generally, a higher R-squared
will indicate a more reliable beta figure. If the R-squared is lower, then the
beta is less relevant to the Fund's performance.
Standard deviation is a statistical measure of dispersion about an average,
which, for the Fund, depicts how widely the returns varied over a certain period
of time. The standard deviation of historical performance may be used to try to
predict the range of future returns that are most likely for a given investment.
When a Fund has a high standard deviation, the predicted range of performance is
wide, implying greater volatility. Approximately 68% of the time, the total
return of any given fund will vary from its average total return by no more
than plus or minus the deviation figure. Ninety-five percent of the time a
fund's total return will vary within a range of plus or minus two times the
deviation from the average returns.
Statistics may also be used to discuss the Fund's relative performance.
One such measure is alpha. Alpha is a measure of the difference between the
Fund's actual return and its expected performance, given its level of risk (as
measured by beta). A positive alpha figure indicates that the Fund performed
better than its beta would predict. In contrast, a negative alpha indicates the
Fund has not performed as well as its beta would predict. The alpha may be seen
as a measurement of the value a fund manager adds or subtracts.
As of June 30, 1999 the Fund's beta was 0.70%, its R-squared was 0.37%,
and its standard deviation for the three, five and ten year periods were
14.03%, 15.82%, and 13.17%, respectively.
<PAGE>
INVESTMENT ADVISER
The Fund's investment adviser, Fasciano Company, Inc. (the "Adviser"),
furnishes continuing investment supervision to the Fund and is responsible for
overall management of the Fund's business affairs. It furnishes office space,
equipment, and personnel to the Fund and assumes the expenses of printing and
distributing the Fund's prospectus and reports to prospective investors. The
Fund pays all of its expenses except those the Adviser specifically assumes,
including but not limited to printing and postage charges; securities
registration, custodian and transfer agency fees; accounting services fees and
audit and legal fees.
For its services, the Adviser receives a monthly fee at an annual rate of
1% of the average daily net asset value of the Fund. The Investment Advisory
Agreement provides that the Adviser will reimburse the Fund to the extent that
its total annual operating expenses exceed 2%, exclusive of (i) taxes, (ii)
interest charges, (iii) litigation and other extraordinary expenses, and (iv)
brokers' commissions and other charges relating to the purchase and sale of the
Fund's portfolio securities.
The investment advisory fees of the Fund for the fiscal years ended June
30, 1999, 1998, and 1997 were $2,307,620, $604,499 and $334,647, respectively.
During those fiscal years, the Fund operated within all applicable expense
limitations without the Adviser reimbursing the Fund.
The Adviser is a registered investment adviser organized in November 1986.
Michael F. Fasciano is the sole shareholder of the Adviser.
DIRECTORS AND OFFICERS
The Board of Directors has overall responsibility for the conduct of the
Fund's affairs. As a Maryland corporation registered as an investment company
under the Investment Company Act of 1940, the Fund is not required to hold
routine annual meetings and does not expect to do so. The Fund will call a
meeting of shareholders for the purpose of voting upon the question of removal
of a director or directors when record holders of at least 10% of the Fund's
outstanding common shares request in writing, and in connection with such
meeting will comply with the provisions of section 16(c) of the Investment
Company Act concerning assistance with a record shareholder communication asking
other record shareholders to join in that request.
The directors and officers of the Fund and their principal business
activities during the past five years are:
Positions Held Principal Occupations
Name, Address and Age with Fund and other Affiliations
- --------------------- -------------- ----------------------
Michael F. Fasciano*<F8> Director, President Director, President and
Suite 2800 and Treasurer Treasurer of Fasciano
190 South LaSalle St. Company, Inc. since
Chicago, Illinois 60603 November 1986. Mr.
Age 44 Fasciano is a Chartered
Financial Analyst.
Susan N. Fasciano*<F8> Secretary Private investor.
Suite 2800
190 South LaSalle Street
Chicago, Illinois 60603
Age 41
David R. Long Director Vice President -
The Gallagher Center Investments of Arthur J.
Two Pierce Place Gallagher & Co., Inc., a
Itasca, Illinois 60143-3141 New York Stock Exchange
Age 47 listed international
insurance and risk
management services firm,
since May 1989.
Mark B. Mandich Director Executive Vice President -
PPM America, Inc. Finance and
225 West Wacker Administration, and
Suite 1200 Director, PPM America,
Chicago, Illinois 60606 Inc., an investment
Age 39 management firm, since May
1993; Experienced Manager,
Arthur Andersen & Co.,
public accountants, prior
thereto.
Joseph C. Neuberger Assistant Secretary Senior Vice President,
Firstar Mutual Fund Firstar Mutual Fund
Services, LLC Services, LLC, since 1994;
615 East Michigan Street Manager, Arthur Andersen
Milwaukee, WI 53202 LLP, prior thereto.
Age 37
Michael T. Karbouski Assistant Secretary Assistant Vice President,
Firstar Mutual Fund Firstar Mutual Fund
Services, LLC Services, LLC, since 1995;
615 East Michigan Street Business Development
Milwaukee, WI 53202 Representative, Portico
Age 34 Funds, prior thereto.
*<F8> Michael F. Fasciano and Susan N. Fasciano are "interested persons"
of the Fund as defined in the 1940 Act. Michael Fasciano and Susan Fasciano are
husband and wife.
The only compensation paid to directors and officers of the Fund for their
services as such consists of $2,000 paid to directors who are not interested
persons of the Fund or the Adviser.
The following table sets forth compensation the Fund paid during the fiscal
year ended June 30, 1999 to each of the directors of the Fund. The Fund is not
part of a fund complex and has no retirement, pension or other benefit plans for
directors.
AGGREGATE
COMPENSATION
NAME OF DIRECTOR FROM THE FUND
- ---------------- -------------
Michael F. Fasciano $ 0
Susan N. Fasciano 0
David R. Long 2,000
Mark B. Mandich 2,000
At July 31, 1999 the directors and officers as a group owned beneficially
62,743 shares, or 1.9% of the outstanding shares of the Fund.
<PAGE>
CERTAIN SHAREHOLDERS
The only persons known by the Fund to own of record or "beneficially"
(within the meaning of that term as defined in rule 13d-3 under the Securities
Exchange Act of 1934) 5% or more of the outstanding shares of the Fund as of
July 31, 1999 were Charles Schwab & Co., Inc., as a nominee for various
beneficial owners, which held 47.4% of the outstanding shares, and National
Financial Services Corporation, as a nominee for various beneficial owners,
which held 15.5% of the outstanding shares. The address of Charles Schwab &
Co., Inc. is 101 Montgomery Street, San Francisco, California 94104-4122. The
address of National Financial Services Corporation is 200 Liberty Street, New
York, NY 10281-1003.
PURCHASING AND REDEEMING SHARES
You may purchase or redeem shares of the Fund through some broker-dealers,
banks or other institutions that have made Fund shares available to their
customers ("financial services companies"). Some financial services companies
may charge fees to their customers, including fees on purchases or redemptions
of Fund shares. Those charges, if imposed, could constitute a substantial
portion of a smaller account and may not be in your best interest.
In addition, a financial services company may impose an accounting or
shareholder services charge on an account that holds Fund shares (which
generally will be a percentage of the annual average value of the account).
The Fund may enter into an arrangement with some financial services
companies authorizing the financial services company to process purchase orders
or redemption requests on behalf of the Fund on an expedited basis, including
requesting share redemptions by telephone ("authorized agents"). An authorized
agent's receipt of a purchase order or redemption request will be deemed to be
receipt by the Fund for purposes of determining the net asset value of Fund
shares to be purchased or redeemed. For purchase orders placed through those
authorized agents, a shareholder will pay the Fund's net asset value per share
next computed after the authorized agent receives such purchase order, plus any
applicable transaction charge the agent imposes. For redemption orders placed
through an authorized agent, a shareholder will receive redemption proceeds
which reflect the net asset value per share next computed after the authorized
agent receives the redemption order, less any redemption fees the agent imposes.
Net Asset Value. Share purchase and redemption orders will be priced at
the Fund's net asset value next computed after Firstar, as transfer agent for
the Fund, or an authorized agent of the Fund receives such orders. The net
asset value of the shares of the Fund is determined as of the close of regular
session trading on the New York Stock Exchange ("NYSE") (normally, 3:00 p.m.
Central time) each day the NYSE is open for unrestricted trading. The Fund's
net asset value will not be determined on any day on which the New York Stock
Exchange is not open for trading. That Exchange is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in January, the
third Monday in February, Good Friday, the last Monday in May, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day. If one of these holidays
falls on a Saturday or Sunday, the Exchange will be closed on the preceding
Friday or the following Monday, respectively.
For purposes of computing the net asset value of a share of the Fund,
securities traded on securities exchanges, or in the over-the-counter market in
which transaction prices are reported, are valued at the last sales prices at
the time of valuation or lacking any reported sales on that day, at the most
recent bid quotations. Other securities traded over-the-counter are also valued
at the most recent bid quotations. Securities for which quotations are not
available and any other assets are valued at a fair value as the board of
directors determines in good faith. Money market instruments having a maturity
of 60 days or less from the valuation date are valued on an amortized cost
basis. Firstar Mutual Fund Services, LLC, the Fund's Fund Accounting agent,
performs calculations of net asset value.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day
period for any one shareholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of securities.
Because it can be more expensive for the Fund to maintain small accounts,
the Fund has reserved the right, on 60 days' written notice to the shareholder,
to redeem shares in any account and send the proceeds to the owner, if the
value of the account falls below a stated minimum for any reason. It is the
Fund's current policy not to exercise its right to redeem small accounts.
No change in that policy would be implemented without advance notice having
been given to shareholders.
<PAGE>
ADDITIONAL TAX INFORMATION
The Fund intends to continue to qualify, as it has done since it first
offered its shares to the public, as a regulated investment company under
Subchapter M of the Internal Revenue Code and thus not be subject to federal
income taxes on amounts it distributes to shareholders.
The Fund intends to distribute to shareholders annually any capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on Fund investments, to the extent such gains exceed
recognized capital losses and any net capital loss carryovers of the Fund.
Shareholders will be advised of the nature of such capital gain distributions.
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
The Internal Revenue Service Restructuring and Reform Act of 1998
eliminated the requirement that capital assets be held for more than 18 months
in order to be taxed at the lowest rate in effect under current law, and instead
permits capital assets to be so taxed if held for more than one year. This
change applies generally to taxable years ending after December 31, 1997. You
will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions net long-term
capital gains are taxable to you as long-term capital gains (currently taxed at
a maximum rate of 20%) regardless of the length of time you have held your
shares. Long-term gains are those from securities held more than one year. You
are urged to consult your tax advisor to assess the impact of the new
legislation on your individual circumstances.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent of any
long-term capital gain distributions you have received with respect to those
shares.
The Fund may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption proceeds.
Backup withholding may be required if:
o You fail to furnish your properly certified social security or other
tax identification number;
o You fail to certify that your tax identification number is correct or
that you are not subject to backup withholding due to the
underreporting of certain income;
o The IRS informs the Fund that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. The Fund must promptly pay the IRS all amounts
withheld. Therefore, it is not usually possible for the Fund to reimburse you
for amounts withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on the Fund or an investor.
Investors are urged to consult their own tax advisers for a complete review of
the tax ramifications of an investment in the Fund.
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser has discretion to select brokers and dealers to execute
portfolio transactions the Adviser initiates and to select the markets in
which such transactions are to be executed. The primary responsibility regarding
portfolio transactions is to seek the best combination of net price and
execution for the Fund. When executing transactions for the Fund, the Adviser
will consider all factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission. Transactions of the Fund in the over-the-counter market are
executed with primary market makers acting as principal except where it is
believed that better prices and execution may be obtained otherwise.
In selecting brokers or dealers to execute particular transactions and in
evaluating the best net price and execution available, the Adviser is authorized
to consider "brokerage and research services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934), statistical quotations,
specifically the quotations necessary to determine the Fund's asset value, and
other information provided to the Fund or the Adviser. The Adviser is also
authorized to cause the Fund to pay a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The Adviser must
determine in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the Adviser exercises investment discretion. It is possible that certain of the
services the Adviser receives attributable to a particular transaction will
benefit one or more other accounts for which the Adviser exercises investment
discretion.
In valuing research services, the Adviser makes a judgment of the
usefulness of research and other information a broker provides to the Adviser in
managing the Fund's investment portfolio. In some cases, the information, e.g.,
data or recommendations concerning particular securities, relates to the
specific transaction placed with the broker, but for the greater part the
research consists of a wide variety of information concerning companies,
industries, investment strategy, and economic, financial and political
conditions and prospects, useful to the Adviser in advising the Fund.
The Adviser is the principal source of information and advice to the Fund
and is responsible for making and initiating the execution of the Fund's
investment decisions. However, the board of directors of the Fund recognizes
that it is important for the Adviser, in performing its responsibilities to the
Fund, to continue to receive and evaluate the broad spectrum of economic and
financial information that many securities brokers have customarily furnished in
connection with brokerage transactions, and that in compensating brokers for
their services, it is in the interest of the Fund to take into account the value
of the information received for use in advising the Fund. The extent, if any,
to which obtaining such information may reduce the expenses of the Adviser in
providing management services to the Fund is not determinable. In addition, the
board of directors understands that other clients of the Adviser might also
benefit from the information obtained for the Fund, in the same manner that the
Fund might also benefit from the information the Adviser obtains in performing
services for others.
For the fiscal years ended June 30, 1999, 1998, and 1997, the Fund paid
brokerage commissions, not including the gross underwriting spread on securities
purchased in underwritten public offerings, aggregating $136,008, $66,326, and
$20,095, respectively.
Although investment decisions for the Fund would be made independently from
those for other investment advisory clients of the Adviser, if any, it might
develop that the same investment decision is made for both the Fund and one or
more other advisory clients. If both the Fund and other clients purchase or
sell the same class of securities on the same day, the transactions will be
allocated as to amount and price in a manner considered equitable to each.
<PAGE>
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Administrator. Firstar Mutual Fund Services, LLC ("Firstar"), 615 East
-------------
Michigan Street, Milwaukee, Wisconsin 53202 serves as the Fund's Administrator.
Firstar is not an affiliate of the Adviser or its affiliates. Under the Fund
Administration Servicing Agreement entered into between the Fund and Firstar
relating to the Fund (the "Administration Agreement"), Firstar has contracted to
provide the following services: (1) compile data for and prepare, with respect
to the Fund, timely Notices to the SEC required pursuant to Rule 24f-2 under the
1940 Act and Semi-Annual Reports to the SEC and current Shareholders; (2)
coordinate execution and filing by the Fund of all federal and state tax returns
and required tax filings other than those required to be made by the Fund's
custodian and transfer agent; (3) prepare compliance filings and Blue Sky
registrations pursuant to state securities laws with the advice of the Fund's
counsel; (4) assist to the extent requested by the Fund with the Fund's
preparation of Annual and Semi-Annual reports to Fund shareholders and
Registration Statements for the Fund; (5) monitor the Fund's expense accruals
and cause all appropriate expenses to be paid on proper authorization from the
Fund; (6) monitor the Fund's status as a regulated investment company under
Subchapter M of the Code; (7) maintain the Fund's fidelity bond as required by
the 1940 Act; and (8) monitor compliance with the policies and limitations of
the Fund as set forth in the Prospectus, SAI, By-laws and Articles of
Incorporation.
The Administration Agreement will remain in effect until either party
terminates. The board of directors of the Fund may terminate the Administration
Agreement at any time, without the payment of any penalty, upon the giving of
ninety (90) days' written notice to Firstar, and Firstar may terminate the
Administration Agreement upon the giving of ninety (90) days' written notice to
the Fund.
Under the Administration Agreement, Firstar shall exercise reasonable care
and is not liable for any error or judgment or mistake of law or for any loss
the Fund suffers in connection with the performance of the Administration
Agreement, except a loss resulting from willful misfeasance, bad faith or
negligence on the part of Firstar in the performance of its duties under the
Administration Agreement.
The Fund will pay Firstar a monthly fee at the annual rates of 0.06% of the
Fund's average daily net assets up to $200 million, 0.05% of the next $500
million of average daily net assets, and 0.03% of average daily net assets in
excess of $700 million, subject to the minimum annual fees described herein.
For the fiscal year ending June 30, 1999, the Fund paid $139,848 in
Administration Fees.
In addition, the Fund has entered into a Fund Accounting Servicing
Agreement with Firstar pursuant to which Firstar has agreed to maintain the
financial accounts and records of the Fund and provide other accounting services
to the Fund.
Custodian. Firstar acts as custodian of the securities and other assets of
---------
the Fund. As custodian, Firstar Bank-Milwaukee N.A. is responsible for, among
other things, safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities, and collecting interest and
dividends on the Fund's investments. The custodian's address is P.O. Box 701,
Milwaukee, Wisconsin 53201.
Transfer Agent. Firstar Mutual Fund Services, LLC also serves as transfer
--------------
agent and dividend disbursing agent for the Fund under a Shareholder Servicing
Agent Agreement. As transfer and dividend disbursing agent, Firstar has
agreed to (i) issue and redeem shares of the Fund, (ii) make dividend and other
distributions to shareholders of the Fund, (iii) respond to correspondence from
Fund shareholders and others relating to its duties, (iv) maintain shareholder
accounts, and (v) make periodic reports to the Fund. Firstar's address is P.O.
Box 701, Milwaukee, Wisconsin 53201.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, audits
and reports on the Fund's annual financial statements, reviews certain
regulatory reports, prepares the Fund's income tax returns, and performs other
professional accounting, auditing, tax, and advisory services when the Fund
engages it to do so.
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1999
Market
Shares Description Value
- ------------------------------------------------------------------------------
COMMON STOCKS - 54.9%
COMMERCIAL PRODUCTS AND SERVICES - 8.6%
180,000 Zebra Technologies Corp. - Class A *<F9>
Provides bar code solutions to manufacturing and
service entities worldwide, for use in automatic
identification and data collection systems $ 6,918,750
182,700 Superior Services, Inc. *<F9>
Solid waste services company providing solid waste
collection, transfer, recycling and disposal services
to residential, commercial and industrial customers 4,875,806
120,000 OM Group, Inc.
Produces and markets metal-based specialty chemicals
and powders for diverse applications to a variety of
industries 4,140,000
70,000 Mineral Technologies, Inc.
Resource and technology based organization that
develops and produce performance-enhancing minerals,
mineral-based and synthetic mineral products for the
paper, steel, polymer and other manufacturing
industries on a worldwide basis 3,906,875
210,000 Wilmar Industries, Inc. *<F9>
A national marketer and direct distributor of repair
and maintenance products, principally to the
apartment housing market 2,730,000
82,500 Modine Manufacturing Co.
Develops, manufactures, and markets heat exchangers
and systems for use in various original equipment
manufacturer applications and for sale to the automotive
aftermarket and to a wide array of building markets 2,686,406
100,000 Federal Signal Corporation
Global manufacturer of niche products in four operating
groups: safety and signaling products, custom signage,
consumable industrial tooling and emergency and
environmental vehicles 2,118,750
60,000 IDEX Corp.
Manufactures industrial pumps and related controls for
use in process applications, and proprietary equipment
that may combine pumps or other devices into products
for industrial, commercial and safety applications 1,972,500
52,400 Kaydon Corporation
Designer and manufacturer of custom-engineered products,
supplying a diverse group of industrial, aerospace,
medical and electronic equipment, and aftermarket
customers 1,761,950
50,000 Spartech Corporation
Producer of engineered thermoplastic materials,
polymeric compounds and molded and profile products 1,581,250
60,000 Juno Lighting, Inc.
Specializes in the design, manufacture and marketing
of lighting fixtures for commercial and residential use 1,478,760
100,000 Communications Systems, Inc.
Engaged in the manufacture and sale of modular
connecting and wiring devices for voice and data
communications 1,237,500
20,000 Andrew Corporation *<F9>
A multinational supplier of communication products
and systems to worldwide commercial,
industrial, governmental, and military customers 378,750
------------
35,787,297
------------
BUSINESS SERVICES - 8.2%
300,000 Keane, Inc. *<F9>
Information technology consulting firm helping
companies plan, build, and manage application software 6,787,500
150,000 Concord EFS, Inc. *<F9>
Engaged in electronic transaction authorization,
processing, settlement and funds transfer services
in selected markets 6,346,875
500,000 HA-LO Industries, Inc. *<F9>
Provider of branded promotional products and premiums
and has established a continuum of brand marketing
services 4,937,500
150,000 Penton Media, Inc.
Diversified business media company that publishes
magazines and electronic information products,
produces trade shows and conferences, and provides
marketing and business development services 3,637,500
60,000 Metro Networks, Inc. *<F9>
Provides traffic reporting services, news, sports,
weather, video news and other information reporting
services to the television and radio broadcast
industries in exchange for commercial airtime 3,202,500
120,000 Wallace Computer Services, Inc.
Products and services include commercial printing,
business forms, labels, direct mail, and office products 3,000,000
50,000 G & K Services, Inc. - Class A
Manufactures uniform garments and is a full service
uniform rental provider 2,618,750
100,000 Interim Services, Inc. *<F9>
National provider of a range of customized staffing
solutions to business, professional and service
organizations, and government agencies 2,062,500
30,000 Lason Holdings, Inc. *<F9>
Provides integrated outsourcing services for records
management, document management and business
communications 1,488,750
20,000 ADVO, Inc. *<F9>
Direct marketing firm engaged in soliciting and
processing printed advertising from retailers,
manufacturers and service companies for targeted
distribution 415,000
------------
34,496,875
------------
COMMUNICATIONS & MEDIA - 7.8%
160,000 Pulitzer, Inc.
Engaged in newspaper publishing and new media
businesses 7,770,000
150,000 Meredith Corporation
Diversified media company involved in magazine
and book publishing and television broadcasting 5,193,750
100,000 Emmis Communications Corporation *<F9>
A diversified media company with television and
radio broadcasting and publishing operations 4,937,500
130,000 Central Newspapers, Inc.
Engaged in the publication of newspapers located
in California, Alaska, Washington, the
Carolinas, and Minnesota, in addition to several
smaller newspapers as well as other
related media and information businesses 4,891,250
112,900 McClatchy Newspapers - Class A
Engaged primarily in the publication of newspapers
located in California, Alaska, Washington,
the Carolinas, and Minnesota 3,739,812
130,000 Hearst-Argyle Television, Inc. *<F9>
Owns and/or manages 26 network-affiliated television
stations, and 7 radio stations throughout the U.S. 3,120,000
77,700 Lee Enterprises, Inc.
In the business of newspaper publishing and
television broadcasting 2,369,850
30,000 Journal Register Company *<F9>
Publishes small metropolitan, suburban daily and
suburban and community non-daily newspapers serving
markets in New York, Connecticut, Ohio, Pennsylvania,
Missouri and central New England. 675,000
------------
32,697,162
------------
HEALTH CARE PRODUCTS & SERVICES - 7.1%
220,000 STERIS Corporation *<F9>
Provider of infection prevention, contamination
prevention, microbial reduction, and surgical
support systems, products, services, and
technologies to health care, scientific, research,
food, and industrial customers worldwide 4,262,500
145,000 Dentsply International, Inc.
Designs, develops, manufactures, and markets dental
consumable and laboratory products, and
dental equipment 4,186,875
256,000 Omnicare, Inc.
Geriatric pharmaceutical care company, currently
serving approximately 617,000 residents in
more than 8,600 long-term care facilities in 43
states. Also provides clinical research services
for the pharmaceutical and biotechnology industries 3,232,000
120,000 Hooper Holmes, Inc.
Provides medical and paramedical examinations and
related services to life and health insurance
companies 2,445,000
80,000 Landauer, Inc.
Offers a service for measuring the dosage of x-ray,
gamma radiation and other penetrating ionizing
radiations 2,360,000
100,000 Res-Care, Inc. *<F9>
Provides residential, training, educational, and
support services for persons with special needs 2,275,000
173,000 Sterile Recoveries, Inc. *<F9>
Provides hospitals and surgery centers with a
comprehensive surgical procedure-based delivery and
retrieval service for reusable gowns, towels, etc.
In addition, provides disposable products
necessary for surgery 2,000,312
100,000 Kendle International, Inc. *<F9>
Contract research organization providing integrated
clinical research services on a contract basis to
the pharmaceutical and biotechnology industries 1,600,000
100,000 KV Pharmaceutical Company - Class A *<F9>
Researches, develops, manufactures, and markets
controlled release and tastemasked forms of
drug products and is a leading marketer of
technology distinguished generic pharmaceuticals 1,550,000
100,000 Young Innovations, Inc. *<F9>
Designs, manufactures and markets single-use
supplies, autoclavable instruments and other
products used by dental professionals 1,462,500
20,000 Express Scripts, Inc. *<F9>
As an independent pharmacy benefit manager and
managed care company, Express Scripts
provides a broad range of pharmacy benefit and
medical information management services, as
well as managed vision care programs 1,203,750
35,000 Henry Schein, Inc. *<F9>
Distributor of healthcare products and services
to office-based healthcare practitioners in North
America and Europe. The Company's primary customers
are dental practices and dental laboratories 1,109,063
50,000 Brookdale Living Communities, Inc. *<F9>
Provides senior and assisted living services to the
elderly through its facilities located in urban and
suburban areas of major metropolitan markets 740,625
20,000 Patterson Dental Company *<F9>
Distributes dental products in North America to
dentists, dental laboratories, institutions,
and other healthcare providers 695,000
45,000 Serologicals Corporation *<F9>
Provider of specialty human antibody based products
and services to healthcare companies. Services
include donor recruitment and clinical testing services 365,625
50,000 NCS Healthcare, Inc. *<F9>
Provider of pharmaceutical and related services to
long-term care facilities, including skilled
nursing centers, assisted living facilities and
hospitals 271,875
------------
29,760,125
------------
CONSUMER PRODUCTS AND SERVICES - 5.9%
152,000 Central Parking Corp.
Operates parking facilities in 40 states, the
District of columbia, and several international
locations 5,206,000
70,000 Gucci Group
Designer, producer and distributor of high-quality,
personal luxury accessories including leather goods,
shoes, ties, scarves, watches, jewelry, eyewear,
and perfume 4,900,000
120,000 Blyth Industries, Inc. *<F9>
Designs, manufactures, markets and distributes a line
of candles and home fragrance products, and markets a
range of related candle accessories and gift bags.
Also produces portable heating fuel products 4,125,000
100,000 Tootsie Roll Industries, Inc.
Engaged in the manufacture and sale of candy for over
100 years. Products include Tootsie Roll,
Charms, Blow Pops, Junior Mints, Sugar Babies,
Charleston Chews, Sugar Daddys and others 3,862,500
85,000 Action Performance Companies, Inc. *<F9>
Designer and seller of licensed motorsports
collectible and consumer products in the United
States 2,805,000
20,000 Plantronics, Inc. *<F9>
Provider of headsets to telephone companies and the
business community worldwide 1,302,500
80,000 Day Runner, Inc. *<F9>
Develops, manufactures and markets paper-based
organizers for retail markets. Day Runner
products are carried by approximately 20,000 retail
stores across the U.S. 990,000
20,000 Garan, Inc.
Designs, manufactures and sells apparel for children,
men and women. Products are sold under the trademarks
Garan, Garanimals, Everlast and other names 642,500
10,000 Snap-on Incorporated
Manufactures and distributes hand tools, power tools,
tool storage products, diagnostic equipment, shop
equipment, and diagnostic software and other services 361,875
11,500 Tractor Supply Company *<F9>
Largest operator of retail farm stores in America,
serving hobby, part-time and full-time farmers and
ranchers, as well as suburban customers, contractors
and tradesmen 314,094
------------
24,509,469
------------
TRANSPORTATION - 3.8%
200,000 Midwest Express Holdings, Inc. *<F9>
Operates single-class, premium service passenger
jet airline that caters to business travelers
and serves selected major business destinations
throughout the U.S. and Toronto from operations
based in Milwaukee, Omaha, and Kansas City 6,800,000
100,000 Eagle USA Airfreight, Inc. *<F9>
Provider of air freight forwarding and other
transportation and logistics services 4,243,750
70,000 C.H. Robinson Worldwide, Inc.
Global provider of multimodal transportation
services and logistics through a network
of 129 offices in N. America, S. America, Europe
and Africa 2,572,500
110,000 Wisconsin Central Transportation Corporation *<F9>
A holding company that operates approximately 2,925
route miles of railway serving Wisconsin, Illinois,
Minnesota, Michigan, Ontario and has equity interests
in railroad companies in Great Britain, New Zealand,
and Australia 2,076,250
10,000 Interpool, Inc.
Lessor of cargo containers used in international trade
and the second largest lessor of intermodal container
chassis in the U.S. 130,000
------------
15,822,500
------------
ENTERTAINMENT & LEISURE - 3.6%
175,000 International Speedway Corp. - Class A
A leading promoter of motorsports activities in the
U.S. The company owns and/or operates 10 major
motorsports facilities 8,312,500
200,000 Championship Auto Racing Teams, Inc. *<F9>
Owns, operates, and markets North America's leading
open-wheel motorsports series, the
FedEx Championship Series 5,987,500
50,000 Carmike Cinemas, Inc. - Class A *<F9>
Engaged in the motion picture exhibition business.
As of 6/30/99, Carmike operated 2,743
screens at 461 locations in 36 states 796,875
------------
15,096,875
------------
BANK & BANK HOLDING - 3.0%
100,000 CNB Bancshares, Inc.
Engages in banking, data processing and
information services, underwriting credit life
and disability insurance, and selling property
and casualty insurance 5,700,000
60,000 First Midwest Bancorp, Inc.
The largest independent banking company in the
suburban Chicago market 2,385,000
60,000 Community First Bankshares, Inc.
A multi-bank holding company that operates banks
and bank branches in 109 communities in nine states 1,432,500
50,000 Doral Financial Corporation
Bank holding company that operates in the mortgage
banking, commercial banking and broker-
dealer businesses 862,500
20,000 Associated Banc-Corporation
Diversified multibank holding company with more than
200 banking offices, 225 ATMs, and headquartered in
Green Bay, Wisconsin 830,000
25,000 Corus Bankshares, Inc.
Bank holding company for CORUS Bank, which provides
financial services through 11 bank branches in the
Chicago metropolitan area 795,313
15,000 Cass Commercial Corporation
Bank holding company for Cass Bank and Trust Company,
and provides information services through its Cass
Information Systems subsidiary 367,500
------------
12,372,813
------------
INSURANCE AND INVESTMENT MANAGEMENT - 2.3%
250,000 HCC Insurance Holdings, Inc.
Principally engaged in providing aviation, marine,
offshore energy, property, accident and health,
and lenders single interest insurance and reinsurance
on a worldwide basis 5,671,875
60,000 Chicago Title Corporation
Provider of title insurance and other related services
for residential and commercial real estate
transactions 2,141,250
66,700 Waddell & Reed Financial, Inc.
Underwrites and distributes a portfolio of mutual
funds as well as variable annuities and life
insurance products 1,830,081
------------
9,643,206
------------
DISTRIBUTOR - 2.1%
200,000 Aviall, Inc. *<F9>
Distributes and markets products new aviation parts
of more than 180 manufacturers and distributes
approximately 90,000 items from customer service
centers in North America, Europe and Asia-Pacific 3,762,500
60,000 CDW Computer Centers, Inc.
Sells MS-DOS/Microsoft Windows and Apple/Macintosh
based microcomputer hardware and peripherals including:
desktop computers, notebooks and laptops, printing
devices, video monitors, networking products, software
and accessories 2,640,000
200,000 MSC Industrial Direct Company, Inc. *<F9>
A direct marketer of a full line of industrial products
intended to satisfy its customers' maintenance,
repair and operations supplies requirements 2,050,000
10,000 TESSCO Technologies, Inc. *<F9>
Distributor of products to the wireless communications
industry, serves customers in the cellular
telephone, personal communication system (PCS),
paging and mobile radio-dispatched markets 215,000
------------
8,667,500
------------
MACHINERY - INDUSTRIAL - 0.9%
80,000 Regal-Beloit Corporation
Manufactures a line of mechanical products to
control motion and torque and electrical products
such as motors and generators 1,890,000
34,800 The Manitowoc Company, Inc.
Designs and manufactures commercial ice machines and
refrigeration products, and cranes and related products.
Manitowoc also engages in marine vessel repair 1,448,550
25,000 Robbins & Myers, Inc.
Designs, manufactures and markets fluid handling
products and systems for the process industry 557,813
------------
3,896,363
------------
SAVINGS & LOAN - 0.9%
50,000 Home Federal Bancorp
Unitary savings and loan holding company for Home
Federal Savings Bank 1,418,750
75,000 ITLA Capital Corporation *<F9>
Primarily engages in the origination of loans
secured by income producing real estate 1,181,250
30,000 Alliance Bancorp., Inc.
Registered savings and loan holding company
engaged in the business of providing financial service
products through its wholly-owned subsidiary,
Liberty Federal Bank 697,500
20,000 Haven Bancorp, Inc.
Holding company for Columbia Federal Saving Bank,
a federally chartered stock savings bank 320,000
------------
3,617,500
------------
SPECIALTY FINANCE - 0.4%
90,000 American Capital Strategies, Ltd.
Specialty finance company that has been principally
engaged in arranging commercial loans to
small and medium sized business 1,642,500
------------
ELECTRONICS - 0.3%
60,000 Methode Electronics, Inc. - Class A
Manufactures electronic components that connect,
convey and control electrical energy, signal
and pulse, including connectors, automotive
components, interconnect devices, printed circuits,
and current carrying distribution systems 1,372,500
------------
TOTAL COMMON STOCKS (cost $200,536,086) 229,382,685
------------
SHORT-TERM INVESTMENTS - 47.2%
VARIABLE RATE DEMAND NOTES - 11.6%
$10,306,806 Firstar Bank, 4.97% 10,306,806
9,023,100 Warner Lambert, 4.70% 9,023,100
7,434,206 General Mills, 4.83% 7,434,206
7,368,333 Sara Lee, 4.82% 7,368,333
6,818,650 Pitney Bowes, 4.83% 6,818,650
4,936,940 Wisconsin Electric Power Co., 4.70% 4,936,940
1,613,568 American Family Financial Services, Inc., 4.70% 1,613,568
1,016,857 Wisconsin Central Credit Union Corporation, 4.89% 1,016,857
------------
48,518,460
------------
COMMERCIAL PAPER - 33.2%
Associates Corporation
8,000,000 4.84%, 8/12/99 8,000,000
10,000,000 4.92%, 9/01/99 10,000,000
CIT Group Holdings,Inc.
6,000,000 4.85%, 7/16/99 6,000,000
12,000,000 4.96%, 8/31/99 12,000,000
General Motors Acceptance Corporation
9,000,000 4.84%, 7/08/99 9,000,000
9,000,000 4.84%, 7/12/99 9,000,000
Norwest Corporation
10,000,000 4.92%, 7/07/99 10,000,000
8,000,000 4.93%, 9/02/99 8,000,000
Prudential Funding Corporation
15,000,000 4.92%, 8/01/99 15,000,000
3,000,000 4.91%, 9/10/99 3,000,000
American Express Credit
17,000,000 4.80%, 7/06/99 17,000,000
Ford Motor Credit Corporation
15,000,000 4.87%, 7/08/99 15,000,000
GE Capital Corporation
12,000,000 4.99%, 8/23/99 12,000,000
General Electric Capital Corporation
5,000,000 4.88%, 7/26/99 5,000,000
------------
139,000,000
------------
U.S. TREASURY OBLIGATIONS - 2.4%
U.S. Treasury Bill
10,000,000 4.43%, 9/09/99 9,912,500
------------
TOTAL SHORT-TERM INVESTMENTS (cost $197,430,960) 197,430,960
------------
TOTAL INVESTMENTS - 102.1% (cost $397,967,046) 426,813,645
------------
LIABILITIES, LESS OTHER ASSETS - (2.1)% (8,629,157)
------------
TOTAL NET ASSETS - 100.0% $418,184,488
------------
------------
*<F9> non-income producing
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
ASSETS
Common stocks, at market value (cost: $200,536,086) $229,382,685
Variable rate demand notes and commercial paper, at amortized
cost, which approximates market value (cost: $197,430,960) 197,430,960
Cash 13,951
Receivables
Capital shares sold 2,904,831
Dividends 151,677
Interest 998,916
Prepaid expenses and other assets 47,202
------------
Total assets $430,930,222
------------
------------
LIABILITIES AND NET ASSETS
Capital shares redeemed $ 575,512
Payables and accrued expenses
Payable for securities purchased 11,702,559
Accrued expenses and other liabilities 146,031
Due to adviser 321,632
------------
Total liabilities 12,745,734
------------
Net assets
Common stock, $.01 par value; 50,000,000 shares
authorized, 13,158,108 shares issued and outstanding,
and paid-in capital 388,145,907
Accumulated undistributed net investment income 3,739,321
Accumulated undistributed net realized gain (loss)
on investments (2,547,339)
Net unrealized appreciation on investments 28,846,599
------------
Total net assets 418,184,488
------------
Total liabilities and net assets $430,930,222
------------
------------
Net asset value per share $ 31.78
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
INCOME
Interest $5,968,461
Dividends 1,100,335
Other income 314
----------
7,069,110
----------
EXPENSES
Management fee 2,307,620
Administration fee 139,848
Registration fees 129,617
Transfer and disbursing agent fees 128,355
Custodian fees 61,067
Accounting fee 47,058
Printing and mailing fees 31,669
Legal fees 28,095
Audit fees 14,310
Other operating expenses 6,988
----------
Total expenses 2,894,627
----------
Net investment income 4,174,483
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS
Net realized loss on investments (2,617,572)
Net change in unrealized appreciation on investments 8,200,699
----------
Net gain on investments 5,583,127
----------
Net increase in net assets resulting from operations $9,757,610
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1999 and June 30, 1998
June 30, June 30,
1999 1998
------------ -----------
OPERATIONS:
Net investment income $ 4,174,483 $ 145,596
Net realized gain (loss) on investments (2,617,572) 8,783,209
Net change in unrealized appreciation 8,200,699 7,971,431
------------ -----------
Net increase in net assets resulting
from operations 9,757,610 16,900,236
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (208,192) --
Distributions from net capital gains (8,674,266) (2,597,640)
------------ -----------
Total distributions (8,882,458) (2,597,640)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (12,897,111 and
1,315,647 shares, respectively) 397,728,851 42,757,189
Increase in shares issued for reinvested
distributions (282,573 and 84,945 shares,
respectively) 8,683,476 2,512,667
Cost of shares redeemed (2,741,427 and
210,578 shares, respectively) (84,060,191) (6,735,975)
------------ -----------
Net increase in net assets derived from
capital share transactions 322,352,136 38,533,881
------------ -----------
Net increase in net assets 323,227,288 52,836,477
------------ -----------
NET ASSETS AT BEGINNING OF YEAR 94,957,200 42,120,723
------------ -----------
NET ASSETS AT END OF YEAR (including accumulated
undistributed net investment income (loss) of
$3,739,321 and ($226,970), respectively) $418,184,488 $94,957,200
------------ -----------
------------ -----------
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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 18,507 shares or 0.1% of the outstanding common
stock of the Fund at June 30, 1999.
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.
(3) INVESTMENTS:
During the year ended June 30, 1999, purchases of securities other than
short-term investments were $170,232,655. Sales of such securities for that
period were $22,822,018.
For Federal income tax purposes, the cost of investments at June 30, 1999
was $397,588,673. At June 30, 1999, on a tax basis, gross unrealized
appreciation of investments was $39,651,499 and gross unrealized depreciation of
investments was $10,426,526.
(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 net realized capital gains in order to avoid payment of
all future federal income taxes.
(5) DISTRIBUTIONS TO SHAREHOLDERS:
On December 29, 1998, the Fund distributed net investment income, short-
term and long-term capital gains of approximately $0.03, $0.18 and $1.07 per
share, respectively.
<PAGE>
APPENDIX
--------
DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Fund's investment adviser believes that the quality of
debt securities in which the Fund invests should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated independently.
Ratings are based on current information furnished by the issuer or obtained by
the ratings services from other sources which they consider reliable. Ratings
may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
use.
Ratings by Moody's
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt-edge." A large
or by an exceptionally stable margin protects interest payments and principal is
secure. Although the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B--Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
Ca--Bonds rated Ca represent obligations which are speculative in a high degree.
Such bonds are often in default or have other marked shortcomings.
S&P Ratings
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and
interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and interest and
differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, large uncertainties or major risk exposures to
adverse conditions outweigh these characteristics.
