UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04750
Fenimore Asset Management Trust
--------------------------------------------------
(Exact name of registrant as specified in charter)
384 North Grand Street
P.O. Box 399
Cobleskill, New York 12043
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(Address of principal executive offices) (Zip code)
Thomas O. Putnam
Fenimore Asset Management Trust
384 North Grand Street
Cobleskill, New York 12043
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-453-4392
Date of fiscal year end: December 31
Date of reporting period: June 30, 2004
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
The semi-annual report to stockholders is filed herewith.
FAM
VALUE FUND [LOGO] EQUITY-INCOME FUND
Investor Share Class
SEMI-ANNUAL REPORT
June 30, 2004
Table of Contents
Chairman's Commentary 1
FAM Value Fund 3
Letter to Shareholders 3
Statement of Investments 6
Statement of Assets and Liabilities 10
Statement of Operations 11
Statement of Changes in Net Assets 12
Notes to Financial Statements 13
FAM Equity-Income Fund 18
Letter to Shareholders 18
Statement of Investments 20
Statement of Assets and Liabilities 23
Statement of Operations 24
Statement of Changes in Net Assets 25
Notes to Financial Statements 26
Chairman's Commentary [LOGO]
June 2004
Dear Fellow Shareholder:
The Challenge to Remain Focused
Given our world's many problems, it is easy to understand how one could be
distracted from focusing on the investing process as an active way to protect
investment capital. Concerns over inflation, rising interest rates, and the
war on terror in Iraq, would give anyone pause when considering the
appropriate investment response.
While these concerns are certainly worrisome, by placing them in
historical perspective we can make better informed, less emotionally driven,
long-term investment decisions. For example, in the mid 70's, the Federal
Reserve raised interest rates several times in an attempt to contain a
rampant rate of inflation that eventually would peak in double digits. At the
same time, we were winding down an unpopular war in Vietnam and dealing with
an oil embargo that created block-long gas lines, despite the fact that
consumers could only queue up on odd or even days, as determined by their
license plate number. The effect of these events on the stock market was to
cut it almost in half: the Dow Jones Industrial Average declined from over
1,000 to 577 (12/'72 to 12/'74). Investors during this period reacted like
the proverbial deer in the headlights and did not know where to turn. Gold
became a popular haven, oil and gas limited partnerships were over-promoted
- -- but stocks were shunned. Yet, in looking back over this investment mine
field, 1974 stands out as probably the best buying opportunity for stocks we
have experienced in the last 50 years.
Conventional Wisdom:
Follow at Your Own Risk
Just imagine the discoveries that would not have been made, if the prevailing
wisdom of the day had been followed. From ocean voyages of discovery to
scientific advances, our store of human knowledge and experience might have
taken a much different course if independently minded individuals had not
given more heed to their own convictions, than to the opinion of others.
Investment decisions are subject to similar dynamics of mass psychology
and conventional wisdom, once established, can hold sway for long periods of
time. Business schools and economics departments have long taught that the
marketplace is efficient -- in other words, that stocks prices reflect what a
company is worth. This belief leads directly to the conclusion that investing
in a broad market index, such as the S&P 500, must therefore be about as good
as it can get -- by definition. Thankfully we have the counter-examples
offered by Warren Buffett and others, who have done quite well by paying
little heed to prevailing efficient market theory. Hedge funds, which have
become popular on the premise that capital can be preserved in up and down
markets, disproved this notion themselves and with high drama when, in 1998,
highly regarded Long-Term Capital brought bond markets to the brink of
collapse, only to be saved by government intervention.
Which brings me full circle: today we face rising inflation, rising
interest rates, higher gasoline prices and heightened fears about global
terrorism. Prevailing wisdom in the investment
1
Chairman's Commentary [LOGO]
world suggests that diversification through asset allocation would be the
best strategy to protect capital. It is true that the world today differs in
important ways than the investment environment 30 years ago, but investors
should keep the lessons of historical perspective in mind and not let
external events dissuade them from purchasing strong companies at a favorable
price.
We have often said that to be a long-term, successful investor, one
need only concentrate on what is knowable and understandable. Current events
are worrisome, but have little long-term effect on good businesses. At FAM
Funds, we remain focused on discovering, researching, buying and owning
companies that will continue to provide long-term economic returns. By doing
so, we believe that our goal of growing and preserving capital has the best
opportunity to succeed, whatever world events unfold.
Thank you for your continued trust in our investment process.
Sincerely,
/s/ Thomas O. Putnam
Thomas O. Putnam
Chairman
FAM Funds has adopted a Code of Ethics that applies to its principal
executive and principal financial officers. You may obtain a copy of this
Code without charge, upon request by calling FAM Funds at (800) 932-3271.
2
FAM Value Fund [LOGO]
Dear Fellow Value Fund Shareholder:
Performance results for the six months ended June 30, 2004 for Investor
class shares of the FAM Value Fund and market indexes are as follows:
FAM Value Fund +6.6%
Russell 2000 Index +6.7%
Standard & Poor's 500 Index +3.4%
For the first six months of 2004, stocks were the place to be. While
there has been a lot of uncertainty about Iraq, oil prices, and higher
interest rates, the last six months have not been too bad for the equity
market. The overall market, as measured by the Standard & Poor's 500 Index
was up over three percent year to date. By contrast, investors who bought
bonds as a "sure thing" during the 2000-2002 bear market found out there is
no such thing as a sure thing. The average bond fund return is flat for the
year, and the second quarter was the worst quarter for bonds returns in seven
years.
Best & Worst Performers
Our best performer was Brown & Brown, an insurance agency headquartered in
Daytona Beach, Florida. The stock is up 33% as of 6/30/04, generating a total
gain for the Value Fund portfolio of just under $10 million. Careful readers
of this letter may remember that we identified Brown & Brown as our worst
performer in calendar year 2003. As so often happens in investing, holding a
quality company that is currently out of favor can yield good results. Brown
& Brown is an excellent company that has all the attributes that we look for
in an investment. The company is run by owner-operator management, led by CEO
Hyatt Brown, who owns 13% of the company. The company has high profit margins
and a fierce culture focused on growing profitability in the future.
Our second best performer was New England Business Services. For years,
this was the cheapest stock in your fund, and largely ignored by the
investment community. During a two year period when the stock did not move,
management was quietly increasing the intrinsic value of the company through
acquisitions and cost reductions. The reward for these efforts was finally
recognized when Deluxe Corporation offered to purchase the entire company for
cash at a price of $44 per share. As result of this take-over, the Value Fund
recognized a capital gain of $7.8 million, or $.49 share.
Our largest holding, White Mountains Insurance, is up 11% for the year
and contributed over five million dollars in gains. The rest of our top
performers are rounded out by technology and manufacturing companies that are
benefiting from an improving economy. Individual names include Littelfuse,
Zebra Technologies, Kaydon and IDEX.
Fortunately, the list of poorly performing stocks is a short one. Only
14 stocks posted a loss, and in only seven cases did that mean a loss of $1
million or more. Our three worst performing stocks were Watson
Pharmaceuticals, Reynolds & Reynolds, and Callaway Golf. Watson and Callaway
experienced significant changes in their competitive environment, which
caused both companies to reduce their financial projections for the year.
While we always try to invest in companies that have a protective "moat"
against competitive pressures, capitalism by its nature is always creating
new challenges.
3
FAM Value Fund [LOGO]
These two stocks serve to remind us that we need to remain vigilant in
analyzing the competitive advantage of all of our investments.
Reynolds & Reynolds is a long time holding of the Fund that recently
disappointed us with its financial under-performance. As a result, the CEO
resigned and the company's board of directors is conducting a search for a
new leader. We support this move by the board and look forward to a new CEO
joining the company. It is our experience that new leadership can serve as a
catalyst for positive change. In several cases, we have seen a company's
stock price increase after a new chief executive is brought on board.
Our Investment Process:
A Long-Term Investor's Tale
In addition to New England Business Services mentioned earlier in this
letter, a second portfolio holding was acquired during the second quarter.
South Trust Bank was a holding in the Fund for almost ten years. The history
of this investment is a great lesson about the advantages of long-term
investing. We first purchased South Trust stock in February of 1995, for a
little less than $7 per share. At this time the company was expected to earn
$.78 per share, which meant that we were paying less than ten times earnings
for the stock. The total assets of South Trust were $17 billion. We liked the
CEO, Wallace Malone, whose strategy it was to open branches in areas of the
country which were growing in population. Therefore, he focused on states
such as Georgia, Florida, Texas, and Virginia. This simple idea -- establish
a presence in areas of growth -- proved to be very powerful. He then gave
further muscle to this plan by instilling a strong sales culture throughout
the organization. When Wallace was in his sixties he would personally make
over 200 sales calls per year. As a result of this strategy and culture, the
company experienced excellent growth. The bank grew its earnings and dividend
every year we owned the stock. While many investors regard banks as boring,
we wonder how many companies can boast nine consecutive years in earnings per
share growth.
This past June, the company received a takeover offer from Wachovia,
valuing South Trust at approximately $39 per share. We do not want to hold
the stock of Wachovia, so we have sold our position at an average price of
$39 per share. In addition, we have collected over $4.50 per share in
dividends since our original investment. The sum of the dividends and price
appreciation combined for a total return of 26% per year since 1995: after
taxes, we estimate we will have earned 22% per year. We were able to achieve
this excellent return by doing one thing only -- holding on to a good
company. And this meant holding on during the 1999-2000 period, when
technology stocks were the rage and bank stocks were considered "yesterday's
news". The moral of this tale is a good description of our investment
process. Number one, buy companies that are growing their economic value.
Second, pay close attention to the management of the company. We have met
face-to-face with the management of South Trust many times over the last nine
years. Finally, pay a low price. We took our original position in this bank
at nine times expected earnings.
4
FAM Value Fund [LOGO]
Cash is King?
Some investors like stocks and some investors like bonds or real estate. But
there is one investment choice that no one likes -- cash. With the average
retail money market fund yielding .38% at June 30, 2004, investors will do
anything not to hold cash. Therefore, it may come as somewhat a surprise if
you look in the back of this report and see we currently hold 19% of our
assets in cash. This is the second time in ten years that the Value Fund has
had a cash position of this size. There are three reasons for this. The first
is that we have not found many public companies selling at a significant
discount to what we think they are worth. In our opinion, most stocks at the
present time are fairly valued. This is an opinion that is shared by many
other highly regarded money managers. Just last week we read two
announcements by highly respected mutual fund portfolio managers that they
were closing their funds to new investors. In both cases these managers cited
a dearth of investment ideas and almost 30% cash positions. The second reason
for our cash level is the two acquisitions mentioned above. The Value Fund
has received $40 million in cash for these two investments. The third reason
is that for the first six months of 2004, we have seen a steady inflow of new
money into the Fund. We continue to look for new investment opportunities and
re-evaluate the proper price to pay for our existing holdings. We will put
the cash to work only when we can identify excellent businesses managed by
exceptional managers, selling at discounted prices.
The Election
In this presidential election year we are often asked how the election will
affect the stock market. The short answer is we don't know, but we are not
losing a lot of sleep about this subject. Here's why. Earlier in the year
when we were on a company visit, the CEO asked us how the election would
impact our investment strategy. We answered with a question -- how would the
election effect how he was running his business? "Oh, it won't affect us at
all" he said. That's our answer as well. Stock prices are driven by the
financial results of the companies we own. If a company is growing its sales,
earnings, and cash flows, the value of the company will increase. Our focus
remains fixed on identifying just such companies.
As always, thank you for your trust and confidence in our investment
process.
Sincerely,
/s/ John D. Fox
John D. Fox, CFA
Co-Manager
/s/ Thomas O. Putnam
Thomas O. Putnam
Co-Manager
5
FAM Value Fund -- Statement of Investments [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
COMMON STOCKS (83.8%)
Automotive (0.3%)
CarMax, Inc.*
o specialty retailer of used
cars and light-trucks
in the United States 100,000 $ 2,187,000
Banking (6.4%)
Banknorth Group, Inc.
o multi-bank holding company
in Portland, ME 340,507 11,059,667
M&T Bank Corporation
o bank holding company
located in Buffalo, NY 143,000 12,483,900
North Fork Bancorporation
o bank holding company located
on Long Island, NY 245,950 9,358,398
SouthTrust Corporation
o bank holding company
headquartered in Alabama 119,500 4,637,795
TCF Financial Corp.
o holding company for
TCF National Bank,
operating throughout
the Midwest 100,000 5,805,000
43,344,760
Computer Software & Services (2.3%)
Reynolds & Reynolds
o software for automotive dealers
and business forms 675,400 15,622,002
Construction Materials (5.3%)
Florida Rock Industries
o basic construction
materials company 27,750 1,170,217
Martin Marietta Materials
o produces aggregates for
the construction industry 371,443 16,466,068
Vulcan Materials Company
o produces, distributes and
sells construction
materials and industrial
and specialty chemicals 387,165 18,409,696
36,045,981
Consumer Products (1.1%)
CSS Industries, Inc.*
o giftware, bows, Halloween and
Easter novelty products 222,075 7,781,508
Consumer Services (2.3%)
H&R Block, Inc.
o leader in individual and small
business tax preparation 220,000 10,489,600
ServiceMaster Company
o commercial and residential
service company 428,225 5,275,732
15,765,332
Electronic Components (2.3%)
Littelfuse, Inc.
o manufactures fuses and
circuit protection devices 360,900 15,305,769
See Notes to Financial Statements.
6
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Electrical Equipment (3.5%)
American Power Conversion*
o manufactures power
protection equipment
for computers 449,055 $ 8,823,931
Zebra Technologies Corp.*
o designs, manufactures
and supports bar code
label printers 172,335 14,993,145
23,817,076
Health Care Services (2.1%)
Lincare Holdings*
o provides respiratory
therapy services
to patients in the home 200,000 6,572,000
Renal Care Group, Inc.*
o provides dialysis services
to patients with
chronic kidney failure 225,150 7,459,220
14,031,220
Home Furnishings (1.7%)
Ethan Allen Interiors, Inc.
o manufactures and retails
home furnishings 323,175 11,605,214
Insurance Agency (6.0%)
Brown & Brown, Inc.
o one of the largest
independent general
insurance agencies
in the U.S. 939,848 40,507,449
Investment Management (2.3%)
Federated Investors, Inc.
o provides investment
management products
and services primarily
to mutual funds 430,000 13,046,200
Waddell & Reed Financial, Inc.
o provides a wide range of
investment products
and services through
its subsidiaries, including
mutual funds and
insurance products 116,400 2,573,604
15,619,804
Leisure Products (1.2%)
Callaway Golf Company
o designs, manufactures
and sells golf clubs
and golf balls 692,000 7,847,280
Life Insurance (2.7%)
Protective Life Corporation
o individual and group
life/health insurance and
guaranteed investment contracts 471,400 18,229,038
Machinery & Equipment (7.7%)
IDEX Corporation
o manufactures proprietary,
highly engineered
industrial products and pumps 514,500 17,673,075
See Notes to Financial Statements.
7
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Machinery & Equipment (7.7%) continued
Kaydon Corporation
o custom-engineers products
including bearings,
filters, and piston rings 780,750 $ 24,148,598
Tennant Company
o manufactures commercial
and institutional
floor maintenance
equipment and products 255,075 10,572,859
52,394,532
Media (0.9%)
Meredith Corporation
o magazine publishing
and tv broadcasting 110,450 6,070,332
Pharmaceuticals (1.4%)
Watson Pharmaceuticals*
o manufactures proprietary
and off-patent
pharmaceutical products 349,900 9,412,310
Property and Casualty Insurance (12.8%)
Berkshire Hathaway Inc.*
o holding company for
various insurance
and industrial companies 215 19,124,250
Markel Corporation*
o sells specialty insurance products 60,650 16,830,375
White Mountains Ins. Grp., Ltd.
o personal property and
casualty, and reinsurance 100,275 51,140,250
87,094,875
Publishing (1.4%)
John Wiley & Sons, Inc.
o publisher of print and
electronic products,
specializing in scientific,
technical professional
and medical books and journals 301,700 9,654,400
Recreation and Entertainment (2.3%)
International Speedway Corporation
o owns and operates
auto racing tracks
including Daytona 315,988 15,369,656
Registered Investment Company (2.7%)
Allied Capital Corp
o venture capital corporation
for entrepreneurs
and management 736,391 17,982,668
Restaurants (3.6%)
Outback Steakhouse
o operates a diversified
restaurant system
including Outback Steakhouse,
Carrabba's Italian Grill, Roy's
and Bonefish Grill 209,000 8,644,240
YUM! Brands, Inc.
o quick service restaurants
including KFC,
Pizza Hut and Taco Bell 416,800 15,513,296
24,157,536
See Notes to Financial Statements.
8
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Retail Apparel (3.8%)
Jones Apparel Group, Inc.
o designs and markets apparel 306,000 $ 12,080,880
Liz Claiborne, Inc.
o designs and markets
an extensive range
of branded men's and
women's apparel,
accessories and fragrance 381,150 13,713,777
25,794,657
Retail Stores (2.6%)
Cato Corp.
o operates women's
fashion specialty stores 213,000 4,781,850
Ross Stores, Inc.
o chain of off-price
retail apparel and
home accessories stores 310,000 8,295,600
Whole Foods Market, Inc.
o national grocery store
selling organic
and natural products 50,000 4,772,500
17,849,950
Specialty Retail (1.4%)
Movie Gallery, Inc.
o home video specialty retailer
primarily focused on
rural and secondary markets 480,000 9,384,000
Telecommunications Services (2.5%)
Commonwealth Telephone Enterprises, Inc.
o provides telephony and
related services in
Pennsylvania markets
as a rural local
exchange carrier 320,250 14,337,592
Hickory Tech Corp.
o small local telephone
company in Minnesota 258,800 2,616,468
16,954,060
Wholesale Distribution (1.2%)
SCP Pool Corp.
o wholesale distributor of
swimming pool supplies 183,967 8,278,515
Total Common Stocks (Cost $337,482,696) $568,106,924
Short Term Obligations (16.2%) PRINCIPAL
U.S. Treasury Bill, 0.9%,
with maturities to 7/1/04 $35,000,000 35,000,000
U.S. Treasury Bill, 1.1%,
with maturities to 8/12/04 $45,000,000 44,939,100
U.S. Treasury Bill, 1.2%,
with maturities to 8/19/04 $30,000,000 29,952,633
Total Short Term Obligations (Cost $109,891,731) 109,891,733
Total Investments (Cost $447,374,427) $677,998,657
*Non-income producing.
See Notes to Financial Statements.
9
FAM Value Fund [LOGO]
June 30, 2004 (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
Assets
Investment in securities at value (Cost $447,374,427) $677,998,657
Cash at interest 18,936,503
Receivable for investment securities sold 1,931,562
Dividends and interest receivable 306,607
Total Assets 699,173,329
Liabilities
Payable for investment securities purchased 1,898,979
Accrued management fees 560,343
Accrued shareholder accounting and administrative fees 73,104
Accrued expenses 138,067
Total Liabilities 2,670,493
Net Assets
Source of Net Assets:
Net capital paid in on shares of beneficial interest
Investor Class Shares 437,693,084
Advisor Class Shares 3,176,423
$440,869,507
Undistributed net investment income 963,023
Accumulated net realized gain 24,046,078
Net unrealized appreciation 230,624,228
Net Assets $696,502,836
Net Asset Value Per Share
Investor Class Shares -- based on net assets of
$693,131,097 and 15,794,705 shares outstanding $43.88
Advisor Class Shares -- based on net assets of
$3,371,739 and 77,540 shares outstanding $43.48
See Notes to Financial Statements.
10
FAM Value Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited)
STATEMENT OF OPERATIONS
INVESTMENT INCOME
Income
Dividends $ 4,519,653
Interest 309,734
Total Income 4,829,387
Expenses
Investment advisory fee (Note 2) 3,149,794
Administrative fee (Note 2) 236,235
Shareholder servicing and related expenses (Note 2) 179,262
Printing and mailing 88,751
Professional fees 38,538
Registration fees 30,014
Custodial fees 28,384
Trustees 19,197
Distribution and Service Fees -- Advisor Class Shares 12,540
Other 68,540
Total Expenses 3,851,255
Net Investment Income 978,132
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 24,043,473
Unrealized appreciation of investments 14,801,909
Net Gain on Investments 38,845,382
NET INCREASE IN NET ASSETS FROM OPERATIONS $39,823,514
See Notes to Financial Statements.
11
FAM Value Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited) and Year Ended December 31, 2003
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended June 30, December 31,
2004 2003
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 978,132 $ 1,288,274
Net realized gain on investments 24,043,473 11,981,406
Unrealized appreciation of investments 14,801,909 98,021,481
Net Increase in Net Assets
From Operations 39,823,514 111,291,161
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Investor Class -- (1,284,544)
Advisor Class -- (3,423)
Net realized gain on investments
Investor Class -- (11,948,602)
Advisor Class -- (31,841)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 3): 76,537,954 12,841,546
Total Increase in Net Assets 116,361,468 110,864,297
NET ASSETS:
Beginning of period 580,141,368 469,277,071
End of period $696,502,836 $580,141,368
See Notes to Financial Statements.
12
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 1. Summary of Accounting Policies
FAM Value Fund (the "Fund") is a series of Fenimore Asset Management Trust, a
diversified, open-end management investment company registered under the
Investment Company Act of 1940. The Fund offers two classes of shares
(Investor Class and Advisor Class since January 2, 1987 and July 1, 2003,
respectively). Each class of shares has equal rights as to earnings and
assets except that each class bears different distribution expenses. Each
class of shares has exclusive voting rights with respect to matters that
affect just that class. Income, expenses (other than expenses attributable to
a specific class), and realized and unrealized gains or losses on investments
are allocated to each class of shares based on its relative net assets. The
investment objective of the Fund is to maximize long-term total return on
capital. The following is a summary of significant accounting policies
followed in the preparation of its financial statements.
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to
trading on NASDAQ are valued at the last reported sale price or the
NASDAQ official closing price. Common stocks for which no sale was
reported, and over-the-counter securities, are valued at the last
reported bid price. Short-term securities are carried at amortized cost,
which approximates value. Securities for which market quotations are not
readily available or have not traded are valued at fair value as
determined by procedures established by the Board of Trustees.
b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual
results could differ from those estimates.
d) Other
Securities transactions are recorded on trade date. Realized gains and
losses on securities sold are determined on the basis of identified
cost. Interest income is accrued as earned and dividend income is
recorded on the ex-dividend date. Distributions to shareholders, which
are determined in accordance with income tax regulations, are recorded
on the ex-dividend date.
Note 2. Investment Advisory Fees
and Other Transactions with Affiliates
Under the Investment Advisory Contract, the Fund pays an investment
advisory fee to Fenimore Asset Management, Inc. (the "Advisor") equal, on an
annual basis, to 1% of the Fund's average
13
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
daily net assets. Thomas Putnam is an officer and trustee of the Fund and
also an officer and director of the Advisor. The Investment Advisory Contract
requires the Advisor to reimburse the Investor Class for its expenses to the
extent that such expenses, including the advisory fee, for the fiscal year
exceed 2.00% of the average daily net assets. For the period ended June 30,
2004 the Advisor contractually agreed to reimburse the Fund for its expenses
to the extent such expenses exceed 1.28% and 2.28% of the average daily net
assets of the Investor Class and Advisor Class, respectively. No such
reimbursement was required for the period ended June 30, 2004. FAM
Shareholder Services, Inc. (FSS), a company under common control with the
Advisor, serves as shareholder servicing agent and receives a monthly fee of
$2.00 per shareholder account. Additionally, FSS serves as the fund
administrative agent and receives an annual fee based upon current assets
equal to 0.075% of the Fund's average daily net assets. Fenimore Securities,
Inc. (FSI), a company also under common control with the Advisor, acts as
distributor of the Fund's shares. On July 1, 2003, the Fund adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 for the Advisor Class of shares. Under the plan the Fund pays FSI a
total of 1.00% per annum of the Advisor Class shares' average daily net
assets.
Note 3. Shares of Beneficial Interest
At June 30, 2004 an unlimited number of $.001 par value shares of
beneficial interest were authorized. The Advisor Class of shares that are
redeemed within the first eighteen months of purchase are subject to a 1.00%
redemption fee. Transactions were as follows:
SIX MONTHS ENDED 6/30/04 YEAR ENDED 12/31/03
Shares Amount Shares Amount
Shares sold
Investor Class 2,598,279 $111,918,953 2,755,111 $ 102,629,151
Advisor Class 39,678 1,688,258 38,618 1,520,037
Shares issued on
reinvestment of dividends
Investor Class -- -- 305,770 12,609,968
Advisor Class -- -- 819 33,602
Shares redeemed
Investor Class (865,332) (37,057,221) (2,928,786) (103,897,681)
Advisor Class (280) (12,036) (1,295) (53,531)
Net Increase from Investor Class
Share Transactions 1,732,947 $ 74,861,732 132,095 $ 11,341,438
Net Increase from Advisor Class
Share Transactions 39,398 $ 1,676,222 38,142 $ 1,500,108
14
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 4. Investment Transactions
During the period ended June 30, 2004, purchases and sales of investment
securities, other than short term obligations were $51,047,530 and
$40,495,139. The cost of securities for federal income tax purposes is
substantially the same as shown in the investment portfolio. Realized gains
and losses are reported on an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio
securities, based on cost for federal income tax purposes, was as follows:
Unrealized appreciation $237,536,951
Unrealized depreciation (6,912,723)
Net unrealized appreciation $230,624,228
Note 5. Line of Credit
FAM Value Fund has a line of credit up to 33 1/3% of total net assets or a
maximum of $100,000,000. Borrowings under the agreement bear interest at the
prime rate as announced by the lending bank. The line of credit is available
until December 1, 2004 when any advances are to be repaid. During the period
ended June 30, 2004 no amounts were drawn from the available line.
Note 6. Commitments and Contingencies
In the normal course of business, the Fund enters into contracts that contain
a variety of representations and warranties which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that might be made against the
Fund that have not yet occurred. However, based on experience, the Fund
expects the risk of loss to be remote.
15
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights
FAM VALUE FUND -- INVESTOR CLASS SHARES
Six Months
Ended June 30, Years Ended December 31,
Per share information
(For a share outstanding throughout the period) 2004 2003 2002 2001 2000 1999
Net asset value, beginning of period $ 41.15 $ 33.69 $ 36.17 $ 32.70 $ 31.35 $ 34.44
Income from investment operations:
Net investment income 0.07 0.10 0.11 0.17 0.36 0.29
Net realized and unrealized
gain (loss) on investments 2.66 8.32 (2.04) 4.77 5.38 (2.00)
Total from investment operations 2.73 8.42 (1.93) 4.94 5.74 (1.71)
Less distributions:
Dividends from net
investment income -- (0.09) (0.11) (0.17) (0.36) (0.29)
Distributions from net
realized gains -- (0.87) (0.44) (1.30) (4.03) (1.09)
Total distributions -- (0.96) (0.55) (1.47) (4.39) (1.38)
Change in net asset value
for the period 2.73 7.46 (2.48) 3.47 1.35 (3.09)
Net asset value, end of period $ 43.88 $ 41.15 $ 33.69 $ 36.17 $ 32.70 $ 31.35
Total Return 6.63%<F2> 24.98% (5.33)% 15.07% 19.21% (4.84)%
Ratios/supplemental data
Net assets, end of period (000) $693,131 $578,579 $469,277 $501,417 $366,948 $373,277
Ratios to average net assets of:
Expenses 1.21%<F1> 1.24% 1.21% 1.21% 1.26% 1.23%
Net investment income 0.32% 0.26% 0.30% 0.56% 1.08% 0.86%
Portfolio turnover rate 7.32% 9.43% 17.51% 9.62% 9.53% 16.16%
<FN>
<F1> Annualized
<F2> Not Annualized
</FN>
16
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights continued
FAM VALUE FUND -- ADVISOR CLASS SHARES
Six Months
Ended June 30, Period Ended December 31,
Per share information<F1>
(For a share outstanding throughout the period) 2004 2003<F2>
Net asset value, beginning of period $40.96 $37.10
Income from investment operations:
Net investment income 0.00 0.00
Net realized and unrealized gain on investments 2.52 4.82
Total from investment operations 2.52 4.82
Less distributions:
Dividends from net investment income -- (0.09)
Distributions from net realized gains -- (0.87)
Total distributions -- (0.96)
Change in net asset value for the period 2.52 3.86
Net asset value, end of period $43.48 $40.96
Total Return 6.15%<F4> 12.99%<F4>
Ratios/supplemental data
Net assets, end of period (000) $3,372 $1,562
Ratios to average net assets of:
Expenses 2.20%<F3> 2.25%<F3>
Net investment income (0.68)%<F3> (0.02)%<F3>
Portfolio turnover rate 7.32% 9.43%
<FN>
<F1> Based on average shares outstanding.
<F2> Beginning of period reflects Advisor class shares inception date of
7/1/03.
<F3> Annualized
<F4> Not Annualized
</FN>
17
FAM Equity-Income Fund [LOGO]
Dear Fellow Equity-Income Fund Shareholder:
For the first half of 2004, Equity-Income Fund Investor class shares are up
4.3%. It is slightly ahead of the S&P 500 Index, which was up 3.4% and
slightly behind the Russell 2000 Index, which was up 6.7%. We believe we are
off to a good start this year because the activity level in our research team
has never been higher. We are exploring many new ideas and have cash at the
ready to take advantage of any opportunities that we discover. Furthermore,
two of the companies in the Fund are being bought by other companies for a
premium price.
In terms of performance, the market overall has been, well, ho-hum for
the first six months of the year. The S&P 500 is up 3.4%, but it has been a
bumpy ride. The index has traded in a range of -1% to +4%. Even though the
economy is gaining strength this year and corporate earnings are expected to
show nice growth, investors still face many worries and concerns. The Federal
Reserve is increasing interest rates, violence remains a part of everyday
life in Iraq, and the possibility of a terrorist strike still looms. All
these worries are holding the market back, but they do provide us with
occasional buying opportunities.
Last year as you may recall, we had a difficult time finding anything
to buy once the post war rally began. Increasing valuations of existing
holdings meant that we could not increase positions, but we did find a few
top notch companies to add to the Fund. Our frustration with increasing stock
prices made us reflect on how often in our research process we have noticed
that companies we are researching today, sold at very compelling valuations a
few years ago. Since the companies looked just as solid then as they do
today, we asked ourselves how we can identify good buying opportunities
sooner, for there is always one company out there that is a compelling buy.
With that in mind we decided to redouble our efforts to find new names for
the Fund. We are not satisfied waiting for good buying opportunities to come
to us: we want to make our own luck.
The result of this effort is a significant increase in new idea
activity. In fact, the number of calls that we made to management teams to
learn more about their companies in the first six months of this year is
almost equal to the number we did for the full year last year. The tangible
results of the effort so far are one new company added to the portfolio and a
few others added to the buy list.
Portfolio Performance
The big story in the first half of the year is the acquisition of two
portfolio holdings by other companies. New England Business Services (NEBS)
was bought by Deluxe Corp., for $44 per share in cash, a 32% premium to the
market price. NEBS was first purchased for the Fund in 1996 as one of the
original holdings. Over the years we had several opportunities to add to the
position and average down on our cost. In fact, in 2000, when the stock was
selling for $15 per share (which was only six times earnings) we were
aggressively buying the stock. We knew that not much needed to happen to earn
a superb return. This was the most undervalued stock that we owned for many
years.
18
FAM Equity-Income Fund [LOGO]
South Trust Bank, a relatively small holding in the Fund, is this
year's second acquisition story: it is being acquired by Wachovia for stock.
The deal was announced at an 11% premium to the market. This is another
instance where we were able to buy the stock at unusually depressed levels in
2000, since nobody, during the technology bubble, wanted to own a stodgy old
bricks and mortar banking business.
The worst performing companies in the Fund for the first half of the
year were Callaway Golf (-32.9%), Ethan Allen Interiors (-13.8%), and
Reynolds and Reynolds (-19.6%). All three of these companies share something
in common. Each one pre-announced their results for the second quarter and
brought earnings guidance down for the full year. Disappointed investors
reacted immediately by dumping shares, which punished stock prices. When the
economy is improving and the general outlook is positive, many investors seem
to have a "zero tolerance" policy towards significant downward revisions in
guidance.
We still like Ethan Allen very much and will add to our position at the
right price. It is a quality company that is "master of its destiny" since it
controls its distribution by owning stores. Reynolds and Reynolds is a
company where the jury is still out. The CEO is being replaced, which should
be good news and may be a catalyst for positive change. Callaway Golf is
another matter. We learned that the company is drastically changing its
business strategy to go head-to-head with its major competitor. This change
will be costly and will hurt earnings. Our view is that nobody ever wins a
price war.
Outlook
We think that current market conditions should reward careful stock pickers.
The overall market is going sideways, yet there is volatility. This
combination creates opportunity. We spend a lot of time valuing companies by
trying to figure out what the entire business enterprise is worth. We then
remain disciplined to buy them at a price well below what we estimate to be
their intrinsic value. The consistent application of this approach has
rewarded us with strong long-term results. It also strengthens our conviction
to buy companies like NEBS and South Trust at what we consider to be
compellingly low prices.
Thank you for your continued support. We hope you are having a terrific
summer.
Sincerely,
/s/ Paul Hogan
Paul Hogan, CFA
Co-Manager
/s/ Thomas O. Putnam
Thomas O. Putnam
Co-Manager
19
FAM Equity-Income Fund -- Statement of Investments [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
COMMON STOCKS (89.4%)
Banking (6.4%)
Banknorth Group, Inc.
o multi-bank holding
company in Portland, ME 42,200 $ 1,370,656
North Fork Bancorporation
o bank holding company
located on Long Island, NY 73,000 2,777,650
SouthTrust Corporation
o bank holding company
headquartered in Alabama 41,200 1,598,972
TCF Financial Corp.
o holding company for
TCF National Bank,
operating throughout
the Midwest 31,500 1,828,575
TrustCo Bank Corp NY
o operates bank offices
primarily in upstate New York 18,607 243,752
7,819,605
Commercial Services (2.6%)
McGrath RentCorp
o modular building and
electronic test equipment
rentals, subsidiary
classroom manufacturing 85,000 3,140,750
Computer Software & Services (1.8%)
Reynolds & Reynolds
o software for automotive
dealers and business forms 92,600 2,141,838
Construction Materials (5.6%)
Martin Marietta Materials
o produces aggregates for the
construction industry 63,000 2,792,790
Vulcan Materials Company
o produces, distributes
and sells construction
materials and industrial
and specialty chemicals 85,500 4,065,525
6,858,315
Consumer Services (3.4%)
H&R Block, Inc.
o leader in individual and small
business tax preparation 86,350 4,117,168
Home Furnishings (3.1%)
Ethan Allen Interiors
o manufactures and retails
home furnishings 107,000 3,842,370
Insurance Agency (2.1%)
Brown & Brown, Inc.
o one of the largest
independent general
insurance agencies
in the U.S. 60,600 2,611,860
Investment Management (4.9%)
Federated Investors
o provides investment
management products
and services primarily
to mutual funds 159,900 4,851,366
See Notes to Financial Statements.
20
FAM Equity-Income Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Investment Management (4.9%) continued
Waddell & Reed Financial, Inc.
o provides a wide range
of investment products
and services through its
subsidiaries, including
mutual funds and
insurance products 51,409 $ 1,136,653
5,988,019
Leisure Products (2.7%)
Callaway Golf Company
o designs, manufactures
and sells golf clubs
and golf balls 293,000 3,322,620
Life Insurance (4.4%)
Protective Life Corporation
o individual and group
life/health insurance and
guaranteed investment contracts 140,219 5,422,269
Machinery & Equipment (9.9%)
IDEX Corporation
o manufactures proprietary,
highly engineered
industrial products and pumps 134,137 4,607,606
Kaydon Corporation
o custom-engineers products
including bearings,
filters, and piston rings 124,000 3,835,320
MOCON, Inc.
o manufactures precision
measurement, process sensing,
and control instruments/systems 24,000 204,000
Tennant Company
o manufactures commercial
and institutional floor
maintenance equipment
and products 84,295 3,494,028
12,140,954
Media (2.5%)
Meredith Corporation
o magazine publishing
and tv broadcasting 55,300 3,039,288
Property and Casualty Insurance (4.4%)
White Mountains Ins. Grp., Ltd.
o personal property and
casualty, and reinsurance 10,575 5,393,250
Publishing (7.1%)
Courier Corporation
o manufactures and publishes
specialty books,
including Dover Publications 76,500 3,193,110
John Wiley & Sons, Inc.
o publisher of print and
electronic products,
specializing in scientific,
technical professional
and medical books and journals 172,650 5,524,800
8,717,910
See Notes to Financial Statements.
21
FAM Equity-Income Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Recreation and Entertainment (4.6%)
International Speedway Corporation
o owns and operates
auto racing tracks
including Daytona 91,400 $ 4,445,696
Six Flags Preferred B 7.25%
o operates regional theme
parks in U.S.,
Mexico and Europe 54,900 1,229,760
5,675,456
Registered Investment Company (3.9%)
Allied Capital Corp.
o venture capital corporation
for entrepreneurs
and management 193,714 4,730,496
Restaurants (3.5%)
Outback Steakhouse
o operates a diversified
restaurant system including
Outback Steakhouse,
Carrabba's Italian Grill,
Roy's and Bonefish Grill 102,850 4,253,876
Retail Apparel (4.3%)
Liz Claiborne, Inc.
o designs and markets
an extensive range
of branded men's and
women's apparel,
accessories and fragrance 147,025 5,289,960
Retail Stores (5.1%)
Cato Corp.
o operates women's fashion
specialty stores 165,300 3,710,985
Ross Stores, Inc.
o chain of off-price
retail apparel and
home accessories stores 94,400 2,526,144
6,237,129
Specialty Retail (4.2%)
Movie Gallery, Inc.
o home video specialty
retailer primarily focused
on rural and secondary markets 264,025 5,161,688
Telecommunications Services (2.7%)
Hickory Tech Corp.
o small local telephone
company in Minnesota 325,848 3,294,323
Total Common Stocks (Cost $92,283,784) $109,199,144
Short Term Obligations (10.6%) PRINCIPAL
U.S. Treasury Bill, 0.9%,
with maturities to 8/5/04 $4,000,000 3,995,956
U.S. Treasury Bill, 1.1%,
with maturities to 8/12/04 $9,000,000 8,987,820
Total Short Term Obligations (Cost $12,983,776) 12,983,776
Total Investments (Cost $105,267,560) $122,182,920
See Notes to Financial Statements.
22
FAM Equity-Income Fund [LOGO]
June 30, 2004 (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
Assets
Investment in securities at value (Cost $105,267,560) $122,182,920
Cash at interest 4,263,482
Dividends and interest receivable 69,642
Total Assets 126,516,044
Liabilities
Payable for investment securities purchased 415,088
Accrued management fees 102,094
Accrued shareholder accounting and administrative fees 12,391
Accrued expenses 58,420
Total Liabilities 587,993
Net Assets
Source of Net Assets:
Net capital paid in on shares of beneficial interest
Investor Class Shares 104,196,173
Advisor Class Shares 2,150,958
$106,347,131
Undistributed net investment income 18,208
Accumulated net realized gain 2,647,352
Net unrealized appreciation 16,915,360
Net Assets $125,928,051
Net Asset Value Per Share
Investor Class Shares -- based on net assets of
$123,667,599 and 6,521,244 shares outstanding $18.96
Advisor Class Shares -- based on net assets of
$2,260,452 and 119,748 shares outstanding $18.88
See Notes to Financial Statements.
23
FAM Equity-Income Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited)
STATEMENT OF OPERATIONS
INVESTMENT INCOME
Income
Dividends $1,372,015
Interest 74,218
Total Income 1,446,233
Expenses
Investment advisory fee (Note 2) 607,962
Administrative fee (Note 2) 45,597
Shareholder servicing and related expenses (Note 2) 26,686
Printing and mailing 25,590
Professional fees 7,559
Registration fees 26,567
Custodial fees 7,500
Trustees 19,197
Distribution and Service Fees -- Advisor Class Shares 8,671
Other 33,668
Total Expenses 808,997
Net Investment Income 637,236
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,646,940
Unrealized appreciation of investments 1,477,469
Net Gain on Investments 4,124,409
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,761,645
See Notes to Financial Statements.
24
FAM Equity-Income Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited) and Year Ended December 31, 2003
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended June 30, December 31,
2004 2003
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 637,236 $ 687,927
Net realized gain on investments 2,646,940 1,149,258
Unrealized appreciation of investments 1,477,469 16,234,993
Net Increase in Net Assets
From Operations 4,761,645 18,072,178
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Investor Class (614,174) (684,670)
Advisor Class -- (3,198)
Net realized gain on investments
Investor Class -- (1,136,192)
Advisor Class -- (12,729)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 3): 6,295,160 25,281,516
Total Increase in Net Assets 10,442,631 41,516,905
NET ASSETS:
Beginning of period 115,485,420 73,968,515
End of period $125,928,051 $115,485,420
See Notes to Financial Statements.
25
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 1. Summary of Accounting Policies
FAM Equity-Income Fund (the "Fund") is a series of Fenimore Asset Management
Trust, a no-load, diversified, open-end management investment company
registered under the Investment Company Act of 1940. The Fund offers two
classes of shares (Investor Class and Advisor Class since April 1, 1996 and
July 1, 2003, respectively). Each class of shares has equal rights as to
earnings and assets except that each class bears different distribution
expenses. Each class of shares has exclusive voting rights with respect to
matters that affect just that class. Income, expenses (other than expenses
attributable to a specific class), and realized and unrealized gains or
losses on investments are allocated to each class of shares based on its
relative net assets. The investment objective of the Fund is to provide
current income and long term capital appreciation from investing primarily in
income-producing equity securities. The following is a summary of significant
accounting policies followed in the preparation of its financial statements.
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to
trading on NASDAQ are valued at the last reported sale price or the
NASDAQ official closing price. Common stocks for which no sale was
reported, and over-the-counter securities, are valued at the last
reported bid price. Short-term securities are carried at amortized cost,
which approximates value. Securities for which market quotations are not
readily available or have not traded are valued at fair value as
determined by procedures established by the Board of Trustees.
b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual
results could differ from those estimates.
d) Other
Securities transactions are recorded on trade date. Realized gains and
losses on securities sold are determined on the basis of identified
cost. Interest income is accrued as earned and dividend income is
recorded on the ex-dividend date. Distributions to shareholders, which
are determined in accordance with income tax regulations, are recorded
on the ex-dividend date.
Note 2. Investment Advisory Fees
and Other Transactions with Affiliates
Under the Investment Advisory Contract, the Fund pays an investment
advisory fee to Fenimore Asset Management, Inc. (the "Advisor") equal, on an
annual basis, to 1% of the Fund's average daily net assets. Thomas Putnam is
an officer
26
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
and trustee of the Fund and also an officer and director of the Advisor. The
Investment Advisory Contract requires the Advisor to reimburse the Investor
Class for its expenses to the extent that such expenses, including the
advisory fee, for the fiscal year exceed 2% of the average daily net assets.
For the period ended June 30, 2004 the Advisor contractually agreed to
reimburse the Fund for its expenses to the extent such expenses exceed 1.40%
and 2.40% of the average daily net assets of the Investor Class and Advisor
Class, respectively. No such reimbursement was required for the period ended
June 30, 2004. FAM Shareholder Services, Inc. (FSS), a company under common
control with the Advisor, serves as shareholder servicing agent and receives
a monthly fee of $2.00 per shareholder account. Additionally, FSS serves as
the fund administrative agent and receives a fee equal, on an annual basis,
to 0.075% of the Fund's average daily net assets. Fenimore Securities, Inc.
("FSI"), a company also under common control with the Advisor, acts as
distributor of the Fund's shares. On July 1, 2003, the Fund adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 for the Advisor Class of shares. Under the plan the Fund pays FSI a
total of 1.00% per annum of the Advisor Class shares' average daily net
assets.
Note 3. Shares of Beneficial Interest
At June 30, 2004 an unlimited number of $.001 par value shares of
beneficial interest were authorized. The Advisor Class of shares that are
redeemed within the first eighteen months of purchase are subject to a 1.00%
redemption fee. Transactions were as follows:
SIX MONTHS ENDED 6/30/04 YEAR ENDED 12/31/03
Shares Amount Shares Amount
Shares sold
Investor Class 1,535,656 $ 28,970,592 4,174,191 $ 68,574,439
Advisor Class 51,577 966,897 71,299 1,241,823
Shares issued on
reinvestment of dividends
Investor Class 30,656 581,226 97,475 1,727,896
Advisor Class -- -- 847 15,371
Shares redeemed
Investor Class (1,294,550) (24,170,012) (2,808,318) (46,258,908)
Advisor Class (2,859) (53,543) (1,116) (19,105)
Net Increase from Investor Class
Share Transactions 271,762 $ 5,381,806 1,463,348 $ 24,043,427
Net Increase from Advisor Class
Share Transactions 48,718 $ 913,354 71,030 $ 1,238,089
27
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 4. Investment Transactions
During the period ended June 30, 2004, purchases and sales of investment
securities, other than short term obligations were $16,759,247 and
$7,728,571. The cost of securities for federal income tax purposes is
substantially the same as shown in the investment portfolio. Realized gains
and losses are reported on an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio
securities, based on cost for federal income tax purposes, was as follows:
Unrealized appreciation $20,198,093
Unrealized depreciation (3,282,733)
Net unrealized appreciation $16,915,360
Note 5. Line of Credit
FAM Equity-Income Fund has a line of credit up to 33 1/3% of total net assets
or a maximum of $30,000,000. Borrowings under the agreement bear interest at
the prime rate as announced by the lending bank. The line of credit is
available until December 1, 2004 when any advances are to be repaid. During
the period ended June 30, 2004 no amounts were drawn from the available line.
Note 6. Commitments and Contingencies
In the normal course of business, the Fund enters into contracts that contain
a variety of representations and warranties which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that might be made against the
Fund that have not yet occurred. However, based on experience, the Fund
expects the risk of loss to be remote.
28
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights
FAM EQUITY-INCOME FUND -- INVESTOR CLASS SHARES
Six Months
Ended June 30, Years Ended December 31,
Per share information
(For a share outstanding throughout the period) 2004 2003 2002 2001 2000 1999
Net asset value, beginning of period $ 18.27 $ 15.45 $ 16.05 $ 13.47 $12.31 $13.53
Income from investment operations:
Net investment income 0.10 0.12 0.12 0.19 0.31 0.27
Net realized and unrealized
gain (loss) on investments 0.69 3.00 (0.48) 2.58 1.76 (1.22)
Total from investment operations 0.79 3.12 (0.36) 2.77 2.07 (0.95)
Less distributions:
Dividends from net
investment income (0.10) (0.12) (0.12) (0.19) (0.31) (0.27)
Distributions from net
realized gains -- (0.18) (0.12) -- (0.60) --
Total distributions (0.10) (0.30) (0.24) (0.19) (0.91) (0.27)
Change in net asset value
for the period 0.69 2.82 (0.60) 2.58 1.16 (1.22)
Net asset value, end of period $ 18.96 $ 18.27 $ 15.45 $ 16.05 $13.47 $12.31
Total Return 4.30%<F2> 20.30% (2.25)% 20.79% 17.18% (6.98)%
Ratios/supplemental data
Net assets, end of period (000) $123,668 $114,194 $73,969 $31,194 $6,892 $6,653
Ratios to average net assets of:
Expenses, total 1.31%<F1> 1.28% 1.37% 1.56% 2.27% 2.12%
Expenses, net of fees waived and
expenses assumed by advisor 1.31%<F1> 1.28% 1.37% 1.50% 1.50% 1.50%
Net investment income 1.06%<F1> 0.73% 0.84% 1.29% 2.33% 2.15%
Portfolio turnover rate 7.46% 6.46% 7.11% 2.79% 16.59% 13.49%
<FN>
<F1> Annualized
<F2> Not Annualized
</FN>
29
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights continued
FAM EQUITY-INCOME FUND -- ADVISOR CLASS SHARES
Six Months
Ended June 30, Period Ended December 31,
Per share information<F1>
(For a share outstanding throughout the period) 2004 2003<F2>
Net asset value, beginning of period $18.18 $16.77
Income from investment operations:
Net investment income 0.03 0.10
Net realized and unrealized gain on investments 0.67 1.54
Total from investment operations 0.70 1.64
Less distributions:
Dividends from net investment income -- (0.05)
Distributions from net realized gains -- (0.18)
Total distributions -- (0.23)
Change in net asset value for the period 0.70 1.41
Net asset value, end of period $18.88 $18.18
Total Return 3.85%<F4> 9.83%<F4>
Ratios/supplemental data
Net assets, end of period (000) $2,260 $1,291
Ratios to average net assets of:
Expenses 2.30%<F3> 2.28%<F3>
Net investment income 0.06%<F3> 1.10%<F3>
Portfolio turnover rate 7.46% 6.46%
<FN>
<F1> Based on average shares outstanding.
<F2> Beginning of period reflects Advisor class shares inception date of
7/1/03.
<F3> Annualized
<F4> Not Annualized
</FN>
30
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31
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32
Investment Advisor
Fenimore Asset
Management, Inc.
Cobleskill, NY
Custodian
U.S. Bank, N.A.
Cincinnati, OH
Independent Auditors
PricewaterhouseCoopers, LLP
New York, NY
Trustees
David A. Hughey
Fred "Chico" Lager
John J. McCormack, Jr.
C. Richard Pogue
Thomas O. Putnam
Barbara V. Weidlich
Legal Counsel
Dechert, LLP
Washington, DC
Shareholder Servicing Agent
FAM Shareholder Services, Inc.
Cobleskill, NY
Distributor
Fenimore Securities, Inc.
Cobleskill, NY
[LOGO] FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, New York 12043-0399
(800) 932-3271
www.famfunds.com
[LOGO] FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, New York 12043-0399
(800) 932-3271
www.famfunds.com
Presorted
First-Class Mail
U.S. Postage
PAID
Albany, NY
Permit # 370
Financial peace of mind through a value approach to investing
FAM
VALUE FUND [LOGO] EQUITY-INCOME FUND
Advisor Share Class
SEMI-ANNUAL REPORT
June 30, 2004
Table of Contents
Chairman's Commentary 1
FAM Value Fund 3
Letter to Shareholders 3
Statement of Investments 6
Statement of Assets and Liabilities 10
Statement of Operations 11
Statement of Changes in Net Assets 12
Notes to Financial Statements 13
FAM Equity-Income Fund 18
Letter to Shareholders 18
Statement of Investments 20
Statement of Assets and Liabilities 23
Statement of Operations 24
Statement of Changes in Net Assets 25
Notes to Financial Statements 26
Chairman's Commentary [LOGO]
June 2004
Dear Fellow Shareholder:
The Challenge to Remain Focused
Given our world's many problems, it is easy to understand how one could be
distracted from focusing on the investing process as an active way to protect
investment capital. Concerns over inflation, rising interest rates, and the
war on terror in Iraq, would give anyone pause when considering the
appropriate investment response.
While these concerns are certainly worrisome, by placing them in
historical perspective we can make better informed, less emotionally driven,
long-term investment decisions. For example, in the mid 70's, the Federal
Reserve raised interest rates several times in an attempt to contain a
rampant rate of inflation that eventually would peak in double digits. At the
same time, we were winding down an unpopular war in Vietnam and dealing with
an oil embargo that created block-long gas lines, despite the fact that
consumers could only queue up on odd or even days, as determined by their
license plate number. The effect of these events on the stock market was to
cut it almost in half: the Dow Jones Industrial Average declined from over
1,000 to 577 (12/'72 to 12/'74). Investors during this period reacted like
the proverbial deer in the headlights and did not know where to turn. Gold
became a popular haven, oil and gas limited partnerships were over-promoted
- -- but stocks were shunned. Yet, in looking back over this investment mine
field, 1974 stands out as probably the best buying opportunity for stocks we
have experienced in the last 50 years.
Conventional Wisdom:
Follow at Your Own Risk
Just imagine the discoveries that would not have been made, if the prevailing
wisdom of the day had been followed. From ocean voyages of discovery to
scientific advances, our store of human knowledge and experience might have
taken a much different course if independently minded individuals had not
given more heed to their own convictions, than to the opinion of others.
Investment decisions are subject to similar dynamics of mass psychology
and conventional wisdom, once established, can hold sway for long periods of
time. Business schools and economics departments have long taught that the
marketplace is efficient -- in other words, that stocks prices reflect what a
company is worth. This belief leads directly to the conclusion that investing
in a broad market index, such as the S&P 500, must therefore be about as good
as it can get -- by definition. Thankfully we have the counter-examples
offered by Warren Buffett and others, who have done quite well by paying
little heed to prevailing efficient market theory. Hedge funds, which have
become popular on the premise that capital can be preserved in up and down
markets, disproved this notion themselves and with high drama when, in 1998,
highly regarded Long-Term Capital brought bond markets to the brink of
collapse, only to be saved by government intervention.
Which brings me full circle: today we face rising inflation, rising
interest rates, higher gasoline prices and heightened fears about global
terrorism. Prevailing wisdom in the investment
1
Chairman's Commentary [LOGO]
world suggests that diversification through asset allocation would be the
best strategy to protect capital. It is true that the world today differs in
important ways than the investment environment 30 years ago, but investors
should keep the lessons of historical perspective in mind and not let
external events dissuade them from purchasing strong companies at a favorable
price.
We have often said that to be a long-term, successful investor, one
need only concentrate on what is knowable and understandable. Current events
are worrisome, but have little long-term effect on good businesses. At FAM
Funds, we remain focused on discovering, researching, buying and owning
companies that will continue to provide long-term economic returns. By doing
so, we believe that our goal of growing and preserving capital has the best
opportunity to succeed, whatever world events unfold.
Thank you for your continued trust in our investment process.
Sincerely,
/s/ Thomas O. Putnam
Thomas O. Putnam
Chairman
FAM Funds has adopted a Code of Ethics that applies to its principal
executive and principal financial officers. You may obtain a copy of this
Code without charge, upon request by calling FAM Funds at (800) 932-3271.
2
FAM Value Fund [LOGO]
Dear Fellow Value Fund Shareholder:
Performance results for the six months ended June 30, 2004 for Advisor
class shares of the FAM Value Fund and market indexes are as follows:
FAM Value Fund +6.1%
Russell 2000 Index +6.7%
Standard & Poor's 500 Index +3.4%
For the first six months of 2004, stocks were the place to be. While
there has been a lot of uncertainty about Iraq, oil prices, and higher
interest rates, the last six months have not been too bad for the equity
market. The overall market, as measured by the Standard & Poor's 500 Index
was up over three percent year to date. By contrast, investors who bought
bonds as a "sure thing" during the 2000-2002 bear market found out there is
no such thing as a sure thing. The average bond fund return is flat for the
year, and the second quarter was the worst quarter for bonds returns in seven
years.
Best & Worst Performers
Our best performer was Brown & Brown, an insurance agency headquartered in
Daytona Beach, Florida. The stock is up 33% as of 6/30/04, generating a total
gain for the Value Fund portfolio of just under $10 million. Careful readers
of this letter may remember that we identified Brown & Brown as our worst
performer in calendar year 2003. As so often happens in investing, holding a
quality company that is currently out of favor can yield good results. Brown
& Brown is an excellent company that has all the attributes that we look for
in an investment. The company is run by owner-operator management, led by CEO
Hyatt Brown, who owns 13% of the company. The company has high profit margins
and a fierce culture focused on growing profitability in the future.
Our second best performer was New England Business Services. For years,
this was the cheapest stock in your fund, and largely ignored by the
investment community. During a two year period when the stock did not move,
management was quietly increasing the intrinsic value of the company through
acquisitions and cost reductions. The reward for these efforts was finally
recognized when Deluxe Corporation offered to purchase the entire company for
cash at a price of $44 per share. As result of this take-over, the Value Fund
recognized a capital gain of $7.8 million, or $.49 per share.
Our largest holding, White Mountains Insurance, is up 11% for the year
and contributed over five million dollars in gains. The rest of our top
performers are rounded out by technology and manufacturing companies that are
benefiting from an improving economy. Individual names include Littelfuse,
Zebra Technologies, Kaydon and IDEX.
Fortunately, the list of poorly performing stocks is a short one. Only
14 stocks posted a loss, and in only seven cases did that mean a loss of $1
million or more. Our three worst performing stocks were Watson
Pharmaceuticals, Reynolds & Reynolds, and Callaway Golf. Watson and Callaway
experienced significant changes in their competitive environment, which
caused both companies to reduce their financial projections for the year.
While we always try to invest in companies that have a protective "moat"
against competitive pressures, capitalism by its nature is always creating
new challenges.
3
FAM Value Fund [LOGO]
These two stocks serve to remind us that we need to remain vigilant in
analyzing the competitive advantage of all of our investments.
Reynolds & Reynolds is a long time holding of the Fund that recently
disappointed us with its financial under-performance. As a result, the CEO
resigned and the company's board of directors is conducting a search for a
new leader. We support this move by the board and look forward to a new CEO
joining the company. It is our experience that new leadership can serve as a
catalyst for positive change. In several cases, we have seen a company's
stock price increase after a new chief executive is brought on board.
Our Investment Process:
A Long-Term Investor's Tale
In addition to New England Business Services mentioned earlier in this
letter, a second portfolio holding was acquired during the second quarter.
South Trust Bank was a holding in the Fund for almost ten years. The history
of this investment is a great lesson about the advantages of long-term
investing. We first purchased South Trust stock in February of 1995, for a
little less than $7 per share. At this time the company was expected to earn
$.78 per share, which meant that we were paying less than ten times earnings
for the stock. The total assets of South Trust were $17 billion. We liked the
CEO, Wallace Malone, whose strategy it was to open branches in areas of the
country which were growing in population. Therefore, he focused on states
such as Georgia, Florida, Texas, and Virginia. This simple idea -- establish
a presence in areas of growth -- proved to be very powerful. He then gave
further muscle to this plan by instilling a strong sales culture throughout
the organization. When Wallace was in his sixties he would personally make
over 200 sales calls per year. As a result of this strategy and culture, the
company experienced excellent growth. The bank grew its earnings and dividend
every year we owned the stock. While many investors regard banks as boring,
we wonder how many companies can boast nine consecutive years in earnings per
share growth.
This past June, the company received a takeover offer from Wachovia,
valuing South Trust at approximately $39 per share. We do not want to hold
the stock of Wachovia, so we have sold our position at an average price of
$39 per share. In addition, we have collected over $4.50 per share in
dividends since our original investment. The sum of the dividends and price
appreciation combined for a total return of 26% per year since 1995: after
taxes, we estimate we will have earned 22% per year. We were able to achieve
this excellent return by doing one thing only -- holding on to a good
company. And this meant holding on during the 1999-2000 period, when
technology stocks were the rage and bank stocks were considered "yesterday's
news". The moral of this tale is a good description of our investment
process. Number one, buy companies that are growing their economic value.
Second, pay close attention to the management of the company. We have met
face-to-face with the management of South Trust many times over the last nine
years. Finally, pay a low price. We took our original position in this bank
at nine times expected earnings.
4
FAM Value Fund [LOGO]
Cash is King?
Some investors like stocks and some investors like bonds or real estate. But
there is one investment choice that no one likes -- cash. With the average
retail money market fund yielding .38% at June 30, 2004, investors will do
anything not to hold cash. Therefore, it may come as somewhat a surprise if
you look in the back of this report and see we currently hold 19% of our
assets in cash. This is the second time in ten years that the Value Fund has
had a cash position of this size. There are three reasons for this. The first
is that we have not found many public companies selling at a significant
discount to what we think they are worth. In our opinion, most stocks at the
present time are fairly valued. This is an opinion that is shared by many
other highly regarded money managers. Just last week we read two
announcements by highly respected mutual fund portfolio managers that they
were closing their funds to new investors. In both cases these managers cited
a dearth of investment ideas and almost 30% cash positions. The second reason
for our cash level is the two acquisitions mentioned above. The Value Fund
has received $40 million in cash for these two investments. The third reason
is that for the first six months of 2004, we have seen a steady inflow of new
money into the Fund. We continue to look for new investment opportunities and
re-evaluate the proper price to pay for our existing holdings. We will put
the cash to work only when we can identify excellent businesses managed by
exceptional managers, selling at discounted prices.
The Election
In this presidential election year we are often asked how the election will
affect the stock market. The short answer is we don't know, but we are not
losing a lot of sleep about this subject. Here's why. Earlier in the year
when we were on a company visit, the CEO asked us how the election would
impact our investment strategy. We answered with a question -- how would the
election effect how he was running his business? "Oh, it won't affect us at
all" he said. That's our answer as well. Stock prices are driven by the
financial results of the companies we own. If a company is growing its sales,
earnings, and cash flows, the value of the company will increase. Our focus
remains fixed on identifying just such companies.
As always, thank you for your trust and confidence in our investment
process.
Sincerely,
/s/ John D. Fox
John D. Fox, CFA
Co-Manager
/s/ Thomas O. Putnam
Thomas O. Putnam
Co-Manager
5
FAM Value Fund -- Statement of Investments [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
COMMON STOCKS (83.8%)
Automotive (0.3%)
CarMax, Inc.*
o specialty retailer of used
cars and light-trucks
in the United States 100,000 $ 2,187,000
Banking (6.4%)
Banknorth Group, Inc.
o multi-bank holding company
in Portland, ME 340,507 11,059,667
M&T Bank Corporation
o bank holding company
located in Buffalo, NY 143,000 12,483,900
North Fork Bancorporation
o bank holding company located
on Long Island, NY 245,950 9,358,398
SouthTrust Corporation
o bank holding company
headquartered in Alabama 119,500 4,637,795
TCF Financial Corp.
o holding company for
TCF National Bank,
operating throughout
the Midwest 100,000 5,805,000
43,344,760
Computer Software & Services (2.3%)
Reynolds & Reynolds
o software for automotive dealers
and business forms 675,400 15,622,002
Construction Materials (5.3%)
Florida Rock Industries
o basic construction
materials company 27,750 1,170,217
Martin Marietta Materials
o produces aggregates for
the construction industry 371,443 16,466,068
Vulcan Materials Company
o produces, distributes and
sells construction
materials and industrial
and specialty chemicals 387,165 18,409,696
36,045,981
Consumer Products (1.1%)
CSS Industries, Inc.*
o giftware, bows, Halloween and
Easter novelty products 222,075 7,781,508
Consumer Services (2.3%)
H&R Block, Inc.
o leader in individual and small
business tax preparation 220,000 10,489,600
ServiceMaster Company
o commercial and residential
service company 428,225 5,275,732
15,765,332
Electronic Components (2.3%)
Littelfuse, Inc.
o manufactures fuses and
circuit protection devices 360,900 15,305,769
See Notes to Financial Statements.
6
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Electrical Equipment (3.5%)
American Power Conversion*
o manufactures power
protection equipment
for computers 449,055 $ 8,823,931
Zebra Technologies Corp.*
o designs, manufactures
and supports bar code
label printers 172,335 14,993,145
23,817,076
Health Care Services (2.1%)
Lincare Holdings*
o provides respiratory
therapy services
to patients in the home 200,000 6,572,000
Renal Care Group, Inc.*
o provides dialysis services
to patients with
chronic kidney failure 225,150 7,459,220
14,031,220
Home Furnishings (1.7%)
Ethan Allen Interiors, Inc.
o manufactures and retails
home furnishings 323,175 11,605,214
Insurance Agency (6.0%)
Brown & Brown, Inc.
o one of the largest
independent general
insurance agencies
in the U.S. 939,848 40,507,449
Investment Management (2.3%)
Federated Investors, Inc.
o provides investment
management products
and services primarily
to mutual funds 430,000 13,046,200
Waddell & Reed Financial, Inc.
o provides a wide range of
investment products
and services through
its subsidiaries, including
mutual funds and
insurance products 116,400 2,573,604
15,619,804
Leisure Products (1.2%)
Callaway Golf Company
o designs, manufactures
and sells golf clubs
and golf balls 692,000 7,847,280
Life Insurance (2.7%)
Protective Life Corporation
o individual and group
life/health insurance and
guaranteed investment contracts 471,400 18,229,038
Machinery & Equipment (7.7%)
IDEX Corporation
o manufactures proprietary,
highly engineered
industrial products and pumps 514,500 17,673,075
See Notes to Financial Statements.
7
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Machinery & Equipment (7.7%) continued
Kaydon Corporation
o custom-engineers products
including bearings,
filters, and piston rings 780,750 $ 24,148,598
Tennant Company
o manufactures commercial
and institutional
floor maintenance
equipment and products 255,075 10,572,859
52,394,532
Media (0.9%)
Meredith Corporation
o magazine publishing
and tv broadcasting 110,450 6,070,332
Pharmaceuticals (1.4%)
Watson Pharmaceuticals*
o manufactures proprietary
and off-patent
pharmaceutical products 349,900 9,412,310
Property and Casualty Insurance (12.8%)
Berkshire Hathaway Inc.*
o holding company for
various insurance
and industrial companies 215 19,124,250
Markel Corporation*
o sells specialty insurance products 60,650 16,830,375
White Mountains Ins. Grp., Ltd.
o personal property and
casualty, and reinsurance 100,275 51,140,250
87,094,875
Publishing (1.4%)
John Wiley & Sons, Inc.
o publisher of print and
electronic products,
specializing in scientific,
technical professional
and medical books and journals 301,700 9,654,400
Recreation and Entertainment (2.3%)
International Speedway Corporation
o owns and operates
auto racing tracks
including Daytona 315,988 15,369,656
Registered Investment Company (2.7%)
Allied Capital Corp
o venture capital corporation
for entrepreneurs
and management 736,391 17,982,668
Restaurants (3.6%)
Outback Steakhouse
o operates a diversified
restaurant system
including Outback Steakhouse,
Carrabba's Italian Grill, Roy's
and Bonefish Grill 209,000 8,644,240
YUM! Brands, Inc.
o quick service restaurants
including KFC,
Pizza Hut and Taco Bell 416,800 15,513,296
24,157,536
See Notes to Financial Statements.
8
FAM Value Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Retail Apparel (3.8%)
Jones Apparel Group, Inc.
o designs and markets apparel 306,000 $ 12,080,880
Liz Claiborne, Inc.
o designs and markets
an extensive range
of branded men's and
women's apparel,
accessories and fragrance 381,150 13,713,777
25,794,657
Retail Stores (2.6%)
Cato Corp.
o operates women's
fashion specialty stores 213,000 4,781,850
Ross Stores, Inc.
o chain of off-price
retail apparel and
home accessories stores 310,000 8,295,600
Whole Foods Market, Inc.
o national grocery store
selling organic
and natural products 50,000 4,772,500
17,849,950
Specialty Retail (1.4%)
Movie Gallery, Inc.
o home video specialty retailer
primarily focused on
rural and secondary markets 480,000 9,384,000
Telecommunications Services (2.5%)
Commonwealth Telephone Enterprises, Inc.
o provides telephony and
related services in
Pennsylvania markets
as a rural local
exchange carrier 320,250 14,337,592
Hickory Tech Corp.
o small local telephone
company in Minnesota 258,800 2,616,468
16,954,060
Wholesale Distribution (1.2%)
SCP Pool Corp.
o wholesale distributor of
swimming pool supplies 183,967 8,278,515
Total Common Stocks (Cost $337,482,696) $568,106,924
Short Term Obligations (16.2%) PRINCIPAL
U.S. Treasury Bill, 0.9%,
with maturities to 7/1/04 $35,000,000 35,000,000
U.S. Treasury Bill, 1.1%,
with maturities to 8/12/04 $45,000,000 44,939,100
U.S. Treasury Bill, 1.2%,
with maturities to 8/19/04 $30,000,000 29,952,633
Total Short Term Obligations (Cost $109,891,731) 109,891,733
Total Investments (Cost $447,374,427) $677,998,657
*Non-income producing.
See Notes to Financial Statements.
9
FAM Value Fund [LOGO]
June 30, 2004 (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
Assets
Investment in securities at value (Cost $447,374,427) $677,998,657
Cash at interest 18,936,503
Receivable for investment securities sold 1,931,562
Dividends and interest receivable 306,607
Total Assets 699,173,329
Liabilities
Payable for investment securities purchased 1,898,979
Accrued management fees 560,343
Accrued shareholder accounting and administrative fees 73,104
Accrued expenses 138,067
Total Liabilities 2,670,493
Net Assets
Source of Net Assets:
Net capital paid in on shares of beneficial interest
Investor Class Shares 437,693,084
Advisor Class Shares 3,176,423
$440,869,507
Undistributed net investment income 963,023
Accumulated net realized gain 24,046,078
Net unrealized appreciation 230,624,228
Net Assets $696,502,836
Net Asset Value Per Share
Investor Class Shares -- based on net assets of
$693,131,097 and 15,794,705 shares outstanding $43.88
Advisor Class Shares -- based on net assets of
$3,371,739 and 77,540 shares outstanding $43.48
See Notes to Financial Statements.
10
FAM Value Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited)
STATEMENT OF OPERATIONS
INVESTMENT INCOME
Income
Dividends $ 4,519,653
Interest 309,734
Total Income 4,829,387
Expenses
Investment advisory fee (Note 2) 3,149,794
Administrative fee (Note 2) 236,235
Shareholder servicing and related expenses (Note 2) 179,262
Printing and mailing 88,751
Professional fees 38,538
Registration fees 30,014
Custodial fees 28,384
Trustees 19,197
Distribution and Service Fees -- Advisor Class Shares 12,540
Other 68,540
Total Expenses 3,851,255
Net Investment Income 978,132
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 24,043,473
Unrealized appreciation of investments 14,801,909
Net Gain on Investments 38,845,382
NET INCREASE IN NET ASSETS FROM OPERATIONS $39,823,514
See Notes to Financial Statements.
11
FAM Value Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited) and Year Ended December 31, 2003
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended June 30, December 31,
2004 2003
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 978,132 $ 1,288,274
Net realized gain on investments 24,043,473 11,981,406
Unrealized appreciation of investments 14,801,909 98,021,481
Net Increase in Net Assets
From Operations 39,823,514 111,291,161
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Investor Class -- (1,284,544)
Advisor Class -- (3,423)
Net realized gain on investments
Investor Class -- (11,948,602)
Advisor Class -- (31,841)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 3): 76,537,954 12,841,546
Total Increase in Net Assets 116,361,468 110,864,297
NET ASSETS:
Beginning of period 580,141,368 469,277,071
End of period $696,502,836 $580,141,368
See Notes to Financial Statements.
12
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 1. Summary of Accounting Policies
FAM Value Fund (the "Fund") is a series of Fenimore Asset Management Trust, a
diversified, open-end management investment company registered under the
Investment Company Act of 1940. The Fund offers two classes of shares
(Investor Class and Advisor Class since January 2, 1987 and July 1, 2003,
respectively). Each class of shares has equal rights as to earnings and
assets except that each class bears different distribution expenses. Each
class of shares has exclusive voting rights with respect to matters that
affect just that class. Income, expenses (other than expenses attributable to
a specific class), and realized and unrealized gains or losses on investments
are allocated to each class of shares based on its relative net assets. The
investment objective of the Fund is to maximize long-term total return on
capital. The following is a summary of significant accounting policies
followed in the preparation of its financial statements.
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to
trading on NASDAQ are valued at the last reported sale price or the
NASDAQ official closing price. Common stocks for which no sale was
reported, and over-the-counter securities, are valued at the last
reported bid price. Short-term securities are carried at amortized cost,
which approximates value. Securities for which market quotations are not
readily available or have not traded are valued at fair value as
determined by procedures established by the Board of Trustees.
b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual
results could differ from those estimates.
d) Other
Securities transactions are recorded on trade date. Realized gains and
losses on securities sold are determined on the basis of identified
cost. Interest income is accrued as earned and dividend income is
recorded on the ex-dividend date. Distributions to shareholders, which
are determined in accordance with income tax regulations, are recorded
on the ex-dividend date.
Note 2. Investment Advisory Fees
and Other Transactions with Affiliates
Under the Investment Advisory Contract, the Fund pays an investment
advisory fee to Fenimore Asset Management, Inc. (the "Advisor") equal, on an
annual basis, to 1% of the Fund's average
13
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
daily net assets. Thomas Putnam is an officer and trustee of the Fund and
also an officer and director of the Advisor. The Investment Advisory Contract
requires the Advisor to reimburse the Investor Class for its expenses to the
extent that such expenses, including the advisory fee, for the fiscal year
exceed 2.00% of the average daily net assets. For the period ended June 30,
2004 the Advisor contractually agreed to reimburse the Fund for its expenses
to the extent such expenses exceed 1.28% and 2.28% of the average daily net
assets of the Investor Class and Advisor Class, respectively. No such
reimbursement was required for the period ended June 30, 2004. FAM
Shareholder Services, Inc. (FSS), a company under common control with the
Advisor, serves as shareholder servicing agent and receives a monthly fee of
$2.00 per shareholder account. Additionally, FSS serves as the fund
administrative agent and receives an annual fee based upon current assets
equal to 0.075% of the Fund's average daily net assets. Fenimore Securities,
Inc. (FSI), a company also under common control with the Advisor, acts as
distributor of the Fund's shares. On July 1, 2003, the Fund adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 for the Advisor Class of shares. Under the plan the Fund pays FSI a
total of 1.00% per annum of the Advisor Class shares' average daily net
assets.
Note 3. Shares of Beneficial Interest
At June 30, 2004 an unlimited number of $.001 par value shares of
beneficial interest were authorized. The Advisor Class of shares that are
redeemed within the first eighteen months of purchase are subject to a 1.00%
redemption fee. Transactions were as follows:
SIX MONTHS ENDED 6/30/04 YEAR ENDED 12/31/03
Shares Amount Shares Amount
Shares sold
Investor Class 2,598,279 $111,918,953 2,755,111 $ 102,629,151
Advisor Class 39,678 1,688,258 38,618 1,520,037
Shares issued on
reinvestment of dividends
Investor Class -- -- 305,770 12,609,968
Advisor Class -- -- 819 33,602
Shares redeemed
Investor Class (865,332) (37,057,221) (2,928,786) (103,897,681)
Advisor Class (280) (12,036) (1,295) (53,531)
Net Increase from Investor Class
Share Transactions 1,732,947 $ 74,861,732 132,095 $ 11,341,438
Net Increase from Advisor Class
Share Transactions 39,398 $ 1,676,222 38,142 $ 1,500,108
14
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 4. Investment Transactions
During the period ended June 30, 2004, purchases and sales of investment
securities, other than short term obligations were $51,047,530 and
$40,495,139. The cost of securities for federal income tax purposes is
substantially the same as shown in the investment portfolio. Realized gains
and losses are reported on an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio
securities, based on cost for federal income tax purposes, was as follows:
Unrealized appreciation $237,536,951
Unrealized depreciation (6,912,723)
Net unrealized appreciation $230,624,228
Note 5. Line of Credit
FAM Value Fund has a line of credit up to 33 1/3% of total net assets or a
maximum of $100,000,000. Borrowings under the agreement bear interest at the
prime rate as announced by the lending bank. The line of credit is available
until December 1, 2004 when any advances are to be repaid. During the period
ended June 30, 2004 no amounts were drawn from the available line.
Note 6. Commitments and Contingencies
In the normal course of business, the Fund enters into contracts that contain
a variety of representations and warranties which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that might be made against the
Fund that have not yet occurred. However, based on experience, the Fund
expects the risk of loss to be remote.
15
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights
FAM VALUE FUND -- ADVISOR CLASS SHARES
Six Months
Ended June 30, Period Ended December 31,
Per share information<F1>
(For a share outstanding throughout the period) 2004 2003<F2>
Net asset value, beginning of period $40.96 $37.10
Income from investment operations:
Net investment income 0.00 0.00
Net realized and unrealized gain on investments 2.52 4.82
Total from investment operations 2.52 4.82
Less distributions:
Dividends from net investment income -- (0.09)
Distributions from net realized gains -- (0.87)
Total distributions -- (0.96)
Change in net asset value for the period 2.52 3.86
Net asset value, end of period $43.48 $40.96
Total Return 6.15%<F4> 12.99%<F4>
Ratios/supplemental data
Net assets, end of period (000) $3,372 $1,562
Ratios to average net assets of:
Expenses 2.20%<F3> 2.25%<F3>
Net investment income (0.68)%<F3> (0.02)%<F3>
Portfolio turnover rate 7.32% 9.43%
<FN>
<F1> Based on average shares outstanding.
<F2> Beginning of period reflects Advisor class shares inception date of
7/1/03.
<F3> Annualized
<F4> Not Annualized
</FN>
16
FAM Value Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights continued
FAM VALUE FUND -- INVESTOR CLASS SHARES
Six Months
Ended June 30, Years Ended December 31,
Per share information
(For a share outstanding throughout the period) 2004 2003 2002 2001 2000 1999
Net asset value, beginning of period $ 41.15 $ 33.69 $ 36.17 $ 32.70 $ 31.35 $ 34.44
Income from investment operations:
Net investment income 0.07 0.10 0.11 0.17 0.36 0.29
Net realized and unrealized
gain (loss) on investments 2.66 8.32 (2.04) 4.77 5.38 (2.00)
Total from investment operations 2.73 8.42 (1.93) 4.94 5.74 (1.71)
Less distributions:
Dividends from net
investment income -- (0.09) (0.11) (0.17) (0.36) (0.29)
Distributions from net
realized gains -- (0.87) (0.44) (1.30) (4.03) (1.09)
Total distributions -- (0.96) (0.55) (1.47) (4.39) (1.38)
Change in net asset value
for the period 2.73 7.46 (2.48) 3.47 1.35 (3.09)
Net asset value, end of period $ 43.88 $ 41.15 $ 33.69 $ 36.17 $ 32.70 $ 31.35
Total Return 6.63%<F2> 24.98% (5.33)% 15.07% 19.21% (4.84)%
Ratios/supplemental data
Net assets, end of period (000) $693,131 $578,579 $469,277 $501,417 $366,948 $373,277
Ratios to average net assets of:
Expenses 1.21%<F1> 1.24% 1.21% 1.21% 1.26% 1.23%
Net investment income 0.32% 0.26% 0.30% 0.56% 1.08% 0.86%
Portfolio turnover rate 7.32% 9.43% 17.51% 9.62% 9.53% 16.16%
<FN>
<F1> Annualized
<F2> Not Annualized
</FN>
17
FAM Equity-Income Fund [LOGO]
Dear Fellow Equity-Income Fund Shareholder:
For the first half of 2004, FAM Equity-Income Fund Advisor class shares are
up 3.8%. It is slightly ahead of the S&P 500 Index, which was up 3.4% and
slightly behind the Russell 2000 Index, which was up 6.7%. We believe we are
off to a good start this year because the activity level in our research team
has never been higher. We are exploring many new ideas and have cash at the
ready to take advantage of any opportunities that we discover. Furthermore,
two of the companies in the Fund are being bought by other companies for a
premium price.
In terms of performance, the market overall has been, well, ho-hum for
the first six months of the year. The S&P 500 Index is up 3.4%, but it has
been a bumpy ride. The index has traded in a range of -1% to +4%. Even though
the economy is gaining strength this year and corporate earnings are expected
to show nice growth, investors still face many worries and concerns. The
Federal Reserve is increasing interest rates, violence remains a part of
everyday life in Iraq, and the possibility of a terrorist strike still looms.
All these worries are holding the market back, but they do provide us with
occasional buying opportunities.
Last year as you may recall, we had a difficult time finding anything
to buy once the post war rally began. Increasing valuations of existing
holdings meant that we could not increase positions, but we did find a few
top notch companies to add to the Fund. Our frustration with increasing stock
prices made us reflect on how often in our research process we have noticed
that companies we are researching today, sold at very compelling valuations a
few years ago. Since the companies looked just as solid then as they do
today, we asked ourselves how we can identify good buying opportunities
sooner, for there is always one company out there that is a compelling buy.
With that in mind we decided to redouble our efforts to find new names for
the Fund. We are not satisfied waiting for good buying opportunities to come
to us: we want to make our own luck.
The result of this effort is a significant increase in new idea
activity. In fact, the number of calls that we made to management teams to
learn more about their companies in the first six months of this year is
almost equal to the number we did for the full year last year. The tangible
results of the effort so far are one new company added to the portfolio and a
few others added to the buy list.
Portfolio Performance
The big story in the first half of the year is the acquisition of two of our
portfolio holdings by other companies. New England Business Services (NEBS)
was bought by Deluxe Corp., for $44 per share in cash, a 32% premium to the
market price. NEBS was first purchased for the Fund in 1996 as one of the
original holdings. Over the years we had several opportunities to add to the
position and average down on our cost. In fact, in 2000, when the stock was
selling for $15 per share (which was only six times earnings) we were
aggressively buying the stock. We knew that not much needed to happen to earn
a superb return. This was the most undervalued stock that we owned for many
years.
18
FAM Equity-Income Fund [LOGO]
South Trust Bank, a relatively small holding in the Fund, is this
year's second acquisition story: it is being acquired by Wachovia for stock.
The deal was announced at an 11% premium to the market. This is another
instance where we were able to buy the stock at unusually depressed levels in
2000, since nobody, during the technology bubble, wanted to own a stodgy old
bricks and mortar banking business.
The worst performing companies in the Fund for the first half of the
year were Callaway Golf (-32.9%), Ethan Allen Interiors (-13.8%), and
Reynolds and Reynolds (-19.6%). All three of these companies share something
in common. Each one pre-announced their results for the second quarter and
brought earnings guidance down for the full year. Disappointed investors
reacted immediately by dumping shares, which punished stock prices. When the
economy is improving and the general outlook is positive, many investors seem
to have a "zero tolerance" policy towards significant downward revisions in
guidance.
We still like Ethan Allen very much and will add to our position at the
right price. It is a quality company that is "master of its destiny" since it
controls its distribution by owning stores. Reynolds and Reynolds is a
company where the jury is still out. The CEO is being replaced, which should
be good news and may be a catalyst for positive change. Callaway Golf is
another matter. We learned that the company is drastically changing its
business strategy to go head-to-head with its major competitor. This change
will be costly and will hurt earnings. Our view is that nobody ever wins a
price war.
Outlook
We think that current market conditions should reward careful stock pickers.
The overall market is going sideways, yet there is volatility. This
combination creates opportunity. We spend a lot of time valuing companies by
trying to figure out what the entire business enterprise is worth. We then
remain disciplined to buy them at a price well below what we estimate to be
their intrinsic value. The consistent application of this approach has
rewarded us with strong long-term results. It also strengthens our conviction
to buy companies like NEBS and SouthTrust at what we consider to be
compellingly low prices.
Thank you for your continued support and we hope you are having a
terrific summer.
Sincerely,
/s/ Paul Hogan
Paul Hogan, CFA
Co-Manager
/s/ Thomas O. Putnam
Thomas O. Putnam
Co-Manager
19
FAM Equity-Income Fund -- Statement of Investments [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
COMMON STOCKS (89.4%)
Banking (6.4%)
Banknorth Group, Inc.
o multi-bank holding
company in Portland, ME 42,200 $ 1,370,656
North Fork Bancorporation
o bank holding company
located on Long Island, NY 73,000 2,777,650
SouthTrust Corporation
o bank holding company
headquartered in Alabama 41,200 1,598,972
TCF Financial Corp.
o holding company for
TCF National Bank,
operating throughout
the Midwest 31,500 1,828,575
TrustCo Bank Corp NY
o operates bank offices
primarily in upstate New York 18,607 243,752
7,819,605
Commercial Services (2.6%)
McGrath RentCorp
o modular building and
electronic test equipment
rentals, subsidiary
classroom manufacturing 85,000 3,140,750
Computer Software & Services (1.8%)
Reynolds & Reynolds
o software for automotive
dealers and business forms 92,600 2,141,838
Construction Materials (5.6%)
Martin Marietta Materials
o produces aggregates for the
construction industry 63,000 2,792,790
Vulcan Materials Company
o produces, distributes
and sells construction
materials and industrial
and specialty chemicals 85,500 4,065,525
6,858,315
Consumer Services (3.4%)
H&R Block, Inc.
o leader in individual and small
business tax preparation 86,350 4,117,168
Home Furnishings (3.1%)
Ethan Allen Interiors
o manufactures and retails
home furnishings 107,000 3,842,370
Insurance Agency (2.1%)
Brown & Brown, Inc.
o one of the largest
independent general
insurance agencies
in the U.S. 60,600 2,611,860
Investment Management (4.9%)
Federated Investors
o provides investment
management products
and services primarily
to mutual funds 159,900 4,851,366
See Notes to Financial Statements.
20
FAM Equity-Income Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Investment Management (4.9%) continued
Waddell & Reed Financial, Inc.
o provides a wide range
of investment products
and services through its
subsidiaries, including
mutual funds and
insurance products 51,409 $ 1,136,653
5,988,019
Leisure Products (2.7%)
Callaway Golf Company
o designs, manufactures
and sells golf clubs
and golf balls 293,000 3,322,620
Life Insurance (4.4%)
Protective Life Corporation
o individual and group
life/health insurance and
guaranteed investment contracts 140,219 5,422,269
Machinery & Equipment (9.9%)
IDEX Corporation
o manufactures proprietary,
highly engineered
industrial products and pumps 134,137 4,607,606
Kaydon Corporation
o custom-engineers products
including bearings,
filters, and piston rings 124,000 3,835,320
MOCON, Inc.
o manufactures precision
measurement, process sensing,
and control instruments/systems 24,000 204,000
Tennant Company
o manufactures commercial
and institutional floor
maintenance equipment
and products 84,295 3,494,028
12,140,954
Media (2.5%)
Meredith Corporation
o magazine publishing
and tv broadcasting 55,300 3,039,288
Property and Casualty Insurance (4.4%)
White Mountains Ins. Grp., Ltd.
o personal property and
casualty, and reinsurance 10,575 5,393,250
Publishing (7.1%)
Courier Corporation
o manufactures and publishes
specialty books,
including Dover Publications 76,500 3,193,110
John Wiley & Sons, Inc.
o publisher of print and
electronic products,
specializing in scientific,
technical professional
and medical books and journals 172,650 5,524,800
8,717,910
See Notes to Financial Statements.
21
FAM Equity-Income Fund -- Statement of Investments continued [LOGO]
June 30, 2004 (Unaudited)
SHARES VALUE
Recreation and Entertainment (4.6%)
International Speedway Corporation
o owns and operates
auto racing tracks
including Daytona 91,400 $ 4,445,696
Six Flags Preferred B 7.25%
o operates regional theme
parks in U.S.,
Mexico and Europe 54,900 1,229,760
5,675,456
Registered Investment Company (3.9%)
Allied Capital Corp.
o venture capital corporation
for entrepreneurs
and management 193,714 4,730,496
Restaurants (3.5%)
Outback Steakhouse
o operates a diversified
restaurant system including
Outback Steakhouse,
Carrabba's Italian Grill,
Roy's and Bonefish Grill 102,850 4,253,876
Retail Apparel (4.3%)
Liz Claiborne, Inc.
o designs and markets
an extensive range
of branded men's and
women's apparel,
accessories and fragrance 147,025 5,289,960
Retail Stores (5.1%)
Cato Corp.
o operates women's fashion
specialty stores 165,300 3,710,985
Ross Stores, Inc.
o chain of off-price
retail apparel and
home accessories stores 94,400 2,526,144
6,237,129
Specialty Retail (4.2%)
Movie Gallery, Inc.
o home video specialty
retailer primarily focused
on rural and secondary markets 264,025 5,161,688
Telecommunications Services (2.7%)
Hickory Tech Corp.
o small local telephone
company in Minnesota 325,848 3,294,323
Total Common Stocks (Cost $92,283,784) $109,199,144
Short Term Obligations (10.6%) PRINCIPAL
U.S. Treasury Bill, 0.9%,
with maturities to 8/5/04 $4,000,000 3,995,956
U.S. Treasury Bill, 1.1%,
with maturities to 8/12/04 $9,000,000 8,987,820
Total Short Term Obligations (Cost $12,983,776) 12,983,776
Total Investments (Cost $105,267,560) $122,182,920
See Notes to Financial Statements.
22
FAM Equity-Income Fund [LOGO]
June 30, 2004 (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
Assets
Investment in securities at value (Cost $105,267,560) $122,182,920
Cash at interest 4,263,482
Dividends and interest receivable 69,642
Total Assets 126,516,044
Liabilities
Payable for investment securities purchased 415,088
Accrued management fees 102,094
Accrued shareholder accounting and administrative fees 12,391
Accrued expenses 58,420
Total Liabilities 587,993
Net Assets
Source of Net Assets:
Net capital paid in on shares of beneficial interest
Investor Class Shares 104,196,173
Advisor Class Shares 2,150,958
$106,347,131
Undistributed net investment income 18,208
Accumulated net realized gain 2,647,352
Net unrealized appreciation 16,915,360
Net Assets $125,928,051
Net Asset Value Per Share
Investor Class Shares -- based on net assets of
$123,667,599 and 6,521,244 shares outstanding $18.96
Advisor Class Shares -- based on net assets of
$2,260,452 and 119,748 shares outstanding $18.88
See Notes to Financial Statements.
23
FAM Equity-Income Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited)
STATEMENT OF OPERATIONS
INVESTMENT INCOME
Income
Dividends $1,372,015
Interest 74,218
Total Income 1,446,233
Expenses
Investment advisory fee (Note 2) 607,962
Administrative fee (Note 2) 45,597
Shareholder servicing and related expenses (Note 2) 26,686
Printing and mailing 25,590
Professional fees 7,559
Registration fees 26,567
Custodial fees 7,500
Trustees 19,197
Distribution and Service Fees -- Advisor Class Shares 8,671
Other 33,668
Total Expenses 808,997
Net Investment Income 637,236
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,646,940
Unrealized appreciation of investments 1,477,469
Net Gain on Investments 4,124,409
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,761,645
See Notes to Financial Statements.
24
FAM Equity-Income Fund [LOGO]
Six Months Ended June 30, 2004 (Unaudited) and Year Ended December 31, 2003
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended June 30, December 31,
2004 2003
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 637,236 $ 687,927
Net realized gain on investments 2,646,940 1,149,258
Unrealized appreciation of investments 1,477,469 16,234,993
Net Increase in Net Assets
From Operations 4,761,645 18,072,178
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Investor Class (614,174) (684,670)
Advisor Class -- (3,198)
Net realized gain on investments
Investor Class -- (1,136,192)
Advisor Class -- (12,729)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 3): 6,295,160 25,281,516
Total Increase in Net Assets 10,442,631 41,516,905
NET ASSETS:
Beginning of period 115,485,420 73,968,515
End of period $125,928,051 $115,485,420
See Notes to Financial Statements.
25
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 1. Summary of Accounting Policies
FAM Equity-Income Fund (the "Fund") is a series of Fenimore Asset Management
Trust, a no-load, diversified, open-end management investment company
registered under the Investment Company Act of 1940. The Fund offers two
classes of shares (Investor Class and Advisor Class since April 1, 1996 and
July 1, 2003, respectively). Each class of shares has equal rights as to
earnings and assets except that each class bears different distribution
expenses. Each class of shares has exclusive voting rights with respect to
matters that affect just that class. Income, expenses (other than expenses
attributable to a specific class), and realized and unrealized gains or
losses on investments are allocated to each class of shares based on its
relative net assets. The investment objective of the Fund is to provide
current income and long term capital appreciation from investing primarily in
income-producing equity securities. The following is a summary of significant
accounting policies followed in the preparation of its financial statements.
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to
trading on NASDAQ are valued at the last reported sale price or the
NASDAQ official closing price. Common stocks for which no sale was
reported, and over-the-counter securities, are valued at the last
reported bid price. Short-term securities are carried at amortized cost,
which approximates value. Securities for which market quotations are not
readily available or have not traded are valued at fair value as
determined by procedures established by the Board of Trustees.
b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual
results could differ from those estimates.
d) Other
Securities transactions are recorded on trade date. Realized gains and
losses on securities sold are determined on the basis of identified
cost. Interest income is accrued as earned and dividend income is
recorded on the ex-dividend date. Distributions to shareholders, which
are determined in accordance with income tax regulations, are recorded
on the ex-dividend date.
Note 2. Investment Advisory Fees
and Other Transactions with Affiliates
Under the Investment Advisory Contract, the Fund pays an investment
advisory fee to Fenimore Asset Management, Inc. (the "Advisor") equal, on an
annual basis, to 1% of the Fund's average daily net assets. Thomas Putnam is
an officer
26
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
and trustee of the Fund and also an officer and director of the Advisor. The
Investment Advisory Contract requires the Advisor to reimburse the Investor
Class for its expenses to the extent that such expenses, including the
advisory fee, for the fiscal year exceed 2% of the average daily net assets.
For the period ended June 30, 2004 the Advisor contractually agreed to
reimburse the Fund for its expenses to the extent such expenses exceed 1.40%
and 2.40% of the average daily net assets of the Investor Class and Advisor
Class, respectively. No such reimbursement was required for the period ended
June 30, 2004. FAM Shareholder Services, Inc. (FSS), a company under common
control with the Advisor, serves as shareholder servicing agent and receives
a monthly fee of $2.00 per shareholder account. Additionally, FSS serves as
the fund administrative agent and receives a fee equal, on an annual basis,
to 0.075% of the Fund's average daily net assets. Fenimore Securities, Inc.
("FSI"), a company also under common control with the Advisor, acts as
distributor of the Fund's shares. On July 1, 2003, the Fund adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 for the Advisor Class of shares. Under the plan the Fund pays FSI a
total of 1.00% per annum of the Advisor Class shares' average daily net
assets.
Note 3. Shares of Beneficial Interest
At June 30, 2004 an unlimited number of $.001 par value shares of
beneficial interest were authorized. The Advisor Class of shares that are
redeemed within the first eighteen months of purchase are subject to a 1.00%
redemption fee. Transactions were as follows:
SIX MONTHS ENDED 6/30/04 YEAR ENDED 12/31/03
Shares Amount Shares Amount
Shares sold
Investor Class 1,535,656 $ 28,970,592 4,174,191 $ 68,574,439
Advisor Class 51,577 966,897 71,299 1,241,823
Shares issued on
reinvestment of dividends
Investor Class 30,656 581,226 97,475 1,727,896
Advisor Class -- -- 847 15,371
Shares redeemed
Investor Class (1,294,550) (24,170,012) (2,808,318) (46,258,908)
Advisor Class (2,859) (53,543) (1,116) (19,105)
Net Increase from Investor Class
Share Transactions 271,762 $ 5,381,806 1,463,348 $ 24,043,427
Net Increase from Advisor Class
Share Transactions 48,718 $ 913,354 71,030 $ 1,238,089
27
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 4. Investment Transactions
During the period ended June 30, 2004, purchases and sales of investment
securities, other than short term obligations were $16,759,247 and
$7,728,571. The cost of securities for federal income tax purposes is
substantially the same as shown in the investment portfolio. Realized gains
and losses are reported on an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio
securities, based on cost for federal income tax purposes, was as follows:
Unrealized appreciation $20,198,093
Unrealized depreciation (3,282,733)
Net unrealized appreciation $16,915,360
Note 5. Line of Credit
FAM Equity-Income Fund has a line of credit up to 33 1/3% of total net assets
or a maximum of $30,000,000. Borrowings under the agreement bear interest at
the prime rate as announced by the lending bank. The line of credit is
available until December 1, 2004 when any advances are to be repaid. During
the period ended June 30, 2004 no amounts were drawn from the available line.
Note 6. Commitments and Contingencies
In the normal course of business, the Fund enters into contracts that contain
a variety of representations and warranties which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that might be made against the
Fund that have not yet occurred. However, based on experience, the Fund
expects the risk of loss to be remote.
28
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights
FAM EQUITY-INCOME FUND -- ADVISOR CLASS SHARES
Six Months
Ended June 30, Period Ended December 31,
Per share information<F1>
(For a share outstanding throughout the period) 2004 2003<F2>
Net asset value, beginning of period $18.18 $16.77
Income from investment operations:
Net investment income 0.03 0.10
Net realized and unrealized gain on investments 0.67 1.54
Total from investment operations 0.70 1.64
Less distributions:
Dividends from net investment income -- (0.05)
Distributions from net realized gains -- (0.18)
Total distributions -- (0.23)
Change in net asset value for the period 0.70 1.41
Net asset value, end of period $18.88 $18.18
Total Return 3.85%<F4> 9.83%<F4>
Ratios/supplemental data
Net assets, end of period (000) $2,260 $1,291
Ratios to average net assets of:
Expenses 2.30%<F3> 2.28%<F3>
Net investment income 0.06%<F3> 1.10%<F3>
Portfolio turnover rate 7.46% 6.46%
<FN>
<F1> Based on average shares outstanding.
<F2> Beginning of period reflects Advisor class shares inception date of
7/1/03.
<F3> Annualized
<F4> Not Annualized
</FN>
29
FAM Equity-Income Fund -- Notes to Financial Statements (Unaudited) [LOGO]
Note 7. Financial Highlights continued
FAM EQUITY-INCOME FUND -- INVESTOR CLASS SHARES
Six Months
Ended June 30, Years Ended December 31,
Per share information
(For a share outstanding throughout the period) 2004 2003 2002 2001 2000 1999
Net asset value, beginning of period $ 18.27 $ 15.45 $ 16.05 $ 13.47 $12.31 $13.53
Income from investment operations:
Net investment income 0.10 0.12 0.12 0.19 0.31 0.27
Net realized and unrealized
gain (loss) on investments 0.69 3.00 (0.48) 2.58 1.76 (1.22)
Total from investment operations 0.79 3.12 (0.36) 2.77 2.07 (0.95)
Less distributions:
Dividends from net
investment income (0.10) (0.12) (0.12) (0.19) (0.31) (0.27)
Distributions from net
realized gains -- (0.18) (0.12) -- (0.60) --
Total distributions (0.10) (0.30) (0.24) (0.19) (0.91) (0.27)
Change in net asset value
for the period 0.69 2.82 (0.60) 2.58 1.16 (1.22)
Net asset value, end of period $ 18.96 $ 18.27 $ 15.45 $ 16.05 $13.47 $12.31
Total Return 4.30%<F2> 20.30% (2.25)% 20.79% 17.18% (6.98)%
Ratios/supplemental data
Net assets, end of period (000) $123,668 $114,194 $73,969 $31,194 $6,892 $6,653
Ratios to average net assets of:
Expenses, total 1.31%<F1> 1.28% 1.37% 1.56% 2.27% 2.12%
Expenses, net of fees waived and
expenses assumed by advisor 1.31%<F1> 1.28% 1.37% 1.50% 1.50% 1.50%
Net investment income 1.06%<F1> 0.73% 0.84% 1.29% 2.33% 2.15%
Portfolio turnover rate 7.46% 6.46% 7.11% 2.79% 16.59% 13.49%
<FN>
<F1> Annualized
<F2> Not Annualized
</FN>
30
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32
Investment Advisor
Fenimore Asset
Management, Inc.
Cobleskill, NY
Custodian
U.S. Bank, N.A.
Cincinnati, OH
Independent Auditors
PricewaterhouseCoopers, LLP
New York, NY
Trustees
David A. Hughey
Fred "Chico" Lager
John J. McCormack, Jr.
C. Richard Pogue
Thomas O. Putnam
Barbara V. Weidlich
Legal Counsel
Dechert, LLP
Washington, DC
Shareholder Servicing Agent
FAM Shareholder Services, Inc.
Cobleskill, NY
Distributor
Fenimore Securities, Inc.
Cobleskill, NY
[LOGO] FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, New York 12043-0399
(800) 932-3271
www.famfunds.com
[LOGO] FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, New York 12043-0399
(800) 932-3271
www.famfunds.com
Financial peace of mind through a value approach to investing
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not Applicable.
Item 6. Schedule of Investments
Not Applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10. Controls and Procedures
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c)) under the Investment Company Act of
1940, as amended (the "Act") are effective based on their evaluation of these
controls and procedures as of a date within 90 days of the filing date of
this document.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act that occurred during the
registrant's second fiscal half-year that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
Item 11. Exhibits.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2 under
the Act (17 CFR 270.30a-2) in the exact form set forth below:
(Attached hereto).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Fenimore Asset Management Trust
----------------------------------------------------------------
By (Signature and Title)* /s/ Thomas O. Putnam
---------------------------------------------------
Thomas O. Putnam, President
Date
------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By (Signature and Title)* /s/ Thomas O. Putnam
---------------------------------------------------
Thomas O. Putnam, President
Date
------------------------------------------------------------------------
By (Signature and Title)* /s/ Joseph A. Bucci
---------------------------------------------------
Joseph A. Bucci, Treasurer
Date
------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.