CAPSTONE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Dear Shareholder,
As the equity bull market has continued to move, particularly over the past
three years, questions continue to arise as to the sustainability of the
advance. We, in fact, have commented in previous communications that the
compound return for the three-year period ended in 1997 was the best ever since
1926. Many investors have asked how something so good can go on for so long. And
they are in good company. Alan Greenspan, Chairman of the Federal Reserve, has
questioned if the market were "irrationally exuberant". More recently, Treasury
Secretary Robert Ruben (a multimillionaire former partner at Goldman Sachs) has
encouraged investors to "exercise rigor" in evaluating their equity positions.
Perhaps most forbidding of all is the appearance of a bull in a wedding dress on
the cover of Business Week with the lead article entitled "Married to the Bull
Market." The sober Economist Magazine has referred to America (and its stock
market) as the "bubble economy."
As this is written the equity market, as measured by the S&P 500 index is up
13.8% for 1998. The price earnings ratio for the S&P index stands at 25 times
the last 12 months earnings. The S&P is indeed in record territory as measured
since 1954. These are the facts. The interesting and important questions are:
why are valuations where they are and what are the near term prospects.
WHY ARE VALUATIONS WHERE THEY ARE?
In much of the discussion of the current bull market in equities, it is
sometimes forgotten that another bull market has been going on as well. This is
the bull market in bonds. A clear relationship between the yield on the long
term Treasury and the multiple on the S&P 500. As bond yields go up, p/e ratios
tend to go down. Statistically, the movement in long bond yields can explain
about 60% of the variation in the S&P p/e ratio. The current bull market began
in September 1981 when bond yields peaked at 14.82% and begin their descent over
the next 17 years to the 6% levels of today. Over the same period, the p/e ratio
expanded from about 8 times earnings to the current level of 25 times. We would
add that the basis for the downward movement in yields was the break in the rate
of inflation, which came in the early 1980's, and the general downward movement
in inflation rates over the period. This is a subject to which we shall return.
The basis for the relationship between bond yields and p/e multiples is
straightforward if one views bonds and stocks as competing for investor's
dollars. For a given level of earnings, as bond yields rise, bonds become more
attractive than stocks and p/e multiples fall. Correspondingly, as yields fall,
stocks become more attractive and multiples expand. Unfortunately, this simple
explanation gets us only part way to understanding today's lofty levels of
equity valuation. The last time bond yields were at the 6% level (in the late
1960's), p/e multiples were in the high teens at best. Why should investors be
willing to pay more for stocks today than they were in the late 1960's with
rates at the same level?
The answer, we think, lies in part in the changing relative volatility of stock
and bond returns over the past 47 years.
The volatility of stocks so far in the 1990s is about the same as it was in the
1950s. Over the same period, the volatility of bonds has more than doubled. This
means the volatility of stocks relative to bonds has fallen over time. During
the 1990s, stocks have been 1.5 times more volatile than bonds. During the
1950's, stocks were 3 times as volatile as bonds. The volatility of stocks
relative to bonds has fallen by half over the period.
Investors may be willing to pay more for stocks today at a given level of
interest rates because they believe a lower level of relative risk exists today
than in years past. We think that the perception that inflation will be dormant
for the foreseeable future plays a large part in this changing perception of
relative risks.
WHAT ARE THE NEAR TERM PROSPECTS?
Our analysis so far simply says that because of changing perceptions of risk,
today's valuations, while high, may be somewhat less "irrationally exuberant"
than some believe. This is another way of saying that we do not think the equity
market will decline significantly just because it is "too high". The factors to
watch are the same as they have always been: inflation, interest rates,
earnings, and volatility. Over the next few months we expect to see more
frequent "inflation scares" as economic reports come out confirming economic
vitality in the U.S. and Europe. We also believe that the deflationary events of
late last year in Asia have yet to wash through world economy. Our belief is
that events will once again conspire to offset each other and inflation will
remain contained. If we are correct about inflation, then we suspect that
long-term interest rates will move in the trading range of 5.75% to 6.25% for
the next few months. As we have written before, we expect the earnings growth
rate of the past few years to moderate in the coming months, but with economic
growth continuing, profit growth should remain positive. With our outlook for
inflation fairly benign, and interest rates contained, we do not see the
ingredients in the near term for a bone cracking bear market. By the same
measure, we believe that lower interest rates combined with continued earnings
growth will be needed for equity returns to continue to approach those of recent
years.
<PAGE>
CAPSTONE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
THE PORTFOLIO
The Fund is widely diversified by industry sector. At April 30, 1998 the
percentages of equity investments of the Fund by major categories were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Finance 16.77% Retail Trade 3.25%
Health Technology 9.87% Process Industries 2.56%
Consumer Non-Durables 9.14% Industrial Services 2.02%
Electronic Technology 8.50% Consumer Durables 1.29%
Utilities 7.50% Non-Energy Minerals 0.95%
Energy Minerals 5.86% Commercial Services 0.64%
Technology Services 5.82% Health Services 0.54%
Producer Manufacturing 5.65% Transportation 0.40%
Consumer Services 4.21%
</TABLE>
If you have any questions please feel free to contact us. We thank you for your
continued support.
Sincerely,
/s/ Dan Watson
- ------------------------------
Dan Watson
President and Portfolio Manager
THIS PUBLICATION MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENT PROSPECTUS FOR CAPSTONE GROWTH FUND.
<PAGE>
CAPSTONE GROWTH FUND, INC.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - APRIL 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE PERCENTAGE OF
COMMON STOCKS (84.97%) SHARES (NOTE 1-A) NET ASSETS
-------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL SERVICES (0.64%)
McGraw Hill Co., Inc. 6,220 $ 481,661 0.64%
CONSUMER DURABLES (1.29%)
Chrysler Corporation 5,000 200,938 0.27%
Ford Motor Company 7,520 344,510 0.46%
General Motors Corporation 6,250 421,094 0.56%
---------- ------
966,542 1.29%
CONSUMER NON-DURABLES (9.14%)
Anheuser Busch Cos., Incorporated 15,000 687,188 0.91%
Coca Cola Company 18,590 1,410,516 1.88%
Gillette Company 9,460 1,092,039 1.45%
Kimberly-Clark Corporation 13,050 662,288 0.88%
Pepsico Incorporated 14,640 581,025 0.77%
Philip Morris Cos., Incorporated 20,900 779,831 1.04%
Proctor & Gamble Company 9,400 772,563 1.03%
UST Incorporated 16,650 458,916 0.61%
VF Corporation 8,260 429,520 0.57%
---------- ------
6,873,886 9.14%
CONSUMER SERVICES (4.21%)
Cendant Corporation (a) 16,344 408,600 0.54%
The Walt Disney Company 10,860 1,350,034 1.80%
Gannett Co., Incorporated 12,800 869,600 1.16%
McDonalds Corporation 8,680 537,075 0.71%
---------- ------
3,165,309 4.21%
ELECTRONIC TECHNOLOGY (8.50%)
Cisco Systems (a) 9,605 703,566 0.94%
Compaq Computer Corporation 10,120 283,993 0.38%
Hewlett-Packard Company 9,950 749,359 1.00%
Intel Corporation 9,430 762,062 1.01%
International Business Machines 10,160 1,177,290 1.56%
LSI Logic Corporation (a) 15,000 406,875 0.54%
Lockheed Martin Corporation 10,450 1,163,869 1.55%
Lucent Technologies 6,000 456,750 0.61%
3COM Corporation (a) 20,000 685,000 0.91%
---------- ------
6,388,764 8.50%
<PAGE>
<CAPTION>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
<S> <C> <C> <C>
ENERGY MINERALS (5.86%)
Chevron Corporation 3,570 $ 295,194 0.39%
Exxon Corporation 18,070 1,317,981 1.75%
Mobil Corporation 6,240 492,960 0.66%
Phillips Petroleum Company 10,230 507,024 0.67%
Royal Dutch Petroleum 16,510 933,847 1.24%
Texaco, Incorporated 6,570 404,055 0.54%
USX-Marathon Group 12,830 459,474 0.61%
---------- ------
4,410,535 5.86%
FINANCE (16.77%)
American Express Corporation 2,830 288,660 0.38%
American International Group 5,580 734,119 0.98%
Associates First Capital Class A 1,970 147,258 0.20%
BB & T Corporation 11,500 773,375 1.03%
Bankamerica Corporation 7,820 664,700 0.88%
Chase Manhattan Corporation 3,660 507,139 0.67%
Comerica Incorporated 7,635 511,068 0.68%
Federal Home Loan Mortgage Corporation 17,780 823,436 1.10%
Federal National Mortgage Association 11,260 674,193 0.90%
First Chicago NBD Corporation 6,910 641,766 0.85%
First Union Corporation 11,260 679,823 0.90%
Fleet Financial Group Incorporated 7,090 612,399 0.81%
Jefferson Pilot Company 12,060 707,771 0.94%
Keycorp 13,960 554,037 0.74%
MBIA Incorporated 11,070 826,099 1.10%
Morgan Stanley, Dean Witter & Company 4,600 362,825 0.48%
Nationsbank Corporation 8,080 612,060 0.81%
St. Paul Companies, Incorporated 4,730 400,867 0.53%
Southtrust Corporation 13,515 576,922 0.77%
Torchmark Corporation 14,260 635,461 0.85%
Traveler's Group, Incorporated 14,400 881,100 1.17%
---------- ------
12,615,078 16.77%
HEALTH SERVICES (0.54%)
United Healthcare Corporation 5,760 404,640 0.54%
HEALTH TECHNOLOGY (9.87%)
Abbott Labs 9,610 702,731 0.93%
American Home Products Corporation 8,120 756,175 1.01%
Bristol-Myer Squibb Company 9,100 963,463 1.28%
Johnson & Johnson 11,590 827,236 1.10%
Lilly Eli & Company 10,020 697,016 0.93%
Merck & Company 10,810 1,302,605 1.73%
Pfizer, Incorporated 11,260 1,281,529 1.70%
Schering-Plough Corporation 7,610 609,751 0.81%
Warner Lambert Company 1,510 285,673 0.38%
---------- ------
7,426,179 9.87%
<PAGE>
<CAPTION>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
<S> <C> <C> <C>
INDUSTRIAL SERVICES (2.02%)
Helmerich & Payne, Incorporated 9,740 $ 297,070 0.39%
Transocean Offshore, Incorporated 10,000 558,750 0.74%
USA Waste Services, Incorporated (a) 13,700 672,156 0.89%
---------- ------
1,527,976 2.02%
NON-ENERGY MINERALS (0.95%)
Phelps Dodge Corporation 6,620 444,368 0.59%
Reynolds Metals Company 4,100 270,600 0.36%
---------- ------
714,968 0.95%
PROCESS INDUSTRIES (2.56%)
Crown Cork & Seal Company 6,250 325,391 0.43%
Dow Chemical Company 6,810 658,442 0.88%
Dupont (E.I.) De Nemours & Company, Incorporated 8,420 613,081 0.82%
Morton International, Incorporated 10,000 320,000 0.43%
---------- ------
1,916,914 2.56%
PRODUCER MANUFACTURING (5.65%)
Dover Corporation 12,800 505,600 0.67%
General Electric Company 24,500 2,085,562 2.77%
Honeywell, Incorporated 5,970 555,956 0.74%
Minnesota Mining & Manufacturing Company 8,130 767,269 1.02%
Xerox Corporation 3,000 340,500 0.45%
---------- ------
4,254,887 5.65%
RETAIL TRADE (3.25%)
Dayton Hudson Corporation 6,310 550,942 0.73%
Federated Department Stores (a) 4,050 199,209 0.26%
Home Depot, Incorporated 6,370 443,511 0.59%
Kohls Corporation 4,940 204,084 0.27%
Proffits, Incorporated (a) 9,460 376,035 0.50%
Wal-Mart Stores, Incorporated 13,340 674,504 0.90%
--------- ------
2,448,285 3.25%
TECHNOLOGY SERVICES (5.82%)
Computer Associates International, Incorporated 4,140 242,449 0.32%
Electronic Data Systems Corporation 12,190 524,170 0.70%
First Data Corporation 20,000 677,500 0.90%
Microsoft Corporation 18,500 1,667,312 2.22%
Parametric Technology Corporation 24,000 767,250 1.02%
Rite Aid Corporation 15,400 494,725 0.66%
---------- ------
4,373,406 5.82%
TRANSPORTATION (0.40%)
AMR Corporation (a) 1,960 298,655 0.40%
<PAGE>
<CAPTION>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
SHARES MARKET
OR VALUE PERCENTAGE OF
PAR VALUE (NOTE 1-A) NET ASSETS
UTILITIES (7.50%)
AT&T Corporation 7,700 $ 462,481 0.61%
Airtouch Communications, Incorporated (a) 10,690 567,906 0.76%
Ameritech Corporation 10,000 425,625 0.57%
Bell Atlantic Corporation 5,000 467,812 0.62%
Bellsouth Corporation 8,000 513,500 0.68%
El Paso Natural Gas 11,100 410,006 0.55%
Enron Corporation 15,000 737,812 0.98%
SBC Communications, Incorporated 14,000 580,125 0.77%
Williams Cos., Incorporated 22,400 708,400 0.94%
Worldcom, Incorporated (a) 17,900 765,784 1.02%
---------- ------
5,639,451 7.50%
TOTAL COMMON STOCK (Cost $50,467,507) 63,907,136 84.97%
U.S. GOVERNMENT OBLIGATIONS (1.33%)
U.S. Treasury Bill 5/14/1998 (Cost $998,009) $1,000,000 998,480 1.33%
CASH EQUIVALENTS (2.75%)
Aim Prime Money Market (Cost $2,070,530) 2,070,530 2,070,530 2.75%
COMMERCIAL PAPER (10.64%)
American Express, 5.51%, due 5/8/98 1,600,000 1,600,000 2.13%
Ford Motor Company, 5.50%, due 5/6/98 2,500,000 2,500,000 3.32%
General Electric Capital Corporation, 5.48%, due 5/1/98 1,600,000 1,600,000 2.13%
IBM Credit Corporation, 5.40%, due 5/4/98 2,300,000 2,300,000 3.06%
---------- ------
Total Commercial Paper (Cost $8,000,000) 8,000,000 10.64%
TOTAL INVESTMENTS (Cost $61,536,046) 74,976,146 99.69%
OTHER ASSETS, LESS LIABILITIES 234,312 0.31%
---------- ------
NET ASSETS $75,210,458 100.00%
=========== =======
(a) Non-income producing security
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at market value (identified cost $61,536,046)(Note 1A) $ 74,976,146
Cash 245,881
Receivable for capital stock sold 350
Dividends receivable 47,343
Interest receivable 16,096
-------------
Total Assets 75,285,816
-------------
LIABILITIES:
Accrued expenses 75,358
-------------
NET ASSETS $ 75,210,458
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
($75,210,458 / 4,885,520 shares outstanding of $.001 par value, 200,000,000 shares authorized) $ 15.39
=============
SOURCE OF NET ASSETS:
Paid in capital $ 57,931,342
Undistributed net investment income 442,019
Accumulated net realized gain on investments 3,396,997
Net unrealized appreciation of securities 13,440,100
-------------
$ 75,210,458
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 491,260
Interest income 390,755
------------
Total Investment Income 882,015
Expenses:
Advisory fees (Note 2) 250,772
Distribution fees (Note 2) 94,919
Transfer agent fees 28,785
Reports and notices to stockholders 5,157
Audit fees 7,427
Legal fees 1,380
Directors' fees and expenses 3,864
Custodian fees 10,930
Fund accounting fees 24,792
Registration and filing fees 3,387
Miscellaneous 1,062
------------
Total Expenses 432,475
Less: Custodian fees paid indirectly (6,245)
------------
Net Expenses 426,230
Net Investment Income 455,785
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from security transactions 3,414,428
Unrealized appreciation of investments:
Beginning of period $ 5,897,721
End of period 13,440,100
-------------
Net change in unrealized appreciation of investments 7,542,379
------------
Net realized and unrealized gain on investments 10,956,807
------------
Net increase in net assets resulting from operations $11,412,592
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
------------------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income $ 455,785 $ 658,977
Net realized gain on investments 3,414,428 15,313,482
Net change in unrealized appreciation (depreciation) of investments 7,542,379 (415,151)
------------ ------------
Net increase in net assets resulting from operations 11,412,592 15,557,308
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (672,743) (863,940)
Net realized gain on investments (15,329,188) (8,807,338)
------------ ------------
Net decrease in net assets resulting from distributions (16,001,931) (9,671,278)
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital share transactions
(Note3) 10,191,028 3,492,744
------------ ------------
Total increase in net assets 5,601,689 9,378,774
NET ASSETS:
Beginning of period 69,608,769 60,229,995
------------ ------------
End of period (including undistributed net investment income of
$442,019 and $658,977 respectively) $75,210,458 $69,608,769
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Capstone Growth Fund, Inc. (the "Fund"), is registered under the Investment
Company Act of 1940 (the "Act"), as a diversified open-end management investment
company. The Fund's investment objective is to seek long-term capital
appreciation by primarily investing in common stocks. The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
A) VALUATION OF SECURITIES - The Fund's investments in securities are carried at
market value. Securities listed on an exchange or quoted on a national market
system are valued at the last sales price. Other securities are quoted at the
mean between the most recent bid and asked prices. Short-term obligations are
valued at amortized cost.
B) FEDERAL INCOME TAXES - No provision has been made for Federal income taxes on
net income or capital gains, since it is the policy of the Fund to continue to
comply with the special provisions of the Internal Revenue Code applicable to
investment companies and to make sufficient distributions of income and capital
gains to relieve it from all, or substantially all, such taxes.
C) CASH EQUIVALENTS - Funds on deposit in money market mutual fund accounts are
considered to be a cash equivalent.
<PAGE>
CAPSTONE GROWTH FUND, INC.
D) FUTURES CONTRACTS - Initial margin deposits required upon entering into
futures contracts are made by depositing cash, as collateral, for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments are made or received, depending upon whether
unrealized gains or losses are incurred. When the contract is closed the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
The Fund may purchase or sell stock index futures contracts only as a hedge
against changes in the value of securities held in the Fund's portfolio or which
it intends to purchase and where the transactions are economically appropriate
to the reduction of the risks inherent in the ongoing management of the Fund.
Futures contracts involve credit and market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The contract amounts of
these futures contracts reflect the extent of the Fund's exposure to off-balance
sheet risk. The Fund's credit risk is minimized by entering only into futures
contracts which are traded on national futures exchanges and for which there
appears to be a liquid secondary market. The Fund assumes the market risk which
arises from any changes in securities values.
E) USE OF ESTIMATES - The preparation of the 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 at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
F) OTHER - The Fund distributes its net investment income and net realized gains
annually. Security transactions are accounted for on the date the securities are
purchased or sold. Cost is determined, and gains and losses are based, on the
identified cost basis for both financial statement and Federal income tax
purposes. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Discounts and premiums on bonds purchased are amortized over
the life of the bonds. Interest income and estimated expenses are accrued daily.
NOTE 2 - INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
The Fund retains Capstone Asset Management Company ("CAMCO") as its
Investment Adviser. Under the Investment Advisory Agreement (the "Agreement"),
the Adviser is paid a monthly fee based on the average net assets at the annual
rate of .75% on the first $50 million and .60% on the next $150 million.
Capstone Asset Planning Company ("CAPCO") serves as Distributor of the
Fund's shares. CAPCO is an affiliate of the Adviser, and both are wholly-owned
subsidiaries of Capstone Financial Services, Inc. ("CFS").
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act whereby Fund assets are used to reimburse CAPCO for
costs and expenses incurred with the distribution and marketing of shares of the
Fund and servicing of Fund shareholders. Distribution and marketing expenses
include, among other things, printing of prospectuses, advertising literature,
and costs of personnel involved with the promotion and distribution of the
Fund's shares. Under the Plan, the Fund pays CAPCO an amount computed at an
annual rate of up to 0.25% of the Fund's average net assets (including
reinvested dividends paid with respect to those assets). Of this amount, CAPCO
may reallocate to securities dealers (which may include CAPCO itself) and other
financial institutions and organizations (collectively, "Service Organizations")
amounts based on the Fund's average net assets owned by stockholders for whom
the Service Organizations have a servicing relationship. The Plan permits CAPCO
to carry forward for a maximum of twelve months distribution expenses covered by
the Plan for which CAPCO has not yet received reimbursement. For the six months
ended April 30, 1998, the Fund paid $94,919 in 12b-1 fees. Of this amount
approximately 7.9% was paid to Service Organizations other than CAPCO.
The Fund's Custodian provided credits during the period in the amount of
$6,245 against custodian charges based on the uninvested cash balances of the
Fund.
Certain officers and directors of the Fund who are also officers and
directors of the Adviser, the Distributor or CFS, received no compensation from
the Fund. During the six months ended April 30, 1998, directors of the Fund who
are not "interested persons" received directors' fees of $3,750.
<PAGE>
CAPSTONE GROWTH FUND, INC.
NOTE 3 - CAPITAL STOCK
At April 30, 1998 there were 4,885,520 shares outstanding. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 458,526 $ 6,420,478 336,768 $ 4,956,842
Shares issued to shareholders in reinvestment
of distributions 966,020 13,928,953 606,599 8,540,957
--------- ------------ ------- -----------
1,424,546 20,349,431 943,367 13,497,799
Shares redeemed (693,523) (10,158,403) (659,908) (10,005,055)
--------- ------------ ------- -----------
Net increase (decrease) 731,023 $10,191,028 283,459 $ 3,492,744
========= ============ ======= ===========
</TABLE>
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than U.S. Government securities and
short-term investments aggregated $18,515,751 and $25,585,318 respectively. At
April 30, 1998, the cost of investments for Federal income tax purposes was
$61,536,046. Accumulated net unrealized appreciation on investments was
$13,440,100 consisting of $14,097,352 gross unrealized appreciation and $657,252
gross unrealized depreciation.
NOTE 5 - DIVIDEND DISTRIBUTION
On November 11, 1997 the Board of Directors declared a distribution of
$3.81 a share, consisting of $3.65 from realized gains (long-term $1.686 per
share; short-term $1.964 per share) and $.16 from ordinary income. The
distribution was payable on December 8, 1997 to shareholders of record on
November 28, 1997.
<PAGE>
CAPSTONE GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table sets forth the per share operating performance data for a
share of capital stock outstanding, total return, ratios to average net assets
and other supplemental data for each period indicated.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
APRIL 30, YEARS ENDED OCTOBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period............... $16.76 $15.56 $13.82 $13.23 $14.43 $14.00
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income........................... 0.09 0.16 0.22 0.17 0.11 0.17
Net realized and unrealized gain (loss)......... 2.35 3.55 2.31 1.93 (0.23) 0.80
------ ------ ------ ------ ------ ------
Total from investment operations................ 2.44 3.71 2.53 2.10 (0.12) 0.97
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income........................... (0.16) (0.22) (0.06) (0.16) (0.13) (0.22)
Net realized gains.............................. (3.65) (2.29) (0.73) (1.35) (0.95) (0.32)
------ ------ ------ ------ ------ ------
Total distributions............................. (3.81) (2.51) (0.79) (1.51) (1.08) (0.54)
------ ------ ------ ------ ------ ------
Net asset value at end of period..................... $15.39 $16.76 $15.56 $13.82 $13.23 $14.43
====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (1)................................. 17.10% 26.91% 19.27% 17.04% (0.67)% 7.05%
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands)........... $75,210 $69,609 $60,230 $85,324 $80,941 $96,465
Ratio of total expenses to average net assets........ 1.20%(2) 1.25% 1.29% 1.31% 1.28% 1.24%
Ratio of net investment income to average net assets. 1.28%(2) 0.99% 1.31% 1.21% 0.78% 0.19%
Portfolio turnover rate.............................. 32% 229% 173% 119% 12% 45%
Average commission rate (per share of security)...... $ 0.0689 $ 0.0658 $ 0.0696
(1) Calculated without sales charge. Sales charge eliminated on August 21, 1995.
(2) Annualized
</TABLE>
<PAGE>
CAPSTONE GROWTH FUND, INC
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
1-800-262-6631
SEMIANNUAL REPORT TO SHAREHOLDERS
APRIL 30, 1998
- --------------------------------------------------------------------------------
DIRECTORS OFFICERS
Edward L. Jaroski Dan E. Watson
President
James F. Leary
Edward L. Jaroski
John R. Parker Executive Vice President
Bernard J. Vaughan Linda G. Giuffre
Treasurer
Iris R. Clay
Secretary
- --------------------------------------------------------------------------------
INVESTMENT ADVISER & ADMINISTRATOR TRANSFER AGENT
Capstone Asset Management Company First Data Investor Services Group, Inc.
5847 San Felipe 3200 Horizon Drive
Suite 4100 P.O. Box 61503
Houston, TX 77057 King of Prussia, PA 19406-0903
1-800-845-2340
DISTRIBUTOR CUSTODIAN
Capstone Asset Planning Company Fifth Third Bank
5847 San Felipe, Suite 4100 Fifth Third Center
Houston, TX 77057 38 Fountain Square Plaza
1-800-262-6631 Cincinnati, OH 45263
AUDITORS
Briggs, Bunting & Dougherty, LLP
Two Logan Square, Suite 2121
Philadelphia, PA 19103-4901
<PAGE>
SEMIANNUAL REPORT
APRIL 30, 1998
CAPSTONE
GROWTH
FUND, INC.
GRAPHIC OF: Pyramid
A Member Of
THE CAPSTONE GROUP
of Mutual Funds
GRAPHIC OF: Pyramid
THE CAPSTONE GROUP
OF MUTUAL FUNDS
EQUITY
O CAPSTONE GROWTH FUND, INC.
FIXED INCOME
O CAPSTONE GOVERNMENT INCOME FUND
INTERNATIONAL/GLOBAL
O CAPSTONE JAPAN FUND
O CAPSTONE NEW ZEALAND FUND
For more complete information about the Capstone Funds including charges
and expenses, contact the Distributor at the address below to receive
additional prospectuses. Please read it carefully before you invest or send
money.
This publication must be accompanied or preceded by a
current prospectus for Capstone Growth Fund, Inc.
CAPSTONE ASSET PLANNING COMPANY
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
1-800-262-6631
CAPSTONE GROWTH FUND, INC.
5847 SAN FELIPE, SUITE 4100
HOUSTON, TX 77057
