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CAPSTONE GROWTH FUND, INC.
--------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the semi-annual report for Capstone Growth Fund, Inc.
for the period ended April 30, 2000.
ECONOMIC OUTLOOK
The strong economic growth of the final quarter of 1999 rolled into the first
quarter of 2000. The financial markets took some unusual turns as long-term
interest rates headed lower in response to buybacks of long-term government
bonds, while short-term interest rates headed higher in anticipation of
additional interest rate hikes from the Federal Reserve. In the equity markets,
the "new economy" ruled once again over the "old economy" as the tech-heavy
Nasdaq composite rose 12.41% for the quarter versus a 2.29% increase for the S&P
500.
U.S. consumers continued on the spending binge that we saw at the end of 1999.
Retail sales rose 1.1% in February, following a 0.4% increase in January. Even
with higher interest rates, demand for automobiles and other interest-sensitive
durable goods remained strong as vehicle sales rose 1.4% in February and 3.0% in
January. Thirty-year home mortgage rates are up more than 1.3% (130 basis
points) since the first quarter of 1999, but that has not led to a significant
slowdown in the housing market. In February, sales of new homes were up 2.9%
from 1999. The U.S. manufacturing sector also remains strong. The National
Association of Purchasing Managers Index (NAPM) stood at 55.8 in March (the 14th
consecutive month above 50) suggesting continued strength in the sector.
The final revision to fourth quarter 1999 GDP was 7.3%, the strongest pace since
1984. Over recent years we have heard Fed chairman Greenspan discuss
productivity growth in the U.S. economy. At times he has been cautious (don't
overestimate the benefits) and at other times almost "giddy". In his February
testimony, he addressed the productivity topic again and received criticism from
many economists particularly those that subscribe to "new paradigms" that
advocate allowing faster growth in the economy. Greenspan testified that "the
profoundly beneficial forces driving the American economy to competitive
excellence are also engendering a set of imbalances that, unless contained,
threaten our continuing prosperity". Greenspan explained that the rise in
productivity may actually strengthen the wealth effect within the economy since
higher levels of productivity raise expectations for corporate earnings and lead
to even higher stock prices. The Fed is clearly concerned that tight labor
markets, rapidly rising stock prices, and high expectations of future growth
will lead to inflationary growth in the economy. Some have argued that
Greenspan's task is more difficult at this time than perhaps a decade ago since
many of these high tech companies are insensitive to small changes in short-term
interest rates. His job is also made more difficult by the fact that as soon as
the markets begin to feel that the Fed may be nearing the end of raising rates,
then stock markets rally again (creating more wealth) since investors believe
the Fed is out of the picture.
Greenspan's testimony telegraphed the interest rate increase that the Fed
approved on March 21st. At its meeting on May 16 the Fed raised rates by a full
50 basis points. At the present time there is some evidence of economic slowing,
though we doubt this will be enough to keep rates from going up again at the
next Fed meeting.
<TABLE>
<CAPTION>
[LINE CHART]
U.S. TREASURY YIELD CURVE INVERTS
12/31/99 -- 6/22/00
12/31/99 6/22/00
-------- -------
<S> <C> <C>
3 month 5.312 5.821
6 month 5.726 6.154
1 year 5.962 6.147
2 year 6.235 6.482
5 year 6.342 6.304
10 year 6.435 6.106
30 year 6.479 5.968
</TABLE>
The early months of the new millennium will be remembered as some of the most
tumultuous on record. The year began with the start of the long awaited
correction in the equity market. As measured by the S&P 500 index, the equity
market fell by 6.8 % during the first two months of the year. The market decline
during this period was led by "old economy" groups such as household appliances,
paper products and containers. The groups performing relatively well included
electronic instruments, semiconductors, and entertainment.
<PAGE>
CAPSTONE GROWTH FUND, INC.
================================================================================
Then, as suddenly as it had gone down, the market turned upward again in March,
rising 9.77% with a powerful rally led by resurgence in bank, insurance, and
other financial stocks as well as energy related stocks. By the end of the
quarter, which to some seemed at first like the end of the bull market, the S&P
produced a gain of 2.29%.
As we have stated in past reports, the equity market over the past few years has
been uncharacteristically calm, as measured by historical standards. A
statistical measure often used by investors to measure volatility is standard
deviation. In words, standard deviation measures the distance from the average
over a given time period in which individual observations fall. If the standard
deviation of a series of returns is low, it means that returns have been fairly
uniform in each period observed. If the standard deviation is high, it means
that returns have been more widely disbursed. Over the past 50 years, the
annualized monthly standard deviation of S&P 500 returns has been 13.90%. A
rolling 5 year monthly standard deviation reveals that volatility has been as
high as 18% in October, 1978 and December, 1990. This same figure has been as
low as 8.82% in January, 1997. Most recently, the five year moving standard
deviation stands at 13.05%, about average for the entire period. One of the
striking aspects of these figures is the extent to which volatility in the
equity market has fallen in recent years. What investors experience as
"increased" volatility is in fact a return to "normal" from an all time low.
The underlying causes in the recent round of increased volatility involves not
only "the usual suspects" of rising interest rates and fears of inflation, but
the increased uncertainty created as market valuations, as measured by P/E
multiples, rise to record breaking levels.
The same can be said with respect to returns. As we noted in our last letter,
the past five years of the S&P 500 have been the best ever. It is reasonable to
expect that equity returns, like volatility, will return to more normal levels
than those recently experienced.
S&P 500 STANDARD DEVIATION
[Line chart]
STANDARD
DEVIATION
Dec 53 10.8088
10.9394
10.7518
10.7507
10.7572
10.6355
10.6305
10.5793
10.7707
11.185
11.268
11.7382
11.7655
11.7655
11.7718
11.7999
11.7599
11.6775
11.5839
11.732
11.7258
11.5913
11.7758
12.1209
12.0593
12.1138
12.1623
12.3004
12.2421
12.5426
12.4502
12.3209
12.454
12.7303
12.6813
12.7141
Dec 56 12.6939
12.9388
12.927
12.8317
12.6297
12.6643
12.5941
12.593
12.8949
13.2452
13.3807
13.2401
13.3908
13.4506
13.4637
13.408
13.3336
13.3343
13.2879
13.3441
13.0101
13.0826
12.9836
12.9933
13.0848
12.9929
13.0015
12.9977
12.9446
12.8972
12.9098
12.795
12.7008
12.5767
12.5023
12.0055
Dec 59 11.8866
12.4347
12.4359
12.4638
12.4497
12.4896
12.0418
11.8831
11.9214
12.2919
12.1915
11.8412
11.9783
12.0843
12.0411
11.7394
11.7335
11.3383
11.3712
11.2533
11.1159
10.923
10.958
11.0419
10.9823
10.951
10.8297
10.8431
11.2292
11.8219
12.4502
12.7258
12.4704
12.3335
12.2102
12.9864
Dec 62 12.7894
12.8242
12.8706
12.8863
12.9646
12.962
13.009
12.9271
13.0697
12.9742
12.9968
12.9832
12.8496
12.8787
12.8799
12.8799
12.8034
12.7894
12.7862
12.7354
12.7402
12.5443
12.5436
12.5441
12.5135
12.0337
12.0374
12.0413
12.0294
12.0084
12.2767
12.1853
12.1711
11.7963
11.806
11.7235
Dec 65 11.607
11.3505
11.3525
11.4002
11.4149
11.6819
11.6176
11.5875
12.0896
12.0516
12.1626
12.0354
12.0375
12.3356
12.3198
12.4007
12.1056
11.6831
10.9438
10.7907
10.8127
10.5407
10.6874
9.7388
9.7685
9.8718
9.8874
9.8035
10.1977
10.1919
10.1156
10.1717
9.9744
10.0394
9.9761
10.1515
Dec 68 10.3631
10.3461
10.5843
10.6548
10.6774
10.6723
11.0088
11.3654
11.4821
11.502
11.6451
11.7492
11.7928
12.2277
12.4789
12.4551
13.042
13.2839
13.2908
13.6859
13.8143
13.8205
13.7783
13.9684
14.184
14.2867
14.2716
14.303
14.3566
14.2702
14.2405
14.3675
14.0021
14.0026
14.0353
14.0355
Dec 71 14.4964
14.1327
14.171
14.087
13.985
13.7894
13.8325
13.71
13.7787
13.7272
13.6448
13.7863
13.7572
13.6143
13.6535
13.6563
13.3611
13.3776
13.3814
13.4369
13.5269
13.5356
13.5353
14.2521
14.1437
14.1461
13.9973
13.9609
14.0393
14.0966
13.8889
14.0599
14.4035
15.2783
16.901
16.967
Dec 74 16.9671
17.5428
17.6045
17.6294
17.2439
17.1427
17.0433
17.0902
16.9933
17.023
17.2168
17.1186
16.9567
17.6562
17.658
17.638
17.5853
17.4963
17.5795
17.4695
17.3951
17.4105
17.327
17.329
17.069
17.2256
17.2056
17.2178
17.2175
17.2135
17.2987
17.3184
17.2552
17.2535
17.3591
17.2922
Dec 77 17.2846
17.4808
17.4307
17.4724
17.7878
17.7767
17.7925
17.8754
17.8517
17.7782
18.2581
17.5771
17.5754
17.6432
17.7079
17.8176
17.7069
17.672
17.711
17.2941
16.9233
15.8846
14.7201
14.618
14.5598
13.8149
13.5818
14.4106
14.3765
14.4107
14.3408
14.1857
14.1422
14.0239
13.8277
14.4879
Dec 80 14.5873
13.9441
13.9372
13.9574
13.999
13.9792
13.9192
13.9061
14.1969
14.4107
14.501
14.5843
14.5204
14.3356
14.5424
14.529
14.6051
14.6623
14.5926
14.6148
15.536
15.5309
16.0279
16.0525
16.0511
15.7465
15.6972
15.7175
15.6202
15.6445
15.624
15.6447
15.6177
15.5964
14.9398
14.9361
Dec 83 14.9643
14.9382
14.9646
14.8311
14.8277
15.064
15.0142
15.0596
15.5702
15.5735
15.175
15.1108
15.1188
15.2376
15.2313
14.3753
14.3383
14.372
14.3547
14.1606
14.1849
14.3022
14.377
13.9462
13.9003
13.6706
13.9542
14.0363
13.9961
14.1065
14.067
14.4221
14.3102
14.6811
14.6957
14.6481
Dec 86 14.6475
15.4924
15.1951
15.1516
15.1782
15.0236
14.9799
14.9018
14.1562
14.2813
17.2109
17.6979
17.9031
17.925
17.9773
18.0595
17.8368
17.8201
17.8477
17.7522
17.8715
17.9215
17.8925
17.9296
17.9099
18.0777
18.039
18.043
18.113
17.8697
17.8967
18.1326
17.623
17.6318
17.7122
17.6719
Dec 89 17.6705
17.8494
17.8495
17.8477
17.9177
18.1792
18.2061
18.2073
18.7826
18.8819
18.8413
18.798
18.7457
18.7979
18.768
18.6741
18.6463
18.5978
18.7736
18.5839
18.3759
17.9225
17.8172
17.9598
18.4566
17.6719
17.6181
17.6516
17.6525
17.6538
17.5941
17.5546
17.5499
17.4975
14.2489
13.6221
Dec 92 13.3494
13.2836
13.191
13.0574
13.1631
13.178
13.0936
13.0953
12.9857
12.9473
12.9345
12.9165
12.9136
12.66
12.6725
12.8934
12.7566
12.6847
12.7588
12.271
12.3483
12.4215
12.357
12.5088
12.4921
12.0468
12.1185
12.1286
12.0574
11.4727
11.4642
11.4944
10.5482
10.2524
10.2517
10.0864
Dec 95 10.0692
10.0175
9.6593
9.6451
9.6371
9.5566
9.2014
9.4138
9.4082
9.5369
9.5608
9.6668
8.6566
8.8235
8.8268
9.0458
9.2567
9.4913
9.4918
9.8529
10.2373
10.3839
10.6048
10.663
10.6624
10.6575
10.9473
11.0521
10.8924
10.9971
11.0269
11.0549
13.1824
13.324
13.6393
13.7226
Dec 98 13.8321
13.8549
13.8836
13.6194
13.6396
13.7821
13.718
13.9071
13.9215
13.9434
14.0787
13.8389
13.937
Source: Capstone Research
If you have any questions please feel free to contact us at (800) 262-6631. 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, INC.
<PAGE>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
MARKET
VALUE PERCENTAGE OF
COMMON STOCKS (100.08%) SHARES (NOTE 1-A) NET ASSETS
------ ------------ -------------
<S> <C> <C> <C>
COMMERCIAL SERVICES (0.65%)
McGraw Hill Company, Incorporated................................ 10,950 $ 574,875 0.65%
CONSUMER DURABLES (2.11%)
Ford Motor Company............................................... 16,430 898,516 1.02%
General Motors Corporation....................................... 10,260 960,592 1.09%
----------- -------
1,859,108 2.11%
CONSUMER NON-DURABLES (3.83%)
Anheuser Busch Cos., Incorporated................................ 6,890 486,176 0.55%
Colgate-Palmolive Company........................................ 8,230 470,139 0.53%
General Mills Incorporated....................................... 14,140 514,342 0.59%
Kimberly-Clark Corporation....................................... 11,820 686,299 0.78%
Philip Morris Cos., Incorporated................................. 31,480 688,625 0.78%
Quaker Oats Company.............................................. 8,060 525,411 0.60%
----------- -------
3,370,992 3.83%
CONSUMER SERVICES (6.83%)
CBS Corporation (a).............................................. 10,690 628,038 0.71%
Comcast Corporation Class A (a).................................. 9,700 388,606 0.44%
Gannett Co., Incorporated........................................ 9,940 634,917 0.72%
McDonalds Corporation............................................ 23,170 883,356 1.00%
Nextel Communications, Incorporated (a).......................... 3,860 422,429 0.48%
Nortel Networks Corporation...................................... 11,520 1,304,640 1.48%
Time Warner, Incorporated........................................ 12,480 1,122,420 1.28%
Viacom, Incorporated Class B (a)................................. 7,830 425,756 0.49%
Young & Rubicam, Incorporated.................................... 3,680 204,930 0.23%
----------- -------
6,015,092 6.83%
ELECTRONIC TECHNOLOGY (16.99%)
Analog Devices, Incorporated (a)................................. 4,860 373,309 0.43%
Applied Materials, Incorporated (a).............................. 8,240 838,935 0.95%
Cisco Systems Incorporated (a)................................... 51,188 3,548,768 4.03%
Compaq Computer Corporation...................................... 20,430 597,577 0.68%
Dell Computer Corporation (a).................................... 20,800 1,042,600 1.18%
Hewlett-Packard Company.......................................... 8,680 1,171,800 1.33%
Intel Corporation................................................ 25,580 3,243,864 3.68%
International Business Machines Corporation...................... 14,770 1,648,701 1.87%
Micron Technology, Incorporated.................................. 3,550 494,338 0.56%
Motorala, Incorporated........................................... 6,730 801,291 0.91%
Texas Instruments, Incorporated.................................. 7,390 1,203,646 1.37%
----------- -------
14,964,829 16.99%
<PAGE>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 2000 (UNAUDITED)
====================================================================================================================================
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
------ ------------ -------------
ENERGY MINERALS (6.42%)
ALCOA, Incorporated.............................................. 7,040 $ 456,720 0.52%
Coastal Corporation.............................................. 12,440 624,333 0.71%
Chevron Corporation.............................................. 9,080 772,935 0.88%
Exxon Corporation................................................ 25,465 1,978,312 2.24%
Kerr-Mcgee Corporation........................................... 11,730 607,028 0.69%
Royal Dutch Petroleum Company.................................... 21,250 1,219,219 1.38%
----------- -------
5,658,547 6.42%
FINANCE (14.61%)
American Express Corporation..................................... 4,490 673,781 0.77%
American International Group, Incorporated....................... 12,821 1,406,303 1.60%
BB & T Corporation............................................... 23,000 612,375 0.70%
Bank of America Corporation...................................... 17,000 833,000 0.95%
Charles Schwab Corporation....................................... 8,750 389,375 0.44%
Chase Manhattan Corporation...................................... 9,470 682,432 0.77%
Citigroup, Incorporated.......................................... 30,182 1,793,943 2.04%
Federal Home Loan Mortgage Corporation........................... 10,350 475,453 0.54%
Federal National Mortgage Association............................ 11,160 673,087 0.76%
First Union Corporation.......................................... 16,230 517,331 0.59%
Jefferson Pilot Company.......................................... 8,290 551,803 0.63%
J.P. Morgan & Company............................................ 4,880 626,470 0.71%
Marsh & McLennan Companies, Incorporated......................... 4,880 480,985 0.54%
Merrill Lynch & Company.......................................... 5,570 567,792 0.64%
Morgan Stanley, Dean Witter & Company............................ 10,900 836,575 0.95%
Standard and Poor's Depositary Receipts.......................... 4,000 581,750 0.66%
State Street Corporation......................................... 5,250 508,594 0.58%
Wells Fargo & Company............................................ 15,900 652,894 0.74%
----------- -------
12,863,943 14.61%
HEALTH TECHNOLOGY (10.26%)
Abbott Laboratories.............................................. 12,960 498,150 0.56%
Amgen, Incorporated (a).......................................... 10,080 564,480 0.64%
Bristol-Myer Squibb Company...................................... 16,390 859,451 0.98%
Eli Lilly & Company.............................................. 11,350 877,497 1.00%
Johnson & Johnson................................................ 12,160 1,003,200 1.14%
Medtronic, Incorporated.......................................... 10,300 534,956 0.61%
Merck & Company.................................................. 19,450 1,351,775 1.53%
Pfizer, Incorporated............................................. 31,430 1,323,989 1.50%
Schering-Plough Corporation...................................... 16,430 662,334 0.75%
UnitedHealth Group, Incorporated................................. 7,890 526,164 0.60%
Warner Lambert Company........................................... 7,320 833,107 0.95%
----------- -------
9,035,103 10.26%
<PAGE>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 2000 (UNAUDITED)
====================================================================================================================================
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
------ ------------ -------------
PROCESS INDUSTRIES (1.49%)
Corning, Incorporated............................................ 3,080 $ 608,300 0.69%
Dow Chemical Company............................................. 6,220 702,860 0.80%
----------- -------
1,311,160 1.49%
PRODUCER MANUFACTURING (9.44%)
Boeing Company................................................... 12,990 515,541 0.59%
Emerson Electric Company......................................... 11,550 633,806 0.72%
General Electric Company......................................... 22,530 3,542,842 4.02%
Honeywell, Incorporated.......................................... 13,307 745,192 0.85%
Illinois Tool Works, Incorporated................................ 7,860 503,531 0.57%
Minnesota Mining & Manufacturing Company......................... 7,250 627,125 0.71%
Textron, Incorporated............................................ 6,680 413,742 0.47%
Tyco International, Limited...................................... 18,040 828,712 0.94%
Weyerhaeuser Company............................................. 9,348 499,534 0.57%
----------- -------
8,310,025 9.44%
RETAIL TRADE (4.72%)
Gap, Incorporated................................................ 11,407 419,207 0.47%
Home Depot, Incorporated......................................... 20,055 1,124,333 1.28%
Target Corporation............................................... 9,120 607,050 0.69%
Wal-Mart Stores, Incorporated.................................... 36,270 2,008,451 2.28%
----------- -------
4,159,041 4.72%
TECHNOLOGY SERVICES (13.85%)
America Online, Incorporated (a)................................. 18,600 1,112,513 1.26%
Automatic Data Processing, Incorporated.......................... 8,080 434,805 0.49%
Computer Associates International, Incorporated.................. 8,050 449,291 0.51%
Electronic Data Systems Corporation.............................. 6,450 443,438 0.50%
EMC Corporation (a).............................................. 9,000 1,250,437 1.42%
First Data Corporation........................................... 12,460 606,646 0.69%
Microsoft Corporation (a)........................................ 39,070 2,725,132 3.09%
Oracle Corporation (a)........................................... 21,690 1,733,844 1.97%
QUALCOMM, Incorporated (a)....................................... 5,930 643,034 0.73%
Sun Microsystems, Incorporated (a)............................... 13,290 1,221,849 1.39%
Tellabs, Incorporated (a)........................................ 6,890 377,658 0.43%
United Technologies Corporation.................................. 10,120 629,338 0.72%
Yahoo!, Incorporated (a)......................................... 4,360 567,890 0.65%
----------- -------
12,195,875 13.85%
<PAGE>
CAPSTONE GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS - APRIL 30, 2000 (UNAUDITED)
====================================================================================================================================
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
------ ------------ -------------
UTILITIES (8.88%)
AT&T Corporation................................................. 22,250 $ 1,038,797 1.18%
Bell Atlantic Corporation........................................ 14,890 882,233 1.00%
Bellsouth Corporation............................................ 20,970 1,020,977 1.16%
Enron Corporation................................................ 8,840 616,038 0.70%
GTE Corporation.................................................. 10,730 726,958 0.82%
SBC Communications, Incorporated................................. 25,030 1,096,627 1.25%
Sprint Corporation (Fon Group)................................... 12,440 765,060 0.87%
U S WEST, Incorporated........................................... 7,400 526,788 0.60%
Worldcom, Incorporated (a)....................................... 25,270 1,148,206 1.30%
----------- -------
7,821,684 8.88%
TOTAL COMMON STOCK (Cost $62,119,792)............................ 88,140,274 100.08%
PAR VALUE
---------
CASH EQUIVALENTS (0.02%)
Aim Prime Money Market (Cost $15,803)............................ $15,803 15,803 0.02%
----------- -------
TOTAL INVESTMENTS (Cost $62,135,595)................. 88,156,077 100.10%
LIABILITIES IN EXCESS OF OTHER ASSETS................ (88,984) (0.10%)
----------- -------
NET ASSETS........................................... $88,067,093 100.00%
=========== =======
</TABLE>
(a) Non-income producing security
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - APRIL 30, 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities at market value (identified cost $62,135,595)(Note 1A)............. $88,156,077
Cash......................................................................................... 72,438
Dividends and interest receivable............................................................ 62,284
Prepaid expenses............................................................................. 3,160
Receivable for capital stock sold............................................................ 36
------------
Total Assets............................................................................ 88,293,995
------------
LIABILITIES:
Payable for capital stock redeemed........................................................... 5,805
Accrued expenses............................................................................. 221,097
------------
Total Liabilities....................................................................... 226,902
------------
NET ASSETS............................................................................................ $88,067,093
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
($88,071,840 / 4,789,941 shares outstanding of $.001 par value, 200,000,000 shares authorized)........ $ 18.39
============
SOURCE OF NET ASSETS:
Paid in capital.............................................................................. $56,231,630
Net investment loss.......................................................................... (32,873)
Accumulated net realized gain on investments................................................. 5,847,854
Net unrealized appreciation of securities.................................................... 26,020,482
------------
$88,067,093
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF OPERATIONS FOR THE PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividend income (net of foreign taxes withheld of $64).................................. $ 495,245
Interest income......................................................................... 585
-----------
Total Investment Income............................................................. 495,830
Expenses:
Advisory fees (Note 2).................................................................. 299,886
Distribution fees (Note 2).............................................................. 109,399
Transfer agent fees..................................................................... 28,887
Reports and notices to stockholders..................................................... 6,741
Audit fees.............................................................................. 16,529
Legal fees.............................................................................. 13,049
Directors' fees and expenses............................................................ 8,268
Custodian fees.......................................................................... 4,089
Fund accounting fees.................................................................... 16,300
Registration and filing fees............................................................ 12,035
Miscellaneous........................................................................... 15,295
-----------
Total Expenses...................................................................... 530,478
Less: Custodian fees paid indirectly.................................................... (1,775)
-----------
Net Expenses........................................................................ 528,703
Net Investment Loss............................................................. (32,873)
-----------
</TABLE>
<TABLE>
<CAPTION>
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
<S> <C> <C>
Net realized gain from security transactions 5,847,854
Unrealized appreciation of investments:
Beginning of period.................................................. $25,882,759
End of period........................................................ 26,020,482
------------
Net change in unrealized appreciation of investments.................................... 137,723
-----------
Net realized and unrealized gain on investments......................................... 5,985,577
-----------
Net increase in net assets resulting from operations................................ $5,952,704
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
CAPSTONE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999
----------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......................................... $ (32,873) $ 95,795
Net realized gain on investments...................................... 5,847,854 5,958,890
Net change in unrealized appreciation of investments.................. 137,723 13,400,608
------------ ------------
Net increase in net assets resulting from operations.................. 5,952,704 19,455,293
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................. (95,795) (580,527)
Net realized gain on investments...................................... (5,958,890) (3,107,233)
------------ ------------
Net decrease in net assets resulting from distributions............... (6,054,685) (3,687,760)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital share
transactions (Note 3).............................................. 1,934,734 (1,072,615)
------------ ------------
Total increase in net assets...................................... 1,832,753 14,694,918
NET ASSETS:
Beginning of period................................................... 86,234,340 71,539,422
------------ ------------
End of period (including undistributed net investment income of
$0 and $95,795 respectively)......................................... $88,067,093 $86,234,340
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2000 (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.
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,
<PAGE>
CAPSTONE GROWTH FUND, INC.
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, 2000, the Fund paid $109,399 in 12b-1 fees. Of this amount
approximately 2.3% was paid to Service Organizations other than CAPCO.
The Fund's Custodian provided credits during the period in the amount of
$1,775 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. For the six months ended April 30, 2000, directors of the Fund who are
not "interested persons" received directors' fees of $8,268.
<PAGE>
CAPSTONE GROWTH FUND, INC.
NOTE 3 - CAPITAL STOCK
At April 30, 2000 there were 4,789,941 shares outstanding. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999
-------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold.................................................. 61,041 $ 1,104,478 433,255 $ 7,405,216
Shares issued to shareholders in reinvestment
of distributions............................................ 291,464 5,118,145 201,768 3,127,404
-------- ----------- -------- ------------
352,505 6,222,623 635,023 10,532,620
Shares redeemed.............................................. (234,872) (4,287,889) (676,016) (11,605,235)
-------- ----------- -------- ------------
Net increase (decrease)...................................... 117,633 $ 1,934,734 (40,993) $ (1,072,615)
======== =========== ======== ============
</TABLE>
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than U.S. Government securities and
short-term investments aggregated $24,832,265 and $28,751,308 respectively. At
April 30, 2000 the cost of investments for Federal income tax purposes was
$62,135,595. Accumulated net unrealized appreciation on investments was
$26,020,482 consisting of $29,260,551 gross unrealized appreciation and
$3,240,069 gross unrealized depreciation.
<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 year indicated.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
--------------
Net asset value at beginning of period............... $18.46 $15.18 $16.76 $15.56 $13.82 $13.23
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss).................... (0.01) 0.02 0.12 0.16 0.22 0.17
Net realized and unrealized gain (loss)......... 1.25 4.04 2.11 3.55 2.31 1.93
------ ------ ------ ------ ------ ------
Total from investment operations................ 1.24 4.06 2.23 3.71 2.53 2.10
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income........................... (0.02) (0.12) (0.16) (0.22) (0.06) (0.16)
Net realized gains.............................. (1.29) (0.66) (3.65) (2.29) (0.73) (1.35)
------ ------ ------ ------ ------ ------
Total distributions............................. (1.31) (0.78) (3.81) (2.51) (0.79) (1.51)
------ ------ ------ ------ ------ ------
Net asset value at end of period..................... $18.39 $18.46 $15.18 $16.76 $15.56 $13.82
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(1).................................. 7.03% 27.77% 15.51% 26.91% 19.27% 17.04%
------------ ====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets at end of period (in thousands)........... $88,067 $86,234 $71,539 $69,609 $60,230 $85,324
Ratio of total expenses to average net assets........ 1.21%(2) 1.18% 1.27% 1.25% 1.29% 1.31%
Ratio of net investment income to average net assets. (0.08)%(2) 0.11% 0.81% 0.99% 1.31% 1.21%
Portfolio turnover rate.............................. 28% 70% 93% 229% 173% 119%
</TABLE>
(1) Calculated without sales charge. Sales charge eliminated on August 21, 1995.
(2) Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
CAPSTONE GROWTH FUND, INC.
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
1-800-262-6631
SEMIANNUAL REPORT TO SHAREHOLDERS
APRIL 30, 2000
--------------------------------------------------------------------------------
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
Secretary/Treasurer
--------------------------------------------------------------------------------
INVESTMENT ADVISER & ADMINISTRATOR TRANSFER AGENT
---------------------------------- --------------
Capstone Asset Management Company PFPC, 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>
THIS PAGE LEFT BLANK INTENTIONALLY.
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY.
<PAGE>
SEMIANNUAL REPORT
APRIL 30, 2000
CAPSTONE
GROWTH
FUND, INC.
[PYRAMID CAPSTONE LOGO]
A Member Of
THE CAPSTONE GROUP
of Mutual Funds
<PAGE>
[PYRAMID CAPSTONE LOGO] 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
<PAGE>
CAPSTONE GROWTH FUND, INC.
5847 SAN FELIPE, SUITE 4100
HOUSTON, TX 77057
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