VALLEY FORGE
Annual Report
December 31, 1995
Valley Forge Capital
Holdings Total Return
Fund, Inc.
<PAGE>
February 22, 1996
TO THE SHAREHOLDER:
It gives us tremendous pleasure for the opportunity in communicating with you.
We are pleased to have sponsored our first publicly traded mutual fund, the
Valley Forge Capital Holdings Total Return Fund. We plan to build a family of
funds around the Fund. You will be among the first to know as it occurs.
As we enter the first full year of operation in 1996 we look forward to positive
results. In the following you will find a letter from Greta Marshall, your
Fund's premier advisor. Her analysis of the market and the future is well
respected within the investment community. If we can answer some of your
questions, you are invited to contact us through the Fund's office at 1-800-688-
1688.
We would like to express our appreciation for having you on our team. Your
continued support will help your Fund to grow.
Sincerely yours,
Deborah Mello
President
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February 23, 1996
To The Shareholder:
Your Total Return Fund's NAV has dropped slightly since its inception five (5)
months ago. Some of the factors that led to this are discussed below.
One factor was the date of inception. The Marshall Plan tried to wait for the
correction but ended up purchasing some stocks (especially Technology issues)
too early.
The other factor was a purely technical issue. We bought several stocks that ran
up 20% to 30% in the first weeks. Normally we would have sold these stocks but
mutual fund regulations prohibit us from earning more than 30% of total income
from short-short gains (stocks held less than 90 days). This will be less of a
factor as the fund has longer history and as it grows and we have other sources
of income (long-term gains, income, etc.)
We believe 1996 will be a positive one for both equity and interest rate
sensitive securities (bonds and real estate trust). It is not likely that we
will have another year when the broad markets were up as much as 35%, but we
anticipate gains of 10% plus in the general equity markets. Stocks generally do
well during a national election year. Furthermore, the economy is weak but does
not appear to be heading into a recession. The Federal Reserve will probably
continue to lower short term interest rates. A capital gains tax reduction would
be favorable. Growth stocks do well when expectations for real economic growth
are deteriorating since growth stocks are less affected by the overall economy
than cyclical/value stocks.
While the market has been making new highs, valuation levels are not excessive
because the surge in stock prices has been accompanied by significant
improvements in earnings. The most mentioned measure of overvaluation, dividend
yield, is only low because companies have retained a much larger portion of
their net income. This is positive for long term earnings growth.
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I believe we will finally see a recovery in the small company segment of the
market. We will continue to focus on growth companies and particularly on
technology, finance, retail, consumer goods and transports. REITs also offer the
opportunity for both appreciation and a high current yield.
I look forward to a good 1996 and thank you for being on our team.
Sincerely,
Greta E. Marshall
The Marshall Plan
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
December 31, 1995
Shares Value
------ -----
COMMON STOCK - (75.9%)
Computers - (16.9%)
* Cabletron Systems, Inc. 600 $ 48,600
* Microsoft Corp. 500 43,875
* Optical Data Systems, Inc. 2,200 55,550
* 3Com Corp. 900 41,962
-------------
189,987
-------------
Drugs - (7.5%)
* Research Medical, Inc. 1,500 40,500
* Watson Pharmaceuticals, Inc. 900 44,100
-------------
84,600
-------------
Electrical Equipment - (3.5%)
* Altera Corp. 800 39,800
-------------
Electronics - (7.2%)
* Lattice Semiconductor Corp. 1,400 45,675
Micron Technology, Inc. 900 35,663
-------------
81,338
-------------
Financial Services - (3.9%)
Pioneer Group, Inc. 1,600 43,600
-------------
Machinery and Heavy Equipment - (4.4%)
* Thermo Fibertek, Inc. 2,200 49,775
-------------
Oil - (3.6%)
* Nuevo Energy Co. 1,800 40,275
-------------
Publishing - (3.1%)
Merrill Corp. 2,200 35,200
-------------
Real Estate - (11.6%)
Excel Realty Trust, Inc. 2,000 41,000
Glimcher Realty Trust 2,500 43,125
Trinet Corporate Realty Trust, Inc. 1,700 46,325
-------------
130,450
-------------
Restaurants - (7.8%)
Apple South, Inc. 2,300 49,450
Applebees International, Inc. 1,700 38,675
-------------
88,125
-------------
See accompanying Notes to Financial Statements.
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
December 31, 1995
Shares Value
------ -----
COMMON STOCK - (Continued)
Telecommunications - (2.9%)
* Intervoice, Inc. 1,700 $ 32,300
------------
Waste Management - (3.5%)
* USA Waste Services, Inc. 2,100 39,637
------------
TOTAL COMMON STOCK
(Cost - $886,478) 855,087
------------
SHORT-TERM INVESTMENTS - (23.4%) Face Amount
-----------
(000's)
Time Deposits, PNC BANK N.A.
4.75%, Due 01/03/96 $133 132,981
4.75%, Due 01/05/96 131 131,048
------------
TOTAL SHORT-TERM INVESTMENTS 264,029
------------
(Cost - $264,029)
TOTAL INVESTMENTS - (99.3%) 1,119,116
------------
(Cost - $1,150,506)
OTHER ASSETS AND LIABILITIES - (0.7%)
Organizational Costs 184,779
Other Assets 28,574
Payable to Advisor (185,662)
Other Liabilities (20,437)
------------
7,294
------------
NET ASSETS - (100%) applicable to
116,472 Outstanding $.01 par value shares
(1,000,000,000 Shares Authorized) $ 1,126,410
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 9.67
============
PUBLIC OFFERING PRICE PER SHARE $ 10.26
============
* Non-income producing security.
See accompanying Notes to Financial Statements.
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Operations
For the period August 11, 1995 (commencement of operations) through
December 31, 1995
Investment Income
Dividends $ 3,572
Interest 6,401
--------
Total Investment Income 9,973
--------
Expenses
Advisory Fees 2,171
Accounting Fees 5,042
Transfer Agent Fees 1,800
Custodian Fee 1,475
Audit Fees 12,000
Shareholder's Reports 1,000
Distribution Fees 938
Other Expenses 5,902
--------
Total Expenses 30,328
Expenses Reimbursed (25,028)
--------
Net Expenses 5,300
--------
Net Investment Income 4,673
Net Unrealized Gain (Loss) on Investments
Change in Unrealized Appreciation (Depreciation)
of Investment Securities (31,390)
--------
Net Decrease in Net Assets Resulting from Operations $(26,717)
========
See accompanying Notes to Financial Statements.
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
For the period August 11, 1995 (commencement of operations) through
December 31, 1995
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 4,673
Change in unrealized appreciation (depreciation)
of investment securities (31,390)
-----------
Net Decrease in Net Assets Resulting from Operations (26,717)
-----------
Distributions from:
Net investment income (4,755)
-----------
Capital Share Transactions (1):
Shares issued 1,072,339
Shares issued in lieu of cash distribution 4,723
Shares redeemed (19,180)
-----------
Net increase from capital share transactions 1,057,882
-----------
Total increase in net assets 1,026,410
Net Assets
Beginning of period 100,000
-----------
End of period $ 1,126,410
===========
(1) Shares Issued and Redeemed:
Shares Issued 107,982
Shares Issued in Lieu of Cash Distribution 494
Shares Redeemed (2,004)
-----------
106,472
===========
See accompanying Notes to Financial Statements.
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
August 11, 1995 +
To
December 31, 1995
------------------
Net Asset Value, Beginning of Period $10.00
-----
Income From Investment Operations
Net Investment Income 0.04
Net Unrealized Losses on Securities (0.33)
-----
Total From Investment Operations (0.29)
- --------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.04)
-----
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.67
Total Return (2.89)%#
- --------------------------------------------------------------------------------
Net Assets, End of Period $1,126,410
================================================================================
Ratio of Expenses to Average Net Assets 1.95%*(a)
Ratio of Net Investment Income to Average
Net Assets 1.72%*(a)
Portfolio Turnover Rate 0%
- --------------------------------------------------------------------------------
* Annualized
# Non-Annualized
+ Commencement of Operations
(a) Had certain reimbursements not been in effect, the ratio of expenses to
average net assets and the ratio of net investment income to average net
assets for the period ended December 31, 1995, would have been 11.17% and
(7.50%), respectively.
See accompanying Notes to Financial Statements.
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VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization:
The Valley Forge Capital Holdings Total Return Fund, Inc. (the "Fund")
is registered under the Investment Company Act of 1940 as a diversified,
open-end management investment company.
2. Significant Accounting Policies
Security Valuation: Investments in securities listed or traded on a
nationally recognized securities exchange are valued at the last quoted sales
price on the date the valuations are made. Securities regularly traded in the
over-the-counter market are valued at the last quoted sales price on the NASDAQ
System. If no sales price is available for a listed or NASDAQ security, or if
the security is not listed on NASDAQ, such security is valued at a price equal
to the mean of the latest bid and ask prices.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies and to distribute all its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
Distributions to Shareholders: Dividends to shareholders are recorded
on the ex-dividend date.
Organizational Expenses: Organizational expenses are being amortized on
a straight line basis over a period not exceeding 60 months beginning at the
Fund's commencement of operations.
Other: Security transactions are recorded on the trade date. Dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis.
3. Investment Advisors
The Fund has engaged Valley Forge Advisors, Inc., a wholly-owned
subsidiary of Valley Forge Capital Holdings Inc., and The Marshall Plan, L.P.,
to manage its investments. The Fund pays its Advisors an investment management
fee for investment management and advisory services which are computed at an
annual rate of 0.80 of 1% of the Fund's daily net assets. The investment
management fee is to be split 75% to The Marshall Plan, L.P. and 25% to Valley
Forge Advisors, Inc.
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Valley Forge Capital Holdings Inc. has agreed to reimburse the Fund
for any expenses, during the Fund's first five years of operations, which would
cause the Fund's ratio of operating expenses to exceed 1.95 percent of average
net assets. An expense reimbursement of $25,028 was required for the fiscal year
ended December 31, 1995.
Certain officers and directors of the Fund are also officers and
directors of the investment advisor.
4. Distributions to Shareholders
On December 28, 1995, a distribution of $.041 per share, aggregating
$4,755, was declared from net investment income which is taxable to shareholders
as ordinary income dividends during 1995. The dividend was paid on December 29,
1995, to shareholders of record on December 27, 1995.
5. Distribution Plan
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Under the plan in effect for the fiscal year
ended December 31, 1995, the Fund paid Valley Forge Distributors Inc., a
wholly-owned subsidiary of Valley Forge Capital Holdings Inc., a fee at an
annual rate of 0.35 of 1% of the Fund's daily net assets. Valley Forge
Distributors uses these fees to pay its dealers whose clients hold portfolio
shares and for other distribution-related activities.
6. Investment Transactions
For the fiscal year ended December 31, 1995, the Fund made purchases of
$886,478 and no sales of investment securities (excluding U.S. Government and
short-term securities).
At December 31, 1995, gross unrealized appreciation and depreciation
for financial reporting and federal income tax purposes of investment securities
were $30,069 and $61,459, respectively. The Federal income tax basis of
investments is the same as the book basis.
7. Components of Net Assets
At December 31, 1995 net assets consisted of:
Paid-in Capital $1,157,882
Overdistributed Net Investment Income (82)
Unrealized Depreciation of Investment Securities (31,390)
-----------
Total Net Assets $1,126,410
==========
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Valley Forge Holdings Total Return Fund, Inc.:
We have audited the accompanying statement of net assets of the Valley Forge
Capital Holdings Total Return Fund, Inc. (the "Fund") as of December 31, 1995,
the related statements of operations, changes in net assets and financial
highlights for the period August 11, 1995 (commencement of operations) to
December 31, 1995. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Valley Forge Capital
Holdings Total Return Fund, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated period in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 7, 1996
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INVESTMENT ADVISORS
The Marshall Plan, L.P.
100 Main Street, Suite 410
Concord, MA 01742
Valley Forge Advisors, Inc.
595 Market Street, Suite 1980
San Francisco, CA 94105
CUSTODIAN
PNC Bank, N.A.
Airport Business Center
200 Stevens Drive
Lester, PA 19113
TRANSFER AGENT
PFPC, Inc.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-797-6706
COUNSEL
Shefsky Froelich & Devine Ltd.
444 North Michigan Avenue
Chicago, IL 60611
AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, NJ 08540
--------------------------
This report is for shareholder information. This
is not a prospectus intended for use in the purchase of
shares.
--------------------------
Valley Forge Capital Holdings Total Return Fund,
Inc.
595 Market Street, Suite 1980
San Francisco, CA 94105
1-800-688-1688
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Valley Forge
Annual Report
December 31, 1995
Valley Forge Capital
Holdings Total Return
Fund, Inc.
