Semi-Annual Report
VALLEY FORGE CAPITAL HOLDINGS
TOTAL RETURN FUND, INC.
SEMI-ANNUAL REPORT
Six Months Ended June 30, 1996
(Unaudited)
<PAGE>
July 2, 1996
Dear Shareholder:
I am pleased to have the opportunity to provide you with an update on
the TOTAL RETURN FUND. Since our last reporting, we have made a number of very
beneficial changes to the management of the Fund. As a result the Fund's
short-term returns have improved significantly. We are now looking forward to
the long-term growth potential that these changes provide.
On April 1, 1996, Valley Forge Advisors, Inc. ("VFA"), the Fund Advisor
for the Total Return Fund, terminated its sub-advisory arrangement with The
Marshall Plan, LP, and assumed responsibility for the Fund's overall management
and performance. In addition, Mr. Frederick A. Wolf was appointed to the
position of VFA President. Mr. Wolf remains the President of Valley
Forge-Barrington, Ltd., a twenty-nine year old registered investment advisory
firm that manages portfolios for governments, private institutions, and wealthy
individuals. Valley Forge-Barrington, Ltd. is an affiliate of the Fund
headquartered in Southfield, Michigan, an outlying business center of Detroit.
The firm is very well respected and has a solid client base, a portion of which
have been with them from the beginning.
Under Mr. Wolf's direction of the Fund's equity investments, the thrust
of the Fund has been changed from a focus on small and mid-cap stocks, to
equities of larger companies with successful long-term track records. This type
of investment strategy fits more in line with a "total return" type of
structure. In line with his investment philosophy, Mr. Wolf utilizes both
technical and fundamental analysis to direct the Fund's investment dollars into
those industries that are undervalued in comparison to other similar stocks
within the same industry. At the present time he is primarily investing in five
main industries: food, drugs, chemicals, natural resources, and financial
services. Mr. Wolf's restructuring of the Fund's portfolio has helped raise the
net asset value (NAV) price per share, and drastically cut the volatility level
that was evident in the Fund prior to his appointment. From an investor's
standpoint this is significant in that the less volatile "total return"
structure of the Fund lends itself to those individuals who are interested in
long term investments that have the potential of growth, current income, and the
preservation of capital.
In addition to equity investments, the Fund's current portfolio
includes positions in utilities, bonds, and some REIT's, giving the Fund
additional diversification, and enhancing current income for shareholders. Since
VFA assumed full management of the Fund on 4/1/96, assets under management have
increased 300% from $1.2 million to over $4.8 million dollars - and the NAV has
increased by 1.87% as of close of business on 6/30/96. The Fund's conservative
investment style, combined with bond, utility, and REIT investments, and the
lower volatility (beta) that is normally exhibited by these types of
investments, creates an investment vehicle that is suitable for all types and
levels of investors who are looking for diversification, growth, and income.
We at Valley Forge Capital Holdings are looking forward to Mr. Wolf's
continued successful management of the Fund for the next two quarters and into
the future!
Sincerely,
//
Victoria S. Gong
President
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
Shares Value
------ -----
COMMON STOCK - (63.9%)
Automobiles Parts - Equipment - (2.9%)
Cooper Tire & Rubber Co. 2,000 $ 44,500
Eaton Corp. 1,000 58,625
Federal - Mogul Corp. 2,000 36,750
--------
139,875
Chemicals - (4.0%)
Church & Dwight Co., Inc. 1,000 20,875
Hercules, Inc. 1,000 55,250
Lubrizol Corp. 2,000 60,750
Nalco Chemical Co. 1,000 31,500
Quaker Chemical Corp. 2,000 25,500
--------
193,875
--------
Communication Equipment - (0.6%)
Motorola, Inc. 500 31,437
--------
Computers - (3.1%)
International Business Machines Corp. 1,000 99,000
* Netcom On Line Communication Services, Inc. 2,000 54,000
--------
153,000
--------
Computer Software - (0.1%)
* Multi-Corp, Inc. 1,000 7,250
--------
Cosmetics - Toiletry - (3.5%)
International Flavors & Fragrances, Inc. 1,000 47,625
Tambrands, Inc. 3,000 122,625
170,250
Electrical Equipment - (2.3%)
* Altera Corp. 800 30,400
AMP, Inc. 2,000 80,250
--------
110,650
--------
Electronics - Semi-Conductors - (1.4%)
* Lattice Semiconductor Corp. 700 16,887
* LSI Logic Corp. 1,000 26,000
Micron Technology, Inc. 900 23,288
--------
66,175
--------
Entertainment - Recreation - (2.9%)
Disney (Walt) Co. 1,000 62,875
* Viacom Inc., Class B 2,000 77,750
--------
140,625
--------
Environmental - (0.4%)
Zurn Industries, Inc. 1,000 20,750
--------
Financial Services - (0.7%)
American General Corp. 1,000 36,375
--------
2
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
Shares Value
------ -----
COMMON STOCK (63.9%) - Continued
Food and Beverages - (0.6%)
Grand Metropolitan P.L.C.-
Sponsored ADR 1,000 $ 26,750
--------
Food Distribution - (0.4%)
Marsh Supermarkets, Inc. 2,000 24,000
--------
Food Producers - (7.4%)
Chiquita Brands International, Inc. 2,000 26,000
Dean Foods Co. 1,000 24,750
H.J. Heinz Co. 2,000 60,750
International Multifoods Corp. 1,000 18,250
McCormick & Co., Inc. 2,000 44,250
Quaker Oats Co. 1,000 34,125
J.M. Smucker Co. 2,000 39,250
Tootsie Roll Industries, Inc. 1,000 35,625
Universal Foods Corp. 2,000 73,750
--------
356,750
--------
Forest Products - (0.5%)
Louisiana-Pacific Corp. 1,000 22,125
--------
Grocery Products - (2.6%)
General Mills, Inc. 1,000 54,500
Kellogg Co. 1,000 73,250
--------
127,750
--------
Housewares - (1.1%)
Rubbermaid, Inc. 2,000 54,500
--------
Insurance - (3.9%)
Alexander & Alexander Services, Inc. 2,000 39,500
Hartford Steam Boiler Inspection
& Insurance Co. 1,000 49,125
Lincoln National Corp. 1,000 46,250
St. Paul Companies, Inc. 1,000 53,500
--------
188,375
--------
Manufacturing - (1.4%)
Minnesota Mining & Manufacturing Co. 1,000 69,000
--------
Metals & Mining - (1.3%)
Cyprus Amax Minerals Co., Inc. 2,000 45,250
Homestake Mining Co. 1,000 17,125
--------
62,375
--------
Multi-Industry - (0.6%)
Ball Corp. 1,000 28,750
--------
3
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
Shares Value
------ -----
COMMON STOCK (63.9%) - Continued
Natural Gas - (0.6%)
British Gas P.L.C. -ADR 1,000 $ 28,000
--------
Paper & Forest Products - (2.4%)
International Paper Co. 1,000 36,875
Potlatch Corp. 2,000 78,250
--------
115,125
--------
Pharmaceuticals - (1.9%)
Abbott Laboratories 1,000 43,500
Carter Wallace, Inc. 2,000 29,250
Mylan Laboratories, Inc. 1,000 17,250
--------
90,000
--------
Printing and Publishing - (2.0%)
American Greetings Corp., Class A 2,000 54,750
Reader's Digest Association, Inc. 1,000 42,500
--------
97,250
--------
Real Estate - (0.9%)
Glimcher Realty Trust Co. 2,500 42,188
--------
Restaurants - (1.7%)
Bob Evans Farms, Inc. 2,000 34,000
McDonald's Corp. 1,000 46,750
--------
80,750
--------
Semi-Conductors - (1.0%)
Texas Instruments, Inc. 1,000 49,875
--------
Textiles/Apparel - (1.0%)
Angelica Corp. 2,000 47,250
--------
Tobacco - (0.9%)
American Brands, Inc. 1,000 45,375
--------
Utilities - Electric - (5.0%)
Dominion Resources, Inc. 2,000 80,000
Hawaiian Electric Industries, Inc. 1,000 35,500
Montana Power Co. 2,000 44,500
Public Service Enterprise Group, Inc. 2,000 54,750
Wisconsin Energy Corp. 1,000 28,875
--------
243,625
--------
Utilities - Electric and Gas - (2.4%)
MDU Resources Group, Inc. 2,000 43,000
Pacific Gas & Electric Co. 2,000 46,500
Utilicorp United, Inc. 1,000 27,625
--------
117,125
--------
4
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
Shares Value
------ -----
COMMON STOCK (63.9%) - Continued
Utilities - Telephone - (1.3%)
U.S. West, Inc. 2,000 $ 63,750
--------
Utilities - Water - (0.5%)
United Water Resources, Inc. 2,000 25,750
--------
Waste Management - (0.6%)
Browning-Ferris Industries, Inc. 1,000 29,000
--------
TOTAL COMMON STOCK 3,105,700
(Cost $3,221,129) --------
PREFERRED STOCK - (5.2%)
Beverages - (1.0%) Cadbury Schweppes P.L.C.
8.625%, Series A 2,000 50,500
--------
Finance - (1.1%) UNUM Corp.
8.80%, Series A 2,000 51,750
--------
Insurance - (2.0%)
American General Capital L.L.C.
8.45%, Series A 2,000 50,500
American Real Estate Corp.
8.50%, Series A 2,000 49,250
--------
99,750
--------
Telecommunications - (1.1%) GTE Delaware L.P.
8.75%, Series Y 2,000 52,250
--------
TOTAL PREFERRED STOCK 254,250
(Cost $259,800) --------
5
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
Face
Amount Value
------ -----
(000)
U.S. GOVERNMENT AGENCY OBLIGATIONS - (23.1%)
Federal Home Loan Mortgage Corp.
Discount Note
5.26%, 07/03/96 $ 762 $ 761,443
5.29%, 07/05/96 362 361,630
---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 1,123,073
(Cost $1,123,564) ---------
CORPORATE BONDS - (4.1%)
Lehman Brothers, Inc. 5.04%, 12/15/96 200 199,346
(Cost $199,514) ---------
TOTAL INVESTMENTS - (96.3%) 4,682,369
(Cost $4,804,007) ---------
6
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Net Assets
June 30, 1996
(Unaudited)
COVERED CALL OPTIONS WRITTEN (-0.4%)
Number of
Name/Expiration Date/Strike Price Contracts Value
- -------------------------------- ----------- -----------
Abbot Laboratories, Nov., $45 10 $ (1,812)
Altera Corp., Sept., $50 8 (600)
American Brands, Inc., Sept., $45 10 (2,000)
Cooper Tire & Rubber Co., Nov., $25 10 (719)
Disney (Walt) Co., Oct., $65 10 (2,562)
Hercules, Inc., Sept., $60 10 (1,625)
International Business Machines Corp., July, $115 3 (56)
International Business Machines, Corp., Oct., $115 7 (1,444)
International Flavor & Fragrances, Inc., Nov., $50 10 (1,625)
International Paper Co., Oct., $40 10 (1,000)
LSI Logic Corp., Oct., $35 10 (1,000)
McDonald's Corp., Sept., $50 10 (1,000)
Micron Technology, Inc., Oct., $40 9 (394)
Minnesota Mining & Manufacturing Co., Oct., $70 10 (2,875)
Viacom, Inc., Class B, Sept., $40 10 (1,688)
--------
TOTAL COVERED CALL OPTIONS WRITTEN (Premiums Received $30,335) (20,400)
--------
OTHER ASSETS AND LIABILITIES - (4.1%)
Organizational Costs 168,710
Receivable for Fund Shares Sold 250,000
Payable for Investment Securities Purchased (113,615)
Payable to Advisor (43,380)
Other Liabilities net of Other Assets (60,741)
--------
200,974
--------
NET ASSETS - (100%) applicable to
494,803 Outstanding $.01 par value shares
(1,000,000,000 Shares Authorized) $4,862,943
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 9.83
===========
PUBLIC OFFERING PRICE PER SHARE $ 10.43
===========
* Non-income producing security.
See Accompanying Notes to Financial Statements.
7
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Operations
January 1, 1996 through June 30, 1996
(Unaudited)
-----------
Investment Income
Dividends $ 22,286
Interest 17,559
-----------
Total Investment Income 39,845
-----------
Expenses
Advisory fees 8,952
Accounting fee 32,501
Transfer Agent fee 11,943
Custodian fee 7,625
Legal fee 25,009
Organization expenses 16,069
Audit fee 11,246
Directors' fees 9,889
Shareholders' reports 4,945
Distribution Fee 3,916
Other expenses 6,939
-----------
Total Expenses 139,034
Expenses Waived and Reimbursable (117,213)
-----------
Net Expenses 21,821
-----------
Net Investment Income 18,024
-----------
Net Realized and Unrealized Gain (Loss)
on Investment Securities
Net Realized Gain on Investment Securities 59,563
Net Realized Gain on Option Contracts Written 8,487
Change in Unrealized Appreciation (Depreciation)
of Investment Securities (80,313)
-----------
Net Gain (Loss) on Investment Securities (12,263)
-----------
Net Increase in Net Assets
Resulting from Operations $ 5,761
===========
See Accompanying Notes to Financial Statements.
8
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
January 1, 1996 August 11, 1995+
to to
June 30, 1996 December 31, 1995
--------------- -----------------
(Unaudited)
Increase (Decrease) in Net Assets
- ---------------------------------
Operations:
Net Investment Income $ 18,024 $ 4,673
Net Realized Gain on Investment Securities 59,563 --
Net Realized Gain on Option Contracts Written 8,487 --
Change in Unrealized Appreciation (Depreciation)
of Investment Securities (80,313) (31,390)
---------- ----------
Net Increase (Decrease) in Net Assets Resulting
from Operations 5,761 (26,717)
---------- ----------
Distributions from:
Net Investment Income -- (4,755)
---------- ----------
Capital Share Transactions (1):
Shares Issued 4,479,459 1,072,339
Shares Issued in Lieu of Cash Distribution -- 4,723
Shares Redeemed (748,687) (19,180)
---------- ----------
Net Increase from Capital Share Transactions 3,730,772 1,057,882
---------- ----------
Total Increase in Net Assets 3,736,533 1,026,410
Net Assets
- ----------
Beginning of period 1,126,410 100,000
---------- ----------
End of period $4,862,943 $1,126,410
========== ==========
(1) Shares Issued and Redeemed
- ------------------------------
Shares Issued 455,380 107,982
Shares Issued in Lieu of Cash Distribution -- 494
Shares Redeemed (77,049) (2,004)
---------- ----------
378,331 106,472
========== ==========
+Commencement of Operations
See Accompanying Notes to Financial Statements.
9
<PAGE>
VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
Financial Highlights
For a Share Outstanding throughout the Period
(Unaudited)
-----------
January 1, 1996 August 11, 1995+
to to
June 30, 1996 December 31, 1995
- ------------------------------------------------------------- -----------------
(Unaudited)
Net Asset Value, Beginning of Period $9.67 $10.00
--------- --------
Income From Investment Operations
- ---------------------------------
Net Investment Income 0.04 0.04
Net Gains (Losses) on Securities
(Realized and Unrealized) 0.12 (0.33)
--------- --------
Total From Investment Operations 0.16 (0.29)
- ------------------------------------------------------------- -----------------
Less Distributions
- ------------------
Net Investment Income -- (0.04)
--------- --------
- ------------------------------------------------------------- -----------------
Net Asset Value, End of Period $9.83 $ 9.67
============================================================= =================
Total Return 1.65%# (2.89)%#
- ------------------------------------------------------------- -----------------
Net Assets, End of Period (thousands $4,863 $1,126
Ratio of Expenses to Average
Net Assets 1.95%*(a) 1.95%*(a)
Ratio of Net Investment Income to
Average Net Assets 1.61%*(a) 1.72%*(a)
Portfolio Turnover Rate 72.17%# 0.00%
Average Commission Rate Paid(1) $0.0846 N/A
- ------------------------------------------------------------- -----------------
* Annualized
# Not Annualized
+ Commencement of Operations
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended June 30, 1996 and December
31, 1995, would have been 12.42% and 11.17%, respectively, and the ratios of net
investment income to average net assets for the periods ended June 30, 1996 and
December 31, 1995, would have been (8.86%) and (7.50%), respectively.
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period for
which commissions were charged.
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE VALLEY FORGE CAPITAL HOLDINGS TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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 through March 31, 1996. Effective April 1, 1996, Valley Forge
Advisors will act as the sole Investment Advisor to the Fund. The Fund pays its
Advisor(s) 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. Through March 31, 1996, the investment management fee was split 75%
to The Marshall Plan, L.P. and 25% to Valley Forge Advisors, Inc.
Valley Forge Capital Holdings Inc. has agreed to reimburse 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 $117,213 was required for the six months ended June 30,
1996.
Certain officers and directors of the Fund are also officers and
directors of the Advisor.
11
<PAGE>
4. 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
ending December 31, 1996, 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.
5. Investment Transactions
For the six months ended June 30, 1996, the Fund made purchases of
$3,866,406 and sales of $1,170,838 in investment securities (excluding U.S.
Government and short-term investments).
At June 30, 1996, gross unrealized appreciation and depreciation for
financial reporting and federal income tax purposes of investment securities
were $59,471 and $(171,174), respectively. The Federal income tax basis of
investments is the same as the book basis.
6. Option Transactions
The Fund may write call options on securities they own or have the
right to acquire, and may purchase put and call options on individual securities
written by others. Put and call options give the holder the right to sell or
purchase, respectively, a specified amount of a security at a specified price on
a certain date.
Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by the premium paid. The proceeds from securities sold
through the exercise of put options are decreased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from writing options which expire
unexercised are recorded by the Fund on the expiration date as realized gains
from option transactions. When the Fund enters into a closing purchase
transaction, the Fund realizes a gain or loss equal to the difference between
the cost of a closing purchase transaction and the premium received when the
call option was written. If a call option is exercised, the premium is added to
the proceeds from the sale of the underlying security in determining whether the
Fund has a realized gain or loss. If a put option is exercised, the premium
reduces the cost basis of the security purchased by the Fund.
12
<PAGE>
A summary of put and call options written by the Fund for the six months ended
June 30, 1996 is as follows:
Number of Premium
Options Written Contracts Received
- --------------- ---------- ----------
Options outstanding at
beginning of period........................ - -
Options written............................. 177 $39,177
Options expired............................. - -
Options exercised........................... (22) (4,347)
Options terminated in
closing transactions....................... (18) (4,495)
--- ----------
Options outstanding at
June 30, 1996.............................. 137 $30,335
=== ==========
7. Components of Net Assets
At June 30, 1996 net assets consisted of:
Paid-in Capital $4,888,654
Undistributed Net Investment Income 17,942
Accumulated Realized Net Gains 68,050
Net Unrealized Appreciation (Depreciation)
of Investment Securities (111,703)
----------
Total Net Assets $4,862,943
==========
13
<PAGE>
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Valley Forge
VALLEY FORGE DISTRIBUTORS, INC.
Distributor
A Subsidiary of Valley Forge Capital Holdings, Inc.
595 Market Street, Suite 1980
San Francisco, CA 94105
