Letter to Shareholders for the Semi-Annual Report of the Valley Forge Capital
Holdings Total Return Fund.
Dear Shareholder:
The first six months of 1997 have been a very strong period for the stock
markets. The S&P 500 has risen 19.5% and has been led by the large
multi-national blue chip companies. Smaller capitalization stocks as measured by
the Russell 2000 Index gained 9.3%. The Valley Forge Total Return Fund rose
7.8%, including dividends, during the first six months of 1997.
At first glance, the performance of the Fund appears to have lagged that of the
market averages, particularly the S&P 500. However, the Fund's gain of 7.8% has
been achieved with approximately 35% of the portfolio held in cash and cash
equivalents, about 15% in preferred stock and corporate debt and only about 50%
invested in common stocks.
The management philosophy of the Fund is to remain fully invested except in
highly unusual circumstances and not to engage in attempts at market timing. We
look to reduce the cash position of the Fund and adjust the portfolio mix to
approximately 70% - 80% equities and 20% - 30% fixed income securities.
We have begun to restructure the Fund's holdings to include securities in
industries that our research indicates will have strong growth prospects over
the next few years. We have recently added securities in the energy services and
oil drilling industries and have already seen strong performance from these
companies. We are also looking to add to our technology holdings during periods
of weakness in these stocks. We will continue to hold a broad range of companies
in different industries to minimize risk in the portfolio.
Please contact us at (800) 688-1688 if we may provide additional investment
information.
Sincerely,
Fritz Bensler
President
Valley Forge Capital Holdings Total Return Fund
<PAGE>
Schedule of Portfolio Investments
June 30, 1997 (Unaudited)
Number of Market
Shares Description Value
COMMON STOCK: 45.87%
BEVERAGE: 2.51%
1,000 Coca Cola $ 69,750
1,000 Pepsico Inc. 37,625
------------
107,375
CHEMICALS: 2.76%
1,000 Great Lakes Chemicals 52,250
1,000 Hercules Inc. 48,125
1,000 Wellman Inc. 17,375
------------
117,750
COMMUNICATION EQUIPMENT: 1.55%
1,000 Andrew Corp 28,125
500 Motorola Inc. 38,000
------------
66,125
COMPUTERS: 3.43%
500 Hewlett Packard Co. 27,594
600 Int'l Business Machines Corp. 54,410
2,000 Netcom On-Line Comm* 29,500
1,000 Seagate* 35,188
------------
146,692
COMPUTER SOFTWARE: 1.04%
1,000 EDS Services 42,000
1,000 Multi-Corp Inc.* 2,500
-------------
44,500
ELECTRONICS-SEMI-CONDUCTORS: 1.96%
2,000 AMP Inc. 83,875
------------
<PAGE>
Number of Market
Shares Description Value
ENERGY-DRILLERS & SERVICES: 5.56%
1,000 Baker Hughes Inc 38,625
1,000 Diamond Offshore 77,875
1,000 Occidental 25,060
1,000 Transocean Offshore 72,625
1,000 Zeigler Coal 23,438
------------
237,623
ENTERTAINMENT-RECREATION: 2.68%
1,000 Circus Circus* 24,625
3,000 Viacom Inc. Class B* 89,813
------------
114,438
FINANCIAL: 1.02%
1,000 Federal National Mortgage* 43,750
------------
FOOD PRODUCERS: 3.94%
1,000 Archer Daniels Midl 23,438
1,000 Dole Foods Co.* 43,063
1,000 H.J. Heinz Co.* 45,875
1,000 Hershey Foods* 55,813
------------
168,189
INSURANCE: 1.03%
1,000 Ohio Casualty Co. 44,000
------------
MEDICAL SUPPLIES: 1.45%
1,000 Pall Corp* 22,875
1,000 St Jude Medical* 39,000
------------
61,875
METALS & MINING: 1.77%
1,000 Cyprus Minerals Co. 24,563
1,000 Hecla Mining 5,375
2,000 Homestake Mining Co. 26,125
500 Newmont Mining 19,500
------------
75,563
<PAGE>
Number of Market
Shares Description Value
MULTI-INDUSTRY: 0.70%
1,000 Ball Corp 30,000
------------
MISCELLANEOUS: 0.55%
1,000 Westinghouse* 23,625
------------
OFFICE SUPPLIES: 0.29%
1,000 A.T. Cross Co. 12,500
------------
PAPER & FOREST PRODUCTS: 0.49%
1,000 Louisiana-Pacific Co. 20,875
------------
PHARMACEUTICALS: 1.50%
2,000 Mylan Laboratories 29,750
1,000 Pharmacia Upjohn Inc. 34,438
------------
64,188
PHOTOGRAPHY-IMAGING: 1.30%
1,000 Polaroid Corp. 55,688
------------
PUBLISHING: 0.94%
1,000 Dow Jones & Co. Inc. 40,188
------------
REAL ESTATE: 1.77%
1,000 First Washington REA 25,000
2,000 Patriot America* 50,750
------------
75,750
RESTAURANT: 3.01%
3,000 Bob Evans Farms Inc. 50,813
1,000 Lone Star* 26,000
2,000 Wendy's* 51,875
------------
128,688
RETAIL: 0.57%
2,000 K Mart Corp* 24,375
------------
<PAGE>
Number of Market
Shares Description Value
TEXTILES/APPAREL: 0.81%
2,000 Angelica 34,750
------------
UTILITIES-ELECTRIC & GAS: 3.20%
1,000 Dominion Resources 36,500
1,000 Houston Ind. 21,436
1,000 Public Services Enterprises 25,125
1,000 Utilicorp United 29,061
1,000 Wisconsin Energy Corp. 24,750
------------
136,872
TOTAL COMMON STOCKS:
(Cost: $1,911,277) 1,959,254
-----------
PREFERRED STOCK: 6.23%
BEVERAGES: 0.61%
1,000 Cadbury Schweppes P.L.C. 26,125
------------
COMMUNICATIONS: 0.62%
1,000 GTE Delaware 26,500
------------
FINANCE: 3.18%
2,000 KMart Financing 109,750
1,000 UNUM Corp. 26,063
------------
135,813
INSURANCE: 0.60%
1,000 American General Capital L.L.C. 25,750
------------
REAL ESTATE: 1.22%
2,000 Equity Residential Property 52,000
------------
TOTAL PREFERRED STOCKS:
(Cost: $264,390) 266,188
-----------
<PAGE>
Number of Market
Shares Description Value
CORPORATE OBLIGATIONS: 4.68%
100,000 Fixed Income UIT 12/30/01; 9.25% 100,000
100,000 Graves Financial Bond #8 6/05/98; 10% 100,000
-----------
TOTAL CORPORATE OBLIGATIONS:
(Cost $200,000) 200,000
-----------
U.S. GOVERNMENT OBLIGATIONS: 32.72%
1 Federal Home Loan 7/7/97 998,508
1 Federal National Mortgage 7/3/97 399,157
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS:
(Cost: $1,397,665) 1,397,665
-----------
420,343 TEMPORARY INVESTMENTS: 9.84%
Star Bank Money Market Funds 40,343
OPTIONS: (0.06%)
10 Cyprus July 22.5; 7/19/97 (0.05%) (2,125)
10 HMGC July 15; 7/18/97 (0.00%) (63)
10 Viacom Inc 9/40; 9/19/97 (0.01%) (250)
-------------
TOTAL OPTIONS:
(Cost: ($3,645)) (2,438)
-------------
TOTAL INVESTMENTS:
(Cost: $4,190,030)** 99.29% 4,241,012
Other assets, net 0.71% 30,541
-------- ------------
NET ASSETS 100.00% $4,271,553
======= ==========
**Cost for Federal income tax purpose is $4,190,030 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 202,673
Gross unrealized depreciation (151,690)
-----------
Net unrealized appreciation $ 50,983
===========
* Non-income producing security
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
ASSETS
Investments at value (identified
cost of $4,190,030)(Notes 1 & 3) $2,423,003
Cash 1,818,008
Receivables
Dividend and interest 14,731 14,731
------
Deferred organization costs 125,698
Other assets 705
TOTAL ASSETS 4,382,145
LIABILITIES
Distribution payable 24,660
Due to advisor 34,162
Accrued expenses 6,752
Payable for securities purchased 45,018
------
TOTAL LIABILITIES 110,592
NET ASSETS $4,271,553
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($4,271,553 / 411,009 shares outstanding) $ 10.39
===========
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $4,082,103
Undistributed net realized gain on investments 130,770
Net unrealized appreciation of investments 50,983
Undistributed net income 44,675
Distribution paid (36,978)
------------
Net Assets $4,271,553
==========
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1997 (Unaudited)
INVESTMENT INCOME
Income:
Interest $58,906
Dividend 41,367
Total income ------ $100,273
Expenses:
Investment management fees (Note 2) 18,520
Transfer agent fees 7,217
Administration (Note 2) 7,479
Legal and audit 4,200
Custody and accounting fees 8,942
Registration fees 3,850
Printing 3,715
Amortization of organization cost 18,004
Other 4,845
-------
Management fee waiver (11,186)
Expenses, net 65,586
Net investment income 34,687
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 68,884
Net change in unrealized appreciation on investments 202,026
----------
Net gain on investments 270,910
----------
Net increase in net assets resulting from operations $305,597
========
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
Six months ended Year ended
June 30, 1997 Dec. 31,
(Unaudited) 1996
OPERATIONS
Net investment income $ 34,687 $ 73,403
Net realized gain on investments 68,884 253,585
Change in unrealized appreciation
(depreciation) of investments 202,026 (119,465)
---------- -----------
Net increase in net assets
resulting from operations 305,597 207,523
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
($.09 and $.12 per share,
respectively) (40,211) (59,802)
Net realized gain from investment
transaction ($0 and $.40 per share) -0- (191,699)
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net
assets resulting from capital
share transactions** (919,568) 3,843,303
----------- -----------
Net increase in net assets (654,182) 3,799,325
Net assets at beginning of period 4,925,735 1,126,410
----------- -----------
NET ASSETS at the end
of the period (including
overdistributed net investment income
of $3,233 and $82, respectively) $4,271,553 $4,925,735
========== ==========
** A summary of capital share transactions follows:
Six months ended
June 30, 1997 Year ended
(Unaudited) December 31, 1996
Shares Value Shares Value
Shares sold 107,982 $1,072,339 457,840 $4,503,585
Shares reinvested
from dividend 1,220 11,965 25,764 251,256
Shares redeemed (125,836) (1,240,332) (93,385) (911,538)
--------- ----------- -------- ----------
Net increase
(decrease) (95,683) ($ 919,568) 390,219 $3,843,303
========= =========== ======== ==========
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
Six months ended Year ended Aug. 11 * to
June 30, 1997 Dec. 31, Dec. 31,
(Unaudited) 1996 1995
--------------- ---------- -------
Per Share Operating Performance
Net asset value, beginning of period $ 9.72 $ 9.67 $ 10.00
------- ------- --------
Income from investment operations-
Net investment income 0.09 0.13 0.04
Net realized and unrealized
gain (loss) on investments 0.67 0.44 (0.33)
------- ------- -------
Total from investment
operations 0.76 0.57 (0.29)
------- ------- -------
Less distributions-
Distributions from net
investment income (0.09) (0.12) (0.04)
Distributions from realized
gains on investments -0- (0.40) -0-
-------- ------- --------
Total distributions (0.09) (0.52) (0.04)
------- ------- -------
Net asset value, end of period $10.39 $ 9.72 $ 9.67
====== ======= =======
Total Return 7.81% 5.89% (2.89)%#
Ratios/Supplemental Data
Net assets, end of period (000's) $4,272 $4,926 $1,126
Ratio to average net assets-(A)
Expenses (B) 2.66% 6.29% 1.95%**
Expenses-net (C) 1.95% 1.95%
Net investment income (B) 1.40% 2.06% 1.72%**
Portfolio turnover rate 40.35% 1.14% 0.00%
Averge commission rate
paid per share $0.0208 --- ---
* Commencement of operations
** Annualized
# Non-annualized
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by 4.34% in 1996 and 3.14% in 1995.
<PAGE>
(B) Expense ratio has been increased to include additional custodian fees in
1995 which were offset by custodian fee credits.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received
See Notes to Financial Statements
<PAGE>
Notes to the Financial Statements
June 30, 1997 (Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--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 company.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. 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.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions. Security transactions are accounted for on the trade
date. The cost of securities sold is determined on a first-in, first-out basis.
D. Deferred 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.
E. Distribution to Shareholders. Distribution from investment income and
realized gains, if any, are recorded on the ex-dividend date.
F. Other. Dividend income is recorded on the ex-dividend date. Interest income
is recorded on an accrual basis.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--The Fund
has engaged Valley Forge Advisors, Inc. a wholly-owned subsidiary of Valley
Forge Capital Holdings Inc., 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.
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 $23,179 was required for the six months
ended June 30, 1997.
Certain officers and directors of the Fund are also officers and directors of
the investment advisor.
<PAGE>
DISTRIBUTIONS TO SHAREHOLDERS--During 1997, a distribution of $.09 per share
aggregating $40,211, was paid from net investment income which is taxable to
shareholders as ordinary income dividends during 1997.
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
six months ended June 30, 1997, 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.
INVESTMENT TRANSACTIONS--For the six months ended June 30, 1997, the Fund made
purchases and sales of securities other than short-term notes aggregated
$982,533 and $2,124,855 respectively.
<PAGE>
Investment Advisor:
Valley Forge Advisors, Inc.
595 Market Street, Suite 1980
San Francisco, CA 94105
Counsel:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, 29th Floor
Chicago, IL 60606
Independent Auditors:
Deloitte & Touche LLP
707 East Main Street, Suite 500
Richmond, VA 23219
Transfer Agent:
For account information, wire purchase or redemptions, call or write to Valley
Forge's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
This report is for shareholder information. This is not a prospectus intended
for use in the purchase of shares.
