You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before you invest. You can obtain additional information by visiting the website at fpa.com, by calling toll-free, 1-800-982-4372, or by contacting the Fund in writing.
Average Annual Total Returns (%)
Since
As of September 30, 2025 12/1/15* 5 Yr 3 Yr 1 Yr YTD QTD 10 Yr**
Source Capital – NAV . . . . . . . 8.14 11.21 16.25 13.76 13.54 4.59 8.60
60% MSCI ACWI/40%
BBG U.S. Agg . . . . . . . . . . . . . 7.71 7.91 15.64 11.42 13.48 5.36 8.01
60% S&P 500/40%
BBG U.S. Agg . . . . . . . . . . . . . 9.61 9.62 16.71 11.67 11.43 5.66 9.99
Index data source: Morningstar
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data, which may be lower or higher than the performance data quoted, may be obtained at fpa.com or by calling toll-free, 1-800-982-4372.
Periods greater than one year are annualized. Fund performance is shown net of all fees and expenses. The returns shown for Source Capital are calculated at net asset value per share, including reinvestment of all distributions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions, which would lower these figures. Since Source Capital is a closed-end investment company and its shares are bought and sold on the New York Stock Exchange, your performance may also vary based upon the market price of the common stock. Comparison to any index is for illustrative purposes only. An investor cannot invest directly in an index. The Fund does not include outperformance of any index or benchmark in its investment objectives.
* On December 1, 2015, the Fund transitioned to a balanced strategy and the current portfolio managers assumed management of the Fund on that date.
** Performance prior to December 1, 2015 reflects the performance of the prior portfolio manager and investment strategy. Performance prior to December 1, 2015 is not indicative of performance for any subsequent periods.
Please see important disclosures at the end of this commentary.
1
Dear Shareholder: Performance Overview
Source Capital’s (“Source” or “Fund”) net asset value (NAV) gained 4.59% for the quarter and 13.76% for the trailing twelve months, which is higher than the balanced MSCI ACWI/Bloomberg US Agg index, the Fund’s primary illustrative benchmark, for the trailing twelve months.
Performance versus Illustrative Indices (%)1
Return Yield*
The Fund’s risk exposure is nearly balanced between Equities and Credit, as reflected in the following table.
Portfolio Exposure (%)2
Q3 2025
Equity
Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.6
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.6
Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7
Private (invested assets only) . . . . . . . . . . . . . . . . . . . . . 20.6
Total Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.3
Other Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
1 Comparison to the indices is for illustrative purposes only. An investor cannot invest directly in an index. Fund shareholders may only invest or redeem their shares at market value (NYSE: SOR), which may be higher or lower than the Fund’s net asset value (NAV).
* Source: FPA, FactSet, Bloomberg. As of September 30, 2025. The “yield” shown for the Fund is the NAV distribution yield (also referred to as the Fund’s “distribution rate” as a % of NAV). Dividend yield is used for the MSCI ACWI and the S&P 500. Yield to Worst is used for the Bloomberg US Agg. Please refer to the Important Disclosures for definitions of the different measures of yield used in this table. For more information related to the Fund’s distribution rate, please see https://fpa.com/funds/overview/source-capital. Dividends and other distributions are not guaranteed.
2 Source: FPA, as of September 30, 2025. Portfolio composition will change due to ongoing management of the Fund. Cash includes the non-invested portion of private credit investments. Totals may not add up to 100% due to rounding.
2
Portfolio Discussion3 Equity
With respect to the recent performance of the Fund, in the previous twelve months, Source’s top five equity performers contributed 4.82% to its return while its bottom five detracted 2.03%.
The following companies have notably impacted portfolio performance.5
Citigroup has improved its return on tangible equity (ROTE) compared to industry peers. In addition, regulatory changes in the US have increased the normal level of ROTE for US-based banks. The combination of a low starting valuation, demonstrated operating improvement, and an improved regulatory environment have resulted in strong share-price performance over the past twelve months.
Despite anxiety about Alphabet’s future that has colored investors’ views of the company, its stock price has risen five-fold since our initial purchases from the time your current PM team assumed management of the Fund. Recent concerns include competitive threats in search, stemming from competing AI models, as well as antitrust scrutiny in the US and Europe. Additionally, there is an open question about the likely return on the billions spent on moonshot investments, among other issues. Its stock has risen 28% year-to-date and 57% since the end of Q1, when it was one of the Fund’s larger performance detractors in the trailing-twelve-month
3 References to individual securities are for informational purposes only, are subject to change, and should not be construed as a recommendation or a solicitation to buy or sell a particular security. Portfolio composition will change due to ongoing management of the Fund. Portfolio holdings for the Fund can be found at fpa.com.
4 Reflects the top five contributors and detractors to the Fund’s performance based on contribution to return for the trailing twelve months (“TTM”). Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. Percent of portfolio reflects the average position size over the period. The information provided does not reflect all positions purchased, sold or recommended by FPA during the quarter. A copy of the methodology used and a list of every holding’s contribution to the overall Fund’s performance during the TTM is available by contacting FPA Client Service at [email protected]. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities listed.
5 Historical commentaries for the Fund can be accessed here on the fpa.com website. The company data and statistics referenced in this section, including competitor data, are sourced from company press releases, investor presentations, financial disclosures, SEC filings, or company websites, unless otherwise noted.
Past performance is no guarantee, nor is it indicative, of future results.
3
period, mainly due to a judge’s Q3 ruling that declined to force a breakup of Chrome and Android. While legal and competitive challenges persist, Alphabet continues to enhance its existing search offering with new AI features that have been well-received and are continually evolving. Meanwhile, YouTube is now the most-watched media outlet on the planet, with more than one trillion hours of video viewed, and arguably remains under monetized. We expect its cloud offering to continue to grow and eventually achieve the higher margins of its larger peers. Furthermore, the value of Waymo’s leading self-driving technology is evident to those of us at FPA who have experienced its autonomous ride-share service, and its bright future is likely not fully reflected in its stock price. The Fund therefore continues to maintain a position in Alphabet, although we have sold some shares over time.
JDE Peet’s is a pure-play coffee and tea company, with a presence in over 100 markets and a portfolio of 50+ brands. Following a period of material underperformance, JDE Peet’s changed management and agreed to be acquired by Keurig Dr. Pepper. The combination of improved management and agreement to sell the business led to strong performance over the past twelve months.
International Flavors & Fragrances (IFF) is a leading producer of ingredients for food, beverage, personal care, health, and household products industries. Its products are ubiquitous across many household staples, including the enzyme used in half of cold-water laundry detergents, another enzyme used in one-fifth of the global beer market, and one-third of yogurts use an IFF culture. IFF has faced challenges: its prior management was unfortunately reckless in capital allocation, making poor acquisitions and failing to manage its diverse global enterprise effectively. This transformed a high-margin, unlevered company into one with a lower margin and greater leverage. However, a new CEO has renewed the company’s focus on being best-in-class operationally, with a smaller suite of products. IFF has sold and is expected to continue to sell non-core assets, which would decrease the firm’s leverage and likely improving margins. The company has burned investors, leading many to adopt a wait-and-see attitude. IFF’s current
~$4 of free cash flow could increase to $5-6 in a few years, and if successful, its P/E ratio should also rise to be more in line with its peers. With its stock currently at $61, we don’t see much downside and, should IFF execute well, we can reasonably see a path to the stock price doubling over the next few years (inclusive of its free cash flow).6
CarMax, the largest retailer of used cars in the US, has been a disappointment. We entered 2025 with hopes that an improved omnichannel offering in an improving used vehicle market would drive increased sales volumes, market share, and profit growth. Instead, we’ve watched management make a series of missteps. The company withdrew its 2030 unit sales targets at the beginning of the year, citing tariff-related uncertainty expected to have little impact five years from now – not particularly confidence-boosting, especially when their competitors retained their stated medium-term goals. Management mistakenly expected their strong fiscal first quarter to continue. They overbought inventory at elevated prices, which they were then forced to work through in the second quarter, causing them to lose market share. Investors have punished the company for its mistakes, and shares have declined by 47% year to date. Despite our disappointment in management’s execution, the company’s share price appears inexpensive to us. CarMax trades for roughly 12x forward consensus earnings and 1.1x tangible book value. Two independent directors bought shares in early October, seemingly supporting that view. The
6 As relates to IFF: Projections on consensus future free cash earnings are based on FPA’s analysis of the last 12 months’ actual and forward-looking consensus estimates. FPA has applied a range of $5.50-6.00 for free cash earnings based on forward-looking free cash earnings, which is lower than the current consensus for those same periods. Based on these three inputs ((a) consensus future free cash flow earnings, (b) conservative P/E metrics relative to IFF’s peer group, and (c) FPA analysis based on IFF company financials), FPA believes that it is possible that the IFF stock price could double in the next few years. Although we believe this estimate has a reasonable basis, it is hypothetical and not guaranteed. Past performance is no guarantee, nor is it indicative, of future results.
