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 https://fpa.com/fund/source-capital/, by email at [email protected], or toll-free by calling 1-800-279-1241.
Average Annual Total Returns (%)
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 over one year are annualized. Fund performance is shown net of all fees and expenses and includes the reinvestment of 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.
Please see important disclosures at the end of this commentary.
Dear Shareholder:
Performance Overview
Source Capital’s (“Source” or “Fund”) net asset value (NAV) declined -0.29% for the quarter but gained 16.01% for the trailing twelve months, which is higher than the balanced MSCI ACWI/Bloomberg US Agg index, the Fund’s primary illustrative benchmark. The Fund’s risk exposure is nearly balanced between Equities and Credit.
Performance versus Illustrative Indices (%)1
Portfolio Exposure (%)2
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 March 31, 2026. The “yield” shown for the Fund is the NAV distribution yield (also referred to as the Fund’s “distribution rate” as a % of NAV) and the Fund’s Market Price distribution yield (as a % of market price). 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/fund/source-capital/. Dividends and other distributions are not guaranteed.
² Source: FPA, as of March 31, 2026. 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.
Past performance is no guarantee, nor is it indicative, of future results.
Portfolio Discussion3
Equity
With respect to the recent performance of the Fund, in the previous twelve months, Source’s top five equity performers contributed 6.19% to its return while its bottom five detracted -1.34%.
Trailing Twelve-Month Top and Bottom Contributors (%) as of March 31, 20264
The following companies impacted portfolio performance but have not been recently discussed.5
Glencore functions as one of the largest mining and trading operations in the world, highly leveraged to materials like copper, zinc, and coal, which spiked amid supply disruptions and strong global demand. Shares of Glencore stock rose after reports of a potential merger with Rio Tinto, which subsequently failed to materialize. The company later announced it would return $2 billion to shareholders through cash distributions, following ongoing share repurchases throughout most of 2025.
Longtime holding Aon is among the world’s leading providers of insurance/reinsurance brokerage and human resources solutions. The company reported slowing organic revenue growth for 2025, which led to a slew of sell-side downgrades that pressured the stock price. Aon currently trades at an undemanding multiple of earnings and maintains a long track record of opportunistic acquisitions that have created value for shareholders over time.
During the past quarter our two largest purchases were additions to existing positions – Azelis, a small-cap, European-based specialty chemical distributor, and Becton Dickinson, a US-based medical technology company. In contrast our two largest sales were Kinder Morgan and Swire Pacific, positions we have held for well over a decade. The above noted actions are consistent with our activity over the past twelve to eighteen months, which has seen us harvest gains from long-held positions and recycle the proceeds into what we perceive to be undervalued opportunities, namely, SMID caps, international names, and healthcare.
As it relates to other areas of the market that have recently come under pressure, the team is busy evaluating opportunities in several sectors where, if nothing else, valuations are more reasonable than they were a year ago. We are cognizant however that simply because the multiple on a company has been cut in half, that doesn’t necessarily make for a compelling purchase. Nonetheless we are in the business of turning over rocks, and in doing so, our hope is that we can find at least a few former gems whose sparkle will ultimately be restored. We are currently building positions in several such names and look forward to providing more details when we publish our midyear letter.
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. Totals might not add up due to rounding.
5 Historical commentaries for the Fund can be accessed on the website at https://fpa.com/insights/. 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.
Fixed Income
Traditional
Fears of artificial intelligence decimating the profitability of many software companies caused spreads on associated debt to increase, which, in turn, led to moderately higher spreads in the high-yield and leveraged-loan markets in the quarter. Data on the high yield market is shown below for reference. In the leveraged loan market, spreads on software debt increased by 232 bps during the quarter and – owing to a 14% weight in the leveraged loan index – drove a 51 bps increase in the leveraged loan index spread.6
Bloomberg U.S. Corporate High-Yield and BB ex. Energy Index Yield-To-Worst (YTW) and Spread7
6 Source: JPMorgan.
7 Source: Bloomberg and JPMorgan. As of March 31, 2026. *Services and software (technology) represented 4.7%, on average, of the JPM High Yield Index in Q1 2026.YTW is Yield-to-Worst. Spread reflects the quoted spread of a bond that is relative to the security off which it is priced, typically an on-the-run Treasury. Please see Important Disclosures for definitions of key terms.
Past performance is no guarantee, nor is it indicative, of future results.
The capabilities of artificial intelligence are progressing rapidly. Some software companies may become casualties of this new technology. The fear that every software company and any company peripherally related to software will become obsolete may create attractive investment opportunities at some point. With limited software exposure in the portfolio, we have ample room to take advantage of those opportunities should they arise. In the meantime, looking at the rest of the market, we do not consider the increase in high-yield and loan spreads to be meaningful, especially given the very low starting point at the beginning of the quarter. In other words, that the market is cheaper is a relative statement. In our eyes, the market has gone from very expensive to less expensive – but it’s still expensive.
Corporate & Other
Distribution
On April 21, 2026, the Fund’s Board approved maintaining the current rate of 20.83 cents per share for its regular monthly distribution through August 2026.8 This equates to an annualized unlevered distribution rate of 5.40% based on the Fund’s closing market price on March 31, 2026.
Discount to NAV
The Fund’s discount to NAV closed at 2.53% at quarter-end. The average discount to NAV for the trailing twelve months was 4.26%.9
Closing
Thank you to our investors for your continued confidence in our approach to stewarding capital.
Respectfully submitted,
Source Capital Portfolio Managers
May 6, 2026
8 For more information related to the Fund’s distribution rate, please see https://fpa.com/insights/?category_name=fund-announcements. Dividends and other distributions are not guaranteed.
9 Source: FPA. The average is calculated using daily discount rates.
Past performance is no guarantee, nor is it indicative, of future results.
Important Information
This Commentary is for informational and discussion purposes only and does not constitute, and should not be construed as, an offer or solicitation for the purchase or sale with respect to any securities, products or services discussed, and neither does it provide investment advice. This Commentary does not constitute an investment management agreement or offering circular.
Current performance information is updated monthly and is available by calling 1-800-982-4372 or by visitingfpa.com. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may vary from the performance quoted. 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.
The Fund is managed according to its investment strategy which may differ significantly in terms of security holdings, industry weightings, and asset allocation from those of the comparative indices. Overall Fund performance, characteristics and volatility may differ from the comparative indices shown.
There is no guarantee the Fund’s investment objectives will be achieved. 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 https://fpa.com/fund/source-capital/, by email at [email protected], or toll free by calling 1-800-279-1241.
Effective January 1, 2025, Source Capital, Inc. was reorganized into a Delaware Trust. The Fund’s new name is Source Capital, but it continues to trade on the NYSE under the SOR ticker. There was no change in its investment objective, investment strategy, or fundamental investment policies. FPA continues to be the adviser to the Fund.
The views expressed herein and any forward-looking statements are highly speculative, current only as of the date of this publication and are those of the portfolio management team. Forward-looking statements can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue” or “believe” (or the negatives thereof) or other variations thereof. Due to various risks and uncertainties, actual events or results or actual performance may differ materially and are subject to change at any time in response to changing circumstances and industry developments. This information and data has been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. FPA does not undertake to update any forward-looking statement because of new information, future developments, or otherwise.
Portfolio composition will change due to ongoing management of the Fund. References to individual financial instruments or sectors are for informational purposes only and should not be construed as recommendations by the Fund or the portfolio managers. It should not be assumed that future investments will be profitable or will equal the performance of the financial instrument or sector examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at fpa.com.
Investing in closed‐end funds involves risk, including loss of principal. Closed‐end fund shares may frequently trade at a discount (less than) or premium (more than) to their net asset value. If the Fund’s shares trade at a premium to net asset value, there is no assurance that any such premium will be sustained for any period of time and will not decrease, or that the shares will not trade at a discount to net asset value thereafter.
Capital markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. It is important to remember that there are risks inherent in any investment and there is no assurance that any investment or asset class will provide positive performance over time.
The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and other depository receipts, which are subject to interest rate, currency exchange rate, economic and political risks; these risks may be heightened when investing in emerging markets. Non‐U.S. investing presents additional risks, such as the potential for adverse political, currency, economic, social or regulatory developments in a country, including lack of liquidity, excessive taxation, and differing legal and accounting standards. Non‐U.S. securities, including American Depository Receipts (ADRs) and other depository receipts, are also subject to interest rate and currency exchange rate risks.
The return of principal in a fund that invests in fixed income instruments is not guaranteed. The Fund’s investments in fixed income instruments have the same issuer, interest rate, inflation and credit risks that are associated with underlying fixed income instruments owned by the Fund. Such investments may be secured, partially secured or unsecured and may be unrated, and whether or not rated, may have speculative characteristics. The market price of the Fund’s fixed income investments will change in response to changes in interest rates and other factors.
Generally, when interest rates go up, the value of fixed income instruments, such as bonds, typically go down (and vice versa) and investors may lose principal value. Credit risk is the risk of loss of principle due to the issuer’s failure to repay a loan. Generally, the lower the quality rating of an instrument, the greater the risk that the issuer will fail to pay interest fully and return principal in a timely manner. If an issuer defaults, the security may lose some or all its value. Lower rated bonds, convertible securities and other types of debt obligations involve greater risks than higher rated bonds.
Mortgage-related and asset-backed securities are subject to prepayment risk, can be highly sensitive to changes in interest rates, and are subject to credit risk/risk of default on the underlying assets… Convertible securities are generally not investment grade and are subject to greater credit risk than higher‐rated investments. High yield securities can be volatile and subject to much higher instances of default. The Fund may experience increased costs, losses and delays in liquidating underlying securities should the seller of a repurchase agreement declare bankruptcy or default.
The ratings agencies that provide ratings are Standard and Poor’s (“S&P”), Fitch, Moody’s, Kroll, DBRS, and any other nationally recognized statistical rating organization (“NRSRO”). Credit ratings range from AAA (highest) to D (lowest). Bonds rated BBB or above are considered investment grade (IG). Credit ratings of BB and below are lower-rated securities (junk bonds). High-yielding, non-investment grade bonds (junk bonds) (HY) involve higher risks than investment grade bonds. Bonds with credit ratings of CCC or below have high default risk.
Private placement securities are securities that are not registered under the federal securities laws and are generally eligible for sale only to certain eligible investors. Private placements may be illiquid, and thus more difficult to sell, because there may be relatively few potential purchasers for such investments, and the sale of such investments may also be restricted under securities laws.
The Fund may use leverage. While the use of leverage may help increase the distribution and return potential of the Fund, it also increases the volatility of the Fund’s net asset value (NAV), and potentially increases volatility of its distributions and market price. There are costs associated with the use of leverage, including ongoing dividend and/or interest expenses. There also may be expenses for issuing or administering leverage. Leverage changes the Fund’s capital structure through the issuance of preferred shares and/or debt, both of which are senior to the common shares in priority of claims. If short-term interest rates rise, the cost of leverage will increase and likely will reduce returns earned by the Fund’s common stockholders.
Value style investing presents the risk that the holdings or securities may never reach their full market value because the market fails to recognize what the portfolio management team considers the true business value or because the portfolio management team has misjudged those values. In addition, value style investing may fall out of favor and underperform growth or other styles of investing during given periods.
Distribution Rate
Distributions may include the net income from dividends and interest earned by fund securities, net capital gains, or in certain cases it may include a return of capital. The Fund may also pay a special distribution at the end of a calendar year to comply with federal tax requirements. All mutual funds, including closed-end funds, periodically distribute profits they earn to investors. By law, if a fund has net gains from the sale of securities, or if it earns dividends and interest from securities, it must pass substantially all of those earnings to its shareholders or it will be subject to corporate income taxes and excise taxes. These taxes would, in effect, reduce investors’ total return. First Pacific Advisors, LP does not provide legal, accounting, or tax advice.
The Fund’s distribution rate may be affected by numerous factors, including changes in realized and projected market returns, Fund performance, and other factors. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate at a future time.
Index Definitions
Comparison to any index is for illustrative purposes only and should not be relied upon as a fully accurate measure of comparison. The Fund may be less diversified than the indices noted herein and may hold non-index securities or securities that are not comparable to those contained in an index. Indices will hold positions that are not within the Fund’s investment strategy. Indices are unmanaged and do not reflect any commissions, transaction costs, or fees and expenses which would be incurred by an investor purchasing the underlying securities and which would reduce the performance in an actual account. You cannot invest directly in an index. The Fund does not include outperformance of any index in its investment objectives.
Bloomberg U.S. Aggregate Bond Index provides a measure of the performance of the US investment grade bonds market, which includes investment grade US Government bonds, investment grade corporate bonds, mortgage pass-through securities and asset-backed securities that are publicly offered for sale in the United States. The securities in the Index must have at least 1-year remaining in maturity. In addition, the securities must be denominated in US dollars and must be fixed rate, nonconvertible, and taxable.
MSCI ACWI NR USD Index (MSCI ACWI) is an unmanaged free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Net Return (NR) indicates that withholding taxes are applied to dividend reinvestments. MSCI uses the withholding tax rate applicable to non-resident institutional investors that do not benefit from double taxation treaties.
Standard & Poor’s 500 Stock Index (S&P 500) is a capitalization-weighted index which covers industrial, utility, transportation and financial service companies, and represents approximately 75% of the New York Stock Exchange (NYSE) capitalization and 30% of NYSE issues. The S&P 500 is considered a measure of large capitalization stock performance.
60% S&P500 / 40% BBG U.S. Aggregate Bond Index is a hypothetical combination of unmanaged indices and comprises 60% S&P 500 Index and 40% Bloomberg U.S. Aggregate Bond Index.
60% MSCI ACWI / 40% BBG U.S. Aggregate Bond Index is a hypothetical combination of unmanaged indices and comprises 60% MSCI ACWI Index and 40% Bloomberg U.S. Aggregate Bond Index.
Bloomberg U.S. High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds.
Bloomberg U.S. High Yield BB ex Energy Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable BB-rated corporate bonds excluding energy sector.
Glossary of Terms
Discount to Net Asset Value (NAV) is a pricing situation when a closed-end fund’s market trading price is lower than its daily net asset value (NAV).
Dividend Yield is the dividend per share divided by the price per share.
Earnings Per Share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Forward Price to Earnings is a version of the ratio of price-to-earnings (P/E) that uses forecasted earnings for the P/E calculation.
Free Cash Flow represents the cash a company can generate after required investment to maintain or expand its asset base.
High-Yield (HY) Bond is a high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
Investment Grade (IG) is a rating that indicates that a bond has a relatively low risk of default.
Market Capitalization refers to the total dollar market value of a company’s outstanding shares of stock. Commonly referred to as “market cap,” it is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.
Net Asset Value (NAV) represents the net value of a mutual fund and is calculated as the total value of the fund’s assets minus the total value of its liabilities and is shown as a per share price.
On-the-run Treasuries are the most recently issued U.S. Treasury bonds, notes, or bills of a specific maturity and can serve as benchmarks for pricing other financial instruments.
Price to Earnings is the ratio for valuing a company that measures its current share price relative to its EPS. The price-to- earnings ratio is also sometimes known as the price multiple or the earnings multiple.
Spread reflects the quoted spread of a bond that is relative to the security off which it is priced, typically an on-the-run treasury.
Trailing Price to Earnings is a relative valuation multiple that is based on the last 12 months of actual earnings.
Yield is the discount rate that links the bond’s cash flows to its current dollar price.
Yield to Worst (YTW) is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting. It is a type of yield that is referenced when a bond has provisions that would allow the issuer to close it out before it matures.
©2026 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted by Morningstar to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee, nor is it indicative, of future results.