<PAGE> 1
- --------------------------------------------------------------------------------
FPA PERENNIAL FUND, INC. Semi-Annual Report
LOGO
Distributor:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
June 30, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
DIRECTORS DISTRIBUTOR
FPA Fund Distributors, Inc.
Julio J. de Puzo, Jr. 11400 West Olympic Boulevard, Suite 1200
John P. Endicott Los Angeles, California 90064
Leonard Mautner
Lawrence J. Sheehan
Kenneth L. Trefftzs
COUNSEL
OFFICERS O'Melveny & Myers LLP
Los Angeles, California
Eric S. Ende, President and
Chief Investment Officer
Julio J. de Puzo, Jr., Executive Vice
President
Christopher Linden, Senior Vice President CUSTODIAN & TRANSFER AGENT
Lawrence P. McNeil, Senior Vice President State Street Bank and Trust Company
Steven R. Geist, Vice President Boston, Massachusetts
Janet M. Pitman, Vice President
William D. Jacobs, Treasurer
Sherry Sasaki, Secretary
Christopher H. Thomas, Assistant Treasurer
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 8500
INVESTMENT ADVISER Boston, Massachusetts 02266-8500
(800) 638-3060
First Pacific Advisors, Inc. (617) 328-5000
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
</TABLE>
This report has been prepared for the information of shareholders of FPA
Perennial Fund, Inc., and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus. The
financial information included in this report has been taken from the records
of the Fund without examination by independent auditors.
<PAGE> 3
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
During the six months ending June 30, 1996, FPA Perennial Fund's net
asset value per share increased by 9.3%, adjusted for reinvestment of all
dividend and capital gains distributions. We consider this an excellent
absolute return as well as quite respectable relative performance compared to
the relevant stock market averages -- the S&P 500 (+10.2%), Russell 2000
(+10.4%), and Value Line (+7.0%).
We think it is also of value to review the Fund's performance over the
nine-month period since the end of September, when the Board of Directors
appointed me as the Fund's new chief investment officer. At that time I told
the Board that I would be making some changes in the Fund's investment tactics,
changes which I discussed in detail in the year-end Shareholder Letter, while
still continuing the commitment to the Fund's guiding philosophy of investing
in high-return companies, purchased at attractive valuations. The table below
compares Perennial's performance to the approximately 500 Growth and Income
Funds in the Lipper universe. As you can see, Perennial's relative performance
has steadily improved.
<TABLE>
<CAPTION>
4Q 1Q 2Q
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Returns
- -------
FPA Perennial 2.5% 4.5% 4.5%
Lipper Growth &
Income Fund Average 4.5% 5.7% 3.4%
Relative Performance
- --------------------
Perennial Rank 417 of 408 of 106 of
495 Funds 520 Funds 551 Funds
Perennial Percentile 84th 78th 19th
</TABLE>
I would like to take this opportunity to discuss in greater depth two
of the high-return companies held in Perennial's portfolio.
HOLOPHANE
Holophane, an important Perennial holding, is a good example of a
company which we expect will contribute towards continuing good returns for our
shareholders. We began investing in Holophane during the second half of 1995,
and increased our holdings during 1996, taking advantage of a decline in the
share price. The price decline followed the report of lower first quarter
earnings, the result of weather-related construction delays and a slow down in
sales to "big-box" retailers. We know the weather problems were only
temporary, and we believe that sales and profits will recover, modestly in the
second quarter, then more significantly in the second half of 1996.
Holophane is the leading producer of highly engineered, premium
quality, high intensity discharge lighting products. Applications are
industrial (factories, warehouses), commercial (retailers, shopping centers,
arenas), and outdoor (highways, billboards). Its products have substantial
market shares, based on their superior optical performance, energy efficiency,
and low life-cycle costs. About 40% of sales are customized products, which
are less subject to price competition than commodity items. Holophane's
operations are extensively integrated, including glass, aluminum, plastic,
electricals, and final assembly, an important advantage in reducing product
development time. Holophane also has its own technically trained factory sales
force (competitors use manufacturers' reps), which focuses on lighting projects
during the design process, not just the later bidding stage.
Although Holophane's history as a public company is relatively
brief (IPO in November 1993), current management has been in place
1
<PAGE> 4
since the 1989 LBO and has performed well. Gross and operating margins have
been significantly increased, and working capital utilization improved.
Management has beefed up the sales force and emphasized new product
development. Also, Holophane's considerable cash flow has been intelligently
reinvested in facilities expansion and upgrades, a closely related acquisition,
and significant deleveraging--in the past two years alone net debt has been
reduced from 36% of total assets to 16%. Management is also financially
committed to the business. The CEO owns 3% of the company (excluding options)
and all officers and directors own 11%.
Holophane's strong competitive position and focussed management have
produced impressive returns--over 30% pre-tax return on operating assets last
year and a 16% operating margin. We expect profitability to continue at
comparable rates. At its recent price of 15 1/2, Holophane is selling for less
than 12x expected 1996 earnings of $1.30 - $1.35, a very attractive valuation.
CARNIVAL CORPORATION UPDATE
In our last letter we discussed the investment merits of Carnival
Corporation, a major holding of the Fund. Since that time Carnival's
performance has been excellent. Its share price has increased from 24 3/8 at
December 31 to 28 7/8 at June 30, a gain of 18.5%. More important, its
business has continued to prosper. Its returns on capital remain high and its
market share has increased.
Earnings for the first half of fiscal 1996 were $0.64, compared to
$0.56 last year. The third quarter is largely booked at improved prices. Two
new ships have entered service so far this year, and a third is scheduled for
November. Total capacity additions over the 1996- 1999 period will be a
minimum of 10% per year on average. Based on projected 1996 earnings of
$1.85, Carnival remains attractive at a PE of less than 16x.
Holophane and Carnival are representative of the other companies in
Perennial's portfolio--understandable high return businesses with proven
managements. These characteristics alone should be sufficient to provide
Perennial shareholders with above average long-term returns without excessive
risk. Furthermore, our practice of seeking to acquire securities of such
companies at reasonable valuations should tend to enhance returns while
reducing risk.
STEVE GEIST
I am pleased to report that Perennials' Board of Directors has elected
Steve Geist Vice President of the Fund. Since joining First Pacific Advisors
over four years ago, Steve has worked closely with me, as well as earlier with
Chris Linden and George Michaelis. He has done extensive research on many of
the Fund's investments and it is important that his contribution be recognized.
Steve is a graduate of New York University; he has earned a Master of Science
in Electrical Engineering from Purdue University and received an MBA from UCLA.
Prior to entering the investment business he worked for TRW, Inc. in a wide
variety of engineering positions.
NEW OFFICERS
In addition, the Perennial Board has elected Janet M. Pitman, First
Pacific Advisors' head of trading as Vice President, and William D. Jacobs as
Treasurer. We congratulate Jan and Bill, as well as Steve, on their elections.
Respectfully submitted,
/s/ ERIC S. ENDE
Eric S. Ende
President
July 26, 1996
2
<PAGE> 5
HISTORICAL PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDED JUNE 30, 1996
---------------------------
1 YEAR 5 YEARS 10 YEARS
-------- --------- --------
<S> <C> <C> <C>
FPA Perennial Fund, Inc.
(NAV) . . . . . . . . . . . . . . . . 16.27% 10.63% 10.82%
FPA Perennial Fund, Inc.
(Net of Sales Charge) . . . . . . . . 8.71% 9.15% 10.08%
Lipper Growth & Income Fund
Average . . . . . . . . . . . . . . . 22.13% 14.36% 11.82%
Standard & Poor's
500 Stock Index . . . . . . . . . . . 26.12% 15.75% 13.76%
Russell 2000 . . . . . . . . . . . . . . 23.89% 17.51% 10.42%
</TABLE>
The table presented above shows the average annual total return, which includes
reinvestment of all distributions, for several different periods ended June 30,
1996 for the Fund and comparative indices of securities prices. The data
quoted represents past performance, and an investment in the Fund may fluctuate
so that an investor's shares when redeemed may be worth more or less than their
original cost. Since investors purchase shares of the Fund with varying sales
charges depending primarily on volume purchased, the returns for the Fund are
presented at net asset value (NAV) and also net of the current maximum sales
charge of 6.5% of the offering price.
3
<PAGE> 6
MAJOR PORTFOLIO CHANGES
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Shares
--------------
<S> <C> <C>
NET PURCHASES
COMMON STOCKS
Arrow Electronics, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,000 shs.
Bacou USA, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,600 shs.
Belden Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700 shs.
Devon Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 shs.
Donaldson Company, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000 shs.
Holophane Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 shs.
IDEX Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 shs.
Landauer, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 shs.
Leggett & Platt, Incorporated (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 shs.
Methode Electronics, Inc. (Class A) (1) . . . . . . . . . . . . . . . . . . . . . . . . 23,500 shs.
Poe & Brown, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,100 shs.
TriMas Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,800 shs.
Tupperware Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,400 shs.
NET SALES
COMMON STOCKS
Bancorp Hawaii, Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 shs.
Bandag, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 shs.
Cedar Fair, L.P. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,100 shs.
Emerson Electric Co. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,600 shs.
First National Bank of Anchorage (2) . . . . . . . . . . . . . . . . . . . . . . . . . 205 shs.
Genuine Parts Company (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,100 shs.
Golden West Financial Corporation (2) . . . . . . . . . . . . . . . . . . . . . . . . . 14,900 shs.
Grainger (W.W.), Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,200 shs.
Johnson & Johnson (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 shs.
Kaydon Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,600 shs.
Kelly Services, Inc. (Class A) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 shs.
Lubrizol Corporation, The (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,400 shs.
Marsh & McLennan Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 shs.
Pfizer Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800 shs.
Washington Federal, Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 shs.
Watts Industries, Inc. (Class A) (2) . . . . . . . . . . . . . . . . . . . . . . . . . 26,000 shs.
CONVERTIBLE PREFERRED STOCK
Time Warner Financing Trust (Percs) (2) . . . . . . . . . . . . . . . . . . . . . . . . 33,100 shs.
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<PAGE> 7
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRODUCER DURABLE GOODS -- 19.6%
Bandag, Incorporated . . . . . . . . . . . . . . . . . . . . . . 39,000 $ 1,978,059 $ 1,872,000
Belden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700 618,514 651,000
Donaldson Company, Inc. . . . . . . . . . . . . . . . . . . . . . 26,000 666,429 669,500
Dover Corporation . . . . . . . . . . . . . . . . . . . . . . . . 10,600 301,315 488,925
Graco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200 142,632 145,800
Hubbell Incorporated (Class B) . . . . . . . . . . . . . . . . . 14,100 720,736 934,125
IDEX Corporation . . . . . . . . . . . . . . . . . . . . . . . . 25,000 933,698 950,000
Kaydon Corporation . . . . . . . . . . . . . . . . . . . . . . . 39,600 1,122,730 1,702,800
Leggett & Platt, Incorporated . . . . . . . . . . . . . . . . . . 20,000 463,035 555,000
Methode Electronics, Inc. (Class A) . . . . . . . . . . . . . . . 23,500 387,750 399,500
TriMas Corporation . . . . . . . . . . . . . . . . . . . . . . . 18,800 438,228 439,450
----------- -----------
$ 7,773,126 $ 8,808,100
----------- -----------
BUSINESS SERVICES & SUPPLIES -- 12.6%
Arrow Electronics, Inc.* . . . . . . . . . . . . . . . . . . . . 19,000 $ 744,901 $ 819,375
Bacou USA, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . 38,600 585,755 685,150
Devon Group, Inc.* . . . . . . . . . . . . . . . . . . . . . . . 71,000 2,472,868 2,307,500
Franklin Quest Co.* . . . . . . . . . . . . . . . . . . . . . . . 45,000 983,301 933,750
Manpower Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 23,800 617,763 934,150
----------- -----------
$ 5,404,588 $ 5,679,925
----------- -----------
RETAILING -- 11.1%
Arbor Drugs, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 71,850 $ 892,138 $ 1,499,869
Bob Evans Farms, Inc. . . . . . . . . . . . . . . . . . . . . . . 54,000 1,078,907 918,000
Circuit City Stores, Inc. . . . . . . . . . . . . . . . . . . . . 40,000 1,141,870 1,445,000
Toys "R" Us, Inc.* . . . . . . . . . . . . . . . . . . . . . . . 40,000 1,091,195 1,140,000
----------- -----------
$ 4,204,110 $ 5,002,869
----------- -----------
CONSUMER NON-DURABLE GOODS -- 10.7%
Lancaster Colony Corporation . . . . . . . . . . . . . . . . . . 37,000 $ 1,251,531 $ 1,382,875
Newell Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 353,550 459,375
Reebok International Ltd. . . . . . . . . . . . . . . . . . . . . 25,000 861,869 840,625
Tupperware Corporation* . . . . . . . . . . . . . . . . . . . . . 30,400 1,234,708 1,284,400
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,200 713,422 849,375
----------- -----------
$ 4,415,080 $ 4,816,650
----------- -----------
MATERIALS -- 10.2%
Caraustar Industries, Inc. . . . . . . . . . . . . . . . . . . . 83,000 $ 1,553,625 $ 2,199,500
Loctite Corporation . . . . . . . . . . . . . . . . . . . . . . . 28,000 686,683 1,302,000
OM Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 785,296 1,059,750
----------- -----------
$ 3,025,604 $ 4,561,250
----------- -----------
</TABLE>
5
<PAGE> 8
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--CONTINUED Shares Cost Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE -- 9.7%
Allergan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 $ 747,385 $ 1,373,750
DENTSPLY International, Inc. . . . . . . . . . . . . . . . . . . 21,100 731,950 896,750
Landauer, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 1,003,288 1,056,250
Pfizer Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,200 413,685 1,013,525
----------- -----------
$ 2,896,308 $ 4,340,275
----------- -----------
CONSUMER DURABLE GOODS -- 7.7%
Cooper Tire & Rubber Company . . . . . . . . . . . . . . . . . . 46,000 $ 1,108,755 $ 1,023,500
Holophane Corporation* . . . . . . . . . . . . . . . . . . . . . 68,000 1,192,170 1,071,000
Juno Lighting, Inc. . . . . . . . . . . . . . . . . . . . . . . . 80,900 1,342,786 1,375,300
----------- -----------
$ 3,643,711 $ 3,469,800
----------- -----------
INSURANCE -- 7.4%
Horace Mann Educators Corporation . . . . . . . . . . . . . . . . 30,600 $ 737,113 $ 971,550
Marsh & McLennan Companies, Inc. . . . . . . . . . . . . . . . . 12,000 676,657 1,158,000
Poe & Brown, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 24,100 583,188 596,475
Progressive Corporation, The . . . . . . . . . . . . . . . . . . 12,600 488,443 582,750
----------- -----------
$ 2,485,401 $ 3,308,775
----------- -----------
ENTERTAINMENT -- 3.5%
Carnival Corporation (Class A) . . . . . . . . . . . . . . . . . 55,000 $ 1,225,895 $ 1,588,125
----------- -----------
ENGINEERING AND ARCHITECTURAL
SERVICES -- 1.7%
Dames & Moore, Inc. . . . . . . . . . . . . . . . . . . . . . . . 64,000 $ 791,371 $ 776,000
----------- -----------
ENERGY -- 1.1%
North European Oil Royalty Trust (CBI) . . . . . . . . . . . . . 35,000 $ 265,782 $ 468,125
----------- -----------
TOTAL INVESTMENT SECURITIES --
COMMON STOCKS -- 95.3% . . . . . . . . . . . . . . . . . . . . . $36,130,976 $42,819,894
=========== ===========
</TABLE>
6
<PAGE> 9
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
Principal
Amount Cost Value
------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 3.4%
Short-Term Corporate Notes:
American General Finance
Corporation -- 5.35% 7/02/96 . . . . . . . . . . . . . . . $ 1,200,000 $ 1,199,823
State Street Bank Repurchase Agreement -- 4.75% 7/02/96
(Collateralized by U.S. Treasury Note -- 6.0% 8/31/97
market value $346,812) . . . . . . . . . . . . . . . . . . 340,000 340,135
-----------
TOTAL SHORT-TERM INVESTMENTS . . . . . . . . . . . . . . . . $ 1,539,958
-----------
TOTAL INVESTMENTS -- 98.7% . . . . . . . . . . . . . . . . . $44,359,852
Other assets less liabilities -- 1.3% . . . . . . . . . . . . 564,598
-----------
TOTAL NET ASSETS -- 100% . . . . . . . . . . . . . . . . . . $44,924,450
===========
</TABLE>
*Non-income producing security
See notes to financial statements.
7
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $36,130,976) . . . . . . . . . . . . . . . . . . . . $42,819,894
Short-term investments -- at cost plus interest earned
(maturities 60 days or less) . . . . . . . . . . . . . . . . . . . . 1,539,958 $44,359,852
-----------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
Receivable for:
Investment securities sold . . . . . . . . . . . . . . . . . . . . . . $ 846,183
Dividends and accrued interest . . . . . . . . . . . . . . . . . . . . 80,984
Capital Stock sold . . . . . . . . . . . . . . . . . . . . . . . . . . 8,561 935,728
----------- -----------
$45,296,059
LIABILITIES
Payable for:
Investment securities purchased . . . . . . . . . . . . . . . . . . . . $ 246,707
Capital Stock repurchased . . . . . . . . . . . . . . . . . . . . . . . 77,705
Advisory fees and financial services . . . . . . . . . . . . . . . . . 32,190
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,007 371,609
----------- -----------
NET ASSETS -- equivalent to $20.54 per share on 2,187,531
shares of Capital Stock outstanding . . . . . . . . . . . . . . . . . . . $44,924,450
===========
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per share; authorized
25,000,000 shares; outstanding 2,187,531 shares . . . . . . . . . . . . $ 21,875
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . 33,668,467
Undistributed net investment income . . . . . . . . . . . . . . . . . . . 120,458
Undistributed net realized gain on investments . . . . . . . . . . . . . 4,424,732
Unrealized appreciation of investments . . . . . . . . . . . . . . . . . 6,688,918
-----------
Net assets at June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . $44,924,450
===========
</TABLE>
See notes to financial statements.
8
<PAGE> 11
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,625
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,143
-----------
$ 423,768
EXPENSES -- Note 3:
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,542
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,025
Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . . 24,032
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . 22,739
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,742
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,796
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . 10,095
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,272
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,840
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 2,349
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800 293,232
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 130,536
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) . . . . . . $13,140,505
Cost of investment securities sold . . . . . . . . . . . . . . . . . . 8,715,093
----------- -----------
Net realized gain on investments . . . . . . . . . . . . . . . . . . $ 4,425,412
Unrealized appreciation (depreciation) of investments:
Unrealized appreciation at beginning of period . . . . . . . . . . . . $ 7,233,479
Unrealized appreciation at end of period . . . . . . . . . . . . . . . 6,688,918
-----------
Decrease in unrealized appreciation of investments . . . . . . . . . (544,561)
-----------
Net realized and unrealized gain on investments . . . . . . . . $ 3,880,851
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,011,387
===========
</TABLE>
See notes to financial statements.
9
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . $ 130,536 $ 792,490
Net realized gain on investments . . . . . . 4,425,412 7,231,196
Decrease in unrealized appreciation
of investments . . . . . . . . . . . . . . (544,561) (280,373)
----------- -----------
Increase in net assets resulting
from operations . . . . . . . . . . . . . . . $ 4,011,387 $ 7,743,313
Distributions to shareholders from:
Net investment income . . . . . . . . . . . . $ (364,191) $(1,028,669)
Net realized capital gains . . . . . . . . . (7,224,334) (7,588,525) (5,865,116) (6,893,785)
----------- -----------
Capital Stock transactions:
Proceeds from Capital Stock sold . . . . . . $ 2,059,907 $ 3,397,740
Proceeds from shares issued to
shareholders upon reinvestment of
dividends and distributions . . . . . . . . 6,725,141 6,078,112
Cost of Capital Stock repurchased . . . . . . (7,673,792) 1,111,256 (14,900,189) (5,424,337)
----------- ----------- ------------ -----------
Total decrease in net assets . . . . . . . . . $(2,465,882) $(4,574,809)
NET ASSETS
Beginning of period, including
undistributed net investment income
of $354,113 and $590,292 . . . . . . . . . . 47,390,332 51,965,141
----------- -----------
End of period, including undistributed
net investment income
of $120,458 and $354,113 . . . . . . . . . . $44,924,450 $47,390,332
=========== ===========
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold . . . . . . . . . 104,793 162,549
Shares issued to shareholders upon
reinvestment of dividends and
distributions . . . . . . . . . . . . . . . . 355,639 314,308
Shares of Capital Stock repurchased . . . . . . (392,552) (722,174)
----------- -----------
Increase (decrease) in Capital
Stock outstanding . . . . . . . . . . . . . . 67,880 (245,317)
=========== ===========
</TABLE>
See notes to financial statements.
10
<PAGE> 13
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended December 31,
June 30, ---------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period . . . . . $ 22.36 $ 21.97 $ 23.76 $ 23.94 $ 22.40 $ 19.82
------- ------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . $ 0.06 $ 0.36 $ 0.46 $ 0.46 $ 0.52 $ 0.64
Net realized and unrealized gain (loss)
on investment securities . . . . . . . . . . . 1.70 2.95 (0.48) 0.59 2.26 3.38
------- ------- ------- ------- ------- -------
Total from investment operations . . . . . . . . $ 1.76 $ 3.31 $ (0.02) $ 1.05 $ 2.78 $ 4.02
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income . . . . . $ (0.17) $ (0.44) $ (0.46) $ (0.47) $ (0.57) $ (0.73)
Distributions from net realized
capital gains . . . . . . . . . . . . . . . . (3.41) (2.48) (1.31) (0.76) (0.67) (0.71)
------- ------- ------- ------- ------- -------
Total distributions . . . . . . . . . . . . . . $ (3.58) $ (2.92) $ (1.77) $ (1.23) $ (1.24) $ (1.44)
------- ------- ------- ------- ------- -------
Net asset value at end of period . . . . . . . . $ 20.54 $ 22.36 $ 21.97 $ 23.76 $ 23.94 $ 22.40
======= ======= ======= ======= ======= =======
Total investment return* . . . . . . . . . . . . 9.25% 17.27% (0.03)% 4.64% 13.07% 21.69%
Ratios/supplemental data:
Net assets at end of period (in thousands) . . . $44,924 $47,390 $51,965 $88,301 $76,254 $63,757
Ratio of expenses to average net assets . . . . . 1.29%+ 1.19% 1.13% 1.02% 1.08% 1.10%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . 0.57%+ 1.63% 1.95% 2.03% 2.37% 3.11%
Portfolio turnover rate . . . . . . . . . . . . . 44%+ 58% 31% 43% 30% 33%
Average brokerage commissions per share . . . . . $0.0600 -- -- -- -- --
</TABLE>
* Return is based on net asset value per share, adjusted for reinvestment of
distributions, and does not reflect deduction of the sales charge. The
return for the six months ended June 30, 1996 is not annualized.
+ Annualized
See notes to financial statements.
11
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end, management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
A. Security Valuation
Securities listed or traded on a national securities exchange or on
the NASDAQ National Market System are valued at the last sale price on
the last business day of the period, or if there was not a sale that
day, at the last bid price. Securities which are unlisted are valued
at the most recent bid price. Short-term investments with maturities
of 60 days or less are valued at cost plus interest earned which
approximates market value.
B. Federal Income Tax
No provision for federal income tax is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification and
to distribute each year to its shareholders, in accordance with the
minimum distribution requirements of the Code, all of its taxable net
investment income and taxable net realized gains on investments.
C. Securities Transactions and Related
Investment Income
Securities transactions are accounted for on the date the
securities are purchased or sold. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
NOTE 2 -- PURCHASES OF INVESTMENT SECURITIES
Cost of purchases of investment securities (excluding short-term
investments with maturities of 60 days or less) aggregated $9,412,361 for the
six months ended June 30, 1996. Realized gains or losses are based on the
specific-certificate identification method. Cost of securities owned at June
30, 1996 was $36,131,514 for federal income tax purposes. Gross unrealized
appreciation and depreciation for all securities at June 30, 1996 for federal
income tax purposes was $7,413,305 and $724,925, respectively.
NOTE 3 -- ADVISORY FEES AND OTHER
AFFILIATED TRANSACTIONS
Pursuant to an Investment Advisory Agreement, advisory fees were paid by
the Fund to First Pacific Advisors, Inc. (the "Adviser"). Under the terms of
this Agreement, the Fund pays the Adviser a monthly fee calculated at the
annual rate of 0.75% of the first $50 million of the Fund's average daily net
assets and 0.65% of the average daily net assets in excess of $50 million. In
addition, the Fund pays the Adviser an amount equal to 0.10% of the average
daily net assets for each fiscal year in reimbursement for the provision of
financial services to the Fund. The Agreement obligates the Adviser to
reduce its fee to the extent necessary to reimburse the Fund for any annual
expenses (exclusive of interest, taxes, the cost of any supplemental
statistical and research information,
12
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
Continued
and extraordinary expenses such as litigation) in excess of 1 1/2% of the
first $30 million and 1% of the remaining average net assets of the Fund for
the year.
For the six months ended June 30, 1996, the Fund paid aggregate fees of
$10,000 to all Directors who are not affiliated persons of the Adviser. Legal
fees were for services rendered by O'Melveny & Myers LLP, counsel to the Fund.
A Director of the Fund is of counsel to, and a retired partner of, that firm.
NOTE 4 -- DISTRIBUTOR
For the six months ended June 30, 1996, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $2,254 in
net Fund share sales commissions after reallowance to other dealers. The
Distributor pays its own overhead and general administrative expenses, the cost
of printing prospectuses and the cost of supplemental sales literature,
promotion and advertising.
NOTE 5 -- DISTRIBUTION TO SHAREHOLDERS
On June 28, 1996, the Board of Directors declared a dividend from net
investment income of $0.05 per share payable July 15, 1996 to shareholders of
record on June 28, 1996. For financial statement purposes, this dividend was
recorded on the ex-dividend date, July 1, 1996.
13
