<PAGE>
- - FPA Perennial Fund, Inc. -
- - -
SEMI-ANNUAL REPORT
- - -
- - -
<PAGE>
JUNE 30, 1997
[LOGO]
DISTRIBUTOR:
FPA FUND DISTRIBUTORS, INC.
<PAGE>
11400 West Olympic Boulevard, Suite 1200
Los Angeles, CA 90064
<PAGE>
OFFICERS AND DIRECTORS
DIRECTORS
John P. Endicott
Leonard Mautner
Julio J. de Puzo, Jr.
Lawrence J. Sheehan
Kenneth L. Trefftzs
OFFICERS
Eric S. Ende, PRESIDENT AND CHIEF INVESTMENT OFFICER
Julio J. de Puzo, Jr., EXECUTIVE VICE PRESIDENT
Steven R. Geist, VICE PRESIDENT
Janet M. Pitman, VICE PRESIDENT
J. Richard Atwood, TREASURER
Sherry Sasaki, SECRETARY
Christopher H. Thomas, ASSISTANT TREASURER
INVESTMENT ADVISER
First Pacific Advisors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
DISTRIBUTOR
FPA Fund Distributors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
COUNSEL
O'Melveny & Myers LLP
Los Angeles, California
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
Boston, Massachusetts
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 8500
Boston, Massachusetts 02266-8500
(800) 638-3060
(617) 328-5000
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>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
During the six months ending June 30, 1997, FPA Perennial Fund's net asset
value per share increased by 12.3%, adjusted for reinvestment of all dividends
and capital gains distributions. This return compares to 11.3% for the Russell
2500 Index, 13.0% for the Lipper General Equity Fund Average, and 15.5% for the
Lipper Growth & Income Fund Average. The following table shows returns for
recent periods:
1997 1996
------------------------- ----
1Q 2Q Y-T-D
FPA Perennial (3.6)% 16.5% 12.3% 20.4%
Russell 2500 (3.4) 15.1 11.3 19.0
Lipper General
Equity Fund Avg. (2.0) 15.4 13.0 19.5
Lipper Growth &
Income Fund Avg. 1.1 14.3 15.5 20.8
We have noted for some time that the stock market's gains have been led by
the biggest of the big stocks, and this has continued in 1997. The S&P 500
Index as a whole is up 20.5% year-to-date, while the 50 largest S&P 500 Index
stocks (comprising about half of the Index's market cap) are up 26.2%. In
contrast, the remaining 450 are ahead "only" 15.8%. Over the past twelve
months, the difference is even greater--a gain of 46% for the top 50 vs. 26% for
the rest.
Although the market's valuation level continues to be rich by historical
standards, we can take some comfort in the quality and relative valuations of
the companies in the Perennial portfolio, compared to the market as a whole. We
continue to attain our objective of owning better companies at lower valuations.
As shown in the table below, the companies Perennial owns have achieved faster
growth, earned higher returns, and possess superior balance sheets, yetare
priced at lower PE ratios, compared to the average S&P 500 Index company.
Perennial* S&P 500
Fund Index*
---- ------
EPS Growth Rate (10Yr.) 17% 11%
Return on Assets 11% 6%
Debt % Capital 24% 54%
PE Ratio 17x 23x
* Industrial companies only (i.e. excludes banks and insurance)
ARBOR DRUGS, owned by Perennial since 1994, is a good example of the high
quality companies we strive to own, but also of the increasingly high valuations
which many of our stocks have reached.
Arbor was founded in 1963 by twenty-six year old Eugene Applebaum, who
remains the CEO, with a single store in Dearborn, Michigan. It grew slowly but
steadily, and when it first sold shares to the public in 1986, it had about
fifty stores. Unit growth since then has been at a 13% rate and Arbor now has
200 stores, all in southeastern Michigan.
Arbor's store growth has resulted in a remarkable increase in its market
share in the Detroit Metropolitan area, from 3% fifteen years ago, to 10-12% at
the time of the initial public offering, to 45% today. Much of this growth came
from the declining role of independent drug stores, but of the drug chains
operating in this market, only Arbor gained share. The number two Detroit
chain, Perry Drugs (now owned by Rite Aid), only held its share constant over
the past ten years, at about 25%, while Arbor's share was quadrupling.
Arbor's rapid sales and unit growth has been achieved in the "right way,"--
not just by opening new stores, but by opening profitable
1
<PAGE>
ones. About half of sales growth has come from new units and half from growth
in stores already open for over a year, an impressive achievement. Arbor's
growth has been largely self-funded--it has raised no new capital since 1991,
and balance sheet leverage has steadily decreased. In fact, cash balances of
$40 million exceed Arbor's $15 million of debt. Return on equity has held
steady in the 16-19% range. Ten year growth in EPS is 14% per year.
Arbor plans to continue to grow its store base, opening about 100 new
stores in the next 4-5 years. It is finding opportunities in other Michigan
cities, notably Flint, as well as in the under-stored city of Detroit--most of
Arbor's stores are in the suburbs. Arbor also recently expanded its
distribution facility--its warehouse can now support 400 stores, twice their
existing store base.
Arbor has achieved its high returns by understanding its customers' need
for convenience, courteous and professional service, excellent assortment in
clean and orderly stores, and fair prices. Its state-of-the-art stores achieve
industry leading sales per square foot of $550, and total sales per store of
$4.7 million, while earning the highest operating margins in the business.
There are a few competitive challenges to Arbor which have appeared in
recent years, but we do not believe they currently represent a serious threat to
its future success. As mentioned earlier, Rite Aid purchased Arbor's chief
competitor Perry Drugs in early 1995. Perry was not a well-run chain and Rite
Aid has clearly improved its operations, though any adverse effect on Arbor's
market share or profitability is hard to detect. In addition, in May 1996
Walgreen announced that it planned to enter the Detroit market, and has recently
opened its first few units. Although the entry of these two large and well
capitalized companies will make prime real estate more difficult to obtain,
there is no reason to expect a serious threat to Arbor's market dominance or
profitability. Arbor has the most stores, the best locations, the leading name
in the market, and store level execution as good as anybody in the industry.
Its buying power, compact market area, and great balance sheet give it a highly
competitive cost structure.
Although we are very pleased with Arbor's superior operating
performance, excellent earnings growth and high returns, its increasingly
high valuation has made it difficult to hold, and we have been net sellers
over the past year, though Perennial continues to own a substantial position.
At its June 30, 1997 price of 20 1/8, Arbor was priced at 24.5x trailing
12-month earnings, a bit higher than the S&P Industrials and "cheap" only if
compared to Walgreen, which, with returns on capital, balance sheet and
growth record similar to Arbor's, was valued at 32x earnings.
Today's fully-priced stock market is not providing many opportunities to
buy companies of Arbor's quality at reasonable prices. As a result, we find
ourselves in a dilemma--we hold a portfolio of high quality companies, many of
which, like Arbor, are fully priced, yet we are reluctant to reduce positions
further in the absence of replacement ideas. We are confident that this
situation will not continue indefinitely, but until it ends, our position is an
uncomfortable one.
Respectfully submitted,
/s/ Eric S. Ende
Eric S. Ende
President
August 20, 1997
2
<PAGE>
HISTORICAL PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDED JUNE 30, 1997
1 YEAR 5 YEARS 10 YEARS
-------- -------- --------
FPA Perennial Fund, Inc.
(NAV) . . . . . . . . . . . . . 23.79% 12.31% 11.80%
FPA Perennial Fund, Inc.
(Net of Sales Charge) . . . . . 15.74% 10.81% 11.05%
Lipper Growth & Income Fund
Average . . . . . . . . . . . . 28.07% 17.35% 12.77%
Standard & Poor's
500 Stock Index . . . . . . . . 34.75% 19.80% 14.61%
Russell 2500 Stock Index. . . . . 20.10% 18.61% 12.75%
The table presented above shows the average annual total return, which includes
reinvestment of all distributions, for several different periods ended June 30,
1997 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>
MAJOR PORTFOLIO CHANGES
Six Months Ended June 30, 1997
Shares
----------
NET PURCHASES
COMMON STOCKS
Graco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200
Kennametal Inc. (1). . . . . . . . . . . . . . . . . . . . . . . 9,100
Methode Electronics, Inc. (Class A). . . . . . . . . . . . . . . 36,700
Nucor Corporation (1). . . . . . . . . . . . . . . . . . . . . . 13,500
O'Reilly Automotive, Inc. (1). . . . . . . . . . . . . . . . . . 14,400
Toys "R" Us, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 5,700
TriMas Corporation . . . . . . . . . . . . . . . . . . . . . . . 8,400
Tupperware Corporation . . . . . . . . . . . . . . . . . . . . . 6,600
Viking Office Products, Inc. (1) . . . . . . . . . . . . . . . . 21,000
NET SALES
COMMON STOCKS
Arbor Drugs, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 42,500
Arrow Electronics, Inc.. . . . . . . . . . . . . . . . . . . . . 3,800
Bandag, Incorporated . . . . . . . . . . . . . . . . . . . . . . 14,800
Bob Evans Farms, Inc.. . . . . . . . . . . . . . . . . . . . . . 14,000
Carnival Corporation (Class A) . . . . . . . . . . . . . . . . . 14,000
Circuit City Stores, Inc.. . . . . . . . . . . . . . . . . . . . 10,000
Dover Corporation (2). . . . . . . . . . . . . . . . . . . . . . 8,100
Dames & Moore, Inc.. . . . . . . . . . . . . . . . . . . . . . . 14,000
DENTSPLY International Inc.. . . . . . . . . . . . . . . . . . . 2,100
Horace Mann Educators Corporation. . . . . . . . . . . . . . . . 20,000
IDEX Corporation . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Juno Lighting, Inc.. . . . . . . . . . . . . . . . . . . . . . . 30,000
Kaydon Corporation . . . . . . . . . . . . . . . . . . . . . . . 8,700
Lancaster Colony Corporation . . . . . . . . . . . . . . . . . . 3,200
Manpower Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . 8,900
OM Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Pfizer Inc. (2). . . . . . . . . . . . . . . . . . . . . . . . . 7,300
Progressive Corporation, The . . . . . . . . . . . . . . . . . . 3,600
Strayer Education, Inc.. . . . . . . . . . . . . . . . . . . . . 5,600
Unifi, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,300
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- -------------------------------------------------------------------------- ------- --------------- -------------
PRODUCER DURABLE GOODS -- 21.5%
<S> <C> <C> <C>
Channell Commercial Corporation* . . . . . . . . . . . . . . . . . . . . . 48,900 $ 542,192 $ 660,150
Donaldson Company, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 714,238 1,064,000
Federal Signal Corporation . . . . . . . . . . . . . . . . . . . . . . . . 23,300 515,245 585,412
Graco Inc. 36,100 717,626 1,087,513
Holophane Corporation* 68,000 1,192,170 1,360,000
IDEX Corporation 51,250 1,212,524 1,691,250
Kaydon Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000 934,168 1,637,625
Leggett & Platt, Incorporated. . . . . . . . . . . . . . . . . . . . . . . 20,000 463,035 860,000
TriMas Corporation 35,900 812,761 1,009,688
------------- ------------
$ 7,103,959 $ 9,955,638
------------- ------------
BUSINESS SERVICES & SUPPLIES -- 15.1%
Arrow Electronics, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . 15,200 $ 588,770 $ 807,500
Bacou USA, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,700 587,318 628,875
Devon Group, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 2,433,500 2,502,500
Franklin Covey Co.*. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 983,301 1,139,063
Kennametal Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,100 315,771 391,300
Manpower Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,900 540,093 930,050
Strayer Education, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 162,000 615,600
------------- ------------
$ 5,610,753 $ 7,014,888
------------- ------------
MATERIALS -- 13.9%
Bandag, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,200 $ 1,125,629 $ 1,087,800
Caraustar Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 81,000 1,514,125 2,804,625
Nucor Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500 642,018 762,750
OM Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000 717,046 1,225,625
Unifi, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,900 338,164 556,887
------------- ------------
$ 4,336,982 $ 6,437,687
------------- ------------
RETAILING -- 10.6%
Arbor Drugs, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,375 $ 408,715 $ 993,672
Bob Evans Farms, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 778,005 677,500
Circuit City Stores, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 30,000 837,520 1,066,875
O'Reilly Automotive, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . 14,400 462,413 554,400
Toys "R" Us, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,100 900,766 1,228,500
Viking Office Products, Inc.*. . . . . . . . . . . . . . . . . . . . . . . 21,000 296,050 399,000
------------- ------------
$ 3,683,469 $ 4,919,947
------------- ------------
CONSUMER NON-DURABLE GOODS -- 7.7%
Lancaster Colony Corporation . . . . . . . . . . . . . . . . . . . . . . . 33,800 $ 1,147,690 $ 1,635,075
Newell Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 353,550 594,375
Tupperware Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000 1,492,892 1,350,500
------------- ------------
$ 2,994,132 $ 3,579,950
------------- ------------
</TABLE>
5
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
Shares or
Principal
COMMON STOCKS--CONTINUED Amount Cost Value
- ------------------------------------------------ ---------- -------------- ---------------
<S> <C> <C> <C>
HEALTH CARE -- 7.2%
Allergan, Inc. . . . . . . . . . . . . . . . . . 38,900 $ 865,594 $ 1,237,506
DENTSPLY International Inc.. . . . . . . . . . . 19,000 654,062 931,000
Landauer, Inc. . . . . . . . . . . . . . . . . . 50,000 1,003,288 1,159,375
------------- --------------
$ 2,522,944 $ 3,327,881
------------- --------------
INSURANCE -- 4.7%
Horace Mann Educators Corporation. . . . . . . . 10,600 $ 255,142 $ 519,400
Poe & Brown, Inc.. . . . . . . . . . . . . . . . 24,100 583,188 891,700
Progressive Corporation, The . . . . . . . . . . 9,000 348,669 783,000
------------- --------------
$ 1,186,999 $ 2,194,100
------------- --------------
TECHNOLOGY -- 4.7%
Belden Inc.. . . . . . . . . . . . . . . . . . . 28,500 $ 797,372 $ 970,781
Methode Electronics, Inc. (Class A). . . . . . . 60,200 943,248 1,196,475
------------- --------------
$ 1,740,620 $ 2,167,256
------------- --------------
CONSUMER DURABLE GOODS -- 4.2%
Cooper Tire & Rubber Company . . . . . . . . . . 51,800 $ 1,207,343 $ 1,139,600
Juno Lighting, Inc.. . . . . . . . . . . . . . . 50,900 785,686 827,125
------------- --------------
$ 1,993,029 $ 1,966,725
------------- --------------
ENTERTAINMENT -- 3.7%
Carnival Corporation (Class A) . . . . . . . . . 41,000 $ 902,620 $ 1,691,250
------------- --------------
ENGINEERING & ARCHITECTURAL SERVICES -- 1.3%
Dames & Moore, Inc.. . . . . . . . . . . . . . . 50,000 $ 610,888 $ 618,750
------------- --------------
ENERGY -- 1.1%
North European Oil Royalty Trust (CBI) . . . . . 35,000 $ 234,803 $ 485,625
------------- --------------
TOTAL INVESTMENT SECURITIES -- 95.7% . . . . . . $ 32,921,198 $ 44,359,697
------------- --------------
------------- --------------
SHORT-TERM INVESTMENT -- 3.9%
State Street Bank Repurchase
Agreement -- 5% 7/01/97
(Collateralized by U.S. Treasury
Notes -- 5 1/2% 2000
market value $1,868,865) . . . . . . . . . . . $1,829,000 $ 1,829,254
--------------
TOTAL INVESTMENTS -- 99.6% . . . . . . . . . . . $ 46,188,951
Other assets less liabilities -- 0.4%. . . . . . 169,797
--------------
TOTAL NET ASSETS -- 100% . . . . . . . . . . . . $ 46,358,748
--------------
--------------
</TABLE>
*Non-income producing security
See notes to financial statements.
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
ASSETS
Investments at value:
Investment securities -- at market
value
(identified cost $32,921,198). . . . . $ 44,359,697
Short-term investment -- at cost plus
interest earned
(maturity 60 days or less) . . . . . . 1,829,254 $ 46,188,951
-------------
Cash . . . . . . . . . . . . . . . . . . . 442
Receivable for:
Investment securities sold . . . . . . . $ 268,305
Dividends. . . . . . . . . . . . . . . . 59,261
Capital Stock sold . . . . . . . . . . . 9,175 336,741
------------- ------------
$ 46,526,134
LIABILITIES
Payable for:
Investment securities purchased. . . . . $ 100,000
Advisory fees and financial services . . 32,443
Capital Stock repurchased. . . . . . . . 20,843
Accrued expenses . . . . . . . . . . . . 14,100 167,386
------------- ------------
NET ASSETS -- equivalent to $21.69 per
share on 2,137,788
shares of Capital Stock outstanding. . . . $ 46,358,748
------------
------------
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per
share; authorized
25,000,000 shares; outstanding
2,137,788 shares. . . . . . . . . . . . . $ 21,378
Additional Paid-in Capital . . . . . . . . 32,309,417
Undistributed net investment income. . . . 32,037
Undistributed net realized
gain on investments . . . . . . . . . . . 2,557,417
Unrealized appreciation of investments . . 11,438,499
------------
Net assets at June 30, 1997. . . . . . . . $ 46,358,748
------------
------------
See notes to financial statements.
7
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . $ 29,787
Dividends. . . . . . . . . . . . . . . . 283,599
----------
$ 313,386
EXPENSES -- Note 3:
Advisory fees. . . . . . . . . . . . . . $ 165,196
Audit fees . . . . . . . . . . . . . . . 23,775
Financial services . . . . . . . . . . . 22,026
Transfer agent fees and expenses . . . . 21,234
Registration fees. . . . . . . . . . . . 15,635
Custodian fees . . . . . . . . . . . . . 11,149
Directors' fees and expenses . . . . . . 10,133
Reports to shareholders. . . . . . . . . 4,590
Legal fees . . . . . . . . . . . . . . . 2,648
Other expenses . . . . . . . . . . . . . 465 276,851
------------ -----------
Net investment income . . . . . . . . $ 36,535
-----------
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). . . . . . . . . . $ 8,612,974
Cost of investment securities sold . . . 6,042,154
------------
Net realized gain on investments. . . . $ 2,570,820
Unrealized appreciation of investments:
Unrealized appreciation at beginning of
period. . . . . . . . . . . . . . . . . $ 8,867,497
Unrealized appreciation at end
of period. . . . . . . . . . . . . . . 11,438,499
------------
Increase in unrealized appreciation
of investments . . . . . . . . . . 2,571,002
-----------
Net realized and unrealized
gain on investments . . . . . . $ 5,141,822
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS. . . . . . . . . . . . . . $ 5,178,357
-----------
-----------
See notes to financial statements.
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . $ 36,535 $ 216,385
Net realized gain on investments . . . . . . . . 2,570,820 6,458,334
Increase in unrealized
appreciation of investments. . . . . . . . . . 2,571,002 1,634,018
------------ ------------
Increase in net assets resulting
from operations. . . . . . . . . . . . . . . . . $ 5,178,357 $ 8,308,737
Distributions to shareholders from:
Net investment income. . . . . . . . . . . . . . $ (101,428) $ (473,568)
Net realized capital gains . . . . . . . . . . . (6,471,057) (6,572,485) (7,224,334) (7,697,902)
------------ ------------
Capital Stock transactions:
Proceeds from Capital Stock sold . . . . . . . . $ 979,060 $ 3,446,804
Proceeds from shares issued to
shareholders upon reinvestment of
dividends and distributions. . . . . . . . . . 6,244,289 6,824,920
Cost of Capital Stock repurchased. . . . . . . . (5,268,316) 1,955,033 (12,475,048) (2,203,324)
------------ ------------- ------------ ------------
Total increase (decrease) net assets . . . . . . . $ 560,905 $ (1,592,489)
NET ASSETS
Beginning of period, including
undistributed net investment income
of $96,930 and $354,113. . . . . . . . . . . . . 45,797,843 47,390,332
------------- ------------
End of period, including
undistributed net investment income
of $32,037 and $96,930 . . . . . . . . . . . . . $ 46,358,748 $ 45,797,843
------------- ------------
------------- ------------
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold . . . . . . . . . . . 49,848 171,914
Shares issued to shareholders upon
reinvestment of dividends and . . . . . . . . .
distributions. . . . . . . . . . . . . . . . . . 326,584 360,490
Shares of Capital Stock repurchased. . . . . . . . (267,175) (623,524)
------------- ------------
Increase (decrease) in Capital
Stock outstanding. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 109,257 (91,120)
------------- ------------
------------- ------------
</TABLE>
See notes to financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six
Months
Ended
June 30, Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period . . . . $ 22.58 $ 22.36 $ 21.97 $ 23.76 $ 23.94 $ 22.40
------- -------- --------- --------- ---------- --------
Net investment income. . . . . . . . . . . . . $ 0.02 $ 0.10 $ 0.36 $ 0.46 $ 0.46 $ 0.52
Net realized and unrealized gain (loss)
on investment securities . . . . . . . . . . 2.33 3.75 2.95 (0.48) 0.59 2.26
------- -------- --------- --------- ---------- --------
Total from investment operations . . . . . . . $ 2.35 $ 3.85 $ 3.31 $ (0.02) $ 1.05 $ 2.78
------- -------- --------- --------- ---------- --------
Less distributions:
Dividends from net investment income . . . . $ (0.05) $ (0.22) $ (0.44) $ (0.46) $ (0.47) $ (0.57)
Distributions from net realized
capital gains. . . . . . . . . . . . . . . (3.19) (3.41) (2.48) (1.31) (0.76) (0.67)
------- -------- --------- --------- ---------- --------
Total distributions. . . . . . . . . . . . . $ (3.24) $ (3.63) $ (2.92) $ (1.77) $ (1.23) $ (1.24)
------- -------- --------- --------- ---------- --------
Net asset value at end of period . . . . . . . $ 21.69 $ 22.58 $ 22.36 $ 21.97 $ 23.76 $ 23.94
------- -------- --------- --------- ---------- --------
------- -------- --------- --------- ---------- --------
Total investment return* . . . . . . . . . . . 12.34% 20.39% 17.27% (0.03)% 4.64% 13.07%
Ratios/supplemental data:
Net assets at end of period (in thousands) . . $46,359 $45,798 $47,390 $51,965 $88,301 $76,254
Ratio of expenses to average net assets. . . . 1.26%+ 1.19% 1.19% 1.13% 1.02% 1.08%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . 0.17%+ 0.48% 1.63% 1.95% 2.03% 2.37%
Portfolio turnover rate. . . . . . . . . . . 16%+ 30% 58% 31% 43% 30%
Average brokerage commissions per share. . . . $0.0586 $0.0596 -- -- -- --
</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, 1997 is not annualized.
+ Annualized
See notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
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 Fund's primary
investment objective is long-term growth of capital, with current income as a
secondary consideration. 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 listedortraded 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 maturi-ties 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.
D. Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Actual
results could differ from those estimates.
NOTE 2 -- PURCHASES OF INVESTMENT SECURITIES
Cost of purchases of investment securities (excluding short-term
investments with maturities of 60 days or less) aggregated $3,520,996 for the
six months ended June 30, 1997. Realized gains or losses are based on the
specific-certificate identification method. The cost of securities held at
June 30, 1997 was the same for federal income tax and financial reporting
purposes.
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").
11
<PAGE>
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, 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, 1997, 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. Certain officers of the Fund are also officers of the Adviser and FPA
Fund Distributors, Inc.
NOTE 4 -- DISTRIBUTOR
For the six months ended June 30, 1997, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $1,463 in
net Fund share sales commis- sions 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.
12
