<PAGE> 1
- - --------------------------------------------------------------------------------
Semi-Annual Report
FPA Paramount Fund, Inc.
March 31, 1995
- - --------------------------------------------------------------------------------
<PAGE> 2
OFFICERS AND DIRECTORS
DIRECTORS
George H. Michaelis, Chairman of the Board
John P. Endicott
Leonard Mautner
John H. Rubel
John P. Shelton
Joseph Lowitz, Chairman Emeritus
John F. Allard, Director Emeritus
OFFICERS
William M. Sams, President and
Chief Investment Officer
George H. Michaelis, Executive Vice
President
Christopher Linden, Senior Vice President
and Chief Operating Officer
Lawrence P. McNeil, Senior Vice President
Eric S. Ende, Vice President
Julio J. de Puzo, Jr., 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
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
Paramount 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:
This Semi-Annual Report covers the six months ended March 31, 1995.
During this period, the per share net asset value of your Fund increased 2.2%,
while both the unmanaged Standard & Poor's 500 Stock Average (S&P 500) and the
Dow Jones Industrial Average increased 9.7%. The above changes include
reinvestment of all dividends and distributions during the period.
On September 30, 1994, the net asset value per share was $14.73 and on
March 31, 1995, it was $13.88. During the period, the Fund paid $1.01 from
capital gains and $0.11 from net investment income (paid January 9, 1995 to
shareholders of record on December 30, 1994).
THE SIX MONTHS IN REVIEW
As most of you know, the Fund has enjoyed relatively good performance
over the years, with only a few periods of underperformance. The last six
months were an example of the latter. The major market indices continue to make
new highs. This makes it very difficult for a value manager who likes to
"bottom-fish" to find new and attractive ideas. Your Fund has not participated
fully in this strong performance, although it did better during the first
quarter than during the fourth quarter of 1994. This is in part because our
innate sense of caution caused us to continue holding in cash a substantial
amount of the assets which flowed in during the Fund's open period. In
addition, the technology, health care and blue chip companies with an overseas
presence have been the place to be and we have little exposure in those areas.
As the market leadership moved from the commodity-oriented cyclical stocks to
the growth-oriented, large cap, non-consumer durable and health care stocks, we
were able to liquidate our own cyclical positions with some success.
Profit-taking occurred in paper companies like Boise Cascade, Bowater and
Champion International, as well as metals-oriented issues such as ASARCO,
Quanex, and Magma Copper.
WHAT ARE WE DOING NOW?
I believe that 1995 will see a changing of the guard. Stocks which
have done well for your Fund over the last two years may lag other groups. The
economy has slowed and interest rates have risen, producing better
opportunities for interest-sensitive and growth stocks. This is why we have
moved away from the cyclical issues. Our recent focus has been on three areas:
energy, insurance and special situations. It has been a long time (the early
1980s) since the oil service industry has experienced good times. I feel that
the worldwide economic recovery will provide a growing demand for energy over
the next few years, which should benefit such stocks as Noble Drilling, Baker
Hughes and Energy Service. We have not seen
2
<PAGE> 4
much stock activity in the oil and gas area recently because of the mild winter
conditions in the U.S. and the low price of gas, but we think that the upside
potential is there if we are patient. The insurance industry has also been out
of favor for a long time, so we have selectively added a number of well-run,
high-quality companies like Life Partners Group (life insurance) and TIG
Holdings (property and casualty) to the Fund's portfolio. Our special
situations include some retail positions, such as Woolworth, and an occasional
interest- sensitive stock, like BankAmerica Corporation.
As valuations expand in this strong market, it becomes increasingly
more difficult to find undervalued issues. As a value manager, it is my
hope to concentrate on out-of-favor stocks and sectors which have the potential
for healthy returns as the marketplace recognizes them. While we continue to
look for such issues in the energy area, we will focus on somewhat higher
quality balance sheet characteristics and accumulate positions in a cautious
manner. As usual, our value approach takes a great deal of patience, but it
has rewarded us well in the past.
In summary, I would like to welcome the many new shareholders to the
Fund. As most of you know, we reopened the Fund to new shareholders on August
15, 1994 until $500,000,000 in net assets was attained. On January 10, 1995,
we reached our goal and the Fund was closed except to existing shareholders. I
do not expect it will be reopened as long as I am its Chief Investment Officer.
Respectfully submitted,
William M. Sams
President
May 12, 1995
3
<PAGE> 5
MAJOR PORTFOLIO CHANGES
Six Months Ended March 31, 1995
<TABLE>
<CAPTION>
Shares
-------------
<S> <C>
NET PURCHASES
COMMON STOCKS
Baker Hughes Incorporated (1) . . . . . . . . . . . . . . . . 800,000 shs.
BankAmerica Corporation (1) . . . . . . . . . . . . . . . . . 450,000 shs.
California Energy Company, Inc. . . . . . . . . . . . . . . . 540,000 shs.
Coastal Corporation, The . . . . . . . . . . . . . . . . . . 225,000 shs.
Dresser Industries, Inc. (1) . . . . . . . . . . . . . . . . 447,800 shs.
Energy Service Company Inc. (1) . . . . . . . . . . . . . . . 1,191,900 shs.
Life Partners Group, Inc. . . . . . . . . . . . . . . . . . . 680,000 shs.
Noble Drilling Corporation (1) . . . . . . . . . . . . . . . 2,700,000 shs.
Provident Life & Accident Insurance Company (1) . . . . . . . 100,000 shs.
Schlumberger Limited (1) . . . . . . . . . . . . . . . . . . 100,000 shs.
Sears, Roebuck and Co. (1) . . . . . . . . . . . . . . . . . 100,000 shs.
TIG Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . 1,250,000 shs.
Town & Country Trust, The . . . . . . . . . . . . . . . . . . 200,000 shs.
UNUM Corporation (1) . . . . . . . . . . . . . . . . . . . . 50,000 shs.
Woolworth Corporation . . . . . . . . . . . . . . . . . . . . 500,000 shs.
NET SALES
COMMON STOCKS
ASARCO Incorporated (2) . . . . . . . . . . . . . . . . . . . 150,000 shs.
Boise Cascade Corporation (2) . . . . . . . . . . . . . . . . 97,700 shs.
Bowater Incorporated (2). . . . . . . . . . . . . . . . . . . 425,000 shs.
Caraustar Industries, Inc. . . . . . . . . . . . . . . . . . 260,000 shs.
Champion International Corporation (2) . . . . . . . . . . . 325,000 shs.
Freeport-McMoRan Copper & Gold Inc. (Class A) (2) . . . . . . 311,250 shs.
Freeport-McMoRan Inc. (2) . . . . . . . . . . . . . . . . . . 650,000 shs.
Magma Copper Company . . . . . . . . . . . . . . . . . . . . 100,000 shs.
Mobile Telecommunication Technologies Corp. (2) . . . . . . . 105,000 shs.
NorAm Energy Corp. (2) . . . . . . . . . . . . . . . . . . . 2,000,000 shs.
Oryx Energy Company . . . . . . . . . . . . . . . . . . . . . 630,000 shs.
Phillips-Van Heusen Corporation (2) . . . . . . . . . . . . . 25,000 shs.
Quanex Corporation (2) . . . . . . . . . . . . . . . . . . . 340,000 shs.
Western Mining Corporation Holdings Limited (2) . . . . . . . 2,800,000 shs.
PREFERRED STOCK
Boise Cascade Corporation (Series E) (2) . . . . . . . . . .. 100,000 shs.
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
March 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- - ------------- --------- ----------- -----------
<S> <C> <C> <C>
OIL & GAS SERVICES -- 12.0%
Baker Hughes Incorporated . . . . . . . . . . . . . . . . . . 800,000 $15,172,936 $16,300,000
Dresser Industries, Inc. . . . . . . . . . . . . . . . . . . 447,800 8,852,304 9,515,750
Energy Service Company, Inc.* . . . . . . . . . . . . . . . . 1,191,900 13,920,853 16,835,587
Noble Drilling Corporation* . . . . . . . . . . . . . . . . . 2,700,000 14,360,000 15,862,500
Schlumberger Limited . . . . . . . . . . . . . . . . . . . . 100,000 5,321,250 5,962,500
----------- -----------
$57,627,343 $64,476,337
----------- -----------
INSURANCE -- 11.8%
EXEL Limited . . . . . . . . . . . . . . . . . . . . . . . . 250,000 $10,378,977 $11,031,250
Life Partners Group, Inc. . . . . . . . . . . . . . . . . . . 930,000 18,806,684 18,251,250
Provident Life & Accident Insurance Company. . . . . . . . . 100,000 2,394,500 2,262,500
TIG Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . 1,300,000 24,971,759 29,250,000
UNUM Corporation . . . . . . . . . . . . . . . . . . . . . . 50,000 2,215,373 2,262,500
----------- -----------
$58,767,293 $63,057,500
----------- -----------
RETAILING -- 6.5%
Sears, Roebuck and Co. . . . . . . . . . . . . . . . . . . . 100,000 $ 5,069,400 $ 5,337,500
Woolworth Corporation . . . . . . . . . . . . . . . . . . . . 1,600,000 24,694,423 29,400,000
----------- -----------
$29,763,823 $34,737,500
----------- -----------
METALS -- 6.3%
Inco Limited . . . . . . . . . . . . . . . . . . . . . . . . 500,000 $11,149,750 $13,937,500
Kaiser Aluminum Corporation* . . . . . . . . . . . . . . . . 700,000 8,049,500 7,437,500
Magma Copper Company* . . . . . . . . . . . . . . . . . . . . 700,000 6,837,327 12,162,500
----------- -----------
$26,036,577 $33,537,500
----------- -----------
CONSUMER NON-DURABLE GOODS -- 5.0%
Guinness PLC . . . . . . . . . . . . . . . . . . . . . . . . 2,400,000 $16,861,273 $18,024,000
Hasbro, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 100,000 3,170,044 3,375,000
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 4,469,800 5,400,000
----------- -----------
$24,501,117 $26,799,000
----------- -----------
OIL & GAS PRODUCTION/EXPLORATION -- 4.8%
Occidental Petroleum Corporation . . . . . . . . . . . . . . 1,000,000 $17,154,201 $21,875,000
Oryx Energy Company* . . . . . . . . . . . . . . . . . . . . 300,000 4,295,451 3,787,500
----------- -----------
$21,449,652 $25,662,500
----------- -----------
</TABLE>
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
Shares or
Principal
COMMON STOCKS--CONTINUED Amount Cost Value
- - ------------------------ ----------- ------------ ------------
<S> <C> <C> <C>
BANKING -- 4.0%
BankAmerica Corporation . . . . . . . . . . . . . . . . . . . 450,000 $ 21,144,000 $ 21,712,500
------------ ------------
NATURAL GAS PIPELINE -- 3.8%
Coastal Corporation, The . . . . . . . . . . . . . . . . . . 700,000 $ 18,311,533 $ 20,125,000
------------ ------------
GEOTHERMAL ENERGY PRODUCTION -- 2.6%
California Energy Company, Inc.* . . . . . . . . . . . . . . 880,000 $ 15,006,115 $ 14,080,000
------------ ------------
MULTI-INDUSTRY - 2.1%
Leucadia National Corporation . . . . . . . . . . . . . . . . 250,000 $ 10,334,247 $ 11,468,750
------------ ------------
NATURAL GAS UTILITY -- 1.9%
ENSERCH Corporation . . . . . . . . . . . . . . . . . . . . . 700,000 $ 9,493,361 $ 10,412,500
------------ ------------
REAL ESTATE INVESTMENT TRUST -- 1.3%
Paragon Group, Inc. . . . . . . . . . . . . . . . . . . . . . 170,000 $ 3,612,500 $ 2,911,250
Town & Country Trust, The . . . . . . . . . . . . . . . . . . 300,000 4,943,317 4,050,000
------------ ------------
$ 8,555,817 $ 6,961,250
------------ ------------
PAPER & FOREST PRODUCTS - 0.8%
Caraustar Industries, Inc. . . . . . . . . . . . . . . . . . 240,000 $ 3,525,250 $ 4,020,000
------------ ------------
TOTAL COMMON STOCKS -- 62.9% . . . . . . . . . . . . . . . . $304,516,128 $337,050,337
------------ ------------
SHORT-TERM INVESTMENT -- 10.2%
U.S. Treasury Bills -- 5 1/2% 4/20/95 . . . . . . . . . . . . $55,000,000 $ 54,834,251 $ 54,846,000
------------ ------------
TOTAL INVESTMENT SECURITIES -- 73.1% . . . . . . . . . . . . $359,350,379 $391,896,337
============ ------------
</TABLE>
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 26.8%
Short-term Corporate Notes:
Anheuser-Busch Companies, Inc. -- 5.9% 4/3/95 . . . . . . . $ 5,000,000 $ 4,998,361
Anheuser-Busch Companies, Inc. -- 5.9% 4/3/95 . . . . . . . 10,000,000 9,996,722
AT&T Co. -- 5.88% 4/3/95 . . . . . . . . . . . . . . . . . 8,000,000 7,997,387
Bell Atlantic Network Funding -- 5.9% 4/3/95 . . . . . . . 3,000,000 2,999,017
Coca-Cola Company, The -- 5.91% 4/4/95 . . . . . . . . . . 5,000,000 4,997,538
Winn-Dixie Stores, Inc. -- 5.95% 4/5/95 . . . . . . . . . . 2,500,000 2,498,347
Southern California Edison Co. -- 5.95% 4/11/95 . . . . . . 5,000,000 4,991,736
Coca-Cola Company, The -- 5.94% 4/13/95 . . . . . . . . . . 6,000,000 5,988,120
General Mills, Inc. -- 5.95% 4/13/95 . . . . . . . . . . . 9,000,000 8,982,150
Philip Morris Companies Inc. -- 5.95% 4/13/95 . . . . . . . 4,000,000 3,992,067
Daimler-Benz North America Corp. -- 5.97% 4/17/95 . . . . . 5,500,000 5,485,407
Anheuser-Busch Companies, Inc. -- 5.92% 4/18/95 . . . . . . 6,500,000 6,481,829
General Mills, Inc. -- 5.93% 4/18/95 . . . . . . . . . . . 6,000,000 5,983,198
General Mills, Inc. -- 5.97% 4/18/95 . . . . . . . . . . . 6,000,000 5,983,085
Bell Atlantic Network Funding -- 5.95% 4/19/95 . . . . . . 10,000,000 9,970,250
Kellogg Company -- 5.95% 4/19/95 . . . . . . . . . . . . . 6,500,000 6,480,662
Ford Motor Credit Company -- 5.91% 4/21/95 . . . . . . . . 6,000,000 5,980,300
AT&T Co. -- 5.91% 4/25/95 . . . . . . . . . . . . . . . . . 6,000,000 5,976,360
AT&T Co. -- 5.91% 4/26/95 . . . . . . . . . . . . . . . . . 6,500,000 6,473,323
Limited Inc., The -- 5.93% 4/26/95 . . . . . . . . . . . . 9,000,000 8,962,937
Ford Motor Credit Company -- 5.95% 4/27/95 . . . . . . . . 8,000,000 7,965,622
Toys "R" Us, Inc. -- 5.97% 4/27/95 . . . . . . . . . . . . 1,000,000 995,688
Snap-On Tools Corp. -- 5.96% 5/1/95 . . . . . . . . . . . . 3,500,000 3,482,617
Unilever Capital Corp. -- 5.93% 5/1/95 . . . . . . . . . . 2,000,000 1,990,117
Philip Morris Companies Inc. -- 5.93% 5/5/95 . . . . . . . 3,200,000 3,182,078
State Street Bank Repurchase Agreement -- 5 1/2% 4/3/95
(Collateralized by U.S. Treasury Notes --
8 7/8% 2017, market value $1,085,232) . . . . . . . . . . . 1,085,000 1,085,166
------------
$143,920,084
------------
TOTAL INVESTMENTS -- 99.9% . . . . . . . . . . . . . . . . . $535,816,421
Other assets less liabilities -- 0.1% . . . . . . . . . . . . 682,711
------------
TOTAL NET ASSETS -- 100% . . . . . . . . . . . . . . . . . . $536,499,132
============
</TABLE>
* Non-income producing security
See notes to financial statements.
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $359,350,379) . . . . . . . . . . . . . . . . . . $391,896,337
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) . . . . . . . . . . . . . . . . . . 143,920,084 $535,816,421
------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,474
Receivable for:
Investment securities sold . . . . . . . . . . . . . . . . . . . . . $ 1,742,942
Capital Stock sold . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,557
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,200 3,590,699
------------ ------------
$539,411,594
LIABILITIES
Payable for:
Investment securities purchased . . . . . . . . . . . . . . . . . . . $ 2,158,783
Advisory fees and financial services . . . . . . . . . . . . . . . . 331,001
Capital Stock repurchased . . . . . . . . . . . . . . . . . . . . . . 325,158
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 97,520 2,912,462
------------ ------------
NET ASSETS -- equivalent to $13.88 per share on 38,665,550
shares of Capital Stock outstanding . . . . . . . . . . . . . . . . . . $536,499,132
============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.25 per share; authorized
50,000,000 shares; outstanding 38,665,550 shares . . . . . . . . . . $ 9,666,387
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 489,712,588
Undistributed net realized gain on investments . . . . . . . . . . . . 1,328,389
Undistributed net investment income . . . . . . . . . . . . . . . . . . 3,245,810
Unrealized appreciation of investments . . . . . . . . . . . . . . . . 32,545,958
------------
Net assets at March 31, 1995 . . . . . . . . . . . . . . . . . . . . . $536,499,132
============
</TABLE>
See notes to financial statements.
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,674,417
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,185,734
-----------
$ 7,860,151
EXPENSES
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,598,829
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . 242,127
Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . 221,319
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . . 55,434
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . 47,494
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,975
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . 23,126
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . 14,274
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,837
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,761
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,836 2,263,012
------------ -----------
Net investment income . . . . . . . . . . . . . . . . . . . . $ 5,597,139
-----------
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) . . . . $134,850,654
Cost of investment securities sold . . . . . . . . . . . . . . . . . 125,675,744
------------
Net realized gain on investments . . . . . . . . . . . . . . . . $ 9,174,910
Unrealized appreciation of investments:
Unrealized appreciation at beginning of period . . . . . . . . . . . $ 34,059,325
Unrealized appreciation at end of period . . . . . . . . . . . . . . 32,545,958
------------
Decreased in unrealized appreciation of investments . . . . . . . (1,513,367)
-----------
Net realized and unrealized gain on investments . . . . . . . $ 7,661,543
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,258,682
===========
</TABLE>
See notes to financial statements.
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1995 September 30, 1994
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . $ 5,597,139 $ 5,924,614
Net realized gain on investments . . . . 9,174,910 28,398,702
Increase (decrease) in unrealized
appreciation of investments . . . . . . (1,513,367) 34,522,509
------------ ------------
Increase in net assets
resulting from operations . . . . . . . . $ 13,258,682 $ 68,845,825
Distributions to shareholders from:
Net investment income . . . . . . . . . . $ (3,737,396) $ (5,916,078)
Net realized capital gains . . . . . . . (34,316,090) (38,053,486) (34,111,323) (40,027,401)
------------ ------------
Capital Stock transactions:
Proceeds from Capital Stock sold . . . . $131,552,040 $ 86,786,782
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions . . . . 32,999,669 35,904,034
Cost of Capital Stock repurchased . . . . (24,639,628) 139,912,081 (57,306,390) 65,384,426
------------ ------------ ------------ ------------
Total increase in net assets . . . . . . . $115,117,277 $ 94,202,850
NET ASSETS
Beginning of period, including
undistributed net investment income
of $1,386,067 and $1,377,531 . . . . . . 421,381,855 327,179,005
------------ ------------
End of period, including undistributed
net investment income of $3,245,810
and $1,386,067 . . . . . . . . . . . . . $536,499,132 $421,381,855
============ ============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold . . . . . . . 9,333,729 6,084,057
Shares issued to shareholders upon
reinvestment of dividends and
distributions . . . . . . . . . . . . . . 2,494,306 2,683,672
Shares of Capital Stock repurchased . . . . (1,777,894) (3,999,942)
------------ ------------
Increase in Capital Stock
outstanding . . . . . . . . . . . . . . . 10,050,141 4,767,787
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended September 30,
March 31, ----------------------------------------------
1995 1994 1993 1992 1991 1990
--------- ------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period . . . . . $ 14.73 $ 13.72 $ 13.09 $ 14.06 $ 12.04 $ 14.71
------- ------- ------- ------- ------- -------
Net investment income . . . . . . . . . . . . . . $ 0.15 $ 0.24 $ 0.25 $ 0.31 $ 0.42 $ 0.56
Net realized and unrealized gain (loss) on
investment securities . . . . . . . . . . . . . 0.12 2.54 1.61 0.57 2.83 (0.91)
------- ------- ------- ------- ------- -------
Total from investment operations . . . . . . . . $ 0.27 $ 2.78 $ 1.86 $ 0.88 $ 3.25 $ (0.35)
------- ------- ------- ------- ------- --------
Less distributions:
Dividends from net investment income . . . . . $ (0.11) $ (0.25) $ (0.25) $ (0.36) $ (0.48) $ (0.56)
Distributions from net realized
capital gains . . . . . . . . . . . . . . . . (1.01) (1.52) (0.98) (1.49) (0.75) (1.76)
------- ------- ------- ------- ------- -------
Total distributions . . . . . . . . . . . . . . $ (1.12) $ (1.77) $ (1.23) $ (1.85) $ (1.23) $ (2.32)
------- ------- ------- ------- ------- -------
Net asset value at end of period . . . . . . . . $ 13.88 $ 14.73 $ 13.72 $ 13.09 $ 14.06 $ 12.04
======= ======= ======= ======= ======= =======
Total investment return* . . . . . . . . . . . . 2.21% 21.69% 15.08% 6.83% 29.12% (3.02)%
Ratios/supplemental data:
Net assets at end of period (in $000's) . . . . . 536,499 421,382 327,179 279,990 250,980 199,381
Ratio of expenses to average net assets . . . . . 0.92%+ 0.90% 0.89% 0.92% 0.93% 0.95%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . 2.27%+ 1.69% 1.83% 2.33% 3.08% 4.30%
Portfolio turnover rate . . . . . . . . . . . . . 86%+ 76% 98% 146% 101% 94%
</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 March 31, 1995 is not annualized.
+ Annualized
See notes to financial statements.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
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 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 $184,833,123 for the
six months ended March 31, 1995. Realized gains or losses are based on the
specific-certificate identification method. Cost of securities owned at March
31, 1995 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"). 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 reimburses the Adviser monthly for the costs incurred by the
Adviser in providing financial services to the Fund, providing, however, that
this reimbursement shall not exceed 0.1% of the average daily net assets for
any fiscal year. 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
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Continued
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 March 31, 1995, the Fund paid aggregate fees of
$13,250 to all Directors who are not affiliated persons of the Adviser.
NOTE 4 -- DISTRIBUTOR
For the six months ended March 31, 1995, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $381,411 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 -- SALES OF FUND SHARES
Shares of the Fund are presently offered for sale only to existing
shareholders and to directors, officers, and employees of the Fund, the
Adviser, and affiliated companies. The discontinuation of sales to new
investors reflects Management's belief that unrestrained growth in the Fund's
net assets might impair investment flexibility. The Fund may resume at any
time the sale of its shares to new investors if, in the Board of Directors'
opinion, doing so would be in the best interests of the Fund and its
shareholders.
13
<PAGE> 15
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Distributor:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Blvd., Suite 1200
Los Angeles, California 90064
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