<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Semi-Annual Report
LOGO
Distributor:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
March 31, 1996
<PAGE> 2
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
DIRECTORS DISTRIBUTOR
Julio J. de Puzo, Jr. FPA Fund Distributors, Inc.
John P. Endicott 11400 West Olympic Boulevard, Suite 1200
Leonard Mautner Los Angeles, California 90064
John H. Rubel
John P. Shelton
Joseph Lowitz, Chairman Emeritus
John F. Allard, Director Emeritus COUNSEL
O'Melveny & Myers
OFFICERS Los Angeles, California
William M. Sams, President and
Chief Investment Officer
Julio J. de Puzo, Jr., Executive Vice
President & Treasurer CUSTODIAN & TRANSFER AGENT
Christopher Linden, Senior Vice President
Lawrence P. McNeil, Senior Vice President State Street Bank and Trust Company
Eric S. Ende, Vice President Boston, Massachusetts
Janet M. Pitman, Vice President
Sherry Sasaki, Secretary
Christopher H. Thomas, Assistant Treasurer
INVESTMENT ADVISER SHAREHOLDER SERVICE AGENT
First Pacific Advisors, Inc. Boston Financial Data Services, Inc.
11400 West Olympic Boulevard, Suite 1200 P.O. Box 8500
Los Angeles, California 90064 Boston, Massachusetts 02266-8500
(800) 638-3060
(617) 328-5000
</TABLE>
We were saddened by the accidental death on March 10, 1996 of George H.
Michaelis, Chairman of the Board of the Fund and its investment adviser. He
was an exceptional investor and a respected colleague and friend who will be
greatly missed.
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.
1
<PAGE> 3
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
This Semi-Annual Report covers the six months ended March 31, 1996. During
this period, the per share net asset value of your Fund increased 10.1%, while
the unmanaged Standard & Poor's 500 Stock Index (S&P 500) increased 11.7% and
the unmanaged Dow Jones Industrial Average increased 18.0%. The above changes
include reinvestment of all dividends and distributions during the period.
On September 30, 1995, the net asset value per share was $14.90 and on
March 31, 1996, it was $15.26. During the period, the Fund paid $0.91 from
capital gains and $0.12 from net investment income (paid January 8, 1996 to
shareholders of record on December 29, 1995).
THE SIX MONTHS IN REVIEW
As we discussed in our Annual Report Letter to Shareholders, 1995 was a
year of relative underperformance for the Fund. While we continued our record
of back-to-back positive return years, comparisons to market indices did not
favor us over the short-run. The broad markets turned in exceptionally and
unusually strong returns, fueled by investor optimism, record cashflows into
mutual funds and solid corporate earnings reports. A review of market history
shows that this type of market generally follows depression, recession or
extreme market corrections--none of which were the case for 1995--making it all
the more unusual.
The last quarter of 1995 and January 1996 continued to prove extremely
difficult periods for the Fund. The market continued its upward trend, without
giving our focus sectors much relief. Although we saw some improvement in oil
and gas stocks, it was offset by ongoing dismal performance among the
retailers. In February, we began to see both signs of increased market
volatility and greatly improving performance among our holdings. Your Fund
began to actively participate in the markets' upward movement and then as the
first quarter progressed, outstrip them, finishing the period with a return for
the first three months approximately double that of the S&P 500. As the
straight upward momentum of 1995 proved an almost impossible investment
environment in which our particular value-oriented style could produce
attractive relative returns, the 1996 markets have allowed us to show the
important role a risk-averse component can play in a diversified portfolio.
In 1995, our relative performance was negatively impacted by a number of
factors: our large cash position; our lack of exposure to technology and
financial services; and our focus on out-of-favor areas such as retail,
insurance, and energy holdings. Our frayed patience was rewarded in the first
quarter as these underperforming sectors reversed their positions. The best
performing industry groups during the first three months included oil drilling,
oilfield equipment and apparel retailers. Our top performers were heavily
represented in these areas, as both Woolworth and the oil service issues
charged ahead. In addition, Life Partners Group, our large insurance company
holding, received a buy-out offer from Conseco at $21 a share and the price
rose approximately 25% to that level. All of this upward price momentum has
provided us with opportunities to take healthy profits and we have done so,
reducing our energy exposure significantly in the process. The oil and gas
service stocks have been particularly successful. Profit-taking occurred in
companies like ENSCO International and Noble
2
<PAGE> 4
Drilling. The result of these sales has been increased cash levels in the
Fund. However, we are comfortable with this liquidity which provides us both
protection and cash to draw on when valuation opportunities appear.
WHAT ARE WE DOING NOW?
We believe that the markets will be less generous in the future, that the
spectacular returns of last year should be viewed as an exception rather than
the norm, and that investors will be reminded of the importance of downside
protection and stability--factors which have been far from their minds over the
last 5 1/2 years of continuing "up markets." Good news on Main Street is not
always good news for Wall Street and market volatility in reaction to
employment announcements, interest rate changes and other economic data can be
extreme on a day-to-day basis. I believe that government policy will
increasingly emphasize economic growth rather than restrained inflation. Mr.
Greenspan is receiving significant criticism for his focus on containing
inflation, while producing only a 2% growth rate due to tight money policies.
The conservatives are not in a particularly strong position going into the
election, which increases President Clinton's chances of winning a second term.
These factors compel me to take profits and avoid interest-sensitive issues.
We continue to look for individual stocks which meet our value criteria and
which exhibit limited downside risk. Some stocks in the
information/communications area have recently proved attractive additions for
the portfolio--DSC Communications, Novell, Inc., and IBM.
I will continue to seek out good individual "values", a task that is easier
said than done in this environment of constantly rising valuations. I continue
to hope that we will see a reasonable market correction of about 10%, as we
have not experienced one since 1990, and we could use a breather. While no
particular industry seems to stand out right now, I do detect some cyclical
opportunities, occasional energy plays, the communication stocks mentioned
above, and individual situations which look attractive on a risk/reward basis.
Again, we stress the need for caution as we enter what we believe will be even
more difficult market conditions.
Our present cash position of 46.9% is certainly high in comparison with
other funds, but our philosophy dictates profit-taking when stocks reach their
price objective, regardless of the overall level of the stock market. Believe
me, it's easier said than done. Thank you for your past support and I will do
my best to deserve it in the future.
Respectfully submitted,
/s/ William M. Sams
- -------------------
William M. Sams
President
May 15, 1996
3
<PAGE> 5
MAJOR PORTFOLIO CHANGES
Six Months Ended March 31, 1996
<TABLE>
<CAPTION>
Shares
-------------
<S> <C> <C>
NET PURCHASES
COMMON STOCKS
AMSCO International, Inc. (1) . . . . . . . . . . . . . . 906,000 shs.
DSC Communications Corporation (1) . . . . . . . . . . . 139,000 shs.
Ford Motor Company (1) . . . . . . . . . . . . . . . . . 700,000 shs.
Integrated Health Services, Inc. (1) . . . . . . . . . . 165,000 shs.
International Business Machines Corporation (1) . . . . . 50,000 shs.
Louisiana-Pacific Corporation (1) . . . . . . . . . . . . 600,000 shs.
National Service Industries, Inc.(1) . . . . . . . . . . 100,000 shs.
Novell, Inc. (1) . . . . . . . . . . . . . . . . . . . . 500,000 shs.
Oryx Energy Company . . . . . . . . . . . . . . . . . . . 400,000 shs.
Provident Companies Inc. . . . . . . . . . . . . . . . . 142,400 shs.
Wendy's International, Inc. (1) . . . . . . . . . . . . . 800,000 shs.
Woolworth Corporation . . . . . . . . . . . . . . . . . . 594,000 shs.
NET SALES
COMMON STOCKS
Baker Hughes Incorporated (2) . . . . . . . . . . . . . . 800,000 shs.
CalEnergy, Inc. . . . . . . . . . . . . . . . . . . . . . 1,125,000 shs.
Caraustar Industries, Inc. . . . . . . . . . . . . . . . 25,000 shs.
Coastal Corporation (2) . . . . . . . . . . . . . . . . . 700,000 shs.
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 800,000 shs.
ENSCO International Incorporated . . . . . . . . . . . . 1,351,100 shs.
Guinness PLC (2) . . . . . . . . . . . . . . . . . . . . 2,400,000 shs.
Life Partners Group, Inc. . . . . . . . . . . . . . . . . 270,000 shs.
Noble Drilling Corporation . . . . . . . . . . . . . . . 1,750,000 shs.
Parker & Parsley Petroleum Company (2) . . . . . . . . . 203,000 shs.
Schlumberger Limited (2) . . . . . . . . . . . . . . . . 100,000 shs.
TIG Holdings, Inc. (2) . . . . . . . . . . . . . . . . . 1,280,000 shs.
UNUM Corporation (2) . . . . . . . . . . . . . . . . . . 150,000 shs.
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- ------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
RETAILING -- 10.8
Service Merchandise Company, Inc.* . . . . . . . . . . . . . 2,000,000 $ 12,848,335 $ 10,500,000
Wendy's International, Inc. . . . . . . . . . . . . . . . . 800,000 15,129,812 14,500,000
Woolworth Corporation* . . . . . . . . . . . . . . . . . . . 2,700,000 37,918,905 42,187,500
------------ ------------
$ 65,897,052 $ 67,187,500
------------ ------------
INSURANCE -- 9.5%
Leucadia National Corporation . . . . . . . . . . . . . . . . 580,000 $ 12,559,247 $ 14,427,500
Life Partners Group, Inc. . . . . . . . . . . . . . . . . . . 1,230,000 21,556,769 25,522,500
Provident Companies Inc. . . . . . . . . . . . . . . . . . . 635,000 15,160,275 19,288,125
------------ ------------
$ 49,276,291 $ 59,238,125
------------ ------------
CONSUMER NON-DURABLE GOODS -- 7.8%
National Services Industries, Inc. . . . . . . . . . . . . . 100,000 $ 3,513,100 $ 3,625,000
Reebok International Ltd. . . . . . . . . . . . . . . . . . . 550,000 19,441,829 15,193,750
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 29,998,233 29,550,000
------------ ------------
$ 52,953,162 $ 48,368,750
------------ ------------
OIL & GAS PRODUCTION/EXPLORATION -- 5.0%
Burlington Resources Inc. . . . . . . . . . . . . . . . . . . 600,000 $ 23,171,165 $ 22,275,000
Oryx Energy Company* . . . . . . . . . . . . . . . . . . . . 650,000 8,932,182 9,018,750
------------ ------------
$ 32,103,347 $ 31,293,750
------------ ------------
CONSUMER DURABLE GOODS -- 3.9%
Ford Motor Company . . . . . . . . . . . . . . . . . . . . . 700,000 $ 20,721,700 $ 24,062,500
------------ ------------
HEALTH CARE -- 3.4%
AMSCO International, Inc.* . . . . . . . . . . . . . . . . . 906,000 $ 15,257,701 $ 12,684,000
Beverly Enterprises, Inc.* . . . . . . . . . . . . . . . . . 400,000 5,493,708 4,400,000
Integrated Health Services, Inc. . . . . . . . . . . . . . . 165,000 3,487,510 3,856,875
------------ ------------
$ 24,238,919 $ 20,940,875
------------ ------------
</TABLE>
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
COMMON STOCKS--CONTINUED Shares Cost Value
- ------------------------------------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
OIL & GAS SERVICES -- 3.3%
Dresser Industries, Inc. . . . . . . . . . . . . . . . . . . 100,000 $ 1,963,758 $ 3,050,000
ENSCO International Incorporated* . . . . . . . . . . . . . . 200,000 2,214,000 5,575,000
Noble Drilling Corporation* . . . . . . . . . . . . . . . . . 950,000 5,025,500 11,993,750
------------ ------------
$ 9,203,258 $ 20,618,750
------------ ------------
PAPER & FOREST PRODUCTS -- 3.1%
Caraustar Industries, Inc. . . . . . . . . . . . . . . . . . 175,000 $ 2,566,500 $ 4,375,000
Louisiana-Pacific Corporation . . . . . . . . . . . . . . . . 600,000 14,886,628 14,625,000
------------ ------------
$ 17,453,128 $ 19,000,000
------------ ------------
COMMUNICATIONS & INFORMATION -- 2.6%
DSC Communications Corporation* . . . . . . . . . . . . . . . 139,000 $ 3,699,707 $ 3,753,000
International Business Machines Corporation . . . . . . . . . 50,000 4,591,000 5,556,250
Novell, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . 500,000 6,031,250 6,687,500
------------ ------------
$ 14,321,957 $ 15,996,750
------------ ------------
NATURAL GAS UTILITY -- 1.8%
Enserch Corporation . . . . . . . . . . . . . . . . . . . . . 700,000 $ 9,493,361 $ 11,375,000
------------ ------------
REAL ESTATE INVESTMENT TRUST -- 1.2%
Paragon Group, Inc. . . . . . . . . . . . . . . . . . . . . . 170,000 $ 3,612,500 $ 2,996,250
Town & Country Trust, The . . . . . . . . . . . . . . . . . . 300,000 4,943,317 4,237,500
------------ ------------
$ 8,555,817 $ 7,233,750
------------ ------------
GEOTHERMAL ENERGY PRODUCTION -- 0.7%
CalEnergy, Inc.* . . . . . . . . . . . . . . . . . . . . . . 175,000 $ 2,768,500 $ 4,659,375
------------ ------------
TOTAL COMMON STOCKS -- 53.1% . . . . . . . . . . . . . . . . $306,986,492 $329,975,125
============ ------------
</TABLE>
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
Principal
Amount Value
------------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 45.4%
Short-term Corporate Notes:
Anheuser-Busch Companies, Inc. -- 5.11% 4/4/96 . . . . . . . . . . . $ 23,000,000 $ 22,990,206
Du Pont (E.I.) De Nemours & Company -- 5.17% 4/4/96 . . . . . . . . . 5,000,000 4,997,846
Southwestern Bell Telephone Company -- 5.18% 4/4/96 . . . . . . . . . 6,000,000 5,997,410
AT&T Capital Corporation -- 5.21% 4/11/96 . . . . . . . . . . . . . . 10,000,000 9,985,528
Hershey Foods Corporation -- 5.20% 4/11/96 . . . . . . . . . . . . . 10,400,000 10,384,978
Motorola, Inc. -- 5.20% 4/11/96 . . . . . . . . . . . . . . . . . . . 10,000,000 9,985,555
Toyota Motor Credit Corporation -- 5.21% 4/12/96 . . . . . . . . . . 25,000,000 24,960,201
AT&T Co. -- 5.06% 4/16/96 . . . . . . . . . . . . . . . . . . . . . . 11,500,000 11,475,754
Du Pont(E.I.) De Nemours & Company -- 5.16% 4/17/96 . . . . . . . . . 8,600,000 8,580,277
Philip Morris Companies Inc. -- 5.16% 4/17/96 . . . . . . . . . . . . 5,500,000 5,487,387
Tribune Company -- 5.30% 4/17/96 . . . . . . . . . . . . . . . . . . 5,000,000 4,988,222
The Coca-Cola Company -- 5.03% 4/18/96 . . . . . . . . . . . . . . . 30,000,000 29,928,742
Philip Morris Companies Inc. -- 5.25% 4/18/96 . . . . . . . . . . . . 18,000,000 17,955,375
The Sherwin-Williams Company -- 5.31% 4/22/96 . . . . . . . . . . . . 2,000,000 1,993,805
Tribune Company -- 5.33% 4/25/96 . . . . . . . . . . . . . . . . . . 6,000,000 5,978,680
Anheuser-Busch Companies, Inc. -- 5.25% 4/26/96 . . . . . . . . . . . 4,000,000 3,985,417
Campbell Soup Company -- 5.30% 4/26/96 . . . . . . . . . . . . . . . 11,000,000 10,959,514
Motorola Credit Corporation -- 5.30% 4/26/96 . . . . . . . . . . . . 2,000,000 1,992,639
American General Finance Corporation -- 5.35% 5/01/96 . . . . . . . . 10,900,000 10,851,404
Xerox Credit Corporation -- 5.30% 5/03/96 . . . . . . . . . . . . . . 9,100,000 9,057,129
Motorola Credit Corporation -- 5.32% 5/07/96 . . . . . . . . . . . . 20,000,000 19,893,600
AT&T Co. -- 5.25% 5/08/96 . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,989,208
Du Pont(E.I.) De Nemours & Company -- 5.29% 5/9/96 . . . . . . . . . 2,000,000 1,988,832
Unilever Capital Corp. -- 5.33% 5/10/96 . . . . . . . . . . . . . . . 18,000,000 17,896,065
General Electric Capital Corp. -- 5.23% 5/15/96 . . . . . . . . . . . 26,000,000 25,833,802
State Street Bank Repurchase Agreement -- 4 3/4% 4/1/96
(Collateralized by U.S. Treasury Notes --
7 3/4% 1999, market value $1,831,349) . . . . . . . . . . . . . . . . 1,795,000 1,795,711
---------------
$ 281,933,287
---------------
TOTAL INVESTMENTS -- 98.5% . . . . . . . . . . . . . . . . . . . . . . $ 611,908,412
Other assets less liabilities -- 1.5% . . . . . . . . . . . . . . . . . 9,181,457
---------------
TOTAL NET ASSETS -- 100% . . . . . . . . . . . . . . . . . . . . . . . $ 621,089,869
===============
</TABLE>
* Non-income producing security
See notes to financial statements.
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Common stocks -- at market value
(identified cost $306,986,492) . . . . . . . . . . . . . . . . . . $ 329,975,125
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) . . . . . . . . . . . . . . . . . . 281,933,287 $ 611,908,412
---------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625
Receivable for:
Investment securities sold . . . . . . . . . . . . . . . . . . . . . $ 16,013,741
Capital Stock sold . . . . . . . . . . . . . . . . . . . . . . . . . 705,164
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,887 16,906,792
--------------- ---------------
$ 628,815,829
LIABILITIES
Payable for:
Investment securities purchased . . . . . . . . . . . . . . . . . . . $ 6,956,217
Advisory fees and financial services . . . . . . . . . . . . . . . . 361,980
Capital Stock repurchased . . . . . . . . . . . . . . . . . . . . . 320,263
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 87,500 7,725,960
--------------- ---------------
NET ASSETS -- equivalent to $15.26 per share on 40,712,765
shares of Capital Stock outstanding . . . . . . . . . . . . . . . . . . $ 621,089,869
---------------
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.25 per share; authorized
50,000,000 shares; outstanding 40,712,765 shares . . . . . . . . . . $ 10,178,191
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 516,594,134
Undistributed net realized gain on investments . . . . . . . . . . . . 68,583,611
Undistributed net investment income . . . . . . . . . . . . . . . . . . 2,745,300
Unrealized appreciation of investments . . . . . . . . . . . . . . . . 22,988,633
---------------
Net assets at March 31, 1996 . . . . . . . . . . . . . . . . . . . . . $ 621,089,869
===============
</TABLE>
See notes to financial statements.
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,810,403
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,675,763
--------------
$ 7,486,166
EXPENSES
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,903,359
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . 261,626
Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . 229,458
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . 76,008
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . . 32,518
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . 14,927
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . 11,363
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,539
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,965
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,032 2,594,795
-------------- --------------
Net investment income . . . . . . . . . . . . . . . . . . . . $ 4,891,371
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) . . . . $ 299,380,460
Cost of investment securities sold . . . . . . . . . . . . . . . . . 223,674,476
----------------
Net realized gain on investments . . . . . . . . . . . . . . . . $ 75,705,984
Unrealized appreciation of investments:
Unrealized appreciation at beginning of period . . . . . . . . . . . $ 47,092,997
Unrealized appreciation at end of period . . . . . . . . . . . . . . 22,988,633
----------------
Decrease in unrealized appreciation of investments . . . . . . . (24,104,364)
--------------
Net realized and unrealized gain on investments . . . . . . . $ 51,601,620
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,492,991
==============
</TABLE>
See notes to financial statements.
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
------------------------------ ------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . $ 4,891,371 $ 12,019,570
Net realized gain on investments . . . . 75,705,984 36,100,821
Increase (decrease) in unrealized
appreciation of investments . . . . . . (24,104,364) 13,033,672
--------------- ---------------
Increase in net assets
resulting from operations . . . . . . . . $ 56,492,991 $ 61,154,063
Distributions to shareholders from:
Net investment income . . . . . . . . . . $ (4,665,188) $ (10,886,520)
Net realized capital gains . . . . . . . (35,377,454) (40,042,642) (34,315,309) (45,201,829)
--------------- ---------------
Capital Stock transactions:
Proceeds from Capital Stock sold . . . . $ 24,719,787 $ 180,999,941
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions . . . . 34,397,258 39,028,364
Cost of Capital Stock repurchased . . . . (50,394,560) 8,722,485 (61,445,359) 158,582,946
-------------- --------------- --------------- --------------
Total increase in net assets . . . . . . . $ 25,172,834 $ 174,535,180
NET ASSETS
Beginning of period, including
undistributed net investment income
of $2,519,117 and $1,386,067 . . . . . . 595,917,035 421,381,855
--------------- --------------
End of period, including undistributed
net investment income of $2,745,300
and $2,519,117 . . . . . . . . . . . . . $ 621,089,869 $ 595,917,035
=============== ==============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold . . . . . . . 1,726,609 12,793,621
Shares issued to shareholders upon
reinvestment of dividends and
distributions . . . . . . . . . . . . . . 2,503,439 2,920,062
Shares of Capital Stock repurchased . . . . (3,507,822) (4,338,553)
--------------- --------------
Increase in Capital Stock
outstanding . . . . . . . . . . . . . . . 722,226 11,375,130
=============== =============
</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
March
31, Year Ended September 30,
1996 1995 1994 1993 1992 1991
------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period . . . . . $ 14.90 $ 14.73 $ 13.72 $ 13.09 $ 14.06 $ 12.04
------- ------- ------- ------- ------- --------
Net investment income . . . . . . . . . . . . . . $ 0.12 $ 0.30 $ 0.24 $ 0.25 $ 0.31 $ 0.42
Net realized and unrealized gain on
investment securities . . . . . . . . . . . . . 1.27 1.17 2.54 1.61 0.57 2.83
------- ------- ------- ------- ------- --------
Total from investment operations . . . . . . . . $ 1.39 $ 1.47 $ 2.78 $ 1.86 $ 0.88 $ 3.25
------- ------- ------- ------- ------- --------
Less distributions:
Dividends from net investment income . . . . . $ (0.12) $ (0.29) $ (0.25) $ (0.25) $ (0.36) $ (0.48)
Distributions from net realized
capital gains . . . . . . . . . . . . . . . . (0.91) (1.01) (1.52) (0.98) (1.49) (0.75)
------- ------- ------- ------- ------- --------
Total distributions . . . . . . . . . . . . . . $ (1.03) $ (1.30) $ (1.77) $ (1.23) $ (1.85) $ (1.23)
------- ------- ------- ------- ------- --------
Net asset value at end of period . . . . . . . . $ 15.26 $ 14.90 $ 14.73 $ 13.72 $ 13.09 $ 14.06
======= ======= ======= ======= ======= ========
Total investment return* . . . . . . . . . . . . 10.09% 11.11% 21.69% 15.08% 6.83% 29.12%
Ratios/supplemental data:
Net assets at end of period (in $000's) . . . . . 621,090 595,917 421,382 327,179 279,990 250,980
Average brokerage commissions per share . . . . . $0.0698 -- -- -- -- --
Ratio of expenses to average net assets . . . . . 0.89%+ 0.89% 0.90% 0.89% 0.92% 0.93%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . 1.69%+ 2.25% 1.69% 1.83% 2.33% 3.08%
Portfolio turnover rate . . . . . . . . . . . . . 82%+ 95% 76% 98% 146% 101%
</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, 1996 is not annualized.
+ Annualized
See notes to financial statements.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
March 31, 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. Unlisted securities 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 $163,617,240 for the
six months ended March 31, 1996. Realized gains or losses are based on the
specific-certificate identification method. Cost of securities held at March
31, 1996 was $307,022,398 for federal income tax purposes. Gross unrealized
appreciation and depreciation for all securities at March 31, 1996 for federal
income tax purposes was $36,774,454 and $13,821,727, 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 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
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Continued
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 March 31, 1996, the Fund paid aggregate fees of
$14,000 to all Directors who are not affiliated persons of the Adviser.
NOTE 4 -- DISTRIBUTOR
For the six months ended March 31, 1996, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $44,034 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
