<PAGE> 1
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
<S> <C>
DIRECTORS DISTRIBUTOR
George H. Michaelis, Chairman of the Board FPA Fund Distributors, Inc.
Donald E. Cantlay 11400 West Olympic Boulevard, Suite 1200
DeWayne W. Moore Los Angeles, California 90064
Lawrence J. Sheehan
Kenneth L. Trefftzs
COUNSEL
OFFICERS O'Melveny & Myers
Los Angeles, California
Robert L. Rodriguez, President and Chief Investment Officer
George H. Michaelis, Executive Vice President
Christopher Linden, Senior Vice President CUSTODIAN & TRANSFER AGENT
Eric S. Ende, Vice President
Julio J. de Puzo, Jr., Treasurer State Street Bank and Trust Company
Sherry Sasaki, Secretary Boston, Massachusetts
Christopher H. Thomas, Assistant Treasurer
SHAREHOLDER SERVICE AGENT
INVESTMENT ADVISER
Boston Financial Data Services, Inc.
First Pacific Advisors, Inc. P.O. Box 8500
11400 West Olympic Boulevard, Suite 1200 Boston, Massachusetts 02266-8500
Los Angeles, California 90064 (800) 638-3060
(617) 328-5000
</TABLE>
This report has been prepared for the information of shareholders of FPA Capital
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> 2
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
This Semi-Annual Report covers the six months ended September 30, 1995.
Your Fund's net asset value (NAV) per share closed at $28.52. The NAV reflects
the dividend distribution of $0.61 on July 15, 1995 to shareholders of record on
June 30, 1995. This distribution was composed of a $0.09 income dividend and a
$0.52 capital gains distribution, all of which was long-term.
The following table shows the average annual total return for several
different periods ended on that date for the Fund and several comparative
indices. 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDED SEPTEMBER 30, 1995
---------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
FPA Capital Fund,
Inc. (NAV) ................... 50.16%(*) 33.57%(*) 21.06%(*)
FPA Capital Fund, Inc.
(Net of Sales Charge) ........ 40.40%(++) 31.79%(++) 20.25%(++)
Lipper Growth Fund
Average ...................... 25.87% 17.57% 14.59%
Standard & Poor's
500 Stock Index .............. 29.81% 17.25% 15.95%
Russell 2000 ................... 23.36% 21.66% 12.76%
</TABLE>
The Fund's six-month return, which includes both the change in NAV and the
reinvestment of distributions paid, was 30.38%*. This compares with total
returns of 18.71% for the Lipper Growth Fund Average, 18.30% for the S&P 500 and
20.18% for the Russell 2000. On a calendar year-to-date basis, these same
comparisons are: 43.53%* for FPA Capital Fund; 27.69% for the Lipper Average;
29.79% for the S&P 500; and 25.72% for the Russell 2000.
COMMENTARY
Wow! Investment returns don't get much better than those we have recently
experienced. The 50% return for the year ended September 30, 1995, is among the
Fund's best one-year total returns. As a result, your Fund now ranks among the
top fifty funds for one-, five- and ten-year periods ended September 30, 1995,
as measured by Lipper Analytical Services, Inc. The preceding table displays
your Fund's relative performance.
This extraordinary performance comes as somewhat of a surprise. At this
same time last year, investor expectations were quite low and anxiety was high.
Interest rates were rising sharply and the bond market was on its way to its
worst year in the last seventy. Many investors were beginning to make
comparisons to 1987, when interest rates increased similarly and the stock
market crashed. In our Shareholder Letter that year, we discussed why the
comparison was invalid and that a similar experience was not likely to occur. We
believed there were attractive values in the stock market that more than offset
these perceived risks. Short-term liquidity and bonds were only 6% of total
assets. In the year that followed, long-term Treasury bond yields dropped from
over 8% to 6.3%, corporate earnings rapidly increased, and inflation remained
subdued. You could not ask for a better combination.
The result of these trends has been a powerful stock market rally
accompanied by record cash inflows into stock mutual funds.
- ------------
(*) Does not reflect deduction of the sales charge which, if reflected, would
reduce the performance shown
(++) Reflects deduction of the maximum sales charge of 6.5% of the offering
price.
2
<PAGE> 3
The rally has been broad-based but especially strong in the technology and
financial service sectors. Your Fund has been a prime beneficiary since almost
55% of its assets were invested in these two sectors at September 30, 1994. At
one point during the past year, technology stock investments rose to 32% of
total assets, but by September 30, 1995, they were at 19.3% and the combined
investment in financial and technology stocks was 41.9%. We have been quite
active sellers in both areas. The Fund also benefited from the acquisition of
Puritan-Bennett Corporation (PBEN) by Nellcor, Inc. This was a positive
conclusion to a very difficult period. Your Fund was one of the only hold-outs
against Thermo Electron's hostile takeover bid of PBEN at $24.50 per share. We
considered the price highly inadequate and said so in our September 1994
Shareholder Letter. Subsequently, Nellcor became involved and your Fund realized
a price of approximately $36 per share. These, as well as other portfolio
changes, have increased short-term liquidity and bonds to 28% of total
assets--the highest reported level since we became the Fund's investment
adviser.
Why do we have so much of your Fund invested in short-term liquidity and
bonds? Currently, we find it extremely difficult to find attractively priced
investments. We continue to actively search for new ideas but we cannot forecast
when they will turn up. There is very little valuation differentiation between
small and large capitalization stocks. Asset sales are taking place at a faster
rate than we are finding new ideas. Our problem is that we do not see many
undervalued sectors in the market today; other than retail and a small number of
special situations, very little stands out as being extremely attractive. Since
our March 31, 1995 Shareholder Letter, we added two new companies, MacFrugal's
Bargains Close-outs and Recoton Corporation, while eliminating four. MacFrugal's
Bargains Close-outs is our latest addition to the portfolio's retail holdings.
On the West Coast, this company is known as Pic 'N' Save. It has an identifiable
market niche--close-out merchandise retailing. At 10x earnings and close to its
low for the last several years, we believe it has some attractive valuation
characteristics. Recoton Corporation is a leading manufacturer of accessories
for consumer electronics. It is a very profitable company and was purchased at a
modest valuation of 12x earnings.
In response to this challenging investment environment, we decided to close
the Fund to new investors on May 23, 1995. We were afraid it was on the verge of
growing quite rapidly, due to its recent positive recognition. This potential
new growth would only make the task of rationally deploying short-term liquidity
more difficult. At this time, we do not know when the Fund will re-open. It will
most likely be in an environment that creates a much larger number of investment
opportunities.
Despite the recent changes in the portfolio's composition, the Fund's P/E
(Price/Earnings) and P/BV (Price/Book Value) ratios at September 30 have
increased to 16.5x and 2.7x, respectively. By comparison, the P/E ratios of the
S&P 500 and Russell 2000 were 17x and 22.4x, while the P/BV ratios were 3.5x and
2.3x, respectively. The portfolio's valuation advantage has declined. This may
remain the case until new investment ideas enter the portfolio. In this
transition period, the older investments tend to do better than the newest, as
our basic style is one of selling strength while buying weakness. However, we
believe the current portfolio has somewhat better downside protection since we
have reduced or sold several stocks with high valuations. Short-term liquidity
and bonds are also at a much higher percentage than normal.
We are concerned about some of the fundamental underpinnings of the stock
market. Those who are very "bullish" will refer to the fact that P/E ratios on
the S&P 500 are not that far away from the long-term average of 15x, using a
forecast of 1996 earnings. They will also point out that, with an aging
population, the rising acceptance of 401(k)s and other savings vehicles means a
growing demand for stocks and bonds. These facts are basically valid, but one
3
<PAGE> 4
has to look a little deeper. In analyzing the S&P 400 as a proxy for the stock
market, we believe current valuations discount a higher level of profitability
and growth than is likely to occur over the next several years. During the
decade ending in 1994, the S&P 400's sales growth was slightly less than growth
in nominal gross domestic product (GDP)--5.6% versus 5.9%--and profits grew only
slightly faster at 6.2%. The S&P 500 showed similar results. Many believe that
we have entered a lower inflation period that might average 2.5% or less. Real
GDP growth is also expected to slow to 2.5% or less. Combining these two
produces a 5% nominal GDP growth outlook. The S&P 400's growth in revenue and
profitability is likely to approximate this rate. Currently, profit margins
are at their highest levels since the late 1970s. With the benefits of massive
corporate restructuring and high levels of productivity growth, major increases
in profit margins are unlikely to occur from here and, therefore,
profitability growth should approximate sales growth. With a current yield of
slightly more than 2%, the total expected return (current yield plus its
growth) would be between 7% and 8%. This does not seem competitive with
long-term bond yields, as the P/E level appears somewhat high relative to this
potential total return.
Analyzing the return on equity (ROE) for both the S&P 400 and 500 also
produces questions. Over the last decade they have averaged 18.1% and 16.3%,
respectively. With dividend payouts averaging 44.7% and 47.3%, their sustainable
growth rates (ROE x 1- dividend payout) are 10% and 8.6%. The problem is that
the respective ROEs are at high levels that are non-sustainable due to
accounting restructuring charges that have eroded shareholders' equity.
Adjusting these to more average levels implies a slower sustainable growth
rate. A key question is: How can a faster growth rate occur, if we are in a
period of moderate to slower economic growth combined with low inflation? If
one argues for a faster rate of economic growth, this would most likely have
negative implications for interest rates, inflation and P/E multiples. In any
case, with profit margins close to peak levels, we are entering a period of
increased earnings' volatility, and most likely, stock market volatility.
Stock market risk is increasing since the market has been growing at a far
faster rate than the underlying economy. As a result, a couple of long-term
measures of valuation show a diminished margin of safety. The current market
value of all stocks relative to nominal GDP is at its highest level since the
1960s. Rarely has this ratio gone much higher. This level can be maintained
for a prolonged period of time, but there is less margin for error. The
Bank Credit Analyst estimates that the ratio for the stock market's current
to replacement value of total assets is at its highest level since the 1960s.
This is a far different picture from that of the early 1980s or mid- 1970s,
when it was considerably lower. Again, this implies that there is less of a
margin for error.
We believe these risks could be moderated if long-term interest rates
continue to decline. This may occur but we are within half a percentage point of
the lows since this bull market began in 1982. Should the stock market trend
sideways for a prolonged period of time, this too would work to lessen risk. Our
current anxiety reflects our contrarian investment philosophy. When the various
stock market indices are setting new highs, we begin thinking about what can go
wrong. As always, if we find attractively priced individual securities, we will
purchase them irrespective of what the stock market is doing.
In closing, we thank you for your investment and we look forward to earning
your continuing support.
Respectfully submitted,
Robert L. Rodriguez, C.F.A.
President and Chief Investment Officer
October 21, 1995
4
<PAGE> 5
MAJOR PORTFOLIO CHANGES
Six Months Ended September 30, 1995
<TABLE>
<CAPTION>
Shares or
Principal
Amount
-------------
<S> <C>
NET PURCHASES
COMMON STOCKS
Angelica Corporation ....................................... 129,900 shs.
Coachmen Industries, Inc. .................................. 69,100 shs.
Comdisco, Inc. ............................................. 62,200 shs.
Good Guys, Inc., The ....................................... 100,000 shs.
Mac Frugal's Bargains Close-outs Inc. (1) .................. 250,000 shs.
Quick & Reilly Group, Inc., The ............................ 74,900 shs.
Recoton Corporation (1) .................................... 440,000 shs.
Reebok International Ltd. .................................. 175,000 shs.
Ross Stores, Inc. .......................................... 235,000 shs.
Rouge Steel Company (Class "A") ............................ 15,000 shs.
Storage Technology Corporation ............................. 76,700 shs.
NON-CONVERTIBLE BONDS
Federal Home Loan Mortgage Corporation (CMO)
--7% 2020 (1) ............................................. $5,000,000
Government National Mortgage Association (REMIC)
--7.99125% 2010 (1) ....................................... $9,228,046
Federal National Mortgage Association (PAC-REMIC)
--8 1/2% 2025 (1) ......................................... $7,000,000
NET SALES
COMMON STOCKS
Bay View Capital Corporation ............................... 20,000 shs.
Coherent, Inc. (2) ......................................... 50,000 shs.
Green Tree Financial Corporation ........................... 50,000 shs.
Komag, Incorporated ........................................ 196,100 shs.
PLC Systems Inc. (2) ....................................... 25,000 shs.
Photronics, Inc. ........................................... 195,000 shs.
Puritan-Bennett Corporation (2) ............................ 438,000 shs.
UnionFed Financial Corporation (2) ......................... 731,300 shs.
Westcorp ................................................... 43,472 shs.
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
5
<PAGE> 6
PORTFOLIO OF INVESTMENTS
September 30, 1995
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- --------------------------------------------------------------------- ------- -------------- ---------------
<S> <C> <C> <C>
FINANCIAL -- 22.6%
Bay View Capital Corporation......................................... 140,000 $ 2,245,527 $ 3,780,000
Comdisco, Inc........................................................ 367,700 6,080,473 10,939,075
Countrywide Credit Industries, Inc................................... 360,000 5,585,361 8,460,000
Foremost Corporation of America...................................... 50,000 1,672,500 2,212,500
Green Tree Financial Corporation..................................... 550,000 891,133 33,550,000
Quick & Reilly Group, Inc., The...................................... 364,900 2,852,826 16,739,788
UnionFed Financial Corporation (Warrants)*........................... 314,286 122,210 --
Westcorp............................................................. 320,601 2,175,992 6,492,166
-------------- ---------------
$ 21,626,022 $ 82,173,529
-------------- ---------------
TECHNOLOGY -- 19.3%
Arrow Electronics, Inc.*............................................. 227,500 $ 4,615,708 $ 12,370,312
Keithley Instruments, Inc............................................ 100,000 1,227,092 2,987,500
Komag, Incorporated*................................................. 163,900 2,833,000 10,714,963
Marshall Industries*................................................. 290,000 3,022,230 10,947,500
Micropolis Corporation*.............................................. 320,000 2,225,812 1,840,000
Photronics, Inc.*.................................................... 75,000 441,250 2,512,500
Seagate Technology, Inc.*............................................ 400,000 4,266,075 16,850,000
Storage Technology Corporation*...................................... 476,700 10,203,829 11,679,150
-------------- ---------------
$ 28,834,996 $ 69,901,925
-------------- ---------------
CONSUMER DURABLES -- 8.4%
Coachmen Industries, Inc............................................. 358,000 $ 3,568,969 $ 5,951,750
Fleetwood Enterprises, Inc........................................... 290,000 4,035,995 5,763,750
Flexsteel Industries, Inc............................................ 160,000 2,008,125 1,800,000
Recoton Corporation*................................................. 440,000 6,760,769 12,100,000
Thor Industries, Inc................................................. 270,000 3,048,386 4,961,250
-------------- ---------------
$ 19,422,244 $ 30,576,750
-------------- ---------------
RETAILING -- 7.2%
Claire's Stores, Inc................................................. 250,000 $ 2,946,839 $ 5,125,000
Good Guys, Inc., The*................................................ 350,000 3,438,500 3,981,250
Mac Frugal's Bargains Close-outs Inc.*............................... 250,000 3,882,847 3,937,500
Ross Stores, Inc..................................................... 820,000 9,868,937 12,915,000
-------------- ---------------
$ 20,137,123 $ 25,958,750
-------------- ---------------
CONSUMER NON-DURABLES -- 7.0%
NIKE, Inc. (Class "B")............................................... 120,000 $ 2,545,110 $ 13,335,000
Rawlings Sporting Goods Company, Inc.*............................... 222,000 2,549,282 1,859,250
Reebok International Ltd............................................. 300,000 9,912,636 10,312,500
-------------- ---------------
$ 15,007,028 $ 25,506,750
-------------- ---------------
</TABLE>
6
<PAGE> 7
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
COMMON STOCKS--CONTINUED Shares Cost Value
- --------------------------------------------------------------------- ------- -------------- ---------------
<S> <C> <C> <C>
BASIC MATERIALS -- 3.2%
International Aluminum Corporation................................... 160,000 $ 3,105,406 $ 5,080,000
Rouge Steel Company (Class "A")...................................... 275,000 5,996,275 6,393,750
-------------- ---------------
$ 9,101,681 $ 11,473,750
-------------- ---------------
INDUSTRIAL SERVICES -- 2.2%
Angelica Corporation................................................. 319,900 $ 7,679,346 $ 8,037,487
-------------- ---------------
DEFENSE -- 1.4%
Diagnostic/Retrieval Systems, Inc. (Class "A")*+..................... 310,000 $ 1,646,478 $ 2,421,875
Diagnostic/Retrieval Systems, Inc. (Class "B")*+..................... 200,000 861,240 1,575,000
United Industrial Corporation........................................ 207,500 2,853,721 1,167,187
-------------- ---------------
$ 5,361,439 $ 5,164,062
-------------- ---------------
PRINTING & PUBLISHING -- 0.5%
Devon Group, Inc.*................................................... 40,000 $ 557,125 $ 1,730,000
-------------- ---------------
TOTAL COMMON STOCKS -- 71.8%......................................... $ 127,727,004 $ 260,523,003
-------------- ---------------
PREFERRED STOCK -- 0.4%
Craig Corporation (Class "A")*....................................... 160,000 $ 1,906,272 $ 1,400,000
-------------- ---------------
NON-CONVERTIBLE BONDS -- 6.3%
Federal Home Loan Mortgage Corporation
(PAC IO-CMO)--7% 2020...............................................$ 3,755,714 $ 1,054,971 $ 1,126,714
Federal Home Loan Mortgage Corporation
(CMO)--7% 2020...................................................... 5,000,000 4,981,250 4,982,813
Federal National Mortgage Association
(PAC IO-REMIC)--6% 2013............................................. 6,871,104 659,522 654,902
Federal National Mortgage Association
(PAC-REMIC)--8 1/2% 2025............................................ 7,000,000 7,021,875 7,039,375
Government National Mortgage Association
(REMIC)--7.99125% 2010.............................................. 9,228,046 9,228,045 9,242,465
-------------- ---------------
$ 22,945,663 $ 23,046,269
-------------- ---------------
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
Shares or
Principal
Amount Cost Value
------------- ------------- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT -- 3.5%
U.S. Treasury Bill-- 6.765% 2/8/96 ...................... $ 7,800,000 $ 7,619,973 $ 7,651,020
U.S. Treasury Notes-- 4 1/4% 5/15/96 .................... 5,000,000 4,901,719 4,956,250
------------- -------------
$ 12,521,692 $ 12,607,270
------------- -------------
TOTAL INVESTMENT SECURITIES -- 82.0% .................... $ 165,100,631 $ 297,576,542
============= -------------
OTHER SHORT-TERM INVESTMENTS -- 19.0%
American General Corporation -- 5.68% 10/2/95 ........... $ 1,300,000 $ 1,299,590
Hertz Corporation -- 5.74% 10/3/95 ...................... 17,200,000 17,191,772
Anheuser Busch -- 5.70% 10/4/95 ......................... 13,800,000 13,791,260
Exxon Asset Management Company -- 5 3/4% 10/5/95 ........ 5,650,000 5,645,488
Ford Motor Credit -- 5.76% 10/5/95 ...................... 18,000,000 17,985,599
AT&T Company -- 5.73% 10/6/95 ........................... 1,300,000 1,298,759
Xerox Corporation -- 5.65% 11/1/95 ...................... 10,000,000 9,949,778
State Street Bank Repurchase Agreement -- 5 1/4% 10/2/95
(Collateralized by U.S. Treasury Notes -- 10 3/8% 2009,
market value $1,760,315) .............................. 1,760,000 1,760,257
-------------
$ 68,922,503
-------------
TOTAL INVESTMENTS -- 101.0% ............................. $ 366,499,045
Liabilities less other assets -- (1.0)% ................. (3,450,084)
-------------
TOTAL NET ASSETS -- 100.0% .............................. $ 363,048,961
=============
</TABLE>
(*) Non-income producing securities
(+) Affiliate for the six months ended September 30, 1995 as defined in the
Investment Company Act of 1940 by reason of ownership of 5% or more of its
outstanding voting securities.
See notes to financial statements.
8
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $165,100,631) ..................... $297,576,542
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) .................... 68,922,503 $366,499,045
------------
Cash ................................................... 855
Receivable for:
Dividends and accrued interest ....................... $ 656,442
Capital Stock sold ................................... 411,685
Investment securities sold ........................... 51,094 1,119,221
------------ ------------
$367,619,121
LIABILITIES
Payable for:
Investment securities purchased ...................... $ 3,544,059
Capital Stock repurchased ............................ 736,496
Advisory fees and fiancial services .................. 265,808
Accrued expenses and other liabilities ............... 23,797 4,570,160
------------ ------------
NET ASSETS -- equivalent to $28.52 per share on 12,728,951
shares of Capital Stock outstanding .................... $363,048,961
============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per share; authorized
100,000,000 shares; outstanding 12,728,951 shares .... $ 127,290
Additional Paid-in Capital ............................. 203,492,952
Undistributed net realized gain on investments ......... 25,643,237
Undistributed net investment income .................... 1,309,571
Unrealized appreciation of investments ................. 132,475,911
------------
Net assets at September 30, 1995 ....................... $363,048,961
============
</TABLE>
See notes to financial statements.
9
<PAGE> 10
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................................... $ 1,093,025
Interest.................................................................... 2,311,691
---------------
$ 3,404,716
EXPENSES
Advisory fees............................................................... $ 1,029,754
Financial services.......................................................... 154,578
Transfer agent fees and expenses............................................ 86,463
Registration fees........................................................... 37,161
Custodian fees and expenses................................................. 19,681
Audit fees.................................................................. 13,925
Directors' fees and expenses................................................ 9,720
Reports to shareholders..................................................... 9,339
Insurance................................................................... 9,040
Postage .................................................................... 8,275
Legal fees.................................................................. 7,226
Other expenses.............................................................. 925 1,386,087
-------------- ---------------
Net investment income............................................... $ 2,018,629
---------------
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)................ $ 41,774,227
Cost of investment securities sold.......................................... 16,056,102
--------------
Net realized gain on investments........................................ $ 25,718,125
Unrealized appreciation of investments:
Unrealized appreciation at beginning of period.............................. $ 80,115,701
Unrealized appreciation at end of period.................................... 132,475,911
--------------
Increase in unrealized appreciation of investments...................... 52,360,210
---------------
Net realized and unrealized gain on investments..................... $ 78,078,335
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................................... $ 80,096,964
===============
</TABLE>
See notes to financial statements.
10
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income...................... $ 2,018,629 $ 897,432
Net realized gain on investments........... 25,718,125 8,147,392
Increase in unrealized appreciation
of investments........................... 52,360,210 26,393,925
-------------- --------------
Increase in net assets resulting
from operations............................ $ 80,096,964 $ 35,438,749
Distributions to shareholders from:
Net investment income...................... $ (1,076,484) $ (732,029)
Net realized capital gains................. (6,219,691) (7,296,175) (4,658,052) (5,390,081)
-------------- --------------
Capital Stock transactions:
Proceeds from Capital Stock sold........... $ 73,904,651 $ 55,311,219
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions........... 6,135,555 4,873,246
Cost of Capital Stock repurchased.......... (26,448,026) 53,592,180 (19,260,877) 40,923,588
-------------- --------------- -------------- ---------------
Total increase in net assets................. $ 126,392,969 $ 70,972,256
NET ASSETS
Beginning of period, including
undistributed net investment income
of $367,426 and $202,023................... 236,655,992 165,683,736
--------------- ---------------
End of period, including
undistributed net investment income
of $1,309,571 and $367,426................. $ 363,048,961 $ 236,655,992
=============== ===============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold................. 2,945,799 2,690,430
Shares issued to shareholders
upon reinvestment of dividends
and distributions.......................... 241,177 252,685
Shares of Capital Stock repurchased.......... (1,020,932) (963,643)
--------------- ---------------
Increase in Capital Stock outstanding........ 2,166,044 1,979,472
=============== ===============
</TABLE>
See notes to financial statements.
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six
Months
Ended
September Year Ended March 31,
30, --------------------------------------------------------
1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period............... $ 22.40 $ 19.30 $ 19.06 $ 18.32 $ 14.60 $ 13.27
-------- -------- -------- -------- -------- --------
Net investment income................................ $ 0.16 $ 0.09 $ 0.04 $ 0.05 $ 0.09 $ 0.16
Net realized and unrealized gain on
investment securities.............................. 6.57 3.62 2.30 2.26 4.63 1.64
-------- -------- -------- -------- -------- --------
Total from investment operations..................... $ 6.73 $ 3.71 $ 2.34 $ 2.31 $ 4.72 $ 1.80
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income............... $ (0.09) $ (0.08) $ (0.03) $ (0.05) $ (0.10) $ (0.18)
Distributions from net realized
capital gains.................................... (0.52) (0.53) (2.07) (1.52) (0.90) (0.29)
-------- -------- -------- -------- -------- --------
Total distributions................................ $ (0.61) $ (0.61) $ (2.10) $ (1.57) $ (1.00) $ (0.47)
-------- -------- -------- -------- -------- --------
Net asset value at end of period..................... $ 28.52 $ 22.40 $ 19.30 $ 19.06 $ 18.32 $ 14.60
======== ======== ======== ======== ======== ========
Total investment return*............................. 30.37% 19.77% 13.13% 14.23% 33.82% 14.41%
Ratios/supplemental data:
Net assets at end of period (in $000's).............. 363,049 236,656 165,684 134,169 109,581 88,428
Ratio of expenses to average net assets.............. 0.87%(+) 0.95% 1.03% 1.06% 1.08% 1.21%
Ratio of net investment income to
average net assets................................. 1.27%(+) 0.48% 0.20% 0.29% 0.55% 1.32%
Portfolio turnover rate.............................. 33%(+) 11% 16% 19% 13% 12%
</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 September 30, 1995 is not annualized.
+ Annualized
See notes to financial statements.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as a
diversified, open-end 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 $49,637,280 for the
six months ended September 30, 1995. Realized gains or losses are based on the
specific-certificate identification method. The cost of securities held at
September 30, 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 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 provides that the Adviser will 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
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Continued
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 September 30, 1995, the Fund paid aggregate fees
of $9,500 to all Directors who are not affiliated persons of the Adviser. Legal
fees were for services rendered by O'Melveny & Myers, counsel for 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 September 30, 1995, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $94,323 in
net Fund share sales commissions after reallowance to other dealers. The
Distributor pays its own overhead and general administrative expenses, 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.
14
