<PAGE> 1
- --------------------------------------------------------------------------------
Annual Report
FPA Capital Fund, Inc.
March 31, 1995
- --------------------------------------------------------------------------------
<PAGE> 2
OFFICERS AND DIRECTORS
DIRECTORS
George H. Michaelis, Chairman of the Board
Donald E. Cantlay
DeWayne W. Moore
Lawrence J. Sheehan
Kenneth L. Trefftzs
OFFICERS
Robert L. Rodriguez, President and
Chief Investment Officer
George H. Michaelis, Executive Vice President
Christopher Linden, 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
INDEPENDENT AUDITORS
Ernst & Young LLP
Los Angeles, California
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
Capital Fund, Inc., and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
1
<PAGE> 3
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
This Annual Report covers the fiscal year ended March 31, 1995. Your
Fund's net asset value (NAV) per share on March 31, 1995 was $22.40. Dividends
of $0.35 and $0.26 per share were paid on July 15, 1994 and January 9, 1995 to
holders of record on June 30 and December 30, 1994, respectively. The July
distribution was comprised of a $0.03 income dividend and a $0.32 capital gains
distribution, which included $0.22 of long-term gains. The January
distribution included an income dividend of $0.05 and a long- term capital
gains distribution of $0.21.
The following table shows the average annual total return for several
different periods ended on that date for the Fund and comparative indices of
securities prices. The data quoted represents past performance, and an
investment in the Fund may fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDED MARCH 31, 1995
----------------------------
1 YEAR 5 YEARS 10 YEARS
--------- -------- --------
<S> <C> <C> <C>
FPA Capital Fund, Inc.
(NAV) . . . . . . . . . 19.77%* 18.83%* 18.18%*
FPA Capital Fund, Inc.
(Net of Sales Charge) . 11.98%++ 17.24%++ 17.39%++
Lipper Growth Fund
Average . . . . . . . . 8.81% 10.90% 12.79%
Standard & Poor's
500 Stock Index . . . . 15.59% 11.42% 14.34%
Russell 2000 . . . . . . 5.50% 11.69% 10.60%
</TABLE>
For the calendar year ended December 31, 1994, these same comparisons are
10.37%* for FPA Capital Fund, -2.15% for the growth fund average, 1.33% for the
S&P 500, and -1.82% for the Russell 2000.
COMMENTARY
Fiscal 1995 proved to be an excellent year for your Fund. A review of
the preceding performance table shows that your Fund materially outperformed
other growth mutual funds as well as the major market indices. For calendar
1994 your Fund experienced even better relative performance. It achieved a
positive 10.37%* total return while the average growth fund and small stock
index lost money. It was a challenging year. The first quarter of calendar
1995 proved to be an outstanding period for larger capitalization stocks as
shown by the 9.73% total return for the S&P 500. The Russell 2000, an index of
smaller stock performance, lagged with a 4.61% total return. Your Fund ran
counter to this with a 10.09%* total return. It has been difficult, since
smaller capitalization stocks have now been underperforming larger stocks for
three years. Stock selection has been the key to your Fund's success. As a
result of this positive relative performance, it now ranks 11th out of all 665
mutual funds for the ten-year period ended March 31, 1995, according to Lipper
Analytical Services, Inc. We are pleased to be able to convey this positive
news.
Your Fund's success stems from the fact that we focus on individual
security selection rather than trying to make economic or stock market
predictions. This is what we call a "bottom-up" orientation. We also exercise
a high level of patience in both selecting and holding stocks, reflected by our
low portfolio turnover ratio of 11% for last year and an average of only 14%
over the last five years.
During fiscal 1995, we added four new stocks while eliminating two. We
discussed one of the additions and an elimination in our September 1994
Shareholder Letter. The other recent additions are Arrow Electronics, Inc.,
Claire's Stores, Inc., and Reebok International. Arrow acquired Anthem
Electronics, which accounts for the other elimination. We decided to retain
the investment in Arrow since we felt it was an attractive situation. It was
also an acquisition for stock; therefore, we would not have to realize capital
gains at the time of transfer. Claire's is the largest mall-based retailer of
costume jewelry. It is a high profitability company that was purchased at a
P/E (price to earnings) ratio of 10x trailing twelve-month earnings. Reebok
is the second largest athletic shoe company in the world. Its share price had
declined to a
_______________
* 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> 4
point where we could add it to the portfolio at 12x earnings. This decline
reflects investor uncertainty towards the outlook for future levels of growth
and profitability. We have monitored the situation for some time and believe
these concerns will prove to be temporary. We are not alone. The company is
currently repurchasing stock fairly aggressively. This is an example of how we
invest. We like "out of favor" situations where the company is a market share
leader with a strong balance sheet. If we are correct and exercise patience,
these situations usually turn out positively more often than not.
We have also made adjustments to existing portfolio holdings, as shown by
a review of this report's Major Portfolio Changes section. Several positions
were increased, but the reduction in technology stock exposure was the most
significant portfolio change. This sector has declined from 30.5% of net
assets at September 30,1994 to 24.3% at March 31, 1995. It has been difficult
because several stocks have appreciated significantly since then. Coherent,
Inc., which has been in the portfolio for several years, is almost gone. The
almost 100% price appreciation in the last six months reflects its discovery by
investors. We feel that the current price level discounts many of the
positives that have yet to happen. The company is doing an excellent job and
we wish them the best of success. The position in Photronics, Inc. was
partially reduced due to price appreciation. It too has been in the portfolio
for several years. We have a somewhat cautious attitude towards the technology
area because it is so popular to own today on "Wall Street." The better
performing mutual funds typically have a disproportionately large portfolio
exposure to technology. We believe our holdings are less risky since virtually
all carry modest P/E valuations. Should this sector fall out of favor or the
stock market take a sudden fall, there is no question in our mind that the Fund
is likely to be negatively impacted. We continue to hold these stocks since
the risk versus reward appears warranted. Proceeds from these sales are being
directed towards expanding our retailing exposure. It is an area that is very
much out of favor. Currently, we are focusing our attention towards the
discount apparel retailing segment. It is among the most disliked. Current
business conditions are lousy. Apparel pricing conditions are the worst in
forty years. Valuation levels are quite modest and we believe the risks are
manageable. We hope we are correct, and that in three to five years we can
harvest some attractive investment returns.
The portfolio continues to maintain a valuation advantage to that of the
various measures of the stock market. Your Fund's P/E and P/BV (Price/Book
Value) ratios at March 31 were 12.98x and 2.13x, respectively. By comparison,
the P/E ratios of the S&P 500 and the Russell 2000 were 16.2x and 19.7x, while
the P/BV ratios were 2.68x and 2.07x, respectively. Many of these ratios have
improved since the September Shareholder Letter because earnings' growth has
been quite strong while share prices have moved up modestly. In the case of
your Fund, it has been more difficult since its relative performance has been
superior to these comparison indices. In our September 1994 Shareholder
Letter, we expressed our opinion that there were several areas of value and
that our valuation screens were still turning up potentially attractive
investment opportunities. The consensus opinion on the outlook for the stock
market was quite cautious. The Federal Reserve was aggressively raising
short-term interest rates and many investors thought this period would be
similar to 1987. We argued that the economy was, in all likelihood, beginning
to slow and that we were not even close to experiencing a recession. Since
then, the consensus has shifted to one of forecasting an economic "soft
landing." This is where the economy continues to grow but at a level where the
Fed does not have to raise interest rates any further. One can feel secure
that it is best to own longer term financial assets such as common stocks or
bonds. We have seen the impact in this shift in thinking through rising stock
prices and falling bond yields.
Because of this shift, our investment life is more difficult. Today, we
are not finding as many investment opportunities. We are looking but it is
much more difficult. As a result of this, the Fund's short-term liquidity is
rising. At March 31, 1995, bonds and short-term investments totaled 15.7%
versus 6.3% at September 30, 1994. This increase is the direct result of
reducing portfolio holdings faster than we are redeploying the proceeds.
Furthermore, the Fund is now experiencing some fairly rapid growth. The rising
liquidity level does not imply that we expect a stock market decline anytime
soon. We have never claimed to have that forecasting ability. We don't
believe anyone does. It does say that we are being cautious in its deployment.
We have always maintained that short-term liquidity is the residual of
investment opportunity.
We feel more comfortable with the larger liquidity level because it does
bother us to see the instability in the foreign currency markets. As you
probably know, the dollar has been hitting new lows versus the Japanese yen and
the German mark. We believe this decline reflects a growing excess of dollars
in the international
3
<PAGE> 5
currency markets. International holders of dollars have watched their
purchasing power decline. For both foreign central governments and
international trade, the dollar is used as a medium of exchange and a store of
value. The dollar serves as a reserve currency for most central governments;
since the late 1970s, its status has eroded. It has declined from 78% to 62% of
world currency reserves. Recently, some Asian countries have been rumored to be
lowering their levels of dollar reserves and replacing them with yen. If this
spreads to the international trade area, total demand for dollars will decline.
This has potentially serious ramifications for the U.S. since we continue to run
major budget and current account deficits. We continue to finance long- term
budgetary capital needs from short-term capital sources. Since the beginning of
1992, U. S. Treasury security holdings by foreign central banks have climbed
from $250 billion to $434 billion. During the last twelve months, they have
purchased 30% of all Treasury securities issued. This trend is unsustainable.
The Federal Reserve estimates that 60% of all U.S. currency circulates outside
the U.S. Should foreigners begin to balk at this trend, the U.S. Government may
eventually be forced to begin borrowing a portion of its debt requirements in a
foreign currency. This could have negative implications for our domestic
interest rates. Until we return to a more sound fiscal budgetary policy,
pressures are likely to grow in both the currency and financial markets. We
hope we are wrong.
It is impossible to forecast the timing and eventual outcome of these
trends. All we can do is focus on what we do best and that is stock selection.
When we find appropriate stocks that provide a sufficient margin of safety, we
will invest. Until that occurs, we will wait patiently to deploy the assets
that you have entrusted to us. Thank you for your investment in FPA Capital
Fund, Inc.
Respectfully submitted,
Robert L. Rodriguez, C.F.A.
President and Chief Investment Officer
April 29, 1995
________________________________________________________________________________
Change in Value of a $10,000 Investment in FPA Capital Fund, Inc. vs. S&P 500
and Lipper Growth Fund Average from April 1, 1985 to March 31, 1995
<TABLE>
<CAPTION>
3/31/85 3/31/86 3/31/87 3/31/88 3/31/89 3/31/90 3/31/91 3/31/92 3/31/93 3/31/94 3/31/95
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FPA Capital Fund, Inc. 9,350 12,703 15,306 15,734 17,665 20,974 23,996 32,111 36,681 41,497 49,701
FPA Capital Fund, Inc. (NAV) 10,000 13,586 16,370 16,828 18,893 22,432 25,664 34,344 39,231 44,382 53,156
S&P 500 10,000 13,750 17,280 15,842 18,678 22,238 25,447 28,256 32,570 33,040 38,193
Lipper Growth Fund Average 10,000 13,561 16,346 14,980 17,143 19,858 22,825 26,190 29,395 30,612 33,309
</TABLE>
Past performance is not indicative of future performance. The Standard &
Poor's 500 Stock Index (S&P 500) is a broad-based unmanaged index of publicly
traded stocks. The S&P 500 does not reflect any commissions or fees which
would be incurred by an investor purchasing the stocks it represents. The
Lipper Growth Fund Average provides an additional comparison of how your Fund
performed in relation to other mutual funds with similar objectives. The
Lipper data does not include sales charges. The performance shown for FPA
Capital Fund, Inc., with an ending value of $49,701, reflects deduction of the
current maximum sales charge of 6.5% of the offering price. In addition, since
investors purchase shares of the Fund with varying sales charges depending
primarily on volume purchased, the Fund's performance at net asset value (NAV)
is also shown, as reflected by the ending value of $53,156. The performance of
the Fund and of the Averages is computed on a total return basis which includes
reinvestment of all distributions.
4
<PAGE> 6
MAJOR PORTFOLIO CHANGES
Six Months Ended March 31, 1995
<TABLE>
<CAPTION>
Shares or
Principal
Amount
----------
<S> <C>
NET PURCHASES
COMMON STOCKS
Arrow Electronics, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,500 shs.
Claire's Stores, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 shs.
Coachmen Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,900 shs.
Countrywide Credit Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 shs.
Fleetwood Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 shs.
Komag, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 shs.
Quick & Reilly Group, Inc., The . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 shs.
Rawlings Sporting Goods Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 shs.
Reebok International Ltd. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 shs.
Ross Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000 shs.
Storage Technology Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,000 shs.
Thor Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 shs.
NET SALES
COMMON STOCKS
Anthem Electronics, Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000 shs.
Coherent, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 shs.
Devon Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 shs.
Green Tree Financial Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 shs.
NIKE, Inc. (Class B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 shs.
Photronics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000 shs.
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
March 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS Shares Cost Value
- ----------------------------------------------------------------- ------- ----------- -----------
<S> <C> <C> <C>
TECHNOLOGY -- 24.3%
Arrow Electronics, Inc.* . . . . . . . . . . . . . . . . . . . . 227,500 $ 4,615,708 $ 9,583,438
Coherent, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 436,750 1,312,500
Keithley Instruments, Inc. . . . . . . . . . . . . . . . . . . . 100,000 1,227,092 1,287,500
Komag, Incorporated* . . . . . . . . . . . . . . . . . . . . . . 360,000 5,726,625 11,340,000
Marshall Industries* . . . . . . . . . . . . . . . . . . . . . . 290,000 3,022,230 7,540,000
Micropolis Corporation* . . . . . . . . . . . . . . . . . . . . . 320,000 2,225,812 1,560,000
Photronics, Inc.* . . . . . . . . . . . . . . . . . . . . . . . . 270,000 1,800,145 6,007,500
Seagate Technology, Inc.* . . . . . . . . . . . . . . . . . . . . 400,000 4,266,075 11,150,000
Storage Technology Corporation* . . . . . . . . . . . . . . . . . 400,000 8,299,239 7,650,000
----------- -----------
$31,619,676 $57,430,938
----------- -----------
FINANCIAL -- 24.1%
Bay View Capital Corporation . . . . . . . . . . . . . . . . . . 160,000 $ 2,585,527 $ 3,600,000
Comdisco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 305,500 4,301,574 8,172,125
Countrywide Credit Industries, Inc. . . . . . . . . . . . . . . . 360,000 5,585,361 6,255,000
Green Tree Financial Corporation . . . . . . . . . . . . . . . . 600,000 975,070 24,600,000
Quick & Reilly Group, Inc., The . . . . . . . . . . . . . . . . . 290,000 3,929,773 10,295,000
UnionFed Financial Corporation* . . . . . . . . . . . . . . . . . 731,300 4,604,124 205,678
UnionFed Financial Corporation (Warrants)* . . . . . . . . . . . 314,286 122,210 --
Westcorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,073 2,595,173 4,004,803
----------- -----------
$24,698,812 $57,132,606
----------- -----------
CONSUMER DURABLES -- 8.0%
Coachmen Industries, Inc. . . . . . . . . . . . . . . . . . . . . 288,900 $ 2,537,449 $ 5,019,637
Fleetwood Enterprises, Inc. . . . . . . . . . . . . . . . . . . . 290,000 4,035,995 6,851,250
Flexsteel Industries, Inc. . . . . . . . . . . . . . . . . . . . 160,000 2,008,125 1,760,000
Thor Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . 270,000 3,048,386 5,332,500
----------- -----------
$11,629,955 $18,963,387
----------- -----------
CONSUMER NON-DURABLES -- 6.7%
NIKE, Inc. (Class B) . . . . . . . . . . . . . . . . . . . . . . 120,000 $ 2,545,110 $ 8,955,000
Rawlings Sporting Goods Company, Inc.* . . . . . . . . . . . . . 222,000 2,549,281 2,414,250
Reebok International Ltd. . . . . . . . . . . . . . . . . . . . . 125,000 4,323,699 4,453,125
----------- -----------
$ 9,418,090 $15,822,375
----------- -----------
</TABLE>
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
COMMON STOCKS--CONTINUED Shares Cost Value
- ----------------------------------------------------------------- ------- ----------- ------------
<S> <C> <C> <C>
RETAILING -- 5.3%
Claire's Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . 250,000 $ 2,946,839 $ 3,281,250
Good Guys, Inc., The* . . . . . . . . . . . . . . . . . . . . . . 250,000 2,483,575 2,875,000
Ross Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 585,000 7,237,688 6,361,875
------------ ------------
$ 12,668,102 $ 12,518,125
------------ ------------
BASIC MATERIALS -- 4.9%
International Aluminum Corporation . . . . . . . . . . . . . . . 160,000 $ 3,105,406 $ 5,320,000
Rouge Steel Company (Class A) . . . . . . . . . . . . . . . . . . 260,000 5,671,480 6,370,000
------------ ------------
$ 8,776,886 $ 11,690,000
------------ ------------
HEALTH CARE -- 4.4%
PLC Systems Inc.* . . . . . . . . . . . . . . . . . . . . . . . . 25,000 $ 99,375 $ 143,750
Puritan-Bennett Corporation . . . . . . . . . . . . . . . . . . . 438,000 4,429,827 10,183,500
------------ ------------
$ 4,529,202 $ 10,327,250
------------ ------------
INDUSTRIAL SERVICES -- 2.2%
Angelica Corporation . . . . . . . . . . . . . . . . . . . . . . 190,000 $ 4,444,809 $ 5,225,000
------------ ------------
DEFENSE -- 1.6%
Diagnostic/Retrieval Systems, Inc. (Class A)*+ . . . . . . . . . 310,000 $ 1,646,478 $ 1,627,500
Diagnostic/Retrieval Systems, Inc. (Class B)*+ . . . . . . . . . 200,000 861,240 1,100,000
United Industrial Corporation . . . . . . . . . . . . . . . . . . 207,500 2,853,722 1,115,313
------------ ------------
$ 5,361,440 $ 3,842,813
------------ ------------
INSURANCE -- 0.8%
Foremost Corporation of America . . . . . . . . . . . . . . . . . 50,000 $ 1,672,500 $ 1,825,000
------------ ------------
PRINTING AND PUBLISHING -- 0.5%
Devon Group, Inc.* . . . . . . . . . . . . . . . . . . . . . . . 40,000 $ 557,125 $ 1,160,000
------------ ------------
TOTAL COMMON STOCKS -- 82.8% . . . . . . . . . . . . . . . . . . $115,376,597 $195,937,494
------------ ------------
</TABLE>
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
Continued
<TABLE>
<CAPTION>
Shares or
Principal
Amount Cost Value
----------- ------------ ------------
<S> <C> <C> <C>
PREFERRED STOCK -- 0.6%
Craig Corporation (Class A)* . . . . . . . . . . . . . . . . . 160,000 $ 1,906,272 $ 1,440,000
------------ ------------
NON-CONVERTIBLE BONDS -- 3.0%
Federal Home Loan Mortgage Corporation
(PAC Interest Only-CMO) --7% 2020 . . . . . . . . . . . . . . $ 3,755,714 $ 1,128,774 $ 1,208,870
Federal National Mortgage Association,
(PAC Interest Only-REMIC) --6% 2013 . . . . . . . . . . . . . 6,871,104 836,231 837,416
U.S. Treasury Notes --4 1/4% 1996 . . . . . . . . . . . . . . . 5,000,000 4,901,719 4,876,562
------------ ------------
$ 6,866,724 $ 6,922,848
------------ ------------
SHORT-TERM INVESTMENT -- 3.1%
U.S. Treasury Bill -- 6.765% 2/8/96 . . . . . . . . . . . . . . $ 7,800,000 $ 7,369,860 $ 7,395,726
------------ ------------
TOTAL INVESTMENT SECURITIES -- 89.5% . . . . . . . . . . . . . $131,519,453 $211,696,068
============ ------------
OTHER SHORT-TERM INVESTMENTS -- 9.6%
Short-term Corporate Notes:
AT&T Capital Corporation -- 5.78% 4/5/95 . . . . . . . . . . $ 6,000,000 $ 5,996,147
Philips Petroleum -- 6.15% 4/7/95 . . . . . . . . . . . . . . 11,500,000 11,488,213
Unilever Capital Corp. -- 5.93% 5/1/95 . . . . . . . . . . . 3,300,000 3,283,692
State Street Bank Repurchase Agreement -- 5.5% 4/3/95
(Collateralized by U.S. Treasury Notes -- 8.875% 2017,
market value $2,033,383) . . . . . . . . . . . . . . . . . . 2,030,000 2,030,310
------------
$ 22,798,362
------------
TOTAL INVESTMENTS -- 99.1% . . . . . . . . . . . . . . . . . . . $234,494,430
Other assets less liabilities -- 0.9% . . . . . . . . . . . . . . 2,161,562
------------
TOTAL NET ASSETS -- 100% . . . . . . . . . . . . . . . . . . . . $236,655,992
============
</TABLE>
* Non-income producing securities
++ Affiliate 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> 10
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $131,519,453) . . . . . . . . . . . . . . . . . . $211,696,068
Short-term investments -- at cost plus interest earned
(maturities 60 days or less) . . . . . . . . . . . . . . . . . . . 22,798,362 $234,494,430
------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,685
Receivable for:
Dividends and accrued interest . . . . . . . . . . . . . . . . . . . $ 489,129
Investment securities sold . . . . . . . . . . . . . . . . . . . . . 1,400,000
Capital Stock sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,669,047 4,558,176
------------ ------------
$239,056,291
LIABILITIES
Payable for:
Investment securities purchased . . . . . . . . . . . . . . . . . . . $ 772,725
Advisory fees and financial services . . . . . . . . . . . . . . . . 145,585
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 63,993
Capital Stock repurchased . . . . . . . . . . . . . . . . . . . . . . 1,287,996
Call options written -- at value (premiums received $69,086) . . . . 130,000 2,400,299
------------ ------------
NET ASSETS -- equivalent to $22.40 per share on 10,562,907
shares of Capital Stock outstanding . . . . . . . . . . . . . . . . . . $236,655,992
============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per share; authorized
100,000,000 shares; outstanding 10,562,907 shares . . . . . . . . . . $ 105,629
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 149,922,433
Undistributed net realized gain on investments . . . . . . . . . . . . 6,144,803
Undistributed net investment income . . . . . . . . . . . . . . . . . . 367,426
Unrealized appreciation of investments . . . . . . . . . . . . . . . . 80,115,701
------------
Net assets at March 31, 1995 . . . . . . . . . . . . . . . . . . . . . $236,655,992
============
</TABLE>
See notes to financial statements.
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,822,469
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832,841
-----------
$ 2,655,310
EXPENSES
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,231,401
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . 181,754
Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . . 130,971
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,941
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . . . 29,815
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,850
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,580
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . 20,589
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,529
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,351
Taxes, other than federal income tax . . . . . . . . . . . . . . . . . 15,057
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 12,244
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,796 1,757,878
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 897,432
-----------
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) . . . . . $23,067,903
Cost of investment securities sold . . . . . . . . . . . . . . . . . . 14,920,511
-----------
Net realized gain on investments . . . . . . . . . . . . . . . . . . $ 8,147,392
Unrealized appreciation of investments:
Unrealized appreciation at beginning of year . . . . . . . . . . . . . $53,721,776
Unrealized appreciation at end of year . . . . . . . . . . . . . . . . 80,115,701
-----------
Increase in unrealized appreciation of investments . . . . . . . . . 26,393,925
-----------
Net realized and unrealized gain on investments . . . . . . . . $34,541,317
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,438,749
===========
</TABLE>
See notes to financial statements.
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended March 31,
---------------------------------------------------------
1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . $ 897,432 $ 303,019
Net realized gain on investments . . . . . . 8,147,392 10,494,350
Increase in unrealized appreciation
of investments . . . . . . . . . . . . . . 26,393,925 6,691,694
------------ ------------
Increase in net assets resulting
from operations . . . . . . . . . . . . . . . $ 35,438,749 $ 17,489,063
Distributions to shareholders from:
Net investment income . . . . . . . . . . . . $ (732,029) $ (218,382)
Net realized capital gains . . . . . . . . . (4,658,052) (5,390,081) (15,256,468) (15,474,850)
------------ ------------
Capital Stock transactions:
Proceeds from Capital Stock sold . . . . . . $ 55,311,219 $ 29,050,766
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions . . . . . . 4,873,246 13,977,369
Cost of Capital Stock repurchased . . . . . . (19,260,877) 40,923,588 (13,527,575) 29,500,560
------------ ------------ ------------ ------------
Total increase in net assets . . . . . . . . . $ 70,972,256 $ 31,514,773
NET ASSETS
Beginning of year, including
undistributed net investment income
of $202,023 and $117,386 . . . . . . . . . . 165,683,736 134,168,963
------------ ------------
End of year, including undistributed
net investment income of $367,426
and $202,023 . . . . . . . . . . . . . . . . $236,655,992 $165,683,736
============ ============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold . . . . . . . . . 2,690,430 1,483,225
Shares issued to shareholders upon
reinvestment of dividends and
distributions . . . . . . . . . . . . . . . . 252,685 757,857
Shares of Capital Stock repurchased . . . . . . (963,643) (695,170)
------------ ------------
Increase in Capital Stock outstanding . . . . . 1,979,472 1,545,912
============ ============
</TABLE>
See notes to financial statements.
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of year . . . . . . . . $19.30 $19.06 $18.32 $14.60 $13.27
------ ------ ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . $ 0.09 $ 0.04 $ 0.05 $ 0.09 $ 0.16
Net realized and unrealized gain
on investment securities . . . . . . . . . . . . . 3.62 2.30 2.26 4.63 1.64
------ ------ ------ ------ ------
Total from investment operations . . . . . . . . . . $ 3.71 $ 2.34 $ 2.31 $ 4.72 $ 1.80
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income . . . . . . . $(0.08) $(0.03) $(0.05) $(0.10) $(0.18)
Distributions from net realized capital gains . . . (0.53) (2.07) (1.52) (0.90) (0.29)
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . $(0.61) $(2.10) $(1.57) $(1.00) $(0.47)
------ ------ ------ ------ ------
Net asset value at end of year . . . . . . . . . . . $22.40 $19.30 $19.06 $18.32 $14.60
====== ====== ====== ====== ======
Total investment return* . . . . . . . . . . . . . . 19.77% 13.13% 14.23% 33.82% 14.41%
Ratios/supplemental data:
Net assets at end of year (in thousands) . . . . . . $236,656 $165,684 $134,169 $109,581 $88,428
Ratio of expenses to average net assets . . . . . . . 0.95% 1.03% 1.06% 1.08% 1.21%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . . . 0.48% 0.20% 0.29% 0.55% 1.32%
Portfolio turnover rate . . . . . . . . . . . . . . . 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.
See notes to financial statements.
12
<PAGE> 14
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 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 year, 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 $37,069,930 for the
year ended March 31, 1995. Realized gains or losses are based on the
specific-certificate identification method. Cost of securities held 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 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 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 year ended March 31, 1995, the Fund paid aggregate fees of $20,000
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 -- OUTSTANDING CALL OPTIONS
Outstanding covered call options written by the Company at March 31, 1995
were as follows:
<TABLE>
<CAPTION>
Shares
Subject Premiums Market
to Call Security Received Value
- ------- ------------- -------- --------
<S> <C> <C> <C>
20,000 Coherent Inc. $69,086 $130,000
May @ 20
</TABLE>
At March 31, 1995, the shares subject to call were held in escrow for such
options.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE 5 -- DISTRIBUTOR
For the year ended March 31, 1995, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $68,274 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 6 -- SALES OF FUND SHARES
On May 18, 1995, the Fund announced that it will discontinue sales of its
shares to new investors, effective the close of business on the date net assets
reach $280 million. Subsequently, shares of the Fund will be offered for sale
only to existing shareholders and to directors, officers, and employees of the
Fund, the Adviser, and affiliated companies. The policy to limit 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.
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF FPA CAPITAL FUND, INC.
We have audited the accompanying statement of assets and liabilities of FPA
Capital Fund, Inc., including the portfolio of investments, as of March 31,
1995, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, including confirmation of securities owned as of
March 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
FPA Capital Fund, Inc. at March 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
April 21, 1995, except for Note 6, as to which the date is
May 18, 1995
14
<PAGE> 16
- --------------------------------------------------------------------------------
Distributor:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Blvd., Suite 1200
Los Angeles, California 90064
- --------------------------------------------------------------------------------
