<PAGE>
FPA CAPITAL FUND, INC.
SEMI-ANNUAL REPORT
[LOGO]
DISTRIBUTOR:
FPA FUND DISTRIBUTORS, INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90064 SEPTEMBER 30, 1999
<PAGE>
OFFICERS AND DIRECTORS
DIRECTORS
Willard H. Altman
DeWayne W. Moore
Lawrence J. Sheehan
OFFICERS
Robert L. Rodriguez, PRESIDENT AND
CHIEF INVESTMENT OFFICER
Julio J. de Puzo, Jr., EXECUTIVE VICE PRESIDENT
Eric S. Ende, VICE PRESIDENT
Janet M. Pitman, VICE PRESIDENT
J. Richard Atwood, TREASURER
Sherry Sasaki, SECRETARY
Christopher H. Thomas, ASSISTANT TREASURER
INVESTMENT ADVISER
First Pacific Advisors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
DISTRIBUTOR
FPA Fund Distributors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
COUNSEL
O'Melveny & Myers LLP
Los Angeles, California
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
Boston, Massachusetts
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 8115
Boston, Massachusetts 02266-8115
(800) 638-3060
(617) 483-5000
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. The financial
information included in this report has been taken from the records of the Fund
without examination by independent auditors.
1
<PAGE>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
This Semi-Annual Report covers the six months ended September 30, 1999.
Your Fund's net asset value (NAV) per share closed at $32.30. The NAV reflects a
distribution of $0.99 on July 8, 1999, to shareholders of record on June 30,
1999. This distribution included a $0.16 income dividend and an $0.83 capital
gains distribution, $0.68 of which was short-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, 1999
---------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
FPA Capital Fund,
Inc. (NAV)................................ 25.16%* 20.11%* 17.28%*
FPA Capital Fund, Inc.
(Net of Sales Charge)..................... 17.02%++ 18.51%++ 16.49%++
Lipper Mid-Cap Value Fund
Average................................... 14.10% 13.16% 10.98%
Russell 2000................................ 19.07% 12.38% 10.93%
Standard & Poor's
500 Stock Index........................... 27.80% 25.03% 16.82%
</TABLE>
The Fund's six-month return, which includes both the changes in NAV and the
reinvestment of distributions paid, was 9.41%*. This compares with total returns
of 3.96% for the Lipper Average, 8.25% for the Russell 2000, and 0.36% for the
S&P 500. On a calendar year-to-date basis, these same comparisons are: 6.94%*
for FPA Capital Fund; -1.26% for the Lipper Average; 2.38% for the Russell 2000;
and 5.36% for the S&P 500.
COMMENTARY
Your Fund's relative performance improved for the six-month, year-to-date,
and one-year periods versus the major indices and the Lipper Average. The Fund
widened its performance spread over that of the Russell 2000 and narrowed its
underperformance versus the S&P 500 since our March 1999 Letter to Shareholders.
This is encouraging because a large measure of this improved performance
emanated from many of our new holdings added last year. A takeover of Marshall
Industries by Avnet, Inc., at a price approximately double the last sale,
contributed to the performance results.
We would like you to note that the Lipper Average is a different average
from that used in our March 1999 Letter to Shareholders. Lipper recently changed
its mutual fund categories and the one that we were previously using is no
longer in existence. According to their new classification methodology, Lipper
determined that your Fund should be included in the Mid-Cap Value segment. As
you know, we have emphasized the investment in small- to medium-sized companies
based upon market capitalization (common shares outstanding multiplied by the
price of the stock). Should our investments prove to be successful, many of
these smaller companies can become medium- to large-sized over time. Depending
upon when the portfolio is measured, this descriptive calculation can vary over
time. You should be assured that our style is not changing. As some of these
larger company holdings are recycled into new and smaller companies, the average
and median market capitalization of the portfolio can change dramatically.
The stock market continues to be very challenging. Small-cap stocks started
to outperform early in the second quarter, but then the entire market began a
broad-based decline in the September quarter as interest rates rose. Unless one
was invested in a limited number of large-cap stocks and some selected
technology stocks, it was difficult to make any headway. In essence, the market
continues to be narrowly focused. According to a recent study by the brokerage
firm Sanford C. Bernstein & Co., the top quintile of price momentum
- ---------------
* 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>
stocks has generated 73% of the S&P 500 returns, which compares to 51% last year
and an average of 31% since 1959. On average, 56% to 67% of small-, mid- and
large-cap stocks are down for the year through September. What is interesting is
that 58% of the stocks in the S&P Small Cap Index are down at least 20% from
their highs for the twelve months ended September, and this is measuring from
almost the low of last year. Comparing the S&P Small Cap Index to the S&P 500
for this same time period, 25% of the small-cap stocks are down at least 40%
versus only 12% for the large-cap stocks. The better performance continues to
come generally from growth-oriented companies with a technology emphasis. This
is not a new trend. The October 11 issue of BARRON'S shows that the top ten
mutual funds for ten years were growth funds. Eight of the ten are technology
sector funds. The number one fund is Fidelity Select Electronics. Over the
years, I have noticed that whenever a sector fund rises to the top for ten
years, it generally is a caution sign, "Beware, this sector could be hazardous
to your investing health." This simple observation caught the peaks in energy,
biotech, healthcare, and financial services. It will be interesting to see what
happens from here.
Two years ago our stock market analysis indicated that equity investment
returns were probably going to migrate to the 5% to 7% range. This conclusion
was based upon the idea that stock prices could not continue to escalate at
rates faster than profitability growth, unless one believed in ever expanding
P/E ratios. It now appears that this trend is developing. For the past 2 3/4
years, the Russell 2000 has generated a 7.5% annual total return. Unfortunately,
this has not been the case for larger-capitalization stocks. The S&P 500
achieved an annual total return of 24% for this same period. However, this trend
appears to be changing since the S&P 500's total return for this year through
September 30 is only 5.4%. We will keep you apprised as to how this trend
unfolds.
Since the long-term Treasury bond's yield moved above 6%, the stock market
has had great difficulty moving forward. It has been our opinion that a
long-term Treasury bond yield of more than 6% would start to become very
competitive to the potential returns from common stocks. The dramatic rise in
bond yields this year is verging on the second worst performance year for bonds.
In light of this, my associate Tom Atteberry did a study of the total returns
from stocks for the periods ended three, six, and twelve months after a rise in
yield of 30% or more for the ten-year Treasury bond. In each case, the total
return was only modestly positive or quite negative. As the time period
lengthened, the variation became wider with a positive bias. The ten-year
Treasury bond yield has now risen 45% from its low and is coming close to
matching the record 53.5% rise in 1980.
We are now seeing the emergence of economic recovery overseas, which should
put further pressure on the Fed. We still do not see the economy slowing to any
material degree. Inventory/sales ratios are at all-time low levels. We still
have not seen the anticipated build-up of inventory because of Y2K concerns.
Shortly, September data will be reported and if inventories do not show
substantial growth, we will enter early next year with low inventories and high
consumer confidence. This should bolster economic activity.
Consumer spending will likely remain at high levels since, according to the
Conference Board's survey, the consumer views the availability of jobs as
plentiful and easy to get. Initial unemployment claims and growth in the labor
force are at the lowest levels in forty years. The sluggishness in labor force
growth appears to be more a function of the lack of qualified workers. Should
this negative trend continue, an acceleration in unit labor costs may begin to
emerge. Unless productivity remains high, employment cost inflation may start to
erode corporate profit margins, should they not be able to pass these increased
costs forward. We see these trends potentially impacting the Consumer Price
Index (CPI). We believe this increases the likelihood that the CPI will remain
at or above its average growth rate of 2.6%, for the twelve months ended August,
for at least the next six months. These trends are likely to maintain upward
pressure on interest rates. A key variable that can disrupt this expectation is
the potential impact from Y2K. It would not surprise us to see a rally in the
bond market helping to support stock prices before year-end. This possibility
does not change our outlook for
3
<PAGE>
continued above-trend economic growth into next year and its potentially
negative impact on interest rates.
Despite this cautionary outlook for interest rates and the stock market, we
are more optimistic now than six months ago about the opportunity to deploy your
capital effectively. Our "bottom-up" computer screens for companies are now
showing the highest levels of qualifiers since 1994-95. We see this outcome in
the form of a two-tier stock market. A few large companies gather the majority
of investor attention, while vast numbers of companies are being ignored. This
is encouraging. As a result, we are deploying more capital into existing
holdings, or we expect to add new positions. During the past six months, we
increased our investment in six holdings while reducing our exposure in six
companies. We also eliminated two holdings: Komag, Incorporated and Lam Research
Corporation. We decided to sell Komag since its business continues to
deteriorate and better alternative investment opportunities were available.
Komag was a residual holding of a very profitable investment experience. We sold
our Lam Research position because its price exploded to the upside. In our
opinion, its valuation became far too expensive for us to maintain the
investment. After quarter-end, we eliminated Seagate Technology, Inc. which was
a long-term holding that has treated us extremely well. Again, we felt that too
much of its valuation was being determined by investment holdings that were at
valuation levels way beyond what we were willing to accept. We added one new
position, Manpower Inc., the largest temporary help agency in the world.
Manpower provides us with participation in the European economic recovery, since
France accounts for approximately 40% of its business. We acquired our initial
position at 13x earnings and 2.6x book value. Unfortunately for us, we were not
able to acquire a full position. A slow and steady flow of redemptions, totaling
6% of the Fund's assets for the past six months, has made establishing new
positions more difficult.
After these adjustments, the portfolio continues to maintain a competitive
valuation advantage over that of the market. At the end of September, the Fund's
P/E and P/BV (Price/Book Value) ratios were 18.9x and 1.8x, respectively. By
comparison, the P/E ratios of the Russell 2000 and the S&P 500 were 26.9x and
30.1x, while the P/BV ratios were 2.3x and 4.9x, respectively. Our companies are
financially strong with a 28.4% average Total-Debt-to-Total-Capitalization
ratio, which compares favorably to the 39.1% and 44.1% for the Russell 2000 and
the S&P 500. The portfolio's median market capitalization was $468 million,
while its weighted average market capitalization was $1.5 billion. The Russell
2000's median and average market capitalizations were $430 million and $800
million, while those of the S&P 500 were $7.5 billion and $106 billion,
respectively. We thank you for your continued investment and support.
Respectfully submitted,
/s/ Robert L. Rodriguez
Robert L. Rodriguez, C.F.A.
President and Chief Investment Officer
November 2, 1999
4
<PAGE>
MAJOR PORTFOLIO CHANGES
Six Months Ended September 30, 1999
<TABLE>
<CAPTION>
Shares or
Principal
Amount
---------
NET PURCHASES
<S> <C>
COMMON STOCKS
Champion Enterprises, Inc.................................... 927,200 shs.
Conseco, Inc................................................. 29,645 shs.
Consolidated Stores Corporation.............................. 275,000 shs.
Hutchinson Technology Incorporated........................... 463,200 shs.
Manpower Inc. (1)............................................ 150,000 shs.
Marshall Industries.......................................... 45,800 shs.
NET SALES
COMMON STOCKS
Comdisco, Inc ................................................ 533,300 shs.
Horace Mann Educators Corporation ............................ 36,200 shs.
Komag, Incorporated (2) ...................................... 1,034,500 shs.
Lam Research Corporation (2) ................................. 476,300 shs.
Ross Stores, Inc ............................................. 246,200 shs.
Seagate Technology, Inc ...................................... 303,200 shs.
CONVERTIBLE SECURITY
Lam Research Corporation--5% 2002 (2) ........................$ 3,474,000
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
5
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 1999
<TABLE>
<CAPTION>
COMMON STOCKS Shares Value
- ------------------------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
TECHNOLOGY -- 33.2%
AVX Corporation .................................................................. 625,000 $ 21,953,125
Arrow Electronics, Inc.* ......................................................... 1,319,500 23,256,188
Exabyte Corporation*+ ............................................................ 1,176,600 5,110,856
Hutchinson Technology Incorporated* .............................................. 624,300 16,856,100
Keithley Instruments, Inc. ....................................................... 168,100 2,384,919
KEMET Corporation* ............................................................... 1,410,000 45,075,938
Marshall Industries*+ ............................................................ 850,000 31,025,000
Seagate Technology, Inc.* ........................................................ 75,000 2,310,938
Storage Technology Corporation* .................................................. 1,445,600 27,827,800
------------
$175,800,864
------------
RETAILING -- 23.9%
Consolidated Stores Corporation* ................................................. 1,475,000 $ 32,542,188
Craig Corporation (Class "A")* ................................................... 269,000 1,748,500
Good Guys, Inc., The* ............................................................ 441,300 2,813,287
Gymboree Corporation, The*+ ...................................................... 1,428,800 9,823,000
HomeBase, Inc.*+ ................................................................. 2,049,400 8,069,512
Michaels Stores, Inc.* ........................................................... 1,260,700 37,190,650
Ross Stores, Inc. ................................................................ 1,700,000 34,212,500
------------
$126,399,637
------------
FINANCIAL -- 11.5%
Comdisco, Inc. ................................................................... 866,700 $ 16,738,144
Conseco, Inc. .................................................................... 1,316,000 25,415,250
Countrywide Credit Industries, Inc. .............................................. 126,100 4,066,725
Foremost Corporation of America .................................................. 126,100 3,026,400
Horace Mann Educators Corporation ................................................ 300,000 7,743,750
Westcorp ......................................................................... 247,100 3,691,056
------------
$ 60,681,325
------------
CONSUMER DURABLES -- 8.1%
Champion Enterprises, Inc.* ...................................................... 1,095,300 $ 9,857,700
Coachmen Industries, Inc.+ ....................................................... 840,500 12,922,687
Flexsteel Industries, Inc. ....................................................... 134,500 1,815,750
Recoton Corporation*+ ............................................................ 630,400 4,255,200
Thor Industries, Inc. ............................................................ 555,000 14,152,500
------------
$ 43,003,837
------------
6
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 1999
<CAPTION>
Shares or
Principal
COMMON STOCKS--CONTINUED Amount Value
- ---------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
CONSUMER NON-DURABLES -- 4.6%
CPI Corp. ........................................................................ 296,900 $ 10,150,269
Rawlings Sporting Goods Company, Inc.* ........................................... 189,100 1,760,994
Reebok International Ltd.* ....................................................... 1,176,600 12,574,912
------------
$ 24,486,175
------------
ENERGY -- 3.6%
ENSCO International Incorporated ................................................. 1,063,400 $ 19,207,662
------------
BASIC MATERIALS -- 3.5%
International Aluminum Corporation ............................................... 168,100 $ 4,633,256
Oregon Steel Mills, Inc. ......................................................... 990,100 11,076,744
Rouge Industries, Inc. (Class "A") ............................................... 420,300 3,099,712
------------
$ 18,809,712
------------
INDUSTRIAL PRODUCTS -- 2.0%
Belden Inc. ...................................................................... 504,300 $ 10,338,150
------------
BUSINESS SERVICES & SUPPLIES -- 1.9%
Angelica Corporation+ ............................................................ 504,300 $ 5,799,450
Manpower Inc. .................................................................... 150,000 4,368,750
------------
$ 10,168,200
------------
DEFENSE -- 0.8%
DRS Technologies, Inc.* .......................................................... 428,700 $ 4,287,000
------------
TOTAL COMMON STOCKS-- 93.1% (Cost $385,277,938) .................................. $493,182,562
------------
CONVERTIBLE SECURITY -- 0.5%
Worthington Industries, Inc.--7 1/4% 2000 (Cost $3,063,500) ...................... $ 5,146,000 $ 2,490,000
------------
7
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 1999
<CAPTION>
Principal
Amount Value
--------- ------------
<S> <C> <C>
NON-CONVERTIBLE BONDS AND DEBENTURES -- 5.4%
Federal Home Loan Mortgage Corporation (IO)
--7% 2020 ....................................................................... $ 3,156,714 $ 363,022
Trump Atlantic City Associates--11 1/4% 2006 ..................................... 4,000,000 3,400,000
U.S. Treasury Inflation-Indexed Notes
--3 3/8% 2007 ................................................................... 26,245,741 25,056,481
------------
TOTAL NON-CONVERTIBLE BONDS
AND DEBENTURES (Cost $29,666,595) ............................................... $ 28,819,503
------------
TOTAL INVESTMENT SECURITIES-- 99.0% (Cost $418,008,033) .......................... $524,492,065
------------
SHORT-TERM CORPORATE NOTES -- 1.1%
American Express Credit Corporation--5.26% 10/1/99 ............................... $ 4,372,000 $ 4,372,000
American Express Credit Corporation--5.57% 10/1/99 ............................... 1,773,000 1,773,000
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,145,000) ................................... $ 6,145,000
------------
TOTAL INVESTMENTS-- 100.1% (Cost $424,153,033) ................................... $530,637,065
Other assets and liabilities, net-- (0.1)% ....................................... (674,028)
------------
TOTAL NET ASSETS-- 100% .......................................................... $529,963,037
------------
------------
</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. Following is
a summary of transactions in securities of these affiliates during the
six-month period ended September 30, 1999.
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend
at Cost at Cost Gain Income
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Angelica Corporation -- -- -- $242,064
Coachmen Industries, Inc. -- -- -- 84,050
Exabyte Corporation -- -- -- --
Gymboree Corporation, The -- -- -- --
HomeBase, Inc. -- -- -- --
Marshall Industries $580,515 -- -- --
Recoton Corporation -- -- -- --
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
<TABLE>
ASSETS
<S> <C> <C>
Investments at value:
Investment securities -- at market value
(identified cost $418,008,033) .......................................................... $524,492,065
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) ......................................................... 6,145,000 $530,637,065
------------
Cash ........................................................................................ 21
Receivable for:
Dividends and accrued interest ............................................................ $ 898,237
Capital Stock sold ........................................................................ 135,165 1,033,402
------------ ------------
$531,670,488
LIABILITIES
Payable for:
Capital Stock repurchased ................................................................. $ 915,589
Investment securities purchased ........................................................... 359,537
Advisory fees and financial services ...................................................... 341,903
Accrued expenses and other liabilities .................................................... 90,422 1,707,451
------------ ------------
NET ASSETS .................................................................................... $529,963,037
------------
------------
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per share; authorized
100,000,000 shares; outstanding 16,409,306 shares ......................................... $ 164,093
Additional Paid-in Capital .................................................................. 376,976,972
Undistributed net realized gain on investments .............................................. 45,992,354
Undistributed net investment income ......................................................... 345,586
Unrealized appreciation of investments ...................................................... 106,484,032
------------
NET ASSETS .................................................................................... $529,963,037
------------
------------
NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM
OFFERING PRICE PER SHARE
Net asset value and redemption price per share
(net assets divided by shares outstanding) ................................................. $ 32.30
------------
------------
Maximum offering price per share
(100/93.5 of per share net asset value) .................................................... $ 34.55
------------
------------
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 1999
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends (including $326,114 from securities of affiliates) ..................... $ 1,729,496
Interest ......................................................................... 1,369,591
------------
$ 3,099,087
EXPENSES
Advisory fees .................................................................... $ 1,832,347
Financial services ............................................................... 278,053
Transfer agent fees and expenses ................................................. 143,579
Registration fees ................................................................ 24,879
Custodian fees and expenses ...................................................... 23,025
Insurance ........................................................................ 22,789
Legal fees ....................................................................... 18,897
Reports to shareholders .......................................................... 17,000
Directors' fees and expenses ..................................................... 15,929
Audit fees ....................................................................... 14,575
Postage .......................................................................... 10,379
Other expenses ................................................................... 1,478 2,402,930
------------ ------------
Net investment income .................................................... $ 696,157
------------
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) ..................... $ 67,533,174
Cost of investment securities sold ............................................... 21,487,049
------------
Net realized gain on investments ............................................. $ 46,046,125
Unrealized appreciation of investments:
Unrealized appreciation at beginning of period ................................... $104,375,959
Unrealized appreciation at end of period ......................................... 106,484,032
------------
Increase in unrealized appreciation of investments ........................... 2,108,073
------------
Net realized and unrealized gain on investments .......................... $ 48,154,198
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................................................................... $ 48,850,355
------------
------------
</TABLE>
See notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1999 March 31, 1999
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................ $ 696,157 $ 8,040,517
Net realized gain on investments ..................... 46,046,125 22,184,394
Increase (decrease) in unrealized
appreciation of investments ......................... 2,108,073 (178,504,438)
Net unrealized appreciation reclassified
on investments redeemed in-kind ..................... -- 50,764,552
------------- -------------
Increase (decrease) in net assets
resulting from operations ............................ $ 48,850,355 $ (97,514,975)
Distributions to shareholders from:
Net investment income ................................ $ (2,609,979) $ (8,475,386)
Net realized capital gains ........................... (13,539,462) (16,149,441) (67,364,919) (75,840,305)
------------- -------------
Capital Stock transactions:
Proceeds from Capital Stock sold ..................... $ 21,502,984 $ 112,648,442
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions ..................... 13,993,741 67,687,754
Cost of Capital Stock repurchased .................... (52,128,941) (16,632,216) (282,522,710) (102,186,514)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets ................ $ 16,068,698 $(275,541,794)
NET ASSETS
Beginning of period, including
undistributed net investment income
of $2,259,408 and $2,694,277 ......................... 513,894,339 789,436,133
------------- -------------
End of period, including
undistributed net investment income
of $345,586 and $2,259,408 ........................... $ 529,963,037 $ 513,894,339
------------- -------------
------------- -------------
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold ........................... 641,057 3,365,864
Shares issued to shareholders
upon reinvestment of dividends
and distributions .................................... 391,324 1,948,828
Shares of Capital Stock repurchased .................... (1,559,695) (8,989,993)
------------- -------------
Increase (decrease) in Capital Stock outstanding ....... (527,314) (3,675,301)
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
11
<PAGE>
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, --------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period ..... $ 30.34 $ 38.30 $ 32.28 $ 27.55 $ 22.40 $ 19.30
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income .................... $ 0.05 $ 0.40 $ 0.49 $ 0.38 $ 0.33 $ 0.09
Net realized and unrealized gain (loss) on
investment securities ................... 2.90 (4.76) 8.74 6.98 7.63 3.62
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ........... $ 2.95 $ (4.36) $ 9.23 $ 7.36 $ 7.96 $ 3.71
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income ..... $ (0.16) $ (0.40) $ (0.47) $ (0.37) $ (0.26) $ (0.08)
Distributions from net realized
capital gains .......................... (0.83) (3.20) (2.74) (2.26) (2.55) (0.53)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ...................... $ (0.99) $ (3.60) $ (3.21) $ (2.63) $ (2.81) $ (0.61)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value at end of period ........... $ 32.30 $ 30.34 $ 38.30 $ 32.28 $ 27.55 $ 22.40
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total investment return* ................... 9.41% (12.45)% 30.10% 27.30% 36.84% 19.77%
Ratios/supplemental data:
Net assets at end of period (in $000's) .... 529,963 513,894 789,436 597,184 399,282 236,656
Ratio of expenses to average net assets .... 0.87%+ 0.86% 0.83% 0.84% 0.87% 0.95%
Ratio of net investment income to
average net assets ....................... 0.25%+ 1.20% 1.38% 1.27% 1.28% 0.48%
Portfolio turnover rate .................... 12%+ 19% 24% 21% 21% 11%
</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, 1999 is not annualized.
+ Annualized
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
September 30, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as an
open-end, diversified, management investment company. The Fund's primary
investment objective is long-term capital growth. 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.
D. Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
NOTE 2 -- PURCHASES OF INVESTMENT SECURITIES
Cost of purchases of investment securities (excluding short-term
investments with maturities of 60 days or less) aggregated $32,498,811 for the
six months ended September 30, 1999. Realized gains or losses are based on the
specific-certificate identification method. The cost of securities held at
September 30, 1999 was the same for federal income tax and financial reporting
purposes. Gross unrealized appreciation and depreciation for all investments at
September 30, 1999 for federal income tax purposes was $182,364,352 and
$75,880,320, 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 pays the Adviser an amount equal to 0.10% of the average daily net
assets for each fiscal year in reimbursement
13
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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 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, 1999, the Fund paid aggregate fees
of $15,584 to all Directors who are not affiliated persons of the Adviser. Legal
fees were for services rendered by O'Melveny & Myers LLP, counsel for the Fund.
A Director of the Fund is of counsel to, and a retired partner of, that firm.
Certain officers of the Fund are also officers of the Adviser and FPA Fund
Distributors, Inc.
NOTE 4 -- DISTRIBUTOR
For the six months ended September 30, 1999, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $6,213 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.
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