<PAGE>
FPA CAPITAL FUND, INC.
SEMI-ANNUAL REPORT
[First Pacific Advisors Logo]
DISTRIBUTOR:
FPA FUND DISTRIBUTORS, INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90064 SEPTEMBER 30, 2000
<PAGE>
OFFICERS AND DIRECTORS
DIRECTORS
Willard H. Altman, Jr.
DeWayne W. Moore
Alfred E. Osborne, Jr.
Robert L. Rodriguez
Lawrence J. Sheehan
OFFICERS
Robert L. Rodriguez, PRESIDENT AND
CHIEF INVESTMENT OFFICER
Dennis M. Bryan, VICE PRESIDENT
Eric S. Ende, 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.
<PAGE>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
This Semi-Annual Report covers the six months ended September 30, 2000.
Your Fund's net asset value (NAV) per share closed at $26.73. The NAV reflects a
distribution of $5.83 on July 10, 2000, to shareholders of record on June 30,
2000. This distribution included a $0.09 income dividend and a $5.74 capital
gains distribution, $4.13 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, 2000
--------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
FPA Capital Fund,
Inc. (NAV) ............. 12.95%* 13.46%* 23.11%*
FPA Capital Fund, Inc.
(Net of Sales Charge) 5.61%++ 11.95%++ 22.28%++
Lipper Mid-Cap Value Fund
Average ................ 24.24% 14.25% 15.88%
Russell 2000 Index ...... 23.39% 12.38% 16.93%
Standard & Poor's
500 Stock Index ........ 13.28% 21.69% 19.44%
</TABLE>
The Fund's six-month return, which includes both the changes in NAV and the
reinvestment of distributions paid, was -1.45%*. This compares with total
returns of 4.91% for the Lipper Average, -2.71% for the Russell 2000, and -3.60%
for the S&P 500. On a calendar year-to-date basis, these same comparisons are:
5.73%* for FPA Capital Fund; 11.70% for the Lipper Average; 4.18% for the
Russell 2000; and -1.39% for the S&P 500.
REOPENING OF FPA CAPITAL FUND, INC.
We will reopen your Fund to new investors on January 1, 2001. The maximum sales
charge is also being lowered from 6.50% to 5.25%, with adjustments to the break
points. We decided to reopen since we are of the opinion that there are a
growing number of attractive investment opportunities. Since your Fund closed on
May 23, 1995, we have witnessed a herd mentality, in which the majority of new
investment dollars have been directed towards high-growth/high-expectation
stocks. These massive dollar flows, toward a limited set of stocks and sectors,
have left many other areas languishing. While the major market averages exhibit
P/E ratios in high 20s, a large portion of the stock market is closer to a 12x
P/E. This is among the widest valuation spreads in years. With the majority of
investment dollars being directed toward growth and technology stocks, a wide
variety of value stocks are being neglected. This is creating an investment
opportunity we wish to share with additional investors.
When we closed your Fund, it was never our intention to close it
permanently. We wanted to control the Fund's growth so that we could deploy your
capital prudently. At the time, we were concerned that the Fund was on the verge
of growing too rapidly to achieve this goal. In several interviews after the
Fund's closing, I was asked what it would take to reopen your Fund. My answers
have always been the same. First, there would have to be a plethora of
investment opportunities. Second, it would be at a time when there was very
little interest in the value style of investment management. I believe both of
these criteria have now been met. While your Fund was closed to new investors,
the Fund's Adviser has added additional investment professionals. Dennis Bryan,
Rikard Ekstrand and Steven Romick now assist in the management of your assets.
Each has extensive corporate and investment experience ranging between seven and
fifteen years. I am excited because we work as a team toward a common goal of
superior investment performance. We are all convinced that this is an excellent
time to take advantage of the numerous undervalued investment opportunities we
see.
----------
* 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
1
<PAGE>
To remind our existing shareholders and acquaint our new shareholders to
our investment philosophy, I thought it would be helpful to briefly review how
we invest. We are value investors, which means that our style of investing
requires discipline, patience and a long-term outlook. We are not exceedingly
preoccupied with short-term performance numbers since our investment time
horizon is typically three to five years. Our portfolio turnover rate generally
averages 20%, which implies a five-year holding period. Our focus is on
individual companies that possess a position of business leadership or a market
niche. They are financially strong with generally improving cash flows in
industries or market sectors that are "out of favor," and have low normalized
P/E ratios and low P/BV (price/book value) ratios. We do not depend upon a
"top-down" strategy of economic or stock market forecasting, since it is
difficult to consistently foresee these trends. We are also contrarian style
investors. You will see us investing in companies that are generally "out of
favor" and "unloved."
COMMENTARY
We believe we are in a market that is moving to a much broader investment
base. For most of the last three to four years, the primary focus of investment
dollars has been toward high-growth and technology stocks with little attention
to valuation. In our opinion, many investment managers have compromised their
valuation standards so as to be "players" in this stock market. During the past
year, we wrote about the valuation excesses we saw in the stock market. Because
of our discipline, our one- and five-year performance numbers lag the S&P 500
Index and the Lipper Average. We now believe that this trend is in the process
of reversing. For example, the Nasdaq Composite, which is dominated by
high-growth and high-technology stocks, has declined 19.6% for the six-month
period ended September 30. More and more of these high-expectation stocks are
witnessing deflation in their stock prices. We believe this trend is still in
its early stages since we have not witnessed a large net-redemption cycle on the
part of aggressive-growth funds or technology funds. Aggressive-equity-fund net
cash flows totaled $75 billion for the nine months ended September, or 36% of
total equity-fund net inflows for the period. This amount represents 2.7 times
1999's total for the entire year, the former record for net cash inflows.
Technology-sector funds gathered 21% of the total or $45 billion. When we begin
to see net redemptions occurring with greater frequency, we will be more
inclined to invest in technology stocks.
An example of this trend might be helpful. In our March shareholder letter,
we did a comparison between a recent purchase, Centex, and technology stocks. We
argued that Centex could not be appropriately priced if tech stocks were
properly valued; and if Centex was correctly valued, tech stocks could not be
properly valued. Since we began discussing this idea back in March, Centex has
risen approximately 70% while the Nasdaq has declined about 36%. With the stock
market's recent expansion in breadth, there appears to be a growing belief that
some of these "old economy" stocks deserve investment dollars. We are convinced
that we recently witnessed one of the great speculative periods in the history
of the stock market. Despite the sharp price declines in technology stocks, many
have not fallen enough to correct their extreme overvaluations. We believe they
have entered a "bear" market phase similar to the one that has been occurring in
the broader stock market since February 1998.
In light of these trends, we added another "old economy" stock to the
portfolio: CELANESE. It is a leading international chemical company with
dominant market shares and low cost leadership in its core chemical segments.
The company was recently spun out of the German conglomerate Hoechst AG. We
purchased it at 45% of book value, 2x depressed cash flow and 27% of sales.
Senior management has invested one year of personal income into the stock. The
company has also repurchased 10% of its outstanding shares. Its current
profitability is being negatively impacted by the rapid rise in its raw-material
energy cost. We believe that this is a temporary situation that will correct
itself within the next year. In light of this, we eliminated our energy
investment, ENSCO INTERNATIONAL, which was acquired in February of
2
<PAGE>
1999, when oil prices were at the $12 level versus $36 currently. The stock has
more than quadrupled. We are taking a portion of the proceeds and deploying them
into companies that are being negatively affected by the rise in energy cost.
This is an example of our style of selling into enthusiasm while purchasing
pessimism. Investors typically overreact at both extremes. We generally try to
take advantage of these trends.
During the past six months, two stocks have hurt your Fund's performance:
ROSS STORES and CONSECO. Ross declined approximately 40%, from 11x earnings to
7x earnings. We find this amazing since the company is earning in excess of 30%
on equity with no debt. There are no operational problems other than a slowing
in its current business trends. We believed that this was a possibility;
however, we thought that this risk was generally factored into Ross's share
price by its low valuation. The company is currently in the process of
repurchasing 25% of its outstanding shares with its free cash flow. We do not
believe that this stock can remain at this depressed valuation level for an
extended period of time. Conseco, in contrast to Ross, has experienced
operational problems. When Stephen Hilbert, the chief executive officer,
announced the sale of a key subsidiary, Green Tree, in response to an asset
write-down, we thought this was a strategic blunder. After two months of
extensive analysis, we communicated our thoughts to the senior management and
the board of directors. The board decided to replace Mr. Hilbert with Gary
Wendt, the former head of GE Credit. We were very pleased with the announcement.
He has since rescinded the sale of Green Tree and has proceeded with a more
rational restructuring program. During this process, the stock declined to a
price level that, we believe, will prove to be very attractive and, therefore,
we have increased the position significantly. During our analysis, we reexamined
several credit criteria for every outstanding financing of Green Tree since
1985. Our conclusion is that the portfolio is stable and generally performing
within the underwriting guidelines. We will keep you informed on this situation.
As you may have noticed, we paid a large capital gain distribution in July.
Those gains were the result of the elimination of AVX, Comdisco, Ensco, and
Keithley Instruments, and the reduction of Arrow Electronics, Avnet, Kemet, and
Michaels Stores. The eliminated positions reflected price levels that we could
no longer justify from a valuation standpoint. Except for Kemet, which we have
almost completed selling, the primary reason for reducing the holdings was to
diminish their sizable exposure in the Fund. Arrow Electronics and Avnet
continue to be the largest positions. Given the reductions in our technology
holdings, some may wonder why we continue to hold these positions. They are the
two largest worldwide electronic distributors and have materially enhanced their
competitive positions recently. Shortages continue in several key component
areas, and this trend creates a positive environment for distributors. Arrow and
Avnet are valued at approximately 8x earnings.
After the portfolio changes, your Fund continues to maintain a competitive
valuation advantage over the market. At the end of September, the Fund's P/E and
P/BV ratios were 15.6x and 1.5x, respectively. By comparison, the P/E ratios of
the Russell 2000 and the S&P 500 were 25.5x and 28.5x, while the P/BV ratios
were 2.5x and 5.2x, respectively. Our companies are financially strong, with a
31.8% average Total-Debt/Total-Capitalization ratio, which compares favorably to
the 35.5% and 41.4% for the Russell 2000 and the S&P 500. The portfolio's median
market capitalization was $444 million, while its weighted-average market
capitalization was $1.5 billion. The Russell 2000's median and weighted-average
market capitalizations were $490 million and $1.1 billion, while those of the
S&P 500 were $8.4 billion and $134 billion, respectively.
We believe 2001 will prove to be a challenging investment year. In our
opinion, expectations for the market's earnings growth rate are too optimistic.
For example, estimates for growth in the S&P 500's earnings for next year range
between 10% and 15%. We believe a 6% or less growth rate is more likely since
revenue growth and corporate profit margins are likely to erode. During the
first half of next year, we expect cost-
3
<PAGE>
push inflation, from growing labor and raw material cost increases, to be more
prevalent. Furthermore, we still think there is a possibility that the Federal
Reserve will increase the Fed Funds rate one more time, in response to a more
proactive fiscal policy. We believe the economy will remain reasonably strong
for the first half of the year, with real GDP growing at better than 3%. During
the second half of the year, the economy is likely to enter a more significant
slowdown phase. Should these expectations prove to be reasonably accurate, the
stock market will probably have difficulty making any material headway. This is
an environment we look forward to since it is one that typically favors stock
pickers. We believe and hope that the period of buying any technology or growth
stock with a story, without any consideration of its valuation, has come to a
close. These past three years have been difficult for us because so much money
has flowed toward many stocks where a rising price was predicated on the
"greater fool" theory of investing. Only time will tell if this trend has
essentially ended. We thank you for your continued investment and we hope to
welcome many new shareholders.
Respectfully submitted,
/s/ Robert L. Rodriguez
Robert L. Rodriguez, C.F.A.
President and Chief Investment Officer
October 13, 2000
--------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Six Months Ended September 30, 2000
<TABLE>
<CAPTION>
Shares or
Principal
Amount
----------------
<S> <C>
NET PURCHASES
COMMON STOCKS
Celanese AG (1).......................................................................... 250,000 shs.
Conseco, Inc............................................................................. 265,900 shs.
Oregon Steel Mills, Inc.................................................................. 13,600 shs.
Storage Technology Corporation........................................................... 445,600 shs.
Westcorp................................................................................. 78,120 shs.
NET SALES
COMMON STOCKS
Arrow Electronics, Inc................................................................... 19,500 shs.
Avnet, Inc............................................................................... 23,870 shs.
ENSCO International Incorporated (2)..................................................... 1,000,000 shs.
KEMET Corporation........................................................................ 100,000 shs.
Michaels Stores, Inc..................................................................... 260,700 shs.
NON-CONVERTIBLE BONDS & DEBENTURES
Trump Atlantic City Associates 11-1/4% 2006 (2).......................................... $ 4,000,000
U.S. Treasury Inflation-Indexed Notes 3-3/8% 2007........................................ 3,308,460
</TABLE>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
COMMON STOCKS Shares Value
------------------------------------------------------------------------------ ----------- --------------
<S> <C> <C>
TECHNOLOGY - 31.2%
Arrow Electronics, Inc.*...................................................... 1,300,000 $ 44,281,250
Avnet, Inc.................................................................... 1,510,000 42,846,250
Exabyte Corporation*+......................................................... 1,176,600 13,236,750
Hutchinson Technology Incorporated*........................................... 624,300 13,149,319
KEMET Corporation*............................................................ 20,000 552,500
Storage Technology Corporation*............................................... 1,891,200 25,649,400
------------
$139,715,469
------------
RETAILING - 22.6%
Consolidated Stores Corporation*.............................................. 1,609,100 $ 21,722,850
Craig Corporation (Class "A")*................................................ 269,000 807,000
Good Guys, Inc., The*......................................................... 441,300 3,089,100
Gymboree Corporation, The*.................................................... 1,078,800 5,865,975
HomeBase, Inc.*+.............................................................. 2,049,400 4,483,062
Michaels Stores, Inc.*........................................................ 1,000,000 40,000,000
Ross Stores, Inc.............................................................. 1,760,500 25,307,188
------------
$101,275,175
------------
CONSUMER DURABLES - 15.8%
Centex Corporation............................................................ 537,100 $ 17,254,337
Champion Enterprises, Inc.*................................................... 1,903,600 8,090,300
Coachmen Industries, Inc.+.................................................... 840,500 8,772,718
Fleetwood Enterprises, Inc.................................................... 904,900 12,272,706
Flexsteel Industries, Inc..................................................... 134,500 1,647,625
Recoton Corporation*+......................................................... 630,400 9,968,200
Thor Industries, Inc.......................................................... 555,000 12,834,375
------------
$ 70,840,261
------------
FINANCIAL - 12.2%
Conseco, Inc.................................................................. 1,800,800 $13,731,100
Countrywide Credit Industries, Inc............................................ 644,300 24,322,325
Horace Mann Educators Corporation............................................. 729,100 11,939,013
Westcorp...................................................................... 325,220 4,878,300
------------
$ 54,870,738
------------
</TABLE>
5
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED Shares Value
-------------------------------------------------------------------------------- ----------- --------------
<S> <C> <C>
CONSUMER NON-DURABLES - 3.9%
CPI Corp........................................................................ 330,000 $ 7,012,500
Rawlings Sporting Goods Company, Inc.*.......................................... 189,100 1,099,144
Reebok International Ltd.*...................................................... 508,400 9,564,275
------------
$ 17,675,919
------------
INDUSTRIAL PRODUCTS - 2.7%
Belden Inc. .................................................................... 504,300 $ 11,914,088
------------
BASIC MATERIALS - 2.5%
Celanese AG .................................................................... 250,000 $ 4,281,250
International Aluminum Corporation ............................................. 168,100 2,815,675
Oregon Steel Mills, Inc. ....................................................... 1,003,700 1,881,938
Rouge Industries, Inc. (Class "A") ............................................. 752,300 2,115,844
------------
$ 11,094,707
------------
BUSINESS SERVICES & SUPPLIES - 2.2%
Angelica Corporation+........................................................... 504,300 $ 4,885,406
Manpower Inc. .................................................................. 150,000 4,790,625
------------
$ 9,676,031
------------
DEFENSE - 1.5%
DRS Technologies, Inc.* ........................................................ 428,700 $ 6,966,375
------------
TOTAL COMMON STOCKS - 94.6% (Cost $383,532,290)............................... $424,028,763
------------
</TABLE>
6
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
-------------- ---------------
<S> <C> <C>
NON-CONVERTIBLE BONDS AND DEBENTURES - 5.1%
Federal Home Loan Mortgage Corporation (IO)
-7% 2020....................................................................... $ 2,606,209 $ 193,022
U.S. Treasury Inflation-Indexed Notes
-3-3/8% 2007 .................................................................. 23,252,860 22,468,076
------------
TOTAL NON-CONVERTIBLE BONDS
AND DEBENTURES (Cost $22,729,299) ............................................. $ 22,661,098
------------
TOTAL INVESTMENT SECURITIES - 99.7% (Cost $406,261,589) $446,689,861
------------
SHORT-TERM CORPORATE NOTE - 0.5% (Cost $2,265,588)
American General Corporation -6.55% 10/2/00..................................... $ 2,266,000 $ 2,265,588
------------
TOTAL INVESTMENTS - 100.2% (Cost $408,527,177).................................. $448,955,449
Other assets and liabilities, net - (0.2)%...................................... (860,891)
------------
TOTAL NET ASSETS - 100%......................................................... $448,094,558
============
</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, 2000.
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend
at Cost at Cost Gain Income
------------------------------------------------------------
<S> <C>
Angelica Corporation -- -- -- $80,688
Coachmen Industries, Inc. -- -- -- 84,050
Exabyte Corporation -- -- -- --
HomeBase, Inc. -- -- -- --
Recoton Corporation -- -- -- --
</TABLE>
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities - at market value
(identified cost $406,261,589)............................................ $446,689,861
Short-term investments - at cost plus interest earned
(maturities of 60 days or less)........................................... 2,265,588 $448,955,449
------------
Cash.......................................................................... 812
Receivable for:
Dividends and accrued interest.............................................. $ 526,879
Capital Stock sold.......................................................... 358,334 885,213
------------ ------------
$449,841,474
LIABILITIES
Payable for:
Capital Stock repurchased................................................... $ 1,371,592
Advisory fees and financial services........................................ 299,128
Accrued expenses and other liabilities...................................... 76,196 1,746,916
------------ -----------
NET ASSETS...................................................................... $448,094,558
============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock - par value $0.01 per share; authorized
100,000,000 shares; outstanding 16,762,288 shares........................... $ 167,623
Additional Paid-in Capital.................................................... 372,010,220
Undistributed net realized gain on investments................................ 35,021,902
Undistributed net investment income........................................... 466,541
Unrealized appreciation of investments........................................ 40,428,272
------------
NET ASSETS...................................................................... $448,094,558
============
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)................................... $26.73
======
Maximum offering price per share
(100/93.5 of per share net asset value)...................................... $28.59
======
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 2000
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (including $164,738 from securities of affiliates)............... $ 1,749,725
Interest................................................................... 1,517,437
------------
$ 3,267,162
EXPENSES
Advisory fees.............................................................. $ 1,560,970
Financial services......................................................... 236,303
Transfer agent fees and expenses........................................... 137,324
Insurance.................................................................. 25,541
Registration fees.......................................................... 24,535
Custodian fees and expenses................................................ 23,423
Directors' fees and expenses............................................... 20,359
Audit fees................................................................. 15,300
Reports to shareholders.................................................... 12,574
Postage.................................................................... 10,902
Legal fees................................................................. 8,074
Other expenses............................................................. 800 2,076,105
----------- ------------
Net investment income.............................................. $ 1,191,057
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less)............... $61,460,261
Cost of investment securities sold......................................... 26,175,652
------------
Net realized gain on investments....................................... $ 35,284,609
Unrealized appreciation of investments:
Unrealized appreciation at beginning of period............................. $85,532,865
Unrealized appreciation at end of period................................... 40,428,272
------------
Decrease in unrealized appreciation of investments..................... (45,104,593)
------------
Net realized and unrealized loss on investments.................... $ (9,819,984)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.............................................................. $ (8,628,927)
============
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 2000 March 31, 2000
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income...................... $ 1,191,057 $ 1,902,550
Net realized gain on investments........... 35,284,609 134,989,125
Decrease in unrealized
appreciation of investments............... (45,104,593) (18,843,094)
------------ -------------
Increase (decrease) in net assets
resulting from operations.................. $ (8,628,927) $118,048,581
Distributions to shareholders from:
Net investment income...................... $ (1,319,824) $ (3,566,650)
Net realized capital gains................. (84,175,231) (85,495,055) (64,562,292) (68,128,942)
------------ -------------
Capital Stock transactions:
Proceeds from Capital Stock sold........... $ 19,089,736 $ 41,936,498
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions........... 73,352,392 59,105,054
Cost of Capital Stock repurchased.......... (68,123,715) 24,318,413 (146,955,403) (45,913,851)
------------ ------------ ------------- ------------
Total increase (decrease) in net assets $(69,805,569) $ 4,005,788
NET ASSETS
Beginning of period, including
undistributed net investment income
of $595,308 and $2,259,408................. 517,900,127 513,894,339
------------ -------------
End of period, including
undistributed net investment income
of $466,541 and $595,308................... $448,094,558 $517,900,127
============ ============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold................. 693,671 1,301,816
Shares issued to shareholders
upon reinvestment of dividends
and distributions.......................... 2,856,401 1,945,279
Shares of Capital Stock repurchased.......... (2,349,305) (4,622,194)
------------ -------------
Increase (decrease) in Capital Stock outstanding................ 1,200,767 (1,375,099)
============ ============
</TABLE>
See notes to financial statements.
10
<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, -----------------------------------------------------
2000 2000 1999 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of period............... $33.28 $30.34 $38.30 $32.28 $27.55 $22.40
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income.............................. $ 0.08 $ 0.12 $ 0.40 $ 0.49 $ 0.38 $ 0.33
Net realized and unrealized gain (loss) on
investment securities............................. (0.80) 7.07 (4.76) 8.74 6.98 7.63
------ ------ ------ ------ ------ ------
Total from investment operations..................... $(0.72) $ 7.19 $(4.36) $ 9.23 $ 7.36 $ 7.96
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income............... $(0.09) $(0.22) $(0.40) $(0.47) $(0.37) $(0.26)
Distributions from net realized
capital gains.................................... (5.74) (4.03) (3.20) (2.74) (2.26) (2.55)
------ ------ ------ ------ ------ ------
Total distributions................................ $(5.83) $(4.25) $(3.60) $(3.21) $(2.63) $(2.81)
------ ------ ------ ------ ------ ------
Net asset value at end of period..................... $26.73 $33.28 $30.34 $38.30 $32.28 $27.55
====== ====== ====== ====== ====== ======
Total investment return*............................. (1.45)% 25.39% (12.45)% 30.10 27.30% 36.84%
Ratios/supplemental data:
Net assets at end of period (in $000's).............. 448,095 517,900 513,894 789,436 597,184 399,282
Ratio of expenses to average net assets.............. 0.89%+ 0.86% 0.86% 0.83% 0.84% 0.87%
Ratio of net investment income to
average net assets................................. 0.51%+ 0.35% 1.20% 1.38% 1.27% 1.28%
Portfolio turnover rate.............................. 5%+ 18% 19% 24% 21% 21%
</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, 2000 is not annualized.
+ Annualized
See notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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 $12,162,156 for the
six months ended September 30, 2000. Realized gains or losses are based on the
specific-certificate identification method. The cost of securities held at
September 30, 2000 was the same for federal income tax and financial reporting
purposes. Gross unrealized appreciation and depreciation for all investments at
September 30, 2000 for federal income tax purposes was $127,787,406 and
$87,359,134, 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
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Continued
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 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, 2000, 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 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, 2000, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $3,631 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. On November 13, 2000, the Board of Directors
determined that it was in the best interests of the Fund and its shareholders to
resume the sale of shares to new investors effective January 1, 2001.
13
