<PAGE>
As filed with the Securities and Exchange Commission on December 3, 1999
Securities Act File No. 2-14660
Investment Company Act No. 811-852
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 58 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 23 /X/
----------------------
FPA PARAMOUNT FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
11400 WEST OLYMPIC BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90064
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310)473-0225
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------
J. RICHARD ATWOOD, TREASURER COPY TO:
FPA PARAMOUNT FUND, INC. LAWRENCE J. SHEEHAN, ESQ.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200 O'MELVENY & MYERS LLP
LOS ANGELES, CALIFORNIA 90064 1999 AVENUE OF THE STARS
(NAME AND ADDRESS OF AGENT FOR SERVICE) LOS ANGELES, CALIFORNIA 90067
----------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER REGISTRATION STATEMENT BECOMES EFFECTIVE.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: COMMON STOCK, $0.25 PAR VALUE
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<PAGE>
FPA PARAMOUNT FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A PROSPECTUS CAPTION
- --------- ------------------
PART A
<S> <C>
1. Front and Back Cover Pages................... Front and Back Cover Pages
2. Risk/Return Summary.......................... Risk/Return Summary;
Investment Results
3. Risk/Return Summary: Fee Table............... Fees and Expenses of the Fund
4. Investment Objectives, Principal Investment
Strategies and Related Risks................. Investment Objectives,
Principal Investment Strategies
and Related Risks
5. Management's Discussion of Fund Performance.. Inapplicable
6. Management, Organization and Capital
Structure.................................... Management and Organization
7. Shareholder Information...................... Purchase, Pricing and Sale of
Shares; Dividends,
Distributions and Taxes
8. Distribution Arrangements.................... Purchase, Pricing and Sale of
Shares
9. Financial Highlights Information............. Financial Highlights
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
- ------ -----------------------
<S> <C>
10. Cover Page and Table of Contents............. Cover Page and Table of Contents
11. Fund History................................. Fund Organization
12. Description of the Fund and Its Investments
and Risks.................................... Investment Objectives and
Policies; Description of
Certain Securities and Investment
Techniques; Investment Restrictions;
Portfolio Turnover
13. Management of the Fund....................... Directors and Officers of the
Fund
14. Control Persons and Principal
Holders of Securities........................ Five Percent Shareholders
15. Investment Advisory and Other Services....... Management
16. Brokerage Allocation and Other Practices..... Portfolio Transactions and
Brokerage
17. Capital Stock and Other Securities........... Capital Stock
18. Purchase, Redemption, and Pricing of Shares.. Purchase and Redemption of Shares
19. Taxation of the Fund......................... Tax Sheltered Retirement Plans;
Dividends, Distributions and Taxes
20. Underwriters................................. Distributor
21. Calculation of Performance Data.............. Prior Performance Information
22. Financial Statements......................... Financial Statements
</TABLE>
-ii-
<PAGE>
FPA Paramount Fund, Inc.
Prospectus
The primary investment objective of
FPA Paramount Fund, Inc. is a high total
investment return, including capital
appreciation and income. The Fund's
investment adviser, First Pacific Advisors,
Inc., generally invests the Fund's assets in
common stocks and other securities which it
believes have the above-average ability to
increase in market value.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[LOGO]
DISTRIBUTOR:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
FEBRUARY 1, 2000
<PAGE>
FPA PARAMOUNT FUND, INC.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
(310) 473-0225
<TABLE>
<S> <C>
INVESTMENT First Pacific Advisors, Inc.
ADVISER: 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
(310) 473-0225
(800) 982-4372 except
Alaska, Hawaii and
Puerto Rico
</TABLE>
<TABLE>
<S> <C>
SHAREHOLDER Boston Financial Data
SERVICE AGENT: Services, Inc.
P. O. Box 8115
Boston, Massachusetts 02266-8115
(617) 483-5000
(800) 638-3060 except
Alaska, Hawaii,
Massachusetts and Puerto Rico
CUSTODIAN AND State Street Bank and
TRANSFER AGENT: Trust Company
225 Franklin Street
Boston, Massachusetts 02110
</TABLE>
INQUIRIES CONCERNING TRANSFER OF REGISTRATION, DISTRIBUTIONS, REDEMPTIONS AND
SHAREHOLDER SERVICE SHOULD BE DIRECTED TO THE SHAREHOLDER SERVICE AGENT.
INQUIRIES CONCERNING SALES SHOULD BE DIRECTED TO FPA FUND DISTRIBUTORS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk/Return Summary......................................... 3
Investment Results.......................................... 5
Fees and Expenses of the Fund............................... 6
Investment Objective, Principal Investment Strategies, and
Principal Risks........................................... 7
Management and Organization................................. 9
Purchase, Pricing and Sale of Shares........................ 9
Exchange of Shares and Shareholder Services................. 13
Dividends, Distributions and Taxes.......................... 15
Financial Highlights........................................ 17
</TABLE>
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE. The Fund's primary investment objective is high total
investment return, including capital appreciation and income.
WHO MAY WANT TO INVEST IN THE FUND?
- Investors seeking high total investment return
- Investors willing to own shares over the course of a market cycle or
longer
PRINCIPAL INVESTMENT STRATEGIES. The Fund's investment adviser, First Pacific
Advisors, Inc., purchases common stocks using a value discipline and evaluating
each company on its own merits. The Adviser's measures of value include
price/earnings ratios, book value, and replacement cost of assets. The Adviser
looks for the following attributes in companies selected for investment:
- Temporarily out-of-favor or not closely followed by other investors
- Capable management team
- Undervalued in relation to the stock market
- Industry segment leaders
- Consistently high returns on capital
- Substantial portion of earnings reinvested in business
PRINCIPAL INVESTMENTS. The Fund invests primarily in the common stocks of U.S.
companies in a variety of industries and market segments. The Fund can also
invest in fixed-income securities and convertible securities. The Fund generally
holds some assets in high quality short-term debt securities to provide
liquidity. The Fund generally invests in medium and smaller capitalization
issuers although it may purchase securities of larger companies.
Although the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (except the U.S. Government) at the time of
purchase, changes in market prices and the assets of the Fund may from time to
time cause a larger percentage of the Fund's assets to be invested in securities
of a single company. Although the Fund may not invest more than 25% of its total
assets in any one industry at the time of purchase, changes in market prices and
the assets of the Fund may from time to time cause more than 25% of the Fund's
assets to be invested in one industry.
No more than 25% of the Fund's assets will be invested in the securities of
foreign issuers.
PRINCIPAL INVESTMENT RISKS. Even though the Adviser attempts to lessen price
risk by not overpaying for earnings of even the best companies, you can lose
money by investing in the Fund if any of the following occurs:
- The concentration of the Fund's assets in a single company or industry may
increase the volatility of the Fund's net asset value per share or share
price and may increase the risk of loss as well as potential for gain.
- The U.S. or foreign market goes down.
3
<PAGE>
- The market favors growth stocks over value stocks or favors companies at a
different capitalization level.
- An adverse event, such as an unfavorable earnings report, depresses the
value of a particular stock.
- Prices of the Fund's foreign securities go down because of unfavorable
changes in foreign currency exchange rates, foreign government actions or
political instability.
- The Adviser's judgments about the attractiveness, value and potential
appreciation of particular stocks prove to be incorrect.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Company or any other government agency, entity
or person. Shares of the Fund are subject to significant risks and should not be
considered a complete investment program.
4
<PAGE>
INVESTMENT RESULTS
The bar chart and table below provide an indication of the risk of investing in
the Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns for 1, 5 and 10 years compare with
those of a broad measure of market performance. The bar chart shows the Fund's
performance for the last ten calendar years. The table shows how the Fund's
average annual returns for one calendar year, five calendar years and ten
calendar years compared with those of the Russell 2500 Index and the Lipper
Mid-Cap Value Fund Average. The Russell 2500 Index consists of the 2,500
smallest companies in the Russell 3000 total capitalization universe. This index
is considered a measure of small to mid-capitalization stock performance and is
included as a broad-based comparison to the capitalization characteristics of
the Fund's portfolio. The Lipper Mid-Cap Value Fund Average provides an
additional comparison of how the Fund performed in relation to other mutual
funds with similar objectives. Keep in mind that the Fund's past performance
does not indicate how it will perform in the future.
Here are the Fund's results calculated without a sales charge on a calendar year
basis. (If a sales charge were included, results would be lower.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 22.63
1990 1.60
1991 24.31
1992 9.90
1993 20.53
1994 9.40
1995 12.66
1996 29.40
1997 -1.76
1998 -24.41
</TABLE>
The year to date return for the Fund as of September 30, 1999 was 4.29%.
The Fund's highest/lowest QUARTERLY results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
Highest 16.47% (Quarter ended 3/31/91)
Lowest -17.75% (Quarter ended 9/30/98)
</TABLE>
FOR THE PERIODS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
LIPPER
AVERAGE ANNUAL FUND WITH MAXIMUM MID-CAP VALUE
TOTAL RETURN SALES CHARGE DEDUCTED RUSSELL 2500 FUND AVERAGE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
One Year 0.00% 0.00% 0.00%
Five Years 0.00% 0.00% 0.00%
Ten Years 0.00% 0.00% 0.00%
</TABLE>
5
<PAGE>
FEES AND EXPENSES OF THE FUND
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MIGHT PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
<TABLE>
<S> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)....................... 6.50%
Maximum Deferred Sales Load (as a percentage of
original sales price or redemption proceeds, as
applicable)......................................... *
Redemption Fee (as a percentage of amount
redeemed)........................................... None**
Exchange Fee........................................ $5.00
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees..................................... 0.70%
Distribution (12b-1) Fees........................... None
Other Expenses (including financial services)....... 0.33%
------
Total Annual Fund Operating Expenses................ 1.03%
</TABLE>
- ------------
* An account management fee is charged by unaffiliated investment advisers or
broker-dealers to
certain accounts entitled to purchase shares without sales charge.
** Redemptions by wire are subject to a $3.50 charge per wire.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<S> <C>
One year $ 748
Three years $ 957
Five years $1,182
Ten years $1,828
</TABLE>
6
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES,
AND PRINCIPAL RISKS
INVESTMENT OBJECTIVE. The Fund's primary investment objective is high total
investment return, including capital appreciation and income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund's Adviser favors investments in
common stocks it believes undervalued when considering various valuation
criteria. The Adviser deems the following important in its stock selection
process: current as well as future levels of profitability, book value,
replacement cost of assets and free cash flow. The Adviser attempts to lessen
price risk by not overpaying for earnings of even the best companies.
Furthermore, investments tend to be focused in areas which are viewed as
temporarily out-of-favor as evidenced by such factors as low price-to-
normalized earnings ratios and price-to-book value ratios. The Fund generally
holds some assets in high quality short-term debt securities to provide
liquidity. The Fund may also invest in fixed-income and convertible securities.
The Fund relies on the professional judgment of its Adviser to make decisions
about the Fund's portfolio securities. The Adviser's basic investment philosophy
is to purchase securities on the basis of fundamental value and earnings
expectations rather than short-term stock market expectations.
PRINCIPAL RISKS. Your investment in the Fund is subject to a number of
principal risks related to principal strategies, including:
- Although the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (except the U.S. Government) at the time of
purchase, changes in market prices and the assets of the Fund may from
time to time cause a larger percentage of the Fund's assets to be invested
in securities of a single company. For example, on December 31, 1999,
approximately 00% of the Fund's assets were represented by six issuers in
which more than 5% of the Fund's assets were invested. The largest
holding, Polymer Group, Inc. which is a producer and marketer of non-woven
materials and other fabrics, constituted approximately % of the Fund's
assets. Such relative concentration is likely to increase the volatility
of the Fund's net asset value per share, or share price, and increases the
risk of loss as well as potential for gain.
- Although the Fund may not invest more than 25% of its total assets in any
one industry at the time of purchase, changes in market prices and the
assets of the Fund may from time to time cause a larger percentage of the
Fund's assets to be invested in one industry. For example, on
December 31, 1999, approximately 00% of the Fund's assets were invested in
securities of three gold mining companies, Homestake Mining Company,
Newmont Mining Corporation, and Placer Dome Inc. Shares of a consumer
non-durable goods company, Polymer Group, Inc., constituted approximately
00% of the Fund's assets. Such relative concentration is likely to
increase the volatility of the Fund's net asset value per share, or share
price, and increases the risk of loss as well as potential for gain.
- We have invested 30% of the Fund's net assets in gold mining companies as
of December 31, 1999. There are specific factors to consider before
investing in these companies. Such factors include (1) fluctuations in
gold price, (2) laws affecting gold supply, (3) environmental costs, and
(4) economic and social conditions. The gold price has varied dramatically
over short periods of time. Relevant economic and social conditions
include unpredictable monetary policies, drop in
7
<PAGE>
currency value, inflation rates, and trade restrictions. Even financially
strong mining companies will suffer if the price of gold drops
significantly.
- As of December 31, 1999, the Fund has invested 23% of its net assets in
shares of Polymer Group, Inc. You should know about the issues specific to
this company. Polymer Group, Inc. is in the consumer non-durable goods
sector, heavily indebted and is often impacted by fluctuating raw material
prices. The company relies heavily on a few major customers and depends on
key suppliers. The company also contends against intense competition in
the industry and faces tremendous pressure to continue developing
innovative products. Because the company operates abroad, the company must
also respond to foreign currency's changing value.
- We can invest 25% of the Fund's assets in foreign securities. You should
know that there are risks involved with investing in foreign companies.
First, foreign securities are often more susceptible to changing currency
rates and money exchange laws. We also cannot predict international trade
patterns. Second, foreign laws protect investors less than American laws.
Domestic companies have to follow uniform accounting, auditing and
financial reporting standards. Foreign laws often do not. Foreign
companies, thus, usually disclose less information than American
companies. In some countries, there is also a threat of expropriation or
diplomatic conflicts. Third, investing in foreign securities could cost
more than investing in domestic companies. Foreign brokerages often charge
higher commission and custodial fees than their American counterparts.
Foreign companies also might have to pay foreign government taxes. This
could reduce the securities' dividend or interest yield. Finally, some
foreign securities might be harder to sell because of the additional
risks. In the event of a default on any foreign debt obligation, it could
also be difficult to obtain or enforce judgments against the foreign
company. We can purchase foreign securities as American Depositary
Receipts or other securities representing the foreign shares.
- The Adviser's emphasis on a value-oriented investment approach may result
in the Fund's portfolio being invested in medium and smaller sized
companies the average investor perceives to be unpopular or unfamiliar.
This portfolio may not reflect all facets of the national economy and
differs significantly from the broader market. Securities in smaller
companies may be less liquid than those of larger issuers and the Fund
could have greater difficulty selling the security at an acceptable price,
particularly in periods of market volatility. Smaller companies typically
are subject to a greater degree of change in earnings and business
prospects than larger, more established companies. In addition, securities
of smaller companies are traded in lower volumes than those issued by
larger companies and may be more volatile than those of larger companies.
In light of these characteristics of smaller companies and their
securities, the Fund may be subject to greater risk than that assumed when
investing in the equity securities of larger companies;
- Fund shares could decline in value in response to certain events, such as
changes in markets or economies; and
- the prices of equity securities held by the Fund can be affected by events
specifically involving the issuers of these securities.
8
<PAGE>
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
First Pacific Advisors, Inc. is the Fund's investment adviser. The Adviser,
together with its predecessors, has been in the investment advisory business
since 1954 and has served as the Fund's investment adviser since July 1, 1978.
The Adviser manages assets of approximately $3.2 billion for six investment
companies, including one closed-end investment company, and 22 institutional
accounts. First Pacific Advisors, Inc. is headquartered at 11400 West Olympic
Boulevard, Suite 1200, Los Angeles, California 90064. The Adviser selects
investments for the Fund, provides administrative services and manages the
Fund's business. The total management fee paid by the Fund, as a percentage of
average net assets, for the previous fiscal year was 0.70%.
PORTFOLIO MANAGER
William M. Sams, President of the Fund and Principal and director of the
Adviser, is primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Sams has been the Chief Investment Officer of the Fund for over
eighteen years.
PURCHASE, PRICING AND SALE OF SHARES
PURCHASE AND INVESTMENT MINIMUMS. You can purchase shares by contacting any
investment dealer authorized to sell the Fund's shares. You can use the account
information form for initial purchases. The minimum initial investment is
$1,500, and each subsequent investment must be at least $100. All purchases made
by check should be in U.S. dollars and made payable to the FPA Funds or State
Street Bank and Trust Company. Third party checks will not be accepted. A charge
may be imposed if a check does not clear.
SHARE PRICE. The Fund calculates its share price, also called net asset value,
as of 4:00 p.m. New York time, which is the normal close of trading on the New
York Stock Exchange (NYSE), every day the NYSE is open. Share price is rounded
to the nearest cent per share and equals the market value of all portfolio
securities plus other assets, less all liabilities, divided by the number of
Fund shares outstanding. Orders received by dealers before the NYSE closes on
any business day are priced based on the share price for that day if Boston
Financial Data Services, Inc. receives the order prior to its close of business.
Orders received by Boston Financial Data Services, Inc. after such time
generally are priced based on the share price for the next business day.
However, orders received by certain retirement plans and certain other financial
intermediaries before the NYSE closes and communicated to Boston Financial Data
Services, Inc. by 9:30 a.m., Eastern time, on the following business day are
priced at the share price for the prior business day. Share prices for sales
(redemptions) of Fund shares is the first share price determined after Boston
Financial Data Services, Inc. receives a properly completed request, except that
sale orders received by an authorized dealer, certain retirement plans and
certain other financial intermediaries before the NYSE closes are priced at the
closing price for that day if communicated to Boston Financial Data Services,
Inc. within the times specified above.
SALES CHARGES. The offering price is the share price plus any applicable sales
charge. A sales charge may apply to your purchase. As indicated in the table
below, your sales charge can be reduced for larger
9
<PAGE>
purchases. You, your spouse and the following related people (and their spouses)
can combine your investment to reduce your sales charge: grandparents, parents,
siblings, children or grandchildren; or by the individual, his or her spouse and
a trustee or other fiduciary purchasing securities for related trusts, estates
or fiduciary accounts, including employee benefit plans.
<TABLE>
<CAPTION>
SALES SALES REALLOWED
SIZE OF INVESTMENT CHARGE(1) CHARGE(2) TO DEALERS(2)
- ------------------ --------- --------- -------------
<S> <C> <C> <C>
Less than $10,000.......................................... 6.95% 6.50% 6.00%
$10,000 but less than $25,000.............................. 6.38% 6.00% 5.50%
$25,000 but less than $50,000.............................. 5.54% 5.25% 4.75%
$50,000 but less than $100,000............................. 4.71% 4.50% 4.25%
$100,000 but less than $250,000............................ 3.90% 3.75% 3.50%
$250,000 but less than $500,000............................ 2.04% 2.00% 1.75%
$500,000 but less than $1,000,000.......................... 1.01% 1.00% 0.80%
$1,000,000 and over........................................ 0.00% 0.00% 0.00%
</TABLE>
- ------------
(1) As a percentage of net amount invested.
(2) As a percentage of public offering price.
REDUCING YOUR SALES CHARGE
INVESTMENTS IN OTHER FPA FUNDS. To determine the sales charge, you can add the
current value, at offering price, of all presently held shares of the FPA Funds,
which are:
- FPA Capital Fund, Inc. (which is currently closed to new investors)
- FPA New Income, Inc.
- FPA Paramount Fund, Inc. (this Fund)
- FPA Perennial Fund, Inc.
If your holdings of other FPA Funds qualify you for a reduced sales charge, you
must provide information to verify your holdings.
LETTER OF INTENT. A letter of intent will allow you to obtain a reduced sales
charge by aggregating investments made during a thirteen-month period. The value
of all presently held shares of the FPA Funds (see above list) can also be used
to determine the applicable sales charge. The account information form contains
the Letter of Intent that must be signed at the time of initial purchase, or
within 30 days. Each investment made under a letter of intent during the period
receives the sales charge for the total investment goal. IF YOU DO NOT REACH
YOUR INVESTMENT GOAL, YOU MUST PAY THE DIFFERENCE BETWEEN THE SALES CHARGES
APPLICABLE TO THE AMOUNT PURCHASED MINUS THOSE ACTUALLY PAID.
SALES AT REDUCED SALES CHARGE. Certain retirement plans, exempt from taxation
under Section 401 of the Internal Revenue Code, with open accounts in the Fund
as of July 2, 1990, are permitted to continue to buy Fund shares at a sales
charge equal to one-half of the normal sales charge. Information sufficient to
permit verification must be furnished to Boston Financial Data Services, Inc.
when the order is placed.
10
<PAGE>
PURCHASES NOT SUBJECT TO SALES CHARGE. You and your spouse (and your immediate
relatives) can purchase shares without a sales charge, if you fall into one of
the following categories and you represent that the shares you purchase are for
investment and will not be resold except through redemption or repurchase by the
Fund. Immediate relatives include grandparents, parents, siblings, children and
grandchildren of a qualified investor, and the spouse of any immediate relative.
(a) current and former directors, officers and employees of the Adviser, United
Asset Management Corporation (the Adviser and FPA Fund Distributors, Inc.
are indirect wholly owned subsidiaries of United Asset Management
Corporation) and its affiliates;
(b) current and former directors, officers and employees of Angeles Corporation
(the former parent of the Adviser) and its affiliates;
(c) current and former directors of, and partners and employees of legal counsel
to, the investment companies advised by the Adviser;
(d) investment advisory clients of the Adviser and pension consultants to such
clients and their directors, officers and employees;
(e) employees (including registered representatives) of a dealer that has a
selling group agreement with FPA Fund Distributors, Inc. and consents to the
purchases;
(f) any employee benefit plan maintained for the benefit of such qualified
investors; and
(g) directors, officers and employees of a company whose employee benefit plan
holds shares of one or more of the FPA Funds.
Because FPA Fund Distributors, Inc. anticipates that certain purchases will
result in economies of scale in the sales effort and related expenses compared
to sales made through normal distribution channels, upon satisfaction of certain
conditions the following persons can purchase without a sales charge:
(a) trustees or other fiduciaries purchasing shares for employee benefit plans
of employers with 20 or more employees;
(b) trust companies, bank trust departments and registered investment advisers
purchasing for accounts over which they exercise investment authority and
which are held in a fiduciary, agency, advisory, custodial or similar
capacity, provided that the amount collectively invested or to be invested
by such accounts during the subsequent 13-month period in the Fund or other
FPA Funds totals at least $1,000,000;
(c) tax-exempt organizations enumerated in Section 501(c) (3), (9), or (13) of
the Internal Revenue Code; and
(d) accounts upon which an investment adviser, financial planner or
broker-dealer charges an account management or consulting fee, provided it
has entered into an agreement with FPA Fund Distributors, Inc. regarding
those accounts or purchases Fund shares for such accounts or for its own
accounts through an omnibus account maintained by a broker-dealer that has
entered into such an agreement with the Fund or FPA Fund Distributors, Inc.
If you qualify, you must submit a special application form available from FPA
Fund Distributors, Inc. with your initial purchase, and you must notify FPA Fund
Distributors, Inc. of your eligibility when you place
11
<PAGE>
the order. If you place the order through a broker, the broker may charge you a
service fee. No such fee is charged if you purchase directly from FPA Fund
Distributors, Inc. or the Fund.
SELLING (REDEEMING) YOUR SHARES
You can sell (redeem) for cash without charge any or all of your Fund shares at
any time by sending a written request to Boston Financial Data Services, Inc.
Faxes are not acceptable. You can also place redemption requests through
dealers, but they may charge a fee. If you are selling Fund shares from a
retirement plan, you should consult the plan documentation concerning federal
tax consequences and consult your plan custodian about procedures.
A check will be mailed to you within seven days after Boston Financial Data
Services, Inc. receives a properly completed request. If Fund shares sold were
recently purchased by check, payment of the redemption proceeds will be delayed
until confirmation that the purchase check has cleared, which may take up to 15
days.
WRITTEN REQUESTS. Requests must be signed by the registered shareholder(s). If
you hold a stock certificate, it must be included with your written request. A
signature guarantee is required if the redemption is:
- Over $10,000;
- Made payable to someone other than the registered shareholder or to
somewhere other than the registered address; or
- If the shareholder is a corporation, partnership, trust or fiduciary.
A signature guarantee can be obtained from a bank or trust company; a broker or
dealer; a credit union; a national securities exchange, registered securities
association or clearing agency; or a savings and loan association. Additional
documents are required for sales by corporations, partnerships, trusts,
fiduciaries, executors or administrators.
TELEPHONE TRANSACTIONS. You must elect the option on the shareholder services
form to have the right to sell your shares by telephone. If you wish to make an
election to have the right to sell your shares via telephone or to change such
an election after opening an account, you will need to complete a request with a
signature guarantee. Sales via telephone are not available for shares held in a
Fund-sponsored retirement account or in certificate form.
When you obtain the right to sell your Fund shares by telephone, you designate a
bank account to which the proceeds of such redemptions are sent. Telephone
redemptions of $5,000 or more are wired unless the designated bank cannot
receive Federal Reserve wires. Telephone redemptions under $5,000 are mailed
unless you request otherwise. There is a $3.50 charge per wire.
Boston Financial Data Services, Inc. uses procedures it considers reasonable to
confirm redemption instructions via telephone, including requiring account
registration verification from the caller and recording telephone instructions.
Neither Boston Financial Data Services, Inc. nor the Fund is liable for losses
due to unauthorized or fraudulent instructions if there is a reasonable belief
in the authenticity of received instructions and reasonable procedures are
employed; otherwise, they may be liable. During periods of significant economic
or market changes, it may be difficult to sell your shares by telephone.
12
<PAGE>
The Fund can change or discontinue telephone redemption privileges without
notice.
REINVESTING IN THE FUND WITH PROCEEDS FROM REDEMPTION OF SHARES. If you
reinvest in the Fund within 30 days you do not have to pay a sales charge. Your
reinvestment is made at the first share price determined after Boston Financial
Data Services, Inc. receives your order. You can only do this once for each Fund
investment, and you must provide sufficient information to verify your
reinvestment when you make your purchase. A sale and reinvestment is a taxable
transaction, but losses on the sale are not deductible for federal income tax
purposes.
AUTOMATIC REDEMPTION (SALE) OF YOUR SHARES. If as a result of a redemption your
account value is less than $500, the Fund can direct Boston Financial Data
Services, Inc. to sell your remaining Fund shares. In such case, you will be
notified in writing that your account value is insufficient and be given up to
60 days to increase it to $500.
EXCHANGE OF SHARES AND SHAREHOLDER SERVICES
EXCHANGING YOUR FUND SHARES
EXCHANGING YOUR SHARES FOR SHARES OF OTHER FPA FUNDS. You can exchange your
shares of the Fund for shares of other FPA Funds, except that only existing
shareholders of FPA Capital Fund, Inc., may exchange into that Fund.
You can increase an existing account or start a new account in the selected FPA
Fund. Shares of the Fund acquired must be registered for sale in your state.
A $5.00 service fee applies to each exchange. In addition, a sales charge
applies unless:
- you paid a sales charge on the exchanged shares equivalent to that
applicable to the acquired shares;
- you are otherwise entitled to purchase shares without a sales charge (as
noted under "Purchases Not Subject to Sales Charge"); or
- the shares you are exchanging were acquired by reinvestment.
EXCHANGING YOUR SHARES FOR SHARES OF A MONEY MARKET FUND. FPA Fund
Distributors, Inc. has made arrangements to allow you to exchange your shares
for shares of the money market portfolio of the Cash Equivalent Fund, a no-load
diversified money market mutual fund. Shares of the money market fund you
acquire through exchange plus any shares acquired by reinvestment of dividends
and distributions may be re-exchanged for shares of any FPA Fund without a sales
charge. However, in the case of FPA Capital Fund, Inc., you must have maintained
your account in FPA Capital Fund, Inc. in order to re-exchange your shares in
the money market fund for shares in FPA Capital Fund, Inc.
If your shares are held in a Fund-sponsored Individual Retirement Account, you
cannot exchange them into shares of the money market fund.
The $5.00 exchange fee is paid by FPA Fund Distributors, Inc., which receives a
fee from Kemper Financial Services, the administrator of the money market fund,
of 0.15 of 1% per year or more of the
13
<PAGE>
average daily net asset value of shares of the money market fund acquired
through this exchange program.
The money market fund is not an FPA Fund and is separately managed. The fact
that you have the ability to exchange your shares for shares of the money market
fund is not a Fund recommendation of the money market fund.
HOW TO EXCHANGE YOUR SHARES. You can exercise your exchange privileges either
by written instructions or telephone (telephone exchange privileges are
available unless you specifically decline them on the account information form).
Exchanges are subject to the following restrictions:
- You are limited to four exchanges in one account during any calendar year;
if we give you notice you have exceeded this limit, any further exchanges
will be null and void;
- Shares must be owned 15 days before exchanging, and cannot be in
certificate form unless you deliver the certificate when you request the
exchange;
- An exchange requires the purchase of shares with a value of at least
$1,000; and
- Exchanges are subject to the same signature and signature guarantee
requirements applicable to the redemption of shares.
Exchanges and purchases are at the share price next determined after receipt of
a proper request by Boston Financial Data Services, Inc. In the case of
exchanges into the money market fund, dividends generally start on the following
business day.
For federal and state income tax purposes, an exchange is treated as a sale and
could result in a capital gain or loss. If the shares exchanged have been held
less than 91 days, the sales charge paid on them is not included in the tax
basis of the exchanged shares, but is carried over and included in the tax basis
of the shares acquired. See the Statement of Additional Information for further
information.
DISCONTINUATION OF THE EXCHANGE PROGRAMS. The Fund and FPA Fund Distributors,
Inc. can change or discontinue the rights to exchange Fund shares into other FPA
Funds or the money market fund upon 60 days' notice. If you have exchanged your
shares into shares of the money market fund, you will have at least 60 days
after being given notice of the end of the exchange program to reacquire Fund
shares without a sales charge.
For more information or for prospectuses for other FPA Funds and/or the money
market fund, please contact a dealer or FPA Fund Distributors, Inc. YOU SHOULD
READ THE PROSPECTUSES OF THESE OTHER FUNDS AND CONSIDER DIFFERENCES IN
OBJECTIVES AND POLICIES BEFORE MAKING ANY EXCHANGE.
OTHER SHAREHOLDER SERVICES
INVESTMENT ACCOUNT. Each shareholder has an investment account in which Boston
Financial Data Services, Inc. holds Fund shares. You will receive a statement
showing account activity after each transaction. Unless you make a written
request, stock certificates will not be issued. Stock certificates are only
issued for full shares.
PRE-AUTHORIZED INVESTMENT PLAN. To make automatic monthly investments of at
least $100, you must complete the optional shareholder services form available
from dealers or FPA Fund Distributors, Inc.
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<PAGE>
Boston Financial Data Services, Inc. will withdraw funds from your bank account
monthly for $100 or more as specified through the Automated Clearing House.
RETIREMENT PLANS. If you are eligible, you can establish an IRA (individual
retirement account) and/or other retirement plan with a $100 minimum initial
investment and an expressed intention to increase the investment to $1,500
within 12 months. Each subsequent investment must be at least $100. Neither the
Fund nor FPA Fund Distributors, Inc. imposes additional fees for these plans,
but the plan custodian does.
You should consult your tax adviser about the implications of establishing a
retirement plan with Fund shares. Persons with earned income ineligible for
deductible contributions generally may make non-deductible contributions into an
IRA. The earnings on shares held in an IRA are generally tax-deferred. In
addition, the Taxpayer Relief Act of 1997 expanded opportunities for certain
investors to make deductible contributions to IRAs and also created two new
tax-favored accounts, the Roth IRA and the Education IRA, in which earnings
(subject to certain restrictions) are not taxed even on withdrawal. Tax matters
are complicated; you should consult your tax adviser. FPA Fund Distributors,
Inc. and dealers have applicable forms and information regarding plan
administration, custodial fees and other plan provisions.
SYSTEMATIC WITHDRAWAL PLAN. If you have an account with a value of $10,000 or
more, you can make monthly, quarterly, semi-annual or annual withdrawals of $50
or more by completing the optional shareholder services form. Under this
arrangement, sufficient Fund shares will be sold to cover the withdrawals and
the proceeds will be forwarded to you as directed on the optional shareholder
services form. Dividends and capital gains distributions are automatically
reinvested in the Fund at net asset value. If withdrawals continuously exceed
reinvestments, your account will be reduced and ultimately exhausted. PLEASE
NOTE THAT CONCURRENT WITHDRAWALS AND PURCHASES ARE ORDINARILY NOT IN YOUR BEST
INTEREST BECAUSE OF ADDITIONAL SALES CHARGES, AND YOU WILL RECOGNIZE ANY TAXABLE
GAINS OR LOSSES ON THE AUTOMATIC WITHDRAWALS.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's investment income consists principally of dividends and interest
earned on its portfolio securities. This income, after payment of expenses, will
be distributed to you semi-annually. Net capital gains realized from the sale of
securities are distributed annually. Dividends and capital gain distributions
are automatically reinvested in the Fund at the share price determined at the
close of business the day after the record date, unless before the record date
for receipt of the dividend or capital gain distribution you request cash
payment of dividends and capital gains distributions. You can use the account
information form to request a cash payment.
TAX CONSEQUENCES
Dividends and capital gains are generally taxable whether they are reinvested or
received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Dividends and distributions are taxed at ordinary rates while capital
gains may be taxed at a different rate. Furthermore, capital gains may be taxed
at different rates depending on the length of time the Fund holds its assets.
15
<PAGE>
Redemptions from a retirement plan account and an ordinary shareholder account
could have different tax treatment.
You must provide the Fund with a certified correct taxpayer identification
number (generally your social security number) and certify that you are not
subject to backup withholding. You can use the account information form for this
purpose. If you fail to do so, the IRS can require the Fund to withhold 31% of
your taxable distributions and redemptions. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident aliens, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Please see the Statement of Additional Information and consult with your tax
adviser.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five (5) years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund purchased at net asset value and assuming reinvestment of all
dividends and distributions. This information has been audited by Ernst & Young
LLP, whose report, along with the Fund's financial statements, are included in
the Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value at beginning of year........................ $ 10.24 $ 15.95 $ 16.54 $ 14.90 $ 14.73
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................................... $ .07 $ .16 $ .29 $ .30 $ .30
Net realized and unrealized gain (loss) on investment
securities................................................ (.77) (3.77) 2.30 2.52 1.17
-------- -------- -------- -------- --------
Total from investment operations............................ $ (.70) $ (3.61) $ 2.59 $ 2.82 $ 1.47
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income...................... $ (.08) $ (.20) $ (.31) $ (.27) $ (.29)
-------- -------- -------- -------- --------
Distributions from net realized capital gains............. -- (1.90) (2.87) (0.91) (1.01)
-------- -------- -------- -------- --------
Total distributions......................................... $ (.08) $ (2.10) $ (3.18) $ (1.18) $ (1.30)
-------- -------- -------- -------- --------
Net asset value at end of year.............................. $ 9.46 $ 10.24 $ 15.95 $ 16.54 $ 14.90
======== ======== ======== ======== ========
Total investment return*.................................... (6.79)% (24.76)% 17.70% 20.42% 11.11%
Ratios/supplemental data:
Net assets at end of year (in $000's)....................... 171,220 385,845 830,733 683,059 595,917
Ratio of expenses to average net assets..................... 1.03% 0.92% 0.86% 0.87% 0.89%
Ratio of net investment income to average net assets........ 0.57% 1.14% 1.84% 1.94% 2.25%
Portfolio turnover rate..................................... 21% 68% 110% 131% 95%
</TABLE>
- ------------
* Return is based on net asset value per share, adjusted for reinvestment of
distributions, and does not reflect deduction of the sales charge.
17
<PAGE>
FOR SHAREHOLDER SERVICES CALL
BOSTON FINANCIAL DATA
SERVICES, INC.
(617) 483-5000 or
(800) 638-3060 except Alaska
Hawaii, Massachusetts and
Puerto Rico
FOR RETIREMENT PLAN SERVICES
CALL YOUR EMPLOYER OR PLAN
ADMINISTRATOR
FOR 24-HOUR INFORMATION GO TO
FUNDMASTER MARKETING GROUP
INTERNET WEB SITE
HTTP://WWW.FUNDMASTER.COM
FOR DEALER SERVICES CALL
FPA FUND DISTRIBUTORS, INC.
(310) 473-0225 or
(800) 982-4372 except
Alaska, Hawaii and
Puerto Rico
Telephone conversations may be recorded or monitored for verification,
record keeping and quality assurance purposes.
MULTIPLE TRANSLATIONS
This Prospectus may be translated into other languages. If there are any
inconsistencies or ambiguities, the English text will prevail.
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the Fund,
including the Fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI and
other related materials about the Fund are available for review or to be copied
at the SEC's Public Reference Room in Washington, D.C. (1-800-SEC-0330) or on
the SEC's Internet Web Site at http://www.sec.gov.
TO REQUEST OTHER INFORMATION ABOUT THE FUND OR TO REQUEST A FREE COPY OF ANY
OF THE DOCUMENTS ABOVE CONTACT FPA FUND DISTRIBUTORS, INC. AT 11400 WEST
OLYMPIC BOULEVARD, SUITE 1200, LOS ANGELES, CALIFORNIA 90064, AT (800)
982-4372, EXCEPT FROM ALASKA, HAWAII AND PUERTO RICO (WHERE YOU MAY CALL
COLLECT (310) 473-0225).
Investment Company Act No. 811-852
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
FPA PARAMOUNT FUND, INC.
This Statement of Additional Information supplements the current Prospectus of
FPA Paramount Fund, Inc. ("Fund") dated February 1, 1999. This Statement does
not present a complete picture of the various topics discussed and should be
read in conjunction with the Fund's Prospectus. Although this Statement of
Additional Information is not itself a Prospectus, it is, in its entirety,
incorporated by reference into the Prospectus. The Fund's Prospectus can be
obtained by contacting your securities dealer or the Fund's principal
underwriter, FPA Fund Distributors, Inc. ("Distributor"), at 11400 West Olympic
Boulevard, Suite 1200, Los Angeles, California 90064; telephone (310) 473-0225
or (800) 982-4372, except from Alaska, Hawaii and Puerto Rico.
TABLE OF CONTENTS
Page
Investment Objectives, Strategies and Policies............................... 1
Description of Certain Securities and Investment Techniques.................. 1
Equity Securities..................................................... 1
Gold Stocks........................................................... 1
Investment Concentration.............................................. 2
Securities of Foreign Issuers......................................... 2
Foreign Currency Transactions......................................... 2
Short Sales Against the Box........................................... 3
Repurchase Agreements................................................. 3
Leverage.............................................................. 3
Investment Restrictions...................................................... 3
Fund Organization............................................................ 5
Directors and Officers of the Fund........................................... 5
Five Percent Shareholders.................................................... 9
Management................................................................... 9
Investment Adviser.................................................... 9
Investment Advisory and Service Agreement............................ 10
Principal Underwriter................................................ 11
Portfolio Transactions and Brokerage........................................ 11
Portfolio Turnover.......................................................... 12
Capital Stock............................................................... 12
Common Stock......................................................... 12
Voting Rights........................................................ 12
Purchase and Redemption of Shares........................................... 13
Net Asset Value...................................................... 13
Sales Charges........................................................ 13
Authorized Financial Intermediaries.................................. 13
Sales at Net Asset Value............................................. 13
Letter of Intent..................................................... 13
FPA Exchange Privilege............................................... 14
Redemption of Shares................................................. 15
Telephone Redemption................................................. 15
Tax Sheltered Retirement Plans.............................................. 16
Dividends, Distributions and Taxes.......................................... 16
Distributor................................................................. 17
Prior Performance Information............................................... 18
Financial Statements........................................................ 20
-i-
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of FPA Paramount
Fund, Inc.'s (the "Fund") net assets unless otherwise noted. This summary is not
intended to reflect all of the Fund's investment limitations.
INVESTMENT OBJECTIVE AND STRATEGIES
- - The Fund's primary investment objective is high total investment
return, including capital appreciation and income. The Fund's
investment adviser, First Pacific Advisors, Inc., purchases common
stocks using a value discipline and evaluating each company on its own
merits. The Adviser's measures of value include price/earnings ratios,
book value, and replacement cost of assets. The Fund invests primarily
in the common stocks of U.S. companies in a variety of industries and
market segments. The Fund can also invest in fixed-income securities
and convertible securities. The Fund holds some assets in high quality
short-term debt securities to provide liquidity.
- - Investments in the Fund are not limited by a specific industry, and
substantially all common stocks purchased by the Fund will be listed on
a national securities exchange or the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System
or National List.
- - Although the Fund may not invest more than 5% of its total assets in
the securities of any one issuer (except the U.S. Government) at the
time of purchase, changes in market prices and the assets of the Fund
may from time to time cause more than 5% or even 10% of the Fund's
assets to be invested in securities of a single company. Although the
Fund may not invest more than 25% of its total assets in any one
industry at the time of purchase, changes in market prices and the
assets of the Fund may from time to time cause more than 25% of the
Fund's assets to be invested in one industry.
NON-U.S. SECURITIES
- - The Fund can invest up to 25% of its net assets in securities of
foreign issuers.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES -- The Fund will invest primarily in equity securities. Equity
securities represent an ownership position in a company. The prices of equity
securities fluctuate based on changes in the financial conditions of their
issuers and on market and economic conditions. These fluctuations can be severe
and can generate large losses.
GOLD STOCKS -- As long as the Fund maintains significant investments in gold
mining companies, an investment in the Fund can involve special considerations.
These include fluctuations in the price of gold; the potential effect of the
concentration of the sources of supply of gold and control over the sale of
gold; changes in U.S. or foreign tax, currency, or mining laws; increased
environmental costs; and unpredictable monetary policies and economic and
political conditions. Also, even gold mining companies with strong balance
sheets are likely to be adversely impacted by lower profitability from lower
gold prices.
The price of gold has recently been subject to substantial upward and downward
movements over short periods of time and may be affected by unpredictable
international monetary and political policies, such as currency devaluations or
reevaluations, economic conditions within an individual country, trade
imbalances or trade or currency restrictions between countries, and world
inflation rates and interest rates. Several central banks recently have sold
gold bullion from their reserves. Sales by central banks and/or rumors of these
sales have had a negative effect on gold prices.
1
<PAGE>
INVESTMENT CONCENTRATION -- As long as the Fund maintains significant positions
in a single company in one issuer, an investment in the Fund can involve special
consideration. For example, the Fund holds shares of Polymer Group, Inc. (23% of
net assets at September 30, 1999). The company has reported that risk factors
involved in investing in its securities include significant leverage from
outstanding debt obligations, fluctuations in raw material prices, reliance on
major customers, intense competition in the company's markets, importance of
continued development of innovative products, dependence on key suppliers, risks
of acquisitions and possible failure to integrate acquired businesses, earnings
impacted by currency fluctuations because of significant operations in foreign
countries, and other matters.
SECURITIES OF FOREIGN ISSUERS -- The Fund can invest up to 25% of its net assets
in securities of foreign issuers. Investments in securities of foreign issuers
can be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. Compared to U.S. companies, there might be less
publicly available information about foreign companies, which generally are
subject to less stringent accounting, auditing and financial reporting standards
and requirements. Securities of some foreign companies might be less liquid or
more volatile than those of U.S. companies. Foreign brokerage commissions and
custodial fees are generally higher than in the United States. Settlement of
transactions in some foreign markets can be delayed or can be less frequent than
in the U.S., which could affect the liquidity of the Fund's portfolio.
Investments in foreign securities can involve additional risks, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. In the
event of a default on any foreign debt obligation, it could be more difficult
for the Fund to obtain or enforce a judgment against the issuer.
Securities of foreign issuers can be subject to foreign government taxes which
could reduce the dividend or interest yield on such securities. Foreign
investments involve certain risks, such as political or economic instability of
the issuer or of the country of issue, the difficulty of predicting
international trade patterns and the possibility of imposition of exchange
controls. Such securities can also be subject to greater fluctuations in price
than those of domestic corporations or the United States Government. In
addition, there might be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to the uniform accounting, auditing and financial reporting standards
applicable to domestic companies. There is generally less government regulation
of stock exchanges, brokers and listed companies abroad than in the United
States. With respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation, or diplomatic developments affecting
foreign investments. Finally, in the event of default on any foreign debt
obligation, it may be more difficult for the Fund to obtain or enforce a
judgment against the issuer.
The Fund can purchase foreign securities in the form of American Depositary
Receipts ("ADRs") or other securities representing underlying shares of foreign
companies. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a sponsored
ADR. The Fund can invest in ADRs through both sponsored and unsponsored
arrangements.
FOREIGN CURRENCY TRANSACTIONS -- The value of any of the Fund's portfolio
securities that are traded in foreign markets can be affected by changes in
currency exchange rates and exchange control regulations. In addition, the Fund,
in purchasing or selling securities in foreign markets, will incur costs in
connection with conversions between various currencies. The Fund's foreign
currency exchange transactions generally are conducted on a spot basis (that is,
cash basis) at the spot rate for purchasing or selling currency prevailing in
the foreign currency exchange market. The Fund purchases and sells foreign
currency on a spot basis in
2
<PAGE>
connection with the settlement of transactions in securities traded in such
foreign currency. The cost of currency exchange transactions is generally the
difference between the bid and offer spot rate of the currency being purchased
or sold. The Fund does not purchase and sell foreign currencies as an
investment.
SHORT SALES AGAINST THE BOX -- The Fund can make short sales of securities or
maintain a short position if the Fund contemporaneously owns or has the right to
obtain at no added cost identical securities (short sales "against the box") or
if the securities sold are "when issued" or "when distributed" securities that
the Fund expects to receive in a recapitalization, reorganization, or other
exchange for securities the Fund contemporaneously owns or has the right to
obtain at no added cost. The principal purpose of short sales is to enable the
Fund to obtain the current market price of a security that the Fund desires to
sell but which cannot be currently delivered for settlement. The Fund will not
make short sales or maintain a short position if to do so would cause more than
25% of its total net assets (exclusive of proceeds from short sales) to be
allocated to a segregated account in connection with short sales.
REPURCHASE AGREEMENTS -- The Fund can invest in repurchase agreements with
domestic banks or dealers to earn interest on temporarily available cash. A
repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires a debt security that the seller agrees to repurchase at a
future time and set price, thereby determining the yield during the holding
period. Repurchase agreements are collateralized by the underlying debt
securities and may be considered loans under the Investment Company Act of 1940
("Investment Company Act"). In the event of bankruptcy or other default by the
seller, the Fund could experience delays and expenses liquidating the underlying
security, loss from decline in value of such security, and lack of access to
income on such security. The Fund will not invest more than 10% of its total net
assets in repurchase agreements that mature in more than seven days and/or other
securities which are not readily marketable.
LEVERAGE -- The Fund can borrow from banks to raise additional funds for
investment. Such borrowings may be made periodically when it is expected that
the potential return, including capital appreciation and/or income, from the
investment of these funds will exceed the cost. Any return from investment of
the borrowed funds in excess of the interest cost will cause the net asset value
of Fund shares to rise faster than would otherwise be the case. Conversely, if
the return on the investment of the borrowed funds fails to cover the interest
cost, the net asset value will decrease faster than normal. This speculative
factor is known as leverage. This policy permitting bank borrowing cannot be
changed without the approval of the holders of a majority (as defined under
"Investment Restrictions") of the Fund's outstanding voting securities. The Fund
may collateralize any bank borrowing by depositing portfolio securities with, or
segregating such securities for, the account of the lending bank. See
"Investment Restrictions."
Under the Investment Company Act the Fund must have an asset coverage of at
least 300% of the amount borrowed, immediately after the borrowing. Asset
coverage means total assets, including borrowings, less liabilities, excluding
borrowings. If the Fund's asset coverage falls below this requirement because of
market fluctuations, redemptions or other reasons, the Fund must reduce its bank
debt as necessary within three business days. To do this, the Fund may have to
sell a portion of its investments at a disadvantageous time. The amount of any
borrowing is also limited by the applicable Federal Reserve Board's margin
limitations.
The Fund has not borrowed for more than twenty years and has no present
intention to do so during the coming year.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions stated below. They apply at the
time securities are purchased or other relevant action is taken. These
restrictions and the Fund's investment objective cannot be changed without
approval of the holders of a majority of outstanding Fund shares. The Investment
Company Act defines this majority as the lesser of (a) 67% or more of the voting
securities present in person
3
<PAGE>
or represented by proxy at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or (b) more
than 50% of the outstanding voting securities. In addition to those described in
the Prospectus, these restrictions provide that the Fund shall not:
1. Purchase securities of other investment companies if immediately after
such purchase the Fund will own (a) more than 3% of the total outstanding
voting stock of any such companies, (b) securities issued by any of such
companies having an aggregate value in excess of 5% of the value of the
total assets of the Fund or (c) securities issued by investment companies
having an aggregate value in excess of 10% of the value of the total
assets of the Fund.
2. Purchase, lease, acquire, hold or sell real estate or any illiquid
interest in real estate other than (a) for office space, (b) securities
issued by registered real estate investment trusts or (c) as provided in
paragraph 4 below.
3. Engage in short sales, margin purchases, puts, calls, straddles or
spreads, except that the Fund may make certain short sales of securities
or maintain a short position if the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short
(short sales "against the box") or if the securities sold are "when
issued" or "when distributed" securities which the Fund expects to receive
in a recapitalization, reorganization, or other exchange for securities
the Fund contemporaneously owns or has the right to obtain at no added
cost.
4. Make loans to any person or firm, except by the acquisition of outstanding
notes or other evidences of indebtedness secured by first deeds of trust
or mortgages on real property or interest therein, in an aggregate amount
not exceeding 10% of the value of its total assets. However, the making
of time or demand deposits with banks and the purchase of publicly traded
bonds, debentures or other securities of any other issuer of a type
customarily purchased by institutional investors or any government or
governmental issue at original issue or otherwise, shall not be deemed to
be a loan. Investment in repurchase agreements shall not be considered
the making of a loan for purposes of this investment restriction; although
the Fund will not invest in repurchase agreements maturing in more than
seven days if any such investments, together with any other illiquid
securities held by the Fund, would exceed 10% of the Fund's total net
assets.
5. Participate on a joint or a joint and several basis in any trading account
in securities.
6. Invest in companies for the purpose of exercising control or management.
However, once investments have been acquired, the Fund may exercise its
vote as a shareholder in its best interests even though such vote may
affect management or control of a company.
7. Underwrite the sale of securities of others, except when the Fund might be
deemed to be a statutory underwriter because of its disposing of
restricted securities. The Fund will not purchase restricted securities.
8. Purchase or sell commodities or commodity contracts.
9. Purchase from, or sell to, any officers, directors or employees of the
Fund or its adviser or underwriter, or any of their officers or directors,
any securities other than the shares of the Fund's capital stock. Such
persons or firms, however, may act as brokers for the Fund for customary
commissions.
10. Issue any senior securities except that the Fund may borrow from banks to
the extent described above under "Leverage."
4
<PAGE>
11. Invest more than 5% of its total assets, based on market value, in the
securities of any one issuer (except the U.S. Government); or acquire more
than 10% of any class of securities of any one issuer.
12. Invest more than 25% of the value of its total assets in any one industry.
Percentage limitations are calculated and applied at the time of investment.
Thus, if securities of a given issuer come to constitute more than 5%, or
securities of a given industry come to constitute more than 25%, of the value of
the Fund's assets by reason of changes in value of either the given securities
or other assets, the excess need not be sold.
FUND ORGANIZATION
The Fund is a Maryland corporation and a diversified, open-end management
investment company, generally called a mutual fund, which was organized in 1958.
A mutual fund provides the investor a practical and convenient way to invest in
a diversified portfolio of securities by combining resources with others who
have similar investment goals.
A board of five directors is responsible for overseeing the Fund's affairs.
DIRECTORS AND OFFICERS OF THE FUND
All directors and officers of the Fund are also directors and/or officers of one
or more of four other investment companies advised by the Adviser, which is an
indirect wholly owned subsidiary of United Asset Management Corporation ("UAM").
These investment companies are FPA Capital Fund, Inc., FPA New Income, Inc., FPA
Perennial Fund, Inc. and Source Capital, Inc. (collectively, the "FPA Fund
Complex").
The directors and officers of the Fund, their ages on the date hereof and their
principal occupations during the past five years follow. Their address is 11400
West Olympic Boulevard, Suite 1200, Los Angeles, California 90064.
5
<PAGE>
FUND DIRECTORS AND OFFICERS
DIRECTORS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
COMPENSATION
(1) FROM THE
FUND DURING
POSITION HELD WITH THE FISCAL YEAR
NAME/AGE FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ENDED 9/30/99
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Julio J. de Puzo, Jr., 45* Director & Executive Director (since October 1995), Principal and Chief $ -0-
Vice President Executive Officer (since March 1996) of First Pacific
Advisors, Inc.; Director and President (since March
1996) of Source Capital, Inc.; Director and Executive
Vice President (since April 1996) of FPA Perennial
Fund, Inc.; and Director (since December 1999) and
Executive Vice President (since August 1996) of FPA
Capital Fund, Inc. and of FPA New Income, Inc.
President and Chief Executive Officer (since January
1997), and Director for more than the past five years
of FPA Fund Distributors, Inc. Executive Vice President
from October 1995 to March 1996, Chief Administrative
Officer from October 1995 to March 1996, Chief Financial
Officer from June 1991 to March 1996, Treasurer from
June 1991 to March 1996, and Senior Vice President from
February 1993 to October 1995, of First Pacific
Advisors, Inc. Treasurer from June 1981 to August 1996
of the Fund; from July 1984 to August 1996 of FPA
Capital Fund, Inc. and of FPA New Income, Inc.; from
May 1982 to August 1996 of Source Capital, Inc.; and
from September 1983 to August 1996 of FPA Perennial
Fund, Inc. Chief Financial Officer from October 1991
to March 1998, and Executive Vice President (or Senior
Vice President or First Vice President) from October
1991 to January 1997 of FPA Fund Distributors, Inc.
<CAPTION>
- -----------------------------------------
AGGREGATE
COMPENSATION (1)
FROM THE FPA FUND
COMPLEX DURING
THE FISCAL YEAR TOTAL NUMBER OF
ENDED 9/30/99 BOARDS ON WHICH
DIRECTOR SERVES
- -----------------------------------------
<S> <C>
$-0- 5
- -----------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
COMPENSATION
(1) FROM THE
FUND DURING
POSITION HELD WITH THE FISCAL YEAR
NAME/AGE FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ENDED 9/30/99
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John P. Endicott, 81 Director Independent management consultant; Associate, $13,000
Case and Company, Inc. (management consultants)
from April 1981 to January 1983; and President
and Director, Sierracin Corporation
(manufacturer of high technology products) from
1969 to March 1979. Director of FPA Perennial
Fund, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Leonard Mautner, 82 Director President, Leonard Mautner Associates (management $13,000
consultants); General Partner, Goodman & Mautner
Ltd. (venture capital partnership); and
President, Goodman & Mautner, Inc. (investment
manager) from 1969 to 1979. Director of FPA
Perennial Fund, Inc. and of MRV Communications
Inc.
- --------------------------------------------------------------------------------------------------------------------------------
John H. Rubel, 79 Director President, John H. Rubel and Associates, Inc. $13,000
(management consultants) for more than the past
five years; Senior Vice President, Litton
Industries, Inc. (diversified manufacturing) from
1963 to 1973; Assistant Secretary of Defense
(Research and Engineering) from 1961 to 1963; and
member of the Task Force Commission for the War
on Poverty during 1964.
- --------------------------------------------------------------------------------------------------------------------------------
John P. Shelton, 79 Director Professor Emeritus at UCLA Graduate School of $13,000
Management for more the past five years.
Director of Genisco Systems, Inc. (manufacturer
of hardened computers and electronics).
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------
AGGREGATE
COMPENSATION (1)
FROM THE FPA FUND
COMPLEX DURING
THE FISCAL YEAR TOTAL NUMBER OF
ENDED 9/30/99 BOARDS ON WHICH
DIRECTOR SERVES
- -----------------------------------------
<S> <C>
$18,000 2
- -----------------------------------------
$17,500 2
- -----------------------------------------
$13,000 1
- -----------------------------------------
$13,000 1
- -----------------------------------------
</TABLE>
- -------------------
(1) No pension or retirement benefits are provided to directors by the Fund
or the FPA Fund Complex.
* Director who is an interested person, as defined in the Investment
Company Act, by virtue of his affiliation with the Adviser.
7
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Name/Age Position held with Fund Principal Occupation(s) during Past 5 Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William M. Sams, 62 President & Chief Director and Principal of First Pacific
Investment Officer Advisors, Inc. since March 1996; and Director
of FPA Fund Distributors, Inc. since
January 1997. Executive Vice President from
November 1981 to March 1996 of First Pacific
Advisors, Inc.; and Executive Vice
President from September 1983 to August 1995
of FPA Perennial Fund, Inc.
- --------------------------------------------------------------------------------------------------------------
Eric S. Ende, 55 Vice President Senior Vice President of First Pacific
Advisors, Inc. for more than the past five
years; President (since September 1995) and
Portfolio Manager (since August 1999) of FPA
Perennial Fund, Inc.; Chief Investment
Officer since May 1997 and Senior Vice
President for more than the past five years of
Source Capital, Inc.; and Vice President of
FPA Capital Fund, Inc. and FPA New Income,
Inc. for more than the past five years. Chief
Investment Officer from September 1995 to
August 1999, Executive Vice President from
August 1995 to September 1995, and Vice
President from May 1985 to August 1995, of FPA
Perennial Fund, Inc..
- --------------------------------------------------------------------------------------------------------------
Janet M. Pitman, 56 Vice President Vice President of First Pacific Advisors, Inc.
for more than the past five years, of Source
Capital, Inc. and of FPA Perennial Fund, Inc.
since April 1996, and of FPA Capital Fund,
Inc. and of FPA New Income, Inc. since
February 1997.
- --------------------------------------------------------------------------------------------------------------
J. Richard Atwood, 39 Treasurer Senior Vice President, Chief Financial Officer
and Treasurer of First Pacific Advisors, Inc.
since January 1997; and Chief Financial
Officer since March 1998, Senior Vice
President and Treasurer since January 1997 of
FPA Fund Distributors, Inc. Treasurer of FPA
Capital Fund, Inc., of FPA New Income, Inc.,
of FPA Perennial Fund, Inc., and of Source
Capital, Inc. since January 1997. Vice
President and Chief Financial Officer of
Transamerica Investment Services, Inc. from
January 1995 to January 1997. Vice President
(or Assistant Vice President) and Controller
of First Pacific Advisors, Inc. from August
1988 to January 1995, and Assistant Treasurer
of FPA Fund Distributors, Inc. from May 1991
to January 1995. Assistant Treasurer of the
Fund, of FPA Capital Fund, Inc., of FPA New
Income, Inc., of FPA Perennial Fund, Inc., and
of Source Capital, Inc. from August 1988 to
January 1995.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Name/Age Position held with Fund Principal Occupation(s) during Past 5 Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sherry Sasaki, 44 Secretary Assistant Vice President and Secretary for
more than the past five years of First Pacific
Advisors, Inc.; and Secretary of FPA Capital
Fund, Inc., of FPA New Income, Inc., of FPA
Perennial Fund, Inc., of Source Capital, Inc.,
and of FPA Fund Distributors, Inc. for more
than the past five years.
- --------------------------------------------------------------------------------------------------------------
Christopher H. Thomas, 42 Assistant Treasurer Vice President and Controller of First Pacific
Advisors, Inc. and of FPA Fund Distributors,
Inc. since March 1995, and Assistant Treasurer
of FPA Capital Fund, Inc., of FPA New Income,
Inc., of FPA Perennial Fund, Inc., and of
Source Capital, Inc. since April 1995. Staff
Accountant with the Office of Inspection of
the Securities and Exchange Commission from
1994 to March 1995. School Administrator of
the Calvary Road Christian Academy from 1988
to 1993.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
All officers of the Fund are also officers of the Adviser. The Directors and
officers of the Fund as a group own approximately 0.00% of the outstanding Fund
shares. During the last fiscal year, the Directors then in office who were not
affiliated with the Adviser received as a group $52,000 in Directors' fees. Such
Directors were also reimbursed for certain travel expenses by the Fund.
FIVE PERCENT SHAREHOLDERS
As of December 31, 1999, no person was known by the Fund to own of record or
beneficially 5% or more of the outstanding Fund shares, except Merrill Lynch,
Pierce, Fenner & Smith, Inc., for the sole benefit of its customers, Attention:
Fund Administration 97163, 4800 Deer Lake Drive, East Floor 2, Jacksonville,
Florida 32246-6484, which held 0,000,000 shares (0.0%). Such broker-dealer
advises that the shares are held for the benefit of its customers.
MANAGEMENT
INVESTMENT ADVISER. First Pacific Advisors, Inc., together with its
predecessors, has been in the investment advisory business since 1954, serving
as investment adviser to the Fund since July 1, 1978. Presently, the investment
adviser manages assets of approximately $3.2 billion for six investment
companies, including one closed-end investment company, and 22 institutional
accounts. Currently, the personnel of First Pacific Advisors, Inc. consists of
nine persons engaged full time in portfolio management or investment research in
addition to 27 persons engaged full time in trading, administrative, financial
or clerical activities. FPA Fund Distributors, Inc., is a wholly owned
subsidiary of First Pacific Advisors, Inc., which is itself a wholly owned
subsidiary of United Asset Management Holdings, Inc. United Asset Management
Holdings, Inc. is a wholly owned subsidiary of UAM, a New York Stock Exchange
listed holding company principally engaged, through affiliated firms, in
providing institutional investment management and acquiring institutional
investment management firms. No person is known by UAM to own or hold with power
to vote 25% or more of its outstanding shares of common stock.
9
<PAGE>
INVESTMENT ADVISORY AND SERVICE AGREEMENT. The Fund has entered into an
Investment Advisory Agreement dated June 27, 1991 ("Advisory Agreement"), with
the Adviser pursuant to which the Adviser provides continuing supervision of the
Fund's investment portfolio. The Adviser is authorized, subject to the control
of the Fund's Board of Directors, to determine which securities are to be bought
or sold and in what amounts. In addition to providing investment advisory and
management services, the Adviser furnishes office space, facilities and
equipment, and maintains the Fund's books and records. It also compensates all
officers and other personnel of the Fund, all of whom are employed by the
Adviser, subject to reimbursement from the Fund for personnel involved in
providing financial services as indicated below.
Other than the expenses the Adviser specifically assumes under the Advisory
Agreement, the Fund bears all costs of its operation. These costs include
brokerage commissions and other costs of portfolio transactions; fees and
expenses of directors not affiliated with the Adviser; taxes; transfer agent,
dividend disbursement, reinvestment and custodian fees; legal and audit fees;
printing and mailing of reports to shareholders and proxy materials;
shareholders' and directors' meetings; registration of Fund shares under federal
and state laws; printing and engraving stock certificates; trade association
membership fees; premiums for the fidelity bond and errors and omissions
insurance maintained by the Fund; litigation; interest on indebtedness; and
reimbursement of the Adviser's expenses in providing financial services to the
Fund as described below.
For services rendered, the Adviser is paid a monthly fee computed at the annual
rate of 0.75% of the first $50 million, and 0.65% of the excess over $50
million, of the Fund's average net assets. The average net assets are determined
by taking the average of all the daily determinations of net assets made, in the
manner provided in the Fund's Articles of Incorporation, during a calendar
month.
In addition to the advisory fee, the Fund reimburses the Adviser monthly for
costs incurred in providing financial services to the Fund. Such financial
services include (a) maintaining the accounts, books and other documents forming
the basis for the Fund's financial statements, (b) preparing such financial
statements and other Fund documents and reports of a financial nature required
by federal and state laws, (c) calculating daily net assets and (d)
participating in the production of the Fund's registration statements,
prospectuses, proxy materials and reports to shareholders (including
compensation of the Treasurer or other principal financial officer of the Fund,
compensation of personnel working under such person's direction and expenses of
office space, facilities and equipment such persons use to perform their
financial services duties). However, for any fiscal year, the cost of such
financial services paid by the Fund cannot exceed 0.10% of the average daily net
assets of the Fund.
The advisory fee and cost of financial services is reduced in the amount by
which certain defined operating expenses of the Fund (including the advisory fee
and cost of financial services) for any fiscal year exceed 1.50% of the first
$30 million of average net assets, plus 1% of the remaining average net assets.
Such values are calculated at the close of business on the last business day of
each calendar month. Any required reduction or refund is computed and paid
monthly. Operating expenses (as defined in the Advisory Agreement) exclude (a)
interest, (b) taxes, (c) brokerage commissions and (d) any extraordinary
expenses, such as litigation, merger, reorganization or recapitalization, to the
extent such extraordinary expenses can be excluded under the rules or policies
of the states in which Fund shares are registered for sale. All expenditures,
including costs connected with the purchase, retention or sale of portfolio
securities, which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, are accounted for as
capital items and not as expenses. This expense limitation
10
<PAGE>
provision does not require any payment by the Adviser beyond the return of the
advisory fee and cost of financial services paid to it by the Fund for a fiscal
year.
The Advisory Agreement provides that the Adviser does not have any liability to
the Fund or any of its shareholders for any error of judgment, any mistake of
law or any loss the Fund suffers in connection with matters related to the
Advisory Agreement, except for liability resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser or the reckless disregard of its
duties under the Advisory Agreement.
The Advisory Agreement is renewable annually if specifically approved each year
(a) by the Fund's Board of Directors or by the vote of a majority (as defined in
the Investment Company Act) of the Fund's outstanding voting securities and (b)
by the vote of a majority of the Fund's directors who are not parties to the
Advisory Agreement or interested persons (as defined in the Investment Company
Act) of any such party, by votes cast in person at a meeting called for the
purpose of voting on such approval. The continuation of the Advisory Agreement
to May 31, 2000, has been approved by the Board of Directors and a majority of
the Fund's directors who are not parties to the Advisory Agreement or interested
persons of any such party (as defined in the Investment Company Act). The
Advisory Agreement may be terminated without penalty by the Fund's Board of
Directors or the vote of a majority (as defined in the Investment Company Act)
of the Fund's outstanding voting securities on 60 days' written notice to the
other party. The Advisory Agreement automatically terminates in the event of its
assignment (as defined in the Investment Company Act).
For the fiscal years ended September 30, 1997, 1998 and 1999, the Adviser
received gross advisory fees of $4,896,408, $4,186,818, and $1,637,506,
respectively, plus $715,380, $636,434, and $244,232, respectively for costs
incurred in providing financial services to the Fund.
PRINCIPAL UNDERWRITER. FPA Fund Distributors, Inc. (the "Distributor"), located
at 11400 West Olympic Boulevard, Suite 1200, Los Angeles, California 90064, acts
as principal underwriter of Fund shares pursuant to a Distribution Agreement
dated September 3, 1991 (the "Distribution Agreement"). Please see "Distributor"
for more information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser makes decisions to buy and sell securities for the Fund, selects
broker-dealers and negotiates commission rates or net prices. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless the Adviser believes better prices and executions are
available elsewhere. Portfolio transactions are effected with broker-dealers
selected for their abilities to give prompt execution at prices favorable to the
Fund. In selecting broker-dealers and in negotiating commissions, the Adviser
considers each firm's reliability, the quality of its execution services on a
continuing basis and its financial condition. When more than one firm is
believed to meet these criteria, preference can be given to broker-dealers
providing research services to the Fund or the Adviser. Subject to seeking best
execution, the Adviser can also consider sales of Fund shares as a factor in
selecting broker-dealers to execute portfolio transactions for the Fund. Any
solicitation fees the Adviser receives in connection with acceptance of an
exchange or tender offer of the Fund's portfolio securities are applied to
reduce the advisory fees.
The Advisory Agreement authorizes the Adviser to pay commissions on security
transactions to broker-dealers furnishing research services in an amount higher
than the lowest available rate. The Adviser must determine in good faith that
such amount is reasonable in relation to the brokerage and research services
provided (as required by Section 28(e) of the Securities Exchange Act of 1934)
viewed in terms of the
11
<PAGE>
particular transaction or the Adviser's overall responsibilities with respect to
accounts for which it exercises investment discretion. The term brokerage and
research services is defined to include (a) providing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts; and
(c) effecting securities transactions and performing related incidental
functions, such as clearance, settlement and custody. The advisory fee is not
reduced as a result of the Adviser's receipt of such research.
Research services furnished by broker-dealers effecting securities transactions
for the Fund can be used by the Adviser for all advisory accounts. However, the
Adviser might not use all such research services in managing the Fund's
portfolio. In the Adviser's opinion, it is not possible to measure separately
the benefits from research services to each advisory account. Because the volume
and nature of the trading activities of advisory accounts are not uniform, the
amount of commissions in excess of the lowest available rate paid by each
advisory account for brokerage and research services will vary. However, the
Adviser believes the total commissions the Fund pays are not disproportionate to
the benefits it receives on a continuing basis.
The Adviser attempts to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the Fund and
other advisory accounts. In some cases, this procedure could have an adverse
effect on the price or amount of securities available to the Fund. The main
factors considered in such allocations are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinion of the persons responsible for recommending the
investments.
Brokerage commissions paid by the Fund on portfolio transactions for the fiscal
years ended September 30, 1997, 1998 and 1999, totaled $2,599,684, $1,501,914
and $795,911, respectively. During the last fiscal year, $565,129 of commissions
were paid on transactions having a total value of $109,352,221 to brokers
selected because of research services provided to the Adviser.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for a fiscal year by the average monthly value of
portfolio securities during such fiscal year. Securities maturing in one year or
less at the time of acquisition are not included in this computation. The
turnover rate for prior periods is shown in the Prospectus under the caption
"Financial Highlights." This rate may vary greatly from year to year as well as
within a year.
CAPITAL STOCK
COMMON STOCK. Each share of the Fund participates equally in dividend and
liquidation rights. Fund shares are transferable, fully paid and non-assessable,
and do not have any preemptive or conversion rights. The Fund has authorized 100
million shares of $0.25 par value Common Stock.
VOTING RIGHTS. The By-laws of the Fund require shareholder meetings to elect
directors only when required by the Investment Company Act which is likely to
occur infrequently. In addition, a special meeting of the shareholders will be
called, if requested by the holders of 10% of the Fund's outstanding shares, for
the purposes, and to act upon the matters, specified in the request (which may
include election or removal of directors). When matters are submitted for a
shareholder vote, each shareholder is entitled
12
<PAGE>
to one vote for each share owned. Shares of the Fund do not have cumulative
voting rights, which means holders of more than 50% of Fund shares voting for
the election of directors can elect 100% of the directors if they so choose. In
such event, holders of the remaining Fund shares are not able to elect any
person or persons to the Fund's Board of Directors.
PURCHASE AND REDEMPTION OF SHARES
NET ASSET VALUE. Net asset value is computed as of the close of the NYSE on each
business day during which the NYSE is open. Net asset value, rounded to the
nearest cent per share, is the total market value of all of the Fund's portfolio
securities plus other assets (including any accrued reimbursement of expenses),
less all liabilities, divided by the total number of Fund shares outstanding.
The NYSE is closed not only on weekends but also on customary holidays, which
currently are New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Such computation is made by (a) valuing securities listed or
traded on a national securities exchange or on the NASDAQ National Market System
at the last sale price or, if there has been no sale that day, at the last bid
price, (b) valuing unlisted securities for which quotations are readily
available at the last representative bid price as supplied by the National
Association of Securities Dealers Automated Quotations (NASDAQ) or by dealers
and (c) appraising all other portfolio securities and assets at fair value as
determined in good faith by the Fund's Board of Directors.
SALES CHARGES. The maximum sales charge is 6.5% of the offering price, but lower
sales charges apply for larger purchases. A portion of the sales charge is
allocated to dealers selling Fund shares in amounts ranging from 80% to 95%,
depending on the size of the investment. During special promotions, the
Distributor may reallow up to 100% of the sales charge to dealers. At such times
dealers could be deemed to be underwriters for purposes of the Securities Act of
1933. Discounts are alike to all dealers.
AUTHORIZED FINANCIAL INTERMEDIARIES. The Fund has authorized certain financial
intermediaries including one or more brokers to accept on its behalf purchase
and redemption orders. These brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund is deemed to have received a purchase or redemption order when an
authorized financial intermediary including an authorized broker or if
applicable a broker's authorized designee accepts the order. Customer orders are
priced at the Fund's net asset value next computed after they are accepted by an
authorized financial intermediary, including an authorized broker or the
broker's authorized designee.
SALES AT NET ASSET VALUE. Full-time employees of the Adviser can purchase Fund
shares at net asset value via payroll deduction provided the minimum initial
investment is $250. Each subsequent investment must be at least $50.
LETTER OF INTENT. To be eligible for reduced sales charges, the investor must
sign at the time of initial purchase, or within 30 days, a Letter of Intent
("LOI") covering investments to be made within a period of 13 months ("Period")
from the initial purchase. The investor then becomes eligible for a reduced
sales charge based on the total amount of the specified intended investment
("LOI Goal"), provided the amount is not less than $10,000. A minimum initial
purchase of $1,500 and minimum subsequent purchases of $100 each are required.
Fund shares can also be purchased to fulfill a letter of intent entered into
with respect to shares of the other FPA Funds. The account information form,
which should be used to establish an LOI, is available from dealers or the
Distributor.
All transactions under an LOI must be indicated as such and must be placed by
the dealer (in the case of an initial purchase) or the shareholder (in the case
of any subsequent purchase) directly through Boston
13
<PAGE>
Financial Data Services, Inc. ("Shareholder Service Agent"). Shareholders should
review for accuracy all confirmations of transactions, especially purchases made
pursuant to an LOI.
If the LOI Goal is completed before the end of the Period, any subsequent
purchases within the Period receive the applicable reduced sales charge. In
addition, during the Period, the shareholder can increase his or her LOI Goal,
and all subsequent purchases are treated as a new LOI (including escrow of
additional Fund shares) except as to the Period, which does not change.
Signing an LOI does not bind the shareholder to complete his or her LOI Goal,
but the LOI Goal must be completed to obtain the reduced sales charge. The LOI
is binding on the Fund and the Distributor. However, the Distributor may
withdraw a shareholder's LOI privileges for future purchases upon receiving
information that the shareholder has resold or transferred his or her Fund
shares within the Period.
The LOI requires the Shareholder Service Agent, as escrow agent, to hold 5% of
the LOI Goal in escrow until completion of the LOI Goal within the Period. The
escrowed Fund shares are taken from the first purchase and, if necessary, from
each successive purchase. If the LOI Goal is completed within the Period, the
escrowed Fund shares are promptly delivered to, or as directed by, the
shareholder.
If the LOI Goal is not completed within the Period, the shareholder must pay the
Distributor an amount equal to the sales charge applicable to a single purchase
in the total amount of the purchases made under the LOI minus the sales charges
actually paid. If the Distributor does not receive such unpaid sales charge
within 20 days after requesting payment in writing, the Distributor instructs
the Shareholder Service Agent to redeem escrowed Fund shares sufficient to cover
the unpaid sales charge. Under the LOI, the shareholder irrevocably appoints the
Shareholder Service Agent as his or her attorney with full power of substitution
to surrender for redemption any or all escrowed Fund shares. If the redemption
proceeds are inadequate, the shareholder is liable to the Distributor for the
difference. The Shareholder Service Agent delivers to, or as directed by, the
shareholder all Fund shares remaining after such redemption, together with any
excess cash proceeds.
Any income dividends and capital gains distributions on the escrowed Fund shares
are paid or reinvested as directed by, the shareholder.
FPA EXCHANGE PRIVILEGE. The procedures for exchanging shares between FPA Funds
are described under "Exchanging Your Fund Shares" in the Fund's Prospectus. If
the account registration information for the two FPA Fund accounts involved in
the exchange are different in any respect, the exchange instructions must be in
writing and must contain a signature guarantee as described under "Selling
(Redeeming) Your Shares" in the Fund's Prospectus.
By use of the exchange privilege, the investor authorizes the Shareholder
Service Agent ("Agent") to act on telephonic, telegraphic or written exchange
instructions from any person representing himself to be the investor or the
agent of the investor and believed by the Agent to be genuine. The Agent's
records of such instructions are binding.
For purposes of determining the sales charge rate previously paid, all sales
charges paid on the exchanged security and on any security previously exchanged
for such security or for any of its predecessors will be included. If the
exchanged security was acquired through reinvestment, that security may be
exchanged without a sales charge. If a shareholder exchanges less than all of
his securities, the security requiring no or the lowest incremental sales charge
is deemed exchanged first.
14
<PAGE>
Exchange requests received on a business day before shares of the Funds involved
in the request are priced, are processed on the date of receipt by the
Shareholder Service Agent. "Processing " a request means that shares in the Fund
from which the shareholder is withdrawing an investment will be redeemed at the
net asset value per share next determined after receipt. Shares of the new Fund
into which the shareholder is investing will also normally be purchased at the
net asset value per share, plus any applicable sales charge, next determined
after receipt by the Agent. Exchange requests received on a business day after
the time shares of the Funds involved in the request are priced, are processed
on the next business day as described above.
Boston Financial Data Services, Inc. uses procedures it considers reasonable to
confirm exchange instructions via telephone, including requiring account
registration verification from the caller and recording telephone instructions.
Neither Boston Financial Data Services, Inc. nor the Fund is liable for losses
due to unauthorized or fraudulent instructions if there is a reasonable belief
in the authenticity of received instructions and reasonable procedures are
employed; otherwise, they may be liable.
REDEMPTION OF SHARES. Redemptions are not made on days when the NYSE is closed,
including those holidays listed under "Purchase and Redemption of Shares - Net
Asset Value." The right of redemption can be suspended and the payment therefore
may be postponed for more than seven days during any period when (a) the NYSE is
closed for other than customary weekends or holidays; (b) trading on the NYSE is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities it owns is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets or (d)
the Securities and Exchange Commission, by order, so permits.
TELEPHONE REDEMPTION. Redemptions can be made by telephone once the shareholder
has properly completed and returned to the Agent the optional shareholder
services form including the designation of a bank account to which the
redemption payment is to be sent ("Designated Bank"). The proceeds will not be
mailed or wired to other than the Designated Bank. New investors who wish to
establish the telephone redemption privilege must complete the appropriate
section on the optional shareholder services form. Existing shareholders who
wish to establish the telephone redemption privilege or change the Designated
Bank should either enter the new information on an optional shareholder services
form, marking it for "change of information" purposes, or send a letter
identifying the Fund account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s) appear on the
account. All signatures require a guarantee as described under "Selling
(Redeeming) Your Shares" in the Fund's Prospectus. The optional shareholder
services form is available from authorized securities dealers or the
Distributor.
Shareholders who want to use a savings and loan ("S&L") as their Designated Bank
are advised that if the S&L is not a participant in the Federal Reserve System,
redemption proceeds must be wired through a commercial bank which is a
correspondent of the S&L. As this may delay receipt by the shareholder's
account, it is suggested that shareholders who wish to use an S&L discuss wire
procedures with their S&L and submit any special wire transfer information with
the telephone redemption authorization. If appropriate wire information is not
supplied, redemption proceeds will be mailed to such Designated Bank.
A shareholder can cancel the telephone redemption authorization upon written
notice. If the shareholder has authorized telephone redemptions, neither the
Fund nor the Agent is responsible for any unauthorized telephone redemptions. If
the Fund shares to be redeemed by telephone (technically a repurchase by
agreement between the Fund and the shareholder) were recently purchased by
check, the Agent can delay transmitting the proceeds until the purchasing check
has cleared but no more than 15 days from purchase.
15
<PAGE>
Boston Financial Data Services, Inc. uses procedures it considers reasonable to
confirm redemption instructions via telephone, including requiring account
registration verification from the caller and recording telephone instructions.
Neither Boston Financial Data Services, Inc. nor the Fund is liable for losses
due to unauthorized or fraudulent instructions if there is a reasonable belief
in the authenticity of received instructions and reasonable procedures are
employed; otherwise, they may be liable.
TAX SHELTERED RETIREMENT PLANS
Through the Distributor, prototype retirement plans are available for purchase
of Fund shares. These include plans for self-employed individuals and plans for
individuals buying shares under an Individual Retirement Account. A penalty tax
applies, in general, to distributions made before age 59-1/2, excess
contributions and failure to start distribution of the account at age 70-1/2.
Borrowing from or against the account could also result in plan
disqualification. Distributions from these retirement plans generally are
taxable as ordinary income when received.
State Street Bank and Trust Company ("Bank") presently acts as custodian for
these retirement plans and imposes fees for administering them. Purchases of
Fund shares for a retirement plan must be made by direct remittance to the Bank.
When contributions for any tax-qualified plan are invested in Fund shares, all
dividends and capital gains distributions paid on those Fund shares are retained
in such plan and automatically reinvested in additional Fund shares at net asset
value. All earnings accumulate tax-free until distribution.
The investor should consult his or her own tax adviser concerning the tax
ramifications of establishing, and distributions from, a retirement plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund qualified during the last fiscal year for the tax treatment applicable
to regulated investment companies under the Internal Revenue Code ("Code") and
intends to so qualify in the future. Such qualification requires distributing at
least 90% of its investment company taxable income to shareholders and meeting
asset diversification and other requirements of the Code. As long as the Fund so
qualifies, it does not pay federal income tax on its net investment income or on
any net realized capital gains provided such income and capital gains are
distributed to shareholders. If for any taxable year the Fund does not so
qualify, all of its taxable income, including any net realized capital gains,
will be taxed at regular corporate rates (without any deduction for
distributions to shareholders).
The Fund is subject to a 4% excise tax to the extent it does not make certain
distributions to its shareholders. Such distributions must total (1) at least
98% of ordinary income (investment company taxable income subject to certain
adjustments) for any calendar year and (2) 98% of capital gains net income for
the year. The Fund intends to distribute sufficient amounts to avoid liability
for this excise tax.
If shares of the Fund are sold or exchanged within 90 days of acquisition, and
shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
16
<PAGE>
Under federal tax law, any loss a shareholder realizes on redemption of Fund
shares held for less than six months is treated as a long-term capital loss to
the extent of any long-term capital gain distribution which was paid on such
Fund shares.
Prior to purchasing Fund shares, the impact of dividends or capital gains
distributions should be carefully considered. Any such payments made to a
shareholder shortly after purchasing Fund shares reduce the net asset value of
such Fund shares to that extent and unnecessarily increase sales charges. All or
a portion of such dividends or distributions, although in effect a return of
capital, is subject to taxes, possibly at ordinary income tax rates.
Dividends and distributions declared payable to shareholders of record after
September 30 of any year and paid before February 1 of the following year are
considered taxable income to shareholders on the record date even though paid in
the next year. To the extent determined each year, a portion of the dividends
paid to shareholders from the Fund's net investment income qualifies for the 70%
dividends received deduction for corporations.
Some shareholders may be subject to 31% withholding on reportable dividends,
capital gains distributions and redemption payments ("backup withholding").
Generally, shareholders subject to backup withholding are those for whom a
taxpayer identification number is not on file with the Fund or who, to the
Fund's knowledge, furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that he or she is not subject to backup withholding.
Under existing provisions of the Code, dividends paid to shareholders who are
nonresident aliens may be subject to a 30% federal withholding tax applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the federal withholding tax.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and treasury regulations presently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and treasury
regulations. The Code and these treasury regulations are subject to change by
legislative or administrative action either prospectively or retroactively.
Each investor should consult his or her own tax adviser as to federal tax laws
and the effect of state and local tax laws which may differ from federal tax
laws.
DISTRIBUTOR
The Distributor acts as principal underwriter of Fund shares pursuant to the
Distribution Agreement. The Distributor receives commissions from the sale of
Fund shares and has the exclusive right to distribute Fund shares through
dealers. From the commissions received, the Distributor pays sales commissions
to dealers; its own overhead and general administrative expenses; the cost of
printing and distributing Fund prospectuses; and the cost of preparing, printing
and distributing sales literature and advertising relating to the Fund. The Fund
pays expenses attributable to registering Fund shares under federal and state
laws (including registration and filing fees), the cost of preparing the
prospectus (including typesetting and printing copies required for regulatory
filings by the Fund) and related legal and audit expenses.
The Distribution Agreement is renewable annually if specifically approved each
year (a) by the Fund's Board of Directors or by a vote of a majority (as defined
in the Investment Company Act) of the Fund's
17
<PAGE>
outstanding voting securities and (b) by a majority of the Fund's directors who
are not parties to the Distribution Agreement or interested persons (as defined
in the Investment Company Act) of any such party, by votes cast in person at a
meeting called for such purpose. The continuation of the Distribution Agreement
to September 3, 2000 has been approved by the Board of Directors and a majority
of the Fund's directors who are not parties to the Distribution Agreement or
interested persons of any such party (as defined in the Investment Company Act).
The Distribution Agreement terminates if assigned (as defined in the Investment
Company Act) and may be terminated, without penalty, by either party on 60 days'
written notice.
The Distributor's obligation under the Distribution Agreement is an agency or
best efforts arrangement pursuant to which the Distributor is required to take
and pay for only those Fund shares sold to the public. The Distributor is not
obligated to sell any stated number of Fund shares.
During the fiscal years ended September 30, 1997, 1998 and 1999, total
underwriting commissions on the sale of Fund shares were $4,148,190, $678,116
and $127,435, respectively. Of such totals, the amount retained each year by the
Distributor, after reallowance to other dealers, was $355,286, $53,540 and
$10,025, respectively.
PRIOR PERFORMANCE INFORMATION
For the purposes of quoting and comparing the Fund's performance to that of
other mutual funds and to other relevant market indices in advertisements,
performance may be stated in terms of total return. Under regulations adopted by
the Securities and Exchange Commission ("SEC"), funds that intend to advertise
performance must include total return quotations calculated according to the
following formula:
P(1 + T) TO THE POWER OF n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment, made at the beginning of the 1,
5 or 10 year period, at the end of such period
(or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and cover 1, 5 and
10-year periods of a fund's existence or such shorter period dating from the
effectiveness of a fund's registration statement. In calculating the ending
redeemable value, the maximum sales load is deducted from the initial $1,000
payment and all dividends and distributions by a fund are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5 and
10-year periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value.
The Fund may also from time to time include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare the performance of the Fund with other measures of investment return.
For example, in comparing the Fund's total return with a stock index such as the
Russell 2500 Index, the Fund calculates its aggregate total return for the
specified periods of time
18
<PAGE>
by assuming the investment of $10,000 in Fund shares and assuming the
reinvestment of each dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by subtracting the
initial value of the investment from the ending value and by dividing the
remainder by the beginning value. The Fund does not, for these purposes, deduct
from the initial value invested any amount representing sales charges. The Fund,
however, discloses the maximum sales charge and also discloses that inclusion of
sales charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC regulations.
The Fund's average annual total return (calculated in accordance with the SEC
regulations described above) for the 1, 5 and 10-year periods ended September
30, 1999, was (12.85)%, 0.65% and 6.82%, respectively. The Fund's average annual
total return (determined pursuant to the alternative computation which does not
include the maximum initial sales charge of 6.5% of the offering price) for the
same periods was (6.79)%, 2.01% and 7.54%, respectively. These results are based
on historical earnings and asset value fluctuations and are not intended to
indicate future performance.
The foregoing information should be considered in light of the Fund's investment
objectives and policies, as well as the risks incurred in the Fund's investment
practices. Future results will be affected by the future composition of the
Fund's portfolio, as well as by changes in the general price level of equity
securities, and general economic and other market conditions. The past 1, 5 and
10-year periods have been ones of generally rising common stock prices subject
to short-term fluctuations.
19
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 1999
<TABLE>
<CAPTION>
COMMON STOCKS Shares Value
- ----------------------------------------------- --------- ------------
<S> <C> <C>
MINING -- 30.3%
Homestake Mining Company ...................... 1,900,000 $ 17,456,250
Newmont Mining Corporation .................... 700,000 18,112,500
Placer Dome Inc. .............................. 1,100,000 16,362,500
------------
$ 51,931,250
------------
CONSUMER NON-DURABLE GOODS -- 30.0%
Oakley, Inc.* ................................. 1,865,100 $ 11,540,306
Polymer Group, Inc.*+ ......................... 2,700,000 39,825,000
------------
$ 51,365,306
------------
HEALTH CARE -- 7.7%
Magellan Health Services, Inc.*+ .............. 1,800,000 $ 13,162,500
------------
REAL ESTATE INVESTMENT TRUST -- 7.3%
Koger Equity, Inc. ............................ 300,000 $ 4,800,000
Prison Realty Corporation ..................... 720,000 7,740,000
------------
$ 12,540,000
------------
OIL & GAS PRODUCTION/EXPLORATION -- 3.5%
EEX Corporation* .............................. 2,000,000 $ 5,875,000
------------
RESTAURANTS -- 1.0%
Luby's, Inc. .................................. 150,000 $ 1,725,000
------------
COMMUNICATIONS & INFORMATION -- 0.4%
Paging Network, Inc.* ......................... 660,000 $ 680,625
------------
TOTAL COMMON STOCKS-- 80.2% (Cost $183,021,119) $137,279,681
------------
</TABLE>
20
<PAGE>
PORTFOLIO OF INVESTMENTS
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 6.5%
Short-term Corporate Notes:
General Electric Capital Corporation-- 5.28% 10/1/99 ...... 1,000,000 $ 1,000,000
Grainger (W.W.), Inc.-- 5.31% 10/4/99 ..................... 1,000,000 999,558
MetLife Funding, Inc.-- 5.33% 10/4/99 ..................... 1,500,000 1,499,334
MetLife Funding, Inc.-- 5.32% 10/8/99 ..................... 1,500,000 1,498,448
AT&T Co.-- 5.26% 10/18/99 ................................. 1,500,000 1,496,274
GTE Funding, Inc.-- 5.31% 10/19/99 ........................ 1,000,000 997,345
Bell Atlantic Financial Services, Inc.-- 5.3% 10/22/99 2,500,000 2,492,271
State Street Bank Repurchase Agreement-- 4 1/4% 10/1/99
(Collateralized by U.S. Treasury Notes
--81/8% 2021, market value $1,142,419) .................... 1,116,000 1,116,132
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $11,099,362) ............. $ 11,099,362
------------
TOTAL INVESTMENTS-- 86.7% (Cost $194,120,481) ............... $148,379,043
Other assets and liabilities, net-- 13.3% ................... 22,840,945
------------
TOTAL NET ASSETS-- 100% ..................................... $171,219,988
------------
------------
</TABLE>
*Non-income producing securities
+Affiliate as defined in the Investment Company Act of 1940 by reason of
ownership of 5% or more the year ended September 30, 1999.
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend
at Cost at Cost Gain (Loss) Income
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Magellan Health Services, Inc. $ 8,857,683 -- -- --
Polymer Group, Inc. -- $ 460,813 $ (6,603) --
Service Merchandise Company, Inc. -- 42,525,597 (40,188,607) --
</TABLE>
See notes to financial statements.
21
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $183,021,119) ..................... 137,279,681
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) .................... 11,099,362 $ 148,379,043
-------------
Cash ................................................... 469
Receivable for:
Investment securities sold ........................... 23,702,007
Dividends ............................................ 105,000
Capital Stock sold ................................... 1,699 23,808,706
------------- -------------
$ 172,188,218
LIABILITIES
Payable for:
Capital Stock repurchased ............................ 794,628
Advisory fees and financial services ................. 107,102
Accrued expenses ..................................... 66,500 968,230
------------- -------------
NET ASSETS ............................................... $ 171,219,988
-------------
-------------
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.25 per share; authorized
100,000,000 shares; outstanding 18,095,905 shares .... $ 4,523,976
Additional Paid-in Capital ............................. 318,774,058
Accumulated net realized loss on investments ........... (106,725,516)
Undistributed net investment income .................... 388,908
Unrealized depreciation of investments ................. (45,741,438)
-------------
NET ASSETS ............................................... $ 171,219,988
-------------
-------------
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) ............ $ 9.46
-------------
-------------
Maximum offering price per share
(100/93.5 of per share net asset value) ............... $ 10.12
-------------
-------------
</TABLE>
See notes to financial statements.
22
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ........................................................ $ 1,049,874
Dividends ....................................................... 2,722,340
------------- -------------
$ 3,772,214
EXPENSES
Advisory fees ................................................... 1,637,506
Transfer agent fees and expenses ................................ 317,170
Financial services .............................................. 244,232
Directors' fees and expenses .................................... 55,081
Legal fees ...................................................... 33,068
Custodian fees and expenses ..................................... 31,560
Reports to shareholders ......................................... 30,786
Audit fees ...................................................... 27,975
Registration fees ............................................... 22,609
Insurance ....................................................... 17,576
Other expenses .................................................. 12,496 2,430,059
------------- -------------
Net investment income ................................... $ 1,342,155
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) .... $ 210,134,467
Cost of investment securities sold .............................. 316,335,049
-------------
Net realized loss on investments ............................ $(106,200,582)
Change in unrealized appreciation/depreciation of investments:
Unrealized depreciation at beginning of year .................... $(120,286,962)
Unrealized depreciation at end of year .......................... (45,741,438)
-------------
Change in unrealized appreciation/depreciation of investments 74,545,524
-------------
Net realized and unrealized loss on investments ......... $ (31,655,058)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................... $ (30,312,903)
-------------
-------------
</TABLE>
See notes to financial statements.
23
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended September 30,
-----------------------------------------------------------------
1999 1998
---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income ................. $ 1,342,155 $ 7,023,320
Net realized gain (loss) on investments (106,200,582) 3,948,496
Change in unrealized
appreciation/depreciation
of investments ....................... 74,545,524 (172,160,257)
------------- -------------
Decrease in net assets
resulting from operations ............. $ (30,312,903) $(161,188,441)
Distributions to shareholders from:
Net investment income ................. $ (2,080,683) $ (9,597,211)
Net realized capital gains ............ -- (2,080,683) (93,084,048) (102,681,259)
------------- -------------
Capital Stock transactions:
Proceeds from Capital Stock sold ...... $ 9,987,650 $ 36,433,838
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions ...... 1,792,858 89,093,956
Cost of Capital Stock repurchased ..... (194,011,714) (182,231,206) (306,546,410) (181,018,616)
------------- ------------- ------------- -------------
Total decrease in net assets ............ $ 214,524,792 $(444,888,316)
NET ASSETS
Beginning of year, including
undistributed net investment income
of $1,127,436 and $3,701,327 .......... 385,844,780 830,733,096
------------- -------------
End of year, including
undistributed net investment income
of $388,908 and $1,127,436 ............ $ 171,219,988 $ 385,844,780
------------- -------------
------------- -------------
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold ............ 1,067,385 2,801,067
Shares issued to shareholders upon
reinvestment of dividends and
distributions ......................... 201,047 7,263,242
Shares of Capital Stock repurchased ..... (20,849,919) (24,454,493)
------------- -------------
Decrease in Capital Stock
outstanding ........................... (19,581,487) (14,390,184)
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as a
diversified, open-end management investment company. The Fund's objective is a
high total investment return, including capital appreciation and income, from a
diversified portfolio of securities. 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 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.
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 $47,603,106 for the
year ended September 30, 1999. Realized gains or losses are based on the
specific-certificate identifi cation 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 securities at
September 30, 1999 for federal income tax purposes was $14,909,017 and
$60,650,455, respectively. The Fund currently has accumulated net realized loses
in the amount of $106,725,516 which can be carried forward to offset future
gains. The ability to carry these losses forward ultimately expires in 2007.
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
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
Fund, providing, however, that this reimbursement shall not exceed 0.1% of the
average daily net assets for any fiscal year. The Agreement obligates the
Adviser to reduce its fee to the extent necessary to reimburse the Fund for 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 September 30, 1999, the Fund paid aggregate fees of
$52,000 to all Directors who are not affiliated persons of the Adviser. Certain
officers of the Fund are also officers of the Adviser and FPA Fund Distributors,
Inc.
NOTE 4 -- DISTRIBUTOR
For the year ended September 30, 1999, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $10,025 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.
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF FPA PARAMOUNT FUND, INC.
We have audited the accompanying statement of assets and liabilities of FPA
Paramount Fund, Inc. (the "Fund"), including the portfolio of investments, as of
September 30, 1999, 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 on page 18 of the Prospectus 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 and financial highlights, including confirmation of securities owned
as of September 30, 1999 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
Paramount Fund, Inc. at September 30, 1999, 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 on page 18 of the Prospectus
for each of the five years in the period then ended in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
November 12, 1999
27
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements (all included in Part B)
Report of Independent Auditors
Portfolio of Investments, September 30, 1999
Statement of Assets and Liabilities, September 30, 1999
Statement of Operations
Year ended September 30, 1999
Statement of Changes in Net Assets
Year ended September 30, 1999
Year ended September 30, 1998
All other financial statements and schedules are inapplicable.
(b) Exhibits
(a)(1) Articles of Incorporation.
(a)(2) Articles Supplementary, dated February 1, 1993.
(a)(3) Articles Supplementary, dated August 13, 1996 was filed as
Exhibit 1.2 to Post-Effective Amendment No. 55 of Registrant's
Registration Statement on Form N-1A and is incorporated herein by
reference.
(b) By-Laws.
(c) Specimen common stock certificate was filed as Exhibit 4 to
Post-Effective Amendment No. 56 of Registrant's Registration
Statement on Form N-1A and is incorporated herein by reference.
(d) Investment Advisory Agreement between Registrant and First Pacific
Advisors, Inc.
(e)(1) Distribution Agreement between Registrant and FPA Fund
Distributors, Inc.
(e)(2) Specimen Selling Group Agreement.
(e)(3) Smith Barney Inc. Mutual Fund Dealer Agreement was filed as Exhibit 6.2
to Post-Effective Amendment No. 56 of Registrant's Registration
Statement on Form N-1A and is incorporated herein by reference.
(g)(1) Custodian Contract between Registrant and State Street Bank and Trust
Company.
(g)(2) Custodian Fee Schedule Addendum for GNMA Securities Traded through
Participants Trust Company.
C-1
<PAGE>
(g)(3) Amendment to the Custodian Contract was filed as Exhibit 8.2 to
Post-Effective Amendment No. 55 of Registrant's Registration Statement
on Form N-1A and is incorporated herein by reference.
(g)(4) Amendment to Custodian Contract was filed as Exhibit 8.3 to
Post-Effective Amendment No. 57 of Registrant's Registration Statement
on Form N-1A and is incorporated herein by reference.
(h)(1) Agreement and Articles of Merger dated November 25, 1985.
(h)(2) State Street Bank and Trust Company Universal Individual
Retirement Account Information Kit was filed as Exhibit 14.1 to
Post-Effective Amendment No. 57 of Registrant's Registration
Statement on Form N-1A and is incorporated herein by reference.
(i) Opinion of Counsel (to be filed by amendment).
(j) Consent of Independent Auditors (filed as page C-7).
(n) Financial Data Schedule.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Article VI, Section 2, of Registrant's By-Laws, filed as Exhibits (b)(1) and
(b)(2) hereto, provides for the indemnification of Registrant's directors and
officers to the full extent permissible under the general laws of the State of
Maryland, the Securities Act of 1933 ("Securities Act") and the Investment
Company Act of 1940; provided, however, that such indemnity shall not protect
any such person against any liability to Registrant or any of its shareholders
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. It is expected that Registrant
will obtain from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions.
Insofar as indemnification of liability under the Securities Act may be
permitted for directors, officers and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification for such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a director, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
C-2
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
During the last two fiscal years, First Pacific Advisors, Inc., the investment
adviser to Registrant ("Adviser"), has not engaged in any other business of a
substantial nature except as investment adviser to Source Capital, Inc.
("Source"), a registered closed-end investment company; as investment adviser to
FPA Capital Fund, Inc. ("Capital"), FPA New Income, Inc. ("New Income"), FPA
Perennial Fund, Inc. ("Perennial") and FPA Crescent Portfolio, each a registered
open-end investment company; as sub-adviser to the Nationwide Select Advisers
Mid Cap Fund, a registered open-end investment company; and as investment
adviser to institutional accounts. During the last two fiscal years, no director
or officer of the Adviser has engaged for his own account or in the capacity of
director, officer, employee, partner or trustee, in any other business,
profession, vocation or employment of a substantial nature except as described
under the caption "Fund Directors and Officers" in Part B hereof as set forth
below.
<TABLE>
<CAPTION>
Name and Position
with Adviser Other Affiliations (1)
- ------------------- ----------------------
<S> <C>
Julio J. de Puzo, Jr., (2)
Director, Principal
& Chief Executive Officer
Robert L. Rodriguez, Director and officer of
Director, Principal Source; and officer of Capital
& Chief Investment Officer and New Income.
William M. Sams, (2)
Director & Principal
J. Richard Atwood, (2)
Senior Vice President,
Chief Financial Officer
& Treasurer
Eric S. Ende, (2)
Senior Vice President
Steven T. Romick, Officer of Source.
Senior Vice President
Andrew C. Ward, ---
Senior Vice President
Christopher H. Thomas, (2)
Vice President & Controller
Thomas H. Atteberry, ---
Vice President
Dennis M. Bryan, Officer of Capital.
Vice President
Rikard B. Ekstrand, ---
Vice President
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
Steven R. Geist, Officer of Source and
Vice President Perennial.
Janet M. Pitman, (2)
Vice President
Mary S. Thomas, ---
Vice President
Sherry Sasaki, (2)
Assistant Vice President
& Secretary
Marie McAvenia, ---
Assistant Vice President
</TABLE>
(1) The address of each company named is 11400 West Olympic Boulevard, Suite
1200, Los Angeles, California 90064.
(2) A description of such person's other affiliations is given under the
caption "Fund Directors and Officers" in Part B hereof.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) FPA Fund Distributors, Inc., the principal underwriter for Registrant, acts
as a principal underwriter for Capital, New Income and Perennial but does not
act as depositor or investment adviser for any investment company.
(b) The following information is furnished with respect to each director and
officer of FPA Fund Distributors, Inc.
<TABLE>
<CAPTION>
Name and Principal Positions & Offices with Positions and Offices
Business Address Principal Underwriter with Registrant
------------------ ------------------------ ---------------------
<S> <C> <C>
Julio J. de Puzo, Jr. (1) President, Chief Executive Director
Officer & Director & Exec. Vice Pres.
Robert L. Rodriguez (1) Director ---
William M. Sams (1) Director President
& Chief Inv. Ofr.
J. Richard Atwood (1) Senior Vice President, Treasurer
Chief Financial Officer
& Treasurer
Andrew C. Ward (1) Senior Vice President ---
Christopher H. Thomas (1) Vice President Assistant Treasurer
& Controller
Sherry Sasaki (1) Secretary Secretary
</TABLE>
(1) 11400 West Olympic Boulevard, Suite 1200, Los Angeles, California 90064
C-4
<PAGE>
(c) Commissions and other compensation received by each principal underwriter
who is not an affiliated person of Registrant or an affiliated person of
such an affiliated person, directly or indirectly, from Registrant during
Registrant's last fiscal year.
Inapplicable.
ITEM 28. LOCATION OF BOOKS AND RECORDS.
The accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are maintained in the physical possession of Mr. J. Richard Atwood, Treasurer of
Registrant*, except as otherwise stated below:
<TABLE>
<CAPTION>
Subparagraph of Physical Possession
Rule 31a-1 of Required Records
--------------- -------------------
<S> <C>
(b)(2)(iv) Boston Financial Data Services, Inc.,
Shareholder Service Agent for Registrant**
(b)(4) Sherry Sasaki,
Secretary of Registrant*
(f) First Pacific Advisors, Inc.,
Investment Adviser to Registrant*
</TABLE>
- ------------------------
* 11400 West Olympic Boulevard, Suite 1200, Los Angeles, California 90064
** P.O. Box 8115, Boston, Massachusetts 02266-8115
ITEM 29. MANAGEMENT SERVICES.
There is no management-related service contract under which services are
provided to Registrant which is not discussed in Parts A or B hereof.
ITEMS 30. UNDERTAKINGS.
Inapplicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 1st day of December, 1999.
FPA PARAMOUNT FUND, INC.
By: /s/ WILLIAM M. SAMS
-----------------------------
William M. Sams
President
C-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/WILLIAM M. SAMS President December 1, 1999
- ------------------------------ (Principal Executive
William M. Sams Officer)
/s/J. RICHARD ATWOOD Treasurer December 1, 1999
- ------------------------------ (Principal Financial
J. Richard Atwood Officer and Principal
Accounting Officer)
JULIO J. DE PUZO, JR.*
- ------------------------------ Director December 1, 1999
Julio J. de Puzo, Jr.
JOHN P. ENDICOTT*
- ------------------------------ Director December 1, 1999
John P. Endicott
LEONARD MAUTNER*
- ------------------------------ Director December 1, 1999
Leonard Mautner
JOHN H. RUBEL*
- ------------------------------ Director December 1, 1999
John H. Rubel
JOHN P. SHELTON*
- ------------------------------ Director December 1, 1999
John P. Shelton
</TABLE>
*By: /s/JULIO J. DE PUZO, JR.
-------------------------
Julio J. de Puzo, Jr.
Attorney-in-Fact pursuant to Power-of- Attorney included as page C-7 on
Registrant's Post-Effective Amendment No. 55 to the Registration Statement
which was filed January 31, 1997.
C-6
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and to the use of our report dated November 12, 1999 in Post-Effective Amendment
No. 58 under the Securities Act of 1933 and Amendment No. 23 under the
Investment Company Act of 1940 to the Registration Statement (Form N-1A
No. 2-14660) and related Prospectus and Statement of Additional Information of
FPA Paramount Fund, Inc.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
December 3, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
(a)(1) Articles of Incorporation.
(a)(2) Articles Supplementary, dated February 1, 1993.
(b) By-Laws.
(d) Investment Advisory Agreement between Registrant and First Pacific Advisors, Inc.
(e)(1) Distribution Agreement between Registrant and FPA Fund Distributors, Inc.
(e)(2) Specimen Selling Group Agreement.
(g)(1) Custodian Contract between Registrant and State Street Bank and Trust Company.
(g)(2) Custodian Fee Schedule Addendum for GNMA Securities Traded through Participants Trust Company.
(h)(1) Agreement and Articles of Merger dated November 25, 1985.
(i) Opinion of Counsel (to be filed by amendment).
(j) Consent of Independent Auditors (filed as page C-7).
(n) Financial Data Schedule.
</TABLE>
All other applicable exhibits are incorporated herein by reference.
<PAGE>
ARTICLES OF INCORPORATION
OF
FPA PARAMOUNT FUND, INC.
The undersigned, Julio J. de Puzo, Jr., whose mailing address is 10301 West
Pico Boulevard, Los Angeles, California 90064, being an adult, does hereby act
as an incorporator, under and by virtue of the General Laws of the State of
Maryland authorizing the formation of corporations and with the intent of
forming a corporation.
ARTICLE II
The name of the corporation is FPA Paramount Fund, Inc. (hereinafter called
the "Corporation").
The Corporation acknowledges that it is adopting its corporate name through
permission of First Pacific Advisors, Inc., a California corporation
(hereinafter referred to as "FPA"), and agrees that if FPA or a successor to its
business (whether such succession be by merger, consolidation, purchase of
assets or otherwise) should, at any time and for any cause, cease to be the
investment adviser to the Corporation, the Corporation shall at the written
request of FPA and/or any such successor eliminated the initials "FPA" from the
Corporation's corporate name and from the designations of its shares and will
not thereafter use the initials "FPA" in any form or combination whatsoever in
the conduct of the Corporation's business. The Corporation further acknowledges
that FPA reserves the right to grant the non-exclusive right to use the initials
"FPA" to any other corporation, including other investment companies, whether
now in existence or hereafter created. The foregoing agreements on the part of
the Corporation are hereby made binding upon it, its directors, officers,
shareholders, creditors and all other persons claiming under or through it.
ARTICLE III
The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
(1) To operate as, and carry on the business of, an investment company.
(2) To hold, invest and reinvest its assets, and in connection therewith
to hold part or all of its assets in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, sell, assign, negotiate,
transfer, exchange, pledge, lend or otherwise dispose of or realize upon,
securities (which term "securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality hereof, be deemed to include
any stocks, shares, bonds, debentures, notes, certificates of deposit,
mortgages, obligations, evidences of indebtedness,
<PAGE>
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets, or in general any interest or instrument commonly known as a security,
whether domestic or foreign) and other assets and investments created, issued or
guaranteed by any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments or political subdivisions, agencies or
instrumentalities thereof; and to exercise, as owner or holder of any
securities, all rights, powers and privileges in respect thereof; and to do any
and all acts and things for the preservation, protection, improvement and/or
enhancement in value of any and all of its assets.
(3) To borrow money and pledge assets in connection with any of the
objects and purposes of the Corporation, and to issue notes or other obligations
evidencing such borrowings.
(4) To issue and sell shares of its own common stock in such amounts and
on such terms and conditions, for such purposes and for such amount or kind of
consideration (including, without limitation, securities) now or hereafter
permitted by the laws of the State of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
(5) To redeem, repurchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the shareholders
of the Corporation) shares of its common stock, in any manner and to the extent
now or hereafter permitted by the laws of the State of Maryland and by these
Articles of Incorporation, and, to redeem, at its option, any shareholder
account with a net asset value of less than $500 provided that there has been no
purchase of shares in the account during a continuous period of at least twelve
months.
(6) To conduct its business at one or more offices in any part of the
world, without restriction or limit as to the extent.
(7) To carry out all of any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of the State of Maryland, as a member of, or as
the owner or holder of any security of, or interest in, any firm, association,
corporation, trust or syndicate; and in connection therewith to make or enter
into such deeds or contracts with any persons, firms, associations,
corporations, syndicates, governments or political subdivisions or agencies or
instrumentalities thereof and to do such acts and things and to exercise such
powers, as a natural person could lawfully make, enter into, do or exercise.
(8) To do any and all such further acts or things and to exercise any and
all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to, or
inference from, the terms of any other clause of this or any other Article of
these Articles of Incorporation, and shall each be regarded as independent and
construed as powers as well as objects and purposes, and the enumeration of
specific purposes, objects
-2-
<PAGE>
and powers shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Corporation now or hereafter
conferred by the laws of the State of Maryland, nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed;
provided, however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State.
ARTICLE IV
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the registered agent of the Corporation
in the State of Maryland is The Corporation Trust Incorporated, a Corporation of
the State of Maryland, and the post office address of the resident agent is 32
South Street, Baltimore, Maryland 21202.
ARTICLE V
(1) The total number of shares of stock which the Corporation has
authority to issue is twenty five million (25,000,000) shares of common stock of
the par value of $0.25 each, all of one class, entitled common stock, and of the
aggregate par value of six million two hundred and fifty thousand dollars
($6,250,000).
(2) Any fractional share shall carry proportionally all of the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including the right to vote and the right to receive
dividends.
(3) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of these Articles of Incorporation and the
Corporation's By-Laws.
(4) All shares of the common stock of the Corporation now or hereafter
authorized shall be "subject to redemption" and "redeemable," in the sense used
in the General Laws of the State of Maryland authorizing the formation of
corporations, at the redemption price for any such shares, determined in the
manner set out in these Articles of Incorporation. In the absence of any
specification as to the purposes for which shares of the common stock of the
Corporation are redeemed or repurchased by it, all shares so redeemed or
repurchased shall be deemed to be "purchased for retirement" in the sense
contemplated by the laws of the State of Maryland. The number of authorized
shares of the common stock of the Corporation shall not be reduced by the number
of any shares redeemed or repurchased by it.
(5) At all meetings of shareholders of the Corporation, each shareholder
shall be entitled to one vote for each share of stock standing in his or her
name on the books of the Corporation, on the date fixed in accordance with the
By-Laws for determination of shareholders entitled to vote at such meeting. The
presence in person or by proxy of the holders of a majority of
-3-
<PAGE>
the shares of common stock of the Corporation entitled to vote thereat shall
constitute a quorum at any meeting of the shareholders. If at any meeting of the
shareholders there shall be less than a quorum present, the shareholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall attend.
(6) Notwithstanding any provision of the laws of the State of Maryland
requiring any action to be taken or authorized by the affirmative vote of the
holders of a majority or other designated proportion of the shares, or to be
otherwise taken or authorized by a vote of the shareholders, such action shall
be effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding and entitled to
vote thereon pursuant to the provisions of these Articles of Incorporation and
the By-Laws of the Corporation.
(7) No holders of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the common stock of the
Corporation of any class or any other security of the Corporation which it may
issue or sell (whether out of the number of shares authorized by these Articles
of Incorporation, or out of any shares of the common stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors in its discretion may determine.
(8) The shareholders of the Corporation shall not be liable for, and
their private property shall not be subject to, claim, levy or other encumbrance
on account of debts or liabilities of the Corporation, to any extent whatsoever.
(9) The Corporation shall be entitled to treat the person in whose name
any share of the common stock of the Corporation is registered as the owner
thereof for purposes of dividends and other distributions in the course of
business or in the course of recapitalization, consolidation, merger,
reorganization, liquidation, sale of the property and assets of the Corporation,
or otherwise, and for the purpose of votes, approvals and consents by
shareholders, and for the purpose of notices to shareholders, and for all other
purposes whatsoever; and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share, on the part of any other
person, whether or not the Corporation shall have notice thereof, save as
expressly required by statute.
ARTICLE VI
(1) The number of directors of the Corporation shall be six (6), and the
names of those who shall act as such until the first annual meeting or until
their successors are duly chosen and qualify are as follows:
John P. Endicott
Christopher Linden
Joseph Lowitz
Leonard Mautner
John H. Rubel
-4-
<PAGE>
John P. Shelton
however, the By-Laws of the Corporation may fix the number of directors at a
number greater than that named in these Articles of Incorporation and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors fixed by these
Articles of Incorporation or by the By-Laws within limits specified in the
By-Laws and to fill the vacancies created by any such increase in the number of
directors provided that in no case shall the authorized number of directors be
less than three. The directors of the Corporation need not be shareholders of
the Corporation.
(2) Any director, or any officer elected or appointed by the Board of
Directors or by any committee of said Board or by the shareholders or otherwise,
may be removed at any time, with or without cause, by the Board of Directors or
by any committee or superior officers upon which or whom said power of removal
may be conferred, in such lawful manner as may be provided by Maryland law.
(3) Both shareholders and directors of the Corporation shall have power
to hold their meetings and to have one or more officers within or without the
State of Maryland and to keep the books of the Corporation outside of the State
of Maryland at such places as may from time to time be designated by the Board
of Directors.
(4) The Board of Directors of the Corporation shall have the power to
issue and sell, or to cause to issuance and sale, of shares of the Corporation's
common stock in such amounts and on such terms and conditions, for such purposes
and for such amount or kind of consideration (including, without limitation,
securities) now or hereafter permitted by the laws of the State of Maryland and
by these Articles of Incorporation, as the Board of Directors may determine.
(5) In addition to the powers and authority hereinbefore, hereinafter or
by statute expressly conferred upon them, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation subject, nevertheless, to the express provisions of the laws of
the State of Maryland, of these Articles of Incorporation and of the By-Laws of
the Corporation.
(6) Any director or officer, individually, or any firm of which any
director or officer may be a member, or any corporation, trust or association of
which any director or officer may be an officer or director or the holder of any
amount of its common stock or otherwise, may be a party to, or may be
financially or otherwise interested in, any contract or transaction of the
Corporation, and in the absence of fraud no contract or other transaction shall
be thereby affected or invalidated; provided, that the fact of any such
interests or relationships shall be disclosed or shall have been known to the
Board of Directors or a majority thereof; and any such director or officer of
the Corporation may be counted in determining the existence of a quorum at the
meeting of the Board of Directors of the Corporation which shall authorize any
such contract or transaction, an may vote thereat to authorize any such contract
or transaction, with like force and effect as if such other interests or
relationships did not exist. In furtherance and not in limitation of the
foregoing, the Board of Directors of the Corporation is expressly authorized to
contract for management services of any nature, with
-5-
<PAGE>
respect to the conduct of the business of the Corporation with any entity,
person or company, incorporated or unincorporated, on such terms as the Board of
Directors may deem desirable. Any such contract may provide for the rendition of
management services of any nature with respect to the conduct of the business of
the Corporation, and for the management or direction of the business and
activities of the Corporation to such extent as the Board of Directors may
determine, whether or not the procedure involves delegation of functions usually
or customarily performed by the Board of Directors or officers of the
Corporation. The Board of Directors is further expressly authorized to contract
with any person or company on such terms as the Board of Directors may deem
desirable for the distribution of shares of the Corporation and to contract for
other services, including, without limitation, services as transfer agent for
the Corporation's shares, with any entity, person or company, incorporated or
unincorporated, on such terms as the Board of Directors may deem desirable. Any
entity, person or company which enters into one or more of such contracts may
also perform similar or identical services for other investment companies and
other persons and companies without restriction by reason of the relationship
with the Corporation.
ARTICLE VII
(1) The Corporation shall on the request of any registered owner of its
shares redeem such shares, at the price, in the manner and on the terms and
conditions set forth below:
(a) The certificates for the shares to be repurchased must be tendered
to the Corporation or its designated agent for repurchase during business hours
on a day on which the New York Stock Exchange or its successor is open for a
normal business day, at an office or offices designated by the Board of
Directors for receipt of such tenders. Redemption of such shares by the
Corporation is subject to such reasonable requirements, such as endorsement, as
may be imposed by the Corporation or the Corporation's transfer agent. Shares
tendered on business days on which such Exchange is not open for a normal
business day will be considered to have been tendered on the next succeeding day
on which such Exchange is open for a normal business day.
(b) The redemption price of the shares shall be a sum equal to 100% of
their net asset value as first determined subsequent to said tender, said
determination of net asset value to be made in the manner hereinafter set forth,
which determination shall be made at least once on each day on which the New
York Stock Exchange or its successor is open for a normal business day at such
specific time as determined by the Board of Directors; provided, however, that
any deferred sales charge payable upon such redemption shall be deducted from
the redemption price.
(c) The net asset value of the Corporation's shares, for the purpose of
computing the price at which the shares shall be redeemed by the Corporation,
shall be determined in the following manner:
(i) Portfolio securities and other assets shall be valued at fair
value as determined in good faith by or at the direction of the
Board of Directors.
-6-
<PAGE>
(ii) There shall be deducted from the total assets of the
Corporation so determined, the liabilities of the Corporation,
including proper accruals of interest or taxes and other expense
items, and reserves for contingent or undetermined liabilities.
(iii) The net asset value of the Corporation so obtained shall
then be divided by the total number of shares outstanding
(excluding treasury shares) and the result, rounded to the nearer
cent, shall be the net asset value per share of common stock.
(d) In addition to the foregoing, the Board of Directors is empowered,
in its absolute discretion, to establish other bases or times or both, for
determining the net asset value of each share of common stock of the Corporation
in accordance with the Investment Company Act of 1940 and to authorize the
voluntary purchase by the Corporation, either directly or through an agent, of
shares of common stock of the Corporation upon such terms and conditions and for
such consideration as the Board of Directors shall deem advisable in accordance
with any such provisions, rule or regulation.
(e) The redemption price (100% of net asset value less any applicable
deferred sales charge) shall be paid in cash or by check on current funds and
shall be paid on or before the seventh day following the day on which the shares
are properly tendered for redemption.
(f) Redemption is conditional upon the Corporation having funds legally
available therefor.
(2) The obligations set forth in this Article VII may be suspended for
any period during which the New York Stock Exchange or its successor shall be
closed other than for customary weekend and holiday closings or during which
trading on such Exchange is restricted; for any period during which an emergency
exists as a result of which the disposal by the Corporation of securities owned
by it is not reasonably practicable, or it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets; or for such other
periods as the Securities and Exchange Commission, or any successor governmental
authority, may by order permit for the protection of security holders of the
Corporation.
(3) The right of the holder of shares of common stock repurchased by the
Corporation as provided in this Article VII to receive dividends thereon and all
other rights of such holder with respect to such shares shall forthwith cease
and terminate from and after the time as of which the redemption or repurchase
price of such shares has been determined (except the right of such holder to
receive (a) the redemption or repurchase price of such shares from the
Corporation or its designated agent, and (b) any unpaid dividend or distribution
to which such holder had previously become entitled as the record holder of such
shares on the record date for such dividend or distribution).
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<PAGE>
ARTICLE VIII
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors (i) as to the amount of the assets,
obligations or liabilities of the Corporation; (ii) as to the amount of the net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends; (iii) as to the
amount of any reserves or charges set up and the propriety thereof; (iv) as to
the time of or purpose for creating any reserves or charges and to the use,
alteration or cancellation of any reserves or charges (whether or not any
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged); (v) as to the price or closing bid or asked
price of any security owned or held by the Corporation; (vi) as to the market
value of any security or fair value of any other asset owned by the Corporation;
(vii) as to the number of shares of the Corporation outstanding or deemed to be
outstanding; (viii) as to the impracticability or impossibility of liquidating
securities in orderly fashion; (ix) as to any other matters relating to the
issue, sale, repurchase, and/or other acquisition or disposition of securities
or shares of the common stock of the Corporation; and (x) any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of any securities on "margin," a sale of any
securities "short," or an underwriting of the sale of, or a participation in any
underwriting or selling group in connection with the public distribution, of any
securities, shall be final and conclusive, and shall be binding upon the
Corporation; and all holders of shares of its common stock of the Corporation
are issued and sold on the condition and understanding, evidenced by acceptance
of certificates for such shares, that any and all such determinations shall be
binding as aforesaid.
No provisions of these Articles of Incorporation shall be effective to (a)
require a waiver of compliance with any provision of the Securities Act of 1933,
as amended, or the Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange Commission thereunder,
or (b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE IX
The Corporation shall have perpetual existence.
ARTICLE X
From time to time any of the provisions of these Articles of Incorporation
may be amended, altered or repealed (including any amendment which changes the
terms of any of the outstanding stock by classification, reclassification or
otherwise), upon the vote of the holders of a majority of the shares of common
stock of the Corporation at the time entitled to vote; and other provisions
which might under the statutes of the State of Maryland at the time in force be
lawfully
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<PAGE>
contained in Articles of Incorporation, may be added or inserted upon the vote
of the holders of a majority of the shares of common stock of the Corporation at
the time entitled to vote; and all rights at any time conferred upon the
shareholders of the Corporation by these Articles of Incorporation are granted
subject to the provisions of this Article X.
The term "these Articles of Incorporation" as used herein and in the
By-Laws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended and restated.
IN WITNESS WHEREOF, the undersigned incorporator of FPA PARAMOUNT FUND,
INC. hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act.
Dated this 19th day of November, 1985.
/s/ Julio J. De Puzo. Jr.
------------------------------------
Julio J. de Puzo, Jr.
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<PAGE>
FPA PARAMOUNT FUND, INC.
ARTICLES SUPPLEMENTARY
FPA Paramount Fund, Inc., a Maryland corporation, having its principal
offices in Baltimore City, Maryland (which is hereafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to Section 2-105(c) of the Maryland General Corporation
Law, the Board of Directors has duly authorized an increase in the Corporation's
total number of shares of capital stock to fifty million (50,000,000) shares, of
the par value of $0.25 per share, amounting in aggregate par value to twelve
million five hundred thousand dollars ($12,500,000), all of which shall be
common stock.
SECOND: Immediately prior to the increases, the total number of shares of
stock which the Corporation has authority to issue is twenty five million
(25,000,000) shares of common stock of the par value of $0.25 each, all of one
class entitled common stock, and of the aggregate par value of six million two
hundred fifty thousand dollars ($6,250,000).
THIRD: Immediately following the increases, the total number of shares of
stock which the Corporation has authority to issue is fifty million (50,000,000)
shares of common stock of the par value of $0.25 each, all of one class entitled
common stock, and of the aggregate par value of twelve million five hundred
thousand dollars ($12,500,000).
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
<PAGE>
IN WITNESS WHEREOF, FPA Paramount Fund, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf by its Senior Vice
President and attested by its Secretary on February 1, 1993.
FPA PARAMOUNT FUND, INC.
By: /s/ Christopher Linden
--------------------------------
Christopher Linden,
Senior Vice President
ATTEST:
/s/ Sherry Sasaki
---------------------------------
Sherry Sasaki, Secretary
THE UNDERSIGNED, Senior Vice President of FPA Paramount Fund, Inc. who
executed on behalf of the Corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Christopher Linden
--------------------------------
Christopher Linden,
Senior Vice President
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FPA PARAMOUNT FUND, INC.
BY-LAW AMENDMENT, EFFECTIVE MAY 10, 1993
Article 1 of the By-Laws of FPA Paramount Fund, Inc. is hereby
restated in its entirety as set forth below.
ARTICLE I
STOCKHOLDERS
SECTION 1.01 ANNUAL MEETINGS. The Corporation is not required to hold
an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940. If the Corporation is required by the Investment Company of 1940 to hold a
meeting of stockholders to elect directors, such meeting shall be held at a date
and time set by the Board of Directors in accordance with the Investment Company
Act of 1940 and no later 120 days after the occurrence of the event requiring
the meeting. Any stockholders' meeting held in accordance with the preceding
sentence shall for all purposes constitute the annual meeting of stockholders
for the fiscal year of the Corporation in which the meeting is held. Except as
the charter or statute provides otherwise, any business may be considered at an
annual meeting without the purpose of the meeting having been specified in the
notice. Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
SECTION 1.02 SPECIAL MEETINGS. At any time in the interval between
annual meetings, a special meeting of stockholders may be called by the Chairman
of the Board or the President or by a majority of the Board of Directors by vote
at a meeting or in writing (addressed to the Secretary of the Corporation) with
or without a meeting. The Secretary of the Corporation shall call a special
meeting of stockholders on the written request of stockholders entitled to cast
at least ten percent of all the votes entitled to be cast at the meeting. A
request for a special meeting shall state the purpose of the meeting and the
matters proposed to be acted on at it. The Secretary shall inform the
stockholders who make the request of the reasonably estimated costs of preparing
and mailing a notice of the meeting and, on payment of these costs to the
Corporation, notify each stockholder entitled to notice of the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of stockholders held in the preceding 12 month.
SECTION 1.03 PLACE OF MEETINGS. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
<PAGE>
SECTION 1.04 NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or by
proxy.
SECTION 1.05 QUORUM; VOTING. Unless statute or the charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of alla the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06 ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted at
the meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
SECTION 1.07 RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.06, more than 90 days before the
date on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least ten days before the date of the meeting.
SECTION 1.08 GENERAL RIGHT TO VOTE; PROXIES. Unless the charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class or series,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock he
owns or record either in person or by written proxy signed by the stockholder or
by his duly authorized attorney in fact. Unless a proxy provides otherwise, it
shall not be valid for more than 11 months after its date.
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<PAGE>
SECTION 1.09 LIST OF STOCKHOLDERS. At each meeting of stockholders,
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class or series of shares held by each and
certified by the transfer agent for such class or series or by the Secretary,
shall be furnished by the Secretary.
SECTION 1.10 CONDUCT OF BUSINESS AND VOTING. At all meeting of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these
By-Laws, the charter or law, shall be decided or determined by the chairman
of the meeting. If demanded by stockholders, present in person or by proxy,
entitled to cast ten percent in number of votes entitled to be cast, or if
ordered by the chairman, the vote upon any election or question shall be
taken by ballot and, upon like demand or order, the voting shall be conducted
by one or more inspectors, in which event the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be
decided, by such inspectors. Unless so demanded or ordered, no vote need be b
ballot and voting need not be conducted by inspectors. The stockholders at
any meeting may choose an inspector or inspectors to act at such meeting, and
in default of such election the chairman of the meeting may appoint an
inspector or inspectors. No candidate for election as a director at a meeting
shall serve as an inspector thereat.
SECTION 1.11 INFORMAL ACTION BY STOCKHOLDERS. Any action required
or permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of FPA Paramount Fund,
Inc. hereby certifies that the foregoing By-Law Amendment was duly adopted by
the Board of Directors of the Corporation on February 1, 1993.
/s/ Sherry Sasaki
--------------------------------------
Sherry Sasaki, Secretary
4
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. ELECTION AND POWERS. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the directors then in office; provided, however, that the number of
directors shall in no event be less than three (3) nor more than nine (9). The
business, affairs and property of the Corporation shall be managed by the Board
of Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute, the Charter, or these By-Laws
required to be exercised or done by the stockholders. The members of the Board
of Directors shall be elected by the stockholders at their annual meeting and
each Director shall hold office until the annual meeting next after his election
and until his successor shall have been duly elected and qualified, until he
shall have resigned, or until he shall have been removed as provided in Section
11 of this Article II.
SECTION 2. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice on such date as the Board may from time to
time determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President
or by a majority of the directors either in writing or by vote at a meeting.
SECTION 4. NOTICE OF SPECIAL MEETINGS. Notice of the place, day
and hour of every special meeting shall be delivered personally to each director
or mailed, telegraphed or cabled to his address on the books of the Corporation
at least one (1) day before the meeting. It shall not be requisite to the
validity of any meeting of the Board of Directors that notice thereof shall have
been given to any director who is present thereat, or, if absent, waives notice
thereof in writing filed with the records of the meeting either before or after
the holding thereof.
SECTION 9. VACANCIES. Any vacancy on the Board of Directors
occurring by reason of any increase in the number of directors may be filled by
a majority of the entire Board of Directors. Any vacancy on the Board of
Directors occurring for any other cause may be filled by a majority of the
remaining members of the Board of Directors, whether or not these members
constitute a quorum under Section 6 of this Article II. Any director so chosen
to fill a vacancy shall hold office until the next annual meeting of
stockholders and until his successor shall have been duly elected and qualified.
5
<PAGE>
SECTION 10. REMOVAL. At any meeting of the stockholders called for
that purpose, the stockholders of the Corporation may remove from office any
director, with or without cause, by the affirmative vote of a majority of the
votes entitled to be cast for the election of directors, and another director
may be elected in the place of the director so removed to serve for the
remainder of the term of the removed director.
SECTION 11. RESIGNATIONS. Any director may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary.
Any such resignation shall take effect at the time of the receipt of such notice
or at any later time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 12. COMMITTEES. The Board of Directors may appoint from
among its members an executive and other committees of the Board composed of two
(2) or more directors. To the extent permitted by law, the Board of Directors
may delegate to any such committee or committees any of the powers of the Board
of Directors in the management of the business, affairs and property of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required. The members of a
committee present at any meeting, whether or not they constitute a quorum, may
appoint a director to act in the place of an absent member.
SECTION 13. TELEPHONE CONFERENCE. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
SECTION 14. COMPENSATION OF DIRECTORS. Any director, whether or
not he is a salaried officer, employee or agent of the Corporation, may be
compensated for his services as a director or as a member of a committee, or as
Chairman of the Board or chairman of a committee, and in addition may be
reimbursed for transportation and other expenses, all in such manner and amounts
as the directors may from time to time determine.
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<PAGE>
ARTICLE III
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Vice
Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, and such other officers as the Board of Directors may from time to
time determine. Any officer may hold more than one office in the Corporation,
except that an officer may not serve concurrently as both the President and a
Vice President.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected by the Board of Directors and, subject to earlier
termination of office, each officer shall hold office for one year and until his
successor shall have been elected and qualified.
SECTION 3. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President, or the
Secretary of the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4. REMOVAL. If the Board of Directors in its judgment
finds that the best interests of the Corporation will be served, the Board may
remove any officer of the Corporation at any time.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall have general supervision over the business
and operations of the Corporation, subject, however, to the control of the Board
of Directors. He, or such persons as he shall designate, shall sign, execute,
acknowledge, verify, deliver and accept, in the name of the Corporation, deeds,
mortgages, bonds, contracts and other instruments authorized by the Board of
Directors, except in the case where the signing, execution, acknowledgement,
verification, delivery or acceptance thereof shall be delegated by the Board to
some other officer or agent of the Corporation; and, in general, he shall have
general executive powers as well as other powers and duties as from time to time
may be conferred upon or assigned to him by the Board.
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<PAGE>
SECTION 6. THE VICE PRESIDENTS. In the absence or disability of
the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation or ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
SECTION 7. THE SECRETARY. The Secretary shall record all the votes
of the stockholders and the directors and the minutes of the meetings of the
stockholders and of the Board of Directors in a book or books to be kept for
that purpose; he shall see that notices of meetings of the stockholders and the
Board of Directors are given and that all records and reports are properly kept
and filed by the Corporation as required by law; he shall be the custodian of
the seal of the Corporation and shall see that it is affixed to all documents to
be executed on behalf of the Corporation under its seal, provided that in lieu
of affixing the corporate seal to any document, it shall be sufficient to meet
the requirements of any law, rule or regulation relating to a corporate seal to
affix the word "(SEAL)" adjacent to the signature of the authorized officer of
the Corporation; and, in general, he shall perform all duties incident to the
office of Secretary, and such other duties as from time to time may be conferred
upon or assigned to him by the Board or the President.
SECTION 8. ASSISTANT SECRETARIES. In the absence or disability of
the Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
SECTION 9. THE TREASURER. Subject to the provisions of any
contract which may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; he shall have full authority to receive and
give receipts for all money due and payable to the Corporation, and to endorse
checks, drafts and warrants, in its name and on its behalf, and to give full
discharge for the same; he shall deposit all funds of the Corporation, except
such as may be required for current use, in such banks or other places of
deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as from time to time may be conferred upon or assigned to him
by the Board or the President.
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SECTION 10. ASSISTANT TREASURERS. In the absence or disability of
the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
SECTION 11. COMPENSATION OF OFFICERS. The compensation of all
officers shall be fixed from time to time by the Board of Directors, or any
committee or officer authorized by the Board so to do. No officer shall be
precluded from receiving such compensation by reason of the fact that he is also
a director of the Corporation.
ARTICLE IV
STOCK
SECTION 1. CERTIFICATES. Each stockholder shall be entitled upon
written request to a stock certificate or certificates, representing and
certifying the number and kind of full shares held by him, signed by the
President, a Vice President or the Chairman of the Board and countersigned by
the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer,
which signatures may be either manual or facsimile signatures, and sealed with
the seal of the Corporation, which seal may be either facsimile or any other
form of seal. Stock certificates shall be in such form, not inconsistent with
law or with the Charter, as shall be approved by the Board of Directors.
SECTION 2. TRANSFER OF SHARES. Transfers of shares shall be made
on the books of the Corporation at the direction of the person named on the
Corporation's books or named in the certificate or certificates for such shares
(if issued), or by his attorney lawfully constituted in writing, upon surrender
of such certificate or certificates (if issued) properly endorsed, together with
a proper request for redemption, to the Corporation's Transfer Agent, with such
evidence of the authenticity of such transfer, authorization and such other
matters as the Corporation or its agents; or, if the Board of Directors shall by
resolution so provide, transfer of shares may be made in any other manner
provided by law.
SECTION 3. TRANSFER AGENTS AND REGISTRARS. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent, or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
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SECTION 4. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. The
Board of Directors, by standing resolution or by resolutions with respect to
particular cases, may authorize the issuance of a new stock certificate in lieu
of any stock certificate lost, stolen, destroyed or mutilated, upon such terms
and conditions as the Board may direct. The Board may in its discretion refuse
to issue such a new certificate, unless ordered to do so by a court of competent
jurisdiction.
SECTION 5. STOCK LEDGERS. The Corporation shall not be required to
keep original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agents of the Corporation's capital stock.
ARTICLE V
SEAL
The seal of the Corporation shall be in such form as the Board of
Director shall prescribe.
ARTICLE VI
SUNDRY PROVISIONS
SECTION 1. AMENDMENTS.
(a) BY STOCKHOLDERS. By-Laws may be adopted, altered, amended
or repealed in the manner provided in Section 5 of Article I hereof at any
annual or special meeting of the stockholders.
(b) BY DIRECTORS. By-Laws may be adopted, altered, amended or
repealed in the manner provided in Section 6 of Article II hereof by the Board
of Directors at any regular or special meeting of the Board.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) INDEMNIFICATION. Any person who was or is a party or is
threatened to be made a party in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is a current or former director or officer
of the Corporation, or is or was serving while a director or officer of the
Corporation at the request of the Corporation as a director, officer, partner,
trustee,
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employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, shall be indemnified by the
Corporation against judgments, penalties, fines, excise taxes, settlements and
reasonable expenses (including attorney's fees) actually incurred by such person
in connection with such action, suit or proceeding to the full extent
permissible under the General Laws of the State of Maryland, the Securities Act
of 1933 and the Investment Company Act of 1940, as such statutes are now or
hereafter in force, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
(b) ADVANCES. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Section 2 shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the full extent permissible under the General Laws of the State of
Maryland, the Securities Act of 1933 and the Investment Company Act of 1940, as
such statutes are now or hereafter in force.
(c) PROCEDURE. On the request of any current or former director
or officer requesting indemnification or an advance under this Section 2, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the General Laws of the State of Maryland, the Securities Act of
1933 and the Investment Company Act of 1940, as such statutes are now or
hereafter in force, whether the standards required by this Section have been
met.
(d) OTHER RIGHTS. The indemnification provided by this Section 2
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
11
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated June 27, 1991, between FPA PARAMOUNT FUND, INC., a
Maryland corporation (hereinafter called "Paramount"), and FIRST PACIFIC
ADVISORS, INC., a Massachusetts corporation (hereinafter called the "Adviser").
W I T N E S S E T H :
WHEREAS, Paramount and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain investment
advisory and management services for Paramount.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, Paramount and the Adviser agree as follows:
1. EMPLOYMENT OF ADVISER
Paramount hereby employs the Adviser to manage the investment and
reinvestment of the assets of Paramount and to administer its affairs, to the
extent described herein, subject to the supervision of the Board of Directors of
Paramount, for the period and on the terms set forth in this Agreement. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth. The Adviser agrees
to use its best efforts and judgment in the performance of its obligations
hereunder. The Adviser shall, for all purposes herein, be deemed an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Paramount in any way, or otherwise be deemed
an agent of Paramount.
2. ADVISORY SERVICES
Subject to any general directions furnished by the Board of Directors
of Paramount, the Adviser agrees to formulated and implement a continuing
program for the management of the assets of Paramount and to determine from time
to time what securities or other property shall be purchased or sold by
Paramount, and the portion of its assets to be held in cash or cash equivalents,
giving due consideration to, among other things, the policies of Paramount as
expressed in Paramount's Certificate of Incorporation, By-Laws, Registration
Statement under the Investment Company Act of 1940, and amended (the "1940
Act"), Registration Statement under the Securities Act of 1933, as amended (the
"1933 Act"), as reports under the Securities Exchange Act of 1934 (the "1934
Act"), as well as to the factors affecting Paramount's status as a registered
investment company under the Internal Revenue Code of 1954, as amended. The
Adviser shall obtain and evaluate such statistical, financial, and other
information relating to the economy, industries, businesses, securities markets,
and securities as it may deem necessary or useful in the performance of its
obligations hereunder.
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3. OTHER SERVICES AND EXPENSES OF ADVISER
The Adviser shall furnish to Paramount the following services and
facilities:
(a) Office space, furniture, equipment and supplies, which may
be the same as occupied or used by the Adviser;
(b) Qualified personnel for administering the affairs, managing
the investments, and preparing and maintaining the books of
account, records, reports and tax returns of Paramount,
except as specified in Section 4 hereof;
(c) Adequate facilities and qualified personnel for the
placement with broker-dealers of orders for the purchase and
sale of portfolio securities for Paramount;
(d) Members of the Adviser's organization to serve without
compensation from Paramount (except as specified otherwise
in Section 5 hereof) as officers or agents of Paramount, if
desired by Paramount;
(e) Daily determination of net assets;
(f) General purpose accounting forms, supplies, stationery and
postage and telephones and utilities relating to the
obligations of the Adviser hereunder
4. EXPENSES OF PARAMOUNT
Except to the extent expressly assumed by the Adviser herein,
Paramount will pay all costs and expenses in connection with its operations.
Without limiting the generality of the foregoing, Paramount shall pay the
following costs and expenses:
(a) Fees and charges of independent accountants, custodian and
depository and legal counsel for Paramount;
(b) Fees and charges of Paramount's transfer agent, including
the costs of maintaining Paramount's shareholder account
books and records, dividend disbursing agent and registrar,
if any;
(c) Costs of designing, printing, engraving and issuing
certificates representing shares of Paramount;
(d) Expenses, including fees and disbursements of counsel, in
connection with litigation by or against Paramount;
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(e) Taxes, including franchise, income, issue, transfer,
business license and other corporate fees payable by
Paramount to Federal, State or other governmental agencies;
(f) Premiums for the fidelity bond maintained by Paramount
pursuant to Section 17 of the 1940 Act and for any errors
and omissions insurance policy maintained by Paramount;
(g) Dues for Paramount's membership in trade organizations;
(h) Interest on indebtedness, if any, incurred by Paramount;
(i) Costs of designing, printing and mailing periodic and other
reports to shareholders, proxy statements, dividend notice
and other communications to Paramount's shareholders;
(j) Expenses of meeting of shareholders and directors;
(k) Brokers' commissions, issued and transfer taxes and other
costs chargeable to Paramount in connection with security
transactions to which Paramount is a party or with
securities owned by Paramount;
(l) Fees and expenses in connection with maintaining
registration of Paramount under the Federal securities laws
and under the laws of states which regulates the sale of
Paramount's shares and complying with the requirements of
the Securities and Exchange Commission under the 1940 Act,
the 1933 Act, the 1934 Act and applicable state securities
laws.
The advisory fee payable hereunder has been negotiated on the
understanding, and the parties hereto agree, that the Adviser has received, and
shall continue to receive, supplementary research and other information from
broker-dealers which execute portfolio transactions for Paramount.
5. COMPENSATION OF ADVISER
For the services to be rendered pursuant to this Agreement, Paramount
shall pay to the Adviser a monthly fee computed at the annual rates of 0.75% on
the first $50 million of Paramount's average net asset value and 0.65% on the
excess over $50 million of Paramount's average net asset value. Such average net
asset value shall be determined by taking the average of all of the
determinations of net asset value, made in the manner provided in Paramount's
Certificate of Incorporation, for each business day during a given calendar
month. Such fee shall be payable for each calendar month as soon as practicable
after the end of the month.
In addition to the above-stated fee, Paramount shall reimburse the
Adviser monthly for the costs incurred by the Adviser in providing financial
services to Paramount including, among other normal financial services for
Paramount, maintaining the accounts, books and other documents which constitute
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the record forming the basis for Paramount's financial statements, preparation
of such financial statements and other Paramount documents and reports of a
financial nature required by Federal and state laws, calculating daily net asset
value of Paramount, and participating in the production of Paramount's
registration statements, prospectuses, proxy solicitation materials and reports
to stockholders (including compensation of the Treasurer or other principal
financial officer of Paramount, compensation of personnel working under such
person's direction and expenses of office space, facilities and equipment used
by such personnel in the performance of their financial services duties to
Paramount); provided, however, that such reimbursement shall not exceed for any
fiscal year of Paramount 0.10% of the average net asset value of Paramount. Such
maximum reimbursement shall be calculated in the same manner as the fee referred
to in the preceding paragraph.
The fees and reimbursements to be paid to the Adviser shall be payable
for the period commencing on the date hereof and ending on the date of
termination hereof. If this Agreement is terminated, the fees and reimbursements
shall be prorated for any fraction of a month of termination..
The fees and reimbursements payable hereunder shall be reduced by an
amount which is equivalent to any solicitation fees received by the Adviser, or
any affiliated person of the Adviser, in connection with a tender of portfolio
securities of Paramount in acceptance of an exchange or tender offer. The
Adviser shall use its best efforts to recapture any available solicitation fees.
The Adviser also agrees to reduce the advisory fee and reimbursement
payable hereunder by the amount by which certain operating expenses of Paramount
(after the exclusion described below and after reflecting any advisory fee and
reimbursement reduction provided for in the preceding paragraph) for any fiscal
year shall exceed 1 1/2% of the first $30 million of Paramount's average net
asset value taken at the close of business on the last business day of each
calendar month of such year, plus 1% of the remaining average net asset value of
Paramount so taken. For purposes of this expense limitation provision, the
following expenses shall be excluded from the total operating expenses in
computing "certain operating expenses": (i) interest, (ii) taxes, (iii) any
expenditures pursuant to Section 6 hereof for brokerage and research services,
and (iv) any extraordinary expenses, such as those of litigation, merger,
reorganization, or recapitalization, to the extent such extraordinary are
permitted to be excluded by the rules or policies of the states in which shares
of Paramount are from time to time qualified for sale. All expenditures,
including costs incurred in connection with the purchase, holding, or sale of
portfolio securities, which are capitalized in accordance with generally
accepted accounting principles applicable to investment companies, shall be
accounted for as capital items and not as expenses. Any accrued advisory fee
reduction under this expense limitation provision shall be withheld by Paramount
from the fees paid hereunder. Any additional reduction computed at the end of
the fiscal year shall be paid to Paramount within five days of the computation
as a reduction of advisory fees paid during the fiscal year.
For purposes of this Section 5, the term "fiscal year" shall exclude
the portion of the current fiscal year which shall have elapsed at the prior to
the date hereof and shall include the portion of the then current fiscal year
which shall have elapsed at the date of termination of this Agreement.
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<PAGE>
6. BROKERAGE AND RESEARCH SERVICES
The advisory fee payable hereunder has been negotiated on the
understanding, and the parties hereto agree, that the Adviser has received, and
shall continue to receive, supplementary research and other information from
brokers and dealers which execute portfolio transactions for Paramount. The
Adviser may employ, retain, or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing the
Adviser or Paramount with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
obligations hereunder or otherwise helpful to Paramount, or in the discharge of
Adviser's overall responsibilities with respect to any other accounts which it
might serve as investment adviser. The Adviser and any person performing
executive, administrative or trading functions for Paramount, whose services
were made available to Paramount by the Adviser, are specifically authorized to
allocate brokerage and principal business to firms that provide such services or
facilities and to cause Paramount to pay a member of a securities exchange, or
any other securities broker or dealer, an amount of commissions for effecting a
securities transaction in excess of the amount of commission if the Adviser or
such person determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services (as
such services are defined in Section 28(e) of the 1934 Act) provided by such
member, broker or dealer, viewed in terms of either that particular transaction
or the overall responsibilities of the Adviser with respect to the accounts as
to which the Adviser exercises investment discretion (as that term is defined in
Section 3(a)(35) of the 1934 Act).
7. OTHER ACTIVITIES
The Adviser may perform investment advisory, management or
distribution services for other investment companies and other persons or
companies, and affiliates of the Adviser may engage in other related or
unrelated businesses. Except as otherwise required by the 1940 Act, any of the
shareholders, directors, officers and employees of Paramount may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the Adviser, and in any person controlled by or under common control with the
Adviser, and the Adviser, and any person controlled by or under common control
with the Adviser, may have an interest in Paramount.
8. LIABILITY OF ADVISER
Neither the Adviser nor any of its officers, directors or employees,
nor any person performing executive, administrative or trading functions for
Paramount whose services were made available to Paramount by the Adviser, shall
be liable for any error of judgment or mistake of law or for any loss suffered
by Paramount in connection with the matters to which this Agreement relates,
except for loss resulting from willful misfeasance, bad faith or negligence in
the performance of its duties, on behalf of Paramount or from reckless disregard
by the Adviser or any such person of the duties of the Adviser under this
Agreement. Without limiting the generality of the foregoing, neither the Adviser
nor any such person shall be deemed to have acted unlawfully or to have breached
any duty to Paramount under State or Federal law in effect at the date of the
enactment of Section 28(e) of the 1934 Act solely by reason of having caused
Paramount to pay a member of any securities exchange or any other securities
broker or dealer, an amount of commission for effecting a securities transaction
in excess of the commission another members of a securities exchange or another
securities broker or dealer would have charged for effecting that transaction if
the Adviser or such person determines in good faith that such amount of
commission was
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<PAGE>
reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Adviser with
respect to the account to which the Adviser exercises investment discretion.
9. TERM OF AGREEMENT
This Agreement shall continue in effect to November 30, 1992. It may
be continued in effect thereafter by mutual consent, provided that such
continuance shall be specifically approved at least annually by (i) the Board of
Directors of Paramount, or by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of Paramount, and (ii) by a majority
of directors who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of Paramount or by the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of Paramount, on
sixty (60) days' written notice to the Adviser, or by the Adviser on like notice
to Paramount. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized as of the day and year
first above written.
FPA PARAMOUNT FUND, INC.
(seal) By: /s/ Christopher Linden
-------------------------------------
Christopher Linden
Senior Vice President
FIRST PACIFIC ADVISORS, INC.
(seal) By: /s/ George H. Michaelis
-------------------------------------
George H. Michaelis
President
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DISTRIBUTION AGREEMENT
Agreement dated as of this 3rd day of September, 1991, by and between FPA
PARAMOUNT FUND, INC., a Maryland corporation, hereinafter called the "Fund," and
FPA FUND DISTRIBUTORS, INC., a California corporation, hereinafter called the
"Distributor".
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940 as
an open-end investment company and presently offers its shares for sale only to
existing shareholders and to directors, officers and employees of the Fund, the
investment adviser and affiliated companies of the investment adviser;
WHEREAS, the Distributor is engaged in the business of promoting the
distribution of shares of investment companies through securities broker-dealer;
and
WHEREAS, the Fund and the Distributor wish to enter into an Agreement with
each other to facilitate the distribution of its shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the Fund and the Distributor agree as follows:
1. DISTRIBUTOR IS EXCLUSIVE AGENT OF FUND. The Fund hereby appoints the
Distributor as the agent of the Fund exclusively authorized to act as the
principal underwriter and distributor of the shares of the Fund during the term
of this Agreement. The Distributor agrees to accept such appointment, and to act
as the agent of the Fund in accordance with the terms of this Agreement, as the
principal underwriter and exclusive distributor of the shares of the Fund.
2. TERM OF AGREEMENT. This Agreement shall have an initial term of two
years from the date hereof. It may be continued in effect thereafter by mutual
consent, provided that such continuance shall be specifically approved at least
annually by (i) the Board of Directors of the Fund, or by the vote of the
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of the Fund, and (ii) by a majority of the Directors who are
not parties to this Agreement or interested persons (as defined in the
Investment Company Act of 1940) of any such party, cast in person in a meeting
called for the purpose of voting on such approval.
3. DUTIES OF THE FUND.
(a) The Fund agrees that it will use its best efforts to keep authorized
and registered under the Securities Act of 1933 but unissued, sufficient of its
common stock to meet the reasonable requirements of the Distributor. The Fund
further agrees to use its best efforts to prepare, file and keep effective
registration statements, prospectuses, and qualifications covering sufficient
shares of the Fund to meet the Distributor's reasonable requirements in all
jurisdictions approved by the Fund and the Distributor in which shares of the
Fund may lawfully be sold.
<PAGE>
(b) The Fund will not arbitrarily or without reasonable cause refuse to
accept or confirm orders for the purchase of its shares obtained by the
Distributor as agent of the Fund and submitted by the Distributor to the Fund
(or to another agent of the Fund designated by the Fund to receive and/or act
upon such orders). In all proper cases, the Fund (or its agent) will confirm
orders upon their receipt either through the Distributor as agent for the Fund
or through another agent of the Fund authorized to deliver proper confirmations.
The Fund (or its agent) will make appropriate book entries and/or will deliver
certificates for such shares to the Distributor or to the designated record
owner upon receipt by the Fund (or by its agent) or payment therefor in cash (or
cash equivalent) together with receipt of proper registry or transfer
instructions. The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or to the agent or agents of the Fund
designated by it in writing as authorized to receive such payment and/or such
instructions).
(c) The Fund will not during the term of this Agreement offer any of its
shares for sale directly or through any person (as defined in Sections 2(a)(28)
and 2(a)(8) of the Investment Company Act of 1940) other than the Distributor,
excepting shares sold or issued at net asset without sales charge in accordance
with applicable provisions of the Investment Company Act of 1940. Provided,
however that in the event the Distributor should be unable to continue to
distribute shares of the Fund for reasons that do not apply to the sale of
shares of the Fund by any other person, the Fund may at its option make
arrangements for the offer and sale of its shares within the jurisdiction or
jurisdictions in which distribution and sale thereof by the Distributor has been
prevented, except that if the Distributor shall have removed all material
obstacles to resuming the offer and sale within said jurisdictions within 90
days from its first restraint or inability, then the right of the Fund to
distribute through instrumentalities other than the Distributor shall be
extinguished, subject only to the provisions of paragraph 2 hereof. The Fund
further agrees that the Distributor may act as principal underwriter and
distributor for the shares of other investment companies registered under the
Investment Company Act of 1940.
(d) The compensation and expenses of the transfer agent acting for the
Fund and acting as plan agent under the Fund's Investor Service Plans shall be
borne by the Fund.
4. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall exercise its best efforts lawfully and properly
to promote the offering of shares of the Fund to existing shareholders through
broker-dealers that are members in good standing of the National Association of
Securities Dealers, Inc. ("NASD").
(b) The Distributor is, and shall do all things necessary to continue to
be, a broker-dealer in securities registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, a member in good standing
of the NASD, and a licensed broker-dealer of the States in which its activities
require it to be so licensed.
(c) The Distributor shall enter into Selling Group Agreements with
broker- dealer members of the NASD selected by the Distributor, authorizing such
broker-dealers to offer and sell shares of the Fund to existing shareholders
upon the terms and conditions set forth therein, which shall not be inconsistent
with the provisions of this Agreement. The Distributor shall continue each such
Selling Group Agreement in effect, or terminate it, upon its sole discretion.
Such Selected Dealer Agreements shall provide that the selected dealer shall act
as principal and not as an agent of the Fund.
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<PAGE>
(d) Upon the Distributor's receipt from broker-dealers that have entered
into Selling Group Agreements with it of unconditional orders for the purchase
of shares of the Fund, the Distributor shall transmit such orders to the Fund
(or to another agent of the Fund authorized by it in writing to receive such
orders). In so doing, the Distributor will act solely as the agent of the Fund.
(e) The Distributor agrees that it will not directly or indirectly
withhold orders for the purchase of shares of the Fund or purchase shares of the
Fund in anticipation of orders, and further agrees that in all its Selling Group
Agreements with broker-dealers the Distributor will require a similar
contractual undertaking of the broker-dealer. The Distributor agrees to pay the
Fund, on a monthly basis, the amount of any net dilution resulting from the
cancellation or reversal of a confirmed purchase or repurchase order for shares
of the Fund resulting from the failure of a Selling Group member to settle the
trade. All gains and losses realized each month from such "fails" shall be
netted, and any net gain for a month shall be carried forward to offset any net
losses for any subsequent month in the same fiscal year of the Fund.
(f) The Distributor will print and distribute copies of the Fund's
prospectuses as from time to time in effect under the Securities Act of 1933, as
amended, and will prepare, print and distribute all advertising and sales
literature relating to the Fund. The Distributor will not publicly distribute
supplemental literature or advertising except such as shall be lawful under the
state and federal securities laws and regulations. The Distributor agrees to
file with the Securities and Exchange Commission and the NASD, and with such
other regulatory authorities as may be required, copies of any advertisements,
pamphlet, circular, form letter, or other sales literature relating to the Fund
or its shares, addressed to or intended for distribution to prospective
investors, within the time required by such regulatory authorities. The
Distributor will furnish to the Fund at its principal office a copy of all such
material prior to its use, and will not use any such material to which the Fund
reasonably and promptly objects.
(g) The Distributor shall maintain or retain a dealer service
organization suitable to the promotion of the sale of shares of the Fund by the
broker-dealers that have entered into Selling Group Agreements with the
Distributor.
(h) Except with respect to sales and repurchases of shares of the Fund,
the Distributor shall act as principal in all matters relating to promotion of
the growth of the Fund and shall enter into all of its engagements, agreements,
and contracts as principal on its own account.
(i) The Distributor shall act in the performance of its duties hereunder
in a manner that effects compliance with the current prospectus of the Fund from
time to time in effect under the Securities Act of 1933, the Articles of
Incorporation and the By-Laws of the Fund, and with applicable laws and
regulations of the United States and of the individual states within which the
Distributor or the Fund may do business, or in which shares of the Fund are
offered for sale, and will conduct its affairs with relation to the Fund,
broker-dealers, and investors in accordance with the Rules of Fair Practice of
the NASD.
5. PUBLIC OFFERING PRICE OF FUND'S SHARES TO BE MAINTAINED. Except as
provided in paragraph 3(c) of this Agreement, the shares of the Fund shall be
offered and sold only at the public offering price thereof described in the
current prospectus of the Fund, and shall be composed of the sum of (i) the
current net asset value per share furnished to the Distributor by the Fund at
least once on each
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day on which the New York Stock Exchange is open for trading, (ii) the
Distributor's commission, if any, as set forth in the current prospectus of the
Fund, and (iii) the broker-dealer's mark-up, if any, described in the Selling
Group Agreement referred to in paragraph 4(c) hereof. Such Selling Group
Agreements shall provide that the broker-dealer shall act as principal, and not
as an agent of the Fund.
6. DISTRIBUTOR'S COMMISSIONS. As compensation for its services hereunder,
the Distributor shall be paid, if at all, only such commissions on sales of
shares of the Fund (except shares sold or issued at net asset value in
accordance with Section 3(c) hereof) as is described in the current prospectus
of the Fund and subject to any reductions or quantity discounts described in
such current prospectus.
7. OTHER PROVISIONS.
(a) The Distributor may, but is not obligated to, act as agent for the
Fund without commission on repurchases of shares of the Fund.
(b) This Agreement shall not be construed as authorizing any dealer or
other person to act as agent either of the Fund or of the Distributor.
(c) The books and records of the Distributor, insofar as they relate to
sales of shares of the Fund, shall be open to inspection during business hours
by the officers and authorized representatives of the Fund, and the books and
records of the Fund relating to the determination of the offering price of
shares shall be open to inspection during business hours by the officers and
authorized representatives of the Distributor.
(d) This Agreement may be terminated at any time without payment of any
penalty by the Board of Directors of the Fund or by the vote of a majority of
the outstanding voting securities of the Fund on 60 days' written notice to the
Distributor, or by the Distributor on like notice to the Fund. In the absence of
the issuance of an Order by the Securities and Exchange Commission providing an
exemption from the provisions of Section 15(b) of the Investment Company Act of
1940, this Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940) by the
Distributor.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers duly authorized and their corporate seal to be
affixed as of the day and year first above written.
FPA PARAMOUNT FUND, INC.
(Seal)
By: /s/ Christopher Linden
----------------------------
Christopher Linden,
Senior Vice President
FPA FUND DISTRIBUTORS, INC.
(Seal)
By: /s/ Lawrence P. McNeil
----------------------------
Lawrence P. McNeil,
President
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FPA FUND DISTRIBUTORS, INC.
11400 WEST OLYMPIC BOULEVARD-SUITE 1200-LOS ANGELES, CALIFORNIA 90064
(800) 982-4372
SELLING GROUP AGREEMENT FOR FPA FUNDS
Gentlemen:
As the general distributor and agent for FPA Funds (hereinafter
referred to as the "Fund" or collectively as the "Funds"), we invite you to
become a member of the Selling Group to distribute the shares of the funds on
the following terms:
1. Orders for shares received from you and accepted by us will only be
at the public offering price applicable to each order as established by and
determined in accordance with the then effective Prospectus of the Funds. All
orders are subject to acceptance by us and both we and the Funds reserve the
right in our sole discretion to reject any order. The Funds also receive the
right to withhold or withdraw shares from sale temporarily or permanently. The
minimum purchase is as expressed in the applicable current prospectus and no
order for less than such amount will be accepted.
2. As members of the Selling Group, you will be allowed a discount from
the regular offering price in accordance with the Commission Schedule in effect
at the time of the order. The Commission Schedule may be amended from time to
time in our sole discretion. A description of the current Commission Schedule
and policies is attached hereto and is effective as of the date hereof. In the
event the Commission Schedule and policies are amended, we will promptly notify
you of the change.
3. The Funds encourage reinvestment of dividends and capital gain
distributions without sales charge, and no commission or compensation shall be
paid to you on account of any such reinvestment.
4. If any shares are repurchased by the Funds or by us, or are tendered
for redemption within seven business days after confirmation by us of the
original purchase order from you for such securities, you shall forthwith refund
to us (or forfeit) the full concession allowed to you on the original sale,
which (when received) is to be paid forthwith by us to the Funds with our share
of the sales charge on the original sale by us. We will notify you of such
repurchase or redemption within ten days of the date on which a request for
redemption or certificates for such securities are delivered to us or the Funds.
5. We reserve the right to cancel this Agreement at any time, without
notice, if any shares are offered for sale by you at less than the regular
offering price as determined by or for the Funds.
6. We generally are authorized on behalf of the Funds to repurchase
from you shares of the Funds offered by your customers for repurchase. Orders
for such repurchase price are determined in the manner described in the then
effective Prospectus for the Funds.
7. We will be pleased to furnish you, without charge, reasonable
quantities of the prospectuses, shareholders reports, application forms and
other sales material or supplemental literature issued or prepared by us or the
Funds from time to time.
8. As a member of the Selling group, you act as principal and are not
employed by us as broker, agent or employee; you are not authorized to act for
us nor to make any representations in our behalf; and in purchasing or selling
shares hereunder, you are entitled to rely only upon the information contained
in the then current prospectuses of the Funds. You shall forward to whom any
offer or sale of shares of the Funds is made, at or prior to the time of such
offer or sale, a copy of the then current prospectus with respect to such
shares. In the offer and sale of shares of the Funds you shall not use any
prospectus or supplemental literature not approved in writing by the Funds or
the Distributor. No person is authorized to make any representations concerning
shares of the Funds except those contained in the current prospectus of the
Funds as amended or supplemented. You also agree that every effort shall be made
by you to place orders on an investment basis.
9. Shares purchased shall be delivered or deposited by the Funds only
against receipt by the Funds of the purchase price in collected clearing house
funds, as specified from time to time by the Funds, subject to deduction for
your discount and our commission on such sale. If payment for the shares
purchased is not received
<PAGE>
within three days after confirmation of your order, the sale may be cancelled
forthwith by us or the Funds, without any responsibility or liability on our
part or on the part of the Funds. At our option, we may sell the shares ordered
back to the Funds, in which case we may hold you responsible for any loss,
including loss of profit suffered by us, resulting from your failure to make
payment as aforesaid.
10. We shall have no responsibility for the qualification of shares for
sale under the laws regulating the sale of securities in any jurisdiction, and
shall not in any event be liable or responsible (except for liabilities arising
under the Securities Act of 1933) for the issue, form, validity, enforceability
or value of shares, nor for any matter in connection therewith. No obligation
not expressly assumed by us in this Agreement shall be implied therefrom. You
agree to sell shares of the Funds only in states in which you are authorized to
sell such shares and in which such shares are qualified for sale.
11. Each party to this Agreement represents that it is (an will
continue to be during the life of the Agreement) a member in good standing of
the National Association of Securities Dealers, Inc., and agrees to abide by the
Rules of Fair Practice of the Association. This Agreement shall be construed to
include among its terms each of the provisions required by Section 26 of the
said Rules of Fair Practice to be set forth in a sales agreement, and each party
agrees to be bound by such provisions. You also represent that you are a
properly registered or licensed broker or dealer under applicable federal and
state securities laws and regulations. You agree to notify is immediately if you
cease to be so registered or licensed or a member in good standing of the
Association.
12. Either party hereto may cancel this Agreement by written notice to
the other.
13. This agreement shall be binding upon receipt by us in Los Angeles,
California, of a duplicate copy duly accepted and signed by you, and shall be
construed in accordance with the laws of the State of California.
Dated:
-----------------------------
FPA FUND DISTRIBUTORS, INC.
By:
----------------------------------
The undersigned accepts your invitation to become a member of the
Selling Group and agrees to abide by the foregoing terms and conditions. The
undersigned acknowledges receipt of prospectuses for use in connection with this
offering.
Dated:
-----------------------------
(Dealer)
-----------------------------
By (Signature)
-----------------------
Print Name
---------------------------
Title
--------------------------------
Address
------------------------------
------------------------------
Phone ( )
--------------------------------
CRD#
---------------------------------
Please return signed copies to:
FPA FUND DISTRIBUTORS, INC.
Mutual Fund Administration
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
<PAGE>
CUSTODIAN CONTRACT
Between
FPA PARAMOUNT FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
CUSTODIAN CONTRACT
This Contract between FPA Paramount Fund, Inc., a corporation organized
and existing under the laws of Delaware, having its principal place of business
at 10301 West Pico Boulevard, Los Angeles, California, 90064, hereinafter called
the "Fund", and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Articles of Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, $.25 par
value, ("Shares") of the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic
<PAGE>
securities owned by the Fund, other than (a) securities which are
maintained pursuant to Section 2.10 in a clearing agency which acts as
a securities depository or in a book-entry system authorized by the
U.S. Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate fact amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or
-2-
<PAGE>
its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any
such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the delivery
of securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, BUT ONLY against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National
-3-
<PAGE>
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
UNLESS the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities
-4-
<PAGE>
accepted by the Custodian on behalf of the Fund under the terms of this
Contract shall be in "street name" or other good delivery form.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for the
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; PROVIDED,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of
the Board of Directors of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by
the Custodian only in that capacity.
2.5 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by
law or pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to United
States bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
Without limiting the generality of the foregoing, the Custodian shall
detach and present to payment all coupons and other income items
requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the Fund on
United States securities loaned pursuant to the provisions of Section
2.2 (10) shall be the responsibility of the Fund. The Custodian will
have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
of the income to which the Fund is properly entitled.
-5-
<PAGE>
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts for the account of the Fund but only (a) against
the delivery of such securities, or evidence of title to
such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking firms or
trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940,
as amended, to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in
the name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A;
(d) n the case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the fund or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Fund as set forth in Article 4 hereof;
-6-
<PAGE>
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as
if the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEM. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and
-7-
<PAGE>
Exchange Commission under Section 17A of the Securities Exchange Act
of 1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the
Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for
the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian shall
furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the
-8-
<PAGE>
Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
domestic securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made
whole for any such loss or damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transactions relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian
-9-
<PAGE>
shall transfer securities sold for the account of the Fund
upon the making of an entry on the records of the Custodian
to reflect such transfer and receipt of payment for the
account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time;
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such
-10-
<PAGE>
purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such certificates.
2.13 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian
shall transmit promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the Fund) received
by the Custodian from issuers of the domestic securities being held for
the Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the fund all written information received by
the Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the tender
or exchange offer. If the Fund desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the
Fund shall notify the Custodian at least three business days prior to
the date on which the Custodian is to take such action.
2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall
provide the Fund, at such times as the Fund may reasonable require,
with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including domestic securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such
-11-
<PAGE>
inadequacies, the reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes
and instructs the Custodian to employ as sub-custodians for the
Fund's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined
in Section 5 of this Contract, together with a certified resolution
of the Fund's Board of Directors, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign sub-custodians
to: (a) "foreign securities", as defined in paragraph (c)(1) of Rule
17f-5 under the Investment Company Act of 1940, and (b) cash and
cash equivalents in such amounts as the Custodian or the Fund may
determine to be reasonably necessary to effect the Fund's foreign
securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Fund
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 SEGREGATION OF SECURITIES The Custodian shall identify on its books
as belonging to the Fund, the foreign securities of the Fund held by
each foreign sub-custodian. Each agreement pursuant to which the
Custodian employs a foreign banking institution shall require that
such institution establish a custody account for the Custodian on
behalf of the Fund and physically segregate in that account,
securities and other assets of the Fund, and, in the event that such
institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for the Fund, the securities so deposited.
-12-
<PAGE>
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership of
the Fund's assets will be freely transferable without the payment of
money or value other than for custody or administration; (c)
adequate records will be maintained identifying the assets as
belonging to the Fund; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the
foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of
the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the
books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to
the performance of such foreign banking institution under its
agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign
sub-custodians, including by not limited to an identification of
entities having possession of the Fund's securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as
to securities acquired for the Fund, the identity of the entity
having physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract shall
apply, MUTATIS MUTANDIS to the foreign securities of the Fund held
outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment
-13-
<PAGE>
for securities received for the account of the Fund and delivery of
securities maintained for the account of the Fund and delivery of
securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction
or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIAN. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations.
At the election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss,
damage, cost, expense, liability or claim if and to the extent that
the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts
or omissions of a foreign banking institution to the same extent as
set forth with respect to sub-custodians generally in this Contract
and, regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may
-14-
<PAGE>
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State
Street London Ltd. not caused by political risk) due to Acts of God,
nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable
care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash to the
extent necessary to obtain reimbursement, and if insufficient sell
other Fund assets, PROVIDED THAT Custodian shall, with respect to
Fund assets as to which Custodian has perfected its lien and which
Custodian proposes to dispose of pursuant to the foregoing right,
give the Fund notice identifying such assets and the Fund shall have
three business days from receipt of such notice to notify the
Custodian if the Fund wishes the Custodian to dispose of Fund assets
of equal value other that those identified in such notice; in the
absence of any contrary notification from the Fund, Custodian shall
be free to dispose of the Fund assets initially identified to the
extent necessary to realize the amounts to which it is entitled
hereunder.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the
foreign sub-custodians employed by the Custodian. Such information
shall be to the extent necessary to obtain reimbursement, and if
insufficient sell other Fund assets, PROVIDED THAT Custodian shall,
with respect to Fund assets as to which custodian has perfected its
lien and which Custodian proposes to dispose of pursuant to the
foregoing right, give the Fund notice identifying such assets and
the Fund shall have three business days from receipt of such notice
to notify the Custodian if the Fund wishes the Custodian to dispose
of Fund assets of equal value other than those identified in such
notice; in the absence of any contrary notification from the Fund,
Custodian shall be free to dispose
-15-
<PAGE>
of the Fund assets initially identified to the extent necessary to
realize the amounts to which it is entitled hereunder.
3.13 BRANCHES OF U.S. BANKS.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act
of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. PAYMENTS FOR REPURCHASE OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or initialled
by one or more person or persons as the Board of Directors shall have from time
to time authorized. Each such writing shall
-16-
<PAGE>
set forth the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transactions involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary as to the authorization by the Board of
Directors of the Fund accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Fund's assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.11.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Fund except as
otherwise directed by the Board of Directors of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered
-17-
<PAGE>
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate daily the
net income of the Fund as described in the Fund's currently effective prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of the Fund shall be made at the time or times
described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
-18-
<PAGE>
requirements of such Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. contemplated by paragraph 3.11 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from, or caused by, the direction of or authorization by the Fund to maintain
custody or any securities or cash of the Fund in a foreign country including,
but not limited to, losses resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring
-19-
<PAGE>
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash to the extent necessary to
obtain reimbursement, and if insufficient sell other Fund assets, PROVIDED THAT
Custodian shall, with respect to Fund assets as to which Custodian has perfected
its lien and which Custodian proposes to dispose of pursuant to the foregoing
right, give the Fund notice identifying such assets and the Fund shall have
three business days from receipt of such notice to notify the Custodian if the
Fund wishes the Custodian to dispose of Fund assets of equal value other than
those identified in such notice; in the absence of any contrary notification
from the Fund, Custodian shall be free to dispose of the Fund assets initially
identified to the extent necessary to realize the amounts to which it is
entitled hereunder.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Directors has reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not act under Section 2.10A hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors has reviewed the use by the Fund of the Direct Paper
System; PROVIDED FURTHER, however,
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<PAGE>
that the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund may at any time by action of
its Board of Directors (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Directors
of the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the
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<PAGE>
vote referred to or of the Board of Directors to appoint a successor custodian,
the Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities, funds and
other properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
15. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment to this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the Fund's assets.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 11th day of January, 1989.
(seal)
ATTEST FPA PARAMOUNT FUND, INC.
/s/ Sherry Sasaki by /s/ Julio J. De Puzo. Jr.
- ---------------------------- --------------------------------
Secretary Treasurer
(seal)
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ P. McClure by /s/ E. D. Hawkes, Jr.
- ---------------------------- --------------------------------
Assistant Secretary Vice President
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<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of FPA Paramount Fund,
Inc. for use as sub-custodians for the Fund's securities and other assets.
(Insert banks and securities depositories)
<PAGE>
(LOGO)
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
FPA PARAMOUNT FUND, INC.
FPA PERENNIAL FUND, INC.
* FPA NEW INCOME, INC.
FPA CAPITAL FUND, INC.
SOURCE CAPITAL, INC.
Effective August 1, 1987
- -------------------------------------------------------------------------------
I. ADMINISTRATION
CUSTODY AND PORTFOLIO ACCOUNTING SERVICE - Maintain custody of fund
assets. Settle portfolio purchases and sales. Report buy and sell
fails. Determine and collect portfolio income. Make cash disbursements
and report cash transactions. Maintain investment ledgers, provide
selected portfolio transaction, position and income reports.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average monthly net assets.
ANNUAL FEES PER PORTFOLIO
-------------------------
Custody and
Fund Net Assets Portfolio Acct.
--------------- ---------------
First $20 Million 1/ 40 of 1%
Next $80 Million 1/ 80 of 1%
Excess 1/200 of 1%
Minimum Monthly
Asset Charges $1,000
* The New Income Fund, Inc. will be subject to a minimum monthly
charge of $250.
II. GLOBAL CUSTODY - Services provided include: Cash Movements, Foreign
Communication, Foreign Exchange (local currency settlements).
Fund Net Assets Annual Fees
--------------- ---------------
First $50 Million 18 Basis Points
Next $50 Million 15 Basis Points
Over $100 Million 12 Basis Points
Minimum Per Client $5,000.00 Annually
<PAGE>
III. PORTFOLIO TRADES - FOR EACH LINE ITEM PROCESSED
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $12.00
New York Physical Settlements $30.00
All other trades $16.00
IV. OPTIONS
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. LENDING OF SECURITIES
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned securities $15.00
Deliver loaned securities collateral versus receipt of
loaned securities $25.00
Loan administration -- mark-to-market per day, per loan $ 3.00
VI. INTEREST RATE FUTURES
Transactions -- no security movement $ 8.00
VII. COUPON BOOKS
Monitoring for calls and processing coupons -- for each
coupon issue held -- monthly charge $ 5.00
VIII. HOLDING CHARGE
For each issue maintained -- monthly charge $ 5.00
IX. PRINCIPAL REDUCTION PAYMENTS
Per paydown $10.00
X. DIVIDEND CHARGES (For items held at the Request of
Traders over record date in street form) $50.00
XI. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments and
the preparation of special reports will be subject to negotiation. Fees
for tax accounting/recordkeeping for options, financial futures, and
other special items will be negotiated separately.
<PAGE>
XII. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but
are not limited to the following:
Telephone
Wire Charges ($4.70 per wire in and $4.55 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer - $15 each
XIII. PAYMENT
The above fees will be charged against the fund's custodian checking
account five (5) days after the invoice is mailed to the fund's
officers and proper fund authorization is granted.
FPA PARAMOUNT FUND, INC.
FPA PERENNIAL FUND, INC.
FPA NEW INCOME FUND, INC.
FPA CAPITAL FUND, INC.
SOURCE CAPITAL, INC. STATE STREET BANK AND TRUST CO.
By /s/ Julio J. De Puzo, Jr. By /s/ E. D. Hawkes, Jr.
--------------------------------- ----------------------
Title Treasurer Title Vice President
------------------------------ -------------------
Date August 12, 1987 Date August 12, 1987
------------------------------- --------------------
<PAGE>
(LOGO)
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE ADDENDUM
FOR GNMA SECURITIES
TRADED THROUGH
PARTICIPANTS TRUST COMPANY
FPA NEW INCOME FUND
FPA PERENNIAL FUND
SOURCE CAPITAL
FPA CAPITAL FUND, INC.
FPA PARAMOUNT FUND, INC.
- --------------------------------------------------------------------------------
The fees identified in this addendum replace fees for GNMA securities as they
are converted. All other charges not identified herein remain in force.
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
I. PORTFOLIO TRADES - FOR EACH LINE ITEM PROCESSED
a. PTC Purchase $25.00
b. PTC Sale $25.00
c. Deposit/Withdrawal of GNMA Certificates $25.00
II. OUT-OF-POCKET EXPENSES
From Participants Trust Company
a. Deposit/Withdrawal of GNMA Certificates for
Same Day Turnarounds $50.00
b. Principal Paydowns Subject to Interim Accounting
by PTC (items settling after record date) $10.00
c. Interest expense for advancement of monthly
principal and interest payments Variable
</TABLE>
FPA PARAMOUNT FUND, INC.
FPA NEW INCOME FUND
FPA PERENNIAL FUND
SOURCE CAPITAL
FPA CAPITAL FUND, INC. STATE STREET BANK AND TRUST CO.
<TABLE>
<S> <C>
By: By: E. D. Hawkes, Jr.
------------------------------------- --------------------------------
Title Treasurer Title Vice President
----------------------------------- ------------------------------
Signature: /s/ Julio J. de Puzo, Jr. Signature: /s/ E. D. Hawkes, Jr.
------------------------------ -------------------------
Date February 14, 1990 Date January 10, 1990
------------------------------------ -------------------------------
</TABLE>
<PAGE>
AGREEMENT AND ARTICLES OF MERGER
THIS AGREEMENT AND ARTICLES OF MERGER, is made and entered into this 25th
day of November, 1985, by and between FPA PARAMOUNT FUND, INC., a Delaware
corporation ("Paramount-Delaware"), and FPA PARAMOUNT FUND, INC., a Maryland
corporation ("Paramount-Maryland".
Paramount-Delaware and Paramount-Maryland hereby agree as follows:
1. CONSTITUENT, SURVIVING CORPORATIONS. Paramount-Delaware and
Paramount-Maryland shall be the constituent corporations to the merger
("Merger"). In accordance with the General Corporation Law of the State of
Delaware and the General Corporation Law of the State of Maryland,
Paramount-Delaware shall be merged into Paramount-Maryland and
Paramount-Maryland shall be the surviving corporation of the Merger (hereinafter
Paramount-Maryland may sometimes be referred to as the "Surviving Corporation"),
effective at the time stated in the Articles of Merger and the Certificate of
Merger to be filed with the Department of Assessments and Taxation of the State
of Maryland and the Secretary of State of the State of Delaware, respectively
("Effective Time"). At the Effective Time, the name, identity and separate
existence of Paramount-Delaware shall cease, all liabilities of
Paramount-Delaware will be assumed by Paramount-Maryland, and all of the rights,
privileges, powers, franchises, properties and assets of Paramount-Delaware
shall be vested in Paramount-Maryland. The name, identity, existence, rights,
privileges, powers, franchises, properties and assets of Paramount-Maryland
shall continue unaffected and unimpaired by the Merger.
2. ARTICLES OF INCORPORATION; BY-LAWS. The Articles of Incorporation and
By-Laws of Paramount-Maryland in effect immediately prior to the Effective Time
shall thereafter continue in full force and effect as the Articles of
Incorporation and By-Laws of the Surviving Corporation until further amended as
provided therein or by law.
3. DIRECTORS AND OFFICERS. The directors and officers of Paramount-Maryland
immediately prior to the Effective Time shall continue as the directors and
officers of the Surviving Corporation, to hold office subject to the Articles of
Incorporation and By-Laws of the Surviving Corporation and the General
Corporation Law of the State of Maryland.
-1-
<PAGE>
4. CONVERSION OF STOCK OF CONSTITUENT CORPORATIONS. At the Effective Time,
by virtue of the Merger and without any action on the part of the holders
thereof, each share or fraction thereof of the Common Stock, par value $0.25 per
share ("Common Stock"), of Paramount-Delaware, issued and outstanding prior to
the Effective Time, excluding any treasury shares of Paramount-Delaware which
shall cease to exist, shall be converted into one share or fraction thereof of
Common Stock, par value $0.25 per share ("Common Stock"), of Paramount-Maryland.
At the Effective Time, any outstanding certificates representing shares of
Common Stock of Paramount-Delaware shall represent an equal number of full and
fractional shares of Common Stock of Paramount-Maryland. At any time thereafter
each holder of a stock certificate issued by Paramount-Delaware shall have the
right to surrender such certificate to Paramount-Maryland and to receive in
exchange a certificate representing an equal number of shares of Common Sock
issued by Paramount-Maryland.
5. SERVICE OF PROCESS.
(a) Paramount-Maryland as the Surviving Corporation may be served
with process in the State of Delaware in any proceeding for the enforcement of
any obligation of Paramount-Delaware as well as for the enforcement of any
obligation of the Surviving Corporation arising from the Merger.
(b) The Secretary of State of the State of Delaware is irrevocably
appointed as the agent of the Surviving Corporation to accept service of process
in any such suit or other proceeding. The address to which a copy of said
process shall be mailed by the Secretary of State is
Corporate Secretary
FPA Paramount Fund, Inc.
10301 West Pico Boulevard
Los Angeles, California 90064
6. CONDITIONS PRECEDENT. The obligations of Paramount-Delaware and
Paramount-Maryland to effect the Merger shall be subject to the satisfaction of
each of the following conditions:
-2-
<PAGE>
(a) Each party shall have received an opinion of O'Melveny &
Myers to the effect that: (1) the merger of Paramount-Delaware into
Paramount-Maryland will qualify as a reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1954. Each of the Constituent
Corporations will be a party to the reorganization within the meaning of Section
368(b); (2) no gain or loss will be recognized to Paramount-Delaware upon the
transfer of its assets to, and the assumption of its liabilities by
Paramount-Maryland; (3) the basis of the assets of Paramount-Delaware received
by Paramount-Maryland will be the same as the basis of such assets in the hands
of Paramount-Delaware immediately prior to the merger; (4) the holding period of
the assets of Paramount-Delaware received by Paramount-Maryland will include the
period during which such assets were held by Paramount-Delaware; (5) no gain or
loss will be recognized to Paramount-Maryland upon the receipt of assets of
Paramount-Delaware; (6) no gain or loss will be recognized to the shareholder of
Paramount-Delaware upon receipt of capital stock of Paramount-Maryland as a
consequence of the merger; (7) the basis of the shares of Paramount-Maryland
received by shareholders of Paramount-Delaware will be the same as the basis of
the shares of Paramount-Delaware surrendered by such shareholders; (8) the
holding period of the shares of Paramount-Maryland received by shareholders of
Paramount-Delaware will include the holding period of such shares of capital
stock of Paramount-Delaware as are surrendered by such shareholders, provided
that such shares of Paramount-Delaware were held as a capital asset on the
effective date of the merger; and (9) the accumulated earnings and profits of
Paramount-Delaware will become earnings and profits of Paramount-Maryland
available for the subsequent distribution of dividends within the meaning of
Section 316.
(b) This Agreement and Articles of Merger and the Merger
contemplated hereby shall have been adopted and approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of Common Stock
of Paramount-Delaware entitled to vote thereon;
(c) The Investment Advisory and Management Agreement currently in
effect between Paramount-Delaware and First Pacific Advisors, Inc. ("FPA") shall
have been approved by the Board of Directors of Paramount-Maryland as the
Investment Advisory and Management Agreement between Paramount-Maryland and
-3-
<PAGE>
FPA and to the extent required by law, by the members of the Board of Directors
of Paramount-Maryland who are not interested persons of Paramount-Maryland or of
FPA as defined in the Investment Company Act of 1940 ("Act");
(d) Those persons who are serving as directors of Paramount-Delaware
immediately prior to the Effective Time shall have been elected, subject to
their availability, as members of the Board of Directors of Paramount-Maryland;
and
(e) The members of the Board of Directors of Paramount-Maryland who
are not interested persons of Paramount-Maryland or of FPA as defined in the Act
shall have selected as independent accountants for Paramount-Maryland such
independent accountants as shall have been selected and ratified by the
shareholders of Paramount-Delaware.
At any time prior to the Effective Time, any of the foregoing conditions
except 6(b) may be waived by the Board of Directors of Paramount-Delaware or the
Board of Directors of Paramount-Maryland if, in their judgment, such waiver will
not have a material adverse effect on the interests of the shareholders of
Paramount-Delaware.
7. AMENDMENT; TERMINATION. The Board of Directors of Paramount-Delaware and
of Paramount-Maryland may amend this Agreement prior to the Effective Time if
such amendment does not alter or change Section 4 hereof, alter or change any
term of the Articles of Incorporation of Paramount-Maryland, or have a material
adverse effect on the interests of the shareholders of Paramount-Delaware. The
Board of Directors of Paramount-Delaware and of Paramount-Maryland may terminate
this Agreement and abandon the Merger contemplated hereby, notwithstanding
approval thereof by the shareholders of Paramount-Delaware and
Paramount-Maryland, at any time prior to the Effective Time, if circumstances
should develop that, in their judgment, make such amendment or termination
advisable.
-4-
<PAGE>
8. INFORMATION REGARDING CONSTITUENT CORPORATIONS.
(a) Paramount-Delaware was incorporated under the General
Corporation Law of the State of Delaware on September 8, 1958 under the name
Paramount Mutual Fund, Inc. The total number of shares of stock of all classes
which Paramount-Delaware has authority to issue is 25,000,000 all of which are
common stock of the par value of $.25 per share. There are 9,510,516 outstanding
shares of such common stock entitled to vote on the merger. Paramount-Delaware
has no principal office in the State of Maryland. Paramount-Delaware owns no
interest in land in the State of Maryland and owns no property in the State of
Maryland, title to which could be affected by the recording of an instrument
among the Land Records.
(b) Paramount-Maryland was incorporated under the Corporations and
Associations Article of the Maryland Annotated Code on November 22, 1985. The
total number of shares of stock of all classes which Paramount-Maryland has
authority to issue is 25,000,000, all of which are common stock of the par value
of $.25 per share; the merger is not to effect any amendment changing such
capitalization. Paramount-Maryland has no stock outstanding or subscribed for
and entitled to be voted on the merger. The principal office of
Paramount-Maryland in the State of Maryland is located in the city of Baltimore,
State of Maryland.
9. REQUIRED RE-EXECUTION. When the constituent corporations have duly
approved this Agreement in the manner required by law pursuant to Section 3-105
of the Corporations and Associations Article of the Maryland Annotated Code and
Section 252 of the Delaware General Corporation Law, then an Article 10, in the
form following the signatures below shall be added to this agreement, and this
Agreement shall be re-executed and the matters of fact set forth in this
Agreement, including Article 10 hereof, shall be verified as required by the
said provisions.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
FPA PARAMOUNT FUND, INC.,
a Delaware corporation
(Corporate Seal)
By /s/ Christopher Linden
----------------------------------
Christopher Linden
Senior Vice President
Attest:
By: /s/ Sherry Sasaki
----------------------------------
Sherry Sasaki
Assistant Secretary
FPA PARAMOUNT FUND, INC.,
a Maryland corporation
(Corporate Seal)
By /s/ Christopher Linden
----------------------------------
Christopher Linden
Senior Vice President
Attest:
By: /s/ Sherry Sasaki
----------------------------------
Sherry Sasaki
Assistant Secretary
-6-
<PAGE>
10. RE-EXECUTION. This Agreement and Articles of Merger has been duly
advised, authorized, and approved by both Paramount-Maryland and
Paramount-Delaware in the manner and by the vote required by its charter and the
laws of the state where it is organized. In the case of Paramount-Delaware, this
Agreement and Articles of Merger has been approved by resolutions adopted by the
Board of Directors, by majority vote of the entire Board of Directors, and has
been duly approved by the affirmative vote of the holders of a majority of the
outstanding shares authorized to vote in the manner and by the vote required by
the Charter of said corporation and the General Corporation Law of the State of
Delaware. In the case of Paramount-Maryland, this Agreement and Articles of
Merger has been duly approved by a majority of the entire Board of Directors of
said corporation, there being no stock outstanding or subscribed for and
entitled to be voted on the merger, in accordance with the Charter of said
corporation and Section 3-105 of the Corporations and Associations Article of
the Maryland Annotated Code.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly re-executed and delivered by their duly authorized officers on this 24th
day of January 1986.
(Corporate Seal)
FPA PARAMOUNT FUND, INC.,
a Delaware corporation
Attest:
By: /s/ Sherry Sasaki By /s/ Christopher Linden
---------------------------------- ----------------------------------
Sherry Sasaki Christopher Linden
Assistant Secretary Senior Vice President
(Corporate Seal)
FPA PARAMOUNT FUND, INC.,
a Maryland corporation
Attest:
By: /s/ Sherry Sasaki By /s/ Christopher Linden
---------------------------------- ----------------------------------
Sherry Sasaki Christopher Linden
Assistant Secretary Senior Vice President
-8-
<PAGE>
I, Christopher Linden, Senior Vice President of FPA Paramount Fund, Inc., a
Maryland corporation, who executed on behalf of said corporation, the foregoing
Agreement and Articles of Merger, of which this Certificate is made a part,
hereby acknowledge, in the name of and on behalf of said corporation, the
foregoing Agreement and Articles of Merger to be the corporate act of said
corporation and further certify that, to the best of my knowledge, information,
and belief, the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects, under the
penalties for perjury.
Executed this 24th day of January, 1986.
/s/ Christopher Linden
----------------------------------
Christopher Linden
Senior Vice President
I, Christopher Linden, Senior Vice President of FPA Paramount Fund, Inc., a
Delaware corporation, who executed on behalf of said corporation the foregoing
Agreement and Articles of Merger, of which this Certificate is made a part,
hereby acknowledge, in the name of and on behalf of said corporation, the
foregoing Agreement and Articles of Merger to be the corporate act of said
corporation and further certify that, to the best of my knowledge, information,
and belief, the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects, under the
penalties for perjury.
Executed this 24th day of January, 1986.
/s/ Christopher Linden
----------------------------------
Christopher Linden
Senior Vice President
-9-
<PAGE>
FPA PARAMOUNT FUND, INC.
a Delaware Corporation
Secretary's Certificate
I, Sherry Sasaki, Assistant Secretary of FPA Paramount Fund, Inc., a
Delaware corporation ("FPA-Del,"), do hereby certify, in accordance with the
provisions of the General Corporation Law of the State of Delaware and the
Corporations and Associations Article of the Annotated Code of Maryland, that
the foregoing Agreement and Articles of Merger, having been duly authorized and
adopted by the Board of Directors of FPA-Del. and signed under its corporate
seal by officers of FPA-Del. thereunto duly authorized, was duly approved and
adopted by shareholders of FPA-Del. on the 8th day of January, 1986.
WITNESS my hand and the seal of FPA Paramount Fund, Inc., a Delaware
corporation, this 24th day of January, 1986.
/s/ Sherry Sasaki
----------------------------------
Sherry Sasaki
Assistant Secretary
(Corporate Seal)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 194,120,481
<INVESTMENTS-AT-VALUE> 148,379,043
<RECEIVABLES> 23,808,706
<ASSETS-OTHER> 469
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,188,218
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 968,230
<TOTAL-LIABILITIES> 968,230
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 323,298,034
<SHARES-COMMON-STOCK> 18,095,905
<SHARES-COMMON-PRIOR> 37,677,392
<ACCUMULATED-NII-CURRENT> 388,908
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (106,725,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (45,741,438)
<NET-ASSETS> 171,219,988
<DIVIDEND-INCOME> 2,722,340
<INTEREST-INCOME> 1,049,874
<OTHER-INCOME> 0
<EXPENSES-NET> 2,430,059
<NET-INVESTMENT-INCOME> 1,342,155
<REALIZED-GAINS-CURRENT> (106,200,582)
<APPREC-INCREASE-CURRENT> 74,545,524
<NET-CHANGE-FROM-OPS> (30,312,903)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,080,683
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,067,385
<NUMBER-OF-SHARES-REDEEMED> 20,849,919
<SHARES-REINVESTED> 201,047
<NET-CHANGE-IN-ASSETS> (214,624,792)
<ACCUMULATED-NII-PRIOR> 1,127,436
<ACCUMULATED-GAINS-PRIOR> (524,934)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,881,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,430,059
<AVERAGE-NET-ASSETS> 235,348,681
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.77)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.46
<EXPENSE-RATIO> 1.03
</TABLE>
