<PAGE> 1
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
[x] Filed by the Registrant
[ ] Filed by a party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SOURCE CAPITAL, INC.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required (no preliminary filing was required)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction
applies:
______________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
______________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________
5) Total fee paid:
______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________
3) Filing Party:
______________________________________________________________
4) Date Filed:
______________________________________________________________
<PAGE> 2
SOURCE CAPITAL, INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200, LOS ANGELES, CALIFORNIA 90064
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MONDAY, MAY 5, 1997
Notice is hereby given that the annual meeting of shareholders of Source
Capital, Inc. ("Company") will be held on the Chateau Level, Second Floor, of
the Park Hyatt Los Angeles at Century City, 2151 Avenue of the Stars, Los
Angeles, California 90067, on Monday, May 5, 1997, at 10:00 A.M. Pacific Time,
to consider and vote on the following matters:
1. Election of five directors by the holders of Common Stock, $1.00 par
value ("Common Stock"), and election of two directors by the holders
of $2.40 Cumulative Preferred Stock, $3.00 par value ("Preferred
Stock");
2. Continuation of the Investment Advisory Agreement;
3. Ratification or rejection of the selection of Ernst & Young LLP as
independent auditors for the Company for the fiscal year; and
4. Such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
March 7, 1997, has been fixed as the record date for the determination of
shareholders entitled to notice of, and to vote at, the meeting, and only
holders of Common Stock and Preferred Stock of record at the close of business
on that date will be entitled to vote.
By Order of the Board of Directors
SHERRY SASAKI
Secretary
March 31, 1997
________________________________________________________________________________
IT IS REQUESTED THAT YOU PROMPTLY EXECUTE THE ENCLOSED PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE THUS ENABLING THE COMPANY TO AVOID UNNECESSARY EXPENSE
AND DELAY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THE PROXY
IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE
MEETING.
________________________________________________________________________________
<PAGE> 3
SOURCE CAPITAL, INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200, LOS ANGELES, CALIFORNIA 90064
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of the
Company in connection with the annual meeting of shareholders to be held on
Monday, May 5, 1997. Any shareholder executing a proxy has the power to revoke
it prior to its exercise by submission of a later proxy, by voting in person,
or by letter to the Secretary of the Company. Unless the proxy is revoked, the
shares represented thereby will be voted in accordance with specifications
thereon. Proxy solicitation will be principally by mail but may also be made
by telephone or personal interview conducted by officers and regular employees
of First Pacific Advisors, Inc., the Company's investment adviser ("Adviser"),
or ChaseMellon Shareholder Services, L.L.C., the Company's Transfer Agent. No
specially engaged employees or paid solicitors will be used for such purpose.
The cost of solicitation of proxies will be borne by the Company, which will
reimburse banks, brokerage firms, nominees, fiduciaries and other custodians
for reasonable expenses incurred by them in sending the proxy material to
beneficial owners of shares of the Company. This Proxy Statement was first
mailed to shareholders on or about March 31, 1997. The Company's annual report
to shareholders for the year ended December 31, 1996, may be obtained upon
written request made to the Secretary of the Company.
On March 7, 1997 (record date for determining shareholders entitled to
notice of and to vote at the meeting), there were outstanding 7,292,630 shares
of Common Stock and 1,969,212 shares of Preferred Stock. Shares of both
classes are entitled to one vote per share and vote together as a single class
unless otherwise indicated in the description of a proposal. No person is
known by management to own beneficially as much as 5% of the outstanding Common
Stock or as much as 5% of the outstanding Preferred Stock.
SUMMARY OF VOTING RIGHTS ON PROXY PROPOSALS
<TABLE>
<CAPTION>
COMMON PREFERRED
PROPOSAL SHAREHOLDERS SHAREHOLDERS
-------- ------------ ------------
<S> <C> <C>
1. Election of 7 Directors Elect 5 Directors Elect 2 Directors
2. Investment Advisory Common and Preferred shareholders vote as
Agreement a single class.
3. Independent Auditors Common and Preferred shareholders vote as
a single class.
4. Other Matters Common and Preferred shareholders vote as
a single class.
</TABLE>
1
<PAGE> 4
1. ELECTION OF THE BOARD OF DIRECTORS
At the meeting, seven directors are to be elected to serve until the next
annual meeting of shareholders or until their successors are duly elected and
qualified. The holders of the Preferred Stock, as a separate class, are
entitled to elect two directors, and the holders of Common Stock, as a separate
class, are entitled to elect the remaining directors. Shares of both classes
have cumulative voting rights, which means that, with regard to the election of
directors only, each shareholder has the right to cast a number of votes equal
to the number of shares owned multiplied by the number of directors to be
elected by that class of stock, and each shareholder may cast the whole number
of votes for one candidate or distribute such votes among candidates as such
shareholder chooses. Unless otherwise instructed, the proxy holders intend to
vote proxies received by them for the seven nominees named below, reserving the
right, however, to cumulate such votes in each class and distribute them among
nominees at the discretion of the proxy holders. The following schedule sets
forth certain information regarding each nominee for election as director.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING SHARES
NAME & POSITION PAST FIVE YEARS & DIRECTORSHIP DIRECTOR BENEFICIALLY
WITH THE COMPANY OF PUBLIC COMPANIES AGE SINCE OWNED(1)
- ---------------- -------------------------------- --- ----- ----------
<S> <C> <C> <C> <C>
Julio J. de Puzo, Jr.* Director (since October 1995), 43 1996 2,196 Common
(Director and Principal and Chief Executive
President) Officer of the Adviser since March
1996; and President and Chief
Executive Officer (since January
1997), and Chief Financial Officer
and director for more than the past
five years of FPA Fund Distributors,
Inc. ("Fund Distributors").
Executive Vice President and
director of FPA Paramount Fund, Inc.
and of FPA Perennial Fund, Inc.; and
Executive Vice President of FPA
Capital Fund, Inc. and of FPA New
Income, Inc. (2). 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, Senior Vice
President from February 1993 to
October 1995, and First Vice
President from April 1985 to
February 1993, of the Adviser.
Wesley E. Bellwood Chairman Emeritus and director of 73 1980 1,237 Common
(Director)(3)(4) Wynn's International, Inc.
(diversified automotive products
manufacturer).
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING SHARES
NAME & POSITION PAST FIVE YEARS & DIRECTORSHIP DIRECTOR BENEFICIALLY
WITH THE COMPANY OF PUBLIC COMPANIES AGE SINCE OWNED(1)
- ---------------- -------------------------------- --- ----- ----------
<S> <C> <C> <C> <C>
David Rees Private investor. President and 73 1968 3,375 Common
(Director)(3)(4) director of the International 240 Preferred
Institute of Los Angeles. Formerly,
until 1995, the Senior Editor of Los
Angeles Business Journal for more
than the preceding five years.
Robert L. Rodriguez* Director, Principal and Chief 48 1996 1,000 Common
(Director and Senior Investment Officer of the Adviser
Vice President) since March 1996; and director of
Fund Distributors since March 1996.
President and Chief Investment
Officer of FPA Capital Fund, Inc.
and of FPA New Income, Inc. (2).
Executive Vice President from
January 1996 to March 1996, Senior
Vice President from February 1993 to
January 1996, and Vice President
from November 1983 to February 1993,
of the Adviser.
Lawrence J. Sheehan** Of counsel to, and partner (1969 to 64 1991 4,000 Common
(Director)(3) 1994) of, the law firm of O'Melveny
& Myers LLP, legal counsel to the
Company. Director of FPA Capital
Fund, Inc., of FPA New Income, Inc.,
of FPA Perennial Fund, Inc. (2) and
of TCW Convertible Securities Fund,
Inc., a closed-end investment
company not advised by the Adviser.
Charles W. Stanton Retired. Independent Architectural 82 1979 1,383 Common
(Director)(3)(5) and Planning Consultant; formerly 400 Preferred
head of the New York Office of
Welton Becket Associates
(architectural and engineering
firm).
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING SHARES
NAME & POSITION PAST FIVE YEARS & DIRECTORSHIP DIRECTOR BENEFICIALLY
WITH THE COMPANY OF PUBLIC COMPANIES AGE SINCE OWNED(1)
- ---------------- -------------------------------- --- ----- ----------
<S> <C> <C> <C> <C>
Kenneth L. Trefftzs Private investor. Director of FPA 85 1969 600 Common
(Director)(3)(4)(5) Capital Fund, Inc., of FPA New 100 Preferred
Income, Inc. and of FPA Perennial
Fund, Inc. (2). Formerly Professor
of Finance and Chairman of the
Department of Finance and Business
Economics, University of Southern
California Graduate School of
Business.
</TABLE>
____________________
* Director who is an interested person of the Company and of the Adviser as
defined in the Investment Company Act of 1940 ("Act") by virtue of being
an officer of each company.
** Director who is an interested person of the Company as defined in the Act
by virtue of being affiliated with legal counsel to the Company.
(1) Direct voting and investment power as of March 7, 1997. All officers and
directors of the Company as a group owned beneficially approximately
14,720 shares of Common Stock and 740 shares of Preferred Stock, which
constituted less than 1% of each class.
(2) FPA Capital Fund, Inc., FPA New Income, Inc., FPA Paramount Fund, Inc.,
and FPA Perennial Fund, Inc. are other investment companies advised by the
Adviser ("FPA Fund Complex"). See "Information Concerning the Adviser"
herein.
(3) Member of the Audit Committee of the Board of Directors.
(4) Member of the Nominating Committee of the Board of Directors.
(5) Director elected by the holders of the Preferred Stock.
4
<PAGE> 7
All nominees have consented to being named in this Proxy Statement and
have indicated their intention to serve if elected. Should any nominee for
director withdraw or otherwise become unavailable for reasons not presently
known, it is intended that the proxy holders will vote for the election of such
other person or persons as the Board of Directors may designate.
The Board of Directors has designated the five members identified by
footnote (3) to the preceding table as the Audit Committee of the Board. The
Committee makes recommendations to the Board of Directors concerning the
selection of the Company's independent auditors and reviews with such auditors
the results of the annual audit, including the scope of auditing procedures,
the adequacy of internal controls, and compliance by the Company with the
accounting, recording and financial reporting requirements of the Act. The
Audit Committee met four times during the last fiscal year.
The Board of Directors has designated the three members identified by
footnote (4) to the preceding table as the Nominating Committee. The Committee
recommends to the full Board of Directors nominees for election as directors of
the Company to fill vacancies on the Board, when and as they occur. While the
Committee expects to be able to identify from its own resources an ample number
of qualified candidates, it will review recommendations from shareholders of
persons to be considered as nominees to fill future vacancies. The
determination of nominees recommended by the Committee is within the sole
discretion of the Committee and the final selection of management nominees is
within the sole discretion of the Board. Therefore, no assurance can be given
that persons recommended by shareholders will be nominated as directors. The
Nominating Committee met twice during the last fiscal year.
During 1996, the Board of Directors held six meetings. Each director
attended more than 75% of the aggregate of (1) the total number of meetings of
the Board of Directors and (2) the total number of meetings held by all
Committees of the Board on which they served.
The Company's directors and officers are required to file reports with the
Securities and Exchange Commission and the New York Stock Exchange ("NYSE")
concerning their ownership and changes in ownership of the Company's Common and
Preferred Stock. Based on its review of such reports, the Company believes
that all filing requirements were met by its directors and officers during
1996.
5
<PAGE> 8
During 1996, the Company did not pay any salaries directly to officers but
paid an investment advisory fee to the Adviser as described herein. The
following information relates to director compensation. Each director who was
not an interested person of the Adviser was compensated by the Company at the
rate of $12,000 per year plus a fee of $1,000 per day ($750 per day prior to
May 1, 1996) for Board of Directors or Committee meetings attended. The five
directors who were not interested persons of the Adviser received total
directors' fees of $81,250 for 1996. Each such director is also reimbursed for
out-of-pocket expenses incurred as a director. During the year, the Company
incurred legal fees of $15,984, to the law firm of O'Melveny & Myers LLP, with
which Mr. Sheehan is affiliated.
<TABLE>
<CAPTION>
TOTAL COMPENSATION*
AGGREGATE COMPENSATION* FROM THE FPA FUND COMPLEX,
NAME OF DIRECTORS FROM THE COMPANY INCLUDING THE COMPANY
------------------ ----------------------- -----------------------------
<S> <C> <C>
Julio J. de Puzo, Jr. $ -0- $ -0-
Robert L. Rodriguez -0- -0-
Wesley E. Bellwood 16,250 16,250
David Rees 16,250 16,250
Lawrence J. Sheehan 16,250 32,750**
Charles W. Stanton 16,250 16,250
Kenneth L. Trefftzs 16,250 32,750**
</TABLE>
* No pension or retirement benefits are provided to Directors by the
Company or the FPA Fund Complex.
** Includes compensation from the Company and from three open-end
investment companies.
The following information relates to the executive officers of the Company
who are not directors of the Company. Each officer also serves as an officer
of the Adviser and a number have received employee stock options to acquire
shares of United Asset Management Corporation, of which the Adviser is an
indirect wholly owned subsidiary. The business address of each of the
following officers is 11400 West Olympic Boulevard, Suite 1200, Los Angeles,
California 90064.
6
<PAGE> 9
<TABLE>
<CAPTION>
NAME & POSITION PRINCIPAL OCCUPATION DURING OFFICER
WITH COMPANY PAST FIVE YEARS AGE SINCE
-------------- ------------------------------- --- -------
<S> <C> <C> <C>
Eric S. Ende Senior Vice President (or Vice President) of the 52 1985
(Senior Vice Adviser for more than the past five years. Mr. Ende
President) also serves as President and Chief Investment Officer
of FPA Perennial Fund, Inc., and as Vice President of
FPA Capital Fund, Inc., of FPA New Income, Inc. and of
FPA Paramount Fund, Inc. Mr. Ende served as Executive
Vice President of FPA Perennial Fund, Inc. from August
1995 to September 1995, and Vice President from May
1985 to August 1995.
Steven R. Geist Vice President of the Adviser since December 1994. 43 1996
(Vice President) Mr. Geist also serves as Vice President of FPA
Perennial Fund, Inc. Mr. Geist served as Investment
Analyst of the Adviser from July 1992 to December
1994.
Janet M. Pitman Vice President of the Adviser for more than the past 53 1996
(Vice President) five years. Ms. Pitman also serves as Vice President
of FPA Capital Fund, Inc., of FPA New Income, Inc., of
FPA Paramount Fund, Inc. and of FPA Perennial Fund,
Inc.
Steven T. Romick Senior Vice President of the Adviser since March 1996. 34 1996
(Vice President) Mr. Romick served as director, Chairman of the Board
and Chief Financial Officer of The Crescent Group,
Inc. from May 1990 to February 1996.
J. Richard Atwood Senior Vice President, Chief Financial Officer and 36 1997
(Treasurer) Treasurer of the Adviser since January 1997; and
Senior Vice President and Treasurer of Fund
Distributors since January 1997. Mr. Atwood also
serves as Treasurer of FPA Capital Fund, Inc., of FPA
New Income, Inc., of FPA Paramount Fund, Inc. and of
FPA Perennial Fund, Inc. Mr. Atwood served as Vice
President and Chief Financial Officer of Transamerica
Investment Services, Inc. from January 1995 to January
1997; Vice President and Controller of the Adviser
from 1988 to January 1995; and Assistant Treasurer of
Fund Distributors from May 1991 to January 1995.
Sherry Sasaki Assistant Vice President and Secretary of the Adviser 42 1982
(Secretary) for more than the past five years; and Secretary of
Fund Distributors for more than the past five years.
Ms. Sasaki also serves as Secretary of FPA Capital
Fund, Inc., of FPA New Income, Inc., of FPA Paramount
Fund, Inc. and of FPA Perennial Fund, Inc.
</TABLE>
7
<PAGE> 10
2. CONTINUATION OF THE INVESTMENT ADVISORY AGREEMENT
First Pacific Advisors, Inc. ("Adviser"), a Massachusetts corporation,
maintains its principal office at 11400 West Olympic Boulevard, Suite 1200, Los
Angeles, California 90064. It provides investment management and advisory
services to the Company pursuant to an investment advisory agreement, dated
June 27, 1991 ("Advisory Agreement"), the continuation of which to April 30,
1997 was approved by shareholders of the Company on April 29, 1996. The
Advisory Agreement provides that it may be renewed from year to year by (i) the
Board of Directors of the Company or by the vote of a majority (as defined in
the Act) of the outstanding voting securities of the Company, and (ii) by the
vote of a majority of directors who are not interested persons (as defined in
the Act) of the Company or of the Adviser cast in person at a meeting called
for the purpose of voting on such approval. The continuance of the Advisory
Agreement through April 30, 1998, has been approved by the Board of Directors
and by a majority of the directors who are not interested persons of the
Company or of the Adviser. The Board of Directors recommends approval by
shareholders of such continuance. Such approval requires the affirmative vote
of (a) 67% or more of the voting securities represented at the meeting, if more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of all outstanding voting securities, whichever is
less.
Under the Advisory Agreement, the Company retains the Adviser to manage
the investment of the Company's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Adviser agrees to obtain and
evaluate economic, statistical and financial information to formulate and
implement the Company's investment programs. In addition to providing
management and investment advisory services, the Adviser furnishes office
space, facilities and equipment. It also compensates all officers and other
personnel of the Company except directors who are not affiliated with the
Adviser.
For providing these services, the Adviser receives a monthly fee equal to
1/12 of the annualized percentage indicated below of total net assets. The
annualized percentage is determined by the total net assets of the Company on
the last business day of each month, in accordance with the following table:
0.725% for the first $100 million of total net assets;
0.700% for the next $100 million of total net assets; and
0.675% for the total net assets over $200 million.
This fee is higher than the fee paid by some other investment companies.
For 1996, the Adviser received $2,602,494 in advisory fees from the Company.
The Company's average net assets during the fiscal year were $374,226,418. The
total net assets of the Company were $382,146,427 on December 31, 1996.
The Adviser provides at its expense personnel to serve as officers of the
Company and office space, facilities and equipment for managing the affairs of
the Company. All other expenses incurred in the operation of the Company are
borne by the Company. Expenses incurred by the Company include brokerage
commissions on portfolio transactions, fees and expenses of directors who are
not affiliated with the Adviser, taxes, transfer agent fees, dividend
disbursement and reinvestment and custodian fees, auditing and legal fees, the
cost of printing and mailing reports and proxy materials to shareholders,
expenses of printing and engraving stock certificates, expense of trade
association memberships, and
8
<PAGE> 11
advertising and public relations expenses. No advertising or public relations
expenses have been incurred by the Company except in connection with
shareholder relations and shareholder communications.
The Advisory Agreement includes a provision for a reduction in the
advisory fees payable to the Adviser in the amount by which certain defined
operating expenses of the Company for any fiscal year exceed 1 1/2% of the
first $30 million of average total net assets of the Company, plus 1% of the
remaining average total net assets. Operating expenses, as defined in the
Advisory Agreement, exclude interest, taxes, any expenditures for supplemental
statistical and research information, any uncapitalized legal expenses relating
to specific portfolio securities or any proposed acquisition or disposition
thereof, and extraordinary expenses such as those of litigation, merger,
reorganization or recapitalization. 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, are accounted for as capital items and not
as expenses. This expense limitation provision does not require any payment by
the Adviser beyond the return of the advisory fees for a fiscal year.
The Advisory Agreement provides that the Adviser shall have no liability
to the Company or any shareholders of the Company for any error of judgment,
mistake of law or any loss arising out of any investment, or for any other act
or omission in the performance by the Adviser of its duties under 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 may be terminated
without penalty by the Board of Directors of the Company or the vote of a
majority (as defined in the Act) of the outstanding voting securities of the
Company upon 60 days' written notice to the Adviser or by the Adviser upon like
notice to the Company. The Advisory Agreement will automatically terminate in
the event of its assignment, as that term is defined in the Act.
The recommendation of the Board of Directors that shareholders approve the
continuance of the investment advisory agreement is based upon the Board's
assessment of the Company's long-term investment performance and low
volatility. Advisory fees were found by the Board to be reasonable in
comparison to those paid by other closed-end equity funds in light of the
Board's evaluation of the consistency and reliability of the Company's
long-term performance. The Directors also took into consideration the benefits
derived by the investment adviser from arrangements under which it receives
research services from brokers to whom the Company's brokerage transactions are
allocated, as described below under "Portfolio Transactions and Brokerage."
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser makes decisions to buy and sell
securities for the Company, 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 it is believed better prices and
executions are available elsewhere. Portfolio transactions are effected with
broker-dealers selected for their abilities to give prompt execution at prices
which are favorable to the Company. If these primary considerations are met,
agency transactions for the Company are typically placed with brokers which
provide brokerage and research services to the Company or the Adviser at
commission rates considered to be reasonable, although higher than the lowest
brokerage rates available. No formula for such allocation exists. The Company
thus bears the cost of such services. While research services may be useful to
supplement other available investment information, the receipt thereof does not
necessarily reduce the expenses of the Adviser. The Company does not pay any
mark-up over the market price of
9
<PAGE> 12
securities acquired in principal transactions with dealers. Any solicitation
fees which are received by the Adviser in connection with a tender of portfolio
securities of the Company in acceptance of an exchange or tender offer are
applied to reduce the advisory fees payable by the Company.
The Advisory Agreement includes direct authorization for the Adviser to
pay commissions on securities transactions to broker-dealers furnishing
research services in an amount higher than the lowest available rate, if the
Adviser determines in good faith that the 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 particular
transaction or the Adviser's overall responsibilities with respect to accounts
as to which it exercises investment discretion. The term brokerage and
research services is defined to include advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, the
availability of securities or purchasers or sellers of securities, furnishing
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and performance of accounts, and
effecting securities transactions, and performing functions incidental thereto,
such as clearance, settlement, and custody.
The Adviser also places portfolio transactions for other advisory
accounts, including other investment companies. Research services furnished by
broker-dealers which effect securities transactions for the Company may be used
by the Adviser in servicing all of its advisory accounts and not all such
research services may be used by the Adviser in the management of the Company's
portfolio. Conversely, research services furnished by broker-dealers which
effect securities transactions for other advisory accounts may be used by the
Adviser in the management of the Company. In the opinion of the Adviser, 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
the 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. In the opinion of the Adviser, however, total
commissions paid by the Company are not disproportionate to the benefits
received by it on a continuing basis. During 1996, brokerage commissions paid
by the Company totaled $334,217 of which $252,625 was paid on transactions
having a total value of $167,126,623 to broker-dealers selected because of
research services provided to the Adviser.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the Company
and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities purchased or sold by
the Company. In making such allocations, the main factors considered by the
Adviser 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
opinions of the persons responsible for recommending the investment.
INFORMATION CONCERNING THE ADVISER
The Advisory Agreement permits the Adviser to render advisory services to
others, and the Adviser also serves as investment adviser to FPA Capital Fund,
Inc., FPA New Income, Inc., FPA Paramount Fund, Inc., FPA Perennial Fund, Inc.
and FPA Crescent Portfolio, open-end investment companies, which had net
assets of $568,007,542, $375,494,802, $692,353,358, $45,797,843 and
$37,274,419, respectively, on December 31, 1996. The annual advisory fees paid
by FPA Capital Fund, Inc., FPA Paramount Fund, Inc. and FPA Perennial Fund,
Inc. equal 0.75% of the first $50 million of average daily net assets and 0.65%
on the average daily net assets in excess of $50 million. Those three funds
also
10
<PAGE> 13
reimburse the Adviser for the cost of financial services in an amount of up to
0.10% of average daily net assets. FPA New Income, Inc. pays an advisory fee
at the annual rate of 0.50% of its average daily net assets. FPA Crescent
Portfolio pays an advisory fee at the annual rate of 1.00% of its average daily
net assets. The Adviser also advises institutional accounts. The Adviser had
total assets under management of approximately $3.8 billion at December 31,
1996.
The Adviser is a wholly owned subsidiary of United Asset Management
Holdings, Inc. which is a wholly owned subsidiary of United Asset Management
Corporation ("UAM"), which is a holding company principally engaged, through
affiliated firms, in providing institutional investment management and
acquiring institutional investment management firms. The common stock of UAM
is listed on the NYSE. No person is known by UAM to own or hold with power to
vote 25% or more of the outstanding shares of UAM common stock.
The directors and principals of the Adviser are the following persons:
Julio J. de Puzo, Jr., Chief Executive Officer of the Adviser; Robert L.
Rodriguez, Chief Investment Officer of the Adviser; and William M. Sams. Mr.
Sams, 59, serves as President and Chief Investment Officer of FPA Paramount
Fund, Inc., and director of Fund Distributors. The principal occupations of
Messrs. de Puzo and Rodriguez are described in the preceding table. The
business address of Messrs. de Puzo, Rodriguez and Sams is 11400 West Olympic
Boulevard, Suite 1200, Los Angeles, California 90064.
3. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
Shareholders are requested to ratify the selection by the Board of
Directors (including a majority of directors who are not interested persons of
the Company as that term is defined in the Act) of the firm of Ernst & Young
LLP as independent auditors for the Company for the fiscal year ending December
31, 1997. Such ratification requires the affirmative vote of a majority of the
shares of Common and Preferred Stock (voting as a single class) represented in
person or by proxy at the meeting. The employment of such independent auditors
is conditioned upon the right of the Company, by vote of a majority of its
outstanding voting securities, to terminate such employment forthwith without
any penalty. Ernst & Young LLP have served as independent auditors for the
Company since 1968. Representatives of Ernst & Young LLP are expected to be
present at the meeting, with the opportunity to make a statement if they desire
to do so, and such representatives are expected to be available to respond to
any appropriate questions from shareholders.
11
<PAGE> 14
4. OTHER MATTERS
The proxy holders have no present intention of bringing before the meeting
for action any matters other than those specifically referred to in the
foregoing, and in connection with or for the purpose of effecting the same, nor
has the management of the Company any such intention. Neither the proxy
holders nor the management of the Company are aware of any matters which may be
presented by others. If any other business shall properly come before the
meeting, the proxy holders intend to vote thereon in accordance with their best
judgment.
SHAREHOLDER PROPOSALS
The date by which any shareholder proposal intended to be presented at the
next annual meeting must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting is
December 2, 1997.
ADJOURNMENT
In the event that sufficient votes in favor of the proposals set forth in
the Notice of Meeting and Proxy Statement are not received by the time
scheduled for the meeting, the persons named as proxies may move one or more
adjournments of the meeting for a period or periods of not more than 30 days in
the aggregate to permit further solicitation of proxies with respect to any
such proposals. Any such adjournment will require the affirmative vote of a
majority of the shares present at the meeting. The persons named as proxies
will vote in favor of such adjournment those shares which they are entitled to
vote which have voted in favor of such proposals. They will vote against any
such adjournment those proxies which have voted against any of such proposals.
By Order of the Board of Directors
SHERRY SASAKI
Secretary
March 31, 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED REPLY ENVELOPE. NO POSTAGE IS REQUIRED if mailed in the United
States.
12
<PAGE> 15
PROXY
SOURCE CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JULIO J. DE PUZO, JR., DAVID REES, and
KENNETH L. TREFFTZS, and each of them proxies with power of substitution, and
hereby authorizes each of them to represent and to vote, as provided below, all
shares of Common Stock of the above Company which the undersigned is entitled
to vote at the annual meeting to be held on Monday, May 5, 1997, and at any
adjournments thereof.
NOTICE: IT IS IMPORTANT THAT THIS PROXY BE SIGNED AND RETURNED PROMPTLY TO:
CHASEMELLON SHAREHOLDER SERVICES
MIDTOWN STATION
P.O. BOX 944, N.Y., N.Y. 10138-0744
PLEASE DO NOT FOLD THIS PROXY
<PAGE> 16
______________________________ ______________________________
COMMON D.R.S.
1. To vote for the election of directors: TO WITHHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED
BELOW.
WESLEY BELLWOOD, JULIO J. DE PUZO, JR., DAVID REES, ROBERT L. RODRIGUEZ,
LAWRENCE SHEEHAN
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees
contrary above)
[ ] [ ]
FOR AGAINST ABSTAIN
2. Continuation of the Investment Advisory [ ] [ ] [ ]
Agreement.
FOR AGAINST ABSTAIN
3. Selection of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors.
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement, dated March 1997.
Dated___________________________________, 1997
______________________________________________
Signature of Shareholder
______________________________________________
Signature of Shareholder
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF ALL NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2 AND 3.
<PAGE> 17
PROXY
SOURCE CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JULIO J. DE PUZO, JR., DAVID REES, and
KENNETH L. TREFFTZS, and each of them proxies with power of substitution, and
hereby authorizes each of them to represent and to vote, as provided below, all
shares of Preferred Stock of the above Company which the undersigned is
entitled to vote at the annual meeting to be held on Monday, May 5, 1997, and
at any adjournments thereof.
NOTICE: IT IS IMPORTANT THAT THIS PROXY BE SIGNED AND RETURNED PROMPTLY TO:
CHASEMELLON SHAREHOLDER SERVICES
MIDTOWN STATION
P.O. BOX 944, N.Y., N.Y. 10138-0744
PLEASE DO NOT FOLD THIS PROXY
<PAGE> 18
______________________________
PREFERRED
1. To vote for the election of directors: TO WITHHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED
BELOW.
CHARLES STANTON, KENNETH TREFFTZS
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees
contrary above)
[ ] [ ]
FOR AGAINST ABSTAIN
2. Continuation of the Investment Advisory [ ] [ ] [ ]
Agreement.
FOR AGAINST ABSTAIN
3. Selection of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors.
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement, dated March 1997.
Dated___________________________________, 1997
______________________________________________
Signature of Shareholder
______________________________________________
Signature of Shareholder
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF ALL NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2 AND 3.
