<PAGE>
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / 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.
/ / 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>
SOURCE CAPITAL, INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200, LOS ANGELES, CALIFORNIA 90064
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MONDAY, OCTOBER 23, 2000
Notice is hereby given that the special meeting of shareholders of Source
Capital, Inc. ("Company") will be held in the Board Room, Twelfth Floor, at the
offices of First Pacific Advisors, Inc., the Company's investment adviser, 11400
West Olympic Boulevard, Suite 1200, Los Angeles, California 90064, on Monday,
October 23, 2000, at 10:00 A.M. Pacific Time, to consider and vote on the
following matters:
1. Approval or disapproval of an investment advisory agreement ("New
Agreement") between the Company and First Pacific Advisors, Inc., the
Company's investment adviser ("Adviser"); and
2. Such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
August 24, 2000, 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, $1.00 par value ("Common Stock"), and $2.40 Cumulative
Preferred Stock, $3.00 par value ("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
September 11, 2000
--------------------------------------------------------------------------------
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>
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 a special meeting of shareholders to be held on
Monday, October 23, 2000. 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 the Adviser, or ChaseMellon Shareholder Services, L.L.C.,
the Company's Transfer Agent. No specially engaged employees or paid solicitors
have been retained by the Company for such purpose. If any such persons are
retained by the Adviser, the costs will be paid by United Asset Management
Corporation ("UAM"), the parent of the Adviser. The cost of solicitation of
proxies will be borne by UAM. The Company 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
September 11, 2000. The Company's annual report to shareholders for the year
ended December 31, 1999, or any succeeding quarterly report, may be obtained
upon written request made to the Secretary of the Company, or by telephoning
(800) 982-4372.
On August 24, 2000 (record date for determining shareholders entitled to
notice of and to vote at the meeting), there were outstanding 7,760,207 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. Investment Advisory Common and Preferred shareholders vote as
Agreement a single class.
2. Other Matters Common and Preferred shareholders vote as
a single class.
</TABLE>
1
<PAGE>
1. APPROVAL OR DISAPPROVAL OF AN INVESTMENT ADVISORY
AGREEMENT ("NEW AGREEMENT")
First Pacific Advisors, Inc. ("Adviser"), a Massachusetts corporation,
maintains its principal office at 11400 West Olympic Boulevard, Suite 1200, Los
Angeles, California 90064. The Adviser has provided investment management and
advisory services to the Company since 1968. Such services are presently
provided pursuant to an investment advisory agreement, dated June 27, 1991
("Present Agreement"), which was most recently approved by shareholders of the
Company on May 1, 2000. The Adviser is a wholly owned subsidiary of United Asset
Management Holdings, Inc. which is a wholly owned subsidiary of UAM, which is a
holding company principally engaged, through affiliated firms, in providing
institutional investment management and acquiring institutional investment
management firms.
UAM has announced an agreement dated June 19, 2000 with Old Mutual plc
("Old Mutual"), a United Kingdom based financial services group with substantial
asset management, insurance, and banking businesses. This agreement provides for
a tender offer by Old Mutual for all outstanding shares of UAM and following
completion of the tender offer a merger by which UAM will become a wholly-owned
subsidiary of Old Mutual. At such time as 25% or more of the outstanding shares
of UAM are acquired pursuant to the tender offer, there will be change in
control of UAM and thus an assignment which under the Investment Company Act of
1940 will automatically terminate the Present Agreement.
Because the change in control is expected to occur prior to this
shareholders meeting, the Board of Directors of the Company has approved an
interim investment advisory agreement with the Adviser to allow the continued
receipt of advisory services by the Company after the assignment and prior to
shareholder approval of a new agreement. Under the Investment Company Act, the
Adviser may continue to serve as investment adviser to the Company beyond an
interim period of 150 days only if shareholders of the Company approve a new
investment advisory agreement. The Board of Directors of the Company have
approved, and recommend shareholder approval of, a new investment advisory
agreement ("New Agreement") between the Company and the Adviser to become
effective upon approval by shareholders of the Company. Shareholder 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.
If shareholders of the Company do not approve the New Agreement, the Board
of Directors of the Company would seek to obtain interim advisory services at
the lesser of cost or the current fee rate either from the Adviser or from
another advisory organization. Thereafter, the Board of Directors would either
negotiate a new investment advisory agreement with an advisory organization
selected by the Board or make other appropriate arrangements, in either event
subject to the approval of shareholders.
INVESTMENT ADVISORY AGREEMENTS
The terms of the Present Agreement and the New Agreement are identical in
all material respects, except for the effective date. The initial term of the
New Agreement will commence on the date approved by shareholders of the Company
and continue to April 30, 2001. A copy of the New Agreement is attached as
Exhibit A hereto. Under each 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
2
<PAGE>
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 the fiscal year ended December 31, 1999, the Adviser received $2,933,322 in
advisory fees from the Company. The Company's average net assets during the
fiscal year were $423,209,482. The total net assets of the Company were
$416,779,511 on June 30, 2000.
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 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
3
<PAGE>
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
New 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 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.
4
<PAGE>
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 the fiscal year ended December 31, 1999, brokerage
commissions paid by the Company totaled $218,523 of which $195,619 was paid on
transactions having a total value of $92,439,359 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 $449,376,868, $506,458,635, $78,529,306, $40,802,448 and $40,525,052,
respectively, on June 30, 2000. 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 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 $2.9 billion at June 30, 2000.
The directors and principals of the Adviser are the following persons: J.
Richard Atwood, Chief Operating Officer, Chief Financial Officer and Treasurer
of the Adviser; and Robert L. Rodriguez, Chief Executive Officer and Chief
Investment Officer of the Adviser. Mr. Rodriguez, 51, serves as director,
President and Chief Investment Officer of FPA Capital Fund, Inc. and of FPA New
Income, Inc., and as director of FPA Fund Distributors, Inc. ("Fund
Distributors"). The principal occupation of Mr. Atwood is described in the
following table. The business address of Messrs. Atwood and Rodriguez is 11400
West Olympic Boulevard, Suite 1200, Los Angeles, California 90064.
5
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
The following schedule sets forth certain information regarding each
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>
Eric S. Ende* Senior Vice President of the Adviser 56 2000 Common
(Director, President and for more than the past five years.
Chief Investment Director, President and Portfolio
Officer) Manager of FPA Paramount Fund, Inc.,
President and Portfolio Manager of FPA
Perennial Fund, Inc., and Vice
President of FPA Capital Fund, Inc.
and of FPA New Income, Inc. (2).
Nominee for director of FPA Perennial
Fund, Inc.
Willard H. Altman, Jr. Retired. Formerly, until 1995, Partner 65 1998 Common
(Director) (3)(4)(5) of Ernst & Young LLP, independent Preferred
auditors for the Company. Vice President
of Evangelical Council for Financial
Accountability, an accreditation
organization for Christian non-profit
entities. Director of FPA Capital Fund,
Inc., of FPA New Income, Inc., of FPA
Perennial Fund, Inc. (2), and of
Current Income Shares, Inc., a
closed-end investment company not
advised by the Adviser.
Wesley E. Bellwood Retired. Formerly, until 1999, Chairman 76 1980 Common
(Director)(3)(4) Emeritus and director of Wynn's
International, Inc. (diversified
automotive products manufacturer).
6
<PAGE>
<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. Director and formerly 76 1968 Common
(Director)(3)(4) President and Chief Executive Officer of Preferred
the International Institute of Los
Angeles. Formerly, until 1995, the Senior
Editor of Los Angeles Business Journal
for more than the preceding five years.
Lawrence J. Sheehan* Of counsel to, and partner (1969 to 68 1991 Common
(Director)(3)(4) 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.
Paul G. Schloemer Retired President and Chief Executive 72 1999 Common
(Director)(3)(4)(5) Officer (1984-1993) of Parker Hannifin Preferred
Corporation (a manufacturer of motion
control products). Director of Esterline
Technologies.
</TABLE>
----------------
* 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 August 24, 2000. All officers and
directors of the Company as a group owned beneficially approximately
00,000 shares of Common Stock and 0,000 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.
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During the fiscal year ended December 31, 1999, 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 $14,000 per year (effective May 1, 1999, prior to
May 1, 1999, the rate was $12,000 per year) plus a fee of $1,000 per day for
Board of Directors or Committee meetings attended. The five directors who were
not interested persons of the Adviser received total directors' fees of $87,500
for 1999. Each such director is also reimbursed for out-of-pocket expenses
incurred as a director. During the year, the Company incurred legal fees of
$6,886, 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>
Robert L. Rodriguez (1) $ -0- $ -0-
Willard H. Altman 17,500 42,500**
Wesley E. Bellwood 17,500 17,500
David Rees 17,500 17,500
Lawrence J. Sheehan 17,500 42,500**
Paul G. Schloemer (2) 15,000 15,000
Charles W. Stanton (3) 2,500 2,500
</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.
(1) Resigned August, 2000
(2) Elected February, 1999
(3) Retired February, 1999
The following information relates to the executive officers of the Company
who are not directors of the Company. Each officer also serves as a director
and/or officer of the Adviser and has received employee stock options to acquire
shares of UAM, 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.
8
<PAGE>
<TABLE>
<CAPTION>
NAME & POSITION PRINCIPAL OCCUPATION DURING OFFICER
WITH COMPANY PAST FIVE YEARS AGE SINCE
--------------- --------------------------- --- -------
<S> <C> <C> <C>
Steven R. Geist Vice President of the Adviser for more than the past five 46 1996
(Senior Vice President years. Mr. Geist also serves as Executive Vice President
& Fixed-Income and Portfolio Manager of FPA Paramount Fund, Inc. and of
Manager) FPA Perennial Fund, Inc. Mr. Geist served as Vice
President of the Company from August 1996 to November 1999
and of FPA Perennial Fund, Inc. from August 1996 to August
1999.
J. Richard Atwood Director (since May 2000), Principal (since May 2000), 40 1997
(Treasurer) Chief Operating Officer (since May 2000), Chief Financial
Officer (since January 1997) and Treasurer (since January
1997) of the Adviser; and director (since May 2000),
President (since May 2000), Chief Executive Officer (since
May 2000), Chief Financial Officer (since March 1998) and
Treasurer (since January 1997) of Fund Distributors. 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; and Senior Vice President from January 1997 to May
2000 of the Adviser and of Fund Distributors.
Sherry Sasaki Assistant Vice President and Secretary of the Adviser for 45 1982
(Secretary) 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>
9
<PAGE>
DIRECTORS' RECOMMENDATION AND OTHER INFORMATION
The New Agreement has been approved by the Board of Directors of the
Company, including those directors who are not "interested persons" of the
Company, as that term is defined in the Act, at a meeting held on August 7,
2000. In so doing, the directors have acted in what they believe to be in the
best interests of the shareholders of the Company.
In approving the New Agreement and recommending that it be approved by the
shareholders, the directors have considered the Adviser's expressed intention to
continue the investment operations of the Company and the Adviser under the
direction of current management; the nature, quality and extent of the services
to be performed by the Adviser; the investment record of the Company;
comparative data as to investment performance, advisory fees and expenses; the
financial resources of UAM and Old Mutual; and such other information and
factors as the directors believe to be relevant. The Adviser has assured the
directors that there will be no reduction in the nature or quality of its
services to the investment companies under its management as a result of the
transaction.
The Act provides that in connection with the sale of any interest in an
investment adviser which results in the "assignment" of an investment advisory
contract, an investment adviser of a registered investment company such as the
Company, or an affiliated person of such investment adviser, may receive any
amount or benefit if (i) for a period of 3 years after the sale, at least 75% of
the members of the Board of Directors of the investment company are not
"interested persons" of the investment adviser or the predecessor adviser, and
(ii) there is no "unfair burden" imposed on the investment company as a result
of such sale or any expressed or implied terms, conditions or understandings
applicable thereto. For this purpose, "unfair burden" is defined to include any
arrangement during the 2-year period after the transaction, whereby the
investment adviser or its predecessor or successor investment adviser, or any
interested persons of any such adviser, receives or is entitled to receive any
compensation directly or indirectly (i) from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company other than regular type ordinary compensation as principal
underwriter for such company, or (ii) from the investment company or its
security holders for other than regular type investment advisory or other
services. This provision of the Act was enacted by Congress in 1975 to make it
clear that an investment adviser (or an affiliated person of the adviser) can
realize a profit on the sale of the adviser's business, subject to the two
safeguards described above. In their agreement, Old Mutual and UAM have agreed
not to take or recommend any action that would constitute an unfair burden on
the Company within the meaning of this provision. Old Mutual and UAM have also
agreed that, for a period of three years after the transaction, they will not
take or recommend any action that would cause more than 25% of the directors to
be interested persons of the Adviser.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS APPROVE THE NEW AGREEMENT
10
<PAGE>
2. 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.
VOTING REQUIREMENTS
For purposes of this Special Meeting of Shareholders, a quorum is present
to transact business on a proposal if the holders of a majority of the
outstanding shares of the Company entitled to vote on the proposal are present
in person or by proxy. The shares represented by a proxy that is properly
executed and returned will be considered to be present at the meeting even if
the proxy is accompanied by instructions from a broker or nominee to withhold
authority or is marked with an abstention.
Based on the Company's interpretation of Delaware law, abstentions on a
proposal set forth herein will have the same effect as a vote against the
proposal. Under the rules of the New York Stock Exchange, Inc., brokers who hold
shares in street name for customers do not have the authority to vote on the
proposals set forth herein if they have not received instructions from
beneficial owners.
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 1, 2000.
ADJOURNMENT
In the event that sufficient votes in favor of the proposals set forth
herein 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
September 11, 2000
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.
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EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated October , 2000, between SOURCE CAPITAL, INC., a
Delaware corporation (hereinafter called "Source"), and FIRST PACIFIC ADVISORS,
INC., a Massachusetts corporation (hereinafter called the "Adviser").
W I T N E S S E T H :
WHEREAS, Source 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 Source.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, Source and the Adviser agree as follows:
1. EMPLOYMENT OF ADVISER
Source hereby employs the Adviser to manage the investment and
reinvestment of the assets of Source and to administer its affairs, to the
extent described herein, subject to the supervision of the Board of Directors of
Source, 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 Source in any way, or otherwise be deemed an
agent of Source.
2. ADVISORY SERVICES
Subject to any general directions furnished by the Board of Directors
of Source, the Adviser agrees to formulate and implement a continuing program
for the management of the assets of Source and
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to determine from time to time what securities or other property shall be
purchased or sold by Source, and the portion of its assets to be held in cash or
cash equivalents, giving due consideration to, among other things, the policies
of Source as expressed in Source's Certificate of Incorporation, By-Laws,
Registration Statement under the Investment Company Act of 1940, as amended (the
"1940 Act"), Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), and reports under the Securities Exchange Act of 1934 (the
"1934 Act"), as well as to the factors affecting Source's status as a regulated
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.
3. OTHER SERVICES AND EXPENSES OF ADVISER
The Adviser, at its own expense, shall furnish to Source:
(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 Source, 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 Source.
(d) Members of the Adviser's organization to serve without compensation
from Source as officers or agents of Source, if desired by Source.
(e) Weekly determination of total net assets.
(f) General purpose accounting forms, supplies, stationery and postage
and telephones and utilities relating to the obligations of the
Adviser hereunder.
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4. EXPENSES OF SOURCE
Except to the extent expressly assumed by the Adviser herein, Source
will pay all costs and expenses in connection with its operations. Without
limiting the generality of the foregoing, Source shall pay the following costs
and expenses:
(a) Fees and charges of independent accountants, custodian and depository
and legal counsel for Source.
(b) Fees and charges of Source's transfer agent, including the costs of
maintaining Source'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 Source.
(d) Expenses, including fees and disbursements of counsel, in connection
with litigation by or against Source.
(e) Taxes, including franchise, income, issue, transfer, business license
and other corporate fees payable by Source to Federal, State or other
governmental agencies.
(f) Premiums for the fidelity bond maintained by Source pursuant to
Section 17 of the 1940 Act and for any errors and omissions insurance
policy maintained by Source.
(g) Dues for Source's membership in trade organizations.
(h) Interest on indebtedness, if any, incurred by Source.
(i) Costs of designing, printing and mailing periodic and other reports
to shareholders, proxy statements, dividend notice and other
communications to Source's shareholders.
(j) Expenses of meeting of shareholders and directors.
(k) Brokers' commissions, issue and transfer taxes, and other costs
chargeable to Source in connection with security transactions to
which Source is a party or with securities owned by Source.
(l) Fees and expenses in connection with maintaining registration of
Source and complying with the requirements of the Securities and
Exchange Commission under the 1940 Act, the 1933 Act, the 1934 Act.
(m) Advertising and public relations expenses.
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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 Source.
5. COMPENSATION OF ADVISER
For the services to be rendered and the charges and expenses assumed
by the Adviser herein, Source shall pay to the Adviser, in monthly installments,
payable as soon as practicable and within five (5) days following the end of
each month, a percentage of the total net assets of Source on the last business
day of such month, computed as follows:
(a) The monthly fee shall be 1/12th of the annualized percentage
indicated below. The annualized percentage shall be determined by the
total net assets of Source determined on the last business day of
such month in accordance with the following table.
FEE SCHEDULE - ANNUALIZED PERCENTAGE
0.725% for the first $100 million of total net assets of Source;
0.700% for the next $100 million of total net assets of Source; and
0.675% for total net assets of Source over $200 million.
(b) For the purpose of this Section 5, "total net assets" shall be
determined at the close of business of the New York Stock Exchange on
the last business day of each month.
(c) The advisory fee shall be payable for the period commencing on the
date hereof and ending on the date of termination hereof. If the
Agreement is terminated, the fee shall be prorated for any fraction
of a month at termination.
The advisory fee 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 Source 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 fee payable hereunder by the
amount by which certain operating expenses of Source (after the exclusions
described below and after reflecting any advisory fee reduction provided for in
the preceding paragraph) for any fiscal year shall exceed 1 1/2% of the first
$30,000,000 of average total net assets, and 1% of the remaining average total
net assets, of Source as determined monthly on the last business day of each
month. For purposes of this expense limitation provision, the following expenses
shall be excluded from 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 uncapitalized legal
expenses of Source relating to specific portfolio securities or to any proposed
acquisition or disposition thereof, and (v) any extraordinary expenses, such as
those of litigation, merger, reorganization, or recapitalization. All
expenditures,
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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 Source
from the fees paid hereunder. Any additional reduction computed at the end of
the fiscal year shall be paid to Source within five days of the computation as a
reduction of advisory fees paid during the fiscal year.
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 Source. 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
Source 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 assistance as the
Adviser may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to Source, 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 Source, whose services were
made available to Source by the Adviser, are specifically authorized to allocate
brokerage and principal business to firms that provide such services or
facilities and to cause Source to pay a member of a securities exchange, or any
other securities broker or dealer, an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, 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 is reasonable in relation to the value of the brokerage and research
services (as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934) 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 Adviser exercises investment
discretion (as that term is defined in Section 3(a)(35) of the Securities
Exchange Act of 1934).
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 Investment Company Act
of 1940, any of the shareholders, directors, officers and employees of Source
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 Source.
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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
Source whose services were made available to Source by the Adviser, shall be
liable for any error of judgment or mistake of law or for any loss suffered by
Source 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 or his duties, on behalf of Source 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 Source under State or Federal law in effect at the date of the
enactment of Section 28(e) of the Securities Exchange Act of 1934 solely by
reason of having caused Source 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 member of a
securities exchange or another securities broker or dealer would have charged
for effecting that transaction if the Adviser or such person determined in good
faith that such amount of commission was 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 as to which the
Adviser exercises investment discretion.
9. TERM OF AGREEMENT
This Agreement shall continue in effect to April 30, 2001. 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 Source, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of Source, 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 Source or by the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of Source, on
sixty (60) days' written notice to the Adviser, or by the Adviser on like notice
to Source. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized as of the day of year
first above written.
SOURCE CAPITAL, INC.
By:________________________________
Eric S. Ende,
President
FIRST PACIFIC ADVISORS, INC.
By:________________________________
J. Richard Atwood,
Principal
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COMMON D.R.S.
1. Approval of an investment advisory 2. In their discretion, the Proxies
agreement between the Company and are authorized to vote upon such
First Pacific Advisors, Inc., the other business as may properly come
Company's investment adviser. before the meeting.
FOR AGAINST ABSTAIN
/ / / / / /
The undersigned acknowledges receipt of the Notice of Special Meeting and Proxy
Statement, dated September 2000.
Dated___________________________________, 2000
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Signature of Shareholder
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Signature of Shareholder
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
<PAGE>
PROXY
SOURCE CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ERIC S. ENDE, DAVID REES, and WILLARD H.
ALTMAN, JR., and each of them proxies with power of substitution, and hereby
authorizes each of them to represent and to vote, as provided on the reverse
side, all shares of Common Stock of the above Company which the undersigned is
entitled to vote at the special meeting to be held on Monday, October 23, 2000,
and at any adjournments thereof.
NOTICE: IT IS IMPORTANT THAT THIS PROXY BE SIGNED AND RETURNED PROMPTLY TO:
CHASEMELLON SHAREHOLDER SERVICES
CHURCH STREET STATION
P.O. BOX 3712, N.Y., N.Y. 10277-2528
PLEASE DO NOT FOLD THIS PROXY
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PREFERRED
1. Approval of an investment advisory 2. In their discretion, the Proxies
agreement between the Company and are authorized to vote upon such
First Pacific Advisors, Inc., the other business as may properly come
Company's investment adviser. before the meeting.
FOR AGAINST ABSTAIN
/ / / / / /
The undersigned acknowledges receipt of the Notice of Special Meeting and Proxy
Statement, dated September 2000.
Dated___________________________________, 2000
-----------------------------------------------
Signature of Shareholder
-----------------------------------------------
Signature of Shareholder
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
<PAGE>
PROXY
SOURCE CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ERIC S. ENDE, DAVID REES, and WILLARD H.
ALTMAN, JR., and each of them proxies with power of substitution, and hereby
authorizes each of them to represent and to vote, as provided on the reverse
side, all shares of Preferred Stock of the above Company which the undersigned
is entitled to vote at the special meeting to be held on Monday, October 23,
2000, and at any adjournments thereof.
NOTICE: IT IS IMPORTANT THAT THIS PROXY BE SIGNED AND RETURNED PROMPTLY TO:
CHASEMELLON SHAREHOLDER SERVICES
CHURCH STREET STATION
P.O. BOX 3712, N.Y., N.Y. 10277-2528
PLEASE DO NOT FOLD THIS PROXY
