INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated October 23, 2000, by and between FPA NEW INCOME, INC., a
Maryland corporation (hereinafter referred to as the "Fund"), and FIRST PACIFIC
ADVISORS, INC., a Massachusetts corporation (hereinafter referred to as the
"Manager").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Manager to render management and
investment advisory services to the Fund in the manner and on the terms
hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
ARTICLE I
DUTIES OF THE MANAGER
The Fund hereby employs the Manager to act as the manager and investment
adviser of the Fund and to furnish, or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
supervision of the Board of Directors of the Fund, for the period and on the
terms and conditions set forth in this Agreement. The Manager hereby accepts
such employment and agrees during such period, to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation provided for herein.
(a) INVESTMENT ADVISORY SERVICES. The Manager shall provide the Fund with
such investment research, advice and supervision as the Fund may from time to
time consider necessary for the proper supervision of the assets of the Fund,
shall furnish continuously an investment program for the Fund and shall
determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests or cash, subject always to the
restrictions of the Articles of Incorporation and By-Laws of the Fund, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment restrictions as the same are set forth in the currently effective
registration statement relating to the shares of the Fund under the Securities
Act of 1933, as amended (the "Registration Statement"). The Manager shall
furnish to the Fund research and statistical and other factual information and
reports with respect to securities held by the Fund or which the Fund might
purchase. It will also furnish
-1-
to the Fund such information as may be appropriate concerning developments which
may affect issuers of securities held by the Fund or which the Fund might
purchase or the businesses in which such issuers may be engaged. Such
statistical and other factual information and reports shall include information
and reports on industries, businesses, corporations and all types of securities,
whether or not the Fund has at any time any holdings in such industries,
businesses, corporations or securities. The Manager shall take, on behalf of the
Fund, all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by the Manager, and to that end, the Manager is authorized as
the agent of the Fund to give instructions to the custodian of the Fund as to
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Manager will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Directors may determine, the Manager shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker or dealer that provides brokerage and research services to the Manager an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Fund. The Manager is further authorized to allocate the
orders placed by it on behalf of the Fund to such brokers and dealers who also
provide research or statistical material, or other services to the Fund or the
Manager. Such allocation shall be in such amounts and proportions as the Manager
shall determine and the Manager will report on said allocations regularly to the
Board of Directors of the Fund indicating the brokers to whom such allocations
have been made and the basis therefor.
(b) MANAGEMENT SERVICES. The Manager shall furnish to the Fund necessary
assistance in the preparation of all reports now of hereafter required by
Federal or other laws, and in the preparation of prospectuses, registration
statements and amendments thereto that may be required by Federal or other laws
or by the rule or regulation of any duly authorized commission or administrative
body. However, nothing herein shall obligate the Manager to pay the costs of
preparation, printing, or mailing of prospectuses being used in connection with
sales of the Fund's shares or otherwise, except as provided in Article II(b)
herein. The Manager also shall furnish to the Fund office space in the offices
of the Manager or in such other place or places as may be agreed upon from time
to time, and all necessary office facilities, simple business equipment,
supplies, utilities and telephone service for managing the affairs and
investments and keeping the general accounts and records of the Fund (exclusive
of the necessary records of the transfer agent, registrar and custodian), and
shall arrange, if desired by the Fund, for members of the Manager's organization
to serve without salaries from the Fund as officers of the Fund.
-2-
When Fund portfolio securities are tendered by the Manager or an affiliate
of the Manager, the Manager will arrange to receive the solicitation fees, less
expenses, received and will deduct the net amount of any such fees received by
the Manager, or any affiliate of the Manager, from the management fee payable by
the Fund. The Manager reserves the right, in its discretion, to purchase
statistical information and other services from other sources, including
affiliates of the Manager.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) THE MANAGER. The Manager assumes responsibility for and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this Agreement, and shall at its own expense, provide the office space,
equipment and facilities which it is obligated to provide under Article I
hereof.
(b) THE FUND. Except as expressly provided for above, the Fund assumes
responsibility for and shall pay or cause to be paid all other expenses of the
Fund including, without limitation: the charges and expenses of any registrar
and any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property; the charges and expenses of
auditors; the charges and expenses of any stock transfer or dividend agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including issuance and transfer taxes, and corporate fees payable by
the Fund to Federal, state or other governmental agencies; the cost of stock
certificates representing shares of the Fund; fees involved in registering and
maintaining registrations of the Fund and of its shares with the Securities and
Exchange Commission and various states and other jurisdictions; all expenses of
shareholders' and directors' meetings and of preparing, printing and mailing
proxy statements and semi-annual and annual reports to shareholders except as
set forth in the Distribution Agreement between the Fund and FPA Fund
Distributors, Inc.; fees and travel expenses of independent and unaffiliated
directors; the expense of furnishing, or causing to be furnished, all
shareholders a statement of account after every non-commissionable transaction
affecting their account, including the expense of mailing; charges and expenses
of legal counsel in connection with matters relating to the Fund, including,
without limitation, legal services rendered in connection with the Fund's
corporate and financial structure and relations with its shareholders, issuance
of Fund shares, and registrations and qualifications of securities under
Federal, state and other laws; association dues; interest payable on Fund
borrowings; and postage.
ARTICLE III
COMPENSATION OF THE MANAGER
(a) INVESTMENT MANAGEMENT FEE. For the services rendered, the facilities
furnished and expenses assumed by the Manager, the Fund shall pay to the Manager
compensation at the annual rate of one-half (1/2) of one percent (1%) of the
value of the net assets of the Fund, calculated as hereinafter set forth.
Compensation under this Agreement shall be calculated and accrued for each
calendar day by applying the annual rate to the net assets of the Fund as of the
close of the last business day preceding the day for which the fee is being
calculated, and dividing the sum so computed by the number of calendar days in
the fiscal year. The fees thus accrued will be payable monthly, provided that
such compensation shall be paid proportionately for any other period ending with
the termination of this Agreement.
-3-
(b) EXPENSE LIMITATIONS. In the event the operating expenses of the Fund,
including amounts payable to the Manager pursuant to subsection (a) hereof (but
excluding interest, taxes, and brokerage fees and commissions payable by the
Fund in connection with the purchase or sale of portfolio securities), for any
fiscal year ending on a date on which this Agreement is in effect exceed one and
one-half percent (1 1/2%) of the first Fifteen Million Dollars ($15,000,000) of
the average net asset value of the Fund, plus one percent (1%) of the average
net assets of the Fund in excess of Fifteen Million Dollars ($15,000,000),
calculated on the basis of the average of all of the valuations of the net
assets of the Fund in effect for the sale of Fund shares as of the close of
business on the last business day of each month during the fiscal year, the
Manager shall thereupon pay to the Fund the amount by which such expenses exceed
such limits.
ARTICLE IV
LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management of the Fund, except for willful misfeasance, bad faith or negligence
in the performance of its duties, or by reason or reckless disregard of its
obligations and duties hereunder. As used in this Article IV, the term "Manager"
shall include any affiliates of the Manager performing services for the Fund
contemplated hereby and directors, officers and employees of the Manager and
such affiliates.
ARTICLE V
ACTIVITIES OF THE MANAGER
The services of the Manager to the Fund are not to be deemed to be
exclusive, the Manager being free to render services to others so long as its
services hereunder are not impaired thereby. Nothing in this Agreement shall
limit or restrict the right of any director, officer or employee of the Manager
to engage in any other business or to devote his time and attention in part to
the management or other aspects of any other business, whether of a similar or
dissimilar nature.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall continue in effect to December 31, 2001. It may be
continued in effect thereafter by mutual consent, provided that such continuance
shall be specifically approved at least annually by (a) the Board of Directors
of the Fund or by a majority of the outstanding shares of the Fund and (b) by a
majority of the directors who are not parties to this Agreement or interested
persons (as defined in the Investment Company Act) of any such party. This
Agreement will terminate upon assignment and may be terminated without penalty
on sixty days' written notice at the option of either party hereto or by the
vote of the shareholders of the Fund. Any notice under this Agreement shall be
given in writing, addressed and delivered, or mailed postpaid, to the other
party at the principal office of such party.
-4-
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, and by the vote
of a majority of outstanding voting securities of the Fund, and (b) a majority
of those directors who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of voting
on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Investment Company Act shall be resolved by reference to such term or provision
of the Act and to interpretations thereof, if any, by the United States Courts
or in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Investment
Company Act reflected in any provision of this Agreement is revised by rule,
regulation or order of the Securities and Exchange Commission, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State of
California and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of California, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
FPA NEW INCOME, INC.
By: /s/ XXXXXX X. XXXXXXXXX
-----------------------
Xxxxxx X. Xxxxxxxxx,
President
FIRST PACIFIC ADVISORS, INC.
By: /s/ J. XXXXXXX XXXXXX
-----------------------
J. Xxxxxxx Xxxxxx,
Principal
-5-
