INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated December 27, 1994, 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 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 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 in to
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.
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When Fund portfolio securities are tendered by the Manager or an
affiliated 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
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such compensation shall be paid proportionately for any other period ending with
the termination of the Agreement.
(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 on 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
similar or dissimilar nature.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall continue in effect to December 31, 1995. 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.
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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 State
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 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.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
FPA NEW INCOME, INC.
(seal) By:/s/ Xxxxxx X. Xxxxxxxxx
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Xxxxxx X. Xxxxxxxxx,
President
FIRST PACIFIC ADVISORS, INC.
(seal) By:/s/ Xxxxxxxxxxx Xxxxxx
------------------------------------------
Xxxxxxxxxxx Xxxxxx,
President
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