INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated October 23, 2000, between FPA PARAMOUNT FUND, INC., a
Maryland corporation (hereinafter called "Paramount"), and FIRST PACIFIC
ADVISORS, INC., a Massachusetts corporation (hereinafter called the "Adviser").
W I T N E S S E T H :
WHEREAS, Paramount and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain investment advisory
and management services for Paramount.
NOW, THEREFORE, in consideration of the premises and covenants hereinafter
contained, Paramount and the Adviser agree as follows:
1. EMPLOYMENT OF ADVISER
Paramount hereby employs the Adviser to manage the investment and
reinvestment of the assets of Paramount and to administer its affairs, to the
extent described herein, subject to the supervision of the Board of Directors of
Paramount, for the period and on the terms set forth in this Agreement. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth. The Adviser agrees
to use its best efforts and judgment in the performance of its obligations
hereunder. The Adviser shall, for all purposes herein, be deemed an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Paramount in any way, or otherwise be deemed
an agent of Paramount.
2. ADVISORY SERVICES
Subject to any general directions furnished by the Board of Directors of
Paramount, the Adviser agrees to formulate and implement a continuing program
for the management of the assets of Paramount and to determine from time to time
what securities or other property shall be purchased or sold by Paramount, and
the portion of its assets to be held in cash or cash equivalents, giving due
consideration to, among other things, the policies of Paramount as expressed in
Paramount's Certificate of Incorporation, By-Laws, Registration Statement under
the Investment Company Act of 1940, and amended (the "1940 Act"), Registration
Statement under the Securities Act of 1933, as amended (the "1933 Act"), as
reports under the Securities Exchange Act of 1934 (the "1934 Act"), as well as
to the factors affecting Paramount's status as a 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.
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3. OTHER SERVICES AND EXPENSES OF ADVISER
The Adviser shall furnish to Paramount the following services and
facilities:
(a) Office space, furniture, equipment and supplies, which may be the same
as occupied or used by the Adviser;
(b) Qualified personnel for administering the affairs, managing the
investments, and preparing and maintaining the books of account,
records, reports and tax returns of Paramount, except as specified in
Section 4 hereof;
(c) Adequate facilities and qualified personnel for the placement with
broker-dealers of orders for the purchase and sale of portfolio
securities for Paramount;
(d) Members of the Adviser's organization to serve without compensation
from Paramount (except as specified otherwise in Section 5 hereof) as
officers or agents of Paramount, if desired by Paramount;
(e) Daily determination of net assets;
(f) General purpose accounting forms, supplies, stationery and postage and
telephones and utilities relating to the obligations of the Adviser
hereunder.
4. EXPENSES OF PARAMOUNT
Except to the extent expressly assumed by the Adviser herein, Paramount
will pay all costs and expenses in connection with its operations. Without
limiting the generality of the foregoing, Paramount shall pay the following
costs and expenses:
(a) Fees and charges of independent accountants, custodian and depository
and legal counsel for Paramount;
(b) Fees and charges of Paramount's transfer agent, including the costs of
maintaining Paramount's shareholder account books and records,
dividend disbursing agent and registrar, if any;
(c) Costs of designing, printing, engraving and issuing certificates
representing shares of Paramount;
(d) Expenses, including fees and disbursements of counsel, in connection
with litigation by or against Paramount;
(e) Taxes, including franchise, income, issue, transfer, business license
and other corporate fees payable by Paramount to Federal, State or
other governmental agencies;
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(f) Premiums for the fidelity bond maintained by Paramount pursuant to
Section 17 of the 1940 Act and for any errors and omissions insurance
policy maintained by Paramount;
(g) Dues for Paramount's membership in trade organizations;
(h) Interest on indebtedness, if any, incurred by Paramount;
(i) Costs of designing, printing and mailing periodic and other reports to
shareholders, proxy statements, dividend notice and other
communications to Paramount's shareholders;
(j) Expenses of meeting of shareholders and directors;
(k) Brokers' commissions, issued and transfer taxes and other costs
chargeable to Paramount in connection with security transactions to
which Paramount is a party or with securities owned by Paramount;
(l) Fees and expenses in connection with maintaining registration of
Paramount under the Federal securities laws and under the laws of
states which regulates the sale of Paramount's shares and complying
with the requirements of the Securities and Exchange Commission under
the 1940 Act, the 1933 Act, the 1934 Act and applicable state
securities laws.
The advisory fee payable hereunder has been negotiated on the
understanding, and the parties hereto agree, that the Adviser has received, and
shall continue to receive, supplementary research and other information from
broker-dealers which execute portfolio transactions for Paramount.
5. COMPENSATION OF ADVISER
For the services to be rendered pursuant to this Agreement, Paramount shall
pay to the Adviser a monthly fee computed at the annual rates of 0.75% on the
first $50 million of Paramount's average net asset value and 0.65% on the excess
over $50 million of Paramount's average net asset value. Such average net asset
value shall be determined by taking the average of all of the determinations of
net asset value, made in the manner provided in Paramount's Certificate of
Incorporation, for each business day during a given calendar month. Such fee
shall be payable for each calendar month as soon as practicable after the end of
the month.
In addition to the above-stated fee, Paramount shall reimburse the Adviser
monthly for the costs incurred by the Adviser in providing financial services to
Paramount including, among other normal financial services for Paramount,
maintaining the accounts, books and other documents which constitute the record
forming the basis for Paramount's financial statements, preparation of such
financial statements and other Paramount documents and reports of a financial
nature required by Federal and state laws, calculating daily net asset value of
Paramount, and participating in the production of Paramount's registration
statements, prospectuses, proxy solicitation materials and reports to
stockholders (including compensation of the Treasurer or other principal
financial officer of Paramount, compensation of personnel working under such
person's direction and expenses of office space, facilities and equipment used
by such personnel in the performance of their financial
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services duties to Paramount); provided, however, that such reimbursement shall
not exceed for any fiscal year of Paramount 0.10% of the average net asset value
of Paramount. Such maximum reimbursement shall be calculated in the same manner
as the fee referred to in the preceding paragraph.
The fees and reimbursements to be paid to the Adviser shall be payable for
the period commencing on the date hereof and ending on the date of termination
hereof. If this Agreement is terminated, the fees and reimbursements shall be
prorated for any fraction of a month at termination.
The fees and reimbursements payable hereunder shall be reduced by an amount
which is equivalent to any solicitation fees received by the Adviser, or any
affiliated person of the Adviser, in connection with a tender of portfolio
securities of Paramount in acceptance of an exchange or tender offer. The
Adviser shall use its best efforts to recapture any available solicitation fees.
The Adviser also agrees to reduce the advisory fee and reimbursement
payable hereunder by the amount by which certain operating expenses of Paramount
(after the exclusions described below and after reflecting any advisory fee and
reimbursement reduction provided for in the preceding paragraph) for any fiscal
year shall exceed 1 1/2% of the first $30 million of Paramount's average net
asset value taken at the close of business on the last business day of each
calendar month of such year, plus 1% of the remaining average net asset value of
Paramount so taken. For purposes of this expense limitation provision, the
following expenses shall be excluded from the total operating expenses in
computing "certain operating expenses": (i) interest, (ii) taxes, (iii) any
expenditures pursuant to Section 6 hereof for brokerage and research services,
and (iv) any extraordinary expenses, such as those of litigation, merger,
reorganization, or recapitalization, to the extent such extraordinary expenses
are permitted to be excluded by the rules or policies of the states in which
shares of Paramount are from time to time qualified for sale. All expenditures,
including costs incurred in connection with the purchase, holding, or sale of
portfolio securities, which are capitalized in accordance with generally
accepted accounting principles applicable to investment companies, shall be
accounted for as capital items and not as expenses. Any accrued advisory fee
reduction under this expense limitation provision shall be withheld by Paramount
from the fees paid hereunder. Any additional reduction computed at the end of
the fiscal year shall be paid to Paramount within five days of the computation
as a reduction of advisory fees paid during the fiscal year.
For purposes of this Section 5, the term "fiscal year" shall exclude the
portion of the current fiscal year which shall have elapsed prior to the date
hereof and shall include the portion of the then current fiscal year which shall
have elapsed at the date of termination of this Agreement.
6. BROKERAGE AND RESEARCH SERVICES
The advisory fee payable hereunder has been negotiated on the
understanding, and the parties hereto agree, that the Adviser has received, and
shall continue to receive, supplementary research and other information from
brokers and dealers which execute portfolio transactions for Paramount. The
Adviser may employ, retain, or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing the
Adviser or Paramount with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as the Adviser may deem necessary, appropriate or convenient for the
discharge of its obligations hereunder
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or otherwise helpful to Paramount, or in the discharge of Adviser's overall
responsibilities with respect to any other accounts which it might serve as
investment adviser. The Adviser and any person performing executive,
administrative or trading functions for Paramount, whose services were made
available to Paramount by the Adviser, are specifically authorized to allocate
brokerage and principal business to firms that provide such services or
facilities and to cause Paramount to pay a member of a securities exchange, or
any other securities broker or dealer, an amount of 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 0000 Xxx)
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Adviser with
respect to the accounts as to which the Adviser exercises investment discretion
(as that term is defined in Section 3(a)(35) of the 1934 Act).
7. OTHER ACTIVITIES
The Adviser may perform investment advisory, management or distribution
services for other investment companies and other persons or companies, and
affiliates of the Adviser may engage in other related or unrelated businesses.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of Paramount may be a shareholder, director,
officer or employee of, or be otherwise interested in, the Adviser, and in any
person controlled by or under common control with the Adviser, and the Adviser,
and any person controlled by or under common control with the Adviser, may have
an interest in Paramount.
8. LIABILITY OF ADVISER
Neither the Adviser nor any of its officers, directors or employees, nor
any person performing executive, administrative or trading functions for
Paramount whose services were made available to Paramount by the Adviser, shall
be liable for any error of judgment or mistake of law or for any loss suffered
by Paramount in connection with the matters to which this Agreement relates,
except for loss resulting from willful misfeasance, bad faith or negligence in
the performance of its duties, on behalf of Paramount or from reckless disregard
by the Adviser or any such person of the duties of the Adviser under this
Agreement. Without limiting the generality of the foregoing, neither the Adviser
nor any such person shall be deemed to have acted unlawfully or to have breached
any duty to Paramount under State or Federal law in effect at the date of the
enactment of Section 28(e) of the 1934 Act solely by reason of having caused
Paramount to pay a member of any securities exchange or any other securities
broker or dealer, an amount of commission for effecting a securities transaction
in excess of the commission another member of a securities exchange or another
securities broker or dealer would have charged for effecting that transaction if
the Adviser or such person determines in good faith that such amount of
commission was 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.
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9. TERM OF AGREEMENT
This Agreement shall continue in effect to May 31, 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 Paramount, or by the vote of a majority (as defined in the 0000 Xxx) of the
outstanding voting securities of Paramount, and (ii) by a majority of directors
who are not parties to this Agreement or interested persons (as defined in the
0000 Xxx) of any such party, cast in person at a meeting called for the purpose
of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of Paramount or by the vote of a majority (as
defined in the 0000 Xxx) of the outstanding voting securities of Paramount, on
sixty (60) days' written notice to the Adviser, or by the Adviser on like notice
to Paramount. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
FPA PARAMOUNT FUND, INC.
By: /s/ XXXX X. XXXX
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Xxxx X. Xxxx
President
FIRST PACIFIC ADVISORS, INC.
By: /s/ J. XXXXXXX XXXXXX
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J. Xxxxxxx Xxxxxx
Principal
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