May 20, 2011
FPA Paramount Fund, Inc. Announces Transition to Global Focus
Since the inception of FPA Paramount Fund, Inc. (the "Fund") in 1958, nearly all of the Fund's investments have been U.S.-based companies. In recent years, several foreign companies have been added to the portfolio as we have found quality businesses in other countries. As a result, at March 31, 2011, approximately 17% of the Fund's net assets were invested in foreign-domiciled companies. Beginning August 1, 2011 the Fund's investment focus will expand to a global orientation. As securities are sold in the normal course of portfolio management, we expect that replacement holdings will be mostly foreign-domiciled. Given the Fund's historically low portfolio turnover rate, averaging 15% over the last decade, the complete transition to a global focus will be similarly deliberate and will likely take more than one year. Once this change is fully implemented, we expect that more than 50% of the Fund's assets will typically be allocated to companies domiciled outside of the U.S.
There are several reasons why we believe that this broadening of focus is desirable. First, increasing the Fund's geographic scope will increase the universe of potential investments. Second, foreign companies can provide a valuable currency hedge during periods of a weakening dollar. Therefore, we do not plan to hedge the Fund's foreign currency exposure. Third, the U.S. accounts for about a quarter of global nominal GDP. Through the shift to a global focus, we expect to create a portfolio with companies that have an increased exposure to economic activity outside the U.S.
During the last decade of managing the Fund, we have sought to invest in companies with long records of earning high returns on capital, modest debt levels and managers who had demonstrated their ability to wisely reinvest the businesses' cash flow. Looking around the world, we have found these quality businesses existing in many other countries. In the last few years, we invested in several of these foreign companies. Each of them possessed the fundamental criteria we desired along with accessible managements, familiar accounting standards and home markets with modern and actively enforced securities regulations. This announcement represents a continuation of that same strategy. We believe this expanded investment focus will allow us to build on our long record of generating superior returns for our shareholders.
The Fund will continue to be managed by Eric Ende and Steven Geist with the addition of Gregory Herr as a co-portfolio manager.