http://www.sec.gov/Archives/edgar/data/732041/000110465915043479/a15-13532_1497.htm497 1 a15-13532_1497.htm 497
FPA Perennial Fund, Inc. (FPPFX)
Supplement dated June 4, 2015 to the
Prospectus dated April 30, 2015
This Supplement updates certain information contained in the Prospectus for FPA Perennial Fund, Inc. (the “Fund”) dated April 30, 2015. You should retain this Supplement and the Prospectus for future reference. Additional copies of the Prospectus may be obtained free of charge by visiting our web site at www.fpafunds.com or calling us at (800) 638-3060.
CHANGE IN NAME
Effective September 1, 2015, the Fund’s name will be changed to “FPA U.S. Value Fund, Inc.”.
CHANGE IN PORTFOLIO MANAGERS
Effective September 1, 2015, the paragraphs under the heading “Summary Section — Portfolio Managers” on page 7 of the Prospectus are deleted and replaced in their entirety with the following:
“Portfolio Manager. Gregory Nathan, Managing Director of the Adviser, has served as a portfolio manager since September 1, 2015.”
Effective September 1, 2015, the paragraphs under the heading “Management and Organization — Portfolio Managers” on page 13 of the Prospectus are deleted and replaced in their entirety with the following:
“Portfolio Manager
Gregory Nathan is primarily responsible for the day-to-day management of the Fund’s portfolio.
Mr. Gregory Nathan has been an analyst for FPA’s Contrarian Value strategy, including FPA Crescent Fund, since January 2007. Prior to joining FPA in 2007, Mr. Nathan was a managing member of Coldwater Asset Management LLC.
The SAI provides additional information about the Portfolio Manager’s compensation, other accounts managed by the Portfolio Manager and the Portfolio Manager’s ownership of shares of the Fund.”
Effective September 1, 2015, Eric Ende and Gregory Herr will no longer be Portfolio Managers of the Fund.
DISCONTINUANCE OF SALES TO NEW INVESTORS
Effective on or about June 15, 2015, the Fund has discontinued indefinitely the sale of its shares to new investors, except existing shareholders, directors, officers and employees of the Fund, the Adviser and affiliated companies, and their immediate relatives.
In addition, the Fund will allow new investors to purchase shares if they fall into one of the following categories:
1. Clients of an institutional consultant, a financial advisor, a financial planner, or an affiliate of a financial advisor or financial planner, who has client assets invested with the Fund at the time of your application;
2. Investors purchasing Fund shares through a sponsored fee-based program and shares of the Fund are made available to that program pursuant to an agreement with FPA Funds or UMB Distribution Services, LLC, and FPA Funds or UMB Distribution Services, LLC has notified the sponsor of that program, in writing, that shares may be offered through such program and has not withdrawn that notification;
3. Investors transferring or “rolling over” into a Fund IRA account from an employee benefit plan through which you held shares of the Fund (if your plan doesn’t qualify for rollovers you may still open a new account with all or part of the proceeds of a distribution from the plan);
4. You are an employee benefit plan or other type of corporate or charitable account sponsored by or affiliated with an organization that also sponsors or is affiliated with (or is related to an organization that sponsors or is affiliated with) another employee benefit plan or corporate or charitable account that is a shareholder of the Fund, and;
5. You are a participant of an employee benefit plan that is already a Fund shareholder.
The Fund may ask you to verify that you meet one of the categories above prior to permitting you to open a new account in the Fund. The Fund may permit you to open a new account if the Fund reasonably believes that you are eligible. The Fund also may decline to permit you to open a new account if the Fund believes that doing so would be in the best interests of the Fund and its shareholders, even if you would be eligible to open a new account under these guidelines.
The Fund’s ability to impose the guidelines above with respect to accounts held by financial intermediaries may vary depending on the systems capabilities of those intermediaries, applicable contractual and legal restrictions and cooperation of those intermediaries.
The Fund continues to reinvest dividends and capital gain distributions with respect to the accounts of existing shareholders who elect such options.
FPA Perennial Fund, Inc. (as of September 1, 2015, FPA U.S. Value Fund, Inc.) expects to re-open to new investors during October 2015.
Comments
http://www.fpafunds.com/docs/fund-announcements/2015-06-04-perennial-press-release-final.pdf?sfvrsn=2lease-final.pdf?sfvrsn=2
1. New manager change, plus an alteration from 2 managers to one manager. Eric Ende, as he transitions toward retirement, will move entirely away from this fund and yet remain with Source Capital for awhile, the CEF-equivalent of Perennial which presumably will retain its SC/MC quality mandate. Gregory Herr will pass the baton to Mr. Nathan and focus exclusively on his Paramount charge, which he currently co-manages.
2. Perennial will become US Value and morph, after temporary closure, to an all-cap posture. That this new mandate will result in significant portfolio change is apparent from their press release:
"FPA Perennial Fund will close to new investors on June 15, 2015, as the portfolio manager change will result in significant long-term capital gains. FPA expects to reopen the Fund to new investors in October, following the portfolio transition."
So, congratulations, Perennial holders, the role this MF plays in your portfolio has just been changed for you.
I'm sure there will be some unhappy campers.
David
The funds were F P A Paramount (FPRAX), F P A Perennial (FPPFX) and the closed-end Source Capital (SOR), and they were pretty much clones. F P A decided, about a year ago, for whatever reason, to take FPRAX from the guys and convert it to a global all-cap absolute value fund. Now FPPFX is becoming the U S version of Paramount, it seems.
But ... Geist did retire in 2014 and Ende, at age 70, is moving toward the door. Greg Herr, more of a Romick-type guy, was added to the team several years ago, presumably in anticipation of the transition.
Two reasons to sell:
1. the new fund will likely have nothing in common with the old. If you had a reason for buying Perennial before, it's gone now.
2. the tax hit will be substantial. Morningstar calculates your potential capital gains exposure at 63%, that is, 63% of the fund's NAV is a result of so far untaxed capital gains. If the portfolio is liquidated, you could see up to $36/share in taxable distributions. During the Paramount transition, the fund paid out about 40% of its NAV in taxable gains including two large distributions in two weeks.
Certainly the tax hit will vary based on your cost basis, but my as-yet uninformed guess is that if your cost basis is high - $35/share or more - you might be better getting out before the big tax hit comes.
But, really, I'm not a tax guy. That's just a superficial take on it.
David
corollary to reason #1: first look at the spankin' new portfolio may not happen until yr-end, leaving shareholder possibly flying in the dark for 7 months. Some people don't like to fly for 7 seconds, with eyes open. wow, trust The Force, Luke, just go with the Force..... ah, I don't think so; I couldn't do it.
MF portfolio managers, they come and go.
MF strategic objectives/investment policies, they come and go.
MFs, they come and go (and even come and go again, and again, and...
Entire MF families, yes, they come and go, too.
Talk is cheap, yet sometimes can be very expensive all the same.
I say, invest accordingly. No huge stakes in anything and make them earn your trust every single day.