<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-852
FPA PARAMOUNT FUND, INC.
(Exact name of registrant as specified in charter)
11400 WEST OLYMPIC BLVD., SUITE 1200, LOS ANGELES, CALIFORNIA 90064
(Address of principal executive offices)
J. RICHARD ATWOOD,
11400 WEST OLYMPIC BLVD., SUITE 1200, LOS ANGELES, CALIFORNIA 90064
(Name and address of agent for service)
Registrant's telephone number, including area code: 310-473-0225
Date of fiscal year end: SEPTEMBER 30
Date of reporting period: SEPTEMBER 30, 2003
Item 1. Report to Stockholders.
<Page>
FPA PARAMOUNT FUND, INC.
ANNUAL REPORT
SEPTEMBER 30, 2003
[FP LOGO]
DISTRIBUTOR
FPA FUND DISTRIBUTORS INC.
11400 WEST OLYMPIC BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90064
38867
<Page>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
The 1990's "go-go" attitude of business excess and questionable ethics
appears to have spread to the investment management industry. It is with dismay
and sadness that we have witnessed a broad cross section of mutual fund
companies violating their investors' trust. At First Pacific Advisors, the
Adviser to FPA Paramount, we have always placed the interest of our clients and
shareholders first, even if this put us out of step with the rest of the
industry. Let me cite two examples. We have sought to discourage market timers
and trading in our open-end mutual funds by instituting redemption fees and
deferred sales charges on purchases held for less than 90 days and by refusing
to accept orders from brokers or financial planners with a past record of
short-term trading. We have on several occasions closed mutual funds and
institutional products to new investors when we felt unable to deploy additional
funds effectively, placing the returns of our investors ahead of asset growth
for the firm.
We view our shareholders and clients as our partners, and we can assure you
that the protection and growth of your assets will continue to be paramount in
our thinking. We thank you for the trust you have placed in us. (A fuller
discussion of this topic appears on our website at www.fpafunds.com.)
As is often the case, the stock market has paid little attention to the
caution we felt over the past several months and has continued to advance
strongly. In addition, it has become increasingly clear that the market's climb
is being led by smaller and more speculative companies. From the March lows to
late October, the Nasdaq and Russell 2000 are each up over 50%, while the S&P
has advanced "only" 32%. The best performing stocks have been those with the
lowest stock prices, the smallest market caps and the least earnings.
One consequence of this increasingly frothy environment is that it has
become more and more difficult to find attractively priced stocks for the
Paramount portfolio. As a result, cash levels are now approaching 15%, the
highest in almost two years.
Paramount enjoyed another quarter of excellent performance with a third
quarter gain of 9.6%, and a total of 26.9% for the calendar year-to-date period,
results which compare well with the benchmark Russell 2500 index. Over the
longer periods, Paramount's performance has significantly exceeded that of the
benchmark index.
<Table>
<Caption>
PERIODS ENDED SEPTEMBER 30, 2003
--------------------------------
QUARTER YTD ONE YEAR 3 YEARS*
------- ------- -------- --------
Paramount 9.6% 26.9% 32.9% 14.5%
Russell 2500 8.8% 27.2% 35.6% 0.6%
S&P 500 2.7% 14.7% 24.4% (10.1)%
Nasdaq 10.1% 33.8% 52.5% (21.3)%
</Table>
* Annualized
Although Paramount has not owned many bank stocks in recent years, we are
willing to own more if they have the right characteristics. What we seek is high
returns on capital, strong balance sheet and credit quality, low costs, and the
ability to generate internal growth.
One bank which has combined all of these attributes is NORTH FORK
BANCORPORATION:
- INDUSTRY LEADING RETURNS on assets (2%) and equity (25%). These ratios
are about 50% better than the average for similar banks.
- PRISTINE CREDIT QUALITY. Loan charge-offs of about 10 bp annually -
the equivalent of one bad loan in every 1000 made. The average for
other banks is about five times higher.
- LOW-COST OPERATION. North Fork's efficiency ratio, a measure which
compares expenses to income, is in the low 30's, compared to mid-50's
for the average bank.
- REINVESTMENT OPPORTUNITIES. North Fork has been able to grow loans and
deposits at double digit rates by opening branches and gaining market
share among its retail and small business customer base.
1
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North Fork operates in the New York metropolitan area, with 175 branches,
and about $20 billion in assets. Though $20 billion is a substantial bank,
North Fork is small by New York standards. It has only 3% of a $400 billion+
size market dominated by Citigroup and Morgan Chase with a 65% combined market
share and $2 trillion in assets.
We typically prefer companies with leading market shares. In this case,
however, the market leaders are overly large and unresponsive to their
customers. They are steadily losing share to North Fork and other more nimble
competitors. North Fork is often able to staff its new branches with experienced
bankers laid-off or retired early by Citi or Morgan. They bring North Fork years
of experience, as well as many loyal customers, and thrive in North Fork's more
entrepreneurial environment.
In recent years, North Fork has concentrated its branch expansion in
Manhattan. It has increased deposits there from $1 billion at December, 2000 to
$3 billion now, but still has only a 1% share of a $270 billion deposit market.
Though immature, its average Manhattan branch has $125 million in deposits,
compared with $80 million for its other branches. At maturity, its branches in
Manhattan could easily be three times as large as now at $300-400 million each.
Not surprisingly, North Fork's excellent operating record kept its
valuation relatively high for many years, and made us reluctant to establish a
position. A 30% decline in the share price, starting in the Summer of 2002,
provided us with an opportunity to buy North Fork at a much improved valuation.
This decline in price, which affected other banks as well, was driven by
valid concerns. First, net interest margins were being squeezed, as the rates
which banks could earn on their loans and securities investments were declining
faster than the rates they paid on their deposits. Second, the market was
worried that the recession would significantly increase the losses banks would
suffer on their loan portfolios.
While we recognized that these issues were real, we felt that the decline
in net interest margin was likely to be only temporary, as interest rates would
not remain at extremely low levels indefinitely. The threat of loan losses was
less of a concern, in our opinion, for North Fork than for other banks.
North Fork's business model was based on paying less for deposits and making
lower-risk loans. A partial list of types of loans North Fork does NOT make is
instructive -- credit card, home equity, sub-prime, syndications, etc.
In addition, the market's concerns did not point to a permanent reduction
in the earnings power or underlying business value of North Fork, or banks in
general. Having a long investment horizon, we felt that this decline in price
gave us an excellent entry point, and we started to buy North Fork in late 2002,
continuing at lower prices into the second quarter of this year. At an average
cost of about $32 per share, we paid just 12x trailing earnings. We believe that
Paramount shareholders will earn an attractive return on their North Fork
investment over a period of several years.
Respectfully submitted,
/s/ Eric S. Ende
Eric S. Ende
President
November 4, 2003
2
<Page>
HISTORICAL PERFORMANCE
CHANGE IN VALUE OF A $10,000 INVESTMENT IN FPA PARAMOUNT FUND, INC. vs.
RUSSELL 2500 INDEX AND LIPPER SMALL-CAP VALUE FUND AVERAGE FROM OCTOBER 1,
1993 TO SEPTEMBER 30, 2003
[CHART]
<Table>
<Caption>
9/30/93 9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99 9/30/00
------- ------- ------- ------- ------- ------- ------- -------
FPA Paramount Fund, Inc. 9,350 11,378 12,642 15,224 17,918 13,482 12,566 9,836
FPA Paramount Fund, Inc. (NAV) 10,000 12,169 13,521 16,282 19,164 14,419 13,440 10,519
Lipper Mid-Cap Core Fund Average 10,000 11,197 13,436 15,855 20,299 18,438 21,744 30,217
Russell 2500 Index 10,000 10,291 12,912 14,957 20,089 16,791 20,448 26,486
<Caption>
9/30/01 9/30/02 9/30/03
------- ------- -------
FPA Paramount Fund, Inc. 10,928 11,106 14,760
FPA Paramount Fund, Inc. (NAV) 11,688 11,879 15,786
Lipper Mid-Cap Core Fund Average 23,763 21,581 27,180
Russell 2500 Index 21,514 19,912 26,994
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
FPA PARAMOUNT INC. YEARS ENDED SEPTEMBER 30, 2003
- ------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
---------------------------------
At Net Asset Value 32.88% 1.83% 4.67%
With Maximum 5.25% Sales Charge 25.90% 0.73% 4.11%
</Table>
Past performance is not indicative of future performance. The Russell 2500 Index
consists of the 2,500 smallest companies in the Russell 3000 total
capitalization universe. This index is considered a measure of small to medium
capitalization stock performance. This index does not reflect any commissions or
fees which would be incurred by an investor purchasing the stocks it represents.
The Lipper Mid-Cap Core Fund Average provides an additional comparison of how
your Fund performed in relation to other mutual funds with similar objectives.
The Lipper data does not include sales charges. The performance shown for FPA
Paramount Fund, Inc., with an ending value of $14,760 reflects deduction of the
current maximum sales charge of 5.25% of the offering price. In addition, since
investors purchase shares of the Fund with varying sales charges depending
primarily on volume purchased, the Fund's performance at net asset value (NAV)
is also shown, as reflected by the ending value of $15,786. The performance of
the Fund and of the Averages is computed on a total return basis which includes
reinvestment of all distributions. The current portfolio managers, Eric S. Ende
and Steven R. Geist, have been primarily responsible for the management of the
portfolio since April 1, 2000.
3
<Page>
MAJOR PORTFOLIO CHANGES
Six Months Ended September 30, 2003
(Unaudited)
<Table>
<Caption>
SHARES
----------
NET PURCHASES
COMMON STOCKS
Brown & Brown, Inc. (1) 40,000
Cal Dive International, Inc. 62,600
CarMax, Inc. 10,000
Charles River Laboratories International, Inc.(1) 33,100
Cognex Corporation 5,000
Noble Corporation 32,000
North Fork Bancorporation, Inc. 45,000
Office Depot, Inc. 40,000
Renal Care Group, Inc. 25,000
Tidewater Inc. 25,000
NET SALES
COMMON STOCKS
Advanced Fibre Communications, Inc. 42,500
Carnival Corporation 90,000
Clayton Homes, Inc.(2) 210,000
Donaldson Company, Inc.(2) 22,000
Graco Inc. 10,600
Knight Transportation, Inc. 25,500
Landauer, Inc. 14,500
Manitowoc Company, Inc., The (2) 62,500
SanDisk Corporation 155,000
Zebra Technologies Corporation 3,000
</Table>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<Page>
PORTFOLIO OF INVESTMENTS
September 30, 2003
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
- -------------------------------------------- --------------- ---------------
PRODUCER DURABLE GOODS -- 14.9%
Cognex Corporation 125,000 $ 3,286,250
Crane Co. 104,000 2,434,640
Denison International plc (ADR)* 110,000 2,241,800
Graco Inc. 81,000 3,041,550
IDEX Corporation 70,500 2,569,020
Zebra Technologies Corporation (Class A)* 54,000 2,784,780
---------------
$ 16,358,040
---------------
TECHNOLOGY -- 12.8%
Advanced Fibre Communication, Inc.* 127,500 $ 2,673,675
KEMET Corporation* 80,000 1,019,200
Plantronics, Inc.* 95,000 2,267,650
SanDisk Corporation* 105,000 6,692,700
TriQuint Semiconductor, Inc.* 248,746 1,392,978
---------------
$ 14,046,203
---------------
ENERGY -- 10.3%
Cal Dive International, Inc.* 195,000 $ 3,790,800
Noble Corporation* 120,000 4,078,800
Tidewater Inc. 120,000 3,396,000
---------------
$ 11,265,600
---------------
BUSINESS SERVICES & SUPPLIES -- 8.9%
Charles River Laboratories International, Inc. 33,100 $ 1,015,839
HON INDUSTRIES Inc. 80,000 2,956,800
Manpower Inc. 65,000 2,411,500
Office Depot, Inc.* 240,000 3,372,000
---------------
$ 9,756,139
---------------
HEALTH CARE -- 8.6%
Landauer, Inc. 4,500 $ 159,435
Lincare Holdings Inc.* 90,000 3,298,500
Ocular Sciences, Inc.* 123,000 2,740,440
Renal Care Group, Inc.* 95,000 3,244,250
---------------
$ 9,442,625
---------------
RETAILING -- 7.3%
CarMax, Inc.* 109,996 $ 3,592,469
O'Reilly Automotive, Inc.* 120,600 4,434,462
---------------
$ 8,026,931
---------------
</Table>
5
<Page>
<Table>
<Caption>
SHARES OR
PRINCIPAL
COMMON STOCKS -- CONTINUED AMOUNT VALUE
- -------------------------------------------------------- --------------- --------------
DISTRIBUTION -- 6.0%
Black Box Corporation 60,000 $ 2,388,600
ScanSource, Inc.* 115,000 4,202,100
---------------
$ 6,590,700
---------------
BANKING -- 5.8%
National Commerce Financial Corporation 115,000 $ 2,861,200
North Fork Bancorporation, Inc. 100,000 3,475,000
---------------
$ 6,336,200
---------------
ENTERTAINMENT -- 4.1%
CEC Entertainment, Inc.* 40,000 $ 1,568,000
Carnival Corporation 90,000 2,960,100
---------------
$ 4,528,100
---------------
MATERIALS -- 3.1%
Engelhard Corporation 90,000 $ 2,490,300
OM Group, Inc.* 60,000 878,400
---------------
$ 3,368,700
---------------
INSURANCE -- 1.1%
Brown & Brown, Inc. 40,000 $ 1,231,200
---------------
TRANSPORTATION -- 0.3%
Knight Transportation, Inc.* 10,500 $ 263,235
---------------
TOTAL COMMON STOCKS-- 83.2% (Cost $72,011,353) $ 91,213,673
---------------
SHORT-TERM INVESTMENTS -- 18.2%
Short-term Corporate Notes:
Toyota Motor Credit Corporation --0.85% 10/01/03 $ 2,549,000 $ 2,549,000
General Electric Capital Services Corporation --1.06% 10/06/03 3,000,000 2,999,558
Toyota Motor Credit Corporation --1.03% 10/06/03 2,009,000 2,008,713
Toyota Motor Credit Corporation --1.00% 10/14/03 3,000,000 2,998,917
General Electric Capital Corporation --1.04% 10/16/03 3,772,000 3,770,365
ChevronTexaco Funding Corporation --1.01% 10/27/03 5,684,000 5,679,854
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $20,006,407) $ 20,006,407
---------------
TOTAL INVESTMENTS -- 101.4% (Cost $92,017,760) $ 111,220,080
Other assets and liabilities, net -- (1.4)% (1,581,582)
---------------
TOTAL NET ASSETS -- 100% $ 109,638,498
===============
</Table>
* Non-income producing securities
See notes to financial statements.
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2003
<Table>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $72,011,353) $ 91,213,673
Short-term investments -- at cost plus interest earned
(maturities of 60 days or less) 20,006,407 $ 111,220,080
---------------
Cash 886
Receivable for:
Capital Stock sold $ 198,780
Dividends 27,687 226,467
--------------- ---------------
$ 111,447,433
LIABILITIES
Payable for:
Investment securities purchased $ 1,252,111
Capital stock repurchased 425,088
Advisory fees and financial services 91,481
Accrued expenses 34,500
Other Liabilities 5,755 1,808,935
--------------- ---------------
NET ASSETS $ 109,638,498
===============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.25 per share; authorized
100,000,000 shares; outstanding 10,158,180 shares $ 2,539,545
Additional Paid-in Capital 257,443,283
Accumulated net realized loss on investments (169,546,650)
Unrealized appreciation of investments 19,202,320
---------------
NET ASSETS $ 109,638,498
===============
NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM
OFFERING PRICE PER SHARE
Net asset value and redemption price per share
(net assets divided by shares outstanding) $ 10.79
===============
Maximum offering price per share
(100/94.75 of per share net asset value) $ 11.39
===============
</Table>
See notes to financial statements.
7
<Page>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2003
<Table>
INVESTMENT INCOME
Interest $ 84,505
Dividends 519,535
---------------
$ 604,040
EXPENSES
Advisory fees $ 614,002
Transfer agent fees and expenses 153,479
Financial services 86,769
Directors' fees and expenses 39,902
Audit fees 38,600
Custodian fees and expenses 25,988
Registration fees 25,886
Reports to shareholders 25,475
Insurance 7,078
Legal fees 1,981
Other expenses 800
---------------
$ 1,019,960
Reimbursement from Investment Adviser (2,266) 1,017,694
--------------- ---------------
Net investment loss $ (413,654)
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) $ 19,631,863
Cost of investment securities sold 12,448,818
---------------
Net realized gain on investments $ 7,183,045
Unrealized appreciation of investments:
Unrealized appreciation at beginning of year $ 743,516
Unrealized appreciation at end of year 19,202,320
---------------
Increase in unrealized appreciation of investments 18,458,804
---------------
Net realized and unrealized gain on investments $ 25,641,849
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 25,228,195
===============
</Table>
See notes to financial statements.
8
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (413,654) $ (288,180)
Net realized gain on investments 7,183,045 2,451,400
Change in unrealized
appreciation (depreciation)
of investments 18,458,804 (1,756,170)
--------------- ---------------
Increase in net assets
resulting from operations $ 25,228,195 $ 407,050
Distributions to shareholders from
net investment income -- (110,319)
Capital Stock transactions:
Proceeds from Capital Stock sold $ 31,201,909 $ 50,312,449
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions -- 100,531
Cost of Capital Stock repurchased (20,983,669) 10,218,240 (43,595,503) 6,817,477
--------------- --------------- --------------- ---------------
Total increase in net assets $ 35,446,435 $ 7,114,208
NET ASSETS
Beginning of year 74,192,063 67,077,855
--------------- ---------------
End of year $ 109,638,498 $ 74,192,063
=============== ===============
CHANGE IN CAPITAL STOCK
OUTSTANDING
Shares of Capital Stock sold 3,301,409 5,291,068
Shares issued to shareholders upon
reinvestment of dividends and
distributions -- 10,439
Shares of Capital Stock repurchased (2,278,134) (4,553,713)
--------------- ---------------
Increase in Capital Stock outstanding 1,023,275 747,794
=============== ===============
</Table>
See notes to financial statements.
9
<Page>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Per share operating performance:
Net asset value at beginning of year $ 8.12 $ 8.00 $ 7.33 $ 9.46 $ 10.24
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) $ (0.04) $ (0.03) $ 0.08 $ 0.13 $ 0.07
Net realized and unrealized gain (loss)
on investment securities 2.71 0.16 0.72 (2.17) (0.77)
---------- ---------- ---------- ---------- ----------
Total from investment operations $ 2.67 $ 0.13 $ 0.80 $ (2.04) $ (0.70)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income -- $ (0.01) $ (0.13) $ (0.09) $ (0.08)
Distributions from net realized capital gains -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- $ (0.01) $ (0.13) $ (0.09) $ (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 10.79 $ 8.12 $ 8.00 $ 7.33 $ 9.46
========== ========== ========== ========== ==========
Total investment return* 32.88% 1.63% 11.11% (21.73)% (6.79)%
Ratios/supplemental data:
Net assets at end of year (in $000's) 109,638 74,192 67,078 73,235 171,220
Ratio of expenses to average net assets:
Before reimbursement from Investment Adviser 1.15% 1.18% 1.28% 1.22% 1.03%
After reimbursement from Investment Adviser 1.15% 1.17% 1.20% 1.17% 1.03%
Ratio of net investment income (loss) to average net assets:
Before reimbursement from Investment Adviser (0.47)% (0.34)% 0.84% 1.18% 0.57%
After reimbursement from Investment Adviser (0.47)% (0.34)% 0.92% 1.22% 0.57%
Portfolio turnover rate 17% 14% 16% 76% 21%
</Table>
* Return is based on net asset value per share, adjusted for reinvestment of
distributions, and does not reflect deduction of the sales charge.
See notes to financial statements.
10
<Page>
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as a
diversified, open-end management investment company. The Fund's objective is a
high total investment return, including capital appreciation and income, from a
diversified portfolio of securities. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Security Valuation
Securities listed or traded on a national securities exchange are
valued at the last sale price on the last business day of the year, or if
there was not a sale that day, at the last bid price. Securities traded in
the NASDAQ National Market System are valued at the NASDAQ Official Closing
Price, or if there was not a sale that day, at the last bid price. Unlisted
securities are valued at the most recent bid price. Short-term investments
with maturities of 60 days or less are valued at cost plus interest earned,
which approximates market value.
B. Federal Income Tax
No provision for federal income tax is required because the Fund has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification and to distribute
each year to its shareholders, in accordance with the minimum distribution
requirements of the Code, all of its taxable net investment income and
taxable net realized gains on investments.
C. Securities Transactions and Related Investment Income
Securities transactions are accounted for on the date the securities
are purchased or sold. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income and expenses are
recorded on an accrual basis.
D. Use of Estimates
The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported. Actual results could differ from those estimates.
NOTE 2 -- PURCHASES OF INVESTMENT SECURITIES
Cost of purchases of investment securities (excluding short-term
investments with maturities of 60 days or less) aggregated $13,508,743 for the
year ended September 30, 2003. Realized gains or losses are based on the
specific-certificate identification method. There were no material differences
between the amounts reported in the financial statements at September 30, 2003
for federal income tax and financial reporting purposes. Gross unrealized
appreciation and depreciation for all securities at September 30, 2003 for
federal income tax purposes was $24,478,048 and $5,275,728, respectively. For
federal income tax purposes, the Fund currently has accumulated net realized
losses in the amount of $169,540,681 which can be carried forward to offset
future gains. The ability to carry these losses forward expires as follows:
$97,085,102 in 2007; $1,128,157 in 2008; and $71,327,422 in 2009. During the
year ended September 30, 2003, the Fund reclassified $704,065 from accumulated
net loss to additional paid in capital to align financial reporting with tax
reporting.
NOTE 3 -- ADVISORY FEES AND OTHER AFFILIATED TRANSACTIONS
Pursuant to an Investment Advisory Agreement, advisory fees were paid by
the Fund
11
<Page>
to First Pacific Advisors, Inc. (the "Adviser"). Under the terms of this
Agreement, the Fund pays the Adviser a monthly fee calculated at the annual rate
of 0.75% of the first $50 million of the Fund's average daily net assets and
0.65% of the average daily net assets in excess of $50 million. In addition, the
Fund reimburses the Adviser monthly for the costs incurred by the Adviser in
providing financial services to the Fund, providing, however, that this
reimbursement shall not exceed 0.1% of the average daily net assets for any
fiscal year. The Agreement obligates the Adviser to reduce its fee to the extent
necessary to reimburse the Fund for any annual expenses (exclusive of interest,
taxes, the cost of any supplemental statistical and research information, and
extraordinary expenses such as litigation) in excess of 1 1/2% of the first $30
million and 1% of the remaining average net assets of the Fund for the year. For
the year ended September 30, 2003, the Adviser reduced its fee by $2,266 to
reimburse the Fund for expenses in excess of this limit.
For the year ended September 30, 2003, the Fund paid aggregate fees,
excluding expenses, of $38,000 to all Directors who are not affiliated persons
of the Adviser. Certain officers of the Fund are also officers of the Adviser
and FPA Fund Distributors, Inc.
NOTE 4 -- DISTRIBUTOR
For the year ended September 30, 2003, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $50,186 in
net Fund share sales commissions after reallowance to other dealers. The
Distributor pays its own overhead and general administrative expenses, the cost
of supplemental sales literature, promotion and advertising.
12
<Page>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF FPA PARAMOUNT FUND, INC.
We have audited the accompanying statement of assets and liabilities of FPA
Paramount Fund, Inc. (the "Fund"), including the portfolio of investments, as of
September 30, 2003, and the related statements of operations, changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets of FPA Paramount Fund, Inc., for the year ended September 30, 2002
and financial highlights for each of the four years in the period then ended
were audited by other auditors whose report, dated November 12, 2002, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of FPA Paramount Fund, Inc. as of September 30, 2003, and the results
of its operations, changes in net assets and financial highlights for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
November 3, 2003
13
<Page>
DIRECTOR AND OFFICER INFORMATION
(Unaudited)
<Table>
<Caption>
POSITION(S) PORTFOLIOS IN
WITH FUND/ PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, AGE & ADDRESS YEARS SERVED DURING THE PAST 5 YEARS OVERSEEN OTHER DIRECTORSHIPS
------------------- ------------ ----------------------- ------------- -------------------
Willard H. Altman, Jr. - (68) Director* Retired. Formerly, until 1995, Partner 6
11400 W. Olympic Blvd., #1200 Years Served: 1 of Ernst & Young LLP, a public
Los Angeles, CA 90064 accounting firm.
Leonard Mautner - (86) Director* President, Leonard Mautner Associates; 2
11400 W. Olympic Blvd., #1200 Years Served: 22 and General Partner, Goodman &
Los Angeles, CA 90064 Mautner Ltd.
John H. Rubel - (83) Director* President, John H. Rubel and 1
11400 W. Olympic Blvd., #1200 Years Served: 25 Associates, Inc.
Los Angeles, CA 90064
John P. Shelton (83)
11400 W. Olympic Blvd., #1200 Director* Professor Emeritus at UCLA Graduate 1 Genisco Systems, Inc.
Los Angeles, CA 90064 Years Served: 26 School of Management.
Eric S. Ende - (59) Director* Senior Vice President of the Adviser. 3
11400 W. Olympic Blvd., #1200 President &
Los Angeles, CA 90064 Portfolio
Manager
Years Served: 3
Steven R. Geist (49) Executive Vice Vice President of the Adviser.
11400 W. Olympic Blvd., #1200 President &
Los Angeles, CA 90064 Portfolio
Manager
Years Served: 3
J. Richard Atwood - (43) Treasurer Principal and Chief Operating Officer First Pacific
11400 W. Olympic Blvd., #1200 Years Served: 6 of the Adviser. President and Chief Advisors, Inc. and
Los Angeles, CA 90064 Executive Officer of FPA Fund FPA Fund
Distributors, Inc. Distributors, Inc.
Sherry Sasaki - (48) Secretary Assistant Vice President and Secretary
11400 W. Olympic Blvd., #1200 Years Served: 21 of the Adviser and of FPA Fund
Los Angeles, CA 90064 Distributors, Inc.
Christopher H. Thomas - (46) Assistant Vice President and Controller of the FPA Fund
11400 W. Olympic Blvd., #1200 Treasurer Adviser and of FPA Fund Distributors, Distributors, Inc.
Los Angeles, CA 90064 Years Served: 8 Inc.
</Table>
* Directors serve until their resignation, removal or retirement.
14
<Page>
FPA PARAMOUNT FUND, INC.
INVESTMENT ADVISER
First Pacific Advisors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
DISTRIBUTOR
FPA Fund Distributors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
COUNSEL
O'Melveny & Myers LLP
Los Angeles, California
TICKER SYMBOL: FPRAX
CUSIP: 302546106
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Los Angeles, California
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
Boston, Massachusetts
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 8115
Boston, Massachusetts 02266-8500
(800) 638-3060
(617) 483-5000
This report has been prepared for the information of shareholders of FPA
Paramount Fund, Inc., and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
<Page>
Item 2. (a) The registrant has adopted a code of ethics that applies to the
registrant's senior executive and financial officers. A copy of the
code of ethics is filed as an exhibit to this Form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The registrant's board of directors has determined that independent
director, Willard H. Altman, Jr., qualifies as the audit committee
financial expert.
Item 4. Principal Accountant Fees and Services. N/A. Item is only applicable
for annual reports for the year ending on or after December 15,
2003.
Item 5. Audit Committee of Listed Registrants. N/A. Item is only applicable
for annual reports for the year ending on or after January 15, 2004.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A.
Item 8. Reserved.
Item 9. Controls and Procedures.
(a) The principal executive officer and principal financial officer of
FPA Paramount Fund, Inc. ("Fund") have concluded that the Fund's
Disclosure Controls and Procedures (as defined in Rule 30a-2(c)
under the Investment Company Act of 1940) are effective based on
their evaluation of the Disclosure Controls and Procedures as of a
date within 90 days of the filing date of this report.
(b) There have been no significant changes in the Fund's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10. Exhibits.
(a) Code of ethics as applies to the registrant's officers and
directors, as required to be disclosed under Item 2 of Form N-CSR.
Attached hereto as Ex. 99.CODE ETH.
(b) Separate certification for the registrant's principal executive
officer and principal financial officer, as required by Rule 30a-2
under the Investment Company Act of 1940. Attached hereto.
<Page>
SIGNATURES
Pursuant to the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FPA PARAMOUNT FUND, INC.
By: /s/ ERIC S. ENDE
---------------------------------
Eric S. Ende, President
Date: December 5, 2003
Pursuant to the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FPA PARAMOUNT FUND, INC.
By: /s/ J. RICHARD ATWOOD
---------------------------------
J. Richard Atwood, Treasurer
Date: December 5, 2003