fpa new income, inc....the performance data quoted represents past performance and is not a...

FPA New Income, Inc. FPNIX

Fourth Quarter 2013 Webcast Presentation

January 29, 2014

Presented by: Thomas H. Atteberry, CFA, Portfolio Manager Julian Mann, Research Analyst/Trader Melinda Newman, Research Analyst Nazanin Pajoom, Data Analyst Abhijeet Patwardhan, Research Analyst

First Pacific Advisors, LLC

Core tenets

1

Downside protection (as of 12/31/13)

Yield to Worst (%) Effective Duration (yrs) YTW/Duration

FPA New Income 2.01 1.63 1.23

Barclays US Aggregate Bond Index 2.48 5.55 0.45

Barclays US Aggregate 1-3 Year Index 0.65 1.89 0.34

As of December 31, 2013, the SEC yield was 2.67%. Source: Morningstar Direct, BondEdge. Peer group bond fund categories as defined by Morningstar. Past performance is no guarantee of future returns.The performance data quoted represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted. To obtain performance information current to the most recent month-end, please call 800-996-2862.

Higher ratio equals less exposure to interest rate risk

As of 12/31/13 1 Year Return

FPA New Income 0.67%

Benchmark Indices

Barclays US Aggregate Bond Index -2.02%

Barclays US Aggregate 1-3 Year 0.64%

CPI+100 Index 2.51%

Peer Groups

Nontraditional Bond Funds 0.44%

Short-Term Bond Funds 0.43%

Intermediate-Term Bond Funds -1.38%

Absolute return with preservation of capital ■ Seek positive absolute return within calendar years− Achieved 29 consecutive years

■ Seek positive real returns in excess of CPI + 100 Index over five-year periods− Achieved 23 out of 24 rolling five-year periods

■ Benchmark agnostic■ Rigorous security and portfolio analysis seeks to mitigate risk:− Value-driven investing− Duration actively managed− Security and portfolio stress test− Allocation constraints for credit sensitive exposures

Please refer to standardized performance on page 36

First PacificAdvisors, LLC

Review of Quantitative Easing

Potential long-term costs of Quantitative Easing - the first four we have discussed in previous conference calls and shareholder letters

■ Financial instability/bubbles

■ Losses on the balance sheet of the Federal Reserve Bank

■ Inability to extract excess reserves and control short-term interest rates on the exit of these reserves

■ Loss of control of long-term inflation expectations

■ Income and wealth distribution distortions

2


Central Bank balance sheets

A significant driver for ALL global asset prices is the aggressive and unprecedented moves in global central bank balance sheets

3

0

2

4

6

8

10

12

14

16

18

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

FED ECB BOE BOJ BOC RBA PBOC SNB SRB RBI

Total Assets of Major Central Banks ($ trillion) US Monetary Base ($ trillion)

QE1

QE2

QE3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'75 '80 '85 '90 '95 '00 '05 '10

Operation Twist

Source: Jefferies, National Central Banks through Bloomberg and Haver See glossary of terms pages 44-45

$ tri

llion

$ tri

llion


Current FOMC “Taper” schedule

4

Source: ISI and Federal Reserve Bank See glossary of terms pages 44-45

$ bi

llion


Potential growth in Fed balance sheet if “Taper” is at current measured pace

5

Source: ISI

$ tri

llion


What worked with Quantitative Easing

6

US household net worth

Source: Factset


The wealth distribution has also widened sharply

7

US Household Nominal Wealth Growth Since 1989 by Cohort

0%

50%

100%

150%

200%

250%

300%

'89 '93 '97 '01 '05 '09

25-49.9 50-74.9 75-89.9 90-100 All Households & NPOs

Source: Jefferies, US Census, The Federal Reserve Bank See glossary of terms pages 44-45


What has not worked yet with Quantitative Easing

8

Source: Bianco Research


Reduced labor participation rate is the key reason unemployment rate is declining

9

Source: ISI, U.S. Bureau of Labor Statistics

% U

.S. e

mpl

oym

ent t

o po

pula

tion

ratio

(inv

erte

d)

% U

.S. u

nem

ploy

men

t rat

e


Factors driving labor participation rate

Why they dropped out

10

Source: Bank Credit Analyst


Median income lags inflation

11

Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau

0

100

200

300

400

500

600

700

800

CPI applied to $100 compounded over time

Nominal income growth applied to $100 compounded over time

$ do

llars

(ind

exed

to 1

00 o

n 12

/31/

1968

)


Income has stayed the same for the upper class, but has fallen for the middle and lower-tier earners

12

US Cumulative Real Income Increases since 1967, by Income Cohort

0%

20%

40%

60%

80%

100%

'68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12

Tightening Fed Monetary Policy Cohort of Bottom 40% Earners: Mean Income Cohort of Top 40% Earners: Mean IncomeCohort of middle 20% of Earners: Mean Income Cohort of Top 5% Earners: Mean Income

Source: Jefferies, US Census


Debt ceiling debate returns

Treasury may reach limit early in March

13

Source: Stone & McCarthy Research Associates See glossary of terms pages 44-45

■ FPA New Income by design has no Treasuries maturing between 1/31/14-4/30/14


Affordable Care Act impact on real GDP – open issue for 2014-2016

14

Source: Free Market Economics


The role of FNMA, FHLMC & GNMA in the mortgage market has not been defined

15

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000D

ec-0

3

Apr

-04

Aug

-04

Dec

-04

Apr

-05

Aug

-05

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Agen

cy M

ortg

ages

as

% o

f tot

al m

ortg

age

mar

ket

Tota

l (Ag

ency

and

Non

Age

ncy)

TotalAgency % totalTotal mortgage market (LHS) Agency mortgages as % of total mortgage market (RHS)

Source: JP Morgan See glossary of terms pages 44-45


Congressional Budget Office latest deficit projections

16

Source: Congressional Budget Office


-250

-200

-150

-100

-50

0

50

100

150

200

250

S&P 500 Trailing 12-Month Sales Per Share

S&P 500 Trailing 12-Month EPS Before Extraordinary Items

S&P 500 net income growth has outpaced sales growth since great recession

17

Note: S&P 500 EPS before extraordinary items and sales per share indexed to 100 on 6/30/2008 Source: Bloomberg See glossary of terms pages 44-45

$ do

llars

(ind

exed

to 1

00 o

n 6/

30/2

008)


Labor cost savings are important driver of corporate profit margins

Note: Profits After Tax includes inventory valuation adjustment and capital consumption adjustment Source: U.S. Bureau of Economic Analysis

18

55%

57%

59%

61%

63%

65%

67%

69%3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

Mar

-69

Jun-

70S

ep-7

1D

ec-7

2M

ar-7

4Ju

n-75

Sep

-76

Dec

-77

Mar

-79

Jun-

80S

ep-8

1D

ec-8

2M

ar-8

4Ju

n-85

Sep

-86

Dec

-87

Mar

-89

Jun-

90S

ep-9

1D

ec-9

2M

ar-9

4Ju

n-95

Sep

-96

Dec

-97

Mar

-99

Jun-

00S

ep-0

1D

ec-0

2M

ar-0

4Ju

n-05

Sep

-06

Dec

-07

Mar

-09

Jun-

10S

ep-1

1D

ec-1

2

Real Profits After Tax per Unit/Price per Unit for Nonfinancial Domestic Corporations (Left Scale)Real Unit Labor Cost/Price per Unit for Nonfinancial Domestic Corporations (Right Scale - Inverted Values)


Wage disinflation has driven down unit labor cost, not productivity increases

19

56%

57%

58%

59%

60%

61%

62%

-4%

-2%

0%

2%

4%

6%

8%

10%YOY Change in Nonfarm Business Sector Output Per Hour of All Persons (Left Scale)YOY Change in Average Weekly Earnings of All Employees (Left Scale)Real Unit Labor Cost/Price per Unit for Nonfinancial Domestic Corporations (Right Scale)

Uni

t Lab

or C

ost

Prod

uctiv

ity/Y

OY

Cha

nge

in A

vera

ge W

eekl

y Ea

rnin

gs

Source: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics See glossary of terms pages 44-45


Demand for bank loans tepid; CapEx cycle uncertain

20

Source: Board of Governors of the Federal Reserve System

Year-over-year growth in commercial bank assets

Year-over-year growth in U.S. nonfinancial business capital expenditures

-8%

-4%

0%

4%

8%

12%

16%

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Mar

-90

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13


Leverage for broad market at manageable levels… Russell 3000 index net debt/LTM EBITDA

21

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

10%

15%

20%

25%

30%

35%

40%

45%

50%

Dec

-45

Sep

-49

Jun-

53

Mar

-57

Dec

-60

Sep

-64

Jun-

68

Mar

-72

Dec

-75

Sep

-79

Jun-

83

Mar

-87

Dec

-90

Sep

-94

Jun-

98

Mar

-02

Dec

-05

Sep

-09

Jun-

13

Total liabilities/total assets for U.S. nonfinancial businesses as of 3Q13

Source: Bloomberg, Board of Governors of the Federal Reserve System See glossary of terms pages 44-45


But high yield market leverage up, and quality of leveraged loan market deteriorating

22

LTM Debt/EBITDA for U.S. High Yield market

Covenant-lite loans issued (in $ billions as of 12/03/13)

See glossary of terms pages 44-45


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

0

500

1,000

1,500

2,000

2,500Real YOY GDP Growth (RHS)

Barclays U.S. Coporate High Yield Index Spread-to-Worst (LHS)

Median = 2.3%

High Yield spreads narrowing despite lackluster GDP growth

23

Rea

l YO

Y G

DP

Gro

wth

%

Bar

clay

s U

.S. C

orpo

rate

HY

Inde

x

Spre

ad-to

-Wor

st (b

ps)

Median = 604 bps

Source: Barclays, Bloomberg, U.S. Bureau of Economic Analysis See glossary of terms pages 44-45


-500

0

500

1,000

1,500

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Real YOY GDP Growth (LHS)Barclays U.S. Mortgage Backed Securities Index Spread-to-Worst (RHS)Barclays Asset-Backed Securities Index Spread-to-Worst (RHS)Barclays CMBS Index Spread-to-Worst (RHS)Barclays U.S. Corporate Investment Grade Index Spread-to-Worst (RHS)

Spreads in securitized and investment grade markets

24

Rea

l YO

Y G

DP

Gro

wth

%

Spre

ad-to

-Wor

st (

bps)

Source: Barclays, Bloomberg, U.S. Bureau of Economic Analysis See glossary of terms pages 44-45

Median = 2.3%


-0.73% -1.56%

-3.09% -4.43%

-5.95%

-14.14%

-0.60% -1.18% -2.04%

-2.98%

-4.44%

-11.49%

US Treasury yields and downside risk

US Treasury yields and downside risk

25

0.36% 0.65%

1.40% 1.94%

2.49%

3.50%

0.38% 0.75%

1.72% 2.41%

2.99%

3.92%

2 Years 3 Years 5 Years 7 Years 10 Years 30 Years

Yield to Maturity – Bond income with no change in interest rates within 12 months

Stress test – Total return with 100 bps interest rate increase within 12 months

As of December 31, 2013 *Simulated Treasury 1-Year total return scenarios Source: Bloomberg Past performance is no guarantee of future results

As of 12/31/12

As of 12/31/13

Total Return*

Yield to Maturity


Spreads by sector

26

December 31, 2012 December 31, 2013 Change (bps)

Barclays Corporate Index 139 115 -24

Barclays MBS Index 158 80 -78

Barclays ABS Index 45 59 14

Barclays CMBS Index 125 129 4

Barclays US High Yield Index 539 428 -111

JP Morgan Leveraged Loan Index 534 419 -115

Source: Barclays Capital


Investment process

The Absolute Fixed Income process ■ Focused on asset protection – a highly disciplined approach to minimize interest rate and credit risk

■ Fundamentals based – portfolio built through careful security level analysis

■ Risk managed – allocations and exposures strictly planned, monitored and enforced at every stage

27

R I S K M A N A G E M E N T

Investment Universe

Analysis: Interest rate

risk/credit risk

Analysis: Fundamentals/

valuations

Do available bonds offer safety and value?

Active and vigilant analysis of

portfolio fundamentals

Seeking: optimal mix of total return +

protection

Is the current level of bond yields attractive?

Portfolio Construction Monitoring


Assessing possible outcomes: security

The intensity of our monitoring efforts should mean fewer negative surprises.

28

Initial investment

Re-evaluate investment ■ Is investment thesis still valid? ■ Does security still offer absolute return at current price?

Security level monitoring ■ Mortgages: monthly pool speeds ■ ABS: paydowns, default trades, credit

quality, recovery ■ Corporates: quarterly earnings

Industry and macroeconomic fundamentals monitoring

■ Mortgages: interest rate outlook, borrower behavior

■ Corporates/ABS: industry conditions and outlook

Valuation monitoring ■ Assess security price/yield ■ Monitor asset value/projected future

cashflows

Sell ■ Fundamentals deteriorated ■ Price too high to generate

appropriate total return

Hold ■ Investment thesis valid ■ Stable potential for total return

Increase position ■ Fundamentals improved ■ Decreased risk ■ Bonds offer increased potential for total

return


FPA New Income sector allocation changes

29

As of September 30, 2013

Cash 4%

U.S. Government

13% Corporate 7%

Residential Mtge. Backed

46%

Commercial Mtge. Backed

17%

Asset Backed 13%

Portfolio composition will change due to ongoing management of the Fund. References to specific securities or sectors should not be construed as recommendations by the Fund, its Advisor or Distributor. See glossary of terms pages 44-45

As of December 31, 2013

Cash 7% U.S.

Government 18%

Corporate 9%

Residential Mtge. Backed

37%

Commercial Mtge. Backed

14%

Asset Backed 15%

■ Residential Mortgage Backed decreased

■ Commercial Mortgage Backed decreased

■ Other sectors increased


Reduced duration by decreasing exposure to mortgages

30

9/30/2013 12/31/2013 Comment

FPA New Income - performing Residential Mortgage Bonds only

Weighted average CPR (prepayment rate) 17.51% 18.20% Sale of slower pre-payment pools increased average for remaining holdings

Weighted average effective duration of Principal & Interest securities 3.69 yrs 3.94 yrs

Sale of 15-year mortgage pools resulted in increase in percentage of 20-30 year mortgages in holdings

Weighted average effective duration of Interest Only securities -10.16 yrs -9.52 yrs Duration change result of change in Treasury

rates in Q4

FPA New Income - entire portfolio

% of portfolio comprised of Principal & Interest securities 86.8% 89.2% Reduced holding of GNMA Project Loan

Interest Only securities

% of portfolio comprised of Interest Only securities 13.1% 10.8% Reduced holding of GNMA Project Loan

Interest Only securities

Weighted average effective duration of all Principal & Interest securities 2.25 yrs 1.88 yrs Proceeds from mortgage pool sales invested in

shorter duration securities

Weighted average effective duration of all Interest Only securities -0.15 yrs -0.40 yrs

Change is a result of sale of positive effective duration GNMA Project Loan Interest Only securities

Total portfolio effective duration 1.93 yrs 1.63 yrs Combined result of higher cash and lower effective duration

Source: BondEdge. Numbers may not total due to rounding.

Impact on portfolio statistics from 4th quarter investment activity


Portfolio characteristics

FPA New Income sector allocation as of December 31, 2013

31

Sector (US) % Held (MV) Maturity (Years)

Yield to Worst (%)

Effective Duration (Years)

Nominal Spread (Bps)

Cash 7.01 0.09 0.05 0.09 -1 US Government 18.22 0.37 0.14 0.37 6 Treasury 18.22 0.37 0.14 0.37 6 Credit 8.77 3.91 3.20 1.43 267 Corporate 8.77 3.91 3.20 1.43 267 Securitized 66.00 2.87 2.58 2.17 177 Mortgage Pass-Through 4.47 2.02 1.26 1.67 84 Mortgage Backed 29.77 3.44 3.14 3.82 216 ABS 15.17 1.45 1.59 1.13 123 CMBS 5.95 2.01 2.77 1.53 238 Stripped Mortgage-Backed 10.64 4.12 2.86 -0.40 153 Total 100.00 2.31 2.01 1.63 142

Source: FPA, BondEdge See glossary of terms pages 44-45 Portfolio composition will change due to ongoing management of the fund. References to individual securities are for informational purposes only and should not be construed as recommendations by the Fund, Advisor or Distributor. As of December 31, 2013, the SEC yield was 2.67%. This calculation begins with the Fund’s dividend payments for the last 30 days, subtracts fund expenses and uses this number to estimate your returns for a year. The SEC yield is based on the price of the fund at the beginning of the month. The income yield stated here reflects prospective data and thus assumes payments collected by the fund may fluctuate.


Portfolio performance attribution 2013

32

0.67

6.08 -3.01

-2.29

-0.11

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Income Paydown Price Return Other 2013 FPNIX Total Return

%

2013 FPNIX Contribution to Return by Source

Price Return: The sum of the Parallel, Non-Parallel, Roll/Amortization , Sector/Quality and Selection Effects for each bond in the portfolio. Paydown: Any security with amortizing principal during the period covered by an attribution analysis will show a Paydown Effect, which recognizes the gain or loss resulting from a return of principal at par when the security's price is other than par. This measure allows you to separately identify the impact of prepayments on returns. Other: The amount of portfolio return not explained by the other return factors. Source: FPA



33

0.67

0.00 0.01

0.56

0.32 -0.13

0.05 -0.07

-0.08 -0.20

0.00

0.20

0.40

0.60

0.80

1.00

Cash Treasuries MortgagePass-Through

MortgageBacked

ABS CMBS Corporates Other 2013 FPNIXTotal Return

%

2013 FPNIX Contribution to Return by Sector

Source: FPA



34

Source: FPA

-0.08

0.46

-0.53 -0.00

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

Stripped Mortgage-Backed Principal & Interest Other 2013 Mortgage BackedContribution to FPNIX Total

Return

%

2013 Mortgage Backed Contribution to Return



35

0.56 1.66

0.10

-0.21

-0.99

-1.50

-1.00

-0.50

0.00

0.50

1.00

Principal & Interest Stripped Mortgage-Backed (InterestComponent Only)

Stripped Mortgage-Backed Prepayment

Penalties

Other 2013 CMBS Contributionto FPNIX Total Return

%

2013 CMBS Contribution to Return

Source: FPA


Performance

36

* Performance shown is net of fees** Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense ratio: 0.57% (per most recent prospectus) Calculated using Morningstar Direct

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/newincome or by calling toll-free, 1-800-982-4372.

Performance(%)*

As of Date: 12/31/13 4Q13 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years 25 Years Since 7/1/84**

FPA New Income 0.19 0.67 1.69 2.23 3.03 4.51 5.11 6.47 7.76 Barclays US Agg Bond -0.14 -2.02 3.26 4.44 4.55 5.23 5.74 6.83 7.94 CPI + 100 0.52 2.51 3.11 3.13 3.40 3.42 3.42 3.72 3.84


Performance

37

* Performance shown is net of fees** Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense ratio: 0.57% (per most recent prospectus) Calculated using Morningstar Direct

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/newincome or by calling toll-free, 1-800-982-4372.

The CPI +100 Basis Points benchmark is created by adding 1% to the annual percentage change in the Consumer Price Index (“CPI”). This index reflects non-seasonably adjusted returns. The Consumer Price Index is an unmanaged index representing the rate of the inflation of the U.S. consumer prices as determined by the U.S. Department of Labor Statistics. There can be no guarantee that the CPI of other indexes will reflect the exact level of inflation at any given time.

Annual Performance (%)

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

FPA New Income 0.67 2.18 2.23 3.18 2.89 4.31 6.02 4.79 1.57 2.60 8.32 4.52 12.33 9.32 3.39 Barclays US Agg Bond -2.02 4.21 7.84 6.54 5.93 5.24 6.97 4.33 2.43 4.34 4.10 10.26 8.44 11.63 -0.82 CPI + 100 2.51 2.63 4.00 2.41 3.79 0.96 5.14 3.55 4.37 4.38 3.06 3.51 2.62 4.47 3.71

1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984**

FPA New Income 3.86 8.31 7.12 14.36 1.46 10.17 11.12 18.80 8.38 12.22 8.55 7.83 10.76 21.31 19.79 Barclays US Agg Bond 8.69 9.65 3.63 18.47 -2.92 9.75 7.40 16.00 8.96 14.53 7.89 2.76 15.26 22.10 17.11 CPI + 100 2.63 2.72 4.41 3.56 3.63 3.84 4.00 4.01 7.32 5.69 5.46 5.38 2.20 4.83 2.24


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 Year 3 Years 5 Years 10 Years 20 Years-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1 Year 3 Years 5 Years 10 Years 20 Years

Risk-adjusted returns

A record of attractive risk-adjusted returns

38

As of December 31, 2013 Inception date: July 1, 1984 See glossary of terms pages 44-45 Source: Morningstar Direct. Bond Fund categories as defined by Morningstar. Past performance is no guarantee of future results

■ FPA New Income■ Nontraditional Bond Funds■ Short-Term Bond Funds

■ Intermediate-Term Bond Funds■ Barclays US Aggregate Bond Index

Sharpe Ratio Sortino Ratio


Performance

Low correlation versus indices and peer group

39

Product

10-Year period ending December 31, 2013 Duration (yrs)

Correlation Standard deviation

Annualized net return (%)

Average duration (yrs) Latest High High date Low Low date

FPA New Income 1.00 0.96 3.03 1.17 1.63 1.96 06/2013 0.37 03/2009

Benchmark Indices

Barclays US Aggregate Bond Index 0.48 3.37 4.55 4.64 5.55 5.55 12/2013 3.71 12/2008

Barclays US Aggregate 1-3 Year 0.60 1.28 3.01 1.80 1.89 1.90 03/2010 1.66 07/2007

CPI+100 Index 0.00 1.24 3.40 NA NA NA NA NA NA

Peer Groups

Nontraditional Bond Funds -0.02 5.14 4.27 1.48 2.50 2.50 12/2013 0.81 05/2012

Short-Term Bond Funds 0.34 2.38 2.95 2.09 2.46 2.46 12/2013 1.80 09/2010

Intermediate-Term Bond Funds 0.37 3.98 4.33 4.59 4.84 5.11 06/2013 3.99 03/2009

Source: Morningstar Direct, BondEdge Peer group bond fund categories as defined by Morningstar Past performance is no guarantee of future results


Focus on risk and reward

Duration vs. return past 10 years

40

1/1/2004 - 12/31/2013 Past performance is no guarantee of future results. Source: MorningstarDirect , Barclays

FPA New Income

BarCap US Agg

Short-Term Peer Group

BarCap US Aggregate 1-3 Yr

BarCap US Agg Interm

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

0 1 2 3 4 5

10 Y

r Ann

ualiz

ed R

etur

n - N

et o

f Fee

s (%

)

10 Yr Average Effective Duration


Performance

FPA New Income: growth of $10,000 since inception

41

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

FPA New IncomeBarclays US Aggregate Bond Index

As of December 31, 2013. Inception date: July 1, 1984 Calculated using Morningstar Direct Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained by calling toll-free, 1-800-982-4372. The chart illustrates the performance of a hypothetical $10,000 investment made in the fund on commencement of operations. Figures include reinvestment of capital gains and dividends, but do not reflect the effect of any applicable sales charges or redemption fees, which would lower these figures. This chart is not intended to imply any future performance of the fund.


Question & Answer


Disclosure

43

These slides are intended as supplemental material to the 4th Quarter 2013 New Income audio presentation that is posted on our website fpafunds.com. We do want to make sure you understand that the views expressed on these slides and in the accompanying audio presentation are as of today, January 29th, 2014 and are subject to change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be construed as a recommendation to purchase or sell such securities, and any information provided is not a sufficient basis upon which to make an investment decision. The information provided does not constitute, and should not be construed as, an offer or solicitation with respect to any securities, products or services discussed.

Past performance is not a guarantee of future results. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Performance has been calculated on a total return basis, which combines principal and dividend income changes for the periods shown. Principal changes are based on the difference between the beginning and closing net asset values for the period and assume reinvestment of all dividends and distributions paid. All applicable expenses such as advisory fees have been included in calculating performance. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the security examples discussed. Current month-end performance data may be obtained by calling toll-free, 1-800-982-4372. You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's objective and policies, sales charges, and other matters of interest to the prospective investor. Please read this Prospectus carefully before investing. The Prospectus may be obtained by visiting the website at www.fpafunds.com, by email at [email protected], toll-free by calling 1-800-982-4372 or by contacting the Fund in writing.

Statistics have been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index that is generally considered to be representative of U.S. bond market activity. Unlike the Fund, the index does not incur fees or expenses. The 1-3 year and Intermediate versions of the Index are shorter duration versions of the index. The Short Term Peer Group is the Morningstar Short Term Bond Peer group. The Barclays Capital Government/Credit Index is considered a measure of bond performance and is included as a broad-based comparison to the Fund’s portfolio. The Barclays Capital Government/Credit Index is an unmanaged fixed income market value-weighted index that combines the Barclays Capital U.S. Government and Credit Indices, including U.S. government and agency securities. All issues are investment grade (Baa) or higher, with maturities of at least one year. You cannot invest directly in an index.

Investments in mutual funds carry risks and investors may lose principal value. Capital markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The Fund can purchase foreign securities, which are subject to interest rate, currency exchange rate, economic and political risks. The securities of smaller, less well-known companies can be more volatile than those of larger companies.

The return of principal in a bond fund is not guaranteed. Bond funds have the same issuer, interest rate, inflation and credit risks that are associated with underlying bonds owned by the fund. Lower rated bonds, convertible securities and other types of debt obligations involve greater risks than higher rated bonds. Mortgage securities and collateralized mortgage obligations (CMOs) are subject to prepayment risk and the risk of default on the underlying mortgages or other assets; derivatives may increase volatility.

It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the security examples discussed. Any statistics have been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed. The FPA Funds are distributed by UMB Distribution Services, LLC

First PacificAdvisors, LLC

http://www.fpafunds.com/

mailto:[email protected]

Glossary of terms

44

ABS (Asset Backed Securities): bonds or notes backed by financial assets. Barclays ABS Index is the ABS component of the U.S. Aggregate index. The index includes pass-through, bullet and controlled amortization structures. Barclays CMBS Index is the CMBS component of the Barclays U.S. Aggregate Index. Barclays MBS Index is an unmanaged index comprising 15- and 30-year fixed-rate securities backed by mortgage pools of Ginnie Mae, Freddie Mac and Fannie Mae. Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Barclays U.S. Corporate Investment Grade Index measures the market of USD-denominated, investment grade, fixed-rate, taxable corporate bonds. Bps (Basis Points): a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. BOC: Bank of Canada BOE: Bank of England BOJ: Bank of Japan CMBS (Commercial Mortgage Backed Security): a mortgage-backed security backed by commercial mortgages rather than residential mortgages. CMO (Collateralized Mortgage Obligation): a mortgage-backed, investment-grade bond that separates mortgage pools into different maturity classes. Correlation Coefficient: a measure that determines the degree to which two variable's movements are associated. Coupon: The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. CPI + 100 is a measure of the consumer price index (CPI) plus an additional 100 basis points. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. CPR (Constant Prepayment Rate): is equal to the proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. The calculation of this estimate is based on a number of factors such as historical prepayment rates for previous loans that are similar to ones in the pool and on future economic outlooks. CSRDF (Civil Service Retirement and Disability Fund): provides defined benefits to retired and disabled Federal employees covered by the Civil Service Retirement System. Covenant-Lite Loans: A type of loan whereby financing is given with limited restrictions on the debt-service capabilities of the borrower. The issuance of covenant-lite loans means that debt is being issued, both personally and commercially, to borrowers with less restrictions on collateral, payment terms, and level of income. DTI (Debt-to-Income ratio): a personal finance measure that compares an individual's debt payments to the income he or she generates. EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization ECB: European Central Bank Effective Duration: the duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. EPS: Earnings Per Share ESF (Exchange Stabilization Fund): money available to the U.S. Treasury Department primarily used for participating in the foreign-exchange market in an attempt to maintain currency stability. It holds U.S. dollars, foreign currencies and special drawing rights. FED: The Federal Reserve Bank FHLMC: Federal Home Loan Mortgage Corp FICO score: a credit score model in the U.S. It is calculated statistically with information from a consumer’s credit files. FNMA: Federal National Mortgage Association FOMC (Federal Open Market Committee) is a 12-member committee which sets credit and interest rate policies for the Federal Reserve System.


Glossary of terms

45

GDP (Gross Domestic Product): the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. G-Fund (Government Securities Investment Fund): assets are managed internally by the Federal Retirement Thrift Investment Board. The G Fund buys a nonmarketable U.S. Treasury security that is guaranteed by the U.S. Government. This means that the G Fund will not lose money. GNMA: Government National Mortgage Association LTV (Loan-to-Value) ratio: a financial term used by commercial lenders to express the ratio of a loan underwritten to a value of an asset purchased. LTM: last twelve months Maturity: The period of time for which a financial instrument remains outstanding. Mortgage Pass-Through: a security representing a direct interest in a pool of mortgage loans. MV (Market Value) Nominal Spread: the spread, expressed in percent or basis points, that when added to the yield at one point on the Treasury yield curve equals the discount factor that will make a security’s cash flows equal to its current market price. NPO: nonprofit organization PBOC: People’s Bank of China P&I: pertains to only those mortgage backed securities in the portfolio who’s underlying bonds pay both principal and interest. QE (Quantitative Easing): an unconventional monetary policy used by central banks to prevent the money supply falling when standard monetary policy has become ineffective RBA: Reserve Bank of Australia RBI: Reserve Bank of India RMBS (Residential Mortgage Backed Securities): mortgage-backed securities backed by residential mortgages. Seasoned Spread: spread on financial instrument that has been publicly traded in the secondary market long enough to eliminate any short-term effects from its initial public offering. Sharpe Ratio measures risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. Sortino Ratio differentiates between good and bad volatility in the Sharpe ratio. This differentiation of upwards and downwards volatility allows the calculation to provide a risk-adjusted measure of a security or fund's performance without penalizing it for upward price changes. Russell 3000 Index: a market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of the entire U.S. stock market. More specifically, this index encompasses the 3,000 largest U.S.-traded stocks, in which the underlying companies are all incorporated in the U.S. SNB: Swiss National Bank S&P 500 Index: An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Spread-to-Worst: the difference in overall returns between two different classes of securities, or returns from the same class, but different representative securities. SRB: Bank of Sweden Stripped Mortgage-Backed Securities: a trust comprised of mortgage-backed securities which are split into principal-only strips and interest-only strips. Weighted Average Life: the average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Yield-to-Worst: the lowest amount that an investor will make from a bond, computed by using the lower of the yield to maturity and the yield to call on every call date. YOY: Year-over-year


fpa new income, inc....the performance data quoted represents past performance and is not a...

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