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2nd Quarter 2010

FPA CRESCENT FUND


LETTER TO SHAREHOLDERS

Dear Shareholders:

Overview
The market’s (S&P 500) momentum continued into late April, but then dramatically reversed, declining
11.4% for the second quarter. Crescent captured 52% of the market’s slide, declining 5.9% in the period. This is
in line with the Fund’s historic 55% downside participation. Crescent declined 1.9% for the six-month period,
versus the S&P 500’s 6.7% drop. More detailed returns of both the Fund and comparative indices can be found
at the end of this commentary.
With low interest rates offering anemic returns for the income-minded investor, the Fed presents us with
little option but to embrace risk assets. We have been offered the choice of something uncertain (more so than
normal) or practically nothing at all, neither of which strikes us as particularly appealing. We try to understand
the potential loss of each investment and avoid reaching, preferring to “let it come to us.”
Economy
Though it hasn’t matched the Super Ball bounce experienced by the market, the economy has had a good
rebound, stoked by the benefits of inventory restocking, tax credits and refunds, and other sundry and impermanent
stimuli. Many people seem to be intaxicated by the euphoria of getting a tax refund, but the condition lasts only
until they realize it was their money to start with.
The economic recovery is fragile at best. Ephemeral actions have only put the future on hold. We picture
a heavy box with a big red fragile sticker barely held aloft by Messrs. Bernanke and Geithner. As the initial effects
of the stimulus fade, U.S. real GDP growth has slowed from 5.6% in Q4 2009 to 2.7% in Q1 2010. This should
not be a surprise given the sharp Q4 recovery, but the economy has slowed more than consensus projections,
begging the question: Is it real or fleeting? With the past as a guide, one would have expected better. We are not
alone in this concern. Recent FOMC minutes reflect that central bank officials expect growth to be slower this
year than had been expected, with deflationary pressures still one of their concerns (and ours as well).1
With much talk of inflation in the future, the near-term trend reflects price weakness rather than strength.
According to David Rosenberg at Gluskin Sheff, the core rate of inflation (excluding food and energy) is 0.9%
(just 20 bps greater than the all-time low of 0.7% seen in March 1961), with certain categories — such as
housing and apparel — continuing to decline. We see a deflationary path to inflation, where the solution becomes
the problem. We still see inflation as inevitable, especially since it appears the knee-jerk is the only skill required
to operate the Mint’s printing press. In fact, we think the Fed is using today’s moderate inflation to continue to
justify easy money. One of my colleagues, Mark Landecker, recently played Monopoly with his two young
daughters (probably introducing them to the real world by zealously collecting their rent). The rules of this 1935
board game, he discovered, seemed eerily prescient given the actions of Mr. Bernanke and the other governors

1
Federal Open Market Committee (FOMC). 53424
1
at the U.S. Federal Reserve. The Monopoly instructions state, “The Bank can never ‘go broke’. If the Bank runs
out of money, the Banker may issue as much as needed by writing on ordinary paper.”

As Mark points out, we suspect “Helicopter” Ben Bernanke played a lot of Monopoly as a child. However,
what young Ben failed to grasp was that the Monopoly approach to banking — while risk-free within the confines
of the board game — has potentially damaging repercussions in the real world. In this case, the unprecedented
monetary expansion and profligate federal spending reflected in the graphs below2 is bound to trigger higher
inflation and then lead to higher interest rates. However, as we’ve discussed in the past, perennially large deficits
and an already elephantine national debt should drive interest rates higher on their own.

We can see the fear of sovereign debt default when comparing the 10-year swap rate to the U.S. Treasury 10-
year note yield. The swap rate exceeded the government rate this spring, reflecting that some banks were viewed as a
2
CPI: Bureau of Labor Statistics (http://www.bls.gov/home.htm); Monetary Base: Federal Reserve
(http://www.federalreserve.gov/default.htm); Federal Spending: National Income & Product Accounts from Bureau
of Economic Analysis (http://www.bea.gov/).
2
better counterparty than the U.S. government; although positive today, the spread has settled near all-time lows. It is
probable that one or more of the OECD countries will ultimately default on its debt, either directly or via inflation. There
have been periods of rolling economic spasms, leaving bankruptcies of major countries in its wake. In the accompanying
table from professors Reinhart and Rogoff’s recent book of financial folly, you can see that country defaults have been
far more prevalent than most realize, since the world seemed a safe place to invest until a couple of years ago. PIIGS
(Portugal, Italy, Ireland, Greece, and Spain) now dominate headlines, but sovereign default is not a new fear. Take Greece
as an example. The country of Zeus has effectively been bankrupt 50.6% of the time since its 1829 independence.3 Our
own country is ballooning with debt, but the public seems reluctant to look beyond the nation’s thin reflection in the
fun-house mirror. We don’t realize we’re bloated and it will seemingly take a heart attack to get us on a diet. But if that’s
what it takes, so be it. We cast our vote for a crisis that will hopefully yield positive change.

3
Carmen M. Reinhart and Kenneth Rogoff. This Time is Different: Eight Centuries of Financial Folly, (Princeton University
Press, 2009).
3
As a result, your portfolio remains conservatively postured — more on that later — as we watch the
economy try to clear a raft of hurdles, including:
• The eventual end of stimulus funds.
• As many people are no longer able to live rent-free in bank-owned homes and have to once again pay for
shelter, we expect a trickle-down effect of reined-in consumer spending.
• Higher taxes.
• A housing recovery that remains in the distant future, leaving mortgage holders with negligible equity
in their homes.
• A difficult job market, characterized by persistent unemployment and underemployment and a growing-
but-invisible segment of ‘disenfranchised’ workers who aren’t counted because they have given up job
hunting. Meanwhile, job growth is decelerating.
• The end of unemployment insurance benefits for many out-of-work Americans. Average weeks
unemployed have now reached 35.2, exceeding the post WW II high of 21.2 weeks in 1983.4
• Continued consumer deleveraging.
• Little to no lending from banks, coupled with anemic borrowing from customers (either due to lack of
desire or lack of qualification).
• High debt loads weighing down state and local governments.
State and Local Government Challenges
We feel we should expand on the last point of municipal challenges. In many cases, these high debt loads —
when combined with continued deficits and off-balance-sheet liabilities (e.g., underfunded pensions, depleted
unemployment trusts) — will force austerity measures. Citizens will see reduced services and, in some cases,
government bankruptcy, negatively impacting quality of life.
• Thirty-two states have borrowed a total of $37.8 billion from the U.S. Treasury to make unemployment
payments (as of May).5 California sought $6.9 billion, or 18% of the total.
• Declining tax revenues and unbridled spending have caused $300 billion in budget deficits for 2009 —
2012, according to figures from the National Association of State Budget Officers.6 “The Center on
Budget Policy Priorities, a liberal think tank, estimates that this coming year alone, states will face an
aggregate shortfall of $180 billion. In some states the budget gap is more than 30%.”7
• A recent Pew study of state pension plans found a $1 trillion hole. We believe that when a more appropriate
(i.e., lower) discount rate is applied to plan liabilities the underfunding will grow to at least $2 trillion. This
is partly due to market losses since June 2008. Accounting rules let the states off the hook. States can
amortize pension liabilities over 30 years, while corporations are required to book pension expenses to
bring them into compliance over 10 years. In addition, states can smooth their market losses by recognizing
them over 5 years, but corporations must reflect their pension assets at market. Illinois wins the
underfunding award, having just “40 percent of the funds needed to cover promised benefits.” 8,9
4
Bureau of Labor Statistics.
5
Wenzel, Robert. www.economicpolicyjournal.com, May 21, 2010.
6
Garrahan, Matthew. “U.S. State Budget Deficit Crises Threaten Social Fabric,” Financial Times, June 27, 2010.
7
Zuckerman, Mortimer. “The Bankrupting of America.” Wall Street Journal, May 21, 2010.
8
McNichol, Dunstan. “States Shrink ‘Unaffordable’ Benefits to Bridge $1 Trillion Gap.” Bloomberg, June 4, 2010.
9
The Pew Center on the States, “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform,”
February 2010.
4
This largely ignored issue needs to be addressed immediately, but doing so will likely compel the U.S.
government to rescue the states. It would be hard to justify saving General Motors but not California. A sense of
entitlement and unrealistic union expectations will make this a hard nut to crack. We wonder if the hard-working
firemen of Chicago understand that their pension fund will likely run dry in the next 10 years. These are good,
diligent people, promised benefits that seem unlikely to be delivered. We expect headlines about such crises. How
can that not rip our nation’s social fabric? There will be no schadenfreude as certain municipal obligations
ultimately go unmet.
Investments
We must admit that we find ourselves in the middle of a whole lot of “I don’t know” out there. In other
words, we lack conviction. As a result of this disconnect between expectations and the prospective reality, we find
ourselves continuing to seek to conserve capital, as we await the next opportunity to commit that capital to
attractive investments. This does not mean we are disinvested. Our gross equity exposure has crept up to 49.4%,
albeit at the expense of our corporate bond exposure, which has declined from the mid-30% range to just 18.2%.10
The limitations we see on GDP growth (mentioned above), make it less than likely that the optimistic top-
down earnings estimates for the S&P 500 Index will be met. We don’t feel we are going out too far on a limb with
that statement, given that earnings
estimates generally decline during the
course of the year. As the chart to the
right depicts, in all but two of the last 24
years, actual earnings ended the year
lower than analysts had forecasted. Since
1985, 5-year rolling average forecasted
earnings growth for S&P 500 companies
was 13%, but actual earnings growth was
just 7% — a 6% differential. Said
another way, analysts were, on average,
overoptimistic and off on their
expectations by 46%. There were only
two brief periods (in the mid-90s and
mid-00s) when actual results exceeded
forecasts and that delta was negligible.
Could they have something to sell?
Investors need to understand their own individual risk tolerance, as much psychological as practical, and
not that of a theoretical model prescribed by age bracket or wealth. Although we internally view risk as the
potential permanent loss of capital, we recognize that our investors may feel differently, letting volatility drive the
investment decision. Volatility creates extreme price movements, during which an investor can either buy or sell.
Most investors, consultants, and advisors have greater apprehension with regard to the volatility associated with
downward price movements. Upside “vol” is more appreciated — except by the short sellers. We believe our
investors must have a self-awareness of how they will react to price volatility. We are not oblivious, however, to
the institutional imperative, that is, that most individual and institutional investors find themselves in the awkward
position of defending themselves to their clients, employers, spouses, or even themselves for holding a stock that
keeps declining, or for owning any common stocks in a declining market.

10
Exposures as of July 26, 2010.

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We believe that by having a mandate that allows us to move across asset classes, market caps, and sectors,
and to hold cash when others cannot or will not, our investor base is better positioned to avoid the discomfort that
might lead to an inopportune sell decision. Crescent has had more than one third less volatility and about half the
downside of the stock market as a result of the Fund’s flexibility and execution of its mandate.11 That lower
downside volatility is not the goal, but the natural byproduct of our strategy. More important, regardless of the
environment, we consistently aim to distinguish ourselves by using volatility to our advantage, rather than
detriment. Instead of composing a portfolio designed to mimic the performance of some benchmark or index, we
utilize a deeply held contrarian philosophy oriented towards pushing back on a rising market by reducing exposure,
thus allowing cash to increase, while conversely leaning into a falling market and spending that cash by
opportunistically accumulating inexpensive securities.
We do not make the top-down decision to increase or decrease cash. Cash builds by default when
investments fail to meet our strict upside/downside parameters, that is, what we can make versus what we can lose.
We deploy that cash when those hurdles are met. This is easier said than done. Looking back over the Fund’s
existence, we have seen first-hand that rapidly increasing prices invite panicked buying, e.g., internet stocks of
the late 1990s. We missed the internet upward move, but our contrary nature allowed us to manage to a profit
through the subsequent market downturn. We also witnessed how price declines can sometimes incite panicked
selling, e.g., most asset classes in 2008 and early 2009. We took that latter period as an opportunity to get more
invested, particularly emphasizing distressed debt. From a business perspective, our willingness to stand separate
from the herd has, at times, led allocators to sing our accolades in a declining market, but to also criticize our
strong adherence to value investing in a rising one — a manic love/hate relationship that requires a thick skin.
Quite simply, volatility is acceptable (to us), but not practicable for most, a fact we embrace in our quest to
deliver long-term outperformance over a full business cycle.
Letting volatility dictate investment decisions has proven the bane of many a mutual fund (and stock)
investor. Morningstar points out that, “Even where the divergence between the investor return and the published
total return isn’t huge…the gap can be as large as a fund expense ratio. And in some cases, the gaps are stunning.
[Fund XYZ] is the starkest example of investors’ tendency to put a manager on a pedestal at the worst conceivable
time. Assets flowing into the fund peaked in 2007, following an 80% commodity-fueled return that year, just in
time for the fund to shed half its value in 2008.12 Not only have most investors not pocketed any of the fund’s 18%
gain during the past decade, but the typical investor in the fund has lost nearly 14% per year — a stunning 32-
percentage-point investor return/total return gap.”13 This fund had LIFO investors, Last-In First-Out, and they came
and went at precisely the wrong times.
During the first half of the year, our team has spent more time than usual on what we would loosely
define as large, well-known, high-quality companies. This is in contrast to much of the Fund’s history, during
which we have typically trolled in more obscure waters to find value. So as odd as it sounds for people who like
to call themselves contrarian, we are currently finding the best opportunities — on both a relative and absolute
basis — amongst “Blue Chip” stocks.

11
Using Standard Deviation as measure of volatility. Since inception, FPACX Standard Deviation has been 36.9% less than
the average of the Russell 2500 and S&P 500. Its downside participation has been 50.5% of the average of the Russell 2500
and S&P 500 since its inception.
12
Fund name omitted because it is not germane.
13
Benz, Christine. “The Error-Proof Portfolio: Beware the Star-Manager Trap: There may not be a Santa Claus, but don’t let
that wreck your returns.” Morningstar.com, Feb. 22, 2010.
6
In addition to offering appealing
valuations, these multi-national companies
provide us with greater exposure to
international markets that are growing
faster than many more domestically
oriented companies. We have moved into
the bigger-is-better camp for reasons
explained in this chart from the Leuthold
Group. Note that small-cap stocks found
their trough undervaluation (~40%) in 1998
and 1999, which explains why Crescent’s
weighted average and median market
capitalization were then at all-time lows. It
similarly explains why the market
capitalization metrics for the Fund have
moved near its highs today.
1999 2010
FPACX Median Market Capitalization $335mm $11,322mm
FPACX Weighted Average Market Capitalization $1,136mm $42,223mm
An excellent example of a large multi-national with better opportunities abroad would be Anheuser-Busch
Inbev NV (BUD), the world’s largest beer company, in which we established a position early in the quarter. In
addition to being the largest brewer in the United States, BUD also has a leading presence in many of the world’s
most important beer markets, including Brazil, Canada, and the United Kingdom. The company has fantastic cash
generative characteristics, world-class brands, a top management team, and the valuation at our purchase price
is, at worst, reasonable — and if all goes well, perhaps exceptional. We believe the same can be said for the other
“blue chip” stocks we currently hold, including Aon, Wal-Mart, and Johnson & Johnson, to name but a few. To
gain a better perspective of the type of executives we prefer to act as stewards for our invested capital, we suggest
you view BUD CEO Carlos Brito’s 2008 talk at Stanford University’s business school.14 Mr. Brito, who we had
the pleasure of meeting recently, expounds for almost an hour on the characteristics of a great business leader and
how to foster success among a company’s workforce. We assure you it’s worth the time.
Aon Corp.
As discussed in our year-end 2009 letter, we like Aon Corp. for its low valuation, world-class insurance
brokerage operation, and shareholder-friendly management. We would be remiss if we did not mention it again
today given their recently announced purchase (pending shareholder approval) of consulting firm Hewitt
Associates. If asked, we would have recommended against the deal; we’d prefer an aggressive share buyback
instead. A buyback would have further leveraged the company’s exposure to higher interest rates, greater inflation,
economic recovery, overseas markets and, at some point, a better underwriting environment (i.e., a “harder
market”).
The Aon/Hewitt transaction has been commonly referred to as a purchase. But since Aon will be issuing
25% of its own shares in the transaction, it would be more accurate to describe the transaction as Aon selling 25%
of its businesses to Hewitt shareholders. We believe the company sold its stock at an absurdly low price, and in

14
Carlos Brito’s Stanford University Graduate School of Business address, Feb. 14, 2008, http://www.youtube.com/user/
stanfordbusiness#p/search/0/dUoD6C31zJc.
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return, received a business that, while attractive, we do not believe is as good a business as Aon’s core brokerage
operations. We are therefore skeptical that the merger will prove to be the most optimal use of the company’s cash
and balance sheet.
However, we are not so arrogant as to believe our view infallible. Aon’s management has proven itself to
be skilled operators and able capital managers over the past five years. We find management to be intelligent,
thoughtful, and capable, and they know their businesses better than we do. Despite our preference for a buyback,
the deal was completed on financially attractive terms (less than 5x EBIT pro-forma for synergies and immediately
accretive to Aon’s cash earnings) — when ignoring the cost of issuing undervalued stock. After meeting with
management, we are convinced the deal is at least financially reasonable and may, if properly executed, add
value. It will not be easy, but Aon CEO Greg Case has historically under-promised and over-delivered, at least as
far as restructuring, integration, and cost savings are concerned. And he understands that he starts in the hole on
this deal (having issued undervalued stock). So for now, we continue to give management the benefit of the
doubt, but we look forward to the day when shareholder-friendly rhetoric is matched by concrete actions (the
repurchase of a substantial portion of the company’s outstanding shares).
Distressed Mortgage Trade
Over the past two quarters, we have substantially increased the Fund’s commitment to mortgage loans. The
Fund’s roughly 4% exposure (pro-forma for a transaction that has yet to close) is in the form of five separate pools
of mortgages, each purchased at a 40-60% to par and a 30-40% discount to a current independent third-party
appraisal of the collateral supporting the loans. Though the pools are immature and we cannot be certain how they
will ultimately perform, let us share the early performance on the first pool we purchased (November 2009) with
you. Including interest, this pool has now returned more than 30% of our initial capital invested. Looking just at
the properties unwound, they have generated a total return of more than 24%. In addition, we are earning a better
than 8% current yield on our remaining basis in the portfolio. The early results are better than we would have
expected, but it is too soon to declare victory. The difficult tail end of the portfolio (damaged properties, unwanted
homes, and repair jobs) remains to be worked out. We will keep you apprised over the next two years as these
investments season and mature.
Energy Services
We work hard to understand risks that might impact your Fund’s investments. Once understood, we try to
handicap them — a task that’s more art than science. We sometimes do not handicap the risks correctly and, more
rarely, miss the risk entirely. In the case of our investment in oil service companies, we understood that
occasionally a rig would blow up and might have to be scrapped. Were that to occur, the earning power of the
company would be reduced by the loss of that rig, but the rig would be insured and the company would receive
those dollars to put toward either buying or building another rig. What we did not expect was that, while we could
fly a man to the moon, British Petroleum couldn’t cap a well 5,000 feet under water (in any kind of reasonable
time frame) and that oil would spew continuously into the Gulf of Mexico (GOM) after Transocean’s Deepwater
Horizon rig exploded this past May.
We also did not anticipate that the government would place a temporary ban on deepwater drilling in the
Gulf. We found the ban to be a rash response to a discrete incident. Were an Airbus A320 to crash en route from
Los Angeles to New York, we doubt that the entire fleet of airplanes (other Airbuses, Boeings, and private jets)
on that route would be grounded. The government’s action, however, was to do just that. No distinction was made
between shallow and deep water. There were no allowances for differences in the type of equipment, redundancies,
and procedures on these rigs. It was illogically indiscriminate. All of these stocks declined in the quarter, including
Ensco International, the Fund’s largest position. We believe that both shallow and deepwater drilling will resume
in the GOM, since permanently removing this critical oil production capacity would cause a supply/demand
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imbalance that would trigger a spike in oil prices. How quickly GOM drilling resumes will depend on capping
the well, assessing the damage, the price of oil, politics and more.
With conviction in the ultimate return of drilling in the GOM, however, we have increased our exposure
to the drillers. These companies trade at deep discounts to their replacement value and single-digit P/Es on
normalized earnings. We currently hold a 6.0% position in the drillers, up from 4.8% at the end of March 2010.
Our economic interest in these companies has grown by even more, given the lower average stock prices. Not only
has our position size been increased, but we now own far more of these companies given the share price decline.
For a deeper discussion of the sector and Ensco in particular, please refer to our past letters.
High? Yield Bonds
The average price of a corporate bond we held on March 31, 2009 was $69, had a 9.6% cash yield, and a
22.8% yield-to-maturity. Given such attractive yield characteristics and what we believed to be excellent asset
coverage metrics, the Fund had 28.6% in corporate bonds on its way to becoming an even larger position in the
subsequent quarter. As corporate bond prices have risen and credit spreads have narrowed, our desire to own the
debt of lower-credit-quality companies has commensurately declined, resulting in our corporate bond exposure
having declined to 19.4% in the most recent quarter-end. The average price of a corporate bond in the Fund is now
$99, and has a 7.0% cash yield and a mediocre 8.0% yield-to-maturity. As a result, we are seeking greener
pastures elsewhere and the Fund’s exposure to higher-yielding corporate debt continues to decline (now 18.2%15
as of this writing).
Closing
We continue to expand our team and are currently in the final stages of interviewing for two analyst
positions. One position is an addition and one is to replace Jason Bidwell, who returned to his hometown of Boston
this past quarter. We thank him for his terrific efforts during his tenure at FPA and wish him well. We continue
to build our team and tighten our research process, including the use of third parties to provide us with the
information and insight we need to make sound long-term investments.
We watched a number of World Cup soccer matches recently and, not having grown up with the game,
became fascinated by the sparse scoring opportunities. The game requires patience and discipline to defensively
keep the ball out of your box, while waiting for an opening to exploit on the offensive end of the pitch. The
Spain/Netherlands final brought some of us together (some to watch and others to nap), and served to instruct us
as we ruminated as to the similarities between the Spaniards and Crescent. Spain, during the tournament and along
the way to becoming champions with the fewest cumulative goals, scored (8), kept their mistakes to a minimum
and, similar to the way we aim to manage Crescent, focused on the quality of their shots rather than the quantity.
Respectfully submitted,

Steven Romick
President
July 26, 2010

15
July 26, 2010.

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The discussion of Fund investments represents the views of the Fund’s managers at the time of this report and are
subject to change without notice. References to individual securities are for informational purposes only and
should not be construed as recommendations to purchase or sell individual securities. While the Fund’s managers
believe that the Fund’s holdings are value stocks, there can be no assurance that others will consider them as such.
Further, investing in value stocks presents the risk that value stocks may fall out of favor with investors and
underperform growth stocks during given periods.

FORWARD LOOKING STATEMENT DISCLOSURE


As mutual fund managers, one of our responsibilities is to communicate with shareholders in an open and direct
manner. Insofar as some of our opinions and comments in our letters to shareholders are based on current
management expectations, they are considered “forward-looking statements” which may or may not be accurate
over the long term. While we believe we have a reasonable basis for our comments and we have confidence in
our opinions, actual results may differ materially from those we anticipate. You can identify forward-looking
statements by words such as “believe,” “expect,” “may,” “anticipate,” and other similar expressions when
discussing prospects for particular portfolio holdings and/or the markets, generally. We cannot, however, assure
future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result
of new information, future events, or otherwise. Further, information provided in this report should not be
construed as a recommendation to purchase or sell any particular security.

10
PORTFOLIO CHARACTERISTICS AND PERFORMANCE
June 30, 2010

Portfolio Characteristics as of June 30, 2010


FPA Crescent Russell 2500 S&P 500 Barclays Capital
Gov’t/Credit
Stocks
Price/Earnings TTM 12.5x 24.6x 16.2x
Price/Earnings 2010 est. 11.4x 19.4x 14.3x
Price/Book 1.3x 1.7x 1.9x
Dividend Yield 2.1% 1.5% 2.2%
Average Weighted Market Cap (billion) $42.2 $2.0 $75.2
Median Market Cap (billion) $11.3 $0.6 $8.9
Bonds
Duration (years) 1.4 5.4
Maturity (years) 1.7 7.6
Yield-to-Worst 4.0% 2.6%
Yield-to-Worst (corporate only) 8.0%

Portfolio Analysis as of June 30, 2010


10 Largest Holdings Portfolio Composition
Ensco plc 4.4% Asset Class
CIT Group Bonds* 3.4% Common Stocks, Long 45.3%
Covidien 3.2% Other, Long 1.0%
AON 3.0% Common Stocks, Short -4.9%
Occidental Petroleum 2.8% Corporate Fixed Income 19.5%
Stanwich Mortgage Loan Trust* 2.5% Mortgages 2.6%
Wal-Mart Stores 2.1% Net Liquidity (Cash Ex-Short Rebate) 26.7%
American General Finance Bonds* 2.1%
Vodafone Group plc 1.9% Geographic
PetSmart 1.9% U.S. 48.5%
Total 27.3% Europe 17.6%
* Various issues Other 1.8%
Excludes U.S. Gov’t Securities

Performance Statistics as of June 30, 2010


FPA Crescent 60% R2500/ Russell 2500 S&P 500
40% BCGC
Statistics
Gain in Up Months - Cumulative 343.4% 340.9% 523.2% 429.5%
Upside Participation 100.7% 65.6% 80.0%
Loss in Down Months - Cumulative -160.0% -193.9% -345.0% -293.1%
Downside Participation 82.5% 46.4% 54.6%
Up Month - Average 2.6% 2.5% 4.1% 3.3%
Down Month - Average -2.3% -2.7% -4.5% -3.9%
Delta between Up/Down months 4.9% 5.2% 8.6% 7.2%
Worst Month -13.9% -13.9% -21.5% -16.8%
Best Month 12.6% 9.3% 15.4% 9.8%
Standard Deviation 10.71 11.22 18.57 15.37
Sharpe Ratio (using 5% risk-free rate) 0.53 0.29 0.20 0.13
Performance
Quarter -5.9% -4.5% -10.0% -11.4%
Calendar YTD -1.9% 1.5% -1.7% -6.7%
1 Year - Trailing 12.3% 18.7% 24.0% 14.4%
3 Years - Trailing -0.3% -1.3% -8.0% -9.8%
5 Years - Trailing 5.0% 3.3% 1.0% -0.8%
10 Years - Trailing 11.0% 5.6% 4.2% -1.6%
15 Years - Trailing 10.3% 8.0% 8.3% 6.2%
From Inceptiona 10.6% 8.3% 8.8% 7.0%

11
PORTFOLIO CHARACTERISTICS AND PERFORMANCE
June 30, 2010

HISTORICAL PERFORMANCE
Calendar FPA Crescent 60% R2500/ Russell 2500 S&P 500
Year-End 40% BCGC
2009 28.4% 22.5% 34.4% 26.5%
2008 -20.6% -21.4% -36.8% -37.0%
2007 6.8% 3.9% 1.4% 5.5%
2006 12.4% 11.2% 16.2% 15.8%
2005 10.8% 6.0% 8.1% 4.9%
2004 10.2% 12.7% 18.3% 10.9%
2003 26.2% 28.1% 45.5% 28.7%
2002 3.7% -6.6% -17.8% -22.1%
2001 36.1% 4.8% 1.2% -11.9%
2000 3.6% 7.9% 4.3% -9.1%
1999 -6.3% 13.3% 24.2% 21.0%
1998 2.8% 4.9% 0.4% 28.6%
1997 22.0% 18.5% 24.4% 33.4%
1996 22.9% 12.6% 19.0% 23.0%
1995 26.0% 26.7% 31.7% 37.6%
1994 4.3% -2.0% -1.1% 1.3%
1993a 9.6% 8.2% 10.1% 5.3%

Objective, Strategy and Rankings


Objective
The Fund’s investment objective is to provide a total return consistent with reasonable investment risk through a combination of income and capital
appreciation. We employ a strategy of selectively investing across a company’s capital structure (i.e., a combination of equity and debt securities)
that we believe have the potential to increase in market value, in order to achieve rates of return with less risk than the broad U.S. equity indices.
Strategy
To invest across a company’s capital structure to meet our objective. This includes investing in Common and Preferred Stocks, Convertible
Bonds, High-Yield Bonds, and Bank Debt. There is an occasional use of Government Bonds.
Downside Protection
FPA Crescent’s ratio of positive to negative monthly performance is, on average from inception,a 11% better than the equity indexes. FPA Crescent has,
on average from inception, captured 73% of the upside monthly performance but just 50% of the downside when compared to the equity indexes.
Volatility
FPA Crescent has exhibited much less volatility as measured by its Standard Deviation from inception.a On average, the Fund’s Standard
Deviation is 37% lower than the equity indexes. FPA Crescent has a much lower delta in its average monthly performance, i.e., the difference
between the average positive and negative month when compared to the equity indexes.
FPA Crescent has had only two years of negative performance since inception,a the worst a loss of 21%. FPA Crescent’s maximum drawdown is
37% better than its benchmarks.
Crescent 60% R2500/40% BCGC R2500 S&P 500
Number loss years since inceptiona 2 3 3 4
Maximum Drawdownb -29% -33% -53% -51%
Performance
FPA Crescent has beaten the stock indexes for the inception-to-date time period.a
Conclusion
FPA Crescent has met its objective since inception, having achieved higher absolute rates of return than the indexes and a dramatically higher
Sharpe Ratio.a

NOTES
a Inception date is June 2, 1993. Returns from inception are annualized. The annualized performance of the Russell 2500 and Barclays Capital
Government/Credit Indexes begins 6/1/93.
b Maximum Drawdown is the largest percentage peak to trough decline in value that has occurred since inception.
Past performance is not necessarily indicative of future results. All returns assume the reinvestment of dividends and distributions. There are no
assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change because it is actively
managed and should not be considered recommendations to buy individual securities. Distributed by FPA Fund Distributors, Inc., a subsidiary
of First Pacific Advisors, LLC.
Balanced Benchmark is a hypothetical combination of unmanaged indices comprised of 60% Russell 2500 Index and 40% Barclays Capital
Government/Credit Index, reflecting the Fund’s neutral mix of 60% stocks and 40% bonds.
Russell 2500 Index is an unmanaged index comprised of 2,500 stocks of U.S. companies with small market capitalizations.
Barclays Capital Government/Credit Index is an unmanaged index of investment grade bonds, including U.S. Government Treasury bonds,
corporate bonds, and yankee bonds.
S&P 500 Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The index focuses on the
large-cap segment of the market, with over 80% coverage of U.S. equities, but is also considered a proxy for the total market.

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