First Pacific Advisors believes that successful fixed-income investing derives from a disciplined selection of individual securities rather than from elaborate predictions of the future course of interest rates or inflation. FPA's intermediate bond investment style is applied by Robert Rodriguez and Thomas Atteberry. Analytical support is provided by Steven R. Geist, Julian W.H. Mann, and Steven Romick. In addition to managing FPA New Income, an open-end fixed income mutual fund, the team manages separate institutional accounts in this style.

First Pacific Advisors' methodology entails the prudent maximization of total return through a cautious, low-risk emphasis on short to intermediate maturities and very high quality. The portfolio managers may deviate from this posture only in response to specific market opportunities that provide returns well in excess of any additional risk taken. They seek to benefit from market inefficiencies that are periodically created during periods of economic or financial uncertainty and which provide opportunities when the market does not properly evaluate individual securities.

The investment strategy is based on a determination of the attractiveness of specific issues, sectors, or the bond market in general, through analysis of the level and characteristics of the yield curve in relation to the core inflation level. Duration is generally held in a conservative 2- to 5-year band, due to our focus on preservation of capital. Other risk control tactics are applied: To diversify individual security exposure, the portfolio holds 40 to 80 securities. In addition, management may gradually purchase or sell a position to minimize the potential negative impact of any one transaction. Average quality is in the AA range.

A limited portion, up to 25%, of the fixed-income portfolio may be invested in less than investment-grade debt instruments. Careful attention is given to levels of credit and interest rate risk. Investments in such areas may be used to reduce portfolio volatility and enhance total return.

Security selection focuses on solid, fundamental financial analysis when it relates to credit issues, and multiple prepayment scenarios in relation to mortgage securities. In both cases, stress tests are performed to uncover and quantify possible negative return outcomes of a security. Securities are purchased when the downside risks are limited.