FPA New Income, Inc.

Objective:

FPA New Income, Inc. (FPNIX) aims to generate a positive absolute return through a combination of income and capital appreciation. To achieve this goal, we employ a total return strategy using investments in fixed income securities that focus on income, appreciation and capital preservation. Market opportunity will dictate emphasis across these three areas.

Philosophy:

We do not like to lose money!

In order to do this we adhere to the following principles:

Absolute value investors. We seek genuine bargains rather than relatively attractive securities.

Absolute Return. We are absolute return investors and each investment must meet our strict fundamental research and macroeconomic criteria, not just offer opportunity relative to other alternatives.

Long-term Focus. Our investment time horizon is usually three to five years. We expect to hold our investments to maturity unless fundamental valuation parameters change. We are not speculators and adhere to a strict investment discipline.

Alignment of Interest. We invest alongside you as partners in our process. As managers we have significant amounts of our own capital invested in this strategy.

Strict Risk/Reward Parameters. We like to invest when there is a target rich environment. Risk of loss is a critical element in our thinking and thus, each investment must compensate for its unique risks, combined with a margin of safety.

Independent Decision Making. We do not follow the crowd. As we are independent in our decision making, we are often viewed as contrarian in our strategy and execution.

Flexible Mandate. We do not bind ourselves to any one benchmark or index. We believe this flexibility provides a competitive advantage over those who do not have this capability. This has been a critical element in achieving our goal.

For additional information, please reference the Absolute Fixed Income Policy Statement.


As of April 30, 2012

Comparative Performance

Fund/Index Month  
  YTD 1 Year 3 Years** 5 Years** 10 Years** 15 Years** 20 Years** Since Inception**
FPA New Income (NAV)   0.19%   0.66%    1.69%   2.59% 3.50% 3.60% 5.07% 5.96% 8.16%
FPA New Income (with load^)  -3.32%  -2.87%   -1.87%   1.38% 2.76% 3.24% 4.82% 5.77% 8.02%
Barclays Capital Govt/Credit   1.35%   1.43%    8.56%  
  7.50% 6.42% 5.85% 6.42% 6.69% 8.36%
Barclays Agg 1-3 Yrs   0.21%   0.64%    1.63%   2.72% 3.88% 3.62% 4.63% N/A N/A
CPI+100   0.00%   0.00%    0.00%   0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
^Sales charges vary depending in levels of investment. See prospectus.
** Annualized

After Tax Returns Historical Performance

Portfolio Structure *

CASH PLUS LIQUIDITY:
6.9%
TOTAL NET ASSETS:
$4.7 Billion
TOTAL SECURITIES IN PORTFOLIO
345


AVERAGE QUALITY*:
AA+
AVERAGE LIFE:
2.69 Years
EFF. DURATION
1.50 Years


Ratings Allocation*


Top Holdings*

FMNA POOL # MA0629 3.5%^ 01/01/21   1.8%   GNMA 2006-67 CL B 4.858% 01/16/34
   1.3%
FNMA POOL #MA1019 3.5% 03/01/22
   1.4%   FNMA 2012-26 CL ME 3.5% 03/25/42   1.3%
FNMA POOL #MA0989 3.5% 02/01/22
   1.3%        
 
Excludes U.S. Treasuries
Top Holdings represent 7.1% of Total Net Assets

Portfolio Holdings

* As of March 31, 2012. Past performance is not indicative of future performance. The returns shown for the Fund are calculated at both net asset value (NAV) and reflecting the deduction of the maximum sales charge of 3.50% (with load). The Barclay Government Credit Index is a broad-based unmanaged index of all government and corporate bonds that are investment grade with at least one year to maturity. The Barclay Government Credit Index does not reflect any commissions or fees which would be incurred by an investor purchasing the securities it represents. The performance of the Fund and of the Averages is computed on a total return basis which includes reinvestment of all distributions. The lowest credit quality rating available from the three major rating agencies is used when calculating the weighted-average credit quality of the portfolio.  Other sources may report different average credit quality information because they may not necessarily use the lowest quality rating for a given security and they may use a different formula to calculate the average rating.  For example, Morningstar’s Fixed-Income Survey Guidelines use the Barclays Capital Global Family of Indices ratings rules.  These rules use the lowest rating for bonds with only two ratings and the middle rating is used for bonds with more than two ratings. In addition, the calculation of the average for the portfolio may place different weightings on securities rated differently.

 


As of April 30, 2012
 
(NAV) 1 Year 5 Years 10 Years
Before Tax 1.69% 3.50% 3.60%
After Tax on Distribution* 1.00% 2.22% 2.15%
 
After Tax on Distribution and Sale of Fund Shares* 1.32% 2.29% 2.24%
 
(With Load) 1 Year 5 Years 10 Years
Before Tax -1.87% 2.76% 3.24%
After Tax on Distribution* -3.17% 1.36% 1.72%
 
After Tax on Distribution and Sale of Fund Shares* -2.34% 1.54% 1.86%

*After -tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes.  Actual after-tax returns depend upon an investor's tax situation and may differ from those shown.  After-tax returns presented here are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs.

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. The maximum sales charge of 3.50% and all applicable expenses such as advisory fees have been included in calculating the after tax (with load) performance. Total return calculations are based on a $10,000 investment. 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. 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.