fpa crescent fund - valuewalk · which benefited crescent given the fund’s 23% exposure to...

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 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 calling toll-free, 1-

800-982-4372, or by contacting the Fund in writing.

Average Annual Total Returns

As of September 30, 2016

Fund/Index QTR YTD 1 Year 3 Years 5 Years 10 Years 20 Years Since

Inception*

FPA Crescent 5.29 % 5.50 % 8.45 % 5.46 % 10.02 % 6.92 % 9.30 % 10.29 %

S&P 500 3.85 % 7.84 % 15.43 % 11.16 % 16.37 % 7.24 % 7.91 % 9.06 %

MSCI ACWI 5.30 % 6.60 % 11.96 % 5.17 % 10.63 % - - -

CPI 0.46 % 1.24 % 1.48 % 1.04 % 1.24 % 1.74 % 2.14 % NA

60% S&P500/40% BC Agg 2.49 % 7.13 % 11.43 % 8.41 % 11.05 % 6.56 % 7.31 % 7.97 %

Periods greater than one year are annualized. Performance is calculated on a total return basis which

includes reinvestment of all distributions.

* The Fund commenced operations on June 2, 1993. The performance shown for periods prior to March

1, 1996 reflects the historical performance of a predecessor fund, FPA assumed control of the

predecessor fund on March 1, 1996. FPA Crescent Fund’s objectives, policies, guidelines, and

restrictions are, in all material respects, equivalent to those of the predecessor fund.

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. The Fund’s expense ratio as of its

most recent prospectus is 1.11%. A redemption fee of 2% will be imposed on redemptions within

90 days. Current month-end performance data may be obtained at www.fpafunds.com or by calling

toll-free, 1-800-982-4372.

Please see important disclosures at the end of the commentary.

FPA Crescent Fund

Third Quarter 2016 Commentary

http://www.fpafunds.com/


Dear Shareholders:

The FPA Crescent Fund (“the Fund”) returned 5.29% in the third quarter and 5.50% year to date. This compares to 3.85% and 7.84%, respectively, for the S&P 500 and 5.30% and 6.60%, respectively, for the MSCI ACWI index.

The third quarter saw a rebound in the financial sector and an ongoing rally in high-yield bonds, both of which benefited Crescent given the Fund’s 23% exposure to financials and 6% exposure to high- yield/distressed debt. All of the winners fell into these two categories and added 1.87% to the Fund’s quarterly return. The losers detracted -0.60% and lacked any specific theme.

1

Winners Losers

Navistar bonds (various issues) Naspers/Tencent Pair Trade

American International Group Oracle

Bank of America Nexeo

Citigroup General Electric

CIT Group Alleghany

We write more substantial letters at midyear and year end as our long-term shareholders are aware. The world generally doesn’t change enough to justify taking pen to paper more frequently.

Crescent has outperformed its exposure in 2016 and remains conservatively postured with a net risk exposure of 64.5%. This is one of those times when we feel we’re better off just doing nothing instead of putting new investments in the Fund. The lack of any action within the portfolio at first glance belies our relentless research effort, however. We’re like ducks who gracefully glide across a pond but whose webbed feet are paddling furiously, unseen below the water’s surface. We continue to visit companies, meet with managements, consultants and anyone else who might educate us as to what makes a particular business and/or industry tick. In this period of higher prices, we take our completed work and put it on the shelf while patiently awaiting a day when prices offer more attractive opportunities to invest our capital.

Tom Petty will close this letter for us: “The waiting is the hardest part. Every day you see one more card.

You take it on faith, you take it to the heart. The waiting is the hardest part.”2

Respectfully submitted,

Steven Romick

Portfolio Manager

October 9, 2016

1 Reflects the top contributors and top detractors to the Fund’s performance based on contribution to return for the

quarter. Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. 2 “The Waiting,” Tom Petty & The Heartbreakers.

FPA Crescent FundThird Quarter 2016 Commentary

1

TICKER

SHARES /

PRINCIPAL SECURITY MKT PRICE ($) MKT VALUE ($)

COUPON

RATE (%)

MATURITY

DATE

% OF NET

ASSET VALUE

AA 45,685,720 ALCOA INC. 10.14 463,253,200.80 2.84%

Y 153,351 ALLEGHANY CORPORATION 525.02 80,512,342.02 0.49%

ALLY 9,942,850 ALLY FINANCIAL 19.47 193,587,289.50 1.19%

GOOG 220,881 ALPHABET INC - C 777.29 171,688,592.49 1.05%

GOOGL 220,277 ALPHABET INC - A 804.06 177,115,924.62 1.09%

AXP 4,595,780 AMERICAN EXPRESS COMPANY 64.04 294,313,751.20 1.80%

AIG 8,602,040 AMERICAN INTERNATIONAL GROUP, INC. 59.34 510,445,053.60 3.13%

ADI 3,731,890 ANALOG DEVICES, INC. 64.45 240,520,310.50 1.47%

AON 4,164,700 AON PLC* 112.49 468,487,103.00 2.87%

BIDU 714,862 BAIDU INC. - ADR* 182.07 130,154,924.34 0.80%

BAC 24,829,840 BANK OF AMERICA CORPORATION 15.65 388,586,996.00 2.38%

CSCO 12,934,880 CISCO SYSTEMS 31.72 410,294,393.60 2.51%

CIT 12,004,408 CIT GROUP 36.30 435,760,010.40 2.67%

C 10,335,030 CITIGROUP 47.23 488,123,466.90 2.99%

ESL 2,863,871 ESTERLINE TECHNOLOGIES CORPORATION 76.04 217,768,750.84 1.33%

OGZD LI 12,690,400 GAZPROM OAO - ADR* 4.22 53,493,576.62 0.33%

GE 7,411,750 GENERAL ELECTRIC CO 29.62 219,536,035.00 1.35%

GBLB BB 2,851,023 GROUPE BRUXELLES LAMBERT S.A.* 88.76 253,064,791.57 1.55%

HAL 2,926,070 HALLIBURTON COMPANY 44.88 131,322,021.60 0.80%

JS SP 2,674,240 JARDINE STRATEGIC HOLDINGS LIMITED* 32.78 87,659,969.28 0.54%

LM 3,669,319 LEGG MASON, INC. 33.48 122,848,800.12 0.75%

LNTR LI 8,153,870 LENTA LTD 144A* 8.10 66,046,347.00 0.40%

LUK 17,836,443 LEUCADIA NATIONAL CORPORATION 19.04 339,605,874.72 2.08%

LPLA 4,165,970 LPL FINANCIAL HOLDINGS INC. 29.91 124,604,162.70 0.76%

LKOD LI 1,455,100 LUKOIL OAO - ADR* 48.76 70,954,878.33 0.43%

MGGT LN 42,460,160 MEGGITT PLC* 5.84 247,827,246.85 1.52%

MSFT 6,327,480 MICROSOFT 57.60 364,462,848.00 2.23%

MNOD LI 4,377,920 MMC NORILSK NICKEL OJSC - ADR* 15.98 69,972,803.20 0.43%

NPN SJ 3,268,832 NASPERS LIMITED - N SHARES* 173.07 565,746,021.31 3.46%

2,431,709 NEXEO SOLUTIONS - FOUNDER SHARES 3.03 7,376,842.15 0.05%

NXEO 17,691,717 NEXEO SOLUTIONS - PIPE SHARES 8.24 145,779,748.08 0.89%

OXY 620,540 OCCIDENTAL PETROLEUM 72.92 45,249,776.80 0.28%

ORCL 15,945,530 ORACLE CORPORATION 39.28 626,340,418.40 3.83%

OI 8,912,900 OWENS-ILLINOIS 18.39 163,908,231.00 1.00%

QCOM 1,815,560 QUALCOMM INCORPORATED 68.50 124,365,860.00 0.76%

ROSN LI 5,711,200 ROSNEFT OIL COMPANY - REG S GDR* 5.47 31,239,464.43 0.19%

1,146,250 SOUND HOLDINGS FP* 26.19 30,024,347.36 0.18%

SNGSP RM 39,322,900 SURGUTNEFTEGAS - PREFERENCE* 0.46 18,175,825.26 0.11%

TEL 5,233,260 TE CONNECTIVTY 64.38 336,917,278.80 2.06%

TMO 1,306,510 THERMO FISHER SCIENTIFIC INC. 159.06 207,813,480.60 1.27%

UNA NA 1,756,570 UNILEVER N.V.* 46.07 80,930,788.55 0.50%

UTX 5,021,310 UNITED TECHNOLOGIES CORPORATION 101.60 510,165,096.00 3.12%

WPP LN 10,389,420 WPP PLC* 23.51 244,209,692.28 1.50%

YHOO 3,412,700 YAHOO 43.10 147,087,370.00 0.90%

TOTAL COMMON STOCK (LONG): 10,107,341,705.82 61.88%

CCP (15,450) CARE CAPITAL PROPERTIES 28.50 (440,325.00) 0.00%

PEI (600,700) PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 23.03 (13,834,121.00) -0.09%

PBI (401,000) PITNEY BOWES INC. 18.16 (7,282,160.00) -0.04%

FPA Crescent Fund Portfolio Holdings 09/30/16

2

TICKER

SHARES /


COUPON

RATE (%)

MATURITY

DATE

% OF NET

ASSET VALUE


700 HK (23,897,100) TENCENT HOLDINGS LIMITED* 27.80 (664,387,513.72) -4.07%

VTR (61,800) VENTAS 70.63 (4,364,934.00) -0.03%

GWW (96,049) W.W. GRAINGER, INC. 224.84 (21,595,657.16) -0.13%

4689 JP (7,121,600) YAHOO! JAPAN CORPORATION* 3.99 (28,406,701.29) -0.17%

TOTAL COMMON STOCK (SHORT): (740,311,412.17) -4.53%

120,000 U.S. FARMING REALTY TRUST I, L.P. 107.98 12,957,252.00 0.08%

350,000 U.S. FARMING REALTY TRUST II, L.P. 116.16 40,657,400.00 0.25%

968 WL ROSS HOLDING CORPORATION - LLC INTEREST 5,669.10 5,487,175.47 0.03%

TOTAL LIMITED PARTNERSHIPS: 59,101,827.47 0.36%

118,300,000 EUR CURRENCY 12/23/16 (118.3M EUR @ 1.11884)* (1,437,382.42) -0.01%

194,350,000 JPY PUT 03/24/22 95.00 (194.35M JPY @ $0.07525)* 0.08 15,287,959.70 0.09%

TOTAL DERIVATIVES/FUTURES: 13,850,577.28 0.08%

TOTAL OTHER SECURITIES 72,952,404.75 0.44%

8,980,000 SPRINGLEAF FINANCIAL SERVICES 103.50 9,294,300.00 6.5000 9/15/2017 0.06%

15,366,000 SPRINGLEAF FINANCIAL SERVICES 105.01 16,135,836.60 6.9000 12/15/2017 0.10%

4,893,000 BOMBARDIER 144A 97.75 4,782,907.50 4.7500 4/15/2019 0.03%

28,058,000 BOMBARDIER 144A 101.94 28,602,325.20 7.7500 3/15/2020 0.17%

13,800,000 BOMBARDIER 144A 88.75 12,247,500.00 5.7500 3/15/2022 0.07%

12,670,000 BOMBARDIER 144A 90.50 11,466,350.00 6.0000 10/15/2022 0.07%

29,534,000 BOMBARDIER 144A 88.75 26,211,425.00 6.1250 1/15/2023 0.16%

82,750,000 BOMBARDIER 144A 92.13 76,237,575.00 7.5000 3/15/2025 0.47%

5,800,000 BOMBARDIER 144A 84.25 4,886,500.00 7.4500 5/1/2034 0.03%

2,171,000 CALIFORNIA RESOURCES CORPORATION 59.63 1,294,458.75 5.0000 1/15/2020 0.01%



35,750,000 CALIFORNIA RESOURCES CORPORATION 144A 66.50 23,773,750.00 8.0000 12/15/2022 0.15%

5,650,000 CONSOL ENERGY 97.94 5,533,468.75 8.2500 4/1/2020 0.03%

196,666,000 CONSOL ENERGY 92.00 180,932,720.00 5.8750 4/15/2022 1.11%

77,110,000 CONSOL ENERGY 96.50 74,411,150.00 8.0000 4/1/2023 0.46%

6,472,000 GLENCORE FINANCE CANADA 144A 105.00 6,795,600.00 4.9500 11/15/2021 0.04%




23,500,000 GLENCORE FUNDING LLC 144A 100.00 23,500,000.00 3.1250 4/29/2019 0.14%



4,964,000 ISTAR FINANCIAL INC. 101.25 5,026,050.00 5.8500 3/15/2017 0.03%

22,938,000 NAVISTAR INTL CORP CV 94.88 21,762,427.50 4.5000 10/15/2018 0.13%

34,244,000 NAVISTAR INTL CORP CV 93.63 32,060,945.00 4.7500 4/15/2019 0.20%

143,177,000 NAVISTAR INTL CORP 99.75 142,819,057.50 8.2500 11/1/2021 0.87%

6,465,222 RELP-8 100.00 6,465,222.13 10.0000 10/17/2017 0.04%

10,320,000 RELP-9 100.00 10,320,000.00 9.0000 7/30/2017 0.06%

11,372,294 RELP-10 100.00 11,372,293.57 9.5000 11/20/2017 0.07%

17,479,900 RELP-11 100.00 17,479,899.79 10.7500 8/5/2018 0.11%

16,731,000 RICE ENERGY INC. 103.25 17,274,757.50 6.2500 5/1/2022 0.11%

18,800,000 SHIP LOAN PARTICIPATION II 100.00 18,800,000.00 11.0000 9/4/2018 0.12%

52,997,043 SHIP LOAN PARTICIPATION 100.00 52,997,042.73 7.8000 12/24/2019 0.32%

3

TICKER

SHARES /


COUPON

RATE (%)

MATURITY

DATE

% OF NET

ASSET VALUE


3,800,000 SOUTHWESTERN ENERGY CO. 90.75 3,448,500.00 4.1000 3/15/2022 0.02%

28,841,000 WALTER INVESTMENT MANAGEMENT CORP. CV 59.50 17,160,395.00 4.5000 11/1/2019 0.11%

53,600,000 WALTER INVESTMENT MANAGEMENT CORP. 66.63 35,711,000.00 7.8750 12/15/2021 0.22%

38,214,067 WALTER INVESTMENT MANAGEMENT CORP. TL 91.47 34,953,642.36 3.7500 12/18/2020 0.21%

TOTAL CORPORATE BONDS & NOTES: 1,011,970,179.26 6.20%

1,115,867 STANWICH MORTGAGE LOAN TRUST SERIES 2009-2 44.72 499,015.59 2/15/2049 0.00%

1,102,548 STANWICH MORTGAGE LOAN TRUST SERIES 2010-1 50.58 557,668.67 9/30/2047 0.00%

7,995,930 STANWICH MORTGAGE LOAN TRUST SERIES 2010-2 50.42 4,031,547.69 2/28/2057 0.03%







26,646,425 SUNSET MORTGAGE LOAN COMPANY 2014 NPL-1 A 99.78 26,588,330.35 3.2282 8/16/2044 0.16%

34,422,585 SUNSET MORTGAGE LOAN COMPANY 2015 NPL-1 A 100.41 34,564,643.45 4.4586 9/16/2045 0.21%

TOTAL MORTGAGE BACKED SECURITIES 84,474,412.63 0.52%

TOTAL INVESTMENT SECURITIES: 10,536,427,290.29 64.51%

210,000,000 U.S. TREASURY NOTE 100.00 210,006,153.00 0.6250 10/15/2016 1.29%

360,000,000 U.S. TREASURY NOTE 100.01 360,021,096.00 0.3750 10/31/2016 2.20%

275,000,000 U.S. TREASURY NOTE 100.04 275,111,595.00 0.6250 11/15/2016 1.69%

275,000,000 U.S. TREASURY NOTE 100.09 275,241,257.50 0.8750 11/30/2016 1.69%

350,000,000 U.S. TREASURY NOTE 100.07 350,239,715.00 0.6250 12/15/2016 2.15%

300,000,000 U.S. TREASURY NOTE 100.10 300,303,390.00 0.7500 1/15/2017 1.84%

100,000,000 U.S. TREASURY NOTE 100.03 100,034,040.00 0.5000 1/31/2017 0.61%

175,000,000 U.S. TREASURY NOTE 100.16 175,274,312.50 0.8750 1/31/2017 1.07%

310,000,000 U.S. TREASURY NOTE 100.07 310,224,316.00 0.6250 2/15/2017 1.90%

175,000,000 U.S. TREASURY NOTE 100.18 175,320,530.00 0.8750 2/28/2017 1.07%

320,000,000 U.S. TREASURY NOTE 100.13 320,428,928.00 0.7500 3/15/2017 1.96%

150,000,000 U.S. TREASURY NOTE 100.02 150,022,770.00 0.5000 3/31/2017 0.92%

175,000,000 U.S. TREASURY NOTE 100.24 175,415,625.00 1.0000 3/31/2017 1.07%

275,000,000 U.S. TREASURY NOTE 100.21 275,575,767.50 0.8750 4/15/2017 1.69%

150,000,000 U.S. TREASURY NOTE 99.98 149,967,375.00 0.5000 4/30/2017 0.92%

210,000,000 U.S. TREASURY NOTE 100.20 210,418,362.00 0.8750 8/15/2017 1.29%

200,000,000 U.S. TREASURY NOTE 99.97 199,937,500.00 0.6250 8/31/2017 1.22%

270,000,000 U.S. TREASURY NOTE 100.31 270,835,326.00 1.0000 9/15/2017 1.66%

274,000,000 U.S. TREASURY NOTE 99.94 273,843,737.80 0.6250 9/30/2017 1.68%

180,000,000 U.S. TREASURY NOTE 100.19 180,337,500.00 0.0875 10/15/2017 1.10%

291,000,000 U.S. TREASURY NOTE 101.25 294,642,039.60 1.0875 10/30/2017 1.80%

TOTAL U.S GOVERNMENT AND AGENCIES 5,033,201,335.90 30.82%

CASH & EQUIVALENTS 762,944,206.58 4.67%

TOTAL CASH & EQUIVALENTS 5,796,145,542.48 35.49%

TOTAL NET ASSETS: 16,332,572,832.77 100.00%

4

TICKER

SHARES /


COUPON

RATE (%)

MATURITY

DATE

% OF NET

ASSET VALUE


* Indicates foreign security.

Portfolio Holding Submission Disclosure

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.

Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic

developments. Certain funds may purchase foreign securities, including American Depository Receipts (ADRs) and other depository receipts, which are subject to interest rate, currency exchange rate,

economic and political risks; this may be enhanced when investing in emerging markets. Small and mid cap stocks involve greater risks and they can fluctuate in price more than larger company stocks.

Short-selling involves increased risks and transaction costs. You risk paying more for a security than you received from its sale.

The return of principal in a bond investment is not guaranteed. Bonds have issuer, interest rate, inflation and credit risks. Lower rated bonds, callable bonds and other types of debt obligations involve greater

risks. Mortgage securities and asset backed securities are subject to prepayment risk and the risk of default on the underlying mortgages or other assets; derivatives may increase volatility.

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, the Portfolio Managers or Distributor.

The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI, 53212.

5

Important Disclosures

The views expressed herein and any forward-looking statements are as of the date of the publication and

are those of the portfolio management team. Future events or results may vary significantly from those

expressed and are subject to change at any time in response to changing circumstances and industry

developments. This information and data has been prepared from sources believed reliable, but the

accuracy and completeness of the information cannot be guaranteed and is not a complete summary or

statement of all available data.

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, the portfolio managers, or the Distributor. It should not be assumed that future investments will be

profitable or will equal the performance of the security examples discussed. The portfolio holdings as of

the most recent quarter-end may be obtained at www.fpafunds.com.

Investments in mutual funds carry risks and investors may lose principal value. Stock markets are

volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or

economic developments. The Fund may purchase foreign securities, including American Depository

Receipts (ADRs) and other depository receipts, which are subject to interest rate, currency exchange

rate, economic and political risks; these risks may be heightened when investing in emerging markets.

Small and mid-cap stocks involve greater risks and may fluctuate in price more than larger company

stocks. Short-selling involves increased risks and transaction costs. You risk paying more for a security

than you received from its sale.

Interest rate risk is the risk that when interest rates go up, the value of fixed income securities, such as

bonds, typically go down and investors may lose principal value. Credit risk is the risk of loss of principal

due to the issuer’s failure to repay a loan. Generally, the lower the quality rating of a security, the greater

the risk that the issuer will fail to pay interest fully and return principal in a timely manner. If an issuer

defaults the security may lose some or all of its value. The return of principal in a bond investment is not

guaranteed. Bonds have issuer, interest rate, inflation and credit risks. Lower rated bonds, callable

bonds and other types of debt obligations involve greater risks. Mortgage-backed securities and asset-

backed securities are subject to prepayment risk and the risk of default on the underlying mortgages or

other assets.

Value securities, including those selected by the Fund’s portfolio managers, are subject to the risk that

their intrinsic value may never be realized by the market because the market fails to recognize what the

portfolio managers consider to be their true business value or because the portfolio managers have

misjudged those values. In addition, value style investing may fall out of favor and underperform growth

or other styles of investing during given periods.

Index Definitions

The S&P 500 Index includes a representative sample of 500 hundred 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.

MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to

measure the equity market performance of developed and emerging markets. The MSCI ACWI consists

of 44 country indices comprising 23 developed and 21 emerging market country indices.

Barclays Aggregate Index provides a measure of the performance of the U.S. investment grade bonds

market, which includes investment grade U.S. Government bonds, investment grade corporate bonds,

mortgage pass-through securities and asset-backed securities that are publicly offered for sale in the

United States. The securities in the Index must have at least 1 year remaining in maturity. In addition, the

securities must be denominated in U.S. dollars and must be fixed rate, nonconvertible, and taxable.

6


The Consumer Price Index (CPI) is an unmanaged index representing the rate of the inflation of U.S.

consumer prices as determined by the U.S. Department of Labor Statistics. The CPI is presented to

illustrate the Fund’s purchasing power against changes in the prices of goods as opposed to a

benchmark, which is used to compare the Fund’s performance. There can be no guarantee that the CPI

will reflect the exact level of inflation at any given time.

60% S&P500/ 40% Barclays Aggregate Index is a hypothetical combination of unmanaged indices and

comprises 60% S&P 500 Index and 40% Barclays Aggregate Index, the Fund’s neutral mix of 60% stocks

and 40% bonds.

Indices are unmanaged, do not reflect any commissions or fees which would be incurred by an investor

purchasing the underlying securities. Investors cannot invest directly in an index.

The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI,

53212.

7

fpa crescent fund - valuewalk · which benefited crescent given the fund’s 23% exposure to...

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