Quarterly Commentary · 2021. 3. 12. · 2014 World up. razil’s 12-month inflation increased to...

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Quarterly Commentary

Multi-Asset Growth Fund

DMLIX/DMLAX

Second Quarter 2013

333 S. Grand Ave., 18th Floor || Los Angeles, CA 90071 || (213) 633-8200

2

Quarterly Commentary 6/30/13

Overview

The Labor Force Participation Rate and Employment

to Population Ratios have shown slight momentum

increases over the month of June and over the second

quarter. While this might not be a positive sign for the

unemployment rate, it may suggest broader labor

market health is increasing.

Five-year forward breakeven inflation rates

capitulated in June by falling 30 basis points (bps).

Consumer Price Index (CPI) and Personal

Consumption Expenditures (PCE) data has suggested

low levels of inflation for quite some time, but market

participants were hesitant to correspondingly price

similar expectations in the Treasury Inflation-

Protected Securities (TIPS) market. The second

quarter was a poignant change in this respect.


Downward revisions to first quarter growth showed

the economy grew only 1.8% compared to the initial

first quarter growth estimate of 2.4%, citing weaker

personal consumption growth as the main cause.

Most sell-side researchers are expecting slower

growth for the second quarter versus the first

quarter. Wage growth that struggles to outpace CPI

also suggests inflation caused by compensation

increases is not presently a concern.

-2%

-1%

0%

1%

2%

3%

4%

5% PCE Price Index (YoY)

Source: BEA, Bloomberg

0

0.5

1

1.5

2

2.5

34.15

34.20

34.25

34.30

34.35

34.40

34.45

34.50

34.55

34.60

34.65

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Ave

rage

Ho

url

y Ea

rnin

gs (

YoY

%)

Ave

rage

We

ekl

y H

ou

rs

Labor Market Snapshot

Average Weekly Hours

Average Hourly Earnings (YoY)

Source: Bureau of Labor Statistics, Bloomberg; YoY = year-over-year

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8% QoQ Real GDP Growth Estimates

Advance

Second

Third

Latest

Source: Bureau of Economic Analysis, Bloomberg; QoQ = quarter-over-quarter

3


Emerging Markets

Similar to May, the month of June saw fixed income

markets rattled by the prospect of an end to the Fed’s

bond buying, or “quantitative easing” (QE), program.

For the month, nearly all major asset classes ranging

from U.S. government securities, to U.S. and EM

equities, to precious metals, were negative. The bulk

of negative price action in EMFI markets came in the

latter half of the month, following the Fed Chairman

Ben Bernanke’s June 19 press conference in which he

said that the Federal Open Market Committee

(FOMC) sees a likely tapering in the pace of the Fed’s

bond purchases this year if the domestic economic

forecast continues to improve as expected. He further

noted purchases could end by mid-2014.

The Fed’s so-called “tapering talk” was reinforced by

a number of strong June economic news, including

the following: a greater-than-forecast expansion of

the manufacturing sector; consumer confidence

holding near a six-year high; and another month of

double-digit year-over-year (YoY) percentage

increases in pending home sales and housing prices.

As the FOMC maintains a stance that it would

continue its QE program until unemployment fell to

the 7% vicinity, the recent stronger economic data

points increase the likelihood of the target being met

sooner. This view was further reinforced in early July

as June U.S. non-farm payrolls were reported as

increasing 195,000, with upward revisions to the two

prior months. Though Chairman Bernanke did

reiterate that the FOMC would adjust its policy should

economic data vary, both EM and broader fixed

income investors reacted extremely negatively to the

prospect of the Fed dialing back its bond buying

program, with 10-year U.S. treasury yields shooting

up 17 bps on that day alone. The 10-year yield

touched a nearly two-year high of 2.66% intra-day on

June 24, before easing slightly lower into month end.

Over the second quarter, 10-year U.S. Treasury yields

rose 64 bps to 2.49%. During this same time, EM

spreads widened out by 41 bps to 341 bps as

concerns over the Fed broaching the subject of

ending its QE program shook global fixed income

markets. Risk assets were by and large weaker for the

period. The table below details the monthly

performance of the EMBI, as well as the spread levels

and 10-year U.S. Treasury yields at the end of each

month, year-to-date (YTD).

Though EM fixed income markets were largely

focused on the Fed’s potential dialing back of its QE

program, socio-political upheaval and weaker

economic data in a number of EM countries further

reinforced the asset class’ selloff. In Turkey, protests

from the urban, secular middle class against the


10-year

U.S.

Treasury

Jan-13 -1.34% 262 4.61% 1.98%

Feb-13 -0.31% 283 4.71% 1.88%

Mar-13 -0.62% 300 4.84% 1.85%

Apr-13 2.83% 282 4.51% 1.67%

May-13 -3.57% 296 5.07% 2.13%

Jun-13 -4.91% 341 5.80% 2.49%Source: JP Morgan, Bloomberg

EMBI Global

Diversified

Monthly

Returns

Spread

Level

YTM

3.71%

1.18% 1.63%0.89% 1.18%

0.07%

-1.34%

-0.31%-0.62%

2.92%

-3.57%

-4.91%

2.39%

1.00%

1.30%

1.39%

0.54%

0.89%0.28%

0.60%0.05%

1.18%

-1.84%

-3.74%

1.92%

-0.04%

2.90%

0.04%

1.03% 2.02%1.17%

-0.41%

-0.17%

3.27%

-5.66%

-3.79%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

JP Morgan Emerging Markets Bond Index Performance -Last 12 Months

EMBI

CEMBI

GBI-EM

Source: JP Morgan

4


perceived autocratic- and Islamist-tendencies of

Prime Minister Recep Erdogan continued to cause

some unrest in the country, and 10-year benchmark

USD bonds traded lower by approximately 15 points

before rebounding slightly into month-end.

Widespread protests also affected Brazil in June,

initially incited by a government hike in bus and train

ticket prices but spreading with claims of police

brutality and wasteful spending on the upcoming

2014 World Cup. Brazil’s 12-month inflation

increased to 6.7% in June, outside the central bank’s

upper target band of 6.5%, fueled in part by a

weakening Brazilian real. To fight a depreciating

currency, the Central Bank eliminated the 6% tax on

foreign exchange transactions (IOF) on local-

denominated bonds. Even against such measures, the

Real (BRL) pushed out to 2.20/USD, and the Central

Bank was forced to intervene almost daily, selling USD

$27 billion through swaps and funding lines since the

end of May.

Egypt, which has been rocked by instability since the

popular ouster of autocratic President Hosni Mubarak

in 2011, was also the scene of massive protests

against President Mohamed Morsi, who has also been

viewed as autocratic by many locals since dismissing

Egypt’s prosecutor general. Widespread protests

from June into early July culminated in the Egyptian

military ordering Morsi’s administration to negotiate

with opposition protestors. When this demand was

ignored, Morsi was arrested in an effective coup.

Egyptian bonds due in 2020 traded down over 12

points from the end of May into early July amid the

upheaval.

China, which has been marked by weak-to-stagnant

growth in 2013, saw its official Purchasing

Manufacturing Index (PMI) index fall to 50.1 from

50.8 in May (a reading above 50 indicates expansion

in the sector.) The privately-run HSBC manufacturing

PMI fell to 48.2 in June, indicating contraction in the

sector, from 49.2 in May. The economic cooling of

China has weighed on commodities: copper fell 7.6%

in June, while aluminum declined 7.9%. Furthermore,

Chinese banks experienced a sharp cash crunch in

June. The overnight Shanghai Interbank Offered Rate

(Shibor) briefly jumped over 13% on June 20. The

spike in overnight rates was apparently allowed to

occur by the People’s Bank of China (PBoC) as a

means of warning banks that had complacently lent

too much expecting easy liquidity. Communication of

the PBoC’s exact intentions was poor, though

eventually it did intervene by ordering large banks to

lend to smaller ones and promising to stabilize Shibor.

Still, Chinese financial institutions, especially small-to-

medium sized ones, remain shaken by the fact that

the PBoC initially chose to remain on the sidelines as

the liquidity crunch developed.

June witnessed the first monthly outflows from EM

fixed income funds since September 2011, with $6.19

billion exiting hard currency funds and $4.56 billion

flowing out of local currency funds. The selloff in EM

fixed income over the past two months has limited

the supply of new issues. We believe that more

issuers should once again return to the new issue

market as the recent EM volatility dies down. As of

early July, we have begun to see sovereign and quasi-

sovereign issuers test the waters of the new issue

market. We will continue to carefully monitor the

pipeline for attractive investment opportunities.


5


Global Developed Credit

In contrast to the positive excess returns posted by

corporate credit in the first quarter, the second

quarter of 2013 proved to be a more challenging

market environment largely due to the increased

expectations for a “tapering” of the Federal Reserve’s

(Fed’s) QE program in the US. Concerns about the

potential tapering and eventual cessation of QE

resulted in higher core government bond yields with

the 10-year U.S. Treasury (UST) yield rising to levels

not seen since the summer of 2011. This had negative

ramifications for global developed credit markets.

Excess returns for investment grade corporate bonds,

as measured by the Barclays U.S. Corporate Index,

were -73 basis points (bps) during the quarter,

bringing the year-to-date (YTD) results to -54 bps.

High yield corporate bonds, as measured by the

Barclays U.S. High Yield Index, managed to eke out 14

bps of excess return during the quarter with YTD

excess returns remaining positive at 2.91%. For the

month of June, investment grade credit posted an

excess return of -1.30% (total return of -2.85%)

according to the Barclays U.S. Credit Index, and high

yield credit posted an excess return of -1.65% (total

return of -2.62%) according to the Barclays U.S. High

Yield Index. Returns on leveraged loans remain

positive YTD. Although the Barclays U.S. High Yield

Index lost 62 bps in the month of June, the Index has

returned 2.40% through the end of the second

quarter.

Within the investment grade universe the best-

performing sectors during the month of June included

Packaging (+58 bps); Supranationals (-17 bps);

Building Materials (-45 bps); Other Financial (-56 bps)

and Services (-58 bps). The worst-performing sectors

were Metals (-3.20%); Sovereigns (-3.14%); Media

Cable (-2.76%); Foreign Local Government (-2.57%);

and Other Industrial (-2.45%). Baa-rated and

crossover credits underperformed higher rated debt

during the month. All sectors of the U.S. high yield

market produced negative returns in June. Top

performing sectors on a relative basis included Media

Cable (-1.64%); Packaging (-1.70%); Transportation

Services (-1.87%); Gaming (-1.87%); and Other

Finance (-1.94%). The worst performers were

Pipelines (-4.34%); Metals and Mining (-3.75%);

Banking (-3.46%); Home Construction (-3.45%); and

Electric (-3.27%). Returns were clustered by credit

quality with total returns slightly worse for higher

quality paper due to duration. Excess returns were

basically flat by credit quality with Ba-rated paper

returning -2.74%, B-rated returning -2.55%, and Caa-

rated returning -2.38%.


0

20

40

60

80

100

120

140

Bill

ion

s o

f U

S D

olla

rs

Total Fixed-Rate Investment Grade Supply

Source: Barclays Live

1.90%

1.17%1.39%

0.88% 0.80%

1.58%1.34%

0.51%

1.02%

1.81%

-0.58%

-2.62%

2.71%

0.21%

0.60%

1.12%

0.00% -0.08%

-0.87%

0.70%

0.01%

1.80%

-2.36%

-2.85%

1.38%

0.07% 0.14% 0.20%

0.16% -0.14%

-0.70%

0.50%

0.08%

1.01%

-1.78%

-1.55%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Performance of Select Barclays Indices Last 12 Months

Barclays Capital U.S. High Yield Index

Barclays Capital U.S. Credit Index

Barclays Capital U.S. Aggregate Bond Index

Source: Barclays Live

6


Fixed-rate investment grade supply for June was

approximately $36.8 billion, the lowest new issue

month since December 2011 and down substantially

from the $64.3 billion issued in June 2012. Industrials

led gross supply during the month issuing $23.9

billion of the total. The high yield primary market

priced $7.8 billion in June, the smallest supply month

thus far in 2013 and also down from the $10.2 billion

issued in June 2012. According to Lipper, high yield

mutual funds had net outflows of $12.2 billion in June

taking the net number to an $11.2 billion outflow

YTD. At the same point in 2012, high yield mutual

fund inflows were at $22.0 billion. Meanwhile, loan

fund inflows remain strong with an additional $5.4

billion flowing into loan funds in the month of June,

taking the positive streak to 54 weeks and the YTD

inflows to $32.2 billion. According to Moody’s, the

trailing 12-month U.S. speculative-grade default rate

stands at 2.9% as of the end of May, down from 3.1%

at this time last year. The trailing 12-month U.S.

leveraged loan default rate finished May at 2.5%,

which is up from 2.1% at this time last year.

Although underlying credit fundamentals remain

solid, the credit sectors cannot escape the general

repricing of risk assets which is currently underway.

Liquidity is an additional concern. An active primary

market is a prerequisite for accurate price discovery.

Summer is usually a time of lower volumes yet

following a period of record issuance, much of which

has been refinancing, in conjunction with the current

volatility in rates gives us pause as credit markets may

struggle in the midst of a primary market drought.


7


Agency Mortgage-Backed Securities

The U.S. Agency Mortgage-Backed Securities (MBS)

market had a return of -0.97% for June 2013 and a

return of -1.99% for the second quarter, according to

the Barclays Capital U.S. MBS Index. Primary

mortgage rates went up by 55 bps for the month and

90 bps for the quarter. These rises were substantially

more than the rises in U.S. Treasury (TSY) rates during

the same periods. The probable reason for the

greater rise in the mortgage rate is that the cause of

the rate rise was in response to comments Fed

Reserve Chairman Bernanke made regarding

“tapering” of QE. As the Fed has been buying up to

$65 billion a month in Agency mortgages, a reduction

in purchases could cause Agency mortgage spreads to

widen. Even with this possible spread widening, the

MBS sector outperformed the Corporate sector, as

measured by the Barclays Capital U.S. Credit Index,

and had a similar return to the U.S. TSY sector, as

measured by the Barclays Capital U.S. Treasury

Index. One reason for this is the shorter duration of

the MBS sector.

While the duration of the U.S. MBS sector is shorter

than both the Corporate and U.S. TSY sectors, it has

extended as rates have risen. The duration of the

Agency MBS sector was as low as 3.69 years as of

April month-end and extended to 5.22 years as of

June month-end. This duration of 5.22 years is the

longest for the Barclays U.S. MBS Index, with data

going back to 1990. In fact it is 0.4 years longer than

the next longest recorded duration of 4.83, which was

reported for May month-end in 1994. While we

expect the duration to extend even more if rates

were to rise going forward, the improved convexity

that would come with the lower prices will most likely

prevent the duration from getting much longer.

Prepayment speeds declined somewhat during the

quarter. There is a lag factor in analyzing

prepayments so this recent rate rise in rates should

affect prepayment speeds over the next few months.

Aggregate speeds should decline from the low to mid-

20 Conditional Prepayment Rates (CPRs) down to a

mid to high teen CPR number.

There has been more noise with regards to

Government-Sponsored Enterprise (GSE) reform. The

Senate has the Corker-Warner Bill while the House

efforts are led by Hensarling (R-TX). Opinions are

pretty much divided along party lines and we believe

a final resolution is still a ways away.


Conditional Prepayment Rates (CPR)

2012-2013 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June

FNMA 26.7 29.6 26.5 29.7 27.9 29.0 27.8 24.4 24.4 24.0 25.1 22.7

FHLMC 27.3 30.4 27.8 30.7 28.3 29.0 28.2 26.0 25.9 25.3 25.5 23.4

GNMA 20.3 22.9 21.1 24.3 23.2 23.5 23.3 21.9 21.8 23.0 22.2 19.4

Barclays Capital U.S.

MBS Index 4/30/2013 5/31/2013 6/30/2013

Average Dollar Price 107.46 105.52 104.15

Duration 3.69 4.71 5.22

Barclays Capital U.S.

Index Returns 4/30/2013 5/31/2013 6/30/2013

U.S. Aggregate 1.01% -1.78% -1.55%

U.S. MBS 0.53% -1.53% -0.96%

U.S. Corporate 1.83% -2.34% -2.85%

U.S. Treasury 0.89% -1.71% -1.10%

source: eMBS, Barclays Capital

8


Non-Agency Mortgage-Backed Securities

In the non-agency mortgage sector, the month of

June was about volume, volatility and value. After the

May 30 sale of the $8.8 billion of non-Agency

mortgage assets, the market initially fell then

recovered only to run into Chairman Bernanke’s

speech regarding the future of QE on June 19 and

widen out anywhere from 25 to 100 bps in risk-

adjusted yields.

With the volatility in the market place, the volume of

product put out for bid dropped dramatically from

May to June. May 2013 Bids Wanted In Competition

(BWIC) volume registered at approximately 33.2

billion versus the June number of 17.1 billion. Even

extracting the 8.8 billion large single trade, the

reduction in volume is still near 30%.

The interesting issue was the intra-month price

action. For instance on June 20, the ABX 06-2 AAA

Index closed the day with a price of 68.88, a change

from May’s month-end of 73.25, a drop in value of

4.37 points with a percentage change of almost 6%,

and nearly doubling the month-over-month (MoM)

close. For the quarter, April and May were more of

the same type of story we were used to hearing

about the non-Agency market: steady volume

followed by shrinking supply and higher prices.

Volume, volatility and value created an interesting

environment for the month of June. The movement

provided various opportunities to buy assets as prices

dropped and value resurfaced.

Overall the size of the market continues to shrink.

Currently we are at $863.8 billion in unpaid balance

and 3.7 million loans down from $1.02 trillion in

balance and 4.2 billion loans outstanding. This

represents a contraction of 15.7% in balances and an


30

35

40

45

50

55

60

65

70

75

80

6/3

0/1

1

7/3

1/1

1

8/3

1/1

1

9/3

0/1

1

10

/31

/11

11

/30

/11

12

/31

/11

1/3

1/1

2

2/2

9/1

2

3/3

1/1

2

4/3

0/1

2

5/3

1/1

2

6/3

0/1

2

7/3

1/1

2

8/3

1/1

2

9/3

0/1

2

10

/31

/12

11

/30

/12

12

/31

/12

1/3

1/1

3

2/2

8/1

3

3/3

1/1

3

4/3

0/1

3

5/3

1/1

3

ABX PricesABX 2006-2 AAA

ABX 2007-1 AAA

Source: Markit via Morgan Stanley

70.5

53.3

86889092949698

100102104106108110112114

6/30

/11

7/31

/11

8/31

/11

9/30

/11

10/3

1/11

11/3

0/11

12/3

1/11

1/31

/12

2/29

/12

3/31

/12

4/30

/12

5/31

/12

6/30

/12

7/31

/12

8/31

/12

9/30

/12

10/3

1/12

11/3

0/12

12/3

1/12

1/31

/13

2/28

/13

3/31

/13

4/30

/13

5/31

/13

PrimeX PricesPrimeX FRM.1

PrimeX FRM.2

Source: Markit via Morgan Stanley

110

103

Non-Agency MBS Product Volume (billion)

June 2012 May 2013 June 2013MoM

Change

YoY

Change

ABS CDO 17,493 883 1,036 17.3% -94.1%

Alt-A 2,712 10,628 2,900 -71.8% 6.9%

HELOC 168 269 272 1.2% 62.3%

NA Deriv 488 2,747 3,289 19.7% 574.0%

POA 1,448 5,474 1,501 72.6% 3.7%

Prime 2,679 3,413 2,057 -39.7% -23.2%

ReRemic 218 536 641 19.6% 193.5%

Subprime 2,267 3,970 1,929 -51.4% -14.9%

Subprime Mezz 2,779 5,705 3,555 -37.7% 27.9%

Total* 29,764 30,517 13,891 -54.5% -53.3%Source: Morgan Stanley; *Total does not include Interest-Only (IO) loans

ABS = Asset-Backed Securi ties ; CDO = Col latera l ized Debt Obl igation; HELOC = home equity

l ine of credit; MoM = month-over-month; Mezz = Mezzanine; NA Deriv = Non-Agency

Derivative; POA = payment option ARM (adjustable-rate mortgage); ReRemic = re-securi tized

real estate mortgage investment conduits ; YoY = year-over-year

6/30/2012 4/30/2013 5/31/2013 6/30/2013MoM %

Change

YoY %

Change

ABX 06-2 AAA 50.8 73.75 73.25 70.50 -3.75% 38.80%

ABX 07-1 AAA 40.04 56.83 56.78 53.31 -6.10% 25.60%

MoM = month-over-month; YoY = year-over-year

ABX Index Closing Prices

6/30/2012 4/30/2013 5/31/2013 6/30/2013MoM %

Change

YoY %

Change

PrimeX FRM 1 106.45 110.75 110.42 110.00 -0.38% 3.33%

PrimeX FRM 2 97.84 103.67 103.67 103.06 -0.58% 5.33%

MoM = month-over-month; YoY = year-over-year

PrimeX Index Closing Prices

9


11.9% reduction in loan count.

June’s first-time default rates were down marginally

but the annual data shows a transition rate of new

default rates dropping from 7.8% a year ago to under

5% currently. Severities have also declined,

particularly in the prime non-Agency space.

Eminent domain started the second quarter with a

defeat in Brockton, MA only to re-appear in

Richmond, CA. The city of North Las Vegas, NV, as

well as the city of Richmond, CA amongst other

California cities, has signed an agreement with

Mortgage Resolution Partners (MRP) to review the

option of using eminent domain. While this has

happened in the past, we believe that Richmond may

actually move forward. A number of asset managers

and insurance companies are joining forces to

attempt to halt this action. We believe this would be

a misuse of eminent domain and rather a taking of

investor’s assets.


10


outlook for the sector continues to remain cautious

given uncertainties in the macroeconomic

environment.

Commercial Mortgage-Backed Securities

June was a volatile month for the Commercial

Mortgage-Backed Securities (CMBS) market as

spreads widened across the capital structure in both

new issue and legacy CMBS. In terms of market

dynamics, CMBS performance was lackluster as

concerns with the Fed’s tapering of QE programs and

rising interest rates plagued the market. As such, we

saw a fairly significant correction across the capital

structure with legacy mezzanine AAA super senior

CMBS (AMs) widening out by 50 bps while legacy

junior AAA CMBS (AJs) were down anywhere from 6

to 15 points depending on the security name. Pricing

levels on the new issue front also performed in a

similar way due to investor demand for additional

compensation to take on long duration bonds. We

saw 10-year AAAs widened by 20-30 bps, while BBB-

were widened out by 75-100 bps on

average. Following two months of weak performance,

CMBS ended the quarter down -1.44% and -1.31%

year-to-date (YTD), outperforming the Barclays

Capital U.S. Aggregate Bond Index by 11 bps and 113

bps, respectively.

In terms of delinquencies, the 30+ delinquency rate

for the CMBS conduit universe fell by 41 bps in June

to 8.59%, while the 60+ day delinquency rate for pre-

2010 transactions decreased by 8 bps to 9.7%. In

terms of liquidations, $1.3 billion of loans were

disposed of in the month of May, which totaled 123

loans with an average loss severity of 44%.

Our investment focus for this sector remains largely

the same with an emphasis on security selection. We

continue to prefer shorter duration assets including

securities with a more “storied” basis, as our ability to

drill down to the collateral and borrower level allows

us to adequately assess risk. Looking forward, our


11


generally fared worse than Treasuries through the

“great unwind.” In particular, the agency sector

returned-1.97% for the quarter, about 41 bps worse

than comparable duration Treasuries. The relatively

less liquid market for inflation indexed Treasuries was

ravaged, returning -3.58% in June and -7.05% for the

second quarter. The municipal market

underperformed Treasuries as well, as the Barclays

Municipal Bond Index returned -2.83% in June and -

2.97% for the quarter.

U.S. Government Securities

The tone of the Treasury market shifted dramatically

and abruptly in the second quarter. The quiet market

environment of previous months became a mad rush

to liquidate accumulated positions. The shift was

sparked by a stronger than expected April

employment report released on May 3. The 10-year

Treasury note yield had hit a 2013 low of 1.63% the

previous day. The employment report, combined with

a bearish view of additional economic data and

comments from FOMC members, caused investors to

move forward their estimate when Fed asset

purchases would wind down and short rates would

begin to move higher. Yield across the curve moved

sharply higher, with the 10-year note reaching in intra

-day high of 2.67% on June 24.

For the second quarter the 10-year Treasury note

yield rose 63 bps, from 1.85% on March 29 to 2.48%

on June 28, giving a return of -4.87%. The 30-year

Treasury bond yield rose 39 bps to 3.50% for a return

of -6.13% The 2-year Treasury turned in a negative

return at -0.09%, as the yield rose 11 bps to 0.35%.

The Barclays Capital U.S. Government Index returned

-1.09% in June and -1.88% for the quarter. The year-

to-date (YTD) return for the index was -2.04%.

The rise in Treasury yields garnered considerable

press over the second quarter, while the other

sectors performed even worse. The Fed’s efforts to

lower Treasury yields pushed many investors out of

Treasuries and into riskier assets. Those sectors


5/31/2013 6/30/2013 Change

3 month 0.03 0.03 0.00

6 month 0.06 0.09 0.03

1 year 0.13 0.15 0.02

2 year 0.30 0.36 0.06

3 year 0.49 0.65 0.16

5 year 1.02 1.40 0.38

10 year 2.13 2.49 0.36

30 year 3.28 3.50 0.22

Source: Bloomberg

Yield Curve

12


At the individual commodity level, 22 out of the 24

commodities comprising the index had negative

performance for the second quarter. Only lean hogs

and soybeans posted positive returns. Gold and silver

suffered the biggest losses on the quarter. Both

commodities responded negatively to speculation

regarding future U.S. Federal Reserve quantitative

easing. This factor, coupled with low current inflation

levels and a strengthening dollar, weighed heavily on

performance. The production environment for gold is

also at a crossroads due to the fact that marginal cash

cost of gold production for the top quartile of

producers is $1100/ounce. Another quarter of price

depreciation could bring gold one step closer to an

industry production consolidation which could

increase volatility.

Commodities

The Standard and Poor’s Goldman Sachs Commodity

Excess Return Index (SPGSCI ER) started the quarter

off on a negative note and continued this momentum

ending the quarter down nearly six percent (-5.9%).

Fears of inflation subsided as data came out

indicating that U.S. inflation rates were at, or near,

their all time lows. Additionally, weak economic data

out of both China and Europe lead to lower expected

global growth rates, which in turn helped facilitate a

subsequent fall in commodity prices. Commodities

appear to be pricing a slowing of global economic

growth and lowered inflation expectations for the

next few quarters.

Every sector of the S&P GSCI index was negative for

the second quarter except for livestock, which posted

a modest gain of +1.6% based on supply constraints.

Precious metals posted the biggest loss on the

quarter, down over 20%. The decline in precious

metals can be partially attributed to lower-than-

expected inflation data, a strengthening dollar, and

rumors that central banks were going to use gold

reserves to pay down their debts. Industrial metals

were down 10% on slowing growth in China. Grains

posted negative returns on the better than expected

crop progress reports, lower feed demand, as well as

less export demand for current year crops. Energy

posted a five percent loss on lowered emerging

market energy demand.


-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

SPGSCI ER Index Energy Agriculture Precious Metals Livestock Industrial Metals

Quarterly Excess Return of GSCSI Commodity Sectors3/31/2013 - 6/30/2013

Source: Bloomberg, DoubleLine

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

S&P

GSC

I ER

Ind

ex

Lean

Ho

gs

Soyb

ean

s

Co

coa

Cru

de

Oil

Fee

d

Live

Cat

tle

Live

Cat

tle

Lead

Zin

c

Gas

Oil

Co

tto

n

He

atin

g O

il

Suga

r

Wh

eat

Kan

sas

Wh

eat

Bre

nt C

rud

e

Co

rn

Alu

min

um

Co

pp

er

Un

lead

ed

Gas

Nat

Gas

Co

ffe

e

Nic

kel

Go

ld

Silv

er

Quarterly Excess Return of GSCSI Components3/31/2013 - 6/30/2013


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

6/1/

2008

9/1/

2008

12/1

/200

8

3/1/

2009

6/1/

2009

9/1/

2009

12/1

/200

9

3/1/

2010

6/1/

2010

9/1/

2010

12/1

/201

0

3/1/

2011

6/1/

2011

9/1/

2011

12/1

/201

1

3/1/

2012

6/1/

2012

9/1/

2012

12/1

/201

2

3/1/

2013

6/1/

2013

Quarterly Performance of Gold12/31/2008-6/30/2013


13


The energy sector was also a net loser down slightly

more than 5 percentage points. Brent crude oil was

down six percent, WTI (West Texas Intermediate)

crude oil was down roughly one percent, while

unleaded gasoline and natural gas where both down

over 10 percent. The price differential between Brent

crude oil and WTI crude oil has converged over the

recent quarter and is trading at the tightest level in

over two years at $5.60. This spread peaked at $27.88

in the fourth quarter 2011, and has been as high as

23.23 this year. This spread compression could put

pressure on certain producers and refiners as new

pipelines and rail-links come online and further

reduce the spread to historical levels that have

ranged within a few dollars.

Another weak sector of the market was the grains

sector, where the only winner was soybeans and all of

the other constituents lost more than 5% each. Corn

was down over 8% on weaker export demand,

surpluses in the old crop as well as a diminished

weather risk impacting the new crop. Growing middle

class consumers in China create higher demand for

meat, and imported corn is a key food source for the

Chinese meat industry, thus Chinese demand will

continue to be a key driver of corn value going

forward.


14


In Asia, equities continued the decline on the back of

disappointing manufacturing and export data out of

China and the tightening of credit conditions on

Chinese inter-bank lending. The government seems

committed to reign in China’s overheated real estate

market and reduce the expansion of loosely regulated

and opaque wealth management products. The

Shanghai Composite declined 11.50% while the Hang

Seng dropped 6.71% during the quarter.

In Japan, equity markets recorded another quarter of

double digit returns with the Nikkei was up 10.87% in

the second quarter, despite a 20% correction from

the May highs. The extreme volatility was caused

from a combination of large foreign exposure to

Japanese equities and worries that volatility in

Japanese Government Bonds might derail Kuroda’s

unprecedented QE program. The economic data is

showing signs of improvement with first quarter Real

GDP quarter-over-quarter (QoQ) Annualized at 4.1%,

Japanese consumer confidence back to 2007 levels,

and exports showing signs of stabilization. The Yen

depreciated 5.30% during the second quarter versus

the USD.

Looking forward, global equity markets will focus on

whether or not the U.S. will be able to sustain its

growth trajectory while the Fed moves towards

scaling back its asset purchase program. The

economic data out of the eurozone should be

monitored closely as the European Central Bank (ECB)

might push for more QE if the data continues to

deteriorate. The economic condition of China should

also be followed closely as a “hard-landing” in China

will have significant negative impacts on commodities

and commodity-based emerging markets.

Global Equities

Domestic equity markets generated moderate gains

in the second quarter of 2013, with the S&P 500 Index

up 2.36%, the Dow Jones Industrial Average up

2.27%, and the NASDAQ Composite up 4.15%. The

strong relative performance was supported by a

combination of improving jobs data, a “fiscal drag”

that was more benign than previously expected, and

a recovering housing market. The Case-Shiller

Composite-20 City Home Price Index YoY was

+12.05% in April and the headline unemployment

rate fell to 7.57%.

Global equity markets underperformed the U.S. in the

second quarter, with the MSCI All-Country World

Index (ACWI) down 1.48% for the quarter. The

negative performance was mostly attributable to the

significant underperformance of emerging markets

during the quarter. Developed equity markets

significantly outperformed Emerging equity markets

in the second quarter as emerging markets faced

significant headwinds from a combination of rising

rates, strengthening USD, falling commodities, and a

noticeable slowdown in China. The MSCI World Index,

an index composed of developed world markets was -

0.07% in the second quarter while MSCI Emerging

Markets Index was down -8.94%.

European equity markets were mixed in the quarter,

with returns on the DAX, FTSE, and CAC of 2.27%, -

3.06%, and 0.20%, respectively. The economic data in

Europe was mixed with improvement in French and

Italian Manufacturing PMIs, German Consumer

Confidence, and core-country Industrial Production.

On the other hand, unemployment in the eurozone

continues to worsen with an unemployment rate of

12.07%. The employment situation in the peripherals

in even worse with unemployment rates in Spain,

Greece, and Portugal of 27.16%, 27.40%, and 17.70%,

respectively.


15



DoubleLine Multi-Asset Growth Fund Ticker: DMLIX/DMLAX

As of June 30, 2013

The DoubleLine Multi-Asset Growth Fund had a negative total return during the second quarter ending June 30,

2013. Both the U.S. Fixed income portion of the portfolio and the international fixed income holdings in the

portfolio contributed to the funds negative performance. The weak performance was largely due to a sudden

increase in interest rates between May and June, with rates on the 10-year Treasury rising nearly 100 bps over

those two months. Performance for the real asset allocation was also down with commodities negative for the

quarter. Equities were the best performing sector of the Fund in the second quarter with both the U.S. and

international equity allocations delivering a positive return.

Performance Attribution

16


Multi-Asset Growth Fund As of June 30, 2013

17


Disclaimer

The fund's investment objectives, risks, charges and expenses must be considered carefully before investing.

The prospectus contains this and other important information about the investment company and may be ob-

tained by visiting www.doublelinefunds.com or by calling 1-877-354-6311/1-877-DLINE11. Read it carefully

before investing. The principal value of debt securities typically decrease when interest rates rise. This risk is usu-

ally greater for longer-term debt securities. Investments in lower rated and non-rated securities present a greater

risk of loss to principal and interest than higher rated securities. Investments in Asset-Backed and Mortgage-

Backed securities include additional risks that investors should be aware of including credit risk, prepayment risk,

possible illiquidity and default, as well as increased susceptibility to adverse economic developments. The Fund

invests in foreign securities, which typically involve greater volatility and political, economic, and currency risks

than do investments in domestic securities and the issuers of which are typically subject to different accounting

standards. These risks are greater for investments in emerging markets. Investments in lower rated and non-

rated securities present a greater risk of loss to principal and interest than higher rated securities. The Fund may

invest in securities related to real estate, which may decline in value as a result of factors affecting the real estate

industry. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, manage-

ment, and the risk that a position could not be closed when most advantageous. Investing in derivatives could

lose more than the amount invested. Commodity-linked derivative instruments may involve additional costs and

risks such as changes in commodity index volatility or factors affecting a particular industry or commodity, such

as drought, floods, weather, livestock disease, embargoes, derivatives could lose more than the amount invested.

Equities may decline in value due to both real and perceived general market, economic and industry conditions.

The Fund is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a

diversified fund. Sector Allocations are subject to change at any time and should not be considered a recommen-

dation to buy or sell any security. Portfolio holdings generally are made available fifteen days after month end

by calling 1-877-DLine11. Fund portfolio characteristics and holdings are subject to change without notice. The

Advisor may change its views and forecasts at anytime, without notice. Credit ratings from Moody’s range from

the highest rating of Aaa for bonds of the highest quality that offer the lowest degree of investment risk to the

lowest rating of C for the lowest rated class of bonds. Credit ratings from Standard & Poor’s (S&P) range from the

highest rating of AAA for bonds of the highest quality that offer the lowest degree of investment risk to the low-

est rating of D for bonds that are in default.

Doubleline Capital LP is the advisor to the Doubleline Funds, which are distributed by Quasar Distributors, LLC.

The source for the information in this report is DoubleLine Capital, which maintains its data on a trade date basis.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

©2013 DoubleLine Funds.

Disclaimer

18


Definitions ABX Index

The ABX Index consists of the 20 most liquid credit default swaps (CDS) on U.S. home equity asset-backed securities (ABS) and is used to hedge asset-backed

exposure or to take a position in the subprime mortgage asset class. The ABX Index has four series (06-1, 06-2, 07-1 and 07-2) with five tranches per series. The

ABX 07-1 AAA Index references underlying collateral of that 2007 vintage and AAA credit quality type, just as the ABX 06-2 AAA Index references underlying

collateral of the 2006 vintage and AAA credit quality type.

Asset-Backed Securities Collateralized Debt Obligations

These are collateralized debt obligations (CDOs) developed out of asset-backed securities (ABS) which can be types of mortgage-backed bonds or other

securities backed by an asset class.

Barclays Capital U.S. Aggregate Bond Index

The Barclays Capital U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US

investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-

backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.

Barclays Capital U.S. Corporate Index

The Barclays Capital U.S. Corporate Index is the corporate component of the Barclays Capital U.S. Credit Index. It consists of publically-issued U.S.

corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds

must be SEC-registered. The corporate sub-sectors are industrial, utility and finance, which include both U.S. and non-U.S. corporations.

Barclays Capital U.S. Credit Index

This index is the US Credit component of the US Government/Credit Index and consists of publically issued US corporate and specified foreign

debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The US

Credit Index is the same as the former US Corporate Investment Grade Index.

Barclays Capital U.S. Government Index

This index is the US Government component of the US Government/Credit Index and includes securities issued by the US Government, including

treasuries and agencies. This includes public obligations of the US Treasury with a remaining maturity of one year or more and publically issued debt of

US Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US Government.

Barclays Capital U.S. High Yield Index

This index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issuer from countries designated as emerging markets (e.g.

Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original

issue zeros, step-up coupon structures, 144-As and pay-in-kind (PIK, as of October 1, 2009) are also included.

Barclays Capital U.S. MBS Index

The Barclays Capital U.S. MBS Index measures the performance of investment grade fixed-rate mortgage-backed pass-through securities of the

Government-Sponsored Enterprises (GSEs): Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

Barclays Capital Municipal Bond Index

The Barclays Capital Municipal Bond Index is an unmanaged index considered representative of the tax-exempt bond market. This index is market value-

weighted and designed for long-term maturities (greater than two years).

Barclays Capital U.S. Treasury Index

The Barclays Capital U.S. Treasury Index is the U.S. Treasury component of the U.S. Government Index. Public obligations of the U.S. Treasury with a

remaining maturity of one year or more.

Barclays Capital U.S. Treasury Inflation-Protected Securities (TIPS) Index

This index includes all publicly issued, U.S. TIPS that have at least one year remaining to maturity, are rated investment grade, and have $250 million or

more of outstanding face value. The CPI ex-Shelter reference in this commentary means this Index is an inflation linked bond index, linked to the U.S.

Consumer Price Index (CPI) and excludes the Shelter subset.

Basis Point

A basis point (bps) equals to 0.01%.

Beta

A measure of volatility of a security or a portfolio in comparison to the market as a whole.

CAC

CAC refers to the CAC 40 Index which is a French stock market index. It tracks 40 of the largest French stocks on the Paris Bourse, or stock exchange.

An investment cannot be made in an index.

19


Definitions Cash Flow

Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax

income.

Credit Suisse Leveraged Loan Index

Credit Suisse Leveraged Loan is an index designed to mirror the investable universe of the U.S.-denominated leveraged loan market.

DAX

DAX is the Deutscher Aktien-Index, or the German stock index, which represents 30 of the largest and most liquid German companies that trade on the

Frankfurt Exchange.

Dow Jones Industrial Average (DJIA)

Invented back in 1896, the Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange

(NYSE) and the Nasdaq.

Duration

A measure of the sensitivity of a price of a fixed income investment to a change in interest rates, expressed as a number of years.

FTSE

FTSE is the Financial Times Stock Exchange , which is similar to Standard & Poor’s in the U.S., and specializes in index calculation. They are best known

for the FTSE 100 Index which includes blue-chip stocks on the London Stock Exchange.

Hang Seng Index

A market capitalization-weighted index of 40 of the largest companies that trade on the Hong Kong Exchange. The Hang Seng members are also

classified into one of four sub-indexes based on the main lines of business including commerce and industry, finance, utilities and properties.

HELOC

A home equity line of credit (HELOC) is a line of credit extended to a homeowner that uses the borrower’s home as collateral.

Institute of Supply Management (ISM) Manufacturing

This index is based on surveys of more than 300 manufacturing firms by the ISM and monitors employment, production inventories, new orders and

supplier deliveries.

JP Morgan Corporate Emerging Markets Bond Broad Diversified Index (CEMBI)

This index is a market capitalization weighted index consisting of US-denominated Emerging Market corporate bonds. It is a liquid global corporate

benchmark representing Asia, Latin America, Europe and the Middle East/Africa.

JP Morgan Emerging Markets Bond Global Diversified Index (EMBI)

This index is uniquely-weighted version of the EMBI Global. It limits the weights of those index countries with larger debt stocks by only including

specified portions of these countries’ eligible current face amounts of debt outstanding. The countries covered in the EMBI Global Diversified are

identical to those covered by EMBI Global.

JP Morgan Government Bond Emerging Markets Broad Diversified Index (GBI EM)

This index is the first comprehensive, global local Emerging Markets index, and consists of regularly traded, liquid fixed-rate, domestic currency

government bonds to which international investors can gain exposure.

Morgan Stanley Capital International All Country World Index (MSCI AC)

The MSCI All Country (AC) World Index is a market-capitalization-weighted index designed to provide a broad measure of stock performance

throughout the world, including both developed and emerging markets.

Morgan Stanley Capital International EAFE Index (MSCI EAFE)

The MSCI EAFE (Europe, Australasia and Far East) is a market-capitalization weighted stock market index designed to measure equity market

performance of developed markets outside of the U.S. and Canada. This index includes a selection of stocks from 21 developed markets, excluding the

U.S. and Canada.

Morgan Stanley Capital International Emerging Markets Index (MSCI EM)

The MSCI Emerging Markets Index is a float-adjusted market capitalization index designed to measure equity market performance in global emerging

markets. It consists of indices in 26 emerging economies, including but not limited to, Argentina, Brazil, China, India, Poland, Thailand, Turkey, and

Venezuela.


20


Definitions NASDAQ

The NASDAQ, or National Association of Securities Dealers Automated Quotation, is an electronic trading system that provides price quotations to

market participants on the more actively traded common stock issues; approximately 4000 common stock issues are included in the system.

Nikkei

The Nikkei is short for Japan's Nikkei 225 Stock Average, which is the leading index of Japanese stocks. This index is price-weighted and comprised of

Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S.

Non-Agency Derivative (NA Deriv)

A non-Agency Mortgage-Backed Securities (MBS) product type, referring to interest only or inverse floaters for example.

Payment Option ARM

A monthly adjusting adjustable-rate mortgage (ARM) which allows the borrower to choose between several payment options (a 30 or 40-year fully

amortizing payment, a 15-year fully amortizing payment, an interest– only payment, a minimum payment or any amount grater than the minimum

payment).

Personal Consumption Expenditures (PCE)

According to the Bureau of Economic Analysis, personal consumption expenditures (PCE) measures the goods and services purchased by households and

nonprofit institutions serving households who reside in the United States. PCE also includes purchases by U.S. government civilian and military personnel

stationed abroad, regardless of the duration of their assignments, and by U.S. residents who are traveling or working abroad for 1 year or less.

Prime, Alt-A, and Subprime

These are subsets of non-Agency mortgage-backed securities (MBS) depending on underlying loan criteria. For example, the prime non-Agency MBS

bucket includes prime rated securities that have underlying loans where the borrowers are most credit-worthy and highest likelihood of paying. Alt-A

non-Agency MBS includes underlying loans where borrowers still have good credit but there may be other risk concerns with the loan, for example a

higher loan-to-value (LTV) or debt-to-income ratios. Subprime non-Agency MBS includes underlying loans with the lowest credit quality borrower type

and raised risk concerns of likelihood of payment. Subprime Mezznine (Mezz) refers to a tranche of a subprime non-Agency MBS security, specifically the

mezzanine tranche.

PrimeX

The PrimeX index is a synthetic credit default swap (CDS) index which references non-Agency, prime residential mortgage-backed securities (RMBS).

There are 20 prime RMBS deals referenced from the 2005, 2006, and 2007 vintages. The vintages separate the PrimeX into four sub indices by cut-off

dates and collateral type. The PrimeX Fixed-Rate Mortgage (FRM) 1 and FRM 2 are two of these sub indices that contain specific underlying collateral and

vintage types.

Purchasing Managers Index (PMI)

The PMI is an indicator for economic activity, more specifically of the economic health of the manufacturing sector. This index is based on five major

indicators including new orders, inventory levels, supplier deliveries, production and employment environment. Nationally, this data is collected by the

Institute of Supply Management (ISM), but for China it is produced by HSBC and is called the Purchasing Manufacturing Index, though it measures the

same thing for that country.

Real Estate Mortgage Investment Conduit (ReRemic)

A complex pool of mortgage securities created for the purpose of acquiring collateral. This base is then divided into varying classes of securities backed

by mortgages with different maturities and coupons.

S&P 500 Index

Standard & Poor’s US 500 Index, a capitalized-weighted index of 500 stocks.

S&P/Case-Shiller Index

The index measures the change in value of the U.S. residential housing market by tracking the growth in real estate values by following the purchase

price and resale value of homes.

S&P/Goldman Sachs Commodity Excess Return Index (S&P GSCI)

Standard & Poor’s/Goldman Sachs Commodity Index, or GSCI, is a composite index of commodity sector returns which represents a broadly diversified,

unleveraged, long-only position in commodity futures. The index’s components qualify for inclusion in the index based on liquidity measures and are

weighted in relation to their global production levels, making the Index a valuable economic indicator and commodities market benchmark. The S&P

GSCI Excess Return Index (SPSCI ER) is one of the three S&P GSCI Indices published, measuring the return accrued from investing in uncollateralized

nearby commodity futures. This Excess Return Index includes an Energy component, which was referenced in this commentary.


21


Shanghai Composite

A market composite made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange.


Important Information Regarding This Report

The DoubleLine Multi-Asset Growth Fund, as of June 30, 2013, held 1.46% in Fannie Mae (FNMA), 1.94% in Freddie Mac (FHLMC), and 0.37% in Ginnie Mae (GNMA). Fund

holdings are subject to change without notice and are not recommendations to buy or sell any security.

Issue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. Such charts are not the only tools used by the

investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.

DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to

be reliable, DoubleLine cannot guarantee the accuracy of the information provided. Securities discussed are not recommendations and are presented as examples of

issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for

sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook without notice as market conditions dictate or as additional information

becomes available.

Ratings shown for various indices reflect the average for the indices. Such ratings and indices are created independently of DoubleLine and are subject to change without notice.

Important Information Regarding Risk Factors

Investment strategies may not achieve the desired results due to implementation lag, other timing factors, portfolio management decision-making, economic or market

conditions or other unanticipated factors. The views and forecasts expressed in this material are as of the date indicated, are subject to change without notice, may not

come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. Past performance (whether of DoubleLine or any index

illustrated in this presentation) is no guarantee of future results. You cannot invest in an index.

Important Information Regarding DoubleLine

In preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, including

independent pricing services and fair value processes such as benchmarking.

To receive a complimentary copy of DoubleLine’s current Form ADV (which contains important additional disclosure information), a copy of the DoubleLine’s proxy voting

policies and procedures, or to obtain additional information on DoubleLine’s proxy voting decisions, please contact DoubleLine’s Client Services.

Important Information Regarding DoubleLine’s Investment Style

DoubleLine seeks to maximize investment results consistent with our interpretation of client guidelines and investment mandate. While DoubleLine seeks to maximize

returns for our clients consistent with guidelines, DoubleLine cannot guarantee that DoubleLine will outperform a client's specified benchmark. Additionally, the nature

of portfolio diversification implies that certain holdings and sectors in a client's portfolio may be rising in price while others are falling; or, that some issues and sectors

are outperforming while others are underperforming. Such out or underperformance can be the result of many factors, such as but not limited to duration/interest rate

exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.

DoubleLine is an active manager and will adjust the composition of client’s portfolios consistent with our investment team’s judgment concerning market conditions and

any particular security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of bond market indices. As such, a

DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLine’s

performance is properly assessed over a full multi-year market cycle.

Important Information Regarding Client Responsibilities

Clients are requested to carefully review all portfolio holdings and strategies, including by comparing the custodial statement to any statements received from

DoubleLine. Clients should promptly inform DoubleLine of any potential or perceived policy or guideline inconsistencies. In particular, DoubleLine understands that

guideline enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients

are also requested to notify DoubleLine of any updates to Client’s organization, such as (but not limited to) adding affiliates (including broker dealer affiliates), issuing

additional securities, name changes, mergers or other alterations to Client’s legal structure.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

© 2013 DoubleLine Capital LP

Disclaimer

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