<PAGE> 1
[METROPOLITAN WEST LOGO BLACK]
[METROPOLITAN WEST LOGO RED]
METROPOLITAN WEST FUNDS
TOTAL RETURN BOND FUND
LOW DURATION BOND FUND
ANNUAL REPORT
[DINGBAT]
March 31, 1998
<PAGE> 2
May 6, 1998
METROPOLITAN WEST FUNDS
Dear Shareholder:
We are pleased to enclose the annual report for the Metropolitan West Low
Duration and Total Return Bond Funds for the year ended March 31, 1998.
From the inception of the Funds on March 31, 1997, i.e. 6 days after the Federal
Reserve raised short term interest rates, through March 31, 1998 the interest
rate environment has been favorable to bond investors. Yields on two-year
Treasury securities have fallen from 6.41% on March 31, 1997 to 5.56% on March
31, 1998. Ten-year Treasury yields have fallen from 6.91% to 5.65% over the same
period. This downward movement of 85 and 126 basis points, respectively, has had
a positive impact on the Net Asset Values (NAV) of our Funds. From their
inception NAV of $10.00, the Low Duration Bond Fund Net Asset Value closed at
$10.18 and the Total Return Bond Fund Net Asset Value closed at $10.49.
In addition, performance versus our benchmark indices continued strong. Net of
fees, the Low Duration Bond Fund produced a return of 8.71% for the 12 month
period versus the Merrill Lynch 1-3 Year U.S. Treasury Index* return of 7.51%
over the same period. The Total Return Bond Fund returned 13.71% while the
Lehman Aggregate Index* performance for the same period was 12.00%. Returns
continued to be a result of the Funds' philosophy of utilizing a mix of five
distinct strategies, each applied in a measured way. By diversifying the sources
of value added in the portfolios, management hopes to produce a consistent level
of outperformance relative to the Funds' performance benchmarks.
We welcome all of our new shareholders to the Funds and appreciate your support
and confidence in our style of fixed income management. The portfolio managers
of Metropolitan West Asset Management, LLC, (the Adviser to the Funds) led by
Tad Rivelle, Laird Landmann, and Stephen Kane are committed to enhancing
shareholder value on behalf of the Funds' investors.
Our portfolio managers welcome and encourage frequent communications with our
shareholders. On behalf of everyone involved in the formation of the
Metropolitan West Funds, we want to thank you for your support and confidence in
the organization and look forward to communicating with you in the future. As
always, please feel free to contact us directly at 310-446-7727 if you have any
comments, questions or suggestions.
Sincerely,
[/s/ Scott Dubchansky]
President
Past performance is not indicative of future results. Share prices and returns
will fluctuate and when redeemed, shares may be worth more or less than their
original investment. Please read the prospectus carefully before you invest.
U.S. Treasury bonds unlike mutual funds are insured direct obligations of the
U.S. Government that offer a fixed rate of return.
*unmanaged indices
The Metropolitan West Funds are distributed by FPS Broker Services, Inc.
To be preceded or accompanied by a prospectus. DFU 5/98
1
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<PAGE> 3
METROPOLITAN WEST FUNDS
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the increase in value of a $10,000 investment in the
Metropolitan West Total Return Bond Fund with the performance of the Lehman
Aggregate Index. The average annual total return for the Metropolitan West Total
Return Bond Fund was 13.71%. The graph assumes that distributions were
reinvested.
METROPOLITAN WEST TOTAL RETURN BOND FUND
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
Measurement Period Lehman Aggregate
(Fiscal Year Covered) Total Return Bond Index
<S> <C> <C>
Mar-97 10000 10000
Apr-97 10128 10150
May-97 10249 10246
Jun-97 10391 10368
Jul-97 10697 10648
Aug-97 10637 10558
Sep-97 10776 10714
Oct-97 10940 10869
Nov-97 11052 10919
Dec-97 11187 11030
Jan-98 11323 11171
Feb-98 11314 11162
Mar-98 11371 11200
</TABLE>
Past performance does not guarantee future results.
The graph below compares the increase in value of a $10,000 investment in the
Metropolitan West Low Duration Bond Fund with the performance of the Merrill
Lynch 1-3 Year U.S. Treasury Index. The average annual total return for the
Metropolitan West Low Duration Fund was 8.71%. The graph assumes that
distributions were reinvested.
METROPOLITAN WEST LOW DURATION BOND FUND
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
Merrill Lynch 1-3
Measurement Period Low Duration yr. U.S. Treasury
(Fiscal Year Covered) Bond Index
<S> <C> <C>
Mar-97 10000 10000
Apr-97 10087 10082
May-97 10168 10151
Jun-97 10243 10221
Jul-97 10358 10333
Aug-97 10397 10342
Sep-97 10488 10421
Oct-97 10536 10498
Nov-97 10597 10524
Dec-97 10683 10596
Jan-98 10786 10699
Feb-98 10813 10708
Mar-98 10871 10751
</TABLE>
Past performance does not guarantee future results.
2
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<PAGE> 4
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS--89.03%
CORPORATES--36.84%
Banks--17.42% $ 250,000 Capital One Bank, 8.13%, 03/01/00 $ 257,798
200,000 Capital One Bank, 7.35%, 06/20/00 203,874
500,000 Den norske Bank ASA (FRN), 5.94%,
11/29/49(2) 417,625
250,000 MBNA Corp. (FRN) (MTN), 6.18%,
02/06/01 249,913
500,000 MBNA Corp. (FRN) (MTN), 6.04%,
06/17/02 497,783
1,085,000 MBNA Corp. (FRN), 6.29%, 05/23/03 1,083,063
400,000 Midland Bank PLC (FRN), 6.19%,
06/29/49(2) 341,240
400,000 Okobank (FRN), 6.19%, 09/29/49(2) 395,000
400,000 Skandinavinska Enskilda (FRN)
(MTN), 6.69%, 06/29/49(2) 402,899
500,000 Union Bank Of Norway (FRN),
7.31%, 12/29/49(2) 503,250
-----------
4,352,445
-----------
Brokerage Services 800,000 Lehman Brothers Holdings, Inc.
- --4.14% (FRN) (MTN), 6.29%, 03/17/07(2) 804,800
230,000 Salomon, Inc. (FRN) (MTN), 5.74%,
04/05/99 229,178
-----------
1,033,978
-----------
Cable/Media--2.11% 500,000 CBS Corp. (MTN), 8.88%, 06/01/01 527,566
----------
Electric Utilities 300,000 Alabama Power Co., 9.00%,
- --5.20% 12/01/24(2) 331,495
400,000 Arkansas Power & Light Co.,
8.75%, 03/01/26(2) 436,280
500,000 Long Island Lighting Co., 8.90%,
07/15/19(2) 532,499
-----------
1,300,274
-----------
Finance--1.60% 400,000 Newcourt Credit Group (FRN)
(MTN), 6.21%, 12/05/00 398,500
-----------
Industrial--3.55% 500,000 Cemex S.A., 10.75%, 07/15/00 532,700
250,000 RJR Nabisco, Inc., 8.30%,
04/15/99 253,516
100,000 RJR Nabisco, Inc., 8.00%,
01/15/00 101,455
-----------
887,671
-----------
Sovereign--2.82% 760,000 Republic of Argentina (FRN),
6.63%, 03/31/05(2) 703,000
-----------
TOTAL CORPORATES 9,203,434
-----------
</TABLE>
See accompanying notes to financial statements.
3
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<PAGE> 5
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED--25.04%(3)
Non-Agency $ 129,106 Blackrock Capital Finance L.P.
Mortgage-Backed 1997-R2 144A (FRN), 6.23%,
- --16.09% 12/25/35 $ 134,321
79,636 Citicorp Mortgage Securities,
Inc. 1992-20 A4, 7.50%, 01/25/07 79,801
145,012 Collateralized Mortgage
Obligation Trust 57D, 9.90%,
02/01/19 156,752
2,479,699 DLJ Mortgage Acceptance Corp.
1994-Q8 (IO), 1.87%, 05/25/24 106,394
500,000 GE Capital Mortgage Services,
Inc. 1994-6 A11, 6.50%, 04/25/24 466,075
300,000 Independent National Mortgage
Corp. 1995-N A5, 7.50%, 10/25/25 305,757
9,233,441 Nomura Asset Securities Corp.
1994-4A 2IO (IO), 1.23%, 09/25/24 275,849
200,000 Norwest Asset Securities Corp.
1998-5 A7, 7.00%, 03/25/28 198,000
600,000 Norwest Asset Securities Corp.
1998-5 A11, 6.90%, 03/25/28 591,030
163,955 Residential Funding Mortgage
Securities I 1993-S42 A10, 8.30%,
10/25/08 166,773
706,018 Resolution Trust Corp. 1994-C1 F,
8.00%, 06/25/26 713,078
209,340 Resolution Trust Corp. 1995-2 B6
(FRN), 6.67%, 05/25/29 209,713
350,655 Ryland Mortgage Securities Corp.
1991-18 4A, 14.00%, 11/25/31 377,393
150,000 Structured Asset Securities Corp.
1995-3B 2A1, 6.50%, 01/28/24 144,723
365,110 Structured Mortgage Asset
Residential Trust 1991-7 (IO),
14.37%, 12/25/22 94,929
-----------
4,020,588
-----------
U.S. Agency 323,000 Fannie Mae 1992-200 MC, 7.50%,
Mortgage-Backed 08/25/22 322,735
- --8.95% 13,933,000 Fannie Mae 1993-199 SD (IO),
0.86%, 10/25/23 391,378
388,000 Fannie Mae 1993-251 C, 6.50%,
09/25/23 384,415
3,000,000 Fannie Mae 1997-44 SB (IO),
2.01%, 06/25/08 239,010
95,942 Freddie Mac 1433 SE, 10.15%,
11/15/22 100,886
1,319,416 Freddie Mac 1164 O (IO), 6.28%,
11/15/06 186,198
</TABLE>
See accompanying notes to financial statements.
4
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<PAGE> 6
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
$ 227,786 Freddie Mac 1552 Q, 13.75%,
10/15/22 $ 251,041
350,000 Freddie Mac 1963 SB, 15.60%,
06/15/27 359,206
-----------
2,234,869
-----------
TOTAL MORTGAGE-BACKED 6,255,457
-----------
U.S. TREASURY AND U.S. AGENCY
NOTES AND BONDS--27.15%
613,000 U.S. Treasury Notes, 6.50%,
05/15/05 640,203
1,300,000 U.S. Treasury Notes, 7.25%,
05/15/16 1,479,564
1,000,000 U.S. Treasury Bonds, 8.75%,
05/15/17 1,309,376
600,000 Fannie Mae, 0.00%, 10/09/19 158,726
1,200,000 U.S. Treasury Bonds, 8.50%,
02/15/20 1,558,501
100,000 U.S. Treasury Notes, 7.88%,
02/15/21 122,750
1,377,000 U.S. Treasury Notes, 6.75%,
08/15/26 1,514,701
-----------
6,783,821
-----------
TOTAL BONDS
(Cost $22,147,911) 22,242,712
-----------
SHORT TERM INVESTMENTS--8.28%
Commercial Paper 950,000 Kellogg Co., 5.50%, 04/24/98 946,662
- --8.28% 325,000 Lockheed Martin Corp., 5.70%,
04/23/98 323,868
800,000 Lockheed Martin Corp., 5.72%,
04/23/98 797,203
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,067,733) 2,067,733
-----------
TOTAL INVESTMENTS--97.31%
(Cost $24,215,644)(1) 24,310,445
CASH AND OTHER ASSETS,
LESS LIABILITIES--2.69% 672,572
-----------
NET ASSETS--100.00% $24,983,017
===========
</TABLE>
See accompanying notes to financial statements.
5
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<PAGE> 7
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
Notes:
(1) Cost for Federal income tax purposes is $24,215,644 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $183,186
Gross unrealized depreciation (88,385)
--------
Net unrealized appreciation $ 94,801
========
</TABLE>
(2) Security is likely to have an effective maturity date less than the stated
maturity date due to a call feature.
(3) Pass through securities backed by mortgage securities where principal
payments are periodically received will likely have an effective maturity
date shorter than the stated maturity date.
The following securities have been determined to be illiquid by the Fund's Board
of Trustees:
<TABLE>
<CAPTION>
DATE OF % OF
SECURITY PURCHASE COST TNA
-------- -------- -------- -----
<S> <C> <C> <C>
DLJ Mortgage Acceptance Corp. 1994-Q8
(IO), 1.87%, 05/25/24 06/19/97 $120,254 0.43%
Nomura Asset Securities Corp. 1994-4A
2IO (IO), 1.23%, 09/25/24 08/06/97 322,774 1.10
Structured Mortgage Asset Residential
Trust 1991-7 (IO), 14.37%, 12/25/22 06/25/97 118,016 0.38
-------- ---
$561,044 1.91%
======= ===
</TABLE>
(FRN): Floating rate note -- The rate disclosed is that in effect at March 31,
1998.
(IO): Interest only
(MTN): Medium term note
See accompanying notes to financial statements.
6
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<PAGE> 8
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS--68.63%
Asset-Backed $ 67,676 Contimortgage Home Equity Loan
Securities--2.80% Trust 1994-4 A6, 8.27%,
12/15/24(2) $ 70,677
1,100,000 Contimortgage Home Equity Loan
Trust 1997-2 A5, 6.97%,
10/15/13(2) 1,121,274
568,953 First Alliance Mortgage Loan
Trust 1996-2 A1, 7.23%,
12/20/19(2) 572,634
284,837 Olympic Automobile Receivables
Trust 1994-B A2, 6.85%,
06/15/01(2) 286,309
200,000 UCFC Home Equity Loan 1994-B1
A4, 7.45%, 06/10/11(2) 204,568
1,524,440 UCFC Home Equity Loan 1995-D1
A2, 6.20%, 03/10/14(2) 1,528,526
------------
3,783,988
------------
CORPORATES--27.47%
Banks--8.96% 675,000 Capital One Bank, 8.13%,
03/01/00 696,055
820,000 Capital One Bank, 7.35%,
06/20/00 835,883
300,000 Capital One Bank (FRN), 6.00%,
08/10/98 300,223
1,500,000 Den norske Bank ASA (FRN),
5.94%, 11/29/49(2) 1,252,875
1,000,000 Kansallis-Osake-Pankki (FRN),
7.74%, 09/30/43(2) 1,007,000
1,175,000 MBNA Corp. (FRN) (MTN), 6.01%,
09/13/01 1,170,947
1,500,000 MBNA Corp. (FRN) (MTN), 6.16%,
09/09/02 1,494,862
800,000 MBNA Corp. (MTN), 6.50%,
09/15/00 800,493
1,300,000 Midland Bank PLC (FRN), 6.19%,
06/29/49(2) 1,109,030
1,300,000 Okobank (FRN), 6.19%,
09/29/49(2) 1,283,750
150,000 Okobank (FRN), 7.24%,
09/29/49(2) 152,108
1,100,000 Skandinavinska Enskilda (FRN)
(MTN), 6.69%, 06/29/49(2) 1,107,973
900,000 Swedbank Sparbanken Sverige AB,
7.66%, 10/29/49(2) 909,135
------------
12,120,334
------------
Brokerage 3,000,000 Lehman Brothers Holdings, Inc.
Services--5.69% (FRN) (MTN), 6.23%, 01/30/02 3,005,520
2,300,000 Lehman Brothers Holdings, Inc.
(FRN) (MTN), 6.29%, 03/17/07(2) 2,313,800
100,000 Salomon, Inc. (FRN) (MTN),
6.14%, 12/01/98 99,989
800,000 Salomon, Inc. (FRN) (MTN),
5.64%, 02/11/99 795,769
</TABLE>
See accompanying notes to financial statements.
7
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<PAGE> 9
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Brokerage Services $1,000,000 Salomon, Inc. (FRN) (MTN),
(continued) 5.64%, 02/15/99 $ 994,873
500,000 Salomon, Inc. (FRN) (MTN),
5.47%, 05/20/99 497,294
------------
7,707,245
------------
Cable/Media--1.10% 100,000 CBS Corp. (MTN), 9.04%,
06/01/98 100,400
400,000 CBS Corp. (MTN), 8.96%,
06/17/98 402,108
1,000,000 TCI Communications, Inc. (FRN)
(MTN), 5.95%, 09/11/00 994,205
------------
1,496,713
------------
Electric Utilities 600,000 Arkansas Power & Light Co.,
- --3.78% 8.75%, 03/01/26(2) 654,420
600,000 Cleveland Electric
Illuminating Co.,
9.25%, 07/29/99 621,465
1,400,000 Long Island Lighting Co.,
8.90%, 07/15/19(2) 1,490,997
500,000 Long Island Lighting Co.,
9.63%, 07/01/24(2) 516,277
1,800,000 System Energy Resources, 7.80%,
08/01/00 1,837,350
------------
5,120,509
------------
Finance--1.85% 100,000 American Bankers Insurance
Group, Inc., 6.31%, 04/12/00 100,728
100,000 Heller Financial, Inc. (FRN)
(MTN), 5.14%, 04/21/99 99,675
500,000 Newcourt Credit Group, 5.85%,
01/05/99 499,102
500,000 Newcourt Credit Group, (MTN),
6.21%, 12/05/00 498,125
1,300,000 Taubman Realty Group, Ltd.
(FRN) (MTN), 6.58%, 07/26/99 1,300,908
------------
2,498,538
------------
Industrial--2.53% 2,150,000 Cemex S.A., 10.75%, 07/15/00 2,290,610
1,000,000 RJR Nabisco, Inc., 7.63%,
09/01/00 1,027,229
100,000 Valassis Inserts, Inc., 9.38%,
03/15/99 102,244
------------
3,420,083
------------
</TABLE>
See accompanying notes to financial statements.
8
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<PAGE> 10
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Sovereign--3.56% $ 3,230,000 Republic of Argentina (FRN),
6.63%, 03/31/05(2) $ 2,987,750
1,750,000 Republic of Finland, 9.63%,
04/01/28(2) 1,825,443
------------
4,813,193
------------
TOTAL CORPORATES 37,176,615
------------
MORTGAGE-BACKED--24.09%(3)
Non-Agency 516,423 Blackrock Capital Finance L.P.
Mortgage-Backed 1997-R2 AP (FRN), 6.23%,
- --15.15% 12/25/35 537,286
459,622 Capstead Securities Corp. IV
1992-11 IB, 7.88%, 08/25/22 466,742
132,769 Citicorp Mortgage Securities,
Inc. 1988-16 A1, 10.00%,
11/25/18 141,662
88,081 Citicorp Mortgage Securities,
Inc.
1990-D A1, 9.50%, 10/25/05 91,050
227,879 Citicorp Mortgage Securities,
Inc. 1991-5 A (FRN), 6.22%,
05/25/21 155,314
796,357 Citicorp Mortgage Securities,
Inc. 1992-20 A4, 7.50%,
01/25/07 798,006
253,150 Citicorp Mortgage Securities,
Inc. 1994-3 A12, 9.00%,
02/25/24 258,767
3,743,299 CMC Securities Corp. II 1993-2G
A2, 7.19%, 11/25/23 3,761,970
391,643 Countrywide Funding Corp.
1993-11 A12, 8.50%, 02/25/09 407,370
100,000 Countrywide Funding Corp.
1994-7 A7, 6.50%, 03/25/24 95,490
448,520 DLJ Mortgage Acceptance Corp.
1992-MF10 A1 (FRN), 7.66%,
12/22/02 448,521
1,446,981 DLJ Mortgage Acceptance Corp.
1993-Q18 SC (FRN) (IO), 2.95%,
01/25/24 45,218
15,407,048 DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.87%,
05/25/24 659,514
66,826 Drexel Burnham Lambert CMO
Trust H 3, 8.50%, 07/01/14 67,308
928,514 FDIC REMIC Trust 1994-C1 2A2,
7.85%, 09/25/25 937,697
81,032 GE Capital Mortgage Services,
Inc. 1995-8 A3, 7.00%, 10/25/25 81,072
129,923 Guardian Savings & Loan
Association 1988-2 A, 6.94%,
09/25/18 125,336
114,081 Guardian Savings & Loan
Association 1988-5 A, 6.89%,
12/25/18 107,843
</TABLE>
See accompanying notes to financial statements.
9
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<PAGE> 11
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
Non-Agency $ 500,000 Independent National Mortgage
Mortgage-Backed Corp.
(continued) 1995-N A5, 7.50%, 10/25/25 $ 509,595
1,500,000 Norwest Asset Securities Corp.
1998-5 A11, 6.90%, 03/25/28 1,477,575
900,000 Norwest Asset Securities Corp.
1998-5 A7, 7.00%, 03/25/28 891,000
500,000 Residential Funding Mortgage
Securities I 1993-S26 A9,
7.50%, 07/25/23 512,850
984,644 Resolution Trust Corp. 1992-C6
B, 7.70%, 07/25/24 982,183
1,129,629 Resolution Trust Corp. 1994-C1
F, 8.00%, 06/25/26 1,140,925
1,087,542 Ryland Acceptance Corp. IV 28
1, 11.50%, 12/25/16 1,185,676
445,126 Ryland Mortgage Securities
Corp. 1993-3 2E, 6.71%,
08/25/08 446,795
1,436,049 Ryland Mortgage Securities
Corp. III 1992-D 1A, 7.97%,
09/25/22 1,461,180
2,442,670 Sears Mortgage Securities
1991-C A, 6.49%, 04/25/29 2,439,189
271,006 SLH Mortgage Trust 1990-1 G,
9.60%, 03/25/21 270,183
------------
20,503,317
------------
U.S. Agency 162,048 Fannie Mae 1990-14 H, 7.95%,
Mortgage-Backed 08/25/19 164,796
- --8.94% 496,981 Fannie Mae 1992-150 H, 7.00%,
07/25/19 497,185
1,017,306 Fannie Mae 1993-33 ZA, 7.50%,
09/25/21 1,043,349
1,922,152 Fannie Mae 1993-121 SB, 9.36%,
02/25/23 1,931,163
176,000 Fannie Mae 1993-202 SJ, 9.00%,
11/25/23 176,072
1,639,000 Fannie Mae 1993-206 SD, 10.00%,
11/25/23 1,629,412
295,866 Fannie Mae 1994-2 SB, 10.00%,
01/25/24 313,572
15,000,000 Fannie Mae 1997-44 SB (IO),
2.01%, 06/25/08 1,195,050
1,319,416 Freddie Mac 1164 O (IO), 6.28%,
11/15/06 186,198
618,689 Freddie Mac 1290 H, 7.50%,
06/15/21 640,374
200,000 Freddie Mac 1634 SE, 8.80%,
12/15/23 200,626
</TABLE>
See accompanying notes to financial statements.
10
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<PAGE> 12
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
$ 650,000 Freddie Mac 1963 SB, 15.60%,
06/15/27 $ 667,098
460,749 Freddie Mac Gold 21 SG, 9.39%,
10/25/23 469,918
147,481 Freddie Mac Gold 41 ZB, 8.25%,
04/25/24 145,963
73,522 Government National Mortgage
Association 1996-20 G, 7.50%,
08/20/19 74,724
462,733 Government National Mortgage
Association Pool 2020, 8.50%,
06/20/25 484,690
415,564 Government National Mortgage
Association Pool 2286, 8.50%,
09/20/26 435,563
1,764,001 Government National Mortgage
Association Pool 2487, 8.50%,
09/20/27 1,846,415
------------
12,102,168
------------
TOTAL MORTGAGE-BACKED 32,605,485
------------
U.S. GOVERNMENTS--14.27%
U.S. Treasury 6,000,000 U.S. Treasury Notes, 5.00%,
Notes--14.27% 01/31/99 5,973,756
5,500,000 U.S. Treasury Notes, 8.00%,
08/15/99 5,673,597
650,000 U.S. Treasury Notes,
6.50%, 05/15/05 678,844
6,344,000 U.S. Treasury Notes, 6.75%,
08/15/26 6,978,406
------------
19,304,603
------------
TOTAL BONDS
(Cost $92,552,497) 92,870,691
------------
SHORT TERM INVESTMENTS--30.85%
Commercial 4,000,000 Centric Capital Corp., 5.54%,
Paper--30.85% 04/20/98 3,988,305
1,350,000 Cox Communications, Inc.,
5.69%, 04/01/98 1,350,000
1,000,000 Cummins Engine, Inc., 5.68%,
04/24/98 996,371
5,100,000 E.I. dupont de Nemours & Co.,
5.52%, 04/16/98 5,088,270
5,400,000 Ford Motor Credit Co., 5.53%,
04/21/98 5,383,410
5,400,000 General Electric Co., 5.54%,
04/22/98 5,382,549
</TABLE>
See accompanying notes to financial statements.
11
- --------------------------------------------------------------------------------
<PAGE> 13
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (CONTINUED)
Commercial Paper $5,250,000 IBM Credit Corp.,
(continued) 5.55%, 04/02/98 $ 5,249,191
4,300,000 Kellogg Co.,
5.50%, 04/24/98 4,284,890
2,100,000 Levi Strauss & Co., 5.85%,
04/23/98 2,092,493
3,400,000 Llama Retail Funding L.P.,
5.60%, 04/23/98 3,388,364
450,000 Lockheed Martin Corp.,
5.70%, 04/23/98 448,433
4,100,000 Lockheed Martin Corp., 5.73%,
04/23/98 4,085,643
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $41,737,919) 41,737,919
------------
TOTAL INVESTMENTS--99.48%
(Cost $134,290,416)(1) 134,608,610
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.52% 704,385
------------
NET ASSETS--100.00% $135,312,995
============
</TABLE>
Notes:
(1) Cost for Federal income tax purposes is $134,290,416 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 476,803
Gross unrealized depreciation (158,609)
---------
Net unrealized appreciation $ 318,194
=========
</TABLE>
(2) Security is likely to have an effective maturity date less than the stated
maturity date due to a call feature.
(3) Pass through securities backed by mortgage securities where principal
payments are periodically received will likely have an effective maturity
date shorter than the stated maturity date.
The following securities have been determined to be illiquid by the Fund's Board
of Trustees:
<TABLE>
<CAPTION>
SECURITY DATE OF PURCHASE COST % OF TNA
-------- ---------------- -------- --------
<S> <C> <C> <C>
DLJ Mortgage Acceptance Corp.
1993-Q18 SC (FRN) (IO), 2.95%,
01/25/24 09/30/97 $ 53,526 0.03%
DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.87%,
05/25/24 06/19/97 675,018 0.49
-------- ----
$728,544 0.52%
======== ====
</TABLE>
(FRN): Floating rate note -- The rate disclosed is that in effect at March 31,
1998.
(IO): Interest only
(MTN): Medium term note
See accompanying notes to financial statements.
12
- --------------------------------------------------------------------------------
<PAGE> 14
METROPOLITAN WEST FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL
RETURN LOW DURATION
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $24,215,644 and
$134,290,416, respectively) (Note 2) $24,310,445 $134,608,610
Cash and cash equivalents (Note 2) 104,757 0
Dividends and interest receivable 261,560 867,411
Receivable for securities sold 968,870 5,703,015
Deferred unamortized organizational costs
(Note 2) 30,301 30,301
Due from Adviser (Note 4) 5,230 0
Other assets 319 319
----------- ------------
Total assets 25,681,482 141,209,656
----------- ------------
LIABILITIES:
Payable for securities purchased 653,366 2,554,332
Payable to custodian 0 3,266,726
Due to Adviser 0 4,686
Accrued expenses 22,103 62,156
Distributions Payable 22,996 8,760
----------- ------------
Total liabilities 698,465 5,896,660
----------- ------------
Net assets $24,983,017 $135,312,995
=========== ============
NET ASSETS CONSIST OF:
Common stock, unlimited shares authorized,
$0.01 par value, 2,381,576 and 13,289,111
shares outstanding, respectively $24,662,150 $134,791,962
Accumulated undistributed net realized gain on
investments 226,066 202,839
Net unrealized appreciation on investments 94,801 318,194
----------- ------------
$24,983,017 $135,312,995
=========== ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $10.49 $10.18
====== ======
</TABLE>
See accompanying notes to financial statements.
13
- --------------------------------------------------------------------------------
<PAGE> 15
METROPOLITAN WEST FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL
RETURN LOW DURATION
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $1,086,045 $4,347,279
---------- ----------
EXPENSES:
Investment advisory fees (Note 5) 74,072 285,202
Transfer agent fees 20,552 23,536
Administration fees 48,576 52,311
Registration and filing fees 30,316 67,674
Reports to shareholders 4,005 7,670
Custodian fees 12,551 25,180
Accounting services 23,837 35,108
Pricing fees 2,501 4,159
Legal fees 14,804 14,984
Insurance expenses 9,408 9,408
Trustees' fees and expenses 8,625 8,625
Auditing and tax consulting fees 10,000 10,000
Amortization of organizational costs (Note 2) 7,301 7,301
Miscellaneous expenses 2,470 3,178
---------- ----------
Total operating expenses 269,018 554,336
---------- ----------
Expenses waived and reimbursed (Note 5) (181,479) (209,717)
---------- ----------
Net expenses 87,539 344,619
---------- ----------
Net investment income 998,506 4,002,660
---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 398,295 306,941
Net change in unrealized appreciation on
investments 94,801 318,194
---------- ----------
Net realized and unrealized gain on
investments 493,096 625,135
---------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,491,602 $4,627,795
========== ==========
</TABLE>
See accompanying notes to financial statements.
14
- --------------------------------------------------------------------------------
<PAGE> 16
METROPOLITAN WEST FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL RETURN LOW DURATION
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 998,506 $ 4,002,660
Net realized gain on investments 398,295 306,941
Net change in unrealized appreciation on
investments 94,801 318,194
----------- ------------
Net increase in net assets resulting from
operations 1,491,602 4,627,795
----------- ------------
DISTRIBUTIONS:
Dividends to shareholders from net
investment income (998,506) (4,002,660)
Distributions to shareholders from net
realized gains on investments (172,229) (104,102)
----------- ------------
Net decrease in net assets resulting from
distributions (1,170,735) (4,106,762)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 26,106,354 163,923,693
Shares issued in reinvestment of
dividends and distributions 947,050 4,018,103
Cost of shares redeemed (2,441,254) (33,199,834)
----------- ------------
Net increase in net assets resulting from
capital share transactions 24,612,150 134,741,962
----------- ------------
Net increase in net assets 24,933,017 135,262,995
Net assets at beginning of year 50,000 50,000
----------- ------------
Net assets at end of year $24,983,017 $135,312,995
=========== ============
</TABLE>
See accompanying notes to financial statements.
15
- --------------------------------------------------------------------------------
<PAGE> 17
METROPOLITAN WEST FUNDS
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED MARCH 31, 1998
THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF
CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
<TABLE>
<CAPTION>
TOTAL LOW
RETURN DURATION
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Year $10.00 $10.00
-------- -------
Income from Investment Operations:
Net investment income 0.73 0.65
Net realized and unrealized gain on investments 0.60 0.19
-------- -------
Total from Investment Operations 1.33 0.84
-------- -------
Less Distributions:
Dividends from net investment income (0.73) (0.65)
Distributions from net capital gains on
investments (0.11) (0.01)
-------- -------
Total Distributions (0.84) (0.66)
-------- -------
Net Asset Value, End of Year $10.49 $10.18
======== =======
Total Return 13.71% 8.71%
Ratios/Supplemental Data:
Net Assets, end of year (in thousands) $24,983 $135,313
Ratio of Expenses to Average Net Assets
Before expense reimbursement 1.99% 0.93%
After expense reimbursement 0.65% 0.58%
Ratio of Net Income to Average Net Assets
Before expense reimbursement 6.05% 6.37%
After expense reimbursement 7.39% 6.72%
Portfolio Turnover Rate 235% 102%
</TABLE>
See accompanying notes to financial statements.
16
- --------------------------------------------------------------------------------
<PAGE> 18
METROPOLITAN WEST FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. SUMMARY OF ORGANIZATION
The Metropolitan West Funds (the "Trust") is an open-end management investment
company organized as a Delaware business trust on December 9, 1996 under the
Investment Company Act of 1940, as amended. The Trust currently consists of
three separate diversified portfolios (each a "Fund" and collectively, the
"Funds"): Metropolitan West Total Return Bond Fund (the "Total Return Bond
Fund"), Metropolitan West Low Duration Bond Fund (the "Low Duration Bond
Fund") and the Metropolitan West Short-Term Investment Fund (the "Short-Term
Investment Fund"). The Total Return Bond Fund and Low Duration Bond Fund
commenced investments operations on March 31, 1997. The Short-Term Investment
Fund was not operational at March 31, 1998.
The Total Return Bond Fund seeks to maximize long-term total return. This Fund
invests in a diversified portfolio of fixed-income securities of varying
maturities with a portfolio duration of two to eight years. The
dollar-weighted average maturity will exceed its portfolio duration.
The Low Duration Bond Fund seeks to maximize current income, consistent with
preservation of capital. Capital appreciation is a secondary consideration of
the Fund. This Fund invests in a diversified portfolio of fixed-income
securities of varying maturities with a portfolio duration of one to three
years. The dollar-weighted average maturity for this Fund will exceed its
portfolio duration.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds.
SECURITY VALUATION:
Fixed-income securities which are traded on a national securities exchange
will be valued at the last sale price or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such
exchange. However, securities with a demand feature exercisable within one to
seven days are valued at par. Prices for fixed-income securities may be based
on quotations received from one or more market-makers in the securities, or on
evaluations from pricing services. Debt securities which mature in less than
60 days are valued at amortized cost (unless the Board of Trustees determines
that this method does not represent fair value), if their original maturity
was 60 days or less or by amortizing the value as of the 61st day prior to
maturity, if their original term to maturity exceeded 60 days. Securities and
other assets for which market quotations are not readily available are valued
at their fair value as determined by the Adviser under guidelines established
by and under the general supervision and responsibility of the Board of
Trustees.
17
- --------------------------------------------------------------------------------
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Cost is determined and gains and losses are
based on the first-in-first-out method for both financial statement and
federal income tax purposes. Dividend income is recorded on the ex-dividend
date. Interest income is accrued daily.
PAYABLE TO CUSTODIAN:
The amount payable to custodian represents an amount due for an unsettled
trade that was cleared April 1, 1998.
ORGANIZATION COSTS:
Organization costs are being amortized on a straight-line basis over five
years from each Fund's respective commencement of operations.
DISTRIBUTIONS TO SHAREHOLDERS:
Each Fund expects to declare dividends daily and pay them monthly to
shareholders. Distributions of net capital gains, if any, will be made at
least annually. The Board of Trustees may determine to declare dividends and
make distributions more or less frequently.
FEDERAL INCOME TAXES:
The Funds have elected and qualified to be treated as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Each Fund is taxed as a separate entity under Subchapter M and
must qualify on a separate basis. If so qualified, each Fund will not be
subject to federal income taxes on its net investment income and capital
gains, if any, realized during any fiscal year which it distributes to its
shareholders provided that at least 90% of its net investment income earned in
the fiscal year is distributed. All dividends from net investment income
together with distributions of short-term capital gains will be taxable as
ordinary income to the shareholders even though paid in additional shares. Any
net capital gains ("capital gains distributions") distributed to shareholders
are taxable as mid-term or long-term capital gains to the shareholders
regardless of the length of time a shareholder has owned his shares. The Funds
have complied and intend to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies. Therefore,
no Federal income tax provision is required.
CASH AND CASH EQUIVALENTS:
The Funds have defined cash and cash equivalents as cash in interest bearing
and non-interest bearing accounts.
USE OF ESTIMATES:
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
18
- --------------------------------------------------------------------------------
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. PORTFOLIO INVESTMENTS
The Funds may invest in mortgage pass-through securities which represent
interests in pools of mortgages in which payments of both principal and
interest on the securities are generally made monthly, in effect "passing
through" monthly payments made by borrowers on the residential or commercial
mortgage loans which underlie the securities (net of any fees paid to the
issuer or guarantor of the securities). Mortgage pass-through securities
differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.
Payment of principal and interest on some mortgage-related securities (but not
the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed
by GNMA) or by agencies or instrumentalities of the U.S. Government (in the
case of securities guaranteed by FNMA or the FHLMC, which are supported only
by the discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit, which may be issued by governmental entities, private insurers or the
mortgage poolers.
The Funds may also invest in Collateralized Mortgage Obligations (CMOs). CMOs
are debt obligations collateralized by residential or commercial mortgage
loans or residential or commercial mortgage pass-through securities. Interest
and prepaid principal are generally paid monthly. CMOs may be collateralized
by whole mortgage loans or private mortgage pass-through securities but are
more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. The issuer of a series of CMOs
may elect to be treated for tax purposes as a Real Estate Mortgage Investment
Conduit ("REMIC"). CMOs are structured into multiple classes, each bearing a
different stated maturity. Monthly payment of principal received from the pool
of underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes usually receive principal only after shorter classes have been
retired. An investor may be partially protected against a sooner than desired
return of principal because of the sequential payments.
19
- --------------------------------------------------------------------------------
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Funds may invest in stripped mortgage-backed securities issued by the U.S.
Government, its agencies and instrumentalities. Stripped mortgage-backed
securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. In certain cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). During the year ended March 31,
1998, certain interest only securities were purchased as part of the overall
mortgage portfolio holdings. The yield to maturity on IOs is sensitive to the
rate of principal repayments (including prepayments) on the related underlying
mortgage assets, and principal payments may have a material effect on yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may not fully recoup its initial
investment in IOs. Such securities will be considered liquid only if so
determined in accordance with guidelines established by the Trustees. The
Funds also may invest in stripped mortgage-backed securities that are
privately issued. These securities will be considered illiquid for purposes of
each Fund's limit on illiquid securities.
4. SECURITIES TRANSACTIONS
PURCHASES AND SALES:
Investment transactions for the year ended March 31, 1998, excluding temporary
short-term investments, were as follows:
<TABLE>
<CAPTION>
PROCEEDS FROM
PURCHASES SALES
------------ -------------
<S> <C> <C>
Total Return Bond Fund $ 51,480,358 $28,402,208
Low Duration Bond Fund 118,219,140 48,503,020
</TABLE>
5. INVESTMENT ADVISORY SERVICES
Under the Investment Advisory Agreement relating to the Funds, Metropolitan
West Asset Management, LLC (the "Adviser"), a registered investment adviser,
provides the Funds with investment management services. As compensation for
these services, the Adviser charges the Total Return Bond Fund and the Low
Duration Bond Fund a fee, computed daily and payable monthly, at an annual
rate of 0.55% and 0.48%, respectively, of each Fund's average daily net
assets. Certain officers and trustees of the Funds are also officers and
directors of the Adviser. All officers serve without direct compensation from
20
- --------------------------------------------------------------------------------
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Funds. Investment advisory fees and other transactions with affiliates,
for the year ended March 31, 1998, were as follows:
<TABLE>
<CAPTION>
ADVISORY FEES
REDUCED AND
INVESTMENT VOLUNTARY CONTRACTUAL EXPENSES
ADVISORY EXPENSE ADVISORY REIMBURSED DUE FROM
FEE RATE LIMITATION FEES BY ADVISER ADVISER
---------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Total Return Bond
Fund 0.55% 0.65% $ 74,072 $181,479 $5,230
Low Duration Bond
Fund 0.48 0.58 285,202 209,717 0
</TABLE>
The Adviser may recover advisory fees reduced and expenses reimbursed to the
Funds within the three years following such reduction or reimbursement if
operating expenses (before reduction and reimbursement) are less than the
applicable expense limitation.
6. CAPITAL SHARE TRANSACTIONS:
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $0.01 per share. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND LOW DURATION BOND FUND
---------------------- ----------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
MARCH 31, 1998 MARCH 31, 1998
---------------------- ----------------------
<S> <C> <C>
Increase in Fund shares:
Shares outstanding at
beginning of year 5,000 5,000
Shares sold 2,520,599 16,152,929
Shares issued through
reinvestment of
dividends 90,346 395,250
Shares redeemed (234,369) (3,264,068)
--------- ----------
Net increase in Fund shares 2,376,576 13,284,111
--------- ----------
Shares outstanding at end
of year 2,381,576 13,289,111
========= ==========
</TABLE>
21
- --------------------------------------------------------------------------------
<PAGE> 23
METROPOLITAN WEST FUNDS
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of the Metropolitan West Funds:
We have audited the accompanying statements of assets and liabilities of the
Metropolitan West Total Return Bond Fund and the Metropolitan West Low Duration
Bond Fund (the "Funds"), including the schedules of portfolio investments, as of
March 31, 1998 and the related statements of operations, the statements of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at March 31, 1998 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Metropolitan West Total Return Bond Fund and the Metropolitan West Low Duration
Bond Fund at March 31, 1998 and the related statements of operations, the
statements of changes in net assets, and the financial highlights for the year
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 13, 1998
22
- --------------------------------------------------------------------------------
<PAGE> 24
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 25
BOARD OF TRUSTEES
Scott B. Dubchansky
Keith T. Holmes
Martin Luther King III
James M. Lippman
Daniel D. Villanueva
OFFICERS
Scott B. Dubchansky
Chairman of the Board, President and
Principal Executive Officer
Richard H. Schweitzer
Treasurer, Principal Accounting and Financial Officer
Lara Mulpagano
Secretary and Assistant Treasurer
<TABLE>
<S> <C>
ADVISER: AUDITORS:
Metropolitan West Asset Management, LLC Deloitte & Touche LLP
10880 Wilshire Boulevard, Suite 2020 1000 Wilshire Boulevard, Suite 1500
Los Angeles, CA 90024 Los Angeles, CA 90017
CUSTODIAN: DISTRIBUTOR:
The Bank of New York FPS Broker Services, Inc.
48 Wall Street 3200 Horizon Drive, P.O. Box 61503
New York, NY 10286 King of Prussia, PA 19406
TRANSFER AGENT: LEGAL COUNSEL:
First Data Investor Services Group, Inc. Paul, Hastings, Janofsky & Walker LLP
3200 Horizon Drive, P.O. Box 61503 345 California Street, 29th Floor
King of Prussia, PA 19406 San Francisco, CA 94104
</TABLE>
[MetWstLg Logo]
[MetWstLg Logo]
For Additional Information about the
Metropolitan West Funds call:
(310) 446-7727 or
(800) 241-4671 (toll-free)
This report is submitted for general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective Prospectus which includes
details regarding the Funds' objectives, policies, expenses and other
information.
