<PAGE> 1
[METROPOLITAN WEST LOGO BLACK]
[METROPOLITAN WEST LOGO RED]
METROPOLITAN WEST FUNDS
TOTAL RETURN BOND FUND
LOW DURATION BOND FUND
ALPHATRAK 500 FUND
ANNUAL REPORT
[DINGBAT]
March 31, 1999
<PAGE> 2
METROPOLITAN WEST FUNDS
Dear Shareholders:
We are pleased to enclose the annual report for the Metropolitan West Low
Duration and Total Return Bond Funds and the Metropolitan West AlphaTrak 500
Fund, our new enhanced equity index fund, for the year ended March 31, 1999.
In spite of severe market volatility, all of our Funds performed solidly. By
continuing to apply a philosophy of diversifying the sources of value added, all
Funds were able to both outperform their individual benchmarks as well as to
rank near the top of their respective peer groups.
Returns for the Funds, net of fees, were as follows:
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION
PERIOD ENDED (ANNUALIZED) ENDED
MARCH 31, 1999 MARCH 31, 1999
-------------- ------------------
<S> <C> <C>
Low Duration Bond Fund 6.54% 7.62%
Inception date of the Fund 3/31/97
Merrill Lynch 1-3 Year US Treasury 6.08% 6.79%
Index*
Total Return Bond Fund 8.84% 11.25%
Inception date of the Fund 3/31/97
Lehman Aggregate Index* 6.48% 9.20%
AlphaTrak 500 Fund N/A 17.28%**
Inception date of the Fund 6/29/98
S&P 500 Stock Index* N/A 14.22%**
</TABLE>
- ---------
* An unmanaged Index
** Cumulative return
Performance across the three funds was enhanced by a strategy shift in the
fourth quarter of calendar year 1998. This shift in portfolio composition saw
the Funds increase their exposure to the investment grade corporate and mortgage
markets, especially those areas negatively impacted by the events following the
August 1998 Russian debt default. As the debt markets have stabilized, the Funds
have benefited from positive price performance from these sectors.
Asset growth has also been strong. The Low Duration Bond Fund and Total Return
Bond Fund had net assets of approximately $235 and $115 million, respectively,
on March 31, 1999, compared to $135 and $25 million, respectively, on March 31,
1998. Despite the growth of assets, management believes our five basic
investment strategies can continue to be effectively utilized.
- --------------------------------------------------------------------------------
1
<PAGE> 3
We appreciate your support and confidence in our fixed income investment style.
The portfolio managers of Metropolitan West Asset Management, LLC, (the Adviser
to the Funds) led by Tad Rivelle, Laird Landmann, Stephen Kane, and Brian Loo,
are committed to enhancing shareholder value on behalf of the Funds' investors.
As always, our philosophy is to maintain open and direct communication with our
shareholders. Feel free to contact us at (310) 966-8900 if you have any
comments, questions, or suggestions.
Sincerely,
/s/ Scott Dubchansky
Scott Dubchansky,
President and Trustee
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.
The Metropolitan West Funds are distributed by First Data Distributors, Inc.
4400 Computer Drive, Westborough MA. 01581.
To be preceded or accompanied by a prospectus. DFU 5/99
- --------------------------------------------------------------------------------
2
<PAGE> 4
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 one year and average annual since inception total returns
for the Metropolitan West Total Return Bond Fund were 8.84% and 11.25%,
respectively. The graph assumes that distributions were reinvested.
METROPOLITAN WEST TOTAL RETURN BOND FUND
[Performance Chart] TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURN BOND LEHMAN AGGREGATE INDEX
----------------- ----------------------
<S> <C> <C>
Mar-97 10000.00 10000.00
10127.60 10150.00
10249.10 10246.00
Jun-97 10391.20 10368.00
10696.90 10648.00
10637.40 10558.00
Sep-97 10776.50 10714.00
10939.70 10869.00
11051.80 10919.00
Dec-97 11187.50 11030.00
11323.20 11171.00
11314.50 11162.00
Mar-98 11370.60 11200.00
11454.50 11258.10
11550.10 11365.10
Jun-98 11665.20 11461.70
11703.20 11485.70
11722.50 11673.00
Sep-98 11928.40 11946.10
12040.30 11882.80
12216.00 11950.50
Dec-98 12298.70 11986.40
12416.00 12071.50
12173.60 11860.20
Mar-99 12375.80 11925.50
</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 one year and average annual since
inception total returns for the Metropolitan West Low Duration Bond Fund were
6.54% and 7.62%, respectively. The graph assumes that distributions were
reinvested.
METROPOLITAN WEST LOW DURATION BOND FUND
[Performance Chart] TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
MERRILL LYNCH 1-3 YR. U.S. TREASURY
LOW DURATION BOND INDEX
----------------- -----------------------------------
<S> <C> <C>
Mar-97 10000.00 10000.00
10087.20 10082.00
10167.90 10151.00
Jun-97 10242.90 10221.00
10358.50 10333.00
10397.10 10342.00
Sep-97 10487.70 10421.00
10536.40 10498.00
10597.00 10524.00
Dec-97 10682.90 10596.00
10786.30 10699.00
10812.90 10708.00
Mar-98 10870.70 10751.00
10937.20 10801.70
11016.90 10859.00
Jun-98 11085.40 10915.50
11154.70 10966.50
11061.20 11104.40
Sep-98 11120.70 11251.50
11171.20 11306.80
11311.30 11296.90
Dec-98 11396.90 11336.80
11484.90 11381.70
11434.40 11326.20
Mar-99 11581.30 11404.90
</TABLE>
Past performance does not guarantee future results.
- --------------------------------------------------------------------------------
3
<PAGE> 5
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 AlphaTrak 500 Fund with the performance of the S&P 500 Index.
The aggregate since inception total return for the Metropolitan West AlphaTrak
500 Fund was 17.28%. The graph assumes that distributions were reinvested.
METROPOLITAN WEST ALPHATRAK 500 FUND
[Performance Chart] TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
ALPHATRAK 500 S&P 500 INDEX
------------- -------------
<S> <C> <C>
Jun-29-98 10000 10000
Jun-98 9960 9960
Jul-98 9880 9854
Aug-98 8290 8429.3
Sep-98 9010 8969.3
Oct-98 9802 9698.9
Nov-98 10487.5 10286.6
Dec-98 11079.8 10879.4
Jan-99 11594.1 11334.4
Feb-99 11141.5 10982.3
Mar-99 11727.9 11421.6
</TABLE>
Past performance does not guarantee future results.
- --------------------------------------------------------------------------------
4
<PAGE> 6
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS--95.21%
Asset-Backed $ 1,000,000 Green Tree Financial Corp.
Securities--8.09% 1996-9 A6, 7.69%, 01/15/28 $ 1,055,313
1,000,000 Green Tree Home Equity Loan
Trust 1997-B M1, 7.65%, 04/15/27 1,037,344
2,000,000 Green Tree Home Improvement Loan
Trust 1997-E HEB2, 7.77%,
01/15/29 1,856,250
2,377,005 Green Tree Recreational
Equipment & Consumer Trust
1998-A A4H, 8.26%, 05/15/29 2,312,752
3,113,663 First Union Home Equity Loan
Trust 1997-3 B, 7.39%, 03/25/29 3,063,066
------------
9,324,725
------------
CORPORATES--33.15%
Banks--9.39% 1,000,000 Bergen Bank ASA (FRN), 5.19%,
08/29/49(2) 708,002
250,000 Capital One Bank, 8.13%,
03/01/00 254,536
200,000 Capital One Bank, 7.35%,
06/20/00 202,809
500,000 Den Norske Bank ASA (FRN),
5.34%, 08/29/49(2) 357,649
2,000,000 Den Norske Bank ASA (FRN),
5.25%, 11/29/49(2) 1,445,602
1,000,000 Fokus Bank ASA (FRN), 5.82%,
03/29/49(2) 940,200
250,000 MBNA Corp. (FRN) (MTN), 5.52%,
02/06/01 249,657
1,500,000 MBNA Corp. (FRN) (MTN), 5.35%,
06/17/02 1,493,458
1,085,000 MBNA Corp. (FRN) (MTN), 5.60%,
05/23/03 1,079,906
1,070,000 Midland Bank PLC (FRN), 5.38%,
06/29/49(2) 814,263
1,300,000 Midland Bank PLC (FRN), 5.31%,
09/29/49(2) 1,015,105
400,000 Okobank (FRN), 5.53%,
09/29/49(2) 390,400
1,000,000 Republic New York Corp., 7.20%,
07/15/97 992,951
500,000 Skandinavinska Enskilda, 7.50%,
03/29/49(2) 492,031
400,000 Skandinavinska Enskilda (FRN)
(MTN), 6.00%, 06/29/49(2) 387,890
------------
10,824,459
------------
Brokerage Services 2,000,000 Bear Stearns Co., Inc., 7.25%,
- --11.09% 10/15/06 2,082,220
750,000 Bear Stearns Co., Inc., 7.00%,
03/01/07 769,889
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 7
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Brokerage Services $ 2,200,000 Donaldson, Lufkin, Jenrette,
(continued) Inc., 6.88%, 11/01/05 $ 2,235,367
500,000 Goldman Sachs Group (MTN),
6.25%, 02/01/03 501,507
1,000,000 Goldman Sachs Group (MTN),
7.20%, 11/01/06 1,023,648
510,000 Goldman Sachs Group (MTN),
7.20%, 03/01/07 520,894
1,300,000 Lehman Brothers Holdings, Inc.,
7.38%, 01/15/07 1,343,001
800,000 Lehman Brothers Holdings, Inc.
(FRN) (MTN), 5.60%, 03/17/07(2) 780,160
1,500,000 Lehman Brothers Holdings, Inc.,
8.50%, 05/01/07 1,642,827
400,000 Merrill Lynch & Co., Inc.,
6.00%, 02/17/09 389,760
1,500,000 Merrill Lynch & Co., Inc.,
6.88%, 11/15/18 1,487,100
------------
12,776,373
------------
Electric Utilities 300,000 Alabama Power Co., 9.00%,
12/01/24(2) 321,223
- --1.04% 800,000 Arkansas Power & Light Co.,
8.75%, 03/01/26(2) 880,435
------------
1,201,658
------------
Finance--3.32% 500,000 Bankers Trust Institutional
Capital Trust, 7.75%,
12/01/26(2,4) 503,168
500,000 Developers Diversified Realty
Corp. (MTN), 6.84%, 12/16/04 472,514
1,000,000 Developers Diversified Realty
Corp. (MTN), 7.50%, 07/15/18 903,983
1,500,000 Lumbermens Mutual Casualty Co.,
8.45%, 12/01/97(4) 1,546,764
400,000 Newcourt Credit Group (MTN),
5.71%, 12/05/00 399,612
------------
3,826,041
------------
Industrial--7.16% 900,000 Cemex S.A., 10.75%, 07/15/00 932,062
390,000 Cemex S.A., 8.50%, 08/31/00 394,446
3,500,000 Harcourt General, Inc., 7.30%,
08/01/97 3,219,556
600,000 La Quinta Inns (MTN), 7.11%,
10/17/01 573,871
520,000 Occidental Petroleum Corp.,
7.38%, 11/15/08 523,106
250,000 RJR Nabisco, Inc., 8.30%,
04/15/99 250,164
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 8
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Industrial $ 100,000 RJR Nabisco, Inc., 8.00%,
(continued) 01/15/00 $ 101,220
2,300,000 Rouse Co. (MTN), 8.09%, 05/16/05 2,254,000
------------
8,248,425
------------
Sovereign--1.15% 1,534,500 Republic of Argentina (FRN),
5.94%, 03/31/05 1,319,670
------------
TOTAL CORPORATES 38,196,626
------------
MORTGAGE-BACKED--36.00%(3)
Non-Agency 77,983 Blackrock Capital Finance L.P.
Mortgage-Backed 1997-R2 AP, 7.67%, 12/25/35(4) 80,860
- --21.84% 3,000,000 Blaylock Mortgage Capital Corp.
1997-A B1, 6.43%, 10/25/04(4) 2,876,250
95,595 Collateralized Mortgage
Obligation Trust 57 D, 9.90%,
02/01/19 100,532
1,867,247 DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.82%,
05/25/24(5) 85,438
7,491,554 DLJ Mortgage Acceptance Corp.
1994-QE1 S (IO), 3.70%,
04/25/24(5) 467,847
2,037,481 DLJ Mortgage Acceptance Corp.
1994-QE2 S (IO), 4.13%,
06/25/24(5) 142,522
12,165,295 DLJ Mortgage Acceptance Corp.
1995-Q7 SA (IO), 3.02%,
11/25/25(5) 727,485
3,103,856 DLJ Mortgage Acceptance Corp.
1995-QE11 SA (IO), 4.98%,
12/25/25(5) 216,960
7,630,213 DLJ Mortgage Acceptance Corp.
1996-Q5 SA (IO), 4.25%,
06/25/26(5) 476,888
7,963,107 DLJ Mortgage Acceptance Corp.
1996 QA S (IO), 3.19%,
01/25/26(5) 462,657
7,049,342 DLJ Mortgage Acceptance Corp.
1996-QE3 SA (IO), 4.12%,
03/25/26(5) 493,454
500,000 GE Capital Mortgage Services,
Inc. 1994-6 A11, 6.50%, 04/25/24 467,087
300,000 Independent National Mortgage
Corp. 1995-N A5, 7.50%, 10/25/25 304,592
2,686,678 Lehman Structured Securities
Corp. 1996-1 E2, 8.00%, 06/25/26 2,687,938
5,819,552 Nomura Asset Securities Corp.
1994-4A 2IO (IO), 1.11%,
09/25/24 127,739
949,847 OCWEN Residential MBS Corp.
1998-R2 AP, 5.89%, 11/25/34(4) 961,530
163,955 Residential Funding Mortgage
Securities I 1993-S42 A10,
8.30%, 10/25/08 165,851
2,000,000 Residential Funding Mortgage
Securities I 1998-S2 A2, 7.00%,
01/25/28 2,022,975
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 9
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
Non-Agency $ 656,918 Resolution Trust Corp. 1994-C1
Mortgage-Backed F, 8.00%, 06/25/26 $ 657,637
(continued) 157,324 Resolution Trust Corp. 1995-2
B6, 6.61%, 05/25/29 159,023
1,215,840 Resolution Trust Corp. 1995-C2
F, 7.00%, 05/25/27 1,179,365
567,184 Residential Funding Mortgage
Securities I 1993-S45 A15,
6.50%, 12/25/23 522,538
231,111 Ryland Mortgage Securities Corp.
1991-18 4A, 4.00%, 11/25/31 256,071
5,500,000 Ryland Mortgage Securities Corp.
III 1992-A 1C, 8.25%, 03/29/30 5,460,647
150,000 Structured Asset Securities
Corp. 1995-3B 2A1, 6.50%,
01/28/24 147,319
3,000,000 Structured Asset Securities
Corp. 1995-C4 D, 7.00%, 06/25/26 2,999,064
850,000 Structured Asset Securities
Corp. 1996-6 1A5, 7.50%,
08/25/26 873,639
181,060 Structured Mortgage Asset
Residential Trust 1991-7 I (IO),
8.50%, 12/25/22(5) 39,435
------------
25,163,343
------------
U.S. Agency 87,265 Fannie Mae G94-12 B, 6.50%,
Mortgage-Backed 09/17/22 87,998
- --14.16% 146,915 Fannie Mae 1992-36 PJ, 7.50%,
08/25/19 147,022
195,917 Fannie Mae 1992-143 SH, 8.75%,
04/25/22 203,208
247,615 Fannie Mae 1992-200 MC, 7.50%,
08/25/22 244,146
522,962 Fannie Mae 1993-115 S, 5.23%,
07/25/23 412,056
352,744 Fannie Mae 1993-189 SB,
7.29%, 10/25/23 340,953
12,731,875 Fannie Mae 1993-199 SD (IO),
0.86%, 10/25/23 311,536
1,999,490 Fannie Mae 1993-208 SE,
7.79%, 11/25/23 1,947,629
350,270 Fannie Mae 1993-221 SD,
9.00%, 03/25/08 360,112
1,243,320 Fannie Mae 1993-231 SE,
6.32%, 12/25/08 1,144,251
388,000 Fannie Mae 1993-251 C, 6.50%,
09/25/23 389,853
1,878,828 Fannie Mae 1994-56 TA (IO),
6.50%, 04/25/17 103,976
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 10
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
U.S. Agency $ 1,025,675 Fannie Mae 1995-10 Z, 6.50%,
Mortgage-Backed 03/25/24 $ 1,024,397
(continued) 271,230 Fannie Mae 1997-34 SA, 25.54%,
10/25/23 595,469
3,000,000 Fannie Mae 1997-44 SB (IO),
2.39%, 06/25/08 212,275
332,213 Fannie Mae Pool 233672, 7.88%,
09/01/23 341,380
91,688 Fannie Mae Pool 308798, 7.21%,
04/01/25 93,811
232,594 Fannie Mae Pool 312155, 7.23%,
03/01/25 238,059
856,694 Freddie Mac 1164 O (IO), 6.69%,
11/15/06 109,981
716,724 Freddie Mac 1290 H, 7.50%,
06/15/21 739,778
359,521 Freddie Mac 1336 H, 7.75%,
01/15/21 365,127
3,798,937 Freddie Mac 1499 G (IO), 7.00%,
02/15/19 126,570
13,673 Freddie Mac 1541 JA, 5.00%,
12/15/22 13,621
189,784 Freddie Mac 1552 Q, 13.75%,
10/15/22 194,542
898,928 Freddie Mac 1564 SA, 8.54%,
08/15/08 928,727
128,915 Freddie Mac 1564 SE, 8.87%,
08/15/08 130,515
847,571 Freddie Mac 1564 SG, 8.54%,
08/15/08 841,473
1,685,046 Freddie Mac 1980 Z, 7.00%,
07/15/27 1,711,884
2,022,844 Freddie Mac 1985 SA, 11.73%,
08/17/27 1,978,995
336,538 Freddie Mac 2089 SA, 11.22%,
07/15/15 338,365
724,000 Freddie Mac 2098 TZ, 6.00%,
01/15/28 641,419
------------
16,319,128
------------
TOTAL MORTGAGE-BACKED 41,482,471
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 11
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES--17.97%
$ 995,000 Strips, 0.00%, 11/15/05 $ 700,095
850,000 U.S. Treasury Bond, 2.75%,
11/15/10 1,185,750
905,000 U.S. Treasury Notes, 5.75%,
08/15/03 923,383
3,915,000 U.S. Treasury Notes, 6.63%,
05/15/07 4,220,859
1,575,000 U.S. Treasury Notes, 8.13%,
08/15/19 1,983,516
531,000 U.S. Treasury Notes, 8.13%,
05/15/21 674,702
9,870,000 U.S. Treasury Notes, 6.75%,
08/15/26 11,020,477
------------
20,708,782
------------
TOTAL BONDS
(Cost $109,944,397) 109,712,604
------------
SHORT TERM INVESTMENTS -- 3.68%
Commercial Paper 1,000,000 Ford Motor Credit Co.,
- --3.68% 4.84%, 04/08/99 999,059
1,250,000 Ford Motor Credit Co., 4.89%,
04/08/99 1,248,811
1,750,000 General Motors Acceptance Corp.,
4.92%, 04/07/99 1,748,565
250,000 General Motors Acceptance Corp.,
4.95%, 04/07/99 249,794
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,246,229) 4,246,229
------------
TOTAL INVESTMENTS--98.89%
(Cost $114,190,626)(1) 113,958,833
CASH AND OTHER ASSETS,
LESS LIABILITIES--1.11% 1,274,325
------------
NET ASSETS--100.00% $115,233,158
============
</TABLE>
Notes:
(1) Cost for Federal income tax purposes is $114,452,107 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 992,603
Gross unrealized depreciation (1,485,877)
-----------
Net unrealized depreciation $ (493,274)
===========
</TABLE>
(2) Security has an effective maturity date less than the stated maturity date
due to a call or reset feature.
(3) Pass-through securities backed by mortgage securities where payment is
periodically made will have an effective maturity date less than the stated
maturity date.
(4) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. The market value
of these securities at March 31, 1999 was $6,431,229 representing 5.58% of
total net assets.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 12
TOTAL RETURN BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
(5) Securities determined to be illiquid by the Fund's Board of Trustees.
Information related to these securities is as follows:
<TABLE>
<CAPTION>
% OF
SECURITY DATE OF PURCHASE COST TNA
-------- ---------------- ---------- -----
<S> <C> <C> <C>
DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.82%, 05/25/24 06/19/97 $ 85,438 0.07%
DLJ Mortgage Acceptance Corp.
1994-QE1 S (IO), 3.70%, 04/25/24 01/06/99 467,847 0.41%
DLJ Mortgage Acceptance Corp.
1994-QE2 S (IO), 4.13%, 06/25/24 01/06/99 142,522 0.12%
DLJ Mortgage Acceptance Corp.
1995-Q7 SA (IO), 3.02%, 11/25/25 10/20/98 727,485 0.63%
DLJ Mortgage Acceptance Corp.
1995-QE11 SA (IO), 4.98%, 12/25/25 03/30/99 216,960 0.19%
DLJ Mortgage Acceptance Corp.
1996-Q5 SA (IO), 4.25%, 06/25/26 11/02/98 476,888 0.41%
DLJ Mortgage Acceptance Corp.
1996 QA S (IO), 3.19%, 01/25/26 10/20/98 462,657 0.40%
DLJ Mortgage Acceptance Corp.
1996-QE3 SA (IO), 4.12%, 03/25/26 01/22/99 493,454 0.43%
Structured Mortgage Asset
Residential Trust 1991-7 I (IO),
5.64%, 12/25/22 06/25/97 39,435 0.04%
---------- ---
$3,112,686 2.70%
--------- ---
--------- ---
</TABLE>
(FRN): Floating rate note -- The rate disclosed is that in effect at March 31,
1999.
(IO): Interest only
(MTN): Medium term note
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 13
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS--93.83%
Asset-Backed $ 38,617 Contimortgage Home Equity Loan
Securities--10.78% Trust 1994-4 A6, 8.27%,
12/15/24 $ 39,888
1,100,000 Contimortgage Home Equity Loan
Trust 1997-2 A5, 6.97%,
10/15/13 1,109,774
2,000,000 Delta Funding Home Equity Loan
Trust 1996-2 A5, 8.01%,
10/25/27 2,133,985
2,750,000 Green Tree Financial Corp.
1994-1 A5, 7.65%, 04/15/19 2,892,227
6,000,000 Green Tree Financial Corp.
1997-2 A7, 7.62%, 06/15/28 6,293,436
1,210,000 Green Tree Home Equity Loan
Trust 1997-B M1, 7.65%,
04/15/27 1,255,186
1,800,000 Green Tree Home Improvement
Loan Trust 1996-F HIM1, 7.30%,
11/15/27 1,836,844
2,750,000 Green Tree Home Improvement
Loan Trust 1998-B HEM2, 7.33%,
11/15/29 2,765,623
3,755,668 Green Tree Recreational,
Equipment & Consumer Trust
1998-A A4H, 8.26%, 05/15/29 3,654,149
2,533,073 New York City Tax Lien 1998-2A
A, 7.98%, 07/25/06 2,534,847
134,019 Olympic Automobile Receivables
Trust 1994-B A2, 6.85%,
06/15/01 134,209
159,894 TMS Auto Grantor Trust 1997-2
A1, 6.17%, 03/20/01 160,169
120,673 UCFC Home Equity Loan 1994-B1
A4, 7.45%, 06/10/11 122,494
439,059 UCFC Home Equity Loan 1995-D1
A2, 6.20%, 03/10/14 439,895
------------
25,372,726
------------
CORPORATES--46.25%
Banks--19.18% 8,000,000 Bergen Bank ASA (FRN), 5.19%,
08/29/49(2) 5,664,016
500,000 Capital One Bank, 7.20%,
07/19/99 502,246
675,000 Capital One Bank, 8.13%,
03/01/00 687,247
820,000 Capital One Bank, 7.35%,
06/20/00 831,516
1,000,000 Christiania Bank (FRN), 5.63%,
11/29/49(2) 719,379
5,600,000 Den Norske Bank ASA (FRN),
5.34%, 08/29/49(2) 4,005,669
4,500,000 Den Norske Bank ASA (FRN),
5.25%, 11/29/49(2) 3,252,605
5,060,000 Fokus Bank ASA (FRN), 5.82%,
03/29/49(2) 4,757,412
800,000 MBNA Corp. (MTN), 6.50%,
09/15/00 800,624
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 14
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Banks (continued) $ 400,000 MBNA Corp. (FRN) (MTN), 5.52%,
02/06/01 $ 399,451
1,175,000 MBNA Corp. (FRN) (MTN), 5.32%,
09/13/01 1,170,766
3,400,000 MBNA Corp. (FRN) (MTN), 5.35%,
06/17/02 3,385,173
2,000,000 MBNA Corp. (FRN) (MTN), 5.50%,
09/09/02 1,990,614
250,000 Midland Bank PLC (FRN), 5.16%,
06/29/49(2) 188,761
5,820,000 Midland Bank PLC (FRN), 5.38%,
06/29/49(2) 4,428,979
8,850,000 Midland Bank PLC (FRN), 5.31%,
09/29/49(2) 6,910,523
1,300,000 Okobank (FRN), 5.53%,
09/29/49(2) 1,268,800
150,000 Okobank (FRN), 6.56%,
09/29/49(2) 150,892
2,000,000 Skandinavinska Enskilda, 7.50%,
03/29/49(2) 1,968,124
400,000 Skandinavinska Enskilda (FRN)
(MTN), 6.00%, 03/29/49 394,080
1,300,000 Skandinavinska Enskilda (FRN)
(MTN), 6.00%, 06/29/49(2) 1,260,643
450,000 Western Financial Savings Bank,
8.50%, 07/01/03(2) 387,352
------------
45,124,872
------------
Brokerage Services 3,000,000 Bear Stearns Co., Inc. (FRN)
- --12.34% (MTN), 5.19%, 06/26/04(2) 2,995,728
1,800,000 Bear Stearns Co., Inc. (FRN)
(MTN), 5.38%, 03/18/05(2) 1,803,748
5,000,000 Bear Stearns Co., Inc. (FRN)
(MTN), 7.25%, 10/15/06 5,205,550
3,000,000 Donaldson, Lufkin, Jenrette,
Inc., 6.88%, 11/01/05 3,048,228
550,000 Donaldson, Lufkin, Jenrette,
Inc., 6.90%, 10/01/07 555,826
1,000,000 Donaldson, Lufkin, Jenrette,
Inc., 6.50%, 06/01/08 994,897
2,000,000 Goldman Sachs Group (MTN),
7.20%, 11/01/06 2,047,296
200,000 Lehman Brothers Holdings, Inc.,
6.63%, 11/15/00 201,834
250,000 Lehman Brothers Holdings, Inc.
(FRN) (MTN), 5.50%, 02/20/01(2) 247,723
3,000,000 Lehman Brothers Holdings, Inc.
(FRN) (MTN), 5.57%, 01/30/02 2,971,710
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
<PAGE> 15
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Brokerage Services $ 4,200,000 Lehman Brothers Holdings, Inc.
(continued) (FRN) (MTN), 5.60%, 03/17/07(2) $ 4,095,840
4,000,000 Lehman Brothers Holdings, Inc.,
8.50%, 05/01/07 4,380,872
500,000 Salomon Smith Barney Holdings,
Inc. (FRN) (MTN), 4.91%,
05/20/99(2) 499,878
------------
29,049,130
------------
Electric Utilities 600,000 Arkansas Power & Light Co.,
- --2.02% 8.75%, 03/01/26(2) 660,326
2,200,000 New Orleans Public Service,
Inc., 8.00%, 03/01/06(2) 2,268,563
1,800,000 System Energy Resources, Inc.,
7.80%, 08/01/00 1,829,340
------------
4,758,229
------------
Finance--2.61% 100,000 American Bankers Insurance
Group, Inc. (FRN), 5.69%,
04/12/00 100,583
4,000,000 Bankers Trust Institutional
Capital Trust (FRN) (MTN),
5.22%, 07/18/07(2,4) 3,942,000
500,000 Heller Financial, Inc. (FRN)
(MTN), 4.52%, 04/14/99 499,986
100,000 Heller Financial, Inc. (FRN)
(MTN), 4.47%, 04/21/99 99,985
1,500,000 Newcourt Credit Group (MTN),
5.71%, 12/05/00 1,498,547
------------
6,141,101
------------
Industrial--9.29% 2,150,000 Cemex S.A., 10.75%, 07/15/00 2,226,594
4,000,000 Harcourt General, Inc., 7.30%,
08/01/97 3,679,492
3,300,000 La Quinta Inns (MTN), 7.11%,
10/17/01 3,156,288
950,000 Occidental Petroleum Corp.,
7.38%, 11/15/08 955,675
3,000,000 Pennzoil Co., 10.63%,
06/01/01(2) 3,012,117
1,500,000 Rouse Co. (FRN) (MTN), 5.85%,
05/29/01 1,465,350
5,811,000 Rouse Co., 8.50%, 01/15/03 6,177,790
190,000 Standard Oil Corp., 9.00%,
06/01/19(2) 190,764
1,000,000 TCI Communications, Inc. (FRN)
(MTN), 5.40%, 09/11/00 997,159
------------
21,861,229
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 16
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Sovereign--0.81% $ 2,222,700 Republic of Argentina (FRN),
5.94%, 03/31/05(2) $ 1,911,522
------------
TOTAL CORPORATES 108,846,083
------------
MORTGAGE-BACKED--36.02%(3)
Non-Agency 311,930 Blackrock Capital Finance L.P.
Mortgage-Backed 1997-R2 AP, 7.67%, 12/25/35(4) 323,441
- --21.58%
98,761 Citicorp Mortgage Securities,
Inc. 1988-16 A1, 10.00%,
11/25/18 104,082
152,889 Citicorp Mortgage Securities,
Inc. 1991-5 A, 6.00%, 05/25/21 120,352
253,150 Citicorp Mortgage Securities,
Inc. 1994-3 A12, 9.00%,
02/25/24 257,343
89,665 Collateralized Mortgage
Securities Corp. X 1, 7.00%,
06/01/06 89,423
3,015,950 Countrywide Funding Corp.
1993-4 A13, 9.00%, 11/25/08 3,123,620
391,643 Countrywide Funding Corp.
1993-11 A12, 8.50%, 02/25/09 375,217
100,000 Countrywide Funding Corp.
1994-7 A7, 6.50%, 03/25/24 99,615
3,202,920 Countrywide Mortgage Backed
Securities, Inc. 1993-D A12,
7.50%, 01/25/09 3,213,169
86,345 Countrywide Mortgage Backed
Securities, Inc. 1993-D A13,
6.00%, 01/25/09 86,305
853,560 DLJ Mortgage Acceptance Corp.
1993-Q18 SC (FRN) (IO), 2.92%,
01/25/24(5) 19,162
11,601,714 DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.82%,
05/25/24(5) 530,848
1,355,351 DLJ Mortgage Acceptance Corp.
1995-QE11 SA (IO), 4.98%,
12/25/25(5) 94,739
9,176,509 DLJ Mortgage Acceptance Corp.
1996-QA S (IO), 4.98%,
12/25/25(5) 533,155
2,750,934 DLJ Mortgage Acceptance Corp.
1996-Q5 SA (IO), 3.19%,
01/25/26(5) 171,933
357,254 FDIC REMIC Trust 1994-C1 2A2,
7.85%, 09/25/25 360,861
1,353,766 First Union Home Equity Loan
Trust 1997-3 B, 7.39%, 03/25/29 1,331,768
3,145,072 GE Capital Mortgage Services,
Inc. 1992-12F F1, 7.00%,
10/25/07 3,176,354
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 17
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
Non-Agency $ 147,421 GE Capital Mortgage Services,
Inc.
Mortgage-Backed 1993-10 A2, 9.00%, 09/25/23 $ 151,379
(continued) 969,061 GE Capital Mortgage Services,
Inc. 1996-4 A5, 7.00%, 03/25/26 976,877
95,987 Guardian Savings & Loan
Association 1988-2 A, 6.83%,
09/25/18 96,395
62,021 Guardian Savings & Loan
Association
1988-5 A, 6.90%, 12/25/18 61,835
3,250,000 IMPAC Secured Assets CMN Owner
Trust 1998-1 M2, 7.77%,
07/25/25 3,044,337
117,276 Independent National Mortgage
Corp. 1995-F A4, 8.25%,
05/25/10 117,366
500,000 Independent National Mortgage
Corp. 1995-N A5, 7.50%,
10/25/25 507,653
12,045,275 Lehman Structured Securities
Corp. 1996-1 E2, 8.00%,
06/25/26 12,050,924
90,322 Norwest Asset Securities Corp.
1997-5 A2, 7.00%, 04/25/12 91,145
1,593,913 Norwest Asset Securities Corp.
1998-15 A15, 8.00%, 07/25/28 1,638,958
368,065 Paine Webber Mortgage
Acceptance Corp. 1993-9 A6,
7.00%, 10/25/23 371,170
3,781,639 Prudential Home Mortgage
Securities 1995-A 2B, 8.68%,
03/28/25 3,895,711
500,000 Residential Funding Mortgage
Securities I 1993-S26 A9,
7.50%, 07/25/23 511,324
250,363 Residential Funding Mortgage
Securities I 1996-S14 A11,
8.00%, 05/25/26 254,217
300,000 Residential Funding Mortgage
Securities I 1997-12 A17,
7.25%, 08/25/27 305,624
2,000,000 Residential Funding Mortgage
Securities I 1998-S2 A2, 7.00%,
01/25/28 2,022,975
1,051,069 Resolution Trust Corp. 1994-C1
F, 8.00%, 06/25/26 1,052,219
801,447 Resolution Trust Corp. 1995-C1
E, 6.90%, 02/25/27 811,613
2,002,560 Resolution Trust Corp. 1995-C2
F, 7.00%, 05/25/27 1,942,483
655,685 Ryland Acceptance Corp. IV 28
1, 11.50%, 12/25/16 690,108
187,500 Ryland Mortgage Securities
Corp.
1993-3 2E, 6.71%, 08/25/08 189,222
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
<PAGE> 18
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
Non-Agency $ 966,193 Ryland Mortgage Securities
Corp. III
Mortgage-Backed 1992-D 1A, 8.00%, 09/25/22 $ 989,896
(continued) 1,000,000 Ryland Mortgage Securities
Corp. III 1992-A 1C, 8.25%,
03/29/30 992,845
1,817,342 Sears Mortgage Securities
1991-C A, 6.49%, 04/25/29 1,811,881
143,284 SLH Mortgage Trust 1990-1 G,
9.60%, 03/25/21 142,860
2,000,000 Structured Asset Securities
Corp. 1996-6 1A5, 7.50%,
08/25/26 2,055,622
------------
50,788,026
------------
U.S. Agency 76,757 Fannie Mae 1990-14 H, 7.95%,
Mortgage-Backed 08/25/19 77,770
- --14.44%
45,736 Fannie Mae 1992-179 E, 6.10%,
09/25/04 45,679
1,879,341 Fannie Mae 1993-33 ZA, 7.50%,
09/25/21 1,927,639
106,985 Fannie Mae 1993-121 SB, 10.25%,
02/25/23 110,395
2,994,994 Fannie Mae 1993-189 SB, 7.29%,
10/25/23 2,894,888
176,000 Fannie Mae 1993-202 SJ, 9.00%,
11/25/23 168,283
1,639,000 Fannie Mae 1993-206 SD, 10.00%,
11/25/23 1,680,488
2,695,474 Fannie Mae 1993-208 SE, 7.79%,
11/25/23 2,625,562
700,541 Fannie Mae 1993-221 SD, 9.00%,
03/25/08 720,223
2,021,484 Fannie Mae 1993-224 SD, 9.40%,
11/25/23 2,043,277
1,790,380 Fannie Mae 1993-231 SE, 6.32%,
12/25/08 1,647,721
295,866 Fannie Mae 1994-2 SB, 10.00%,
01/25/24 310,290
634,600 Fannie Mae 1994-41 SC, 8.72%,
03/25/24 633,481
15,000,000 Fannie Mae 1997-44 SB (IO),
2.39%, 06/25/08 1,061,374
2,709,945 Fannie Mae 1997-76 FS, 5.39%,
09/17/27 2,584,508
856,694 Freddie Mac 1164 O (IO), 6.69%,
11/15/06 109,981
666,720 Freddie Mac 1290 H,
7.50%, 06/15/21 688,165
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17
<PAGE> 19
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
U.S. Agency $ 2,582,907 Freddie Mac 1580 SJ,
Mortgage-Backed 8.56%, 09/15/08 $ 2,588,763
(continued) 200,000 Freddie Mac 1634 SE, 8.80%,
12/15/23 196,766
1,207,143 Freddie Mac 1643 SB, 8.80%,
12/15/23 1,165,763
3,785,769 Freddie Mac 1657 SB,
9.24%, 12/15/23 3,882,019
4,334,666 Freddie Mac 1985 SA, 11.73%,
08/17/27 4,240,704
81,565 Freddie Mac 2072 ZA, 6.50%,
06/15/27 81,510
336,538 Freddie Mac 2089 SA, 11.22%,
07/15/15 338,365
460,749 Freddie Mac Gold 21 SG, 9.39%,
10/25/23 472,551
14,343 Government National Mortgage
Association 1996-20 G, 7.50%,
08/20/19 14,371
137,355 Government National Mortgage
Association Pool 1849, 8.50%,
08/20/24 144,364
245,745 Government National Mortgage
Association Pool 2020, 8.50%,
06/20/25 258,055
196,317 Government National Mortgage
Association Pool 2286, 8.50%,
09/20/26 205,823
1,019,047 Government National Mortgage
Association Pool 2487, 8.50%,
09/20/27 1,068,524
------------
33,987,302
------------
TOTAL MORTGAGE-BACKED 84,775,328
------------
U.S. TREASURY NOTES--0.78%
1,690,000 U.S. Treasury Notes, 6.63%,
05/15/07 1,822,031
------------
TOTAL BONDS (Cost $220,772,061) 220,816,168
------------
SHORT-TERM INVESTMENTS--4.95%
Commercial 5,200,000 Ford Motor Credit Co., 4.82%,
Paper--4.95% 04/08/99 5,195,126
1,300,000 Ford Motor Credit Co., 4.84%,
04/08/99 1,298,777
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18
<PAGE> 20
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
Commercial Paper $ 100,000 Ford Motor Credit Co.,
(continued) 4.89%, 04/08/99 $ 99,905
5,050,000 General Motors Acceptance
Corp., 4.88%, 04/07/99 5,045,893
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $11,639,701) 11,639,701
------------
TOTAL INVESTMENTS--98.78% (Cost
$232,411,762)(1) 232,455,869
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.22% 2,881,316
------------
NET ASSETS--100.00% $235,337,185
============
</TABLE>
Notes:
(1) Cost for Federal income tax purposes is $232,933,614 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 2,340,556
Gross unrealized depreciation (2,818,301)
-----------
Net unrealized
depreciation............. $ (477,745)
===========
</TABLE>
(2) Security has an effective maturity date less than the stated maturity date
due to a call or reset feature.
(3) Pass-through securities backed by mortgage securities where payment is
periodically made will have an effective maturity date less than the stated
maturity date.
(4) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. The market value
of these securities at March 31, 1999 was $4,265,441 representing 1.81% of
total net assets.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19
<PAGE> 21
LOW DURATION BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
(5) Securities determined to be illiquid by the Fund's Board of Trustees.
Information related to these securities is as follows:
<TABLE>
<CAPTION>
SECURITY DATE OF PURCHASE COST % OF TNA
-------- ---------------- ---------- --------
<S> <C> <C> <C>
DLJ Mortgage Acceptance Corp.
1993-Q18 SC (FRN) (IO), 2.92%,
01/25/24 09/30/97 $ 19,162 0.01%
DLJ Mortgage Acceptance Corp.
1994-Q8 IIS (IO), 1.82%,
05/25/24 06/19/97 530,848 0.22%
DLJ Mortgage Acceptance Corp.
1995-QE11 SA (IO), 4.98%,
12/25/25 03/30/99 94,739 0.04%
DLJ Mortgage Acceptance Corp.
1996-QA S (IO), 4.98%, 12/25/25 10/20/98 533,155 0.23%
DLJ Mortgage Acceptance Corp.
1996-Q5 SA (IO), 3.19%,
01/25/26 01/04/99 171,933 0.07%
---------- ----
$1,349,837 0.57%
========== ====
</TABLE>
(FRN): Floating rate note -- The rate disclosed is that in effect at March 31,
1999.
(IO): Interest only
(MTN): Medium term note
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20
<PAGE> 22
ALPHATRAK 500 FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS--73.38%
Asset-Backed $ 286,176 First Alliance Mortgage Loan
Trust
Securities -- 10.21% 1994-4 A1, 9.28%, 02/25/26 $ 291,453
250,000 Green Tree Home Improvement Loan
Trust 1998-B HEM2, 7.33%,
11/15/29 251,420
18,128 Nationscredit Grantor Trust
1997-1 A, 6.75%, 08/15/13 18,499
12,669 Navistar Financial Corp. Owner
Trust 1996-B A3, 6.33%, 04/21/03 12,769
253,307 New York City Tax Lien 1998-2A A,
7.98%, 07/25/06 253,485
----------
827,626
----------
CORPORATES--40.23%
Banks--10.46% 200,000 Capital One Bank, 6.26%, 05/07/01 200,080
30,000 Den Norske Bank ASA (FRN), 5.34%,
08/29/49(2) 21,459
30,000 Fokus Bank (FRN), 5.82%,
03/29/49(2) 28,206
20,000 MBNA Corp. (FRN) (MTN), 5.35%,
06/17/02 19,913
10,000 Midland Bank PLC (FRN), 5.38%,
06/29/49(2) 7,610
30,000 Midland Bank PLC (FRN), 5.31%,
09/29/49(2) 23,426
250,000 Okobank (FRN), 6.51%,
10/29/49(2,4) 249,725
300,000 Republic New York Corp. (FRN),
5.00%, 10/28/02 296,940
----------
847,359
----------
Brokerage 20,000 Donaldson, Lufkin, Jenrette, Inc.
Services--7.47% (FRN) (MTN), 5.38%, 10/29/07 19,425
300,000 Lehman Brothers Holdings, Inc.
(FRN) (MTN), 5.32%, 07/30/04(2) 292,680
300,000 Paine Webber Group, Inc. (FRN)
(MTN), 5.40%, 08/18/04 292,951
----------
605,056
----------
Electric 150,000 Duquesne Light Co.,
Utilities--2.27% 8.38%, 05/15/24(2) 157,860
25,000 Philadelphia Electric Co.,
7.75%, 03/01/23(2) 26,182
----------
184,042
----------
Finance--6.30% 30,000 American Bankers Insurance Group
(FRN) (MTN), 5.69%, 04/12/00 30,175
150,000 Developers Diversified Realty
Corp. (MTN), 7.38%, 09/18/01 152,042
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21
<PAGE> 23
ALPHATRAK 500 FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATES (CONTINUED)
Finance (continued) $ 300,000 EOP Operating L.P.,
6.38%, 02/15/02 $ 298,490
30,000 Equity Residential Properties
Trust (FRN) (MTN), 5.32%,
11/24/99(2) 30,000
----------
510,707
----------
Industrial--13.14% 250,000 CBS Corp. (MTN), 9.14%, 07/03/01 264,443
150,000 Cemex S.A., 10.75%, 07/15/00 155,344
10,000 Cemex S.A., 8.50%, 08/31/00 10,114
25,000 Dayton Hudson Corp.,
9.88%, 06/01/17(2) 25,215
300,000 Occidental Petroleum Corp.,
6.40%, 04/01/03 291,773
25,000 Pennzoil Co., 10.63%, 06/01/01(2) 25,101
300,000 Rouse Co. (FRN) (MTN),
5.85%, 05/29/01 293,070
----------
1,065,060
----------
Sovereign--0.59% 55,800 Republic of Argentina (FRN),
5.94%, 03/31/05(2) 47,988
----------
TOTAL CORPORATES 3,260,212
----------
MORTGAGE-BACKED--21.28%(3)
Non-Agency 321,422 DLJ Mortgage Acceptance Corp.
Mortgage-Backed 1992-Q4 A2, 6.67%, 07/25/22 322,027
- --9.91% 3,251,468 DLJ Mortgage Acceptance Corp.
1992-QE2 S (IO), 4.13%,
06/25/24(6) 227,440
224,524 Lehman Structured Securities
Corp. 1996-1 E2, 8.00%, 06/25/26 224,629
29,000 Ryland Mortgage Securities Corp.
Series III 1992-A 1C, 8.25%,
03/29/30 28,792
----------
802,888
----------
U.S. Agency 69,370 Fannie Mae G-36 ZB,
Mortgage-Backed 7.00%, 11/25/21 70,425
- --11.37% 9,179 Fannie Mae G92-44 CB,
8.00%, 08/25/20 9,189
26,616 Fannie Mae 1993-95 SB,
15.05%, 06/25/08 33,013
198,931 Fannie Mae 1993-231 SE,
6.32%, 12/25/08 183,080
3,748 Fannie Mae 1994-75 S,
9.03%, 10/25/22 3,759
6,669 Freddie Mac 1584 S, 7.93%,
09/15/23 6,712
462,364 Freddie Mac 1985 SA,
11.73%, 08/17/27 452,342
20,000 Freddie Mac 2012 SD, 8.13%,
11/15/27 17,304
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22
<PAGE> 24
ALPHATRAK 500 FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT ISSUES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED (CONTINUED)
U.S. Agency $ 100,000 Freddie Mac 2051 E, 7.00%,
Mortgage-Backed 09/15/27 $ 100,312
(continued) 41,424 Freddie Mac Gold 2 L, 8.00%,
11/25/22 45,058
----------
921,194
----------
TOTAL MORTGAGE-BACKED 1,724,082
----------
U.S. TREASURY NOTES--1.66%
$ 130,000 U.S. Treasury Notes, 6.25%,
02/15/03 134,753
----------
TOTAL BONDS
(Cost $5,915,255) 5,946,674
----------
COMMON STOCK--3.69%
2,333 S&P 500 Depositary Receipt 299,353
----------
TOTAL COMMON STOCK
(Cost $294,329) 299,353
----------
SHORT TERM INVESTMENTS--24.91%
Agency Discount $ 340,000 FHLB Discount Note, 4.78%,
04/23/99 339,007
Note--8.00% 310,000 FMC Discount Note, 4.78%,
04/23/99 309,094
----------
648,101
----------
Commercial 300,000 Ford Motor Credit Co., 4.85%,
04/08/99 299,717
Paper--11.70% 300,000 General Motors Acceptance Corp.,
4.82%, 04/13/99 299,518
350,000 Lucent Technologies, Inc.,
4.80%, 04/21/99 349,067
----------
948,302
----------
U.S. Treasury 351,000 U.S. Treasury Bill,
Bills--5.21% 4.24% to 4.47%(5), 04/22/99 350,114
73,000 U.S. Treasury Bill,
4.49% to 4.51%(5), 08/05/99 71,886
----------
422,000
----------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,018,402) 2,018,403
----------
TOTAL INVESTMENTS--101.98%
(Cost $8,227,985)(1) 8,264,429
LIABILITIES, LESS CASH
AND OTHER ASSETS--(1.98%) (160,504)
----------
NET ASSETS--100.00% $8,103,925
==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23
<PAGE> 25
ALPHATRAK 500 FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1999
FUTURES CONTRACTS: LONG POSITIONS
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION/(DEPRECIATION)
- --------- ----------------------------
<C> <S> <C>
24 S&P 500 Index, June 1999 $185,133
========
</TABLE>
Notes:
(1) Cost for Federal income tax purposes is $8,231,326 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 71,251
Gross unrealized depreciation (38,148)
---------
Net unrealized appreciation $ 33,103
=========
</TABLE>
(2) Security has an effective maturity date less than the stated maturity date
due to a call or reset feature.
(3) Pass-through securities backed by mortgage securities where payment is
periodically made will have an effective maturity date less than the stated
maturity date.
(4) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. The market value
of these securities at March 31, 1999 was $249,725 representing 3.08% of
total net assets.
(5) Represents annualized yield at date of purchase.
(6) Securities determined to be illiquid by the Fund's Board of Trustees.
Information related to these securities is as follows:
<TABLE>
<CAPTION>
SECURITY DATE OF PURCHASE COST % OF TNA
- -------- ---------------- -------- --------
<S> <C> <C> <C>
DLJ Mortgage Acceptance Corp.
1992-QE2 S (IO), 4.13%, 06/25/24 01/06/99 $227,440 2.81%
======== ====
</TABLE>
(FRN): Floating rate note -- The rate disclosed is that in effect at March 31,
1999.
(IO): Interest only
(MTN): Medium term note
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
24
<PAGE> 26
METROPOLITAN WEST FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<CAPTION>
TOTAL RETURN LOW DURATION ALPHATRAK 500
BOND FUND BOND FUND FUND
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost
$114,190,626, $232,411,762 and
$8,227,985, respectively) (Note
2) $113,958,833 $232,455,869 $8,264,429
Cash and cash equivalents (Note 2) 17,483 0 5,244
Dividends and interest receivable 1,363,837 2,120,096 93,569
Receivable for securities sold 0 638,432 0
Receivable for capital stock sold 65,934 1,487,194 21,317
Deferred unamortized
organizational costs (Note 2) 22,731 22,731 16,341
Other assets 526 8,396 0
------------ ------------ ----------
Total assets 115,429,344 236,732,718 8,400,900
------------ ------------ ----------
LIABILITIES:
Payable for securities purchased 9,019 0 130,841
Payable for capital stock redeemed 22,335 562,989 0
Variation margin (Note 3) 0 0 121,144
Due to Adviser (Note 5) 22,705 94,040 18,634
Accrued expenses 71,174 101,472 26,356
Distributions payable 70,953 27,088 0
Payable to custodian (Note 2) 0 609,944 0
------------ ------------ ----------
Total liabilities 196,186 1,395,533 296,975
------------ ------------ ----------
Net assets $115,233,158 $235,337,185 $8,103,925
============ ============ ==========
NET ASSETS CONSIST OF:
Common stock, unlimited shares
authorized, $0.01 par value,
10,941,629, 23,175,723 and
711,012 shares outstanding,
respectively $115,509,043 $234,913,437 $7,391,753
Accumulated undistributed net
investment income 0 0 126,698
Accumulated undistributed net
realized (loss) gain on
investments (44,092) 379,641 363,897
Net unrealized (depreciation)
appreciation on investments (231,793) 44,107 221,577
------------ ------------ ----------
$115,233,158 $235,337,185 $8,103,925
============ ============ ==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $10.53 $10.15 $11.40
============ ============ ==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
25
<PAGE> 27
METROPOLITAN WEST FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
TOTAL RETURN LOW DURATION ALPHATRAK 500
BOND FUND BOND FUND FUND*
------------ ------------ -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 0 $ 0 $ 10,792
Interest 4,506,488 13,915,000 187,337
---------- ----------- --------
Total investment income 4,506,488 13,915,000 198,129
---------- ----------- --------
EXPENSES:
Investment advisory fees (Note 5) 327,412 928,703 13,215
Transfer agent fees 24,792 26,676 14,306
Administration fees 51,360 158,288 2,632
Registration and filing fees 41,294 45,317 1,220
Reports to shareholders 5,275 11,216 703
Custodian fees 23,812 59,885 10,636
Accounting services 36,516 54,775 20,176
Pricing fees 3,934 5,741 2,024
Legal fees 8,344 14,687 1,367
Insurance expenses 15,676 15,675 360
Trustees' fees and expenses 9,000 9,000 6,750
Auditing and tax consulting fees 20,734 20,734 12,800
Amortization of organizational
expenses (Note 2) 7,570 7,570 2,909
Miscellaneous expenses 2,110 2,198 0
---------- ----------- --------
Total operating expenses 577,829 1,360,465 89,098
Expenses waived and reimbursed (Note
5) (190,887) (238,282) (70,260)
---------- ----------- --------
Net expenses 386,942 1,122,183 18,838
---------- ----------- --------
Net investment income 4,119,546 12,792,817 179,291
---------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments and
futures contracts 831,877 380,876 364,745
Net change in unrealized
(depreciation) appreciation on
investments (326,594) (274,087) 36,444
Net change in unrealized
appreciation on futures contracts 0 0 185,133
---------- ----------- --------
Net realized and unrealized gain on
investments 505,283 106,789 586,322
---------- ----------- --------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $4,624,829 $12,899,606 $765,613
========== =========== ========
</TABLE>
* The AlphaTrak 500 Fund commenced operations on June 29, 1998.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
26
<PAGE> 28
METROPOLITAN WEST FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL RETURN
BOND FUND
---------------------------
YEAR YEAR
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,119,546 $ 998,506
Net realized gain on investments 831,877 398,295
Net change in unrealized (depreciation)
appreciation on investments (326,594) 94,801
------------ -----------
Net increase in net assets resulting from
operations 4,624,829 1,491,602
------------ -----------
DISTRIBUTIONS:
Dividends to shareholders from net investment
income (4,119,546) (998,506)
Distributions to shareholders from net
realized gains on investments (1,102,035) (172,229)
------------ -----------
Net decrease in net assets resulting from
distributions (5,221,581) (1,170,735)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 95,874,744 26,106,354
Shares issued in reinvestment of dividends and
distributions 4,389,756 947,050
Cost of shares redeemed (9,417,607) (2,441,254)
------------ -----------
Net increase in net assets resulting from
capital share transactions 90,846,893 24,612,150
------------ -----------
Net increase in net assets 90,250,141 24,933,017
Net assets at beginning of period 24,983,017 50,000
============ ===========
Net assets at end of period $115,233,158 $24,983,017
============ ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
27
<PAGE> 29
METROPOLITAN WEST FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LOW DURATION ALPHATRAK 500
BOND FUND FUND*
--------------------------- -------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 12,792,817 $ 4,002,660 $ 179,291
Net realized gain on investments 380,876 306,941 364,745
Net change in unrealized
(depreciation) appreciation on
investments (274,087) 318,194 36,444
Net change in unrealized
appreciation on futures
contracts 0 0 185,133
------------ ------------ ----------
Net increase in net assets
resulting from operations 12,899,606 4,627,795 765,613
------------ ------------ ----------
DISTRIBUTIONS:
Dividends to shareholders from
net investment income (12,792,817) (4,002,660) (53,441)
Distributions to shareholders
from net realized gains on
investments (204,074) (104,102) 0
------------ ------------ ----------
Net decrease in net assets
resulting from distributions (12,996,891) (4,106,762) (53,441)
------------ ------------ ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 234,531,692 163,923,693 7,484,039
Shares issued in reinvestment of
dividends and distributions 12,586,415 4,018,103 53,410
Cost of shares redeemed (146,996,632) (33,199,834) (145,696)
------------ ------------ ----------
Net increase in net assets
resulting from capital share
transactions 100,121,475 134,741,962 7,391,753
------------ ------------ ----------
Net increase in net assets 100,024,190 135,262,995 8,103,925
Net assets at beginning of
period 135,312,995 50,000 0
============ ============ ==========
Net assets at end of period
(including undistributed net
investment income of $0, $0,
and $126,698, respectively) $235,337,185 $135,312,995 $8,103,925
============ ============ ==========
</TABLE>
* The AlphaTrak 500 Fund commenced operations on June 29, 1998.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
28
<PAGE> 30
METROPOLITAN WEST FUNDS
FINANCIAL HIGHLIGHTS
THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF
CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
<TABLE>
<CAPTION>
TOTAL RETURN
BOND FUND
--------------------------
YEAR YEAR
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period $10.49 $10.00
-------- ------
Income from Investment Operations:
Net investment income 0.71 0.73
Net realized and unrealized gain on investments 0.19 0.60
-------- ------
Total from Investment Operations 0.90 1.33
-------- ------
Less Distributions:
Dividends from net investment income (0.71) (0.73)
Distributions from net capital gains on
investments (0.15) (0.11)
-------- ------
Total Distributions (0.86) (0.84)
-------- ------
Net Asset Value, End of Period $10.53 $10.49
-------- ------
-------- ------
Total Return 8.84% 13.71%
Ratios/Supplemental Data:
Net Assets, end of period (in thousands) $115,233 $24,983
Ratio of Expenses to Average Net Assets
Before expense reimbursement 0.97% 1.99%
After expense reimbursement 0.65% 0.65%
Ratio of Net Income to Average Net Assets
Before expense reimbursement 6.60% 6.05%
After expense reimbursement 6.92% 7.39%
Portfolio Turnover Rate 136% 235%
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
29
<PAGE> 31
METROPOLITAN WEST FUNDS
FINANCIAL HIGHLIGHTS
THE TABLES BELOW SET FORTH FINANCIAL DATA FOR ONE SHARE OF
CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
<TABLE>
<CAPTION>
LOW DURATION ALPHATRAK 500
BOND FUND FUND*
------------------------- -------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999
------------- --------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.18 $10.00 $10.00
-------- ------ ---------
Income from Investment Operations:
Net investment income 0.66 0.65 0.44
Net realized and unrealized (loss)
gain on investments (0.02) 0.19 1.22
-------- ------ ---------
Total from Investment Operations 0.64 0.84 1.66
-------- ------ ---------
Less Distributions:
Dividends from net investment income (0.66) (0.65) (0.26)
Distributions from net capital gains
on investments (0.01) (0.01) 0.00
-------- ------ ---------
Total Distributions (0.67) (0.66) (0.26)
-------- ------ ---------
Net Asset Value, End of Period $10.15 $10.18 $11.40
-------- ------ ---------
-------- ------ ---------
Total Return 6.54% 8.71% 17.28%
Ratios/Supplemental Data:
Net Assets, end of period (in
thousands) $235,337 $135,313 $8,104
Ratio of Expenses to Average Net
Assets
Before expense reimbursement 0.70% 0.93% 3.39%#
After expense reimbursement 0.58% 0.58% 0.72%#
Ratio of Net Income to Average Net
Assets
Before expense reimbursement 6.49% 6.37% 4.14%#
After expense reimbursement 6.61% 6.72% 6.81%#
Portfolio Turnover Rate 73% 102% 74%
</TABLE>
* The AlphaTrak 500 Fund commenced operations on June 29, 1998.
# Annualized
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
30
<PAGE> 32
- --------------------------------------------------------------------------------
METROPOLITAN WEST FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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
four 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"), Metropolitan West AlphaTrak 500 Fund (the "AlphaTrak 500 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 AlphaTrak 500 Fund commenced
investment operations on June 29, 1998. The Short-Term Investment Fund was not
operational at March 31, 1999.
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.
The AlphaTrak 500 Fund seeks to achieve a total return that exceeds the total
return of the Standard & Poor's 500 Index ("S&P 500 Index"). The Fund invests
in S&P 500 Index futures contracts backed by a diversified portfolio of fixed
income securities of varying maturities with a portfolio duration of up to
three years. The Fund's dollar-weighted average maturity will exceed its
portfolio duration.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies 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
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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. S&P 500 futures contracts
are valued at the first sale price after 4 p.m. EST on the Chicago Mercantile
Exchange. All other futures contracts are valued at the official settlement
price of the exchange which it is traded. Equity securities, including
depositary receipts, are valued at the last reported sale price on the
exchange or market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price. In cases where equity securities are traded on
more than one exchange, the securities are valued on the exchange or market
determined by the investment adviser to be the broadest and most
representative market, which may be either a securities exchange or the
over-the-counter market. 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.
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, 1999.
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:
The Funds (except the AlphaTrak 500 Fund) expect to declare dividends daily
and pay them monthly to shareholders. The AlphaTrak 500 Fund expects to
declare and pay dividends to shareholders quarterly. 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 TAXATION:
It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its net taxable income, including any net realized gain on investments,
to its shareholders. Therefore, no federal income tax provision is required.
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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
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 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
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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.
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 period ended March
31, 1999, certain interest only securities were held 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.
The Funds may purchase or sell exchange-traded futures contracts, which are
contracts that obligate the Fund to make or take delivery of a financial
instrument or the cash value of a security index at a specified future date at
a specified price. The Funds may use futures contracts to manage exposure to
the stock and bond markets or changes in interest rates and currency values,
or for gaining exposure to markets. Risks of entering into futures contracts
include the possibility that there may be an illiquid market at the time the
advisor to the Fund may be attempting to liquidate some or all the Fund
holdings or that a change in the value of the contract may not correlate with
changes in the value of the underlying securities. Upon entering into a
futures contract, the Fund is required to deposit either cash or securities
(initial margin). Subsequent payments (variation margin) are made or received
by the Fund, generally on a daily basis. The variation margin payments are
equal to the daily changes in the contract value and are recorded as
unrealized gains or losses. The Funds recognize a realized gain or loss when
the contract is closed or expires. The statement of operations reflects net
realized and net unrealized gains and losses on these contracts.
In addition to the securities listed above, the AlphaTrak 500 Fund may invest
all of its assets in the following equity derivative instruments: S&P 500
Index futures contracts, Mini S&P 500 Index futures contracts, options on the
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
S&P 500 Index and S&P futures, and swap agreements involving the S&P 500
Index. When the above listed S&P Index derivatives appear to be overvalued
relative to the S&P 500 Index, the Fund may invest up to 100% in the common
stocks that comprise the S&P 500 Index. The Fund may also invest up to 25% of
its total assets in these stocks indirectly by purchasing interests in mutual
funds, asset pools or trusts that invest in such stocks.
4. SECURITIES TRANSACTIONS
Investment transactions for the period ended March 31, 1999, excluding
temporary short-term investments, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -------------
<S> <C> <C>
Total Return Bond Fund $198,936,590 $102,819,565
Low Duration Bond Fund 323,923,995 132,219,697
AlphaTrak 500 Fund 9,523,749 2,371,827
</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. The Adviser charges the AlphaTrak 500 Fund a basic fee of 0.35% of the
Fund's average daily net assets. The basic fee may be adjusted upward or
downward (by a maximum of 0.35% of the Fund's average daily net assets),
depending on whether, and to what extent, the investment performance of the
AlphaTrak 500 Fund, for the relevant performance period, exceeds or is
exceeded by, the performance of the S&P 500 Index over the same period.
Certain officers and trustees of the Funds are also officers and directors of
the Adviser. Such officers and trustees serve without direct compensation from
the Funds. Investment advisory fees and other transactions with affiliates,
for the period ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
INVESTMENT VOLUNTARY
ADVISORY EXPENSE
FEE RATE LIMITATION
----------- -----------
<S> <C> <C>
Total Return Bond Fund 0.55% 0.65%
Low Duration Bond Fund 0.48 0.58
AlphaTrak 500 Fund 0.00 - 0.70 0.20 - 0.90
</TABLE>
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 ALPHATRAK 500 FUND
----------------------- ------------------------ ------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 1998 1999
---------- ---------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Increase in Fund shares:
Shares outstanding at
beginning of period 2,381,576 5,000 13,289,111 5,000 0
Shares sold 9,034,372 2,520,599 23,153,600 16,152,929 719,869
Shares issued through
reinvestment of
dividends 413,999 90,346 1,240,285 395,250 5,327
Shares redeemed (888,318) (234,369) (14,507,273) (3,264,068) (14,184)
---------- --------- ----------- ---------- -------
Net increase in Fund
shares 8,560,053 2,376,576 9,886,612 13,284,111 711,012
---------- --------- ----------- ---------- -------
Shares outstanding at
end
of period 10,941,629 2,381,576 23,175,723 13,289,111 711,012
========== ========= =========== ========== =======
</TABLE>
36
<PAGE> 38
- --------------------------------------------------------------------------------
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 Funds comprised of Metropolitan West Total Return Bond Fund
("Total Return"), the Metropolitan West Low Duration Bond Fund ("Low Duration"),
and the Metropolitan West AlphaTrak 500 Fund ("AlphaTrak") (collectively the
"Funds"), including the schedules of portfolio investments as of March 31, 1999,
and the related statements of operations for the period then ended, and the
related statements of changes in net assets and financial highlights for each of
the two years in the period then ended for Total Return and Low Duration, and
for the period from June 29, 1998 (commencement of operations) to March 31, 1999
for AlphaTrak. 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
audits.
We conducted our audits 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 as of March
31, 1999, 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 audits provide 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, the Metropolitan West Low Duration
Bond Fund, and the Metropolitan West AlphaTrak 500 Fund as of March 31, 1999,
the results of operations for the period then ended, and the changes in net
assets and financial highlights for each of the two years in the period then
ended for Total Return and Low Duration, and for the period from June 29, 1998
(commencement of operations) to March 31, 1999 for AlphaTrak, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 30, 1999
37
<PAGE> 39
BOARD OF TRUSTEES
Scott B. Dubchansky
Keith T. Holmes
Martin Luther King III
Laird R. Landmann
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
James E. Menvielle
Assistant Treasurer
<TABLE>
<S> <C>
ADVISER: AUDITORS:
Metropolitan West Asset Management, LLC Deloitte & Touche LLP
11766 Wilshire Boulevard, Suite 1580 1000 Wilshire Boulevard, Suite 1500
Los Angeles, CA 90025 Los Angeles, CA 90017
CUSTODIAN: DISTRIBUTOR:
The Bank of New York First Data Distributors, Inc.
90 Washington Street 4400 Computer Drive
New York, NY 10286 Westboro, MA 01581
TRANSFER AGENT: LEGAL COUNSEL:
First Data Investor Services Group, Inc. Paul, Hastings, Janofsky & Walker LLP
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) 966-8900 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.
