2011-2012 Review and Outlook: MetWest Total Return Bond Fund Is There Life After Debt?

January 10, 2012

Presented by: Tad Rivelle Chief Investment OfficerFixed Income Group Managing Director Laird R. Landmann Group Managing Director U.S. Fixed Income
Presenters are registered representatives of TCW Funds Distributors, Inc. (member FINRA/SIPC) MetWest is a wholly-owned subsidiary of The TCW Group, Inc.

Agenda
I. II. Market Review/Economic Backdrop Value Based Bond Management in a Risk On/Risk Off Market

III. Economic Outlook IV. Portfolio Strategy V. Appendix

You should consider the investment objectives, risks, charges and expenses of the MetWest Total Return Bond Fund carefully before investing. The Funds Prospectus and Summary Prospectus contains this and other information about the Fund. To receive a free Prospectus, please call 1-800-241-4671 or you may download the Prospectus from the Fund's website at http://www.mwamllc.com/literature.php. Read it carefully before you invest or send money. This presentation is for information purposes only. There is no assurance that historical occurrences or trends will be repeated or continue in the future. Past performance is no guarantee of future results. The third party statistical data contained herein is based on sources believed to be reliable. Any opinions expressed are current only as of the time made; are subject to change without notice; are solely those of the author and do not represent the views of TCW/MetWest as a firm or of any other portfolio manager or employee of TCW. Funds investing in U.S. government-guaranteed securities, including the MetWest Total Return Bond Fund, are neither insured nor guaranteed by the U.S. Government and neither the Fund nor its yield is guaranteed by the U.S. Government. Fixed income investments entail interest rate risk, the risk of issuer default, issuer credit risk, and price volatility risk. Funds investing in bonds can lose their value as interest rates rise and an investor can lose principal. The information contained herein may include estimates, projections and other "forward-looking" statements. Actual events may differ substantially from those presented herein. TCW assumes no duty to update any such statements. The MetWest Funds are distributed by BNY Mellon Distributors Inc. which is not affiliated with TCW. The MetWest Funds are advised by Metropolitan West Asset Management, LLC, which is a wholly-owned subsidiary of The TCW Group.
Securities offered through TCW Funds Distributors, Inc. (member FINRA/SIPC)

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I. Market Review/Economic Backdrop

2011 Market Review Asset Class Returns

Policy driven, post 2008 financial remediation process takes a pause Wanting for Europe to catch on and catch up Asset Class Returns1
2011 Ranking Gold U.S. Treasuries Agency MBS Developed Countries Gov. Bonds HY Bonds U.S. Equities ABX 06-1 AAA Residential Housing2 Emerging Markets Debt Commodities Emerging Markets Equities European Equities U.S. Financials Equities 2011 10.1% 9.8% 6.2% 5.6% 4.4% 2.1% -2.0% -3.0% -3.2% -8.8% -12.5% -13.2% -17.1%
= risk off assets = risk on assets

3 Yrs Ended 12/31/2011 21.0% 3.9% 5.8% 3.6% 23.7% 14.1% 2.5% -8.3% 8.5% 18.9% 17.7% 2.6% 2.9%

3 Yr Ranking HY Bonds Gold Commodities Emerging Markets Equities U.S. Equities Emerging Markets Debt Agency MBS U.S. Treasuries Developed Countries Gov. Bonds U.S. Financials Equities European Equities ABX 06-1 AAA Residential Housing2

3 Yrs Ended 12/31/2011 23.7% 21.0% 18.9% 17.7% 14.1% 8.5% 5.8% 3.9% 3.6% 2.9% 2.6% 2.5% -8.3%

2011 4.4% 10.1% -8.8% -12.5% 2.1% -3.2% 6.2% 9.8% 5.6% -17.1% -13.2% -2.0% -3.0%

1. Annualized returns. 2. Estimated value. Source: Bloomberg, Barclays, ML

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Economic Recap: Balance Sheet Recessions Not Great For Employment

Some Improvement
Unemployment Rate vs. Initial Claims
Initial Jobless Claims (thousands) 800 700 600 500 400 300 200 100 0 Dec-1979 Initial Jobless Claims Dec-1987 Dec-1995 Unemployment Rate Dec-2003 2% 0% Dec-2011 8% 6% 4% 12% 10% Unemployment Rate (%) 68 66 64 62 60 58 56 54 Mar-1948 Mar-1964 Mar-1980 Mar-1996 Dec-2011

BUT

Some Discouragement
Civilian Labor Force Participation Rate

Source: Bureau of Labor Statistics, U.S. Department of Labor and Bloomberg

Source: Bureau of Labor Statistics

Duration of Unemployment
45 40 35 30 25 20 15 10 5 0 Jan-1971 Apr-1981 Jul-1991 Oct-2001 Dec-2011 Median Weeks Unemployed Average Weeks Unemployed

Source: Bureau of Labor Statistics

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Economic Recap: Policy Makers Fighting Leverage Through Rates

2008 housing crisis caused massive wealth decline
2.200 2.100 2.000

M2 Velocity

Consumer and lender behavioral changes result in velocity collapse

1.900 1.800 1.700 1.600 1.500 1959

Federal Government spending/deficits filled the hole

1965

1972

1978

1985

1991

1998

2004

2011

Source: Federal Reserve

Real Yields
4

Federal Reserve responds with ZIRP Twist

5 Yr Real Yields

10 Yr Real Yields

30 Yr Real Yields

3 2 1 0 -1 Jun-2004

Sep-2005

Dec-2006

Mar-2008

Jun-2009

Sep-2010

Dec-2011

Source: Bloomberg

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Direct Impact of ZIRP Still Muted

Nominal variables look good for housing market
20% 18% 16% 14%

30 Yr FNMA Mortgage Commitment Rate

Continued price erosion makes financing homes expensive

12% 10% 8% 6% 4% 2% 0% Dec-1975

Delaying impact of policy

Dec-1981

Dec-1987

Dec-1993

Dec-1999

Dec-2005

Dec-2011

Source: Bloomberg

"Real" Mortgage Rates

20%

However Residential real estate is cheap In many demographics rents are 2x to 3x a mortgage payment rents are firm to rising many zip codes below wholesale construction costs
6

15% 10% 5% 0% -5% -10% Dec-1975

Dec-1984

Dec-1993

Dec-2002

Dec-2011

Source: Federal Reserve, Bloomberg, Fed. Reserve Bank of St. Louis

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Developed Country Debt Burdens Have Dramatically Increased

Debt Burdens
140 120 100 80 60 40 20 0 Dec-2005 US UK Germany Italy Spain Japan CB Assets Index (May 2006 = 1.0) 4.0 3.5 ECB 3.0 2.5 2.0 1.5 1.0 0.5 Jun-2006 BOE SNB 3.0 2.5 2.0 1.5 1.0 0.5 Dec-2011

Central Bank Balance Sheet Expansion

U.S. 4.0 3.5

Dec-2006

Dec-2007

Dec-2008

Dec-2009

Dec-2010

Dec-2011

May-2007

Apr-2008

Mar-2009

Feb-2010

Jan-2011

Source: IMF, Bloomberg, Fed.

Source: Bloomberg, Fed. Reserve, Bank of England, Swiss National Bank, European Central Bank

Italy & Spain 10 Year Yields

7.5 6.5 5.5 4.5 3.5 2.5 1.5 Dec-2004 Italy Spain U.S. CB Assets as % of GDP 70% 60% 50% 40% 30% 20% 10% 0% Jun-2006

Central Bank Assets as % of GDP

Fed ECB BOE SNB 70% 60% 50% 40% 30% 20% 10% 0% Dec-2011

Feb-2006

Apr-2007

Jun-2008

Aug-2009

Oct-2010

Dec-2011

May-2007

Apr-2008

Mar-2009

Feb-2010

Jan-2011

Source: Bloomberg

Source: Bloomberg, Fed. Reserve, Bank of England, Swiss National Bank, European Central Bank, IMF

Euro Block faces unique challenges in a balance sheet recession

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II. Value Based Bond Management in a Risk On/Risk Off Market

2011 MWTIX Positioning

Value disciplines directs strategy shift 10 Year Real Interest Rates
2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Dec-2010 500 450 400 350 300 250 200 150 Feb-2011 Apr-2011 Jun-2011 Aug-2011 Oct-2011 Dec-2011 100 Dec-2010 Feb-2011 Apr-2011 Jun-2011 Aug-2011 Oct-2011 Dec-2011

Single-A Rated Financial Spreads

Neutral Reduced Added

Source: Bloomberg

Source: Barclays

Non-Agency MBS Prices

ABX.HE.AAA.07-2
48 46 44 42 40 38 36 34 32 5.0% 4.5% 4.0%

Yield Curve Slope

2Y/30Y Treasury Spreads
Added Long UST Modest Bullet Bullet

Reduced Added
3.5% 3.0%

Neutral

2.5%

30 Dec-2010 Feb-2011 Mar-2011 May-2011 Jun-2011 Aug-2011 Sep-2011 Oct-2011 Dec-2011

2.0% Dec-2010

Feb-2011

Apr-2011

Jun-2011

Aug-2011

Oct-2011

Dec-2011

Source: Markit

Source: Bloomberg

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2011 MWTIX Positioning (contd)

Value based disciplines: Sell during remediation, add during reversal Valuations in some sectors (Financials and Non Agency MBS) touch 2008 levels
1st half 2011 Positioning Result 0.5 years short Modest negative Bullet Overweight Non-Agency MBS CMBS Positive 2nd half 2011 Positioning Result 0.9 years short Negateive Modified bullet Overweight Non-Agency MBS CMBS High Yield Market Weight I.G. Corporates Neutral 2nd half Change Cost Average Lower Add 30 Year UST

Interest Rates Yield Curve Sector Allocation

Modest positive Modest positive

Negative Neutral Modest negative

Add/Swap Add

Market Weight I.G. Corporates High Yield Issue Selection Emphasis on: Senior, Non-Agency MBS Bank and Utility paper 30% Senior CMBS

Modest positive Modest positive

Modest Positive

Unchanged

Neutral

Emphasis on: Senior, Non-Agency MBS Senior Bank paper Bank TRUPs

Modest Positive Negative Modest Positive

Add Add/Swaps Swaps

Euro crisis/Dodd-Frank fears infected all risk/liquidity premiums Substantial value and total return opportunities now exist
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Metropolitan West Total Return Bond Fund Performance

MWTIX (I-Class) as of December 31, 2011
Annualized 1 Year MWTIX (%) Barclays Capital U.S. Aggregate Bond1 (%) 5.52 7.84 3 Year 11.39 6.77 5 Year 7.75 6.50 10 Year 6.74 5.78 Since Inception 7.21 6.41
2

Inception Date 3/31/00

12 10 8 6 4 2

For MWTIX the total expense ratio (gross and net) is 0.43%. Expenses reflect a contractual agreement by the Adviser to reduce its fees and/or absorb certain expenses to limit the funds total annual operating expenses until July 31, 2012, unless terminated earlier by the Board of Trustees. For more information about fees and expenses, please read the prospectus. Performance would have been lower if fees had not been waived in various periods.

0 1 Year 3 Years 5 Years 10 Years Since Inception

MWTIX (I Class)

Barclays Capital U.S. Aggregate Bond

Barclays Capital U.S. Aggregate Bond Index is an unmanaged index composed of securities from the Barclays Capital Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, ERISA Eligible CMBS Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indices are rebalanced monthly by market capitalization. The index is not available for direct investment; therefore its performance does not reflect a reduction for fees or expenses incurred in managing a portfolio. The securities in the index may be substantially different from those in the Fund. The since inception return for the index reflects the inception date of the MetWest Class I Share Fund. For period 3/31/00 12/31/11.

Fixed income investments entail interest rate risk, the risk of issuer default, issuer credit risk, and price volatility risk. Funds investing in bonds can lose their value as interest rates rise and an investor can lose principal.

The performance data presented represents past performance and is no guarantee of future results. Total returns include reinvestment of dividends and distributions. Current performance may be lower or higher than the performance data presented. Performance data current to the most recent month end is available on the Funds website at www.mwamllc.com/funds_monthly.php. Investment returns and principal value will fluctuate with market conditions. The value of an investment in the Fund, when redeemed, may be worth more or less than its original purchase cost. Returns for periods less than one year are cumulative. The Fund offers another class, the performance for which will vary due to fees and expenses. You should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The Funds prospectus and summary prospectus contain this and other information about the Fund. You can find the Funds Prospectus and other information about the Fund online at www.mwamllc.com/literature.php. You can also get this information by calling (800) 241-4671 or by sending an email request to metwestclientservices@tcw.com. Please read the prospectus carefully before you invest or send money.
The MetWest Funds are distributed by BNY Mellon Distributors Inc. which is not affiliated with TCW. The MetWest Funds are advised by Metropolitan West Asset Management, LLC, which is a wholly-owned subsidiary of The TCW Group, Inc.

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MetWest Total Return Bond Fund Performance Attribution

As of December 31, 2011*

Attribution of Out/Underperformance YTD as of December 2011 MetWest Total Return Bond Fund Barclays Aggregate Index1 Out/Underperformance 5.72% 7.84% -2.12% Duration Yield Curve Sector Allocation Security Selection Corporates Govenrment Related ABS MBS CMBS Other Total Alpha YTD as of December 2011 (95) 20 (18) (119) (33) (1) (85) (16) 10 5 (212)

The performance data presented represents past performance and is no guarantee of future results. Total returns include reinvestment of dividends and distributions. Current performance may be lower or higher than the performance data presented. Performance data current to the most recent month end is available on the Funds website at www.mwamllc.com/funds_monthly.php. Investment returns and principal value will fluctuate with market conditions. The value of an investment in the Fund, when redeemed, may be worth more or less than its original purchase cost.
Portfolio holdings and characteristics are subject to change at any time. It should not be assumed that an investment in the securities listed was or will be profitable. *The performance attribution analysis presented above decomposes the outperformance (alpha) of MetWest Total Return Bond Fund ("Fund") versus Barclays Capital Aggregate Index. The perfomance attribution was calculated based on the market value weighted gross of fees performance of the four Classes of the Fund and all holdings in the fund. The analysis was performed by utilizing an industry-wide accepted methodology; additional information regarding the calculation of these performance returns is available upon request. The Barclays Capital US Securitized Index is an unmanaged group of securities and assumes no reduction for fees and expenses in measuring returns. It is not possible to invest directly in an index. The performance returns reflect a period of unusual market conditions, and thus, the performance returns are not be indicative of future results. The performance returns are based on a registered investment company which has a different regulatory scheme and may be subject to different investment restrictions than a separate account. The inception date of the Metropolitan West Total Return Bond Fund is March 31, 1997.

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III. Economic Outlook

A Black Swan Market

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Insuring Against Flood and Drought

Gold Spot Price
$2,000

10-Year Treasury Yield

5.5% 5.0%

$1,600 4.5% $1,200 4.0% 3.5% $800 3.0% 2.5% $400 2.0% $0 2001 1.5% 2001

2003

2005

2007

2009

2011

2003

2005

2007

2009

2011

Inflation Put Pricing of tail risk is elevated

Deflation Put

Source: Bloomberg

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Diametrically Opposing World Views Among Investors

Investment Thesis #1: The U.S. is going the way of Japan in the 1990s Economic malaise, deflation Fiscal stimulus starting/stopping Zero rates for as far as the eye can see Investment Thesis #2: Feds pro-inflation policies will de-leverage the U.S. Bernanke put the monetary pedal to the metal back in 2008 Zero rates implemented in December 2008 Quantitative easing begun at once vs. Japan which waited until c. 2001

16

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Even Mad Crowds Self-Fulfill Their Beliefs

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Illusion of Wealth Effect

Assets of Households & Nonprofit Organizations
90
Real Estate Equipment & Software

80

$77.6 Trillion

Consumer Durable Goods Currency, Deposits & Money Market Fund Shares

70
Commercial Paper U.S. Treasury Securities

60 Assets (U.S.$ Trillion)

$50.1 Trillion
50

US Agencies and Agency MBS Municipals Corporate & Foreign Bonds

40

Non-Agency Mortgages Equities

30
Mutual Fund Shares

20

Life Insurance Reserves Pension Fund Reserves

10

Equity in Non-Corporate Business Other

0 2002 2006

U.S. Asset values ran up over 50% in 4 years!

Source: Federal Reserve Board

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Fed Ignored Asset Prices

Goods and Service Economy Inflation Unemployment Federal Reserve

Asset Price Markets

Fed Funds Rate

Home Prices Stock Valuation

Asset prices were not an input to Fed policy

But wrong asset prices distort the allocation of labor and capital
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Home Price Bubble Resulted in Excess Leverage

75% of the home mortgages1 in Nevada are underwater
100% 100%

80%

80%

60%

60%

40%

40%

20%

20%

Source: Deutsche Bank, LoanPerformance, DB Global Markets Research 1 Approximately 50% of Nevada homes.

NV MI AZ FL ID CA UT GA RI IL OR AL MD WA VA NM WV OH MN MO DC IN NJ DE WY WI TN CT KS MS MA MT NH SC NC KY CO NY PA HI TX AR ME AK IA OK LA VT SD NE ND

0%

0%

50% to 99% equity 5% to 25% equity Negative equity

25% to 50% equity 0% to 5% equity

20

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Downsizing the American Dream

Percent of Households That Own Their Homes
70.0% Homeownership Rate

69.0%

68.0%

67.0%

66.0%

65.0%

64.0%

63.0%

62.0% Mar-1990
Source: US Census Bureau, MBA

}
Jun-1994 Sep-1998 Dec-2002 Mar-2007 Jun-2011

Homes that are in foreclosure or 60+ delinquent

*The Adjusted Homeownership Rate is derived by reducing the numerator of the Homeownership Rate by the number of foreclosed properties and properties with seriously delinquent loans which subsequently went into default or are expected to go into default, based on the historical trends.

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Job Creation Not Responsive to Fiscal/Monetary Stimulus

Labor Market Recovery in Perspective
1% 0% Non-Farm Payrolls as a % of Prior Non-Farm Payrolls Peak -1% -2% -3% -4% -5% -6% -7% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 Months Since Prior Employment Peak 1960-1961 1969-1970 1973-1975 1980 1981-1982 1990-1991 2001 2007-2009

The Great Recession

1953 1957-1958

Distorted Economy Less mobile Labor Force

Source: BLS, TCW

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So, How Do You Solve a Problem Like a Debt Burden?

Problem: Economic growth remains unnatural until the private sector has de-levered

Laissez-Faire Response: Allocate the Losses

Statist/Keynesian Response: Artificially Stimulate

Were From the Government and Here to Help You

Monetary Response: Print Money

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Laissez-Faire Solution to Excess Leverage

Involuntary de-leveraging of private sector Bankruptcies Foreclosures Debt forgiveness, debt rescheduling Capitulates to the reality that loans which cant be repaid, wont be repaid

Pluses
Labor, capital, homes, etc., are rapidly repriced to market-clearing levels Economy now has good information Efficiency enhanced

Minuses
Risks destruction of banking system May tear apart social fabric Severe deflation, depression are likely outcomes

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Keynesian (Statist) Solution

Private sector leverage is transferred to the public sector Stimulus programs Bailouts for borrowers/lenders Federal spending raises private sector incomes

Were From the Government and Here to Help You

Pluses
Slack resources put to work Private sector de-leveraging accelerated

Minuses
Inefficient resource allocation perpetuated Adjusted process impeded Ricardian Equivalence may render stimulus impotent

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Monetarist Answer to De-Leveraging

Lift nominal GDP by embracing pro-inflation policies Contracts are denominated in notional amounts, not real amounts Debts that are not economically serviceable in terms of 2007 dollars might be serviceable in depreciated 2012 dollars

Pluses
Bankruptcies, foreclosures mitigated Nominal GDP growth accomplishes the de-leveraging seamlessly

Minuses
Wealth transfer from creditors to debtors Decreased economic efficiency Needs a pool of fools Higher rates of inflation tend to self-reinforce by lifting inflation expectations Central bank may lose its credibility

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Will the U.S. Repeat the Japanese Deflation Experience? Liquidate labor, liquidate stocks, liquidate real-estate... it will purge the rottenness out of the system. Andrew Mellon
Secretary of the Treasury (1921-1932)

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U.S. vs. Japan: Fundamental Economic Variables Support Risk Off

U.S. vs. Japan: Real Estate Market Boom & Bust
100 90 80 Real Estate Price Index 70 60 50 40 30 20

U.S. vs. Japan: Cumulative Real GDP Growth

25% U.S. Japan

Real Estate Price Peak

Japan Urban Land Price Index 6 Major Cities (Sep '90 = 100) S&P Case Shiller 20 City Composite (Jul' 06 = 100)

20% Cumulative Real GDP Growth

-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

15%

10%

5%

0%
10 0 Years Since Real Estate Price Peak

-5% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Years Since Real Estate Price Peak

Source: Bloomberg, Statistics Bureau of Japan

Source: Bloomberg, BEA

U.S. Demographics vs. Japanese Demographics: Cumulative Labor Force Growth

6% U.S. Japan 5% Cumulative Labor Force Growth

4%

3%

2%

1%

0%

10

11

Years After Real Estate Price Peak

Source: BLS, CBO, Bloomberg

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Inflation Will Solve the Leverage Problem Inflation is always and everywhere a monetary phenomenon. Milton Friedman By increasing the number of dollars in circulation Under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Ben Bernanke

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U.S. vs. Japan: The Nominal Variables Say Risk On

U.S. vs. Japan: Central Bank Target Rates
6 Fed Funds Target Rate BOJ Overnight Target Rate 5

U.S. vs. Japan: Cumulative Monetary Expansion

250% Cumulative Monetary Base Growth 200%

Quantitative Easing 2

4 Target Rate (%)

150%

100%

Quantitative Easing 1
50%

U.S. Monetary Base 1 Japan Monetary Base 2

0 0 1 2 3 4 5 6 7 8 9 10

0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Years Since Real Estate Price Peak

Source: Bloomberg

Source: Bloomberg, Federal Reserve 1 Currency in circulation plus deposits held by depository institutions at the Federal Reserve Banks. 2 Currency in circulation plus current account deposits held by financial institutions at the bank of Japan.

Years Since Real Estate Price Peak

U.S. vs. Japan: Cumulative Nominal GDP Growth

16% U.S. 14% Cumulative Nominal GDP Growth 12% 10% 8% 6% 4% 2% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Japan

U.S. vs. Japan: Cumulative Inflation Since Real Estate Price Peak
Cumulative Inflation Since the Real Estate Price Peak
12% U.S. 10% Cumulative Inflation Growth 8% 6% 4% 2% 0% -2% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Japan

Quantitative Easing 2

Quantitative Easing 1

Years Since Real Estate Price Peak

Years Since Real Estate Price Peak

Governments tax nominal incomes Debt is serviced with nominal incomes not with real income
Source: Bloomberg Source: BLS, Statistics Bureau of Japan

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U.S. vs. Japan: 2 and 10 Year Bond Yields Adjusted for Last 12 Months Inflation
2 Year Government Bond Yields
6 2 Yr UST Adj. for LTM Inflation 5 2 Yr JGB Adj. for LTM Inflation 4 Inflation Adjusted Yield (%) Inflation Adjusted Yield (%) 3 2 1 0 -1 -2 -3 -4 0 2 4 6 8 10 12 14 16 18 20 Years Since Real Estate Price Peak -1 4 5 10 Yr JGB Adj. for LTM Inflation 10 Yr UST Adj. for LTM Inflation

10 Year Government Bond Yields

6

-2 0 2 4 6 8 10 12 14 16 18 20 Years Since Real Estate Price Peak

U.S. short real rates are negative

U.S. 10-year real rates are negative

Repressive negative real rates drive capital into riskier asset classes

Source: Bloomberg, BLS, Statistics Bureau of Japan

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Financial Repression: The Care and Feeding of Pro-Inflation Policies

Zero rates pledged through 2013 Short rates anchored 2-year, 5-year Treasury rates reprice according to the 0% rate arbitrage Asset 0.30% 2-year UST Operation Twist Drives down longer-term Treasury rates Expected Issuance of Long U.S. Treasuries
$150 $127 B $116 B $100 Billions USD

Liability 0% Fed Loan

Intended Fed Purchases of Long U.S. Treasuries (91% of total issuance)

$50

$0 Expected 30 Year Bond Issuance (Oct'11 - Jun'12) Fed Purchase of Long Bonds (Oct'11 - Jun'12)

Source: U.S. Treasury, Federal Reserve, TCW

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Reinventing the Greenspan/Bernanke Equity Put

100 90 80 70 Stock Market Index 60 50 40 30 20 10 0 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NIKKEI 225 Index (Dec '89 = 100)

Stock Market Peak

Quantitative Easing 2
S&P 500 Index (Oct '07 = 100)

Quantitative Easing 1

Years Since Stock Market Peak

Source: Bloomberg

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European Policy Options Were not just here to make a single market but a political union. Jacques Delors, EU Commission President, 1993 The European Union Treaty will lead to the creation of the United States of Europe. Helmut Kohl, German Chancellor, 1992

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American Experience: Nearly 100 Years to Form a Modern Federal Union

1776: American Declaration of Independence States were thought of as sovereigns 1788: U.S. Constitution ratified by the states 1832: South Carolina declares a Federal tariff null and void within the state of South Carolina South Carolina prepares to resist invasion Tariff was reduced 1850s: Southerners argue that the Constitution is a voluntary compact The union is an agreement among states Any state can secede 1861-1865: United States of America wages war on the eleven Confederate States of America 1865-1876: United States occupies Southern states

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Unit Labor Costs Diverged Across Europe

Rising productivity in Northern Europe reduced unit labor costs in the North Competitiveness of Germany enhanced vs. Italy, Spain Equilibrium could have been restored via: Migration of labor Appreciation of the (non-existent) German currency (Deutsche Mark) Depreciation of the (non-existent) Peseta, Lira Unit Labor Costs in the Euro Area
150 France Unit Labor Cost Index (1999 = 100) 140 Germany Italy 130 Spain Portugal 120

Spain

Germany
110 100

90 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Bloomberg, OECD, TCW

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European Trade Imbalances Created National Creditors/Debtors

Eurozone current account was near balanced However, some countries ran surpluses (e.g. Germany) and others (Spain, Greece) deficits Wide imbalances within Eurozone meant vast increase in borrowing by importing countries German surpluses were recycled into a Spanish real estate bubble Intra-Eurozone Current Account (Imbalances)
300

Germany Eurozone

200

100 USD Billions

-100

-200

Spain
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-300 1999

Source: IMF, TCW

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Can Europe Go Back to National Currencies?

Toothpaste cant be put back into the tube Creation of a northern Euro/southern Euro or restoring national currencies would catalyze: Immediate, massive appreciation of Deutsche Mark Depreciation of Lira, Peseta German labor would be repriced causing deflation, depression across northern Europe Southern Europe would hyperinflate How would anyone know which Euro assets and which Euro liabilities would convert into Deutsche Mark, Franc, Lira, etc.? Massive uncertainty would cause a run on the banks Sovereign governments would have to guarantee the banks

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Options for Resolution

Abandon the Euro: Financial Anarchy

Series of one time fixes: Recapitalize banks, enlarge EFSF, ECB Italian, Spanish bond purchases

Establish a Fiscal Union: Tax and Transfer throughout the EU, ECB powers enlarged

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Conclusions

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Conclusions: Out of the Valley of Debt

The Federal Reserve is choosing the least bad policy choice Necessary consequence is that U.S. inflation will rise Which will support nominal GDP growth Thereby facilitating de-leveraging via currency debasement Failure to reprice asset markets, labor markets, etc., have consequences too Inefficient resource allocation Painfully slow real GDP growth High unemployment to continue Europe has no feasible choice but to move towards a stronger union ECB will operate more like the Fed Can draw upon Feds dollar swap lines Political leadership likely will avoid hard choices and grand solutions, favor short-term fixes

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IV. Portfolio Strategy

 Beware interest rate duration Fed reflation efforts Long-term Federal budget imbalance Potential end of mercantilism (Pool of Fools) Fed balance sheet unwind Fed policy and eventually all policy pushes for reflation and disintermediation of low risk assets Eventual reduction in risk premia (credit, MBS, EMD) Focus on undervalued assets that can survive the trade Securities which benefit from reflation: (non-agency MBSSenior only; CMBS30% and 40% Seniors) Secured high yield Systemically critical banks (Senior debt, TRUPs) Investment Grade Corporates

>

(Developed) Strategy For a Financially Repressive World

How does 0% sound, does zero work for you?

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MetWest Total Return Bond Fund Summary Characteristics

As of December 31, 2011

MetWest TR Bond Fund Portfolio Duration Average Maturity 4.1 Years 7.1 Years

Barclays Aggregate 5.0 Years 7.1 Years

Sector Composition
MetWest TR Bond Fund U.S. Government U.S. IG Credit1 U.S. High Yield Agency MBS Non-Agency MBS CMBS ABS International Fixed Income Emerging Markets Fixed Income Cash & Equivalents 10.4% 17.3% 6.2% 29.9% 16.6% 8.1% 5.0% 0.0% 0.0% 6.5% Barclays Aggregate 42.0% 23.9% 0.0% 31.8% 0.0% 2.0% 0.2% 0.0% 0.0% 0.0%

Quality Composition2,3
MetWest TR Bond Fund AAA AA A BBB BB B & Below 57.3% 6.9% 9.0% 7.6% 4.6% 14.6% Barclays Aggregate 75.1% 5.1% 10.7% 9.1% 0.0% 0.0%

1 Includes Corporates, Municipals, Supranationals, and USD-denominated Sovereigns and Foreign Agencies of developed countries. 2 Quality ratings by Moody's, Standard & Poor's and Fitch, such as "AAA" refer to portfolio securities and not to the fund itself. When ratings vary, the highest rating is used. Securities rated below BBB are consideredmore speculative and are subject to greater risks than higher rated bonds. Portfolio composition may change at any time. Holdings rated below B were purchased at B or better. 3 MetWest receives credit quality ratings on the underlying securities held by the Fund from Moodys, Standard & Poors and Fitch. MetWest created the Quality Composition breakdown by taking the highest rating of the three rating agencies when two or three of the agencies rate a security. If only one agency rated a security, MetWest will use that rating. Securities that are not rated by any of the three agencies are shown in the unrated category.

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Focus Sector: Non-Agency MBS Credit Snapshot Keep Your Eyes On the Horizon
4.0% 3.5% 3.0% 2.5% 2.0%

12 Months Clean to 60 DQ Roll Rates

80.0% 70.0% 60.0% 50.0% 40.0%

Severity

1.5%

30.0%
1.0% 0.5% 0.0% -0.5%
J -2 un 7 00 7 00 J 8 00 D 8 00 J 9 00 D 9 00 J 0 01 D 0 01 J 1 01 D 1 01

20.0% 10.0% 0.0%

un 2 -2 ec un 2 -2 ec

c-2 De

-2 un

-2 ec

un

-2 ec

un

20

07 D

-2 ec

00

7 J un

20

08 D

-2 ec

8 00 J

un

0 20

9 D

-2 ec

00

9 J un

1 20

0 D

-2 ec

01

0 J

-20 un

11 D

1 -20 ec

40.0% 35.0% 30.0% 25.0% 20.0%

Voluntary Prepayments

Prime Alt-A Option ARM Subprime

Source: First American CoreLogic Loan Performance, TCW

15.0% 10.0% 5.0% 0.0%

n Ju -20

07 c De

-20

07 n Ju

-20

08 c De

-20

08 n Ju

-20

09 c De

-20

09 n Ju

-20

10 c De

-20

10 n Ju

-20

11 c De

-20

11
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45

Focus Sector: Non-Agency MBS Modified Modifications

An Unappreciated Change for the Better...
Modifications Are Up Substantially... ...And So Are Their Effectiveness

Modifications by Sector
40.0% Subprime 35.0% Option Arm 30.0% Alt-A 25.0% Prime 20.0%

Recidivism by Vintage
80.0%

Capitalization-Based Modifications

70.0%

60.0%

50.0% 2007 2008

40.0%

15.0%

30.0% 2009

10.0%

20.0%

5.0%

10.0%

The Benefit of Affordability Focused Modifications

0 10 20 30 40

2010 2011 50

0.0%
M a 0 r-2

08 008 008 008 009 009 009 009 010 010 010 010 011 011 011 011 2 2 2 2 2 c-2 2 c-2 r-2 2 c-2 r-2 2 c-2 r-2 n- pn- pn- pn- pJu Se De Ma Ju Se De Ma Ju Se De Ma Ju Se De

0.0%

Months

Source: First American CoreLogic Loan Performance, TCW

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Focus Sector: Non-Agency MBS What HPA & Employment Forecast Is Embedded In Non-Agency RMBS Prices?
Scenarios

1
0% Year 1 Annual HPA +3% Years 2+

2
-10% Year 1 0% Years 2+

3
-20% Year 1 0% Years 2+

4
-30% Year 1 0% Years 2+

Long Term Unemployment*

5%

6%

10%

15%

Loss-Adjusted Yields

11.45%

10.72%

9.54%

7.77%

The loss-adjusted yields shown above are derived from cashflows generated using a proprietary TCW logistical regression model on a representative sample of non-agency MBS, with certain assumptions embedded in the model. This analysis is presented here for illustrative purposes only. Actual realized yields will differ, perhaps significantly, from the results shown above. *Unemployment rate labeled in these scenarios is the eventual and terminal rate achieved after ramping up or down over the course of 3-7 years.

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Focus Sector: Non-Agency MBS A Spectrum of Non-Agency RMBS Loss-Adjusted Yields

Prime1
10% of loans are > 60 days delinquent 84% of loans have 12 months of clean pay history 48% severity rates on recent loan liquidations

Alt-A2
24% of loans are > 60 days delinquent 65% of loans have 12 months of clean pay history 59% severity rates on recent loan liquidations

Subprime3
43% of loans are > 60 days delinquent 33% of loans have 12 months of clean pay history 76% severity rates on recent loan liquidations

1 Prime assumptions: Price: $77.00, Forward Libor, 10% Initial 60+ Delinquency %, 0% Initial Stop Advancing %, 6% Voluntary Prepayment Rate 2 Alt-A assumptions: Price: $49.00, Forward Libor, 35% Initial 60+ Delinquency %, 20% Initial Stop Advancing %, 4% Voluntary Prepayment Rate 3 Subprime assumptions: Price: $35.00, Forward Libor, 45% Initial 60+ Delinquency %, 50% Initial Stop Advancing %, 2% Voluntary Prepayment Rate The analysis shown above is presented for illustrative purposes only, and is based on the assumptions stated above for each category of non-agency RMBS. Different assumptions would produce different results. It is possible that actual realized yields in the RMBS market may fall outside of the ranges shown above. Source: First American CoreLogic Loan Performance, TCW

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Focus Sector: Investment Grade Corporate Bonds Barclays Credit Spreads Index OAS
As of December 31, 2011
900 800 700 600

OAS (bps)

500 400 300 200 100 0 2001 2002 2003 Credit Index 2004 2005 Non-Corporates 2006 2007 Industrials 2008 Utilities 2009 Financials 2010 2011

Source: Barclays Capital

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Focus Sector: High Yield Credit Cycle Analysis: High Yield Corporate Fundamentals
... as well as declining cash balances and declining sales growth

Cash/Debt Ratio

Last 12 Months Sales Growth

16% 14% 12% 10% 8% 6% 4% 2% 0%

98 19 99 19 01 20 02 20 04 20 05 20 07 20 20 08 20 10

Median: 8%

30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20%

19 98 19 99 20 01 20 02 04 20 05 20 07 20 08 20 1 20 0

11 20

11 20

Source: Morgan Stanley

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Focus Sector: High Yield High Yield Excess Return Prospects Dependent on Credit Cycle Stage
Pre-Recession1
High Yield OAS +420

Recession2
High Yield OAS +1,000 bps

Current3
High Yield OAS +699

Analysis assumes no interest rate or curve shape shift nor spread changes. Analysis for illustrative purposes only 1. Example from September 2007. Assume bell-shaped default distribution. Uses maturity schedule as of September 2007. 2. Example: typical recession risk premium. Front end weighted default distribution. Uses maturity schedule as of September 2008. 3. Default distribution centered around year 2. Uses maturity schedule as of December 2011.

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V. Appendix

A Word About Risk

The primary risks affecting this Fund are interest rate risk (including extension risk and prepayment risk), liquidity risk, market risk, and credit risk. Interest rate risk refers to the possibility that the value of the Funds portfolio investments may fall since fixed income securities generally fall in value when interest rates rise. Extension risk is the possibility that rising interest rates may cause owners of the underlying mortgages to pay off their mortgages at a slower than expected rate. This particular risk may effectively change a security which was considered short or intermediate term into a long-term security. Long-term securities generally drop in value more dramatically in response to rising interest rates than short or intermediate-term securities. Prepayment risk refers to the possibility that falling interest rates may cause owners of the underlying mortgages to pay off their mortgages at a faster than expected rate. This tends to reduce returns since the funds prepaid will have to be reinvested at the then lower prevailing rates. Liquidity risk refers to the possibility that the Fund may lose money or be prevented from earning capital gains if it cannot sell a security at the time and price that is most beneficial to the Fund. Market risk is the possibility that the returns from the types of securities that the Fund invests in will underperform returns from the various general securities markets or different asset classes. Credit risk refers to the loss in the value of a security based on a default in the payment of principle and/or interest of the security, or the perception of the market of such default. The value of the Funds share price will fluctuate up or down based on the value of the portfolio holdings, which can be affected by these risks.
The information contained herein may include estimates, projections, and other forward-looking statements. Actual events may differ substantially from those presented herein. TCW assumes no duty to update any such statements. Any opinions expressed are current only as of the time made and are subject to change without notice. The views expressed herein are solely those of the author and do not represent the views of TCW as a firm or of any other portfolio manager or employee of TCW.

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Biographies
Investment Management Team
Tad Rivelle Chief Investment OfficerFixed Income Group Managing Director Tad Rivelle is Chief Investment Officer, Fixed Income, overseeing investment management of all U.S. fixed income products at TCW, including fixed income mutual funds offered by both TCW and MetWest. He also oversees all of TCWs fixed income research and commentary, which includes daily updates on the economy and the credit markets published on www.tcw.com. He is also a portfolio manager of numerous TCW and MetWest products, including the MetWest Total Return Bond Fund, TCW Total Return Bond Fund, TCW Core Fixed Bond Fund, and the TCW Strategic Income Fund. Prior to joining TCW, Tad served as Chief Investment Officer for MetWest. Under Tads leadership, the MetWest investment team was recognized as Morningstar's Fixed Income Manager of the Year for 2005. Prior to founding MetWest, Tad was co-director of fixed income at Hotchkis and Wiley. He was also a portfolio manager and vice president at PIMCO. Tad holds a bachelor's degree in physics from Yale University, a master's degree in applied mathematics from University of Southern California, and an MBA from UCLA Anderson School of Management. Laird R. Landmann Group Managing Director U.S. Fixed Income Mr. Landmann is a Generalist Portfolio Manager in the U.S. Fixed Income Group. He joined TCW in 2009 during the acquisition of Metropolitan West Asset Management LLC (MetWest). Mr. Landmann currently co-manages many of TCW and MetWests mutual funds, including the MetWest Total Return Bond Fund, the MetWest High Yield Bond Fund and the TCW Core Fixed Income Fund, and leads the fixed income groups risk management efforts He is a member of the MetWest investment team that was recognized as Morningstar's Fixed Income Manager of the Year for 2005 and has been nominated for the award six times. Prior to founding MetWest in 1996, Mr. Landmann was a principal and the co-director of fixed income at Hotchkis and Wiley. He also served as a portfolio manager and vice president at PIMCO. Mr. Landmann holds a BS in Economics from Dartmouth College and an MBA from the University of Chicago Booth School of Business.

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