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

Quarterly Commentary

Core Fixed Income Fund

DBLFX/DLFNX

June 30, 2010

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

Overview

The major domestic equity indices posted massive

losses in the second quarter of 2010, with the S&P

500 falling by 11.41%, and the Dow Jones Industrial

Average down 9.34%.

The non‐farm payroll report rose through the first

two months of the quarter due to Federal Census

hiring, but fell to a negative 125,000 in June.

London‐Intrabank Offered Rate (LIBOR) rates

continued to rise with relatively large increases during

the first two months of the quarter but were flat in

June with the 1‐month LIBOR rate up 10 basis points

(bps), closing the month at a yield of 0.35%. The 3‐

month LIBOR rate rose 24 bps to 0.53%, while


2

Quarterly Commentary 6/30/10

overnight rates rose 8 bps to 0.31%.

Emerging Markets

In Emerging Markets Fixed Income, the external

sovereign and corporate debt indices represented by

the JP Morgan Emerging Market Bond Index Global

Diversified (EMBI) and the JP Morgan Corporate

Emerging Markets Bond Index Broad Diversified

(CEMBI) generated positive returns for second

quarter 2010, of 1.24% and 1.26% respectively. The

positive returns for the external sovereign and

corporate indices were driven primarily by interest

income and decrease in treasury yields; which more

than offset the spread widening of 50‐100 bps for

both of these indices during the 2Q10. Local currency

bonds, represented by the JP Morgan Government

Bond Index – Emerging Markets Broad Diversified

(GBI‐EM) was the weakest‐performing sector during

the quarter, returning negative 1.4%. The GBI‐EM’s

negative returns for the quarter were primarily driven

by bond and currency losses in Europe. This was

partially offset by strong performance in Latin

America and Asia.

‐800

‐600

‐400

‐200

0

200

400

600

Thousands

Change in Nonfarm Payrolls

Source: Bloomberg

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

0.55%

0.60%

3/31

4/7

4/14

4/21

4/28

5/5

5/12

5/19

5/26

6/2

6/9

6/16

6/23

6/30

Rate

LIBOR RatesSecond Quarter 2010

1 month

3 month

Overnight

Source: Bloomberg

9,750

10,000

10,250

10,500

10,750

11,000

11,250

11,500

1,000

1,025

1,050

1,075

1,100

1,125

1,150

1,175

1,200

1,225

1,250

3/31

4/7

4/14

4/21

4/28

5/5

5/12

5/19

5/26

6/2

6/9

6/16

6/23

6/30

Dow Jones Industrial Average

Axis Title

S&P 500

Dow Jones Industrial Average and S&P 500Second Quarter 2010

S&P 500

DJIA

Source: Bloomberg

3


Tickers Quarterly Return

YTD Return

YTM Spread

EMBI JPGCCOMP 1.24% 5.56% 6.42% 355

CEMBI JBCDCOMP 1.26% 6.44% 6.43% 399

GBI‐EM JGENBDUU ‐1.40% 3.45% 6.44% NA

During the 2Q10, continued negative news from the

Greece/European sovereign and bank debt situation,

weak U.S. employment numbers and financial sector

reform challenged EM debt valuations. In addition,

statements by the new Hungarian Ruling Party, which

compared Hungary’s economic situation to that of

Greece, also added to price weakness in Central and

Eastern European credits. All of these concerns led to

a near shutdown of new securities issuance within

emerging markets for most of May and the first part

of June.

While market sentiment has improved in part due to

higher global growth estimates from the International

Monetary Fund (IMF) and a stabilization of the euro,

we expect that risk aversion will linger in 2H10 due to

the following factors:

European sovereign debt concerns;

European bank stress test data;

Declining global industrial output and

downside risks to global GDP growth


coming primarily from the world’s largest

economies: U.S., Europe and Japan;

Potential for a double dip recession in the

U.S.

While we continue to believe that EM debt offers a

persuasive investment case, EM spreads are expected

to continue to be interconnected to the challenges

being faced by the developed markets over the near‐

to medium‐term.

Our investment strategy continues to focus on high

quality investment grade credits. We maintain an

underweight position in the Central and Eastern

European region and also maintain an underweight

position to the lower rated sovereign credits.

Global Developed Credit

Although the U.S. credit markets delivered positive

total returns during the second quarter, both the

‐4%

‐2%

0%

2%

4%

6%

Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Jan‐10 Feb‐10 Mar‐10 Apr‐10 May‐10 Jun‐10

JP Morgan Emerging Markets Bond Index PerformanceLast 12 Months

EMBI

CEMBI

GBI‐EM

Source: JP Morgan

investment grade and high yield sectors generated

negative excess returns versus the broad market.

Credit is now broadly wider on the year after having

tightened for much of the first quarter, particularly in

the U.S. Economic headlines continue to raise

concerns of a double‐dip recession. Although much

of the recent negative news has been housing‐related

and can be ascribed to the end of the homebuyer tax

credit, broader weakness has shown up in other

measures such as consumer sentiment. Despite the

increase in spreads, yields have fallen as interest rates

benefited from a flight to quality, leading to positive

total returns in investment grade and high yield.

During the second quarter, the Barclay’s U.S. Credit

Index returned 3.27%, generating an excess return of

‐2.23%. The Barclay’s High Yield Index returned

‐0.11% with an excess return of ‐3.86%. By way of

comparison, the total return of the Barclay’s U.S.

Aggregate Index was 3.49% for the quarter.

Among investment grade corporate bonds, the best‐

performing sectors (as measured by total return)

included Aerospace and Defense (+6.39%), Textiles

(+8.54%), Restaurants (+6.76%) and Railroads

(+6.97%). The worst‐performing sectors were

Packaging (‐0.27%), Oil Field Services (‐3.06%) and


4


Non‐Captive Consumer Finance (‐0.94%). Debt rated

in the lower tier of investment grade (Baa)

underperformed higher‐rated debt (single‐A or

better). Pharmaceuticals were the top performers

(+3.14%) in the high yield market followed by

Environmental (+2.91%) and Airlines (+2.36%). The

worst‐performing sectors included Life Insurance

(‐7.78%), Property/Casualty Insurance (‐4.29%),

Brokerage (‐3.94%) and Technology (‐3.33%). In line

with the investment grade market, lower‐rated issues

underperformed their higher‐rated counterparts.

New investment grade supply totaled $166.7 billion

during the quarter, down from $254.9 billion issued in

the first quarter. High yield issuance totaled $44.5

billion during the second quarter, down from the

$64.2 billion issued during the prior quarter.

The markets faced many challenges during the

second quarter, ranging from natural disasters (a

volcanic eruption in Iceland) to man‐made disasters

(the British Petroleum oil spill in the Gulf of Mexico).

Added to those concerns was an attempted terrorist

attack in Times Square and the threat of several

potential sovereign defaults in the euro zone.

Regulatory reform in the U.S. financial sector

‐4%

‐2%

0%

2%

4%

6%

8%

Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Jan‐10 Feb‐10 Mar‐10 Apr‐10 May‐10 Jun‐10

Performance of Select Barclays Indices Last 12 Months

US High Yield

US Credit

US Aggregate

Source: Barclays Live

0

20

40

60

80

100

120

140

Billions of US Dollars

Total Fixed‐Rate Investment Grade Supply

Source: Barclays Live

continued to work its way through Congress, and the

uncertainty surrounding the final form of the

legislation weighed heavily on the minds of investors.

News on the U.S. economic front remained

worrisome, with growing fears of a double‐dip

recession. The fading of various fiscal stimuli is

manifesting itself in weak statistics in the

employment and housing sectors, among others. At

this point in a recovery, economists typically expect

to see private payrolls consistently creating in excess

of 150,000 new jobs per month. However, renewed

weakening in labor market trends is posing a

challenge to that orthodox outcome. The mortgage

application data for purchases plunged 15% in June,

and pending home sales declined 30% following the

expiration of the homebuyer tax credits. This was

more than twice the falloff predicted by the

consensus. Even though the US Government has

spent a material amount of resources on short‐term

“quick fixes,” including cash for clunkers, homebuyer

tax credits and extensions in jobless claims, the

underlying challenges remain. DoubleLine continues

to maintain a conservative posture within the Global

Developed Credit portion of its portfolios.

Agency Mortgage‐Backed Securities

The U.S. Agency mortgage market returned 2.87% for

the second quarter, underperforming the Barclay’s

Capital U.S. Aggregate Bond Index return of 3.49%

and the U.S. Treasury Index return of 4.68%. During

the quarter, Treasury rates dropped across the

curve. Two‐year rates dropped 41 bps, 5‐year rates

dropped 77 bps and 10‐year rates dropped 88 bps. In

this Treasury market context, the mortgage market

underperformance for 2Q10 conforms with orthodox

expectations.


5


The quarter started with the Barclay’s Capital MBS

Index at an average dollar price of 104.25. As rates

fell, the price of the mortgage index rose to 106.3 by

quarter‐end. At these premiums, the Agency

mortgage market likely will underperform if Treasury

yields fall in the future.

Higher mortgage prices are typically correlated with

faster prepayment speeds. With the mortgage index

at an all‐time high in dollar price, a fall in yields

should accelerate prepayments to very fast

speeds. Those fast speeds have not materialized so

far.

Given the changing economic landscape, borrower

credit worthiness has supplanted the differential

between borrower legacy rates and prevailing

mortgage rates as the primary determinant of

prepayment speeds. Mortgage rates are close to all‐

time lows. So by historical norms, most mortgage

borrowers should be able to reduce their borrowing

costs by refinancing. The problem for many

borrowers is that lenders have tightened up their

underwriting standards at the same time that many

borrowers’ economic circumstances have

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

95

100

105

110

MBA Refi Index

Barclay M

BS Index Price

Barclay MBS Index Average Price vs. MBA Refi Index

Barclay MBS Index Price

MBA Refi Index

Source: Barclays Capital and Bloomberg

worsened. This one‐two punch makes it much

tougher for borrowers to qualify for refinancing. As a

result, current prepayment speeds are in the 10 , 20

and 30 Conditional Prepayment Rate (CPR) range as

opposed to the 40, 50 and 60 CPR range historically

experienced at times of premium mortgage prices

amid falling interest rates.

Further analysis of Agency mortgage prepayments

requires dissecting prepayments into voluntary and

involuntary prepayments. With approximately 25% of

mortgage borrowers underwater on their mortgages,

the possibility of these borrowers defaulting has to be

considered. In the case of an Agency mortgage, the

default or involuntary prepayment gets passed

through to the bond holder at par as a prepayment.

Involuntary prepayments were observed during the

second quarter as Fannie Mae (FNMA) and Freddie

Mac (FHLMC) both announced they would henceforth

buy out all loans that were delinquent for over 120

days. During the quarter, all the FNMA and FHLMC

coupons experienced a fast month as there was a

backlog of very delinquent loans that were bought

out all at once. We expect the effect of the buyout of

delinquent loans will increase the prepayments by 5‐

10 CPR above the voluntary prepayments.

The Agency mortgage sector should perform well


6


going forward if rates remain at current levels or

move higher. If rates fall, the Agency mortgage

market will have a tough time keeping pace with the

Aggregate or Treasury market, given the high

prevailing Agency dollar prices. Other than changes

in interest rates, we would single out three other risks

face mortgage performance in the near future.

The first deals with the Fed’s position of $1.25 trillion

of Agency mortgages. These purchases, made in 2009

‐2010, were part of an emergency quantitative‐easing

initiative to suppress the primary mortgage rate in

the U.S. If the Fed were to liquidate these positions,

substantial downward pricing pressure would weigh

on the mortgage market as well as weaken a

vulnerable housing market and fragile

economy. Thus we doubt the Fed will take this

action. It seems to us, the Fed is more likely to buy

more mortgages than sell from its existing holdings.

The second area of risk deals with concerns of

potential for a refinancing wave as mortgage rates

are at historic low levels. As mentioned above,

underwriting standards have tightened to where they

were in the early 1990s. These tighter standards

make it very difficult for many borrowers to qualify

for refinancing.

0

10

20

30

40

50

60

70

80

90

100

4 4.5 5 5.5 6 6.5 7 7.5

CPR

Coupon

Prepayment Speeds of Generic FNMA Passthroughs

Jan

Feb

March

April

May

June

Source: JP Morgan

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

5.4%

3/25 4/1 4/8 4/15 4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10 6/17 6/24

Rate

Freddie Mac Commitment Rates

15 year

30 year

Source: Bloomberg

The third area of risk would be a big pickup in home

sales and big home price appreciation. We do not see

this happening in the near future given the

combination of tighter underwriting standards and

current economic conditions.

Non‐Agency Mortgage‐Backed Securities

We return to our previous month’s conversation

regarding “strategic defaults” in this month’s

commentary. FNMA announced plans to begin

pursuit of deficiency judgments in instances of

strategic default. Whether or not FNMA actually

carries through on that threat remains to be seen. We

are pleased, however, that the moral issue regarding

repayment of personal debt, and more to the point,

repayment of mortgage debt, has become a major

issue for the Government Sponsored Enterprises

(GSEs).

The non‐Agency market continued to grind slowly

tighter as investors reached for yield. On average, the

non‐Agency market is up anywhere between 0.5% to

2.5% during the month of June. The sector’s higher

prices continued to be based on market technicals

(lack of new supply and consistent amortization).

The non‐Agency market continued to offer the best

loss‐adjusted yields, in the 7‐8% range, as compared

to other fixed income sectors. The non‐Agency

market, however, faces uncertainty surrounding

potential shadow supply: both the amount of supply

waiting in the wings, and the timing of its hitting the

marketplace. In our opinion, the supply does exist;

however, it will take a significant event to create mass

unwinding from current bondholders. Such catalytic

events could include a scenario in which prices move

even higher and accounts begin taking the profits

from the upward moves, a significant increase in


7


defaults, or another massive price decline in this

sector, similar to that seen in March 2009.

Barring any the aforementioned events, we expect

the market to continue its gradual progress toward

higher prices and lower yields until the spread

between the non‐Agency market and other

investment alternatives meaningfully contracts.

The indices (ABX/CMBX and PrimeX) behaved in

muted fashion in June with PrimeX.FRM1 starting the

month at 107 and closing at 107½. CMBX and ABX on

average were up approximately 1%.

The other important event of the month is the work

being done in Washington on financial reform

legislation. Although President Obama had hoped for

a pre‐July 4 signing, that day came and went without

passage in the Senate. Ultimately, we expect some

form of financial reform legislation will be enacted

before the November mid‐term elections, although

the measures to be included and excluded remain to

be seen.

With a 2000‐page document and so many different

50

55

60

65

70

75

80

3/31/10

4/7/10

4/14/10

4/21/10

4/28/10

5/5/10

5/12/10

5/19/10

5/26/10

6/2/10

6/9/10

6/16/10

6/23/10

6/30/10

Price

Selected Prices for ABX 2006‐2 IndicesSecond Quarter 2010

PENAAA

AAA

Source: Deutsche Bank

factions competing for their piece, it will probably

take until at least mid‐July before we get clarity and

passage. Much of the bill has to do with how the

securitization market will look going forward. We

have seen that quality product (notably the Redwood

deal) brings out the buyers, and the market needs

that type of product to restart. By putting in place

more standardized rules and setting the bar higher,

we believe that a new securitization market can

emerge. We intend to continue to follow the events

in Washington closely.

Commercial Mortgage‐Backed and Asset‐

Backed Securities

With the first half of 2010 behind us, performance of

commercial mortgage‐backed securities (CMBS) has

been anything but lackluster as the sector continued

to outperform the Barclays U.S. Aggregate Bond

Index, closing out the month of June with a 1.94%

return vs. the index return of 1.57%. A quick recap on

the second quarter brings us back to an April/May

barrage of headline news from the Euro Zone that

halted a four‐month‐long rally and spurred the flight‐

to‐quality trade. During this time, market volatility

spiked, and CMBS periodically traded in strong

positive correlation to broader equity market

movements. Subsequently, as market‐perceived

clarity improved, price volatility abated as investors

and dealers regained confidence to restore two‐way

market flows. The sector is up 2.78% for the quarter

and 12.14% year to date, outperforming ABS sector

by 24 bps and 733 bps respectively.

As we have mentioned previously, the

outperformance of CMBS versus the index does not

necessarily reflect an underlying improvement in

credit performance. In fact, CMBS fundamentals have


8


remained weak with the 30+ day delinquency rate

increasing by 24 bps in June to 8.26% and 60+ day

delinquencies increasing by 14 bps to 7.15%. In

addition, despite limited volume on servicer default

liquidations, the average six‐month loss severities

have been in the 60% range. One bright spot in the

CMBS fundamental outlook front may be in

commercial property prices: the latest Moody’s

Commercial Property Price Index (CPPI) data showed

a 1.7% increase in April, although, even with that

gain, the overall CPPI has experienced a 41.1%

decrease in value from its October 2007 peak level.

We would note, however, that the CPPI data have

been rather choppy in the past few months as the

index tracks repeat sales, and transaction volumes

have been very low. It is hard to develop much

confidence in these readings as indicative of an actual

market stabilization.

With broader economic indicators showing signs of

slowing and uncertainty with regard to the

sustainability of the supposed “recovery,” we

continue to tread cautiously in this sector. In the

meantime, our focus remains at the top of the capital

structure where added credit support and seniority in

the debt stack provide ample basis and relative value

versus other spread products as credit fundamentals

100

120

140

160

180

200

Dec‐04

Apr‐05

Aug‐05

Dec‐05

Apr‐06

Aug‐06

Dec‐06

Apr‐07

Aug‐07

Dec‐07

Apr‐08

Aug‐08

Dec‐08

Apr‐09

Aug‐09

Dec‐09

Apr‐10

Index Value

Moody's Commerical Property Index

Source: Bloomberg

U.S. Government Securities

Two trends characterized the U.S. Government

market in the second quarter: lower yields and a

flatter yield curve. These trends were animated by

economic challenges around the globe. The fiscal

crisis in Greece engulfed the euro zone and brought

to the forefront awareness of budgetary problems

and high debt burdens in a number of European

economies. The bailout spearheaded by the

European Community failed to calm the markets. The

domestic economy suffered setbacks as well, as

broadly disappointing economic data heightened

double dip concerns and revived deflation fears. The

10‐year Treasury yield opened the quarter at 3.83%,

reached a high of 3.99% on April 4 and then declined

steadily to 2.93% at quarter‐end. The yield curve, as

measured by the spread between the two‐year and

30‐year Treasuries, began the quarter at 369 bps,

peaked just 2 bps steeper in mid‐April and then fell to

327 bps on June 30.

The Barclays Capital U.S. Government Index returned

1.71% in June and 4.24% for the full quarter. Returns

were correlated with maturity, with one‐ to three‐

year issues posting a return of 1.17% for the quarter

while issues longer than 20 years returned 14.31%.

Treasuries returned 1.86% in June and 4.68% for the

quarter, while Agency issues returned 1.11% in June


9


and 2.60% for the quarter. On a duration‐adjusted

basis, Agency issues outperformed Treasuries by 19

basis points for the quarter. Inflation‐adjusted

Treasuries returned 1.43% in June and 3.82% for the

quarter, underperforming conventional Treasuries

and highlighting the decline in inflation expectations.

The posture of the government portfolio shifted

during the quarter. Portfolio duration was, as matter

of policy, neutral to the Government index, but the

portfolio was repositioned to benefit from a flatter

yield curve. We expect a bias toward a flatter yield

curve regardless of the direction of the overall level of

interest rates. Looking forward, we expect to reduce

our exposure to risk in the agency sector in coming

months. We anticipate stable Agency spreads in the

near term. However, the deteriorating fiscal situation

in the U.S. increases the uncertainty surrounding the

future status of the GSEs and risk of a GSE reform

plan that is detrimental to bondholders.

3/31/2010 6/30/2010 Change

3 month 0.15 0.17 0.02

6 month 0.23 0.22 ‐0.01

1 year 0.38 0.31 ‐0.07

2 year 1.02 0.60 ‐0.42

3 year 1.57 0.96 ‐0.61

5 year 2.54 1.77 ‐0.77

10 year 3.83 2.93 ‐0.90

30 year 4.71 3.89 ‐0.82

Source: Bloomberg

Yield Curve (%)

Quarterly Performance

10


DoubleLine Core Fixed Income Fund

Ticker: DBLFX/DLFNX

The DoubleLine Core Fixed Income Fund (DBLFX) has outperformed its benchmark, the Barclay’s Capital U.S. Aggregate Index, since the fund’s inception on June 1, 2010. The Fund’s holdings in investment grade credit underperformed, while the Funds’ government portion outperformed due to positioning relative to the yield curve. The Fund’s emerging markets allocation underperformed the absolute return of the benchmark, however, still provides diversification benefits going forward. The MBS portion of the Fund outperformed the benchmark, mostly due to management’s strategic allocation to non‐agency MBS. The Fund’s agency MBS allocation performed in‐line with the benchmark.

Portfolio PerformanceAs of June 30, 2010 As of June 30, 2010

June* 2Q2010*

Since Inception*

(June 1, 2010) June* 2Q2010*

Since Inception*

(June 1, 2010)

I‐share 1.91% 1.91% 1.91% I‐share 1.91% 1.91% 1.91%

N‐share 1.90% 1.90% 1.90% N‐share 1.90% 1.90% 1.90%

Barclays US Aggregate Index 1.53% 1.53% 1.53% Barclays US Aggregate Index 1.53% 1.53% 1.53%

I‐share N‐share

Gross Expense Ratio 0.54% 0.79%

Net Expense Ratio 0.49% 0.74%

Month‐End Returns Quarter‐End Returns

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

June* 2Q2010* Since Inception* (June 1, 2010)

I‐share N‐share Barclays US Aggregate Index

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

June* 2Q2010* Since Inception*

(June 1, 2010)

I‐share N‐share Barclays US Aggregate Index

*Period is from 6‐1‐10 to 6‐30‐10 and is not a complete month or quarter.

Performance data quoted represents past performance; past performance does not guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares are redeemed, when redeemed, may be worth more or less than original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month‐end may be obtained by calling 213‐633‐8200 or by visiting www.doublelinefunds.com. Performance results are short‐term and may not provide an adequate basis for evaluating the performance potential of the fund over varying market conditions and economic cycles.

The Advisor has contractually agreed to waive fees through April 2, 2011. Investment performance would be lower without fee waivers.

Barclays US Aggregate Bond Index represents securities that are SEC‐registered, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass‐through securities, and asset‐backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest in an index.

Quarterly Performance

11



Ticker: DBLFX/DLFNX

As of June 30, 2010

The Fund’s government allocation is currently 41%. Government bonds remain attractive due to the

deflationary environment that we believe is imminent. This position is primarily a defensive allocation,

given the softening of the economy in general. Given the liquidity of this sector the Fund can sell these

securities and deploy the capital proceeds to other sectors if they appear to be more attractive.

The Fund’s allocation to mortgage‐backed securities (MBS) constitutes 41% of the entire portfolio. The

Fund’s management team prefers the loss‐adjusted yield opportunity offered in the non‐agency MBS

sector over other non‐investment grade options. The Fund also invests in agency MBS, which creates a

barbell structure of US Government‐guaranteed and non‐guaranteed securities.

The Fund’s allocation to investment grade credit remains neutral relative to the Index at 15%. The Fund’s

management prefers to currently invest in invest in high‐quality credit rather than the lower quality

securities.

The Fund’s high yield allocation currently remains at 0%. We have adjusted the fund’s credit risk away

from this sector and toward the non‐agency mortgage sector which has more attractive credit

opportunities and better loss‐adjusted yields for equivalent credit risk.

The Fund’s international exposure remains at 0%. Given the uncertainty in the Eurozone, coupled with

our management’s favorable outlook for the dollar, we remain allocated solely in USD‐denominated

securities.

The Fund’s emerging markets allocation is currently 2.5%. Exposure to this sector provides portfolio

diversification. All allocations in the emerging markets sector focus on U.S. dollar‐denominated corporate

and sovereign credit. These sectors are attractive given the strong balance sheets of the countries and

corporations we trade in, relative to more developed economies.

Diversification does not assure a profit or protection against a loss in a declining market.

Quarterly Statistics

12



Ticker: DBLFX/DLFNX

As of June 30, 2010

Portfolio Composition

General Statistics

# of Issues 108

Ending Market Value $30,491,342

Market Price1 $101.96

Duration 2.85

Weighted Avg Life 7.09

Sector Breakdown

(Percent of Portfolio)

Cash 10.0%

Government 35.0%

Mortgage‐Backed Securities 38.4%

Emerging Markets Fixed Income 2.4%Global Developed Credit 14.2%

Total: 100.0%

Portfolio Characteristics

Weighted Average Life Breakdown Current Quality Credit Distribution 2 Duration Breakdown

(Percent of Portfolio) (Percent of Portfolio) (Percent of Portfolio)

0 to 3 years 24.9% Cash 10.0% Less than 0 18.7%

3 to 5 years 11.9% Government 35.0% 0 to 3 years 27.6%

5‐10 years 42.1% Agency 16.0% 3 to 5 years 15.2%

10+ years 11.1% Investment Grade 32.2% 5‐10 years 21.9%

Cash 10.0% Below Investment Grade 6.8% 10+ years 6.6%

Total: 100.0% Unrated Securities 0.0% Cash 10.0%

Total: 100.0% Total: 100.0%

Cash

Government

Mortgage‐Backed SecuritiesEmerging Markets Fixed IncomeGlobal Developed Credit

1. Market price is the weighted average of the prices of the Fund's portfolio holdings. While a component of the fund's Net Asset Value, it should not

be confused with the Fund's NAV.

2. Credit distribution is determined from the highest available credit rating from any Nationally Recognized Statistical Rating Organization.

Investment Grade ‐ Refers to a bond considered investment grade if its credit rating is BBB‐ or higher by Standard & Poor's or Baa3 or higher by

Moody's. Ratings are based on a corporate bond model. The higher the rating the more likely the bond will pay back par/100 cents on the dollar.

Below Investment Grade ‐ Refers to a security that is rated below investment grade. These securities are seen as having higher default risk or other

adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive. They are less likely to pay back 100

cents on the dollar.

Quarterly Statistics

13


The fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company and may be obtained by visiting www.doublelinefunds.com or by calling 1‐877‐354‐6311/1‐877‐DLINE11. Read it carefully before investing. The principal value of debt securities typically decrease when interest rates rise. This risk is usually greater for longer‐term debt securities. Investments in lower rated and non‐rated securities present a greater risk of loss to principal and interest than higher rated securities. Investments in Asset‐Backed and Mortgage‐Backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Investments in lower rated and non‐rated securities present a great risk of loss to principal and interest than higher rated securities. The Fund invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for investments in emerging markets. Sector Allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Portfolio holdings generally are made available fifteen days after month end by calling 1‐877‐DLine11. Fund portfolio characteristics and holdings are subject to change without notice. The Advisor may change its views and forecasts at anytime, without notice. Doubleline Capital LP is the advisor to the Doubleline Funds, which are distributed by Quasar Distributors, LLC. The source for the information in this report is DoubleLine Capital, which maintains its data on a trade date basis.

©2010 DoubleLine Funds.

Disclaimer

Definitions

14


AAA Sub‐index (AAA)

This index consists of the required tranches of the residential mortgage‐backed securities transactions in the master list with an applicable rating of

AAA (if there is more than one such tranche, the tranche with the longest expected weighted average life, based on the applicable deal pricing speed

as of its issuance date).

ABX

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

asset‐backed exposure or to take a position in the asset class.

Barclays US Aggregate Bond Index

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

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

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

Barclays US Credit Index

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

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

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

Barclays US Government Index

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

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

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

Barclays US High Yield Index

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

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

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

Barclays US Mortgage‐Backed Securities (MBS) Index

This index is the US MBS component of the US Aggregate index. It covers the mortgage‐backed pass‐through securities of Ginnie Mae (GNMA), Fannie

Mae (FNMA), and Freddie Mac (FHLMC). The MBS Index is formed by grouping the universe of over 600,000 individual fixed rate MBS pools into

approximately 3,500 generic aggregates. They are defined according to the following parameters: Agency (GNMA, FNMA, FHLMC), Program (30‐year,

15‐year, balloon, GPM), Pass‐through coupon (6.0%, 6.5% etc.), Origination year (1987, 1988, etc.).

Barclays US Treasury Index

This index is the US Treasury component of the US Government index. Public obligations of the US Treasury with a remaining maturity of one year or

more.

Basis Point

A basis point (bps) equals to 0.01%.

Conditional Prepayment Rate (CPR)

A loan prepayment rate that is equal to the proportion of the principal of loan pool which is assumed to paid off prematurely each period.

CMBX

The CMBX index is synthetic, referencing 25 commercial mortgage‐backed securities (CMBS). This index was created in response to the rapid growth of

credit default swaps (CDS) in the CMBS market and provides a standardized tool to gain exposure to CMBS.

Dow Jones Industrial Average

The Dow Jones industrial Average is a price‐weighted average of 30 blue‐chip stocks that are generally the leaders in their industry. It has been a

widely followed indicator of the stock market since October 1, 1928.

JP Morgan Corporate Emerging Market Bond Index This index is a market capitalization weighted index consisting of US‐denominated Emerging Market corporate bonds. It is a liquid global corporate benchmark representing Asia, Latin America, Europe and the Middle East/Africa. JP Morgan Emerging Markets Bond Global Diversified Index (EMBI) This index is uniquely‐weighted version of the EMBI Global. It limits the weights of those index countries with larger debt stocks by only including

Definitions

15


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

identical to those covered by EMBI Global.

JP Morgan Government Bond Emerging Markets (GBI EM)

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

government bonds to which international investors can gain exposure.

London‐Interbank Offered Rate (LIBOR)

British Bankers Association Fixing for US Dollar. The fixing is conducted each day at 11 am (London time). The rate is an average derived from the

quotations provided by the banks determined by the British Bankers’ Association.

MBA Refinance Index

This index is published weekly by the Mortgage Bankers Association and consists of mortgage refinancing applications that represent the broadest

survey of overall mortgage refinancing activity in the U.S. This index includes conventional and government refinances.

Moody’s REAL/Commercial Property Price Index (CPPI)

This index tracks fluctuations in value by measuring the sale price of specific properties that have been sold at different points in the real estate cycle.

Penultimate AAA Sub‐index (ABX.HE.PENAAA)

The PrimeX index consists of required tranches of the Residential mortgage‐backed securities transactions in the master list with an applicable rating

of AAA and referencing the same underlying pool of assets as the AAA sub‐index (if there is more than one such tranche, the tranche with the second

longest expected weighted average life, based on the applicable deal pricing speed as of its issuance date).

PrimeX

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

There are 20 prime RMBS deals referenced in each sub‐index from 2005, 2006, and 2007.

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

An investment cannot be made in an index.

Disclaimer

16


Important Information Regarding This Report

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

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

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

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

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

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

becomes available.

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

Important Information Regarding Risk Factors

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

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

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

illustrated in this presentation) is no guarantee of future results.

Important Information Regarding DoubleLine

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

independent pricing services and fair value processes such as benchmarking.

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

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

Important Information Regarding DoubleLine’s Investment Style

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

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

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

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

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

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

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

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

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

Important Information Regarding Client Responsibilities

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

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

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

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

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

© 2010 DoubleLine Capital LP

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