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ANNUAL REPORT March 31, 2014

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ANNUAL REPORT March 31, 2014 ANNUAL REPORT March 31, 2014 METROPOLITAN WEST FUNDS Ultra Short Bond Fund Low Duration Bond Fund Intermediate Bond Fund Total Return Bond Fund High Yield Bond Fund Unconstrained Bond Fund Floating Rate Income Fund Strategic Income Fund AlphaTrak 500 Fund 2014 Metropolitan West Funds March 31, 2014 Table of Contents Letter to Shareholders..................................................................... 1 Fund Performance........................................................................ 7 Disclosure of Fund Expenses (Unaudited) ..................................................... 12 Summary of Portfolio Holdings ............................................................. 15 Schedule of Portfolio Investments ........................................................... 20 Ultra Short Bond Fund .................................................................. 20 Low Duration Bond Fund ................................................................ 29 Intermediate Bond Fund ................................................................. 46 Total Return Bond Fund ................................................................. 58 High Yield Bond Fund .................................................................. 94 Unconstrained Bond Fund ............................................................... 102 Floating Rate Income Fund .............................................................. 120 Strategic Income Fund .................................................................. 126 AlphaTrak 500 Fund.................................................................... 135 Statements of Assets and Liabilities .......................................................... 141 Statements of Operations .................................................................. 143 Statements of Changes in Net Assets ......................................................... 145 Financial Highlights ...................................................................... 149 Notes to Financials ....................................................................... 169 Report of Independent Registered Public Accounting Firm........................................ 209 Tax Information Notice.................................................................... 210 Privacy Notice........................................................................... 211 Management Information .................................................................. 213 METROPOLITAN WEST FUNDS Dear Fellow Shareholder, We are pleased to present this Annual Report for the Metropolitan West Funds for the period ended March 31, 2014. With your continued investment in and ongoing sponsorship of the Funds, assets grew to over $34 billion by the end of March 2014. As fund advisor, MetWest appreciates this steady growth not only as an indicator that we continue to meet the portfolio needs of our clients, but as a basis to maintain and enhance the resources of the investment team to deliver returns in all types of market environments. The March 31, 2014 Annual Report for the Metropolitan West Funds covers the following: Metropolitan West Ultra Short Bond Fund M-Class (MWUSX), I-Class (MWUIX) Metropolitan West Low Duration Bond Fund M-Class (MWLDX), I-Class (MWLIX), Administrative-Class (MWLNX) Metropolitan West Intermediate Bond Fund M-Class (MWIMX), I-Class (MWIIX) Metropolitan West Total Return Bond Fund M-Class (MWTRX), I-Class (MWTIX), Administrative-Class (MWTNX), Plan-Class (MWTSX) Metropolitan West High Yield Bond Fund M-Class (MWHYX), I-Class (MWHIX) Metropolitan West Unconstrained Bond Fund M-Class (MWCRX), I Class (MWCIX) Metropolitan West Floating Rate Income Fund M-Class (MWFLX), I Class (MWFIX) Metropolitan West Strategic Income Fund M-Class (MWSTX), I Class (MWSIX) Metropolitan West AlphaTrak 500 Fund M-Class (MWATX) Economic Review and Market Environment Coming into 2014, much was made of December’s Federal Reserve (Fed) announcement to begin slowing its purchases of U.S. Treasury and agency mortgage-backed securities (MBS). Would the economy suffer? Would government rates continue their rise that saw the 10-Year U.S. Treasury yield peak at 3.03% to close the year? Would other securities markets face increased volatility or fall back as the Fed withdrew support? Though it seemed rather clear that the ongoing securities purchases were not providing much thrust to the real economy by way of job creation and GDP expansion, it was fairly evident that asset prices were rising through 2013, whether on homes, equities or high yield bonds, to cite a few. Therefore, it has been unsurprising that the Fed was, and is expected to be, resolute in its meeting-by-meeting reduction, bringing what had been an $85 billion monthly buying program down to $55 billion by quarter-end. Meanwhile, the world kept on spinning, offering no shortage of other (potentially adverse) influences in the first quarter. Severe winter weather across much of the U.S. slowed economic activity domestically, China’sgrowth engine seemed to sputter, and Russia amplified global tensions with its annexation of Crimea. Despite the uncertainties, capital markets rebounded from a slow start in January to finish the quarter in positive territory. The S&P 500 Index gained 1.8%, reaching new highs throughout the quarter and credit spreads narrowed across investment grade and high yield markets. With the yield on the 10-YearU.S. Treasury falling by approximately 30 basis points since the beginning of the year, the Barclays Aggregate return of 1.8% was nearly enough to overcome the 2% calendar year loss for 2013. So, ironically, it was the U.S.Treasury market that faced the most pronounced spasm of volatility when, following the March Federal Open Markets Committee meeting, new Chair Janet Yellen suggested that a hike to the Fed Funds rate could be in the works as early as six months following the conclusion of the buying program, a date the market interpreted to be in early 2015, sooner than previously priced into the U.S. Treasury curve. The immediate impact was a spike in rate volatility as short U.S. Treasuries sold off, and a sharp one day run-up in 5-Year U.S. Treasury yields. As the quarter came to a close, with the 5-Year largely unchanged and longer rates down 30 to 40 basis points, a much flatter term structure was in place. Lower interest rates and tighter spreads drove positive returns across non-government fixed income sectors, with down-in-quality outperforming on a continuing quest for yield. High yield credit benefitted from steady inflows during the quarter, gaining 3% and producing 200 basis points of excess return, while emerging market debt recovered from a January setback to post a solid gain for the quarter. Among investment grade sectors, corporates returned nearly 3% as risk premiums fell to near the lows seen in 2007, prior to the financial crisis. Despite increased leverage in the sector, industrial credits outpaced utilities and financials on a duration-adjusted basis. Performance among securitized products was generally favorable outside of agency MBS, which struggled in the first quarter as changing expectations for future Fed policy drove episodic volatility and pushed spreads wider among lower coupon issues. Non-agency residential MBS remained sought-after sources of attractive risk-adjusted yield and commercial MBS were buoyed by strengthening collateral performance. Lastly, asset-backed securities (ABS) backed by student loans were beneficiaries of good demand for short duration, floating rates and a significant degree of government backing. 1 / Annual Report March 2014 The Economy and Market Ahead Expectations for the economy remain consistent with the past several quarters, continuing the expansion but bearing little evidence of an accelerating pace. While the withdrawal of monetary accommodation would typically presage a slowing, the absence of a sustained breakout – in terms of GDP and job growth - since 2008 argues that the effect has been far more meaningful on asset valuations than the economy. To the contrary, risks accumulated over the prolonged period of stimulus continue to argue for an upward normalization of rates, particularly if inflation appears. As a result, strategy across the Funds continues to be largely influenced by a view that interest rate pressures will heighten over time and that late-stage credit cycle dynamics such as increased leverage and looser underwriting standards warrant a cautious and selective investment strategy. Interest rate risk is constrained via a shorter-than-Index duration position and selective asset allocation across non-government fixed income sectors. The Funds, where appropriate, retain a constructive view on non-agency residential MBS with an overweight, particularly among floating rate issues which generally offer better total return potential and protection from higher interest rates. ABS and commercial MBS continue to represent a relative overweight, with security selection focused on non-traditionalABS collateral types such as student loans while the emphasis among commercial MBS has shifted to agency-backed issues with some exposure to super-senior tranches of seasoned and de-levered non-agency commercial MBS. Corporate credit has become less attractive with leverage rising and yield spreads narrowing, thus informing an underweight, particularly among industrial credits. However, financials and utilities continue to represent an overweight as both are somewhat protected from increasing leverage due to regulatory
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