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Economic Update

Fourth Quarter 2015

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

DoubleLine Macro-Asset Allocation Team

Sam Garza, Portfolio Manager

Fei He, Quantitative Analyst

Ryan Kimmel, Analyst

2

Economic Update 12/31/2015

Global Markets Review

2015 was an onerous year for global financial markets.

Low to negative returns characterized most asset

classes (Table 1). Market volatility picked up

significantly in the second half of the year as fears over

the health of the world economy roiled global financial

markets, with the world’s second-largest economy

forming the eye of the storm. In the course of the

calendar year, Chinese equities formed a parabolic

rally, and then cratered. The People’s Bank of China

(PBoC) devalued the Chinese Renminbi. Meanwhile,

the central bank to the world’s largest economy

became a source of policy debate, perhaps even policy

confusion. The Federal Reserve (Fed) further

contributed to market volatility, earlier in the year

setting expectations for a tightening of official short-

term rates in September, then balking, then tightening

in December, the first rate hike in nine years, despite

signs of economic and market weakness. As

DoubleLine has noted, a disconnect formed between

the Fed’s planned path for higher policy rates by the

end of 2016 and the market implied path of future

interest rates. The members of the Federal Open

Market Committee (FOMC) and market participants

appear to be watching different signals.

While the Fed tightened monetary policy in 2015, the

European Central Bank (ECB) embarked on an

extensive asset purchase program and took interest

Economic Update

rates negative. Such divergence in monetary policy

strengthened U.S. dollar (USD) against the Euro,

driving the outperformance of European equities vis-à-

vis U.S. equities (in local currency terms), at least in

the first half of the year.

Commodities continued their descent in 2015 with

S&P/Goldman Sachs Commodity Index (GSCI) down

-32.9% for the year. Energy led the decline with S&P/

GSCI Energy Index -41.5% as crude inventories swelled

and demand diminished. The lead-balloon decline in

commodity prices provoked sell-offs in High Yield (HY)

credit and Emerging Markets debt, two sectors with

high exposure to commodities. The widening in U.S.

HY credit spreads served as a warning sign for equities,

which some ignored to their detriment (Figure 1). For

2015, the Barclays U.S. Corporate High Yield Index

returned -4.5% and JP Morgan EMBI Global Index

returned +1.23%.

Global equities, as measured by the MSCI All-Country

World Index (ACWI) , declined -1.8% in 2015. U.S.

equities fared somewhat better with the S&P 500

+1.4%. However, much of the return was driven by a

handful of stocks. The overall breadth of the return

was poor. Emerging market equities underperformed

Table 1: Asset Class Year-to-Date 2015 Returns

As of December 31, 2015

Source: Bloomberg, DoubleLine

Figure 1: S&P 500 Index & U.S. High Yield Spread (Inverted)



*Please see appendix for index definition.

2015

Return

S&P 500 1.38%

MSCI All-Country World Index -1.80%

Barclays U.S. Aggregate Bond Index 0.55%

Barclays Global Aggregate Bond Index 1.02%

S&P GSCI Commodity Index -32.86%

300

350

400

450

500

550

600

650

700

7501400

1500

1600

1700

1800

1900

2000

2100

2200

OA

S (I

nver

ted

) B

PS

S&P

500

S&P 500 (LHS)

Barclays US Corp HY Spread

3


develop market equities with the MSCI Emerging

Market Index -14.8% in 2015.

As measured by the 10-year U.S. Treasury yield, were

range bound in 2015, albeit volatile within those

borders. The yield curve flattened as the front end of

the yield curve sold off.

The USD was one of top-performing assets for 2015

with the trade-weighted USD gaining +11.0%. The

currencies of the commodity-producing Emerging

Market countries were the hardest hit with the

Brazilian Real falling -32.9%, South African Rand

-25.2% and Columbian Peso -25.2%. G10 commodity-

based FX also came under pressure in 2015 with the

Canadian Dollar falling -16.0%, New Zealand Dollar

-12.4% and Australian Dollar -10.9%.

See Figures 2 through 6 on the following page for a

look at 2015 cross asset returns.

Charts Source: Bloomberg, DoubleLine *Please see appendix for index definitions. 1. Mexico = IPC Index; Brazil = Brazil Ibovespa Index; Argentina = Buenos Aires Stock Exchange Merval Index; Chile = Chile Stock Market Select; Colombia = Colombia Colcap Index; Shanghai = Shanghai SE Coposite Index; Taiwan = Taiwan Taiex Index; India = NSE CNX Nifty Index; Singapore = Straight Times Index (STI); Malaysia = FTSE Bursa Malaysia KLCI; Thailand = Stock Exchange of Thai Index; Indonesia = Jakarta Composite Index; Phillipines = PSEi – Philippine SE Index; Poland = WSE WIG Index; Czech = Prague Stock Exchange Index; Russia = MICEX Index; Hungary = Budapest Stock Exchange Index; Turkey = BIST 100 Index; South Africa = FTSE/JSE Africa Top 40 Index 2. ILS = Israeli Shekel; HKD = Hong Kong Dollar; JPY = Japanese Yen; CHF = Swiss Franc; TWD = Taiwanese Dollar; CNY = Chinese Renminbi; INR = Indian Rupee; GBP = Great British Pound; KRW = South Korean Won; SGD = Singapore Dollar; SEK = Swedish Krona; CZK = Czech Koruna; PLN = Polish Zloty; HUF = Hungarian Forint; IDR = Indonesian Rupiah; EUR = Euro; AUD = Australian Dollar; NZD = New Zealand Dollar; PEN = Peruvian Sol; MXN = Mexican Peso; CLP = Chilean Peso; NOK = Norwegian Krone; CAD = Canadian Dollar; MYR = Malaysian Ringgit; TRY = Turkish Lira; RUB = Russian Ruble; COP = Colombian Peso; ZAR = South African Rand; BRL = Brazilian Real 3. Precious Metals = S&P GSCI Precious Metals Official Close Excess Return Index. Livestock = S&P GSCI Livestock Official Close Excess Return Index. Agriculture = S&P GSCI Agriculture Official Close Excess Return Index. GSCI Commodity = S&P GSCI Official Close Excess Return Index. Energy = S&P GSCI Energy Official Close Excess Return Index. Industrial Metals = S&P GSCI Industrial Metals Official Close Excess Return Index

Economic Update

Figure 2: DM Equity Performance Total Return

Figure 3: EM Equity Performance Total Return1

-13.1%

-42.0%

-10.4%

-18.2%

-40.9%

6.4%

-10.6%-7.2%

-17.1%

-19.4%-19.1%

-19.9%

-6.6%

-18.4%

-3.2%

0.4%

29.7%

-30.9%

-19.6%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1.4%0.2%

7.1%

-4.4% -3.6%-1.7%

-6.4%

0.5% 1.1%

3.9%

-13.5%

-23.0%

9.9%

-4.6% -3.9%-5.9%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Figure 4: 2015 Change in Global 10-year Bond (bps)

10

-39

43

415

14

-6

-38

20 169

-10

-29

16

-146

13

-6

19

43

-79

9

32

183

-10

95

-200

-150

-100

-50

0

50

100

150

200272

Figure 6: Commodity Sector Performance Excess Return3

Figure 5: Fixed Income Performance Total Return2

-32.90%

-11.13%

-18.31%-16.92%

-41.57%

-24.57%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

GSCICommodity

Precious Metals Livestock Agriculture Energy IndustrialMetals

0.2% 0.1%

-0.4%-0.8%

-3.8%-4.4%-4.7%

-5.4%-6.3%

-6.6%-7.5%

-8.1%-9.7%

-9.9%-10.2%

-10.2%-10.9%

-12.4%-12.7%

-14.3%-14.3%-15.7%

-16.0%

-18.5%

-20.0%-20.3%

-25.1%-25.2%

-32.9%-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

ILS

HKD JP

Y

CHF

TWD

CNY

INR

GBP

KRW

SGD

SEK

CZK

PLN

HU

F

IDR

EUR

AUD

NZD PEN

MXN CL

P

NO

K

CAD

MYR TR

Y

RUB

COP

ZAR

BRL

Spot

Ret

urn

4


scenario is not our base case. China is going through a

long term economic transition from an investment-led

economic model to an economy driven by domestic

consumption. This economic transition has lead to a

slowdown in the manufacturing sector but the services

sector remains strong (Figure 7).

While we duly monitor the changing volatility of

Chinese equities, the real question at DoubleLine is

why did the Chinese government allow Chinese

equities to rally more than 150% in the first place? The

renminbi depreciation has led to higher volatility in

global financial markets. We believe the recent

depreciation of the Chinese Renminbi is part of a long-

term plan to liberalize the exchange rate and move

away from the USD peg toward a managed basket

approach. On a trade-weighted basis, the Chinese

currency has appreciated rapidly along with the dollar.

The recent move by the Peoples Bank of China is to

depreciate in unison with some of its key Asia trading

partners (Figure 8).

While we don’t foresee a “hard landing” scenario in

China, slowing China GDP may feel like a hard landing

Outlook

While 2015 was a challenging year for most assets

classes, 2016 could see more of the same with higher

volatility and low returns. DoubleLine is now being

joined by others raising questions about the health of

the global economy, the sustainability of the U.S.

economic “recovery,” the Fed insistence on tightening,

and the implications of Chinese monetary policy. We

remain underweight risk assets, particularly equities

and credit, while taking tactical posture to take

advantage of temporary market dislocations.

Concerns about the health of the global economy have

grown into the New Year. In particular, the market is

fearful that China’s growth is decelerating faster than

previously expected, and that Beijing is “losing

control” of the situation. (We have been skeptical that

Beijing like Washington was “in control” of their

respective situations.)

The +60% rise followed by the -43% decline in the

Shanghai Composite in 2015 coupled with the

depreciation of the Chinese Renminbi (RMB) and

decline in Chinese foreign exchange reserves aren’t

giving the market comfort. So are these early

indicators of an impending Chinese financial crisis or a

“hard landing” in China? The draconian “hard landing”

Economic Update

Figure 7: China Manufacturing & Non-Manufacturing PMI


35

40

45

50

55

60

65Manufacturing

Non-Manufacturing

Figure 8: China RMB & Trade Weighted RMB

Spot Performance vs. Selected Asia Foreign Exchange

60

70

80

90

100

110

120

130

CNY Trade Weighted

CNYUSD

KRWUSD

MYRUSD

SGDUSD


Source: Bloomberg, DoubleLine *CNY = Chinese Yuan; KRW = South Korean Wan; MYR = Malaysian Ringgit; SGD = Singapore Dollar

5


Against this context, the Fed has stated plans to hike

interest rate four times in 2016, even as the market

has priced in fewer than two hikes. We believe the Fed

will likely backtrack and revise down the ‘dots’ at the

March meeting. As long as the Fed’s expectations for

rate hikes are above the market’s expectations, the

Fed will continue to be a source of uncertainty and

volatility.

Given the heightened uncertainty, we remain

underweight risk assets. The risk profile for owning

equities seems poor. Equities face an undercutting

weakness in corporate credit. Revenue growth

remains anemic while profit margins appear to be

contracting – an obvious headwind for earnings

growth. Emerging market equities are exposed to

falling commodities prices, a mechanical result of the

slowdown in China. We are less constructive on

European equities given increased political uncertainty

in the eurozone. The ECB seems to be running out of

firepower. Since Draghi announced ECB QE back in

January 2015, European equities are lower and the

euro has been range-bound since March 2015. Even

after Draghi announced an extension of QE in

December and cut the deposit rate further negative to

-20bps the Euro rallied, and European equities

underperformed the broader market. It will be

increasingly difficult for Draghi to talk down the Euro

and European equities will suffer as a result. The

refugee crisis in Europe is leading to political tension

and is already undermining political unity across

Europe. The European risk premium is increasing, but

not yet to the point where we wish to add.

We remain underweight credit, particularly high yield

credit as fundamentals are likely to worsen before

they improve. Defaults will likely pick up this year in

the energy sector, which could feed through to other

sectors. The junk bond market could come under

further pressure as credit hedge fund managers see

redemptions.

for those who export commodities to China.

Developing, commodity-based economies have built

up excess capacity over the last decade in order to

supply China’s old economic model. These countries

will face continued economic headwinds as Beijing

trims China’s sails.

While the U.S. economy has been one of the few

bright spots in recent years, the domestic economic

recovery may be losing some steam. The

manufacturing sector is in contraction, and the service

sector, the main driver of growth, is weakening (Figure

9). In the corporate sector, revenue growth has been

dismal (Figure 10), and earnings appear to be topping

out.

Economic Update

Figure 9: ISM Manufacturing & Non-Manufacturing PMI


Figure 10: S&P 500 Index Revenues & U.S. Business Sales

Yearly Percentage Change

* Note: there is a one-month lag in Index Revenue & Business Sales data.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

S&P 500 Revenues

Business Sales



30

35

40

45

50

55

60

65

Recession

Manufacturing

Services

6


if yields break out to the down side will position for a

continued rally in rates and curve flattening.

Commodities could find a short term bottom in the

first quarter if the USD starts to sell off. However, over

the medium term it will be difficult for commodities to

sustain a significant rally, particularly in the energy

sector as the supply and demand dynamics appear

long-term bearish.

Given our outlook on the global economy and global

financial markets we remain underweight risk assets.

We will be closely watching China for any signs of

economic deceleration and financial instability. We

will also be keeping a close eye on the Fed to get an

idea on how fast they plan to hike rates in 2016. As we

said at beginning of last year, and the same holds true

today, volatility is likely to rise and forward looking

Sharpe Ratios are likely to decline. With heightened

volatility it will be beneficial to be liquid and nimble.

Good luck in 2016.

We have become less constructive on the U.S. dollar

especially against developed market currencies. The

U.S. dollar seems to have fully priced in the divergence

between the Fed and other developed market central

bank monetary policies. It is our view that the

divergence of central bank policies may have reached

its limit with the potential that the Fed abstains from

its guidance of hiking four times in 2016.

Contrary to popular belief, the USD has generally sold

off after the Fed begins hiking rates (Figure 11) and

has already rallied considerably even before the first

hike.

Another important factor to watch in 2016 will be the

Chinese Renminbi. If the Chinese Renmnibi continues

to weaken, which is our base case, then the currencies

of China’s key trade partners will also come under

pressure. Furthermore, a weakening Renminbi will be

a headwind for commodity prices, a double whammy

for commodity producers who export to China.

Our approach to rates in 2016 will be slightly different

than last year where we accurately called for range

bound yields. This year we are waiting for a breakout

of last year’s range and we will be looking to go with

the break. If yields break out to the top side then we

will be looking to get more defensive on duration and

Economic Update

Figure 11: Trade-Weighted USD and Fed Hiking Cycles

As of January 15, 2016


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Weeks Around First Fed Hike

2015

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Economic Update

Author Biographies

Ryan Kimmel

Analyst, Macro-Asset Allocation

Ryan Kimmel is an Analyst for DoubleLine Capital’s Multi-Asset Growth Strategy. Mr. Kimmel joined

DoubleLine in 2012. Prior to DoubleLine, Mr. Kimmel was a Proprietary Trader at The Gelber Group,

trading currencies for the Foreign Currency Group. Before Gelber, Mr. Kimmel was an Investment

Banking Analyst in Morgan Stanley’s Mergers and Acquisitions Group. Mr. Kimmel holds a BA in Business

Economics from the University of California, Los Angeles and holds an MBA from the Anderson School of

Management at the University of California, Los Angeles.

Samuel M. Garza

Portfolio Manager, Macro-Asset Allocation

Mr. Garza joined DoubleLine in 2009. Prior to DoubleLine, Mr. Garza was a Senior Vice President at

TCW since 2000 where he held several positions over the years ending with his last promotion to Sen-

ior Vice President in 2005. Prior to TCW, Mr. Garza worked at Union Bank of California in the Commer-

cial Banking Group where he was involved with corporate loan underwriting. Mr. Garza holds a BA in

Business Economics from the University of California, Santa Barbara and an MBA from the Anderson

School of Management at the University of California, Los Angeles.

Fei He, CFA

Quantitative Analyst, Macro-Asset Allocation

Mr. He joined DoubleLine’s Macro-Asset Allocation team in 2014 as a quantitative analyst. Prior to join-

ing the firm, he worked at PIMCO for three and half years as a quantitative research analyst where he

began in client analytics, advising clients on strategic asset allocation and later moved to emerging mar-

kets and commodities. Mr. He began his career at Absolute Return Capital Advisors as a portfolio/

research associate. He has published papers, including the Financial Analysts Journal. Mr. He holds an

MS in Financial Engineering from UCLA Anderson School of Management and a PhD in Molecular &

Medical Pharmacology from UCLA David Geffen School of Medicine. He graduated from Tsinghua Uni-

versity in Beijing with a BS in Biological Sciences & Biotechnology and is a CFA charterholder.

8


Definitions “Agriculture” - S&P GSCI Agriculture Official Close Excess Return Index - A “tradable” index, providing investors with a reliable and publicly available

benchmark for investment performance in the commodity markets, specifically agriculture. The index comprises the principal physical commodities

that are traded in active, liquid futures markets. Futures provide a way to trade the GSCI Spot Index returns plus any excess returns generated by

"rolling" the contract’s hypothetical positions forward to the nearby futures contract.

“Argentina “- Buenos Aires Stock Exchange Merval Index - The most important index of the Buenos Aires Stock Exchange. It is a price-weighted

index, calculated as the market value of a portfolio of stocks selected based on their market share, number of transactions and quotation price.

Australia All Ordinaries Index (AORD) - A stock index comprised of common shares from the Australian Stock Exchange.

Barclays Corporate High Yield Index - A market value-weighted index which covers the U.S. non-investment grade fixed-rate debt market. The index is

composed of U.S. dollar-denominated corporate debt in Industrial, Utility, and Finance sectors with a minimum $150 million par amount outstanding

and a maturity greater than 1 year. The index includes reinvestment of income.

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

U.S. 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.

“Brazil” Ibovespa Brasil Sao Paulo Stock Exchange Index - A gross return index weighted by traded volume and is comprised of the most liquid

stocks traded on the Sao Paulo Stock Exchange. The Bovespa Index has been divided 10 times by a factor of 10 since January 1, 1985.

“Canada” - Standard & Poor’s/Toronto Stock Exchange Index - A capitalization-weighted index designed to measure market activity of stocks listed

on the Toronto Stock Exchange.

“Czech” - Prague Stock Exchange Index - A free floating price-weighted index that tracks the performance of large companies listed on the Prague

Stock Exchange in the Czech Republic.

“Chile” - Santiago Stock Exchange IPSA Index - A stock market index composed of the 40 stocks with the highest average annual trading volume in

the Santiago Stock Exchange. On the last trading day of the year, the index is re-based back to 1000.

“China” - Shanghai Composite - A stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

“Colombia” – Colombia COLCAP Index - A stock index Colombian composed of the top 20 companies by market capitalization in the country.

Cotation Assistee en Continu 40 (CAC 40) - The CAC 40 Index which is a French stock market index. It tracks 40 of the largest French stocks on the

Paris Bourse, or stock exchange.

Consumer Price Index (CPI) - A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transpor-

tation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them;

the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Deutsche Borse AG German Stock Index (DAX) - The German stock index, which represents 30 of the largest and most liquid German companies

that trade on the Frankfurt Exchange.

Dow Jones Industrial Average (DJIA) - A price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

“Energy” - S&P GSCI Energy Index (SPGCENP) - This index represents the official closing level of Energy commodities as reported by Standard &

Poor’s.

Eurostoxx 50— A stock index of Eurozone stocks designed by STOXX, an index provider owned by Deutsche Borse Group and SIX group, with the

goal of providing a blue-chip representation of Supersector leaders in the Eurozone.

Financial Times Stock Exchange 100 (FTSE 100) - A capitalization-weighted index of the 100 most highly capitalized companies traded on the London

Stock Exchange.

G10 - A grouping of 10 countries identified by the World Trade Organization which are “vulnerable” to imports due to ongoing reform in the agri-

cultural sector. This grouping includes Switzerland, Japan, South Korea, Taiwan, Liechtenstein, Israel, Norway, Iceland, Bulgaria and Mauritius.

Hang Seng Index - A free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. The components of

the index are divided into four subindices: Commerce and Industry, Finance, Utilities, and Properties.

An investment cannot be made in an index.

9


Definitions “Hungary” - Budapest Stock Exchange Index - A capitalization-weighted indx adjusted for free float that tracks the daily price only performance of

large, actively traded shares on the Budapest Stock Exchange.

“India” - CNX Nifty - National Stock Exchange of India's benchmark index for Indian equity market and is a free float market capitalization weighte d

index.

Indice Bursatil Espanol (IBEX) - The official index of the Spanish Continuous Market. The index is comprised of the 35 most liquid stocks traded on

the Continuous market. It is calculated, supervised and published by the Sociedad de Bolsas.

“Indonesia “– Jakarta Composite Index - An index of all stocks that trade on the Indonesia Stock Exchange, IDX (formerly known as Jakarta Stock

Exchange, JSX).

“Italy” - Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB) - The benchmark stock market index for the Borsa Italiana, the Italian na-

tional stock exchange, which superseded the MIB-30 in September 2004. The index consists of the 40 most-traded stock classes on the exchange.

“Industrial Metals” - S&P GSCI Industrial Metals Official Close Excess Return Index - A “tradable” index, providing investors with a reliable and pub-

licly available benchmark for investment performance in the commodity markets, specifically industrial metals. The index comprises the principal phys-

ical commodities that are traded in active, liquid futures markets. Futures provide a way to trade the GSCI Spot Index returns plus any excess returns

generated by "rolling" the contract’s hypothetical positions forward to the nearby futures contract.

JP Morgan Emerging Markets Bond Index Global Total Return (EMBI) - A traditional, market capitalization-weighted index used for measuring the

total return performance of international government bonds issued by 27 emerging market countries that are considered sovereign and that meet the

specific liquidity and structural requirements.

Korea Composite Stock Price Index (Kospi) - A market capitalization weighted index of all common stocks traded on the Stock Market Division—

previously, Korea Stock Exchange—of the Korea Exchange. It is the representative stock market index of South Korea, similar to the Dow Jones Indus-

trial Average or S&P 500 in the United States.

“Livestock” - S&P GSCI Livestock Official Close Excess Return Index - A “tradable” index, providing investors with a reliable and publicly available

benchmark for investment performance in the commodity markets, specifically livestock. The index comprises the principal physical commodities that

are traded in active, liquid futures markets. Futures provide a way to trade the GSCI Spot Index returns plus any excess returns generated by "rolling"

the contract’s hypothetical positions forward to the nearby futures contract.

“Malaysia” - FTSE Bursa Malaysia KLCI Index - A capitalization-weighted stock market index. The FTSE Bursa Malaysia KLCI comprises the largest 30

companies listed on the Malaysian Main Market by full market capitalization that meet the eligibility requirements of the FTSE Bursa Malaysia Index

Ground Rules.

“Mexico” Mexican Stock Exchange Mexican Bolsa IPC Index - (Indice de Precios y Cotizaciones) A capitalization weighted index of the leading stocks

traded on the Mexican Stock Exchange.

Morgan Stanley Capital International All Country World Index (MSCI ACWI) - A market-capitalization-weighted index designed to provide a broad

measure of stock performance throughout the world, including both developed and emerging markets.

Morgan Stanley Capital International Emerging Markets Index (MSCI EM) - A float-adjusted market capitalization index designed to measure equity

market performance in global emerging markets. The index consists of 26 emerging economies, including but not limited to, Argentina, Brazil, China,

India, Poland, Thailand, Turkey, and Venezuela.

NASDAQ - A stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the

NASDAQ stock market with over 3,000 components. This index is highly followed in the U.S. as an indicator of the performance of stocks of technology

companies and growth companies. Since both U.S. and non-U.S. companies are listed on the NASDAQ stock market, the index is not exclusively a U.S.

index.

Nikkei 225 Index - A price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to

the Dow Jones Industrial Average Index in the U.S.

“Philippines” – Philippines Stock Exchange PSEi Index - The PHISIX and presently as the PSEi, is the main stock market index of the Philippine Stock

Exchange. The PSEi is also the PSE's only broad-base index.


10


Definitions “Poland” – Warsaw Stock Exchange WIG Total Return Index - A total return index which includes dividendsand pre-emptive rights (subscription

rights). Index includes all companies listed on the main market, excluding foreign companies and investment funds.

“Precious Metals” - S&P GSCI Precious Metals Official Close Excess Return Index - A “tradable” index that provides investors with a reliable and

publicly available benchmark for investment performance in the precious metals commodity markets. The index is designed to be tradable, readily

accessible to market participants, and cost efficient to implement. The S&P GSCI is widely recognized as the leading measure of general commodity

price movements and inflation in the world economy.

Purchasing Managers Index (PMI) - A composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output -

0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15 and Stock of Items Purchased - 0.1. Purchasing Managers' Index surveys are available for 32

countries and also for key regions including the Eurozone.

Russell 2000 Index - A subset of the Russell 3000 Index representing approximately10% of the total market capitalization and measuring the perfor-

mance of the small-cap segment of the U.S. equity universe.

“Russia” - MICEX Index - A capitalization-weighted composite index calculated based on prices of the 50 most liquid Russian stocks of the largest and

dynamically developing Russian issuers presented on the Moscow Exchange.

Shanghai Composite Index - A capitalization-weighted index that tracks the daily performance of all A-shares and B-shares listed on the Shanghai

Stock Exchange. The index was developed on December 19, 1990 with a base value of 100.

“Singapore” - Straits Times Index STI - A capitalization-weighted stock market index that is regarded as the benchmark index for the Singapore stock

market. It tracks the performance of the top 30 companies listed on the Singapore Exchange. It is jointly calculated by Singapore Press Holdings (SPH),

Singapore Exchange (SGX) and FTSE Group (FTSE).

“South Africa” - Financial Times Stock Exchange/Jamaica Stock Exchange (FTSE/JSE) Africa Top 40 Index - A capitalization-weighted index that in-

cludes the 40 largest companies by market capitalization included in the FTSE/JSE All Shares Index.

Standard & Poor’s GSCI Index (S&P GSCI) - An index that measures investment in the commodity markets and commodity market performance over

time.

Standard & Poor’s U.S. 500 Index (S&P 500) - A capitalized-weighted index of 500 stocks chosen for market size, liquidity an dindustry grouping,

among other factors. This index is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large

cap universe.

Standard & Poor’s/Toronto Stock Exchange Composite Index (TSX) - A capitalization-weighted index designed to measure market activity of stocks

listed on the Toronto Stock Exchange.

“Switzerland” - Swiss Market Index (SMI) - Switzerland’s blue-chip stock market index, which makes it the most important in the country. It is made

up of twenty of the largest and most liquid SPI large and mid-cap stocks.

“Taiwan” - Taiwan Stock Exchange Weighted Index - A stock market index for companies traded on the Taiwan Stock Exchange (TWSE). TAIEX co-

vers all of the listed stocks excluding preferred stocks, full-delivery stocks and newly listed stocks, which are listed for less than one calendar month.

“Thailand” – Stock Exchange of Thailand - the national stock exchange of Thailand. It is located in Bangkok. As of 31 December 2011, the Stock Ex-

change of Thailand had 545 listed companies with a combined market capitalization of BT 8,490 billion.

“Turkey” - Borsa Instanbul (BIST) 100 Index - A capitalization-weighted index consisting of 100 stocks selected among the stocks of companies traded

on the Borsa Instanbul Equity Market.

“Venezuela” - Caracas Stock Exchange Stock Market Index - The main and most important index of Caracas Stock Exchange. It lists the 11 largest

companies by capitalization and liquidity of the Venezuelan Stock Market.

Value Added Tax (VAT) - A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.

Value-added tax (VAT) is most often used in the European Union. The amount of value-added tax that the user pays is the cost of the product, less any

of the costs of materials used in the product that have already been taxed.


11


Disclaimers

Important Information 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 and sectors discussed are not rec-ommendations and are presented as examples of issue selection or portfolio management processes. They have been picked for comparison or illus-tration purposes only. No security presented within is either offered for sale or purchase. DoubleLine reserves the right to change its investment per-spective and outlook without notice as market conditions dictate or as additional information becomes available and assumes no duty to update the recipients of this presentation. 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 sub-ject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy, or invest-ment. All Investments involve risks. Please request a copy of DoubleLine’s Form ADV 2A to review the material risks involved in DoubleLine’s strate-gies. Past performance 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 2A (which contains important additional disclosure information, including risk disclosures), a copy of the DoubleLine’s proxy voting policies and procedures, or to obtain additional information on DoubleLine’s proxy voting deci-sions, 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 or the market or that DoubleLine’s risk management techniques will successfully mitigate losses. Additionally, the nature of portfolio di-versification 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 sec-tors 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 mar-ket conditions and any particular sector or 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 re-ceived 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 con-trasting 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. The views expressed here are those of the individual investment analyst and do not represent the views of DoubleLine, any other individual invest-ment analyst, portfolio manager, or other investment professional at DoubleLine. DoubleLine® is a registered trademark of DoubleLine Capital LP. All other marks belong to their respective owners. © 2015 DoubleLine Capital LP

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