putting markets in_perspective_presentation

PUTTING MARKETS IN PERSPECTIVE | 01.12

Your Global Investment Authority

01.12


Introduction PIMCO’s process Insights from the December 2011

Cyclical Forum

EconomyGlobal economy U.S. economy European economy Emerging economies

Financial markets Sovereign debt Investment grade corporates Dividend-paying stocks Cash

Pg 2

Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information is contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your financial advisor, visiting pimco.com/investments or calling 888.87.PIMCO. Please read them carefully before you invest or send money.


PIMCO’s Cyclical Forums take place four times a year and distill extensive analysis into the market views highlighted in this presentation. The most recent forum was in December 2011.

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PIMCO’s unique investment process: Getting ahead of change

Long-term secular inputs and analysis to set guardrails, and short-term cyclical inputs to help set near-term strategy

Forums

Develop and implement trade strategies, combining top-down and bottom-up analysis to actively manage portfolios

Portfolio Managers

Investment Committee

Distills insights from across PIMCO into specific investment guidelines

BOTTOM UP

TOP DOWN

PortfoliosManaged

within mandated parameters and

consistent with the firm’s views

PUTTING MARKETS IN PERSPECTIVE | 01.12 Pg 4

— Saumil Parikh

Managing Director and

Leader, Cyclical Forum

“As goes the eurozone deleveraging, so goes the global economy over the next six to 12 months.”


Global economy

PIMCO expects real global economic growth of 1%–1.5% in 2012, with substantial downside risk if Europe’s debt problems spiral into a broaderglobal crisis.

ECONOMY


Global economy has improved but faces considerable challenges

Source: IMF World Economic Outlook, September 2011. Projections begin in 2011.

Chan

ge in

glo

bal r

eal G

DP

6%

5

2001

4

3

2

1

0

-1

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F

ECONOMY


Global economy will feel impact as distressed eurozone banks reduce foreign loans

Sources: BIS, ESCB, Bank of England, Federal Reserve, ECB, Barclays Capital and Citi. Data through December 2011.

Geographic breakdownof eurozone bank loans:

Domestic – 67%

Non-domestic eurozone – 16%

North America – 7%

Asia – 4%

Other – 4%

South America – 1%

Other Central andEastern Europe – 1%

ECONOMY


U.S. economy

Despite some recently improved economic statistics, PIMCO continues to forecast U.S. real GDP growth of 0%–1% in 2012.

ECONOMY


U.S. recovery continues, but the trend may not be sustainable

Source: Haver Analytics. Data through 30 September 2011. Fourth quarter 2011 GDP is estimated by Bloomberg as of 11 January 2012.

Annu

alize

d qu

arte

r-ove

r-qua

rter c

hang

e in

real

GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

10%

8

6

4

2

0

-2

-4

-6

-8

-10

ECONOMY


Consumption was fueled by decrease in savings, not increase in wealth

Sources: Bloomberg, Haver Analytics. Data through 30 September 2011.

Net w

orth

to in

com

e ra

tio in

verte

d12

/31/85

12/31

/05

4

5

6

7

Net worth ratio

Savings rate

09/30

/8712

/31/87

09/30

/8912

/31/89

09/30

/9112

/31/91

09/30

/9312

/31/93

09/30

/9512

/31/95

09/30

/9712

/31/97

09/30

/9912

/31/99

09/30

/0112

/31/01

09/30

/0312

/31/03

09/30

/05

09/30

/0712

/31/07

09/30

/0912

/31/09

09/30

/11

Savings rate

9%

8

7

6

5

4

3

2

1

ECONOMY


European economy

PIMCO is forecasting that the eurozone economy will shrink 1%–1.5% in 2012, with significant risk of an even worse recession.

ECONOMY


Governments are deleveraging through reduced spending


Year

-ove

r-yea

r cha

nge

in d

efici

t

2008 2009 2010 2011F 2012F

10%

5

0

-5

-10

FranceGermany Italy

Greece SpainPortugal

ECONOMY


Eurozone banks have barely begun deleveraging

Source: Citigroup. Data through December 2011.

140%

135

125

120

115

110

105

2006

Eurozone bank loans to GDP

130

2007 2008 2009 2010 2011

ECONOMY


Emerging economies

PIMCO expects emerging economies to continue to deliver attractive growth relative to developed economies, but at a slower pace than we have seen in recent years.

ECONOMY


Emerging economies have delivered strong but slowing growth


Year

-ove

r-yea

r cha

nge

in G

DP

10%

8

6

4

2

0

-2

-4

2000 2004 2011F

Developed economiesEmerging economies

2001 2002 2003 2005 2006 2007 2008 2009 2010 2012F

ECONOMY


Policy changes underway to combat potential economic slowdown

Sources: Bloomberg: Brazil Selic Target Rate Index; Russia Refinancing Rate Index; Bank Indonesia Reference Interest Rate.Haver Analytics: China’s Reserve Requirement Ratio. Data through 31 December 2011.

Shor

t-ter

m ra

tes

14%

12

10

8

6

4

0Brazil Indonesia

2

Russia China

30 June 201131 December 2011

Bank reserve requirements

25%

20

15

10

30 June 201131 December 2011

ECONOMY


PIMCO’s outlook Implications

Global economy Real global economic growthof 1%–1.5% in 2012

Consider a global allocationwith broad diversification andactive management

U.S. economy Real GDP growth of 0%–1%in 2012

Favor a strategy with a quality focus, broad diversification and a forward-looking macroeconomic view

European economy Economy will shrink 1%–1.5%in 2012

Consider a fund supportedby extensive country andsecurity analysis

Emerging economies Continued growth, albeit ata slower pace

Favor an actively managedfund with exposure acrossthe capital structure

Economy

ECONOMY


PIMCO has taken a defensive approach to the European sovereign debt market, but still finds relatively attractive opportunities in select developed and emerging economies.

Sovereign debt

FINANCIAL MARKETS


Falling prices show investors have little interest in at-risk sovereign debt

Source: Bloomberg. Data through 30 September 2011.

03/31

/10

05/31

/10

07/31

/10

09/30

/10

11/30

/10

01/31

/11

03/31

/11

05/31

/11

07/31

/11

09/30

/11

GreecePortugalSpain

Italy Ireland

Bond

pric

e (in

eur

os)

01/31

/10

120€

100

80

60

40

20

0

11/30

/11

12/31

/11

FINANCIAL MARKETS


Italy and Spain have substantial debt maturing in 2012

Source: Bloomberg. Data through 31 December 2011. Monthly totals include bills and bonds.

Bond

deb

t mat

urin

g (in

billi

ons

of e

uros

)

01/12

60€

50

40

30

20

0

Italy Spain

10

02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/12 12/12

FINANCIAL MARKETS


Balance sheets are solid for many large corporations, which have benefited fromU.S. government stimulus. As a result, PIMCO is finding select opportunities in higher-rated, senior corporate debt.

Investment grade corporates

FINANCIAL MARKETS


Investment grade (IG) corporate bonds offer greater yield potential than Treasuries

Source: Barclays Capital U.S. Aggregate Index. Data through 31 December 2011.

Yiel

d to

wor

st

2000

5.0%

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

U.S. IG corporate bonds/U.S. Treasuries

FINANCIAL MARKETS


Corporates benefit from solid fundamentals

Source: J.P. Morgan JULI Index. Data through 30 September 2011.Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product.

Cash

bal

ance

s (in

billi

ons)

$900

800

700

600

500

400

300

ProfitabilityCash balance

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

100

0

200

25.0%

24.5

24.0

23.5

23.0

22.5

22.0

21.5

21.0

Profit margins

FINANCIAL MARKETS


Dividend-paying stocks

The low yield environment has created challenges for investors seeking ways to sustain and enhance their income. One opportunity may be dividend-paying stocks in sectors with relatively stable cash flows.

FINANCIAL MARKETS


Dividend-paying stocks offer attractive yield relative to Treasuries

Source: Bloomberg. Dividend yield is shown as MSCI World Index. Data through 30 September 2011.

Yiel

d

1995

8%

7

6

5

4

3

2

1

0

10-year TreasuriesDividend-paying stocks

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

FINANCIAL MARKETS


Potential for dividend increases

Source: Bloomberg. Cash is shown as MSCI World Index. Payout ratio refers to percent of annual earnings paid out through dividendsand other distributions. Data through 30 September 2011.

Cash

and

sho

rt-te

rm in

vest

men

ts p

er s

hare

$450

400

350

300

250

200

150

100

50

0

Dividend payout ratioCash balance per share

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

45%

40

35

30

25

20

15

10

5

0

Payout ratio

FINANCIAL MARKETS


PIMCO expects the Fed to hold rates low beyond their stated commitment. As a result, liquidity will be very costly.

Cash

FINANCIAL MARKETS


Volatility has many investors turning to cash

Source: CBOE Market Volatility (VIX) Index. Data through 30 December 2011.

VIX

Inde

x clo

sing

price

01/11

60

50

40

30

20

10

0

03/11

05/11

07/11

09/11 11/11

12/11

FINANCIAL MARKETS


Negative after-inflation yields on Treasuries make cash a costly option

Source: Bloomberg. Expected real return is represented by Treasury Inflation-Protected Securities (TIPS). Data through 31 December 2011.

3-month 1-year 3-year 5-year 8-year 10-year 30-year

-2

Yiel

d

4% U.S. Treasuries

3

2

1

0

-1

Maturity

Expected real return (yield after inflation)

FINANCIAL MARKETS


PIMCO’s outlook Implications

Sovereign debt Take a defensive approach toEuropean sovereign debt

Select a global strategy thatemploys in-depth, country-by-country analysis

Investment gradecorporates

Cautious but finding selectopportunities

Select a fund with both a top-down, macroeconomic strategyand bottom-up analysis ofindividual securities

Dividend-paying stocks

Low yield environment hascreated challenges to sustainand enhance income

Seek to augment income-generating potential withglobal dividend-paying stocks

Cash Liquidity will be costly Consider an actively managedshort-term strategy to increasereturn potential

Financial markets

FINANCIAL MARKETS


Any questions?For more information, visit pimco.com/investments/puttingmarketsinperspective


Each sector of the bond market entails risk. The guarantee on Treasuries, TIPS and government bonds is to the timely repayment of principal and interest. Shares of mutual funds that invest in them are not guaranteed. Mortgage-backed securities are subject to prepayment risk. With corporate bonds there is no assurance that issuers will meet their obligations. High yield bonds typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Investing in non-U.S. securities may entail risk as a result of foreign economic and political developments; this risk may be enhanced when investing in emerging markets. In an environment where interest rates may trend upward, rising rates will negatively impact most bond funds, and fixed income securities held by a fund are likely to decrease in value. Bond funds and individual bonds with a longer duration (a measure of the expected life of a security) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Equity portfolios are subject to the basic stock market risk that a particular security, or securities in general, may decrease in value. Actively managed funds are subject to the risk that the investment techniques and risk analyses applied by PIMCO will produce the desired results and that legislative, regulatory or tax developments may affect the investment techniques available to PIMCO and the individual portfolio manager in connection with managing the fund. Certain funds invest in other PIMCO funds and performance is subject to underlying investment weightings, which will vary. Costs of investing in these funds will generally be higher than the cost of investing in a fund that invests directly in individual stocks and bonds. Non-diversified funds may invest assets in a smaller number of issuers than a diversified fund. There is no guarantee that the investment objective of the funds will be achieved. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.

A word about risk


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How can I learn more?

For more information, talk to your financial advisor or visit pimco.com/investments/puttingmarketsinperspective.

IMPORTANT INFORMATION

Past performance is no guarantee of future results.

Index definitions:

Barclays Capital U.S. Aggregate Index 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 indexes that are calculated and reported on a regular basis.

J.P. Morgan JULI Index encompasses fixed rate high grade coverage in the U.S. CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P

500 stock index option prices. MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the

equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The index represents the unhedged performance of the constituent stocks in U.S. dollars.

It is not possible to invest directly in an unmanaged index.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. ©2012 PIMCO.

PIMCO advised funds are distributed by PIMCO Investments LLC.

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