Quarterly Investment Report PIMCO 840 Newport Center Drive Newport Beach California 92660 (888) 87-PIMCO www.pimco.com/investments December 31, 2012 PIMCO Total Return Fund Total Return Fund Fourth Quarter 2012 1 Risk Disclosures and Index Descriptions are located in the Important Information section of the Appendix PIMCO Total Return Fund Market Commentary Market Outlook  Uncertainty and pessimism surrounding the fiscal cliff negotiations dominated headlines during the fourth quarter  The Federal Reserve enacted further monetary easing by committing to purchase $45 billion in Treasuries per month and by explicitly tying the federal funds rate to unemployment and inflation targets  Most fixed income sectors outperformed Treasuries during the quarter and 2012 as central bank policies helped push investors toward higher yielding assets  PIMCO expects the global economy to grow at a modest 1.5 to 2.0 percent over the year ahead  U.S. policymakers passed a last minute deal to avert majority of the “fiscal cliff” although additional negotiations will be required to deal with the sequestration. Estimated 2013 impact will be a 1.3 – 1.4 percent drag on GDP  PIMCO anticipates global inflation of between 2.0 and 2.5 percent over the cyclical horizon Portfolio Recap Portfolio Strategy  The Fund outperformed its index for the quarter and the year  Most sectors that trade at a spread to U.S. Treasuries outperformed as global central banks extended their commitment to monetary easing  The following strategies were positive for the quarter: ¾ An underweight to U.S. duration as yields rose across most of the curve ¾ An allocation to non-Agency mortgages which were supported by positive supply technicals ¾ A focus on financials, which outperformed the broader corporate market amid accommodative monetary policy and improving housing data ¾ Holdings of Build America Bonds (BABs) which outperformed like-duration Treasuries and long investment grade corporates during the quarter ¾ Exposure to emerging market local rates, especially in Brazil, as the Monetary Policy Committee cut the policy rate  The following strategies were negative or neutral for returns: ¾ An overweight to Agency mortgage-backed securities (MBS) which underperformed like-duration Treasuries. This was partially offset given the focus on lower coupon mortgages which outperformed on a relative basis  Continue to reduce risk while preferring high quality income over price appreciation, as risk premiums still appear richly priced relative to our outlook  Remain focused on sectors that will benefit from central bank actions that have increased liquidity and suppressed volatility  Selectively add high quality duration in countries with healthier balance sheets and independent monetary policy - including, Australia, Canada, Brazil, and Mexico  Reduce holdings in Agency mortgages to benchmark weightings as Agency MBS appear fully priced with limited upside following recent central bank actions  Shift credit exposure towards securities higher in the capital structure and remain cautious on the bonds of companies with economic exposure to Europe  Retain exposure to select corporate and quasi-sovereign bonds in countries with strong initial conditions and strong balance sheets such as Brazil and Mexico  Continue to hold high quality municipal bonds which have reverted to fair value; focus on essential service revenue bonds such as water and sewer, power, and airports  Retain longer dated Treasury Inflation-Protected Securities (TIPS) positions to protect against potentially higher long- term inflation Summary of Performance Data and Portfolio Statistics PIMCO Total Return Fund Institutional Class Performance Since Periods Ended 12/31/2012 Inception 10 yrs 5 yrs 3 yrs 1 yr 6 mos 3 mos Total Portfolio 1 Before Fees (%) 8.83 7.29 8.83 8.25 10.86 4.60 1.28 After Fees (%) 8.35 6.81 8.34 7.75 10.36 4.36 1.17 (Inception 05/11/87) Barclays U.S. Aggregate Index (%) 7.20 5.18 5.95 6.19 4.21 1.80 0.21 Barclays U.S. Aggregate Index (%)3 The Fund's Total Annual Operating Expenses 0.46% Summary Information 9/30/2012 12/31/2012 Sector Allocation 9/30/2012 12/31/2012 9/30/2012 12/31/2012 Total Net Assets (USD in millions) 277,679.2 285,399.8 Government-Related 5 18 26 17 30 SEC 30-Day Ann. Yield (%) 1.82 1.64 Government-Treasury 20 26 44 45 Distribution Yield (%) 3 2.61 2.74 Government-Agency 3 4 4 4 Effective Duration (yrs) 4.0 4.8 Swaps and Liquid Rates -5 -3 -31 -19 Benchmark Duration - Provider* (yrs) 4.9 5.1 Mortgage 49 42 30 23 Benchmark Duration - PIMCO** (yrs) 4.6 4.7 Invest. Grade Credit 12 10 12 8 Effective Maturity (yrs) 5.9 6.1 High Yield Credit 2 2 2 2 Average Coupon (%) 3.6 3.6 Non U.S. Developed 11 12 10 10 Net Currency Exposure (%) 0.8 0.8 Emerging Markets 8 7 7 5 Tracking Error (10 yrs, %) 4 2.1 2.1 Municipal 5 5 14 12 Information Ratio (10 yrs) 4 0.7 0.7 Other 1 1 1 1 Net Cash Equivalents: 6 -6 -5 7 9 Commercial Paper / STIF 1 0 0 0 ST Government-Related 7 15 1 3 ST Mortgage 2 2 0 0 ST Credit 8 5 0 0 U.S. Money Market Futures/Options 19 26 5 6 Non-U.S. Money Market Futures 0 1 0 0 Other 6 4 1 0 Less: Liabilities -49 -58 0 0 Total 100 100 100 100 Expense Ratio See example of tracking error / information ratio in Important Information section of the Appendix. % of Market Value % of Duration Portfolio Index BofA ML 1- 3 Yr. Treasury Citigroup 10-Yr. Strip 0 2 4 6 8 10 12 024681012 Annualized Return (%) Standard Deviation of Return 2 (%) 10-Year Return vs. Standard Deviation Government-Related may include nominal and inflation-protected Treasuries, agencies, interest rate swaps, Treasury futures and options, and FDIC-guaranteed corporate securities. The performance quoted represents past performance. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Details regarding any Fund’s operating expenses can be found in the Fund’s prospectus. Performance data current to the most recent month-end is available at www.pimco.com/investments or by calling (888) 87-PIMCO. *The benchmark duration as provided by Benchmark Provider **Benchmark duration as calculated by PIMCO 2 Additional Share Class Performance PIMCO Total Return Fund Net of Fees Performance Gross Net NAV Inception Since 10 5 3 1 6 3 Expense Expense Currency Date Inception Year Year Year Year Month Month Ratio Ratio ADMINISTRATIVE Class: Total Return Fund, Administrative 0.71 - USD Sep-08-94 8.08 6.55 8.07 7.48 10.08 4.23 1.10 Barclays U.S. Aggregate Index - 7.20 5.18 5.95 6.19 4.21 1.80 0.21 Class D: Total Return Fund, Class D 0.75 - USD Apr-08-98 8.03 6.49 8.02 7.44 10.04 4.21 1.09 Barclays U.S. Aggregate Index - 7.20 5.18 5.95 6.19 4.21 1.80 0.21 Class P: Total Return Fund, Class P 0.56 - USD Apr-30-08 8.26 6.71 8.23 7.64 10.25 4.30 1.14 Barclays U.S. Aggregate Index - 7.20 5.18 5.95 6.19 4.21 1.80 0.21 The performance quoted represents past performance. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Details regarding any Fund’s operating expenses can be found in the Fund’s prospectus. Performance data current to the most recent month-end is available at www.pimco.com/investments or by calling (888) 87-PIMCO. December 31, 2012 3 Market Commentary Fourth Quarter 2012 4 Politics Weigh Heavily on Economics In a largely status quo election, Americans voted President Barack Obama to a second term in office in November. While the President’s reelection likely cemented the fate of the Affordable Care Act and Dodd-Frank reforms, market participants quickly turned their attention to the uncertainty surrounding the impending fiscal cliff. Both political parties recognized that averting the cliff was essential to avoiding a recession in 2013, but negotiations were strained for much of the quarter with Democrats seeking increased tax revenue from the wealthiest Americans and Republicans asking for spending cuts on entitlement programs. Ultimately, hopes of a grand bargain abated and gave way to a short-term deal, thus opening the door to further fiscal negotiations, most notably on a debt ceiling increase and spending cuts (the “sequester”), in 2013. While politicians struggled to agree on fiscal policy, the Federal Reserve (Fed) unveiled new monetary policy measures to stimulate the economy. According to Chairman Bernanke, “The conditions now prevailing in the job market represent an enormous waste of human and economic potential.” With Operation Twist set to expire at the end of the year, the Committee announced that they will initiate purchases of $45 billion in Treasuries, in addition to the existing purchases of $40 billion in Agency mortgage-backed securities (MBS), each month. The Fed also took the extraordinary step of linking an increase in the federal funds rate to specific economic targets. Rates will stay low, between 0 and 0.25 percent, at least as long as the unemployment rate remains over 6.5 percent and projected inflation is below 2.5 percent. These targets replace the Fed’s previous statement that rates would remain low through at least the middle of 2015. U.S. interest rates reversed a downward trend and rose during the fourth quarter of 2012. The 10-year U.S. Treasury yield increased 12 basis points during the quarter to end December at 1.76 percent. The U.S. Treasury yield curve steepened as the 2- year U.S. Treasury yield rose 2 basis points while the 30-year U.S. Treasury yield rose 13 basis points. Yields in most eurozone countries fell as investors responded to the European Central Bank’s program of Outright Monetary Transactions and Mario Draghi’s commitment to support the euro. Spanish and Italian 10-year yields fell 67 and 60 basis points respectively during the quarter. The Barclays U.S. Aggregate Index, a widely used index of U.S. high-grade bonds that includes Treasuries, returned 0.22 percent during the quarter, and most fixed income sectors that trade at a spread to U.S. Treasuries outperformed on a duration-adjusted basis. Despite the rhetoric surrounding the fiscal cliff and the damage from Hurricane Sandy, there were positive economic data released during the quarter. According to gross domestic product (GDP) data, the U.S. economy grew at a higher than expected 3.1 percent annual rate during the third quarter, up from 1.3 percent during the second quarter. The housing market continued to show improvement during the fourth quarter amid record low mortgage rates. In October, the S&P/Case-Shiller Index of property values in 20 cities increased 4.3 percent from a year earlier, and sales of existing homes rose 5.9 percent to an annual rate of 5.04 million, the highest level in three years, according to the National Association of Realtors. The unemployment rate fell to 7.8 percent during the quarter, representing a four year low. Most Fixed Income Sectors Outperform U.S. Treasuries The following summarizes fixed income sector returns during the fourth quarter of 2012:  Agency MBS underperformed like-duration Treasuries in the fourth quarter but outperformed for the year. An increase in prepayment speeds coupled with profit taking following the Fed’s third round of Quantitative Easing (QE3) announcement led to the relative underperformance. While the sector as a whole underperformed, volatility remained in relative valuations between coupons as lower origination coupons fared better amid the Fed’s support. Commercial Market Commentary, (cont’d) Fourth Quarter 2012 5 MBS and non-Agency mortgages outperformed for the quarter and the year as limited supply, strong investor appetite for higher yielding assets and signs of a bottom in housing continued to fuel demand.  Investment grade and high yield corporate bonds outperformed like-duration Treasuries during the fourth quarter and the year as investor demand for risk assets remained elevated given persistently low Treasury yields. Corporate bonds benefitted from positive technicals and reduced risk of disorderly deleveraging, as they continued to ride the momentum provided by global monetary policy action. On a relative basis, financials outperformed the broader corporate market on improving fundamentals and signs of a stabilizing housing market.  Municipal bonds, both tax-exempt and taxable, posted positive absolute returns over the quarter and the year, as demand continued to outpace new issue supply. Primary market supply was up 30 percent year-over-year; however, the majority of primary market issuance was comprised of refunding activity rather than new-money issuance. Demand remains strong, as municipal mutual funds continued to see inflows throughout most of the quarter. Select lower quality municipal sectors outperformed high-grade sectors as investors reached for yield by pushing out the curve and down the credit spectrum. The industrial revenue and healthcare sectors were the top performers over the quarter. Municipal credit spreads, as measured by BBB versus AAA Municipal Market Data yields, tightened modestly during the quarter.  Treasury Inflation-Protected Securities (TIPS) returned 0.69 percent for the quarter and 6.98 percent for the year (Barclays TIPS Index), and outperformed nominal Treasuries for both periods. Real yields declined across the maturity spectrum during the year with the 10-year real yield ending the year at -0.74 percent. Breakeven inflation levels (the difference between nominal and real yields and a proxy for inflation expectations) widened during the quarter and the year as the markets priced in higher longer-term inflation expectations given the Fed’s continued dovish monetary policies.  Emerging markets (EM) assets also outperformed during the quarter and the year, benefitting from a decline in yields, a contraction in spreads, and a rise in EM currencies driven by the risk-on environment. EM spreads tightened 161 basis points over the year and 42 basis points over the quarter, while the JPMorgan EM Bond Index (EMBIG) returned 3.33 percent for the fourth quarter and 18.54 percent for the year. EM local assets outperformed Treasuries during the quarter and year, returning 4.13 and 16.76 percent, respectively, as measured by the JPMorgan GBI – EM Global Diversified Index. EM currencies, as measured by the JPMorgan ELMI+ Index, returned 1.13 percent for the fourth quarter and 7.45 percent for the year.  U.S. Treasuries underperformed most other developed sovereign bond markets on a hedged basis for the quarter and year amid reduced uncertainty concerning a left-tail event in Europe given the unprecedented monetary support from global central banks. Market Outlook First Quarter 2013 6 The New Normal Remains Intact PIMCO expects the global economy to grow at a real rate of 1.5 to 2.0 percent in 2013, representing a slowdown from the 2.2 percent pace of growth seen over the past 12 months. Real growth will be moderated by efforts to resolve debt overhangs through fiscal restraint as evidenced by the slowing in corporate profits, capital expenditures and global trade. Simultaneously, inflation will decrease in the near term. Households will continue to delever their balance sheets while the corporate sector remains reluctant to engage its own. Nominal growth could, however, be bolstered by the continued resolve of central banks. The balance of these forces will determine if GDP growth has slowed to stall speed or if a coordinated global slowdown can be averted. The negative effects of austerity measures implemented throughout the eurozone and the U.K. are reflected in the weak growth numbers within the region and demonstrate recessions already underway. Mixed economic data and the unending hope for further stimulus in the U.S. and other developed and emerging market (EM) economies allowed for cautious optimism and tempered market volatility in the second half of 2012. However, ongoing efforts by policymakers to offer short-term solutions are becoming increasingly ineffective in delivering real outcomes. Financial markets’ heightened sensitivity to policy- related news reflects acknowledgement of the difficulties that lie ahead in resolving significant structural problems in many economies.  Key Decisions Support Eurozone – The ratification of the European Stability Mechanism (ESM) and the European Central Bank’s (ECB) conditional commitment to be the lender of last resort significantly reduced the probability of tail risk in the eurozone. Peripheral sovereign spreads tightened significantly in the fourth quarter, as both actions boosted confidence and slowed the process of delevering. The question now becomes when Spain or another troubled sovereign will formally ask for assistance, fulfilling a key pre- requisite for the ECB to buy their bonds. However, bond purchases alone will not be enough to resolve the fundamental challenges facing the eurozone. We expect progress toward greater integration to be incremental, conditional and punctuated with periods of volatility, especially surrounding the upcoming Italian elections.  U.S. Recovery Frustrated by Policy Uncertainty – U.S. policymakers passed a last minute deal to avert the majority of the “fiscal cliff” although additional negotiations will be required to deal with the sequestration. The estimated 2013 impact will be a 1.3 – 1.4 percent drag on GDP. PIMCO forecasts U.S. growth between 1.25 and 1.75 percent as ongoing negotiations over government spending and taxes prevent positive economic reports from establishing a trend. In a notable highlight, third quarter GDP was revised up to 3.1% from an initial reading of 2.0 percent. Brighter news continues out of the housing sector where many indicators including strong demand, falling inventory, declining distressed sales and improving affordability suggest a gradual bottoming of home prices.  The New Normal Arrives in Emerging Markets –Although PIMCO anticipates EM growth to continue to outpace that of developed markets over the cyclical horizon, growth will come at a significantly lower level than in recent years. EM economies continue to suffer from the knock-on effects of recession and slowdown in much of the developed world.  Longer Term Inflation Concerns Build – PIMCO anticipates global inflation of between 2.0 and 2.5 percent over the cyclical horizon. On a secular basis, PIMCO expects the prolonged wave of ultra-dovish monetary policy to drive longer-term inflation higher. Market Outlook, (cont’d) First Quarter 2013 7 Investment Strategies: Managing Liquidity and Avoiding Default Risk Once again, central banks’ actions combined with slowing improving fundamentals drove financial asset valuations higher during the fourth quarter. PIMCO sees many asset classes as being fully valued and continues to implement risk reduction strategies across portfolios. While risks remain skewed to the downside, we retain our broad defensive positioning and our focus on yield derived from high quality sources and active management.  Interest Rate Strategies – PIMCO plans to maintain a neutral duration position. Portfolios will emphasize high quality duration from countries that we view as having the cleanest balance sheets, such as the U.S., Canada, Australia, Brazil and Mexico. We remain concentrated in the 5-10 year portion of the yield curve where we see superior opportunities for roll-down 1 and price appreciation compared to those available at the short-end, where potential rate rises and volatility are constrained by Fed intervention. We remain underweight the long end of the yield curve as longer maturities may not adequately compensate investors for sizeable longer-term inflation risk.  Mortgages – PIMCO now views Agency mortgages as fully priced due to ongoing central bank interventions and will look to reduce exposure to benchmark neutral. While recognizing that the new Fed program will likely continue to disrupt absolute valuations within the mortgage market over the cyclical horizon, PIMCO will continue to take advantage of relative value opportunities across mortgage coupons. We plan to hold non-Agency mortgages and commercial mortgage-backed securities (CMBS) that have senior 1 Roll-down is a form of return that is realized as a bond approaches maturity, assuming an upward sloping yield curve. positions in the capital structure and are a source of attractive yield.  Corporate Bonds – PIMCO sees increasing differentiation between credits in terms of default risk and continues to shift its exposure towards securities higher up in the capital structure. We remain cautious towards companies overly dependent on revenue from regions which are in the earlier stages of their deleveraging cycles, such as Europe. We continue to assess and refine our financials exposure both due to industry developments and from a valuation perspective given the outperformance of this sector in 2012.  Emerging Markets – PIMCO plans to retain exposure to corporate and quasi-sovereign bonds in select countries with strong initial conditions and high quality balance sheets such as Brazil and Mexico. We also plan to maintain exposure to rates in these countries which have relatively high nominal and real local interest rates and steep yield curves with the potential to capture roll-down. We continue to expect EM to outpace developed markets over the secular horizon.  Currency – Having reduced our exposure to commodity- intensive and EM currencies in recent months, PIMCO plans to maintain minimal currency exposure while the threat of elevated volatility persists. We are focused on high quality, EM currencies such as the Brazilian real, Chinese yuan and Mexican peso as opposed to low quality, low yielding currencies in developed markets.  Municipals and Treasury Inflation-Protected Securities (TIPS) – PIMCO will broadly maintain its municipal positioning yet not seek to add exposure given that tax-exempt municipals reverted to fair value during 2012. PIMCO expects to retain its positions in TIPS as the threat of higher longer term inflation remains. Mortgage Commentary and Outlook Fourth Quarter 2012 8 Market Commentary  Agency mortgage-backed securities (MBS) underperformed like-duration Treasuries amid post-QE3 profit taking and increased prepayment concerns after the reelection of President Obama.  Lower coupons benefitted from ongoing Fed support, while higher coupons exhibited significant volatility (especially in November) due to elevated prepayment concerns and poor technicals.  The 30-year FNMA Par Coupon ended the year at 2.26%, up slightly from the end of last quarter.  HARP (Home Affordable Refinance Program) continues to have a material impact on higher coupon prepayments, but will likely wind down over the next six months. Market Outlook  The Fed’s $70 billion in monthly purchases are likely to continue through 2013, providing strong support for lower coupon MBS.  Mortgage origination employment has increased in recent months and could result in a slight tightening in primary secondary spreads as well as an increase in prepayment speeds in 2013.  Despite the recent rally, non-Agency MBS will likely continue to benefit from improving housing fundamentals and limited new issuance. Source: PIMCO, Federal Reserve. Dotted lines represent PIMCO various forecasts 0 5 10 15 20 25 30 35 40 45 Jan '12 Mar '12 May '12 Jul '12 Sep '12 Nov '12 Prepayment Speed(CPR) Non-HARP Eligible Harp Elegible Past performance is no guarantee of future results. Graphs are for illustrative purposes only and are not indicative of the performance of any particular investment. Investment Grade Credit Commentary and Outlook Fourth Quarter 2012 9 Market Commentary  The U.S. investment grade credit market, as represented by the Barclays U.S. Credit Index, returned 1.04% in the fourth quarter. U.S. credit outperformed Treasuries by +1.17%, as credit markets continued to ride the technical boost provided by QE3 in addition to the FOMC’s announcement that it would convert Operation Twist into outright Treasury bond purchases.  The fourth quarter set a record for high grade bond issuance, as $229bn came to market, bringing total primary market issuance to $859bn for 2012. Demand remained robust despite the high issuance total, as average new issue concessions were lower than each of the prior three years.  Financials were the strongest performing sector on an excess return basis, returning +1.97% on average relative to like- duration Treasuries. Industrials marginally outpaced utilities, returning +0.85% and +0.81% relative to like-duration Treasuries, respectively. Market Outlook  Monetary easing remained a dominant theme in the fourth quarter as global central banks enacted policy responses aimed at offsetting fiscal tightening. However, it is unlikely that policy makers’ attempts at staving off near-term challenges will do much in the way of addressing longer-term structural impediments to growth.  We still see many opportunities in credit that can offer compelling risk-adjusted returns for investors. In the current environment of sluggish global growth, where credit beta has been squeezed and will likely contribute less to total return of credit moving forward, we believe investors should focus on bottom-up research in specific sectors and companies that have the opportunity to grow faster than their economies. Unless otherwise noted, graph data represents the excess return performance of the Barclays U.S. Credit Index and its sub-indices. The corporate sectors shown are not equally weighted in the index but instead are market weighted. The sectors shown represent the broad components of the index. Excess Return is a duration-adjusted measure of performance relative to a term structure-matched position. The predominate method for calculating excess return uses U.S. Treasuries and key rate durations. It measures the amount by which the return on an investment credit exceeds the equivalent “risk free” rate of return. All investments contain risk and may lose value. Past performance is no guarantee of future results. Graphs are for illustrative purposes only and are not indicative of the performance of any particular investment. 0.0 0.5 1.0 1.5 2.0 2.5 Financials Industrials Utilities Excess return (%) Fourth quarter returns Sectors Barclays U.S. Credit Index 0.0 0.5 1.0 1.5 2.0 2.5 Financials Industrials Utilities Excess return (%) Fourth quarter returns Sectors Barclays U.S. Credit Index 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 U.S. Credit Financials Industrials Utilities Yield to maturity (%) Sector yields [...]... 0.0 0.8 Net Liabilities4 Total Direct Exposure Small allocations may round to zero See foonotes in Appendix 15 Direct Emerging Markets Bond Exposure PIMCO Total Return Fund Emerging Markets Exposure (by country of issuer) Argentina Brazil Chile China Colombia EM Index Products India Indonesia Kazakhstan Malaysia Mexico Panama Philippines Russia South Africa Turkey Venezuela Total Direct Emerging Markets... default risk 18 Important Information - PIMCO Total Return Fund December 31, 2012 Past performance is no guarantee of future results Forecasts are based on proprietary research and should not be interpreted as investment advice or as an offer or solicitation for the purchase or sale of any financial instrument The performance figures presented reflect the total return performance for the stated share... value of bonds that trade at a spread to Governments These include mortgage-backed, corporate and emerging market bonds, as well as swaps **Benchmark duration is calculated by PIMCO 17 Summary of Derivatives PIMCO Total Return Fund Derivatives1 (% of Duration) Government Futures 9/30/2012 12/31/2012 Characteristics of Derivatives: Used to adjust interest rate exposures and to replicate government bond... 1.00 0.08 0.29 0.01 0.01 1.96 0.01 0.00 0.57 0.00 0.04 0.01 7.23 % of Duration 0.00 2.07 0.03 0.03 0.02 0.02 0.04 0.03 0.01 0.00 2.13 0.00 0.00 0.39 0.00 0.01 0.00 4.78 PIMCO Proprietary Portfolio Level Risk Measures PIMCO Total Return Fund Risk Measures (yrs) 9/30/2012 12/31/2012 Definitions of Risk Measures: Interest Rate Exposures: A portfolio's price sensitivity to changes in interest rates An accurate... is important to note that longer maturity bonds have greater volatility and risk when compared to shorter maturity bonds Continued Important Information - PIMCO Total Return Fund December 31, 2012 Market Commentary and Market Outlook, (cont'd) Real Return bonds, more commonly known as Treasury Inflation Protected Securities or TIPS, are issued and guaranteed by the U.S government at a fixed rate that... liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so Portfolios investing in derivatives could lose more than the principal amount invested Continued Important Information - PIMCO Total Return Fund December 31, 2012 Index Descriptions Citigroup 1- 10 Year Treasury Strips Index represents... Quarter 2012 25 Market Commentary Emerging market (EM) asset classes benefitted from increased liquidity induced by central banks globally EM asset returns exceed nearly all comparable investments in the fourth quarter 20 Sector index returns* USD 18.5 Total return (%) 18.2 16.8 15.8 15 9.4 10 5 3.3 3.2 7.5 3.0 2.0 1.0 1.1 -2.7 EM ($) 2.5 2.5 0.9 -0.1 -5 We expect the global economic backdrop to remain... particular investment *Roll-down is a form of return that is realized as a bond approaches maturity, assuming an upward sloping yield curve 13 Portfolio Characteristics and Benchmark Variance PIMCO Total Return Fund Portfolio vs Benchmark (%)1 Portfolio (%)1 40 30 % of Duration 30 Sector Exposure* 80 9/30/2012 35 12/31/2012 30 9/30/2012 60 12/31/2012 40 23 25 20 17 15 15 12 5 7 2 Gov'tRelated Mtg IG... taxable at the state and federal level Portfolio Characteristics and Benchmark Variance 1 Market value data based on percentage of net assets of the mutual fund Data differs from compliance calculations based on total assets of the mutual fund All mutual funds are separately monitored for compliance with prospectus and regulatory requirements Other includes Yankee/Euro bonds, convertibles and municipal... equivalents include U.S and non-U.S money market futures, where permitted See Sector Allocation on Summary of Performance Data and Portfolio Statistics Page 14 Direct Country and Currency Exposure PIMCO Total Return Fund Country Exposure (by currency of settlement)1 Portfolio 09/30/2012 Portfolio 12/31/2012 Market Value Weighted (%) Market Value Weighted (%) % of (settlement currency) North America Canada . Report PIMCO 840 Newport Center Drive Newport Beach California 92660 (888) 87 -PIMCO www .pimco. com/investments December 31, 2012 PIMCO Total Return Fund Total. Statistics PIMCO Total Return Fund Institutional Class Performance Since Periods Ended 12/31/2012 Inception 10 yrs 5 yrs 3 yrs 1 yr 6 mos 3 mos Total Portfolio 1 Before