Quarterly Investment Report                                      March 31, 2010




                              PIMCO Gl...
PIMCO Global Multi-Asset Fund                                                                              First Quarter 2...
Key Risk Factor Positioning
Global Multi-Asset Fund

 Risk Measures                               3/31/2010      12/31/200...
PIMCO GLOBAL MULTI-ASSET FUND ALLOCATION AS OF 3/31/2010
PIMCO All Asset Fund Total
                                      ...
Summary of Performance Data and Portfolio Statistics
PIMCO Global Multi-Asset Fund
Institutional Class


 Performance     ...
Additional Share Class Performance                                                                                        ...
Global Multi-Asset Market Commentary                                                                                      ...
Market Commentary, (cont’d)                                                                                               ...
Market Commentary, (cont’d)                                                                                First Quarter 2...
Global Multi-Asset Market Outlook                                                                            Second Quarte...
Market Outlook, (cont’d)                                                                             Second Quarter 2010

...
Market Outlook, (cont’d)                                                 Second Quarter 2010

  Alpha Strategies and Tail ...
.xedni deganamnu na ni yltcerid tsevni ot elbissop
  ton si tI .ecnamrofrep ytiuqe tekram depoleved labolg erusaem ot deng...
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PIMCO Global Multi-Asset Fund

  1. 1. Quarterly Investment Report March 31, 2010 PIMCO Global Multi-Asset Fund 840 Newport Center Drive Newport Beach California 92660 (800) 927-4648
  2. 2. PIMCO Global Multi-Asset Fund First Quarter 2010 PIMCO Global Multi-Asset Fund Market Commentary Market Outlook Politics was a major influence on global bond markets as PIMCO continues to expect developed economies to grow 2010 began. Faced with an uneven recovery, policymakers much more slowly than emerging markets, owing to wrestled with how long to sustain stimulus programs that disparate pre-crisis economic conditions could eventually undermine public finances or stoke inflation The U.S. recovery is not expected to be robust in light of As investors gained confidence in the recovery, global structural impediments such as deleveraging of consumer equities rallied, with U.S. equities leading the way balance sheets, reregulation and deglobalization Corporates and emerging markets bonds continued their The Federal Reserve is unlikely to raise rates until final strong performance demand and job creation revive, probably in 2011 Portfolio Recap Portfolio Strategy The Fund underperformed its index for the quarter PIMCO will remain cautious with risk exposures amid global The following strategies were positive for quarterly returns: economic uncertainty and the recent rally in risk assets Allocation to U.S. equities, which outperformed other Seek to overweight emerging market bonds denominated in developed markets local currencies, focusing on opportunities in quasi- sovereign and corporate bonds Exposure to emerging markets bonds and investment grade corporates, which gained as global risk appetites Target an overweight of diversified commodities and gold, continued to revive which look attractive over the secular horizon An overweight to a basket of high-yielding emerging Based on valuations, look to reduce exposure to emerging market currencies, which rallied despite worries regarding market equities relative to developed market equities Greece’s fiscal issues Within developed fixed-income, focus on sovereign debt An overweight to bonds of financial companies, where from countries with low deficits and debt-to-GDP ratios such credit premiums continued to tighten as Germany and Canada Overweight to Eurozone duration as German 10-year Emphasize shorter maturities in the U.S. and Europe, government bond yields fell especially those somewhat longer in duration than where money market funds typically invest. Markets are pricing in The following strategies were negative for quarterly returns: more and faster central bank tightening than we expect An underweight to equities overall, as global equities Target a neutral position in corporate bonds but plan to continued to post strong performance retain overweight to financials, where valuations remain An overweight to diversified commodities, as energy and relatively attractive. Financials could benefit from a steep grains declined due to additional supply yield curve and banks’ stronger balance sheets Tail risk hedges, as they declined in value due to time Look to hold currencies with sound fiscal conditions such as decay and the rally in risk assets the Brazilian real and the Australian and Canadian dollar 1 Risk Disclosures and Index Descriptions are located in the Important Information section of the Appendix
  3. 3. Key Risk Factor Positioning Global Multi-Asset Fund Risk Measures 3/31/2010 12/31/2009 Definitions of Risk Measures: Equity Risk The Fund's price sensitivity to a change in the equity markets as proxied by the S&P 500 Portfolio 0.5 0.4 Index. For every 1% increase(decrease) in the total return of the S&P500 Index, a portfolio 60/40 Static Blend** 0.6 0.6 with an Equity Risk factor of 1.0 can be expected to rise(fall) in price by 1% under normal market conditions. Duration (yrs) The Fund's price sensitivity to changes in interest rates. An accurate predictor of price Portfolio 2.5 2.3 changes only for small, parallel shifts of the yield curve. For every 1 basis point fall (rise) in 60/40 Static Blend** 1.8 1.7 interest rates, a portfolio with duration of 1 year will rise (fall) in price by 1 bp. Total Curve Duration (yrs) A portfolio's price sensitivity to changes in the slope of the yield curve, measured between Portfolio 0.8 0.7 the 2-30 year Government yields, holding the 10-year yield constant. For every 1 bp of 60/40 Static Blend** 0.3 0.3 steepening (flattening), a portfolio with curve duration of 1 year will rise (fall) in price by 1 bp. Mortgage Spread Risk* (yrs) The contribution of mortgages to spread duration. For every 1 bp of mortgage spread Portfolio 0.3 0.2 tightening (widening), a portfolio with mortgage spread duration of 1 year will rise (fall) in 60/40 Static Blend** 0.7 0.7 price by 1 bp. Corporate Spread Risk* (yrs) The contribution of corporate bonds to spread duration. For every 1 bp of corporate spread Portfolio 0.4 0.5 tightening (widening), a portfolio with corporate spread duration of 1 year will rise (fall) in 60/40 Static Blend** 0.6 0.6 price by 1 bp. Real Assets Risk The Fund's price sensitivity to a change in the total return of a diversified basket of Portfolio 0.2 0.1 commodities as proxied by the Dow Jones-UBS Commodity Index. For every 1% 60/40 Static Blend** 0.0 0.0 increase(decrease) in the total return of the DJ-UBS Commodity Index, a portfolio with a Real Assets risk factor of 1.0 is likely to rise(fall) in price by 1% under normal market conditions. * As measured by spread duration, which represents a portfolio's price sensitivity to changes in spreads, or yield premiums, that affect the value of bonds that trade at a spread to Governments. ** 60/40 Static Blend refers to 60% MSCI World Index / 40% Barclays Capital U.S. Aggregate Index. The Fund is designed to have an absolute return orientation and see to outperform this 60/40 static allocation blend over a full business cycle while seeking to mitigate the downside during bear markets. 2
  4. 4. PIMCO GLOBAL MULTI-ASSET FUND ALLOCATION AS OF 3/31/2010 PIMCO All Asset Fund Total 12/31/2008 3/31/2009 6/30/2009 9/30/2009 12/31/2009 1/31/2010 2/28/2010 3/31/2010 Developed Market Equities: 34.4% 24.3% 9.0% 18.9% 20.4% 26.6% 25.9% 26.9% U.S. Equities 19.1% 15.2% 5.0% 9.8% 11.1% Global ex-U.S. Developed Equities 15.3% 9.1% 4.0% 9.1% 9.3% Emerging Market Equities: 21.0% 4.6% 9.0% 8.4% 12.0% 11.4% 11.6% 11.4% Commodities: 8.1% 8.2% 7.0% 7.8% 11.1% 14.9% 16.8% 16.7% Diversified Commodities 8.1% 6.4% 4.3% 4.9% 6.4% Gold - 1.8% 2.7% 2.9% 4.7% Real Estate: 1.8% 1.3% 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% Developed Market Bonds: 29.0% 51.1% 32.0% 52.5% 28.3% 26.3% 24.3% 30.8% U.S. Bonds 20.8% 44.7% 23.5% 37.0% 10.9% Global ex-U.S. Developed Bonds 8.2% 6.4% 8.5% 15.5% 17.4% Inflation Linked Bonds 3.8% 2.6% 2.0% 0.5% 0.0% 0.0% 0.0% 0.0% Emerging Market Bonds: 4.3% 4.1% 8.0% 5.8% 10.0% 10.4% 9.7% 12.6% Net Cash and Other* -2.4% 3.8% 31.0% 6.1% 18.2% 10.4% 11.7% 1.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% *Represents Fund's exposure to net cash and cash equivalents, tail risk hedges, and alpha trades. The portfolio composition is presented to illustrate the underlying funds in which the PIMCO Global Multi-Asset Fund invested as of the date shown and may not be representative of the current or future investments of the fund. The portfolio composition does not include the fund's entire investment portfolio, which may change at any time. Small allocations may round to zero.
  5. 5. Summary of Performance Data and Portfolio Statistics PIMCO Global Multi-Asset Fund Institutional Class Performance Since Periods Ended 3/31/2010 Inception 1 yr 6 mos 3 mos 1 Total Portfolio Before Fees (%) 16.21 28.24 5.24 2.21 After Fees (%) 15.30 27.20 4.81 2.00 (Inception 10/29/08) MSCI World Index (%) 23.03 52.37 7.44 3.24 60% MSCI World Index/40% Barclays Capital U.S. Aggregate Bond Index (%) 18.33 33.13 5.35 2.74 The high performance of this portfolio is due to exceptional performance in the sector. This level of performance is not guaranteed and should not be expected in the future. 60% MSCI World Index/40% Barclays Capital U.S. Aggregate The performance quoted represents past performance. Past performance is no guarantee of future results. Bond Index (%) 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. The Fund's total annual operating expense ratio is 1.49%. Total net annual fund operating expenses is 0.82%. 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-funds.com or by calling (800) 927-4648. Total net annual fund operating expenses exclude interest expense and include a contractual expense reduction. The contractual expense reduction is good through the Fund’s current fiscal year as detailed in the prospectus. Interest expenses are based on the amounts incurred during the Fund’s most recent fiscal year as a result of entering into certain investments; the amount of interest expense (if any) will vary. Summary Information 12/31/2009 3/31/2010 Total Net Assets (USD in millions) 1,636.3 2,113.7 4
  6. 6. Additional Share Class Performance March 31, 2010 PIMCO Global Multi-Asset 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* Class D: Global Multi-Asset Fund, Class D 2.09 1.42 USD Oct-29-08 14.67 - - - 26.39 4.49 1.92 MSCI World Index - - - - - 52.37 7.44 3.24 60% MSCI World Index/40% Barclays Capital U.S. Aggregate Bond Index 33.13 5.35 2.74 Class P: Global Multi-Asset Fund, Class P 1.59 0.92 USD Oct-29-08 15.19 - - - 27.06 4.70 2.01 MSCI World Index - - - - - 52.37 7.44 3.24 60% MSCI World Index/40% Barclays Capital U.S. Aggregate Bond Index 33.13 5.35 2.74 The high performance of this portfolio is due to exceptional performance in the sector. This level of performance is not guaranteed and should not be expected in the future. 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-funds.com or by calling (800) 927-4648. * Total net annual fund operating expenses exclude interest expense and include a contractual expense reduction. The contractual expense reduction is good through the Fund’s current fiscal year as detailed in the prospectus. Interest expenses are based on the amounts incurred during the Fund’s most recent fiscal year as a result of entering into certain investments; the amount of interest expense (if any) will vary. 5
  7. 7. Global Multi-Asset Market Commentary First Quarter 2010 Equities Rally in First Quarter of 2010 reacted to milder weather forecasts in key U.S. regions, record high inventories and a rising U.S. gas rig count. Global equities rallied in the first quarter, as investors grew confident that a global economic recovery was taking hold. Negative returns were mitigated by gains in the industrial metals Optimism regarding the recovery was contrasted with concerns sector as robust U.S. manufacturing data and record high about sovereign risk, with Greece and peripheral European Eurozone industrial output boosted demand expectations. Nickel countries adopting austerity measures in response to large futures prices surged in the first quarter as stockpiles declined budget deficits. Despite these concerns, the S&P 500 rose 5.4 and users were buying nickel to ensure future inventories. percent, as the U.S. led world equity indices higher. Precious metals prices were up over the quarter as gold benefited from market uncertainty surrounding the financial The Russell 3000 Index, which is commonly referenced for the bailout of Greece, despite a stronger dollar relative to the Euro. broad U.S. stock market, gained 5.9 percent in the first quarter. The graphic below summarizes the sector returns of the Dow Small cap stocks beat large cap stocks, with the Russell 2000 Jones UBS Commodity Total Return Index in the first quarter: outperforming the Russell 1000 8.9 percent to 5.7 percent over the quarter. Among large cap stocks, value outperformed growth Com m odity Returns* 60 as evidenced by the Russell 1000 Value and Growth Indices, 1Q10 which returned 6.8 percent and 4.7 percent, respectively. 40 Similarly, value outperformed growth in the small cap space, with the Russell 2000 Value rallying 10.0 percent versus a return Returns (%) 20 of 7.6 percent for its Growth counterpart. 6 6 2 Equity markets in developed non-U.S. economies, as 0 represented by the MSCI EAFE Index, returned 0.9 percent over -7 the quarter in U.S. dollars and 4.3 percent in local currency -20 -8 -13 -16 terms. Among emerging economies, stocks posted a total return of 2.4 percent in U.S. dollars and 1.4 percent in local currency -40 terms as measured by the MSCI EM Index. Energy Livestock Grains Industrial Precious Vegetable Softs Real Asset Returns Are Mixed, Commodities Decline Metals Metals Oil The Dow Jones-UBS Commodity Total Return Index lost 5.03 * Represents quarterly and year-to-date returns of the Dow Jones- percent during the first quarter of 2010. The grains, soft UBS Commodity Index and its sub-indices. commodity and energy sectors were the major detractors from returns. The grains sector suffered as USDA crop reports cited Past performance is no guarantee of future results. abundant global supplies of wheat and corn. The soft sector was Graphs are for illustrative purposes only and are not hurt by large declines in sugar futures prices, which tumbled on indicative of the performance of any particular investment. concerns that world demand may not be as strong as previously expected and as major producers forecasted an increase in production levels. The energy sector posted negative returns primarily due to a drop in natural gas futures prices, which 6
  8. 8. Market Commentary, (cont’d) First Quarter 2010 Treasury Inflation-Protected Securities (TIPS) gained 0.56 was not imminent given continued weakness in the economy. percent during the first quarter as represented by the Barclays As the quarter closed, however, sentiment began to shift amid Capital U.S. TIPS Index. Real yields declined in the front end of growing awareness that the U.S. could have sovereign debt the yield curve and experienced a modest rise across longer challenges of its own over the longer run. maturities. Real coupon income helped returns as did positive The 10-year Treasury yield fell one basis point to close the inflation accruals. TIPS gained despite continued near-term quarter at 3.83 percent. With short term rates anchored at very disinflationary pressures weighing on market sentiment, but low levels, the U.S. yield curve remained steep. At the end of underperformed comparable maturity nominal bonds overall. the quarter, the two-year Treasury yield was some 280 basis Breakeven inflation levels (i.e., the difference between nominal points lower than the 10-year yield. The graphic below shows and real yields) widened in the shorter end of the maturity the position of the U.S., U.K. and Eurozone yield curves as of spectrum and narrowed in the intermediate to longer maturity March 31, 2010: range. While TIPS yields declined significantly in the front end of s e vr u C dl eiY the curve and rose modestly in the longer maturity sector, 0 1 0 2/ 1 3/ 3 f o sA nominal yields decreased across the maturity spectrum and 0. 5 outperformed TIPS overall. Concern about sovereign debt risk, especially in Greece and other peripheral Eurozone economies, 0. 4 put downward pressure on U.S. nominal yields as investors ) 0. 3 ( % sought the relative safety of U.S. bonds. The 10-year TIPS yield dl rose 14 basis points to close the quarter at 1.57 percent. 0.2 ei Y . S .U In real estate, the Dow-Jones U.S. Select Real Estate 0. 1 . K .U Investment Trust (REIT) Total Return Index gained 9.81 percent .U . E for the quarter. The REIT index benefited from compression of 0. 0 credit spreads, low interest rates and government policy. The Y1 m3 Y5 Y01 Y51 Y02 Y03 leading sectors were supported by investor expectations that a growing economy will strengthen marketplace fundamentals and SOURCE: Bloomberg Financial Markets by excess demand as institutions are slowly returning to Past performance is no guarantee of future results. investing in real estate. Graphs are for illustrative purposes only and are not Treasury Yields Fall Modestly in First Quarter of 2010 indicative of the performance of any particular investment. Most Treasury yields fell modestly in the first quarter of 2010, though yields began to move upward in the last two weeks of the Politics was a major influence on fixed income markets around quarter. Earlier in the period investors sought the relative safety the world as 2010 began. Policymakers wrestled with how long of U.S. bonds amid concern about sovereign debt risk, to sustain stimulus programs designed to mitigate the global especially in Greece and other peripheral Eurozone economies. recession but which threatened to undermine public finances or Another factor helping to hold down yields were comments by stoke inflation. the Federal Reserve that an increase in the federal funds rate 7
  9. 9. Market Commentary, (cont’d) First Quarter 2010 While the Fed kept its main policy rate unchanged, it raised the Corporate bonds, especially high yield credits, were among discount rate at which member banks can borrow during the first the best performing fixed income assets during the first quarter. It also ended programs that were designed to support quarter, sustaining their robust performance in 2009. Credit the housing market and the consumer finance sector. The Fed premiums continued to tighten, which prompted brisk new concluded its $1.25 trillion Agency mortgage purchase program issuance in both the investment grade and high yield in March and also ended the subscription period for purchasing markets. Balance sheets of the biggest corporations consumer asset-backed securities under the Term Asset- improved, especially in comparison with the deteriorating backed Securities Loan Facility (TALF). U.S. government balance sheet, prompting many investors to prefer corporates to Treasuries. Financial companies, Policy makers in other developed economies where growth is which benefit from a steep yield curve, were among the top slow or non-existent, such as Japan, the U.K. and the Eurozone, performers in the corporate sector. also left key lending rates unchanged in the first quarter. Central banks in faster growing economies where inflation is more of a Agency mortgage-backed securities (MBS) continued the concern, such as Australia, India and Malaysia, tightened during rally versus like-duration Treasuries that they enjoyed during the period. China was also expected to broaden the policy tools 2009 as the Fed’s MBS Purchase Program drove valuations used to curb headline inflation. to historically rich levels. Non-Agency mortgages also gained as this sector benefitted from the significant amount Riskier Bonds Continue Their Outperformance of cash looking for relatively attractive yields and the The Barclays Capital U.S. Aggregate Index, a widely used index continued absence of new supply. of U.S. high-grade bonds, gained 1.78 percent in the first Commercial mortgage-backed securities (CMBS) continued quarter. Corporate bonds, mortgage–backed securities and their rally as well. The sector benefitted from the dual emerging market bonds continued their strong performance. The tailwinds of strong demand for higher yielding assets and following summarizes fixed income sector returns: nearly non-existent CMBS issuance since 2008. Despite Emerging market (EM) bond performance was strong, these strong technical conditions in the CMBS market, comparable to the U.S. high yield market during the quarter. underlying fundamentals in commercial real estate continued Among external EM bonds, credit premiums were volatile to deteriorate throughout the quarter and are expected to earlier in the quarter amid concern about Greece and other decline further into 2010 and 2011. developed countries’ sovereign debt. By mid-quarter, U.S. Treasuries were mixed versus other sovereign bond markets began to focus more on differences in policy mixes markets in the first quarter of 2010. Eurozone bonds and initial economic conditions among EM countries. outperformed most other developed markets amid Nonetheless, lower quality credits outperformed over the expectations that the European Central Bank would be course of the quarter. Locally issued EM bonds had even forced to keep rates low to combat the deflationary impact of stronger returns than high yield corporates. Investors sovereign debt problems on the Eurozone periphery. perceived that economic recovery in EM countries was taking hold and inflationary pressures - while rising – remained relatively contained. 8
  10. 10. Global Multi-Asset Market Outlook Second Quarter 2010 Economic Recovery To Face Structural Headwinds in 2010 This is particularly true in Germany, which will remain unwilling to adjust its export-driven economic model to Two core themes create tension and uncertainty in PIMCO’s stimulate more consumption. The U.K. has the monetary and economic outlook over the next year. First, we continue to currency flexibility to contribute to regional growth but is expect differentiated regional outcomes owing to disparate pre- constrained by its sovereign debt burden. crisis conditions. Second, positive trends in developed economies such as the U.S. over a cyclical timeframe are likely Pressure on the Euro - Problems in the periphery introduce to face structural or secular headwinds such as high levels of fiscal uncertainly into the Eurozone, but PIMCO does not sovereign and consumer debt and excess capacity in labor and expect this to affect Eurozone interest rates meaningfully. product markets. This tension between cyclical and structural Deflationary forces will keep the European Central Bank on factors will be exacerbated by political processes around the hold for even longer than the Fed. The Eurozone’s fiscal risk world, which means that politics is one of the most critical risk premium is more likely to be reflected in downward pressure factors in our outlook. on the euro. Critical elements of PIMCO’s cyclical outlook include. Prospects Brighter in China and EM – Prospects are brighter in China and most emerging economies, which have Three-Stage U.S. Recovery – The U.S. is now in the benefitted from more favorable pre-crisis conditions. Now second stage of a three-stage recovery. First the economy some of these economies may face risks of overinflating and was propped up by fiscal and monetary stimulus. Next came asset bubbles. PIMCO believes these risks are manageable the current stage of inventory rebuilding. The final stage, not for China given the range of policy tools available to deal yet in evidence, involves job creation and emergence of self- with them. Compared to other “bubble” economies – Japan sustaining final demand. in the 1980s and the U.S. more recently – China has stronger economic fundamentals and less of a debt burden. Structural Headwinds – Even when final demand does revive, we do not expect the U.S. recovery to be very robust Chinese Renminbi – U.S. Dollar Peg - Another China risk, in light of structural forces standing in the way. These and sign of the importance of politics, is the dispute over the include deleveraging of consumer and ultimately sovereign renminbi-U.S. dollar peg. While China is likely to allow balance sheets, in addition to the secular trends of appreciation of its currency over the next year, the timing is reregulation and deglobalization. hard to forecast because of potential intervention by the U.S. Congress. Range-Bound U.S. Interest Rates - The Federal Reserve is unlikely to raise interest rates until the final stage of recovery Limit Risk, Pursue Select Opportunities Amid Uncertainty starts to emerge, probably in 2011. Longer term U.S. rates should be range-bound over this period. PIMCO will remain cautious with portfolio risk exposures in light of global economic uncertainty and the recent rally in risk Deflationary Headwinds Stronger in Eurozone – Severe assets. There are, however, a number of prudent strategies austerity measures expected on the periphery of the available in our efforts to enhance returns. The following is a Eurozone (Greece, Spain, already underway in Ireland) are summary of PIMCO’s planned investment strategies: not likely to be counterbalanced by expansion in the core. 9
  11. 11. Market Outlook, (cont’d) Second Quarter 2010 Overall Asset Allocation –The Global Multi-Asset Fund will Emerging Markets and Currency – PIMCO plans to hold continue to maintain a defensive posture based on PIMCO’s high quality EM sovereign credits such as Mexico, Brazil, cyclical and secular outlook. The Fund will likely remain Korea and Russia, which have low levels of debt relative to underweight equity risk overall, given the structural the size of their economies. In addition, we plan to headwinds facing developed economies. The Fund plans on overweight EM corporate and quasi-sovereign exposure in continuing to obtain the equity risk factor higher up in the credits from high quality countries. These bonds stand to capital structure, through emerging market and investment benefit from improved economic conditions in EM and offer grade corporate bonds. Both emerging market bonds and attractive value compared to U.S. corporates. investment-grade corporates offer the opportunity to participate in additional equity upside, while limiting We plan to take modest currency exposure to countries with downside risk. In real assets, we plan to maintain an sound fiscal conditions and banking systems, such as Brazil, overweight to diversified commodities and gold, viewing Australia and Canada. We also plan on holding a basket of commodities as an important diversifier in the portfolio and Asian currencies including the Chinese renminbi, which are inflation hedge. The Fund will continue to seek opportunities likely to gain versus the U.S. dollar owing to relatively fast for relative value trades and scan the markets for cost- growth and favorable trade balances. Lastly, we will take effective tail-risk hedges. positions that could gain from an expected depreciation of the British pound, euro and yen. These currencies could be Equities – Based on valuations and the outperformance of challenged by slow growth and deteriorating fiscal emerging markets equities over the past year, the Fund will conditions. look to pare exposure to emerging market equities relative to developed equities going forward. Within developed Interest Rate Strategies – We will target an overall equities, the Fund will place a greater emphasis on security overweight to duration but this will come from exposure to selection, favoring stocks of high quality companies that are core European interest rates and a modest allocation to trading at a deep discount to their intrinsic value. Brazilian local rates. Such exposure offers relatively attractive yields but potentially less price risk than a Commodities – PIMCO believes that commodities will face comparable U.S. position, which could be vulnerable to the a price spike over the secular horizon due to a supply- unwinding of the Fed’s unorthodox monetary policies and demand mismatch. While commodity inventories are indigestion in Treasury markets. We will continue to avoid currently at the high end of their historical levels, exposure to debt-laden peripheral Europe – particularly underinvestment in commodity production and distribution Greece and Spain. capacity, resource depletion, and commodities-intensive PIMCO plans to maintain a neutral duration position in the infrastructure build-out in emerging market countries should U.S. as we expect range-bound intermediate and long provide support for commodity prices going forward. maturity U.S. interest rates. With respect to yield curve, we Additionally, commodities offer diversification benefits and will emphasize shorter maturities in the U.S. and Europe, can act as a hedge against inflation and geopolitical risk. especially those somewhat longer in duration than where Finally, a debasement of the U.S. dollar could provide further money market funds typically invest, as markets are pricing support for commodities prices. in more and faster central bank tightening than we expect. 10
  12. 12. Market Outlook, (cont’d) Second Quarter 2010 Alpha Strategies and Tail Risk Hedging –Within alpha strategies, PIMCO believes there are opportunities to take limited exposure to attractively priced and high quality non- agency and commercial mortgage backed securities (CMBS). The Fund will also look to purchase cost-effective tail-risk hedges, in addition to the equity put options, money- market futures, and default protection positions in the portfolio currently. 11
  13. 13. .xedni deganamnu na ni yltcerid tsevni ot elbissop ton si tI .ecnamrofrep ytiuqe tekram depoleved labolg erusaem ot dengised si taht xedni noitazilatipac tekram detsujda-taolf eerf a si xednI dlroW )lanoitanretnI latipaC yelnatS nagroM( ICSM .srehtorB namheL yb dehsilbup saw xedni siht ,8002 ,ts1 rebmevoN ot roirP .xedni deganamnu na ni yltcerid tsevni ot elbissop ton si tI .sisab raluger a no detroper dna detaluclac era taht secidni cificeps erom otni dedividbus era srotces rojam esehT .seitiruces dekcab-tessa dna ,seitiruces hguorht-ssap egagtrom ,seitiruces etaroproc dna tnemnrevog rof stnenopmoc xedni htiw ,tekram dnob etar dexif edarg tnemtsevni .S.U eht srevoc xedni ehT .detanimoned rallod dna ,elbaxat ,deretsiger -CES era taht seitiruces stneserper xednI etagerggA .S.U latipaC syalcraB ehT .xednI etagerggA .S.U latipaC syalcraB %04 dna xednI dlroW ICSM %06 fo dnelb a si kramhcneb ehT .xedni deganamnu na ni yltcerid tsevni ot elbissop ton si tI .sisab raluger a no detroper dna detaluclac era taht secidni cificeps erom otni dedividbus era srotces rojam esehT .seitiruces dekcab-tessa dna ,seitiruces hguorht-ssap egagtrom ,seitiruces etaroproc dna tnemnrevog rof stnenopmoc xedni htiw ,tekram dnob etar dexif edarg tnemtsevni .S.U eht srevoc xedni ehT .detanimoned rallod dna ,elbaxat ,deretsiger-CES era taht seitiruces stneserper xednI etagerggA .S.U latipaC syalcraB snoitpircseD xednI .sdnob ytirutam retrohs ot derapmoc nehw ksir dna ytilitalov retaerg evah sdnob ytirutam regnol taht eton ot tnatropmi si tI .noitcetorp noitalfni fo tifeneb eht rof dleiy emos ecifircas sBLI .ksir tekram etanimile ton seod eetnarauG .tnelaviuqe ro ,xednI ecirP remusnoC stnemnrevog gniussi eht fo egnahc eht no desab detsujda si taht etar dexif a ta tnemnrevog gniussi eht yb deetnaraug dna deussi era ,)sBLI( sdnoB dekniL noitalfnI .level laredef dna etats eht ta elbaxat era sdnob fo sepyt eseht yllareneG .tluafed ot elbitpecsus erom ytiruces eht gnikam ylbissop gnitar tiderc rewol a sah ytitne gniussi eht sa seitiruces detar-rehgih ni stnemtsevni naht lapicnirp ot ksir dna ytilitalov retaerg evlovni sdnob dleiY hgiH .seirtnuoc ngierof depoleved ni gnitsevni fo sksir eht ,naht retaerg ro ,morf tnereffid sksir rehto dna lacinhcet ,lacitilop ,lagel ,ytidiuqil ,ycnerruc ,tiderc ,tekram ot elbitpecsus era sdnob tekraM gnigremE .ksir tekram etanimile ton seod eetnarauG .level laredeF eht ta elbaxat ylno era dna tnemnrevog setatS detinU eht yb deetnaraug era seirusaerT .level laredef dna etats eht ta elbaxat era sdnob etaroproc tsom yllareneG .ksir tluafed ot elbitpecsus erom suht era dna tnemnrevog laredef eht yb deetnaraug ton era seitiruces esehT .rotces dnob etaroproc eht ni detar rehgih eht gnoma deredisnoc era sdnob etaroproc edarg tnemtsevnI .ksir tluafed ot elbitpecsus erom suht era dna tnemnrevog laredef eht yb deetnaraug ton era seitiruces esehT .level laredeF dna etatS eht ta elbaxat yllausu era seitiruces fo sepyt esehT .ssel ro noillim 005$ fo noitazilatipac tekram a evah yllausu dna seititne yb deussi era seitiruces tbed paC-llamS .ksir tekram etanimile ton seod eetnarauG .level laredeF eht ta elbaxat ylno era dna tnemnrevog setatS detinU eht yb deetnaraug era seirusaerT .level laredef dna etats eht ta elbaxat era sdnob etaroproc tsom yllareneG .ksir tluafed ot elbitpecsus erom suht era dna tnemnrevog laredef eht yb deetnaraug ton era seitiruces esehT .rotces dnob etaroproc eht ni detar rehgih eht gnoma deredisnoc era sdnob etaroproc edarg tnemtsevnI .level laredeF eht ta elbaxat ylno era SPIT .noitcetorp noitalfni fo tifeneb eht rof dleiy emos ecifircas SPIT .ksir tekram etanimile ton seod eetnarauG .xednI ecirP remusnoC detsujdA yllanosaeS-noN eht fo egnahc eht no desab detsujda si taht etar dexif a ta tnemnrevog .S.U eht yb deetnaraug dna deussi era ,SPIT ro seitiruceS detcetorP noitalfnI yrusaerT sa nwonk ylnommoc erom ,sdnob nruteR laeR kooltuO tekraM dna yratnemmoC tekraM .snoitarud retrohs htiw seitiruces naht elitalov erom meht gnikam yllausu ,setar tseretni ni segnahc ot evitisnes erom eb ot dnet )ytiruces a fo efil detcepxe eht fo erusaem a( noitarud regnol a htiw sdnob laudividni dna sdnuf dnoB .eulav ni esaerced ot ylekil era dnuf a yb dleh seitiruces emocni dexif dna ,sdnuf dnob tsom fo ecnamrofrep eht tcapmi ylevitagen lliw setar gnisir ,drawpu dnert yam setar tseretni erehw tnemnorivne na nI .seitiruces detar-rehgih ni stnemtsevni naht lapicnirp ot ksir dna ytilitalov retaerg evlovni yllareneg lliw ,seitiruces detar-rewol ,dleiy-hgih ni stsevni taht dnuF a ni tnemtsevnI .stekraM gnigremE ni gnitsevni nehw decnahne eb yam ksir sihT .stnempoleved lacitilop dna cimonoce .S.U-non ot eud sksir retaerg liatne nac hcihw ,seitiruces .S.U-non ni stessa sti fo noitrop a tsevni nac dnuF ehT .yna fi ,sniag latipac dna emocni ,sdnedivid fo tnemtsevnier edulcni snruter dna dezilaunna era raey eno naht regnol sdoirep emit llA 1 scitsitatS oiloftroP dna ataD ecnamrofreP fo yrammuS serusolcsiD ksiR .deilppa saw eef eht fi rewol eb dluow serugif ecnamrofrep eht ,seef noitpmeder elbacilppa yna tcelfer serugif ecnamrofrep seeF retfA ron erofeB rehtieN .seef hcus lla fo noitcuded eht tcelfer serugif ecnamrofrep seeF retfA ehT .)elbacilppa erehw( seef 1-b21 dna ,seef evitartsinimda ,seef yrosivda ,ot detimil ylirassecen ton si tub ,sedulcni hcihw ,sesnepxe gnitarepo launna latot s’dnuF eht fo noitcuded eht tcelfer ton od niereh detneserp serugif ecnamrofrep seeF erofeB ehT .dezilaunna era raey eno naht regnol sdoirep llA .snoitubirtsid niag latipac dna dnedivid fo tnemtsevnier dna ecirp erahs ni segnahc tcelfer dna )seef retfa( ssalc erahs detats eht rof ecnamrofrep nruter latot eht tcelfer detneserp serugif ecnamrofrep ehT .tnemurtsni laicnanif yna fo elas ro esahcrup eht rof noitaticilos ro reffo na sa ro ecivda tnemtsevni sa deterpretni eb ton dluohs dna hcraeser yrateirporp no desab era stsaceroF .stluser erutuf fo eetnaraug on si ecnamrofrep tsaP 0102 ,13 hcraM dnuF tessA-itluM laboG OCMIP - noitamrofnI tnatropmI
  14. 14. This material is authorized for use only when preceded or accompanied by the current PIMCO funds prospectus. Investors should consider the investment objectives, risks, charges and expenses of these funds carefully before investing. This and other information is contained in the fund's prospectus. Please read the prospectus carefully before you invest or send money. This report includes information as of 3/31/2010 and contains the current opinions of the manager and such opinions are subject to change. This report is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The fund offers different share classes, which are subject to different fees & expenses (which may affect performance), have different minimum investment requirements and are entitled to different services. PIMCO funds are distributed by Allianz Global Investors Distributors LLC, 840 Newport Center Drive, Newport Beach, CA 92660, (800) 927-4648. No part of this report may be reproduced in any form, or referred to in any other publication, without express written permission. ©2010, Pacific Investment Management Company LLC.

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