client or prospect name

This information was created for SDCERA and is not intended for public distribution. This information is

intended only for the entity named. If you are not the named addressee, you should not disseminate,

distribute, alter or copy this material. This information is provided for information purposes and should not be

construed as a solicitation or offer to buy or sell any securities or related financial instruments in any

jurisdiction.

Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 949-

720-6000

This material is to be used for one-on-one separate account presentations to institutional investors and not for

any other purpose

For Institutional Investor Use Only

1

This analysis compares risk and return characteristics of SDCERA’s current policy

portfolios, two potential variations provided by SDCERA, and a generic 70/30 index

blend

From a risk factor standpoint, portfolio options 1 and 2 do not differ greatly from the

current allocation

Portfolio option 2 does have modestly lower estimated return and risk than the

current portfolio, largely due to a reduction in EM equities and high yield bonds

The current and proposed portfolios have a higher estimated Sharpe ratio than the

70/30 index blend

As of 31 March 2017. SOURCE: SDCERA, PIMCO. Hypothetical example for illustrative purposes only.

3

-500

0

500

1,000

1,500

2,000

2,500

3,000

U.S.

Treasuries

U.S.

IG Credit

U.S.

HY Credit

Global

Bonds

EM

External

Bonds

EM

Local

Bonds

DM

Equities

EM

Equities

Hedge

Funds

Private

Equity

Private

Real

Estate

Comm-

odities

World Equity (DM) World Equity (EM) Nominal Duration (DM)

Nominal Duration (EM) EM Sovereign Spread IG Corp Spread

HY Corp Spread Currency (DM) Currency (EM)

Commodities Idiosyncratic Risk Net Other

tail_risk_review_52

Real Assets Alternatives Equities Fixed Income

Risk Factor Contributions to Estimated Volatility (bps)2

1

SOURCE: PIMCO. As of 31 July 2016. Hypothetical example for illustrative purposes only.

U.S. Treasuries [Barclays US Treasury Index], U.S. IG Bonds [Barclays U.S. Credit Index], U.S. HY Bonds [Barclays U.S. High Yield Index], Global Bonds [Barclays Global Aggregate Index], EM External

Bonds [JP Morgan EMBI Global Div Index], EM Local Bonds [JP Morgan GBI-EM Global Div Index]; DM Equities [MSCI World Index], EM Equities [MSCI EM Index], Hedge Funds [HFRI Fund

Weighted Composite Index], Commodities [Bloomberg Commodity Index].

For Private Equity and Real Estate Models, risk factor exposures are based on analysis of historical index data, third party academic research and/or qualitative inputs from senior PIMCO

investment professionals.

1 Other factors include: equity style and industry, slope, liquidity, real duration, convexity, and EU sovereign spread. 2 See Appendix for additional information regarding volatility estimates.

Refer to Appendix for additional hypothetical example, index, and portfolio analysis information.

For many years, PIMCO has used a risk factor-based approach to construct portfolios and manage risks

Risk factors are fundamental building blocks which explain a majority of variation in returns across most asset classes

Risk factor approach results in a clear depiction of the overall risk drivers in a portfolio

4

Steps in block-bootstrap method:

1. Randomly select a block of factor returns from history (i.e. returns for all factors). For example, 3 month period starting 1 March 1998

2. Combine with other randomly selected blocks to create a full simulation. E.g., 4 blocks of 3 months to create a 1 year simulation

3. Calculate portfolio return by multiplying factor exposures by factor returns

4. Repeat a large number of times (e.g. 25,000 times) to create a probability distribution of returns

Block 1 Block 2 Block 3 Block 4

Simulation one year factor return (repeat 25,000 times)

Historical time series of factor returns

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Refer to Appendix for additional risk information.

5

Capital Market

Inputs

Forecast of key

market and economic

variables

Models

Empirical asset pricing

models used

to inform inputs

Global survey covering major regions

Inputs for key financial and macroeconomic variables

Structured survey with guide models

Asset class

conversion

Factor premia

converted to asset

class total return

estimates

Consistency check

Compare with

historical returns over

different periods

Portfolio Management & Analytics

Capital Market Assumptions Process

Survey

SOURCE: PIMCO. Hypothetical example for illustrative purposes only.

Risk factor

conversion

Inputs are converted

to risk factor premia

6

Equity Exposure

Real and Nominal

Duration

Credit Spread

Durations

FX Exposures

Equity Risk Premium

Duration Risk

Premium

Credit Risk

Premium

Foreign Exchange

Risk Premium

Global Inflation Rates,

Real Exchange Rates

Spreads, downgrade

and loss rates

Real and Nominal

Yield Curves

Dividends, Growth

and Valuation

Excess Returns

Total Returns

× =

CAPITAL MARKET INPUTS FACTOR RISK PREMIA RISK FACTOR EXPOSURES ASSUMED RETURNS

+ =

Secular Outlook

On Global

Economy

Nominal Total Return Average Return on

Cash

Excess Returns

7

4.6%

5.1%

7.3%

2.9%

2.3%

3.4%

4.1%

5.1%

5.7%

2.2%

5.0%

7.2%7.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

U.S.

equities

Developed

int'l

equities

EM

equities

U.S. core

fixed

income

Foreign

bonds

(USD-hedged)

Global IG

credit

(USD-hedged)

Global HY

credit

(USD-hedged)

EM external

bonds

REITs Diversified

commodities

Hedge

Funds

Private

Equity

Infrastructure

PIMCO's 10-year capital market assumptions1

SOURCE: PIMCO. As of 13 December 2016

1 Return estimates are based on the product of risk factor exposures and projected risk factor premia. The projections of risk factor premia rely on historical data, valuation metrics and

qualitative inputs from senior PIMCO investment professionals.

U.S. equities: S&P 500 Index; Developed int’l equities: MSCI EAFE Net Dividend Index (USD Unhedged); EM Equities: MSCI Emerging Markets Index; U.S. core fixed income: Bloomberg Barclays

U.S. Aggregate Index; Foreign bonds (USD-hedged): Bloomberg Barclays Global Aggregate ex-USD Hdg USD; Global IG: Bloomberg Barclays Global Agg Credit (USD Hedged); Global HY: MLX

DevelMarkHighYieldConstr(USD Hedged); EM external bonds: JPMorgan EMBI Global Index; REITS: Dow Jones U.S. REIT Total Return Index; Diversified commodities: Bloomberg Commodity

Index Total Return. Hedge Funds: Dow Jones Credit Suisse Hedge Funds Index; Private Equity: PIMCO Private Equity Model; Infrastructure: PIMCO Infrastructure Model.

For PIMCO Private Equity and Infrastructure Models, risk factor exposures are based on analysis of historical index data, third party academic research and/or qualitative inputs from senior

PIMCO investment professionals.

Refer to Appendix for additional investment strategy, return assumption and risk information.

Equities: Real Assets: Alternatives: Fixed Income:

8

Translating portfolio exposures from asset classes to risk factors provides a more holistic view of

the risks that sit within the portfolio

Equities

Fixed Income

Hedge Funds

Private Equity

PIMCO

proprietary

risk factor

models

Risk factor

exposures at

the portfolio

level

Portfolio risk factors

Barra equity factors

Duration (nominal and real)

Yield curve duration

Spread duration

Commodity

FX (developed, EM)

Alternative factors

Assign index

/ model

proxies

ASSET ALLOCATION

Real Assets

RISK ALLOCATION

Refer to Appendix for additional risk information.

10


1 Unless otherwise specified, return estimates are an average annual return over a 10-year horizon. For indices and asset class models, return estimates are based on the product of risk factor exposures

and projected risk factor premia. The projections of risk factor premia rely on historical data, valuation metrics and qualitative inputs from senior PIMCO investment professionals. The estimated return

for the Private Debt Model is the bottom of the 9-11% range provided by SDCERA. 2 See Appendix for additional information regarding volatility estimates.

3 Sharpe Ratio calculation: (Estimated Portfolio Return - Estimated Cash Return) / Estimated Volatility. Estimated Cash Return = 1.76% 4 Equity beta is measured against the S&P 500 Index.

5 Conditional Value-at-Risk (CVAR) is an estimate of the average expected loss at a desired level of significance.

6 Model risk factor exposures are based on analysis of historical index data, third party academic research and/or qualitative inputs from senior PIMCO investment professionals.

ProxyEstimated

Return1

Estimated

Volatility2

SDCERA

Current

Portfolio

Portfolio

Option 1

Portfolio

Option 2

70/30

Benchmark

MSCI ACWI Index 5.1% 16.7% 4.1% 7.7% 5.6% 70.0%

S&P 500 Index 4.6% 14.9% 18.0% 14.5% 21.0% -

MSCI EAFE Index 5.1% 19.9% 14.5% 15.6% 15.6% -

MSCI Emerging Markets Index 7.3% 25.9% 9.9% 9.5% 5.2% -

BB Barclays Intermediate Aggregate Index 2.7% 2.7% 14.4% 14.4% 15.3% 30.0%

BofAML US High Yield Index 4.2% 10.0% 6.1% 5.6% 4.7% -

BofAML 3Mo US T-Bill Index 1.8% 0.2% 4.0% 4.1% 4.7% -

DJCS Managed Futures Index 5.3% 11.5% 6.3% 6.1% 5.9% -

Private Core Real Estate Model 6.1% 14.0% 8.4% 8.9% 8.5% -

Private Equity Model 7.2% 23.1% 6.6% 6.3% 6.3% -

Private Debt Model 9.0% 8.5% 1.1% 1.1% 1.1% -

Private Infrastructure Model 7.5% 18.3% 6.6% 6.3% 6.3% -

Total 100.0% 100.0% 100.0% 100.0%

PORTFOLIO CHARACTERISTICS

Estimated Return1 5.1% 5.1% 5.0% 4.4%

Estimated Volatility2 11.9% 12.0% 11.5% 11.5%

Sharpe Ratio3 0.28 0.28 0.28 0.23

Equity Beta4 0.73 0.73 0.72 0.72

Duration 1.29 1.27 1.27 1.18

CVaR (95%)5 24.5% 24.8% 23.7% 23.5%

Equities

Fixed Income

Alternatives

6

6

6

6

11


The correlation of various risk factors against one another or against inflation is based upon data over a certain time period. These correlations may vary substantially in the future or over different

time periods that can result in greater volatility.

ESTIMATED CORRELATIONS 1 2 3 4 5 6 7 8 9 10 11 12

1 MSCI ACWI Index 1

2 S&P 500 Index 0.94 1

3 MSCI EAFE Index 0.96 0.82 1

4 MSCI Emerging Markets Index 0.83 0.64 0.82 1

5 BB Barclays Intermediate Aggregate Index -0.23 -0.22 -0.23 -0.17 1

6 BofAML US High Yield Index 0.67 0.60 0.63 0.60 0.10 1

7 BofAML 3Mo US T-Bill Index -0.47 -0.43 -0.47 -0.36 0.80 -0.27 1

8 DJCS Managed Futures Index -0.13 -0.08 -0.14 -0.16 0.09 -0.15 0.22 1

9 Private Core Real Estate Model 0.71 0.69 0.65 0.59 0.01 0.61 -0.25 -0.04 1

10 Private Equity Model 0.92 0.93 0.82 0.71 -0.23 0.69 -0.45 -0.11 0.80 1

11 Private Debt Model 0.63 0.56 0.61 0.55 0.08 0.87 -0.30 -0.18 0.58 0.62 1

12 Private Infrastructure Model 0.88 0.89 0.79 0.69 -0.09 0.74 -0.38 -0.11 0.85 0.98 0.66 1

12


1 Unless otherwise specified, return estimates are an average annual return over a 10-year horizon. For indices and asset class models, return estimates are based on the product of risk factor exposures

and projected risk factor premia. The projections of risk factor premia rely on historical data, valuation metrics and qualitative inputs from senior PIMCO investment professionals. The estimated return

for the Private Debt Model is the bottom of the 9-11% range provided by SDCERA. 2 See Appendix for additional information regarding volatility estimates.

3 Sharpe Ratio calculation: (Estimated Portfolio Return - Estimated Cash Return) / Estimated Volatility. Estimated Cash Return = 1.76% 4 Equity beta is measured against the S&P 500 Index.

5 Other factors include slope, EM sovereign spread and FX carry factors.

5

SDCERA Current Portfolio Portfolio Option 1 Portfolio Option 2 70/30 Benchmarkx

Factor

Weights

Vol. Contrib.

(bps)2

Factor

Weights

Vol. Contrib.

(bps)2

Factor

Weights

Vol. Contrib.

(bps)2

Factor

Weights

Vol. Contrib.

(bps)2

Equity Factors

World Equity (U.S.) 0.39 607 0.38 576 0.43 663 0.37 569

World Equity (Dev ex-U.S.) 0.15 237 0.18 272 0.17 262 0.24 385

World Equity (EM) 0.11 183 0.11 186 0.07 108 0.09 147

Equity Style and Industry -7 -4 -18 -37

Interest Rate Factors (years)

Nominal Duration (DM) 1.05 -32 1.02 -31 1.02 -31 1.18 -36

Real Duration 0.24 0 0.26 0 0.24 0 0.00 0

Spread Duration Factors (years)

Mtge Spread 0.24 8 0.24 8 0.25 8 0.45 9

Corp IG Spread 0.18 8 0.17 8 0.18 8 0.29 13

Corp HY Spread 0.30 69 0.28 64 0.25 56 0.00 0

Other Factors

Idiosyncratic 6 6 6 0

Trend Following -13 -13 -12 0

Liquidity Factor 0.10 32 0.10 31 0.10 30 0.00 0

DM Currency 0.15 39 0.17 46 0.17 42 0.24 68

EM Currency 0.11 46 0.11 46 0.07 25 0.09 34

Other Factors 5 6 4 1

Portfolio Statistics

Estimated Return1 5.1% 5.1% 5.0% 4.4%

Estimated Volatility2 11.9% 12.0% 11.5% 11.5%

Sharpe Ratio3 0.28 0.28 0.28 0.23

Equity Beta4 0.73 0.73 0.72 0.72

13

1,188 1,202 1,152 1,151

-200

0

200

400

600

800

1,000

1,200

1,400

Contribution to Estimated Volatility (bps)1Other Factors

Idiosyncratic

Liquidity Factors

Trend Following

Currency

Mtge Spread

Corp HY Spread

Corp IG Spread

Nominal Duration (DM)

Equity Industry & Style

FactorsWorld Equity (EM)

World Equity (DM)

As of 31 March 2017. SOURCE: SDCERA, PIMCO. Hypothetical example for illustrative purposes only. 1 See Appendix for additional information regarding volatility estimates.

2 Other factors include slope, EM sovereign spread and FX carry factors.

2

SDCERA Current Portfolio Portfolio Option 1 Portfolio Option 2 70/30 Benchmark

14

Distribution of Returns

SDCERA Portfolio Options

-52% -33% -14% 5% 24% 43%

Pro

bab

ility

Densi

ty

Estimated Return1

SDCERA Current Portfolio

Portfolio Option 1

Portfolio Option 2

As of 31 March 2017. SOURCE: SDCERA, PIMCO. Hypothetical example for illustrative purposes only. 1 Unless otherwise specified, return estimates are an average annual return over a 10-year horizon. For indices and asset class models, year return estimates are based on the product of risk factor

exposures and projected risk factor premia. The projections of risk factor premia rely on historical data, valuation metrics and qualitative inputs from senior PIMCO investment professionals. See Appendix for additional information regarding volatility estimates.

15

Turbulent regime analysis is a way of stressing the covariance matrix, i.e. both risk factor volatilities and correlations. Note that we do

not adjust the estimated returns in the turbulent regime analysis.

-70% -53% -35% -18% 0% 18% 35% 53% 70%

Pro

bab

ility

Densi

ty

Estimated Return1


Portfolio Option 1

Portfolio Option 2

Note that left and right

tails are much wider

than the full sample


exposures and projected risk factor premia. The projections of risk factor premia rely on historical data, valuation metrics and qualitative inputs from senior PIMCO investment professionals. See Appendix for additional information regarding volatility estimates. We define the turbulent regime as the 15% most turbulent periods which are identified from the joint behavior of our risk factors.



16

-25% -15% -6% 4% 13% 23% 33%

Pro

bab

ility

Densi

ty

Estimated Return1


Portfolio Option 1

Portfolio Option 2

Note that left and right

tails are much narrower

than the full sample



Quiet regime is comprised of all periods which are not included within the turbulent regime. Note that we do not adjust the estimated

returns in the quiet regime analysis.



17

-70% -53% -35% -18% 0% 18% 35% 53% 70%

Pro

bab

ility

Densi

ty

Estimated Return1

Current: Quiet

Option 1: Quiet

Option 2: Quiet

Current: Full Sample

Option 1: Full Sample


Current: Turbulent

Option 1: Turbulent

Option 2: Turbulent

Quiet regime

Full Sample

Turbulent regime





18

Quiet regime

Full Sample

Turbulent regime

-70% -53% -35% -18% 0% 18% 35% 53% 70%

Pro

bab

ility

Densi

ty

Estimated Return1

Option 1: Quiet


Option 1: Turbulent




SDCERA Portfolio Option 1

20

PIMCO employs highly granular holdings-based models to generate risk factor exposures. In our analysis, we may display aggregated risk factor data for ease of

interpretation, but the granularity of the underlying models is maintained. For Alternatives/Illiquids and in selected cases where holdings information is unavailable

or unreliable, PIMCO may use returns-based regression models to generate risk factor exposures.

EQUITY

Equity risk factors are based on the MSCI Barra Global Equity Model (GEM3). The exposure to each equity country or industry factor is the market value weight

of stocks categorized in that country or industry. Style factors (such as size, value, and momentum) are standardized to have a mean of 0 and a standard

deviation of 1. Please refer to Barra GEM3 documentation for more details.

PIMCO disaggregates the Barra world equity factor into additive country exposures. Thus, the risk contribution from a certain country’s equity exposure includes

contributions from both the world equity factor and the country equity factor in the original Barra model.

INTEREST RATE DURATION

Measured in years, interest rate duration is the price sensitivity to a change in interest rates (e.g. the price of a bond with a duration of 5 years will fall by

approximately 5% if interest rates instantaneously rise by 1%).

PIMCO calculates both real and nominal durations – sensitivities to real and nominal interest rates, respectively – as well as duration exposures to interest rates

in different currencies.

The duration risk factor exposure measures a security's price sensitivity to a parallel shock of the par yield curve. PIMCO’s systems use a scenario-based duration

calculation by re-pricing securities under different rate shock scenarios. For securities with embedded options, effective duration is estimated by taking into

account the potential impact of yield changes on future cash flows.

SLOPE DURATION

Interest rate duration reflects sensitivity to a parallel shift of the yield curve. However, parallel shifts rarely occur; the yield curve typically steepens or flattens as

interest rates move.

Measured in years, slope duration is the price sensitivity to steepening or flattening of the yield curve. PIMCO employs a 2-10 slope factor, which reflects

sensitivity to the slope of the front end of the par yield curve, and a 10-30 slope factor, which reflects sensitivity to the slope of the long end of the par yield

curve.

The 2-10 slope risk factor exposure measures the sensitivity to a steepening or flattening of the 2-year yield relative to the 10-year yield (e.g. the price of a bond

with a 2-10 slope duration of 3 years will increase by approximately 3% if the difference between 10-year and 2-year yields widens by 1% while the 10-year yield

remains constant).

21

The 10-30 slope risk factor exposure measures the sensitivity to a steepening or flattening of the 30-year yield relative to the 10-year yield (e.g. the price of a

bond with a 10-30 slope duration of 6 years will increase by approximately 6% if the difference between 30-year and 10-year yields narrows by 1% while the 10-

year yield remains constant)

SPREAD DURATION

Measured in years, spread duration is the price sensitivity to a change in spread.

For investment grade corporate spreads, PIMCO measures credit spread duration relative to a common reference set of securities, in order to normalize spread

duration exposures across securities with different risk levels. Credit spread duration is estimated in two steps:

1. Calculate the sensitivity of the security’s price to its own spread. This process occurs overnight and leverages PIMCO’s proprietary pricing models.

2. Translate this sensitivity into spread duration relative to a reference spread using a proprietary model. This process utilizes the security’s OAS and the OAS

of the reference set of securities as well as the term structure of spreads.

For spreads other than investment grade corporates, PIMCO calculates spread duration for a security based on the price sensitivity to a change in its own

spread. These spread duration measures include, for example, high yield corporate, mortgage, and emerging markets.

CURRENCY

Currency risk factors capture a portfolio’s percent exposure to any currency other than the base currency.

COMMODITY

Commodity risk factor exposures are measured in percentage weights.

PIMCO decomposes commodity exposure to specific commodity sub-baskets such as energy, precious metal, and livestock.

ALTERNATIVES/ILLIQUIDS

Risk factor exposures in this category are regression-based measures of the sensitivity of a portfolio to changes in risk factors that are relevant to alternative

strategies or illiquid assets, such as volatility, liquidity, and trend-following.

IDIOSYNCRATIC

Idiosyncratic risk is generally asset-specific and accounts for volatility that is not attributable to broad market factors.

In analyses involving PIMCO strategies, idiosyncratic risk describes non-factor risk and may account for the potential overlap of idiosyncratic risk across PIMCO

strategies. In these instances, idiosyncratic risk will account for 1) common sources of non-factor risks between PIMCO strategies and 2) residual idiosyncratic

risk (which may account for residual correlation between PIMCO strategies).

22 !mk_Solutions_Corp_Cash_Mgmt_body

PERFORMANCE AND FEE

Past performance is not a guarantee or a reliable indicator of future results. Certain performance figures do not reflect the deduction of investment advisory fees (for Pacific Investment Management

Company LLC described in Part 2 of its Form ADV) in the case of both separate investment accounts and mutual funds; but they do reflect commissions, other expenses (except custody), and

reinvestment of earnings. Such fees that a client may incur in the management of their investment advisory account may reduce the client's return. For example, over a five-year period, annual advisory

fees of 0.425% would reduce compounding at 10% annually from 61.05% before fees to 57.96% after fees. The “net of fees’ performance figures reflect the deduction of actual investment advisory fees

but do not reflect the deduction of custodial fees. All periods longer than one year are annualized. Separate account clients may elect to include PIMCO sector funds in their portfolio; sector funds may

be subject to additional terms and fees. For a copy of net of fees performance, unless included otherwise, please contact your PIMCO representative.

HYPOTHETICAL EXAMPLE

No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Hypothetical or simulated performance results have

several inherent limitations. Unlike an actual performance record, simulated results do not represent actual performance and are generally prepared with the benefit of hindsight. There are frequently

sharp differences between simulated performance results and the actual results subsequently achieved by any particular account, product, or strategy. In addition, since trades have not actually been

executed, simulated results cannot account for the impact of certain market risks such as lack of liquidity. There are numerous other factors related to the markets in general or the implementation of any

specific investment strategy, which cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results.

INVESTMENT STRATEGY

There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn

in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

PORTFOLIO ANALYSIS

The portfolio analysis is based on indices and models. No representation is being made that the structure of the average portfolio or any account will remain the same or that similar returns will be

achieved. The analysis may not be attained and should not be construed as the only possibilities that exist. Real results will vary and are subject to change with market conditions. Different weightings in

the asset allocation illustration will produce different results. Actual results will vary and are subject to change with market conditions. There is no guarantee that results will be achieved. No fees or

expenses were included in the estimated results and distribution. The scenarios assume a set of assumptions that may, individually or collectively, not develop over time. The sample analysis reflected in

this information is based upon data at time of analysis. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment

advice or a recommendation of any particular security, strategy or investment product.

PIMCO routinely reviews, modifies, and adds risk factors to its proprietary models. Due to the dynamic nature of factors affecting markets, there is no guarantee that simulations will capture all relevant

risk factors or that the implementation of any resulting solutions will protect against loss. All investments contain risk and may lose value. Simulated risk analysis contains inherent limitations and is

generally prepared with the benefit of hindsight. Realized losses may be larger than predicted by a given model due to additional factors that cannot be accurately forecasted or incorporated into a

model based on historical or assumed data.

RETURN ASSUMPTION

Return assumptions are for illustrative purposes only and are not a prediction or a projection of return. Return assumption is an estimate of what investments may earn on average over a ten year

horizon, unless otherwise specified. Actual returns may be higher or lower than those shown and may vary substantially over shorter time periods.

23

RISK

Investing in the bond market is subject to certain risks, including market, interest rate, issuer, credit and inflation risk; investments may be worth more or less than the original cost when redeemed.

Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Equities may decline in value due to both real and perceived general market, economic and

industry conditions. Inflation-linked bonds (ILBs) issued by the various governments around the world are fixed-income securities whose principal value is periodically adjusted according to the rate of

inflation. Repayment upon maturity of the original principal as adjusted for inflation is guaranteed by the government that issues them. Neither the current market value of inflation-indexed bonds nor

the value a portfolio that invests in ILBs is guaranteed, and either or both may fluctuate. ILBs decline in value when real interest rates rise. In certain interest rate environments, such as when real interest

rates are rising faster than nominal interest rates, ILBs may experience greater losses than other fixed income securities with similar durations. Sovereign securities are generally backed by the issuing

government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such

securities are not guaranteed and will fluctuate in value. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels

of credit and liquidity risk than portfolios that do not. Derivatives and commodity-linked 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. Commodity-linked derivative instruments may involve additional costs and risks such as changes in commodity index volatility or

factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in

derivatives could lose more than the amount invested. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and

political risks, which may be enhanced in emerging markets. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors.

Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private

guarantor there is no assurance that the guarantor will meet its obligations. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect

the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the

borrower’s obligation, or that such collateral could be liquidated. Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and

may also be subject to price volatility due to factors such as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity. Investing in distressed loans and

bankrupt companies are speculative and the repayment of default obligations contains significant uncertainties.

VAR/CVAR

Value at Risk (VAR) and Conditional Value at Risk (CVAR) estimate the risk of loss of an investment or portfolio over a given time period under normal market conditions in terms of an average of loss

after a specific percentile threshold of loss (i.e., for a given threshold of X%, under the specific modeling assumptions used, the portfolio will incur an average loss in excess of the VAR/CVAR X percent of

the time. Different VAR/CVAR calculation methodologies may be used. VAR/CVAR models can help understand what future return or loss profiles might be. However, the effectiveness of a VAR/CVAR

calculation is in fact constrained by its limited assumptions (for example, assumptions may involve, among other things, probability distributions, historical return modeling, factor selection, risk factor

correlation, simulation methodologies). It is important that investors understand the nature of these limitations when relying upon VAR/CVAR analyses.

VOLATILITY (ESTIMATED)

We employed a block bootstrap methodology to calculate volatilities. We start by computing historical factor returns that underlie each asset class proxy from January 1997 through the present date. We

then draw a set of 12 monthly returns within the dataset to come up with an annual return number. This process is repeated 25,000 times to have a return series with 25,000 annualized returns. The

standard deviation of these annual returns is used to model the volatility for each factor. We then use the same return series for each factor to compute covariance between factors. Finally, volatility of

each asset class proxy is calculated as the sum of variances and covariance of factors that underlie that particular proxy. For each asset class, index, or strategy proxy, we will look at either a point in time

estimate or historical average of factor exposures in order to determine the total volatility. Please contact your PIMCO representative for more details on how specific proxy factor exposures are

estimated.

This material contains the current opinions of the manager and such opinions are subject to change without notice. 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. It is not possible to invest directly in an unmanaged index. 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. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. Pacific Investment Management Company LLC, 650 Newport Center Drive,

Newport Beach, CA 92660, 800-387-4626. ©2017, PIMCO

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

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