ETF Investment Solutions Series
Well-engineered solutions.
February 2011
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
The PIMCO ETF Investment Solution Series offers insight into the challenges investors face and provides an educational framework for implementing potential solutions using PIMCO’s suite of ETF investment strategies.
PIMCO’s ZROZ: An Efficient Tool for Expressing Interest Rate Views Product Highlight: ZROZ
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
February 2011
PIMCO’s ZROZ: An Efficient Tool for Expressing Interest Rate Views ISSUE
EDUCATION
Economic and market conditions pose significant interest rate uncertainty. Yet to efficiently express a view in this environment can be important for investors, whether that view is long or short.
The Importance of Duration: What It Means to Get More. ■
Duration is a key characteristic of fixed income securities. It is a measure of a security’s price volatility due to interest rate changes and is expressed as a number of years. Investors who seek to profit from interest rate moves or those that wish to hedge their portfolios from them, may wish to invest in securities with a high duration. Of course, high duration securities may lose significant value when rates rise.
■
Within the fixed income universe, U.S. Treasury STRIPS, or “Separate Trading of Registered Interest and Principal of Securities,” can offer significant duration. STRIPS are often referred to as zero-coupon bonds because they consist of only one payment and contain no interim coupon payments. Each of these securities is comprised of an individual payment of principal or interest that has been “stripped” from the bond and trades separately in the over-the-counter (OTC) market. The bonds are priced at a discount to par that reflects their implied yield.
■
Since there are no interim cash flows in STRIPS, the duration is roughly equal to maturity. As a result, STRIPS will generally have greater duration, and thus higher interest rate sensitivity than coupon-paying bonds of like quality and maturity.
■ Investors with strong views about the future of interest rates may seek listed securities with substantial sensitivity to interest rate changes. Others may simply wish to hedge their portfolios against interest-rate exposure. ■
■
■
Low rates, a consequence of the financial crisis and Great Recession, have impacted portfolios large and small. Money market yields, for example, are effectively zero. There are two compelling narratives on the direction of rates and inflation, which tend to move hand-in-hand. Excess capacity in the economy, including persistently elevated unemployment, seems to suggest disinflation, or even deflation, is on the horizon. Alternative views are that inflation will eventually accelerate due to the increase in money supply from economic stimulus, or if the economy gathers momentum. Long duration Treasury bonds typically trade over-the-counter (OTC), which may not be readily accessible to those who don’t regularly trade bonds. Additionally, some long duration ETFs use leverage with a daily rebalancing. This approach is to provide a daily return objective consisting of a multiple over the benchmark index. However, returns for these type of ETFs over periods other than one day will likely differ in amount and possibly direction from the daily return objective. ZROZ does not use leverage.
Example: “Stripping” a $10,000 Par, 5% 2-Year Treasury Note A U.S. Treasury Bond’s initial form consists of principal and interest payments After 6 Months
■ $250 Coupon Payment
After 12 Months
■ $250 Coupon Payment
After 18 Months
■ $250 Coupon Payment
After 24 Months
■ $10,000 Principal and $250 Coupon Payment
After being "Stripped," the individual bond payments become separately traded securities After 6 Months
■ $250 Par, 6-Month Maturity STRIP Security
After 12 Months
■ $250 Par, 12-Month Maturity STRIP Security
After 18 Months
■ $250 Par, 18-Month Maturity STRIP Security
After 24 Months
■ $250 Par, 24-Month Maturity STRIP Security
After 24 Months
■ $10,000 Par, 24-Month Maturity STRIP Security
Product Highlights: ZROZ more volatile than the S&P 500, MSCI EAFE, and even MSCI Emerging Markets equity indexes. Investors should consider the downside risks of such an investment before implementing a view by utilizing ZROZ in their portfolios.
A PIMCO SOLUTION PIMCO’s ZROZ seeks to maximize duration per dollar invested, without the use of leverage, and provide a high and stable duration. ■ The PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (Ticker: ZROZ) is an exchange-traded fund (ETF) that aims to capture the returns of the BofA Merrill Lynch Long US Treasury Principal STRIPS Index. PIMCO has designed this ETF to maximize duration per dollar allocated without using financial leverage and to maintain stable duration. Neither ZROZ nor its index contain coupon STRIPS, because the coupon STRIPS market is smaller and may be less liquid than the principal STRIPS market. ZROZ was engineered to enhance liquidity in a long duration ETF. The fund also offers daily portfolio transparency and the operational convenience of a listed security.
■ There are two components of returns in ZROZ: appreciation of the underlying bonds as they approach maturity, and changes in market value as interest rates fluctuate. The Fund may perform well when long-term interest rates are falling. As a decline in interest rates makes the payments of existing bonds more valuable, a rate decrease will likely be positive for a holder of U.S. Treasury bonds – and hence STRIPS and ZROZ. On the flipside, if rates rise suddenly, the Fund will likely perform poorly (investors expecting this may consider shorting the Fund). ■ The value of the underlying securities can vary significantly due to the Fund’s long duration. As shown in Chart 1, weekly returns for the Fund’s benchmark since the product launched have been Index Annualized Volatility of Weekly Returns (11/30/2009 through 10/01/2010) 30.00%
BofA ML 25+ Year STRIPS Index
25.00% MSCI EAFE Index 20.00%
MSCI EM Index
S&P 500 Index
15.00% 10.00% 5.00% 0.00%
Chart 1
Long duration U.S. Treasury security indexes have rallied over the past several months, per Bloomberg data, as rates declined to lows not seen since early in 2009. As shown in Chart 2, the benchmark for ZROZ, the BofA Merrill Lynch Long US Treasury Principal STRIPS Indexsm, had greater positive returns than the other long U.S. Treasury Indexes as the 30-year U.S. Treasury rate declined. Index Monthly Returns & 30-Year Bond Rates
15%
5.00% 4.50%
10%
4.00%
5%
3.50% 0%
3.00%
-5%
2.50% 2.00%
-10% Mar-10
Apr-10
May-10
Jun-10
Barclays Capital 20+ Year Treasury Index BofA Merrill Lynch 25+ Year STRIPS Index
July-10
Aug-10
Sep-10
Barclays Capital 20+ Year STRIPS Index U.S. Treasury 30-Year Rate (%) (RHS)
Chart 2 ■
ZROZ may also be very useful in a liability-driven investment (LDI) program that seeks a long-term management approach to assets of a defined-benefit plan as well as improved stability and funding status. As pension liabilities are generally long-dated and may be highly convex (meaning the yield is very sensitive to price moves), a long duration security, such as ZROZ, may be useful to hedge that liability. STRIPS have become the instrument of choice as swap spreads have tightened and turned negative.
The ZROZ ETF portfolio fully replicates the BofA Merrill Lynch 25+ Year STRIPS Indexsm, meaning it holds every security in the index. Thus, the tracking error for the portfolio, calculated as the standard deviation of the difference between the ETF net asset value (NAV) return and the index return, should be minimal. However, because the index prices are struck at 3 pm Eastern Standard Time (EST) while the ETF NAV is calculated at 4 pm EST, a tracking difference between the index and NAV values may occur. Any market movements from 3 pm to 4 pm will result in a perceived tracking error in the published estimates of returns. Please keep this difference in mind when gauging the ETF end-of-day performance against the index.
30-Year Rate
Monthly Returns
■ Because ZROZ focuses on principal STRIPS with maturities greater than 25 years, the duration of the fund should consistently be greater than 25 years – its duration was over five times that of the broad U.S. Treasury market, as measured by the Barclays Capital U.S. Treasury Index as of 8/31/2010.
■
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the Fund’s prospectus, which may be obtained by contacting your PIMCO representative. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or reliable indicator of future results. Exchange Traded Funds (“ETF”) are afforded certain exemptions from the Investment Company Act. The exemptions allow, among other things, for individual shares to trade on the secondary market. Individual shares cannot be directly purchased from or redeemed by the ETF. Purchases and redemptions directly with ETFs are only accomplished through creation unit aggregations or “baskets” of shares. Shares of an ETF are bought and sold at market price (not NAV). Brokerage commissions will reduce returns. Investment policies, management fees and other information can be found in the individual ETF’s prospectus. An investment in an ETF involves risk, including the loss of principal. Investment return, price, yield and Net Asset Value (NAV) will fluctuate with changes in market conditions. Investments may be worth more or less than the original cost when redeemed. Certain U.S. Government securities are backed by the full faith of the 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. Duration is the measure of a bond's price sensitivity to interest rates and is expressed in years. ETFs are subject to secondary market trading risks. Shares of an ETF will be listed for trading on an exchange, however, there can be no guarantee that an active trading market for such shares will develop or continue. There can be no guarantee that an ETF’s exchange listing or ability to trade its shares will continue or remain unchanged. Shares of an ETF may trade on an exchange at prices at, above or below their most recent Net Asset Value (NAV). The trading prices of an ETF’s shares fluctuate continuously throughout the trading day based on market supply and demand, which may not correlate to NAV. The trading prices of an ETF’s shares may differ significantly from NAV during periods of market volatility, which may, among other factors, lead to the Fund’s shares trading at a premium or discount to NAV. Premiums (when market price is above NAV) or discounts (when market price is below NAV) reflect the differences (expressed as a percentage) between the NAV and the Market Price of the Fund on a given day, generally at the time the NAV is calculated. A discount or premium could be significant. Data in chart format displaying the frequency distribution of discounts and premiums of the Market Price against the NAV can be found on the Premium/Discount tab for each Fund at www.pimcoetfs.com. The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM* is an unmanaged index comprised of securities representing the final principal payments of U.S. Treasury bonds with at least $1 billion in outstanding face value and a remaining term to final maturity greater than or equal to 25 years. The S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole. The index focuses on the Large-Cap segment of the U.S. equities market. The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East Index) is an unmanaged index of over 900 companies, and is a generally accepted benchmark for major overseas markets. Index weightings represent the relative capitalizations of the major overseas markets included in the index on a U.S. dollar adjusted basis. The Morgan Stanley Capital International Emerging Markets Index is an unmanaged index that measures equity market performance in the global emerging markets. As of May 2005, the Emerging Markets Index (float-adjusted market capitalization index) consisted of indices in 26 emerging countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela. The Barclays Capital 20+ Year U.S. Treasury Index is the Treasury 20+ Year component of the U.S. Treasury Index. The Barclays Capital U.S. STRIPS 20+ Year Equal Par Index is the U.S. STRIPS 20+ Year component of the U.S. STRIPS Index, assuming equal par amounts for each STRIP security. The U.S. STRIPS Index represents public obligations of the U.S. Treasury with a remaining maturity of twenty-five years or more. It is not possible to invest directly in an unmanaged index. “BofA Merrill Lynch” and ““The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM” are reprinted with permission. ©Copyright 2010 Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”). All rights reserved. “BofA Merrill Lynch” and ““The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM” (the "Index") are service marks of BofA Merrill Lynch and/or its affiliates and have been licensed for use for certain purposes by PIMCO on behalf of the PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (the "Fund") that is based on the Index, and is not issued, sponsored, endorsed or promoted by BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates nor is BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates an adviser to the Fund. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates make no representation, express or implied, regarding the advisability of investing in the Fund or the Index and do not guarantee the quality, accuracy, timeliness or completeness of the Index, index values or any index related data included herein, provided herewith or derived therefrom and assume no liability in connection with their use. As the index provider, BofA Merrill Lynch is licensing certain trademarks, “The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM and trade names which are composed by BofA Merrill Lynch without regard to PIMCO, the Fund or any investor. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates do not provide investment advice to PIMCO or the Fund and are not responsible for the performance of the Fund. The U.S. STRIPS Index represents public obligations of the U.S. Treasury with a remaining maturity of twenty-five years or more. It is not possible to invest directly in an unmanaged index. 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. Statements concerning financial market trends are based on current market conditions, which will fluctuate. 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. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660, 1-800-387-4626. ©2011, PIMCO. PIMCO advised funds are distributed by PIMCO Investments LLC, 1345 Avenue of the Americas, New York, NY 10105-4800, 1-888-87-PIMCO. PIMCO advised funds were previously distributed by Allianz Global Investors Distributors LLC (AGID). Certain materials created prior to the change in distributor named AGID as the distributor.
For more information, please contact your advisor, call 1-888-400-4ETF (1-888-400-4383) or visit www.pimcoetfs.com ETF023-021411
February 2011
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
The PIMCO ETF Investment Solution Series offers insight into the challenges investors face and provides an educational framework for implementing potential solutions using PIMCO’s suite of ETF investment strategies.
PIMCO’s ZROZ: An Efficient Tool for Expressing Interest Rate Views Product Highlight: ZROZ
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
February 2011
PIMCO’s ZROZ: An Efficient Tool for Expressing Interest Rate Views ISSUE
EDUCATION
Economic and market conditions pose significant interest rate uncertainty. Yet to efficiently express a view in this environment can be important for investors, whether that view is long or short.
The Importance of Duration: What It Means to Get More. ■
Duration is a key characteristic of fixed income securities. It is a measure of a security’s price volatility due to interest rate changes and is expressed as a number of years. Investors who seek to profit from interest rate moves or those that wish to hedge their portfolios from them, may wish to invest in securities with a high duration. Of course, high duration securities may lose significant value when rates rise.
■
Within the fixed income universe, U.S. Treasury STRIPS, or “Separate Trading of Registered Interest and Principal of Securities,” can offer significant duration. STRIPS are often referred to as zero-coupon bonds because they consist of only one payment and contain no interim coupon payments. Each of these securities is comprised of an individual payment of principal or interest that has been “stripped” from the bond and trades separately in the over-the-counter (OTC) market. The bonds are priced at a discount to par that reflects their implied yield.
■
Since there are no interim cash flows in STRIPS, the duration is roughly equal to maturity. As a result, STRIPS will generally have greater duration, and thus higher interest rate sensitivity than coupon-paying bonds of like quality and maturity.
■ Investors with strong views about the future of interest rates may seek listed securities with substantial sensitivity to interest rate changes. Others may simply wish to hedge their portfolios against interest-rate exposure. ■
■
■
Low rates, a consequence of the financial crisis and Great Recession, have impacted portfolios large and small. Money market yields, for example, are effectively zero. There are two compelling narratives on the direction of rates and inflation, which tend to move hand-in-hand. Excess capacity in the economy, including persistently elevated unemployment, seems to suggest disinflation, or even deflation, is on the horizon. Alternative views are that inflation will eventually accelerate due to the increase in money supply from economic stimulus, or if the economy gathers momentum. Long duration Treasury bonds typically trade over-the-counter (OTC), which may not be readily accessible to those who don’t regularly trade bonds. Additionally, some long duration ETFs use leverage with a daily rebalancing. This approach is to provide a daily return objective consisting of a multiple over the benchmark index. However, returns for these type of ETFs over periods other than one day will likely differ in amount and possibly direction from the daily return objective. ZROZ does not use leverage.
Example: “Stripping” a $10,000 Par, 5% 2-Year Treasury Note A U.S. Treasury Bond’s initial form consists of principal and interest payments After 6 Months
■ $250 Coupon Payment
After 12 Months
■ $250 Coupon Payment
After 18 Months
■ $250 Coupon Payment
After 24 Months
■ $10,000 Principal and $250 Coupon Payment
After being "Stripped," the individual bond payments become separately traded securities After 6 Months
■ $250 Par, 6-Month Maturity STRIP Security
After 12 Months
■ $250 Par, 12-Month Maturity STRIP Security
After 18 Months
■ $250 Par, 18-Month Maturity STRIP Security
After 24 Months
■ $250 Par, 24-Month Maturity STRIP Security
After 24 Months
■ $10,000 Par, 24-Month Maturity STRIP Security
Product Highlights: ZROZ more volatile than the S&P 500, MSCI EAFE, and even MSCI Emerging Markets equity indexes. Investors should consider the downside risks of such an investment before implementing a view by utilizing ZROZ in their portfolios.
A PIMCO SOLUTION PIMCO’s ZROZ seeks to maximize duration per dollar invested, without the use of leverage, and provide a high and stable duration. ■ The PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (Ticker: ZROZ) is an exchange-traded fund (ETF) that aims to capture the returns of the BofA Merrill Lynch Long US Treasury Principal STRIPS Index. PIMCO has designed this ETF to maximize duration per dollar allocated without using financial leverage and to maintain stable duration. Neither ZROZ nor its index contain coupon STRIPS, because the coupon STRIPS market is smaller and may be less liquid than the principal STRIPS market. ZROZ was engineered to enhance liquidity in a long duration ETF. The fund also offers daily portfolio transparency and the operational convenience of a listed security.
■ There are two components of returns in ZROZ: appreciation of the underlying bonds as they approach maturity, and changes in market value as interest rates fluctuate. The Fund may perform well when long-term interest rates are falling. As a decline in interest rates makes the payments of existing bonds more valuable, a rate decrease will likely be positive for a holder of U.S. Treasury bonds – and hence STRIPS and ZROZ. On the flipside, if rates rise suddenly, the Fund will likely perform poorly (investors expecting this may consider shorting the Fund). ■ The value of the underlying securities can vary significantly due to the Fund’s long duration. As shown in Chart 1, weekly returns for the Fund’s benchmark since the product launched have been Index Annualized Volatility of Weekly Returns (11/30/2009 through 10/01/2010) 30.00%
BofA ML 25+ Year STRIPS Index
25.00% MSCI EAFE Index 20.00%
MSCI EM Index
S&P 500 Index
15.00% 10.00% 5.00% 0.00%
Chart 1
Long duration U.S. Treasury security indexes have rallied over the past several months, per Bloomberg data, as rates declined to lows not seen since early in 2009. As shown in Chart 2, the benchmark for ZROZ, the BofA Merrill Lynch Long US Treasury Principal STRIPS Indexsm, had greater positive returns than the other long U.S. Treasury Indexes as the 30-year U.S. Treasury rate declined. Index Monthly Returns & 30-Year Bond Rates
15%
5.00% 4.50%
10%
4.00%
5%
3.50% 0%
3.00%
-5%
2.50% 2.00%
-10% Mar-10
Apr-10
May-10
Jun-10
Barclays Capital 20+ Year Treasury Index BofA Merrill Lynch 25+ Year STRIPS Index
July-10
Aug-10
Sep-10
Barclays Capital 20+ Year STRIPS Index U.S. Treasury 30-Year Rate (%) (RHS)
Chart 2 ■
ZROZ may also be very useful in a liability-driven investment (LDI) program that seeks a long-term management approach to assets of a defined-benefit plan as well as improved stability and funding status. As pension liabilities are generally long-dated and may be highly convex (meaning the yield is very sensitive to price moves), a long duration security, such as ZROZ, may be useful to hedge that liability. STRIPS have become the instrument of choice as swap spreads have tightened and turned negative.
The ZROZ ETF portfolio fully replicates the BofA Merrill Lynch 25+ Year STRIPS Indexsm, meaning it holds every security in the index. Thus, the tracking error for the portfolio, calculated as the standard deviation of the difference between the ETF net asset value (NAV) return and the index return, should be minimal. However, because the index prices are struck at 3 pm Eastern Standard Time (EST) while the ETF NAV is calculated at 4 pm EST, a tracking difference between the index and NAV values may occur. Any market movements from 3 pm to 4 pm will result in a perceived tracking error in the published estimates of returns. Please keep this difference in mind when gauging the ETF end-of-day performance against the index.
30-Year Rate
Monthly Returns
■ Because ZROZ focuses on principal STRIPS with maturities greater than 25 years, the duration of the fund should consistently be greater than 25 years – its duration was over five times that of the broad U.S. Treasury market, as measured by the Barclays Capital U.S. Treasury Index as of 8/31/2010.
■
ETF Investment Solutions Series ISSUES
n
EDUCATION
n
SOLUTIONS
Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the Fund’s prospectus, which may be obtained by contacting your PIMCO representative. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or reliable indicator of future results. Exchange Traded Funds (“ETF”) are afforded certain exemptions from the Investment Company Act. The exemptions allow, among other things, for individual shares to trade on the secondary market. Individual shares cannot be directly purchased from or redeemed by the ETF. Purchases and redemptions directly with ETFs are only accomplished through creation unit aggregations or “baskets” of shares. Shares of an ETF are bought and sold at market price (not NAV). Brokerage commissions will reduce returns. Investment policies, management fees and other information can be found in the individual ETF’s prospectus. An investment in an ETF involves risk, including the loss of principal. Investment return, price, yield and Net Asset Value (NAV) will fluctuate with changes in market conditions. Investments may be worth more or less than the original cost when redeemed. Certain U.S. Government securities are backed by the full faith of the 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. Duration is the measure of a bond's price sensitivity to interest rates and is expressed in years. ETFs are subject to secondary market trading risks. Shares of an ETF will be listed for trading on an exchange, however, there can be no guarantee that an active trading market for such shares will develop or continue. There can be no guarantee that an ETF’s exchange listing or ability to trade its shares will continue or remain unchanged. Shares of an ETF may trade on an exchange at prices at, above or below their most recent Net Asset Value (NAV). The trading prices of an ETF’s shares fluctuate continuously throughout the trading day based on market supply and demand, which may not correlate to NAV. The trading prices of an ETF’s shares may differ significantly from NAV during periods of market volatility, which may, among other factors, lead to the Fund’s shares trading at a premium or discount to NAV. Premiums (when market price is above NAV) or discounts (when market price is below NAV) reflect the differences (expressed as a percentage) between the NAV and the Market Price of the Fund on a given day, generally at the time the NAV is calculated. A discount or premium could be significant. Data in chart format displaying the frequency distribution of discounts and premiums of the Market Price against the NAV can be found on the Premium/Discount tab for each Fund at www.pimcoetfs.com. The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM* is an unmanaged index comprised of securities representing the final principal payments of U.S. Treasury bonds with at least $1 billion in outstanding face value and a remaining term to final maturity greater than or equal to 25 years. The S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole. The index focuses on the Large-Cap segment of the U.S. equities market. The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East Index) is an unmanaged index of over 900 companies, and is a generally accepted benchmark for major overseas markets. Index weightings represent the relative capitalizations of the major overseas markets included in the index on a U.S. dollar adjusted basis. The Morgan Stanley Capital International Emerging Markets Index is an unmanaged index that measures equity market performance in the global emerging markets. As of May 2005, the Emerging Markets Index (float-adjusted market capitalization index) consisted of indices in 26 emerging countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela. The Barclays Capital 20+ Year U.S. Treasury Index is the Treasury 20+ Year component of the U.S. Treasury Index. The Barclays Capital U.S. STRIPS 20+ Year Equal Par Index is the U.S. STRIPS 20+ Year component of the U.S. STRIPS Index, assuming equal par amounts for each STRIP security. The U.S. STRIPS Index represents public obligations of the U.S. Treasury with a remaining maturity of twenty-five years or more. It is not possible to invest directly in an unmanaged index. “BofA Merrill Lynch” and ““The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM” are reprinted with permission. ©Copyright 2010 Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”). All rights reserved. “BofA Merrill Lynch” and ““The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM” (the "Index") are service marks of BofA Merrill Lynch and/or its affiliates and have been licensed for use for certain purposes by PIMCO on behalf of the PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (the "Fund") that is based on the Index, and is not issued, sponsored, endorsed or promoted by BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates nor is BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates an adviser to the Fund. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates make no representation, express or implied, regarding the advisability of investing in the Fund or the Index and do not guarantee the quality, accuracy, timeliness or completeness of the Index, index values or any index related data included herein, provided herewith or derived therefrom and assume no liability in connection with their use. As the index provider, BofA Merrill Lynch is licensing certain trademarks, “The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM and trade names which are composed by BofA Merrill Lynch without regard to PIMCO, the Fund or any investor. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates do not provide investment advice to PIMCO or the Fund and are not responsible for the performance of the Fund. The U.S. STRIPS Index represents public obligations of the U.S. Treasury with a remaining maturity of twenty-five years or more. It is not possible to invest directly in an unmanaged index. 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. Statements concerning financial market trends are based on current market conditions, which will fluctuate. 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. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660, 1-800-387-4626. ©2011, PIMCO. PIMCO advised funds are distributed by PIMCO Investments LLC, 1345 Avenue of the Americas, New York, NY 10105-4800, 1-888-87-PIMCO. PIMCO advised funds were previously distributed by Allianz Global Investors Distributors LLC (AGID). Certain materials created prior to the change in distributor named AGID as the distributor.
For more information, please contact your advisor, call 1-888-400-4ETF (1-888-400-4383) or visit www.pimcoetfs.com ETF023-021411
