Click to edit Master title style

What it means across theCapital Structure

Craig DawsonMay 2009

The services and products described in this communication are only available to professional clients as defined in the FinancialServicesAuthority's Handbook.This communication is not a public offer and individual investors should not rely on this document. Opinion andestimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which arebased on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness.PIMCO Europe Ltd, Munich Branch (Registered in Germany, Company No. 157591) Registered Office: Seidlstraße24-24a, 80335, MunichGermany +49-89-1221-90. Authorised and Regulated by the FSA (25 The North Colonnade,Canary Wharf, London E14 5HS) and BaFin.(Presented in Israel)

I.Historical Backdrop –Secular Trends andImpact on Asset ReturnsII.Initial Conditions –Where Are We Today?III.Opportunities –Where in Capital StructureShould Investors Focus Now?

The Debt “Supercycle”

The 20 years+ of economic growthleading up to 2007 were characterizedby massive growth in private sector debt levels, providing the fuel for realGDP growth

In the latter stages of the “supercycle”,household debt was used tosupplement the shortfall in consumers’personal income

SOURCE: Haver Analytics

Debt Outstanding as a Percent of GDP