Fund Description: PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund is an exchange-traded index fund or Index ETF which is a separate investment portfolio of the PIMCO ETF Trust, an open-end investment management company. INVESTMENT OBJECTIVE: The PIMCO 1-5 Year U.S. TIPS Index Fund ETF's goal is to track, as closely as possible before fees and expenses, the performance of the total return of the Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index. INDEX DESCRIPTION: The Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index is an unmanaged index comprised of TIPS (Treasury Inflation Protected Securities) with a maturity of at least 1 year and less than 5 years. TIPS are publicly issued, dollar denominated U.S. Government securities issued by the U.S. Treasury that have principal and interest payments linked to actual inflation (as measured by the Consumer Price Index, or CPI). Their payments are supported by the full faith and credit of the United States. The TIPS in the Index have a minimum $1 billion of outstanding face value, have 1 to 5 years remaining to maturity and have interest and principal payments tied to inflation. Original issue zero coupon bonds can be included in the Index and the amounts outstanding of qualifying coupon securities are not reduced by any portions that have been stripped. As of July 31, 2009, there were 10 TIPS issues in the Index. The Index is capitalization-weighted and the composition of TIPS is updated monthly. Intra-month cash flows are reinvested daily, at the beginning-of-month 1-month Libid rate. FUND STRATEGY: Under normal circumstances the Fund will invest at least 80% of its total assets in the component securities of the Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track the Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The dollar-weighted average portfolio maturity of the Fund will closely correspond to the average maturity of its Index, which as of July 31, 2009 was 3.35 years. PIMCO uses an indexing approach in managing the Fund’s investments. The Fund employs a representative sampling strategy in seeking to achieve its investment objective. In using this strategy, PIMCO seeks to invest in a combination of Component Securities and other instruments such that the combination effectively provides exposure to the Index. In using a representative sampling strategy, the Fund may not track its Index with the same degree of accuracy as a fund that replicates each of the Component Securities of the Index. The total return sought by the Fund consists of income earned on the Fund’s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates. FUND MANAGEMENT: PIMCO serves as the investment manager for the Fund. Subject to the supervision of the Fund's Board of Trustees, PIMCO is responsible for managing the investment activities of the Fund and the Fund’s business affairs and other administrative matters.