The PIMCO Total Return Fund Institutional Shares (“PTTRX”) invests at least 65% of its assets in various fixed-income securities with diverse expiration dates. The fund holds U.S. and foreign securities, most of which are investment grade. To assess the quality and suitability of PTTRX as an investment, the fund's risk metrics should be analyzed. R-squared, beta and alpha are important statistics in modern portfolio theory (MPT), while standard deviation, capture ratio and the Sharpe ratio also hold valuable information. Together, these ratios indicate low correlation and high volatility relative to the benchmark, the Barclays US Aggregate Bond Total Returns Index.

### Standard Deviation

Standard deviation measures the variance in fund returns, with high values indicating elevated volatility. High volatility investments are generally considered riskier, and higher returns are expected to overcome this added risk. PTTRX had trailing three years standard deviation of 3.15, as of June 30, 2016. The corresponding values for the benchmark index were 3, so PTTRX had materially higher volatility relative to its category, though these values are substantially lower than those typical of equity funds.

### Beta

Beta is a volatility metric central to MPT, and it measures the magnitude of fund returns relative to a benchmark index. Beta indicates systematic risk and indicates how much a fund's value should fluctuate as the broader market grows or contracts. PTTRX had beta values of 1.15, 1.01 and 1.01 over the three-, five- and 10-year periods ending March 2016. Figures close to 1.0 indicate identical volatility to the benchmark, so PTTRX returns are not expected to diverge substantially from those of the category average.

### R-squared

R-squared is a correlation statistic that measures how much a fund's fluctuations can be attributed to market fluctuations, and it is generally expressed as a percentage. R-squared values of 100% indicate perfect correlation, while lower values suggest fund returns are not caused by market conditions. PTTRX had R-squared values of 80.7, 58.2 and 66.2 over the three-, five- and 10-year periods ended March 2016. These figures all indicate limited correlation to the benchmark, though the three-year period is materially higher than the longer spans. With relatively low correlation to the benchmark, PTTRX is less susceptible to downside risk in adverse market conditions. Low R-squared values also indicate limited explanatory value of the beta statistic.

### Upside-Downside Capture Ratio

Capture ratios are calculated by dividing monthly fund returns by corresponding monthly benchmark returns. Upside ratios are calculated using only data from months during which the benchmark had positive returns, while the downside capture ratio applies only to months in which the benchmark sustained losses. For PTTRX, the three-, five- and 10-year upside capture ratios were 102.7, 106.7 and 117.3%, respectively, as of March 2016, indicating the fund outperformed the benchmark during times of market strength. The corresponding downside capture ratios were 135.5, 122.6 and 106.9%, so PTTRX tends to depreciate more steeply when the market sours. These values refute the implications of the fund's beta but are sensible given the standard deviation and R-squared results.

### Alpha and Sharpe Ratio

Alpha and the Sharpe ratio both measure risk-adjusted returns based on the above metrics. Alpha is an essential element of MPT, and it measures returns in excess of expected value. This indicates how much value a fund's strategy adds to the benchmark. PTTRX had alpha of -1.29, -0.14 and 1.05 over the three-, five- and 10-year periods ending in March 2016, suggesting limited value added by the fund's management.

The Sharpe ratio is calculated by dividing returns by standard deviation and must be analyzed in relation to the benchmark ratio. PTTRX's three- year Sharpe ratio is 1.08, while the benchmark's corresponding values were 0.82, thus supporting analysis of alpha.