designing target-date strategies that provide predictable … · 2019-04-25 · largest loss since...

Glenn A. Dial

Head of US Retirement Strategy

Allianz Global Investors

Tim Friederich

Solutions Specialist

Allianz Global Investors

Maarten Rust

Senior Director Financial and Pension Risk

Philips

Designing Target-Date Strategies

that Provide Predictable

Retirement Outcomes

Plan Type Goal Range of Outcomes

Degree of

Certainty

Defined Benefit Guaranteed Income None

$22k per year

100%

Target Date –

Packaged

Maximize Average Account

Balance

High

$450k Average Balance

$280k-------------------$750k

80%

Target Date

Custom

Reliable Income Narrow

$22k per year

$20k----$26k

95%

Numbers are for illustrative purposes only

Back to the Future

DB-ization of DC Plans

For Institutional Plan Sponsor Use Only – Not to be shown or distributed to the public.

Why Is Risk Management So Important?

3Source: Morningstar Direct. Data represents the largest loss from peak to trough period between 01/01/2009 and 06/30/2014. Past performance is no guarantee of future results.

“A QDIA must be diversified so as to minimize the risk of large losses.” - US Department of Labor, Sept. ‘06

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

Fu

nd A

Fu

nd B

Fu

nd C

Fu

nd D

Fu

nd E

Fu

nd F

Fu

nd G

Fu

nd H

Fu

nd I

Fu

nd J

Fu

nd K

Fu

nd L

Fu

nd M

Fu

nd N

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nd O

Fu

nd P

Fu

nd Q

Fu

nd R

Fu

nd S

Fu

nd T

Fu

nd U

Fu

nd V

Fu

nd W

Fu

nd X

Fu

nd Y

Fu

nd Z

Retu

rn (

%)

Largest Loss Since 2008 for 59+ Year Olds – 2015 Target-Date Funds


4

During the 2008 Financial Crisis, net flows into target-date funds near retirement turned negative

Source: SimFunds. Data as of 03/31/2014.

Behavioral Economics At Work: TDF Investors Near Retirement Sell

During Market Downturns

-800

-600

-400

-200

0

200

400

600

800

1,000

Dec-0

6

Jun

-07

Dec-0

7

Jun

-08

Dec-0

8

Jun

-09

Dec-0

9

Jun

-10

Dec-1

0

Jun

-11

Dec-1

1

Jun

-12

Dec-1

2

Jun

-13

Dec-1

3F

low

s (

Millio

ns $

)

2000-2010 Target-Date Funds

5

Creating optimized participant outcomes

Plans may be taking more investment risk than is necessary by not optimizing plan design elements to achieve meaningful savings rates

to generate desired replacement income targets

Behavioral

Finance Actions

Save(increase participation)

Save More (increase Deferral Rates)

Save Smarter (position investments wisely)

Investment

Strategies

Glidepath Risk Profile

Conservative

Moderate

Aggressive

Optimized

Participant

Outcomes

Customized Target-Date Solutions

1. Unique Resources


Different building blocks of customization

on the road to outcome-oriented DC plans

6

Return

DefensiveAggressive

Moderate

Conservative

Strategic

Asset

Allocation

Dynamic Multi

Asset Plus

Schematic illustrations. The information and charts above are provided for illustrative purposes only, and not an accurate representation of the characteristics of an portfolio. The charts do not reflect actual data or show actual performance and are no indication of future characteristics or

performance.

Return

Income

Defensive

Glidepath Design

with OptimizationMultiple Glidepaths Dynamic Management Income Solutions

0%

Increase of return potential over a market cycle

Substantial mitigation of downside risk


Benefits of asymmetric risk/return profile:

1. Focus on downside-protection.

Investors weigh losses “twice as heavy as equal-sized gains.” (D.

Kahneman, A. Tversky)

2. Smooth road to investment goal.

This asymmetric risk-return profile seeks to reduce volatility and create a

smoother road to the investor’s goals.

3. Increased potential to performance in the long run.

You gain by not losing: In order to make up for a loss of -20% in one year,

you need a 25% return in the next year. For a loss of -40% in one year, you

need a 67% return the next year.

The ultimate goal: Limit the downside, keep the upside

Portfolio

Return

Market Return

0%

0%

Strategy seeks to avoid

high portfolio losses

7Schematic illustration for illustrative purposes only. This is not an accurate representation of an actual Risk Management Overlay portfolio. The charts do not reflect actual data or show actual performance and are not indicative of future results.

80

100

120

140

160

180

200

220

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Representative account (approx. 738 mn EUR)

8

Successful risk management in different market regimes – Supplemental Information

8

Over time, the risk mitigation strategy has created the desired asymmetric return profile.

Performance (Net of Fees)

Mandate

118.4%

SAA

69.6%

Year

Mandate with

Risk Mitigation

Strategy

SAA

Benchmark(50% Equity/

50% Fixed Income)

Added

Value

2014 YTD 8.00% 6.92% 1.08%

2013 12.07% 8.88% 3.19%

2012 9.26% 13.07% -3.81%

2011 2.41% 0.04% 2.37%

2010 8.71% 12.02% -3.31%

2009 20.37% 20.19% 0.18%

2008 0.24% -19.35% 19.59%

2007 0.03% -0.03% 0.05%

2006 6.26% 4.01% 2.25%

2005 (since Feb.) 15.66% 14.07% 1.59%

Th

e S

AA

conta

ins

50 %

bonds a

nd 5

0%

sto

cks

(see f

ootn

ote

)

Source: IDS/Allianz Global Investors, per June 30, 2014.

SAA Benchmark is comprised of 50% Equity and 50% Fixed Income: 44.4% MSCI World Net TR, 5.6% MSCI EM Net TR, 26% JPM EMU Bond Index, 12% Barclays Euro Aggregate, 5% Barclays Euro Corporate, 4% JPM EMBI Global Composite, 3% Barclays World Inflation-Linked.

Performance of a representative account net of fees in Euros as of June 30, 2014. Past performance is not indicative of future results. Portfolio characteristics and performance are Supplemental Information, and supplement the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR Composite presentation in the Appendix. Net returns were

calculated on a total return basis, including all dividends (income and expense) and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions, execution cost, investment advisory fees, and any performance fees. The portfolios in the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR have a

similar Strategic Asset Allocation (“SAA” or “benchmark”) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics (“risk assets”). Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk

budgets are reset, based on individual clients’ guidelines, and this feature may produce significant dispersion among the portfolios in a given period. This path-dependent aspect of the strategy produced unusually high dispersion between this representative account (which represented a significant percentage of the total assets under management in the

Composite) and the other portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite’s performance relative to the benchmark/SAA in 2008. See additional disclosure at the end of this presentation.

60

80

100

120

140

160

180

200

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2007 2009 2011 2013

SAA Equity Quota

MSCI World Performance

31.3%26.7%

-19.3%-8.7%

5.4% 8.0%

-30%

-20%

-10%

0%

10%

20%

30%

40%

SAA Mandate

max

mean

min

Representative account (approx. 738 mn EUR)

Portfolio allocation and performance statistics (net of fees) – Supplemental Information

9

Annual R

etu

rns

min/max are minimum and maximum returns of rolling 12-month scenarios;

mean is the arithmetic mean

Sta

tistics

Mandate SAA

Return total 118.4% 69.6%

Volatility 5.9% 7.0%

Sharpe Ratio 1.18 0.59

Min. return 12m rolling -8.7% -19.3%

Allo

ca

tio

n

Cash 7.6%

Bonds 47.5%

Stocks 44.9%

diversified

allocation

aggregated

to bonds/

stocks level

Source: IDS/Allianz Global Investors, per June 30, 2014.

SAA Benchmark is comprised of 50% Equity and 50% Fixed Income: 44.4% MSCI World Net TR, 5.6% MSCI EM Net TR, 26% JPM EMU Bond Index, 12% Barclays Euro Aggregate, 5% Barclays Euro Corporate, 4% JPM EMBI Global Composite, 3% Barclays World Inflation-Linked.

Performance of a representative account net of fees in Euros as of June 30, 2014. Past performance is not indicative of future results. Portfolio characteristics and performance are Supplemental Information, and supplement the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR Composite presentation in the Appendix. Net returns were

calculated on a total return basis, including all dividends (income and expense) and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions, execution cost, investment advisory fees, and any performance fees. The portfolios in the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR have a

similar Strategic Asset Allocation (“SAA” or “benchmark”) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics (“risk assets”). Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk

budgets are reset, based on individual clients’ guidelines, and this feature may produce significant dispersion among the portfolios in a given period. This path-dependent aspect of the strategy produced unusually high dispersion between this representative account (which represented a significant percentage of the total assets under management in the

Composite) and the other portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite’s performance relative to the benchmark/SAA in 2008. See additional disclosure at the end of this presentation.


Transition risk affects everyone who hedges against longevity risk

10

Income Phase20+ years of spending

Savings Phase30+ years of saving

Retirement

Portfolio Value Retirement Income

! Market Risk

Did your asset value decline at

an unfavorable time?

! Transition Risk

How much income can you afford

at current interest rates?

! Longevity Risk

Will you outlive your money given

your asset value and current

rates?

Transition

Timeline

Primary Focus

Areas

Major Risks for

Individuals


Pricing a guaranteed income stream

11

Retirement

age

…

Retirement Income Stream

Today’s Price

of Income

Depending on

Interest Rates

Factoring in Survival Probabilities

Furthermore, the retirement income stream can include several features, e.g. indexation, income to dependents in case of death, etc.


Example: fair value of an annuity over time*

12

* This price does not factor in any cost. Survival probabilities are based on the Period Life Table of the Social Security Administration of the USA, as of 2009. Interest rates are the US Treasury Constant Maturity Rates as published by the St. Louis

Fed. Interest rates for maturities between reported maturities are interpolated.

The 60/40 portfolio consists of 60% stocks (represented by the S&P 500 Total Return Index) and 40% fixed income (Barclays US Aggregate Index) and is monthly rebalanced.

The above diagram illustrates a hypothetical example only and is no guarantee of future performance.

Fair value of an income stream of $1,000 per month for a 65-year-old US investor

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

male female

70

80

90

100

110

120

2011/07 2011/10 2012/01 2012/04 2012/07

male female 60/40 portfolio

2011/1

2

+5.9%

+14.2%

+15.9%

70

80

90

100

110

120

2008/01 2008/04 2008/07 2008/10 2009/01

male female 60/40 portfolio

2008

-21.6%

+12.4%

+13.6%


The importance of transition risk

13

Saving for retirement has a reason: To have money in retirement.

The positive trend of increasing life expectancies bears the risk for retirees to “outlive their

money” and increases longevity risk.

When protecting against longevity risk (which is advisable to do to some extent in most cases)

investors are exposed to transition risk.

… how can I manage transition risk?

The impact of transition risk is significant and, closer to retirement, can have an even bigger

impact than market risk.


How to manage transition risk

14

The optimal solution will always take into account the specific retirement plan, its characteristics and its investment goals, as well as the plan

setup and regulatory requirements.

Two possible approaches:

Include income products in glidepath

Include retirement income product in glidepath already in savings phase and

gradually shift towards income as a focus.

It is important that the glidepath accounts for the particular risk-return profile

to determine the optimal allocation.

Annuity Focus Strategy

Reduce interest rate sensitivity mismatch between the portfolio and the

targeted retirement income stream/product.

This enables to reduce transition risk while maintaining high flexibility (no

purchases of guarantee products during savings phase necessary yet).

0%

20%

40%

60%

80%

100%

40 35 30 25 20 15 10 5

allo

cati

on

years to retirement

income

return-generating

The above diagram illustrates a hypothetical example only and is not indicative of past or future performance.

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DMAP Moderate Asymmetric Total Return EUR

15

Allianz Global Investors is a global asset management business, operating under the marketing name Allianz Global Investors through affiliated entities worldwide, with approximately EUR 345 billion in assets under management and advice as at 31 December 2013. The Firm claims compliance

with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. For purposes of compliance with GIPS the "Firm" is defined as Allianz Global Investors Europe GmbH, the business unit that is managed by the

Global CIO, Allianz Global Investors and consists of the fund management teams in Germany that report to CIO Allianz Global Investors Europe GmbH and Global CIO Allianz Global Investors Multi Asset, the members of which participate in the Allianz Global Investors global research meetings

and the infrastructure of Allianz Global Investors globally. For periods ending before December 31, 2011, the Firm was defined as a investment advisory organization which operated under the brand name RCM ("RCM Europe"). In 2012, through a global restructuring of the Allianz Global

Investors business, the group of firms that coordinate their research, investment and/or trading activities (the “Global Investment Platform”) was expanded to include additional investment advisory firms. As a result the firm name (former RCM Europe) has been changed first to Allianz Global

Investors Kapitalanlagegesellschaft mbH, and later to Allianz Global Investors Europe GmbH. Allianz Global Investors Europe presents the DYNAMIC MULTI ASSET PLUS MODERATE ASYMMETRIC TOTAL RETURN EUR strategy in Europe. Allianz Global Investors Europe has been verified

for periods 2003-2013 by an independent verifier. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are

designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. A complete list and description of Allianz GIobal Investors Europe's composites is available upon request. Additional

information regarding the firm's policies and procedures for calculating and reporting performance is available upon request.

This Composite, created in December 2013, includes all fee-paying, discretionary portfolios denominated in EUR that follow the Dynamic Multi Asset Plus active asset allocation approach with the following characteristics: The accounts within this composite are managed with the objective of

delivering an improved risk / return profile compared to their custom benchmarks or Strategic Asset Allocations (SAA). The weight of equity type asset classes (e.g. equities, REITs or commodities) in the SAA or benchmark is above 40%, but below or equal to 70%. For the accounts within this

composite, the absolute risk is actively managed. The Dynamic Multi Asset Plus investment approach also includes accounts that have previously been associated with other composites, e.g. ARP BALANCED, MULTI ASSET BALANCED PLUS DEFENSIVE, MULTI ASSET BALANCED PLUS

DYNAMIC or MULTI ASSET BALANCED PLUS OPPORTUNITY. The inception date of the composite is April 1,2005. Allocation shifts within Dynamic Multi Asset Plus portfolios are implemented, in many cases, via futures or other derivatives, both long and short. As short futures are hedging

instruments, hedging is a key component of the Dynamic Multi Asset Plus approach. Some funds are allowed to have an investment degree above 100%.

Performance results and valuations are presented in EUR.

In contrast to the benchmark, composite returns are net of non-reclaimable withholding taxes on dividends, interest and capital gains. Beginning July 1, 2009 the repayable portion of the withholding tax is reported as a deferred asset. The resulting effect is considered to be immaterial. The

returns are stated gross of management / advisory and custodial fees. Actual returns will be reduced by management / advisory fees and other expenses that may be incurred in the management of an account. For segregated portfolios, the management fee starts at 50bps p.a., subject to scale

and to a minimum fee.

The dispersion of annual returns is measured by the standard deviation across equal-weighted account returns represented within the composite for the full year.

Standard deviation is not considered statistically meaningful when there are fewer than five accounts in the composite during the period.

Past performance is not a reliable indicator of future performance. You should not make any assumptions about the future performance based on this information. Investment results will vary depending on market conditions, exchange rate fluctuations, the composition of the portfolio of

securities, trading expenses, etc. Investment results will vary among individual portfolios within the composite. There may be a difference in the exchange rate used for calculating benchmark returns and those used for valuation of the portfolios. The effect of these differences is deemed to be

immaterial. These factors and possible differences in calculation methods should be considered when comparing composite results with those published by other investment information providers, investment advisers, investment vehicles and unmanaged indices. Results should also be

considered relative to the risks associated with the investment objectives of the portfolios within the composite.

Allianz Global Investors U.S. LLC (“AllianzGI US”) is an investment advisory firm registered with the U.S. Securities and Exchange Commission and presents the above referenced strategy in the United States. Registration does not imply a certain level of skill or training.

Certain portfolios in the composite are managed through a participating affiliate arrangement by investment professionals supervised by AllianzGI US, employed by an affiliate of AllianzGI US located outside of the United States and not registered with the SEC as an

investment adviser. Such investment professionals are “associated persons” of AllianzGI US, as that term is defined in the U.S. Investment Advisers Act of 1940, as amended. For a complete list of the Firm’s composite descriptions, as well as information regarding the

Firm’s policies for valuing investments, calculating performance, and preparing compliant presentations, please write to Allianz Global Investors U.S. LLC, 555 Mission Street, Suite 1700, San Francisco, CA 94105.

Period Composite

Gross Return

(%)

Benchmark*

(%)

No of

Portfolios

Period End

Total Assets

in Mio

Composite

Dispersion (%)

Composite

St Dev 3Y (%)

Benchmark

St Dev 3Y

(%)

% of FIRM

assets

Total Firm

Assets in Mio

Period Composite

Gross Return

p.a. (%)

Benchmark*

p.a. (%)

2013 11.49 8.56 13 4,409.93 6.73 5.41 5.01 4.1 107,348 1 Year 11.49 8.56

2012 11.09 10.50 12 3,629.14 2.08 5.73 5.19 4.4 83,096 2 Years 11.29 9.53

2011 -1.80 -1.65 13 2,446.18 2.92 7.47 8.29 3.4 71,341 3 Years 6.75 5.67

2010 9.10 9.97 10 1,684.62 5.50 2.3 74,186 4 Years 7.33 6.73

2009 16.16 16.00 6 904.87 NA 1.4 66,287 5 Years 9.04 8.52

2008 0.98 -19.05 3 403.36 NA 1.2 33,619 6 Years 7.65 3.35

2007 1.79 0.93 4 469.52 NA 0.8 55,971 7 Years 6.80 3.00

2006 6.82 4.14 4 430.74 NA 0.8 56,097 8 Years 6.80 3.14

DYNAMIC MULTI ASSET PLUS MODERATE ASYMMETRIC TOTAL RETURN EUR


DMAP Moderate Asymmetric Total Return EUR

16

The portfolios in this composite have a similar Strategic Asset Allocation (“SAA” or “benchmark”) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics (“risk assets”), with the objective of achieving asymmetric returns, participating in up markets

while mitigating losses in down markets. Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk budgets are reset, based on individual clients’ guidelines, and this feature may produce

significant dispersion among the portfolios in a given period. In 2008, an account with a risk budget that reset on October 1 would be exposed to risk assets, including equities, when the equity markets were experiencing one of the sharpest declines in history; this higher exposure would reflect the asset

allocation to risk assets based upon the SAA set in the client guidelines and its long-term exposure to risk assets. On the other hand, a portfolio with a risk budget that reset on January 1 would likely, in a year like 2008, have already met its target risk level based on the portfolio’s SAA and therefore would

have been de-risked, protecting it from the sharp decline in the equity markets. This path-dependent aspect of the strategy produced unusually high dispersion between a single portfolio (which represented a significant percentage of the total assets under management in the Composite) and the other

portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite’s performance relative to the benchmark/SAA in 2008.

Performance is presented gross of fees. Gross returns were calculated on a total return basis, including all dividends and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions and execution costs, and do not give effect to investment advisory fees which

would reduce such returns. The presentation does not reflect the deduction of investment advisory or other applicable fees. AllianzGI US’s standard investment advisory fees are described in Part 2A of its Form ADV. Actual fees charged may vary by portfolio due to various conditions, including the type of

client and the amount of assets under management. The effect of advisory fees on performance compounds over time. As an example, the effect of investment advisory fees on the total value of a portfolio -- assuming (a) $1,000,000 investment, (b) portfolio return of 5% per year, and (c) 0.75% annual

investment advisory fee -- would be $7,816 in the first year, $46,801 over five years, and $117,273 over ten years.

* The composite Benchmark is Asset Weighted Benchmark. The calculation of asset weighted benchmark returns uses the beginning-of-period weightings of each fund in the composite and the monthly performance of the funds’ individual benchmarks. As of 2013, the breakdown of the benchmark is 35.3% of

'28% JP MORGAN EMU INVESTMENT GRADE RETURN, 20% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 15% IBOXX EURO CORPORATES RETURN, 10% HFRX GLOBAL HEDGE FUND EUR INDEX PRICE, 7% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 7% MONEY

MARKET EONIA (1 DAY MATURITY) (EUR), 7% MSCI EM (EMERGING MARKETS) EUR TOTAL RETURN (NET), 6% MSCI EUROPE SMID CAP TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 23.6% of '50% JP MORGAN EMU INVESTMENT GRADE RETURN,

50% MSCI THE WORLD INDEX TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 15.3% of '44.4% MSCI THE WORLD INDEX TOTAL RETURN (NET), 26% JP MORGAN EMU BOND INDEX RETURN, 12% BARCLAYS CAPITAL EURO-AGGREGATE RETURN, 5.6%

MSCI EM (EMERGING MARKETS) TOTAL RETURN (NET), 5% BARCLAYS CAPITAL EURO-AGGREGATE: CORPORATE RETURN, 4% JP MORGAN EMBI GLOBAL COMPOSITE RETURN, 3% BARCAP WORLD INFLATION LINKED RETURN REBASED LAST BUSINESS DAY OF MONTH IN EUR'

and 8.1% of '50% JP MORGAN EMU BOND INDEX 1 TO 3 Y RETURN, 35% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 15% MSCI EMU EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 7.8% of '50% EURO STOXX 50 TOTAL RETURN (NET), 50%

MERRILL LYNCH EMU DIRECT GOVERNMENTS AAA-AA RATED 1-10 YRS EUR UNHEDGED UNHEDGED REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 2.8% of '40% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 25% JP MORGAN EMU INVESTMENT GRADE RETURN,

15% IBOXX EURO CORPORATES RETURN, 10% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 10% MSCI EM (EMERGING MARKETS) EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 2.7% of '55% JP MORGAN EMU INVESTMENT GRADE 1 TO 7

Y RETURN, 45% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 1.5% of '50% MSCI World Total Return (Net) + 50% JP Morgan EMU Bond Index' and 1% of '60% MSCI THE WORLD INDEX TOTAL RETURN (NET), 40% JP MORGAN

EMU GOVT BOND INDEX RETURN REBASED LAST BUSINESS DAY OF MONTH IN EUR' and .7% of '50% JP MORGAN EMU BOND INDEX 3 TO 5 Y RETURN, 30% MSCI EUROPE TOTAL RETURN (NET), 10% DOW JONES UBS COMMODITY RETURN GROSS, 10% MSCI WORLD EX EUROPE

TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and .5% of '40% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 40% EM CROSS HEDGED WITH USD TO EUR TOTAL RETURN (NET), 20% DOW JONES UBS COMMODITY HEDGED IN EUR TOTAL RETURN

REBASED LAST BUSINESS DAY OF MONTH IN EUR' and .5% of '50% JP MORGAN EMU INVESTMENT GRADE 1 TO 7 Y RETURN, 50% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and .2% of '50% JP MORGAN GLOBAL GBI

HEDGED RETURN, 50% MSCI THE WORLD HEDGED IN EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR'. The breakdown of the custom benchmark for different time periods is available upon request.

All details and information contained in this report have been carefully investigated and checked by IDS/Allianz Global Investors GmbH – Analysis and Reporting Services (IDS/Allianz Global Investors), however IDS/Allianz Global Investors does not assume liability for the accuracy and/or completeness of the

content

4/2014


Important Risk Considerations

17

This presentation describes certain product capabilities of Allianz Global Investors U.S. LLC (“AllianzGI US”). These strategies may involve selling and buying derivatives including put and/or call options, futures and swaps and may not be suitable

for every investor. No assurance can be given that any particular investment objective will be achieved. Among the risks specific to these strategies that AllianzGI US wishes to call to the attention of prospective investors are the following:

The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives. Derivatives can be more volatile and involve significant risk and can

disproportionately increase losses and reduce opportunities for gains.

Derivative transactions may produce effects similar to leverage and expose an account to related risks. Consequently, an adverse change in the relative price level can result in a loss of capital that is more exaggerated than would have resulted from

an investment that did not involve the use of leverage inherent in the derivative contract.

For each strategy, the collateral requirement may vary depending on the use of an active or passive underlying portfolio, and on the extent to which the strategy uses derivatives. For each strategy, securities from the passive or active underlying

portfolio may be pledged as collateral in order to implement the derivative positions. The collateral rules are based on the greater of Reg T rules (standard collateral rules defined by the CBOE and the SEC) and requirements of counterparties. When

collateral is used to implement derivative positions, it is possible that a decline in market value of the positions could force the portfolio to cover any shortfall by liquidating non-cash assets. The timing of such liquidation may be adverse.

When writing put and call options, the premium received may not be sufficient to offset any losses sustained from the volatility of the underlying investments.

Call options purchased for an account and not sold prior to expiration will expire worthless if the value of the underlying security or index at expiration is less than the exercise price of the option, causing the account to lose its entire investment in the

option.

Put options purchased for an account and not sold prior to expiration will expire worthless if the value of the underlying security or index at expiration exceeds the exercise price of the option, causing the account to lose its entire investment in the

option.

The account may be required to sell investments at times it would not otherwise choose to do so in order to settle derivatives. Such sales may result in losses on such investments and will, in addition, involve transaction costs.

Options on indices may not correlate perfectly with the underlying investments and may not act as expected. Such transactions may not achieve their objectives and may result in (or add to) losses to the account.

Strategies described herein are dependent on the smooth functioning of the markets for the particular instruments being purchased or sold. If such markets do not operate as expected, the strategies described herein could be adversely affected.

Past results are not necessarily indicative of future performance and performance may be volatile.

4/2014


All materials are presented for Institutional Client use only and are not intended for distribution to the public. The strategy may not achieve its desired results. Past performance is not indicative of future results.

All returns are gross unless otherwise noted. Gross returns do not give effect to investment advisory fees, which would reduce such returns. Investment advisory fees are described further in Form ADV Part 2A Brochure of the investment adviser named in the performance presentation of the relevant

strategy (the “Adviser”). Advisory fees deducted periodically from accounts can have an impact on performance. As an example, the effect of investment advisory fees on the total value of a portfolio assuming (a) $1,000,000 investment, (b) portfolio return of 5% per year, and (c) 1.00% annual investment

advisory fee would be $10,268.81 in the first year, $56,741.68 over five years, and $129,160.05 over ten years. Actual fees charged may vary by portfolio due to various conditions, including account size. The presentation may also contain net performance information. Notes to the performance presentation

contained herein describe the methodology used to calculate “net of fee” performance.

The results for individual accounts and for different time periods may vary. Descriptions of a strategy’s investment process, and “targeted”, “expected” and similar forward-looking portfolio information are based on the Adviser’s

future expectations regarding the strategy. Although the Adviser manages the strategy with the goal of achieving these expectations, actual results may vary, and the publication of these expectations should not be construed as

a guarantee. Representative account characteristics do not reflect composite performance, which may be different. On any given date, any portfolio managed in the indicated strategy may include securities not held by the representative account, and may not hold each security held in the representative

account. Consequently, any particular account may have portfolio characteristics and performance that differ from those of the representative account. Portfolio characteristics and other information contained in this presentation have been obtained from independent research providers and other sources the

Adviser believes to be reliable, but the Adviser cannot guarantee that the information is accurate, current or complete. Certain projected characteristics (such as the forward P/E ratio) of the Representative Account and indices shown may have been estimated. Estimates (est.) are preliminary and unaudited.

Estimated data reflect subjective judgments and assumptions and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted in this brochure. For more information regarding account characteristics, please contact Allianz Global Investors U.S. LLC.

(“AllianzGI US”)

Nothing contained in this presentation constitutes an offer to sell, or the solicitation of an offer to buy or a recommendation to buy or sell any security; nor shall anything in this presentation be considered an offer or solicitation to provide services in any jurisdiction in which such offer or solicitation would be

unlawful. The information provided is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation.

The asset and industry reports contained herein are unaudited. The summation of dollar values and percentages reported may not equal the total values, due to rounding discrepancies. Where applicable, currency conversions are provided by Russell Performance Universe and are based on monthly linked

performance converted from U.S. dollar, and exchange rates are provided by the Federal Reserve Statistical Release as of month end.

Unless otherwise noted, equity index performance is calculated with gross dividends reinvested and estimated tax withheld, and bond index performance includes all payments to bondholders, if any. Indexes are referred to for comparative purposes only and are not intended to parallel the risk or investment

style of the portfolios managed by the Adviser. Indexes do not utilize leverage. Index calculations do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index. Index data contained herein (and all trademarks related thereto) are owned

by the indicated index provider, and may not be redistributed. MSCI or other index providers have not approved, reviewed or produced this report, make no express or implied warranties or representations and are not liable whatsoever for any data in the report. You may not redistribute the MSCI or other

index data or use it as a basis for other indices or investment products. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

S&P Dow Jones Indices has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the S&P Dow Jones Indices data or use it as a basis for other indices or investment

products.

Allianz Global Investors U.S. LLC (“AllianzGI US”) is an SEC registered investment adviser that provides investment management and advisory services primarily to separate accounts of institutional clients and registered and unregistered investment funds. AllianzGI US manages client

portfolios (either directly or through model delivery and wrap fee programs) applying traditional and systematic processes across a variety of investment strategies. AllianzGI US may also provide consulting and research services in connection with asset allocation and portfolio

structure analytics. NFJ Investment Group LLC is an SEC registered investment adviser and wholly-owned subsidiary of AllianzGI US.

Although Allianz Global Investors U.S. LLC is registered with the CFTC as a commodity pool operator (“CPO”) and commodity trading adviser (“CTA”), it operates client accounts in this strategy, including funds

(if any) as if it were exempt from registration as a CPO or CTA.

The strategies described herein are offered in the United States by AllianzGI US. In rendering investment advisory services to its clients, AllianzGI US may use the resources of its investment advisory affiliates (“Participating AGI Affiliates”), including risklab, to provide certain services

to AllianzGI US clients. Under collaboration agreements, each of the Participating AllianzGI Affiliates and any of their employees who provide services to clients of AllianzGI US are considered "associated persons" of AllianzGI US as that term is defined in the Investment Advisers Act of

1940, as amended.

Disclosure

186/2014 – Disclosure/2

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