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    1 aviva investors global high yield bonds presentation - 1 q 2012 (uk) 1 aviva investors global high yield bonds presentation - 1 q 2012 (uk) Presentation Transcript

    • GLOBAL HIGH YIELD BONDSJune 2012This document has been prepared by and contains the views of Aviva Investors North America, Inc. It is beingcirculated in the UK and a limited number of European countries by Aviva Investors Global Services Limited forinformation purposes only. The content is for investment professionals and institutional/qualified investors only. It isnot to be viewed by or used with retail clients. All data contained herein is as of March 31, 2012, unless otherwisenoted.
    • Global High Yield BondsIMPORTANT INFORMATIONThis presentation is a presentation of Aviva Investors North America, Inc. (“AINA”), the lead adviser to U.S. clients with respect to the strategy discussedherein. In performing its services, AINA utilizes the services of investment professionals of affiliated investment advisory firms who are best positioned toprovide the expertise required to manage a particular strategy or product. In keeping with applicable regulatory guidance, each such affiliate entered into aMemorandum of Understanding ("MOU") with AINA pursuant to which such affiliate is considered a "Participating Affiliate" of AINA as that term is used inrelief granted by the staff of the Securities and Exchange Commission allowing US registered investment advisers to use portfolio management and tradingresources of advisory affiliates subject to the supervision of a registered adviser. Investment professionals from the Participating Affiliate may renderportfolio management, research or trading services to clients of AINA. Investment professionals from the Participating Affiliate may also rendersubstantially similar portfolio management research or trading services to clients of advisory affiliates which may result in performance better or worse thanpresented herein. This means that the employees of the Participating Affiliate who are involved in the management of funds and other products offered toUS investors are supervised by AINA.AINA and each of its Aviva Investors investment advisory affiliates, including Participating Affiliates, are subsidiaries of Aviva plc (AV listed on LSE, FTSE100). The combined Aviva companies constitute the world’s sixth largest insurance group. AINA and its investment advisory affiliates employ over 1,300people in 17 countries (USA, Canada, UK, India, France, Luxembourg, Romania, Poland, Germany, Sweden, Switzerland, Netherlands, Ireland, Australia,China, Singapore, and Taiwan) and manage in excess of $408 billion (USD), as of December 31, 2011, in segregated mandates, pooled funds andalternative strategies spanning asset classes which include: real estate, equities, fixed income, derivatives and money market instruments.The name “Aviva Investors” as used in this Presentation refers to the global organization of affiliated asset management businesses operating under theAviva Investors name. Each Aviva Investors affiliate is a subsidiary of Aviva plc, a publicly-traded multi-national financial services company headquarteredin the United Kingdom.Past performance is not indicative of future results. There can be no guarantee that any investment strategy discussed in this Presentation will achieve itsinvestment objectives. As with all investment strategies, there is a risk of loss of all or a portion of the amount invested. No chart, graph, or formula can byitself determine which securities an investor should buy or sell. All amounts herein are USD unless otherwise indicated.This Presentation contains the current opinions of AINA and is not intended to be, and should not be interpreted as, a recommendation of any particularsecurity, strategy or investment product. Such opinions are subject to change without notice. This Presentation is distributed for informational purposes onlyand is not intended to be a recommendation or investment advice. The information herein is based on sources which AINA believes to be reliable but is notguaranteed to be accurate or complete. Individuals identified in this Presentation are employees of AINA or other Aviva Investors affiliates.No Aviva Investors affiliate is engaging in or holding itself out as engaging in the business of advising others as to investing in securities or the business ofbuying or selling securities in any jurisdiction where it is not qualified to do so.This Presentation is qualified in its entirety by the GIPS® compliant presentation and disclosures contained in the Appendix, which must be read inconjunction with statements contained in this Presentation. 2
    • Global High Yield BondsOUR GOAL IS TO BE YOUR PARTNER IN HIGH YIELD Characteristics of the Presenting both a strategic and current Global High Yield Market opportunity An experienced team and Experienced leadership in disciplined process global high yield management Consistent results with A process that has resulted in strong strong performance relative and risk-adjusted performance Our objective is to outperform the market and with less riskPast performance is not a guide to future performance. 3
    • Global High Yield BondsCHARACTERISTICS OFTHE GLOBAL HIGH YIELD MARKET 4
    • Global High Yield BondsCHARACTERISTICS OF THE HIGH YIELD OPPORTUNITYTHE POWER OF THE COUPON Total Annualized = 9.6% Return Income Return = 10.6% or 110% Price Return = -1.0% or -10%Source: 10/31/1984 – 3/31/2012; J0A0 Index; Bloomberg. Past performance is not a guide to future performance. 5
    • Global High Yield Bonds CHARACTERISTICS OF THE GLOBAL HIGH YIELD MARKET RISK AND RETURN CHARACTERISTICS OF VARIOUS ASSETS 10.00% S&P 500 9.00% High-yield bonds Wilshire 5000 Russell 2000 8.00% Investment Grade LB Agg. Bond Index 10-year Treasury 7.00% 5-year TreasuryAnnualized Return 6.00% Gold DAX FTSE 100 5.00% 4.00% US Inflation 3.00% 2.00% Annualized Volatility High yield bonds have an attractive risk-return profile Sources: J.P. Morgan; Bloomberg. Note: 25-years ending December 31, 2011 6
    • Global High Yield BondsCHARACTERISTICS OF THE GLOBAL HIGH YIELD MARKETCORRELATION DEPENDS ON LEVEL OF SPREADS Monthly Return 1.0 High Yield Correlations (since 1984) 0.8 Credit 0.5 0.6 52-wk Trailing Correlation 0.4 S&P 500 0.6 0.2 EMD* 0.6 0.0 Govt 0.1 -0.2 Agg 0.3 -0.4 -0.6 HY Spread < 500bp Behavior of high yield is idiosyncratic, offers low correlation to other asset classes*EMD since 1994Source: Barclays Capital; 1984 to 3/31/2012Source: BofA Merrill Lynch Global Research; 1/4/1991 – 12/31/2011Past performance is not indicative of future return. 7
    • Global High Yield Bonds CHARACTERISTICS OF THE GLOBAL HIGH YIELD MARKET QUALITY TIER PERFORMANCE COMPARISON Growth of a $100 Investment 6/30/1983 to 3/31/2012 $1,650 Barclays $1,550 Capital U.S. $1,506 $1,450 High Yield Ba Index $1,350 $1,250 Barclays $1,150 $1,143 Capital U.S. $1,050 Credit Baa $1,030 Index $950 $850 Barclays $750 Capital U.S. $650 High Yield B Index $550 $565 $450 Barclays $350 Capital U.S. $250 High Yield Caa Index $150 $50 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011BBs have outperformed and with less risk 2012 Sources: Barclays Capital, Bloomberg; 6/30/1983 – 3/31/2012 Past performance is not indicative of future return. For illustrative purposes only. 8
    • Global High Yield BondsCHARACTERISTICS OF THE GLOBAL HIGH YIELD MARKETAVERAGE ANNUAL DEFAULT RATE BY RATING TIER 0.00% Investment 0.09%* Aaa Grade Aa 0.04% High Yield 4.67%** A 0.04% Baa 0.20% Ba 1.17% B 5.23% Caa - C 23.29% Triple-C and lower rated bonds are over five times more likely to default than the high yield market.Source: Moody’s; 1983 – 2011. Annual Issuer-Weighted Global Default Rates by Letter Rating * Investment grade = Aaa through Baa; rate is the average annual default rate ofsecurities within tiers defined as Investment Grade ** High yield = Ba through Caa - C; rate is the average annual default rate of securities within tiers defined as High Yield.Past performance is not indicative of future return. The definition of default in respect of a debt security includes missed or delayed payments of interest and/or principal,bankruptcy or insolvency of the issuer, and certain distressed issue exchanges. 9
    • Global High Yield Bonds THE HIGH YIELD OPPORTUNITY THE RELATIONSHIP BETWEEN DEFAULT RATES AND SPREADS 2,500 16 Barclays Capital U.S. High Yield 2% Issuer-capped Index Spread Average spread Moodys Issuer-Weighted Global Speculative Grade Default Rate 14 Average default 2,000 Default forecast 12 Default Rate, % 10 1,500Spread, bps 8 1,000 6 4 500 2 0 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Spreads have more room to tighten given the default forecast Source: Bloomberg; Barclays Capital; 1/31/1988 - 3/31/2012 10
    • Global High Yield BondsTHE HIGH YIELD OPPORTUNITYUPGRADE-TO-DOWNGRADE RATIO (ISSUER) 600 2.5 500 2 400 1.5# of Issuers 300 1 200 0.5 100 0 0 Upgrades Downgrades Upgrade/Downgrade ratioUpgrade-to-downgrade ratio reflects positive fundamentalsSource: J.P. Morgan 1998 – 12/31/2011*Past performance is not indicative of future performance. 11
    • Global High Yield BondsTHE HIGH YIELD OPPORTUNITYEXPECTED DEFAULT RISK HAS BEEN LOWERED OVERTHE NEXT FEW YEARSOverall change in maturity schedule from YE 2008 300 241 222 218 200 168 104 100 16$ billions 0 -100 -137 -151 -200 -202 -234 -300 Overall change in maturity schedule from YE 2008 Issuance has decreased near-term maturitiesSource: J.P. Morgan 12/31/2008 – 12/31/2011 12
    • Global High Yield BondsTHE HIGH YIELD OPPORTUNITYREFINANCING % OF TOTAL ISSUANCERefinancing % of total issuance 80% 76% 76% 75% 73% 70% 66% 60% 57% 55% 50% 50% 41% 40% 38% 35% 32% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Refinancing % of total issuanceRefinancing makes up a large percentage of new issuanceSource: J.P. Morgan YTD as of 12/31/2011 13
    • An Opportunity in Global High YieldTHE HIGH YIELD OPPORTUNITYHIGH YIELD RETURN SCENARIOS USING SOME SIMPLE MATHBarclays Global Scenario 1 Scenario 2 Scenario 3High Yield Index Default Rate 5.0% 2.5% 2.0%Date: 4/30/2012 Expected Recovery 35% 40% 40%Price: $100.1 Spread Change, bps +250 +0 -200OAS 604bps % Change from Spreads -10.1% 0.0% 8.1%YTW: 7.4% % Change from Defaults -3.2% -1.5% -1.2%Current Yield: 8.0% Expected current yield 7.8% 7.9% 7.9% Forecast Return -5.6% 6.4% 14.8% Today’s valuations can produce compelling returns in a low default environmentPast performance is not a guide to future performance. The above scenarios are hypothetical, intended solely to illustrate the possible effects of changes in default rates,recovery rates and market spreads on potential returns in the high yield bond market. No scenario can predict all potential changes in rates, investor behaviors or economicconditions, or how such changes might affect returns. Any such changes could significantly alter the potential returns discussed above; past performance is not indicative of futureresults. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and other risks. High-yield, lower-rated securities involve greater riskthan higher-rated securities, and portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. The discussion of risksassociated with the high yield bond investment strategy is not intended to set forth an exhaustive list of the risk but only those risks believed to be the most significant by AvivaInvestors.Benchmark (index) performance does not reflect the deduction of transaction costs, management fees, or other costs which would reduce returns. References to market indexes ,benchmarks or other measures of relative performance over a specified period of time are provided for your information only and do not imply that a portfolio will achieve similarreturns, volatility or other results. An index is unmanaged and the composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected oractual returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which may change over time. An investor cannotinvest directly in an index.Source: Barclays Capital, Inc., Barclays Global High Yield Capped Index ; Aviva Investors North America, 3/31/2012Option adjusted spread is used for spread calculations. Forecasted returns are hypothetical in nature, do not reflect actual investment results and are not guarantees of future 14results. Potential returns are based on a number of assumptions, may not be realized and are subject to risk. All references to “forecast” and “forecasted” returns in thispresentation relate to the period 4/30/2011 – 4/30/2012.
    • An Opportunity in Global High YieldTHE HIGH YIELD OPPORTUNITYA SUMMARY OF OUR RECOMMENDATION– Moody’s trailing 12 month global high yield default rate ending April is 2.6%. The 12 month forecast is for a moderate increase to 2.8%.– Corporate profitability is expected to grow, although at a slower pace. Corporate balance sheets have been materially strengthened over the past 2-3 years due mainly to maturity extension.– High Yield valuations have been impacted by uncertainty over European sovereign and recessionary risk, as well as a decrease in liquidity due to new regulations.– Demand is strong with year-to-date high yield fund flows at $23 bn compared to $15.6 bn in 2011. Bank loan flows have been modest this year with $2 bn inflows compared to $13.9 bn last year. robust, with companies generating healthy FCFs and (4) Fundamentals maintaining strong balance sheets favorable, due to vigorous demand from retail and (4) Technicals institutional investors Valuations Spreads are compelling though yields are low (2)We continue to recommend a Marketweight allocation 15
    • Global High Yield BondsOUR GOAL IS TO BE YOUR PARTNER IN HIGH YIELD An experienced team and Experienced leadership in disciplined process global high yield management Consistent results with A process that has resulted in strong strong performance relative and risk-adjusted performance Our objective is to outperform the market and with less risk*Past performance is not a guide to future performance.*No assurance can be given that the investment objective will be achieved 16
    • Global High Yield BondsAN EXPERIENCED TEAM AND DISCIPLINED PROCESSHIGH YIELD PORTFOLIO MANAGEMENT TEAM HIGH YIELD AUM ≈$4.4 BILLION* − Portfolio risk management & performance measurement Todd Youngberg, CFA Tom Haag, CFA Head of High Yield Client Portfolio Manager Chicago Chicago 21 years high yield industry experience 25 years industry experience Chris Langs, CFA Joshua Rank, CFA Jeremy Hughes, CFA Portfolio Manager Portfolio Manager Portfolio Manager Chicago Des Moines Chicago19 years high yield industry experience 11 years high yield industry experience 18 years high yield industry experience Andrew Lake** Chris Higham, CFA** Portfolio Manager Portfolio Manager London London 12 years high yield industry experience 11 years high yield industry experience Investment management professionals in a collaborative teamwork environment*3/31/12; Preliminary and unaudited, Aviva Investors North America, Inc.**Investment management and other service provided by personnel of Participating Affiliates. 17
    • Global High Yield BondsAN EXPERIENCED TEAM AND DISCIPLINED PROCESSCOMPETITIVE ADVANTAGES A distinguishing approach defined as follows: An experienced, global Exploiting inefficiencies between regions team located in the US and Europe within a large global universe Pure corporate A focused strategy supported by a deep credit risk exposure bench of credit expertise Disciplined bond A track record of low defaults resulting selection process with strong risk management in strong risk-adjusted performance A strategic orientation A conservative, yet flexible approach towards Double-B and Single-B credits in managing high yield bonds We provide solutions for our strategic partners 18
    • Global High Yield BondsCONSISTENT RESULTS WITH STRONG PERFORMANCECOMPETITOR UNIVERSE HIGH YIELD BONDS eVestment Alliance US High Yield Fixed Income Universe Gross Returns as of March 31, 2012 0% 25% Return (%) Median 75% 75% 100% 1 YR 2 YR 3 YR 5 YR Aviva Investors US High Yield Unconstrained Aviva Investors Global High YieldFirm/product 1 YR RANK 2 YR RANK 3 YR RANK 5 YR RANKAviva Investors US High Yield Unconstrained 7.8 14 11.5 12 22.1 31 8.7 17Aviva Investors Global High Yield 6.6 45 10.6 38 22.7 25Past performance is not indicative of future results. Data set forth above was created by eASE Analytics System for the period ended 3/31/2012.eVestment is a third-party database that provides detailed information on investment managers and their products. eVestment does not independentlyverify the data provided by advisers, which forms the basis for rankings. Aviva pays a fee to eVestment Alliance for access to peer rankings. The Universeincludes all portfolios managed in the High Yield style (gross of fees) as defined by eVestment Alliance, Aviva Investors North America (AINA) returns setout above are gross of fees. The performance shown does not reflect the deduction of investment advisory fees. The client’s return will be reduced by theadvisory fees and other expenses incurred as a client. As fees are deducted quarterly, the compounding effect will be to increase the impact of fees by anamount directly related to the gross account performance. A description of Aviva Investors fees can be found in Part II of the ADV. For example, anaccount with a beginning value of $100 million, gaining an annual return of 10% per year would grow to $259 million after 10 years, assuming no fees havebeen paid. If the same account paid a 1% annualized advisory fee, it would grow to only $235 million over 10 years. The annualized returns over the 10year time period would be 10% (gross of fees) and 8.91% (net of advisory fees). See the GIPS© compliant presentation later in this Appendix for importantinformation about performance, fees, and indices. The chart above is supplemental to the GIPS compliant presentation in the appendix of this presentation 19
    • Global High Yield BondsU.S. HIGH YIELD UNCONSTRAINED COMPOSITEJUNE 30, 2005 THROUGH DECEMBER 31, 2011 Total Return (%) 3 Year St. Deviation Assets (in millions) Gross of Composite # of Dispersion Carve-out TotalYear Ended Fees Net of Fees Benchmark (Gross) Benchmark Portfolios (%) (%) Composite Total Firm12/31/2005 1.07 0.90 1.79 2 N/A N/A 71 20,19712/31/2006 9.44 9.06 10.76 2 N/A N/A 125 21,44912/31/2007 4.01 3.65 2.26 3 N/A N/A 274 32,35512/31/2008 -20.83 -21.11 -25.88 2 N/A N/A 122 37,04712/31/2009 46.33 45.82 58.76 1 N/A N/A 260 51,03712/31/2010 15.65 15.24 14.94 1 N/A N/A 387 61,94612/31/2011 6.61 6.24 4.96 9.59 11.00 1 N/A N/A 397 72,384Composite DisclosuresDescription: The composite includes all strategies and portfolios which invest in U.S. dollar denominated high yield corporate bonds from issuers in developed countries. Thestrategy typically seeks unsecured fixed-rate obligations in firms with credit ratings of BB+ or lower. In 2009, the composite’s name was revised from High Yield Fixed Income II toU.S. High Yield Unconstrained.Benchmark: Barclays U.S. Corporate High Yield 2% Issuer Cap Index is the composite’s benchmark. It covers the universe of fixed rate, non-investment grade debt. Eurobondsand debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, butCanadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs,as of October 1, 2009) are also included.Inception: The creation and inception date of the composite is July 01, 2005. The return for the year ended 12/31/2005 represents the return from the inception date to year end.Currency: All returns and amounts are expressed in U.S. Dollars.Management Fee: The management fee ranges from 40 to 50 basis points based on the assets under management. The minimum fee is $125,000.General DisclosuresFirm: Aviva Investors North America (AINA) consists of three legal entities: Aviva Investors North America, Inc., Aviva Investors Canada Inc. (January 01, 2009), and River RoadAsset Management, LLC (February 24, 2010), which together form the North American region of Aviva Investors, a global organization including the asset management affiliatesof Aviva plc. The Firm manages a variety of fixed income, equity, derivative, convertible bond and alternative investments for institutional clients.GIPS®: AINA claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards.AINA has been independently verified for the periods from January 1, 2005 to March 31, 2011. A copy of 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 andprocedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific compositepresentation.Performance: Total Return - Gross of Fees is reduced by transaction costs and the returns are presented before AINA’s management fee. Total Return - Net of Fee is calculatedafter AINA’s actual management fees. Returns include the reinvestment of all income.Return Variability: AINA measures variability of returns by computing the 3 Year Standard Deviation of the Composite’s Total Return - Gross of Fee and the Composite’s TotalReturn – Benchmark using the most recent 36 monthly returns. If the composite has been outstanding less than 36 months, this measure is not applicable.Dispersion is calculated on composites with more than 5 accounts using the asset-weighted standard deviation of all portfolios included in the composite for the entire year.Other Information:A listing of AINA’s composites and descriptions are available upon request.Information regarding AINA’s policies & procedures for valuing portfolios, computing & reporting performance returns, and preparing compliant presentations is available uponrequest. 20Past performance is not indicative of future results.
    • Global High Yield BondsGLOBAL HIGH YIELD COMPOSITESEPTEMBER 30, 2008 THROUGH DECEMBER 31, 2011 Total Return (%) 3 Year St. Deviation Assets (in millions) Gross of Composite # of Dispersion Carve-out TotalYear Ended Fees Net of Fees Benchmark (Gross) Benchmark Portfolios (%) (%) Composite Total Firm12/31/2008 -13.85 -13.93 -18.35 1 N/A N/A 23 37,04712/31/2009 50.22 49.70 62.33 1 N/A N/A 73 51,03712/31/2010 16.20 15.79 15.14 2 N/A N/A 103 61,94612/31/2011 5.62 5.25 3.49 10.29 11.51 1 N/A N/A 473 72,384Composite DisclosuresDescription: The composite includes all strategies and portfolios with the flexibility to invest in multi-currency high yield debt securities within the developed global markets,primarily North America and Europe. Derivatives can be used to hedge currency risk.Benchmark: Barclays Global High Yield 2% Issuer Capped Bond Index excluding CMBS and Emerging Markets hedged to USD is the composite’s benchmark.Inception: The creation and inception date of the composite is September 30, 2008. The return for the year ended 12/31/2008 represents the return from the inception date toyear end.Currency: All returns and amounts are expressed in U.S. Dollars.Management Fee: The management fee ranges from 40 to 50 basis points based on the assets under management. The minimum fee is $125,000.General DisclosuresFirm: Aviva Investors North America (AINA) consists of three legal entities: Aviva Investors North America, Inc., Aviva Investors Canada Inc. (January 01, 2009), and River RoadAsset Management, LLC (February 24, 2010), which together form the North American region of Aviva Investors, a global organization including the asset management affiliatesof Aviva plc. The Firm manages a variety of fixed income, equity, derivative, convertible bond and alternative investments for institutional clients.GIPS®: AINA claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards.AINA has been independently verified for the periods from January 1, 2005 to March 31, 2011. A copy of 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 andprocedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific compositepresentation.Performance: Total Return - Gross of Fees is reduced by transaction costs and the returns are presented before AINA’s management fee. Total Return - Net of Fee is calculatedafter AINA’s actual management fees. Returns include the reinvestment of all income.Return Variability: AINA measures variability of returns by computing the 3 Year Standard Deviation of the Composite’s Total Return - Gross of Fee and the Composite’s TotalReturn – Benchmark using the most recent 36 monthly returns. If the composite has been outstanding less than 36 months, this measure is not applicable.Dispersion is calculated on composites with more than 5 accounts using the asset-weighted standard deviation of all portfolios included in the composite for the entire year.Other Information:A listing of AINA’s composites and descriptions are available upon request.Information regarding AINA’s policies & procedures for valuing portfolios, computing & reporting performance returns, and preparing compliant presentations is available uponrequest. 21Past performance is not indicative of future results.
    • Global High Yield BondsIMPORTANT INFORMATION (1)The values of fixed income securities fluctuate in response to the condition of individual issuers, general market and economic conditions, and changes ininterest rates. High Yield securities have a greater risk of default than higher rated securities, are generally uncollateralized and subordinated to otheroutstanding debt of the issuer, and are considered predominantly speculative. There are additional risks associated with international investments.International securities may be subject to market/currency fluctuations and other risks involving foreign economic, political, monetary, taxation, auditingand/or legal factors. The use of derivatives may reduce returns and increase volatility.Any investment involves a degree of risk, including the risk of total loss. The risk information presented herein endeavors to capture some but not all risksassociated with a strategy or product. Actual performance results may differ from the Composite portfolio performance, depending upon the size of theaccount, investment guidelines and/or restrictions, inception date and other factors. Performance information is presented solely for illustrative andinformational purposes and should not be construed as a forecast or projection.Any statement of return or other performance by an index is not a representation or assurance that the information or performance attributed to the indexwas accurately compiled or published; Aviva Investors has not independently verified index-related information. Index returns are provided to represent theinvestment environment existing during the time periods shown. For comparison purposes, an index is fully invested, which includes the reinvestment ofdividends and capital gains, but index returns do not include any transaction costs, management fees, or other costs that would reducereturns. Composition of each separately managed account portfolio in a composite may differ from securities in the corresponding benchmark index. Anindex is used as a performance benchmark only, as Aviva Investors does not attempt to replicate an index. The prior performance of an index will not bepredictive of the future performance of accounts managed by Aviva Investors. An investor may not invest directly in an index.Returns are shown gross of fees. The performance shown does not reflect the deduction of investment advisory fees. The client’s return will be reducedby the advisory fees and other expenses incurred as a client. The net compounded effect of the deduction of investment management fees over time willbe affected by the amount of the fees, the time period and your account’s investment performance. For example, an account with a beginning value of$100 million, gaining an annual return of 10% per year would grow to $259 million after 10 years, assuming no fees have been paid. If the same accountpaid a 1% annualized advisory fee, it would grow to only $235 million over 10 years. The annualized returns over the 10 year time period would be 10%(gross of fees) and 8.91% (net of advisory fees). A description of Aviva Investors’ fees may be found in Part II of the ADV.Aviva Investors U.S. High Yield Constrained Composite Default Experience vs. Moodys Annual Issuer-Weighted Global Speculative-Grade Default RateThe definition of default in respect of a debt security includes missed or delayed payments of interest and/or principal, bankruptcy or insolvency of theissuer and certain distressed issue exchanges. Note that the default rate calculations have limitations as an indicator of manager performance as thedefault rate calculations do not account for assets that have not defaulted but have been liquidated from the portfolio at a loss. Past performance is not aguide to future performance. The since inception default rates are derived by annualizing the geometric average of the individual period rates. AvivaInvestors default rate data is as of 31/12/2011. 22
    • Global High Yield BondsIMPORTANT INFORMATION (2)This document is for investment professionals only. The content is not approved for use with retail investors or pension scheme members.The information provided in this document and any appendix is confidential and should only be used for the purposes requested.Past performance is not a guide to the future. The value of an investment in the fund can go down as well as up and can fluctuate in response to changesin exchange rates.The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer byanyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.This Presentation contains the current opinions of Aviva Investors North America and is not intended to be, and should not be interpreted as, arecommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice. This Presentation isdistributed for informational purposes only and is not intended to be a recommendation or investment advice. The information herein is based on sourceswhich AINA believes to be reliable but is not guaranteed to be accurate or complete. 23