Allianz-Pimco - The New Normal
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  • I know that many of you are feeling deeply unsure in the current market environment. Your portfolios have likely taken a hit and major changes are occurring in the global economy. The combination of these two things is making it difficult for you to know how to move forward. In fact, there’s a strong case that the economic and geopolitical landscapes are going to look different in the long term. I believe that these changes will have a significant effect on how we need to invest going forward, that what we are looking at is a NEW REALITY. Today I’ll tell you about what this new reality will look like. Then, we’ll talk about why this “new normal” should have you rethinking your strategy. And finally, I’ll share an action plan to help you repositioning your portfolio to reflect the new investment reality. The views that I’m sharing with you today were developed by Allianz Global Investors, whose investment firms include such well-known asset managers as PIMCO, NFJ and RCM. Allianz Global Investors is the asset management arm of Allianz, one of the world’s leading financial services firms.
  • If you’re feeling confused and unsure of how to proceed, you’re not alone. Many investors are asking the same fundamental questions: How will I meet my financial objectives? Some of you are sitting on the sidelines holding significant amounts of cash, yet you need growth to help finance a retirement, pay for college or meet other important goals. Will traditional strategies work? The market turmoil affected all asset classes; what does that say about traditional stock and bond diversification? Do I need a new strategic mindset? Are things going to be different in the future, or will we return to “normal”?
  • So what will this “New Reality” look like? These are some key characteristics which we expect to see not tomorrow, but over the medium to long term. We’re going to see a rebalancing of global power, in which emerging countries play a major part. Eventually, we believe inflation will re-emerge as an issue. We are entering a prolonged period of restrained economic growth, which will have a dampening effect on corporate profits. This process is bound to be messy, and we can expect to see more frequent market shocks. Some of these developments look a little scary, but as you’ll see later on, there are strategies that can not only help you accommodate these changes, but also potentially benefit from them.
  • Emerging economies have not been spared from the recession but we believe that many of them will hold up better than industrialized countries. More importantly, over the long-term wealthier countries like China, Brazil and India, will come to dominate global economic growth. These economies are becoming larger, younger and more affluent. As the chart shows, the world’s middle class is expected to triple in size, predominantly from places like China and India. This will be happening even as developed country populations age and shrink. This growing wealth will spur demand for goods, services, infrastructure and natural resources such as fuel and clean water. Importantly, these trends will present new investment opportunities. Another indication that the balance of power has shifted is that China has become creditor to debtor nations such as the U.S. and other developed countries. This debt will become an additional “speed bump” to U.S. growth. Finally, emerging countries have built up huge reserves of foreign currencies. This has driven up the development of sovereign wealth funds, which will also influence capital markets. For example, we may see a shift away from fixed-income to higher-risk investments, as well as those deemed to offer inflation protection.
  • Inflation may not appear to be an issue in today’s recessionary environment, where falling commodity prices and Fed attempts to jump-start the economy have created temporary deflationary conditions. Indeed, as you can see in the chart, we have experiencing an extended disinflationary trend. However, we believe this trend is due to reverse in the medium-term, for two reasons: Rising labor costs in emerging markets, as well as growing demand from those quarters, which will drive commodities prices back up. The current fiscal policies being used to stimulate the U.S. economy and end the financial crisis, which have the potential to increase global inflationary pressures in dollar-linked economies. From an investment perspective, these trends would suggest that real return assets will become increasingly important for long-term investors.
  • Next, we can expect to see a period of relatively weak economic growth. This chart from the IMF shows GDP for advanced and emerging economies, and the world overall. As you can see, the recovery is not expected to begin until early 2009, will proceed somewhat slowly and will not reach previous highs for some time. That restrained growth is likely to put “speed limits” on corporate earnings growth. Dampening factors include: the pullback in consumer spending in the midst of the recession lower borrowing available to companies as a result of the credit crisis dampened “animal spirits,” or investor willingness to take risk collateral damage that may result from increased government intervention during the bailout. The upshot that investment returns, particularly on stocks, may be constrained for some time. For investors, that means that they may need to consider other types of investments for the growth potential they need.
  • Finally, an important feature of this new global economic reality is that the transition will not be a smooth one. This will be a messy process, as we have already seen. This has heightened the risk of major shocks – or “tail risks” – to our financial markets that can have a significant impact on investment returns. Let’s look at an example of a major dislocation that has occurred in our credit markets. As this chart shows, since the summer of 2007, spreads – or the difference between yields of various bonds versus U.S. Treasuries -- have widened dramatically, as investors have avoided any perception of risk in the marketplace. Yields on Treasuries have been exceedingly low, while prices for higher risk bonds have fallen dramatically. We have likewise seen unusual strong shocks in the stock markets, as you know. Consider that from October 1987 through March 2003, the Dow dropped 300 points or more on 15 occasions. During the six months from September 2008 through February 2009 alone, that has happened 19 times. Depending on when these shocks occur and when you’ll be needing your money, being prepared can make the difference between meeting and not meeting your goals.
  • So now that we have a sense of what the new reality make look like, what does this shift mean for you and your asset allocation strategy?
  • It means that history may no longer be a reliable guide and that traditional allocation strategies may be less likely to succeed. This chart shows how several types traditional asset classes – small-cap stocks, emerging markets stocks, international stocks and U.S. bonds -- have behaved versus large U.S. stocks. How these markets move in relation to each other is called “correlation.” In a diversified portfolio, you want asset classes that have low correlations to each other, so that declines in one may be offset by gains or lesser declines in another. What this chart demonstrates, however, is that over the past 15 years, different stock sectors and even U.S. bonds have often been highly correlated. These convergences have also occurred unpredictably – meaning that unpleasant surprises can occur if they all decline at the same time. Does that mean that diversification doesn’t work? No, but it means that you should think about diversification differently.
  • It means that you should be thinking of diversification not only in terms of asset classes, but also in terms of diversifying your risk. That would mean including investments that are influenced by different economic factors than traditional stocks and bonds, such as: international stocks and bonds, emerging markets stocks and bonds, inflation-hedging assets such as real estate and commodities and even alternative strategies such as private equity funds. These markets tend to be driven by different forces, which may help offset stock and bond declines. What’s more, because as we saw in the previous chart that risk correlations are unpredictable , it’s also very important to be well-diversified at all times in order to avoid suddenly finding yourself overly concentrated in a single risk factor. Of course, diversification does not guarantee a profit or protect against loss. This is a crucial point: It’s no longer a question of, “Should I be in this or that asset class right now?” but “Are my risks properly diversified? Do I have the optimal risk exposures for my return expectations? ”
  • So what should tomorrow’s portfolios look like?
  • Although our ultimate goal is risk diversification, I realize that some of you may have difficulty accepting the idea of increasing your exposure to an even broader set of asset classes, particularly at a time when virtually all capital markets have been so tumultuous. That’s why I’m suggesting a plan that takes into account your own stage of readiness to implement a new investment strategy. No matter where you are, there are things all of you can do to begin to create a prudent allocation strategy, one that diversifies risk without missing opportunities. Investment strategies are part of a continuum, and there are steps and actions you can take all along the way. I’ve identified three primary markers, or paths, along that road, and you can jump in at any point. Ultimately, your goal should be to travel along all three. The three paths are: One: Reinforce Your Core Two: Reallocate Your Portfolio Three: Respond to Opportunities Let’s look at each of these one by one.
  • Path One: Reinforce your core. If the market turmoil has left you so risk-averse that you’re holding significant amounts of cash, or if your portfolio is thrown off balance by the declines, you may have trouble achieving your long-term goals.
  • It’s important to re-examine your portfolio. Then, take your risk temperature, measuring not just market volatility but the risk of falling short of your goals. One of the things that you want to do is determine whether you’re under-allocated to bonds or other lower risk investments. You need a true core holding to anchor your portfolio, which will allow you to prudently take advantage of attractive opportunities while paying close attention to risk. You might also look to a diversified stock fund with a history of lower volatility. What do I mean by a true core holding? A fund that is properly diversified and not overly concentrated in one sector; a fund with disciplined risk management processes; a fund that has stuck to its mandate throughout the market crisis.
  • Path Two: Reallocate your portfolio. It’s important, as you revisit your current allocation strategy, to see how well positioned it might be to meet the challenges of the new reality we’ve been describing.
  • As you do that, ask yourself some questions: Am I appropriately exposed to potential opportunities in the bond market? Is there sufficient diversification into foreign assets, particularly those of emerging markets? How well is my portfolio hedged against inflation? Are the correlations of asset classes too high? Once you’ve gotten a sense of where you are, you might begin to assume prudent risks. As we talked about earlier, this means incorporating a broader opportunity set into your strategy – including international stocks and bonds, including those from emerging markets, inflation-hedging assets such as TIPS, real estate and commodities, and possibly even some alternative assets such as private equity funds or infrastructure funds. Of course, as you create an asset mix, it’s important to consider current market conditions as you make these decisions. Also remember that non-U.S. stocks and bonds can involve special political risk of instability and currency risks. Treasury Inflation-Protected Securities (TIPS) involve the risk that if real (inflation-adjusted) interest rates rise, the value of TIPS can decline. Commodities and real estate investments can be speculative.
  • Path Three: Respond to Opportunities. As I mentioned earlier, we believe that corporate profits are likely to be lower for some time, which means that stock returns are not likely to be as robust as they were before the crisis.
  • As a result, investors will need to seek unique opportunities for outperformance in order to help them achieve their financial objectives. We’re recommending that you establish a specific allocation for these “special opportunities,” say, 5% to 10% of your overall portfolio. What might come under this category? These are asset classes that are uniquely poised to profit in the short-term due to sharp dislocations, or newer, long-term trends that are attractive but have not yet gained broad acceptance. For example: As we saw in an earlier slide, the credit crisis created historic dislocations among different sectors of the bond market. As Treasuries became very expensive, asset classes such as high-quality corporate bonds were very attractively valued from a risk/return perspective. A longer-term example would be environmental stocks. This is a trend that is likely to become increasingly popular; we are also in an opportune moment in which investments in environmental technology are going to increase thanks to a $100 billion commitment by the U.S. government. Another example of special opportunities could arise from the various bailout programs the government is implementing, making investments that come under “the government umbrella” very attractive right now.
  • So these are the three paths that can help you along the road to the new financial reality. I want to emphasize that you shouldn’t be doing one or two of them, or taking them on one-by-one. Rather you should, to the best of your ability, move down all three of these paths at the same time. So, let’s briefly recap and talk about next steps. We talked about a new reality, an era of economic change that will have a profound effect on capital markets and ultimately, investment returns. These changes will be fundamental, meaning that history may no longer be a reliable guide for creating an investment strategy. These changes will be messy and will occur unpredictably. That means that you should be looking at truly non-correlated investments and think about diversifying your risks instead of your asset classes. You can get there through a three-path journey: Anchor your portfolio with a core bond fund and stock fund. Reallocate your portfolio broadly to include inflation-hedging assets, international stocks and bonds, and alternative strategies. Create an allocation for “special opportunities” that are uniquely positioned to provide exceptional return. Remember, these paths can be approached incrementally, over time. I have provided you with a worksheet that you can go through. I’d also be happy to schedule a meeting with you so that we can review your portfolio together. Thank you. I’ll take any questions you might have.
  • Allianz Global Investors offers a number of products that can help you prepare your portfolio for the new reality. Here are some investment solutions to consider for each path.
  • What might an asset allocation look like that reflects the new reality? This is a sample created by PIMCO, which has a special asset allocation committee that constantly analyzes how investment strategies should dovetail with the outlook for the economy and financial markets. What you’ll see right away is that it contains many more asset classes than a traditional stock-and-bond allocation. It also contains a fairly large percentage in international stocks and bonds, including those of emerging markets. It also recommends committing a fairly large portion – more than 25%, in this example -- to real return, or inflation-hedging, assets, such as real estate, commodities, TIPS and infrastructure. I’m showing you this not because you necessarily need to follow it to the letter, but as a way to start thinking about how you might spread your risks more broadly. Each one of you has a unique situation, of course, which relates to many different factors, including your risk tolerance, how much money you have, how old you are or your long-term financial or tax objectives. All of these will have an impact on how your allocate your investments. This is not a financial plan, which you should discuss with an advisor. These varied asset classes involve different risks. Non-US stocks and bonds involve special risks of political instability and currency fluctuations. High-yield securities, commodities, emerging markets securities and real estate investments can be speculative and volatile. US stocks can fluctuate in value due to financial factors related to the issuer, its industry or market factors unrelated to the company or the industry. Inflation-protected bonds can decline in value if real (inflation-adjusted) interest rates rise.
  • Finally, before we wrap up, let me tell you a bit about Allianz Global Investors, the company that formulated this vision of the new financial reality. Allianz Global Investors has a uniquely broad perspective on market and economic issues, because of the intellectual capital of their investment firms. PIMCO, as you know, is one of the world’s most successful fixed-income managers. Its leaders, Bill Gross and Mohamed El-Erian, regularly share their market and economic insights with the public. The firm holds its annual Secular Forum to develop its 3-5 year outlook on trends that may have a lasting impact on investment returns. PIMCO made an early call on the bursting of the housing bubble, and was able to position its portfolios advantageously. Allianz Global Investors also draws on the perspectives of its equity firms, including NFJ, a deep-value manager that uses a time-tested, highly disciplined investment approach. Its 3-D process emphasizes diversification, dividends and discipline. RCM is a truly global asset manager, which offers an information advantage via its team-based, dual-platform research process: fundamental, bottom-up research coupled with its GrassRoots ® Research, which takes an investigative journalistic approach to confirm its investment theses. RCM also has tremendous expertise in sector and theme investing. Their other equity firms include Nicholas-Applegate, Oppenheimer Capital and Cadence Capital Management.

Allianz-Pimco - The New Normal Presentation Transcript

  • 1. Reposition for a New Reality Moving Forward in Challenging Times Presenter Name Date
  • 2. What We’ll Cover Today © Copyright Allianz Global Investors 2009 1 Chapter 1. The World is Changing Chapter 2. Rethinking Asset Allocation Chapter 3. Paths to Tomorrow’s Portfolio Repositioning for a New Reality │
  • 3. The World Has Changed
    • How will I meet my financial objectives?
    • Will traditional strategies work?
    • Do I need a new strategic mindset?
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 4. What Will the New Reality Look Like?
    • Key characteristics:
    • Rebalancing of global power
    • Re-emergence of inflation
    • Restrained economic growth
    • More frequent market shocks
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 5. Rebalancing of Global Power
    • Greater concentrations of wealth in economies once described as “emerging”
    • Accelerating pace of consumer demand, population growth
    • China has become a creditor nation
    • Built-up reserves of foreign currencies will influence capital markets
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Source: World Bank Global surge of the middle class
  • 6. Re-emergence of Inflation
    • Growing demand will re-inflate commodities
    • Fiscal stimulus will increase global inflationary pressures
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Source: OECD, Total Global CPI: all items, as of January 2008. Year-Over-Year Change (%) Extended disinflation trend due to reverse
  • 7. Restrained Economic Growth
    • “ Speed limits” on corporate earnings
    • Constrained investment returns
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ (Real GDP – Year-over-year change) Gradual recovery through 2010 Source: International Monetary Fund, April 2009 %
  • 8. More Frequent Market Shocks
    • Greater volatility in capital markets
    • Unpredictable disruptions can have significant impacts
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Spread to Treasuries Uncertainty makes transitions bumpy Source: LehmanLive. Past performance is no guarantee of future results. It is not possible to invest directly in an unmanaged index. The indices do not reflect deductions for fees, expenses or taxes. High-yield bonds are represented by Barclays Capital High Yield Index; investment-grade corporates by Barclays Capital Credit Investment Grade Index; mortgage-backed securities by Barclays Capital Mortgage Index; and asset-backed securities by Barclays Capital Asset Backed Securities Index. Unlike high-yield bonds, asset-backed securities and investment grade corporates, Treasuries are backed by the full faith and credit of the United States government. Corporate bonds involve substantially higher credit risk than US government securities.
  • 9. Rethinking Asset Allocation © Copyright Allianz Global Investors 2009 2 Repositioning for a New Reality │
  • 10. The New Reality of Asset Allocation
    • Prepare for the unexpected
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
    • History may no longer be a reliable guide
    • Correlations can shift unpredictably
  • 11. Diversifying Risk
    • Asset class diversification does not equal risk diversification
    • Low-correlating assets are driven by different factors
    • Manage unpredictability through a broader investment landscape
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 12. Paths to Tomorrow’s Portfolios © Copyright Allianz Global Investors 2009 3 Repositioning for a New Reality │
  • 13. Where Along the Road Are You?
    • Traveling toward the new reality
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 3: Respond to opportunities Path 1: Reinforce your core Path 2: Reallocate your portfolio
  • 14. Path 1: Reinforce Your Core
    • Issue:
    • The current market turmoil has you avoiding all risk assets or has thrown your portfolio off balance, potentially impeding your long-term financial goals.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 1: Reinforce your core
    • Action Steps:
    • Re-examine your holdings
    • Take your risk temperature, including the risk of falling short of goals
    • Anchor your portfolio with a prudently managed core bond fund or stock fund
      • Not overly concentrated
      • Disciplined risk management
  • 15. Path 1: Reinforce Your Core
    • Issue:
    • The current market turmoil has you avoiding all risk assets or has thrown your portfolio off balance, potentially impeding your long-term financial goals.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 1: Reinforce your core
    • Action Steps:
    • Re-examine your holdings
    • Take your risk temperature, including the risk of falling short of goals
    • Anchor your portfolio with a prudently managed core bond fund or stock fund
      • Not overly concentrated
      • Disciplined risk management
  • 16. Path 2: Reallocate Your Portfolio
    • Issue:
    • With fundamental economic changes underway, traditional stock and bond allocations may no longer be sufficient.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 2: Reallocate Your Portfolio
    • Action Steps:
    • Revisit your current strategy
    • Assume prudent risks among a broad basket of asset classes, being mindful of continued market uncertainty
      • U.S. stocks and bonds
      • International stocks and bonds
      • Inflation-protected bonds
      • Real estate
      • Commodities
      • Alternatives
  • 17. Path 2: Reallocate Your Portfolio
    • Issue:
    • With fundamental economic changes underway, traditional stock and bond allocations may no longer be sufficient.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 2: Reallocate Your Portfolio
    • Action Steps:
    • Revisit your current strategy
    • Assume prudent risks among a broad basket of asset classes, being mindful of continued market uncertainty
      • U.S. stocks and bonds
      • International stocks and bonds
      • Inflation-protected bonds
      • Real estate
      • Commodities
      • Alternatives
  • 18. Path 3: Respond to Opportunities
    • Issue:
    • Short-term market dislocations and long-term change are likely to produce unique opportunities for enhanced returns.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 3: Respond to Opportunities
    • Action Steps:
    • Establish a specific allocation for “special opportunities”
    • Seek asset classes uniquely poised to profit from long- and short-term catalysts
    • Examples:
      • Credit crisis created historic dislocations in bond market
      • U.S. fiscal stimulus is directing more than $100 billion to green projects
      • Government investments in mortgages, banks to help stabilize financial systems
  • 19. Path 3: Respond to Opportunities
    • Issue:
    • Short-term market dislocations and long-term change are likely to produce unique opportunities for enhanced returns.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Path 3: Respond to Opportunities
    • Action Steps:
    • Establish a specific allocation for “special opportunities”
    • Seek asset classes uniquely poised to profit from long- and short-term catalysts
    • Examples:
      • Credit crisis created historic dislocations in bond market
      • U.S. fiscal stimulus is directing more than $100 billion to green projects
      • Government investments in mortgages, banks to help stabilize financial systems
  • 20. Recap: Repositioning for a New Reality
    • History may no longer be a reliable guide for the future
    • Diversify your risks, not your asset classes
    • Embark on a three-part journey
      • Anchor your portfolio with a core fund
      • Reallocate your assets to diversify risks
      • Include special opportunities for above-average return potential
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 21. Appendix. Mapping Out a Strategy with Allianz Global Investors © Copyright Allianz Global Investors 2009 a Repositioning for a New Reality │
  • 22. Allianz Global Investors Solutions to Consider
    • Path 1: Reinforce Your Core
      • PIMCO Total Return Fund
      • Allianz NFJ Dividend Value Fund
    • Path 2: Reallocate Your Portfolio
      • Allianz NFJ International Value Fund
      • PIMCO All-Asset Fund
      • Allianz OCC Growth Fund
      • PIMCO Global Multi-Asset Fund
    • Path 3: Respond to Opportunities
      • PIMCO Investment Grade Corporate Bond Fund
      • Allianz RCM Global EcoTrends SM Fund
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 23. Laying the Groundwork: An Example
    • The table to the left represents an illustration of how a hypothetical investor who favors PIMCO’s analysis of global economic trends and has an appropriate financial profile and sufficient means, might capture those views in a portfolio optimized using PIMCO’s assumptions. You should note some distinct differences from traditional asset allocation strategies. Of course, one size does not fit all and this model is not intended to create a financial plan for any investor. It does not incorporate the specific financial characteristics of any specific investor, such as the amount of assets available, risk aversion, age, immediate or long-term financial objectives, tax objectives or other personal financial characteristics. It also assumes that an investor would take no responsive action to the markets over a considerable time. Because of the dramatic changes transforming the global economy, the recommendations could be changeable in the short term if trends evolve faster or slower than PIMCO’s analysis. The PIMCO model recommendations reflect market conditions as of 2007 and are subject to change at any time without notice. An asset allocation strategy does not assure a profit or protect against loss.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Midpoint (%) Range (%) Equities United States 15 12-18 Other advanced countries 15 12-18 Emerging economies 12 6-18 Private 7 6-8 Bonds United States 5 4-6 International 9 6-12 Real Assets Real estate 6 3-9 Commodities 11 7-15 Inflation-protected bonds 5 4-6 Infrastructure 5 3-7 Special Opportunities 8 2-14
  • 24. A Thought Leader © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │ Cadence Capital Management is an independently-owned investment firm.
  • 25. Additional Information:
    • PIMCO Total Return Fund
    • This Fund invests at least 65% of its assets in a diversified portfolio of fixed-income securities, up to 30% in foreign currency-denominated securities, and 10% in high-yield securities. Investing in foreign securities may entail risk due to foreign economic and political developments; this risk may be enhanced when investing in emerging markets. High-yield bonds typically have a lower credit rating than other bonds. Lower rated bonds generally involve a greater risk to principal than higher rated bonds. This Fund may use derivative instruments for hedging purposes or as part of its investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments.
    • Allianz NFJ Dividend Value Fund
    • This Fund may invest in value securities. When investing in value securities, the market may not necessarily have the same value assessment as the manager, and, therefore, the performance of the securities may decline. This Fund may use derivative instruments for hedging purposes or as part of its investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 26. Additional Information:
    • Allianz NFJ International Value Fund
    • The Fund will normally invest in non-U.S. securities companies which may include emerging market securities. Investing in non-U.S. securities may entail risk due to foreign economic and political developments; this risk may be enhanced when investing in emerging markets. To achieve income, the Fund invests a portion of its assets in income-producing (e.g., dividend-paying) common stocks. When investing in value securities, the market may not necessarily have the same value assessment as the manager, and, therefore, the performance of the securities may decline. This Fund may use derivative instruments for hedging purposes or as part of its investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in these instruments.
    • Allianz OCC Growth Fund
    • The Fund may invest a portion of its assets in non-U.S. securities, which may entail greater risk due to foreign economic and political developments. This Fund may use derivative instruments for hedging purposes or as part of its investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 27. Additional Information:
    • PIMCO All Asset Fund
    • The Fund’s performance will depend on how its assets are allocated and reallocated among constituent Funds. There is no assurance that the investment objective of any underlying fund will be achieved. The allocation among the underlying Funds will vary, and the investment may be subject to any and all of the following risks at different times and to different degrees. Investing in smaller companies may entail greater risk than investing in larger companies, including higher volatility. Investing in non-U.S. securities may entail greater risk due to non-U.S. economic and political developments; this risk may be enhanced when investing in emerging markets. The underlying funds may at times invest in mortgage-related securities and may use derivative instruments for hedging purposes or as part of an investment strategy. Use of derivative instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments. High-yield bonds typically have a lower credit rating than other bonds. Lower rated bonds generally involve a greater risk to principal than higher rated bonds. Although the Fund normally invests in a number of different underlying funds, it will be particularly sensitive to the risks associated with the individual fund(s) and any investments in which that Fund concentrates. The Fund's NAV will fluctuate in response to changes in the NAV of the underlying Funds. The cost of investing in the Fund will generally be higher than the cost of investing in a mutual fund that invests directly in individual stocks and bonds.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 28. Additional Information:
    • PIMCO Global Multi-Asset Fund
    • Fixed income securities will fluctuate in value because of changes in interest rates. The value of equity securities can fluctuate due to general market conditions not specifically related to a company, factors related to a company’s industry, or factors related to the specific company. Investments in non-U.S. securities may be more volatile and subject to special political and currency risks. Non-U.S. securities involving emerging markets may be subject to enhanced levels of these risks. The underlying funds may invest in mortgage-related securities, which are subject to the risks of the mortgages being prepaid. There is no assurance that any private insurers of the underlying mortgages will meet their obligations. High-yield bonds generally involve greater risk of default that investment-grade bonds. The underlying funds’ use of derivatives may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, and the risk that the fund could not close out a position when it would be advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments. Diversification does not ensure a profit or eliminate the risks of investing.
    © Copyright Allianz Global Investors 2009 Repositioning for a New Reality │
  • 29. Additional Information:
    • PIMCO Investment Grade Corporate Bond Fund
    • This Fund may invest at least 65% of its assets in a diversified portfolio of investment grade corporate fixed-income securities of varying maturities and up to 30% in foreign securities, which may entail greater risk due to foreign economic and political developments. The value of investment-grade corporate bonds will fluctuate in response to changes in interest rates.
    • Allianz RCM Global EcoTrends Fund
    • The Fund may use derivative strategies for investment or hedging purposes. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments.
    • The Fund is non-diversified and may focus its investments in a small group of companies or industries. The companies in which the Fund invests may have limited operating histories and/or small market capitalizations. The Fund's substantial exposure to non-U.S. securities, including emerging markets securities, also involves special risks, including political and economic risk and the risk of currency fluctuations; these risks may be enhanced in emerging markets.
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  • 30. Additional Information about Indexes
    • Alpha measures a portfolio’s risk-adjusted performance, which is the difference between a portfolio’s actual and expected returns, given the level of market risk as measured by beta. Index returns are unmanaged. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions, or other expenses of investing. One cannot invest directly in an index.
    • The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Morgan Stanley Capital International Europe Australasia Far East (“MSCI EAFE”) Index is a widely recognized, unmanaged index of issuers located in the countries of Europe, Australia, and the Far East.
    • The Barclays Capital Aggregate Bond Index is composed of securities from the Barclays Capital Government/Credit Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index. It is generally considered to be representative of the domestic, investment-grade, fixed-rate, taxable bond market. The Barclays Capital Credit Investment Grade Index consists of publicly issued U.S. corporate and specified non-U.S. debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. It is not possible to invest directly in such an unmanaged index. The Barclays Capital High Yield Index is an unmanaged market-weighted index including only SEC registered and 144(a) securities with fixed (non-variable) coupons. All bonds must have an outstanding principal of $100 million or greater, a remaining maturity of at least one year, a rating of below investment grade and a U.S. Dollar denomination. The Barclays Capital Mortgage-Backed Securities Index is composed of all mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The Barclays Capital Asset-Backed Securities (ABS) Index include pass-through, bullet, and controlled amortization structures. The ABS index includes only the senior class of each ABS issue and the ERISA-eligible B and C tranches.
    • The Russell 2000 Index is an unmanaged index that consists of the 2,000 smallest companies in the Russell 3000 Index and represents approximately 10% of the total market capitalization of the Russell 3000. It is generally considered representative of the small-cap market.
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