Understand. Act.

Volatility as an Asset

Class

Allianz Volatility Strategy

Stefan Kloss

November 2013

2

Allianz Volatility Strategy

Reasons to Invest

Easy access to volatility

as an asset class

Allianz Volatility Strategy offers

the opportunity of participating

in the returns of volatility as an

asset class.

Diversification thanks to

low correlation

The strategy’s correlation with

other asset classes is mostly

low. This offers diversification

benefits.

Excellent performance

Since its launch the fund has

registered an attractive

performance by systematically

exploiting the variance

premium.

Please see also the risks at the end of the presentation.

3

Content

02

03

04

05

Investment Philosophy and Process

Performance and risk

Appendix

Volatility as an Asset Class is Attractive!

01

What is Volatility (as an asset class)?

01

What is Volatility (As an Asset Class)

4

Volatility Strategies: different strategies, different results

The strategies seek an

absolute return by using

different combinations of

options, e.g. to achieve

short straddle;

These strategies are very

sensitive to changes in

volatility

The underlying equity

exposure is not eliminated

100%

They aim at generating

income through the

sale of Volatility, and

can for example be

realized over rolling

short variance swaps

Volatility premiums

compound over a long

period but can also

reveal high drawdowns

at high volatility jumps;

Option Trading Strategies

• Flexible strategies can

take both long and short

positions

• Many of the strategies

aim to profit from mean

reversion behavior of the

volatility. The short

exposure is established

at historically low

volatility levels and the

long exposure at high

levels.

Short Volatility Flexible Strategies

"Hedge" instrument

against rising volatility

and falling equity

markets.

The strategy is the

primary objective, which

take a long exposure to

VIX or other volatility

indices

No absolute return

profile, benefits from

volatility swings and

suffers in times of low

volatility

Long Volatility

5 A performance of the strategy is not guaranteed and losses remain possible.

Flexible Volatility Strategies

• Flexible strategies can

take both long and short

positions

• Many of the strategies

aim to profit from mean

reversion behavior of the

volatility. The short

exposure is established

at historically low

volatility levels and the

long exposure at high

levels.

Description

• Absolute return profile,

can potentially offer good

returns in any market

phase

• Decorrelation with other

asset classes

Pros

• Either rules-based or

discretionary decisions

can create potential

problems.

• In times of persistent low

volatility, performance

weakness because of

the long volatility position

• In times of persistent

high volatility,

performance weakness

because of the short

volatility position

Cons

But: mean reversion is an expectation, not a rule: it just doesn’t have to happen

• Absolute Return product

with little to no

correlation with equity

(or any other) markets

Purpose

6 A performance of the strategy is not guaranteed and losses remain possible.

Flexible Volatility Strategies: An example

7

Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013.

Volatility Fund “X”:

Flexible

Flexible Volatility Strategies: Fund vs VIX

8

Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013.

Volatility Fund “X”:

Flexible

Long Volatility

These strategies take a

long exposure to VIX or

other volatility indices

Benefits from volatility

swings and suffers in

times of low volatility

Description

Offers protection in high

volatility environments,

especially sharp sell-offs

Acts as a hedge for

unexpected swings in

the equity market

Huge gains in very short

market stress periods

Pros

Very unattractive return

profile: not a profitable

strategy except during

very short periods of

market turmoil

Can be a costly hedging

strategy during long

spells of low volatility

Cons

Long Volatility Strategies are not an asset class outright, rather a hedge for equity risk

Hedging out equity risk

Purpose

9 A performance of the strategy is not guaranteed and losses remain possible.

Long Volatility: VIX Index

10

Source: CBOE. Data from April 9th, 2009 to June 13th, 2013.

VIX Index

Actual performance would be much worse than the chart, since premia would have to be paid out

Option Trading Strategies

These strategies seek

an absolute return using

options, e.g. Short

Straddle: simultaneously

selling a put and a call of

the same underlying

security, with the same

strike price and

expiration date. Profit is

limited to the premiums

of options, but if the

underlying security's

price goes sharply up or

down, potential losses

are very high.

Description

Absolute return profile

Potentially high

return/low volatility

profile

Work very well

regardless of market

conditions (except during

sharp selloffs)

Pros

These strategies are

very sensitive to

changes in volatility

Losses can be very high

during periods of

extremely high volatility

The underlying equity

exposure is not

completely eliminated

Cons

Option trading strategies offer an attractive risk/return proposition, but are not suitable for every investor.

Absolute return product

Decorrelation with other

asset classes

Risk profile resembles

short volatility strategies

Purpose

11

Option Trading Strategies: an example

Source: Allianz Global Investors. Data from April 9th, 2009 to June 13th, 2013.

12

Option Trading“Y”

using Short Straddle

Short Volatility Strategies

They aim at generating

income through the sale

of Volatility, and can for

example be realized over

rolling short variance

swaps

Description

Very attractive high

return/low volatility

profile

Short recovery time from

losses

Decorrelation with other

asset classes, except

during sharp volatility

increases

Pros

Can suffer high

drawdowns at high

volatility jumps;

The underlying equity

exposure is not

completely eliminated

Cons

Short Volatility Strategies offer a very attractive risk/return profile

Absolute return product

Decorrelation with other

asset classes

Purpose

13 A performance of the strategy is not guaranteed and losses remain possible.

Short Volatility Strategies: an example

Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013.

14

Volality Fund “Z”: Short

Volatility

Short Volatility Strategies: the rationale

Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-31/01/2013. Implied volatility

is proxied by the VSTOXX.

Variance Swap Profit Distribution

15

02

Volatility as an Asset Class is Attractive!

16

-40%

-20%

0%

20%

40%

60%

20002001200220032004200520062007200820092010201120122013

17

Volatility as an Asset Class is Investable and Provides a

Long-Term Chance of Positive Risk

Variance Risk Premium:

Variance Risk Premium: Difference between

realised variance, calculated based on daily

index levels, and implied variance, derived

from option prices.

The variance premium is usually negative

(here: in 83 % of all observations there is a

gain), so selling variance swaps (short positions)

will result in gains.

The average risk premium for the EuroStoxx50

during the period 01/2000-06/2013 was -3.8%.

Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-30.06/2013. Implied variance is proxied by the VSTOXX. No

guarantee for the actual performance of the Allianz Volatility Strategy can be given. Past performance is not a reliable indicator of future results.

17 % occurence

Verlustz

one

G

ew

inn

zo

ne

83 % occurence

Goal: Receive the negative risk premium by regularly selling implied volatility.

0%

5%

10%

15%

20%

25%

30%

-19% -15% -11% -7% -3% 1% 5% 9% 13% 17% 21% 25% 29% 33%

18

Distribution of the Variance Premium

Gains are regular and tend to be small, while

losses are comparatively rare, but larger.

A gain takes place if realised volatilities are

considerably below collected implied

volatilities (positive risk premium).

If realised volatilities are clearly above

collected implied volatilities, the short

position will result in a loss.

Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-31/10/2012. Implied volatility is proxied by the VSTOXX. There is

no guarantee for the actual performance of the Allianz Volatility Strategy.

17 % occurence of losses

83 % occurence of gains

Movements of the variance premium: Regular, usually relatively low gains and comparatively rare, but

higher losses.

The distribution of gains and losses is not symmetrical

03

Investment Philosophy and Process

19

20

Using Variance Swaps for easy Investments in the Variance

Risk Premium

1. Trading: OTC (over-the-counter)

2. Liquidity: By now very high for major equity

indices in normal market environments

3. Variance strike is equivalent to implied

variance and roughly equivalent to the

VSTOXX or VIX (new)

4. Main advantage: Permits direct participation in

the volatility risk premium

Definition Variance swap:

A financial derivative whose payout at

maturity is equivalent to the difference

between the squared realised volatility

(= realised variance) of the underlying

during a given period and the variance

strike:

payout =

Notional of the Swap * (realized

Variance – variance strike)

The fund sells variance swaps in order to benefit from the variance risk premium

21

The Allianz Volatility Strategy is based on the Rules of the

Variance Premium Trading Index™ (VPT)

Details

Index risklab Variance Premium Trading Index™ (“VPT Index”) (Subversion: Major Markets)

Bloombergticker RLABVPT <Index>

Investment strategy Systematic sale of variance swaps on equity indices in the framework of a strategy completely

determined by rules

Universe Variance swaps on EuroStoxx 50 and Standard & Poor’s 500 with lifetimes of less than 3 months

Rules

(Trading filter and money

management)

Rules on whether a position is entered into or not

Rules to determine the volume of a position

Clearly defined stop-loss limits for individual positions

Main sources of returns Money market (“EONIA”)

Variance risk premium (if negative, then positive returns and vice versa)

Base currency Euro

Main risk At maturity of the swaps: realised volatility exceeds implied volatility or swap rate

In the short term: significant increase in implied volatility

Further risks Exchange rate risk concerning the USD (usually very small)

22

The Allianz Volatility Strategy Offers Good Diversification

Opportunities for the Portfolio

Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. Monthly data for the period 31/12/1999-30/06/2013. Monthly data in local currencies, i.e. DAX and Euro Stoxx 50 in

EUR; MSCI World, DJ UBS, Tremont and JPM GBI Global in USD; Nikkei 225 in JPY. If the currency in which past performance is described is different from the investors‘ domestic currency,

investors should bear in mind that, due to exchange-rate fluctuations, the performance may be higher or lower in domestic currency terms. Past performance is not a reliable indicator of future results.

The fund is oriented

towards the Variance

Premium Trading

IndexTM (VPT).

The correlation of the

VPT Index to other

asset classes is

mostly moderate; this

applies particularly

with regard to

commodities and

bonds.

Equity Alternative Assets Bonds

VPT MSCI World DAX Nikkei 225 Euro Stoxx 50 DJ UBS Tremont JPM GBI Global

VPT 1 0.61 0.50 0.47 0.52 0.38 0.59 -0.01

MSCI World 1 0.82 0.67 0.87 0.47 0.65 0.14

DAX 1 0.55 0.94 0.21 0.49 -0.19

Nikkei 225 1 0.58 0.34 0.54 -0.14

Euro Stoxx 50 1 0.26 0.51 -0.13

DJ UBS 1 0.54 0.27

Tremont 1 0.13

JPM GBI Global 1

Korrelation <.,2 >+0.2 bis +0.6 >+0.6

23

The Investment Strategy at a Glance

The fund (= swap seller) consists of a money-market-oriented portfolio and several variance swaps concluded with

different investment banks (= swap buyers).

The performance of the individual variance swaps is key for the fund‘s performance.

The counterparty selection is based, among other things, on credit ratings of the counterparties.

The counterparties are regularly monitored by Allianz Global Investors’ proprietary risk management.

Money-market-oriented

portfolio

+

Swaps

Variance

Allianz

Volatility Strategy Counterparties

Payment of implied volatility under the

swap transactions

Payment of realised volatility under the swap

transactions

Swaps1

1 Only cash settlement, no physical delivery or swap of interest returns

24

Curriculum Vitae of Fund Manager

Stefan Kloss is a portfolio manager in the Multi Asset Active Allocation Strategies

team of Allianz Global Investors in Frankfurt. Stefan manages the Allianz Volatility

Strategy fund since inception 2009. Prior to joining Allianz Global Investors in 2005,

Stefan worked as a Manager in the Structured Credit Department of the credit insurer

Atradius and as a Systems Analyst with the consultancy McKinsey&Company. He

obtained a MSc from the KTH in Stockholm, a master´s degree in mathematics

(Diplom-Mathematiker) from the University of Karlsruhe and a PhD from the

University of Augsburg. Stefan is a CAIA chartholder.

Dr. Stefan Kloss, CAIA

Director

Senior Portfolio Manager

04

Performance and Risk

25

26

Performance Allianz Volatility Strategy in

Different Market Phases at a Glance

Figures as of 30/06/2013. Source: Allianz Global Investors (AllianzGI). Calculated at the net asset value, excl. front-end load, distributions reinvested. Calculation according to BVI method

(German Investment and Asset Management Association). Past performance is not a reliable indicator of future results. Any front-end loads (for this fund currently 0,00 %) reduce the capital

employed and the performance. The volatility of fund unit prices may be strongly increased.

0,7

%

2,0

%

1,9

%

0,4

%

1,1

%

1,6

%

0,1

%

-0,5

%

3,0

%

0,6

%

0,1

%

1,4

%

-0,4

%

-2,0

%

0,7

%

2,9

%

1,4

%

1,9

%

1,5

%

0,5

%

0,9

%

0,8

%

1,2

%

0,4

%

0,7

%

0,6

%

0,0

%

-0,2

%

-5,3

%

-2,2

%

3,9

%

-0,6

%

2,1

%

2,9

%

2,4

%

0,1

%

-0,2

%

0,0

%

-0,2

%

0,0

%

0,2

%

0,6

%

0,3

%

0,6

%

0,5

%

0,7

%

-0,1

%

0,3

%

-0,1

%

0,4

%

-0,5

%

32,0

%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

90

95

100

105

110

115

120

125

130

135

140

positive return

negative return

Oct.-Nov. 2009

No open trades due to the

trade filter. Comparable

strategies registered

losses during this period.

Dec. 2009-Febr. 2010

Best monthly performance since launch in

December (3%). Positive returns despite

uncertainty on the markets and declining

equity prices.

Apr.-May 2010

Extreme uncertainty and considerable

equity price swings resulted in losses.

implied volatilities more than doubled.

June 2011-Sept. 2011

Large daily movements

and extreme implied

volatilities result in losses

which are limited by the

stop-loss strategy.

June 2010-May 2011

Positive performance in slightly rising equity

markets due to stable variance premiums.

Dec. 2011-March 2012

In addition to the attractive

risk premium the fund

benefited from decreasing

market volatility.

2nd quarter 2012

Correction involving rising

volatility due to weak

economic data and concerns

over a potential “Grexit”.

Staying in the money market

proved beneficial for fund

performance.

2nd half of 2012

Uptrend due to improved economic

data and additional monetary stimuli

in the U.S. Fears over the stability of

the eurozone recede and volatility

decreases resulting in steady gains

for the variance swaps in the fund.

In principle, the VPT index will suffer from extreme

(positive or negative) intra-day movements of the

underlying equity index.

However, the index losses will be significantly higher

in case of strong negative intra-day movements, as

such fluctuations usually result in a considerable

increase in implied market volatility. This will lead to

additional losses on a mark-to-market basis.

The size of the losses stemming from market slides

will depend on the current volatility exposure, which

will fluctuate over time due to the strategy‘s rules.

A look at the largest daily losses in the past, which

came about under different volatility exposures, shows

the following indicative losses.

27

indicative daily loss of the VPT

index

trading

day

intra-day

move-

ment

S&P 500

VIX rise in

volatility

points

low

volatiliy

exposure

medium

volatility

exposure

high

volatility

exposure

actual

loss of

the VPT

index

19/10/1987 -20,4% 113,7 -1,4% -7,1% -54% -4,75%

31/08/1998 -6,8% 4,7 -0,3% -1,2% -9% -0,46%

11/09/2001 -4,9% 9,9 -0,2% -1,2% -9% 0,00%

15/10/2008 -9,0% 14,1 -0,5% -2,1% -15% -1,59%

Extreme Intra-Day Movements Are the Strategys‘ Main Risk

Past performance is not a reliable indicator of future results.

28

Allianz Volatility Strategy

Overview

Source: Allianz Global Investors; data as at 30/08/2013

Benchmark

Management company Allianz Global Investors Luxembourg S.A.

Sub-manager Allianz Global Investors Europe GmbH , Frankfurt

Risk class 4 : conservative

Fund manager Stefan Kloss

Financial year end 31/3/

Net assets 334.11 mn. EUR

-

Share class I - EUR IT - EUR P - EUR P2 - EUR PT2 - EUR

ISIN LU0417273579 LU0417273652 LU0417273223 LU0671146552 LU0719861360

German security no. A0RGFH A0RGFJ A0RGFF A1JHRJ A1JRA5

Registered for sale in DE, LU, IT DE, LU, ES, IT DE, LU DE, LU DE, LU, ES

Fund currency EUR EUR EUR EUR EUR

Distribution distributing accumulation distributing distributing accumulation

M in. investment (prospectus) 1,000,000 EUR 1,000,000 EUR 100,000 EUR 50,000 EUR 50,000 EUR

Launch date 07/04/2009 13/01/2011 27/04/2010 22/11/2011 10/01/2012

Share class volume 307.15 mn.EUR 20.02 mn.EUR 6.02 mn.EUR 0.05 mn.EUR 0.86 mn.EUR

Front-end load (%) 1

- - - currently 2.00 (max.

3.00)

currently 2.00 (max.

3.00)

M anagement fee (% p.a.) 1

currently 0.50 (max.

1.00)

currently 0.50 (max.

1.00)

currently 0.50 (max.

1.00)

1.00 1.00

Distribution fee (% p.a.)

TER (%) 2

0.69 0.69 0.73 1.22 1.21

1 Any front-end load charged at the acquisition of the fund units may accrue in full to the sales partner. The exact amount shall be mentioned by the sales partner during the investment advice

talks. This also applies to any trail fees paid by the Management Company to the sales partner from the management fee. 2 TER (Total Expense Ratio): Total cost (except transaction costs)

charged to the fund during the last financial year.

29

Allianz Volatility Strategy

Reasons to Invest

Easy access to volatility

as an asset class

Allianz Volatility Strategy offers

the opportunity of participating

in the returns of volatility as an

asset class.

Diversification thanks to

low correlation

The strategy’s correlation with

other asset classes is mostly

low. This offers diversification

benefits.

Excellent performance

Since its launch the fund has

registered an attractive

performance by systematically

exploiting the variance

premium.

Please see also the risks at the end of the presentation.

05

Appendix

30

31

Implied vs. Realised Volatility

Source: IDS, data from May 2009 – October 2013. Implied Volatility shifted 30 days.

32

Risklab VPT Index vs. VIX Index

Source: Bloomberg.

33

Historic Implied Volatility: VIX February 1990 – October 2013

Source: Bloomberg.

34

Disclaimer

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the full amount invested.

Allianz Volatility Strategy is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the

laws of Luxembourg. The volatility of the fund unit prices may be strongly increased. Past performance is not a reliable indicator of future results. If the

currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be

aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency.

This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The

products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted

by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account

the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The views and

opinions expressed herein, which are subject to change without notice, are those of the issuer and/or its affiliated companies at the time of publication. The data

used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not

guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or willful misconduct. The

conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.

Contact the management company Allianz Global Investors Luxembourg SA in the fund's country of domicile Luxembourg or the issuer electronically or via mail at

the address indicated below for a free copy of the sales prospectus, the incorporation documents, the latest annual and semi-annual financial reports and the key

investor information document in English. Please read these documents - which are solely binding - carefully before investing.

This is a marketing communication. Issued by Allianz Global Investors Europe GmbH (www.allianzgi.com), a limited liability company incorporated under the laws

of Germany with its registered office at Bockenheimer Landstrasse 42-44, D-60323 Frankfurt/Main, authorized and regulated by Bundesanstalt für

Finanzdienstleistungsaufsicht (www.bafin.de). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted.

Allianz Volatility Strategy

35