Fresno County Employees' Association

Strategy review

October 2019

Lipper Asset Class Group Awards are awarded to eligible fund family groups and not individual funds.

Best Group over 3 Years Large Equity (2019, 2013, 2012, 2011, 2010)

The Lipper Fund Best Group over 3 Years Large Equity award recognizes funds that have delivered consistently strong risk-adjusted performance, relative to peers. From Lipper Fund Awards from Refinitiv, ©2019 Refinitiv. All rights reserved. Used under license. ) For institutional use only Disclosures

This material is to be used for one-on-one separate account presentations to institutional and not for any other purpose. These materials are being provided on the express basis that they and any related communications (whether written or oral) will not cause Pacific Company LLC (or any affiliate) (collectively, “PIMCO”) to become an investment advice fiduciary under ERISA or the Internal Revenue Code, as the recipients are fully aware that PIMCO (i) is not undertaking to provide impartial investment advice, make a recommendation regarding the acquisition, holding or disposal of an investment, act as an impartial adviser, or give advice in a fiduciary capacity, and (ii) has a financial interest in the offering and sale of one or more products and services, which may depend on a number of factors relating to PIMCO (and its affiliates’) internal business objectives, and which has been disclosed to the recipient. These materials are also being provided on PIMCO’s understanding that the recipients they are directed to are all financially sophisticated, capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. If this is not the case, we ask that you inform us immediately. You should consult your own separate advisors before making any investment decisions.

These materials are also being provided on the express basis that they and any related communications will not cause PIMCO (or any affiliate) to become an investment advice fiduciary under ERISA or the Internal Revenue Code with respect to any recipient or any employee benefit plan or IRA because: (i) the recipients are all independent of PIMCO and its affiliates, and (ii) upon review of all relevant facts and circumstances, the recipients have concluded that they have no financial interest, ownership interest, or other relationship, agreement or understanding with PIMCO or any affiliate that would limit any fiduciary responsibility that any recipient may have with respect to any Plan on behalf of which this information may be utilized. If this is not the case, or if there is any relationship with any recipient of which you are aware that would call into question the recipient’s ability to independently fulfill its responsibilities to any such Plan, we ask that you let us know immediately.

The information provided herein is intended to be used solely by the recipient in considering the products or services described herein and may not be used for any other reason, personal or otherwise. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 949.720.6000

1 Biographical information

R. Matthew Clark, CFA, CAIA

Mr. Clark is a senior vice president and account manager in the Newport Beach office with a focus on institutional client servicing. Prior to joining PIMCO in 2002, he served as an officer in the U.S. Army for eight years, achieving the rank of captain. Mr. Clark currently serves on the of Working Wardrobes, an Orange County-based charity that helps individuals with employment barriers find meaningful work. He has 18 years of investment experience and holds an MBA from Harvard Business School. He received an undergraduate degree from Trinity University, San Antonio.

Raji O. Manasseh, CFA

Mr. Manasseh is a senior vice president and equity strategist in the Newport Beach office. Prior to joining PIMCO in 2012, he was a vice president and client portfolio manager on Goldman Sachs 's (GSAM) fundamental equity team, working with a variety of clients from financial advisors to institutional consultants. Previously he was a product manager and an internal sales consultant at GSAM, and a medical researcher at Loyola University Chicago Stritch School of Medicine. He has 19 years of investment experience and holds an undergraduate degree in biology from Wheaton College in Illinois. He is a member of the CFA Society of Orange County.

2 Agenda

1. FCERA StocksPLUS Small AR

2. FCERA RAE Fundamental International

3. Appendix

3 1. FCERA StocksPLUS Small AR StocksPLUS Small: An innovative strategy that benefits from PIMCO’s core strengths

StocksPLUS = Return from Russell + Active high quality Small 2000 equity exposure bond portfolio

How StocksPLUS works…

EFFICIENCY . Gain passive equity exposure to the index through futures and total return swaps

. Invest in a high quality, actively managed bond alpha portfolio with meaningful return potential over QUALITY

CONSISTENCY . Seek to take advantage of structural return opportunities in the in an effort to deliver consistent excess returns

FINANCING . Russell 2000 Index futures have historically traded below cash rates, providing an additional structural ADVANTAGE advantage

The bond portfolio is designed to be…

. Uncorrelated to equities . High quality

. Highly liquid . Flexible

stocksplus_phil_02a_751 5 StocksPLUS Small AR: Passive equity exposure complemented by alpha

BETA ALPHA

4.24%

7.01% 3.48% 7.01%

3M LIBOR 3M LIBOR 1.60% 1.60% -0.77%

Russell 2000 AR Bond Portfolio Equity Financing PIMCO StocksPLUS Small AR Rep. Account Index Return + Return vs. ‒ Spread vs. = Total Return (Before fees) 3M LIBOR 3M LIBOR

As of 30 June 2019 * Since inception, 31 March 2006 Past performance is not a guarantee or a reliable indicator of future results. Performance is shown for the StocksPLUS Small AR representative account before fees. Bond Alpha Portfolio returns are estimated based off of historical financing costs and composite alpha. Financing costs are comprised of 3m LIBOR and a positive or negative spread to LIBOR (also known as “roll costs”) The above data is for a representative account. An investor should refer to the PIMCO StocksPlUS Small AR Composite included in the Appendix

stocksplus_TR_phil_01_751a 6 PIMCO StocksPLUS suite A time-tested approach that seeks meaningful -term excess returns

Since inception performance Excess returns (before fees) Benchmark 12.0% 1.27% 10.0% 2.45% 4.05% 3.03% 8.0%

6.0% 10.43% 2.80% 8.81% 4.0% 7.06% 6.95%

2.0% 3.45%

0.0% PIMCO StocksPLUS PIMCO StocksPLUS PIMCO PIMCO PIMCO StocksPLUS International AR Enhanced Equity StocksPLUS Absolute StocksPLUS Small AR International AR Composite (USD- Composite Return Composite Composite Composite Hedged) Inception date 31 Jul '86 30 Jun '02 30 Apr '06 31 Jan '06 30 Nov '03

Composite vs. benchmark monthly 96% 92% 100% 100% 98% rolling 5-year periods outperformance

MSCI EAFE Net MSCI EAFE Net Benchmark S&P 500 Index S&P 500 Index Russell 2000 Index Dividend Index USD-Hedged Index

Bond Alpha Strategy -term Absolute return Absolute return Absolute return

Past performance is not a guarantee or a reliable indicator of future results. As of 30 June 2019. Performance shown are before fees. Refer to Appendix for additional performance and fee, chart, composite, index, and risk information.

stockplus_perf_comp_summary 7 StocksPLUS Small has an additional source of return potential

Index Typical Range (bps) • The difficulty in shorting individual S&P 500 -15 to 15 small cap stocks tends to lead investors Russell 2000 -75 to 0 to sell the Russell 2000 as a substitute for short sales MSCI EAFE -15 to 25 MSCI EM -15 to 50 • This dynamic tends to create a supply/demand imbalance that causes Russell 2000 futures financing cost annualized spread relative to LIBOR per the Russell 2000 futures contract to roll quarterly expiration “cheap” 50

0 • Costs and operational challenges associated with shorting individual small cap stocks tends to prevent this -50 “cheapness” from being arbitraged

away -100

Average: -73 bps -150 Annualized financing cost (bps) cost financing Annualized

-200

-250 03Q3 05Q2 07Q1 08Q4 10Q3 12Q2 14Q1 15Q4 17Q3 19Q2

As of 30 June 2019. Source: PIMCO, of America Merrill Lynch The terms “cheap” in this context refers to a futures contract that is deemed to be substantially underpriced compared to futures contracts on other equity indices. There is no guarantee of future results or that a valuation will ensure a profit or protect against a loss. A financing cost at a discount to LIBOR can be viewed as a potential source of return to the fund.

stocksplus_review_54 8 StocksPLUS aims to deliver consistent long-term excess returns

PIMCOStocksPLUS StocksPLUS Enhanced Enhanced Equity EquityComposite Composite PIMCOStocksPLUS StocksPLUS Absolute Absolute Return ReturnComposite Composite PIMCOStocksPLUS StocksPLUS Small SmallAR Composite AR Composite (beforeRolling fees) 5-Year vs S&P Returns 500 index, vs. S&P rolling 500 Indexmonthly (beforeRolling fees)5-Year vs S&PReturns 500 vs.Index, S&P rolling 500 Index monthly (beforeRolling fees) 5-Year vs Russell Returns 2000 vs. Index,Russell rolling 2000 monthlyIndex 5-yrJuly returns 1986 – from June 312019 Jul '86 through 31 Dec '18 5-yrJune returns 2002 – from June 302019 Jun '02 through 31 Mar '19 5-yrApril returns 2006 from– June 30 2019 Apr '06 through 31 Mar '19

40 40 40 Outperformed Outperformed Outperformed 30 323 periods 30 134 periods 30 99 periods

20 20 20

10 10 10 Returns (%) Returns (%)

Returns (%) 0 0 0

-10 Underperformed -10 Underperformed -10 Underperformed 13 periods 11 periods 0 periods -20 -20 -20 -20-100 10203040 -20-100 10203040 -20-100 10203040 Benchmark returns (%) Benchmark returns (%) Benchmark returns (%)

96% outperformance 92% outperformance 100% outperformance

1.26% average alpha 2.47% average alpha 4.55% average alpha

As of 30 June 2019 Past performance is not a guarantee or a reliable indicator of future results. Performance shown are before fees. Outperformance does not necessarily mean positive performance. Refer to Appendix for additional performance and fee, chart, composite, index and risk information.

risk_cons_1004_1000_984_BF 9 StocksPLUS portfolio managers benefit from the full breadth and depth of PIMCO’s investment expertise

Americas Portfolio Committee European Portfolio Committee Asia-Pacific Portfolio Emerging Markets Portfolio (AmPC) (EPC) Committee (APC) Committee (EMPC)

GLOBAL INVESTMENT COMMITTEE (IC)

MohsenLondon Fahmi . Managing DirectorMunich Toronto Zurich . Investment Committee Member New York Newport Beach . Lead StocksPLUS portfolio manager Tokyo . 34 years investment experience Hong Kong

Jing Yang Equity Trading Desk Bryan Tsu

. Executive Vice President . Six experienced equity traders Singapore. Executive Vice President . StocksPLUS portfolio manager . Lead trader: Eden Simmer, . StocksPLUS portfolio manager . 14 years investment experience Executive Vice President, . 14 years investment experience 13 years investment experience

Sydney

CIO TEAM AND SECTOR SPECIALIST DESKS

. Governments/ Futures . Mortgages/ABS . High . Municipals Options/ Swaps . Short-term/Cash management . Equities . Risk management . Asset allocation . Investment grade . Emerging markets . Real return . Global . Bank . Credit research . Portfolio analytics . Long duration/ LDI

As of 30 June 2019

stocksplus_orga_06 10 The StocksPLUS investment process taps into PIMCO’s best macro and bottom-up investment ideas

ANALYSIS OF PORTFOLIO STRUCTURE: PORTFOLIO MACROECONOMIC COMBINING TOP-DOWN WITH BOTTOM-UP CONSTRUCTION FUNDAMENTALS

Cyclical / PIMCO Investment Committee / StocksPLUS PM team Secular forums StocksPLUS PM Team

Assess risk and correlation across portfolio themes

GDP and inflation Top-Down Positioning Bottom-Up Positioning across regions Across Global Risk Premia and Tactical Opportunities Scale themes by conviction . . Relative value positions within target portfolio risk Country, FX views . Credit . Single name opportunities . Currency . Tactical/Opportunistic . Volatility positions . Liquidity Stress test portfolio to check diversification characteristics Regional portfolio committees

Ensure adequate liquidity

Refer to Appendix for additional investment strategy and risk information.

stocksplus_phil_04 11 StocksPLUS Small AR composite excess returns are designed to be uncorrelated with equity and bond markets

StocksPLUS Small correlation of excess returns to Russell 2000 Index (rolling 1-year) Correlation of excess return to U.S. Equities 1.0 . Bond alpha strategy designed to have a low

0.5 correlation to equities as we seek to generate alpha while maintaining an equity beta of ~1.0

0.0 . Portfolio construction focused on balancing the risks of strategies that are typically correlated with -0.5 equities (EM, high yield credit) against risk- Last five year average: 0.16 mitigation strategies (US duration) -1.0 Jun '14 Jun '15 Jun '16 Jun '17 Jun '18 Jun '19

StocksPLUS Small correlation of excess returns to Barclays U.S. Aggregate (rolling 1-year) 1.0 Correlation of excess return to U.S. Bonds

0.5 . Bond alpha strategy aims to maintain a low correlation to Barclays U.S. Aggregate, providing 0.0 diversified exposure across risk factors

-0.5 . Flexible mandate and global opportunity set Last five year average: -0.10 offers the potential to generate alpha across a -1.0 variety of market environments Jun '14 Jun '15 Jun '16 Jun '17 Jun '18 Jun '19

As of 30 June 2019 SOURCE: Bloomberg, PIMCO calculations. Performance shown is net of actual account fees, daily observations. Past performance is not a guarantee or a reliable indicator of future results. The above data is for a representative account. An investor should refer to the PIMCO StocksPLUS Small AR Composite included in the Appendix

stocksplus_TR_review_23_751a 12 StocksPLUS Small AR seeks to provide a diversifying source of excess returns

3-year rolling correlation: PIMCO StocksPLUS Small AR Composite & top quartile active manager excess returns¹ 1.00

0.80

0.60

0.40

0.20 Average since 2006: ‐0.19 0.00

-0.20

-0.40

-0.60

-0.80

-1.00 Apr '09Apr '10Apr '11Apr '12Apr '13Apr '14Apr '15Apr '16Apr '17Apr '18Apr '19

As of 30 June 2019 Returns are gross of fees 1As reported by eVestment. 3-year correlation of monthly excess returns (gross of fees) between PIMCO StocksPLUS Small AR Composite & top quartile active manager returns within the eVestment US Small Cap Core Equity Universe. Past performance is not a guarantee or a reliable indicator of future results.

stocksplus_TR_review_11_751 13 Why invest in PIMCO StocksPLUS Small

1

StocksPLUS offers a time-tested approach to equity investing

2

StocksPLUS taps into PIMCO’s global resources to seek consistent excess returns

3

StocksPLUS offers a diversifying source of alpha within an equity allocation

4 Russell 2000 Index futures have historically traded below cash rates, providing an additional structural advantage

Refer to Appendix for additional investment strategy and risk information.

stocksPLUS_TR_review_13_751 14 Bond alpha strategy FCERA StocksPLUS Small AR performance

FCERA StocksPLUS Small AR Market value as of Aug '19 $ 177,614,780

S.I. ## YTD 14 Feb '18 1 yr. 6 mos. 3 mos. # 31 Aug '19 Before fees (%) 0.6 -12.9 -4.3 2.4 ## 13.0 After fees (%) 0.2 -13.3 -4.4 2.4 ## 12.7 Benchmark (%) 0.2 -12.9 -4.4 2.4 ## 11.9 After fee alpha (bps) -1 -40 1 -2 88

As of 31 August 2019 All periods longer than one year are annualized Benchmark: Portfolio realignment period from COB 02/13/2018 to COB 02/28/2018; Russell 2000 Index from COB 02/28/2018

734_perf_sep 16 FCERA StocksPLUS Small AR positioning

Historical Trend Breakdown Dec '18 Mar '19 Jun '19 Aug '19

Duration-Weighted Exposure (DWE) 2 1.3 2.0 1 0.0 1.5 1.30 0 (1) (0.0) (0.0) (0.0)

1.0 DWE (yrs) (2) 0.5 US Europe UK Japan EM Local 0.0 -0.5 4 2.0 1.1 0.9 -1.0 2 0 Total DWE (years) DWE Total -1.5 (2) 0.0 DURATION/CURVE -2.0 DWE (yrs) (4) -2.7 Feb '18 Aug '18 Feb '19 Aug '19 0-1 yr 1-5 yr 5-10 yr 10-20 yr >20 yr

Market-Weighted Spread (MWS) Corporate Credit 9.0 1.5 1.2 1.1 8.0 1.0 7.0 0.5 0.1 0.2

6.0 (yrs) MWS 0.0 5.0 Total Corporate Investment Grade High Yield Financials 4.0

2.59 Securitized & EM Other Spread* Years Duration 3.0 1.5 1.4 SPREAD 1.1 0.9 2.0 1.0 Total MWS (years) MWS Total 0.5 1.0 0.1 0.0 MWS (yrs) MWS 0.0 Non-Agency Emerging Markets Agency MBS Real Duration Feb '18 Aug '18 Feb '19 Aug '19 MBS/Other Spread Duration (TIPS)

15 6 3.2 10 4 2 0.6 5 (1.80) 0 FX 0 (%)FX (2) -5 (4) (1.7) (2.0) Net USD (%) USD Net Feb '18 Aug '18 Feb '19 Aug '19 Net USD Non-US DM Asia EM High Carry EM

As of 31 August 2019 *Agency MBS shows mortgage spread duration and TIPS shows real duration

mk_cs_SPAR_stru_02_751a 17 Additional information Overview of PIMCO StocksPLUS strategies

• Launched in 1986, the StocksPLUS strategies have been tested across a variety of market environments

• With $35 billion in , the StocksPLUS strategies have assisted both individual and institutional clients in their domestic and international equity allocations

• PIMCO awarded Equity Asset Class Lipper Award five times: 2010, 2011, 2012, 2013, and 2019

StocksPLUS AUM by Equity Exposure StocksPLUS AUM by Client Type

Int'l/Global $10.5 Emerging Markets $4.2 Institutional $26.5

U.S. Small $2.5 Retail $8.3

U.S. Large $17.6

As of 30 June 2019 The Lipper Fund Best Group over 3 Years Large Equity award recognizes funds that have delivered consistently strong risk-adjusted performance, relative to peers.

stocksplus_phil_10_sep 19 PIMCO StocksPLUS® Small has fared well in rising interest rate environments

Rising rate periods of 3 or more consecutive months StocksPLUS Small AR Representative Account Net Excess Returns vs. Russell 2000 Index (LHS) Bloomberg Barclays US Aggregate Index Return (LHS) Change in 10-year U.S. Treasury yield (RHS) 12 120 111 bps 10 100 bps 100 bps 100

87 bps 8 80 74 bps

6 60 Change in 10yr UST 10yr in Change

4 43 bps 40

2 22 bps 23 bps 20

Returns (%) 11 bps

0 0

-2 -20

-4 -40

-6 -60 Mar '09 – Jun '09 Aug '10 – Mar '11 Jul '12 – Oct '12 Apr '13 – Aug '13 Mar '15 – Jun '15 Sep '15 – Dec '15 Feb '16 – May '16 Jul '16 – Jan '17 Aug '17 – Feb '18

As of 30 June 2019 SOURCE: Bloomberg, PIMCO calculations. Representative account information presented is provided as supplemental information to the PIMCO StocksPLUS Small AR Composite performance presentation included in the Appendix. Past performance is not a guarantee or a reliable indicator of future results. Criteria for chosen periods takes all periods of consecutive rate rising months of the U.S. 10 year Treasury, in which the increase in rates over three or more consecutive months. The model will continue adding consecutive months if rates are flat month over month.

stocksPLUS_TR_review_20_751_sep 20 StocksPLUS® is designed to navigate various Treasury changes

PIMCO StocksPLUS Small Representative Account has outperformed the Russell 2000 Index in over 60% of monthly periods of both steepening and flattening yield curve changes1

StocksPLUS Small AR Representative Account (Net) Russell 2000 Index 9.00% 8.05% 8.00%

7.00% 6.10% 6.00%

5.00%

4.00%

3.00% 2.32% 2.00% 0.90% 1.00%

0.00% Steepening Flattening 73 of 158 Monthly Periods 85 of 158 Monthly Periods

As of 30 June 2019 SOURCE: Bloomberg, PIMCO calculations. 1Represented by the relative yield change of the U.S. 2 year and 10 year Treasuries Representative account information presented is provided as supplemental information to the PIMCO StocksPLUS Small AR Composite performance presentation included in the Appendix. Past performance is not a guarantee or a reliable indicator of future results.

stocksPLUS_TR_review_21_751_sep 21 2. FCERA RAE International Market review Dovish global commentary calmed markets despite investor jitters

Q2 '19 YTD 25 21.3 21.0 19.9 20 18.5 18.8 17.0 17.0 16.2 16.2 14.9 15 13.1 13.4

10.6 9.9 10 7.5 5.8

Returns (%) 4.0 4.3 4.2 4.1 5 3.6 3.3 3.0 2.1 2.3 0.6 0.5 0

-5 -2.4 MSCI ACWI MSCI MSCI S&P 500 Russell Russell Russell U.K. Europe Japan Brazil Russia India China World EM 1000 MidCap 2000 Global U.S. Non-U.S. developed markets Emerging markets • Developed market stocks rose 4.0% • U.S. equities increased 4.3% on • In Europe and Japan, equity markets • Brazilian equities rose 5.8% amid overall in the second quarter, as dovish heighted expectations for Fed interest increased 3.0% and 0.5%, respectively, investor optimism surrounding global central bank commentary rate cuts. as global risk appetite improved due to President Bolsonaro’s pension-overhaul calmed markets. The rally was • From a market cap perspective large- increasingly dovish policy shifts from proposal. punctuated by volatility midway caps were the top performer. The S&P the European Central Bank and the • Chinese equities returned -2.4% as they through the quarter due to signs of 500 and Russell 1000 returned 4.3% Bank of Japan. Most notably, market struggled to recover from concerns of slowing global growth and ongoing and 4.2%, respectively. Followed by appreciation was driven by price- slowing economic growth and trade tensions between the U.S. and Russell MidCap and Russell 2000 multiple expansion (i.e., higher price-to- increased tariffs by the U.S. China. returning 4.1% and 2.1%, respectively. earnings ratio). • In India, stocks increased 2.8% on • Emerging market stocks rose 0.6% in hopes for continued economic reform the second quarter, while performance under newly reelected Prime Minister across regions was mixed as Chinese Modi. equities struggled to recover from • Russian equities surged 13.4% as the concerns of slowing economic growth ruble strengthened and a significant and increased tariffs by the U.S. increase in Gazprom’s dividend increased demand from foreign investors seeking value opportunities in local markets.

As of 30 June 2019. SOURCE: Bloomberg, PIMCO Global and US Equity indexes represent returns in USD. Non-US Developed and EM indexes represent returns in local currency.

2cs_SPAR_review_01 24 Technology stocks led the market while the broader market continued to grind higher

MSCI EAFE Index sector returns Q2 '19 YTD 25 23.1

20 18.1 17.6

14.9 15 14.4 14.1 12.1 11.4 11.4 11.8

10 8.9

Returns (%) 6.7 6.2 6.2 4.7 5 4.2 3.9

2.2 2.2 1.8 0.7 0

-2.1 -5 Tech Consumer Industrials Financials Comm. serv. Materials Consumer Health care Utilities Energy Real estate disc. stap.

As of 30 June 2019 SOURCE: PIMCO

2cs_rae_review_01_EAFE 25 In Q2 ’19, value stocks underperformed growth across most regions and market capitalizations

Returns: Value - growth Q2 '19 YTD 2

0.7

0

-0.8 -2 -1.4

-2.6 -2.8 -4 -3.5 Percent (%) Percent -4.2

-5.3 -6

-6.9 -7.2 -8 -7.7

-8.9 -10 Russell 1000 Russell 2000 MSCI EAFE MSCI EM MSCI ACWI MSCI ACWI ex-U.S.

As of 30 June 2019 SOURCE: Bloomberg Developed Markets: MSCI World Index and Emerging Markets: MSCI Emerging Markets Index. .

2cs_rae_review_02 26 The underperformance of value in international equities remains near its widest

International equities: Value minus growth Annualized trailing 10-year relative total return MSCI EAFE Value - MSCI EAFE Growth Avg. 10th percentile 90th percentile 7%

6%

5%

4%

3%

2%

1%

0%

-1%

-2%

-3%

-4% '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17

As of 30 June 2019 SOURCE: Bloomberg

2cs_rae_review_03_eafe 27 There is value in Value Value is priced attractively across the globe

Rel. value U.S. (July 1968 - Jun 2019) Median International (July 1989 - Jun 2019) Emerging Markets (July 2002 - Jun 2019) 0.45 10th percentile 0.55 0.45 90th percentile

0.50 0.40 0.40 Growth cheaper 0.45 0.35 0.35 0.40 0.30

0.35 0.30 Relative valuation Relative Relative valuation Relative Relative valuation Relative 0.25 0.30 0.25 0.20 0.25

0.20 0.15 0.20 Value cheaper

0.10 0.15 0.15 1968 1976 1984 1992 2000 2008 2016 1989 1993 1997 2001 2005 2009 2013 2017 2002 2005 2008 2011 2014 2017 Relative valuation (Value/Growth) Median Dec-17 Dec-18 Jun-19 Inception U.S. 26.9% 24.5% 21.0% 21.6% 1968 International 38.0% 36.3% 31.7% 27.1% 1989 Emerging Markets 31.8% 26.2% 24.7% 25.5% 2002

As of 30 June 2019. SOURCE: Research Affiliates, CRSP, Compustat, Worldscope, Datastream. US universe comprised of US companies in the CRSP/Compustat database. International and emerging markets universes are comprised of developed ex-US and emerging markets companies in the Worldscope/Datastream database. The terms “cheap” and “rich” as used herein generally refer to a or asset class that is deemed to be substantially under- or overpriced compared to both its historical average as well as to the investment manager’s future expectations. There is no guarantee of future results or that a security’s valuation will ensure a profit or protect against a loss. Valuation based on price-earnings, price-sales, price-cash flow, price-, price-book

RAE_review_18 28 2cs_rae_review_04 Year to date stocks with rich valuations drove developed market equity returns, while in emerging markets performance was mixed

Performance by valuation: S&P 500 Performance by valuation: MSCI EAFE Performance by valuation: MSCI EM 18 12 8 Price-earnings Price-earnings Price-earnings Price-book Price-book Price-book 16 10 14 6

12 8

10 4

6 Return (%) Return (%) Return (%) 8

6 4

2 4 2 2

0 0 0 Top ha lf Bottom ha lf Top ha lf Bottom ha lf Top ha lf Bottom ha lf S&P 500 return: 18.54% MSCI EAFE return: 14.03% MSCI EM return: 10.59%

As of 30 June 2019 SOURCE: FactSet

2cs_rae_review_05 29 RAE strategy review Research Affiliates’ RAE team

PORTFOLIO MANAGERS

Rob Arnott Chris Brightman Research Affiliates Chairman Research Affiliates Chief Investment Officer

ACADEMIC ADVISORY PANEL Campbell Harvey, Ph.D., Partner, Jason Hsu, Ph.D., Partner, Senior Juhani Linnainmaa, Ph.D., Advisor Alex Edmans, Ph.D., Advisor Senior Advisor Advisor • Professor of Finance and • Professor of Finance, London • Professor of Finance at Fuqua • Chairman & CIO, Rayliant Business Economics at USC Business School School of Business at Duke Global Advisors Marshall School of Business University

RESEARCH AND INVESTMENT MANAGEMENT 25 person team contributing to equity strategies across the following groups:

Equity Research – Collaborate with PMs and the Academic Advisory Panel to develop new and improve existing portfolio insights; test those ideas for persistence, robustness, pervasiveness, and intuition

Product Research – Confirm Equity Research conclusions and translate those insights into investable portfolios

Investment Systems– Create and maintain the software code used to generate replicable portfolios based on the Product Research team’s specifications

Portfolio Construction – Build portfolios and test for quality control using the Investment Systems team’s software

As of 30 June 2019 rae_orga_01 31 RAE’s value-oriented investment philosophy

“The largest and most persistent active investment opportunity is long-horizon mean reversion.” – Research Affiliates

• In the short term stock prices deviate from “fair value” but over time revert back towards it

• Investors can profit from this mean reverting pattern, by Fair value systematically trading against the market Stock Price Short-term mispricing • This involves buying stocks that have underperformed (hence becoming cheaper and better value), while selling those that are popular (and hence expensive and over-priced)

SOURCE: Research Affiliates

cs_rae_phil_01 32 A systematic, contrarian approach to equity investing

PIMCO RAE Methodology 1. 2. 3. Select and weight stocks by Incorporate quantitative Rebalance the portfolio back non-price measures of insights to improve portfolio to fundamental weights, company size returns contra-trading against recent price movements 1 1

Sales Quality

2 2 Rebalance Cash flow Momentum

3 3

Dividends Style Diversification

4 4

Book Value Size Diversification

SOURCE: Research Affiliates

cs_rae_phil_01 33 RAE systematically trades against price movements, deepening its discount to the market when value is cheapest

Discount to MSCI EAFE Index Discount to MSCI EAFE Value Index Example: RAE International: Aggregate valuation discount* Median discount vs. core Median discount vs. value -0.30

-0.20

-0.10

0.00

0.10

Valuation discount (%)Valuation 0.20

0.30

0.40

0.50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

As of 30 June 2019 *Average valuation discount based on price-earnings, price-sales, price-cash flow, price-dividends, price-book since representative account inception.

2cs_rae_review_07_INT 34 RAE_fundamental_review_24_1583 FCERA-RAE International performance review

FCERA-RAE International Market value as of Aug '19 $ 287,863,233 Performance Before fees (%) MSCI EAFE Index (%) MSCI EAFE Value Index (%) 12 10 8 6 4 2 0 -2

Returns (%) -4 -6 -8 -10 S.I. 3 yrs. 1 yr. 6 mos. 3 mos. YTD 30 Apr '11 Aug '19

S.I. YTD 30 Apr '11 5 yrs. 3 yrs. 1 yr. 6 mos. 3 mos. 31 Aug '19 Before fees (%) 3.41 0.99 5.64 -6.95 -3.52 0.60 5.05 After fees (%) 3.22 0.82 5.45 -7.06 -3.57 0.58 4.98 MSCI EAFE Index 3.21 1.89 5.91 -3.26 0.34 1.88 9.66 MSCI EAFE Value Index 1.63 -0.80 3.79 -7.42 -5.30 -1.27 2.72 After fee alpha vs. core (bps) 1 -107 -46 -380 -391 -130 -468 After fee alpha vs. value (bps) 159 162 166 36 173 185 226 As of 31 August 2019 All periods longer than one year are annualized.

15916 35 FCERA-RAE International vs MSCI EAFE YTD 2019 sector and country attribution

FCERA-RAE MSCI EAFE ATTRIBUTION ANALYSIS INTERNATIONAL Allocation Selection + Total Average Total Average Total Total GICS sector effect interaction currency weight (%) return (%) weight (%) return (%) effect (bps) (bps) (bps) effect (bps) Communication Services 7.8 1.95 5.5 7.53 -7 -35 -4 -46 Consumer Discretionary 10.3 1.80 11.1 10.69 -3 -89 5 -87 Consumer Staples 7.1 10.60 11.7 17.32 -33 -45 5 -74 Energy 7.2 -1.94 5.6 -1.97 -15 -17 10 -22 Financials 26.0 2.29 19.1 2.53 -45 -38 27 -56 Health Care 8.2 12.37 11.2 15.34 -16 -20 -3 -39 Industrials 12.8 9.23 14.6 11.31 -5 -33 8 -30 Information Technology 4.2 12.94 6.4 18.09 -15 -30 7 -38 Materials 5.0 4.71 7.3 6.89 1 -17 7 -9 Real Estate 2.3 4.64 3.7 8.20 1 -9 0 -8 Utilities 8.6 4.61 3.8 10.35 6 -52 4 -43 Total 100.0 5.09 100.0 9.66 -132 -385 66 -451

Allocation Selection + Total Average Total Average Total Total Country effect interaction currency weight (%) return (%) weight (%) return (%) effect (bps) (bps) (bps) effect (bps) Top three countries Canada 8.0 17.06 0.0 0.00 14 0 34 48 United States 0.6 24.01 0.1 9.34 -1 5 2 5 Hong Kong 2.0 -1.14 4.0 3.52 17 -9 -3 4 Bottom three countries United Kingdom 15.3 1.86 16.8 5.78 -1 -60 11 -50 France 10.5 4.47 11.1 13.66 -4 -87 2 -89 Japan 24.7 0.49 24.1 6.81 -3 -144 2 -145 As of 31 August 2019 SOURCE: PIMCO, FactSet The attribution analysis contained herein is calculated by PIMCO and is intended to provide an estimate as to which elements of a strategy contributed (positively or negatively) to a portfolio's performance. The attribution results contain certain assumptions that require elements of subjective judgment and analysis. Attribution analysis is not a precise measure and should generally be considered within a range (e.g., +/- 5 bps). Further, attribution analysis should not be relied upon for investment decisions. Returns are in USD

2cs_rae_attrib_01_15663 36 FCERA-RAE International characteristics

Number of P/E (Trailing Weighted avg Portfolio characteristics holdings 12-Mo) P/S P/B Dividend yield market cap ($mm) FCERA-RAE International 757 11.7 0.7 1.1 4.1 44,052.3 MSCI EAFE Index 912 14.8 1.1 1.6 3.4 53,511.1 MSCI EAFE Value Index 481 11.3 0.8 1.1 4.7 49,031.6

MSCI MSCI EAFE MSCI MSCI EAFE Top 10 Holdings FCERA (%) Sector Allocations FCERA (%) EAFE (%) Value(%) EAFE (%) Value (%) Banco Santander 1.2 0.5 1.1 Financials 26.1 18.9 30.3 BP 1.2 1.0 2.1 Industrials 13.0 14.8 10.8 Nestlé 1.2 2.3 -- Consumer Discretionary 10.0 11.1 10.1 Sanofi 1.2 0.7 1.4 Utilities 8.4 3.7 6.2 HSBC 1.1 1.2 2.5 Health Care 8.2 11.2 6.3 Shell 1.1 1.9 4.0 Communication Services 8.0 5.4 7.3 Glaxonsmithkline 1.0 0.7 1.5 Consumer Staples 7.2 11.7 2.9 Novartis 1.0 1.4 1.0 Energy 6.9 5.5 10.2 Total 1.0 1.0 2.0 Materials 5.1 7.4 9.3 Roche Holding 0.9 1.4 -- Information Technology 4.3 6.7 1.8 Real Estate 2.2 3.6 4.9

MSCI MSCI EAFE MSCI MSCI EAFE Top 5 countries FCERA (%) Market Cap Weights ($mm) FCERA (%) EAFE (%) Value (%) EAFE (%) Value(%) Japan 24.9 23.7 24.3 > 50,000 32.0 39.8 41.4 United Kingdom 13.0 14.4 16.8 10,000 - 50,000 44.9 45.1 44.5 France 10.6 11.2 10.1 2,000 - 10,000 19.1 15.0 14.0 Germany 9.5 8.8 8.6 0 - 2,000 4.1 0.0 0.0 Canada 7.7 0.0 --

As of 30 June 2019

2cs_rae_review_08_15663 37 3. Appendix Appendix

PERFORMANCE AND FEE Past performance is not a guarantee or a reliable indicator of future results. Gross returns do not reflect the deduction of investment advisory fees (for Pacific Investment Management Company LLC described in Part 2 of its Form ADV) in the case of both separate investment accounts and mutual funds; but they do reflect commissions, other expenses (except custody), and reinvestment of earnings. Such fees that a client may incur in the management of their investment advisory account may reduce the client's return. For example, over a five-year period, annual advisory fees of 0.425% would reduce compounding at 10% annually from 61.05% before fees to 57.96% after fees. The “net of fees’ performance figures reflect reinvestment of earnings and dividends and the deduction of actual investment advisory fees and brokerage commissions but, typically, do not reflect the deduction of custodial fees. All periods longer than one year are annualized. Separate account clients may elect to include PIMCO sector funds in their portfolio; sector funds may be subject to additional terms and fees. For a copy of net of fees performance, unless included otherwise, please contact your PIMCO representative.

ATTRIBUTION ANALYSIS The attribution analysis contained herein is calculated by PIMCO and is intended to provide an estimate as to which elements of a strategy contributed (positively or negatively) to a portfolio's performance. The attribution results contain certain assumptions that require elements of subjective judgment and analysis. Attribution analysis is not a precise measure and should generally be considered within a range (e.g., +/- 5 bps). Further, attribution analysis should not be relied upon for investment decisions.

CHART Performance results for certain charts and graphs may be limited by date ranges specified on those charts and graphs; different time periods may produce different results.

COMPOSITE Composite performance is preliminary until the 12th business day of the month.

CORRELATION The correlation of various indexes or securities against one another or against inflation is based upon data over a certain time period. These correlations may vary substantially in the future or over different time periods that can result in greater volatility.

INDEX It is not possible to invest directly in an unmanaged index.

INVESTMENT STRATEGY There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

OUTLOOK Statements concerning trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

stocksplus_product_line_sep_appendix 39 Appendix

PORTFOLIO ANALYSIS The portfolio analysis is based on indices. No representation is being made that the structure of the average portfolio or any account will remain the same or that similar returns will be achieved. Results shown may not be attained and should not be construed as the only possibilities that exist. Different weightings in the asset allocation illustration will produce different results. Actual results will vary and are subject to change with market conditions. There is no guarantee that results will be achieved. No fees or expenses were included in the estimated results and distribution. The scenarios assume a set of assumptions that may, individually or collectively, not develop over time. The analysis reflected in this information is based upon data at time of analysis. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

PIMCO routinely reviews, modifies, and adds risk factors to its proprietary models. Due to the dynamic nature of factors affecting markets, there is no guarantee that simulations will capture all relevant risk factors or that the implementation of any resulting solutions will protect against loss. All investments contain risk and may lose value. Simulated risk analysis contains inherent limitations and is generally prepared with the benefit of hindsight. Realized losses may be larger than predicted by a given model due to additional factors that cannot be accurately forecasted or incorporated into a model based on historical or assumed data.

PORTFOLIO STRUCTURE The portfolio structure is a representation of a sample portfolio and no guarantee is being made that the structure of the portfolio will remain the same or that similar returns will be achieved.

REPRESENTATIVE ACCOUNT This account was chosen because it is the largest or otherwise most representative account in its composite. No guarantee is being made that the structure or actual account holdings of any account will be the same or that similar returns will be achieved.

RISK In managing the strategy’s investments in Fixed Income Instruments, PIMCO utilizes an absolute return approach; the absolute return approach does not apply to the equity index replicating component of the strategy. Absolute return portfolios may not necessarily fully participate in strong (positive) market rallies. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally backed by a government, government-agency or private guarantor there is no assurance that the guarantor will meet its obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Investors should consult their investment professional prior to making an investment decision.

This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2019. PIMCO.

stocksplus_product_line_sep_appendix 40 Appendix

INDEX DESCRIPTIONS The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The S&P 500 Index is an unmanaged market index generally considered representative of the as a whole. The index focuses on the Large-Cap segment of the U.S. equities market.

It is not possible to invest directly in an unmanaged index.

stocksplus_product_line_sep_appendix 41