Why Going International is a Big Idea for Small-Cap Investing

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1 AllianzGI International Small-Cap Fund Why Going International is a Big Idea for Small-Cap Investing Investment Solutions Second Quarter 2015 AllianzGI International Small-Cap Fund symbols: A shares: AOPAX C shares: AOPCX I shares: ALOIX P shares: ALOPX In today s world of financial repression an environment marked by low yields and slow growth many investors have been left wondering how they re going to meet their long-term financial goals. It s a big question that could have a surprisingly small answer: International small-cap stocks may provide significant growth potential over the long term. Why international small caps may be a smart strategic allocation Small-cap stocks which are generally considered to have market capitalizations of under two billion dollars pack some big performance potential: Over the last 10 years, international small-cap stocks provided an annualized return of 6.59% versus 4.92% for international large-cap stocks. 1 Smaller companies have generated a positive return over every 10-year rolling period, without reinvesting dividends since Over the past 15 years, international small-cap stocks have also outperformed international large-cap stocks in every rolling 10-year period (see chart). Investing internationally with small-cap companies can bring a host of potential advantages, making this a smart, long-term strategy worth considering for all kinds of investors. Small caps have had a big long-term edge on large caps Since 1999, international small-cap stocks outperformed international large-cap stocks in every rolling 10-year period. This outperformance may be due to the structural advantages of small-cap stocks: Smaller companies tend to be younger and more dynamic, and normally exhibit faster growth than larger companies. Management teams at smaller companies can be more flexible and able to react faster to changing market conditions. Smaller companies generally have managers who are closely tied to their firms and are direct shareholders, which gives them the incentive to act like owners. Rolling 10-year returns from 1/1/1999 to 6/30/2015 Return (%) 15 MSCI EAFE Index 12 MSCI EAFE Large Cap Index /31/ /31/ /31/ /31/2014 Source: FactSet and MSCI. First data point,12/31/2008, reflects 1/1/ /31/2008. Data as of 6/30/2015. Past performance does not guarantee future results. There have been periods where small-cap stocks underperformed large-cap stocks. Investments in smaller companies may be more volatile and less liquid than investments in larger companies. 1. Source: Allianz Global Investors and MSCI. Data as of 6/30/2015. International small caps are represented by the MSCI EAFE Index and international large caps are represented by the MSCI EAFE Large Cap Index. 2. Source: FactSet and MSCI. Data as of 6/30/2015. Smaller companies are represented by the MSCI EAFE Index. us.allianzgi.com

2 Investment solutions Why going international is a big idea for small-cap investing Three reasons to invest in international small caps 1 Small caps can reward active management The prospect of researching thousands of small companies in dozens of countries is a big reason why small-cap investing is so challenging. But that can also provide exciting opportunities for managers who have the talent and resources to do proprietary research: More than 5,000 small-cap companies are not covered by a single financial analyst around the world; an additional 6,000 small caps are covered by fewer than five analysts. This can lead to inefficiencies that active managers may be able to take advantage of. Less frequently covered by financial analysts Analyst coverage of major indexes worldwide NASDAQ SDAX S&P S&P Tec S&P MDAX DAX S&P 100 Dow Jones 40 DAX Source: Allianz Global Investors. Data as of 4/ Small caps have provided attractive risk-adjusted returns There s no avoiding the fact that pursuing muchneeded growth potential in today s world of financial repression means accepting higher levels of risk. But there s a very compelling long-term reason why investors with sufficient risktolerance levels should consider international small-cap stocks: They have outperformed their large-cap peers for over 15 years while taking on only a modestly higher level of risk. Higher risk compensated by higher returns Sharpe ratios over the last 15 years show that small caps have delivered better returns for the amount of risk taken Large Caps s 17.14% 18.28% % % 0 Returns Standard Deviation Sharpe Ratio Source: Datastream. Data from 1/1999 6/2015. Small caps are represented by the MSCI EAFE Index and large caps are represented by the EAFE Large Cap Index. Past performance is no guarantee of future results. 3 International small caps are cheaper than they appear Although small companies have consistently performed well over time and especially well in recent years that doesn t necessarily mean they re expensive as an asset class. Paying more doesn t mean paying too much. In today s slow-growth environment, small caps have grown while other asset classes have lagged and many investors are happy to pay a premium for something scarce, like growth potential. On a growth-adjusted basis, international small caps are actually less expensive than their larger counterparts as measured by price/earnings-to-growth (PEG) ratios. Cheaper earnings growth Fundamental Factor Forward P/E Ratio (weighted harmonic average) Forward Earnings Growth (weighted median) MSCI World Index ex-us MSCI World Index ex-us % 9.2% Forward P/E-to-Growth Ratio Source: Allianz Global Investors. Data as of 6/30/2015.

3 Investment solutions Why going international is a big idea for small-cap investing AllianzGI International Small-Cap Fund Now that you ve seen the opportunities that international small-cap stocks can provide, learn how AllianzGI International Small-Cap Fund employs local portfolio-management teams to target high-quality small-cap companies with the potential to deliver superior returns at an acceptable level of risk. Three key differentiators A worldwide opportunity, locally managed: Allianz Global Investors believes small-cap companies are best researched, invested in and monitored by local portfolio managers, who are familiar with the different business models, markets and cultures associated with each region. The Fund aggregates three locally managed, regional sub-portfolios Europe, Japan and Asia Pacific (ex-japan). Research-based investment ideas from multiple sources: The team conducts more than 2,000 company meetings each year and draws on fundamental analysis as well as Grassroots SM Research Allianz Global Investors proprietary market-research network to inform investment decisions. Diversified, high-conviction portfolio: The Fund spans developed and emerging markets, providing diversified global exposure to highconviction small-cap stocks. Focus on: AllianzGI International Small-Cap Fund portfolio construction This international fund consists of three regional sub-portfolios, each run by regionally-based small-cap specialist managers who can tap into our global network of research resources. Small-Cap Universe Europe Japan Asia Pacific (ex-japan) High Conviction High Conviction High Conviction Regional Sub-Portfolios Europe Sub-Portfolio stocks Japan Sub-Portfolio stocks Asia Pacific (ex-japan) Sub-Portfolio stocks AllianzGI International Small-Cap Fund stocks The number of securities referenced above represent the typical number of stocks researched at each stage of the investment process. During any given stage of the investment process, the selection criteria may vary from those shown above. The diagrams and statements above reflect the typical investment process applied to this strategy. At any given time other criteria may affect the investment process. There is no guarantee that the strategy or processes described above will be successful or result in a profit.

4 Investment solutions Why going international is a big idea for small-cap investing History of strong long-term performance AllianzGI International Small-Cap Fund s five portfolio managers including lead portfolio manager Andrew Neville are regionally based, dedicated small-cap experts. In fact, each of the Fund s three management teams has run successful smaller-company portfolios for more than 10 years. Morningstar overall rating AllianzGI International Small-Cap Fund (ALOIX) Class I shares among 131 funds in the Foreign Small/Mid Growth category as of 6/30/2015. Morningstar measures risk-adjusted returns. The overall rating is a weighted average based on the 3-, 5- and 10-year star rating. Average Annual Total Returns 1-Year 3-Year 5-Year 10-Year Since Inception* (12/31/1997) AllianzGI International Small-Cap Fund at NAV 4.22% 15.35% 13.28% 9.59% 12.48% AllianzGI International Small-Cap Fund at MOP 1.51% 13.19% 12.00% 8.97% 12.11% MSCI World Small-Cap Index ex-us 3.96% 13.60% 11.10% 6.30% 7.83% MSCI EAFE Small-Cap Index 0.77% 15.69% 12.40% 6.59% 7.91% Lipper International Small-/Mid-Cap Growth Avg. 1.69% 14.16% 12.57% 8.05% 9.24% Class A shares as of 6/30/2015. *This is the inception date of a predecessor fund, which was reorganized into the Fund on 4/12/2010. The returns presented are for A shares of the Fund, which were first offered on 4/12/2010. The returns for the period prior to the reorganization are based on the historical performance of the predecessor fund s Institutional shares, adjusted to reflect the Fund s A shares different charges and expenses. Performance assumes reinvestment of dividends and capital gains distributions. Taxes on distributions or redemptions have not been deducted. Performance quoted represents past performance. Past performance is no guarantee of future results. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed. Current performance may be lower or higher than performance shown. For performance current to the most recent month-end, visit our website at us.allianzgi.com. The MOP returns take into account the 5.5% maximum initial sales charge. Gross expense ratio is 1.76%. Its net expense ratio is 1.45%, which is a contractual agreement through 3/31/2016. Investors should consider the investment objectives, risks, charges and expenses of this Fund carefully before investing. This and other information is contained in the Fund s prospectus, or summary prospectus, which may be obtained by contacting your financial advisor or by visiting us.allianzgi.com. Please read this prospectus carefully before you invest. A Word About Risk: Investments in smaller companies may be more volatile and less liquid than investments in larger companies. Foreign markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. Derivative prices depend on the performance of an underlying asset; derivatives carry market, credit and liquidity risk. Grassroots Research is a division within the Allianz Global Investors group of companies that commissions investigative research for asset-management professionals. Research data used to generate Grassroots Research reports are received from reporters and field force investigators who work as independent, third party research providers, supplying research that is paid for by commissions generated by trades executed on behalf of clients. The MSCI World Index ex-us covers all investable small-cap securities with a market capitalization below that of the companies in the MSCI Standard Indices (excluding USA), and targets approximately 14% of each market s free-float adjusted market capitalization. The MSCI 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 MSCI EAFE Large Cap Index includes the largest 70% of stocks included in the MSCI EAFE Index. The MSCI EAFE Index represents the small-cap segment of the MSCI EAFE Index. Under MSCI s Global Investable Market Index methodology, the small-cap universe consists of the securities of those companies whose securities are not included in the large-cap or mid-cap segments of a particular market, which together comprise approximately 85% of each market s free float-adjusted market capitalization The small-cap segment covers the 85% 99% range of each market s free float-adjusted market capitalization. Unless otherwise noted, indexreturns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an index. For funds with at least a three-year history, Morningstar calculates a risk-adjusted return measure that accounts for variation in a fund s monthly performance (including the effects of all sales charges), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receives a rating of 5 stars; the next 22.5% 4 stars; the next 35% 3 stars; the next 22.5% 2 stars; and the bottom 10% 1 star. In the Foreign Small/Mid Growth category, AllianzGI International Small-Cap Fund received 3 stars/131 funds (3 years), 3 stars/113 funds (5 years), 4 stars/67 funds (10 years). Other share classes have different ratings. Minimum investment for Institutional shares is $1 million, though this may be reduced for certain financial intermediaries that aggregate trades on behalf of investors Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Lipper information is calculated by Lipper Inc. The category returns represent the average performance of included funds, while rankings compare an individual fund s returns to those of the other funds in its category. Both are based on total return performance, with capital gains and dividends reinvested, with annual operating expenses deducted, but without including front- or back-end sales charges. Rankings begin with the actual share class inception Allianz Global Investors Distributors LLC. IS-ISC-0715 AGI

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