The Case for Active Management in the Large Cap Growth Equity Universe

The Case for Active Management in the Large Cap Growth Equity Universe Pioneer US Concentrated Growth Strategy This case for active management examines risk-adjusted returns among large cap growth managers and introduces several measures beyond generic returns that are designed to help evaluate a manager s skill, including their ability to manage risk. The same rigorous assessment is applied to Pioneer US Concentrated Growth Strategy to demonstrate how the Strategy performs under the same analysis. Passive management s dominance may be a misperception Passive management has gained popularity in certain areas of the marketplace. However, active approaches remain popular in many universes, particularly in large cap growth equity universe. Not all active managers are equal Active managers have demonstrated success in the large cap growth space, but sound active management depends on several key attributes. With its consistently active, disciplined investment process, Pioneer US Concentrated Growth Strategy has produced higher returns, with less risk, over the past 10 years, 1 compared to both the category average of actively and passively managed portfolios in the large cap growth equity universe. Select metrics to consider when evaluating active managers Rigorous quantitative analysis, using a variety of metrics, complements a qualitative assessment to help identify active managers who may have a greater likelihood of generating persistent outperformance over time. Passive management s dominance may be a misperception The active versus passive management debate continued as the most recent extended bull market fueled the growth of passive capitalization-weighted strategies over the past several years, particularly among large cap US equities. However, this was not the case in all US large cap equity universes. Style-based investing is still dominated by active management. For example, active managers currently represent over 95.9% of the large cap growth category based on assets under management, while passively managed portfolios make up only 5.5% at $28.09 billion of the $696.63 billion large cap growth equity universe. In the large core category, passively managed portfolios represent more than 62.7% of the category and actively managed portfolios are barely a third at just 37.3%. 1 The continued prevalence of active management in the US large cap growth universe, may indicate the confidence investors have in the performance capabilities of skilled managers. Not all active managers are created equal Proponents of passive management will argue that active managers have failed to outperform their investment benchmarks over time. It is true that the average active manager failed to outperform passively managed portfolios in the large cap growth equity universe over the past 10 years. 1 However, it is interesting to note that passively managed large cap growth portfolios have also underperformed the Russell Growth Indices. The underperformance of passive portfolios may be explained in part by which benchmark managers have elected to replicate. However, even when comparing passively managed strategies benchmarked to the Russell 1000 Growth Index, the performance disparity persists. The chart below clearly highlights the disparity of success among active managers. The top quartile of active managers in the large cap growth category, and in particular Pioneer US Concentrated Growth Strategy, meaningfully outperformed the Russell 1000 Growth Index in most of the periods ending in March 31, 2016. 1 Source: evestment as of March 31, 2016 for annualized time periods as used in the following chart Number of managers in evestment s Large Cap Growth Equity universe for 1-, 3-, 5- and 10-year: 361, 299, 283 and 239 respectively

Active versus Passive Performance within the Large Cap Growth Equity Universe Outperformance versus Russell 1000 Growth Index through March 31, 2016 20 Pioneer US Concentrated Growth Strategy Active Large Cap Growth Equity Category Average Passive Large Cap Growth Equity Category Average Percent (%) 15 10 5 4.96 15.03 12.41 13.52 14.41 11.15 12.46 10.00 7.80 8.33 2.39 0-0.88-5 1-Year 3-Year Annualized 5-Year Annualized 10-Year Annualized Russell 1000 Growth Index Total Return 2.52% 13.61% 12.38% 8.28% Source: evestment and Pioneer Investments as of March 31, 2016 Number of managers in evestment s Large Cap Growth Equity universe for 1-, 3-, 5- and 10-year: 361, 299, 283 and 239 respectively Attributes of sound active management We believe key elements that contribute to sound active management include robust research, expert security selection and rigorous risk management. Successful active management requires a disciplined, consistently-applied approach that integrates all of these elements. Even the best managers will struggle to avoid losses during periods of weakness in equity markets. The likelihood of success can be further increased through thoughtful, strategic allocation decisions and an approach to portfolio construction that mitigates drawdowns in difficult times. Pioneer US Concentrated Growth Strategy has a history of impressive results achieved by actively investing in a relatively concentrated portfolio of high-quality, growth-oriented companies. The Portfolio Management team has high conviction that the names held within the portfolio have attractive growth prospects and valuations. With average investment experience exceeding 22 years, the Portfolio Management team for Pioneer US Concentrated Growth Strategy has invested through many market cycles and a broad array of economic conditions, making them well-suited to identifying and capitalizing on attractive investment opportunities. A centralized research group, consisting of over 15 career analysts, further supports the Portfolio Management team. The combination of the portfolio s strategic exposure to high-quality growth stocks and active management by experienced and wellresourced investment professionals has resulted in what can be considered an equity portfolio that seeks to participate in the upside potential offered through equity investing, while mitigating potential drawdowns in difficult market environments. 2

Select metrics to consider when evaluating active managers While investors often focus solely on a portfolio returns, there are other important measures to consider when evaluating the likelihood that performance will persist. Below are some key quantitative metrics, are important in assessing the potential success of an active manager over time. Sharpe ratio and information ratio Sharpe and information ratios are measures of risk-adjusted return that investors can use to assess the efficiency of an actively managed portfolio. An active manager who can generate a Sharpe ratio greater than that of the index is providing more value for investors and should be generating higher returns for the same level of risk than portfolios with lower Sharpe ratios. Higher information ratios also imply a greater consistency of success in deploying an active approach. As shown in the chart below, for the past five years Pioneer US Concentrated Growth Strategy Sharpe and information ratios were significantly higher than either the average actively or passively managed portfolios in the large cap growth category, highlighting the portfolio s consistent outperformance versus its peers. 5 Years as of March 31, 2016 Sharpe Ratio Information Ratio Pioneer US Concentrated Growth Strategy 1.21 0.86 Large Cap Growth Equity Category Average (Active) 0.80-0.30 Large Cap Growth Equity Category Average (Passive) 0.98-0.21 Russell 1000 Growth Index (Benchmark) 0.96 N/A Source: evestment and Pioneer Investments 3

Upside/downside capture ratio Upside and downside capture measures illustrate how well a portfolio has performed during periods when the market is up and periods when the market is down. An upside/downside capture ratio in excess of 1 indicates that a manager is adding meaningful value by capturing more of the market s return in up markets than they may be losing in down markets. Pioneer US Concentrated Growth Strategy has provided greater downside protection with meaningful participation in up-markets compared to the broader universe of actively and passively managed portfolios in the large cap growth space, as well as the benchmark, based on five-year annualized upside/downside capture ratios as of March 31, 2016 (highlighted in the chart and table below). Pioneer US Concentrated Growth Strategy: Downside Protection with Meaningful Upside 120 Upside Capture (%) 110 100 90 Pioneer US Concentrated Growth Strategy Average Active Large Cap Growth Equity Category Average Passive Large Cap Growth Equity Category Russell 1000 Growth Index 80 80 90 100 110 120 Downside Capture (%) Source: evestment and Pioneer Investments 5 Years as of March 31, 2016 Up Capture versus Index Down Capture versus Index Upside/Downside Capture Ratio Pioneer US Concentrated Growth Strategy 104.88 80.85 1.30 Large Cap Growth Equity Category Average (Active) 96.67 109.92 0.88 Large Cap Growth Equity Category Average (Passive) 99.76 98.08 1.02 Russell 1000 Growth Index (Benchmark) 100.00 100.00 1.00 Source: evestment and Pioneer Investments 4

Drawdown When evaluating an active manager s ability to outpace its benchmark, it is important to examine a portfolio s drawdown during difficult market environments, as well as measures of upside and downside capture. Since performance drawdown can significantly reduce the benefits of compounding returns over time, portfolios with lower drawdowns are likely to recover more quickly after market corrections. Therefore, if an active manager has experienced less drawdown than the benchmark or average portfolio during periods of market stress, they may be more likely to outperform over time, assuming that same manager is also able to provide meaningful participation in up markets. Pioneer US Concentrated Growth Strategy s maximum drawdown during the recession (November 1, 2007 to February 28, 2009) was lower than the average manager in both the large cap growth equity active and passive universes. The portfolio also displayed quicker recovery from the drawdown compared to active and passive large cap growth portfolios (29 and 25 months, respectively), although the benchmark recovered slightly sooner. November 1, 2007 to February 28, 2009 Maximum Drawdown Recovery Period (months) Pioneer US Concentrated Growth Strategy -32.02 23 Large Cap Growth Equity Universe Average (Active) -41.63 29 Large Cap Growth Equity Universe Average (Passive) -41.13 25 Russell 1000 Growth Index (Benchmark) -41.43 20 Source: evestment and Pioneer Investments as of March 31, 2016 Summary With uncertainty surrounding prospects for global growth and its impact on the US, heightened concern related to volatility is likely to persist. In addition, after an extended bull market, fueled in part by lower rates and excess liquidity, the prospects for lower equity returns may persist. In this environment, the added value afforded through skilled active management provides investors with the opportunity for greater wealth creation. We firmly believe active approaches that offer greater downside protection and subsequently higher risk-adjusted returns, such as Pioneer US Concentrated Growth Strategy, are in a better position to outperform passive approaches, as well as broader active universes, over time. The views expressed are those of Pioneer Investments and are current through March 31, 2016. These views are subject to change at any time based on market or other conditions, and Pioneer Investments disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Pioneer strategies are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Pioneer strategy or portfolio. Pioneer Investment Management, Inc., Pioneer Institutional Asset Management, Inc. and Pioneer Investment Management, Ltd. ( Pioneer Investments ) claims compliance with the Global Investment Performance Standards ( GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Pioneer Investment Management, Inc., Pioneer Institutional Asset Management, Inc. and Pioneer Investment Management, Ltd. ( Pioneer Investments ) has been independently verified for the period beginning July 1, 2001 and ended December 31, 2014. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The US Concentrated Growth Equity composite has been examined for the periods January 1, 1997 to December 31, 2014. The verification and performance examination reports are available upon request. Performance information presented for the periods from January 1, 2000 through June 30, 2001 has not been examined by Deloitte & Touche LLP. For the purpose of GIPS compliance, as of January 1, 2010, the firm is defined as Pioneer Investment Management, Inc., Pioneer Institutional Asset Management, Inc. and Pioneer Investment Management, Ltd. ( Pioneer Investments ). Pioneer Investments primarily provides Investment Management and advisory services to mutual fund sponsors, corporations, Public and Taft-Hartley Retirement plans, government entities, charitable institutions and insurance companies. Between January 1, 2005 and December 31, 2006, the Firm included Pioneer Investment Management, Inc., Pioneer Asset Management SGRpA and Pioneer investment Management, Ltd., and between January 1, 2007 and December 31, 2009, expanded to include Pioneer Investments KAG, all whollyowned subsidiaries of Pioneer Global Asset Management SpA., and Pioneer Pekao Investment Management S.A., which is jointly owned by Pioneer Global Asset Management SpA. and Bank Pekao S.A. 5

Portfolios are included in the composite in the first full calendar month under management and when the portfolio assets meet the minimum threshold requirements for the composite strategy, as described below, at the beginning of the month. Portfolios are excluded from the composite at the completion of the last full calendar month under management or when assets fall below the minimum threshold. All returns are calculated using the time weighted rate of return. Returns for portfolios that are US mutual funds are calculated net of fees and the most recent prorated total net annual expense ratio is added back to create a gross of fee return. Returns for portfolios that are Institutional accounts are calculated gross of fee returns with the pro-rated management fee subtracted to create net fee returns. Returns for portfolios that are Offshore Accounts are calculated net of fees and the actual monthly expense ratio is added back to create gross of fee return. German retail funds are calculated net of fees, gross performance is available since 01 April 2010. German Institutional funds are calculated net of fees, gross performance is available since 01 January 2000. Additional information regarding the Firm s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Composite dispersion measures represent the consistency of a firm s composite performance results with respect to the individual portfolio returns within a composite. Pioneer utilizes an asset weighted standard deviation calculation to measure dispersion. Only portfolios that have been included in the composite for a full calendar year are included in the dispersion calculation. This calculation is not considered meaningful if there are not at least two or more portfolios that have been managed within the composite style for a full year, and is not presented for these periods. The 3 Year Ex-Post Standard Deviation measures the volatility of returns for the composite and benchmark over the preceding 36-month period, and is not applicable for performance periods with less than 36 months of returns based on composite inception date. For periods prior to 1 January 2011, the Firm was not required to present the 3 year ex-post standard deviation. Objective: Pioneer US Concentrated Growth Equity Strategy pursues long-term capital appreciation by investing primarily in equity securities of US large cap companies. Using a bottom-up investment approach the Pioneer US Concentrated Growth Equity Strategy relies on internal research to identify companies that exhibit a sustainable competitive advantage, high returns on incremental invested capital, and the ability to capitalize on secular trends. The stock selection process involves careful consideration and review of key business trends and the extent to which market leaders are positioned to exploit those trends to preserve competitive standing. This strategy is aggressively concentrated in a select group of stocks that best meet the product s investment criteria. The minimum threshold for inclusion in this composite is 1,000,000 USD. The composite was created on 1 July 2001, but Pioneer Investments has been managing assets in this style since 31 December 1993. A complete list and description of the Firm s composites is available upon request. The primary index for this composite is Russell 1000 Growth Index. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The secondary index for this composite is S&P 500 Index. The S&P 500 has been widely regarded as the best single gauge of the large cap US equities market since the index was first published in 1957. The index has over US$ 5.58 trillion benchmarked, with index assets comprising approximately US$ 1.31 trillion of this total. The index includes 500 leading companies in leading industries of the US economy, capturing 75% coverage of US equities. Benchmark performance has been obtained from independent sources and has not been examined by Deloitte & Touche LLP. On August 28, 2007 the primary comparative benchmark for the US Concentrated Growth Equity Composite was revised prospectively from the Russell 1000 Index to the Russell 1000 Growth Index in an effort to make the comparative benchmark of the composite consistent with the benchmarks designated in the guidelines of the constituent portfolios. The annual advisory fee range for this composite is 0.52% to 0.75%. Assets carved out of a multiple asset class portfolio for inclusion in this composite will allocate cash proportionally based on the portfolio s target strategic asset allocation. As of 1/1/10, carve outs are no longer used. Pioneer Investments may use leverage, derivatives and invest in certain markets outside of those represented in the benchmark but these practices are not a significant part of the investment strategy. Past performance does not guarantee future results. As a result, clients should not assume that they will have an investment experience similar to the composite s past performance. Pioneer Institutional Asset Management, Inc., 60 State Street, Boston, Massachusetts 02109, 617-742-7825 2016 Pioneer Investments us.pioneerinvestments.com 29342-01-0416