1

The Impact of Emerging Marketsin the Search for Global AlphaPedro V. MarcalPortfolio Manager Global Select, Nicholas-Applegate PortfolioConstruction Conference 2006

Allianz Global Investors Australia LimitedABN 63 003 171 533 AFSL 244 322

2

Agenda

Historical Role in Emerging Markets

Impact Today of Emerging Markets

Alternative Method of Gaining Exposure

Nicholas-Applegate Global Select

Conclusion and questions

3

Emerging Markets Delivered Solid Returns

As of 30-Jun-06Source: FactSet

Annual Returns – 2003 to 2006

28.4

38.5

53.1

34.3

10.6

20.7 22.6

15.3

4.9

13.3

36.1

10.9

2.7

10.66.7 6.4

0

10

20

30

40

50

60

S&P 500 MSCI EAFE MSCI EMF MSCI ACWI

2003 2004 2005 First Half 2006

Annual Returns – 2003 to 2006

4

Growth of a Dollar

0

1

2

3

4

5

6

7

8

92/

29/1

988

3/1/

1989

3/1/

1990

3/1/

1991

2/29

/199

2

3/1/

1993

3/1/

1994

3/1/

1995

2/29

/199

6

3/1/

1997

3/1/

1998

3/1/

1999

2/29

/200

0

3/1/

2001

3/1/

2002

3/1/

2003

2/29

/200

4

3/1/

2005

3/1/

2006

USA AUS EM

Exposure to Emerging Markets Benefited Investors

5

Volatility

Source: FactSet

As of 21-Jun-06

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2/28

/199

1

2/28

/199

2

2/28

/199

3

2/28

/199

4

2/28

/199

5

2/28

/199

6

2/28

/199

7

2/28

/199

8

2/28

/199

9

2/28

/200

0

2/28

/200

1

2/28

/200

2

2/28

/200

3

2/28

/200

4

2/28

/200

5

2/28

/200

6

US AUS EM

Standard Deviation of monthly average return (3 year moving average)

6

Globalization Transforms the Role of Emerging Markets

Source: Morgan Stanley and Nicholas-Applegate As of 21-Jun-06

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.02/

28/1

991

2/28

/199

2

2/28

/199

3

2/28

/199

4

2/28

/199

5

2/28

/199

6

2/28

/199

7

2/28

/199

8

2/28

/199

9

2/28

/200

0

2/28

/200

1

2/28

/200

2

2/28

/200

3

2/28

/200

4

2/28

/200

5

2/28

/200

6

US-EM Correlation3-yr. rolling

AUS-EM Correlation3-yr. rolling

Three-year rolling correlation

7

Integrated Global Alpha is Greater Than the Sum of its Parts

α EMF+α EAFE+α US>α Global

Expanded Opportunity Set

Leverage Knowledge Gained From Experience of Developed Markets

Exploit Beneficiaries of Emerging Market Trends Regardless of Company Domicile

8

Emerging Markets Broadens the Opportunity Set

Source: Morgan Stanley; FactSet As of 30-Jun-06

Number of Companies

Sector Emerging Global

US EAFE+Canada EMF ACWI

Consumer Discretionary 121 226 104 451

Consumer Staples 35 95 80 210

Energy 48 70 40 158

Financials 127 256 171 554

Health Care 68 61 24 153

Industrials 65 250 128 443

Information Technology 95 106 84 285

Materials 29 143 122 294

Telecommunication Services

12 35 52 99

Utilities 34 45 44 123

TOTAL 634 1,287 849 2,770

Developed + =

9

Understanding the Global Food Chain Allows Managers to Take Advantage of Existing and Emerging trendsHandset

Motorola

Sony/Eriksson

Nokia

Samsung

Phone Assembly

Elcoteq(Finland)

Compal(Taiwan)

BENQ(Taiwan)

Samsung(Korea)

Flextronix(Singapore)

Retailers

Best Buy(US)

Circuit City(US)

Radio Shack(US)

Carphone Warehouse

(Europe)

Chip Design

Silicon Labs(US)

RF Micro (US)

ST Micro (US)

Motorola (US)

Qualcomm (US)

Samsung(Korea)

DIAG SEMI (Finland)

ARM (UK)

Texas Inst. (US)

Chip Manufacturers

United MicroElec. (Taiwan)

TSMC(US)

IBM(Taiwan)

Texas Inst.(US)

Motorola(US)

Samsung(Korea)

Operators

Verizon

CingularATT Wireless

Sprint/Nextel

T Mobile

Vodaphone

China Mobile

SK Telecom

NTTDokomoJapan

HutchisonFoxconn(Taiwan)

10

YulonFord Otomotiv

Emerging Markets – 17

Hero Honda

DRB-Hicom Berhard

DongFeng

Denway

China Motor

Brilliance

Bajaj

Astra

Yamaha

Volkswagen

Toyota

Renault

Porsche HyundaiBMWFord

ProtonNissan

Maruti UdyogHonda

MahindraFiat

KiaDaimlerChryslerGM

Tofas

Tan ChongPeugeot

U.S. – 2 EAFE – 11

Buying the “Best of the Best”

11

Significant Sales Increases Due to

– Financing Availability

– Increased Purchasing Power of Chinese

– New Government Policies Supporting Car Ownership- Road building

Pursuing the “Best of the Best” Often Leads To Non-U.S. – In This Case, To China

Denway: A Producer Of Hondas In China

12

India Passenger Car Sales

Source: Citigroup India

Autos Case Study: Availability of Financing Increases Sales

As of 31-Dec-05

Automobile Financing Introduced

Rate Drops Below 20%

0

100

200

300

400

500

600

700

800

900

1000

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Thou

sand

s

India Passenger Car Sales

13

Comparison of Chinese and US Autos as Percent of Population

Source: Morgan Stanley; FactSet As of 31-Dec-05

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,00019

0019

0519

1019

1519

2019

2519

3019

3519

4019

4519

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

05E

Pas

seng

er A

utos

& T

ruck

s

0%

10%20%30%

40%50%

60%70%80%

90%

Pen

etra

tion

Rat

e of

Pas

seng

er A

utos

&

Tru

cks

US Total # Passenger Cars and Trucks on July 1 Chinese Cars

US Penetration Rate: Passenger Vehicles/Population Chinese Penetration Rate: Autos/Population

Experience in Developed Markets Allows Managers to Spot Trends in Emerging Economies

14

Comparison of the Pace of Chinese and US Passenger Vehicle Penetration

Source: Morgan Stanley; FactSet As of 31-Dec-05

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

1900

1902

1903

1905

1907

1908

1909

1910

1911

1912

1913

1914

1915

1916

1917

1918

1920

1921

1923

US Passenger Vehicles

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

E

Chinese Cars

Experience in Developed Markets Allows Global Managers to Spot Trends in Emerging Economies

15

U.K. Mobile Phone Penetration 1985-2006

0%

20%

40%

60%

80%

100%

120%

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Pen

etra

tion

Rat

e (%

)

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

Cell Phone Penetration Rate (Phones Per Capita) (Left Axis)Cell Phones (Right Axis)Vodafone Subscribers (Right Axis)Source: Citigroup Investment Research As of 31-Dec-05

Experience with Developed Markets Allows Global Managers to Spot Trends in Emerging Economies

16

China Mobile Price Chart 12/98 – 12/99

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

11/3

0/19

98

12/1

4/19

98

12/2

8/19

98

1/11

/199

9

1/25

/199

9

2/8/

1999

2/22

/199

9

3/8/

1999

3/22

/199

9

4/5/

1999

4/19

/199

9

5/3/

1999

5/17

/199

9

5/31

/199

9

6/14

/199

9

6/28

/199

9

7/12

/199

9

7/26

/199

9

8/9/

1999

8/23

/199

9

9/6/

1999

9/20

/199

9

10/4

/199

9

10/1

8/19

99

11/1

/199

9

11/1

5/19

99

11/2

9/19

99

Hong Kong $

Tariff Lowered

Experience with Developed Markets Allows Global Managers to Spot Trends in Emerging Economies

17

Developed Markets Benefit From Growth in Emerging Economies

Massive Demand For Energy in Developing EconomiesSupply of Light Sweet Crude Oil is InelasticLack of Global Oil Refining Capacity

2004/2005 Increasing Emerging Markets Demand for Energy/Oil Benefited US Oil Refiners

Leads to Much Higher Refining Margins for U.S. Complex Refineries.

18

Industriazed and Developing Oil Demand

Source: Oil Market Intelligence

Crude Oil Demand (Million Barrels Per Day 12 Month Average)

26283032343638404244

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Industrial*

Emerging**

* U.S., Western Europe and Japan.**Total excluding U.S., Western Europe and Japan

19

China: Crude Oil Demand Is Rising Quickly

0

1

2

3

4

5

6

7

8

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

Mill

inos

-Bar

rels

/Day

China Crude Oil Demand

Source: Oil Market Intelligence

20

Making Room for China: Oil Demand Growth Potential

Source: E.G. Edwards & Sons Energy Research / IEA EIA, U.S. Census Bureau

Per Capita Oil Demand, Barrels Per Year

0

5

10

15

20

25

30

35

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

E20

05E

United States

Japan

South Korea

China

Global Average

21

Increase in Sales and Margins Due to Increase in Global Demand for Their Products Straining Current Supply

Increase in Light Heavy Differential

Increase in Refining Margins

New Environmental Policies in US Effecting Diesel Fuel and Motor Gasoline

Benefiting From Global Trends

Valero: An Independent Petroleum Refiner That Owns and Operates Complex Refineries in the US

22

α EMF+α EAFE+α US>α Global

Expanded Opportunity Set

Leverage Knowledge Gained From Experience of Developed Markets

Exploit Beneficiaries of Emerging Market Trends Regardless of Company Domicile

Integrated Global Alpha is Greater Than the Sum of its Parts

23

Benefits of an Integrated Global Process

Nicholas-Applegate’s philosophy:

Academic research in behavioural finance indicates that investors react inefficiently to changing information

Nicholas-Applegate examine positive change as an indicator of out performance – change provides opportunity

Nicholas-Applegate’s approach:

To construct a globally integrated all country, all sector, all market cap portfolio using best ideas around the world

To leverage the extensive resources of Nicholas-Applegate’s research platform, both internal and external, fundamental and quantitative.

24

CHANGE CREATES OPPORTUNITYCHANGE CREATES OPPORTUNITYNicholas-Applegate believes that stocks rarely remain fairly priced because of constantly changing information.

This investor behavior creates opportunity.

FundamentalsShare PriceMispricing Opportunity

TIME

AcceleratingFundamentals

DeceleratingFundamentals

SELL

BUY

Nicholas-Applegate Global Select philosophy: capitaliseon change

Academic research in behavioral finance indicates that investors react inefficiently to changing information

• investors tend to anchor on the past

• investors tend to be overconfident

This market inefficiency presents mispricingopportunities that Nicholas-Applegate capitalises on to earn excess return

Source: Nicholas-Applegate

25

Global Select: investment management approach

Nicholas-Applegate’s best stock picks around the world

Globally integrated process

All countries, all sectors, all caps over US$500 million

Includes emerging markets

Nicholas-Applegate’s investment approach combines focused fundamental research with globally integrated stock selection and portfolio construction. Global Select

Investment objective:— Excess return 3%-5%— Tracking error 4%-7%

Investment universe:— All markets, developed and

emerging— All capitalisation ranges— Approximately 4500 stocks

75-125 holdings

125%-200% turnover

Adding value through stock selection.

INVESTMENT APPROACH INVESTMENT APPROACH

Non actual past performance

Past performance for the Global Select capability is non-actual in that it is based on a composite of performance from discretionary mandates, mutual funds and sub-advisory accounts managed under the global select strategy.

Composite inception 01-Oct-97

26

* Composite inception 01-Oct-97Source: Nicholas-Applegate; see additional disclosure As of 30-Jun-06

Annualized Performance ($AUD)

22.0

16.3

1.4

16.3

21.7

14.3

-0.9

5.4

20.1

11.5

-2.3

3.5

-5

0

5

10

15

20

25

1 Year 3 Years 5 Years ITD*

%

Nicholas-Applegate Global Select*

MSCI ACWI Index

MSCI ACWI Growth Index

The Global Select Portfolio Has Produced Strong Returns Relative to the MSCI ACWI Since Inception.

27

Global Select ($ US): Risk-adjusted Results Global Select Has Delivered Top-Quartile Rankings.

* Composite inception 01-Oct-97; Source: Callan Associates Inc.; see additional disclosure As of 30-Jun-06

Returns For PeriodsEnding 30-Jun-06CAI Global Select StyleInception Date: 1-Oct-97

Last 3 Years Since ITDLast 5 YearsLast Year

0.0

5.0

10.0

15.0

20.0

25.0

A (33)A (21)

A (28)

A (1)B (38) B (32)

B (40)B (64)

11.2810.4021.5821.0610th Percentile

7.056.2917.0818.11Median

8.249.8318.6120.1125th Percentile

4.495.1616.1216.6475th Percentile

16.669.4120.3218.89NACM Global Select Comp.

15.20

18.28

3.903.5313.3090th Percentile

5.676.9218.59MSCI:AC World Free

28

Global Select ($ US): Peer Rankings

* Composite inception 01-Oct-97; Source: Callan Associates Inc.; see additional disclosure

Global Select Has Delivered Top-Quartile Rankings.

As of 30-Jun-06

0.430.7111.5216.66NACM Global Select Comp

1

1.52

691NACM Global Select Comp. Rank

0.180.257.05CAI:Intl EQ Global Sty Median

Sharpe RatioInformation RatioAlphaReturn

Since Inception Ending 30-Jun-06Portfolio Performance vs.MSCI:AC World Free Index

1=High 100=Low

(0.3)

(0.1)

0.1

0.3

0.5

0.7

0%

5%

10%

15%

29

Global Select ($ AUD): Market Participation

* Composite inception 01-Oct-97Source: Nicholas-Applegate; see additional disclosure

The Global Select Portfolio Has Produced Strong Returns Relative to the MSCI ACWI Since Inception.

As of 30-Jun-06

Market Participation ($AUD)

11.5

-6.8

6.5

-6.6

6.7

-7.7-10

-5

0

5

10

15

22 Up Quarters 13 Down Quarters

%

Nicholas-Applegate Global Select*MSCI ACWI IndexMSCI ACWI Growth Index

30

Why you should select Nicholas-Applegate

Philosophy focused on uncovering inefficiencies created by change

Dedicated, experienced global team

Globally integrated stock selection and portfolio construction

All caps, all regions … no barriers

Aims to deliver superior risk adjusted returns

The rationale for selecting Nicholas-Applegate

31

Your Questions

32

DisclosureThis report is intended to provide general advice and information only and has been prepared by Allianz Global Investors Australia Limited ABN 63 003 171 533 AFSL 244 322 (“AllianzGI”) without taking into account any particular person's objectives, financial situation or needs. Before acting on this general advice and information, you should consider the appropriateness of this general advice and information having regard to your personal objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The information in this report, including any opinions, estimates or forecasts:

has been obtained from, or is based on, sources believed by us to be reliable

is not guaranteed as to accuracy or completeness

is given without obligation and on the understanding that any person who acts on it does so entirely at his or her own risk

constitutes our judgment and is subject to change without notice

may be based on proprietary research and is not to be relied on as advice

are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in this report.

Investments can go up and down in value. Past performance is not a reliable indicator of future performance.

Changes in rates of exchange may cause the value of investments to fluctuate.

33

Supplemental Information

Supplemental Information

34

Quality of Important Worldwide Crude Types

Source: Simmons & Company International

Bonny Light

1980

Brent

Mars

Maya

Arab Medium

Arab Heavy

Cabinda

Urals

Iran Heavy

Iran Light

Dubai

TapisWTI

Alaska North Slope (ANS)

1990

2000

2010Arab LightVenezuela Medium

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

20 25 30 35 40 45 50

SWEE

T

SULF

UR

CO

NTE

NT

S

OU

R

HEAVY API GRAVITY LIGHT

35

Basic Refining Concepts

Note: Degrees in FahrenheitSource: Simmons & Company International

36

Refineries Upgrade Crude Oil to Higher Value ProductsSource: Valero; EIA Refiner Production

Basic Refining Concepts

37

High Conversion: Coking/Resid Destruction

Source: Simmons & Company International

Complex Refineries Can Run Heavier and More Sour Crude While Achieving the Highest Light Product Yields and Volume Gain

38

Short 3,520,000 b/d of refined product - Primarily U.S. and AsiaCountry Refining Capacity and Consumption

Source: Oil and Gas Journal

Refining Capacity & Consumption by Country*

0

5

10

15

20

25

Uni

ted

Sta

tes

Rus

sia

Japa

n

Chi

na

Sout

h Ko

rea

Ger

man

y

Italy

Indi

a

Can

ada

Fran

ce

Bra

zil

Uni

ted

King

dom

Saud

i Ara

bia

Mex

ico

Iran

Sing

apor

e

Vene

zuel

a

Spa

in

Net

herla

nds

Taiw

an

Crude CapacityConsumption

$ (M)

*As of 04-Jan-06

39

Source: John S. Herold

Comparison of Sour Conversion Capacity

40

US Gulf Coast 3-2-1 Refining Margins 1995-2006

Source: ?

As of 31-Jan-06

$0.00$2.00$4.00$6.00$8.00

$10.00$12.00$14.00$16.00$18.00$20.00

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Gulf Coast 321

41

Which session are you in?6. Tyndall7. AMP Capital Investors8. Schroders9. Nicholas Applegate/Allianz

Global Investors10. Challenger Financial Services

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