AllianzGI Institutional Multi-Series Trust Private Placement Memorandum. Table of Contents

Transcription

1 February 1, 2018 AllianzGI Institutional Multi-Series Trust Private Placement Memorandum AllianzGIBestStylesGlobalManagedVolatilityPortfolio The fund listed above (the Portfolio ) is an investment portfolio of the AllianzGI Institutional Multi-Series Trust (the Trust ). The Trust is an open-end management investment company and operates as a series investment company that consists of separate series of investment portfolios, including the Portfolio. Other funds are described in separate prospectuses or private placement memoranda. At this time, the Portfolio does not intend to offer its shares publicly and does not intend to make its shares available other than to accredited investors, as defined in Regulation D under the Securities Act of This Private Placement Memorandum concisely describes the information which you ought to know about the Portfolio before investing. Please read this memorandum carefully and keep it for further reference. A Statement of Additional Information dated February 1, 2018, as revised from time to time ( SAI ), is available free of charge by writing to AllianzGI Institutional Multi-Series Trust, 1633 Broadway, New York, NY or by calling before 5:00PM on any business day. The SAI, which contains more detailed information about the Portfolio, has been filed with the Securities and Exchange Commission ( SEC ) and is incorporated by reference into this Private Placement Memorandum. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED OR RESOLD UNLESS SO REGISTERED OR IN TRANSACTIONS EXEMPT THEREFROM. HOWEVER, THE SECURITIES ARE REDEEMABLE AS DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM. IN CERTAIN CASES INVESTORS MAY BE REDEEMED IN KIND AND RECEIVE PORTFOLIO SECURITIES HELD BY THE PORTFOLIO IN LIEU OF CASH UPON REDEMPTION. THIS PRIVATE PLACEMENT MEMORANDUM AND THE INFORMATION CONTAINED HEREIN ARE FOR THE EXCLUSIVE USE OF THE RECIPIENT FOR THE SOLE PURPOSE OF EVALUATING THE PRIVATE PLACEMENT OF SHARES OF THE PORTFOLIO DESCRIBED HEREIN. IT MAY NOT BE REPRODUCED, PROVIDED, OR DISCLOSED TO OTHERS, OR USED FOR ANY OTHER PURPOSE, WITHOUT WRITTEN AUTHORIZATION, AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SHARES OF THE PORTFOLIO TO ANY ENTITY OR INDIVIDUAL NOT POSSESSING THE QUALIFICATIONS DESCRIBED IN THIS MEMORANDUM. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR PROVIDE ANY INFORMATION WITH RESPECT TO THE SHARES OF THE PORTFOLIO EXCEPT SUCH INFORMATION AS IS CONTAINED IN THIS MEMORANDUM AND IN THE SAI OR IN OTHER MATERIALS APPROVED BY THE TRUST. NO SALES MADE IN RELIANCE ON THIS DOCUMENT SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN MATTERS DISCUSSED HEREIN SINCE THE DATE HEREOF. As with other mutual funds, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission have not approved or disapproved these securities or determined if this Private Placement Memorandum is truthful or complete. Any representation to the contrary is a criminal offense.

2 AllianzGI Institutional Multi-Series Trust Private Placement Memorandum Table of Contents Portfolio Summary AllianzGI Best Styles Global Managed Volatility Portfolio... 3 Principal Investments and Strategies of the Portfolio... 7 Summary of Principal Risks Portfolio Holdings Management of the Portfolio Portfolio Shares How to Buy and Sell Shares How Portfolio Shares Are Priced Portfolio Distributions Tax Consequences Characteristics and Risks of Securities and Investment Techniques Financial Highlights... 42

3 Investment Objective Fees and Expenses of the Portfolio AllianzGI Best Styles Global Managed Volatility Portfolio The Portfolio seeks long-term capital appreciation The table below describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. Shareholder Fees (fees paid directly from your investment): None Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) Portfolio Management Fees Distribution and/or Service (12b-1) Fees Other Expenses Total Annual Portfolio Operating Expenses Expense Reductions (1) Total Annual Portfolio Operating Expenses After Expense Reductions (1) Best Styles Global Managed Volatility Portfolio 0.40% None 0.43% 0.83% (0.38)% 0.45% (1) Total Annual Portfolio Operating Expenses After Expense Reductions reflect the effect of a contractual agreement by Allianz Global Investors U.S. LLC ( AllianzGI U.S. or the Manager ) to irrevocably waive its management fee and/or reimburse the Portfolio through January 31, 2019, to the extent that Total Annual Portfolio Operating Expenses, including payment of organizational expenses but excluding interest, tax and extraordinary expenses, and certain credits and other expenses, exceed 0.45%. Under the Expense Limitation Agreement, the Manager may recoup waived or reimbursed amounts for three years, provided total expenses, including such recoupment, do not exceed the annual expense limit in effect at the time of such waiver/reimbursement or recoupment. The Expense Limitation Agreement is terminable by the Trust upon 90 days prior written notice to the Manager or at any time by mutual agreement of the parties. Examples. The Examples are intended to help you compare the cost of investing in shares of the Portfolio with the costs of investing in other mutual funds. The Examples assume that you invest $1,000,000 in Portfolio shares for the time periods indicated, your investment has a 5% return each year, and the Portfolio s operating expenses remain the same. Although your actual costs may be higher or lower, the Examples show what your costs would be based on these assumptions. The Examples are based, for the first year, on Total Annual Portfolio Operating Expenses After Expense Reductions and, for all other periods, on Total Annual Portfolio Operating Expenses. Portfolio 1 Year 3 Years 5 Years 10 Years Best Styles Global Managed Volatility Portfolio $4,602 $22,689 $42,315 $99,006 Portfolio Turnover. The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). The Portfolio s portfolio turnover rate for the fiscal year ended September 30, 2017, was approximately 31% of the average value of its portfolio. High levels of portfolio turnover may indicate higher transaction costs and may result in higher taxes for you if your Portfolio shares are held in a taxable account. These costs, which are not reflected in Total Annual Portfolio Operating Expenses or in the Examples above, can adversely affect the Portfolio s investment performance. Principal Investment Strategies The Portfolio seeks to achieve its investment objective by investing in a diversified portfolio of global equities and is managed with reference to the MSCI All Country World Minimum Volatility Index (the Index ). The Portfolio normally invests primarily in equity securities of companies located both in the U.S. and outside of the U.S., including emerging market securities. Under normal circumstances, the Portfolio will not invest in companies located in any single country (including the U.S.) in excess of the larger of: (i) 50% of its net assets, or (ii) a portion of its net assets equal to 5% more than the applicable country s weight in the Index. As of December 31, 2017, the market capitalizationbased weighting of the U.S. in the Index was approximately 57.19%. The Portfolio may invest in issuers of any market capitalization, including smaller capitalization companies. The Portfolio normally invests primarily in common stocks, either directly or indirectly through depositary receipts such as American Depositary Receipts (ADRs) and Global Depositary Receipt (GDRs). The Portfolio s investment process integrates top-down investment style research and proprietary fundamental bottom-up company research with a rigorous risk management process in an effort to deliver a stable and sustainable pattern of excess returns relative to the Index. The Portfolio s investment strategy centers on the portfolio managers belief that individual investment styles (as described below) carry long-term risk premiums that are largely independent of the current economic or market environment and that can be captured using a disciplined investment approach. Risk premiums represent the potential added value resulting from investments in certain sub-segments of the market that may carry higher risks but have historically led to higher returns on investment in favorable market conditions. The investment process begins with a broad investment universe containing at least 4,000 equity securities across both developed and emerging markets. The portfolio managers evaluate securities based on quantitative investment style research and may also incorporate the results of bottom-up analysis by the Manager s fundamental research team. Investment style research categorizes companies through a proprietary quantitative Private Placement Memorandum 3

4 AllianzGI Best Styles Global Managed Volatility Portfolio (continued) model that scores each company along several investment style categories, described below (Value, Earnings Change, Price Momentum, Growth, and Quality). Fundamental research evaluates each company identified as an investment candidate through the quantitative investment style research process using a wide range of company-specific information gathered by in-house analysts and external sources. In selecting individual stocks with attractive fundamental characteristics, the portfolio managers seek to diversify the mix of investment styles represented across the whole portfolio (i.e., by making sure high-scoring issuers from all of the investment styles are among the final holdings). The portfolio managers attempt to control for risk factors, such as over- and under-weights relative to the Index as to region, country or economic sector and the portfolio s sensitivity to broader market movements (or beta ). The portfolio managers also seek to control for risks associated with volatility and accordingly conduct their security-selection process with reference to the Index, which is designed to reflect the performance characteristics of a minimum variance strategy applied to the MSCI All-Country World Index (the Parent Index ), an index consisting principally of large- and mid-cap equities across a wide range of developed and emerging markets countries. The Index implements a minimum variance strategy by optimizing its Parent Index for the lowest absolute risk (within a given set of constraints). The Portfolio is expected to include at least 250 securities and, as a whole, is expected to exhibit levels of beta and volatility that are similar to those of the Index. The following investment styles are considered in managing the Portfolio: The Value investment style selects equity securities that the portfolio managers believe have attractive valuations based on metrics including dividend yield, price-to-earnings, price-to-cash flow and price-to-book ratios, as compared to other equity securities in the investable universe. The Earnings Change investment style is designed to capture shorter-term, trend-following investment opportunities and generally selects equity securities with positive earnings revisions, announcements or surprises. The Price Momentum investment style is also trend-following and generally selects equity securities with positive price momentum and relative strength within the investable universe. The Growth investment style generally selects equity securities with expected and historical earnings growth and dividend growth. The Quality investment style generally emphasizes equity securities with strong profitability and historical earnings stability, and considers additional factors, such as whether a company has improving margins, positive net income, positive operating capital, decreasing long-term debt and high-quality earnings, among others. The Portfolio s research suggests that, while each of the investment styles described above can be individually successful over the long-term and during certain periods, each investment style may also experience downswings (i.e., during certain market, economic, or other conditions an individual investment style may underperform compared to the relevant broad equity market). Building a portfolio with a diversified mix of investment styles is the Portfolio s attempt to mitigate what the portfolio managers believe to be the cyclical nature of the individual investment styles. As discussed above, the Portfolio is managed with reference to the Index and is designed to fulfill an investor s desired allocation to global equities and a managed volatility strategy. The Portfolio utilizes an investment strategy that focuses on the overall management of portfolio volatility and favors stocks that demonstrate lower beta. The focus may result in the Portfolio outperforming the general securities market during periods of flat or negative market performance, and underperforming the general securities market during periods of strong positive market performance. There is no guarantee that the Portfolio will exhibit this trait. The Portfolio may participate in initial public offerings (IPOs) and may also invest a portion of its assets in real estate investment trusts (REITs). The Portfolio may also utilize foreign currency exchange contracts, stock index futures contracts, warrants and other derivative instruments. Although the Portfolio did not invest significant in derivative instruments as of the most recent fiscal year end, it may do so at any time. Principal Risks The principal risks of investing in the Portfolio, which could adversely affect its net asset value, yield and total return, are (in alphabetical order after the first six risks): Equity Securities Risk: Equity securities may react more strongly to changes in an issuer s financial condition or prospects than other securities of the same issuer. Market Risk: The Portfolio will be affected by factors influencing the U.S. or global economies and securities markets or relevant industries or sectors within them. 4 AllianzGI Institutional Multi-Series Trust

5 AllianzGI Best Styles Global Managed Volatility Portfolio (continued) Issuer Risk: The Portfolio will be affected by factors specific to the issuers of securities and other instruments in which the Portfolio invests, including actual or perceived changes in the financial condition or business prospects of such issuers. Non-U.S. Investment Risk: Non-U.S. securities markets and issuers may be more volatile, smaller, less liquid, less transparent and subject to less oversight, particularly in emerging markets. Emerging Markets Risk: Non-U.S. investment risk may be particularly high to the extent that the Portfolio invests in emerging market securities. These securities may present market, credit, currency, liquidity, legal, political, technical and other risks different from, or greater than, the risks of investing in developed countries. Smaller Company Risk: Securities issued by smaller companies may be more volatile and present increased liquidity risk relative to securities issued by larger companies. Credit and Counterparty Risk: An issuer or counterparty may default on obligations. Currency Risk: The values of non-u.s. securities may fluctuate with currency exchange rates and exposure to non-u.s. currencies may subject the Portfolio to the risk that those currencies will decline in value relative to the U.S. dollar. Derivatives Risk: Derivative instruments are complex, have different characteristics than their underlying assets and are subject to additional risks, including leverage, liquidity and valuation. Focused Investment Risk: Focusing on a limited number of issuers, sectors, industries or geographic regions increases risk and volatility. IPO Risk: Securities purchased in initial public offerings have no trading history, limited issuer information and increased volatility. Leveraging Risk: Instruments and transactions that constitute leverage magnify gains or losses and increase volatility. Liquidity Risk: The lack of an active market for investments may cause delay in disposition or force a sale below fair value. Management Risk: The Portfolio will be affected by the allocation determinations, investment decisions and techniques of the Portfolio s management. REIT and Real Estate-Related Investment Risk: Adverse changes in the real estate markets may affect the value of REIT investments or real estate-linked derivatives. Turnover Risk: High levels of portfolio turnover increase transaction costs and taxes and may lower investment performance. Please see Summary of Principal Risks in this Private Placement Memorandum for a more detailed description of the Portfolio s risks. It is possible to lose money on an investment in the Portfolio. An investment in the Portfolio is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Performance Information The performance information below provides some indication of the risks of investing in the Portfolio by showing changes in its total return from year to year and by comparing the Portfolio s average annual total returns with those of a broad-based market index. Past performance, before and after taxes, is not necessarily predictive of future performance. Visit us.allianzgi.com for more current performance information. Private Placement Memorandum 5

6 AllianzGI Best Styles Global Managed Volatility Portfolio (continued) Calendar Year Total Returns 30% Annual Return 20% 10% 0% 21.09% '17 Calendar Year End (through 12/31) Highest and Lowest Quarter Returns (for periods shown in the bar chart) Highest 01/01/ /31/ % Lowest 07/01/ /30/ % Average Annual Total Returns 1 Year Since Inception Before Taxes 21.09% 15.13% After Taxes on Distributions 17.90% 12.76% After Taxes on Distributions and Sale of Fund Shares 12.27% 10.65% MSCI ACWI Minimum Volatility Index 17.93% 11.05% Management of the Portfolio Purchase and Sale of Portfolio Shares Tax Information Investment Manager Allianz Global Investors U.S. LLC Portfolio Managers Mr. Michael Heldmann, Ph.D., CFA, portfolio manager, has managed the Portfolio since its inception in Mr. Rohit Ramesh portfolio manager, has managed the Portfolio since Currently, shares of the Portfolio are only available for purchase by accredited investors as defined in Regulation D under the Securities Act of 1933, as amended ( Regulation D ). Under ordinary circumstances, you may purchase the Portfolio s shares directly from the Trust on days when the New York Stock Exchange ( NYSE ) is open for business. Portfolio shares are redeemable and, under ordinary circumstances, you may redeem the Portfolio s shares on days when the NYSE is open for business. For instructions on purchasing and redeeming shares, call your Account Representative. The Portfolio s distributions are generally taxable to you as ordinary income, qualified dividend income or capital gains, unless you are investing through a tax-advantaged account. 6 AllianzGI Institutional Multi-Series Trust

7 Principal Investments and Strategies of the Portfolio This section, together with the next section entitled Summary of Principal Risks, provides more detailed information regarding the Portfolio s investment objective, principal investments and strategies and principal risks. The Portfolio may be subject to capitalization criteria and percentage investment limitations, as noted in its Portfolio Summary above and in the description below. See Characteristics and Risks of Securities and Investment Techniques Capitalization Criteria, Percentage Investment Limitations and Alternative Means of Gaining Exposure for more information about these limitations. It is possible to lose money on an investment in the Portfolio. Private Placement Memorandum 7

8 Principal Investments and Strategies AllianzGI Best Styles Global Managed Volatility Portfolio Investment Objective Seeks long-term capital appreciation Portfolio Category Blend Stocks Portfolio Focus Global equity securities Approximate Primary Capitalization Range All capitalizations Dividend Frequency At least Annually The Portfolio seeks to achieve its investment objective by investing in a diversified portfolio of global equities and is managed with reference to the MSCI All Country World Minimum Volatility Index (the Index ). The Portfolio normally invests primarily in equity securities of companies located both in the U.S. and outside of the U.S., including emerging market securities. Under normal circumstances, the Portfolio will not invest in companies located in any single country (including the U.S.) in excess of the larger of: (i) 50% of its net assets, or (ii) a portion of its net assets equal to 5% more than the applicable country s weight in the Index. As of December 31, 2017, the market capitalization-based weighting of the U.S. in the Index was approximately 57.19%. The Portfolio may invest in issuers of any market capitalization, including smaller capitalization companies. The Portfolio normally invests primarily in common stocks, either directly or indirectly through depositary receipts such as American Depositary Receipts (ADRs) and Global Depositary Receipt (GDRs). The Portfolio s investment process integrates top-down investment style research and proprietary fundamental bottom-up company research with a rigorous risk management process in an effort to deliver a stable and sustainable pattern of excess returns relative to the Index. The Portfolio s investment strategy centers on the portfolio managers belief that individual investment styles (as described below) carry long-term risk premiums that are largely independent of the current economic or market environment and that can be captured using a disciplined investment approach. Risk premiums represent the potential added value resulting from investments in certain sub-segments of the market that may carry higher risks but have historically led to higher returns on investment in favorable market conditions. The investment process begins with a broad investment universe containing at least 4,000 equity securities across both developed and emerging markets. The portfolio managers evaluate securities based on quantitative investment style research and may also incorporate the results of bottom-up analysis by the Manager s fundamental research team. Investment style research categorizes companies through a proprietary quantitative model that scores each company along several investment style categories, described below (Value, Earnings Change, Price Momentum, Growth, and Quality). Fundamental research evaluates each company identified as an investment candidate through the quantitative investment style research process using a wide range of company-specific information gathered by in-house analysts and external sources. In selecting individual stocks with attractive fundamental characteristics, the portfolio managers seek to diversify the mix of investment styles represented across the whole portfolio (i.e., by making sure high-scoring issuers from all of the investment styles are among the final holdings). The portfolio managers attempt to control for risk factors, such as over- and under-weights relative to the Index as to region, country or economic sector and the portfolio s sensitivity to broader market movements (or beta ). The portfolio managers also seek to control for risks associated with volatility and accordingly conduct their security-selection process with reference to the Index, which is designed to reflect the performance characteristics of a minimum variance strategy applied to the MSCI All-Country World Index (the Parent Index ), an index consisting principally of large- and mid-cap equities across a wide range of developed and emerging markets countries. The Index implements a minimum variance strategy by optimizing its Parent Index for the lowest absolute risk (within a given set of constraints). The Portfolio is expected to include at least 250 securities and, as a whole, is expected to exhibit levels of beta and volatility that are similar to those of the Index. The following investment styles are considered in managing the Portfolio: The Value investment style selects equity securities that the portfolio managers believe have attractive valuations based on metrics including dividend yield, price-to-earnings, price-to-cash flow and price-to-book ratios, as compared to other equity securities in the investable universe. The Earnings Change investment style is designed to capture shorter-term, trend-following investment opportunities and generally selects equity securities with positive earnings revisions, announcements or surprises. The Price Momentum investment style is also trend-following and generally selects equity securities with positive price momentum and relative strength within the investable universe. 8 AllianzGI Institutional Multi-Series Trust

9 AllianzGI Best Styles Global Managed Volatility Portfolio (continued) The Growth investment style generally selects equity securities with expected and historical earnings growth and dividend growth. The Quality investment style generally emphasizes equity securities with strong profitability and historical earnings stability, and considers additional factors, such as whether a company has improving margins, positive net income, positive operating capital, decreasing long-term debt and high-quality earnings, among others. The Portfolio s research suggests that, while each of the investment styles described above can be individually successful over the long-term and during certain periods, each investment style may also experience downswings (i.e., during certain market, economic, or other conditions an individual investment style may underperform compared to the relevant broad equity market). Building a portfolio with a diversified mix of investment styles is the Portfolio s attempt to mitigate what the portfolio managers believe to be the cyclical nature of the individual investment styles. As discussed above, the Portfolio is managed with reference to the Index and is designed to fulfill an investor s desired allocation to global equities and a managed volatility strategy. The Portfolio utilizes an investment strategy that focuses on the overall management of portfolio volatility and favors stocks that demonstrate lower beta. The focus may result in the Portfolio outperforming the general securities market during periods of flat or negative market performance, and underperforming the general securities market during periods of strong positive market performance. There is no guarantee that the Portfolio will exhibit this trait. The portfolio managers expect to rebalance the Portfolio periodically. The portfolio managers also regularly monitor the risk and return profiles of the portfolio and each investment style, and consider whether to sell a particular security when any factors materially change, or when a more attractive investment candidate is available. The Portfolio may participate in initial public offerings (IPOs). The Portfolio may also invest a portion of its assets in real estate investment trusts (REITs). The Portfolio may also utilize foreign currency exchange contracts, stock index futures contracts, warrants and other derivative instruments. Although the Portfolio did not invest significantly in derivative instruments as of the most recent fiscal year end, it may do so at any time. In response to adverse market, economic, political or other conditions, the Portfolio may deviate from its principal strategies by making temporary investments of some or all of its assets in high-quality fixed income securities, cash and cash equivalents. The Portfolio may be less likely to achieve its investment objective when it does so. Principal Risks Among the principal risks of investing in the Portfolio, which could adversely affect its net asset value, yield and total return, are (in alphabetical order after the first six risks): Equity Securities Risk Market Risk Issuer Risk Non-U.S. Investment Risk Emerging Markets Risk Smaller Company Risk Credit and Counterparty Risk Currency Risk Derivatives Risk Focused Investment Risk IPO Risk Leveraging Risk Liquidity Risk Management Risk REIT and Real Estate-Related Investment Risk Turnover Risk Please see Summary of Principal Risks following this section for a description of these and other risks of investing in the Portfolio. Private Placement Memorandum 9

10 Credit and Counterparty Risk Currency Risk Derivatives Risk Summary of Principal Risks The value of your investment in the Portfolio changes with the values of the Portfolio s investments. Many factors can affect those values. The factors that are most likely to have a material effect on the Portfolio s portfolio as a whole are called principal risks. The principal risks of the Portfolio are summarized in the Portfolio Summary and are described in more detail in this section. The Portfolio may be subject to additional risks other than those described below because the mix of investments made by a portfolio can change over time. Securities and investment techniques appearing in bold type below are described in greater detail under Characteristics and Risks of Securities and Investment Techniques. That section and Investment Objectives and Policies in the Statement of Additional Information also include more information about the Portfolio, its investments and the related risks. There is no guarantee that the Portfolio will be able to achieve its investment objective. It is possible to lose money by investing in the Portfolio. The Portfolio could lose money if the issuer or guarantor of a fixed income security (including a security purchased with securities lending cash collateral) is unable or unwilling, or is perceived (whether by market participants, ratings agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in their credit ratings and a Portfolio holding a fixed income security is subject to the risk that the security s credit rating will be downgraded. Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, at least one major rating agency downgraded the long-term U.S. credit rating in 2011 due to the rising public debt burden and perception of greater policymaking uncertainty in the U.S. and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of the Portfolio s investments, to the extent that the Portfolio has exposure to securities issued by the U.S. Treasury. Credit risk is particularly pronounced for below investment grade securities (also known as high yield or junk bonds.) Counterparty Risk. The Portfolio is also subject to the risk that a counterparty to a derivatives contract, repurchase agreement, aloan of portfolio securities or an unsettled transaction may be unable or unwilling to make timely settlement payments or otherwise honor its obligations to the Portfolio. If a counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, the Portfolio could miss investment opportunities or otherwise hold investments it would prefer to sell, resulting in losses for the Portfolio. Counterparty risk may be pronounced during unusually adverse market conditions and may be particularly acute in environments in which financial services firms are exposed to systemic risks of the type evidenced by the 2008 insolvency of Lehman Brothers and subsequent market disruptions. Portfolios that invest directly in foreign (non-u.s.) currencies, or in securities that trade in, or receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or non-u.s. governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Portfolio s exposure to foreign currencies, including investments in foreign currencydenominated securities, may reduce the returns of the Portfolio. The local emerging market currencies in which the Portfolio may be invested from time to time may experience substantially greater volatility against the U.S. dollar than the major convertible currencies of developed countries. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. The derivatives that may be used by the Portfolio are discussed in more detail under Characteristics and Risks of Securities and Investment Techniques Derivatives in this Private Placement Memorandum and described in more detail under Investment Objectives and Policies in the Statement of Additional Information. The Portfolio may (but is not required to) use derivatives as part of a strategy designed to reduce exposure to other risks, such as risks associated with changes in interest rates or foreign currency exchange rates risk. The Portfolio s use of derivatives may also result in leverage, which increases opportunities for gain but also involves greater risk of loss due to leveraging risk, and to gain exposure to issuers, indices, sectors, currencies and/or geographic regions. The Portfolio s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. A Portfolio investing in a derivative instrument could lose more than the principal amount invested, and the use of certain derivatives may subject the Portfolio to the potential for unlimited loss. Derivatives are subject to a number of risks described elsewhere in this section, such as liquidity risk, market 10 AllianzGI Institutional Multi-Series Trust

11 Emerging Markets Risk risk, credit and counterparty risk and management risk. Additionally, holding a position in a derivative could result in losses if the Portfolio does not correctly evaluate the creditworthiness of the company on which the credit default swap is based. Certain instruments, such as written call options on individual securities that it does not hold in its portfolio (i.e., naked call options), may subject the Portfolio to the risk that a liquid market for the underlying security may not exist at the time an option is exercised or when the Portfolio otherwise seeks to close out an option position. Such instruments have speculative characteristics and the potential for unlimited loss. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Portfolio will engage in these transactions to reduce exposure to other risks when that would be beneficial or that, if used, such strategies will be successful. Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a cleared derivatives transaction, the Portfolio s counterparty is a clearing house, rather than a bank or broker. Since the Portfolio is not a member of clearing houses and only members of a clearing house can participate directly in the clearing house, the Portfolio will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Portfolio will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients obligations to the clearing house. Centrally cleared derivative arrangements may be less favorable to mutual funds than bilateral arrangements. For example, the Portfolio may be required to provide greater amounts of margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in some cases, following a period of notice to the Portfolio, a clearing member generally can require termination of existing cleared derivatives transactions at any time or increases in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate transactions at any time. Other recent U.S. and non-u.s. legislative and regulatory reforms, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Investment Company Act of 1940, as amended (the 1940 Act ) restrictions with respect to senior securities, have resulted in, and may in the future result in, new regulation of derivative instruments and the Portfolio s use of such instruments. New regulations could, among other things, restrict the Portfolio s ability to engage in derivative transactions (for example, by making certain types of derivative instruments or transactions no longer available to the Portfolio), establish new margin requirements and/or increase the costs of derivatives transactions, and the Portfolio may as a result be unable to execute its investment strategies in a manner its Manager might otherwise choose. The SEC has proposed a new rule related to certain aspects of derivatives use. As of the date for this Private Placement Memorandum, whether, when and in what form this proposed rule will be adopted and its potential effects on the Portfolio are unclear. A Portfolio that invests in non-u.s. securities and/or currencies may experience more rapid and extreme changes in value than a Portfolio that invests exclusively in securities of U.S. issuers or securities that trade exclusively in U.S. markets. See Non-U.S. Investment Risk below. Non-U.S. investment risk may be particularly high to the extent that the Portfolio invests in emerging market securities, that is, securities of issuers tied economically to countries with developing economies. These securities may present market, credit, currency, liquidity, legal, political, technical and other risks different from, or greater than, the risks of investing in developed countries. Certain emerging market countries may impose restrictions on foreign investment and repatriation of investment income and capital. In addition, foreign investors, including the Portfolio, may be required to register the proceeds of sales, and future economic or political crises could lead to price controls, forced mergers, nationalization or the creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. dollar, and devaluation may occur subsequent to investments in these currencies by the Portfolio. See Currency Risk. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Emerging market securities may trade in more limited volume than comparable securities in developed foreign markets. Emerging market securities may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause the Portfolio to miss attractive investment opportunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security, all of which would negatively affect the Portfolio s performance. Private Placement Memorandum 11

12 Equity Securities Risk Focused Investment Risk IPO Risk In addition, the risks associated with investing in a narrowly-defined geographic area (discussed below under Non-U.S. Investment Risk and Focused Investment Risk ) are generally more pronounced with respect to investments in emerging market countries. For example, to the extent a Portfolio invests in companies incorporated or doing significant business in China, which may be considered an emerging market, the risks associated with China-related investments may be more pronounced for such Portfolio. The Portfolio may also be subject to Emerging Markets Risk if it invests in derivatives or other securities or instruments whose value or returns are related to the value or returns of emerging market securities. Equity securities represent an ownership interest, or the right to acquire an ownership interest, in an issuer. Equity securities may take the form of shares of common stock of a corporation, membership interests in a limited liability company, limited partnership interests, or other forms of ownership interests. Equity securities also include, among other things, preferred stocks, convertible securities and warrants. The value of a company s equity securities may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company s products or services. The value of an equity security may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company s equity securities may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates or adverse circumstances involving the credit markets. In addition, because a company s equity securities rank junior in priority to the interests of bond holders and other creditors, a company s equity securities will usually react more strongly than its bonds and other debt to actual or perceived changes in the company s financial condition or prospects. To the extent the Portfolio invests in equity-related instruments it will also be subject to these risks. The Portfolio s investments may focus on equity securities of companies that its portfolio managers believe will experience relatively rapid earnings growth (growth securities) or that its portfolio managers believe are selling at a price lower than their true value (value securities). Growth securities typically trade at higher multiples of current earnings than other securities. Therefore, the value of growth securities may be more sensitive to changes in current or expected earnings than the value of other securities. Companies that issue value securities may have experienced adverse business developments or may be subject to special risks that have caused their securities to be out of favor. If a portfolio manager s assessment of a company s prospects is wrong, or if the market does not recognize the value of the company, the price of its securities may decline or may not approach the value that the portfolio manager anticipates. Focusing Portfolio investments in a small number of issuers, industries, foreign currencies or regions increases risk. Portfolios that are non-diversified because they may invest a significant portion of their assets in a relatively small number of issuers may have more risk because changes in the value of a single security or the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Portfolio s net asset value. Some of those issuers also may present substantial credit or other risks. Diversified funds that invest in a relatively small number of issuers are subject to similar risks. In addition, the Portfolio may be subject to increased risk to the extent it focuses its investments in securities denominated in a particular foreign currency or in a narrowly defined geographic area, for example, regional economic risks relating to weather emergencies and natural disasters. Similarly, a portfolio that focuses its investments in a certain type of issuer is particularly vulnerable to events affecting such type of issuer. Also, the Portfolio may have greater risk to the extent it invests a substantial portion of its assets in a group of related industries (or sectors ). The industries comprising any particular sector and investments in a particular foreign currency or in a narrowly defined geographic area outside the United States may share common characteristics, are often subject to similar business risks and regulatory burdens, and react similarly to economic, market, political or other developments. Furthermore, certain issuers, industries and regions may be adversely affected by the impacts of climate change on the demand for and the development of goods and services and related production costs, and the impacts of legislation, regulation and international accords related to climate change, as well as any indirect consequences of regulation or business trends driven by climate change. Securities offered in initial public offerings (IPOs) are subject to many of the same risks of investing in companies with smaller market capitalizations and often to a heightened degree. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. In addition, the prices of securities sold in IPOs may be highly volatile. At any particular time or from time to time, the Portfolio may not be able to invest in securities issued in IPOs, or invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available to the Portfolio. In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. Similarly, 12 AllianzGI Institutional Multi-Series Trust

13 Issuer Risk Leveraging Risk Liquidity Risk Management Risk as the number of funds to which IPO securities are allocated increases, the number of securities issued to any one fund may decrease. The investment performance of the Portfolio during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Portfolio is able to do so. In addition, as the Portfolio increases in size, the impact of IPOs on the Portfolio s performance will generally decrease. The value of a security may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer s goods or services as well as the historical and prospective earnings of the issuer and the value of its assets. Leverage, including borrowing, will cause the value of the Portfolio s shares to be more volatile than if the Portfolio did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio s portfolio securities. The Portfolio may engage in transactions or purchase instruments that give rise to forms of leverage. Such transactions and instruments may include, among others, the use of reverse repurchase agreements and other borrowings, the investment of collateral from loans of portfolio securities, or the use of when-issued, delayed-delivery or forward commitment transactions. The use of derivatives and short sales may also involve leverage. The use of leverage may cause the Portfolio to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet segregation requirements. Certain types of leveraging transactions, such as short sales that are not against the box, could theoretically be subject to unlimited losses in cases where the Portfolio, for any reason, is unable to close out the transaction. In addition, to the extent the Portfolio borrows money, interest costs on such borrowings may not be recovered by any appreciation of the securities purchased with the borrowed amounts and could exceed the Portfolio s investment returns, resulting in greater losses. Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from purchasing or selling such illiquid securities at an advantageous time or price, or possibly requiring the Portfolio to dispose of other investments at unfavorable times or prices in order to satisfy its obligations or possibly delaying the redemption of Portfolio shares. Portfolios with principal investment strategies that involve securities of companies with smaller market capitalizations, non-u.s. securities, Rule 144A securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. In such cases, the Portfolio, due to limitations on investments in illiquid securities and the difficulty in purchasing and selling such securities or instruments, may be unable to achieve its desired level of exposure to a certain issuer or sector. Additional legislative or regulatory actions to address perceived liquidity or other issues in markets generally, or in particular markets such as the fixed income securities markets and municipal securities markets, may alter or impair the Portfolio s ability to pursue its investment objectives or utilize certain investment strategies and techniques. The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager and the individual portfolio managers will apply investment techniques and risk analyses in making investment decisions for the Portfolio, but there can be no guarantee that these will produce the desired results. The portfolio managers employ quantitative models, which may be either proprietary or maintained by third parties, and there can be no assurance that such models will behave as expected in all market conditions, including due to deviations between expected and actual relationships among variables. Any imperfections, errors, or limitations in such models could affect the Portfolio s performance. By necessity, such models make simplifying assumptions that limit their effectiveness. In addition, the computer programming used to construct, or the data employed by, quantitative models may contain errors, which may cause losses for the Portfolio or reduce performance. In the event third-party models become increasingly costly or unavailable, the portfolio managers may be forced to rely on proprietary models or to reduce or discontinue their use of quantitative models. The Portfolio is also subject to the risk that deficiencies in the operational systems or controls of the Manager or another service provider will cause losses for the Portfolio or hinder Portfolio operations. For example, trading delays or errors (both human and systemic) could prevent the Portfolio from purchasing a security expected to appreciate in value. Additionally, legislative, regulatory, or tax developments may affect the investment techniques available to AllianzGI U.S. and each individual portfolio manager in connection with managing the Portfolio and may also adversely affect the ability of the Portfolio to achieve its investment objectives. To the extent portfolio managers employ strategies that are not correlated to broader markets, or that are intended to seek returns under a variety of market conditions (such as managed volatility strategies), certain Private Placement Memorandum 13