The Danger of Duration in Investor Portfolios Name Here Title Here Date Here The views expressed in this presentation are those of the author, not necessarily Pioneer Investments, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any Pioneer investment product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue.

Page 2 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Agenda 1.Life Inside an Interest Rate “Black Hole” The Federal Reserve’s original goals of the “Great Monetary Experiment” are largely accomplished Rising interest rates and inflation are almost assured manifestations 2.The Damage Potential of Rising Rates Treasury yield curve and interest rate scenarios A shift in monetary policy, and its effect on high-quality bonds 3.The Next Big Challenge to Investors: Duration Not all duration is created equal Where will investors find yield? Test of the “safe-haven” hypothesis Thinking outside “the box”

Page 3 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Agenda 1.Life Inside an Interest Rate “Black Hole” The Federal Reserve’s original goals of the “Great Monetary Experiment” are largely accomplished Rising interest rates and inflation are almost assured manifestations

Page 4 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Life Inside an Interest Rate “Black Hole” Investor flows have gravitated to fixed income for well over a decade. Since the Great Financial Crisis of 2008, investors have accelerated their allocation to fixed income. The Federal Reserve’s goals from the “Great Monetary Experiment” are largely accomplished, and approaching an end. We believe investors, for good reason, should be concerned that rising bond yields and declining prices make the risk/reward proposition of bonds problematic. Investors need to understand how the likely trajectory of monetary policy and other factors could affect their bond portfolios.

Page 5 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. The Federal Reserve’s Goals from the “Great Monetary Experiment” The Great Monetary Experiment’s Goals: To fight deflation, cheapen credit for financing, and reflate financial real assets for businesses and consumers: Negative real yields To aid in paying down debt (deleveraging) and prop up consumption: Higher discretionary income Help businesses repair their balance sheets: Low borrowing costs Cushion the budgetary consequences of fiscal stimulus: Keep the costs of government spending down With these goals largely met, the need for extraordinary monetary accommodation is diminishing. We believe rising interest rates and inflation are almost assured manifestations.

Page 6 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Inflation Expected to Increase Economists believe prices are poised to rise

Page 7 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Market and Economic Conditions are Improving Financial and real assets have “reflated”

Page 8 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Market and Economic Conditions are Improving Consumers have repaired their personal finances

Page 9 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Market and Economic Conditions are Improving Businesses and consumers are borrowing

Page 10 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Normalizing to Historical Rate Levels Can Carry Risks for Many Investors Damage to high-quality fixed income is already occurring

Page 11 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. The Deficit is Shrinking Faster than Predicted (higher taxes, spending restraint)... so is the Fed’s balance sheet

Page 12 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Rising Rates May Not be Far Off As economic activity accelerates, the Treasury yield curve will likely steepen in response. Improving home prices have spurred refinancing and selling, feeding a wave of consumer spending... all of which may lead to accelerating job creation. As a result, the Fed’s target 6.5% unemployment and 2.5% inflation could be sooner than expected. High-quality bonds will likely continue to experience periods of significant volatility as financial markets grapple with the structural change in the yield and interest rate environment. We think investors are being lulled into a false sense of security that rising rates are a long way off in the future.

Page 13 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. What Might Happen Soon, What We Might Need to Think About Investors could now face the threat of rising bond yields. What are some of the likely scenarios that we might see around the Treasury yield curve and interest rates, if: 1.The Fed maintains its current zero interest rate policy? 2.Monetary velocity accelerates; the Fed maintains its zero interest rate policy? 3.Monetary velocity accelerates beyond expectations? 4.The zero interest rate policy is abandoned? Investors may need to realign their investments and allocations before rates rise to avoid damage to their portfolios.

Page 14 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Agenda 2.The Damage Potential of Rising Rates Treasury yield curve and interest rate scenarios A shift in monetary policy, and its effect on high-quality bonds

Page 15 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Treasury Yield Curve and Interest Rate “What if?” Scenarios The Fed maintains a zero interest rate policy

Page 16 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Treasury Yield Curve and Interest Rate “What if?” Scenarios Monetary velocity increases within the Fed’s targeted range

Page 17 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Treasury Yield Curve and Interest Rate “What if?” Scenarios Fears of inflation arise - the Fed’s targets are exceeded

Page 18 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Treasury Yield Curve and Interest Rate “What if?” Scenarios ZIRP is abandoned

Page 19 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. A Few Other Possible Scenarios While high-quality bond portfolios have sustained significant losses relative to their returns over the last few years, there are potentially more losses to come with a shift in monetary policy. Investors should consider how their returns might vary under the different economic and yield scenarios that could potentially unfold over the next couple years (through 2014). Bear Case: Accelerating rise in employment and inflation (+3% GDP Growth), could result in a 6.5% 30-year yield and a 5% 10-year yield (probability 25%) Base Case: Modest acceleration in economic activity (2%-3%), that could result in a 5% 30- year yield and 4% 10-year yield (probability 50%) Stagnant Case: Sluggish economic activity (1%-2%) over the next two years, could result in a 30-year yield that is 4%, and a 10-year yield at 3% (probability 20%) Bull Case: A recession could drive the 30-year yield to 2% and 10-year yield to 1.25% (probability 5%) Source: Pioneer Investments.

Page 20 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. The Impact of Rising Rates on the Value of Bonds Duration: the sensitivity of a bond’s value to a rise in interest rates. At today’s rates, a 1% rise in rates would depreciate the value of a 10-Year Treasury Note by more than 9%, a 2% rise by more than 18%. $81,980

Page 21 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. The Next Big Challenge to Investors: Duration The stage is being set for potentially significant change in the fixed income markets. Some sectors are more at risk than others. We believe interest rates are poised to rise due to strengthening economic conditions and the withdrawal of Fed stimulus. Rising rates typically reduce the value of bonds. Higher-quality and longer-dated bonds are more sensitive to the impact of rising rates than lower-quality bonds, which may have more yield “cushion.” Where do we go from here?

Page 22 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Agenda 3.The Next Big Challenge to Investors: Duration Not all duration is created equal Where will investors find yield? Test of the “safe-haven” hypothesis Thinking outside “the box”

Page 23 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. The Next Big Challenge to Investors: Duration The sensitivity of a bond’s price to interest rate changes. When rates rise, prices fall. Interest Rate Duration: the price sensitivity of a bond to a change in interest rates relative to Treasuries. An indicator of possible principal loss in a rising yield environment: the condition we think we likely face. High-quality/long-duration fixed income portfolios are more sensitive to changes in interest rates. They will likely struggle to provide positive returns even without a large move in interest rates.... but not all duration is equal, and not all is bad. Spread Duration: measures the price sensitivity of a bond to a change in option adjusted spreads (OAS) (the difference in yield over Treasuries). The higher spread duration the better. That’s why investors have “crowded” into higher yielding securities - for the “cushion” that can lessen the impact of rising rates on the value of bonds.

Page 24 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. “The Gold Rush” to Zero? Investors increasingly shifting exposure to the short-end. Spreads have compressed. Bank Loans represented by the Barclays High Yield Loans Performing Index, a measure of bank loan performance. Mortgage-backed securities represented by the BofAML Mortgage Master Index, a measure of mortgage performance. Investment Grade Corporate Bonds represented by the BofAML Corporate Bond Master Index. High Yield Bonds represented by the BofAML High Yield Master II Index, a general measure of high yield bonds.

Page 25 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Where Can Investors Find Yield? Investment Grade Corporate Bonds: higher quality but lower yield

Page 26 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. High Yield A “crowded” trade? SD = Standard Deviation, a statistical measure of the historical volatility of a portfolio. A higher standard deviation suggests more variability in returns from quarter to quarter. Source: Bank of America Merrill Lynch. Last data point 10/25/13.

Page 27 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Bank Loans Interest rate protection, but at the cost of yield

Page 28 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Non-Agency Mortgages The once “sub-prime” industry has experienced a partial recovery, but...

Page 29 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Thinking Outside “The Box” An increasingly dangerous mindset has arisen: Investors have been conditioned to accept that rates will remain low, and monetary stimulus will continue. We believe this is very risky. Historically sought after “safe-haven” fixed income sectors in a rising rate environment are still capable of providing some degree of spread cushion, but the degree of protection has diminished. To help manage potentially significant losses if the credit cycle tips over, investors should consult their financial advisor to learn more about strategies for navigating a more volatile credit environment.

Page 30 I I There is no guarantee that forecasts will be realized. Past performance is no guarantee of future results. Pioneer Investments 60 State Street, Boston, Massachusetts ©2013 Pioneer Investments us.pioneerinvestments.com