Montana Public Employees Retirement Association

August 2018Stable Value strategy review

1

Disclosures

PIMCO is a registered trademark of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, in the United States and throughout the world.

For professional use only. Client-specific update.

2

Biographical information

David J. Berg, CFAMr. Berg is a vice president in the New York office and a stable value account manager in the defined contribution (DC) channel. Mr. Berg currently serves on the board of directors of the Stable Value Investment Association (SVIA) and is chairman of the Data and Research Committee for the SVIA. Prior to joining PIMCO in 2016, he was a vice president and portfolio manager with the stable value team at Goldman Sachs Asset Management. Previously, he was at Deutsche Asset Management, where he was a director and stable value portfolio manager, and J.P. Morgan Chase & Co. He has 18 years of investment experience and holds a master's degree in financialengineering from the Fu Foundation School of Engineering and Applied Science at Columbia University. He received an undergraduate degree in computer science from Lehigh University.

Sasha Talcott, CFAMs. Talcott is a senior vice president and account manager in the Newport Beach office, focusing on institutional client servicing. Prior to joining PIMCO in 2012, she was director of communications and outreach for Harvard Kennedy School’s Belfer Center for Science and International Affairs, a research center that focuses on topics ranging from international security to energy policy. Previously, she was a business reporter for the Boston Globe, where she covered the banking and insurance sectors. She holds an MBA from MIT Sloan School of Management and received an undergraduate degree from Northwestern University.

3

Agenda

1/Market review

2/MPERA Fixed Fund review

3/Economic outlook

4/PIMCO update

5/Additional slides

PIMCO update

5

PIMCO: Focused on preserving and enhancing assets

PIMCO_Update_02

PIMCO Today Looking AheadAssets under management• $1.71 trillion¹

Deep global resources and expertise• Over 2,300 total employees

– 740+ investment professionals– 245+ portfolio managers with 15 years

average investment experience• PIMCO Global Advisory Board

Time-tested investment philosophy• Diversified set of alpha engines

– Top Down– Bottom Up– Structural tilts

What We Stand For• PIMCO is committed to being the world’s premier fixed income investment manager

Client objectives driving focus• Expanding expertise and growing our capabilities across fixed income, quantitative investing and

alternative strategies • Investing in technology to bolster capabilities

• Announced new Austin office as a key hub for further attracting and growing technological innovation and talent

• Integrating ESG with dedicated platform and resources

Industry leading and community minded• Greenwich Quality Leader in Overall U.S. Investment Management Service Quality• Purpose at PIMCO – PIMCO Gives, PIMCO Acts, PIMCO Advocates• 2018 Civic 50 List – PIMCO recognized for the third year in a row

As of 30 June 2018¹ Effective 31 March 2012, PIMCO began reporting the assets managed on behalf of its parent’s affiliated companies as part of its assets under management.

Greenwich Associates accolade is based on interviews conducted by Greenwich Associates, between July and October 2017, with 1,059 senior professionals at 884 of the largest tax-exempt funds in the United States, including corporate and union funds, public funds, endowments and foundations, insurance general accounts, and healthcare organizations with either pension or investment pool assets greater than $150 million. Study participants were asked to provide quantitative and qualitative evaluations of their asset management and investment consulting providers, including qualitative assessments of those firms soliciting their business and detailed information on important market trends. The Greenwich Quality LeaderSM is determined entirely by the results of the interviews described above and do not represent opinions or endorsements by Greenwich Associates or its staff. Such designations are a product of numerical scores in Greenwich Associates’ proprietary studies that are generated from the study interviews and are based on a statistical significance confidence level of at least 80%. © 2018 Greenwich Associates, LLC.

2018 Secular Forum – Rude Awakenings• PIMCO’s Secular Forum, held annually in May, takes a longer term strategic view and allows us to position for structural

changes and longer-term economic trends• The road ahead may be radically different than the past 10 years and as investors we want to be prepared to play offense

when these “rude awakenings” present themselves

6

Assets under management by strategyPIMCO manages $1.71 trillion in assets, including $1.31 trillion in third-party client assets

asst_summary_01_USD

As of 30 June 2018. SOURCE: PIMCOAssets reflect those managed on behalf of third-party clients and exclude affiliated assets. Fund of funds assets have been netted from each strategyPotential differences in asset totals are due to rounding. Represents assets of strategy group in dedicated and non-dedicated portfolios¹ Total Return has been segregated to isolate the assets of PIMCO sponsored U.S. Total Return 1940-act fund and foreign pool fund accounts. All other U.S. Total Return portfolios are included in the Intermediate category² Stable value assets have not been netted from U.S. Total Return, U.S. Moderate Duration and U.S. Low Duration assets³ Tail-risk hedging assets reflect total notional value of dedicated mandates and are not counted towards PIMCO total assets under management

Alternatives Billions ($)

Hedge Funds Global macro, long/short credit, multi-asset volatility arbitrage strategies, relative value commodities 21.04Liquid Absolute Return Dynamic Bond strategies, Credit Opportunities Bond, other absolute return strategies 18.29Opportunistic/Distressed Opportunistic strategies focusing on real estate related assets (residential, commercial), corporate credit 9.65

Asset AllocationAsset Allocation Strategies Global Multi Asset, All Asset, EM Multi Asset, RealPath, Inflation-Response Multi Asset, DRA 36.68

EquitiesEquity Strategies Enhanced equities and active equities 27.57

Real ReturnReal Return Strategies Inflation linked strategies, actively managed commodities, and real-estate linked exposure 59.29

Fixed Income

Total Return1 Total Return 88.31

Intermediate2 Core Strategies, Moderate Duration 100.81Credit Investment Grade Credits, Bank Loans, High Yield 211.64Long Duration Focus on long-term bonds; asset liability management 153.38Income Income-oriented, insurance income 250.48Global International and global multiple currency formats 104.59

Cash Management2 Money Market, Short-Term, Low Duration 115.26Emerging Markets Local debt, external debt, currency 37.12Mortgages Agency MBS, structured credit (non-Agency MBS, CMBS, and ABS) 34.71Diversified Income Global credit combining corporate and emerging markets debt 21.65Municipals Tax-efficient total return management 14.61Other Custom mandates 9.24

Total assets under management $ 1,314.31 BStable Value2 Stable income with emphasis on principal stability 19.55

Tail-Risk Hedging3 Pooled and customized portfolios of actively managed tail-risk hedges 30.20

Market review

8

115

120

125

130

Dec '16 Apr '17 Aug '17 Dec '17 Apr '18

U.S

. Tra

de-W

eigh

t Bro

ad

Dol

lar

Inde

x (le

vel)

U.S. Trade-Weighted Broad Dollar Index

-5.8% -5.2% -4.0%

-30.4%

-14.7% -13.9%

GBP EUR JPY ARS BRL TRY

Cha

nge

vs. U

SD

sinc

e 31

Mar

'18

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

Mar '18 Apr '18 May '18 Jun '18

Yiel

d (%

)

U.S. 10yr yield

The U.S. dollar strengthened while geopolitical tensions weighed on risk appetites

2cs_intl_review_01

The currency sweepstakes Geopolitical pull

As of 30 June 2018SOURCE: PIMCO, Bloomberg

Widening interest rate differentials contributed to a stronger U.S. dollar against most EM and DM currencies

U.S. interest rates rose initially with solid growth and rising inflation, but political turmoil and trade frictions contributed to a reversal

Italy fails to form government

initially$50bn of tariffs announced on

Chinese imports

U.S. 10yr breaches 3.1% for the first time since 2011Q2:

+5.6%

DM EM

A resurgent U.S. dollar and bouts of market volatility highlighted a contentious quarter as geopolitics dominated headlines

9

Growth momentum and central bank activity diverged between the U.S. and other developed regions

2cs_intl_review_02

U.S. vs the rest Still on track

As of 30 June 2018SOURCE: PIMCO, Bloomberg

In a reversal from last year, growth trends in Europe appeared to slow while the U.S. economy maintained momentum

The Fed continued to normalize amid solid fundamentals and rising inflation, while other central banks softened rhetoric

Solid growth in the U.S. kept the Fed on track, with the divergence supporting the U.S. dollar

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2018 2019 2020 Longer-Term

Rate

(%)

FOMC - Mar '18 MtgFOMC - Jun '18 MtgMarket (Fed Funds): 21 Mar '18Market (Fed Funds): 13 Jun '18

(>50: expansionary)

-0.6

-0.1

3.6

6.5

3.7

3.7

0

-0.1

-0.6

-2.6

-4.6

-4.1

-3.2

2.1

Change in composite PMIs

U.S. 56.2

Eurozone 54.9

Germany 54.8

France 55.0

Italy 53.9

Spain 54.8

Japan 52.1

Current level

2017 net change

2018 YTD net change

10

Q2’18: U.S. dollar strength and challenged risk asset performance

As of 30 June 2018; SOURCE: PIMCO, Bloomberg. *price levelsSovereign yields reflect the generic 10yr benchmarks for each country. EM Local is represented by JPMorgan GBI-EM Global Diversified Composite YTM. U.S. TIPS: generic 10yr breakeven rate. U.S. IG: Barclays U.S. Agg Corporate Avg. OAS; U.S. HY: Barclays U.S. Corporate High Yield Average OAS. EM External: JPMorgan EMBI Global Sovereign Spread. EUR and JPY reflect spot returns against the U.S. dollar. EM FX: JPMorgan Emerging Local Markets ELMI+ Composite Total Return. Energy, Industrial Metals, and Agriculture reflect total return sub-indices of the Bloomberg Commodity Index. Equity percent changes capture total returns for S&P 500; Euro Stoxx 50 (cap-weighted index of 50 of the largest stocks from 12 Eurozone countries); MSCI EM; Shanghai Composite Index

2cs_intl_review_03

3.4% 3.4%

-8.0%-9.1%

2.6%

-0.5%

-6.7%

-12.9%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%

S&P 500 Euro Stoxx50 MSCI EM Shanghai

Retu

rns

(%)

QTD YTD '18

2,718 3,396 1,070 2,847

-5.2% -4.0%-5.8%

10.7%

1.0%

-8.7%

-2.7%

1.7%

-3.4%

12.7%

-5.3% -5.8%-10%

-5%

0%

5%

10%

15%

EUR JPY EM FX Energy Industrialmetals

Agriculture

Retu

rns

(%)

QTD YTD '18

714

9

62

15

30

20

77

0102030405060708090

Breakeveninflation

U.S. IG U.S. HY EM external

Cha

nge

in s

prea

d

QTD YTD '18SpreadsYields

12

-20

-1

5945

-13-1

45

-30-20-10

010203040506070

U.S. 10yr Germany 10yr Japan 10yr EM Local

Cha

nge

in y

ield

QTD YTD '18

Currencies and commodities Equities

Current levels (%)

Current levels (bps)

1.17 110.76 364.48 87.44 267.77 91.37Current levels

Current levels

2.86 0.30 0.04 6.59 213 123 363 388

MPERA Fixed Fund review

12

Stable Value market update

• Stable value industry assets at $733 billion1 as of year-end 2017- A decline of $11 billion from $744 billion1 as of year-end 2016

• Stable value market has continued to gradually improve- Wrap capacity remains robust, and there is a healthy supply-and-demand balance- BTMU surprised the market at the end of 2017 on their decision to exit - contracts replaced without market disruption

• Issues and challenges on the horizon of which to be aware- DC litigation risk is ongoing – stable value not immune, but focus has mostly been on insurance general account products- Dodd-Frank study to determine if wraps are swaps has yet to be completed

• Generally, rising rates are OK for stable value- Rising rates result in an increased yield in the crediting rate formula, but this is offset by a decline in the market-to-book ratio,

in the near term this should result in little change to the crediting rate - If interest rates remain elevated, we should see a gradual increase to crediting rates over a longer time horizon

As of 30 June 2018, unless otherwise noted1SOURCE: As of 31 December 2017 Stable Value Investment Association (SVIA) – SVIA revised industry assets downward by about $80 billion in 2Q17 due to removal of double counting of a participating member firm2Bank of Tokyo Mitsubishi (BTMU) exited the market in September 2017.

13

Montana Public Employee Retirement Administration Fixed FundFund highlights

!mk_Stable_Value_Appendix.

• The Fund continues to serve MPERA participants well in this low interest rate environment- Over 1 year ending June 2018, the Fund has delivered 2.43% annualized1 versus the Lipper MMF Index return of 1.08% - Over 3 years ending June 2018, the Fund has delivered 2.34% annualized1 versus the Lipper MMF Index return of 0.49%

• Declared Crediting rate period ending June 30, 2018: 2.51%- Lipper Money Market Index annualized 1-month return (June 2018): 1.59%- 3-Year Constant Maturity Treasury rate (June 2018): 2.63%- Hueler Stable Value Pooled Fund Universe annualized 1-month return (June 2018): 2.22%

• Fund continues to compare well to industry averages2 as of March 31, 2018 (latest available)- Crediting rate of 2.53% (declared rate) vs. 2.32%- Market to contract value ratio of 99.3% vs. 99.1%- Duration of 3.7 vs. years 3.0

• Montana Fixed Fund stable value program management updates - Continued comfort with new wrap structure and 3 issuers in the Montana Fixed Fund – Voya, Prudential and Transamerica- Issuers have agreed to updated investment guidelines – in process of documenting changes - Transferred liquidity buffer assets out of repo sweep to SSgA G-STIF

1Trustee net of fees performance21Q 2018 Stable Value Investment Association Quarterly Characteristics Survey - figures presented are for individually managed accounts. The observations and data contained in this report or

survey are intended to be illustrative in nature to give an overview of the stable value industry, as well as to provide relative trend information. These observations and data are reflective of the reporting or survey period only and, as such, are subject to change. This information may not be reflective or applicable to a specific plan's stable value investment option or a specific stable value fund. Further, these observations and data are not intended to constitute nor represent a benchmark. SVIA surveys are an exclusive benefit of membership. Data is confidential. Use of data for external purposes requires the express permission of the association.

14

Montana Fixed FundFund performance vs eVestment Stable Value Universe

Phil_58

As of 31 March 2018 *Fund returns are presented net of all fee and are based on the Quarterly Declared Rate by the MPERA Board the historical performance of the 457 Plan. All periods longer than one year are annualized. Past performance is not indicative of future results. Source: PIMCO, State Street Bank and Trust, and eVestment. eVestment and its affiliated entities (collectively “eVestment”) collect information directly from investment managers and other sources believed to be reliable; eVestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions.PIMCO assumed management responsibilities for the Eaton Stable Value Fund on 1/7/2014, performance presented prior to this date is that of the legacy Eaton stable value fund managed by Vanguard.

Provided below is the annual return of the Fund versus the eVestment US Stable Value Universe of fixed income managers (the “Universe”). The Universe includes stable value Separate Account composites and commingled stable value funds reported Gross of Fees by each manager submitting results to eVestment. Performance is the only metric used to determine the universe ranking.

Montana Fixed Fund* 0.62 2.41 2.31 2.20 2.51 3.06Observations 26 26 26 26 26 24

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

MRQ 1 Year 3 Years 5 Years 7 Years 10 Years

First Quartile

Second Quartile

Third Quartile

Fourth Quartile

Montana Fixed Fund*

15

Book Value Performance3 10 yrs 5 yrs 3 yrs 2 yrs 1 yr 6 mos 3 mos 1 mo YTD '18

Montana Fixed Fund (%) - - 2.34 2.41 2.43 1.24 0.62 0.21 1.24

457 Plan4 (formerly MDA01012TR) 2.96 2.20 2.34 2.41 2.43 1.24 0.62 0.21 1.24

401(A) Plan4 (formerly MDA01013TR) 3.31 2.20 2.34 2.41 2.43 1.24 0.62 0.21 1.24

Lipper Money Market Index (%) 0.27 0.30 0.49 0.71 1.08 0.67 0.40 0.13 0.67

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Crediting rate and benchmark

Montana Fixed Fund 3yr Constant Maturity Tsy (CMT)401A Plan (formerly MDA01013TR) Lipper MM Index457 Plan (formerly MDA01012TR )

Montana Fixed FundSummary characteristics

As of 30 June 2018. All periods longer than one year are annualized.1Portfolio Book Value versus Market Value of assets associated with benefit responsive wrap contracts and any cash instruments.2Effective 1 July 2018. Participant investments made in the Fund are credited with a daily blended interest rate (the "Quarterly Declared Rate") declared by the MPERA Board, typically on a quarterly basis.3Book Value performance based on the NAV change as provided by the custodian.4Book Value performance for the 457 and 401(A) plans have been blended with the Montana Fixed Fund for illustrative historical performance per plan. *Montana Fixed Fund transitioned into current structure 10/1/2013. The performance of the Montana Fixed Fund (account #PP9O) represents the value owed to participants, which accrues at the Quarterly Declared Rate declared by the MPERA Board. The obligation of PP9O is supported by the stable value portfolio (account #PP9N, the “Portfolio Value Fund”) which holds the STIF and Benefit Responsive Contracts (or wraps). The wraps cover fixed income investments held in account #PP9M.

Merger of 401a and 457

plan assets

Merger of wraps into a single fund for all

invested plans

Montana Fixed Fund (book value) $248,311,182

Quarterly Declared Rate2 2.51%

Portfolio Book Value (PP9N) $248,787,173

Portfolio Market Value (bonds in PC9M & STIF) $245,279,148

Market-to-book ratio (Portfolio)1 98.6%

Portfolio Crediting Rate2 2.47%

Estimated YTM 3.22%

Effective duration (yrs) 3.78

Supporting Information

Montana Fixed Fund (PP9O) Information

16

By Strategy

CompanyAccount Number

StrategyEstimated

YTMDuration Book Value MV (%) Market Value

PIMCO Fixed-Income Portfolio (PP9M) 1420 Moderate Duration 3.24% 3.82 $245,637,475 98.7% $242,347,261State Street Bank & Trust Co. (STIF) Cash Buffer - 1.59% 0.08 $3,149,698 1.3% $3,149,698Total Fund 3.22% 3.78 $248,787,173 100.0% $245,496,959

Transamerica Premier Life Ins.

Co.33%

Prudential Insurance Co. of

America33%

Voya Retirement Insurance & Annuity Co.

33%

State Street Bank & Trust

Co. (STIF)1%

Holdings By Contract (% of BV)2

By Contract

Company Contract TypeCredit

Rating1Crediting Rate (%)

Duration Market Value BV (%) Book Value MV/BV (%)

Transamerica Premier Life Ins. Co. MDA01012TR Synthetic GIC AA- 2.53% 3.82 $80,777,677 32.9% $81,871,348 98.7%Prudential Insurance Co. of America GA-63345 Synthetic GIC AA- 2.53% 3.82 $80,777,435 32.9% $81,871,346 98.7%Voya Retirement Insurance & Annuity Co. 60420 Synthetic GIC A 2.51% 3.82 $80,792,148 32.9% $81,894,781 98.7%State Street Bank & Trust Co. (STIF) Cash Buffer - - 1.59% 0.08 $3,149,698 1.3% $3,149,698 100.0%

Total Fund 2.51% 3.78 $245,496,959 100.0% $248,787,173 98.7%

Montana Fixed FundHoldings Summary

As of 30 June 20181Issuer Credit Rating is the higher of Moody's, Standard & Poor's, and Fitch2Figures may not sum to 100% due to rounding.

State Street Custodial Account # PP9N

17

Percentage of Assets Fund Plan

Active participants 24% 53%

Inactive participants 76% 47%

Inactive participants & those 60 years and older

87% 59%

Demographic information as of 31 March 2018Cash flow data as of 6/30/18Source: Empower and PIMCO

• Net participant cash flow activity has been calm- Weighted (12-month) moving average: -0.3% (-3.6% annualized)

- Standard deviation of participant activity: 0.5% (1.7% annulized)

Percentage distribution of assets by age cohort and employment status

• The Fixed Fund has a greater portion of assets held by inactive participants and older age cohorts vs the Plan

Montana Fixed FundParticipant demographics and cash flows

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Dec '11 Jun '12 Dec '12 Jun '13 Dec '13 Jun '14 Dec '14 Jun '15 Dec '15 Jun '16 Dec '16 Jun '17 Dec '17 Jun '18

Net Activity as percentage of Fund balance 12-month moving average of total net activity

18

As of 30 June 2018All periods longer than one year are annualizedBenchmark: Barclays Intermediate Government/CreditHighest rating of S&P/Moody’s/Fitch

Montana Fixed FundFixed Income separate account (PC9M only, no STIF) summary statistics

-5

0

5

10

15

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 YTD'18

Retu

rns

(%)

Performance Portfolio (before fees) BenchmarkPortfolio Characteristics

Market value as of Jun '18 $242,347,261

Estimated YTM (%) 3.2

Effective Duration (yrs) 3.8

Average Credit Quality AA

Sector Allocation MV (%)

US Government Related 40.0

Mortgage 16.4

Invest. Grade Credit 38.2

High Yield Credit 0.0

Non-USD Developed 0.0

Emerging Markets 0.0

Municipal/Other 0.0

Net Other Short Duration Instruments 5.5

A1/P1 11.6

AAA 57.2

AAA 0.3

A 15.1

BBB 15.9

<BBB 0.0

Quality (%)

Portfolio Performance S.I. 10 yrs. 5 yrs. 3 yrs. 1 yr. 6 mos. 3 mos.Before fees (%) 4.0 3.1 1.5 1.3 -0.5 -1.1 0.1

After fees (%) 3.7 2.8 1.3 1.1 -0.7 -1.2 0.0

Benchmark (%) 3.8 3.1 1.6 1.2 -0.6 -1.0 0.0

19

WHAT WE THOUGHT

• We expected the U.S. to grow at a moderate pace, keeping the Fed on track for policy normalization

• We expected intermediate U.S. interest rates to be relatively range bound, with any increases outpaced by those abroad

• We believed that housing market strength would be supportive of mortgage-related credit

WHAT HAPPENED

• Geopolitics - including escalating trade tensions between the U.S and China, political uncertainty in Italy, turmoil in certain EM countries, as well as a historic summit between North Korean leader Kim Jong Un and US President Trump – dominated headlines and contributed to bouts of market volatility

• Divergence between the U.S. and other developed regions, in terms of both growth momentum and central bank activity, contributed to widening interest rate differentials and a resurgent U.S. dollar

• Risk sentiment waned toward the end of the quarter amid trade tensions. Still, developed market equities ended the quarter higher even as credit spreads widened and EM assets struggled with a more challenging macro backdrop

PORTFOLIO PERFORMANCE

• The State of Montana Public Employee Deferred Comp Plan returned 0.08% in Q2 (before fees), while its benchmark returned 0.01% during the same period.

Contributors Detractors

• Positions in non-Agency MBS• Country selection in the eurozone• Corporate credit exposure

• Exposure to select high carry EM currencies• Tactical exposure to select DM currencies• U.S. rate strategies, including duration, curve

positioning and instrument selection• Local rate exposure in select EM countries

Our Positioning and OutlookUnderweight overall durationFavor U.S. rate exposure relative to other developed markets

Focus on intermediate maturitiesPrefer intermediate portion of the curve against long-end exposure

Selective credit holdingsOpportunistic in corporate credit, favoring housing-related credits and financials

Tactical currency positioningLess conviction in the overall direction of the dollar

Executive Summary Q2’18PIMCO Moderate Duration for Stable Value

2cs_MD_review_01_MOD

As of 30 June 2018

20

Cash VehicleRole: used for daily “on-demand”

investor cash needs and to “buffer” the wrapped bonds from frequent transaction activity

• Complies with IMA, Guidelines and IPS

• Typically a STIF or Money Market Fund

For illustrative purposes only. Not meant to be exhaustive of all Plan or Fund governing documentation.

Montana Fixed FundInvestment Policy Statement and other Fund documentation

WrapsRole: Gives stable value its steady returns and

principal protection.

• Complies with IMA, Guidelines and IPS

• Covers a set of “associated assets” or bonds

• Determines the bond types allowed and other risk parameters of associated assets in return for the contract

BondsRole: Provides returns that support the

value of the wraps

• Complies with IMA, Guidelines, IPS and with the wraps (to ensure we maintain the contractual coverage of the wraps)

• A portfolio of high quality, investment grade fixed income investments

PIMCO Investment Management Agreement (IMA)& Guidelines

• PIMCO IMA & Guidelines must conform (or be a sub-set of) the parameters of the IPS

• Legal agreement between MPERA and PIMCO that determines the types of investments (i.e., the cash vehicles, book value contracts, and fixed income securities - “wraps & bonds”) in which PIMCO may invest in the execution of the management of the Fund

Montana Fixed Investment Policy Statement (IPS)

• Established and maintained by the plan (the EIAC & board in collaboration with Conduent, Staff and PIMCO)

• Role of the IPS:

Establish and record Fund management and administrative policies, assist in decision-making (both today and in the future), and/or maintain committee consistency on objectives and constraints as members change over time

Clarifies expectations for all relevant parties on the objectives, risk tolerance and guidelines to be observed

21

Montana Fixed FundDisclosures

This report was prepared at the request of State of Montana Public Employees' Retirement System (“Montana”) and is not intended for public distribution. Pacific Investment Management Company, LLC (“PIMCO”) manages, on behalf of Montana, the Fixed Fund, which is not a mutual fund as defined by the Investment Company Act of 1940 but a separate account.

Quarterly Declared Rate ("QDR") Disclosure: Assets in the Fixed Fund (“Fund”) are held in trust for the benefit of participants in the Plans. Participant investments made in the Fund are credited with a daily blended interest rate (the QDR) declared by the MPERA Board, typically on a quarterly basis. The QDR and the Fund value is not guaranteed by PIMCO. PIMCO, in its capacity as stable value manager, may recommend to the Board to amend or revise the QDR at any time, including intra-quarter, with any such revision made at the discretion of the MPERA Board. Some of the information used to calculate the QDR may contain projections regarding future events. You should be aware that actual events or results may materially differ. PIMCO is not making any representation or warranty of any kind with respect to the accuracy or completeness of, and no representation or warranty should be inferred from, any of the projections or the assumptions provided. Some information has been obtained from sources believed to be reliable but not guaranteed. Past performance is not a guarantee or a reliable indicator of future results. The QDR is net of Investment Management and Book Value Contract Fees.

Past performance is not a guarantee or a reliable indicator of future results. There is no guarantee a stable value portfolio will achieve its investment objectives. Stable value portfolios are not guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), PIMCO or any other entity. PIMCO does not offer, issue, or sell stable value investment contracts or other insurance-like products.

A word about risk: All investments contain risk and may lose value. Investing in the fixed income market is subject to risks including market, interest rate, issuer, credit, default and inflation risk. An investment in a portfolio may be worth more or less than its original cost when redeemed. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, default risk, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.

Stable value investment contracts are issued by insurance companies, banks, and other financial institutions, are intended to help reduce principal volatility of, while providing steady income from, any associated fixed income investments, and are intended to be valued at contract value (typically, deposited principal plus accrued interest less redemptions). Investment contracts vary and may include insurance company separate account contracts, synthetic contracts (also known as wrap contracts), or insurance company general account contracts. Insurance company separate account contracts and synthetic contracts are a combination of fixed income investments (associated assets) and an agreement by a contract provider to allow qualified participant transfers and withdrawals from the portfolio at contract value. Generally, there is no immediate recognition of investment gains and losses on associated assets; instead, investment gains and losses are amortized over time into the investment contract’s performance by adjusting the contract’s credited rate of interest. A general account contract is a deposit into an insurance company’s general investment account. The portfolio may also invest in other stable value commingled investment trusts (pooled funds), which combine the investments of multiple, unaffiliated plans into a pooled trust to invest in stable value investment contracts and associated fixed income investments.

Although stable value investment contracts seek to reduce the risk of principal loss, investing in a stable value portfolio involves risk, including credit risk, management risk, and loss of principal. These risks could result in a decline of a portfolio’s value or cause a withdrawal or transfer from a portfolio to occur at less than a participant’s invested value. Stable value investment contracts involve several unique risks, which include but are not limited to: a stable value investment contract issuer could default, become insolvent, file for bankruptcy protection, or otherwise be deemed by the plan’s auditor to no longer be financially responsible; an event or condition outside the normal operation of the plan may occur (including but not limited to plan changes, employer bankruptcy, significant layoffs, plant closings, corporate spin-offs, divestitures, or restructurings); some portfolio securities could become impaired or default; certain communications from the plan or the plan’s agents may cause an investment contract to not pay benefits at contract value; or there could be a change in tax law or accounting rules. Any of these risks, if realized, may cause a write-down in the value of a portfolio and a risk of loss of all or a part of a participant’s invested value in a portfolio.

There is no guarantee that the investment strategy described will work under all market conditions or is suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.

This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800.387.4626. © 2016 PIMCO

Economic outlook

23

Forecasts GDP Inflation

2017 2018 2017 2018

Developed Markets 2.20 2.00 - 2.50 1.80 1.50 - 2.00

Emerging Markets 5.40 5.25 - 5.75 2.40 3.00 - 3.50

World 3.20 3.00 - 3.50 2.00 2.00 - 2.50

Change relative to 2017 data

PIMCO’s 2018 cyclical outlook

PIMCO forecast ranges as of June 2018Real GDP and inflation projections reflect the midpoints of PIMCO’s forecast ranges for 2018

2cs_intl_outlook_01

U.S.GDP: 2.25% – 2.75% CPI: 2.00% – 2.50%

MEXICOGDP: 1.50% - 2.50% CPI: 4.00% - 5.00 %

U.K.GDP: 1.50% - 2.00 % CPI: 2.25% - 2.75%

RUSSIAGDP: 1.50% - 2.50% CPI: 2.75% - 3.75%

JAPAN

GDP: 1.00% - 1.50% CPI: 0.75% - 1.25%

BRAZILGDP: 2.00% - 3.00% CPI: 3.00% - 4.00%

EUROZONEGDP: 2.25% - 2.75% HICP: 1.25% - 1.75%

INDIAGDP: 6.75% - 7.75%CPI: 4.50% - 5.50%

CHINAGDP: 6.00% - 7.00% CPI: 2.00% - 3.00%

% of world GDP

----

--

24

More volatility, recession likely

Productivity surprise

Different monetary-fiscal policy mix

Radical populist backlash

Geopolitical conflict

2006 2010 2014 2018 2022

Secular Outlook 2018: Rude AwakeningsInvestors who assume that the future will resemble the post-crisis past could be in for a series of rude awakenings

PIMCO 2006:“Stable Disequilibrium”

PIMCO 2009:“New Normal” PIMCO 2014:

“New Neutral”

Glo

bal E

cono

mic

Gro

wth

Rat

e

PIMCO 2016:“Insecure Stability”

As of June 2018. SOURCE: PIMCO

PIMCO 2018:“Rude Awakenings”

?

Dominant central banks, financial repression

Passive or restrictive fiscal policies

Weak productivity growth, subdued inflation

Low macro and market volatility

Rising aggregate global debt levels

Post-crisis world Uncertain future

2cs_intl_outlook_02

25

75

80

85

90

95

100

105

110

Jan '07 Jul '08 Jan '10 Jul '11 Jan '13 Jul '14 Jan '16 Jul '17

Surv

ey in

dex

(leve

l)

ifo Business Expectations ifo Business Climate

Cooling off

While still at lofty levels, confidence measures have been affected by political turmoil – from Italy’s woes to Germany’s fragile coalition

Developed markets: Fiscal policy-supported growth should keep the Fed on its gradual path while geopolitics complicate the outlook in Europe

As of 30 June 2018.SOURCE: PIMCO, Bloomberg, FOMC.* January 2012 is when the Fed set the 2% inflation target

Growth to continue, but geopolitics and waning central bank support highlight some near-term fragility

Slow and low

The current rate hiking cycle has been unique, not just in its gradual pace of tightening, but also in its likely lower destination

0

50

100

150

200

250

300

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400

450

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

Cum

ulat

ive

chan

ge in

Fed

Fun

ds R

ate

(bps

)

Months since first rate hike

1994 19992004 Current CycleMarket: 29 Jun '18* Fed (Jun'18)

2cs_intl_outlook_07

26

-1

0

1

2

3

4

5

6

7

8

Jun '17 Oct '17 Feb '18 Jun '18

JP M

orga

n EL

MI+

Gro

wth

EM FX

(1)

0

1

2

3

4

5

6

7

'10 '11 '12 '13 '14 '15 '16 '17 '18

Avg

. rea

l yie

ld (%

)

EM US

Emerging Markets: Stable fundamentals with less supportive external backdrop

2cs_intl_review_01

Cooling risk sentiment Ample carry cushion

As of 30 June 2018SOURCE: JPMorgan, Bloomberg

With heightened geopolitical tension, waning risk appetites and a stronger dollar have all weighed on EM currencies

EM real interest rate levels allow more flexibility for central banks to help mitigate possible market turbulence

High real yields highlight stable fundamentals even with a less accommodative external backdrop

What is stable value?

28

0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

What is stable value?A conservative, capital preservation-focused fixed income option for DC plans

A popular option in DC plans since the 1970s

• Most plans use either money markets or stable value

Managed by “investment-only” managers, bundled recordkeepers, and insurance companies

DCIO stable value seeks to deliver bond-like yields but money market-like volatility over time:

• Provides daily liquidity, low principal volatility, and returns that follow the general direction of interest rates, but with a lag

Principal preservation and daily liquidity provided throughthe use of stable value investment contracts

• Allow for benefit responsive liquidity

• Amortize gains and losses through the wrap crediting rate

• Regulated by the DOL, not the SEC

stable_value_review_12

As of 31 December 2017SOURCE: PIMCO, Barclays Live, Bloomberg, Hueler Analytics, Inc.*Standard deviation calculated by taking the annualized standard deviation of monthly returns over the 10 year period ending 31 December 2017

S&P 500

Bloomberg Barclays U.S. Aggregate

Hueler Stable Value Pooled Fund Index

Bloomberg Barclays 1-3 Yr Gov’t/Credit

Money Market Index (Lipper)

CPI 1.61%10 Y

ear A

nnua

lized

Ret

urn

(%)*

Standard Deviation (%)

10 Year Returns and Standard Deviation

29

Why many participants favor stable value

stable_value_review_17

As of 31 December 2017SOURCE: PIMCO, Barclays Live, Bloomberg, Hueler Analytics, Inc.

‐3

‐2

‐1

0

1

2

3

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Return (%

)

Monthly return comparison

Hueler Stable Value Pooled Fund Index

Lipper Money Market Index

Barclays  Intermediate Aggregate

0

1

2

3

4

5

6

7

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Retu

rn (

%)

Monthly rolling 1-year return comparisonHueler Stable Value Pooled Fund IndexLipper Money Market Index

30

How does stable value perform when rates change?

stable_value_review_19

• Key goal when rates rise: peace of mind

• Generally, a stable value fund’s crediting rateswill trail changes in interest rates

• When rates rise, market-to-contract ratios fall

• Stable value investment contracts:- Guarantee principal value and accumulated

earnings for a participant

- Provide daily benefit-responsive liquidity at contract value for participants, regardless of the market fluctuations of the underlying fixed income portfolio

- Wrap crediting rate amortizes realized and unrealized gains and losses over time

As of 31 December 2017SOURCE: PIMCO, Bloomberg, Hueler Analytics, Inc.PIMCO does not offer insurance guaranteed products or products that offer investments containing both securities and insurance features.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Bloomberg Barclays U.S. Treasury Bellwether ‐ 5Yr Index Yield

Hueler Stable Value Pooled Fund Index 1 month return (annualized)

When rates change direction, stable value

returns follow, with a lag

31

Stable value history overview

stable_value_review_12

Stable value pooled funds first offered

BICs first introduced

Insurance Co. General Account (or “Traditional”) GICs

Synthetic GICs (or “wraps”) first introduced

1970s

Wraps surge in popularity

Banks begin dominating wrap issuance

Wrapsdominate all issuance

Bank wrap issuance ceases; Insurance companies re-enter wrap market

Wrap issuance improves as new wrappers enter market

Financial crisis –Wrap and Traditional GIC issuance all but ceases

1987 1991 1991–94 Late 90s 2000s 2008 2009–2010 20151980s Mid-90s

Traditional GIC issuance declines due to defaults: •Confederation Life •Executive Life •Mutual Benefit Life

As of 31 December 2016SOURCE: PIMCOPIMCO does not offer insurance guaranteed products or products that offer investments containing both securities and insurance features.

Additional slides

33Orga_25

MPERA Quarterly Declared Rate (QDR)

NOTE: Assets in the Fixed Fund (“Fund”) are held in trust for the benefit of participants in the MPERA Plans. Participant investments made in the Fund are credited with a daily blended interest rate ("Quarterly Declared Rate") declared by the MPERA Board, typically on a quarterly basis. The Quarterly Declared Rate and the Fund value is not guaranteed PIMCO. PIMCO, in its capacity as stable value manager, may provide information to the MPERA Board so to facilitate the Board’s determination of the QDR, however the determination of such rate is the sole responsibility of the MPERA Board. PIMCO may recommend to the Board to amend or revise the Quarterly Declared Rate at any time, including intra-quarter, with any such revision made at the discretion of the MPERA Board.

The MPERA Board itself determines the “Quarterly Declared Rate” (QDR): an annualized credited rate of interest that all participant balances and deposits would receive on a daily basis intra-quarter– PIMCO assists staff and the MPERA Board in striking the QDR through a quarterly worksheet process

The value accrued to participants in the Fixed Fund at the QDR will naturally diverge over time from the asset value of the “Actual Portfolio” due to cash flows into or out of the Fixed Fund

This QDR process seeks, over time, to minimize the “basis” risk—i.e., the difference owed to participants invested in the Fixed Fund and the Actual Portfolio asset value– MPERA should also eliminate the possible interpretation that there is an implied guarantee of the Fixed Fund

MPERA can manage these risks through appropriate disclosures to participants, which PIMCO can help you draft

34

Daily participant transactions

Last updated: July 30, 2018

Montana Fixed FundPortfolio structure

PIMCO Managed Fixed Income Bond Account

(State Street# PC9M)

Wrap contract values are supported by the PIMCO managed bond account

“associated assets” and fund participant activity

2) Transamerica Wrap (MDA01012TR)

3) Prudential Wrap (GA-63345)

4) Voya Wrap (MCA-60420)

MONTANA FIXED FUNDParticipant Valuation Account (State Street# PP90)

Quarterly Declared Rate applied on a daily basis to the total account balanceRecord of participant transactions – cash needs “passed through” to PP9N

$

PIMCO monitors daily the level of the Cash Vehicle: • If it gets too high,

PIMCO directs money from the Cash Vehicle to the wrapped bonds

• If it gets to low, PIMCO directs money from the wrapped bonds to the Cash Vehicle

• State Street Account PP9N• Daily valuation of wraps and STIF• Participant activity invested in Cash

Vehicle - accrues interest at cash rate

1) Cash Vehicle (State Street Govt STIF)

$

Actual Portfolio Book Value (#PP9N)

35

3Q 2018 - New 2.51%

2Q 2018 2.53%

1Q 2018 2.49%

4Q 2017 2.41%

Montana Fixed Fund Quarterly Declared Rate1

Projected Fund Information using reset Crediting Rate, Contract balance changes, and anticipated cash changes

Issuer NameContractNumber Dur

Anticipated Activity

Contract Balance BV%

Reset Rates*

Cash STIF 0.08 $3,827,874 1.5% 1.430%Transamerica MDA01012TR 3.82 $81,703,522 32.8% 2.494%

Prudential GA-63345 3.82 $81,703,520 32.8% 2.494%Voya 60420 3.82 $81,728,021 32.8% 2.475%

Totals 3.76 $0 $248,962,937 100.0% 2.471%*Above rates are net of Investment Management and Book Value Contract Fees

Projected Rate of the Actual Portfolio: 2.47% 2.47%Projected Duration of the Actual Portfolio:

Actual Portfolio Value (BV):Fixed Fund Value (BV2):

Projected Net Rate of the Fixed Fund:∆BVBV2 (target between 0.05% and 0.25%):

Estimate Additional Operational, Administrative and Other Fees: 0.00%Additional Adjustment (to target projected ∆BVBV2 between 0.05% and 0.25%): 0.00%

Pro-Forma Net-Net Declared Quarterly Rate: 2.51%

See State Street Cash Balance.pdfSee Monumental Montana reset.xlsx

Notes

See Prudential Montana reset confirmationSee Voya Montana reset confirmation

3.76 $248,962,937.11$248,649,610.22

2.51%0.13%

State Street Custodial Account # PP9OMontana Fixed Fund Quarterly Declared Rate

As of 30 June 2018; the data provided in the above calculation is as of 31 May 2018* Please see the MPERA Quarterly Declare Rate excel spreadsheet for further information on the calculation and the Quarterly Declared Rate Disclosure in the appendix.

The QDR* (which is net of Investment Management and Book Value Contract Fees) was approved to be applied to all participant balances held in custodial account #PP9O

36

Seeing market value returns through a book value lens Deep knowledge on how to create and grow value in a stable value context

Market value changes are amortized

over duration

Changes in yieldimmediately affect the CR

on a 1-to-1 basis

Create a positive high-quality yield advantage

leveraging PIMCO’s significant credit resources

Generate over time absolute return and alpha

relying on diversified sources of returnto improve market-to-book ratios

4cs_pimco_update_01_alpha

* For illustrative purposes only. Not an actual crediting rate formula. Refer to Appendix for additional investment strategy and risk information

Credited Rate* = Yield + Market-to-Contract % - 1Duration

Minimize downgrades to avoid contractual issues

with wrappers

In addition, to help generate positive long-term book value outcomes, we focus on:

Avoid dramatic duration or yield swings

to keep crediting rate resets steady