券和组合课后习题答案：sm20

CHAPTER20

BONDPORTFOLIOMANAGEMENTSTRATEGIES

AnswerstoOuestions

1.Anindexingportfoliostrategyisoneinwhichtheinvestorselectsabondportfoliothat

matchestheperformanceofsomebond-marketindex.Thebasicjustificationforthis

strategyisthatmanyempiricalstudieshaveshownthatportfoliomanagersonaverage

can'tmatchtherisk-returnperformanceinthebondmarketusingactiveportfolio

management.

2.Apureyieldpickupswapissellingabondandbuyinganotheronewithahighercoupon.

Normally,bothcurrentyieldandyield-to-maturityareenhanced.Asubstitutionswapis

theswappingofonebondforanotherbetweenwhichayieldspreadimbalanceexists.

Theinvestorexpectstheimbalancetodisappearthroughthemechanismofhavingthe

yieldonthepurchasedbonddrop(throughapriceincrease)totheleveloftheswapped

bond,leadingtoattractivecapitalgains.Ataxswapissimplyabondswapthatenablesan

investortorealizecapitallossesononebondtooffsetcapitalgainsthatshehasrealized

onsomeotherinvestment.

3.Theseactivemanagementstrategiesincludeinterestrateanticipation,creditanalysis,and

spreadanalysis.Interestrateanticipationistheriskieststrategybecauseitrelieson

forecastinguncertainfutureinterestratebehavior.Thestrategyinvolvesalteringthe

maturity(duration)structureoftheportfoliotopreservecapitalwhenanincreasein

interestratesisanticipatedandachievecapitalgainswhentheyareexpectedtodecline.

Acreditanalysisstrategyinvolvesattemptingtoprojectchangesinqualityratings

assignedtobonds.Itisnecessarytoanalyzeinternalchangesinthefirmandexternal

changesintheenvironmenttoprojectratingchangespriortotheactualannouncementby

ratingagencies.Spreadanalysisinvolvesmonitoringtheyieldrelationshipsbetween

variousbondsectorstotakeadvantageofabnormalrelationshipsbyexecutingvarious

sectorswaps.Liquidityisakeyfactorinthisstrategy,asabnormalrelationshipsareonly

believedtobetemporary.

4.Twoimportantvariableswhenanalyzingjunkbondsinclude:1)theuseofcashflowsin

relationtodebtobligations,and2)adetailedanalysisofpotentialassetsales.Thecash

flowanalysisisimportantindeterminingthefirm'sabilitytomakeinterestpayments,as

wellasmaintaincashforresearchandgrowthinperiodsofeconomicdecline.Cashflow

canalsoaffectthefirm'sborrowingcapacitytoprovideflexibilityandneededworking

capital.Inmanycases,assetsalesareacriticalpartofthestrategyforaleveragedbuyout.

Inordertoanalyzethemarketvalueoftheseassetsitisnecessarytodeterminewhether

thereareanypriorliensagainsttheassets,aswellasthetrueliquidationvalueanda

reasonabletimeperiodforthesale.

5.High-yieldbondshavebeendescribedashavingcharacteristicsofcommonstocks,such

ashigheryieldsandmorerisks.Thehigheryieldonhigh-yieldbonds(justlikecommon

stocks)compensatetheinvestorforassumingvariousriskssuchasriskofdefault,price

volatility,liquidity,oruncertaintyregardingmaturity.Sincethecharacteristicsofhigh-

yieldbondsaresimilartothoseofcommonstocks,itisnotsurprisingthathigh-yield

bondreturnsaremorecorrelatedtocommonstocksreturnsthantoinvestment-grade

bondreturns.

6.Theadvantageofthecash-matchedportfolioisthatitisarelativelyconservativestrategy

inwhichcashflowsgeneratedfromtheportfolioaredesignedtoexactlymatchliability

schedulesinbothtimingandamount.Suchaportfolioisoftendifficulttoconstructasa

resultofcertaincallfeaturesoftenassociatedwiththehigher-yieldingdeepdiscount

bonds.Ontheotherhand,iftheportfoliomanagerlimitshimselftoonlyTreasurybonds,

hewilllikelyforegosignificantaddedreturnsthatcouldbeachievedwithother

investments,thusaddingtothenetcostoffundingtheliabilitystream.

7.Interestrateriskcomprisestworisks-apriceriskandacouponreinvestmentrisk.Price

riskrepresentsthechangethatinterestrateswilldifferfromtheratesthemanagerexpects

toprevailbetweenpurchaseandtargetdate.Suchachangecausesthemarketpricefor

thebond(i.e.,therealizedprice)todifferfromtheexpectedprice.Obviously,ifinterest

ratesincrease,therealizedpriceforthebondinthesecondarymarketwillbebelow

expectations,whileifinterestratesdecline,therealizedpricewillexceedexpectations.

Reinvestmentriskarisesbecauseinterestratesatwhichcouponpaymentscanbe

reinvestedareunknown.Ifinterestrateschangeafterthebondispurchased,coupon

paymentswillbereinvestedatratesdifferentthanthatprevailingatthetimeofthe

purchase.Asanexample,ifinterestratesdecline,couponpaymentswillbereinvestedat

lowerratesthanatthetimeofpurchaseandtheircontributiontotheendingwealth

positionoftheinvestorwillbebelowexpectations.Alternatively,ifinterestrates

increase,therewillbeapositiveimpactascouponpaymentswillbereinvestedatrates

aboveexpectations.

8.Aportfolioofinvestmentsinbondsisimmunizedforaholdingperiodifthevalueofthe

portfolioattheendoftheholdingperiod,regardlessofthecourseofinterestratesduring

theholdingperiod,isatleastaslargeasitwouldhavebeenhadtheinterestratefunction

beenconstantthroughouttheholdingperiod.Putanotherway,iftherealizedreturnonan

investmentinbondsissuretobeatleastaslargeasthecomputedyieldtotheinvestment

horizon,thenthatinvestmentisimmunized.Asanexample,ifaninvestoracquireda

portfoliobondwhenprevailinginterestrateswere10%andhadaninvestmenthorizonof

fouryears,thentheinvestorwouldexpectthevalueoftheportfolioattheendoffour

yearstobe1.4641timesthebeginningvalue.Thisparticularvalueisequalto10%

compoundedforfouryears.

Abondmanagerwouldwanttoimmunizetheportfoliointheinstancewherehe/shehad

aspecifiedinvestmenthorizonandhadadefiniterequiredorpromisedyieldforthebond

portfolio.Inthecasewherethisrequiredorexpectedyieldwasbelowcurrentprevailing

marketrates,itwouldbeworthwhileforthebondmanagerstoimmunizetheportfolio

andtherefore“lockin“theprevailingmarketyieldforthisperiod.Putanotherway,itis

usedwhenthebondportfoliomanageriswillingtoengageinnon-activebondportfolio

managementandacceptthecurrentprevailingrateduringtheinvestmenthorizon.

9.Asmentioned,thepurposeofimmunizationistomitigatethepriceriskandreinvestment

riskassociatedwithchangesininterestratesovertheinvestmenthorizon.Assuminga

constantflatyieldcurveovertheinvestmenthorizon,thereisnoneedtoimmunizethe

portfolio.Theinvestorcanobtaininvestmentobjectivesbysimplypurchasingbonds

scheduledtomatureattheendofhisinvestmenthorizon.Withnochangeininterestrates,

thestatedyield-to-maturityatthetimeofpurchaseshouldequaltherealizedyieldatthe

timethebondsmature.

10.Investmenthorizonayearlater=3

Durationofportfolioayearlater=3.2

Whiletheterm-to-maturityhasdeclinedbyayear,thedurationhasonlydeclinedby.8

years.Thismeansthat,assumingnochangesinmarketrates,theportfoliomanager

mustrebalancetheportfoliotoreduceitsdurationtothreeyears.

11.Theobjectiveofimmunizationcentersaroundmitigatingthetwocomponentsofinterest

raterisk-priceriskandcouponreinvestmentrisk.Keepingthisinmind,manyfeelthata

zerocouponbondistheidealfinancialinstrumenttouseforimmunizationbecauseit

eliminatestheserisks,andthuseliminatestheneedtorebalancetheportfolio.

Reinvestmentriskiseliminatedbecausetherearenointerveningcashflowstoreinvest,

andpriceriskiseliminatedbecauseifyousetthedurationequaltoyourtimehorizon,

youwillreceivethefacevalueofyourbondatmaturity.

12.Severalcharacteristicsofdurationmakeitimpossibletosetadurationequaltotheinitial

timehorizonofaportfolioandignoreitthereafter.First,becausedurationdeclinesmore

slowlythanterm-to-maturity,evenifoneassumesnochangesininterestrates,the

portfoliomanagermustperiodicallyrebalancetheportfolio.Second,ifthereisachange

inmarketrates,thedurationoftheportfoliowillchange.Ifthedeviationbecomeslarge

comparedtooriginaldurationoftheportfolio,themanagerwillagainhavetorebalance.

Third,thetechniqueassumesthatwhenmarketrateschange,theywillchangebythe

sameamountandinthesamedirection.Sincethisisnottrueoftherealworld,the

managermustassurethattheportfolioiscomposedofvariousbondswithdurationsthat

buncharoundthedesireddurationoftheportfolio.Finally,developingtheportfoliocan

beaproblemsincetherecanalwaysbeaproblemofacquiringthedesiredbondsinthe

market.

13.Acontingentimmunizationstrategyallowstheinvestoranopportunitytoobtainahigher

returnonhisportfolioifheiswillingtoacceptgreateruncertaintyandapossiblylower

endingwealthvalue.Byspecifyingafloorreturnlowerthanthecurrentmarketrate,the

investorgivesupthecertaintyinvolvedwithimmunizingtheportfolioatthecurrentrate.

However,theinvestorgainsthebenefitofhisportfoliobeingactivelymanagedinsucha

wayasthatpotentialreturnsmaybeachievedovertheinvestmenthorizonthatareabove

thethen-currentmarketrateatthebeginningofthehorizon.

14.CFAExamination111(1983)

14(a).Interestrateriskcomprisestworisks-apriceriskandacouponreinvestmentrisk.Price

riskrepresentsthechancethatinterestrateswilldifferfromtheratesthemanagerexpects

toprevailbetweenpurchaseandtargetdate.Suchachangecausesthemarketpricefor

thebond(i.e.,therealizedprice)todifferfromtheexpectedprice.Obviously,ifinterest

ratesincrease,therealizedpriceforthebondinthesecondarymarketwillbebelow

expectations,whileifinterestratesdecline,therealizedpricewillexceedexpectations.

Reinvestmentriskarisesbecauseinterestratesatwhichcouponpaymentscanbe

reinvestedareunknown.Ifinterestrateschangeafterthebondispurchased,coupon

paymentswillbereinvestedatratesdifferentthanthatprevailingatthetimeofthe

purchase.Asanexample,ifinterestratesdecline,couponpaymentswillbereinvestedat

lowerratesthanatthetimeofpurchaseandtheircontributiontotheendingwealth

positionoftheinvestorwillbebelowexpectations.Contrariwise,ifinterestratesincrease

therewillbeapositiveimpactascouponpaymentswillbereinvestedatratesabove

expectations.

14(b).Aportfolioofinvestmentsinbondsisimmunizedforaholdingperiodifthevalueofthe

portfolioattheendoftheholdingperiod,regardlessofthecourseofinterestratesduring

theholdingperiod,isatleastaslargeasitwouldhavebeenhadtheinterestratefunction

beenconstantthroughouttheholdingperiod.Putanotherway,iftherealizedreturnonan

investmentinbondsissuretobeatleastaslargeasthecomputedyieldtotheinvestment

horizon,thenthatinvestmentisimmunized.Asanexample,ifaninvestoracquireda

portfoliobondwhenprevailinginterestrateswere10%andhadaninvestmenthorizonof

fouryears,thentheinvestorwouldexpectthevalueoftheportfolioattheendoffour

yearstobe1.4641xthebeginningvalue.Thisparticularvalueisequalto10%

compoundedforfouryears.

Abondmanagerwouldwanttoimmunizetheportfoliointheinstancewherehe/shehad

aspecifiedinvestmenthorizonandhadadefiniterequiredorpromisedyieldforthebond

portfolio.Inthecasewherethisrequiredorexpectedyieldwasbelowcurrentprevailing

marketrates,itwouldbeworthwhileforthebondmanagerstoimmunizetheportfolio

andtherefore“lockin“theprevailingmarketyieldfbrthisperiod.Putanotherway,itis

whenthebondportfoliomanageriswillingtoengageinnon-activebondportfolio

managementandacceptthecurrentprevailingrateduringtheinvestmenthorizon.

14(c).Assetforthbyanumberofauthors,thetechniqueusedtoimmunizeaportfolioistoset

thedurationoftheportfolioequaltotheinvestmenthorizonfbrtheportfolio.Ithasbeen

proventhatthistechniquewillworkbecauseduringthelifeoftheportfolio,thetwo

majorinterestraterisks(priceriskandreinvestmentrisk)offseteachotheratthispointin

time.Thezerocouponbondisanidealimmunizationinstrumentbecause,byitsvery

nature,itaccomplishesthesetwopurposeswhenthematurityofthezerocouponbond

equalstheinvestmenthorizonbecausethedurationofazerocouponbondisequaltoits

maturityperiod.Incontrast,whenyoumatchthematurityofthebondtotheinvestment

horizon,youareonlytakingaccountofthepriceriskwherebyyouwillreceivethepar

valueofthebondatthematurityofthebond.Theproblemisthatyouarenotsureofhow

theinvestmentriskwillworkout.Ifratesrise,youwillreceivemoreinreinvestmentthan

expected.Alternatively,ifratesdecline,youwillnotbenefitfromthepriceadvantage

and,infact,willloseintermsofthereinvestmentassumptions.

14(d).Thezerocouponbondisasuperiorimmunizationsecuritybecauseiteliminatesboth

interestraterisks-priceandreinvestment.

Azerocouponbondisaperfectimmunizerwhenitsduration(ormaturity,astheyarethe

same)isequaltotheliabilityorplanninghorizonoftheportfolio.Givenadequate

availability,theportfoliomanagerwouldmatchtheseelementsandnofurtheractivityis

necessarytotheendofthehorizon.

Thezerocouponbondissuperiortoacouponpayinginstrumentbecausethelackofcash

flowpriortomaturityeliminatesanycouponreinvestmentand,therefore,theriskof

realizedreturnchangesduetouncertaintyoftheselevels.Priceriskisalsononexistent

regardlessofthetimingornatureofyieldcurveshifts.

14(e).Theprimarydifferencebetweencontingentandclassicalimmunizationistheroleof

activemanagement.Classicalimmunizationpreciselymatchesthedurationofthe

portfoliowiththehorizonoftheparticularliability.Managementofsuchaportfoliois

limitedtoperiodicrebalancingnecessitatedbyyieldcurveshifts,yieldchanges,andtime

effectsonduration.Contingentimmunizationisanactiveformofmanagement,initially,

andcancontinueinthismodeuntilthemanager'sresultsareunfavorabletotheextent

thatapredeterminedtargetreturnisunlikelytobeachieved.Atthispoint,theactive

modeistriggeredtoaclassicalpassiveimmunizationto"lock-in“theminimumdesired

return.

Contingentimmunizationachievesitsriskcontrolbyestablishingtwoparameters:(1)

Theminimumreturntargetformorespecificallythedifferencebetweentheminimum

returntargetandtheimmunizationreturnthanavailableinthemarket,and(2)the

acceptablerangefortheterminalhorizondateoftheprogram.Thechartbelowillustrates

thepotentialrewardsfromcontingentimmunizationbasedonpossiblemovesininterest

rates.Itisinterestingtonotethesimilarityofthiscurvetothatofoptionstrategies.

PotentialReturn(%)

21

Contingent

19Immunization

17

15、，

Classidal

13Immunisation

11MinimumReturnTarget

-6-4-202468ImmediateYieldChangeFrom12%

(PercentPoints)

Carefulmonitoringofthevalueachievedbythemanagerintheportfolioisimportant.A

returnorportfoliovaluelinecanbeestablished,initiallywhichtracestherequireddollar

valueoftheportfolioatanygivenpointintimeandwouldbeaminimumlevelnecessary

fortheportfoliotoreachitsminimumreturntarget.Ifthereturnorvaluefallstothis,the

""safetynet“isactivated.

Akeyfacetofcontingentimmunizationisthebenefitfromflexibilityorlooseningof

rigidconditions.Substantialflexibilityisgrantedtheportfolio^managerifeitherthe

horizontimeiswidenedtoarangeratherthanasinglepointoriftheminimumreturnis

meaningfullybelowthatavailablecurrentlythroughclassicalimmunization.

Bygrantingthisflexibilityandbeingwillingtoacceptaslightlylowerthancurrent

marketreturn,theplansponsororportfoliomanagerhastheopportunitytoachievemuch

greaterreturnsthroughinterestrateanticipation,swappingandotherfacetsofactive

management.

Thisapproachisattractivetoaportfoliomanagerwhobelieveshis/herskillswillprovide

“excessreturns^^yetestablishesadownsideriskcontrolthatassuresachievementofa

minimumtargetreturn.

15.CFAExaminationIII(1986)

15(a).Withanimmunizedportfoliothegoalistoprovideaminimumdollaramountofassetsat

asinglehorizon.

Contingentimmunizationisprimarilyanactivestrategy.However,aminimumreturnis

required.Shouldtheportfoliodeterioratetothepointwherethisreturnisthreatened,

thereisaswitchtofullimmunizationoftheportfolio.

Thepurposeofacash-matcheddedicatedportfolioistohaveaportfoliothatwill

generatecashflowsthatspecificallymatchtherequiredstreamofcashoutflows.

Therefore,itisnecessarytomatchmaturitiesandamountsoveratimeperiod,nota

singletimeperiod.Thisisaccomplishedbyplanningmaturitiesandinterimcashflows

fromtheportfolio.

Thepurposeofaduration-matcheddedicationportfolioislikewisetomatchthecash

flowsfromtheportfoliototherequiredcashoutflowsovertime.Themajordifference

fromthecash-matcheddedicationisthatyourecognizethatyoudothisbymatchingthe

weightedaveragedurationoftheobligationswiththedurationofyourinvestment

portfolio.

15(b).Whenmanaginganimmunizedportfolio,itisnecessarytomaintainthedurationofthe

portfolioequaltotheinvestmenthorizon.Theproblemisthatthisrequiresrebalancing

because(1)durationdeclinesslowerthantermtomaturity,and(2)durationisaffectedby

changesinmarketyields-i.e.,thereisaninverserelationshipbetweenyieldandduration.

15(c).Withacash-matcheddedicationportfolioitisnecessarytomakeseveralmajordecisions:

(1).Timingofinitiation.Usually,theclientwantstoinitiatetheportfolioimmediately.

Lettheclientprevailunlesstheportfoliomanagerconsidersadelayadvisable.

(2).Paymentstimeintervals.Specifywhentherequiredpaymentsaretobemade-yearly,

semiannually,orquarterly.

(3).Howtoavoidcallrisk.Isthisaccomplishedbyhavingdeep-discountbondsornon-

callablesecurities?

(4).Whatisyourreinvestmentrateassumptionfortheinterimflows?Youshouldbevery

conservativeinyourestimatetoavoidnegativesurprises.

15(d).Threebasiccomponentsshouldbespecifiedforcontingentimmunization:

(1).ImmunizedBaseReturn-thereturnwhichcouldbeearnediftheportfoliois

immunizedattoday'srates.

(2).InvestmentObjective-thereturngoalwhichexceedstheImmunizedBaseReturnto

beachievedbyactivemanagement.

(3).AssuredMinimumReturn-theminimumallowablereturnconsistentwiththeneeds

oftheclient.Thisisthetriggerforfullimmunization.

Inadditiontotheabove,theclientandmanagershouldagreeontheflexibilitytobe

allowedthemanagerinanactivestrategy.Theagreementshouldspecifythetimehorizon

anddurationvariance.

15(e).Oncetheportfolioisestablished,thecash-matcheddedicatedportfolioprobablyrequires

theleastsupervisionovertime.Youdonothavetorebalancetheimmunizedportfolioor

adjustthedurationofthedurationmatcheddedicatedportfolio.

16.CFAExaminationIII(June1988)

Restructuringopportunitiesarenotafunctionoftime,butratheraresultofchanging

marketconditions.Conditionsthataregenerallyfavorabletorestructuringinclude:

(1).Availabilityofmoreefficientissues.Whenyouoriginallystructuredtheportfolio

program,youusedtheissuesthatwereavailable.Overtime,moreissuesbecome

availablethroughtradingornewissuescometomarketthatdoabetterjoboffitting

therequirementsoftheportfolio.Asaresult,youcansubstituteissuesthatdoa

betterjob(i.e.,aremoreefficient)ofmeetingthegoalsoftheportfolio.

(2).Changesintheshapeoftheyieldcurve.Iftheyieldcurvechanges(e.g.,goesfrom

positivelyslopedtonegative),itmightbepossibletoshiftoutofapurecash

matchedpolicytoonewhereyoureceivethecashflowsearlierandcaninvestthem

atahigherrateofreturntoexceedexpectations.Thequestionbecomes:Whatwas

theassumedreinvestmentratecomparedtothecurrentrates,giventheprevailing

yieldcurve?

(3).Changesinqualityorsectorspreads.Thiswouldinvolvechangesintheprice

relationshipbetweenqualitygroups(e.g.,agenciesversusTreasuries,AAAversus

AA)orsectors(e.g.,industrialsversusutilities).Youcouldenvisionaninstance

wheretheyieldspreadofAAAcorporatestoTreasuriesthatwereintheportfolio

declinedandthespreadforFNMAissueincreasedwhichwouldallowyoutoswap

theAAAcorporatefortheFNMAissue.Thisswapwouldprovideaportfolioof

equalqualityandprobablyallowacashtakeout.

17.CFAExamination111(1988)

17(a).Youwouldgenerallyexpectittobeeasiertomatchtheperformanceofabondindexas

contrastedtoastockindexbecauseoftheaggregatehomogeneityofthebondmarket

comparedtothestockmarket.Asaresultyoucouldmatchtheperformanceofthebond

indexwithsubstantiallyfewerissues.Asanexample,inordertomatchtheperformance

oftheS&P500StockIndex,itgenerallyrequiresanywherefrom300to450issues.In

contrast,onecoulddoafairlygoodjoboftrackingabondindexthatwouldinclude

thousandsofissueswithlessthan100bondssimplybecausebondsaresoheavily

influencedbythegeneralmovementsininterestrates.Therefore,althoughyoumight

needbondswithdifferentcharacteristicstomatchtheindex(e.g.,industryandquality

characteristics),itwouldnotbenecessarytohavenumerousissueswitheachofthe

desiredcharacteristics.

17(b).Whileitmightbepossibletomatchthebondindexwithfewerissues,theselectionand

operationalprocessofrunningthebondindexfundwouldbemoredifficult.First,itis

goingtorequiremorecharacteristicstoderivethedesireddiversification.Whilethe

equitymarketonlyrequiresseriousconsiderationofcapitalizationandriskdecile,bonds

havemanycharacteristicsthatcaneffectreturnincludingmaturity,duration,credit

quality,capitalization,coupon,industrialclassification,sinkingfund,andacallfeatures.

Thus,itwillbenecessarytodeterminethemakeupforeachofthesecharacteristicsand

attempttomatchitintheportfolio.

Asecondfactorwouldbethedifficultyoftracingbondsasopposedtostocks.Inthe

caseofastockindexyouaretypicallydealingwithverylargecapitalizationstocks

tradedonanexchangeorinvolvedinanactiveover-the-countermarket.Incontrast,the

secondarycorporatebondmarketisnotnearlyasliquidandsoitisdifficulttobuyand

sellforthebondindexfund.

Finally,thereisgreaterdifficultyinreinvestmentofthecashflowsfromabondindex

fundratherthanastockindex.Becauseofheaviercashflowsfromabondindexfundyou

aregoingtohavemorefrequentbuyingprograms.Thesecanbeablessingbecauseit

allowsyoutochangethemakeupofthefund,butalsoitcouldbedifficulttoavoid

changingthefundwithsmallbuyingprograms.Thepointis,itisgoingtorequire

balancingcashflowpurchasesamongallrelevantbondcharacteristicstoavoidchanging

thebondindexfundportfolio.

18.CFAExaminationIII(1988)

18(a).AssumingthatKaufmanndoesnottakecurrencyhedgingintoaccountinhisanalysis,he

wouldhavetoprojectportfolioreturnsineachcountrybasedon(1)coupon,(2)changes

ininterestrates(bondprices),and(3)changesincurrency.Estimatedchangesinthe

moneysupply,GNP/GDP,andinflationarealreadyfactoredintoestimatedinterestand

exchangerates.

Onemethodtodetermineinvestmentweightingwouldbetoestimatetheincomefromthe

bond,changeinbondprice,andforeigncurrencychange.Assumingadurationof8for

thebondportfolio,thecalculationsareasfollows:

BONDEXPECTED

INCOMEPRICECURRENCYRETURNRECOMMEND

U.S.8.8%(1.6%)N/A7.2%Overweight/Neutral

Japan6.1