considered part of the duration timing strategy. One example of a yield curve positioning trade would be to be long 0.5 years in the 2-year part of the curve and short 0.5 years in the 10-year part of the curve. This would be the type of trade that a manager would put on if he or she expected the yield curve to steepen. Another example of a yield curve trade would be to be long 1.0 year in the 5-year part of the curve and 0.5 year short in both the 2-year and the 10-year. This type of trade might be established if the manager thought that the 5-year was priced cheaply given the slope of 2's to 10's. Sector Allocation Strategy This strategy is defined as the manager taking overweight and underweight positions in the various fixed income sectors relative to the chosen benchmark. A manager would choose to be overweight a sector based on the relative spread advantage to other sectors and/or an expectation of future spread tightening. A sector may experience spread tightening due to either technical factors such as reduction in supply or an anticipated flow of funds into the sector, or fundamental factors such as an improvement in corporate earnings (for corporate bonds) or a reduction in convexity risk (for MBSs). One example of a sector allocation trade is an underweight of 0.5 years in the MBS sector in the case where the manager anticipates spread widening in mortgages. Another example would be an overweight of 5 percent in high-yield corporate bonds executed when the manager believes that the incremental yield offered by the high-yield sector more than compensates for the additional credit risk. Remember that for targeting risk positions in the high-quality sectors such as governments and mortgages, we use CTD, and for sectors with high credit risk we use market value percent because we believe that risk in the high-credit-quality sectors is roughly linear with duration while duration in the low-credit-quality sectors is not necessarily the best measure of future volatility. Security Selection Strategies Security selection strategies are a series of strategies in which the manager is selecting individual securities within each of the sectors in which the portfolio is invested. Security selection strategies are generally believed to generate the best risk-adjusted returns because the manager can diversify across many different active decisions rather than just a small number of bets. There are many different reasons that a manager will expect one security to outperform another, such as fundamental credit quality views, new issue premiums, mispriced mortgage cash flows, and attractive dealer bids or offerings. Country Allocation Strategy Many fixed income portfolios can invest in markets around the globe. The country allocation strategy is one where the manager takes active long and short positions in bonds priced off of the yield curve of one country versus bonds priced off of the yield curve of another country. As with the yield curve strategy, we would generally run this strategy to be market neutral with respect to global interest rates. In