INVESTMENTS Page 69
TRS’s fixed income portfolio began the year with shorter duration than the benchmark. As the year progressed,
the TRS portfolio moved toward a slightly longer duration position as it became evident the U.S. Federal Reserve
remained committed to low interest rates. TRS also maintained an overweight to higher yielding non-U.S. secu-rities.
Throughout the year, the TRS fixed income portfolio held a similar risk profile relative to the index with
lower volatility than duration matched nominal U.S. treasuries.
The following data provides statistical information on TRS’s global fixed income portfolio.
Global Fixed Income Profile
Average maturity 7.2 years 7.0 years 9.3 years 5.9 years
Effective duration 5.0 years 5.0 years 4.8 years 4.1 years
Average coupon 4.9% 4.3% 4.8% 4.5%
Average quality rating A2 Aa1 Aa3 Aa1
Current yield 4.3% 2.8% 4.4% 2.5%
Diversification by Quality Rating for Individual Bonds
Moody’s Quality Rating 2011 2010
Aaa* 46.9% 48.0%
Aa1 through Aa3 5.9 5.5
A1 through A3 9.6 11.5
Baa1 through Baa3 16.8 16.0
Ba1 through Ba3 8.5 7.9
B1 through B3 5.1 3.2
Under B3 1.7 1.7
Other** 5.5 6.2
Total 100.0% 100.0%
* Aaa includes treasury securities
** Other includes unrated securities
Source: State Street Bank and Trust and TRS
The real return asset class was established during 2007 in recognition of the significant impact inflation has on an
investment portfolio and its return objectives. Traditional asset classes, such as equities and fixed income, tend to
perform well in periods of stable or falling inflation yet face meaningful challenges in periods of rising inflation.
The objective of the real return asset class is to exceed the Consumer Price Index (CPI) by 5.0 percentage points
over a five- to 10-year period of time. Real return strategies are generally less correlated with traditional
stock and bond portfolios and provide inflation protection and excess returns during periods of rising inflation
while reducing overall risk to the total fund. It should be noted that the CPI is not an investible benchmark, but
is utilized as a benchmark given the inflation focus of the asset class. For the year ended June 30, 2011, TRS’s
real return asset class earned 23.4 percent, net of fees, compared to the 8.7 percent return of the benchmark.
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