To illustrate for the pension committee of the profit-sharing plan to which you are a con-sultant on some of the issues that arise in measuring performance, you have identified three U.S. fixed-income management firms whose investment approaches are representa-tive of general practice. Each firms approach follows. Firm A: An enhanced index fund manager that seeks to add value by superior security selection while maintaining portfolio duration and sector weights equal to the overall bond market. Firm B: An active duration manager investing only in the government and corporate bond sectors. The firm uses futures to manage portfolio duration. Firm C: An active manager seeking to add value by correctly anticipating changes in the shape of the yield curve, while maintaining portfolio duration and sector weights roughly equal to the overall bond market. You have provided the pension committee with the following additional information about these firms, derived from a consultants database.

ANNUALIZED TOTAL RETURN DATA (PAST FIVE YEARS

Firm A Firm B Firm C

Reported Returns 9.2% 9.3% 9.0%

INDEX SECTORS

Aggregate Index Governments Corporates Gov/Corporate Mortgages Index

return 8.7% 9.0% 9.8% 9.5% 8.3%

CONSULTANTS MANAGER UNIVERSE

All Managers using the Managers using the Managers. Aggregate index as Their gov/corp. sector as their Benchmark. Benchmark. Return 5th 6.0% 7.7% 8.4% percentile:

25th percentile: 7.1 8.1 8.9

50th percentile: 8.0 8.6 9.4

75th percentile: 8.6 9.1 9.9

95th percentile: 9.3 13.1 13.9

Evaluate the performance of each of these three firms relative to its appropriate index and to the manager universe. Use only the data from the descriptions and the preceding table, even though other information would be required for a more complete and accurate appraisal.