How is the fund positioned within the Europe, Middle East and Africa regions?
The fund remains overweight in Romania and Bulgaria. These countries, in fact, represent the two largest overweights in the portfolio. We hold a position in these countries because they are scheduled to join the European Union (EU) in 2007. In the past, countries that have joined the EU have seen their bond yields fall to converge with that of the larger entity. This has been the case with Poland and Hungary in anticipation of their accession in 2004, and with Spain, Italy and Greece before them. The fund’s positions in Bulgaria and Romania hurt performance during the reporting period as both underperformed the benchmark (despite delivering strong absolute returns). However, we intend to keep the fund positioned to take advantage of what we believe will be an eventual decline in bond yields. The fund also remains overweight in Russia. We established this position on the basis of several key factors: The country’s disciplined fiscal policy, its rapidly declining debt ratios and its stro
