Question 2: In the RFP document, point D, what is the meaning of the CFA institute compliant request for a quarterly performance report?

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1 Question 1: Futures, listed options: are they authorized? These instruments are traded on organized markets and offer deep amounts available, liquidity, cost advantages (sometimes 4-5 times less expensive than other instruments) Yes they are. Question 2: In the RFP document, point D, what is the meaning of the CFA institute compliant request for a quarterly performance report? The CFA institute has developed standards for performance presentation known as GIPS (Global Investment Performance Standards). Details of these standards can be found on the internet: Question 3: In the document "Draft Investment Guidelines for the USD External Asset Management Programme" paragraph 4.3. A), the average duration of the reference benchmark must be understood as a whole, or currency by currency. For example, when setting a dollar position, which of these propositions do you consider as correct? - Proposition 1: the benchmark duration is zero -as there is no dollar in the benchmark -, allowing the portfolio manager to enter in a 6 month short positions on the US bonds. - Proposition 2: the benchmark duration is 6 months or less, - the overall duration of the benchmark -. We would advocate for proposition 1, as we would then be able to propose a strategy based on active global bond arbitrage The average duration of the portfolio is what is to be considered. I.e. you could have a long or short 10-year duration USD position but if the overall effect on the portfolio means that the portfolio duration remains in the permitted range of "plus or minus 6 months around the benchmark duration" you are permitted to take such a position. This allows active global bond arbitrage as you can, for example, be long duration in one currency and short duration on other currency playing the spread as long as you don't have any residual FX exposure. (If you have currency overlay trades) Question 4: Expected excess alpha objective over 6-month Libor This is linked to the performance benchmark proposal that has been requested. Please make one or several proposals according to what

2 your strengths are but keep in mind that this is a relatively conservative portfolio. Question 5: What volatility constraints are likely to be applied? This is a relatively conservative portfolio and thus volatility of returns should be viewed from that angle. Question 6: To what extent are you expecting duration management to be a performance driver? We believe Asset Managers should know their areas of strength. If you believe that you can create alpha via duration management, then please include it in your answer to the RFP. We would like to remind you, however, that the portfolio has to stay within "plus or minus 6 months around the benchmark duration band". Question 7: Do ADB foresee active use of derivatives in the portfolio? Our current asset managers use derivatives, you are free to use derivatives within the permitted guidelines. Question 8: Liquidity requirements- will this be a static portfolio or subject to cash flows - both positive and negatives? In theory there should be no cash flow movement. However, the Bank retains the right to add or withdraw funds within a notice period which will be discussed in the contract. Question 9: To what extent can leverage be applied? It all depends on what you mean by leverage. Borrowing money in the market to increase the credit exposure or using Credit default swap is not allowed. Playing interest rate spreads between two points of the curve or two different markets using futures and derivative or using repos to finance the positions is permitted (as long as it does not breach the overall portfolio duration limits and FX exposure restrictions). Question 10: What will be the expected stop / loss limits? At your discretion. What do you suggest? Your stop/loss policy should be addressed in your proposal.

3 Question11: Are your stated reporting requirements (weekly, monthly, quarterly and annual) for this particular mandate or is this your normal expectations for all tenders? This is the norm for all our tenders. Question 12: Given the scope and size of the mandate it is our initial view that weekly reporting may not be beneficial. Should we propose a minimum of monthly reporting? Would this suggestion remove us from the second stage of the process? We do favor frequent reporting and, for middle office purposes, at the end of each week, a list of trades done and an estimate of the portfolio's month to date performance is required. We communicate with our external managers in the following manner: - A monthly conference call and a monthly comprehensive report sent by . - A weekly covering middle office requirements as stated above. - Ad hoc discussions and reports if needed. Web-link reporting is highly appreciated. Question 13: Is a track record of five years on similar portfolios an element that would cause a candidate to be excluded if unable to provide the full 5 year history? Yes, how could you have a portfolio under management for a given period and not have a track record for the period concerned! Question 14: Is an exposure to non-usd countries bonds instruments (government and corporates with respect of the minimum ratings applicable to USD issues) allowed considering such positions would be fully hedged for currency risk? We mainly think about European countries (UK, Germany...) or other major markets like Australia, Canada,... As long as the currency risk is fully hedged the only restriction on non-usd countries bond instruments is that the concerned country is a member of the Bank (See Terms of Reference or our website for the full list of the Bank s members).

4 Question 15: Duration: Further clarification on the duration limit of individual securities would be appreciated. Although the guidelines indicate a maximum duration limit of 10 years on any single investment, some authorized investments like government and agency securities have final maturity limits of up to 30 years, which have durations much longer than 10 years. The maximum duration for any single security is 10 years. We have given 30 years final maturity limits to cover instruments with various prepayment/amortization schedules. Question 16: MBS/ABS prepayment projections: Could you please clarify on what prepayment projections are required for investments in ABS or MBS. This is an internal requirement and is not applicable to external mandates. Question 17: Question E point four of the RFP states What would be the risk profile of the portfolio that will enable you to achieve the recommended out-performance target?. Can you please provide us with an idea of what type of out-performance ADB is looking for? Please see answer to Question 4 Question 18: There are restrictions in trading in Emerging and High Yield Markets and taking on any Currency exposures. Are these restrictions flexible, or fixed from the Board? The guidelines are approved by the Bank s ALCO (Asset Liability Management Committee) and are here to be strictly complied with Question 19: We will need an ISDA which is an agreement to trade derivatives and wanted to know if this will be something that you will be able to provide us? We have requested a legal opinion on this issue. Given the time that this will require, we recommend you use your own ISDA and make sure your derivatives counterparties are rated above AA- as indicated in our guidelines. Question 20: What are the main criteria, included in the technical proposal, which you will be using to evaluate managers to determine the short list?

5 The questions in the RFP are clearly designed to mirror the criteria we are looking to evaluate. Question 21: Do you have a restriction in % for the use such funds (could 100% of the portfolio be invested in such funds)? Investment in institutional funds or any fund is subject to the following constraint: Investments in a specific issue (tranche or fund) should not exceed 15% of the outstanding issue (tranche or fund). Question 22: In terms of ratings for these funds, do you require official ratings (Moodys, etc) or would our internal and/or average ratings be acceptable? All ratings should be those made by internationally reputable Rating Agencies such as S&P, Moodys, Fitch, etc as approved by ALCO, i.e. internal ratings are unacceptable. Question 23: When using such funds, can we use the overall rating/duration, etc. or do you insist on a look-through approach (i.e. if BBB bond is in the fund, is the whole fund disqualified, even if the average rating of the fund is AA-)? If the fund has an official rating of AA3/AA-, the Bank may invest in the fund with the following restrictions: - No exposure to emerging debt; - No exposure to synthetic CDOs; - No exposure to High Yield debt. Question 24: Do you have any page limits for the total proposal and section C? No, there are no page limits. Question 25: Is there any flexibility in the guidelines for counterparties? No there is not, we have a strict credit rating policy. There may be exceptions linked to the payment against delivery system, we will provide you with an updated list of counterparties in due course.

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