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Dedicated Bond Portfolio

Portfolio designed to meet a specific set of future benefit payments with the cash flow from the bonds held in a portfolio. The most common application of the dedicated portfolio concept is in funding benefits due to retired employees. Ideally the cash flow from the portfolio exactly matches each future payment both in amount and timing. If this exact matching is achieved the funding of future payments will not depend on the level of interest rates in the future. The actuary may then raise the actuarial assumption to a market rate of interest. This reduces the actuarial liability of the plan and could substantially lower its annual funding costs.-

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