global portfolio management project

East West Bank Employee 401(K)

Ling-Lin Chiu (Grace)

Agenda

• Section I : Asset Allocation Analysis

• Section II: Style Analysis

• Section III: Recommendations

Company Background

• East West Bancorp: $11.8 Billion in Asset, $391.3 Million Revenue (2007 Annual)

• 2nd largest Commercial Bank Headquarter in Southern CA

• 72 Branches through out Major Cities include Los Angeles, Orange, San Francisco, San Metro and Houston.

• One of the Largest Commercial Banks Servicing Chinese-American Community

Client Profile

• Gender: Female • Age: 26• Employment History: 3 Years with

East West Bank• Target Retirement Age: Age 65• Risk Level: Moderate Aggressive

Style; Require 7% to 8% Annual Return

• Years Plan to Spend in Retirement: 20 Years

• Social Security Benefit: 1960 and later, Full Retirement Age: 67

401K Plan Asset Class-Part I

• Large Cap Stock-Blend: Vanguard Index Trust 500 (VFINX)

• Large Cap Stock-Value: Washington Mutual Investors Fund (RWMEX)

• Large Cap Stock-Blend: Davis NY Venture Fund A (NYVTX)

• Large Cap Stock-Growth: American Funds Grth Funds of Amer R4 (RGAEX)

• Large Cap Stock-Growth: Franklin Flex Cap Growth Fund (FKCGX)

• Mid Cap Stock-Value: Goldman Sachs Mid Cap Value Fund INS (GSMCX)

• Mid Cap Stock-Blend: Vanguard Mid-Cap Index Fund-Inv (VIMSX)

• Mid Cap Stock-Growth: Thornburg Core Growth I (THIGX)

401K Plan Asset Class-Part II

• Small Cap Stock-Value: Royce Total Return Fund (RYTRX)

• Small Cap stock-Blend: Vanguard Small Cap Index (NAESX)

• Small Cap Stock-Growth: Royce Value Plus Fund Investment (RYVPX)

• Other-Company Stock: East West Bancorp Inc (EWBC)

• Fixed Income-Stable Value: Stable Value Fund (In-House )

• Fixed Income-Intermediate Bond: PIMCO Total Return Fund Admin (PTRAX)

• Balanced-Value: MFS Total Return Fund (MSFRX)

• International Stock-Blend: American Funds EuroPacific Gr R4 (REREX)

Current Asset Allocation

• Defined Contribution Account: 401K Plan with Prudential• 401K Plan Policy: Matches $1.00 to Account for Every $1.00

Client Contribute, Up to the First 6.00% of Annual Eligible Pay

Asset Allocation (as of 12/31/07) Percentage (%)

Domestic Equity-Vanguard Index 500 35

Domestic Equity-Vanguard Mid-Cap Index 19

Domestic Equity -Vanguard Small Cap Index 19

World exEM Equity-American Funds Euro Pacific Gr R4

27

Total 100

Target Asset Allocation

Asset Class Percentage (%)

Domestic Equity 20

World exEM 20

Emerging Markets Equity 15

Private Equity 5

Real Estate 5

High Yield 5

Domestic Fixed Income 10

Absolute Return 10

Non US Fixed Income 5

Cash Equivalents 5

Total 100

Inputs: Assets-Constrained Frontier

%Expected Return

StandardDeviation Yield

CurrentHolding

Broad Domestic Equity 9.0 16.9 0 73

World exEM 9.0 16.6 0 27

Emerging MarketsEquity 9.6 31.2 0 0

Private Equity 12.0 34.0 0 0

Real Estate 7.6 16.5 0 0

High Yield 7.0 11.5 0 0

Domestic Fixed 5.3 4.5 0 0

Absolute Return 6.5 9.7 0 0

Non US Fixed 5.2 9.6 0 0

Cash Equivalents 3.5 0.8 0 0

Individual Constraints

% Min.Holding

Max.Holding

Cost toIncrease

Cost toDecrease

IncludeConstraint Locking

Broad DomesticEquity 20 60 0 0 X None

World exEM 0 20 0 0 X None

EmergingMarkets Equity 0 10 0 0 X None

Private Equity 0 10 0 0 X None

Real Estate 0 10 0 0 X None

High Yield 0 20 0 0 X None

Domestic Fixed 0 40 0 0 X None

Absolute Return 0 10 0 0 X None

Non US Fixed 0 10 0 0 X None

Cash Equivalents 0 100 0 0 X None

Correlations

US Eq.

Int’l Eq.

WorldEx EM Em. Eq. P.E. REIT H.Y.

USFixed Absolute Non-US F. Cash

Broad DomesticEquity 1.00 0.70 0.92 0.50 0.68 0.54 0.66 0.20 0.56 -0.03 -0.12

World exEM 0.92 0.93 1.00 0.51 0.71 0.55 0.65 0.19 0.57 0.10 -0.20

EmergingMarkets Equity 0.50 0.45 0.51 1.00 0.50 0.39 0.30 0.10 0.32 -0.02 -0.15

Private Equity 0.68 0.64 0.71 0.50 1.00 0.44 0.47 0.15 0.43 0.10 0.07

Real Estate 0.54 0.47 0.55 0.39 0.44 1.00 0.55 0.17 0.40 0.03 -0.06

High Yield 0.66 0.55 0.65 0.30 0.47 0.55 1.00 0.29 0.45 0.10 0.07

Domestic Fixed 0.20 0.15 0.19 0.10 0.15 0.17 0.29 1.00 0.40 0.32 0.30

Absolute Return 0.56 0.50 0.57 0.32 0.43 0.40 0.45 0.40 1.00 0.15 0.50

Non US Fixed -0.03 0.21 0.10 -0.02 0.10 0.03 0.10 0.32 0.15 1.00 -0.05

Cash Equivalents -0.12 -0.25 -0.20 -0.15 0.07 -0.06 0.07 0.30 0.50 -0.05 1.00

Standard Deviation (Risk)

Expected Return

0.0 40.03.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0

2.0

12.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

Current

Target

Vanguard 2040

Vanguard 2045

Vanguard 2050

60% US Eq./40% US Fixed

Unconstraint efficient frontier

Standard Deviation (Risk)

Expected Return

0.0 40.03.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0

2.0

12.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

Current

Target

Vanguard 2040

Vanguard 2045

Vanguard 2050

60% US Eq./40% US Fixed

Constraint efficient frontier

Unconstraint: Performance

% Position

50 Current TargetVanguard2040

Vanguard2045

Vanguard2050

60% US Eq./40%F.I.

Domestic Equity 32.89 73 20 72 71.9 71.7 60

World exEM 41.65 27 20 14.3 14.5 14.5 0

Emerging Markets Equity 3.5 0 15 3.7 3.6 3.8 0

Private Equity 14.12 0 5 0 0 0 0

Real Estate 7.84 0 5 0 0 0 0

High Yield 0 0 5 0 0 0 0

Domestic Fixed 0 0 10 10 10 10 40

Absolute Return 0 0 10 0 0 0 0

Non US Fixed 0 0 5 0 0 0 0

Cash Equivalents 0 0 5 0 0 0 0

Expected Return 9.33 9 7.98 8.65 8.65 8.65 7.5

Standard Deviation 17.38 16.56 12.65 15.1 15.1 15.1 10.65

Sharpe Ratio 0.54 0.54 0.63 0.57 0.57 0.57 0.7

% Position50 Current Target

Vanguard2040

Vanguard2045

Vanguard2050

60% USEq./40% USF.I.

Domestic Equity 20 73 20 72 71.9 71.7 60

World ex EM 20 27 20 14.3 14.5 14.5 0

Emerging Markets Equity 2.36 0 15 3.7 3.6 3.8 0

Private Equity 6.3 0 5 0 0 0 0

Real Estate 5.73 0 5 0 0 0 0

High Yield 6.01 0 5 0 0 0 0

Domestic Fixed 29.5 0 10 10 10 10 40

Absolute Return 7.08 0 10 0 0 0 0

Non US Fixed 3.02 0 5 0 0 0 0

Cash Equivalents 0 0 5 0 0 0 0

Expected Return 7.6 9 7.98 8.65 8.65 8.65 7.5

Standard Deviation 10.53 16.56 12.65 15.1 15.1 15.1 10.65

Sharpe Ratio 0.72 0.54 0.63 0.57 0.57 0.57 0.7

Constraint: Performance

Performance Comparison

Position

50 Current TargetVanguard

2040Vanguard

2045Vanguard

205060% US Eq./

40% F.I

SharpeRatio 0.54 0.54 0.63 0.57 0.57 0.57 0.7

• Unconstrained

• constrained

Position

50 Current TargetVanguard

2040Vanguard

2045Vanguard

205060% US Eq.

/40% F.I

SharpeRatio 0.72 0.54 0.63 0.57 0.57 0.57 0.7

Asset Allocation Recommendations

• According to our analysis, 60%/40% has the highest Sharpe Ratio 0.70, which should be the first priority for the client in terms of the returns per unit risk.

• The client ‘s current asset allocation has no fixed income investment, make the portfolio too aggressive and risky. However, 60%/40% is too conservative.

• Considering the level of risk tolerance (risk-lover) and the age (26), we suggest that Vanguard 2045 be the most appropriate investment for the client

Vanguard Target Retirement 2045 Fund

Recommend for Investors : 1) Long-Term Growth and Income-Generating 2) Diversified Holding of Stocks and Bonds with Adjusting

Allocation upon Age Changes3) Target Retirement Between 2043 and 2047 Asset Class Percentage Holding (%)

Vanguard Total Stock Market Index Fund 71.7

Vanguard European Stock Index Fund 10.1

Vanguard Total Bond Market Index Fund 10.0

Vanguard Pacific Stock Index Fund 4.4

Vanguard Emerging Markets Stock Index Fund

3.8

Total 100

Agenda




Large Cap Funds

Mutual Fund Name Ticker Benchmark R2 Year ReturnBmkReturn IR

Classifi-cation

Washington MutualInvestors Fund

RWMEXRussell1000Value

94%

1-yr 3.90% -0.17%

-1.17 Yes3-yr 8.24% 9.32%

5-yr 11.85% 14.63%

Davis NY VentureFund A

NYVTXRussell1000

89.40%

1-yr 4.97% 5.77%

0.45 Yes3-yr 10.18% 9.08%

5-yr 14.75% 13.43%

Vanguard Index500

VFINXRussell1000

99.50%

1-yr 5.39% 5.77%

-1.18 Yes3-yr 8.49% 9.08%

5-yr 12.69% 13.43%

American FundsGrowth

RGAEXRussell1000Growth

84%

1-yr 10.88% 11.81%

0.98 Yes3-yr 11.99% 8.68%

5-yr 15.87% 12.10%

Franklin Flex Cap FKCGXRussell1000Growth

83.50%

1-yr 16.02% 11.81%

0.80 Yes3-yr 9.23% 8.68%

5-yr 15.64% 12.10%

Zephyr StyleADVISOR Zephyr StyleADVISOR: Thunderbird

Manager StyleSingle Computation

January 2003 - December 2007

rvalue rgrowth

r2value r2growth

Small

-1

0

1

Large

Value -1 0 1 Growth

Davis NY Venture ARussell Generic Corners

US Large Cap-Davis NY Venture A


Performance AttributionDavis NY Venture A

Single Computation


Residual R-Squared to Benchmark

Style Benchmark Russell 1000

92.4%

7.6%

89.4%

10.6%


Asset AllocationSingle Computation


4.1%

60.8%

21.9%

0.0%

0.0%

0.4%

0.0%

12.9%

0.0%

4.1%

60.8%

21.9%

0.0%

0.0%

0.4%

0.0%

12.9%

0.0%

4.1%

60.8%

21.9%

0.0%

0.0%

0.4%

0.0%

12.9%

0.0%

0% 20% 40% 60% 80% 100%

Citigroup 3-month T-bill

Russell 1000 Value

Russell 1000 Growth

Russell 2000 Value

Russell 2000 Growth

Lehman US Aggregate Bond Index

Lehman Global Ex US Treasury Bond

MSCI EAFE Index

Dow Wilshire REIT

Davis NY Venture A

US Large Cap-Davis NY Venture A

Investment Policy

• Long-term capital growth

• Equity securities in marketcap > $10m companies

Large-cap-American Fund Growth



rvalue rgrowth

r2value r2growth

Small

-1

0

1

Large

Value -1 0 1 Growth

American Funds Grth Fund of Amer R4Russell Generic Corners


Performance AttributionAmerican Funds Grth Fund of Amer R4

Single Computation



Style Benchmark Russell 1000 Growth

92.4%

7.6%

84.0%

16.0%

Calendar Year ReturnAs of December 2007

0%

10%

20%

30%

35%

2007 2006 2005 2004 2003

American Funds Grth Fund of Amer R4Russell 1000 Growth




7.7%

16.9%

38.5%

0.0%

20.9%

15.3%

0.8%

0.0%

0.0%

7.7%

16.9%

38.5%

0.0%

20.9%

15.3%

0.8%

0.0%

0.0%

7.7%

16.9%

38.5%

0.0%

20.9%

15.3%

0.8%

0.0%

0.0%

0% 20% 40% 60% 80% 100%


Russell 1000 Value

Russell 1000 Growth

Russell 2000 Value

Russell 2000 Growth

MSCI EAFE Index



Dow Wilshire REIT

American Funds Grth Fund of Amer R4

Investment Policy

• Up to 15% assets ininternational securities

• Up to 10% in Debtsecurities

Mid-Cap Funds

Mutual Fund Name

Ticker Benchmark R2 Year Return BmkReturn IRClassifcation

Goldman SachsMid Cap ValueFund INS

GSMCX

RussellMidCap Value

90.70%

1-yr 3.34% -1.42%

-0.32 Yes3-yr 10.64% 10.11%

5-yr 16.89% 17.92%

Vanguard Mid-CapIndex Fund-Inv

VIMSXRussellMidCap

98.40%

1-yr 6.02% 5.60%

-0.66 Yes3-yr 11.12% 11.09%

5-yr 17.24% 18.21%

Thornburg CoreGrowth

THIGXRussellMidCapGrowth

81%

1-yr 11.88% 11.43%

1.07 Yes3-yr 17.70% 11.39%

5-yr 24.25% 17.90%




rvalue rgrowth

r2value r2growth

Small

-1

0

1

Large

Value -1 0 1 Growth

Thornburg Core Grow th IRussell Generic Corners

US Mid Cap-Thornburg Core Growth Fund


Performance AttributionThornburg Core Growth I

Single Computation



Style Benchmark Russell Midcap Growth

81.6%

18.4%

81.0%

19.0%




0.0%

0.0%

0.0%

0.0%

18.8%

76.1%

0.0%

2.0%

0.0%

0.0%

3.1%

0.0%

0.0%

0.0%

0.0%

18.8%

76.1%

0.0%

2.0%

0.0%

0.0%

3.1%

0.0%

0.0%

0.0%

0.0%

18.8%

76.1%

0.0%

2.0%

0.0%

0.0%

3.1%

0% 20% 40% 60% 80% 100%


Russell 1000 Value

Russell 1000 Growth

Russell 2000 Value

Russell 2000 Growth

Russell Midcap Growth

Russell Midcap Value

MSCI EAFE Index



Dow Wilshire REIT

Thornburg Core Growth I

US Mid Cap-Thornburg Core Growth Fund

Investment Policy

• Primarily domestic securities

• May own foreignsecurities and debtsecurities

Small-Cap Funds

Mutual Fund Name

Ticker Benchmark R2Year

Return BmkReturn IR

Classifcation

Royce TotalReturn

RYTRXRussell

2000V93.80%

1-yr 2.36% -9.77%

-0.34 Yes3-yr 8.20% 5.27%

5-yr 14.11% 15.80%

Vanguard SmallCap

NAESXRussell

200098.90%

1-yr 1.15% -1.57%

0.41 Yes3-yr 7.89% 6.80%

5-yr 17.01% 16.25%

Royce Value Plus RYVPXRussell

2000 G81.10%

1-yr 3.24% 7.05%

0.01 Yes3-yr 11.73% 8.11%

5-yr 26.32% 16.50%

Vanguard Small Cap Index Fund



rvalue rgrowth

r2value r2growth

Small

-1

0

1

Large

Value -1 0 1 Growth

Vanguard Small Cap IndexRussell Generic Corners

Total Net Assets: $13.6 B

# of Stocks: 1725

Median Market Cap: $1.6 B

Expense Ratio: 0.23%


Performance AttributionVanguard Small Cap Index

Single Computation



Style Benchmark Russell 2000

99.2%

0.8%

98.9%

1.1%


-5%

0%

10%

20%

30%

40%

50%

2007 2006 2005 2004 2003

Vanguard Small Cap IndexRussell 2000




0.2%

3.1%

8.8%

39.3%

41.8%

4.8%

0.0%

0.0%

2.0%

0.2%

3.1%

8.8%

39.3%

41.8%

4.8%

0.0%

0.0%

2.0%

0.2%

3.1%

8.8%

39.3%

41.8%

4.8%

0.0%

0.0%

2.0%

0% 20% 40% 60% 80% 100%


Russell 1000 Value

Russell 1000 Growth

Russell 2000 Value

Russell 2000 Growth

MSCI EAFE Index



Dow Wilshire REIT

Vanguard Small Cap Index

Investment Policy

• Tracks MSCI US SmallCap Index

Balanced and Int’l Funds

Mutual Fund Name

Ticker Benchmark R2 Year Return BmkReturn IRClassifcation

PIMCO TotalReturn FundAdmin

PTRAX

LehmanBrothersGov/CreditIntermediate

92.20%

1-yr 8.81% 7.40%

0.85 Yes3-yr 5.03% 4.32%

5-yr 5.05% 4.06%

MFS TotalReturn

MSFRX

Russell 1000Value

87.90%

1-yr 4.98% -0.17%

-0.69 Yes

3-yr 6.62% 9.32%

5-yr 9.54% 14.63%

LehmanAggregate

1-yr 6.96%

3-yr 4.56%

5-yr 4.42%

AmericaFundEuro PacificGrowth

REREX MSCI EAFE 91.50%

1-yr18.87

%11.63%

0.21Yes

3-yr20.58

%17.32%

5-yr22.75

%22.08%

US Fixed Income-PIMCO Total Return




sbtsy30

sbm30 sbm15

sbtsy10

Mortgage

-1

0

1

Treasury

Long -1 0 1 Short

PIMCO Total Return AdminCitigroup Govt Fixed Income Indexes


Performance AttributionPIMCO Total Return Admin

Single Computation



Style Benchmark Lehman US Government/Credit Intermediate

95.5%

4.5%

92.2%

7.8%




0.0%

3.2%

0.0%

26.6%

3.1%

61.4%

5.7%

0.0%

3.2%

0.0%

26.6%

3.1%

61.4%

5.7%

0.0%

3.2%

0.0%

26.6%

3.1%

61.4%

5.7%

0% 20% 40% 60% 80% 100%


Citigroup 30-Year Treasury Benchmark On-the-Run

Citigroup USBIG Mortgage Index, 30-Year Mortgage

Citigroup USBIG Mortgage Index, 15-Year Mortgage

Citigroup 10-Year Treasury Benchmark



PIMCO Total Return Admin

US Fixed Income-PIMCO Total Return

Investment Policy

• At least 65% of assets in Fixed Income

• Up to 10% in high yield securities

• 20% in foreigncurrency securities

Int’l Equity– American Fund EuroPacific Growth

Performance AttributionAmerican Funds EuroPacific Gr R4

Single Computation



Style Benchmark MSCI EAFE Index

91.8%

8.2%

91.5%

8.5%




0.0%

3.1%

0.0%

3.7%

0.0%

90.4%

2.7%

0.0%

0.0%

0.0%

3.1%

0.0%

3.7%

0.0%

90.4%

2.7%

0.0%

0.0%

0.0%

3.1%

0.0%

3.7%

0.0%

90.4%

2.7%

0.0%

0.0%

0% 20% 40% 60% 80% 100%


Russell 1000 Growth

Russell 1000 Value

Russell 2000 Growth

Russell 2000 Value

MSCI EAFE Index



Dow Wilshire REIT

American Funds EuroPacific Gr R4

• Invests at least 80%in MSCI EAFE

Investment Policy



0%

10%

20%

30%

40%

2007 2006 2005 2004 2003

American Funds EuroPacific Gr R4MSCI EAFE Index

Return Fund EAFE ALPHA

1 year 18.87% 11.63% 7.24%

3 year 20.58% 17.32% 3.26%

5 year 22.75% 22.08% 0.67%

Mutual Funds Selected

Fund Name Asset Class Classification IRExp. Ratio

(%)

PIMCO Total Return Fund Domestic Fixed Income Y 0.85 0.68

American Funds GrowthDomestic Equity-Large Cap Growth Y 0.98 0.68

Davis NY Venture Fund ADomestic Equity-Large Cap Y 0.80 0.85

Thromburg Core GrowthDomestic Equity-Mid Cap Y 1.07 1.10

Vanguard Small Cap IndexDomestic Equity-Small Cap Y 0.41 0.23

American Funds EuroPacific Growth Int'l Equity Y 0.21 0.87Total: 6 Mutual Funds

Agenda




• Allocate the 6 recommended mutual funds in terms of Vanguard 2045’s allocation of asset classes

- Client’s age - Client’s risk tolerance - Information Ratio & Classifications

• Reduce the portfolio risk by allocating part of capital to US Fixed Income

• Diversify the client’s allocation in US domestic equity

Recommendations (1)

Recommendations (2)

Asset Class Current Funds Weighted

Domestic Fixed Income N/A 0%

Domestic Equity- Large Cap Growth N/A 0%

Domestic Equity- Large Cap

Vanguard Index 500 35%

Domestic Equity- Mid Cap

Vanguard Mid- Cap Index 19%

Domestic Equity- Small Cap

Vanguard Small Cap Index 19%

Int'l Equity American Fund Euro Pacific 27%

Recommended Fund Name Weighted

PIMCO Total Return Fund 10%

American Funds Growth 16%

Davis NY Venture Fund A 16%

Thromburg Core Growth 20%

Vanguard Small Cap Index 20%

American Funds EuroPacific Growth 18%

Improved Performance

9%

17.75%

16.56%

8.63%

Expected Return Standard Deviation

%

0.54

2.06

Sharpe Ratio

Current

Recommended

Summary

% Recommende

d Current TargetVanguard2040

Vanguard2045

Vanguard2050

60% USEq./40%US F.I.

ExpectedReturn 17.75 9 7.98 8.65 8.65 8.65 7.5StandardDeviation 8.63 16.56 12.65 15.1 15.1 15.1 10.65SharpeRatio 2.06 0.54 0.63 0.57 0.57 0.57 0.7

• Our recommended portfolio outperforms

Work Citied

• “ Retirement benefits by year of birth.” Social Security Online. Feb. 29, 2008. http://www.ssa.gov/retire2/agereduction.htm Apr. 19, 2008

• “Retirement Income Calculation.” Prudential Retirement. https://www.retirement.prudential.com/TRSWeb/accountsHome.do Apr. 19, 2008

• “Investor Relations.” East West Bank. http://www.eastwestbank.com/English/Investor_Relations.asp Apr. 22, 2008

• “EWBC Key Statistics.” Yahoo! Finance. http://finance.yahoo.com/q/ks?s=EWBC Apr. 22, 2008

• “Holdings-Asset Allocation-Vanguard 2045 Retirement Fund.” Vanguard Website. https://personal.vanguard.com/us/funds/holdings?FundId=0306&FundIntExt=INT Apr. 19, 2008

• “Holdings-Asset Allocation- Vanguard 2050 Retirement Fund..” Vanguard Website. https://personal.vanguard.com/us/funds/holdings?FundId=0699&FundIntExt=INT Apr. 19, 2008

• “Holdings-Asset Allocation-Vanguard 2050 Retirement Fund.” Vanguard Website. https://personal.vanguard.com/us/funds/holdings?FundId=0696&FundIntExt=INT Apr. 19, 2008

http://www.ssa.gov/retire2/agereduction.htm

https://www.retirement.prudential.com/TRSWeb/accountsHome.do

http://www.eastwestbank.com/English/Investor_Relations.asp

http://finance.yahoo.com/q/ks?s=EWBC

https://personal.vanguard.com/us/funds/holdings?FundId=0306&FundIntExt=INT






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