An insurance company has approached your firm with the following problem.  A $100 million global equity portfolio is to be invested with the goal of outperforming the S& 500 in US dollars without taking substantial risk.  Your firm has offered to issue the insurer a three-year note with a 4.0% coupon (paid semi-annually) with a maturity value of the greater of the original amount or the ratio of the S& 500 at maturity to the current S& 500 times the original value of the note.  For example, if the S& 500 has a beginning value of 1200 and an ending value of 1560 at the end of three years, the insurance company would receive $130 million and semi-annual interest payments of $2 million each.
 
Having promised the above, your boss turns to you and says, “Make it happen.”  Your job is to use a combination of derivatives to make sure that your firm can carry out its promise without losing any money.
 
Additional facts:
The global equity portfolio has a Beta of 1.0 with the Morgan Stanley EAFE index.
An unrelated firm has offered you a one year swap agreement where you pay the EAFE return and receive LIBOR.
The portfolio is 50% invested in US (dollar) stocks, 25% in European (Euro) stocks and 25% in Japanese (Yen) stocks.  You want all returns to be in US dollars.
The current LIBOR rate, spot and derivative prices are as posted in the Wall St Journal.
You can earn a 0.5% annual fee for lending the stocks in the portfolio to short sellers.
 
Do your best to arrive at a combination of derivatives that will accomplish these goals and to ensure that your company can fulfill its promise.  Give an approximate value of each derivative in your portfolio.