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Pension Reserves Investment Management Board 84 State Street, Suite 250 Timothy P. Cahill, Chair Boston, Massachusetts 02109 Michael Travaglini, Executive Director December 14, 2009 Dear Potential Provider: The Massachusetts Pension Reserves Investment Management Board (PRIM) is requesting proposals from qualified firms interested in providing investment management services for the Board’s Commonwealth of Massachusetts Based Economically Targeted Investments (ETI) program. In order for proposals to be considered by PRIM, each prospective provider must respond to the Request for Proposals by submitting an electronic copy of its proposal via e-mail by 3:00 p.m., EST, Friday, March 5, 2010 to firstname.lastname@example.org. In addition, an original and 1 copy of the proposal should be sent to: Mr. William Fink Investment Analyst Pension Reserves Investment Management Board 84 State Street Boston, Massachusetts 02109 Questions concerning the Request for Proposals must be submitted by 3:00 p.m., EST, Friday, February 5, 2010. We appreciate the time and effort required to respond to this Request for Proposal. Each firm submitting a proposal to PRIM can be assured that the same time and effort will be expended in evaluating the proposals that are submitted for consideration. We look forward to your response. Sincerely, Michael Travaglini Executive Director 1 PENSION RESERVES INVESTMENT MANAGEMENT BOARD 84 State Street, 2nd Floor, Boston, Massachusetts 02109 Timothy P. Cahill, Chair Michael Travaglini, Executive Director REQUEST FOR PROPOSALS COMMONWEALTH OF MASSACHUSETTS BASED ECONOMICALLY TARGETED INVESTMENTS (ETI) PROGRAM INVESTMENT MANAGEMENT SERVICES December 14, 2009 2 Table of Contents I. INTRODUCTION .................................................................................................................................................... 5 II. BACKGROUND INFORMATION ...................................................................................................................... 5 A. LEGAL STRUCTURE OF PRIM. ................................................................................................................................ 5 B. PRIM’S ADVISORS. ............................................................................................................................................... 6 C. GENERAL DESCRIPTION OF PRIM’S ASSETS. .......................................................................................................... 6 D. TOBACCO DIVESTITURE. ......................................................................................................................................... 6 III. SCOPE OF SERVICES ....................................................................................................................................... 7 IV. REPORTING REQUIREMENTS ....................................................................................................................... 8 V. PROPOSAL SPECIFICATIONS ......................................................................................................................... 8 A. PROPOSAL DEADLINE. ............................................................................................................................................ 8 B. REQUIRED ATTACHMENTS AND ENCLOSURES. ........................................................................................................ 8 C. PUBLIC RECORD. .................................................................................................................................................... 9 D. WITHDRAWAL/IRREVOCABILITY OF RESPONSES. ................................................................................................... 10 E. WAIVER/CURE OF MINOR INFORMALITIES, ERRORS AND OMISSIONS. .................................................................... 10 F. COMMUNICATIONS WITH PRIM. ........................................................................................................................... 10 G. QUESTIONS RELATING TO THIS RFP. .................................................................................................................... 11 H. INCURRING COSTS ................................................................................................................................................ 11 I. REJECTION OF PROPOSALS. ................................................................................................................................... 11 VI. SELECTION PROCESS .................................................................................................................................. 11 A. NON-QUALIFYING PROPOSALS. ............................................................................................................................ 11 B. SELECTION OF FINALISTS. .................................................................................................................................... 11 C. SELECTION OF INVESTMENT MANAGERS. ............................................................................................................ 12 VII. TENTATIVE TIME TABLE ............................................................................................................................ 13 VIII. MINIMUM CRITERIA.................................................................................................................................... 14 IX. SELECTION CRITERIA. .................................................................................................................................. 15 X. QUESTIONNAIRE .............................................................................................................................................. 18 XI. FEE PROPOSAL................................................................................................................................................ 36 XII. REPRESENTATIONS AND WARRANTIES ................................................................................................ 37 XIII. EXHIBITS......................................................................................................................................................... 39 A.PRIM ASSET ALLOCATION & INVESTMENT MANAGERS. ....................................................................................... 40 B.SAMPLE INVESTMENT MANAGEMENT AGREEMENT ................................................................................................. 46 C. DISCLOSURE FORMS. ............................................................................................................................................. 66 D.CH 32 OF THE MASSACHUSETTS GENERAL LAWS & MASSACHUSETTS CONFLICT OF INTEREST LAW……………...……………….……………………………………………………...……………………….71 E.PRIM INVESTMENT POLICY. .................................................................................................................................. 72 F.PRIM ETI POLICY...................................................................................................................................................... 73 G.EQUITY AND FIXED INCOME MANAGER PERFORMANCE SPREADSHEET. ................................................................... 74 H.REAL ESTATE EXCEL PERFORMANCE SPREADSHEET . ............................................................................................... 75 I.ALTERNATIVE INVESTMENT EXCEL PERFORMANCE SPREADSHEET. ........................................................................... 76 3 Pension Reserves Investment Management Board 4 REQUEST FOR PROPOSALS COMMONWEALTH OF MASSACHUSETTS BASED ECONOMICALLY TARGETED INVESTMENTS (ETI) PROGRAM INVESTMENT MANAGEMENT SERVICES I. INTRODUCTION. The Massachusetts Pension Reserves Investment Management (PRIM) Board is soliciting proposals from firms interested in providing investment management services for the Board’s Commonwealth of Massachusetts Based Economically Targeted Investments Program. More detailed descriptions of these services are set forth under the heading "SCOPE OF SERVICES". II. BACKGROUND INFORMATION. A. Legal Structure of PRIM. The Pension Reserves Investment Management (PRIM) Board is charged with the responsibility of investing and reinvesting the assets of the Pension Reserves Investment Trust (PRIT) Fund. The PRIT Fund is a pooled investment fund consisting of the assets of the State Employees' and Teachers' Retirement Systems as well as assets of other public employee retirement systems in the Commonwealth of Massachusetts (referred to as participating and purchasing systems). The PRIT Fund's primary investment objective is to accumulate assets through investment earnings and other revenue sources to meet future pension liabilities. As of October 31, 2009, the PRIT Fund had assets of approximately $41.5 billion. PRIT funds are generally invested with a longer-term perspective and higher target returns than most retirement systems. The Fund was originally established to address the unfunded liability of the pension system. The Massachusetts State Teachers’ and Employees’ Retirement Systems Trust Fund (“MASTERS”) merged into the PRIT Fund as of December 31, 1996. 5 The nine-member PRIM Board is chaired by the State Treasurer and Receiver-General of the Commonwealth, Timothy P. Cahill. The Governor or his designee is also a member of the Board. Other members include appointees of both the Governor and Treasurer, and four representatives of State employees and teachers. All members serve without compensation. The Board oversees the Fund under the terms of its Operating Trust dated July 15, 1988 and most recently amended on September 22, 1998. The members of the Board, in conjunction with the Executive Director, who serves at the pleasure of the Board, determine policies and make decisions concerning the administrative and investment operations of the Fund. The PRIM Board has established advisory committees, Investment, Administration/Audit and Real Estate/Timber, to provide a broader range of input to the Board on an informal basis. These committees are generally comprised of two or three Board members and private citizens with investment or business expertise. PRIM's investment managers deal primarily with the staff and Investment Committee. All policies and investments are ultimately approved by the Board. B. PRIM’s Advisors. Outside advisors are engaged for their particular expertise and retained to assist the Board and its staff in the areas of General Portfolio Strategy and Investments, Real Estate, and Private Markets. Ennis Knupp & Associates, Inc. is PRIM's general consultant and hedge fund consultant, Callan Associates provide real estate consulting services, and Hamilton Lane is the private equity consultant. KPMG is the Fund’s auditor. In addition, KPMG is the Real Estate, Hedge Funds and Timber auditor. Deloitte and Touche is PRIM’s tax advisor. BNY Mellon is the Fund's custodian and is responsible for providing record-keeping and analytic performance valuations for the Fund. C. General Description of PRIM’s Assets. Exhibit A includes a description of PRIM’s asset allocation as October 31, 2009. D. Tobacco and Sudan Divestiture On October 7, 1997, the Massachusetts legislature enacted legislation, H. 3905, that forbids the PRIT Fund from purchasing securities “of any company which derives more than 15 per cent of its revenues from the sale of tobacco products.” The legislation also required the PRIT fund to divest itself of all such securities within three years; this divestment was largely completed before the end of 1997. PRIM provides investment managers with a quarterly listing of these restricted securities. On November 2, 2007, the Massachusetts legislature enacted legislation, S. 2255, that forbids the PRIT Fund from purchasing the securities of companies determined to be doing business in Sudan. The legislation requires the PRIT fund to divest itself of all such securities within 12 months. PRIM provides investment managers with a quarterly listing of these restricted securities. 6 III. SCOPE OF SERVICES. In August 2003, the PRIM Board adopted a Commonwealth of Massachusetts Based Economically Targeted Investments (ETI) policy. As part of this, PRIM recognizes its obligations and responsibility, under Massachusetts law, to seek out investment opportunities that will benefit the economic climate of the Commonwealth as a whole, provided that such investments are consistent with the Board’s obligations to the members and beneficiaries of its participating retirement systems. Since the McKinsey & Company performed a study in this area and the new policy was adopted, PRIM Staff has worked hard to implement the ETI program. In total the ETI program has committed capital of $270 million in a well-diversified portfolio of fixed income, real estate, and alternative investments. Although the program is in its early stages, the economic impact to Massachusetts includes the participation in the issuance of over 1,400 mortgages to low- moderate income home buyers, 8 SBA Loans, 5 economic development loans, the current development of several properties in Massachusetts, and the creation of over 2,500 jobs. These developments also include the residual benefits of the employment of construction workers and vendors, which have a positive impact to the Massachusetts economy. Further development projects are expected in Massachusetts. A summary of the program is described below. Current Total ETI Allocation as of 9/30/2009 PRIM Capital Firm Asset Class Commitment Called Access Capital Fixed Income $ 75,000,000 $ 75,000,000 Community Cap.Mgmt. Fixed Income $ 25,000,000 $ 25,000,000 AFL-CIO HIT Fund Fixed Income $ 90,000,000 $ 90,000,000 Castile Ventures Private Equity $ 10,000,000 $ 5,150,000 Flagship Ventures 2004 Private Equity $ 10,000,000 $ 9,100,000 Flagship Ventures 2007 Private Equity $ 20,000,000 $ 5,900,000 Canyon Johnson Real Estate $ 20,000,000 $ 16,680,085 New Boston Real Estate $ 10,000,000 $ 5,103,095 Intercontinental Real Estate $ 10,000,000 $ 10,000,000 Total $ 270,000,000 $ 241,933,180 IV. REPORTING REQUIREMENTS. PRIM will require that the manager or managers selected agree to appropriate reporting requirements, which are attached to this RFP as Exhibit B. Each firm responding to this RFP shall be required to state under the Representations and Warranties, set forth in Section XII hereof, that it will agree to the provisions set forth in Exhibit B. V. PROPOSAL SPECIFICATIONS. A. Proposal Deadline. 7 The completed proposal, which must include all attachments, must be delivered electronically via e-mail to email@example.com by 3:00 p.m. EST on Friday, March 5, 2010 (the “Proposal Deadline”) to PRIM. Any Proposal delivered after the Proposal Deadline will not be considered. In addition, an original and one hard copy of the Proposal should be sent to PRIM as listed below: All electronic documents submitted must be 10MB or smaller in size. If necessary, the respondent will break the RFP submission into multiple emails to ensure that the size requirement is met. The respondent is responsible for ensuring that a complete electronic RFP response is received prior to the Proposal Deadline. Mr. William Fink Investment Analyst Pension Reserves Investment Management Board 84 State Street, 2nd Floor Boston, Massachusetts 02109 Copies of this RFP can also be obtained electronically through the PRIM Board website at www.mapension.com or be obtained via e-mail by requesting a copy from firstname.lastname@example.org . The questions and/or requests made in this RFP should be duplicated in their entirety in the Proposal with each question and/or request repeated before the answer or response. B. Required Attachments and Enclosures. In addition to the responses to the RFP questions, the following information will be attached to the firm’s response. 1. Cover Letter. The Proposal must be accompanied by an original and one (1) copy (one unbound) of a cover letter and one copy sent via e-mail, which will be considered an integral part of the Proposal, and which shall be signed by at least one individual who is authorized to bind the firm contractually. This cover letter must include: (a) the firm name, address and telephone/fax numbers; (b) the client contact; (c) the title or position which the signer of the cover letter holds in the firm; and (d) a statement to the effect that the Proposal is a firm and irrevocable offer of the firm. 2. Representations and Warranties. The Warranties contained in Section XII hereof, signed by an authorized officer of the firm, must be included as an attachment to the cover letter referenced in (1) above. YOUR SIGNATURE IS CONSIDERED BINDING, AND A SIGNED REPRESENTATIONS AND WARRANTIES MUST ACCOMPANY YOUR SUBMISSION OR IT MAY NOT BE PROCESSED. 8 3. Disclosure Statement. Attached to this RFP as Exhibit C are two Disclosure Statements, one for PRIM and one for PERAC. Each firm submitting a Proposal must complete the two disclosure forms and submit as an attachment to the cover letter referenced in (1) above. YOU MUST COMPLETE BOTH PRIM AND PERAC DISCLOSURE FORMS OR YOUR SUBMISSION MAY NOT BE PROCESSED. 4. Fee Proposal. The original and one copy of the fee proposals (one copy must be unbound and ready to photocopy) and one copy sent via e-mail of the proposing firm, on the forms contained in Section XI hereof (the “Fee Proposals”) must be placed in a separate, sealed envelope, clearly identified on the outside as “Fee Proposal submitted by (COMPANY NAME).” 5. Any additional material must be submitted separate from the response. C. Public Record. In accordance with Chapter 66, Section 10 and Chapter 4 of the Massachusetts General Laws, upon the expiration of the Proposal Deadline, all Proposals shall be deemed a public record and shall be subject to requests for public disclosure. However, please note Section 23 of chapter 32 of the General Laws as most recently amended by Section 3 of chapter 502 of the Acts of 2002, was recently further amended by adding after subdivision (5), the following subdivision: (6) Confidentiality of certain records. Any documentary material or data made or received by any person of the state investment (PRIM) board, which consists of trade secrets or commercial or financial information that relates to the investment of public trust or retirement funds, shall not be disclosed to the public if disclosure is likely to impair the government's ability to obtain such information in the future or is likely to cause substantial harm to the competitive position of the person or entity from whom the information was obtained. The provisions of the open meeting law shall not apply to the PRIM Board when it is discussing the information described in this paragraph. This subdivision shall apply to any request for information covered by this subdivision for which no disclosure has been made by the effective date of this subdivision. D. Withdrawal/Irrevocability of Responses. A proposer may withdraw and resubmit a Proposal prior to the Proposal Deadline. No withdrawals or re-submissions will be allowed after the Proposal Deadline. E. Waiver/Cure of Minor Informalities, Errors and Omissions. PRIM reserves the right to waive or permit cure of minor informalities, errors or omissions 9 prior to the selection of finalists, and to conduct discussions with any qualified proposers and to take any other measures with respect to this RFP in any manner necessary to serve the best interest of PRIM and its beneficiaries. F. Communications with PRIM. PRIM’s Procurement Officer for this RFP is: Mr. William Fink Investment Analyst Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, Massachusetts 02109 Telephone: (617) 946-8451 Facsimile: (617) 946-8472 email@example.com As of December 14, 2009, firms which intend to submit a Proposal should not contact any PRIM staff, members of the Investment Committee, members of the PRIM Board, or employees of the Massachusetts Treasury, other than the Procurement Officer. An exception to this rule applies to firms which currently do business with PRIM, such as PRIM’s current investment managers, but any contact made by such firms with persons other than the Procurement Officer must be limited to that business, and must not relate to this RFP. In addition, firms which intend to submit a Proposal should not discuss this RFP with any employee of PRIM’s custodian, other PRIM managers, consultants, or PRIM’s legal counsel or other advisors. FAILURE TO OBSERVE THIS RULE IS GROUNDS FOR DISQUALIFICATION. G. Questions Relating to this RFP. All questions concerning this RFP, and requests for the complete listing of questions and answers, must be received by the Procurement Officer by 3:00 p.m. EST on Friday, February 5, 2010 (the "Question Deadline) via e-mail. Questions received in accordance with this section will be answered and circulated by e-mail to all firms who have proposed a question or who request in writing a copy of the questions and the responses. Questions, or requests for the complete listing of questions and answers, submitted after the Question Deadline will not be considered. H. Incurring Costs. PRIM will not be liable for any costs incurred prior to entering into the Contract with the successful proposer or proposers. 10 I. Rejection of Proposals. PRIM reserves the right to reject any non-qualifying Proposal, as well as the right to reject all Proposals submitted under this request for proposal. VI. SELECTION PROCESS. The Selection Process under this RFP will be as follows: A. Non-Qualifying Proposals. PRIM will evaluate each Proposal to determine if it was submitted in accordance with the requirements set forth in this RFP, including whether the proposing firm meets the minimum criteria. All non-qualifying Proposals not subject to the waiver/ cure of minor information will be rejected at this time and the proposing firm so notified. B. Selection of Finalists. The Proposals will be evaluated by a Search Committee to be formed by the PRIM Board. It is anticipated that the Search Committee shall include a member of the Investment/Real Estate Committee or its representative, as well as PRIM staff. Proposers may be invited to a due diligence interview with the Search Committee. Based on the Selection Criteria set forth in Section IX of this RFP (including the Fee Proposals), the Search Committee will select finalists to serve as investment manager to PRIM. C. Selection of Investment Managers. A member of the Search Committee may make a due diligence site visit to the finalists' offices. The Search Committee shall then rank the finalists and make its recommendations for selecting an investment manager to the PRIM Investment/Real Estate Committee and the PRIM Board. The finalists selected by the Search Committee may be required to make an oral presentation to the Investment/Real Estate Committee, the PRIM Board, or both. The Investment/Real Estate Committee may accept the recommendations of the Search Committee or, based on the Selection Criteria set forth in Section IX of this RFP, may rank the firms differently from the Search Committee and recommend another firm or firms to provide investment management services to PRIM. The engagement will be awarded by the PRIM Board. 11 VII. TENTATIVE TIME TABLE. The following is the tentative time schedule for PRIM’s search for firms to provide investment management services. All dates are subject to modification by PRIM with notice. Issuance of RFP: December 14, 2009 RFP Question Deadline: February 5, 2010 (Firm) 3:00 p.m. EST RFP Response Deadline: March 5, 2010 (Firm) 3:00 p.m. EST Notification of Finalists: March 31, 2010 (Tentative) Search Committee Week of April 12, 2010 Interviews**: (Tentative) 12 Investment Committee/ May 18, 2010/ Real Estate Committee May 19, 2010 Interviews**: (Tentative) PRIM Board Meeting**: June 1, 2010 (Tentative) Projected July 1, 2010 Commencement Date: ** If selected, please plan to be in Boston for interviews by the Search Committee, Investment/Real Estate Committee, and the Board on these specific dates. 13 VIII. MINIMUM CRITERIA. A Proposer must meet the following minimum qualifications to be given further consideration in PRIM’s search for an investment manager(s). Failure of a firm to meet the minimum qualifications applicable to the investment management services for which it is submitting a Proposal will result in the Proposal’s immediate rejection. A. Basic Minimum Qualifications. All firms submitting Proposals must clearly demonstrate that they meet the Board’s ETI criteria. Please provide a detailed response to the questions below. 1. The proposing firm must demonstrate that their investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. 2. The proposing firm must demonstrate that their firm is an experienced, capable, and qualified discretionary investment manager. 3. The proposing firm must demonstrate that their investments will target a “capital gap” where there are likely to be underserved markets. 4. The proposing firm must demonstrate that their firm is capable of tracking investment performance and the collateral benefits of their investments. 5. The proposing firm must demonstrate that 50% of PRIM’s investment in the portfolio will be invested within the Commonwealth of Massachusetts. 6. The proposing firm must be SEC-registered or exempt from registration with the nature of the exemption provided. The firm must submit its full Form ADV (Parts I and II). 7. The proposing firm must have an investment in or a commitment to the proposed product from at least one client as December 31, 2009. 8. The proposing firm must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board. 9. The proposing firm must be proposing a long-only strategy. 14 IX. SELECTION CRITERIA. PRIM will apply the following criteria in the selection of an investment manager(s). The Search Committee will assign a rating of either "Highly Advantageous", "Advantageous", "Acceptable", "Not Advantageous" or "Unacceptable" to all qualifying Proposals in each of the categories listed below. Any Proposal receiving a rating of "Unacceptable" in any applicable category will not be considered further. Using these ratings as a guide, the Search Committee will select finalists to move to the next stage of the Selection Process and recommend the retention of an investment manager to the Investment/Real Estate Committee. For a more detailed description of the Selection Process, see Section VI hereof. A. Basic Selection Criteria Applicable to all Proposing Firms 1. Ability to meet the PRIM Board’s Commonwealth of Massachusetts Based ETI program criteria. a. Investments must target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. b. Investments must be placed with an experienced, capable, and qualified discretionary investment manager. c. Investments must target a “capital gap” where there are likely to be underserved markets. d. Investment managers must be capable of tracking investment performance and the collateral benefits of their investments. e. Investment managers must demonstrate that 50% of PRIM’s investment in the portfolio will be invested within the Commonwealth of Massachusetts. 2. Stability and General Experience of the Firm. a. Stability of the firm, as measured by the quality of the organizational structure of the firm; the existence of, or potential for, significant developments in the firm; and the expected financial stability of the firm. b. Experience of the firm in providing investment management services to similar institutional investors, as measured by the firm's history of providing such services; and the similarity of a firm's clients to PRIM. c. Adverse organizational issues, such as the existence of litigation or other investigations; and the existence of financial problems. 15 3. Quality, Stability, Depth and Experience of Personnel. a. Experience of portfolio manager(s) in providing similar services to similar institutional investors, as measured by the length of time the portfolio manager(s) has served as a portfolio manager to such investors; demonstrated expertise in providing such services to other such investors; demonstrated organizational skills, and demonstrated ability to interact with both the staff and oversight body of pension funds. b. Experience of professionals in providing investment management services as measured by the length of time dedicated support staff have provided such services to similar institutional investors. c. Depth of personnel, as measured by the firm's account/portfolio manager and account/investment management personnel ratios; and back-up procedures for providing services to PRIM in the absence of the portfolio manager(s). d. Stability of the firm's professional base, as measured by personnel turnover since December 31, 2006. 4. Client Relations and References a. Stability of the firm's client base, as measured by the number of accounts gained or lost since December 31, 2006. b. Quality of references from clients, as measured by responses relating to quality and responsiveness of investment management services; knowledge and accessibility of the portfolio manager(s); and the quality of client services. 5. Philosophy/Process a. Philosophy and portfolio characteristics that are consistent with the overall structural objectives of the asset class as measured by the investment characteristics of the portfolio. b. Defined philosophy and consistent process implementation, as measured by return consistency, distinct buy/sell disciplines, portfolio construction methodology, and the implementation of risk controls. 6. Performance and Fees a. The total cost of performing investment advisory services as measured by the Fee Proposal. 16 b. The historical performance of the product as measured by its cumulative and annual performance compared to an appropriate index. 17 X. QUESTIONNAIRE COMMONWEALTH OF MASSACHUSETTS BASED ECONOMICALLY TARGETED INVESTMENT (ETI) PROGRAM INVESTMENT MANAGEMENT SERVICES PRODUCT NAME: ASSET CLASS: _________________________ FIRM NAME: ADDRESS: TELEPHONE #: FACSIMILE #: E-MAIL ADDRESS: CLIENT CONTACT: SIGNED: Name (print): Title: Date: A. SPECIFIC COMMONWEALTH OF MASSACHUSETTS BASED ETI CRITERIA 18 1. What Asset class is appropriate for your product? (Please check off) Equity Fixed Income Real Estate Private Equity (Venture Capital/Buyout) Timber 2. Demonstrate that your investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. 3. Demonstrate that your firm is an experienced, capable, and qualified discretionary investment manager. 4. Demonstrate that your investments will target a “capital gap” where there are likely to be underserved markets. 5. Demonstrate that your firm is capable of tracking investment performance and the collateral benefits of your investments. 6. Demonstrate that your firm will invest over 50% of PRIM’s investment in the portfolio in the Commonwealth of Massachusetts. B. COMPANY BACKGROUND AND GENERAL DESCRIPTION 1. Indicate your firm’s fiduciary classification: Bank Insurance Company Registered Investment Advisor (Investment Advisors Act of 1940) Affiliate of Fiduciary (Name and Classification): Other: 2. Give a brief history of the firm including: a. the month and year of SEC 1940 Act registration, b. the month and year the firm began managing proposed product, c. the month and year the firm began managing proposed product for U.S. tax-exempt clients, d. the month and year the proposed product was introduced. 19 3. Describe the ownership of the firm, including but not limited to: a. ownership structure, b. affiliated companies or joint ventures, c. if an affiliate, designate percent of parent firm’s total revenue generated by your organization, d. if the firm is a joint venture partner, identify the percentage of ownership and revenues recognized by each partner to the combined association. 4. Provide an organizational chart diagramming the relationships between the professional staff as well as the parent-subsidiary, affiliate, or joint venture entities. 5. List the total number of persons in the subject product employed by discipline. Total Portfolio Managers Research Analysts Economists Marketing Trading Administration Client Service Other (Specify) Total 6. Describe the levels (U.S. dollar amounts) of coverage for SEC-required (17g-1) fidelity bonds, errors and omissions coverage and any other fiduciary coverage, which your firm carries. List the insurance carriers supplying the coverage. 7. Over the past five years, has your organization or any of its affiliates or parent, or any officer or principal been involved in any business litigation, regulatory or legal proceedings? If so, provide a detailed explanation and indicate the current status. Also provide complete Form ADV (Parts I and II). 8. Describe in detail any potential conflicts of interest your firm may have in the management of this account. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities, or any past or current relationships with PRIM Board members and investment staff. Include any other pertinent activities, actions, or relationships not specifically outlined in this question. Also disclose any business relationship with PRIM’s consultants, which include Ennis Knupp & Associates, Inc., Callan Associates, and Hamilton Lane. 9. Describe all outside marketing/sales services (including product design and development) for which your firm has contracted over the last three years for the marketing of your investment services to the institutional, tax-exempt market. Specify any such arrangements as they relate 20 to the product being proposed. Indicate whether the fees paid for such services are charged to client portfolio assets. 10. Describe the material developments in your organization (changes in ownership, personnel, business, etc.) over the past three years in detail. 11. Do you have a plan and arrangements in place for an alternative worksite should your facilities become inoperative because of fire, earthquake, etc. Describe. 12. Describe your firm’s overall business strengths, weaknesses and uniqueness. C. ASSETS UNDER MANAGEMENT 12/31 12/31 12/31 12/31 12/31 12/31 2004 2005 2006 2007 2008 2009 1. (a) Total assets under management (all products) ($millions) (b) Total institutional (taxable & non-taxable) assets in proposed product ($ millions) (c) Total assets (retail & institutional) managed in the proposed product ($ millions) (e) Total assets managed in the proposed product for U.S. tax-exempt clients in separate accounts ($ millions) Accounts (f) Total U.S. tax exempt assets in the proposed product in commingled funds ($ millions) 2. Please list 5 largest U.S. tax-exempt accounts currently managed, including all public and ERISA fund clients, invested in the proposed product. Name Date of Inception Market Value (12/31/08) 21 3. List all clients and asset amounts gained in the subject product over the past three years as of December 31, 2009. 4. List all clients and asset amounts lost in the subject product over the past three years as of December 31, 2009. 5. What is the minimum account size you will accept on a separate account basis? 6. Describe whether or not there have been any issues with respect to market timing in this or other commingled funds offered by your firm. Describe how market timing is prevented in the commingled fund. 7. Describe the objectives of your firm with respect to future growth in the product, commenting on: Additional resources for portfolio management, research, trading, client service and tools/models to enhance the investment process or manage growth; and, Size limitations with respect to assets under management in the product. How did you arrive at those asset limits? Are companion retail mutual fund assets and assets in this category from broader mandates included in these limits? Describe. 8. Identify three clients that have terminated accounts in the subject product over the past three years that can be contacted as references. Provide the firm name, contact person and title, phone number, product name, fund account value and reason for termination. 9. Provide the client name, address, phone number, contact name, title, and account type (e.g. defined benefit, defined contribution, endowment) of three accounts, who are invested in the subject product that can be contacted as references. Also indicate the length of your relationship and assets under management for each reference. 10. What is the optimum total asset size and number of client accounts for this investment product? Why? At what total asset size for the subject product do you intend to cease accepting more business? What advantages and disadvantages does your current size present to achieving superior performance results in the future. D. PEOPLE/ORGANIZATION 1. How many portfolio managers are employed in the product? How many research analysts support this product? Please specify locations, state the number of accounts each manages and include the dollar value of assets under management. Indicate those associated with U.S. tax- exempt accounts. 22 2. Provide a list of the professionals involved in the subject product in the manner listed below: PORTFOLIO MANAGEMENT Title/ Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School RESEARCH Title/ Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School TRADING Title/ Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School 3. Describe your internal training procedures for portfolio managers, traders, and research analysts. 4. Describe the background of professionals directly involved in the management of the product. Are they brought in from the outside or promoted to their positions from within the organization? Is their prior experience in portfolio management/research/trading, industry, consulting, or other business or technical areas? What sort of ongoing educational programs (for example, the CFA program) are encouraged or required? 5. Describe the job qualifications required by your firm when hiring: portfolio managers, traders, research analysts, and system professionals. 6. What personnel or organizational improvements are planned over the next years? 7. Provide biographies of no longer than one page on each of the persons listed in Question C.2. Please include prior employment history. 8. Provide an organizational chart that diagrams the different functions (research, trading, etc.) dedicated to the product area. Professionals should be identified over their areas of responsibility. 9. Describe the compensation and incentive program for professionals directly involved in the product. How are they evaluated and rewarded? What incentives are provided to attract and retain superior individuals? 23 Identify the percentage of compensation which is: Base salary Performance bonus Equity incentives Other Do you offer direct ownership, phantom stock, profit sharing, and/or performance bonus? Who is eligible to participate? On what basis are these incentives determined – is compensation tied to success factors such as asset growth, performance, or other factors? Please list and indicate the weight of each in determining total compensation. How does your compensation structure/levels compare with other firms in the industry? 10. Discuss the causes and impact of any turnover (departures or hiring/promotions) of any professionals directly involved in the product you have experienced in the past five years. How long has the team been together? Indicate when and why any professional dedicated to the product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles and years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by Date Name/Title Responsibilities Firm Reason for leaving (name/title) E. INVESTMENT PHILOSOPHY, POLICY AND PROCESS 1. Describe your firm’s investment philosophy for the proposed product. Why do you believe this philosophy will be successful in the future? Provide any evidence or research that would support this belief. How has this philosophy changed over time? 2. What benchmark is most appropriate? How important is benchmark-tracking error? What has been the range of historical tracking error for the subject product? 3. Describe your buy/hold/sell disciplines. What are the process, timing, and factors you evaluate? 24 4. Describe your portfolio construction process. What is the universe from which securities are selected? What types of securities are used? How many issues are typically contained in a portfolio? How are individual sector and security weightings determined? Discuss the quantitative and qualitative processes utilized. Who has the ultimate decision making authority and accountability? 5. What is your firm's definition of risk with respect to this product? If more than one, specify each with its percentage of importance. Describe how you monitor and manage risks such as: residual risk versus the benchmark, common factor analysis, security, sector, and industry weightings, and, value at risk. 6.Indicate how much cash is generally held in the portfolio. Do you use cash as a method of risk control? 7.Describe any risk measurement models used and how this analysis is incorporated in the portfolio management process 8.How do you monitor the product’s adherence to its investment style and process? Specify who is responsible. 9.Provide your internal guidelines for the subject product under a fully discretionary basis. Include the following: sector and security exposures, types of securities used, market capitalization ranges by sector and security, and expected level of annualized outperformance over three to five years relative to the index chosen. 10. Describe internal and external research involved in the management of the product. 11. Describe the quantitative models and tools you utilize for research, portfolio construction and trading. What enhancements are being contemplated? 12. Describe what circumstances or market conditions would favor the subject product’s strategy? When can it be expected to be out of phase or be unrewarded? 13. Are you able to provide accurate, audited asset and transaction statements within 2-3 weeks of month's end? Explain. 14. What unique attributes does your firm or your product have which distinguish it from its competitors in the fulfillment of this assignment? 15. Describe how your product differentiates itself from those of PRIM’s current managers. What role would your portfolio play in PRIM’s ETI program? Additional Questions for Equity and Fixed Income Managers (Questions 16-18) 25 16. Describe your firm’s trading capabilities related to this product. Provide a description of your trading platform, including systems (proprietary and off-the-shelf) for execution and processing. Describe the allocation objectives and implementation procedures across all accounts. What is the process by which trades are allocated across separate accounts as opposed to commingled accounts? Please describe both the tactic of allocating the initial trade as well as the strategy of building positions across accounts. What has been the product’s level of turnover? Is trading segmented by investment product platform? How many traders are there and what is their experience? Describe the trading systems and strategies you use, and indicate any enhancements your firm is contemplating. What steps have you taken to automate the trade flow process? What areas are still handled manually? How do you leverage your infrastructure to ensure firm-wide collaboration in execution (broker/dealer relationships) and capital market conditions (liquidity)? How does your firm manage to and monitor market liquidity? Describe how you measure trading costs (commissions and market impact). Describe your firm’s policy regarding the use of soft dollars. If your firm is affiliated with a broker/dealer, describe whether or not you trade through this affiliated brokerage. Discuss your internal monitoring process for final price determination and trade order management. Do you have dedicated committees overseeing these functions? If so, please list the members. What processes do you have in place for ensuring pre- and post-trade guideline compliance? What functions are automated? What process do you have in place for human verification? Who signs off on final trading? Please describe the oversight procedures that would minimize the risk of traders acting outside of their given latitude in executing trades. 17. What is the maximum percentage of total annual security trades that clients can direct without impeding your overall investment performance? Explain. 18. If you have soft dollar relationships with broker-dealers, please disclose the soft dollar policy and when it was last reviewed. Please also provide the percentage of trades executed tied to soft dollar relationships. Provide a list of resources funded by soft dollars that would normally be funded with hard dollars. Additional Questions for Real Estate Managers (Questions 19-31) 19. Describe your organizational approach and procedures relative to new investments, including your underwriting procedures and internal review and approval process. 20. Describe your acquisition process, including sourcing for new properties. 26 21. Provide your firm’s Transaction History, including the total number or purchase transactions accomplished over the past 5 years. Specifically indicate for the transactions listed the number sourced directly or through brokers or other third parties for which a fee or other compensation was paid by either the buyer or the seller. 22. Specify the total capital committed to your firm but un-invested and available for investment. Include the client, total assets managed, strategy, and specify if it is discretionary or non-discretionary. 23. Describe how investments are allocated among your clients and if any clients or funds have any preference or priority. What type of allocation reports do you provide clients? 24. Describe your asset management approach and process, including the planning and budgeting process. 25. Describe your internal and external valuation processes. How are appraisal firms selected? Do you require a MAI designated appraiser? How often are internal valuations conducted? Describe your internal valuation methodology and process. 26. Provide your disposition history for core properties over the past 5 years for all investments that have been both acquired and sold. Include property type, date acquired, date sold, net disposition price, asset cost, net gain, and Actual IRR before fees. 27. Describe your firm’s property management approach and philosophy. Include information about whether you use affiliates or subsidiaries for property management and leasing. 28. Please identify and describe the types of properties your firm sees as most attractive today on a risk-adjusted basis. Explain how these opportunities are consistent with your firm’s prior investment experience, capabilities, and expertise. 29. Please identify any property specific investment criteria you believe appropriate for implementing this mandate, such as acquisition capitalization rates, minimum cash-on- cash or distributable cash requirements, minimum total return requirements, targeted holding periods, and any risk mitigation or risk management policies such as minimum leasing or rollover exposure the first three years of ownership. 30. Describe your development process. What components are handled in house and what is outsourced? Explain how this process is consistent with your firm’s prior investment experience, capabilities, and expertise. 31. Describe your use of joint ventures. Additional Questions for Private Equity Managers (Venture Capital and Buyout) are included in the Excel spreadsheet in Exhibit I. 27 F. OPERATIONS/BACK-OFFICE 1. How many back office operations professionals support the subject product? Please specify locations. 2. Provide a list of the professionals involved in the subject product in the manner listed below: BACK OFFICE OPERATIONS Title/ Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School 3. Describe your internal training procedures for professionals on the back office operations team. 4. Describe the background of operations professionals that support the product. Are they brought in from the outside or promoted to their positions from within the organization? Is their prior experience in operations or other business or technical areas? What sort of ongoing education programs (for example, CPA, CFA) are encouraged or required? 5. Describe the job qualifications required by your firm when hiring operations professionals. 6. What personnel or organizational improvements are planned over the next years? 7. Provide biographies of no longer than one page on each of the persons listed in Question 2. Please include prior employment history. 8. Provide an organizational chart that diagrams the different operations functions dedicated to the product area. Professionals should be identified over their areas of responsibility. 9. Describe the compensation and incentive program for operations professionals directly involved in the product. How are they evaluated and rewarded? What incentives are provided to attract and retain superior individuals? Identify the percentage of compensation which is: Base salary Performance bonus Equity incentives Other Do you offer direct ownership, phantom stock, profit sharing, and/or performance bonus? Who is eligible to participate? 28 On what basis are these incentives determined – is compensation tied to success factors such as asset growth, performance, or other factors? Please list and indicate the weight of each in determining total compensation. How does your compensation structure/levels compare with other firms in the industry? 10. Discuss the causes and impact of any turnover (departures or hiring/promotions) of any operations professionals directly involved in the product you have experienced in the past five years. How long has the team been together? Indicate when and why any operations professional dedicated to the product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles and years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by Date Name/Title Responsibilities Firm Reason for leaving (name/title) G. COMPLIANCE/INTERNAL CONTROL STRUCTURE 1. Provide a detailed summary of your firm’s compliance regime. Identify senior or key personnel in the firm’s compliance process. 2. Does your firm maintain a code of ethics? If so, please attach. 3. During the past five years, has the firm been subject to any governmental regulatory or law enforcement agency’s investigation, examination, or other proceeding directly involving the firm, its owners, or employees other than such examination or other proceedings as are routinely conducted in the ordinary course of the firm’s business? 4. During the past five years, has the firm been subject to any litigation alleging fraud, breach of fiduciary duty, or other willful misconduct? 29 5. Provide a detailed summary of your firm’s internal control structure. Does the firm conduct periodic risk assessment? Provide a copy of SAS 70 if available, or other internal control review documentation, preferably prepared by an independent third party. 6. Provide copies of the firm’s most recent audited financial statements and auditor’s management letter. 7. Has your firm ever violated a client guideline? If so, please describe the violation and the resolution. H. PERFORMANCE PLEASE NOTE, PLEASE FILL OUT ONLY ONE OF THE FOLLOWING SECTIONS WITHIN THE PERFORMANCE SECTION. Simulated results are not acceptable. Section I applies to Equity and Fixed Income Managers Section II applies to Real Estate Managers Section III applies to Alternative Investments Managers (Venture Capital and Buyout) SECTION I TO BE FILLED OUT ONLY BY MANAGERS PROPOSING EQUITY OR FIXED INCOME PRODUCTS 1. a. Provide annual performance on a total return basis GROSS OF ALL FEES AND MANAGEMENT COSTS from inception for the subject product. Indicate if returns are net or gross of custody costs. Use AIMR standards or, if different, indicate explicitly how they differ. Indicate whether the subject performance is the composite performance or that of the commingled account vehicle. Please complete the both tables below. YOU MUST COMPLETE THE 2 TABLES BELOW OR YOUR SUBMISSION MAY NOT BE PROCESSED. IN ADDITION, PLEASE ENTER THIS INFORMATION IN THE EXCEL SPREADSHEET (EXHIBIT G) AND SUBMIT IT WITH YOUR RESPONSE. PLEASE DO NOT CHANGE THE SPREADSHEET FORMAT. TABLE#1 Subject Product Performance 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Quarter 1 Quarter 2 30 Quarter 3 Quarter 4 Total Return ___%___%___%___%___%___%___%___%___%___%___%___% Index ___%___%___%___%___%___%___%___%___%___%___%___% Difference ___%___%___%___%___%___%___%___%___%___%___%___% TABLE #2 1 Year 3 Years 5 Years 10 Years Annualized Ended Ended Ended Ended Returns 12/31/09 12/31/09 12/31/09 12/31/09 Return _______% _______% _______% _______% Index _______% _______% _______% _______% Difference _______% _______% _______% _______% Provide peer group rankings on an annualized and calendar year basis for the performance listed above. Please also provide a description of the peer group. Provide underlying data for performance given in question F1(a), if applicable: 2009 2008 2007 2006 2005 2004 2003 2002 Assets in Composite Number of Accts High Return Median Return Low Return 2. a. Describe causes for investment return deviation (both positive and negative) from the stated benchmark return by calendar year. In the attribution analysis identify contributions of stock and sector selection. 2009 2008 2007 2006 2005 2004 ______ Stock Selection ______ Industry/Sector Selection ______ Other (specify) ______ Total Difference 31 b. Was the attribution analysis calculated internally or externally? If internal, please describe in detail the methodology used; if external, please name your service provider. SECTION II TO BE FILLED OUT ONLY BY MANAGERS PROPOSING REAL ESTATE PRODUCTS Provide the following deleveraged return information for the categories described below in the formats shown: 1) Core Separate Account Properties under management and 2) All Core Properties (separate accounts and commingled funds) under management. Please provide information through December 31, 2009. Use your firm’s earliest inception date for each property type as the inception date for purposes of computing the appropriate NCREIF Property Index (“NPI”) returns. Provide such information consistent with the Real Estate Information Standards and AIMR Performance Presentation Standards. If returns do not comply with these standards, please note. Please also include as Exhibit H the quarterly returns, quarterly Net Asset Values (NAVs), and average invested capital (AIC) for each category shown. 1. Core Separate Account Properties Under Management Rolling Rolling Rolling Rolling Historical Inception NAV One 3 Year 5 Year 10 Year Date 12/31/09 Year Core Office NPI Office Subindex Core Retail NPI Retail Subindex Core Industrial NPI Industrial Subindex Core Multifamily NPI Multifamily Subindex Core Composite NPI 2. All Core Properties Under Management. Rolling Rolling Rolling Rolling Historical Inception NAV One 3 Year 5 Year 10 Year Date 12/31/09 Year Core Office NPI Office Subindex 32 Core Retail NPI Retail Subindex Core Industrial NPI Industrial Subindex Core Multifamily NPI Multifamily Subindex Core Composite NPI SECTION III TO BE FILLED OUT ONLY BY MANAGERS PROPOSING PRIVATE EQUITY PRODUCTS PLEASE ENTER THIS INFORMATION IN THE EXCEL SPREADSHEET (EXHIBIT I) AND SUBMIT IT WITH YOUR RESPONSE. PLEASE DO NOT CHANGE THE SPREADSHEET FORMAT. PLEASE ONLY INPUT INFORMATION INTO CELLS OR COLUMNS THAT ARE HIGHLIGHTED IN BLUE. 1. Fund Overview Please provided a summary of all of your prior funds including total fund capital commitments, vintage year, total amount funded (including fees), total amount distributed (net distributions returned), remaining market value, the number of investments made and remaining, and Net IRRs to LPs. (All numbers on this worksheet should be Net numbers) Additionally, please complete the exhibit requesting a list of all of the Investment Professionals, including their age, start date, carry, and area of focus. Please note any Investment Professionals, Principal level or above, who have left the firm in the Departed Professionals section. 2. Portfolio Company Detail Please provide detailed information (gross data) regarding each portfolio company in all of your prior funds. This information relates to cost and valuation of the underlying portfolio companies, data from the initial transaction, current operational performance, deal attribution, and a description of the company as well as a status update. 3. Terms You do not need to complete this tab. 33 4. Commitments Please provide a list of investors in this fund, including the amount of each investor’s commitment for your prior fund. You may consolidate all investors committing less than $10 million. Please note any investors who will not be committing to your current fund. Additionally, please provide a detailed reference list for each of your portfolio companies as well as for each General Partner affiliated with this fund. You may include this in a separate worksheet within the Excel workbook if you wish. I. CLIENT SERVICE 1. Which of your firm’s offices would service this account? What services would specifically be provided by which office? 2. Who will be the client service officer? How often could the person be available for client meetings? How often could the portfolio manager, chief investment officer and/or firm president be available for client meetings? J. SAMPLE PORTFOLIO Please submit a sample portfolio (preferably an actual portfolio) as of December 31, 2009, which would reflect the investment style of the product proposed for this account. K. EXECUTIVE SUMMARY Please submit an executive summary consisting of not more than 3 one-sided pages which summarizes the contents of the Proposal with the firm’s name identified on the top of the first page. If the firm is selected for a finalist interview, this summary will be provided to the Investment Committee/Real Estate Committee in advance of any interview. Please be aware that all members of the Investment Committee/Real Estate Committee may not have read your complete Proposal, which will be evaluated by the Search Committee. 34 XI. Fee Proposal FIRM RFP Once a manager has been selected, negotiations of the fee may become necessary in order to account for the size of funding, the increments of funding, and any clarification. In no case will the negotiations result in a fee which is higher than the fee contained in the proposal. A. Proposed Fees Asset-based Fee Schedule: basis points per annum. Please list separate schedules for commingled/separate account management. B. Do fees in A above include custody fees? If not, please specify. C. Performance Fee The PRIM Board may use a performance fee arrangement. Would your firm accept a performance fee management? If so, what is your proposed fee structure? 35 XII. Representations and Warranties All proposers are required to submit an executed copy of the following Representations and Warranties as an attachment to the cover letter described in Section V.B.2. of this RFP: A. Proposer warrants that it meets, or will meet before the award of the Agreement, the bonding requirement provided by Section 412 of the Employment Retirement Income Security Act of 1974 (ERISA) or that it carries at least an equivalent fidelity bond that will be applicable to proposer's actions under the Agreement (unless exempt, and explanation of exemption is attached). B. Proposer warrants that it maintains both errors and omissions insurance as well as a fiduciary liability insurance providing a prudent amount of coverage for negligent acts or omissions and that such coverage will be applicable to proposer's actions under the Agreement. C. Proposer warrants that it will not delegate its fiduciary responsibilities assumed under the Agreement. D. Proposer warrants that it has completed, obtained, and performed all registrations, filings, approvals, authorizations, consents or examinations required by a government or governmental authority for acts contemplated by the Agreement. E. Proposer warrants that it will agree to the provisions of the Agreement which are set forth in Exhibit B to this RFP. F. Proposer warrants that it meets all of the minimum qualifications, listed below, applicable to the firm under the RFP as follows: Please list each minimum requirement and specifically describe how your firm meets the applicable minimum qualifications specified in Section VIII. YOU MUST PROVIDE THIS INFORMATION, AS WELL AS A SIGNATURE ON THE BOTTOM OF THE DOCUMENT, OR YOUR SUBMISSION MAY NOT BE PROCESSED. Basic Minimum Qualifications. A Proposer must meet the following minimum qualifications to be given further consideration in PRIM’s search for an investment manager(s). Failure of a firm to meet the minimum qualifications applicable to the investment management services for which it is submitting a Proposal will result in the Proposal’s immediate rejection. A. Basic Minimum Qualifications. 36 All firms submitting Proposals must clearly demonstrate that they meet the Board’s ETI criteria. Please provide a detailed response. 1. The proposing firm must demonstrate that their investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. 2. The proposing firm must demonstrate that their firm is an experienced, capable, and qualified discretionary investment manager. 3. The proposing firm must demonstrate that their investments will target a “capital gap” where there are likely to be underserved markets. 4. The proposing firm must demonstrate that their firm is capable of tracking investment performance and the collateral benefits of their investments. 5. The proposing firm must demonstrate that their firm will invest over 50% of their portfolio in the Commonwealth of Massachusetts. 6. The proposing firm must be SEC-registered or exempt from registration with the nature of the exemption provided. The firm must submit its full Form ADV (Parts I and II). 7. The proposing firm must have an investment in or a commitment to the proposed product from at least one client as of December 31, 2009. 8. The proposing firm must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board. 9. The proposing firm must be proposing a long-only strategy. _____________________ Name of Firm Date _____________________ Signature Title 37 XIII. EXHIBITS 38 EXHIBIT A PRIM Asset Allocation PRIM Investment Managers 39 Pension Reserves Investment Management Board Long Term Asset Allocation As of October 31, 2009 Asset Class Long Term Target Allocation Global Equity 49% Core Fixed Income 13% Value-Added Fixed Income 6% Private Equity 10% Real Estate 10% Timber/Natural Resources 4% Hedge Funds 8% 40 Pension Reserves Investment Management Board Current Investment Managers Global Equity US Domestic Equity State Street Global Advisors (passive) INTECH PIMCO International Equity Ballie Gifford Marathon Asset Management, Ltd. Mondrian Pyramis Global Advisors State Street Global Advisors (passive) Emerging Markets Equity Emerging Markets Management Grantham, Mayo, Van Otterloo &Co LLC (GMO) T. Rowe Price Core Fixed Income Barclays Global Investors (passive) Blackrock Financial Management, Inc. Loomis Sayles & Company, L.P. Pacific Investment Management Company (PIMCO) Access Captial (ETI) CRAFund Advisors (ETI) AFL-CIO HIT Fund (ETI) Inflation Linked Bonds Barclays (Passive TIPS) Blackrock Financial Management (Global ILB’s + Commodities) Value Added Fixed Income High Yield Bonds Fidelity Management Trust Company Loomis Sayles & Company, L.P. Shenkman Capital Management, Inc. Emerging Markets Debt Ashmore Investment Management Ltd. Pacific Investment Management Company (PIMCO) Bank Loans ING Eaton Vance Distressed Debt 41 Oaktree Capital Management, LLC Angelo, Gordon & Co. LP Trust Company of the West Wayzata Investment Partners Avenue Capital Hedge Funds Arden Grosvenor K2 Advisors PAAMCO Rock Creek Real Estate JP Morgan Investment Management RREEF TA Associates Realty Invesco Real Estate LaSalle Investment Management INVESCO (REIT) RREEF (REIT) Urdang (REIT) European Investors (REIT) New Boston Fund (ETI) Canyon Johnson Urban Funds (ETI) Intercontinental Real Estate (ETI) Timber/Natural Resources Timber Forest Investment Associates Public Natural Resources Jennison Associates T. Rowe Price Private Natural Resources Quantum Energy Partners Tenaska Capital Management Denham Capital Private Equity Advent International Alchemy Partners Alta Communications American Securities APAX Partners & Co. Apollo Management Co. AustinVentures Bain Capital Battery Ventures 42 Berkshire Partners, LLC The Blackstone Group Boston Ventures Bridgepoint Brown Brothers Harriman & Co. Candover Carlyle Partners Castille Ventures (ETI) Centerbridge Capital Partners Charles River Ventures Charlesbank Capital Partners Charterhouse Group Chequers Capital Code Hennessey & Simmons Commonwealth Capital Ventures CVC Capital Cypress Merchant Banking DLJ Merchant Banking El Dorado Ventures Equitable Capital Management Essex Woodlands Exponent Partners First Reserve Corporation Flagship Ventures (ETI) Forstmann, Little & Co. Freeman Spogli Equity Partners Genstar Capital Partners GTCR Harborvest Partners Hellman & Friedman Capital Partners H.I.G. Capital Highland Capital Partners Insight Venture Partners InterWest Partners Joseph Littlejohn & Levy Kelso & Company Kohlberg Kravis Roberts& Co. KPS Capital Partners Landmark Equity Partners Lexington Partners Madison Dearborn Capital Partners Menlo Ventures M/C Venture Partners Montagu Private Equity Montreux Equity Partners Nautic Partners New Enterprise Associates Nordic Capital Odyssey Investment Partners Olympus Growth Fund 43 Onex Partners PAI Europe Permira Europe Polaris Venture Partners Providence Equity Partners Quad - C Management, Inc. Richland Ventures SCP Vitalife Sherbrook Capital Sovereign Capital Limited Spark Capital Spectrum Equity Partners Summit Ventures TA Associates/Advent Texas Pacific Group The Gores Group Thoma Bravo Thomas H. Lee Equity Partners Tourquest Partners TowerBrook Capital Trident Capital Union Square VantagePoint Partners Venture Capital Fund of NE Vestar Capital Partners Vista Equity Partners Welsh CarsonAnderson & Stowe Weston Presidio Capital WestView Capital Partners Whitney & Co. William Blair Mezzanine Capital Fund Willis Stein Xenon Private Equity 44 EXHIBIT B Sample Investment Management Agreement (For Public Markets Managers) 45 INVESTMENT MANAGEMENT AGREEMENT THIS AGREEMENT, dated as of [date], is made by and between the Pension Reserves Investment Management Board ("PRIM"), as trustee of the Pension Reserves Investment Trust (“PRIT”), and [manager] (the "Manager"). Introduction. Under Massachusetts General Laws, Chapter 32, Section 23, PRIM has general supervision of the investment and reinvestment of the PRIT Fund created by Chapter 32, Section 22 of such laws. PRIT has been established for the purpose of depositing, investing and disbursing amounts set aside to meet further liabilities of various public retirement systems in Massachusetts. PRIM is responsible for the administration of PRIT and enters into this Agreement appointing the Manager as investment manager of certain assets of PRIT pursuant to its authority under Massachusetts General Laws, Chapter 32, Section 23, subdivision (2A), paragraph (e), clause (iii). 1. Appointment of the Manager as Investment Manager. PRIM hereby appoints and retains the Manager, and the Manager agrees to serve as investment manager, upon and subject to the terms hereof, beginning at the opening of business on [date] (the “Effective Date”) and continuing until this Agreement is terminated in accordance with the terms hereof. The Manager hereby accepts appointment as such investment manager and agrees to provide services in accordance with (a) this Agreement, and (b) the investment objectives and investment guidelines set forth in Schedule A hereto (the “Investment Objectives and Guidelines”). The Investment Objectives and Guidelines may be modified from time to time by PRIM, upon at least thirty (30) days’ prior written notice to the Manager. Subject to such policies, the Manager shall use its best efforts to increase the value of the Account by causing the assets in the Account to be invested and reinvested from time to time. 2. The Account. The responsibilities and duties of the Manager are limited to the assets of the account designated by PRIM (the "Account"), which assets will be only a portion of the assets of PRIT. From time to time, PRIM may transfer other assets of PRIT to the Account or withdraw any assets from the Account upon written notice to the Manager. Nothing in this Agreement will constitute a commitment by PRIM to maintain any minimum amount of assets in the Account. The Manager also shall furnish to PRIM necessary assistance in the preparation of all reports relating to the Account now or hereafter required by applicable law. 3. Investment Objectives and Guidelines. The Manager will have full responsibility to invest and reinvest the Account, principally in marketable small cap domestic equity securities in accordance with the Investment Objectives and Guidelines, and in compliance with the Operating Trust of PRIM and all applicable laws and regulations. 4. Discretionary Authority. The Manager shall have only those powers set forth in the Operating Trust of the Pension Reserves Investment Management Board, as amended, which powers are explicitly granted to the Manager by PRIM in this Agreement and, with respect to the assets of the Account, all powers which are not so granted shall be exercised only by PRIM. Pursuant to Section 9.2(h) of the Operating Trust, PRIM authorizes the Manager to invest the Account in accordance with the Investment Objectives and Investment Guidelines set forth in Schedule A. PRIM reserves the right to control and invest all cash balances that may exist in the Account, and the Custodian (as defined in 46 Section 6) will inform PRIM as to the need for or availability of cash as a result of securities transactions. In carrying out its responsibilities as investment manager, and subject to this Section 4, and the Investment Objectives and Guidelines, the Manager will have full and complete discretion to direct and manage the investment and reinvestment of assets in the Account with full and exclusive power and authority (a) to buy, sell, exchange, convert and otherwise trade in any securities as the Manager may select and (b) to establish and maintain and deal through accounts with one or more securities brokerage firms as the Manager may select. In making all such selections, the Manager will, bearing in mind the best interests of the Account, use its best efforts to obtain for the Account the most favorable net price and execution available. PRIM reserves the right to specify that any part of the securities transactions for the Account be directed by the Manager to securities brokerage firms that meet requirements or participate in programs or initiatives specified by PRIM. Consistent with Massachusetts General Laws, Chapter 32, Section 23, subdivision (2A)(h), in selecting brokerage firms, the Manager will use its best efforts to benefit and expand the economic climate of the Commonwealth of Massachusetts, including by utilizing brokerage firms within the Commonwealth, so long as this is consistent with its duties and obligations hereunder. 5. Confidentiality. The Manager will maintain in strictest confidence the investment advice and information it furnishes to or receives from PRIM or the Custodian (as defined in Section 6) in connection with this Agreement; provided, however, that the Manager will be permitted to disclose or communicate to a proper party any information received from PRIM or the Custodian or developed by the Manager under the terms of this Agreement, if such disclosure or communication is necessary to carry out the purposes of this Agreement or is required by law. Before such disclosure or communication, the Manager, unless prohibited by law, will notify PRIM of the information to be disclosed or communicated and the party to whom that information will be disclosed or communicated. The terms of this paragraph shall not be interpreted so as to prevent the Manager from providing investment advice to other clients who share comparable investment objectives with PRIM, or to prohibit the Manager from utilizing the Manager’s investment experience or performance with respect to the Account on an undisclosed basis for use in composite performance presentations. The Manager hereby approves of periodic reports by PRIM and its staff of the Manager’s investment program and investment results hereunder, recognizing that such reports may be public records available to the media and the public. 6. Custody of Account Assets. PRIM has entered into an Agreement with Boston Safe Deposit and Trust Company to act as custodian for all assets of PRIT being managed by investment managers, including without limitation any cash which may be in the Account from time to time, and no assets of the Account may be delivered or paid to the Manager. The entity serving as such custodian from time to time is herein referred to as the “Custodian”. The Manager will furnish to the Custodian, with a copy to PRIM, a list of the Manager’s personnel who are authorized to give instructions to the Custodian with respect to the Account, and will forthwith upon any change in such personnel furnish an amended list to the Custodian, with a copy to PRIM. The Custodian will maintain separate records for the Account, and the Manager agrees to furnish to the Custodian all information reasonably necessary to maintain such records. The Manager shall have no responsibility or liability with respect to the acts, omissions or other conduct of the Custodian. PRIM reserves the right to change the Custodian upon thirty (30) days’ notice to the Manager. 47 7. Statement of Account; Valuation; Reports. The Manager shall keep full and complete records of all transactions with respect to the Account and will, at the end of each month during the term of this Agreement, render a statement thereof to PRIM together with a portfolio analysis of the Account and performance comparisons related thereto, and a listing of applicable transaction costs including brokers used and commissions paid, if any, to brokers and the average cents per unit for trades. The Manager shall also furnish to PRIM such additional reports with respect to the Account as PRIM shall reasonably request from time to time, including the information set forth in Schedule C hereto (“Investment Manager Compliance” reports). On a monthly basis, no later than the seventh business day, the Manager shall also deliver to the Custodian a report of all transactions in the Account during the prior month and a listing of each investment in the portfolio and its net asset value at the end of said month. The Manager shall also from time to time, but no less than semi- annually, attend meetings (which, in PRIM’s sole discretion, may be by telephone conference) with PRIM to discuss the Account and the investment outlook. PRIM shall cause the Custodian to provide the Manager with an appraisal of the assets in the Account as of the last business or trading day of each month, together with a transaction statement for the month listing all transactions occurring during the month as well as opening and closing cash balances. This statement will be rendered on a trade date basis and include any accrued income calculations. The Manager shall be responsible for reconciliation of the Account with the Custodian on a monthly basis, and shall promptly notify PRIM of all unresolved material differences. The Manager shall promptly notify PRIM in writing (1) of any change in the Manager’s representations in this Agreement during the term of this Agreement; (2) of any change in the senior management and key investment professionals, or material changes in ownership of the Manager’s organization; (3) of any change in the senior portfolio management team of the Account; (4) of any change in approach to the management of the Account; (5) of any other material change in the Manager’s business activities or circumstances, including changes affecting the Manager’s equity capital; (6) of any action taken by the Manager that is contrary to or inconsistent with this Agreement, including the Investment Objectives and Investment Guidelines set forth in Schedule A; and (7) of the commencement by any governmental regulatory or law enforcement agency of any investigation, examination or other proceeding directly involving the Manager, its owners, or employees, except such investigations, examinations or other proceedings as are routinely conducted in the ordinary course of the Manager’s business. 8. Fees and Expenses. The Manager will be entitled to receive from PRIM as complete compensation for services rendered hereunder the fees set forth in Schedule B hereto. The Fee Schedule may be modified by mutual agreement of the parties in writing. Such fees will be paid by PRIM at the times and in the manner specified in the Fee Schedule, and will be pro-rated from the Effective Date. The Manager will not be paid or reimbursed for any expenses except to the extent permitted by PRIM in writing. In the event that the Manager currently or at any time during the continuation of this Agreement performs similar services for other clients with a similar dollar level of assets at a lower or more favorable fee schedule, the Manager will promptly notify PRIM of such arrangement. 9. Services Not Exclusive. The services of the Manager and its personnel to be provided under this Agreement are not exclusive, and the Manager may provide services to others and engage in other activities, but the Manager will allocate such personnel and 48 devote such efforts as are necessary for it to carry out its duties under this Agreement. The Manager may give advice and take action in the performance of its duties with respect to any of its clients which may differ from the advice given, or the timing or nature of action taken, with respect to the Account, so long as the Manager adheres to a policy of allocating investment opportunities to the Account over a period of time on a fair and equitable basis relative to other clients. Nothing in this Agreement shall impose upon the Manager any obligation to purchase or sell for the Account any security or other property which the Manager purchases or sells for its own account or the account of any other client if, in the opinion of the Manager, such transaction or investment appears unsuitable, impracticable or undesirable for the Account. 10. Procedures. All transactions will be consummated by payment to, or delivery by, PRIM, or such other party as PRIM shall have designated in writing as the Custodian. Instructions of the Manager to PRIM and/or the Custodian will be made in writing (or by such electronic means as the Manager and PRIM and/or the Custodian may establish and maintain from time to time). The Manager will instruct all brokers or dealers executing orders on behalf of the Account to forward to PRIM and/or the Custodian copies of all brokerage confirmations promptly after execution of transactions. The Manager shall have full and complete discretion to establish accounts with one or more securities brokers as the Manager may select. The Manager shall not be responsible for any acts or omissions by any such broker or brokers, or third parties. The Manager is hereby authorized to combine orders on behalf of the Account with orders on behalf of other clients of the Manager. As set forth in Section 4, the Manager will use its best efforts to obtain the most favorable net price and execution available on securities traded for the Account. 11. Persons Authorized to Act for the Manager. The Manager will from time to time certify to PRIM the name of the person or persons authorized to act on its behalf and will give PRIM a specimen of his or their signatures. Any person so certified will be an authorized representative of the Manager for purposes of this Agreement and his authority to act on behalf of the Manager will continue until notice to the contrary is given by the Manager and received by PRIM. 12. Persons Authorized to Act for PRIM. PRIM may from time to time designate any person or persons to act on its behalf in giving instructions, directions, notices or other communications to the Manager and will certify the name of such person or persons to the Manager and give the Manager a specimen of his or their signatures. The authority of any such person to act on behalf of PRIM will continue until notice to the contrary is given by PRIM and received by the Manager. All oral instructions shall be promptly confirmed in writing. 13. Proxies. PRIM will vote all proxies for securities held in the Account. The Manager shall, in conjunction with PRIM and the Custodian, develop procedures to facilitate the timely exercise by PRIM of these rights. 14. Representations by the Manager. The Manager represents and warrants that it is registered and in good standing as an investment adviser pursuant to the Investment Advisers Act of 1940, as amended, and that it has completed, obtained or performed all other registrations, filings, approvals, authorizations, consents or examinations required by any government or governmental authority for the performance of the acts contemplated by this Agreement. The Manager will deliver documentation of such compliance annually or as 49 PRIM may reasonably request. PRIM acknowledges receipt of Parts I and II of the Manager’s Form ADV, and the Manager's Disclosure Statement, as required by Rule 204-3 under the Investment Advisers Act of 1940, not less than 48 hours prior to the date of execution of this Agreement. 15. Termination. This Agreement may be terminated at any time by PRIM upon written notice to the Manager of such termination, and by the Manager upon thirty days’ written notice to PRIM, effective as of the date set forth in such notice. Any termination of this Agreement shall be without payment of any penalty by PRIM. A pro rata determination of fees, if appropriate, will be made for any quarter in which this Agreement has been terminated. Any performance fee owed but still due at time of termination will be paid over the remaining time and in accordance with the established payout schedule as provided for in Schedule B. PRIM may also at any time without prior notice direct the Manager to cease activity with respect to the Account, provided, however, that all trades executed but not settled prior to such direction shall be settled. Upon termination the Manager shall cooperate with PRIM to transfer the securities and other assets in the Account and on the effective date of the termination of this Agreement or as close to such date as is reasonably possible, the Manager shall provide PRIM with a final report containing the same information as provided in the monthly reports provided pursuant to Section 7. 16. Fiduciary Status of The Manager; Chapter 268A. With respect to the performance of its duties and responsibilities hereunder for the Account, the Manager acknowledges that it is a "fiduciary" within the meaning of Chapter 32 of the Massachusetts General Laws. The Manager will discharge its duties and responsibilities under this Agreement in accordance with the fiduciary standards of conduct and other requirements as they apply to the Manager. The Manager is advised of the existence of Massachusetts General Laws, Chapter 268A (the Massachusetts "Conflict of Interest" statute), and is expected to act and perform its duties in accordance with such provisions. The Manager acknowledges that PRIM has delivered a copy of Chapters 32 and 268A of the Massachusetts General Laws as currently in effect to the Manager. 17. Liability. The Manager shall not be liable for the selection of the Investment Objectives and Guidelines but shall be responsible for the management of the Account in accordance therewith and with such other instructions as PRIM may provide from time to time. In addition to those requirements set forth in Section 16, at all times the Manager shall exercise the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent expert acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The Manager shall have no responsibility whatsoever for the management of any other assets of PRIT and the Manager shall have no duty, responsibility, or liability in connection with the operation or the administration of PRIT. The Manager shall not be subject to liability for any act, omission or mistake of judgment in the course of, or connected with, the performance of its responsibilities hereunder, except for its own negligence, willful misconduct or lack of good faith. Nothing herein shall be construed to waive any liability that the Manager has under applicable federal or state securities laws, or ERISA. No obligation of the Manager, under this Agreement or otherwise, shall be binding personally upon any of the shareholders, officers, agents, employees or trustees of any trust which the Manager may have established. 50 18. Authority. Each of the parties to this Agreement represents that it is duly authorized and empowered to execute, deliver and perform this Agreement, that such action does not materially conflict with or violate any provision of law, rule or regulation, contract, deed of trust, or other instrument to which it is a party or to which any of its property is subject, and that this Agreement is a valid and binding obligation, enforceable against such party in accordance with its terms. 19. Bonding. The Manager agrees to maintain during the term of this Agreement any fidelity bond with respect to the assets of the Account which it would have to maintain to satisfy Section 412 of ERISA and the regulations thereunder if PRIM or PRIT were subject to the terms of ERISA. 20. “Soft Dollar” and Other Arrangements. On an ongoing basis not less than annually, the Manager will identify and provide a written description to PRIM of all “soft dollar” arrangements that it maintains with respect to the Account or with brokers or dealers which execute transactions for the Account. Prior to the commencement of the active management of the Account, and periodically thereafter, but no less often than annually, the Manager shall provide PRIM with a written description of all arrangements with third parties and other individuals, entities, brokers or money management firms who have or may receive or share in the payment of fees for services in connection with securing or continuing this Agreement. 21. Confirmations. The Manager will arrange to have brokers who effect transactions for the Account send to the Custodian confirmations of purchases and sales. Upon written request of PRIM, the Manager will arrange to have copies of any of the foregoing sent to any other persons designated by PRIM. 22. Communication. Any approvals, instructions, directions, notices or other communications (other than oral instructions described in Section 12) pursuant to this Agreement will be mailed or delivered: a) to PRIM at: Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, Massachusetts 02110 Attention: Michael Travaglini, Executive Director b) to the Manager at: [manager] c) to the Custodian at: BNY Mellon 135 Santilli Highway AIM 026-0313 Everett, MA 02149 51 Either party may change the address for notices or other communications to it by written notice to the other stating the new address. PRIM may change the name and address for notices or other communications to the Custodian by written notice to the Manager. Notices from either party to the other will be effective when received by the addressee. 23. Assignment, etc. The Manager will not assign this Agreement without the prior written consent of PRIM. This Agreement constitutes the entire Agreement of the parties with respect to its subject matter and may only be amended by a written amendment signed by both parties. 24. Headings; Attachments. Headings are for convenience only, and the text of this Agreement will govern the rights and obligations of the parties. Each of the Attachments hereto is incorporated herein by reference. Capitalized items used herein have the same meanings as in this Agreement. 25. Disputed Matters. With respect to any controversy or dispute arising out of this Agreement, interpretation of any of the provisions hereof, or the actions of the Manager or PRIM hereunder, each of the parties consents to the non-exclusive jurisdiction of all of the federal and state courts in the Commonwealth of Massachusetts, agrees that venue with respect to any action in such Commonwealth shall lie exclusively in Suffolk County, Massachusetts, and waives any defense of forum non conveniens; provided, however, that at the sole election of PRIM, any such controversy or dispute shall be submitted to arbitration before the American Arbitration Association under the Commercial Arbitration Rules then obtaining of said Association, such arbitration to be held in Boston, Massachusetts, and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. In any such arbitration each party to the arbitration shall bear its own expenses, including expenses of attorneys, financial experts and other witnesses; any arbitration fees and expenses of the arbitrators shall be divided equally between the disputing parties. Service of process on either party shall be deemed effective if made in the manner prescribed for the giving of notice in Section 22. 26. Massachusetts Law. This Agreement will be considered to be an instrument made under seal in the Commonwealth of Massachusetts and it will be construed and the rights and obligations of the parties determined in accordance with the laws of said Commonwealth, without giving effect to conflicts of laws principles. IN WITNESS WHEREOF, the Manager and PRIM have executed this Agreement as of the date first above written. PENSION RESERVES INVESTMENT MANAGEMENT BOARD BY:_____________________________ Michael Travaglini, Executive Director [manager] BY:______________________________ NAME: ___________________________ TITLE:___________________________ 52 [Manager] Schedule A: Proposed Investment Objectives and Guidelines (Specific guidelines will be customized with managers) I. Investment Objectives The Manager’s performance benchmark is the [to be customized]. Annualized performance, net of fees, should exceed benchmark performance by at least [to be customized] basis points over a three- to five-year period, and should rank in the top half of managers with similar objectives. II. Investment Guidelines To be customized by strategy (sample follows) A. Authorized Investments 1. The Manager shall invest principally in stocks traded on non-U.S. equity markets. Rights, warrants and convertible securities, if issued by companies whose common stocks would be properly held in the portfolio, are also permitted investments whether or not the common stock is actually held in the portfolio. ADR’s and GDR’s are permitted investments. 2. Forward foreign currency exchange contracts, exchange traded futures, and exchange traded currency options are permitted for defensive currency hedging. 3. The Manager may not: purchase Emerging Markets securities. Emerging Markets are defined as countries not included in the MSCI EAFE Index; purchase securities on margin; use swaps on indices or securities; sell securities short; use derivatives other than those specified under authorized investments; leverage the portfolio. B. Specific Investment Guidelines To be customized to strategy 53 C. Portfolio Characteristics To be customized to strategy 54 [Manager] Schedule B: Fee Schedule This page intentionally left blank 55 [Manager] Schedule C: Manager Compliance Report Compliance Certification In addition to the requirements of Paragraph 7 of the Investment Management Agreement, as soon as practicable at the close of each calendar quarter, the Manager shall certify to PRIM that: 1. the Manager has not deviated from the Investment Guidelines set forth in the Investment Objectives and Guidelines (Schedule A to the Investment Management Agreement); 2. the Manager has not deviated from the requirements of Massachusetts General Laws, chapter 32, section 23, concerning certain investments relating to South Africa and Northern Ireland, Sudan and tobacco. If the Manager is unable to provide either of the certifications outlined above, the Manager shall provide PRIM with a detailed written explanation. 56 [Manager] Schedule D: Monthly Reconciliation Procedure The Manager shall strike a monthly reconciliation with PRIM’s Custodian. This Schedule describes the reconciliation procedure that Manager will follow with respect to PRIM’s Account. The attachments are as follows: A. Monthly Reconciliation Schedule. This schedule (Attachment 1) details the timetable that must be followed each month. B. Reconciliation Form. This is the form (Attachment 2) for reconciling with Custodian. The form must be filled out completely, with supporting data as necessary. The form comprises a number of reconciliation “elements” (shares, CUSIP number, income, etc.). Reconciliations are completed when the Manager has accomplished the following steps: 1. reconciled both the CUSIP and share number for each security position with those shown on the Custodian’s records; 2. compared Custodian’s prices on each security to Manager’s prices and challenged Custodian’s prices on securities (if any) that exceed the Manager’s internal pricing tolerances; 3. reconciled portfolio income for the period with that shown on Custodian’s records; 4. noted methodology differences on the reconciliation form; 5. resolved all differences with Custodian within a tolerance of less than or equal to twenty five basis points (0.25%); and 6. updated the Manager’s records to reflect all corrections necessary. C. Methodology Schedule. This lists various methods by which Custodian arrives at the final net asset value of a portfolio. If methodology differences consistently result in portfolio market values outside the monthly ten basis point tolerance, it may be necessary to refer to this schedule to determine the source of the problem. In all cases of conflicting methodologies, Custodian’s methodology will govern. D. Monthly Performance Report. Once the accounting reconciliation has been completed, Attachment 4, the format for a performance comparison, must be completed and faxed to the Custodian contact shown on this Attachment. Custodian Analytics will compare the Manager’s return to their returns and, in the event the difference between the Manager’s return and the Custodian return is excessive, Custodian will contact the Manager to resolve such discrepancies. In order to adhere to the timetable set forth in Attachment 1, the Manager will need to have the Custodian’s online system installed in the Manager’s operations area so that reconciliation can be performed electronically. If the Manager does not already have the 57 Custodian’s online system in its operations group, the Manager should contact the Custodian’s investment manager services area. In addition to the Manager’s contacts at the Investment Manager Services area of Custodian, all the Manager’s operations personnel involved with the reconciliation process should be given the name of PRIM’s client service officer at Custodian (PRIM will supply the name, telephone number and email address of this individual to the Manager). The supervisor of the Manager’s operations area should call or email this individual immediately with the names of the Manager’s operations personnel who work on the PRIM reconciliation, a description of their roles, and their telephone numbers. Payment of the Manager’s fee is shall be contingent upon the Manager reconciling with the Custodian as provided above. 58 ATTACHMENT 1 PRIM PUBLIC MARKETS INVESTMENT MANAGER MONTHLY RECONCILIATION SCHEDULE First business day: PRIM sends expense accrual information to Custodian for input. Second business day: Custodian sends preliminary net asset value data to public markets managers via online system or other electronic means (Available the morning of third business day). Third business day: Public markets managers perform preliminary reconciliation of net asset value using summary data on online system. Fifth Business day: Public markets managers complete and return to Custodian preliminary reconciliations of net asset value as per Attachment 2. Seventh business day: Public markets managers and Custodian resolve any discrepancies, as per Attachment 2. Public markets managers complete and return to Custodian Attachment 5, Monthly Performance Report. Eighth business day: Custodian mails final reports to Investment Managers Custodian Accounting delivers final reports to Custodian Performance and Analytics. Eleventh business day: Public markets managers and Custodian complete final performance reconciliation. Public markets managers advise PRIM by fax that both the final account reconciliation and the performance report are complete. Twelfth business day: Custodian Analytics issues final performance reports. 59 The PRIT Month-End Pre-Reconciliation Spreadsheet ACCOUNT NAME: 0 ACCOUNT NUMBER: 0 FOR MONTH ENDING: January 0, 1900 CATEGORY MELLON MANAGER DIFFERENCE EXPLANATION A.) HOLDINGS - COST - - - 0 B.) HOLDINGS - MARKET - - - 0 C.) PENDING TRADES - - - 0 D.) PENDING FX CONTRACTS RECEIVABLE - - - 0 E.) PENDING FX CONTRACTS - PAYABLES - - - 0 F.) INCOME RECEIVABLE - - - 0 G.) CURRENCY BALANCES - - - 0 H.) MANAGER FEE ACCRUALS - - - 0 NET ASSET VALUE (Stated in USD): $ - $ - $ - (B+C+D+E+F+G+H) MELLON FINAL NAV: $ - EXPLANATION OF VARIANCE: 0 0 INVESTMENT MANAGER SIGNOFF: 0 MELLON GSS SIGNOFF: 0 60 ATTACHMENT 3 METHODOLOGY DIFFERENCES I. Pricing The Manager should address questions regarding pricing challenges to PRIM’s Client Service Officer at the Custodian. II. Amortization. Custodian uses straight-line amortization on all zero coupon bonds. III. Trade date vs. settlement date accounting. Custodian reflects all holdings as of trade date. IV. Exchange rates. Custodian uses RT12 (Reuters 12 Noon London time, last trading day of the month) exchange rates to establish the dollar price of non-dollar securities. V. Posting of dividends and interest. Custodian reflects dividend and interest income as of ex-date. Custodian accrues interest income daily based on the parameters of the fixed income instrument. VI. Computation of realized gain and loss. Custodian calculates the average cost of each security in the portfolio and uses this as a basis from which to compute the realized gain or loss on the position. 61 ATTACHMENT 4 PENSION RESERVES INVESTMENT MANAGEMENT Monthly Performance Information TO: [Custodian] PHONE#: FAX#: FROM: Phone#: COMPANY: Fax#: SSB FUND: MONTH: Prior Current Month Month Month End Market Value: Net Cash Flow (Contributions/Withdrawals) Portfolio Management Fee Rate of Rate of Return Return Gross of Net of Investment Results: Fees Fees Current Month Year to Date Comments (Major Flows, Corrections to prior month values or returns): THIS COMPLETED DOCUMENT MUST BE RECEIVED BY CUSTODIAN NO LATER THAN THE END OF THE SEVENTH BUSINESS DAY AFTER MONTH END, IN ORDER FOR RECONCILIATION TO BE COMPLETE. PRIM INVESTMENT MANAGER 62 MONTHLY RECONCILIATION SCHEDULE First business day: PRIM sends expense accrual information to Custodian for input. Second business day: Custodian sends preliminary net asset value data to managers via online system or other electronic means (Available the morning of third business day). Third business day: Managers perform preliminary reconciliation of net asset value using summary data on online system. Fifth Business day: Managers complete and return to Custodian preliminary reconciliations of net asset value as per Attachment 2. Seventh business day: Managers and Custodian resolve any discrepancies, as per Attachment 2. Managers complete and return to Custodian Attachment 5, Monthly Performance Report. Eighth business day: Custodian mails final reports to Investment Managers Custodian Accounting delivers final reports to Custodian Performance and Analytics. Eleventh business day: Managers and Custodian complete final performance reconciliation. Public markets managers advise PRIM by fax that both the final account reconciliation and the performance report are complete. Twelfth business day: Custodian Analytics issues final performance reports. 63 EXHIBIT C Disclosure Forms PRIM Disclosure Form PERAC Disclosure Form 64 PRIM Board Disclosure Statement COMMONWEALTH OF MASSACHUSETTS PENSION RESERVES INVESTMENT MANAGEMENT BOARD THIRD PARTY DISCLOSURE STATEMENT FIRM: _________________________ ADDRESS: _________________________ _________________________ _________________________ Third parties seeking to provide investment management, consulting, custody and recordkeeping, auditing and other professional services, related to the management of the Commonwealth of Massachusetts Pension Reserves Investment Management Board (“PRIM”) and the Pension Reserves Investment Trust Fund (PRIT) must complete a disclosure statement providing complete and accurate responses to the questions below. Firms selected to provide such services to PRIM have a continuing obligation to update responses to these questions, in writing, immediately upon any change to such responses. The questions in this Disclosure Statement should be read broad, and any perceived ambiguity should be resolved in favor of disclosure. Any questions concerning the disclosures required should be directed to the PRIM Board’s Executive Director. 1. Identify any relationship of the firm, its joint ventures, consultants, lobbyists, subcontractors, agents, or placement agents that relate in any way to the engagement. 2. Aside from the engagement, describe any services provided by the firm to PRIM or PRIT. 3. Aside from the services described in response to question no. 2, above, describe any services provided by the firm to the Office of the Treasurer or any trust, board, commission or authority of which the Treasurer is a member or trustee. (A list of such entities is attached.) 4. Provide the following information. Complete and thorough answers to each section (a-e) are required. a. A statement whether the firm or any of its principals, employees, agents or affiliates has compensated or agreed to compensate, directly or indirectly, any person or entity to act as a Placement Agent in connection with the investment. If a Placement Agent or Agent of any kind was utilized in connection with this engagement, please list the name, address and principal agents of the firm. b. A description of any and all compensation of any kind provided or agreed to be provided to a Placement Agent, including the nature, timing and value thereof. Compensation to Placement Agents shall include compensation to third parties as well 65 as employees of the firm who are retained in order to solicit, or who are paid based in whole or in part upon, an investment. c. A description of the services performed by the Placement Agent and a statement as to whether the Placement Agent is utilized by the firm with all prospective clients or only with a subset of the firm’s prospective clients. d. A statement that the Placement Agent (or any of its affiliates, as applicable) is registered with the Securities and Exchange Commission or the Financial Industry Regulatory Association and the details if such registration. e. A statement whether the Placement Agent, or any of its affiliates, is registered as a lobbyist with any state or national government. *A Placement Agent is Any person or entity hired, engaged or retained by or acting on behalf of the firm or on behalf of another Placement Agent as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investment from or to obtain access to Board, directly or indirectly. Signed under the pains and penalties of this ____ day of _________, 200_. Name: Title: 66 Treasurer’s Principal Boards, Commissions and Authorities 1) Finance Advisory Board – M.G.L. c.6, s97-8 2) State Comptroller’s Advisory Board – M.G.L. c.5A, s2 3) Investment Advisory Council – M.G.L. c.10, s5B 4) State Retirement Board – M.G.L. c.10, s18 5) Teacher’s Retirement Board M.G.L c.15, s16 6) State Lottery Commission – M.G.L. c.10, s23 7) Alcoholic Beverages Control Commission – M.G.L. c.10, s70 8) School Building Authority – M.G.L. c70B, s3A 9) Commonwealth Covenant Fund – M.G.L. c10, s35EE 10) Health Care Security Trust – M.G.L c29D, s6D 11) Commissioners on Firemen’s Relief – M.G.L c10, s21 12) Retirement Law Commission – M.G.L. c10, s35I 13) Board of Bank Incorporation – M.G.L. c.26, s5 14) Water Pollution Abatement Trust – M.G.L. c.29, s2 15) Pension Reserves Investment Management – M.G.L. c.32, s23(2A) 16) Massachusetts Convention Center Authority – Chapter 190 of the Acts of 1982 ss31- 48 67 PERAC Disclosure Please obtain the PERAC disclosure form at the following website, fill it out, and submit together with the COMMONWEALTH OF MASSACHUSETTS PENSION RESERVES INVESTMENT MANAGEMENT BOARD disclosure form: http://www.mass.gov/perac/forms/0803disclosurestatementconsultants.pdf 68 EXHIBIT D Please refer to Chapter 32 of the Massachusetts General Laws and Chapter 268A Massachusetts Conflict of Interest Law at www.mass.gov <http://www.mass.gov> 69 Exhibit E PRIM Investment Policy Please go to the link below to see the Investment Policy: http://www.mapension.com/InvestmentProgram/InvestPolicy.html 70 EXHIBIT F PRIM ETI Policy Adopted 8/14/03 A. PRIM recognizes its obligations under Massachusetts law include a responsibility to seek out investment opportunities that will benefit the economic climate of the Commonwealth as a whole, provided that such investments are consistent with the Board’s obligations to the members and beneficiaries of its participating retirement systems. (See M.G.L. ch. 32, sec. 23(2A)(h)) Accordingly, in cases where investment characteristics, including returns, risk, liquidity, compliance with allocation policy, and others, are equal, PRIM will favor those investments that have a substantial, direct and measurable benefit to the economy of the Commonwealth. B. Such Economically Targeted Investments (“ETI’s”) must meet the following criteria: 1. Investments must target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. When evaluating ETI opportunities, PRIM will discount projected returns for any subsidies, deferral of income, higher risk levels, and other concessions to reach a real rate of return for comparison with other ETI and non-ETI investment alternatives. Similarly, ETI benefits will not justify higher investment risk. However, where appropriate, the PRIM staff, its managers, and its consultants will actively seek out and develop guarantees, third party recourse, hedging, and other acceptable and customary risk management vehicles to reduce or eliminate risk in ETI investments. 2. Investments must not exceed a reasonable weighting in the portfolio, including tracking the degree of exposure to the Massachusetts economy and ensuring appropriate geographic diversification. Investments should maintain the overall portfolio’s compliance with its asset allocation strategy. ETI benefits will not justify deviation from the Asset Allocation Plan adopted by the PRIM Board. 3.Investments should be placed with an experienced and capable manager through an objective and transparent process. Investments should be managed by qualified discretionary investment managers. PRIM will not make any direct investments. 4. Investments should target a “capital gap” where there are likely to be underserved markets. 5. Investments must be tracked (both investment performance and collateral benefits) and managed with the same rigor and discipline imposed on other investments. Investments should be reviewed and monitored by PRIM staff and consultants without disproportionate expenditure of time and resources. 71 EXHIBIT G EQUITY AND FIXED INCOME MANAGER PERFORMANCE Please refer to Excel performance spreadsheet attached as Exhibit G. 72 EXHIBIT H REAL ESTATE MANAGER PERFORMANCE Please fill out the Excel performance spreadsheet attached as Exhibit H for every fund your firm has sponsored. 73 EXHIBIT I ALTERNATIVE INVESTMENTS MANAGER PERFORMANCE Please refer to Excel performance spreadsheet attached as Exhibit I. 74
"PENSION RESERVES INVESTMENT MANA"