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PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
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PENSION RESERVES INVESTMENT MANAGEMENT BOARD

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  • 1. Pension Reserves Investment Management Board 84 State Street, Suite 250 Timothy P. Cahill, Chair Boston, Massachusetts 02109 Michael Travaglini, Executive Director June 13, 2005 Dear Potential Provider: The Massachusetts Pension Reserves Investment Management Board (PRIM) is requesting proposals from qualified firms interested in providing actively managed global inflation linked bonds + commodities investment management services. 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., EDT, Friday, July 1, 2005 to smavromates@mapension.com. In addition, an original and 1 copy of the proposal should be sent to: Mr. Stanley P. Mavromates, Jr. Chief Investment Officer Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, Massachusetts 02109 Further instructions for proposal submission, including information regarding the number of copies to be sent to Cliffwater LLC, are included in the Request for Proposals. Questions concerning the Request for Proposals must be submitted by 3:00 p.m., EDT, Friday, June 24, 2005. 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
  • 2. PENSION RESERVES INVESTMENT MANAGEMENT BOARD 84 State Street, Suite 250, Boston, Massachusetts 02109 Timothy P. Cahill, Chair Michael Travaglini, Executive Director REQUEST FOR PROPOSALS Actively Managed Global Inflation Linked Bonds + Commodities INVESTMENT MANAGEMENT SERVICES June 2005 2
  • 3. Table of Contents I. INTRODUCTION....................................................................................................................................................4 II. BACKGROUND INFORMATION ......................................................................................................................4 A. LEGAL STRUCTURE OF PRIM. ...............................................................................................................................4 B. PRIM’S ADVISORS. ..............................................................................................................................................5 C. GENERAL DESCRIPTION OF PRIM’S ASSETS..........................................................................................................5 D. TOBACCO DIVESTITURE.........................................................................................................................................5 III. SCOPE OF SERVICES........................................................................................................................................6 IV. MANAGEMENT AGREEMENT .......................................................................................................................6 V. PROPOSAL SPECIFICATIONS..........................................................................................................................7 A. PROPOSAL DEADLINE. ...........................................................................................................................................7 B. REQUIRED ATTACHMENTS AND ENCLOSURES........................................................................................................7 C. PUBLIC RECORD. ...................................................................................................................................................8 D. WITHDRAWAL/IRREVOCABILITY OF RESPONSES. ..................................................................................................8 E. WAIVER/CURE OF MINOR INFORMALITIES, ERRORS AND OMISSIONS. ...................................................................8 F. COMMUNICATIONS WITH PRIM. ............................................................................................................................9 G. QUESTIONS RELATING TO THIS RFP. .....................................................................................................................9 H. INCURRING COSTS .................................................................................................................................................9 I. REJECTION OF PROPOSALS. ..................................................................................................................................10 VI. SELECTION PROCESS ..................................................................................................................................10 A. NON-QUALIFYING PROPOSALS. ..........................................................................................................................10 B. SELECTION OF FINALISTS....................................................................................................................................10 C. SELECTION OF INVESTMENT MANAGERS. ...........................................................................................................10 VII. TENTATIVE TIME TABLE............................................................................................................................11 VIII. MINIMUM CRITERIA ..................................................................................................................................12 IX. SELECTION CRITERIA. .................................................................................................................................13 X. QUESTIONNAIRE ..............................................................................................................................................15 XI. FEE PROPOSAL ................................................................................................................................................31 XII. REPRESENTATIONS AND WARRANTIES................................................................................................32 XIII. EXHIBITS ........................................................................................................................................................33 A.PRIM ASSET ALLOCATION & PUBLIC MARKETS INVESTMENT MANAGERS. .........................................................34 B. SAMPLE INVESTMENT MANAGEMENT AGREEMENT...............................................................................................37 C. DISCLOSURE FORMS. ............................................................................................................................................56 D.CHAPTER 32 OF THE MASSACHUSETTS GENERAL LAWS & MASSACHUSETTS CONFLICT OF INTEREST LAW............61 3
  • 4. Pension Reserves Investment Management Board REQUEST FOR PROPOSALS Actively Managed Global Inflation Linked Bonds + Commodities INVESTMENT MANAGEMENT SERVICES I. INTRODUCTION. The Massachusetts Pension Reserves Investment Management (PRIM) Board is soliciting proposals from firms interested in providing Actively Managed Global Inflation Linked Bonds + Commodities Investment Management Services. 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 April 30, 2005, the PRIT Fund had assets of approximately $35 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. 4
  • 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. Cliffwater LLC is PRIM's general consultant, Pathway Capital is the alternative investment consultant, NEPC is the hedge fund consultant, and The Townsend Group and Morris & Morse provide real estate consulting services. KPMG is the Fund’s auditor. In addition, Deloitte & Touche is the Real Estate auditor. Mellon Trust 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 of April 30, 2005. D. Tobacco 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. III. SCOPE OF SERVICES. 5
  • 6. The PRIM Board currently has 5% allocated to U.S. TIPS and the entire allocation is passively managed against the Lehman U.S. TIPS Index. The purpose of this Request for Proposals is to solicit proposals from firms interested in providing Actively Managed Global Inflation Linked Bonds + Commodities Investment Management Services. Size of the mandate will be up to $720 million of assets approximately 2% of the PRIT Fund. The mandate is an actively managed global inflation linked bonds portfolio that will include an actively or passively managed commodities component. The implementation of the commodities strategy is through the usage of futures or swaps benchmarked to the Goldman Sachs Commodity Index or the Dow Jones-AIG Commodity Index. The collateral for the commodities shall be invested in global inflation linked bonds. The Board will accept and evaluate proposals to manage these assets in an approach that is expected to provide a real return to the PRIT Fund. Proposals submitted for other strategies will NOT be accepted. PRIM may select one or more investment advisers based on PRIM’s evaluation of the Proposals in accordance with the Selection Criteria contained in Section IX of this Request for Proposal. Investment advisers selected to perform these services will be required to perform the following additional services for PRIM: (1) submit monthly asset, transaction and performance statements within two weeks of each calendar month end; (2) attend semi-annual performance reviews in Boston, Massachusetts; (3) provide monthly accounting and performance reconciliations to PRIM’s custodian; and (4) participate in annual site visits. Currently, all funds of PRIM, including the funds to be managed in accordance with this RFP, are subject to the investment restrictions as detailed in Schedule C of the standard investment management agreement. In addition, manager securities lending strategies will NOT be permitted. IV. MANAGEMENT AGREEMENT. PRIM will require that the manager or managers selected enter into its standard investment management agreement (the “Agreement”), including the appropriate investment guidelines and 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 and execute a contract containing the provisions set forth in Exhibit B. 6
  • 7. V. PROPOSAL SPECIFICATIONS. A. Proposal Deadline. The completed proposal, which must include all attachments, must be delivered electronically via e-mail to smavromates@mapension.com by 3:00 p.m. EDT on Friday, July 1, 2005 (the “Proposal Deadline”) to PRIM. Any Proposal delivered after the Proposal Deadline will not be considered. In addition, an original and one copy of the Proposal should be sent to PRIM and PRIM’s consultant as listed below: Mr. Stanley P. Mavromates, Jr. Chief Investment Officer Pension Reserves Investment Management Board 84 State Street, Suite 250 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 smavromates@mapension.com. In addition, please send via e-mail your proposal to kbarchick@cliffwater.com and one hard copy to the following representative of PRIM’s general consultant: Ms. Kathleen Barchick, CFA Managing Director Cliffwater LLC 1601 Cloverfield Boulevard Second Floor, South Tower Santa Monica, CA 90404 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) copies (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 7
  • 8. 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. 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).” Also include one copy to Cliffwater LLC. 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. 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 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. 8
  • 9. F. Communications with PRIM. PRIM’s Procurement Officer for this RFP is: Mr. Stanley P. Mavromates, Jr. Chief Investment Officer Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, Massachusetts 02109 Telephone: (617) 946-8444 Facsimile: (617) 946-8475 smavromates@mapension.com As of June 13, 2005, 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 must be received by the Procurement Officer by 3:00 p.m. EDT on Friday, June 24, 2005 (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 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. 9
  • 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 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 Committee and the PRIM Board. The finalists selected by the Search Committee may be required to make an oral presentation to the Investment Committee, the PRIM Board, or both. The Investment 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. 10
  • 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: June 13, 2005 RFP Question Deadline: June 24, 2005 (Firm) 3:00 p.m. EDT RFP Response Deadline: July 1, 2005 (Firm) 3:00 p.m. EDT Notification of Finalists: July 7, 2005 (Tentative) Search Committee July 12 and/or 13, 2005 Interviews: (Tentative) Investment Committee July 19, 2005 Interviews: (Tentative) PRIM Board Meeting: August 4, 2005 (Tentative) Projected September 1, 2005 Commencement Date: 11
  • 12. 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 meet the following minimum criteria: 1. The investment professionals must have at least a two year performance history in actively managed global inflation linked bond mandates as of June 30, 2005. 2. The investment professionals whose performance history is submitted must be the team responsible for the management of this account. 3. The candidate must have at least $500 million in institutional (taxable and non- taxable) assets under management in actively managed global inflation linked bond mandates as of June 30, 2005. 4. The candidate 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). 5. The candidate must have at least one tax-exempt institutional client invested in the subject product, as of June 30, 2005. 6. The candidate must have been in operation as an investment management organization for at least one year as of June 30, 2005. 7. The candidate must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board. 8. The candidate must not be proposing a manager of managers strategy. 9. The candidate must be proposing a long-only strategy. 12
  • 13. 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 Committee. For a more detailed description of the Selection Process, see Section VI hereof. A. Basic Selection Criteria Applicable to all Proposing Firms 1. 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. 2. 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). 13
  • 14. d. Stability of the firm's professional base, as measured by personnel turnover since March 31, 2002. 3. Client Relations and References a. Stability of the firm's client base, as measured by the number of accounts gained or lost since March 31, 2002. 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. 4. 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. 5. Performance and Fees a. The total cost of performing investment advisory services as measured by the Fee Proposal. b. The historical performance of the product as measured by its cumulative and annual performance compared to an appropriate index. 14
  • 15. X. QUESTIONNAIRE Actively Managed Global Inflation Linked Bonds + Commodities INVESTMENT MANAGEMENT SERVICES PRODUCT NAME: FIRM NAME: ADDRESS: TELEPHONE #: FACSIMILE #: E-MAIL ADDRESS: CLIENT CONTACT: SIGNED: Name (print): Title: Date: 15
  • 16. A. 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 global inflation indexed bonds, c. the month and year the firm began managing global inflation indexed bonds for U.S. tax-exempt clients, d. the month and year the subject product was introduced. 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. 16
  • 17. 5. List the total number of persons in the subject product employed by discipline. Total Portfolio Managers Research Analysts Economists Marketing Trading Administration Credit Research 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 Cliffwater LLC. 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 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. B. ASSETS UNDER MANAGEMENT 17
  • 18. 12/31 12/31 12/31 12/31 12/31 3/31 2000 2001 2002 2003 2004 2005 1. (a) Total assets under management (all products) ($millions) (b) Total institutional (taxable & non-taxable) assets in actively managed global inflation linked bond mandates ($ millions) (c) Total assets (retail & institutional) managed in the subject product ($ millions) (d) Total institutional assets (taxable & non-taxable) managed in the subject product ($ millions) (e) Total assets managed in the subject product for U.S. tax-exempt clients in separate accounts ($ millions) Accounts (f) Total U.S. tax exempt assets in the subject product in commingled funds ($ millions) 2. a. Please list 5 largest U.S. tax-exempt accounts currently managed, including all public and ERISA fund clients, invested in the subject product. Name Date of Inception Market Value (3/31/05) 18
  • 19. 3. List all clients and asset amounts gained in the subject product over the past three years as of March 31, 2005. 4. List all clients and asset amounts lost in the subject product over the past three years as of March 31, 2005. 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. 9. 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. 10. 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. 11. 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. 12. 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. 19
  • 20. C. 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. 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 education 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? 20
  • 21. 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? • 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 (name/title) leaving 21
  • 22. D. INVESTMENT PHILOSOPHY, POLICY AND PROCESS D1) Actively Managed Global Inflation Linked Bonds 1. Why do you think actively managed global inflation linked bonds are an appropriate investment for a defined benefit plan? What is your expectation of return for this asset class? 2. Describe your firm’s investment philosophy for the actively managed global inflation linked bonds. What market anomaly or inefficiency are you trying to capture? Why do you believe this philosophy will be successful in the future? Provide any evidence or research, which supports this belief. How has this philosophy changed over time? How do you define the product’s style? 3. What do you think is the appropriate benchmark for global inflation linked bonds? Is this the one your firm is using for the subject product? 4. Describe the sources and processing of information used to select global inflation linked bonds. Are you seeking unique sources of information? Are you applying unique methods to process the information? What percent of resources and time does your firm devote to the top-down (macroeconomic and industry analysis) aspect of your approach versus the bottom-up (security selection) aspect? 5. Describe your buy/sell disciplines for global inflation linked bonds. What is your buy/sell discipline? What valuation approaches are used in evaluating these bonds? What specific fundamental factors are integral to the global inflation linked bond selection process? What is the relative importance of these factors? What factors dictate your sell decisions? Under what circumstances would your firm deviate from these disciplines? Have you ever deviated? If so, please describe. 6. Describe your portfolio construction process. What is the universe from which securities are selected? What types of securities are used? Describe in detail your use and frequency of use of derivative securities. Include discussion of how the use of such securities is consistent with your approach, the advantages, potential risks, risk controls, and your expertise with these securities. How many issues are typically contained in a portfolio? What latitude is given to portfolio managers within the product team? Who has the ultimate decision making authority and accountability? How important is benchmark-tracking error in the portfolio construction? Is it measured and managed? If so, how? 22
  • 23. Describe the process with regard to: A) duration positioning; B) yield curve positioning; C) maturity structure; D) country selection; E) sector selection; F) security selection; G) currency management H) Describe how currency risk is managed. D. Provide your internal guidelines for the subject product under a fully discretionary basis. Include the following: b. the product’s benchmark c. duration band relative to the benchmark d. the types of sectors and the maximum allocation to a single sector and a single issue/issuer e. types of securities used f. expected level of annualized outperformance over three to five years relative to the benchmark g. expected level of annualized tracking error relative to the benchmark. D2) Commodities 1. Why do you think commodities is an appropriate investment for a defined benefit plan? What is your expectation of return for this asset class? (Assume investment in Goldman Sachs Commodity Index or Dow-Jones-AIG Commodity Index) 2. Do you have any experience in investing in commodities? Please describe. 3. Do you recommend an active or passive approach in investing in commodities? Why? 4. Describe the vehicle (futures or swaps) you recommend using to gain exposure to commodities and why that vehicle is recommended. 5. If you recommend using swaps please describe how you manage counter-party risk 6. Which commodities benchmark (GSCI or DJ-AIG) do you recommend and why? D3) Actively Managed Global Inflation Linked Bonds + Commodities 1. Do you believe the combination of actively managed global inflation linked bonds and commodities will provide a real return? Why? 2. The PRIM Board’s mandate for this RFP is hire an investment manager to invest in commodities, in an active or passive fashion, through the usage of futures or swaps benchmarked to the Goldman Sachs Commodity Index or the Dow Jones-AIG Commodity index. The collateral for the commodities shall be invested in an actively managed portfolio for global inflation linked bonds. Please describe the portfolio construction process for this portfolio, the steps taken to build such a portfolio, and what the typical portfolio will contain. 3. How will portfolio risk be managed and monitored? Describe all risk management functions and tools utilized. What is your firm's definition of risk with respect to this product? If more than one, specify each with its percentage of importance. 23
  • 24. Describe how you monitor and manage: Residual risk versus the benchmark Common factor analysis Security, sector, and industry weightings, and Value at risk Do you use cash as a method of risk control? Indicate how much cash is generally held in the portfolio. Describe any risk measurement models (such as BARRA, etc.) used and how this analysis is incorporated in the portfolio management process. 4. How do you monitor the product’s adherence to its investment style and process? Specify who is responsible. 5. Provide your internal guidelines for the subject product under a fully discretionary basis. Include the following: Maximum sector and security exposures. Types of securities used Expected level of annualized outperformance over three to five years relative to the index chosen. 6. If you have internal research capability, which is dedicated to the product, describe the research process. What percentage of the research effort is conducted internally? Where is the research carried out? What are the sources of research? What specific research is conducted? What are the outputs of the research? How is this information incorporated in the stock selection and portfolio construction process? 7. If you use external research in the management of the product, describe the external research. What percentage of the research effort is from external sources? What are the sources of external research? What specific research is acquired from external sources? How is this information incorporated in the stock selection and portfolio construction process? 8. Describe the quantitative models and tools you utilize for research, portfolio construction and trading. What enhancements are being contemplated? 9. 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 24
  • 25. 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. 10. If you have soft dollar relationships with broker-dealers, please disclose the following: Soft dollar policy and when last reviewed. Percentage of trades executed tied to soft dollar relationships. List of resources funded by soft dollars that would normally be funded with hard dollars. 11. 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? 12. Are you able to provide accurate, audited asset and transaction statements within 2-3 weeks of month's end? Explain. 13. What unique attributes does your firm or your product have which distinguish it from its competitors in the fulfillment of this assignment? 14. Describe how your product differentiates itself from those of PRIM’s current passively managed US TIPS portfolio. What role would your portfolio play in PRIM’s actively managed investment grade bond portfolio? What role would your portfolio play in adding value to the overall PRIT Fund? 25
  • 26. E. 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? 26
  • 27. • 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 (name/title) leaving 27
  • 28. F. 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? 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. G. PERFORMANCE (Simulated results are not acceptable.) 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 6 TABLES BELOW OR YOUR SUBMISSION MAY NOT BE PROCESSED. TABLE#1 28
  • 29. Actively Managed Global Inflation Linked Bonds Product Performance 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return ___%___%___%___%___%___%___%___%___%___%___%___% Barclays Capital Global Inflation Linked Index ___%___%___%___%___%___%___%___%___%___%___%___% Difference ___%___%___%___%___%___%___%___%___%___%___%___% Risk of return ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) Risk of index ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) TABLE #2 Actively Managed Global Inflation Linked Bonds Product Performance 1 Year 3 Years 5 Years 10 Years Annualized Ended Ended Ended Ended Returns 3/31/05 3/31/05 3/31/05 3/31/05 Return _______% _______% _______% _______% Barclays Capital Global Inflation Linked Index _______% _______% _______% _______% Difference _______% _______% _______% _______% Risk of return _______% _______% _______% _______% (standard deviation) 29
  • 30. Risk of index _______% _______% _______% _______% (standard deviation) Information Ratio _______ _______ _______ _______ Sharp Ratio _______ _______ _______ _______ Risk Return Ratio _______ _______ _______ _______ 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. TABLE#3 Commodities Product Performance (If applicable) 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return ___%___%___%___%___%___%___%___%___%___%___%___% GSCI or DJ-AIG Commodity Index ___%___%___%___%___%___%___%___%___%___%___%___% Difference ___%___%___%___%___%___%___%___%___%___%___%___% Risk of return ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) Risk of index ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) TABLE #4 Commodities Product Performance (If applicable) 30
  • 31. 1 Year 3 Years 5 Years 10 Years Annualized Ended Ended Ended Ended Returns 3/31/05 3/31/05 3/31/05 3/31/05 Return _______% _______% _______% _______% GSCI or DJ-AIG Commodity Index _______% _______% _______% _______% Difference _______% _______% _______% _______% Risk of return _______% _______% _______% _______% (standard deviation) Risk of index _______% _______% _______% _______% (standard deviation) Information Ratio _______ _______ _______ _______ Sharp Ratio _______ _______ _______ _______ Risk Return Ratio _______ _______ _______ _______ TABLE#5 Actively Managed Global Inflation Linked Bonds (Collateral) + Commodities Performance For Purposes of an Index Please Use the DJ-AIG Commodities Index And Assume the Collateral is Invested in Your Actively Managed Global Inflation Linked Bonds Product Simulations are Acceptable for the Commodities Portion of the Portfolio (Please provide disclosure of any such simulations) 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return ___%___%___%___%___%___%___%___%___%___%___%___% Index ___%___%___%___%___%___%___%___%___%___%___%___% 31
  • 32. Difference ___%___%___%___%___%___%___%___%___%___%___%___% Risk of return ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) Risk of index ___%___%___%___%___%___%___%___%___%___%___%___% (standard deviation) TABLE #6 Actively Managed Global Inflation Linked Bonds (Collateral) + Commodities Performance For Purposes of an Index Please Use the DJ-AIG Commodities Index And Assume the Collateral is Invested in Your Actively Managed Global Inflation Linked Bonds Product Simulations are Acceptable for the Commodities Portion of the Portfolio (Please provide disclosure of any such simulations) 1 Year 3 Years 5 Years 10 Years Annualized Ended Ended Ended Ended Returns 3/31/05 3/31/05 3/31/05 3/31/05 Return _______% _______% _______% _______% Index _______% _______% _______% _______% Difference _______% _______% _______% _______% Risk of return _______% _______% _______% _______% (standard deviation) Risk of index _______% _______% _______% _______% (standard deviation) Information Ratio _______ _______ _______ _______ Sharp Ratio _______ _______ _______ _______ Risk Return Ratio _______ _______ _______ _______ 32
  • 33. 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: 2005 2004 2003 2002 2001 2000 1999 1998 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. 2005 2004 2003 2002 2001 2000 ______ Duration ______ Yield curve positioning ______ Country selection ______ Sector Selection ______ Security Selection ______ Other (specify) ______ Total Difference b. Was the attribution analysis calculated internally or externally? If internal, please describe in detail the methodology used; if external, please name your vendor. H. 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? I. SAMPLE PORTFOLIO Please submit a sample portfolio (preferably an actual portfolio) as of March 31, 2005, which would reflect the investment style of the product proposed for this account. 33
  • 34. J. 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 in advance of any interview. Please be aware that all members of the Investment Committee may not have read your complete Proposal, which will be evaluated by the Search Committee. 34
  • 35. 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. Assume a $360 million account size for purposes of the below fee bid. 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
  • 36. 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 OR YOUR SUBMISSION MAY NOT BE PROCESSED. Basic Minimum Qualifications. All firms submitting Proposals must meet the following minimum criteria: 1. The investment professionals must have at least a two year performance history in actively managed global inflation linked bond mandates as of June 30, 2005. 2. The investment professionals whose performance history is submitted must be the team responsible for the management of this account. 36
  • 37. 3. The candidate must have at least $500 million in institutional (taxable and non- taxable) assets under management in actively managed global inflation linked bond mandates as of June 30, 2005. 4. The candidate 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). 5. The candidate must have at least one tax-exempt institutional client invested in the subject product, as of June 30, 2005. 6. The candidate must have been in operation as an investment management organization for at least one year as of June 30, 2005. 7. The candidate must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board. 8. The candidate must not be proposing a manager of managers strategy. 9. The candidate must be proposing a long-only strategy. _____________________ Name of Firm Date _____________________ Signature Title 37
  • 38. XIII. EXHIBITS 38
  • 39. EXHIBIT A PRIM Asset Allocation PRIM Investment Managers 39
  • 40. Pension Reserves Investment Management Board Asset Allocation As of April 30, 2005 Asset Class Long Term Target Actual Allocation Allocation Domestic Equity 26% 32.4% International Equity 15% 15.8% Emerging Markets 5% 5.9% U.S. Bonds 10% 11.6% US TIPS 5% 4.9% High Yield Debt* 9% 7.4% Alternative Investments 10% 6.1% Real Estate 10% 7.6% Timber 5% 3.7% Absolute Return 5% 4.8% * High yield allocation consists of 5% to high yield bonds, 2% to distressed debt, and 2% to emerging markets debt; actual allocation to high yield consists of 4.8% to high yield bonds, 0.4% to distressed debt, and 1.8% to emerging markets debt. 40
  • 41. Pension Reserves Investment Management Board Current Investment Managers Domestic Equity Large Cap State Street Global Advisors (passive) Fidelity Management Trust Company Legg Mason Capital Management, Inc. Gardner Lewis NWQ Small Cap Ariel Capital AXA Rosenberg Investment Management Earnest Partners Lazard Asset Management Mazama Numeric Investors Putnam Wellington Management Company LLP State Street Global Advisors (Passive) International Equity Ballie Gifford The Boston Company Marathon Asset Management, Ltd. Pareto Partners State Street Global Advisors (passive) Emerging Markets Equity Emerging Markets Management Grantham, Mayo, Van Otterloo &Co LLC (GMO) State Street Global Advisors (passive) Fixed Income Barclays Global Investors (passive) Blackrock Financial Management, Inc. Loomis Sayles & Company, L.P. Pacific Investment Management Company (PIMCO) High Yield Debt High Yield Bonds Fidelity Management Trust Company Loomis Sayles & Company, L.P. Seix Investment Advisors Inc. Shenkman Capital Management, Inc. Emerging Markets Debt Ashmore Investment Management Ltd. Grantham, Mayo, Van Otterloo &Co LLC (GMO) Pacific Investment Management Company (PIMCO) Distressed Debt 41
  • 42. Oaktree Capital Management, LLC Angelo, Gordon & Co. LP Trust Company of the West 42
  • 43. EXHIBIT B Sample Investment Management Agreement 43
  • 44. 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 Investment 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 44
  • 45. 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 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 45
  • 46. 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. 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 46
  • 47. 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 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 47
  • 48. 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 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 48
  • 49. 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. 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: 49
  • 50. 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: Boston Safe Deposit Trust and Company 135 Santilli Highway AIM 026-0313 Everett, MA 02149 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. 50
  • 51. 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:___________________________ 51
  • 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 _____ Index. Annualized performance, net of fees, should exceed benchmark performance by at least _____ basis points over a three- to five-year period, and should rank in the top half of managers with similar objectives. II. Investment Guidelines A. Authorized Investments 1. The Manager may only invest in global inflation linked bonds and commodities. The Manager should rank in the top half of managers with similar objectives. 2. The Manager may not: Purchase securities on margin; Purchase 144A securities or private placements; Sell securities short; Purchase ADRs or GDRs; Leverage the portfolio; Purchase Covered Dollar Rolls; Purchase Commingled Funds; Purchase Fixed Income Securities; Lend the portfolio’s Securities; Buy or issue Debt; Purchase Illiquid securities; or, Purchase Convertibles, Rights or Warren not held in the _____ index. B. Specific Investment Guidelines To be customized to strategy C. Portfolio Characteristics 52
  • 53. To be customized to strategy 53
  • 54. [Manager] Schedule B: Fee Schedule This page intentionally left blank 54
  • 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, 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. 55
  • 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.). To the extent that the Manager may already be using such a format, and that format includes all the reconciliation elements shown on Attachment 2, the Manager may continue to use its existing format in place of Attachment 2. 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 ten basis points (0.10%); 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. 56
  • 57. 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 Custodian’s online system in its operations group, the Manager should contact the Custodian’s investment manager services area. PRIM is aware that other reconciliation technologies may currently be available or may become available through SWIFT or other organizations. Should such technologies be available, any one may be used to accomplish the reconciliation process in lieu of Custodian’s online system, provided, however, that both PRIM and Custodian have agreed to the use of such technology prior to its being employed. 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. 57
  • 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. 58
  • 59. The PRIT and HCST 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 59
  • 60. ATTACHMENT 3 METHODOLOGY DIFFERENCES I. Pricing PRIM will provide the Manager with the Custodian Pricing Methodology Manual. The Manager should address questions not answered by referring to this manual and 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 Boston 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. 60
  • 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. 61
  • 62. EXHIBIT C Disclosure Forms PRIM Disclosure Form PERAC Disclosure Form 62
  • 63. COMMONWEALTH OF MASSACHUSETTS PENSION RESERVES INVESTMENT MANAGEMENT BOARD DISCLOSURE STATEMENT FIRM: _________________________ ADDRESS: _________________________ _________________________ _________________________ Firms seeking to provide investment management or consulting services (the “engagement”) to the Commonwealth of Massachusetts Pension Reserves Investment Management Board (“PRIM”) must complete a disclosure statement providing complete and accurate responses to the questions below. Firms selected to provide investment management or consulting 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. Describe in detail your firm’s organization structure, and identify any controlling stockholders, parents, subsidiaries, affiliates, partners, general partners, or principals (all such individuals or entities hereinafter collectively referred to as the “firm.”) 2. Identify any relationship of the firm, its joint ventures, consultants, lobbyists, subcontractors, agents, or placement agents that relate in any way to the engagement. 3. Aside from the engagement, describe any services provided by the firm to PRIM. 4. Aside from the services described in response to question no. 3, 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.) 5. Aside from the services described in response to question nos. 3 and 4, above, describe any services provided by the firm to the Commonwealth of Massachusetts or any of its political subdivisions. 6. Did or will the firm provide or share, agree to provide or share, or arrange to provide or share any compensation or benefit, direct or indirect, to any individual or entity for assisting the firm in: a) obtaining the engagement; or, 63
  • 64. b) performing the services required by the engagement. If the answer to question no. 6 is “yes,” provide for each the individual or entity a) the name and address of such individual or entity; b) a description of the assistance provided; and c) the compensation or benefit. 7. Does the firm have any ongoing relationship, arrangement or agreement with any individual or entity with respect to sharing compensation for services to: a) PRIM; b) any trust, board, commission, or authority of which the Treasurer is a member or trustee; or c) Massachusetts or its political subdivisions? If the answer to question no. 7 is “yes,” provide for each such individual or entity a) the name and address of such individual or entity; b) a description of the relationship, arrangement or agreement; and, c) the compensation shared. Signed under the pains and penalties of perjury on this day of _________, 2005. Name: Title: 64
  • 65. 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) State Lottery Commission – M.G.L. c.10, s23 6) Emergency Finance Board – M.G.L. c.10, s47 7) Board of Bank Incorporation – M.G.L. c.26, s5 8) Water Pollution Abatement Trust – M.G.L. c.29, s2 9) Pension Reserves Investment Management – M.G.L. c.32, s23(2A) 10) Massachusetts Convention Center Authority – Chapter 190 of the Acts of 1982 ss31-48 65
  • 66. 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.state.ma.us/perac/forms/0803disclosurestatementim.pdf 66
  • 67. 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> 67

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