SECTION I. SUMMARY AND PURPOSE

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SECTION I. SUMMARY AND PURPOSE

  1. 1. Request for Response Office of the State Treasurer and Receiver General Address: One Ashburton Place, 12th Floor Boston, Massachusetts 02108-1608 RFR File Name/Title: IRC 457 Deferred Compensation Plan – Investment Management Services (REBID) RFR File Number: TRE RFR DC IMS 0404 RFR Contact Person: Kelleen A. Dwyer SECTION I. SUMMARY AND PURPOSE Timothy P. Cahill, Treasurer and Receiver General of the Commonwealth requests responses from qualified firms in and outside Massachusetts interested in providing active international equity investment management services, active core fixed income investment management services for its stable value fund (“Income Fund”), and/or oversight management of its stable value fund (“Income Fund Manager”) to its IRC 457 deferred compensation plan. More detailed descriptions of these services are set forth under the heading "SCOPE OF SERVICES," Section IV. The purpose of this RFR is to allow the Office of the State Treasurer (“the Treasury”) to select a firm(s) to provide investment management services for the Commonwealth’s Deferred Compensation Plan offered to state employees. Specific information on the Deferred Compensation Plan may be found in Section III. Firms submitting proposals must meet minimum criteria detailed in Section V subsection A, 1, (“Minimum Criteria/Requirements”) and submit mandatory documents as described in Section V subsection A. 2, (“Mandatory Attachments and Enclosures.”) SECTION II. GENERAL INFORMATION The Office of the State Treasurer and Receiver General is exempt from 801 Code of Massachusetts Regulations (CMR) 21.00: Procurement of Commodities and Services, but has opted to follow these regulations in this RFR. Therefore, unless a conflict with any other applicable law or statute arises, the Office of the State Treasurer and Receiver General will conduct itself as a “procuring department” as that term is used in 801 CMR 21.00 which provisions are otherwise incorporated herein by reference. Additional definitions may also be identified in this RFR. All terms, conditions, requirements, and procedures included in this RFR must be met for a response to be qualified as responsive. A response that fails to meet any material term, condition, requirement or procedure of this RFR may be deemed unresponsive and disqualified. The Office of the State Treasurer and Receiver General reserves the right to waive or permit cure of non-material errors or omissions. The Office of the State Treasurer and Receiver General reserves the right to modify, amend or cancel the terms of the RFR at any time. Unless otherwise specified, all communications, responses, and documentation regarding this RFR must be in English, all measurements must be provided in feet, inches, and pounds and all cost proposals or figures in U.S. Currency. All responses must be submitted in accordance with the specific terms of this RFR. No electronic responses may be submitted in response to this RFR. This RFR is in accordance with the World Trade Organization Government Procurement Agreement. 1
  2. 2. A. SPECIFICATIONS 1. BIDDER COMMUNICATION. Any individuals and/or firms that intend to submit a response are prohibited from contacting any employees of the members of the Deferred Compensation Plan Oversight Committee, Pension Reserves Investment Management Board, Office of the State Treasurer and Receiver General or any member of the Procurement Management Team (PMT), other than the Procurement Officer. An exception to this rule applies to individuals or firms that currently do business with the Office of the State Treasurer and Receiver General, but shall be limited to that business, and should not relate to this RFR. Failure to observe this rule will result in disqualification. Furthermore, no other individual Commonwealth employee or representative is authorized to provide any information or respond to any question or inquiry concerning this RFR. Bidders should notify in writing the contact person for this RFR in the event it is incomplete or the bidder is having trouble obtaining any required attachments electronically through Comm-PASS. Questions concerning the RFR may be submitted to the RFR Procurement Officer via e-mail (NO PHONE CALLS) to kdwyer@tre.state.ma.us no later than May 3, 2004, 3:00 p.m. EST. The Commonwealth's Procurement Officer for this RFR is: Kelleen Dwyer Massachusetts Deferred Compensation Plan Department of the State Treasurer One Ashburton Place, 12th Floor Boston, Massachusetts 02108-1607 Kdwyer@tre.state.ma.us In addition, firms that intend to submit a Proposal should not discuss this RFR with any employee of the Commonwealth's current third party administrator, investment managers, consultants, legal counsel or other advisors. Once a proposal has been submitted, the provider agrees to the terms and conditions set forth in the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act for any emails and electronic communications that occur during any subsequent negotiation. Any bidder awarded a contract under this RFR is prohibited from selling or distributing any information collected or derived from the contract and/or procurement process, including lists of participating or eligible Office of the State Treasurer and Receiver General employee names, telephone numbers or addresses. The procurement management team reserves the right to modify, amend or cancel the terms of this RFR at any time. 2. REASONABLE ACCOMMODATION. Bidders with disabilities or hardships that seek reasonable accommodation, which may include the receipt of RFR information in an alternative format, must communicate such requests in writing to the contact person. Requests for accommodation will be addressed on a case-by-case basis. A bidder requesting accommodation must submit a written statement, which describes the bidder’s disability and the requested accommodation to the contact person for the RFR. The Procurement Management Team (PMT) reserves the right to reject unreasonable requests. 3. PUBLIC RECORDS. All responses and information submitted in response to this RFR are subject to the Massachusetts Public Records Law, Massachusetts General Laws (M.G.L.), Chapter 66, Section 10, and Chapter 4, Section 7, Clause twenty-sixth. Any statements in submitted responses that are inconsistent with these statutes will be disregarded. 2
  3. 3. Bidders are advised that all proposals are deemed sealed, and therefore their contents will be treated as confidential and will not be disclosed to competing bidders until the evaluation process has been completed and the contract has been awarded. 4. ESTIMATED PROVISIONS. The Office of the State Treasurer and Receiver General makes no guarantee that any commodities or services will be purchased from any contract resulting from this RFR. Any estimates and/or past or current procurement volumes referenced in this RFR are included only for the convenience of bidders, and are not to be relied upon as any indication of future purchase levels. 5. CONFLICT OF INTEREST. Prior to award of any contract, the vendor shall certify in writing to the procuring agency that no relationship exists between the vendor and the procuring or contracting agency that interferes with fair competition or is a conflict of interest, and no relationship exists between the vendor and another person or organization that constitutes a conflict of interest with respect to a state contract. The Office of the State Treasurer and Receiver General may waive this provision, in writing, if these activities of the vendor will not be adverse to the interests of the Commonwealth. No official or employee of the Commonwealth who exercises any function or responsibility in the review or approval of the undertaking or carrying out of this project shall, prior to the completion of the project, voluntarily acquire any personal interest, either directly or indirectly, in this contract or proposed contract. The bidder shall provide assurance that it presently has no interest and shall not acquire any interest, either directly or indirectly, which will conflict in any manner or degree with the performance of its services hereunder. The bidder shall also provide assurances that no person having any such known interests shall be employed during the performance of this contract. By submission of a proposal, the bidder agrees to conduct itself in regards to this proposal and any subsequent contract as specified in Massachusetts General Law, chapter 268A. 6. BRAND NAME OR EQUAL. Unless otherwise specified in this RFR, any reference to a particular trademark, trade name, patent, design, type, specification, producer or supplier is not intended to restrict this RFR to any manufacturer or proprietor or to constitute an endorsement of any service. The Office of the State Treasurer and Receiver General will consider clearly identified offers of substantially equivalent services submitted in response to such reference. 7. ALTERNATIVES.. Unless otherwise specified, bidders may submit responses proposing alternatives that provide equivalent, better or more cost-effective performance than achievable under the stated RFR specifications. These alternatives may include related services that may be available to enhance performance during the period of the contract. The response should describe how any alternative achieves substantially equivalent or better performance to that of the RFR specifications. The Office of the State Treasurer and Receiver General will determine if a proposed alternative method of performance achieves substantially equivalent or better performance. The goal of this RFR is to provide the best value of commodities and services to achieve the procurement goals of the department. Bidders that propose discounts, uncharged commodities and services or other benefits in addition to the RFR specifications may receive a preference or additional points under this RFR as specified. Contractors may also propose alternatives for equivalent, better or more cost-effective performance than specified under the Contractor’s original response to enable the department to take advantage of enhanced technologies, commodities or services that become available during the term of the contract. 8. BEST VALUE SELECTION AND NEGOTIATION. The Procurement Management Team (PMT) and/or the State Treasurer and Receiver General may select the response(s) that demonstrates the “Best Value” overall, including proposed alternatives that will achieve the procurement goals of the Office of the State Treasurer and Receiver General. The Procurement Management Team (PMT) and/or the State Treasurer and Receiver General and the selected bidder, or contractor, may negotiate a change in any element of contract performance or cost identified in the original RFR or the selected bidder's or 3
  4. 4. contractor’s response which results in lower costs or in a more cost effective or better value than was presented in the selected bidder’s or contractor’s original response. 9. COSTS. Costs that are not specifically identified in the bidder's response, and included as part of a Contract, will not be compensated under any Contract awarded pursuant to this RFR. The Commonwealth will not be responsible for any costs or expenses incurred by bidders responding to this RFR. 10. COMM-PASS. If this RFR has been distributed electronically using the Comm-PASS system, RFR Attachments that are referenced are available either as separate pdf files along with the RFR, or in the Comm-PASS Forms and Information section: www.comm-pass.com. Bidders are solely responsible for obtaining and completing required attachments that are identified in this RFR and for checking Comm-PASS for any addenda or modifications that are subsequently made to this RFR or attachments. The Commonwealth and the Office of the State Treasurer and Receiver General accept no liability and will provide no accommodation to bidders who fail to check for amended RFRs and submit inadequate or incorrect responses. Bidders are advised to check the "last change" field on the summary page of RFRs for which they intend to submit a response to insure that they have the most recent RFR files. Bidders may not alter (manually or electronically) the RFR language or any RFR component files. Modifications to the body of this RFR, specifications, terms and conditions, which change the intent of this RFR are prohibited and may disqualify a response. 11. DURATION AND RENEWAL OPTIONS. The State Treasurer and Receiver General intends to enter into a 3 year contract with the selected bidder(s) for the services solicited in this RFR. The State Treasurer and Receiver General may, at his option, extend the contract for 2 additional 1 year periods, under the same or better terms and conditions as negotiated. Furthermore, the State Treasurer and Receiver General will have the option of extending this agreement an additional 5 years if deemed in the best interest of the Commonwealth under the same terms and conditions or better as negotiated. Bidders who offer price guarantees for the additional 5 years will be held to that offer or such better terms as are negotiated. 12. Responses must remain in effect for at least 120 days from the submission deadline and thereafter until either the bidder withdraws the response in writing, a contract is executed or the procurement is canceled, whichever occurs first. 13. ACQUISITION METHOD  Outright Purchase  Lease Purchase  License  Rental (not to exceed 6 months)  Fee for Service  Term Lease  Tax-exempt Lease Purchase  Other (specify) 14. SINGLE OR MULTIPLE CONTRACTS. The State Treasurer and Receiver General reserves the right to award contracts to a single vendor or multiple vendors, in the best interest of the Office of the State Treasurer and Receiver General. The contractor must agree to cooperate with such other contractors, and must not commit or permit any act that may interfere with the performance of work by any other contractor. 15. CONTRACT GUIDELINES (those that apply are checked)  Only Office of the State Treasurer and Receiver General may contract under RFR  Option to allow other Departments/political subdivisions to contract under RFR  Statewide Contract  Multi-Office of the State Treasurer and Receiver General User Contract  Pre-Qualification List 4
  5. 5. 16. ANTICIPATED EXPENDITURES, FUNDING OR COMPENSATION FOR EXPECTED DURATION. Subject to selected bidder’s quotes and rates, subject to negotiation. 17. CHANGE IN TERMS. The Office of the State Treasurer and Receiver General reserves the right to modify the specifications identified in the RFR at any time prior to award of the Contract. The PMT may request documentation relating to any stated requirement of this RFR prior to award of the Contract. The Office of the State Treasurer and Receiver General reserves the right to negotiate with the selected bidder(s) as to any element of cost or performance, including without limitation, elements identified in the RFR and/or the selected bidder’s response in order to achieve the best value for the Commonwealth. 18. TERMINATION OR SUSPENSION. Contractor’s services may be terminated or suspended from the State Treasurer and Receiver General’s contract for poor performance, failure to perform, fraud or other cause with two (2) weeks prior written notice by the Office of the State Treasurer and Receiver General. Contractors may be terminated from the contract without cause upon thirty (30) days prior written notice. The contractor may not terminate the contract or performance thereunder except upon a minimum of 180 days written notice to the Office of the State Treasurer and Receiver General. Other terms regarding contract termination are subject to negotiation between the selected bidder(s) and the Office of the State Treasurer and Receiver General. 19. PERMITS AND COMPLIANCE. The contractor shall procure and pay for all permits, licenses and approvals necessary to perform the services solicited in this RFR. The contractor shall comply with all applicable laws, ordinances, rules, orders and regulations related to the performance of the services solicited, and provide copies as requested by the Office of the State Treasurer. 20. REJECTION OF PROPOSALS. The Office of the State Treasurer and Receiver General reserves the right to reject any and all proposals submitted under this solicitation. 21. FEES SUBJECT TO OFFICE OF THE STATE TREASURER AND RECEIVER GENERAL SIGNATORY AUTHORIZATION. All fees must be approved by the State Treasurer and Receiver General or his designee and are subject to verification of performance. 22. SUBCONTRACTING POLICIES. Prior approval of the department is required for any subcontracted service of the contract. Contractors are responsible for the satisfactory performance and adequate oversight of its subcontractors. Subcontractors are required to meet the same state and federal financial and program reporting requirements and are held to the same reimbursable cost standards as contractors. 23. CONTRACT EXPANSION. If additional funds become available during the contract duration period, the department reserves the right to increase the maximum obligation to some or all contracts executed as a result of this RFR or to execute contracts with contractors not funded in the initial selection process, subject to available funding, satisfactory contract performance and service or commodity need. 24. CONCURRENT CONTRACTS RUNNING (RENEWALS AND TRANSITIONS). The Treasurer and Receiver General shall cancel the contract if funds are not appropriated or otherwise made available to support continuation of performance in any fiscal year succeeding the first year or if satisfactory performance by the contractor does not ensue. The Treasurer and Receiver General will also have the right to sole discretion in exercising an option to renew, which will not be subject to contractor acceptance or agreement. Any assistance required for this transition must be provided in a smooth and timely manner. If at any time the contract is canceled terminated or expires, and a contract is subsequently executed with a firm other than the Contractor, the Contractor has the affirmative obligation to assist in the smooth transition of contract services to the subsequent Contractor. 5
  6. 6. 25. FIDUCIARY STATUS OF THE MANAGER; CHAPTER 268A. With respect to the performance of its duties and responsibilities hereunder, the Manager acknowledges that it is a fiduciary, and that 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 required to act and perform its duties in accordance with such provisions. C. PROCUREMENT CALENDAR AND RESPONSE REQUIREMENTS 1. PROCUREMENT CALENDAR The following is the tentative time schedule for the Office of the State Treasurer and Receiver General’s search for a firm to provide these investment management services. All dates are subject to modification by the Office of the State Treasurer and Receiver General with notice.  Issuance of RFR: April 20, 2004  RFR Question Deadline: May 3, 2004, 3:00p.m. EST  Responses to Questions: May 10, 2004  RFR Submission Deadline: May 26, 2004, 11:00a.m. EST  Notification of Finalists: June 25th, 2004 (Tentative)  Due Diligence Interviews: Week of July 7, 2004 (Tentative)  Award Date: Week of August 2, 2004 (Tentative)  Effective Date: TBD • Q&A responses will be posted on http://www.mapension.com & http://www.com- pass.com. • Questions concerning the RFR may be submitted via e-mail (NO PHONE CALLS) to kdwyer@tre.state.ma.us no later than May 3, 2004, 3:00 p.m. EST. 2. INSTRUCTIONS FOR SUBMISSION OF RESPONSES The original (unbound), four (4) hard copies, and two floppy disks of the bidder’s responses and attachments must be delivered in the same sealed package no later than May 26, 2004 at 11:00 a.m EST (“The Response Deadline”) to the Plan. Two copies are also to be forwarded to the Plan’s investment consultant. The Fee Proposal (Section IX) must be submitted in the same package as the response in a separate sealed envelope, clearly marked “FEE PROPOSAL” with the firm’s name. See below: Submit the following: 1) Original Proposal (unbound) & four (4) copies 2) Original Fee Proposal & four (4) copies (separate sealed envelope) 3) 2 Floppy Disks 4) One – (1) electronic copy of Proposal to kdwyer@tre.state.ma.us 6
  7. 7. Any response delivered after the Proposal Deadline will not be considered. Faxed or e-mailed transmissions are NOT acceptable. Responses are to be sent to the attention of: Office of the State Treasurer and Receiver General The Deferred Compensation Plan Attn: Ms. Kelleen A. Dwyer One Ashburton Place, 12th Floor Boston, Massachusetts 02108-1608 In addition, please send two copies of your response to the Plan’s investment consultant: David Lindberg, CFA Wilshire Associates 210 Sixth Avenue, Suite 3720 Pittsburgh, PA 15222 Copies of this RFR can also be obtained electronically at the PRIM Board’s website at http://www.mapension.com & http://www.com-pass.com. SECTION III. DEFERRED COMPENSATION PLAN BACKGROUND INFORMATION (1) PLAN The Commonwealth established its deferred compensation plan (hereafter referred to as "the Plan") in 1976 as a non-qualified public employee benefit plan. The Plan is intended to comply with Section 457 of the Internal Revenue Code and the Treasury Regulations promulgated thereunder. The Plan currently has approximately 91,000 full-time participants and approximately 152,000 part-time (OBRA) active participants, and is administered by ING Financial Services (“ING”). A copy of the Plan document will be provided to firms upon written request. (2) EMPLOYER BACKGROUND The Commonwealth's 457 Plan is available to public employees in Massachusetts, including state employees, public school teachers, and employees of cities, towns, political subdivisions and instrumentalities. (3) INVESTMENT OPTIONS Participants in the Plan currently have the following investment options: A. THE INCOME FUND The Income Fund is a diversified portfolio of stable value investment contracts negotiated by INVESCO, Inc. with insurance companies to provide for payment at book value of participant withdrawals, transfers, and other allowable Plan benefit elections. The majority of Fund assets are invested in contracts containing high quality fixed income investments that are managed by BlackRock Financial Management, Inc., Declaration Management & Research Inc. and INVESCO, Inc. In addition, INVESCO’s portion of the 7
  8. 8. Fund holds insurance company issued Guaranteed Investment Contracts (GICs) and cash or short-term investments. The Income Fund seeks to provide a relatively high fixed income yield with little market-related risk. Of primary importance is the preservation of principal and earned interest. Secondary to the preservation of capital is the need to generate, over time, a composite yield in excess of short-term yields available in the fixed income marketplace. The Omnibus Budget Reconciliation Act of 1990 (OBRA) requires that state employees who are not eligible to participate in the Commonwealth’s Defined Benefit Plan (such as part-time, seasonal or temporary employees, etc.) have a contribution option. Otherwise, these employees and the Commonwealth would be required to contribute to Social Security. The Income Fund fulfills this OBRA requirement and receives the 7.5% mandatory contributions of the Plan’s OBRA participants. B. CORE INVESTMENT OPTIONS  Money Market Fund: Vanguard Prime Money Market Fund Institutional Shares Investment objective is to provide current income while maintaining liquidity and a stable share price of $1.  Active Fixed Income: PIMCO Total Return Fund Institutional Shares Investment objective is to seek maximum total return, consistent with preservation of capital and prudent investment management.  Passive Fixed Income: Barclays Global Investors U.S. Debt Index Fund Investment objective is to seek to match, before deduction of fees and expenses, the total return of the Lehman Aggregate Bond Index.  Active Large Cap Equity: The Fidelity Fund Investment objective is long term capital growth.  Passive Large Cap Equity: State Street S&P 500 Flagship Fund Series A Investment objective is to match the total return performance of the S&P 500 Index.  Active Small Cap Equity: Active Small Cap Stock Portfolio managed by Wellington Management Company, LLP. The objective of the portfolio is to provide long-term returns in excess of the Russell 2000 Index by investing in equity securities of high-quality small companies.  Passive Small Cap Equity: State Street Russell 2000 Securities Lending Fund Series A Investment objective is to match the total return performance of the Russell 2000 Index.  Active International Equity: Capital Guardian International (Non-U.S.) Equity Fund Investment objective is long term growth of capital and income though investments in a portfolio comprised primarily of equity securities of non-U.S. issuers and securities whose principal market is outside the U.S.  Passive International Equity: 8
  9. 9. State Street Daily EAFE Securities Lending Fund Series A Investment objective is to match the total return performance of the unmanaged Morgan Stanley Capital International (MSCI) Europe, Australia, and Far East Index.  Aggressive Lifecycle Fund* The investment objective is to provide long-term growth of capital with income as a minor consideration.  Moderate Lifecycle Fund* The investment objective is to provide long-term total return through a combination of capital growth and income.  Conservative Lifecycle Fund* The investment objective is to provide total returns with an emphasis on income and lower volatility of principal. *Lifecycle/Asset Allocation (various blends of the four passive investment options) C. ADDITIONAL INVESTMENT OPTIONS  Socially-Responsible: Domini Social Equity Fund The portfolio seeks to provide long term total return that matches the performance of the Domini 400 Social Index, an index made up of the stocks of 400 companies selected using social and environmental criteria. The Index is composed primarily of large capitalization US companies.  Growth: Fidelity Growth Company Fund The portfolio seeks capital appreciation  Value: Active Large Cap Value Portfolio managed by Wellington Management Company, LLP. The portfolio seeks to achieve long-term total return in excess of the Russell 1000 Value Index by investing primarily in US securities undervalued relative to the benchmark index.  Mutual Fund Window: Harris Direct.  Personal Financial Advice Service: ING Financial Horizons D. LIFE INSURANCE Universal Life Insurance is currently offered to participants by Monumental Life Insurance Company (Aegon Insurance Group). This option is closed to new participants. (4) TOTAL ASSETS ($3,212M) BY INVESTMENT PRODUCT AS OF FEBRUARY 29, 2004: The Income Fund (Stable Value) $ 1,039,436 BlackRock Fixed (Leh Int G/C) $334,774* Declaration Mgt Fixed (Leh Int.G/C) 373,966* 9
  10. 10. INVESCO (ML 1-5 G/C) 194,000* INVESCO-GICs 106,000* INVESCO-Custodian STIF 31,000* *approximate Vanguard Prime Money Market Fund 41,513 Institutional Shares PIMCO Total Return Fund 78,424 BGI US Debt Income Fund 28,839 Fidelity Fund 631,149 Fidelity ® Growth Company Fund 555,956 Wellington Value Equity Fund 35,731 State Street S&P 500 Flagship Fund Series 139,588 A Wellington Small Cap Equity Fund 267,478 State Street Russell 2000 Index Fund 25,440 Capital Guardian International (Non-U.S.) 99,646 Equity Fund State Street EAFE Fund 6,734 Aggressive Lifecycle Fund 10,741 Moderate Lifecycle Fund 200,097 Conservative Lifecycle Fund 9,569 Domini Social Investment Fund 17,972 HarrisDirect Account 24,083 (5) RECORDKEEPING, ADMINISTRATION, TRUST AND EDUCATION SERVICES ING Financial Services is the third party administrator (providing recordkeeping, administration, communication/education, and trust services) in combination with the previously listed investment options. The Universal Life investment option is issued and administered by Monumental Life Insurance Company with monthly feeds to Aetna for participant level information and service. The terminal funding annuity option is issued and administered by John Hancock with Aetna facilitating this option’s participant education and application procedure. All other investment providers maintain records on an unallocated basis with the third party administrator maintaining the individual participant records. Participants are allowed unlimited transfers of their funds between products without sales charge or other fees, except for those transfers from the Income Fund to the money market fund, which are subject to a six month equity wash. ING administers all facets of the employee communication/education program. A wide array of customized material is currently used including, but not limited to: deferred compensation plan brochures, Plan information kit, quarterly newsletters, payroll stuffers, flyers, investment options guide, posters, model portfolio software, and a general library of retirement and financial education literature. Additionally, ING utilizes a team of licensed account executives, each assigned to and working from a specific geographic 10
  11. 11. sector of the state, to conduct individual counseling sessions for enrolling and educating employees of the Commonwealth and participating local employers. ING also provides service via regional Investor Centers located around the state. Account executives are also used to conduct one-on-one benefit counseling sessions when employees retire or terminate employment. In addition to conducting group meetings, which provide an introduction to the Plan, account executives also provide educational programs at a workplace to review various financial, tax, retirement and other planning topics and provide personal action steps for an individual to follow to meet personal retirement goals. (6) CURRENT ADVICE SERVICES ING Financial Advisors (IFA) administers all facets of the current individualized investment advice program, which was implemented in July 2002. IFA employs a traditional, "face to face" advice delivery model in which participants meet individually with a full time Certified Financial Planners by appointment at ING regional service centers. The program is introduced to all Plan participants via educational seminars in major locations throughout the Commonwealth. If interested, participants can then elect to schedule appointments with an IFA Certified Financial Planner. In addition, IFA provides a more intensive Retirement Readiness Program available to all participants nearing retirement. IFA compiles detailed information concerning the Enrolled Participant’s financial situation, investment objectives and risk tolerance. The information collected includes both Plan Account information as well as non-Plan interests, such as IRA investments, savings and investment accounts and interests in other tax favored retirement savings plans (“Household Assets”). IFA prepares and delivers to the Enrolled Participant an asset allocation analysis which provides information and recommendations on the allocation of the Enrolled Participant’s assets among asset class categories in a manner that is consistent with the Enrolled Participant’s objectives, current financial status and risk tolerance. IFA will make specific investment recommendations to the Enrolled Participant regarding implementation of the asset allocation analysis among the Plan’s available investment options, including the Plan’s self directed brokerage mutual fund window investment option. Periodically, IFA may recommend a re-balancing of the Enrolled Participant’s Plan Account based upon market conditions, changes in the Enrolled Participant’s situation or to remain consistent with the asset allocation strategy. IFA also provides periodic mailings and communications to Enrolled Participants triggered by developments such as change in market conditions, changes in the objectives or style or other changes that might affect Enrolled Participants’ Plan Account investment strategy. SECTION IV. SCOPE OF SERVICES The purpose of this Request for Response is to select one or more firms to provide investment services to the Commonwealth’s IRC 457 Deferred Compensation Plan. Respondents will be permitted to submit proposals for each investment product alone or in combination. Proposals for each investment product will be evaluated separately; however, the Commonwealth will consider the fact that certain combinations of services may permit more favorable fee arrangements for the Plan, while still preserving a variety of investment service providers. The Commonwealth will consider investment options in the following categories: (1) ACTIVE INTERNATIONAL EQUITY investment management benchmarked against the MSCI EAFE Index. (2) INCOME FUND MANAGER to provide oversight of the Commonwealth’s stable value fund. The Commonwealth’s Income Fund is comprised of the custodian (Mellon Bank) STIF, legacy GICs, a short duration portfolio benchmarked against the Merrill Lynch 1-5 Year Government/Credit Index, synthetic GIC products, and multiple actively managed fixed income portfolios benchmarked against the Lehman Intermediate Government/Credit Index.. The Income Fund Manager is responsible for managing the option's cash flow allocation process, providing oversight of the legacy GICs, providing the short duration investment management services 11
  12. 12. against the Merrill Lynch 1-5 Year Government/Credit Index, selecting and managing the wrap providers for the Income Fund, selecting and retaining the custodian for the Income Fund, and calculating the daily crediting rate for the Income Fund and interacting with the third party administrator. The Income Fund Manager also reviews the investment objectives, guidelines and benchmarks for all Investment Managers selected by the Treasurer for the Income Fund and recommends to the Treasurer any changes needed in the allocation of assets among all Income Fund managers. The amount currently in the custodian (Mellon Bank) STIF is $31 million, $106 million in legacy GICs which will be liquidating over the next several years, and $194 million in a Merrill Lynch 1-5 G/C fund. The remaining assets (approximately $710 million) are in core fixed income accounts benchmarked against the Lehman Intermediate G/C and the Income Fund manager provides synthetic wraps. (3) ACTIVE CORE FIXED INCOME investment management services for its stable value fund. This portion of the Income Fund is currently managed against the Lehman Intermediate Government/Credit Index. There are currently two investment managers providing these services via separate accounts (each account has approximately $355 million). The Commonwealth reserves the right to select the investment vehicle that is in the best interest of the participants (i.e. mutual fund institutional class shares, institutional commingled fund, separate account, etc.). Additionally, The Commonwealth reserves the right to select the fixed income investment structure and investment management team that is in the best interest of the participants. The selected investment managers will also have to have the capabilities to interact with ING’s recordkeeping system requirements, provide daily NAV and unitization, and provide support regarding the communication/education of the subject investment management product in conjunction with ING and the Commonwealth. SECTION V. EVALUATION & SELECTION PROCESS The RFR Evaluation Process will be conducted in two phases. A review team will evaluate responses in Phase One. Those responses still qualifying will then be submitted to the Procurement Management Team (PMT) team. The PMT will consist of staff from the Office of the State Treasurer and Receiver General and representative(s) from the Plan’s Investment Consulting Firm. 1. PHASE ONE: The PMT will evaluate all responses to verify that they meet all the criteria/requirements & mandatory attachments contained in SECTION V, subsection A (“PHASE ONE CRITERIA/REQUIREMENTS & MANDATORY ATTACHMENTS). The purpose of the Phase One Review is to eliminate any bids that are non-responsive or do not meet to the requirements of the RFR. Lack of compliance will automatically disqualify the bidder. (Please complete Attachment C “Mandatory Attachment Checklist” to ensure completion of required documents and attach to the cover letter.) 2. PHASE TWO: Bids that are deemed to be qualified based on the Phase One Review will be considered for additional review in Phase Two. The Procurement Management Team (PMT) will apply criteria detailed in SECTION V. subsection B. (“PHASE TWO CRITERIA FOR EVALUATION”) of an investment manager(s). The PMT will assign a rating of either "Highly Advantageous", "Advantageous", "Acceptable", "Not Advantageous" or "Unacceptable" to all qualifying Proposals. Any Proposal receiving a rating of "Unacceptable" in any applicable category will not be considered further. A. PHASE ONE CRITERIA/REQUIREMENTS & MANDATORY ATTACHMENTS AND ENCLOSURES 12
  13. 13. 1. MINIMUM CRITERIA/REQUIREMENTS Firms submitting Proposals must meet the following minimum criteria and complete Attachment A “Representations and Warranties” to be considered further: a. The candidate must be SEC-registered or exempt from registration with the nature of the exemption provided. The candidate must submit its full Form ADV (Parts I and II). b. The candidate must be willing to include the representations and warranties (Attachment A) c. The investment professionals must have the following performance history length in the product being proposed as of March 31, 2004.  Active International Equity: 5 Years  Income Fund Manager: 5 Years  Active Core Fixed Income: 5 Years d. The investment professionals whose performance history is submitted must be the team responsible for the management of the Commonwealth’s account. e. The candidate must have at least three IRC 401K, 403B or 457 plans directly invested in the subject product being proposed, as of March 31, 2004 (for Active International Equity and Income Fund Manager only). No direct investment in a IRC 401K, 403B or 457 is necessary for the Active Core Fixed Income product, as this is a sub-advisory relationship with the Plan and overseen by the Income Fund Manager. f. The candidate must have at least the following minimum assets (taxable & tax exempt) under management in the subject product being proposed:  Active International Equity: $500 million  Income Fund Manager: $1 billion  Active Core Fixed Income: $1 billion 2. MANDATORY ATTACHMENTS AND ENCLOSURES Any attachments referenced in this RFR as a document required to be filed can be found in the Comm-PASS Forms and Information section under OSD Forms on www.comm-pass.com. These documents may be downloaded and printed for you to complete and submit. If you do not understand these instructions or you require additional assistance, please contact the Comm-PASS help desk at 1-888-627-8283. Note: The mandatory attachments indicated below are in addition to the inclusion of the RFR questions and answers and must be attached to the bidder’s response. (Please complete Attachment C “Mandatory Attachment Checklist” to ensure completion of each mandatory item and attach it to the cover letter.) The bidder’s response must include all completed mandatory attachments/items listed below: a) QUESTIONAIRES. Sections VII and VIII. 13
  14. 14. b) REPRESENTATIONS AND WARRANTIES. (signed) The Representations and Warranties contained in Attachment A must be signed by an authorized officer of the firm. c) COVER LETTER. (signed) The Proposal must be accompanied by an original and four (4) copies of the cover letter, 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, telephone/fax numbers, and e-mail address; (b) the client contact; (c) the title or position which the signer of the cover letter holds in the firm. Also, please attach the “Mandatory Attachment Checklist” (Attachment C) d) DISCLOSURE STATEMENT. (signed) Attached to this RFR, as Attachment B, is a Disclosure Statement that each firm submitting a Proposal must complete and submit. e) PERAC DISCLOSURE (signed) Attached to this RFR, (Exhibit I), is instructions for retrieving a PERAC DISCLOSURE document. This document must be completed and executed in addition to “Disclosure Statement” (d) above. f) FEE PROPOSAL. (signed) The original and four copies of the fee proposal, contained in Section IX (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 two copies to Wilshire Associates. g) COMMONWEALTH TERMS AND CONDITIONS. (signed) The Commonwealth Terms and Conditions shall be incorporated by reference into any contract for services executed pursuant to this RFR. Complete all blanks and required information fully and accurately without modification. h) STANDARD CONTRACT FORM AND INSTRUCTIONS (signed) This form must be completed and returned as part of the bidder’s RFR response. This document shall not become a final contract unless and until the Office of the State Treasurer and Receiver General accepts the bidder's response and the Standard Contract Form is executed by the Purchasing Office of the Office of the State Treasurer and Receiver General. i) REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION (W-9) (signed). The W-9 Form must be completed and signed. j) CONTRACTOR AUTHORIZED SIGNATURE VERIFICATION FORM. (signed) This form must be completed. k) NORTHERN IRELAND NOTICE AND CERTIFICATION. (signed) All bidders must complete the Northern Ireland Notice and Certification form to satisfy M.G.L. c.7 section 22C, which states that no state agency may procure commodities or services from any bidder employing ten (10) or more employees in an office or other facility located in Northern Ireland unless the bidder certifies through the notice and certification form that if it employs ten or more employees in Northern Ireland, a) the bidder does not discriminate in employment, compensation or the terms, conditions and privileges of employment on account of religious or political belief, b) the bidder promotes religious tolerance within the workplace and the eradication of any manifestations of religious and other illegal discrimination and, c) the bidder is not engaged in the manufacture, distribution or sale of firearms, munitions, including rubber or plastic bullets, tear gas, armored vehicles or military aircraft for use or deployment in any activity in Northern Ireland. Each bidder must complete and return this form with its response, even if not applicable, in order to be considered responsive. l) AFFIRMATIVE MARKET PROGRAM (AMP) PLAN FORM (signed) Separate document from “Affirmatice Action Plan Form” (m) below. This document must be executed and returned regardless of information provided. 14
  15. 15. Although the Office of the State Treasurer and Receiver General is exempt from Executive Order 390, we are committed to developing and strengthening Minority, Women Owned, and/or Disadvantaged Business Enterprised (M/WBEs and DBEs)** and expanding equal opportunity in the primary industries affected by this RFR. The Commonwealth of Massachusetts is always encouraging businesses to partner with M/WBEs to support business relationships that will result in the development and growth of M/WBEs within these primary industries. Bidders are strongly encouraged to develop creative initiatives to help foster new business relationships with M/WBEs and DBEs. As a result, bids which clearly demonstrate how the proposal will further these goals will receive favorable consideration. **M/WBEs and DBEs are defined as businesses that have been certified as such by the State Office of Minority and Women Buiness Assistance (SOMWBA). Firms seeking certification may contact SOMWBA at (617) 727-8692 or visit their website at www.magnet.state.ma.us/somwba. Bidders should be aware that if they commit to participating in the Affirmative Market Program, their performance must be reported and will subject to audit. Reports must be submitted to the Office of the State Treasurer and Reciever General on a timely basis. If the dollar amount reported is less that the commitment, a narrative must be provided demonstrating the contractor’s diligence in attempting to meet the committed percentage. In order to satisfy this section, the bidder must submit: the names, address, phone numbers and contact persons of each M/WBE firm; a description of each business relationship to be established; and the actual dollar amounts, or percentages, to be awarded to each M/WBE firm. Minority-Owned Business Enterprises (MBEs) and Woman-Owned Business Enterprises (WBEs) must submit a copy of their State Office of Minority and Women’s Business Assistance (SOMWBA) certification letter for the current period. A directory of SOMWBA certified firms is available via the internet at http://www.mass.gov/somwba. Additionally, the following components should be included as part of any Affirmative Market Program Plan submission: Sub-contracting Bidders should submit projected benchmarks or commitment to future expenditure during the life of the contract with M/WBEs through subcontracting. This should include expenditure commitments, copies of subcontracting agreements, and Memos of Understanding or otherwise binding commitments between the bidder and certified M/WBE firms. Growth and Development Bidders should submit projected benchmarks or commitments to future expenditure during the life of the contract with M/WBEs through Growth and Development. This should include commitments for expenses for education, training, mentoring, resource sharing, joint activities, and assistance in attaining SOMWBA certification that would increase industry capacity and the pool of qualified SOMWBA certified companies. Other creative options are encouraged in this area and should be submitted. Ancillary Uses of Certified M/WBE Firm Bidders should submit projected benchmarks or commitment to future expenditure during the life of the contract with M/WBEs through Ancillary Uses of M/WBE firm(s). Responses should include expenditure commitments from the bidders for the use of certified M/WBE firm(s) with or without the use of written commitments between the bidder and M/WBE firm(s). A description of the ancillary uses of certified M/WBEs, if any, must be in the AMP Plan Form. Past Performance Bidders should include information on past expenditures with certified M/WBEs for the previous two years. 15
  16. 16. m) AFFIRMATIVE ACTION PLAN FORM. (signed) This form must be completed. In addition, bidders with a current Affirmative Action Plan are required to attach a copy to the RFR response. n) CONSULTANT CONTRACTOR MANDATORY SUBMISSION FORM (signed). Each bidder must complete, sign and return this form with its response, even if not applicable, in order to be considered responsive. o) BUSINESS REFERENCE FORM. (in addition to questionnaire response) Bidders must identify three (3) customer references for which the bidder has performed similar services as those described in this RFR or customers that can confirm the quality of the bidder’s performance on previous contract work. Three references must be submitted for each component that the bidder is responding to. If a bid is submitted for multiple components, references can be combined where multiple services are provided. p) TAX COMPLIANCE CERTIFICATION. (certificate / proof of application) The bidder must demonstrate that it is in compliance with all Federal and Commonwealth tax laws, including M.G.L. Chapter 62C, Section 49A. The bidder must submit an original or photocopy of a Certificate of Tax Compliance in Good Standing, which has been issued by the Department of Revenue within the past year. This Certificate may be obtained by submitting a request to: Taxpayer Services Division, Certificate Unit Department of Revenue PO Box 7066 Boston, Massachusetts 02204 (617) 887-6550 617 618 The application must list the tax types for which the business is liable, including such items as meals, room occupancy, sales, use, withholding, corporate income and others as applicable. The issuance of the certificate normally takes several weeks, so bidders should also indicate that their request for a certificate is sought in connection with a Commonwealth solicitation (with a deadline). If the bidder does not submit the requested tax certificate with the proposal, the bidder must submit documentation verifying that the appropriate application has been filed and the Certificate must be issued and provided prior to final execution of the Standard Contract Form. B. PHASE TWO CRITERIA FOR EVALUATION The PMT 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 rating as a guide, in cunjuction with Fee Proposals, the PMT will select finaalists, rank firms and make a recommendation to the Treasurer. 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 the Commonwealth. 16
  17. 17. 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 the Commonwealth. 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 the Commonwealth in the absence of the portfolio manager(s). d. Stability of the firm's professional base, as measured by personnel turnover. 3. CLIENT RELATIONS AND REFERENCES a. Stability of the firm's client base, as measured by the number of accounts gained or lost 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 fundamental investment characteristics and market capitalization 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 services as measured by the Fee Proposal. b. The historical performance of the product as measured by its cumulative and annual performance compared to the respective index over multiple time periods. C. DUE DILIGENCE INTERVIEW The Procurement Management Team may invite bidders to a due diligence interview as part of Phase two 17
  18. 18. Evaluation. The time allotments and the format shall be the same for all bidders. The Procurement Management Team will give notice of at least two (2) business days prior to the date of an interview. The Procurement Management Team may waive the location and medium requirements of a due diligence interview upon the written request of a bidder due to special hardships, such as a bidder with disabilities or limited resources. In these circumstances the Procurement Management Team may conduct interviews through an alternative written or electronic medium (e.g., telephone, videoconference, TTY or Internet). The Procurement Management Team may require the bidder’s key personnel to attend the interview. A bidder’s failure to agree to an interview may result in disqualification from further consideration. D. ON SITE VISITS The Procurement Management Team may conduct on site inspections of any or all bidder locations at any time prior to the awarding of this contract to verify the bidder’s ability to perform the services required. The Procurement Management Team shall schedule the time of these site visits and shall provide notice of at least three business days before a visit. Failure to agree to a site visit may result in disqualification of a bidder’s proposal. E. SELECTION OF PROVIDERS The PMT will rank finalists and present its findings to the to the Treasurer. The engagement will be awarded by the Treasurer, who may accept the recommendations of the PMT or recommend another firm or firms to provide services to the Commonwealth. F. DISQUALIFICATION OF PROPOSALS 1) Late Proposals: Proposals that are received after the deadline date and time shall be automatically disqualified. 2) Non-responsive Proposals: Proposals which are not responsive or which fail to comply with mandatory requirements of the RFR shall be deemed non-responsive and shall be disqualified. Non- responsive proposals shall include, but not be limited to those, which fail to address or meet any mandatory item, and those submitted in insufficient number, or in incorrect format. 3) Collusion: Collusion by two or more bidders agreeing to act in a manner intended to avoid or frustrate fair and open competition is prohibited and shall be grounds for rejection or disqualification of a proposal or termination of this contract. 4) Debarred Bidders or Subcontractors: A bidder who is currently subject to any Commonwealth or federal debarment order or determination, shall not be considered for evaluation by the Procurement Team. If a bidder’s proposal is dependent upon the services of a named subcontractor and the disqualification of this named subcontractor would materially alter the proposal, then that proposal shall be deemed unresponsive if the named subcontractor is found to be debarred. Proposals that indicate that subcontractors will be used but do not rely on any specifically named subcontractor shall not be deemed unresponsive if the disqualification of a proposed subcontractor will not materially alter the proposal. 5) Cost Response. The Fee Proposal (Section IX) must be submitted in the same package as the response in a separate sealed envelope, clearly marked “FEE PROPOSAL” with the firm’s name. 18
  19. 19. SECTION VI. MANAGEMENT AGREEMENT Respondents must agree to enter into an agreement substantially similar to the Commonwealth’s standard agreement referred to as the Investment Management Agreement. The Investment Management Agreement will be made available to qualified bidders post Phase II evaluation. SECTION VII. QUESTIONAIRES COMMONWEALTH OF MASSACHUSETTS IRC 457 DEFERRED COMPENSATION PLAN INVESTMENT SERVICES SERVICES BEING PROPOSED (CHECK THE APPROPRIATE BOXES): INVESTMENT SERVICES: (1) Active International Equity (2) Income Fund Manager (3) Active Core Fixed Income FIRM NAME: ADDRESS: TELEPHONE #: FACSIMILE #: E-MAIL ADDRESS: CLIENT CONTACT: SIGNED: Name (print): 19
  20. 20. Title: Date: 20
  21. 21. A. GENERAL QUESTIONAIRE (ALL PROPOSERS MUST RESPOND TO THIS SECTION) 1. Indicate your firm’s fiduciary classification: Bank Insurance Company Registered Investment Advisor Affiliate of Fiduciary 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 providing the subject services to clients. 3. Describe the ownership of the firm, including but not limited to: a. Ownership structure including the percentage owned by current active employees and the number of employees participating in such ownership, b. Parent, subsidiary, or affiliated companies, or joint ventures, c. If a subsidiary or affiliate, designate the percentage 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, e. How firm is capitalized, f. Percent of total revenue derived from providing the subject services, and g. Percent of total revenue derived from other businesses. 4. Provide an organizational chart diagramming the relationships between the professional staff as well as the parent-subsidiary, affiliate, joint venture entities, or sub-advisory relationships. 5. Provide the location and functions of each of your firm’s offices in the following format: Location Function No. of Professionals 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. Discuss the overall business objectives of your firm with respect to future growth. Comment on any present or planned areas of emphasis over the near future. 8. Provide a detailed summary of your firm’s compliance regime. Identify senior or key personnel in the firm’s compliance process. Does your firm maintain a code of ethics? If so, please attach. 21
  22. 22. 9. 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 examinations or other proceedings as are routinely conducted in the ordinary course of the firm’s business? 10. During the past five years, has the firm been subject to any litigation alleging fraud, breach of fiduciary duty, or other willful misconduct? 11. Provide a detailed summary of your firm’s internal control structure. Does the firm conduct periodic risk assessment? Provide a copy of ADV (Parts I and II) and/or SAS 70 if available, or other internal control review documentation, preferably prepared by an independent third party. 12. Is your organization duly licensed to do business in Massachusetts? If not, please append an opinion of counsel giving their opinion as to whether they anticipate any difficulties in obtaining all necessary Massachusetts licenses for your company. 13. Provide copies of the firm’s most recent audited financial statements and auditor’s management letter. 14. Describe in detail any potential conflicts of interest your firm may have in providing services to the Commonwealth. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities, or any past or current relationships with the Commonwealth and staff. Include any other pertinent activities, actions, or relationships not specifically outlined in this question. 15. Disclose any business relationship with Wilshire Associates. 16. 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 services to the institutional, deferred compensation market. 17. Describe the material developments in your organization (changes in ownership, personnel, business, etc.) over the past three years in detail. 18. Describe any plans and arrangements in place for an alternative worksite should your facilities become inoperative because of fire, earthquake, etc. 19. Describe your firm’s overall business strengths, weaknesses and competitive advantages. 22
  23. 23. SECTION VIII. INVESTMENT SERVICES QUESTIONNAIRE Provide a response to the questionnaire for each applicable investment product. Along with the questionnaire for each product, ensure that Section VII, A, GENERAL QUESTIONAIRE is answered. For each category, a proposal of one fund product is preferable, but a provider should in no case bid for more than two funds products per category. For example, you may provide up to two proposed products for the active international equity fund, but one is preferred. (1) Active International Equity 1. a. Fund Name: b. Advisor Name/Sub-advisor Name: c. Fund Type (Mutual, Commingled, Collective Trust, Separate Account): d. Share Class (if applicable): e. Valuation Frequency: f. Inception date (oldest share class): g. Advisor/Sub-advisor tenure with fund (if different than inception date): 2. For the advisor/sub-advisor for the subject product, complete the following information: In Millions of Dollars 12/31/00 12/31/01 12/31/02 12/31/03 Total assets under mgt. (all products) Total international equity assets Total assets in subject product (all inv vehicles & share classes) Total assets in subject product for proposed vehicle & share class 3. Please list the 5 largest defined contribution participants currently managed in the subject product and share class. Name Date of Inception March 31, 2004 Mkt Value 23
  24. 24. 4. List the amount of assets gained and lost in the subject product and share class in each of the past three years. Assets Gained Assets Lost 2003 2002 2001 5. List 3 defined contribution plan participants who can be contacted as references. References with similar characteristics to the Commonwealth would be preferred. Include the following information: Firm Name/Contact/Phone # Account Size Inception Date 6. Describe whether or not there have been any issues with respect to market timing in this or other international commingled funds offered by your firm. Describe how market timing is prevented in this fund. 7. Provide a list of the professionals involved in the subject product in the manner listed below: PORTFOLIO MANAGEMENT Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body RESEARCH Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body TRADING Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body 24
  25. 25. 8. Discuss the causes and impact of any turnover (departures or hiring/promotions) of any professionals directly involved in the product you have experienced in the past five years. How long has the team been together? Indicate when and why any professional dedicated to the product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles and years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by Date Name/Title Responsibilities Firm Reason for leaving (name/title) 9. Provide a description of the fund's investment philosophy, the portfolio construction process, and the decision process used and individuals involved in making all buy/sell decisions. Provide information on country market, currency, sector and stock selection decisions. Describe your investment guidelines and performance objectives in detail. How is the investment risk controlled in the product? INCLUDE A COPY OF THE PROSPECTUS AS AN ATTACHMENT. 10. Describe your firm’s investment philosophy for the product.  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? 11. Describe the sources and processing of information used to select securities.  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 aspect of your approach versus the bottom up (security selection) aspect? 12. How is country selection made? What factors are critical to the country valuation and selection process? 13. Describe your buy/sell disciplines.  What market capitalization and liquidity criteria meet the requirements of your buy/sell discipline? Describe any limits on market capitalization ranges in the portfolio.  What valuation approaches are used in evaluating stocks? 25
  26. 26.  What specific fundamental factors (P/B, earnings, growth, sales margins, etc.) are integral to the stock selection process? What is the relative importance of these factors?  What factors dictate your sell decision?  Under what circumstances would your firm deviate from these disciplines? Have you ever deviated? If so, please describe. 14. Describe your portfolio construction process.  What is the universe from which securities are selected?  What types of securities are used (common, preferred, convertible, ADRs, etc.)?  Describe in detail your use and frequency of use of derivative securities. Include discussion of how the use of such securities are 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?  How are individual country, sector and security weightings determined?  Discuss the quantitative and qualitative processes utilized.  What latitude is given to individual 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? 15. How is currency risk addressed?  How are you trying to add value from currency management?  What analysis and models do you use to evaluated currencies?  How is currency management incorporated into the portfolio construction process? 16. How is portfolio risk 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.  Describe how you monitor and manage:  Residual risk versus the benchmark,  Common factor risks,  Security, sector and industry weightings, and  Value at risk  Do you use cash as a method or 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 construction process. 17. How do you monitor the product’s adherence to its investment style and process? Specify who is responsible. 26
  27. 27. 18. Provide your internal guidelines for the subject product under a fully discretionary basis. Include the following:  Maximum and minimum country allocations.  Maximum sector and security exposures.  Types of securities used (common, preferred, convertible, currency derivatives, etc).  Market capitalization ranges by country and security.  Expected level of annualized outperformance over three to five years relative to the MSCI EAFE index. 19. Describe in detail any securities lending arrangements or leverage used in this fund. Describe where the income is credited and the revenue splits. 20. Complete the following table regarding exposure to various market segments and instrument types: % of Total Fund Assets Policy Min Policy Max Actual 3 Year Low 3 Year High Invested in: (03/31/03) Developed Non-US Equity Emerging Markets Equity US Equity Fixed Income Cash Derivatives: Futures Options Currency Forwards Other (Specify) 21. Describe your firm's brokerage policies relating to this fund. Is your firm or its parent or affiliate a broker/dealer? Does your firm trade for client accounts through this broker/dealer? If so, state how much trading, and the reason for trading with this related party. 22. Discuss your policy regarding, and current use of, “soft dollars”, directed trades and recapture programs soft dollars. What services are purchased with soft dollars? Attach a copy of your soft dollar policy. 23. Show fund performance for the subject product and share class net of all fees as shown in the following table. If you are proposing a new fund or share class, and it is a clone of an existing mutual/commingled fund or share class (i.e. same objective, strategy, firm, personnel, etc.), you may show performance based on the other fund or share class of periods prior to the inception of the fund or share class you are proposing. If a composite, show the composite that is AIMR compliant and gross of fees.  Does the performance history reflect returns from a prior fund or share class? If yes, describe the history of the performance. 27
  28. 28.  If a prior fund or share class is included, has the performance been adjusted for the current fund's expense ratio? If yes, provide the annualized expense ratio adjustment.  Is the performance net of all fees (i.e. management, administration, 12b-1, etc.)? Provide the annualized expense ratio adjustment.  Describe the expected level of outperformance and tracking error vs. the MSCI EAFE Index.  Describe the average amount of emerging markets, if any, in the composite over the past three years. Performance for Product and Share Class being Proposed 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% MSCI EAFE ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% Difference ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% 3 Years 5 Years 10 Years Annualized Ended Ended Ended Returns 12/31/03 12/31/03 12/31/03 Return _______% _______% _______% MSCI EAFE _______% _______% _______% Difference _______% _______% _______% (2) Income Fund Manager 28
  29. 29. 1. Complete the following information: In Millions of Dollars 12/31/00 12/31/01 12/31/02 12/31/03 Total assets under management (all products) Total fixed income assets Total stable value assets Total assets in short / intermediate duration product being proposed 2. Please list the 5 largest defined contribution plans, including 401(k), 403(b) and 457 plans, for whom your firm provided stable value management services. Name Date of Inception December 31, 2003 Mkt Value 3. List the number of accounts and amount of assets gained and lost in the short/intermediate duration product and in stable value management over the past three years. Gained Lost # Accounts Assets # Accounts Assets 2003 2002 2001 4. List 3 defined contribution plan participants who can be contacted as references. References with similar characteristics to the Commonwealth would be preferred. Include the following information: Firm Name/Contact/Phone # Account Size Inception Date 5. Provide a list of the professionals involved in the subject product in the manner listed below: PORTFOLIO MANAGEMENT Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body 29
  30. 30. RESEARCH Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body TRADING Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body 6. 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 three years. How long has the team been together? Indicate when and why any professional dedicated to the product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles and years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by Date Name/Title Responsibilities Firm Reason for leaving (name/title) Income Fund Manager – Overall Strategy 7. In designing a stable value fund product for the Commonwealth, what is your firm’s investment philosophy, approach and what investment guidelines would you propose? 8. Describe the decision making process that will be used in managing the Commonwealth portfolio. Discuss the latitude you would allow portfolio managers to deviate from the firm’s strategy guidelines. 9. Describe the types of products that you would propose to use in the portfolio, and in what proportions, and how they will add value or security to the portfolio. 10. Given the current structure of the Commonwealth’s Income Fund, describe any changes to the strategy you would recommend. 30
  31. 31. 11. How is portfolio duration and maturity structure determined? What would you propose as the target duration for the total fund, and why? 12. Describe how you would propose to use wrap contracts for the Commonwealth account. Discuss if you would wrap the entire portfolio, use non-participating or participating wrappers and the rationale for your proposed approach. Include information as to the minimum credit quality or wrap issuers and the maximum level of exposure that would be assigned to a particular wrap. Include a description of the personnel responsible for this activity. 13. Discuss how this fund would be benchmarked and how the fund’s performance can be objectively measured. Describe your experience in calculating daily crediting rates and whether or not you have experience with the Commonwealth’s third party recordkeeper (ING) and custodian (Mellon Bank). 14. Discuss how you would handle daily liquidity needs. Describe how you would determine the amount of cash to be held; include information about typical ranges and policy maximum and minimum limitations. 15. How is the allocation between traditional GIC’s, GIC alternatives and market value instruments determined? Do you modify this structure based on the cash follow experience in the plan? 16. To what extent will you employ an active approach, i.e. restructure maturities? 17. Describe how you use finite maturity products and/or constant duration (evergreen) products? 18. Discuss any liquidity restrictions you would impose on Commonwealth participants that invest in this stable value product (e.g., equity wash). 19. Provide detail as to how the firm proposes to transition the Income Fund. How long should this transition take? Discuss how you would meet daily liquidity needs for exchanges and withdrawals during the transition period. Income Fund Manager – Wrap Services 20. List all Synthetic GIC wrap providers actively wrapping your clients’ accounts and provide the approximate dollar value exposure to each provider. Describe your firm’s approach in regards to diversification. 21. Please provide the following information regarding your investment guidelines (or what you typically recommend to clients) for synthetic GIC wrap providers (insurance companies and banks): Do you have a minimum public rating agency rating requirement? 31
  32. 32. Yes No If yes, what is the requirement (agency/letter rating)? Do you have other quality requirements? Yes No If yes, specially describe your requirements and the process used to evaluate issuers. What is the greatest percent of the fund that can be invested in minimum quality contracts? _____%. Average fund quality (based on public agency ratings) may range from a low of _____ to a high of _____%. Other: 22. Describe your firm’s quality standards review process for wrap products (insurance companies and banks). Include in your reply: a. How frequently standards are reviewed b. Which rating agencies and other criteria you use c. How standards are verified. d. List qualified issuers and banks you currently bid with. 23. Are there any administrative requirements you will need to impose on the recordkeeper to manage this account? a) No Yes Explain: 24. Will your firm negotiate a wrap agreement under which all investment losses and market value adjustments are absorbed by the wrap provider - not transferred to the Commonwealth - if such losses cannot be recouped through the wrap reset rate? Yes No Describe: 25. Please describe your firm’s experience in negotiating wrappers. Include your reply number of years and number of professional staff with experience. 26. If a synthetic wrap provider defaults or is otherwise impaired, describe whether or not your firm accepts full responsibility for deciding how to treat the impaired contract? 27. What percentage of the portfolio has been in defaults? Describe your process for handling defaults. Income Fund Manager– Short Duration Investment Management 32
  33. 33. 28. Describe your firm’s investment philosophy for the product and the decision making process. INCLUDE A COPY OF THE PROSPECTUS AS AN ATTACHMENT. a. What market anomaly or inefficiency are you trying to capture? b. Why do you believe this philosophy will be successful in the future? Provide any evidence or research which supports this belief. c. How has this philosophy changed over time? d. How do you define the product’s style? e. How do you manage the portfolio’s duration? 29. Describe the sources and processing of information used to select securities. a. Are you seeking unique sources of information? b. Are you applying unique methods to process the information? c. What percent of resources and time does your firm devote to the top down aspect of your approach versus the bottom up (security selection) aspect? 30. Describe your buy/sell disciplines. a. What criteria meet the requirements of your buy/sell discipline? b. What valuation approaches are used? c. What factors dictate your sell decision? d. Under what circumstances would your firm deviate from these disciplines? Have you ever deviated? If so, please describe. 31. Please provide data for your composite or representative account managed in this style. % of Total Fund Assets Policy Min Policy Max Actual 3 Year Low 3 Year High Invested in: (12/31/03) Corporates Governments Mortgages Non-Investment Grade Bonds Non-Dollar Bonds Derivatives: Futures Options Currency Forwards Complex MBS derivatives Other (Specify) Average Duration Average Portfolio Quality 32. Describe your use of derivatives (if applicable), including mortgage derivatives such as IOs, POs, and futures and/or options. 33. Describe your firm’s trading capabilities related to this product. a. How many traders are there and what is their experience? b. Describe the trading systems and strategies you use, and indicate any enhancements your firm is contemplating. 33
  34. 34. c. Describe how you measure trading costs. d. If your firm is affiliated with a broker/dealer, describe whether or not you trade through this affiliated brokerage. 34. How do you monitor trading costs? How are transaction costs managed to reduce their negative impact on performance? 35. Is your firm or its parent or affiliate a broker/dealer? Does your firm trade for client accounts through this broker/dealer? If so, state how much trading, and the reason for trading with this related party. 36. Show fund performance for the short / intermediate duration product, net of fee returns, as shown in the following table. If performance is for a separate account, show gross of fee returns. If you are proposing a new fund or share class, and it is a clone of an existing mutual/commingled fund or share class (i.e. same objective, strategy, firm, personnel, etc.), you may show performance based on the other fund or share class of periods prior to the inception of the fund or share class you are proposing. Use AIMR standards or, if different, indicate explicitly how they differ. If a mutual fund is being proposed, please state the share class and the expense ratio. Short Duration Product Performance 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ML 1-5 Yr G/C ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% Difference ___%___% ___% ___% ___% ___% ___% ___% ___% ___% ___% ___% 3 Years 5 Years 10 Years Annualized Ended Ended Ended Returns 12/31/03 12/31/03 12/31/03 Return _______% _______% _______% ML 1-5 Yr G/C _______% _______% _______% Difference _______% _______% _______% 34
  35. 35. (3) Active Core Fixed Income for Income Fund 1. a. Product/Fund Name: b. Advisor Name/Sub-advisor Name: c. Fund Type (Mutual, Commingled, Collective Trust, Separate Account): d. Share Class: e. Valuation Frequency: f. Inception date (oldest share class): g. Advisor/Sub-advisor tenure with fund (if different than inception date): 2. For the advisor/sub-advisor for the subject product, complete the following information: In Millions of Dollars 12/31/00 12/31/01 12/31/02 12/31/03 Total Assets under mgt. (all products) Total US fixed income assets Total assets in subject product (assets with Lehman Aggregate, Lehman Int or Lehman Int G/C benchmarks) Total assets in subject product (separate accounts) Total assets with a Lehman Int G/C bnechmark 3. Please list the 5 largest clients for whom you manage the fixed income portion of their stable value fund. Name Date of Inception December 31, 2003 Mkt Value 4. List the amount of assets gained and lost in the subject product in each of the past three years. Assets Gained Assets Lost 2003 2002 2001 5. List 3 clients who can be contacted as references. References with similar characteristics to the Commonwealth would be preferred. Include the following information: Firm Name/Contact/Phone # Account Size Inception Date 35
  36. 36. 6. Provide a list of the professionals involved in the subject product in the manner listed below: PORTFOLIO MANAGEMENT Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body RESEARCH Title/ Yrs Yrs @ Degrees/ School/Sponsoring Name Responsibilities Exp Firm Designations Body TRADING Title/ Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School 7. 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 three years. How long has the team been together? Indicate when and why any professional dedicated to the product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles and years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by Date Name/Title Responsibilities Firm Reason for leaving (name/title) 8. Describe the investment philosophy for your domestic fixed income product. What market anomaly or inefficiency are you trying to capture? Why do you believe your process will be successful in the future? Please provide evidence and research that supports this belief. How has the investment philosophy and process been improved over the recent past? INCLUDE A COPY OF THE PROSPECTUS AS AN ATTACHMENT. 36
  37. 37. 9. Describe your firm’s experience in managing the fixed income portion of stable value funds. Include a description of your ability to customize portfolios to meet client needs and your ability to interact with investment managers that are responsible for the wrap and cash flow management portion of the stable value fund. Provide if applicable, references for investment managers/third party administrators/plan sponsors for whom you have had a similar relationship. If your firm also proposed for the “Income Fund Manager” RFP, describe the advantages of one manager performing that service as well as the service requested in this RFP. 10. How would you manage this account differently than your typical core fixed income account? 11. For each of the following categories, indicate which of the descriptions reflects your style or philosophy. Portfolio Management Focus Relative Importance a. Duration decision ________________ b. Yield spread analysis ________________ c. Arbitrage ________________ d. Sector rotation (strategic, cyclical or tactical shifts in ________________ sector/industry weightings) e. Security selection (portfolio structure determined primarily ________________ by bottom-up approach) f. Other (specify)__________________________ ________________ 100% 12. Describe the sources and processing of information used to manage portfolio duration, yield curve position and to select sectors and securities. • What are the sources of information for this product? How are they unique? • What methods are you applying to process the information? How are they unique? • What percent of resources and time does your firm devote to the top-down aspect of your approach versus the bottom-up (security selection) aspect? 13. Describe your buy/sell disciplines. • What size, quality and liquidity criteria meet the requirements of your buy/sell discipline? • What valuation approaches are used in evaluating sectors and bonds? • What factors dictate your buy/sell decision? 37

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