I. INTRODUCTION.

PENSION RESERVES INVESTMENT MANAGEMENT BOARD

84 State Street, Suite 250, Boston, MA 02109

Timothy P. Cahill, ChairMichael Travaglini, Executive Director

REQUEST FOR PROPOSALS

GENERAL INVESTMENT CONSULTING SERVICES AND/OR

ABSOLUTE RETURN CONSULTING SERVICES

February 2005

Table of Contents

I. INTRODUCTION...............................................................................................................................................................

II. BACKGROUND INFORMATION.................................................................................................................................

A. LEGAL STRUCTURE OF PRIM..........................................................................................................................................B. PRIM'S CONSULTANTS..............................................................................................................................................6C. GENERAL DESCRIPTION OF PRIM’S ASSETS...................................................................................................................

D. Tobacco Divestiture…………………………………………………………………………………………………….6

III. SCOPE OF SERVICES...................................................................................................................................................

A. GENERAL CONSULTING SERVICES...................................................................................................................................B. ABSOLUTE RETURN CONSULTING SERVICES.................................................................................................................9

IV. TYPE OF CONTRACT...............................................................................................................................................12

V. PROPOSAL SPECIFICATIONS.................................................................................................................................12

A. PROPOSAL DEADLINE...................................................................................................................................................12B. REQUIRED ATTACHMENTS AND ENCLOSURES.............................................................................................................12C. PUBLIC RECORD...............................................................................................................................................................D. WITHDRAWAL/IRREVOCABILITY OF RESPONSES.............................................................................................................E. WAIVER/CURE OF MINOR INFORMALITIES, ERRORS AND OMISSIONS.............................................................................F. COMMUNICATIONS WITH PRIM....................................................................................................................................14G. QUESTIONS RELATING TO THIS RFP................................................................................................................................H. INCURRING COSTS............................................................................................................................................................I. REJECTION OF PROPOSALS...............................................................................................................................................

VI. SELECTION PROCESS...........................................................................................................................................15

A. NON-QUALIFYING PROPOSALS........................................................................................................................................B. SELECTION OF FINALISTS............................................................................................................................................15C. SELECTION OF CONSULTANTS.....................................................................................................................................15

VII. TENTATIVE TIME TABLE........................................................................................................................................

VIII. MINIMUM CRITERIA...........................................................................................................................................16

A. BASIC MINIMUM CRITERIA..........................................................................................................................................16B. MINIMUM CRITERIA: GENERAL CONSULTING SERVICES.............................................................................................17C. MINIMUM CRITERIA: ABSOLUTE RETURN CONSULTING SERVICES............................................................................17

IX. SELECTION CRITERIA...........................................................................................................................................18

A. BASIC SELECTION CRITERIA APPLICABLE TO ALL PROPOSING FIRMS........................................................................18B. SELECTION CRITERIA APPLICABLE TO PROPOSING FIRMS FOR GENERAL CONSULTING SERVICES............................19C. SELECTION CRITERIA APPLICABLE TO PROPOSING FIRMS FOR ABSOLUTE INVESTMENT CONSULTING SERVICES.. .20D. FEE PROPOSALS............................................................................................................................................................20

X. QUESTIONS AND REQUESTS FOR INFORMATION..........................................................................................21

XI. FEE PROPOSAL..........................................................................................................................................................28

XII. REPRESENTATIONS AND WARRANTIES.........................................................................................................30

XIII. EXHIBITS................................................................................................................................................................. 31

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Pension Reserves Investment Management Board

REQUEST FOR PROPOSALS

GENERAL INVESTMENT CONSULTING SERVICES AND/ORABSOLUTE RETURN CONSULTING SERVICES

I. INTRODUCTION.

The Massachusetts Pension Reserves Investment Management (PRIM) Board is soliciting proposals from firms interested in providing General Consulting Services and/or Absolute Return Consulting Services for PRIM and the Pension Reserves Investment Management Trust (PRIT), a $36 billion public pension plan managed in accordance with the provisions of the Massachusetts General Laws, Chapter 32. The Board will accept and evaluate separate proposals for General Consulting, or Alternative Investment Consulting or combined proposals for both.

The intent of this Request for Proposals ("RFP") is to select a firm or firms to provide domestic and international consulting services to PRIM in the following substantive areas: (1) general plan consulting, including consulting services relating to investment policies and procedures, asset allocation, investment staff training and fiduciary education, public market investment planning and analysis, and manager oversight and selection ("General Consulting Services"); and (2) a firm to provide absolute return consulting services to PRIM in the following substantive areas: absolute return allocation strategy, evaluation, planning, reporting, analysis, and manager due diligence and oversight. More detailed descriptions of these services are set forth in Section III, "SCOPE OF SERVICES". Please note that PRIM has

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retained the services of a real estate and alternatives consultant, and this RFP is not requesting responses for real estate and alternatives consulting services.

PRIM will accept and evaluate separate proposals for General Consulting Services, Absolute Return Consulting Services, or a combination thereof. Decisions will be based on the criteria set forth under the heading “SELECTION CRITERIA" in Section IX hereof.

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 funds 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 December 31, 2004, the PRIT Fund had assets of approximately $36 billion. PRIT funds are generally invested with a longer-term perspective and at higher target returns than most public retirement systems. The Fund was originally established to address the unfunded liability of the Commonwealth’s pension system.

The nine-member PRIM Board is chaired by the State Treasurer and Receiver-General of the Commonwealth. 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, Administrative/Audit, and Real Estate/Timber -- to provide a broad range of advice to the Board. These committees are generally comprised of two or three Board members and private citizens from the investment or business community. PRIM's consultants deal primarily with the staff, Investment Committee, and Board. All policies and investments are ultimately approved by the Board.

Refer to PRIM’s website at mapension.com for more information.

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B. PRIM’s Consultants.

Outside consultants 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. Wilshire Associates is PRIM's current general consultant, Pathway Capital is the current alternative investment consultant, NEPC is the current absolute return 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/Timber 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.

All of the PRIT Fund’s assets are managed by outside investment management firms. PRIM invests absolute return assets in five fund of funds investment management firms: no assets are managed internally. Exhibit A includes a description of PRIM’s asset allocation.

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 that 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.

III. SCOPE OF SERVICES.

Under the direction of the PRIM Board, the Investment Committee and PRIM staff, the consultant or consultants will provide the following services:

A. General Consulting Services

4. General Investment Policy and Procedures. At the outset of the engagement and annually thereafter, review PRIM’s Investment Policies and Procedures and, if necessary, make reasoned recommendations for amendments thereto.

2. Asset Allocation Plan. At least once during the three year term of the Contract, prepare and present to staff, Investment Committee and the Board a written plan establishing investment objectives and target asset mix (the "Asset Allocation Plan"). The Asset Allocation Plan shall take into account the assets of the PRIT Fund and the pension liability of the Commonwealth, and shall utilize the actuarial analysis performed by PRIM and/or the Commonwealth Public Employee Retirement Administration Commission. The Asset Allocation Plan

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shall, at a minimum, include (a) a report on asset allocation modeling (including methodology and specifics) linked to funding and liability management; (b) an analysis of the investment characteristics of available asset alternatives; (c) recommendations for the development of a comprehensive statement of investment policy; and (d) recommendations for an optimum asset allocation for the PRIT Fund based upon all of the foregoing, including a methodology (and time table) for achieving such asset allocation.

3. Annual Asset Allocation Optimization. By March of each year (other than a year in which the Asset Allocation Plan is formulated), prepare and present to the staff, Investment Committee and Board a report containing an evaluation and optimization analysis of the Asset Allocation Plan and proposals to achieve the goals of that analysis during the calendar year.

4. Specific Requests for Policy Analysis. Review and analyze investment initiatives proposed by the staff, Investment Committee, PRIM Board investment managers, or specialty consultants to ensure overall consistency of PRIM’s investment policies.

5. Public Market Planning. During the fall of each year, prepare and present to

the staff, Investment Committee and PRIM Board a report containing (a) an evaluation of the effectiveness of the current portfolio and investment manager structure (including evaluations of the current investment managers); and (b) a review of PRIM’s needs for particular investment styles, capitalization ranges or strategies within the Public Market Portfolio (e.g., growth/core/value; small/mid/ large capitalization; government/corporate/mortgage; domestic/international/ emerging markets; and passive/risk controlled/active).

6. Performance Analysis. For PRIM’s Public Market Portfolios, provide quarterly performance analysis, including performance of individual Public Market Portfolios (domestic equity, fixed income, international equity, emerging markets equity, emerging markets debt, and high yield bonds), as well as the aggregate of all of the Public Market Portfolios. The quarterly performance analysis should include return attribution characteristics, style analysis, risk analysis, peer universe comparison, holdings analysis relative to the benchmarks, trading efficiency and compliance violation reports. The consultant performing these services will receive the performance measurement information electronically from PRIM’s custodian.

7. Manager Oversight.

(a) For each of PRIM’s Public Market Managers, provide quarterly performance analysis, including performance evaluation against the appropriate benchmarks and investment objectives, as well as return attribution characteristics, style analysis and risk analysis.

(b) Provide analysis and advice on questions or issues that arise in the course of

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overseeing the Public Market Managers. For example, advise on appropriate benchmarks; calculate custom benchmarks, if necessary; and advise on investment guidelines or fee structures, including performance based fees, for Public Market Managers.

(c) Provide advice and recommendations concerning Public Market Manager termination.

8. Public Market Manager Search and Selection.

For PRIM’s Public Market Portfolio(s), provide analysis, and assist in the hiring of outside investment managers, including:

(a) Provide access to a database of investment managers, including their philosophies, organizations, performance and clients. Manager information should be available for a wide range of investment managers including domestic, international and emerging market equity managers; domestic, international and global fixed income managers; hedge fund managers; managers with related strategies, including currency overlay, options and futures, special situations investing, securities lending, rebalancing, and commodity managers; as well as small, “emerging” and minority/woman/disabled veteran owned managers.

(b) Assist the staff, Investment Committee and the PRIM Board in conducting searches for Public Market Managers (probably one to three searches per year) including but not limited to (i) development of requests for proposals, including evaluation factors and methods; (ii) screening of prospective managers and recommendation of finalists; (iii) preparation of background material for the staff, Investment Committee and PRIM Board or any search committee formed by the PRIM Board; (iv) participating in the interviewing of managers; and (v) providing reasoned analysis concerning manager selection to the staff, Investment Committee and the PRIM Board or any search committee formed by the PRIM Board; and (vi) recommendations concerning selection of manager.

9. Attend due diligence reviews of newly engaged managers. Accompany staff on due diligence trips to review newly hired public market managers.

10. Attendance at PRIM Board and Investment Committee Meetings. Attend regular meetings of the PRIM Board and the Investment Committee in Boston, Massachusetts. On average there are six meetings of each, annually.

11. Trustee Workshop. Conduct up to one (1) trustee education workshop annually on specific issues designated by PRIM and/or recommended by consultant. Each workshop will be coordinated with a regular meeting of the PRIM Board.

12. General Research and Analysis. Upon request of the staff, provide ongoing

research, analysis and advice on specific pension issues.

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In addition, the consultant will be asked to perform such other duties or activities as may be required provided they are consistent with the foregoing.

B. Absolute Return Investment Consulting Services(These services may apply to both Fund of Funds and Direct Investments)

1. Absolute Return Allocation Strategy Review. By July of each year work with the staff to review and develop (and present to the Investment Committee and the PRIM Board) an update to the strategic Absolute Return Allocation Strategy. The review should include:

(a) Review of current allocation of absolute return assets by type of strategy.

(b) Review of current allocation of absolute return investment managers.

(c) Review of Manager Attributes: based on the investment outlook for each investment strategy, identification of preferred capabilities and characteristics for managers within that strategy.

3. Absolute Return Investment Manager Oversight.

(a) For each of PRIM’s absolute return investment managers, provide quarterly performance analysis, including performance evaluation against the appropriate benchmarks, manager medians, and investment objectives, as well as return attribution characteristics, style analysis, and risk analysis.

(b) Provide analysis and advice on questions or issues that arise in the course of overseeing the absolute return investment managers. For example, advise on appropriate benchmarks; calculate custom benchmarks, if necessary; and advise on investment guidelines or fee structures.

(c) Provide advice and recommendations concerning absolute return investment manager termination.

4. Absolute Return Investment Search and Selection

(a) Investment Screening: development of a structured process that will analyze the full universe of available investments, and efficiently identify those most appropriate for PRIM investment. This will include detailed analysis of prospective investments identified by PRIM.

(b) Identify New Opportunities: development of a proactive program to identify new or limited access investments and to make them available to PRIM.

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(c) Providing a Database: providing access to a database of absolute return investment managers, including their philosophies, organizations, performance and clients. Manager information should be available for a wide range of absolute return investment managers and strategies.

(d) Assist the staff, Investment Committee and the PRIM Board in conducting searches for absolute return investment managers including but not limited to (i) development of requests for proposals, including evaluation factors and methods; (ii) screening of prospective managers and recommendation of finalists; (iii) preparation of background material for the staff, Investment Committee and PRIM Board or any search committee formed by the PRIM Board; (iv) participating in the interviewing of managers; and (v) providing reasoned analysis concerning manager selection to the staff, Investment Committee and the PRIM Board or any search committee formed by the PRIM board and (vi) recommendations concerning selection of managers.

(e) Conducting Due Diligence: Assit PRIM Staff on due diligence visits.

(f) Recommendations: the presentation of recommendations to the PRIM staff, Investment Committee, and Board. This will include substantive written recommendations that will present the full results of the due diligence, strategic considerations, and fit with the PRIM portfolio.

5. Proactive Monitoring of the Absolute Return Portfolio.

The Absolute Return Investment Consultant will be responsible for maintaining a proactive program of overseeing PRIM’s absolute return investments. This will include but not be limited to:

(a) General Monitoring: the Consultant will take responsibility for the timely reporting of key events that may affect the portfolio's value. This can include market changes, changes in management, or substantial reductions in portfolio value. This will be conducted through the monitoring of the media, personal contacts, and systematic review of Managers' reports.

(b) Involvement with Managers: where necessary, assisting in actions to protect the interests of PRIM as an investor, and to ensure compliance by Managers with the terms of their contracts.

(c) Portfolio Monitoring: where necessary, accompany staff on due diligence trips to review managers, participate in quarterly calls or meetings.

(d) Review and recommend course of action on all agreement amendments.

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6. Absolute Return Portfolio Analysis.

(a) Annual Review: on an annual basis, a full review of the absolute return portfolio. This will include a performance review, projection of future returns, and a qualitative assessment of each individual manager, all strategies, and the portfolio as a whole. This will also include an assessment of compliance with the Absolute Return Allocation Strategy, and recommendations for future investments consistent with the objectives of the fund.

(b) Quarterly Performance Review: Provide quarterly performance analysis for PRIM’s absolute return portfolios, including performance of individual absolute return portfolios as well as the aggregate of all the absolute return portfolios. The quarterly performance analysis should include but is not limited to top positions, net/gross positions, overlay leverage, exposure by strategy, sector diversification, return attribution characteristics, style analysis, risk analysis, peer universe comparison, holdings analysis, trading efficiency and compliance with violation reports. This will include measurement against appropriate benchmarks and investment objectives.

7. Absolute Return Database. The Consultant will develop and maintain a database of absolute return investment managers including their philosophies, organizations, performance, and clients and includes, but is not limited to, the following information:

(a) Historical Data: all historical information on net asset values.

(b) Performance Data: including return calculations and measures against performance benchmarks.

(c) Portfolio Characteristics and Risk Analysis: an ability to run portfolio analyses by individual investment manager, strategy, and the aggregate portfolio.

This will include providing PRIM with advice on appropriate benchmarks, investment guidelines, and fee calculations.

8. Special Projects and Services.

PRIM may require the Consultant’s assistance, advice, research and analysis in other matters that fall outside of the routine Investment and Monitoring Programs.

9. Attendance at PRIM Board and Investment Committee Meetings.

Attend regular meetings of the PRIM Board and the Investment Committee in Boston, Massachusetts. On average there are six meetings of each annually.

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10. General Absolute Return Research and Analysis. Upon request of the staff, provide ongoing Absolute Return research, analysis and advice on specific investment related issues.

In addition, the consultant will be asked to perform such other duties or activities as may be required provided they are consistent with the foregoing.

11. Education. Provide at least one educational session annually to the Board to review a basic introduction to absolute return strategies and trends in the industry.

IV. CONTRACT.

PRIM will enter into a three year consulting agreement(s) in the form attached to this RFP as Exhibit B (the "Contract"), which provides that, among other things, a consultant to PRIM will act as a fiduciary. Each firm responding to this RFP shall be required to state under the Warranties, set forth in Section XII hereof that it will agree to and execute a contract in the form set forth in Exhibit B.

V. PROPOSAL SPECIFICATIONS.

A. Proposal Deadline.

The completed proposal, which must include all attachments, must be delivered electronically via e-mail to [email protected] by 3:00 p.m. EST on Friday, February 25, 2005 (the "Proposal Deadline"). Any Proposal not meeting the Proposal Deadline will not be accepted or considered. In addition, an original and five copies of the Proposal (one copy must be unbound and ready to photocopy) are to be sent to the attention of:

Mr. Stanley P. Mavromates, Jr.Deputy Chief Investment Officer

Pension Reserves Investment Management Board84 State Street, Suite 250

Boston, MA 02109

Copies of this RFP can be obtained electronically through the PRIM Board website atwww.mapension.com .

The proposal response should contain the questions and requests for information in Section X. of this RFP should be duplicated in their entirety in the Proposal with each question and/or request repeated before the answer or response.

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http://www.mapension.com/

mailto:[email protected]

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 should include an original and five (5) 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 primary client contact; (c) the title or position which the signer of the cover letter holds in the firm; and (d) a statement to the effect that the Proposal is a firm and irrevocable offer of the firm.

2. Representations and Warranties. The Warranties contained in Section XII hereof, signed by an authorized officer of the firm, must be included as an attachment to the cover letter referenced in (1) above.

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 four (4) copies of the fee proposals (one copy must be unbound and ready to photocopy) 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 for [General] [and/or] [Absolute Return] Consultant[s], submitted by [COMPANY NAME]."

5. Any other 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.

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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.

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F. Communications with PRIM.

PRIM’s Procurement Officer for this RFP is:

Mr. Stanley P. Mavromates, Jr.Deputy Chief Investment Officer

Pension Reserves Investment Management Board84 State Street, Suite 250

Boston, MA 02109Telephone: (617) 946-8444Facsimile: (617) 946-8472

[email protected]

As of February 7, 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 general consultant or alternative investments consultant, but any contact made by such firms with persons other than the Procurement Officer should be limited to that business, and should not relate to this RFP. In addition, such firms should not discuss this RFP with any employee of PRIM’s custodian, outside managers, real estate consultant, or PRIM’s legal counsel or other advisors.

FAILURE TO OBSERVE THIS RULE IS GROUND 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. EST on Thursday, February 18, 2005 (the "Question Deadline") via e-mail to [email protected]. 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.

I. Rejection of Proposals.

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PRIM reserves the right to reject any non-qualifying Proposal, as well as the right to reject all Proposals.

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 members of 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 for further consideration.

C. Selection of Consultants.

The Search Committee will rank the finalists and make its recommendations for selecting a consultant or consultants to the PRIM Investment Committee and the PRIM Board.

The finalists selected by the Search Committee shall 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 consulting services to PRIM. Final selection shall be made by the PRIM Board.

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VII. TENTATIVE TIME TABLE.

The following is the tentative time schedule for PRIM’s search for firms to provide consulting services. All dates are subject to modification by PRIM with notice.

Issuance of RFP: February 7, 2005

Question Deadline: February 18, 2005(Firm) 3:00 p.m. EST

Response Deadline: February 25, 2005(Firm) 3:00 p.m., EST

Finalist Interviews: (Tentative) March 10-11, 2005

Site Visits (Tentative) Week of March 14, 2005

Investment Committee Interviews: March 22, 2005

PRIM Board Meeting: April 1, 2005

Projected Commencement Date: April 1, 2005

VIII. MINIMUM CRITERIA.

A proposer must meet the following minimum criteria to be given further consideration. Failure to meet the minimum criteria will result in the Proposal's immediate rejection.

A. Basic Minimum Criteria.

All firms submitting Proposals must meet the following minimum criteria:

1. As of January 31, 2005, the firm must provide investment consulting services to existing pension clients whose assets aggregate to at least $10 billion.

2. As of January 31, 2005, the primary consultant assigned to PRIM’s account (the "Primary Consultant") must have at least five (5) years combined experience in (i) serving as Primary consultant to public and/or private pension funds; and/or (ii) serving as chief executive officer, executive director or chief investment officer of a public or private pension fund with assets of at least $1 billion.

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3. The proposing firm must provide consulting services to at least one (1) public pension fund.

B. Minimum Criteria: General Consulting Services.

All firms submitting Proposals for General Consulting Services must meet thefollowing minimum criteria:

1. Since 2001, the firm or its proposed consultants must have served as consultant in the preparation or revision of general investment policy guidelines for at least one private or public pension fund client with assets of at least $1 billion and allocations in both domestic and international assets.

2. Since 2001, the firm or its proposed consultants must have been primarily responsible for providing overall asset allocation consulting services to public and/or private pension fund clients with aggregate assets of at least $10 billion.

3. Since 2001, the firm or its proposed consultants must have provided General Consulting Services, including investment policy and asset allocation consulting services, to at least one (1) public and/or private pension funds.

4. The firm or its proposed consultants must maintain or have access to a database of domestic and international public market managers.

C. Minimum Criteria: Absolute Return Consulting Services.

All firms submitting Proposals must meet the following minimum criteria:

1. Since 2001, the firm or its proposed consultants must have served as consultant in the preparation or revision of an absolute return investment program for at least one private or public pension fund client with assets of at least $500 million.

2. The primary absolute return investment consultant(s) assigned to PRIM’s account (the "Primary Consultant") must have at least three (3) years combined experience in (i) serving as Primary consultant to public pension funds, private pension funds, endowments, and/or foundations with Absolute Return allocations; and/or (ii) serving as chief executive officer, executive director or chief investment officer of a public or private pension fund with assets of at least $1 billion and that include an allocation of Absolute Return assets; and/or (iii) direct experience managing an Absolute Return investment strategy or fund of funds.

3. The firm or its proposed consultants must maintain or have access to a database of absolute return fund of funds or direct funds.

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IX. SELECTION CRITERIA.

PRIM will apply the following criteria in the selection of a consultant or consultants. 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 receive further consideration and will ultimately recommend a consultant or consultants 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. General Experience of the Firm & Consultants.

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; the expected financial stability of the firm during the term of the Contract; and the status of the firm as a "fiduciary".

Experience of the consultants in providing consulting services to similar pension funds, as measured by the consultants history of providing such services; and the similarity of the firm's clients to PRIM.

Absence of organizational issues, such as litigation or regulatory investigations; and, absence of financial problems.

2. References.

Quality of references from clients as measured by responses relating to quality of consulting services; ability to anticipate issues as opposed to reacting to issues; quality of client services; and, the knowledge and accessibility of the Primary Consultant.

3. Proposer's Independence of Judgment and Freedom from Conflicts of Interest.

The extent of a firm's reliance on revenues from sources which may have interests that conflict with PRIM, including business activities other than consulting (e.g. money management, brokerage), the existence of contractual or other relationships between the proposer and money

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management and brokerage firms, or the sale of data or databases to money management firms.

B. Selection Criteria Applicable to Proposing Firms for General Consulting Services. (This is in addition to the Basic Selection Criteria)

Experience of the Primary Consultant(s) in providing General Consulting Services, as measured by the length of time the Primary Consultant(s) have provided such services as consultants or, in the case of the Primary Consultant, as chief executive officer, executive director or chief investment officer of a pension fund.

Resources and knowledge of the Primary Consultant(s) with respect to the formulation of investment policies.

Resources and knowledge of the Primary Consultant(s) with respect to the formulation of an Asset Allocation Plan, including knowledge of the capital markets, capital market theory and practice, actuarial issues, and asset allocation issues specific to public pension funds with significant unfunded liabilities.

Ability and resources to provide continuing education to PRIM’s staff and Board, and to keep PRIM advised on ongoing developments in the pension field.

Resources and knowledge of the Primary Consultant(s) including the quality and breadth of the firm's available database of Public Market Managers; the knowledge of the Primary Consultant(s) of Public Market Portfolios and Managers, including the ability to provide oversight of PRIM’s Public Market Managers; and the ability of the firm to support its methodology for providing consulting services in the selection of Public Market Managers, including the performance of due diligence.

C. Selection Criteria Applicable to Proposing Firms for Absolute Return Consulting Services. (This is in addition to the Basic Selection

Criteria)

Experience of the Primary Consultant(s) in providing Absolute Return Consulting Services, as measured by the length of time the Primary Consultant(s) have provided such services as consultants or, in the case of the Primary Consultant, as chief executive officer, executive director or chief investment officer of a pension fund, endowment, and/or foundation or as an Absolute Return manager or fund of funds manager.

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Resources and knowledge of the the Primary Consultant(s) with respect to the formulation of absolute return investment policies, and the Primary Consultant’s knowledge of Absolute Return Strategies and Managers; and supporting resources for the selection and oversight of Absolute Return Strategies and Managers.

Ability and resources to keep PRIM advised on ongoing developments in

the Absolute Return investment field.

D. Fee Proposals.

The Fee Proposals will be opened and analyzed by the Search Committee, and will be taken into account as a factor in its selection of finalists and in its recommendations to the Investment Committee and the PRIM Board. The Search Committee will consider the relative benefits of having (1) "combined" or "separate" fees for the services to be rendered; and (2) a flat fee or an hourly fee with a cap.

The selection of a firm or firms to act as consultant(s) to PRIM will not necessarily be based on which firm(s) submits the lowest Fee Proposal, as the Fee Proposal is only one of the Selection Criteria.

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X. QUESTIONS AND REQUESTS FOR INFORMATION.

CONSULTING SERVICE: ____General(please check as appropriate)_____Absolute

_____General & Absolute

FIRM NAME: _____________________________________

ADDRESS: _____________________________________

_____________________________________

TELEPHONE #: _____________________________________

FASCIMILE #: _____________________________________

E-MAIL ADDRESS: _____________________________________

CLIENT CONTACT: _____________________________________

SIGNED: _____________________________________

NAME (print): _____________________________________

TITLE: _____________________________________

DATE: _____________________________________

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The following questions and requests for information are separated according to the categories set forth under "SELECTION CRITERIA" in Section IX of this RFP. Firms that are seeking to be considered for either General or Absolute Return Consulting Services but not both may omit from their responses any requested information concerning specific services required of the General Consultant or Absolute Return Consultant, as applicable.

A. General Experience of the Firm & Consultants. (to be answered by all Proposers).

1. Please provide a brief history of the firm, including organizational structure and ownership.

2. Please provide a brief history of the experience of the consultants.

3. Is the firm, its parent or affiliate a registered investment advisor with the SEC under the Investment Advisers Act of 1940? If not, what is the fiduciary classification? Please state whether the firm is or is not a fiduciary (as the term is defined by the Employee Retirement Income Security Act of 1974 [ERISA]).

4. Since 2001, has the firm, the Primary Consultant(s), or another officer or principal been involved in any business litigation, regulatory or other legal proceedings or government investigation involving allegations of fraud, negligence, criminal activity or breach of fiduciary duty relating to pension consulting activities? If so, please describe, provide an explanation, and indicate the current status.

5. Please describe the levels of coverage for errors and omissions insurance and any other fiduciary or professional liability insurance the firm carries. List the insurance carriers supplying the coverage.

B. References. (to be answered by all Proposers).

1. Please provide three (3) references that we may contact.

C. Proposer's Independence of Judgment and Freedom from Conflicts of Interest. (to be answered by all Proposers).

1. Does the firm or any affiliate serve as an investment manager for clients?

2. Does the firm or any affiliate act as a securities broker-dealer?

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3. Does the firm accept soft dollars as a method of payment for services?4. Does the firm have any potential conflicts of interest with PRIM?

C. General Consulting Services Experience & Knowledge (to be completed by firms interested in providing General Consulting Services)

1. Please name and include a brief resume of the person(s) you propose to be Primary Consultant(s), for PRIM. Please state which of the firm’s offices would service this account. (A proposer may have a different Primary Consultant for General and Absolute Consulting Services.)

2.Please identify all principals of the firm and designate which individuals, including research and systems support personnel, will be committed to PRIM’s account. Include the length of experience in pension consulting services, any specialty expertise they possess, and the highest educational degree they have attained.

Years3. Name Title With Firm Consulting Experience Education

4. Please provide biographical data on all the individuals listed above.

5. Please explain how the team dedicated to the PRIM account would function, including Primary Consultant(s), back-up, quality control, research, and support services.

6. Will the Primary Consultant(s) committed to the PRIM account consult for PRIM exclusively? If not, how many client relationships will the Primary Consultant(s) have other than PRIM? What are the client/consultants and client/support personnel ratios for the firm?

7. Please list the Primary Consultant’s current clients and engagements by asset size, type of client (e.g., public fund, corporate fund, endowment) and type of engagement (e.g., general consulting services, project-based service).

8. Please review PRIM’s Investment Policy, contained in Exhibit D, and offer any suggested improvements.

9. Please review PRIM’s Current & Long-Term Asset Allocation, contained in Exhibit A, and offer any suggested changes. Please also provide a copy of the firm’s most recent expected return and risk assumptions currently used to recommend an asset allocation for clients.

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10. Please review PRIM’s Rebalancing Policy, contained in Exhibit E, and offer any suggested improvements.

11.PRIM’s strategic asset allocation targets were adopted after careful consideration of PRIM’s objectives, financial condition and risk tolerance. PRIM has also adopted Interim Targets, recognizing that it might take several years to reach its long-term target for some of the less liquid investments. The Interim Targets currently require the uninvested portion of PRIM’s less liquid assets (ie. real estate, alternative investments, timber, distressed debt) to be invested in domestic equity and fixed income in a 70/30 ratio. Do you agree with this 70/30 ratio. Why or Why not? How do you recommend PRIM invests the uninvested portion of PRIM’s less liquid assets?

12.The PRIM Board has concluded that an international equity portfolio that exceeds 10% of a plan’s assets should be 50% hedged. Do you agree with this approach? Why or why not? How do you recommend PRIM handle their currency exposure?

13.Do you recommend PRIM actively or passively manage assets? Please provide your recommendation by asset class (domestic equity, international equity, emerging markets equity, investment grade fixed income, high yield bonds, and emerging market debt) and the reasons for those recommendations.

14.Do you recommend PRIM consider enhanced index strategies? Please provide your recommendation.

15. PRIM adopted an Economically Targeted Investment (ETI) Program in August 2003. PRIM’s ETI Criteria is contained in the Investment Policy contained in Exhibit F. Please comment on the program and your experience with ETI programs.

16.What is your assessment of PRIM’s current investment manager roster?

17. Overall, what is the most important improvement to PRIM’s investment program that you recommend PRIM consider?

D. Absolute Return Consulting Services Experience & Knowledge (to be completed by firms interested in providing Absolute Return Consulting Services)

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1. Please name and include a brief resume of the person(s) you propose to be Primary Consultant(s), for PRIM. Please state which of the firm’s offices would service this account. (A proposer may have a different Primary Consultant for General and Absolute Return Consulting Services.)

2.Please identify all principals of the firm and designate which individuals, including research and systems support personnel, will be committed to PRIM’s account. Include the length of experience in pension consulting services, any specialty expertise they possess, and the highest educational degree they have attained.

YearsName Title With Firm Consulting Experience Education

3. Please provide biographical data on all the individuals listed above.

4. Please explain how the team dedicated to the PRIM account would function, including Primary Consultant(s), back-up, quality control, research, and support services.

5. Will the Primary Consultant(s) committed to the PRIM account consult for PRIM exclusively? If not, how many client relationships will the Primary Consultant(s) have other than PRIM? What are the client/consultants and client/support personnel ratios for the firm?

6. Please list the Primary Consultant’s current clients and engagements by asset size, type of client (e.g., public fund, corporate fund, endowment) and type of engagement (e.g., general consulting services, project-based service).

7. Please review PRIM’s Absolute Return Portfolio Structure and Managers, contained in Exhibit G, and offer any suggested improvements.

8. Describe your overall absolute return consulting capabilities/infrastructure.

9. Given PRIM's $1.6B diversified fund of hedge funds portfolio (with 5 fund of hedge fund managers and approximately 120 underlying managers), would you recommend making any changes to the program?

10. Would you recommend starting a direct hedge fund investment program? If so, how would you implement it? What type of structure would you recommend? How large would/should the investments be? What types of strategies would you focus on? Provide a workplan.

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11. What strategies would you recommend PRIM allocate to in an absolute return portfolio and what would those optimal allocations be? Discuss your rationale.

12. What absolute return strategies do you favor for the next year? What strategies, if any, would you avoid? Please also provide a copy of the firm’s most recent expected return and risk assumptions currently used to recommend an asset allocation for clients.

13. Describe your due diligence process for absolute return managers.

14. Describe your monitoring process for absolute return managers.

15. Overall, what is the most important improvement to PRIM’s Absolute Return investment program that you recommend PRIM consider?

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F. Executive Summary. (To be completed by all firms submitting proposals)

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.

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XI. FEE PROPOSAL.

As the term of the Contract shall be three (3) years, the Fee Proposal shall be guaranteed for a period of not less than three (3) years from the effective date of the Contract. Proposers seeking to provide more than one consulting service must complete both Sections A and B of this Fee Proposal in the format presented below. The services detailed under “SCOPE OF SERVICES” in Section III of this RFP should form the basis for the proposed fees and Section III should be referred to for a detailed description of the services required of the successful proposer or proposers.

PRIM reserves the right to compensate the successful proposer or proposers using either the combined services fees as contained in Section A, or the separate services fees contained in Section B.

The method of payment will be set forth in the Contract. Once the consultant(s) is (are) selected, the fee may be negotiated further depending on the variance from the other Proposals. In no case will the negotiated fee be higher than the fee contained in the Proposal.

FIRMS SEEKING TO PROVIDE ONLY ONE OF THE CONSULTING SERVICES TO PRIM SHOULD ONLY COMPLETE THE APPROPRIATE PORTION OF SECTION B BELOW. FEE PROPOSALS MUST BE SUBMITTED IN A SEPARATE, SEALED ENVELOPE AS DESCRIBED IN SECTION V.B.4.

A. Combined Service Fees.

Proposers seeking to provide all Consulting Services (General and Absolute Return) must submit an all-in-cost annual fee for all services as described under "SCOPE OF SERVICES" in Section III of this RFP as follows:

1. Flat Fees – (Assume the Absolute Return portfolio is a 5% ($1.5 billion) allocation to a Fund of Funds Structure)

All-Inclusive Flat Fee - Year 1 $________________________



TOTAL FEES (Years 1-3) $_____________________

2. Flat Fees – (Assume the Absolute Return portfolio is a 3% ($900 million) allocation to a Fund of Funds Structure and a 2% ($600 million) allocation to direct funds.




TOTAL FEES (Years 1-3) $_____________________

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B. Separate Service Fees.

Proposers must submit an annual fee for all services as described under "SCOPE OF SERVICES" in Section III of this RFP.

1. General Consulting Services

All-Inclusive Flat Fee - Year 1 $



TOTAL FEES (Years 1 -3) $____________________________

2. Absolute Return Consulting Services – (Assume the Absolute Return portfolio is a 5% ($1.5 billion) allocation to a Fund of Funds Structure)




TOTAL FEES (Years 1 -3) $____________________________

3. Absolute Return Consulting Services (Assume the Absolute Return portfolio is a 3% ($900 million) allocation to a Fund of Funds Structure and a 2% ($600 million) allocation to direct funds)




TOTAL FEES (Years 1 -3) $____________________________

_________________________________________________ _____________________Name of Firm Date

_________________________________________________ ___________________________________ Signature Title

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XII. REPRESENTATIONS AND WARRANTIES.

All proposers are required to submit an executed copy of this exhibit as an attachment to the cover letter described in Section V of the RFP:

A. Proposer warrants that it meets, or will meet before the award of the Contract, 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 that Contract (unless exempt, and explanation of exemption is attached).

B. Proposer warrants that it maintains an errors and omissions insurance policy providing a prudent amount of coverage for negligent acts or omissions and that such coverage will be applicable to proposer's actions under the Contract.

C. Proposer warrants that it will not delegate its fiduciary responsibilities assumed under the Contract.

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 Contract.

E. Proposer warrants that it will agree to the provisions of the Contract which are set forth in Exhibit B to this RFP.

F. Proposer warrants that it meets all of the minimum criteria applicable to the firm under this RFP as follows:

[Please list each minimum requirement and specifically describe how your firm meets the applicable minimum qualifications specified in Section VIII.]

_________________________________________________ _____________________Name of Firm Date

_________________________________________________ ____________________Signature Title

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XIII. Exhibits

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Exhibit A – Asset Allocation

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Long-Term Target Interim TargetAllocation Allocation

Domestic Equity 26% 33% Large Cap Passive 15.60% 19.80% Large Cap Active 3.90% 4.95% Small Cap Passive 2.47% 3.14% Small Cap Active 4.03% 5.12%

International Equity 15% 15% EAFE Passive 3.75% 3.75% EAFE Active 11.25% 11.25%

Emerging Markets Equity 5% 5%

Fixed Income 15% 18% Core Passive 2.50% 3.25% Core Active 7.50% 9.75%

TIPS 5.00% 5.00%

High Yield Debt 9% 8% High Yield Bonds 5.00% 5.00% Distressed Debt 2.00% 1.00%

Emerging Markets 2.00% 2.00%

Real Estate 9% 7%

Timber 6% 4%

Alternative Investments 10% 7%

Absolute Return 5% 5%

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Notes to Current Asset Allocation

1. Domestic Equity. The Board’s policy is to structure the overall market capitalization of the portfolio to reflect the broad domestic equity market. Accordingly, in 1996, 70% of the domestic equity portfolio was allocated to large cap and 30% to small cap, representing the historical median of actual market distribution between these two segments of the asset class. See Board Agenda, November 12, 1996, item IV (D), Approval of Domestic Equity Restructuring. In 1999, based on the market’s then current domestic equity capitalization structure, the allocation was adjusted such that 75% of the domestic equity portfolio is allocated to large cap and 25% to small cap.

2. Large Capitalization Domestic Equity. The Board‘s policy in the Large Cap Domestic Equity segment of PRIM’s portfolio is to manage 80% passively, and 20% actively. Large Cap Domestic Equity is an efficient sub-asset class in which it is difficult to select managers who consistently outperform market benchmarks. See Board Agenda, November 12, 1996, item IV (D), Approval of Domestic Equity Restructuring.

3. Small Capitalization Domestic Equity. The Board’s policy in the Small Cap Domestic Equity segment of PRIM’s portfolio is to manage 25% passively, and 75% actively. Small cap domestic equity is an inefficient sub-asset class where a large proportion of active managers regularly outperform market benchmarks, increasing the Board’s potential for success in selecting active managers who will add value. The indexed portion of the portfolio provides a core for the sub-asset class. This core index portfolio reduces the risk that the sub-asset class will underperform its benchmark, and reduces the cost of managing the portfolio. See Board Agenda, November 12, 1996, item IV (D), Approval of Domestic Equity Restructuring.

4. International Equity and Emerging Markets Equity. The Board’s policy in the International Equity asset class is to manage 25% passively, and 75% actively. International equity is an inefficient asset class where a large proportion of active managers regularly outperform market benchmarks, increasing the Board’s potential for success in selecting active managers who will add value. The indexed portion of the portfolio provides a core for the asset class. This core index portfolio reduces the risk that the asset class will underperform its benchmark, and reduces the cost of managing the portfolio. At present, given the small size of the allocation and the high degree of inefficiency in the Emerging Markets, the Board has not placed any of these assets in an index fund. See Board Agenda, December 17, 1996, item IV (D), International Equity Portfolio Restructuring.

5. Core Fixed Income. The Board’s policy in the Core Fixed Income Asset class is to manage 25% passively, and 75% actively. Fixed Income is an inefficient asset class where a large proportion of active managers regularly outperform market benchmarks, increasing the Board’s potential for success in selecting active managers who will add value. The indexed portion of the portfolio provides a core for the asset class. This core index portfolio reduces the risk that the asset class will underperform its benchmark, and reduces the cost of managing the portfolio. See Board Agenda, January 28, 1997. Item IV (C), Domestic Fixed Income Portfolio Recommendation. As part of the Core Fixed Income Asset Class, a 5% allocation to TIPS, as a sub-asset class was approved. See Board Agenda, January 30, 2001, Item IV (B) Proposed Asset Allocation Plan.

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Exhibit B – Consulting Services Agreement

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EXHIBIT BCONSULTING SERVICES AGREEMENT

THIS AGREEMENT, dated as of, is made by and between the Pension Reserves Investment Management Board ("PRIM"), as trustee of the Pension Reserves Investment Trust (“PRIT”), and (the "Consultant").

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 pursuant to its authority under Massachusetts General Laws, Chapter 32, Section 23, subdivision (2A), paragraph (e), clause (iii).

1. Appointment of the Consultant. PRIM hereby appoints and retains the Consultant, and the Consultant agrees to provide consulting services, upon and subject to the terms hereof, beginning at the opening of business on April 1, 2005 (the “Effective Date”) and continuing until this Agreement is terminated in accordance with the terms hereof. The Consultant agrees to provide services in accordance with (a) this Agreement, and (b) the “Scope of Services” set forth in Schedule A hereto.

2. Confidentiality. The Consultant will maintain in strictest confidence the investment advice and information it furnishes to or receives from PRIM or from PRIT’s custodian bank or investment managers in connection with this Agreement; provided, however, that the Consultant will be permitted to disclose or communicate to a proper party any information received from PRIM or from PRIT’s custodian bank or investment managers or developed by the Consultant 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 Consultant, 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 Consultant from providing investment advice to other clients who share comparable investment objectives with PRIM, or to prohibit the Consultant from utilizing PRIM’s investment experience on an undisclosed basis for use in composite presentations.

3. Personnel. The Consultant shall allocate such personnel and devote such efforts as are necessary for it to carry out its duties under this Agreement. The Consultant shall at all times maintain not less than two individuals to act as primary consultants to the PRIM account (each a “Primary Consultant”), and shall not change any Primary Consultant without the prior written consent of PRIM. The Primary Consultants shall be and.

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4. Reports. The Consultant shall promptly notify PRIM in writing (1) of any change in the Consultant’s representations in this Agreement during the term of this Agreement; (2) of any change in the senior management or key professionals, or material changes in ownership of the Consultant’s organization; (3) of any change in the Primary Consultants assigned to PRIM; (4) of any other material change in the Consultant’s business activities or circumstances; (5) of any action taken by the Consultant that is contrary to or inconsistent with this Agreement; and (6) of the commencement by any governmental regulatory or law enforcement agency of any investigation, examination or other proceeding directly involving the Consultant, its owners, or employees, except such investigations, examinations or other proceedings as are routinely conducted in the ordinary course of the Consultant’s business.

5. Fees and Expenses. The Consultant will be entitled to receive from PRIM as complete compensation for services rendered hereunder the fees set forth in Schedule B hereto. The Consultant will not be paid or reimbursed for any expenses except to the extent authorized by PRIM in advance and in writing.

6. Services Not Exclusive. The services of the Consultant and its personnel to be provided under this Agreement are not exclusive, and the Consultant may provide services to others and engage in other activities, but the Consultant will allocate such personnel and devote such efforts as are necessary for it to carry out its duties under this Agreement.

7. Representations by the Consultant. The Consultant represents and warrants that it has completed, obtained or performed all 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 Consultant will deliver documentation of such compliance annually or as PRIM may reasonably request.

8. Termination. The term of this Agreement shall be three (3) years from April 1, 2005 provided, however, that the term may be extended for an additional period of up to one (1) year by written agreement of the parties at least 180 days prior to the expiration of the initial three-year term. Notwithstanding the foregoing, this Agreement may be terminated by PRIM for any reason upon not less than thirty (30) days’ written notice to the Consultant, and by the Consultant for any reason upon not less than ninety (90) days’ written notice to PRIM. In addition, PRIM may terminate this Agreement immediately upon notice to the Consultant (i) upon any material breach by the Consultant of its obligations hereunder; (ii) if the Consultant files for bankruptcy or state law receivership; (iii) if in the reasonable judgment of PRIM, the Consultant becomes financially unstable so as to jeopardize its ability to perform the services required under this Agreement; (iv) if the Consultant is the subject of criminal investigation, indictment or conviction, when in PRIM’s sole judgment such action jeopardizes the Consultant’s ability to perform the services required under this Agreement; or (v) in the event of any material change in the control of the Consultant or a change in or departure of any Primary

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Consultant. Upon termination of this Agreement, the Consultant will immediately and in all cases within ten (10) business days, deliver to PRIM all property and documents pertaining to PRIM then in the custody of the Consultant, including PRIM’s portfolio status on a disk that may be retained by PRIM or transferred to another monitoring agent. A pro rata determination of fees, if appropriate, will be made for any quarter in which this Agreement has been terminated.

9. Fiduciary Status of The Consultant; Chapter 268A. With respect to the performance of its duties and responsibilities hereunder for the Account, the Consultant acknowledges that it is a "fiduciary" within the meaning of Chapter 32 of the Massachusetts General Laws. The Consultant 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 Consultant. The Consultant 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 Consultant acknowledges that PRIM has delivered a copy of Chapters 32 and 268A of the Massachusetts General Laws as currently in effect to the Consultant.

10. Disclosure Statements and Conflicts. The Consultant shall advise the Executive Director of PRIM of any arrangements with third party individuals, brokers, or money management firms who may have received or shared in the payment of fees for services provided to the Consultant in connection with securing or continuing this Agreement. The Consultant shall not directly or indirectly receive any benefit from recommendations or advice made to PRIM and shall disclose to PRIM any personal investment or economic interest which may be enhanced by the recommendations made to PRIM. In any situation in which the interests of PRIM may be in material conflict with the interests of the Consultant or with those of other clients of the Consultant, the Consultant will immediately inform PRIM of these conflicts. By January 1st of each year of this contract, the Consultant will provide a report of its business relationships with PRIM’s investment service and custodian banking providers. Where the Consultant is participating in a request for proposal process with PRIM, it will disclose its business relationships with all of the responding firms at the commencement of the process. Further, the Consultant will provide a description of its soft dollar business and policies to PRIM by January 1st of each year of the contract.

11. Liability. In addition to those requirements set forth in Section 9, at all times the Consultant 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 Consultant 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. The Consultant shall in no way be responsible for guaranteeing the financial success of any investment or investment strategy. While the Consultant will make recommendations to PRIM regarding investments, nothing in this Agreement shall delegate to the Consultant any investment decision or any of PRIM’s duties and responsibilities under

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applicable law. Nothing herein shall be construed to waive any liability that the Consultant has under applicable federal or state securities laws, or ERISA.

12. 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.

13. Bonding. The Consultant 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.

14. Communication. Any approvals, instructions, directions, notices or other communications pursuant to this Agreement will be mailed or delivered:

a) to PRIM at:

Pension Reserves Investment Management Board84 State Street, 2nd FloorBoston, Massachusetts 02109Attention: Michael Travaglini, Executive Director

b) to the Consultant at:

Either party may change the address for notices or other communications to it by written notice to the other stating the new address. Notices from either party to the other will be effective when received by the addressee.

15. Assignment, etc. The Consultant 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.

16. 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 hereto have the same meanings as in this Agreement.

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17. 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 Consultant 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 14.

18. 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 Consultant and PRIM have executed this Agreement as of the date first above written.

PENSION RESERVES INVESTMENTMANAGEMENT BOARD

BY:_____________________________ Michael Travaglini, Executive Director

Date Signed:_______________________

BY:_____________________________ Date Signed:_______________________

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Schedule A - Scope of Services

The Consultant shall furnish PRIM with the services of a qualified, professional staff to be generally available to PRIM and its representatives to provide general and public markets consulting to PRIM. The Consultant will provide written reports and will attend meetings of PRIM’s staff, Investment Committee, and Board as PRIM reasonably deems necessary to report on the Consultant’s recommendations and on the status and performance of PRIM’s investments. More specifically, the Consultant’s services will include, but not be limited, to the following:

A. General Consulting Services

1. General Investment Policy and Procedures. At least annually, the Consultant shall review PRIM’s Investment Objectives, Guidelines, Policies and Procedures and, if necessary, make reasoned recommendations for amendments thereto to PRIM’s staff, Investment Committee, and Board. 2. General Research and Analysis . Upon request of PRIM, the Consultant shall provide ongoing research, analysis and advice on specific matters, including administrative and operational issues affecting PRIM.

3. Asset Allocation Plan. At the outset of the term of this Agreement, the Consultant shall prepare and present to PRIM an asset/liability study and a plan (the initial “Asset Allocation Plan”) establishing investment objectives and target asset mix for the PRIT Fund. The initial Asset Allocation Plan shall utilize the actuarial analysis performed by the Public Employee Retirement Administration Commission (“PERAC”) as of January 1, 2004. The initial Asset Allocation Plan shall, at a minimum, include (a) a report on asset allocation modeling (including methodology and specifics) linked to funding and liability management; (b) an analysis of the investment characteristics of available asset alternatives; (c) recommendations for the development of a comprehensive statement of investment objectives philosophy; and (d) recommendations for an optimum asset allocation for the PRIT Fund based upon all of the foregoing, including a methodology and time table for achieving such asset allocation. The Consultant shall present a draft of the asset/liability study and initial Asset Allocation Plan at the November PRIM Investment Committee and Board meetings.

4. Annual Asset Allocation Optimization. Each year (other than the year in which an Asset Allocation Plan is formulated), the Consultant shall prepare and present to PRIM a report containing its updated capital market assumptions for future years, and an evaluation and optimization analysis of the Asset Allocation Plan and proposals to respond to that analysis during the next calendar year. The Consultant shall present such reports at the January PRIM Investment Committee and Board meetings.

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B. Public Market Consulting Services

The Consultant shall provide PRIM with advice, consultation and review of the PRIT Fund’s investment structures, benchmarks, investment guidelines, managers and available investment products. Such services shall include the following services with respect to the PRIT Fund’s public markets portfolios, which currently include domestic equity, international equity, emerging markets equity, core fixed income, and high yield (the “Public Market Portfolios”):

1. Public Market Portfolio Analysis. As requested by PRIM, the Consultant shall prepare and present to PRIM reports containing (a) an evaluation of the current investment manager structure ; and (b) a review of PRIM’s needs for particular investment styles, capitalization ranges, or strategies.

3. Public Market Manager Oversight. The Consultant shall provide the following services with respect to PRIM’s public market investment managers (“Public Market Managers”) and shall provide analysis and advice on questions or issues that arise in the course of overseeing the Public Market Managers:

(a) quarterly performance analysis for each of the Public Market Managers, including performance evaluation against the appropriate benchmarks and peer universes, as well as return attribution characteristics, style analysis and risk analysis;

(b) analysis and advice on questions or issues that arise in the course of overseeing the Public Market Managers, such as advice on appropriate benchmarks, calculation of custom benchmarks, and investment guidelines or fee structures, including performance based fees;

(c) reports of the results of the Consultant’s ongoing qualitative due diligence on PRIM’s Public Markets Managers, including but not limited to immediate notification of personnel, organizational, or other changes affecting PRIM’s public market managers, such notice to be followed promptly by written report and analysis that includes advice and recommendations concerning manager retention or termination;

4. Public Market Manager Search and Selection. The Consultant shall assist PRIM in hiring Public Market Managers. This assistance shall include the following services:

(b) Assisting PRIM in conducting searches for Public Market Managers, as requested, which will include (i) developing requests for proposals, including evaluation factors and methods; (ii) screening prospective managers and recommending finalists; (iii) preparing background material for the Investment Committee, Board and any search committee formed by PRIM; (iv) participating in interviews of managers; (v)

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participating in site visits to managers; (vi) providing advice on negotiating terms and conditions of investment management agreements; and (vii) providing reasoned analysis concerning manager selection to the Investment Committee, Board and any search committee formed by PRIM.

C. Staff and Trustee Education

1. The Consultant shall invite PRIM staff and PRIM Board members, in such numbers as are reasonable, to attend conferences, meetings, and seminars sponsored by the Consultant, including the Consultant’s Annual Client Conference.

3. The Consultant will provide training to PRIM staff with respect to management of the PRIT Fund’s assets and investment managers, and utilization of asset allocation tools. 4. On an ongoing basis, the Consultant shall provide PRIM with copies of new research reports, policy statements, white papers or other such documents on issues of general concern as they become available.

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Schedule B - Compensation for Services

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Exhibit C – Disclosure Forms

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COMMONWEALTH OF MASSACHUSETTSPENSION 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,

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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; andc) 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; orc) 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 _________, 2004.

Name:

Title:

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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

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The PERAC Disclosure Form may be found at the link listed below.

http://www.mass.gov/perac/forms/0803disclosurestatementconsultants.pdf

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http://www.mass.gov/perac/forms/0803disclosurestatementconsultants.pdf

Exhibit D – PRIM Investment PolicyPlease go to the link below to see the Investment Policy

http://www.mapension.com/InvestmentProgram/InvestPolicy.html

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Exhibit E – PRIM Rebalancing Policy

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PRIT Fund Portfolio Rebalancing PolicyThe strategic targets in the table below represent PRIM’s long-term asset allocation. The current interim targets represent the temporary allocation of the uninvested portion of PRIM’s alternative investment and real estate allocation to domestic equity and fixed income, in a 2 to 1 ratio. The long-term alternative investment allocation is 10%, the long-term real estate allocation is 9%, and the long-term allocation to timber is 6%. The uninvested portion will be allocated to domestic equity and fixed income in a 2 to 1 ratio. (This temporary allocation is not intended as a substitute for exposure to venture capital, special equity funds, or timber investments; instead, it reflects the approximate equity/fixed income ratio of the total PRIT Fund portfolio.) The allocation tolerances represent the maximum amount over or under the interim target that is permissible before PRIM will rebalance back to the interim targets.

Rebalancing is not time-based (e.g., every twelve months), but, as noted above, is triggered when an asset class exceeds or falls below its target allocation range. Staff will review the PRIT Fund’s asset allocation on the 20 th day after the end of each quarter. The benefit of this timing is that the asset allocation of the PRIT Fund will reflect the most recent valuations for alternatives, real estate, distressed debt, and timber.

During this review, if a public securities asset class exceeds or falls below its target allocation range, staff will take action after considering the cash flow of the PRIT Fund. This review should include cash in-flow from employee contributions, cash out-flow from paying benefits, capital calls or return of capital from alternatives, real estate, timber, and distressed debt, and other investment funding needs or proceeds such as the hiring or termination of investment managers.

In the circumstance that a rebalancing is warranted, staff shall have the discretion to instruct public securities managers to use futures as a “temporary” solution to rebalance back, as closely as practical, to the precise interim target allocation. During this time, staff will take steps to reduce the futures positions and replace such positions with physical securities as soon as is practical.

The Board has mandated that rebalancing not be performed at calendar quarter ends (March, June, September or December month-end) to avoid the market volatility that may arise at those dates due to the activity of other investors.

Asset Class

Strategic Target

Interim Target

Allocation Tolerances

Allocation Ranges

Domestic equity 26% 33% 3% 30 to 36%International equity 15% 15% 2% 13 to 17%Emerging Markets 5% 5% 1% 4 to 6%Core Fixed 15% 18% 2% 16 to 20%High Yield Debt 9% 8% 1% 7 to 9%Real Estate 9% 6% See belowAlternative Investments 10% 6% See below

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Timber 6% 4% See belowAbsolute Return 5% 5% TBD

The illiquid nature of PRIM’s Alternative Investments, Distressed Debt and Real Estate portfolios requires different rebalancing methods for these asset classes, which are set forth below.

Alternative Investments and Distressed Debt

It is usually possible to sell institutional limited partnership interests only at a substantial discount to their underlying asset value. Accordingly, it is PRIM’s policy not to sell limited partnership interests for rebalancing purposes.

Instead, PRIM’s primary mechanism for maintaining its target allocations to Alternative Investments and Distressed Debt is the Annual Alternative Investment Strategy presented to the PRIM Board at its January meeting. The Annual Alternative Investment Strategy includes a budget for new commitments to venture capital and special equity funds for the year. The budgeted amounts are based on current investments, current commitments, and anticipated appreciation and distributions vis-à-vis the current and anticipated size of the total PRIT Fund. Should the allocation to alternative investments fall outside the target allocation range, it will be rebalanced -- albeit gradually -- by adjusting the annual budget for new commitments. A similar budgeting process should be introduced to maintain an appropriate allocation to distressed debt.

Real Estate

Although PRIM’s real estate portfolio is likely to be more liquid than its alternative investment portfolio, there are significant transaction costs to selling core real estate investments. PRIM staff will carefully monitor the value of the real estate portfolio vis-à-vis the total PRIT Fund, and will work with the Fund’s real estate manager to keep within the target allocation range while minimizing transaction costs, as follows:

At 6.0% Real Estate Managers are notified that PRIT has reached 6% funding and that they are therefore required to seek prior approval of any additional real estate purchases.

At 7.0% Real Estate Managers are notified that PRIT has reached 7% funding status and that PRIM has suspended the purchase of new properties until real estate allocations return to the 6% level. Managers are required to review their portfolios for possible sales candidates.

At 8.0% Real Estate Managers are notified that PRIT has reached

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8% funding, and that they are required to propose properties for sale in order to return the real estate allocation to 6%.

If the REIT component of the real estate portfolio becomes significantly larger (e.g., more than 10% of the real estate portfolio), it should replace the core separate accounts as the source of liquidity for rebalancing.

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Exhibit F – ETI Program

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ECONOMICALLY TARGETED INVESTMENT PROGRAM

Adopted 8/14/03¶A. PRIM recognizes its obligations under Massachusetts law include a responsibility to seek out investment opportunities that will benefit the economic climate of the Commonwealth as a whole, provided that such investments are consistent with the Board’s obligations to the members and beneficiaries of its participating retirement systems. (See M.G.L. ch. 32, sec. 23(2A)(h)) Accordingly, in cases where investment characteristics, including returns, risk, liquidity, compliance with allocation policy, and others, are equal, PRIM will favor those investments that have a substantial, direct and measurable benefit to the economy of the Commonwealth.

¶B. Such Economically Targeted Investments (“ETI’s”) must meet the following criteria:

1. Investments must target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. When evaluating ETI opportunities, PRIM will discount projected returns for any subsidies, deferral of income, higher risk levels, and other concessions to reach a real rate of return for comparison with other ETI and non-ETI investment alternatives. Similarly, ETI benefits will not justify higher investment risk. However, where appropriate, the PRIM staff, its managers, and its consultants will actively seek out and develop guarantees, third party recourse, hedging, and other acceptable and customary risk management vehicles to reduce or eliminate risk in ETI investments.

2. Investments must not exceed a reasonable weighting in the portfolio, including tracking the degree of exposure to the Massachusetts economy and ensuring appropriate geographic diversification. Investments should maintain the overall portfolio’s compliance with its asset allocation strategy. ETI benefits will not justify deviation from the Asset Allocation Plan adopted by the PRIM Board.

3. Investments should be placed with an experienced and capable manager through an objective and transparent process. Investments should be managed by qualified discretionary investment managers. PRIM will not make any direct investments.

4. Investments should target a “capital gap” where there are likely to be underserved markets.

5. Investments must be tracked (both investment performance and collateral benefits) and managed with the same rigor and discipline imposed on other investments. Investments should be reviewed and monitored by PRIM staff and consultants without disproportionate expenditure of time and resources.

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EXHIBIT G – Absolute Return Portfolio Structure & Managers

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Absolute Return Portfolio Structure and Managers

PRIM’s long-term absolute return asset allocation target is 5%. While the proposed portfolio structure was to allocate 66% to fund of hedge funds and 33% directly to hedge funds, the Board voted to start with the entire 5% in fund of hedge funds. This was due to the large mandate involved (compared to the average hedge fund size), the relative inexperience of PRIM in this category and the desire to more quickly be able to gain exposure to the asset class. Over time, the portion in fund of hedge funds may be reduced by shifting a portion of the investments directly to hedge funds, primarily to minimize the double fee structure.

Using three models to triangulate an optimal strategy allocation for the absolute return portfolio, the following guideline ranges for each of the hedge fund strategies were developed:

Equity Hedge 30% to 50% Relative Value 20% to 40% Event Driven 15% to 25% Global Macro 5% to 15%

These ranges are meant to provide top-down investment guidelines while still allowing for flexibility with respect to manager selection and market conditions. Implementation of these allocation goals will occur by taking an active management approach, whereby high-quality, experienced manager selection will be a key fundamental to building the portfolio.

PRIM’s current fund of funds managers are Arden, Ivy, K-2, PAAMCO, and Rock Creek.

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I. INTRODUCTION.

Economy & Finance

Transcript of I. INTRODUCTION.