INVESTMENT MANAGEMENT AGREEMENT 

                        THIS AGREEMENT ("Agreement"), made and entered into as of the 1st day of April, 1999, by and between MISSOURI STATE EMPLOYEES' RETIREMENT SYSTEM, 907 Wildwood Drive, Jefferson City, Missouri 65109, hereinafter referred to as "CLIENT," and ABC CORP., hereinafter referred to as "INVESTMENT MANAGER."  This agreement supersedes all previous agreements between the CLIENT and the INVESTMENT MANAGER pertaining to the concentrated domestic equity portfolio referenced in this agreement.

                                                                 WITNESSETH:

                        WHEREAS, the CLIENT is authorized and required by Chapter 104 of the Missouri Revised Statutes to invest the funds of the CLIENT; and

                        WHEREAS, the INVESTMENT MANAGER desires to serve the CLIENT in managing a portion of the CLIENT'S assets designated by CLIENT, in accordance with the terms and conditions of this Agreement;

                        NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties agree as follows:

1.         APPOINTMENT OF INVESTMENT MANAGER.  The CLIENT hereby appoints the INVESTMENT MANAGER as the investment manager of a Concentrated Domestic Equity Portfolio Account (the "Portfolio"), and the INVESTMENT MANAGER agrees to act as such with respect to the Portfolio in accordance with the terms and conditions of this Agreement.

2.         REPRESENTATIONS.

a.         The CLIENT hereby represents and warrants that:

i.          Existence and Power.  CLIENT (a) is duly organized, validly existing and in good standing under the laws of the state of Missouri; and (b) has all requisite powers and all governmental and regulatory licenses, authorizations, consents and approvals required to enter into this Agreement and perform its obligations set forth in the Agreement.

ii.          Authorization.  The execution, delivery and performance by CLIENT of this Agreement have been duly authorized by all necessary action.

iii.         Binding Effect.  This Agreement has been duly executed and delivered by CLIENT and constitutes the legal, valid and binding obligations of CLIENT enforceable against CLIENT in accordance with its respective terms.

b.         The INVESTMENT MANAGER hereby represents and warrants that:

i.          Corporate Existence and Power.  INVESTMENT MANAGER (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and (b) has all requisite powers and all governmental and regulatory licenses, authorizations, consents and approvals required to enter into this Agreement and perform its obligations set forth in this Agreement.

ii.          Authorization.  The execution, delivery and performance by INVESTMENT MANAGER of this Agreement have been duly authorized by all necessary action.

iii.         Binding Effect.  This Agreement has been duly executed and delivered by INVESTMENT MANAGER and constitutes the legal, valid and binding obligations of INVESTMENT MANAGER enforceable against INVESTMENT MANAGER in accordance with its terms.

iv.         Registration.  The INVESTMENT MANAGER is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 and with the Securities Commission of Missouri under the Missouri Uniform Securities Act, or is exempted or excepted by definition.

3.         THE PORTFOLIO.  The CLIENT shall designate the Portfolio to be managed by the INVESTMENT MANAGER and shall notify its custodian bank ("Custodian") as to the appointment of the INVESTMENT MANAGER as investment manager of the Portfolio.  Additional assets may be allocated to, or assets may be withdrawn from the Portfolio from time to time in the sole and absolute discretion of CLIENT.

4.         DUTIES AND POWERS OF INVESTMENT MANAGER. 

a.         The INVESTMENT MANAGER shall have sole and absolute discretion with respect to said investments as to purchases and sales without prior consultation.  The INVESTMENT MANAGER shall be bound by such investment guidelines attached hereto as Schedule 1, and incorporated herein by reference for the management of the Portfolio, or such written investment guidelines as shall from time to time be provided by CLIENT in CLIENT'S sole and absolute discretion.  It is understood that the INVESTMENT MANAGER may perform similar services for other clients, subject to conflict of interest provisions herein, and that investment action taken for each client may differ.

b.         In exercising its discretion hereunder, the INVESTMENT MANAGER shall use its professional skill, diligence and judgment and is subject to the duties set forth in RSMo. §§ 105.687-105.689.  Where the INVESTMENT MANAGER is subject to conflicting statutory duties, the highest fiduciary duty shall apply.

c.         The INVESTMENT MANAGER shall use its best efforts to increase the value of the Portfolio.  Nothing herein shall be deemed to waive compliance with any provision of the federal securities laws or any rules or regulations adopted thereunder, or of any state laws.

d.         The INVESTMENT MANAGER under the terms of this Agreement shall under no circumstances act as custodian for the Portfolio or have possession of any assets of the Portfolio.

e.         The INVESTMENT MANAGER shall provide the Custodian with such documents and information, including certification of the INVESTMENT MANAGER's duly authorized representatives, as the CLIENT or the Custodian may reasonably request.  All directions given by the INVESTMENT MANAGER to the CLIENT or the Custodian shall be given via electronic transmission or in writing, signed by an authorized representative of the INVESTMENT MANAGER; provided, however, that the CLIENT or the Custodian may accept oral directions from the INVESTMENT MANAGER, where they deem such acceptance to be reasonable.

f.          Subject to the terms of this Agreement including the Investment Guidelines set forth in Schedule 1, and except as otherwise specified by notice from CLIENT to INVESTMENT MANAGER, the INVESTMENT MANAGER may place orders for the execution of transactions hereunder with or through any broker, dealer, futures commission merchant, bank or any other agent or counterparty that the INVESTMENT MANAGER may select in its own discretion and without notice to the CLIENT.

5.         REPORTS. 

a.         The INVESTMENT MANAGER shall furnish the CLIENT and the Custodian in a timely manner with monthly appraisal of the Portfolio valued as of the last business day of the month, together with performance tabulations, a summary of purchases and sales and such other reports as shall be requested by CLIENT in its sole and absolute discretion.

b.         The INVESTMENT MANAGER shall keep accurate and detailed records of all receipts, investments, sales, disbursements and other transactions carried out by the INVESTMENT MANAGER for or with the CLIENT, which shall be open to inspection by CLIENT.

c.         The INVESTMENT MANAGER shall furnish the CLIENT information pertaining to soft dollars as described in section 16 of this Agreement.

d.         INVESTMENT MANAGER shall furnish CLIENT such other reports regarding the Portfolio as CLIENT may reasonably request.

6.         CORPORATE GOVERNANCE AND PROXY VOTING.  The INVESTMENT MANAGER is hereby directed to represent CLIENT on issues of corporate governance regarding the Portfolio so as to protect and enhance the value of the Portfolio in a prudent manner.  Except where CLIENT has notified INVESTMENT MANAGER of specific voting policies or instructions, INVESTMENT MANAGER is empowered to vote on any stocks, bonds or other securities, to give general or special proxies or powers of attorney with or without power of substitution, to exercise any conversion privileges, subscription rights, or other options and to consent to or otherwise participate in corporate reorganizations or other changes affecting corporate securities and generally to exercise any of the powers of an owner with respect to the Portfolio pursuant to the first sentence of this section.  INVESTMENT MANAGER shall maintain detailed records of its performance of its duty and provide such records to CLIENT as may be requested by CLIENT from time to time.

7.         DIVERSIFICATION.  The INVESTMENT MANAGER shall have no responsibility for the manner in which the CLIENT’S assets, considered in the aggregate, shall be diversified; provided, however, that subject to the Investment Guidelines as set forth in Schedule 1 of this Agreement, the INVESTMENT MANAGER shall diversify the assets of the Portfolio to the extent necessary to minimize the risk of large losses.

8.         TERMINATION.  This Agreement shall continue in effect until terminated by either party by giving to the other party notice in writing.  CLIENT shall give at least ten (10) days notice to INVESTMENT MANAGER prior to the date it terminates this Agreement and INVESTMENT MANAGER shall give CLIENT at least ten (10) days notice prior to the date it terminates this Agreement.  INVESTMENT MANAGER shall cooperate with CLIENT and follow CLIENT'S direction in connection with the termination of this Agreement and the orderly transfer of Portfolio to successor investment manager(s) as directed by CLIENT.

9.         COMPENSATION AND EXPENSES.

a.         The CLIENT shall compensate from the Portfolio the INVESTMENT MANAGER for all services rendered hereunder in accordance with the provisions in Schedule 1 hereto.  Fees for a partial period shall be pro-rated based on the actual number of days.

b.         Except as otherwise specified in Schedule 1, the fees specified in Schedule 1 are payable quarterly in arrears, based on the market value, as determined by the Custodian of the Portfolio at the end of the quarter, and shall be billed to the CLIENT by invoice.

c.         It is understood that the INVESTMENT MANAGER shall be responsible and liable for all expenses incurred by it in performing its obligations hereunder and CLIENT shall have no obligation to reimburse INVESTMENT MANAGER therefore.

10.       AFFIRMATIVE ACTION.  During the term of this Agreement the INVESTMENT MANAGER will maintain an equal opportunities plan with respect to the engagement of women and minorities as employees and/or in any subcontracts, joint ventures, or partnerships entered into by the INVESTMENT MANAGER, consistent with the Affirmative Action Policy adopted by the CLIENT, a copy of which is attached in Schedule 2, the INVESTMENT MANAGER will provide CLIENT with a copy of the equal opportunities plan or plans which the INVESTMENT MANAGER has in place and any revisions of that plan or plans upon request.

a.         Upon request by CLIENT, which shall be at least annually, the INVESTMENT MANAGER will report to CLIENT the following information:

i.          Efforts the INVESTMENT MANAGER has made to recruit minorities and women as employees, including specific information on advertisement, contacts made, and other attempts to advise of opportunities with the INVESTMENT MANAGER.

ii.          Minorities and women then employed by the INVESTMENT MANAGER, including the specific positions and responsibilities involved.  In addition, the INVESTMENT MANAGER will describe any role those individuals are performing with respect to this Agreement.

iii.         Efforts made to subcontract or enter joint ventures or partnerships with firms owned by minorities or women, including specific information on advertisement, contacts made, and other attempts to advise of opportunities with the INVESTMENT MANAGER.

iv.         Subcontracts, joint ventures or partnerships the INVESTMENT MANAGER has with firms owned by minorities or women, and any role those firms perform with respect to this Agreement.

v.         Minorities or women who have a partnership or equity interest in the INVESTMENT MANAGER at the time of the report.

b.         The INVESTMENT MANAGER will provide the information in the format or on such forms as requested by the CLIENT.

c.         In addition to the information reported pursuant to this section, the INVESTMENT MANAGER will provide any other information reasonably necessary to assess the results of the equal opportunities plan or plans.

d.         For the purposes of this Agreement, "minorities" means individuals socially and economically disadvantaged due to their race or ethnic background [in the country in which the INVESTMENT MANAGER operates].

11.       DELIVERY OF SECURITIES.  The INVESTMENT MANAGER shall direct that all securities purchased for the Portfolio be registered in the name of the Client, and be delivered to the Custodian or its nominee, except as otherwise directed by the CLIENT.

12.       PROHIBITION AGAINST CONTINGENT FEES.  The INVESTMENT MANAGER warrants that it has not employed or retained any company or person, other than a bona fide employee working solely for the INVESTMENT MANAGER, to solicit or secure this Agreement and that it has not paid or agreed to pay any person, company, corporation, individual, or firm other than a bona fide employee working solely for the INVESTMENT MANAGER, any fee, commission, percentage, gift, or other consideration contingent upon or resulting from the award or making of this Agreement.

13.       INDEMNIFICATION.

a.         INVESTMENT MANAGER agrees to indemnify CLIENT and hold CLIENT harmless from any liabilities, losses, costs or expenses which CLIENT may incur in connection with this Agreement or the transactions arising from INVESTMENT MANAGER’s breach of its obligations under this Agreement, negligence, gross negligence, misconduct, bad faith or fraud, together with attorneys' fees, costs and expenses incurred by CLIENT as a result thereof.

b.         Upon receipt by CLIENT of notice of any claim with respect to which it may be entitled to indemnification under this section, the CLIENT shall promptly notify the INVESTMENT MANAGER in writing thereof, enclosing a copy of all papers, if any, served; provided, however, CLIENT'S failure or delay in so notifying INVESTMENT MANAGER shall not affect INVESTMENT MANAGER'S liability hereunder.

c.         INVESTMENT MANAGER shall be entitled to participate in or assume the defense of any claim against CLIENT indemnified by INVESTMENT MANAGER under this section, with legal counsel reasonably satisfactory to CLIENT.  After written notice from INVESTMENT MANAGER to CLIENT of INVESTMENT MANAGER's election to assume such defense, INVESTMENT MANAGER shall not be liable to CLIENT for any attorneys' fees or other expenses of litigation incurred by CLIENT for any attorneys' fees or other expenses of litigation subsequently incurred by CLIENT in connection with such defense unless and to the extent (i) such expenses were incurred with the written consent of INVESTMENT MANAGER; or (ii) CLIENT has obtained a written opinion of counsel that there exists a conflict of interest between INVESTMENT MANAGER and CLIENT with respect to the defense of such claim or that there are one or more defenses available to CLIENT that are unavailable to INVESTMENT MANAGER (in either of which cases the INVESTMENT MANAGER shall not have the right to direct the defense of such claim on behalf of the CLIENT).

d.         No party shall settle any claim without the prior written consent of the other party, which consent shall not be unreasonably withheld.  If CLIENT does not agree with the decision of INVESTMENT MANAGER to settle, terminate, compromise, appeal or otherwise dispose of such litigation, CLIENT, for its own account and at its own expense, may elect to pursue the litigation in a different manner upon written notice to INVESTMENT MANAGER; provided, however, CLIENT shall continue to be entitled to be reimbursed under this section by INVESTMENT MANAGER up to the amount which INVESTMENT MANAGER is willing to pay pursuant to any proposed settlement, compromise, award or other disposition and any costs incurred by INVESTMENT MANAGER under this section for the account of CLIENT or by CLIENT up to such point in the proceedings.

14.       ASSIGNMENT.  INVESTMENT MANAGER may not assign its rights or obligations under this Agreement without the prior written consent of the CLIENT.

15.       AUTHORIZED INSTRUCTIONS FROM CLIENT.  The CLIENT shall furnish the INVESTMENT MANAGER with a certificate, signed by a duly authorized officer or officers of the CLIENT, designating the officers or employees of the CLIENT ("Authorized Persons") having authority to act in all respects for and on behalf of the CLIENT in connection with this Agreement.  The CLIENT agrees that, until the INVESTMENT MANAGER is otherwise advised in writing by a duly authorized officer or officers of the CLIENT, the INVESTMENT MANAGER shall be authorized and entitled to rely upon any notice, instruction, request, order or other communication, given either in writing or orally, and reasonably believed by the INVESTMENT MANAGER in good faith to be given by any Authorized Person or by any other person whom the INVESTMENT MANAGER reasonably believes in good faith to be acting on behalf of the CLIENT.

16.       SOFT DOLLARS AND CONFLICTS OF INTEREST.

a.         INVESTMENT MANAGER shall disclose all "soft dollar" arrangements and transactions, including the amount of soft dollar credits generated, brokerage firms involved, and the goods or services acquired by INVESTMENT MANAGER on a quarterly basis along with the other reports required by this Agreement.  CLIENT, if it determines, in its sole and absolute discretion, that such arrangements or transactions conflict or potentially conflict with its interests, may require INVESTMENT MANAGER to direct such credits, goods or services to CLIENT or its designee, or may require that INVESTMENT MANAGER pay cash for all such credits, goods or services, or otherwise reflect the true value of such transactions or arrangements.  CLIENT shall not require INVESTMENT MANAGER to pay cash for any credits, goods or services received prior to the date the CLIENT notifies INVESTMENT MANAGER that its soft dollar arrangement is no longer acceptable.

b.         INVESTMENT MANAGER shall fully disclose its direct or indirect financial interests in any entity with which it deals on behalf of CLIENT (which shall not be construed to include portfolio holdings of the INVESTMENT MANAGER’S other clients).  If CLIENT, in its sole and absolute discretion, determines that such transactions conflict with or potentially conflict with its interests, CLIENT may require INVESTMENT MANAGER to cease its dealings with such entity on behalf of CLIENT.  INVESTMENT MANAGER shall also disclose any other fact or relationship which would compromise or materially affect its ability to faithfully perform its duties hereunder.

17.       DISCLOSURE.  INVESTMENT MANAGER shall immediately disclose to CLIENT:

a.         material adverse changes to INVESTMENT MANAGER's financial status;

b.         INVESTMENT MANAGER’s current equity ownership by category as of the date of this Agreement and any change in INVESTMENT MANAGER's equity ownership that changes current equity ownership by more that 5% or in INVESTMENT MANAGER's key employees, or consultants, including those persons or entities on whom INVESTMENT MANAGER relies to make investment decisions for the Portfolio, or to administer the Portfolio;

c.         with respect to provisions of investment manager services,        

i.          any investigation by federal or state agencies or self-regulatory organizations of the  INVESTMENT MANAGER other than a routine audit;

ii.          any complaint against the INVESTMENT MANAGER filed with a federal or state agency or self-regulatory organization;

iii.         any proceeding naming the INVESTMENT MANAGER before any federal or state agency or self-regulatory organization; or

iv.         any fine, penalty, censure or other disciplinary action taken against the INVESTMENT MANAGER.

d.         Notwithstanding the provision of this Agreement regarding its termination, CLIENT may, in its sole and absolute discretion, terminate this Agreement immediately and without advance notice to INVESTMENT MANAGER on the occurrence of any event listed in this section, whether disclosed by INVESTMENT MANAGER or not.

18.       CONFIDENTIALITY.  INVESTMENT MANAGER shall keep confidential all information, records and reports furnished to it by CLIENT hereunder or which INVESTMENT MANAGER generates or produces under this Agreement.

19.       GENERAL.

a.         Missouri Law.  The Agreement shall be performed in accordance with all applicable federal, state and local laws and administrative regulations and shall be governed and interpreted under the laws of the State of Missouri.

b.         Venue and Jurisdiction.  The parties hereby agree that any action regarding the terms or performance or breach of this Agreement shall be brought in either Cole County Circuit Court in the State of Missouri or the United States District Court for the Western District of Missouri, as shall be elected by CLIENT in CLIENT'S sole and absolute discretion.  Upon INVESTMENT MANAGER'S receipt of written notice of such election, INVESTMENT MANAGER shall take whatever actions are necessary to effectuate CLIENT'S election, including, but not limited to, dismissing and refiling any action in the appropriate court, or waiving any objection to a removal petition.

c.         Additional Information.  The CLIENT agrees to furnish INVESTMENT MANAGER with all documents, authorizations and powers as might be reasonably required by the INVESTMENT MANAGER to carry out its obligations according to the terms of this Agreement.

d.         Form ADV.  The INVESTMENT MANAGER shall on an annual basis provide the CLIENT with copies of Securities and Exchange Commission Form ADV, and any amendments thereto not previously furnished to CLIENT and a copy of the annual company report.

e.         Insurance.  The INVESTMENT MANAGER shall for the term of this Agreement maintain an errors and omissions insurance policy with a minimum coverage limit of $1,000,000 and a fidelity bond with a minimum coverage limit of $500,000.  The INVESTMENT MANAGER shall furnish the CLIENT with proof of its errors and omissions insurance as well as a fidelity bond upon request.

f.          Whole Agreement.  This Agreement constitutes the entire understanding of the CLIENT and the INVESTMENT MANAGER and may be amended only by written instrument executed by both parties.

g.         Place of Contract.  This Agreement shall be deemed to be entered into in the State of Missouri; and all performance hereunder shall be made in the State of Missouri.

                        IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

                                                                                    CLIENT

Secretary                                                                      Executive Director

                                                                                    INVESTMENT MANAGER

Secretary                                                                      President

                                                                                                                                                                                                                                                                                              952560049/6

                                                                  SCHEDULE 1

                                                      INVESTMENT GUIDELINES

ABC Corp. 

Concentrated Domestic Equity Portfolio

Primary Contact           Portfolio Administration        Portfolio Trading

Name                                      

CIO                                        

(Phone)

(Fax)                                       

email                                       

Policy Objective:

ABC Corp. (ABC) is one of four active concentrated domestic equity managers employed by MOSERS.  ABC has been allocated an amount equal to 2.5% of the total assets, subject to rebalancing under the asset allocation guidelines in the Board’s Investment Policy.  ABC is expected to produce investment returns that exceed the Russell 3000 Index by 200 basis points on an annualized basis over rolling five-year periods, gross of fees.

Guidelines:

A.     Portfolio Structure: ABC’s portfolio will consist of not less than 10 and not more than 30 domestic equity securities or their equivalents.  These securities will represent the highest investment convictions of ABC’s research and portfolio management team, in a fully invested mandate.

B.     Investment Style: It is generally understood that ABC is focused on “Large Growth” companies.  Over time, however ABC has been observed shifting their focus to smaller companies or firms that are not immediately classified as “growth” stocks, in anticipation of changes in market sentiment.  Strategic or thematic shifts may occur again, and ABC is expected to disclose and review such decisions on a timely basis.

C.     Fully Invested Mandate: Cash reserves will be swept into an appropriate Short-Term Investment Fund (STIF) vehicle on a daily basis.  Cash positions should be kept to a minimum, and reserves in excess of 3% of the fund value should not be maintained beyond immediate transaction liquidity needs.

D.     Diversification: ABC will be running a concentrated portfolio. However, ABC will adhere to the following limitations in order to avoid undue risk inherent in non-diversified holdings.

1.      All restrictions are based upon percentage of the portfolio holdings on a market value basis at the time of the security’s purchase.

2.      All equity investments should emphasize quality and good marketability.

3.      Market capitalization should be at least $500 million for each security held.

4.      No more than 10.0 percent of the equity portfolio, at cost, may be invested in securities of any one issuing corporation.

5.      MOSERS’ Investment in any corporation may not exceed 5.0 percent of the outstanding shares of that corporation.

6.      A maximum of 20.0 percent of the portfolio value may be invested in ADRs or foreign securities listed on U.S. exchanges.

E.      Portfolio Benchmark: ABC’s performance will be measured on a total return basis, relative to the Russell 3000 Index.

F.      Formal Reviews: ABC will be subject to formal due diligence reviews twice a year.  One meeting will be held at ABC’s place of business, and the other at MOSERS’.  Qualitative aspects of the review will consider elements of the organization as they relate to the people and process involved in this engagement.  Quantitative review factors will be based on the following characteristics:

1.                              Variance from historical style/risk attributes, generated by returns based regression analysis of prior performance data.

2.                              Performance relative to the Russell 3000 Index, gross of investment management fees.

G.     Prohibited Investment Activities:

1.                                          Short sales, margin purchases or borrowing.

2.                                          Use of private placements or restricted securities.

3.                                          Use of futures, or exchange traded options, except those used for bona fide hedging purposes.  If it is ABC’s intention to use derivatives for purposes of hedging it will be ABC’s responsibility to discuss this in advance with MOSERS so that proper documents allowing for their use may be approved.

4.                                          Investment in warrants, or other long-term options, except when acquired as part of purchased security.

5.                                          Investments in commodities, or direct purchases of real estate.

6.                                          Foreign securities, unless they are listed or registered on a domestic exchange and are denominated in U.S. Dollars.

7.                                          The portfolio will comply with all federal and state laws and any restrictions imposed by this Board.

H.     Brokerage and Soft Dollars: ABC is expected to have very low turnover.  Trading expenses are to be kept as low as possible.  MOSERS’ Standard Quarterly Reports provide for routine disclosure of brokerage expenses and soft dollar utilization.  MOSERS is also measuring trading costs through outside cost measurement services, and similar reviews should be provided by the manager, if they are available.

I.    Reporting Requirements:

A.     Portfolio Reconciliation and Reports: Written summary reports of transactions, month-end market values, and quarterly rates of return are to be provided to Staff within fifteen (15) business days after the close of each quarter’s business activity. 

It is ABC’s responsibility to reconcile all monthly pricing, income or return variances with MOSERS’ Custodian and MOSERS’ internal portfolio management and accounting system.  Such reconciliations should be completed by the end of the 6^th business day following month-end.

B.     Significant Events: Significant changes in ownership structure, investment strategy, or personnel are to be reported to MOSERS in writing as they occur.  A significant change is defined as follows.

1.                  An allocation to cash or cash equivalents that exceeds 3.0 percent over any rolling thirty-day period.

2.                  A deviation from these investment guidelines.

3.                  A departure of any person involved in the decision making process with respect to the MOSERS account.

J.          Management Fees

ABC’s compensation for management of this account shall be calculated by comparing the total annualized return of the assets in ABC’s account to the total annualized return of the Russell 3000 Index (“Index”) on a rolling twenty quarter basis.  Total annualized return of the ABC portfolio shall be calculated including transaction cost and excluding custody charges and fees.  MOSER’ custodian will calculate the market value and the performance numbers, in accordance with AIMR Standards.  Index performance will be calculated and reported by Frank Russell Company and shall include dividends.  For purposes of comparison, performance will be rounded to the nearest one basis point.

A.        Fee Calculation: - End of year five and beyond:

ABC’s compensation will be calculated and billed quarterly, in arrears, as follows:

1.      Calculate the total return of ABC’s account by annualizing the most recent twenty quarterly returns with each quarter’s return being equally weighted.

2.      Calculate the performance of the Index in the same manner as above.

3.      Calculate ABC’s Standard Annual Fee using the following schedule.

First                       $50 million                    0.750%            of assets

Above                    $50 million                    0.500%            of assets

Where assets are based upon an average of the month-end market values of assets managed during the quarter.

4.      If performance exceeds the Index by any amount between 1 basis point and 500 basis points, then ABC shall be paid based on the Performance Fee formula:

Performance Fee = (Actual Performance/200) X (Standard Annual Fee/4)

Where Actual Performance = ABC’s annualized performance minus the Index performance over the previous twenty quarters.

5.      If performance exceeds the Index by more than 500 basis points then 500 will be used as Actual Performance in the formula referenced immediately above.

6.      If Actual Performance is less than the Index, ABC will not receive a fee for that quarter.

B.        Fee Calculation: - Beginning of year one to the end of year five

For the first quarter under management ABC will receive a fee equal to ¼ of the Performance Fee, using annualized benchmark and performance figures for that quarter.  For the second through the twentieth quarters, the Performance Fee calculation will be made each quarter on a cumulative, annualized, rolling basis, and ¼ of the Performance Fee amount will be paid.  If cumulative fees paid quarterly to ABC exceed what should have been paid using the Performance Fee formula, then ABC will reimburse MOSERS for its payments in excess of such amount.

C.        Termination

Should MOSERS elect to terminate ABC prior to the end of year five, MOSERS shall pay the greater of (a) the Standard Fee or (b) the Performance Fee up to the termination date, unless such termination is “for cause” (defined below), in which case MOSERS shall pay the lower of (a) the Standard Fee or (b) the Performance Fee.

Termination shall be “for cause” if

1.      Through any merger, acquisition or combination more than 50% of the outstanding stock of ABC is acquired by an unaffiliated third party.

2.      John Doe departs from ABC.

3.      ABC or any of its employees is convicted of securities fraud.

4.      Any state or federal governmental agency imposes a fine, penalty, censure or other disciplinary action against ABC or one of its employees with regard to an investment activity.

If ABC elects to terminate this relationship prior to the end of year five then MOSERS will pay the lesser of the Standard Fee or the Performance Fee up through termination date.

If termination is effective as of a date prior to the end of the current quarter, fees will be pro-rated based upon results through the termination date.

Fiduciary Responsibility

The investment manager hereby acknowledges that it is a fiduciary and accepts delegation of fiduciary duty by the Board to the Manager, with respect to the Plan’s assets under its control.

These guidelines are not to be construed as restrictive to ABC’s ability to follow the strategies they consider are the most appropriate given the Board’s directive, but rather as an exercise of the Board’s fiduciary responsibility.  If at any time ABC feels that these instructions are unrealistic, or may be a hindrance in pursuing their investment style, MOSERS should be notified immediately in writing.

 SCHEDULE 2

                                                                      MOSERS

Affirmative Action Policy and Procurement Action Plan

            Within the bounds of its fiduciary responsibilities under law, including but not limited to the provisions of section 105.688 RSMo, the Board of Trustees of the Missouri State Employees’ Retirement System (MOSERS) desires to take affirmative actions to assure equal opportunities for minorities and women to participate as principals and employees in the areas of money management, brokerage, investment counseling and other professional services.  The Board specifically desires to take affirmative steps to assure those opportunities with respect to contracts involving MOSERS.  To accomplish that goal the Board adopts the following affirmative action policy and procurement action plan.

1.         All contracts of MOSERS with money managers, investment counselors, and other professional services providers will require the contractor to maintain an affirmative action plan with respect to the employment of women and minorities.  Those contracts will also require the contractors to report to MOSERS the results of their affirmative action plans in sufficient detail to allow an assessment of the good faith effort of the contractor in carrying out the affirmative action plan.  Reporting will include, but not be limited to, information on efforts to employ minorities and women, the number of minorities and women employed, the positions in which they are employed and the particular duties of minorities and women with respect to the MOSERS contract.  In addition, the report will include any efforts of the contractor to engage minorities and women in sub-contracts, partnerships and joint ventures.  The staff of MOSERS will develop the exact reporting requirements.

            The staff of MOSERS is directed to take steps to amend existing contracts for professional services to incorporate these requirements.

2.         In soliciting proposals from money managers, investment counselors and other professionals, MOSERS will request information similar to the reports required of contractors with respect to minorities and women.

3.         In soliciting proposals from money managers, investment counselors and other professionals, MOSERS will make specific efforts to identify and solicit proposals from qualified firms owned by minorities and women.  Such efforts will include identifying individual firms from which to solicit a proposal and publicizing the contract process in a manner likely to inform qualified firms owned by minorities and women.

4.         The board and staff of MOSERS will make reasonable efforts to attend professional gatherings of minorities and women in money management, brokerage, investment counseling and other professional services used by MOSERS. In addition, the staff will use other reasonable means to inform firms owned by minorities and women, and minorities and women employed as money managers, brokers, investment counselors and other professionals of the opportunities for doing business with MOSERS, and the means for pursuing those opportunities.  The staff will regularly report to the board on its efforts in this regard.

5.         The Board will evaluate the results of this affirmative action policy and procurement action plan annually.  Based on the evaluation the Board will determine whether any changes in the policy or plan are necessary and will file an annual progress report.  The results will be reported to the Joint Committee on Public Employee Retirement and the Missouri Minority Business Advocacy Commission.

6.         To qualify as a minority or women owned firm, such firm shall: 

            a.         Be domiciled in the United States;

            b.         Be owned or controlled by one or more individuals who are women or who qualify as a minority as defined below.  Ownership is classified as having a controlling interest in the firm of at least 51%; and

            c.         Have such women or minority owners involved in the daily business operations of the firm.

            As used in this policy, the term, “minorities” means individuals socially and economically disadvantaged due to their race or ethnic background including, but not necessarily limited to, Black Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, and Native Hawaiians.