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March 25, 2002
Dear PRIM Board Member:

We are writing as concerned legislators to raise a series of questions regarding the Pension Reserves Investment Management Board (PRIM) and its proxy voting guidelines for the Pension Reserves Investment Trust Fund ("PRIT Fund") assets. Our questions relate both to the rationale and implementation of these guidelines. As such, they are aimed at helping to assure that PRIT Fund equity investments achieve the greatest possible value for participants, who are not only beneficiaries but also citizens of the Commonwealth with a stake in a prosperous and decent future. We call upon the PRIM Board to engage in greater disclosure and dialogue about the current proxy voting policy and guidelines, and how they and the institutional voting mechanism itself might be strengthened for the good of us all, beneficiaries and taxpayers alike. Doing so will enable the PRIM Board, in investing our assets as a conscientious custodian, to use its power to fulfill its fiduciary obligation and public trust.

We have studied the twelve-page document entitled Proxy Voting Policy, an appendix to the PRIM investment policy that outlines the voting guidelines. We are pleased to see that the guidelines give specific direction on how to vote on a number of corporate governance issues, such as those related to boards of directors. For example, the guidelines allow case-by-case decisions on items such as board independence, the annual elections of directors and cumulative voting. These and other corporate governance issues are important for PRIM to support and certainly go a long way toward protecting the interests and standing of PRIT Fund Participants.

Our enthusiasm for the fact that the PRIM Board has developed guidelines for proxy voting is balanced by our concern that, in practice, the guidelines do not go far enough in fulfilling the BoardÕs fiduciary role. We have two concerns. The first is procedural--there is little public information that is easily available, for instance, as to how the Board voted, or directed its fund managers to vote. The second is substantive--we believe that greater attention should be paid to certain types of shareholder and management resolutions because they have a direct bearing on financial and social cost. These concerns are rooted in the fundamentals of trust law and fiduciary duty.

As we all know, the Department of Labor has declared that private pension plans under ERISA should view their proxies as an asset. In other words, proxies cannot be casually voted because they have important beneficial value that cannot be squandered. Thus the Department of Labor has obliged ERISA funds to vote their proxies thoughtfully and with the interests of participants uppermost in mind. Many other pension funds not governed by ERISA follow this same mandate, and have established voting and reporting mechanisms to do so. The PRIM Board should do so, also.

We should not remain passive bystanders to the actions of auditing firms, corporate boards, Wall Street analysts, lawyers, investment bankers, and the like. As owners, we should reassert our rights, as important agents in an economic system of checks and balances that was designed as an extension of our heritage of republican self-governance. As trustees, pension boards and fund managers need to heed the demands of stewardship, which call for great vigilance and diligence in achieving shareholder value in its fullest, richest sense. As trustees in a rapidly changing climate of economic life, fund trustees also need to reinvigorate the values of participation, representation, and accountability, which lie at the heart of their fiduciary role and our democratic tradition.

Fund trustees have an important public responsibility: to assure independence, to bring transparency and reduce conflicts of interest, and to restore and sustain public confidence in our financial system. Doing this well means having full grasp of the role of business in our society, and its impact, for better or worse, on our social, cultural, and environmental well-being. We doubt that teachers, state and local public employees and other public servants would wish to see their retirement assets unquestionably invested in vehicles that undermine the integrity of their professional commitments. Nor would they wish to see less than vigorous utilization of the power equity ownership brings in advancing the values they hold dear.

Returning to the proxy voting policy, we are concerned to see that it has only three paragraphs dealing with social and environmental issues. Indeed the guidelines described on page 12 require an abstention on proposals related to social and environmental policy unless a reasonably clear and quantifiable economic value can be assessed. If a favorable economic argument can be made, a vote supporting the proposal is allowed.

The guideline goes on to state that PRIM should vote for social and environmental proposals that would advance the interests of the Commonwealth, as evidenced by duly enacted legislation, where the effect of such a vote would not be to reduce the value of shares owned by PRIM. The guideline then refers to legislation on South Africa, Northern Ireland, Burma and tobacco.

We are concerned regarding the inadequacy of the guidelines on social and environmental issues. In 2002 more than 175 companies received over 250 shareholder resolutions addressing social and environmental issues. In addition, over 150 companies have received resolutions on important corporate governance matters. Many of these social and environmental resolutions raise issues that are related to the interests and concerns of MassachusettsÕs citizens.

We believe that the time has come for the Commonwealth to review and update its guidelines for proxy voting on both corporate governance and social issues. The importance of our votes cannot be underestimated. In addition, we send an inappropriate message to management if we automatically back them on important social and environmental concerns simply because we have not created adequate guidelines.

We are pleased that the State Treasurer has set up the Treasurer's Advisory Committee on Shareholder Responsibility, which established some initial new recommendations for PRIM regarding proxy voting. These recommendations have not been voted by PRIM.

We believe that the time has come for the Commonwealth to review and update its guidelines for proxy voting on both corporate governance and social issues. The importance of our votes should not be underestimated. We have a responsibility to assure the integrity of our capital markets through proper observance of representation and accountability. If this franchise is not exercised, it weakens the body politic and delegates important decisions about corporate governance and strategy to those whose interests are not necessarily our own. Passivity on proxy voting violates the spirit and intent of fiduciary standards of duty and care.

We have reviewed the list of the shareholder resolution topics and companies for the year 2002 on social issues. We note that many of these resolutions are sponsored by state and city pension funds such as the State of Connecticut or the City of New York. Other resolutions are sponsored by religious investors, social investment firms and mutual funds (a number of which are based in the Commonwealth of Massachusetts). Others are sponsored by trade unions and concerned individuals. We are not arguing that all of these resolutions are meritorious and deserve our support. However, they deserve a much more thoughtful review than our present guidelines provides for.

Therefore, we are asking the PRIM board to consider three actions. First, that PRIM, along with the GovernorÕs and Treasurer's offices institutes a review of the proxy guidelines. We urge PRIM to complete the review this summer since we cannot afford to have the value of our proxy lost on these important issues. We will be glad to provide appropriate resources and advisors for this process and urge you to involve experts with experience in these issues.

Secondly, we urge that PRIM disclose its votes publicly. CalPERS and other institutional investors disclose their policies and voting record. We urge that the PRIM Board begin with the list of independent shareholder resolutions sponsored on corporate governance, social and environmental issues and move to a disclosure of all votes. PRIMÕs website could simply disclose which resolutions were voted favorably, unfavorably or where PRIM abstained.

Finally, we urge PRIM to vote our shares this spring in favor of shareholder resolutions that reflect our common values. We believe there is a clear social and financial case for supporting these resolutions. The issues include: environmental stewardship, public health, increasing diversity and reducing discrimination, corporate governance and accountability, and workersÕ rights.

We will request a report on the process for these votes, the rationale behind them and the results in May.

This appeal is supported by a number of investors and citizens concerned about good corporate ownership, governance and citizenship who live and work in the Commonwealth of Massachusetts. In addition, many socially concerned mutual funds and money managers join us in urging that these basic first steps be taken. We would be glad to meet with you to discuss this issue and look forward to your reply.

Sincerely,
Representative Jim Marzilli
Representative Byron Rushing