Exhibit 10.1

RESTRICTED STOCK UNIT AWARD AGREEMENT

(2012 Performance-Based Award – Investment Results)

This Agreement (“Agreement”) is made this <Grant Date> by and between
<Participant Name> (“Participant”) and The Progressive Corporation (the
“Company”).

1. Definitions. Unless otherwise defined in this Agreement, each capitalized
term in this Agreement shall have the meaning given to it in The Progressive
Corporation 2010 Equity Incentive Plan, as amended (collectively, the “Plan”).
References herein to performance results of the Company mean the applicable
results achieved by the Subsidiaries and Affiliate of the Company.

2. Award of Restricted Stock Units. The Company grants to Participant an award
(the “Award”) of performance-based restricted stock units (“Restricted Stock
Units” or “Units”), pursuant and subject to the Plan. The Award is based on an
initial award value of <# of Units> Units (the “Initial Award Value”). The
number of Restricted Stock Units that are ultimately earned pursuant to the
Award (if any) will be determined based on the Initial Award Value and the
procedures and calculations set forth in this Agreement. The maximum potential
Award is a number of Units equal to two (2) times the Initial Award Value (the
“Maximum Award Value”).

3. Condition to Participant’s Rights under this Agreement. This Agreement shall
not become effective, and Participant shall have no rights with respect to the
Award or any Restricted Stock Units, unless and until Participant has fully
executed this Agreement and delivered it to the Company. In the Company’s sole
discretion, such execution and delivery may be accomplished through electronic
means.

4. Restrictions; Vesting. Subject to the terms and conditions of the Plan and
this Agreement, Participant’s rights in and to Restricted Stock Units shall
vest, if at all, as follows:

I. Investment Performance Criteria. Provided that at the Company’s 2012 Annual
Meeting of Shareholders, the Company’s shareholders approve the Fourth Amendment
to the Plan, the following shall control the vesting of Units under this
Agreement:

a. Evaluation Period. The “Evaluation Period” shall be the three-year period
comprised of the calendar years 2012, 2013 and 2014.

b. Certification. The Award shall vest (if at all) only if, to the extent, and
when the Compensation Committee of the Board of Directors (the “Committee”)
certifies:

i. the Performance Ranking of, and Performance Factor for, the Company’s
Fixed-Income Portfolio (as each of those terms are defined in Subparagraph c.
below); and

ii. the corresponding number of Restricted Stock Units (if any) that have vested
as a result of such performance.

If the Committee certifies the vesting of a number of Units that is less than
the Maximum Award Value, then with respect to all other Units that could have
been earned under this Agreement, the Award will terminate and be forfeited
automatically.

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c. Number of Units Vesting. The number of Restricted Stock Units (if any) that
vest in connection with the Award will be determined by application of the
following formula:

Number of Units Vesting = Initial Award Value x Performance Factor

i. The Performance Factor will be determined after the expiration of the
Evaluation Period based on the fully taxable equivalent total return of the
Company’s fixed-income investment portfolio (the “Fixed-Income Portfolio” or
“Portfolio”), in comparison to the total returns of the group of comparable
investment firms identified by Rogers Casey (the “Investment Benchmark”), each
calculated for the three calendar years comprising the Evaluation Period. After
the end of the Evaluation Period, Rogers Casey will determine the firms that are
included in the Investment Benchmark in accordance with the criteria specified
on Exhibit I hereto. Rogers Casey will also supply to the Company the monthly
total return data for each of the Investment Benchmark firms for the three-year
period ending on the last day of the Evaluation Period.

Investment results for the Fixed-Income Portfolio will be marked to market,
including the benefit of any state premium tax abatements for municipal
securities held in the Portfolio that are realized by the Company during the
Evaluation Period, in order to calculate the Portfolio’s fully taxable
equivalent total return, compounded on a monthly basis, for the Evaluation
Period. The investment performance achieved by the Fixed-Income Portfolio for
the Evaluation Period will then be compared against the total returns of the
firms included in the Investment Benchmark for the same period, also compounded
on a monthly basis, as determined by the Company from the monthly performance
data supplied by Rogers Casey for each firm in the Investment Benchmark, to
determine where the Fixed-Income Portfolio’s performance falls on a percentile
basis when compared to the firms in the Investment Benchmark, as further
described in Exhibit II hereto (“Performance Ranking”).

The Portfolio’s Performance Ranking will be used to determine a performance
score of between 0.00 and 2.00 for the Evaluation Period, based on the following
schedule:

 

Score = 0.00

Rank at or below

   Score = 1.00
Rank equal  to   Score = 2.00
Rank at  or above

25th Percentile

   50th Percentile   75th Percentile

A Performance Ranking between the values identified in the schedule will be
interpolated on a straight-line basis to generate the Performance Factor, as
further described on Exhibit II.

ii. The Company will work with Rogers Casey to ensure, to the extent
practicable, that the list of firms comprising the Investment Benchmark and all
data necessary to calculate the Performance Ranking and the Performance Factor
are received by March 1st of the year immediately following the Evaluation
Period. In all events, distributions under this Agreement must be

 

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made on or before March 15th of the year immediately following the Evaluation
Period.

iii. In the event that Rogers Casey (or its successors or assigns) ceases to
provide or publish the information required to calculate the Performance Factor,
or modifies the information in such a way as to render the comparisons required
by this Agreement to be not meaningful, in the Committee’s sole judgment, the
determinations required above shall be made using such comparable Company and
other investment data as may be available from another recognized provider of
investment industry data as the Committee may approve in its sole discretion.

II. Alternative Performance Criteria. If the Company’s shareholders do not
approve the Fourth Amendment to the Plan at the 2012 Annual Meeting of
Shareholders, the following shall control the vesting of Units under this
Agreement:

a. Growth Evaluation Period. The “Growth Evaluation Period” shall be the
three-year period comprised of the years 2012, 2013 and 2014.

b. Certification. The Award shall vest (if at all) only if, to the extent, and
when the Compensation Committee of the Board of Directors (the “Committee”)
certifies:

i. the extent to which the Company’s performance results have satisfied the
performance criteria set forth in both Subparagraphs c. and d. below; and

ii. the corresponding number of Restricted Stock Units (if any) that have vested
as a result of such performance.

Such certification shall occur as soon as practicable after the end of the
Growth Evaluation Period, but in any event must occur (if at all) on or before
January 31, 2017 (the “Expiration Date”). If the Committee certifies the vesting
of a number of Units that is less than the Maximum Award Value, the Award will
terminate and be forfeited automatically with respect to all other Units that
could have been earned under this Agreement.

c. Profitability Requirement. The Award shall not vest unless the Company has
achieved a combined ratio of 96 or less, determined in accordance with GAAP, for
the twelve (12) consecutive fiscal months immediately preceding the date of the
certification described in Subparagraph b. above (the “Profitability
Requirement”).

d. Number of Units Vesting. Provided that the Profitability Requirement has been
satisfied, the number of Restricted Stock Units (if any) that vest in connection
with the Award will be determined as follows:

i. The Company’s compounded annual rate of growth in “Written Premiums” (defined
below) for the Growth Evaluation Period for the Company’s Private Passenger Auto
and Commercial Auto businesses (“Company Growth Rate”) will be compared to the
compounded annual rate of growth of the Private Passenger Auto and Commercial
Auto markets as a whole for the Growth

 

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Evaluation Period (“Market Growth Rate”), in each case determined as provided
below. If the Company Growth Rate exceeds the Market Growth Rate, the applicable
calculation required by the following table will determine the number of
Restricted Stock Units vesting:

 

Performance vs. Market

  

Determination of the Number of Units Vesting

If the Company Growth Rate exceeds the Market Growth Rate by 3 percentage points
or more

   Initial Award Value x 2.00 (i.e., the Maximum Award Value)

If the Company Growth Rate exceeds the Market Growth Rate by more than 2 but
less than 3 percentage points

  

Initial Award Value x (1.00 + (Company Growth Rate – Market Growth Rate – 2.00))

Example:

Company Growth Rate = 2.50%; Market Growth Rate = 0.10%; Number of Units vesting
will equal Initial Award Value x (1.00 + (2.50 - 0.10 - 2.00)) = Initial Award
Value x 1.40

If the Company Growth Rate exceeds the Market Growth Rate by exactly 2
percentage points

   Initial Award Value

If the Company Growth Rate exceeds the Market Growth Rate by less than 2
percentage points

  

Initial Award Value x ((Company Growth Rate – Market Growth Rate) / 2.00)

Example:

Company Growth Rate = 2.50%; Market Growth Rate = 1.10%; Number of Units vesting
will equal Initial Award Value x ((2.50 – 1.10) / 2.00) = Initial Award Value x
0.70

ii. If the Company Growth Rate is equal to or less than the Market Growth Rate,
or if the Profitability Requirement has not been satisfied with respect to the
Award prior to the Expiration Date, none of the Award shall vest, and the Award
shall be forfeited in its entirety.

iii. For purposes of these determinations:

A. Subject to the provisions of Subparagraphs B., C. and D. below:

1. “Written Premiums” shall mean premiums written directly during the applicable
time period for the specified types of business, without taking into account
reinsurance;

2. The Company Growth Rate will be the compounded annual rate of growth in
Written Premiums during the Growth Evaluation Period, determined by comparing
(a) the annual aggregate Written Premiums of the Company in its Private
Passenger Auto and Commercial Auto businesses for 2014, as reported by A.M. Best
in its annual report currently known as the “A2 Report,” with (b) such Written
Premiums of the Company for 2011 as reported in A.M. Best’s A2 Report; and

 

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3. The Market Growth Rate will be the compounded annual rate of growth in
Written Premiums during the Growth Evaluation Period, determined by comparing
(a) the aggregate Written Premiums of the U.S. Private Passenger Auto market and
the Commercial Auto market for 2014, as reported in A.M. Best’s A2 Report, with
(b) such Written Premiums for 2011 as reported in A.M. Best’s A2 Report, but
excluding (in each case) the applicable Written Premiums of the Company;

B. If 2014 is a 53-week year under the Company’s fiscal calendar, then in
determining the Company Growth Rate as set forth in Subparagraph A. above, the
aggregate Written Premiums for such year will be reduced by an amount equal to
twenty percent (20%) of the Written Premiums of the Company in fiscal December
2014 in its Private Passenger Auto and Commercial Auto businesses, as determined
from the Company’s records;

C. In making the calculations required under this Agreement, the Company Growth
Rate and the Market Growth Rate shall each be rounded to the nearest thousandth
of a whole percentage point and (if applicable) the number of Restricted Stock
Units vesting shall be rounded to the nearest thousandth of a whole Unit (or, in
each case, as otherwise reasonably determined by the Company); and

D. In the event that A.M. Best ceases to publish the A2 Report, or modifies the
A2 Report in such a way as to render the comparisons required by this Agreement
to be not meaningful, in the Committee’s sole judgment, the determinations
required above shall be made using such comparable Company and industrywide data
as may be then available from A.M. Best in any successor or replacement report
or publication, or such comparable data as may be available from another
nationally recognized provider of insurance industry data, in each case as the
Committee may approve in its sole discretion.

III. Notwithstanding anything to the contrary contained in this Agreement, at or
prior to the time of vesting, the Committee, in its sole discretion, may reduce
the number of Restricted Stock Units that otherwise would vest according to this
Agreement, or eliminate the Award in full. The Committee, in its sole
discretion, may treat individual participants differently for these purposes.
Any such determination by the Committee shall be final and binding on the
Participant. Under no circumstances shall the Committee have discretion to
increase the award to any Participant in excess of the number of Units that
would have been awarded at vesting based on this Paragraph 4 (excluding
adjustments required by Section 3(c) of the Plan).

IV. The Award shall vest in accordance with and subject to the foregoing except
to the extent that, prior to the Committee’s certification of the Award, the
Award has been forfeited under the terms and conditions of the Plan.

5. Dividend Equivalents. Subject to this Paragraph 5, Participant shall be
credited with Dividend Equivalents with respect to the outstanding Award prior
to the applicable vesting date. All Dividend Equivalents so credited will be
deemed to be reinvested in Restricted Stock Units on the date

 

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that the applicable dividend or distribution is made to the Company’s
shareholders, based on the Initial Award Value and any Units resulting from
prior reinvestments of Dividend Equivalents, in the number of Units determined
by dividing the value of the Dividend Equivalents by the Fair Market Value of
the Company’s Stock on such date (rounded to the nearest thousandth of a whole
Unit or as otherwise reasonably determined by the Company); provided, however,
that if Dividend Equivalents cannot be reinvested in Units due to the operation
of Section 3(a) of the Plan, such Dividend Equivalents will be credited to
Participant as a cash value based on the Initial Award Value and any Units
resulting from prior reinvestments of Dividend Equivalents, which cash value
shall be held by the Company (without interest) subject to this Agreement. The
Units and, if applicable, cash value resulting from the reinvestment of such
Dividend Equivalents shall be subject to the same terms and conditions, and
shall vest or be forfeited (if applicable) at the same time, upon the same
conditions, and in the same proportion, as the Initial Award Value set forth in
this Award.

6. Units Non-Transferable. No Restricted Stock Units (and no Dividend
Equivalents credited hereunder) shall be transferable by Participant other than
by will or by the laws of descent and distribution, and then only in accordance
with the Plan. In the event any Award is transferred or assigned pursuant to a
court order, such transfer or assignment shall be without liability to the
Company, and the Company shall have the right to offset against such Award any
expenses (including attorneys’ fees) incurred by the Company in connection with
such transfer or assignment.

7. Deferral of Award. If Participant is eligible, and has made the appropriate
election, to defer the Award into The Progressive Corporation Executive Deferred
Compensation Plan (the “Deferral Plan”), at the time of vesting, the Restricted
Stock Units that would otherwise vest under this Agreement shall be considered
to be deferred pursuant to the Deferral Plan, subject to and in accordance with
the terms and conditions of the Deferral Plan and any related deferral
agreement.

8. Termination of Employment. Except as otherwise provided in the Plan or in
this Paragraph 8, or as determined by the Committee, if Participant’s employment
with the Company is terminated for any reason other than death or Qualified
Retirement, the Award and all Restricted Stock Units held by Participant that
are unvested or subject to restriction at the time of such termination shall be
forfeited automatically.

a. If the vesting of Units hereunder is determined under Subparagraph 4.I.
(Investment Performance Criteria) hereof, in the event that any such termination
of employment occurs, for any reason other than death or for Cause, after the
end of the Evaluation Period but prior to the Committee’s certification of
results for the Evaluation Period, the Award shall not be forfeited at the time
of Participant’s termination, and Participant shall be eligible to participate
in the vesting of Restricted Stock Units under this Agreement only to the extent
certified by the Committee, subject to the provisions of the Plan; and

b. If the vesting of Units hereunder is determined under Subparagraph 4.II.
(Alternative Performance Criteria) hereof, in the event that any such
termination of employment occurs, for any reason other than death or for Cause,
after the end of the Growth Evaluation Period but prior to the “first
opportunity to certify results” (defined below), the Award shall not be
forfeited at the time of Participant’s termination, and:

i. if Participant has not satisfied the requirements for a Qualified Retirement,
Participant shall be eligible to participate in the vesting of Restricted Stock
Units under this Agreement only to the extent certified by the Committee at the
time of such first opportunity to certify results, but if certification does not
occur upon such first opportunity to certify results, the Award shall be
forfeited automatically;

 

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ii. if Participant has satisfied the requirements for a Qualified Retirement,
Participant shall be eligible to participate in the vesting of Restricted Stock
Units under this Agreement only to the extent certified by the Committee at the
time of such first opportunity to certify results, but if certification does not
occur upon such first opportunity to certify results, then pursuant to
Section 10 of the Plan, fifty percent (50%) of such Award shall remain in effect
and fifty percent (50%) of the Award shall be forfeited (or in certain cases, if
the applicable requirements are satisfied, all of such Award shall remain in
effect), and the portion that remains in effect shall thereafter vest, if at
all, in accordance with this Agreement, but subject at all times to Section 10
of the Plan;

provided, however, in either case, that if, prior to certification by the
Committee, the Committee determines that Participant is engaging in, or has
engaged in, a Disqualifying Activity, the Award and all applicable Restricted
Stock Units that are then unvested or subject to restriction shall be forfeited
automatically as of the Disqualification Date determined by the Committee. Any
determination by the Committee that the Participant is engaging in, or has
engaged in, any Disqualifying Activity, and of the Disqualification Date, shall
be final and conclusive on Participant.

For purposes of this Paragraph 8.b., the phrase “first opportunity to certify
results” means the date which is the earlier to occur of: (i) the last day of
the calendar month immediately following the month in which A.M. Best publishes
the A2 Report (or, if applicable, the calendar month immediately following the
month in which the successor or replacement report or data described in
Subparagraph 4.II.d.iii.D. above is published) for the third year of the Growth
Evaluation Period, or (ii) a meeting of the Compensation Committee is held at
which such report or data is reviewed (whether or not a certification occurs) or
a written action is executed by the Committee in lieu of such a meeting.

9. Distribution at Vesting. Subject to the provisions of the Plan and this
Agreement, upon vesting of all or part of the Award, the Company shall
distribute to Participant one share of the Company’s Stock in exchange for each
such vested Restricted Stock Unit, and the remaining Restricted Stock Units (if
any) shall be cancelled. Unless determined otherwise by the Company at any time
prior to the applicable distribution, each fractional Restricted Stock Unit
shall vest and be settled in an equal fraction of a share of the Company’s
Stock.

10. Taxes. No later than the date as of which an amount relating to the Award
first becomes taxable, Participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state and local taxes and other items of any kind required by law to be
withheld with respect to such amount. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company and
its Subsidiaries and Affiliate, to the extent permitted by law, shall have the
right to deduct any such taxes from any payment of any kind otherwise due to
Participant. At vesting, Restricted Stock Units awarded under this Agreement
will be valued at the Fair Market Value of the Company’s Stock on such date.

Participant must satisfy the minimum statutory tax withholding obligations
resulting from the vesting of Restricted Stock Units (“Minimum Withholding
Obligations”) either (a) by surrendering to the Company Restricted Stock Units
that are then vesting with a value sufficient to satisfy the Minimum Withholding
Obligations, or (b) by paying to the Company the appropriate amount in cash or,
if acceptable to the Company, by check or other instrument. Unless Participant
advises the Company of his or her election to use an alternative payment method,
Participant shall be deemed to have elected to

 

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surrender to the Company Restricted Stock Units that are then vesting with a
value sufficient to satisfy the Minimum Withholding Obligations. If Participant
requests that the Company withhold taxes in addition to the Minimum Withholding
Obligations, such additional withholding must be satisfied by Participant either
(x) by paying to the Company the appropriate amount in cash or, if acceptable to
the Company, by check or other instrument, or (y) provided that Participant has
obtained the approval of either the Company or the Committee (as required under
rules adopted by the Committee) prior to the date of vesting, by surrendering
unrestricted shares of the Company’s Stock that are not being distributed to
Participant as a result of the vesting event and that have then been owned by
Participant in unrestricted form for more than six (6) months.

Under no circumstances will Participant be entitled to satisfy any such
additional withholding by surrendering Restricted Stock Units, shares of the
Company’s Stock that are being distributed to Participant as a result of the
vesting event, or other shares of Stock that have then been owned by Participant
in unrestricted form for six (6) months or less. In addition, under no
circumstances will Participant be entitled to satisfy any Minimum Withholding
Obligations or additional withholding by surrendering Restricted Stock Units
that are not then vesting or any Restricted Stock Units that Participant has
elected to defer under Paragraph 7 above. All payments, surrenders of Units or
shares, elections or requests for approval must be made by Participant in
accordance with such procedures as may be adopted by the Company in connection
therewith, and subject to such rules as have been or may be adopted by the
Committee.

11. Non-Solicitation. In consideration of the Award made to Participant under
this Agreement, for a period of twelve (12) months immediately following
Participant’s Separation Date (defined below), Participant shall not directly or
indirectly recruit or solicit for hire, or hire, or assist in any manner in the
recruitment, solicitation for hire or hiring, of any employee or officer of the
Company or any of its Subsidiaries, or in any way induce any such employee or
officer to terminate his or her employment with the Company or any of its
Subsidiaries. For purposes of this Paragraph, “Separation Date” means the date
on which Participant’s employment with the Company or its Subsidiaries is
terminated for any reason.

12. Recoupment. If the Securities and Exchange Commission adopts final rules
under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act that require, as a condition to the Company’s continued listing on a
national securities exchange, that the Company develop and implement a policy
requiring the recovery of erroneously awarded compensation, and such regulations
are applicable to Participant and the Award granted pursuant to this Agreement,
then the following shall apply:

In the event that the Company is required to prepare a restatement of one or
more of its financial statements due to the material noncompliance of the
Company with any financial reporting requirement under the federal securities
laws, the Company will be entitled to recover from Participant, and Participant
will promptly upon written demand return to the Company (whether or not
Participant remains an employee of the Company at the time of such restatement
or thereafter), the amount of any Award granted hereunder that (i) was paid or
distributed to Participant (or any assignee or transferee permitted under
Paragraph 6 above) during the three year period preceding the date on which the
Company is required to prepare such restatement, and (ii) is in excess of what
would have been paid or distributed to Participant (or any such assignee or
transferee) under the restatement, or such other amount as may be required by
the rules of the Securities and Exchange Commission or, if applicable, the New
York Stock Exchange.

 

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The provisions of this Paragraph 12 are in addition to the rights of the Company
as set forth in Section 14(h) of the Plan.

13. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes and cancels any other agreement, representation or
communication, whether oral or in writing, between the parties relating to the
Award, provided that the Agreement shall be at all times subject to the Plan.

14. Amendment. The Committee, in its sole discretion, may amend the terms of
this Award, but no such amendment shall be made that would impair the rights of
Participant, without Participant’s consent.

15. Acknowledgments. Participant: (a) acknowledges receiving a copy of the Plan
Description relating to the Plan, and represents that he or she is familiar with
all of the material provisions of the Plan, as set forth in such Plan
Description; (b) accepts this Agreement and the Award subject to all provisions
of the Plan and this Agreement; and (c) agrees to accept as binding, conclusive
and final all decisions and interpretations of the Committee relating to the
Plan, this Agreement or the Award.

Participant evidences his or her agreement with the terms and conditions of this
Agreement, and his or her intention to be bound by this Agreement, by
electronically accepting the Award pursuant to the procedures adopted by the
Company. Upon such acceptance by Participant, this Agreement will be immediately
binding and enforceable against Participant and the Company.

 

THE PROGRESSIVE CORPORATION By:   /s/ Charles E. Jarrett   Vice President &
Secretary

 

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EXHIBIT I

INVESTMENT BENCHMARK CRITERIA

After the end of the Evaluation Period, Rogers Casey will determine the firms
comprising the Investment Benchmark for the Plan year from its records and will
supply to the Company the monthly total returns and any other relevant data for
each of those firms for the Evaluation Period.

A firm will be included in the Investment Benchmark if Rogers Casey is able to
determine from its records that:

 

1. The firm has provided monthly data regarding its holdings and investment
return, as necessary to determine or calculate such firm’s monthly total return,
and to evaluate such firm’s compliance with each of the criteria set forth
below, for the entire Evaluation Period; and

 

2. At all times during the Evaluation Period, the information provided by the
firm shows, or Rogers Casey is able to calculate, that such firm’s investment
portfolio satisfies each of the following criteria:

 

Duration:    Effective Duration between 1.5 years and 5.0 years
Credit Quality Average    = A, or = AA, or = AAA, or = AAA+ Convexity (%)    >=
-1 Sector Allocation:    U.S. High-Yield Corporate Debt <= 10% Sector
Allocation:    Mortgages <= 60% Sector Allocation:    U.S. Investment-Grade
Corporate Debt <= 60% Sector Allocation:    CMBS <= 60% Sector Allocation:   
ABS <= 60% Sector Allocation:    Emerging Markets Debt <= 5%

 

3. The Company will have no discretion to alter the Investment Benchmark list
after it is finalized by Rogers Casey.

 

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EXHIBIT II

DETERMINATION OF PERFORMANCE RANKING AND PERFORMANCE FACTOR

Once all the total returns are calculated, the data is sorted in descending
order from highest to lowest total return. From here, the process to compute the
Performance Factor is as follows:

INTERPOLATED VALUES FOR SETTING TOP AND BOTTOM 25% LEVELS

The top 25% and bottom 25% total return rankings are computed based on the total
number of firms in the Investment Benchmark, excluding the PCM Fixed-Income
Portfolio return. For example, if there were 279 participants, the return
required to earn a 2.00 portfolio performance factor would be determined by
interpolating between the sixty-ninth and seventieth firm’s returns, since 25%
of 279 = 69.75. The same procedure would be used to determine the 0.00 portfolio
performance factor.

The total returns, computed by Investment Accounting, for the interpolated
positions are calculated as follows (continuing to use an example of 279 survey
firms):

Interpolated Value = Firm 69 return – ((Firm 69 Return – Firm 70 Return)*0.75)

Firm 69 = 18.35%

Firm 70 = 18.23%

Firm 69.75 (Interpolated Value) = 18.35% – ((18.35% – 18.23%)*0.75) = 18.26%.

In this case, the PCM Performance Factor will equal 2.00 if its total return
equals the interpolated value for Firm 69.75 or 18.26%. A similar calculation is
then used to determine the bottom 25% group and interpolated value for a 0.00
performance score.

Once the two groups are computed, top and bottom 25%, the remainder of the
performance scores are calculated as follows:

Performance score variance = (2.00) / Number of positions from first participant
after the top 25% ranking to the 1st participant in the bottom 25% ranking. In
the case of 279 participants, the number of positions to divide the 2.00
performance factors by would be 142.

The calculation for the performance score variance from 2.00 – 0.00 would be:

2.00 / 142 = .014085 per position for 279 firms

In the case of a tie in total returns between firms, each firm will have the
same performance score, one step under the next higher position. The next lowest
position would then be stepped down by a factor based on the number of
participants who tie. In the case of a tie between two firms, the step down will
be twice the performance score variance to maintain the proper stepping to the
0.00 performance score level.

Example: If firms 70 and 71 each had the same total return in the 279 firm
example, then firms 70 and 71 would each have a Performance Factor of 1.985915,
which is 2.00 – .014085. The number 72 position in this example would have a
performance score of 1.957746, which is the required step down from 70 to 72.

 

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In addition, if the returns are tied between the interpolated value set for the
2.00 performance score and any position below the 2.00 level, those lower
positions will also be set to a 2.00 performance score. The step down factor in
the performance score will work similarly as noted in the example above. For the
last 25% group, all firms with total returns equaling the last interpolated
total return value would have the same performance score as the last
interpolated value (.014085), and all others in the last 25% group would have a
0.00 Portfolio Performance Factor.

Once all the performance scores have been created, from 2.00 to 0.00, PCM’s
return is compared to the rankings to determine its Performance Factor. If the
PCM return is not in the top or bottom 25% and does not match the return of any
participant, then PCM’s Performance Factor is an interpolated value between the
firms with the next highest and next lowest returns.

The interpolation computation for the Performance Factor based on PCM’s return
is as follows:

Performance score of firm below PCM return + (PCM’s Return – Return below PCM) /
(Return above PCM – Return below PCM) * (Performance score of firm above PCM –
Performance score of firm below PCM)

Assuming the following data, using the 279 firm example:

 

Firm

   Performance score      Total return  

Firm above PCM

     .90         13.61   

PCM

        13.39   

Firm below PCM

     .89         13.34   

The calculation of PCM’s Performance Factor is:

0.89 + (13.39-13.34) / (13.61-13.34) * (0.90-0.89) = 0.89

The final performance score is rounded to the nearest one-hundredth, if
necessary.

 

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