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MINUTES Meeting of the Investment Committee February 15-16, 2007 A meeting of the Investment Committee of the Illinois Teachers' Retirement System was held on February 15-16, 2007 at the Springfield office, 2815 West Washington Street. James Bruner, Chair, called the meeting to order at 11:00 a.m. A quorum was present. Present: Board Members: James Bruner, Chair Cinda Klickna Sharon Leggett Bob Lyons Cynthia O'Neill Bill Orrill Molly Phalen, Vice President Christopher Koch, President (departed 12:23 p.m.) Jan Cleveland

Absent:

TRS Staff: Jon Bauman, Executive Director Stan Rupnik, Chief Inv. Officer Greg Turk, Director of Investments Scottie Bevill, Invest. Officer Louis Darmstadter, Invest. Officer John Drake, Invest. Officer Lamar Villere, Invest. Officer Shane Willoughby, Invest. Officer Tim Hays, Invest. Officer Stacy Smith, Internal Audit Manager Counsel: Bill Cavanagh, Cavanagh & O'Hara Consultants: Becky Gratsinger, RVKuhns Jim Voytko, RVKuhns Jamie Shen, Callan Associates

Terry Viar, Director of Member Services Rich Frankenfeld, Director of Outreach Gina Larkin, Director of Human Resources Eva Goltermann, Public Info. Officer Mike Bartletti, Director of Real Estate Tassi Maton, Mgr. of Invest. Operations Tom Gray, General Counsel Cynthia Fain, Senior Asst. General Counsel Jana Bergschneider, Director of Admin. Tammy Green, Asst. to the Exec. Director

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Visitors: Marilyn Hall, IRTA Rep. Don Pollak, Northern Trust Shirley Dodds, IRTA Rep. Jack Tucker, IEA-R Dennis Murfin, IRTA Rep. Christine Williamson, Pensions & Investments APPROVAL OF MINUTES A draft of the minutes from the December 7-8, 2006 Investment Committee was sent to the trustees for prior review. A motion was made by Sharon Leggett, seconded by Cinda Klickna, and by unanimous voice vote, the minutes were approved as presented. OLD BUSINESS Investment Manager Chart Stan Rupnik, Chief Investment Officer, provided an updated chart of TRS's public markets investment managers as of December 31, 2006. Allocations are shown for the main TRS trust fund, the POB account and on a total TRS basis. Documentation is on file. Cash Withdrawal Update Stan Rupnik discussed the recent cash withdrawals from the index and/or enhanced index accounts to fund the System's cash requirements. Documentation is on file. Sudan Implementation Cost Update The System has incurred $2.06 million in costs through December 31, 2006 relating to the Sudan legislation (Public Act 94-0079) since implementation of the Act. Documentation is on file. A report for opportunity cost from July 1 ­ December 31, 2006 will be presented at the May 2007 Board meeting. Investment Manager Search Update Staff provided an update on the ongoing searches for a domestic equity large cap value manager, an international equity manager, and a provider to fill a new absolute return fund of funds assignment. The searches are proceeding as scheduled with the exception of the domestic equity large cap value search. This search has been postponed. Documentation is on file.

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Request for Proposal Update The System currently has two open RFPs within the private equity asset class for a Private Equity Investment Consultant and a Private Equity Distribution Provider. Following on-site due diligence visits, staff will present finalists at the May meeting. Documentation is on file. Structure Study Update RV Kuhns and staff are currently working on three independent asset class structure studies ­ real return, domestic equity, and international equity. Staff plans to present all three structure studies at the April Board Retreat. Documentation is on file. NEW BUSINESS Emerging Manager Program ­ Evercore Asset Management The committee interviewed Evercore Asset Management to fill an allocation within the System's emerging manager program. Their presentation booklet is on file. Staff provided an overview of the search process and due diligence that was conducted. Following discussion, it was consensus of the committee to reduce staff's recommended allocation and for staff to provide an update of the firm in six months. A motion was made by Cynthia O'Neill, seconded by Bob Lyons, that the committee recommend to the Board to invest $30 million in Evercore Asset Management's small cap value mandate. The motion passed by voice vote. New Century Advisors The committee interviewed New Century Advisors to fill an allocation within the System's emerging manager program. Their presentation booklet is on file. Staff provided an overview of the search process and due diligence that was conducted. A motion was made by Cynthia O'Neill, seconded by Molly Phalen, that the committee recommend to the Board to invest $25 million in the New Century Advisors' global inflation linked bond mandate. The motion passed by a unanimous voice vote. Private Equity ­ Providence Equity Partners At the December meeting, the Board approved up to an 8% increase to the System's private equity target allocation. Based on the System's increased target and the new availability within the Providence fund, staff proposed an increase in the commitment size. The System committed $100 million to this fund in

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December and currently recommends an additional amount up to $50 million. A motion was made by Cinda Klickna, seconded by Cynthia O'Neill, that the committee recommend to the Board to increase its commitment size to Providence Equity Partners VI, Limited Partnership up to $150 million. The motion passed by a unanimous voice vote. Carlyle Venture Partners Representatives from Carlyle Venture Partners presented a new investment opportunity in its venture fund, Carlyle Venture Partners III, Limited Partnership. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Bob Lyons, seconded by Cynthia O'Neill, that the committee recommend to the Board to invest $50 million in Carlyle Venture Partners III, L.P. The motion passed by a unanimous voice vote. Lehman Brothers Merchant Banking Partners Representatives from Lehman Brothers Merchant Banking Partners presented a new investment opportunity in its buyout fund, Lehman Brothers Merchant Banking Partners IV, Limited Partnership. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Cinda Klickna, seconded by Molly Phalen, that the committee recommend to the Board to invest $50 million in Lehman Brothers Merchant Banking Partners IV, L.P. The motion passed by a unanimous voice vote. RECESS The meeting recessed at 2:40 p.m. and reconvened at 2:50 p.m. Leonard Green & Partners Representatives from Leonard Green & Partners presented a new investment opportunity in its buyout fund, Green Equity Investors V, Limited Partnership. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Cinda Klickna, seconded by Sharon Leggett, that the committee recommend to the Board to invest $100 million in Green Equity Investors V, L.P. The motion passed by a unanimous voice vote.

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Silver Lake Partners Representatives from Silver Lake Partners presented a new investment opportunity in its buyout fund, Silver Lake Partners III, Limited Partnership. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. Following discussion, a motion was made by Cynthia O'Neill, seconded by Bob Lyons, that the committee recommend to the Board to invest $100 million in Silver Lake Partners III, L.P. contingent upon satisfactory completion of placement agent document. The motion passed by a unanimous voice vote. Private Equity Limited Partnership Agreement Policy Staff proposed a clarification of internal policy to allow staff to vote limited partnership amendment matters--clarification of terms within partnership agreements. The change does not relate to decisions regarding the commitment to, the commitment amount, or the sale/divestment of specific TRS investments. A motion was made by Cynthia O'Neill, seconded by Cinda Klickna, that the committee recommend to the Board to approve the clarification of TRS policy relating to investment staff's authority to vote on limited partnership agreements. The motion passed by a unanimous voice vote. Real Estate ­ Hines Representatives from Hines presented an investment opportunity in its open-end commingled real estate fund, Hines U.S. Core Office Fund. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Bill Orrill, seconded by Molly Phalen, that the committee recommend to the Board to invest $100 million with Hines. The motion passed by a unanimous voice vote. Lincoln Property Company Realty Advisors Representatives from LPC Realty Advisors proposed an addition of a core allocation. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Cinda Klickna, seconded by Cynthia O'Neill, that the committee recommend to the Board to invest $100 million to a core allocation to LPC. The motion passed by a unanimous voice vote.

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STAFF/CONSULTANT PRESENTATIONS Real Return RV Kuhns presented the implementation plan for initial investment in the real return asset class. Documentation is on file. The System plans to take up to three years to fully fund the real return prescribed allocation of 10% of the System's total portfolio. A motion was made by Bob Lyons, seconded by Sharon Leggett, that the committee recommend to the Board to approve the real return implementation plan (Portfolio #7) as presented and to authorize searches for a diversified real return manager and a Global Treasury Inflation Protected Securities (TIPS) manager. The motion passed by a unanimous voice vote. Transition Summary Lamar Villere, Investment Officer, reported on the funding of Copper Rock Capital from RhumbLine Advisors. RECESS The meeting recessed at 5:00 p.m. and reconvened the following day at 8:30 a.m. NEW BUSINESS Real Estate ­ CB Richard Ellis Representatives from CB Richard Ellis Investors proposed investment opportunities in its Europe real estate fund and United Kingdom real estate fund. Their presentation booklet is on file. Staff provided an overview of the due diligence that was conducted. A motion was made by Cynthia O'Neill, seconded by Cinda Klickna, that the committee recommend to the Board to invest $50 million each to the Europe Fund III, L.P. and the UK Fund III, L.P. The motion passed by a unanimous voice vote. The real estate tactical plan for fiscal year 2007 targets international real estate. Staff will implement the international strategy in three phases. STAFF/CONSULTANT PRESENTATIONS Investment Performance RV Kuhns presented the final report on investment performance for the quarter ended December 31, 2006. Documentation is on file. Total assets: $39.1 billion.

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The total fund return, gross of fees: o o o o Quarter: 5.7% 1 yr.: 15.1% 3 yr.: 12.5% 5 yr.: 10.6%

The quarterly report ended September 30, 2006 for private equity performance is on file. The total program has achieved a return of 20.1% since inception. Watch List Greg Turk, Director of Investments, provided an update of the investment managers currently on the watch list for the quarter ended December 31, 2006. Firms on the watch list include: Byram Capital, Delaware Investments, Harris Associates, INVESCO, LSV Asset Mgmt., Mazama, Pyramis Global Advisors, and PIMCO StocksPlus. Staff recommended placement of two new managers on watch due to performance or organizational reasons: Weiss, Peck & Greer and Voyageur Asset Management. A motion was made by Cynthia O'Neill, seconded by Bill Orrill, that the committee recommend to the Board to accept the watch list as presented. The motion passed by a unanimous voice vote. Termination ­ Payden & Rygel A motion was made by Bob Lyons, seconded by Sharon Leggett, to accept staff's recommendation to terminate Payden & Rygel's fixed income mandate and move the assets to the Lehman enhanced index portfolio. The motion passed by a unanimous voice vote. Minority Utilization Report Scottie Bevill, Investment Officer, provided an update on the participation of minority- and female-owned investment managers and broker/dealers within the TRS investment portfolio through December 31, 2006. Documentation is on file. Commission Recapture Search The System received ten responses to the commission recapture Request for Proposal. Staff provided an overview of the firms that submitted RFPs and recommended five of the firms be retained to the commission recapture program including the addition of Northern Trust Securities, subject to review by outside counsel. · Magna Securities Corp. · LJR Recapture Services, LLC. · Abel/Noser Corp.

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· Guzman & Co. · Frank Russell Securities, Inc. · Northern Trust Securities, Inc. A motion was made by Bob Lyons, seconded by Bill Orrill, that the committee recommend to the Board to approve the list of brokerage firms to serve the System's commission recapture program, as presented. The motion passed by a unanimous voice vote. ADJOURNMENT There being no further business to come before the Investment Committee, a motion was made by Sharon Leggett, seconded by Cinda Klickna, to adjourn the meeting at 10:05 a.m. __________________________ Jon Bauman, Executive Director Approved _________

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