2008

Ohio Public Employees Retirement System

277 East Town Street Columbus, Ohio 43215 www.opers.org 800-222-7377

TABLE OF CONTENTS

Table of Contents Investment Program 01 Report from the Director of Investments Organizational Structure Resources

Fund Strategies 13 Defined Benefit Health Care Defined Contribution

Asset Class Strategies 33 Tactical Outlook U.S. Equity Private Equity Non-U.S. Equity Real Estate Global Bonds

Resources and Initiatives 71 Office of the Director of Investments U.S. Equity Internal Management Global Bonds Internal Management External Management Fund Management Investment Administration

Appendix A 87 Consultants’ Reviews

Appendix B 91 Economic Outlook

Appendix C 101 Investment Staffing

OPERS 2008 Investment Plan Table of Contents Intentionally left blank INVESTMENT PROGRAM

Report from the To the OPERS Retirement Board: Director of Investments I am pleased to present to you the 2008 Investment Plan, which is a collaborative effort of the management and staff of the Investment Division and discussed in detail with OPERS’ investment consultants. Developing a plan instills a discipline to remain focused on our investment goals and objectives against which the Division’s performance is benchmarked and measured.

The cornerstone goals of the Investment Division are: To generate target returns for the total fund, each asset class and portfolio; To maintain a competitive cost structure, relative to our peers; To hire, develop and retain key investment professionals who are aligned with the Division’s core values; and To develop innovative strategies to meet or exceed our investment goals and objectives.

Review of 2007 Despite a financial market contagion in which credit problems are causing ripple effects, we believe the impacts to be containable. Amidst the capital market turmoil, the Defined Benefit Fund is on target to exceed its relative return objective of 33 basis points, while the Health Care Fund will likely outperform its benchmark.

In order to provide the context against which the 2008 strategy presented can be fully appreciated, it is appropriate to frame our plan within the Investment Division’s 2007 accomplishments through October 2007. Detailed information of the Investment Division’s actual 2007 accomplishments will be reported in the 2007 OPERS’ Comprehensive Annual Financial Report.

In reviewing the information garnered through October, there were many key accomplishments, including: The completion of the strategic asset allocation review for the Health Care Fund. This review resulted in a higher policy allocation for equity-like assets relative to fixed income assets to generate a higher return while maintaining a reasonable level of risk. The evaluation resulted in an equal weighting for the U.S. and Non-U.S. Equity asset classes, a new allocation for Private Equity and an incremental increase to the REIT portfolio allocation.

The enhancement of the U.S. Equity strategy to provide greater flexibility for building portfolios of managers in the active category with the goal of achieving targeted levels of alpha while effectively managing risk. A significant rebalancing of the U.S. Equity portfolio during 2007 was managed internally at a cost of approximately $0.2 million versus an estimated cost of about $10 million had it been executed externally.

The progress towards completion of a dedicated long duration portfolio to partially hedge the pension liabilities of the Defined Benefit Fund as a result of a comprehensive asset allocation review completed in 2006.

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Report from the The funding of a Minority Manager program, which was implemented by hiring two external Director of managers of managers focused on identifying and hiring the best-in-class U.S. Equity minority Investments managers. (continued) The successful implementation of the Private Equity Ohio/Midwest discretionary funds program. This program requires private equity managers to focus on prudent investment opportunities within the state and region. OPERS committed additional funding to this initiative.

The effective execution of the 2007 Russell Index reconstitution through utilization of internal investment management and trading capabilities. The reconstitution involved the rebalancing of the internally managed Russell 3000 Index portfolio to hold the same securities as the revised Russell 3000 Index. The transition contributed nine basis points or approximately $20 million of positive performance to the portfolio.

The development of the Iran/Sudan Divestment Policy and Process to address the management of potentially unique risks posed by certain equity and debt investments in Iran and Sudan while fulfilling our fiduciary role.

The selection of a new general investment consultant with a global platform. This selection will support OPERS’ investment program to successfully execute its strategies to obtain its targeted alpha.

Overview of 2008 Investment Plan As always, the Investment Division’s goals reflect the ongoing Retirement Board’s directive of securing the best possible excess returns, while managing to an acceptable level of risk. Simply put, the primary goals outlined in this 2008 Investment Plan are summarized below: As a result of the completion of strategic asset allocation review of the Health Care Fund, staff will prudently implement the change in the asset mix. This initiative will include reviewing the line up of international equity managers and mandates to address potential capacity issues while taking advantage of global opportunities. Staff will likewise develop a Private Equity implementation model to address a new allocation to this asset class.

In 2007, Staff presented to the OPERS Investment Committee the viability of a direct treasury and agency securities lending program. Completing this initiative will involve the evaluation of resources, which will include the review of personnel and an operational infrastructure to support such an activity.

The Non-U.S. Equity portfolio, which is 100% externally managed is a significant portion of the total fund’s asset allocation. Staff will explore the use of derivatives to effectively and efficiently gain exposure to this asset class. This strategy will minimize reliance on external managers, while enhancing control over assets.

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Report from the The risk management program continues to evolve with the introduction of new investment Director of strategies and vehicles. Efforts will include but not be limited to a comprehensive development of Investments counterparty risk guidelines, evaluation of the total fund and asset class risk budgets, and the (continued) support of an operational risk committee. A newly created risk manager/analyst position is expected to be filled in 2008.

As a result of the approval of the Iran/ Sudan Divestment Policy, staff will work with all concerned parties to implement this policy while recognizing and fulfilling our role as fiduciaries of the plan.

Staff in collaboration with the consultant will review the appropriateness of Life Cycle funds as an option for Defined Contribution participants. A cost/ benefit analysis on the unitization of the U.S. Equity asset class will be performed to improve performance.

An effort will be made to continue to enhance the Board’s investment education through the consultant’s sessions on innovative strategies and presentations by outside speakers.

Managing Toward Our Goals These goals are aggressive, but attainable and will be accomplished through a disciplined investment program and a thoughtful alignment of the Division’s resources to support those efforts.

Asset Management As prudent managers of a portfolio with a long-term investment horizon, the Investment Division will continue to monitor and measure three distinct sources of return and risk: policy, tactical and active. Each source of return and risk plays an integral part toward achieving overall investment results. The Defined Benefit Fund and Health Care Fund sections presented later in this investment plan provide details about how policy, tactical and active returns will be generated within a managed risk framework.

In summary, the 2008 goals established for each source of return and risk for the Defined Benefit and Health Care Funds are as follows: The total expected return of the OPERS’ Defined Benefit Fund in 2008 is 7.97% and is composed of the expected policy return of 7.64% and active management return of 0.33%. The total risk that will be taken to achieve this return is 8.25%, which is derived from the combination of the policy risk of 8.05%, tactical risk of 0.04% and active risk of 0.38%.

The total expected return of the OPERS’ Health Care Fund in 2008 is 7.00% and is composed of the expected policy return of 6.67% and active management return of 0.33%. The total risk that will be taken to achieve this return is approximately 5.50%, which is derived from the combination of the policy risk of 5.43%, tactical risk of 0.05% and active risk of 0.30%.

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Report from the Resources Director of As stated previously, the Investment Division will thoughtfully align its resources against targeted Investments priorities to ensure the success of our stated goals for 2008. (continued) As with any organization, our greatest asset—and significant expense—is found within our employee base. The Investment Division currently has 56 authorized positions, composed of 48 filled positions and eight vacancies. We will continue to evaluate open positions and assess personnel needs to optimize productivity.

The Investment Division submitted an operating budget (less total compensation) for 2008 that is $5.85 million—significantly below the original 2007 budget of $6.23 million. The budget reflects the Division-wide effort to maintain internal investment management where possible and to manage other administrative expenses.

It should be noted that we estimate that the total cost to manage the OPERS’ asset base in 2008 will be 21.3 basis points, or approximately $185.91 million. The basis for these figures is discussed in greater detail throughout this plan. Higher external management fees reflect the growth in the OPERS’ asset base over the past several years. Clearly, the larger the asset base, the larger the management fee will be. Larger allocations to Private Equity and Real Estate are also likely to increase external management costs.

Summary Sustained performance is the ultimate goal of all activities within the Investment Division. As you may imagine, such growth can only be accomplished through establishing goals and objectives, diligent monitoring of progress-to-goals and adherence to the Retirement Board policies that help mitigate risk—even as we positively position OPERS to take advantage of future opportunities.

Detailed information regarding how each of the initiatives will be achieved follows in this document, which is organized into three sections: Fund Strategies, Asset Class Strategies and Resources and Initiatives. We have a talented team of investment professionals and support staff and we look forward to executing this plan.

Respectfully,

Jennifer C. Hom, CFA Director of Investments

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Organizational The Investment Division organizational chart is shown here; further detail is shown within the Structure organizational charts included in the individual Resources and Initiatives sections.

Director of Investments

Deputy Director

U.S. Equity Global Bonds External Fund Investment Internal Internal Management Management Administration Management Management

Responsibility for oversight of the Investment Division is shared by the director of investments and the director’s management team. The division utilizes a somewhat flat, non-layered structure, allowing for a focused and efficient use of resources while providing flexibility and accountability. By department, the responsibilities are: U.S. Equity Internal Management: Provides active internal management of U.S. equity large cap and real estate investment trust (REIT) securities. Global Bonds Internal Management: Provides active internal management of global bond core portfolios. External Management: Oversees the division’s external managers across all asset classes. Fund Management: Responsible for asset allocation strategies, trading, index and risk management and research and opportunistic initiatives. Investment Administration: Supports the organization’s investment activities through compliance, infrastructure and business management.

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Organizational Internal Governance Structure In addition to the organizational structure described above, the director of investments utilizes a (continued) variety of committees, working groups and meeting structures to govern the division’s activities. This internal governance arrangement enhances collective inputs, promotes transparency, ensures accountability and formalizes decision-making processes. Internal governance is designed to combine structure and flexibility to efficiently bring the appropriate decision makers together on a timely basis and maintain a controlled environment to minimize operational risk.

The schematic below highlights various elements of the internal governance arrangement. The committees and working groups listed below vary in both the frequency of meetings and the degree of structure and formality—some provide informal information sharing and some have formal written charters.

The director of investments and each of the director’s direct reports are responsible for the committees, working groups or formal meetings listed below.

Director of Investments

Staff** Current Markets** Cash/Asset Allocation** Investment Strategy***

U.S. Equity Global Bonds External Fund Investment Internal Internal Management Management Administration Management Management

Portfolio & Markets* Portfolio & Markets* Staff** Portfolio & Markets* Staff**

Sectors** Credit** External Public Staff** Compliance*** Managers*** Staff** Structured Products*** Counterparty Risk*** DC Fund Iran/Sudan Oversight*** Strategy # Strategy and Divestiture*** Market Risk*** Outlook*** Broker Review***+ Private Equity*** Operational Risk***+ Internal Audit Meeting frequency key: Real Estate*** Transitions # Planning # * Meets daily ** Meets weekly *** Meets once or twice each month # Meets on an as-needed basis + Committee reports to the director of investments

The following committees and working groups have investment staff representation to facilitate communication and interaction across OPERS divisions.

Corporate Governance Working Group Managers Meeting Customer Service Action Committee Technology Council Leadership Team

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Resources Staffing After several years of transition from an asset class to a functional organizational structure, the division staffing levels have stabilized. As stated previously, recruiting and retaining the best and most talented staff is a critical priority for the Investment Division. Staff is added only after careful consideration and needs analysis. Following is a presentation of anticipated full staffing at the end of 2008:

Target Staffing for Year End 2008 Office Global of U.S. Equity Bonds Total Director Internal Internal External Fund Invest. Invest. Invest. Mgmt. Mgmt. Mgmt. Mgmt. Admin. Division 2007 Investment Plan Projected Staffing 3111112121059 Current Staffing 21110910648 Vacant Positions - To be filled in 2008 1013218 Year End 2008 Target Staffing 311111212756

Of the 59 positions projected in the 2007 Investment Plan, three positions were transferred to the Corporate Governance department within the legal division to bring the 2008 target staffing to 56 positions. The Investment Division currently has 48 filled positions and expects to fill eight additional positions by the end of 2008.

By department, below are the vacant positions to be filled in 2008.

Status of Open Positions During Fourth Quarter 2007 Target Department Position Vacant Hire Date Office of Director of Investments Deputy Director 1 June 2008 Global Bonds Internal Management Senior Analyst 1 June 2008 External Management Portfolio Manager - Private Equity 1 June 2008 External Management Portfolio Manager/Analyst - Real Estate 2 June 2008 Fund Management Risk Manager/Analyst 1 March 2008 Fund Management Quantitative Analyst 1 June 2008 Investment Administration Investment Administration Analyst 1 June 2008 Total 8

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Resources The following chart compares OPERS’ asset size and staffing as of June 30, 2007 to its peer group (continued) using data from www.pfde.org, which is a shared database of peer comparison statistics from members of the National Association of State Investment Officers (NASIO). Individual peers are listed in the table below.

12 Largest State Plans as of 6/30/2007 $300.00

$250.00

$200.00 Assets ($ billions) $150.00

$100.00

$50.00 0 50 100 150 200

Investment Staff

The chart above suggests that the Investment Division staffing is relatively low compared to its asset base. The focus of the management team continues to be effectively increasing productivity and improving results without significantly increasing staff size.

The following table lists the public pension peer group referenced in the chart above and in other sections of this investment plan. This peer group is composed of the largest public pension funds that submitted data to NASIO by September 30, 2007.

12 Largest State Plans as of 6/30/2007 Assets Investment Peers ($ millions) Staff California Public Employees' Retirement System $247,679 175 California State Teachers' Retirement System 170,511 86 New York State & Local Retirement System 161,232 50 Florida State Board of Administration 136,281 64 New York State Teachers' Retirement System 104,913 50 Ohio Public Employees Retirement System 82,024 50 State of Wisconsin Investment Board 80,467 105 North Carolina Retirement System 75,953 16 Division of Investment Services - State of Georgia 69,000 47 Pennsylvania Public School Employees Retirement System 67,174 26 Washington State Investment Board 63,936 65 Oregon Public Employees' Retirement Fund 62,285 15

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Resources Staffing costs (continued) Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the Investment Division.

Estimated 2008 Total Compensation Costs ($ millions) Office Global of U.S. Equity Bonds Total Director Internal Internal External Fund Invest. Invest. Invest. Mgmt. Mgmt. Mgmt. Mgmt. Admin. Division Salaries $0.56 $1.46 $1.42 $1.53 $1.49 $0.64 $7.10 Benefits 0.20 0.54 0.54 0.56 0.54 0.21 2.58 Incentive Compensation 0.10 0.33 0.38 0.35 0.30 0.05 1.50 Total Compensation 0.86 2.33 2.34 2.44 2.32 0.90 11.19 Average Assets in ($ billions) NA $8.68 $21.99 $33.13 $23.40 NA $87.20 Cost in Basis Points NA 2.7 1.1 0.7 1.0 NA 1.28

By comparison, the estimated total compensation costs for 2007 were $10.49 million, or 1.40 basis points of assets. Total 2008 compensation costs are expected to be similar to those of 2007 due to the combination of filling budgeted positions, salary increases and the transfer of three Corporate Governance positions to the Legal Division.

Operating Budget The Investment Division’s 2008 operating budget less total compensation, as submitted to OPERS Finance on September 19, 2007, was $5.85 million. (This operating budget is subject to change prior to its final approval in late 2007.) This operating budget reflects a decrease of over $0.38 million, or 6.2% percent, from the 2007 budget.

2008 Operating Budget less Total Compensation ($ millions) Office Global of U.S. Equity Bonds Total Director Internal Internal External Fund Invest. Invest. Invest. Mgmt. Mgmt. Mgmt. Mgmt. Admin. Division 2007 Budget $0.76 $0.64 $0.76 $2.39 $1.08 $0.59 $6.23 2008 Budget 0.70 0.62 0.74 2.24 1.16 0.39 5.85 Percent Change -8.7% -2.8% -3.0% -6.3% 7.2% -34.9% -6.2% Percent of Total 11.9% 10.6% 12.7% 38.4% 19.9% 6.6% 100.0% Average Asset Size ($ billions) NA $8.68 $21.99 $33.13 $23.40 NA $87.20 Budget in Basis Points NA 0.71 0.34 0.68 0.50 NA 0.67

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Resources (continued) 2008 Operating Budget Quotes & Data Feeds Audit/Legal/ 19.93% Consulting Services 45.40% Analytics 7.35%

Research Office Supplies & 12.81% Equipment IT Training & Travel 0.07% 6.55% 7.88% Communications 0.01%

The chart above shows the allocation of the operating expenses across major budget categories.

The primary expenses for Audit/Legal/Consulting services are for consulting fees for the Division and individual asset classes. For 2008, estimated consulting fees total $2.7 million.

The primary expenses in the Quotes and Data Feeds category are for data and services provided by vendors such as Bloomberg, Bridge and Factset.

The Analytics category includes tools and analytics provided by BARRA, Wilshire, Yield Book, Quantitative Services Group, Market QA and JPMorgan Chase.

Research expenses are comprised of independent research services such as Thompson Financial, Moody's Credit Reports, MSCI Index Service and Intex.

Training and Travel expenses include all business travel, which is primarily focused on due diligence and research. The increased globalization of the investment industry and efforts to enhance internally generated research prompted a slight increase in training and travel expenses for 2008.

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Resources External Management Fees (continued) Below are the expected annual external management fees by asset class for the Investment Division. The estimate of fees is based on the 2008 estimated average market value for the Defined Benefit and Health Care Funds, as detailed in the average assets section below.

Estimate of External Management Fees in Dollars and Basis Points Total for 2008 Average Estimated Fees of Assets Annual External External Fee Assets ($ millions) ($ millions) (bps) U.S. Equity $6,307 $16.87 26.7 Private Equity 2,220 53.8 242.1 Non-U.S. Equity 17,416 42.2 24.2 Real Estate 4,930 44.1 89.5 Global Bonds 2,021 6.8 33.7 Total Fund $32,895 $163.78 49.8

Of the total amount of external management fees, 86% or $140.1 million is derived from three asset classes, Non-U.S. Equity, Real Estate and Private Equity. Non-U.S. Equity has the greatest dollar amount of external assets under management, resulting in its significant contribution to dollars paid in external manager fees—despite the fact that its fees are extremely low as measured in basis points. These fees are meaningful on an absolute basis relative to the Investment Divisions’ overall costs but are very competitive on a relative basis to what similar investors pay for the management of similar assets.

Average Assets The table below shows a summary of actual and estimated assets for the Defined Benefit and Health Care Funds.

The combined assets are based on 2008 target portfolio and asset class allocations for the Defined Benefit and Health Care Funds. The estimated assets reflect Defined Benefit and Health Care estimated market values, returns and cash flows as detailed in the Defined Benefit and Health Care Fund Strategies section of this plan.

Actual and Estimated Assets Combined Defined Benefit and Health Care Funds ($ billions) Office Global of U.S. Equity Bonds Total Director Internal Internal External Fund Invest. Invest. Invest. Mgmt. Mgmt. Mgmt. Mgmt. Admin. Division July 31, 2007 Actual Unaudited NA $7.7 $20.9 $30.8 $21.6 NA $81.1 December 31, 2007 Estimated NA 8.5 22.1 30.9 23.3 NA 84.8 Average 2008 Estimated NA 8.7 22.0 33.1 23.4 NA 87.2 December 31, 2008 Estimated NA $8.8 $21.7 $35.4 $23.6 NA $89.6

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Resources Total Costs (continued) The estimated total cost of the investment program in 2008 will be $185.9 million or 21.3 basis points of assets under management. This compares to the total costs in the 2007 Investment Plan of $168.8 million, or 22.6 basis points of assets under management. The growth in the size of the fund has generated a commensurate increase in external management fees and custody fees.

Estimated 2008 Total Costs ($ millions) Office Global of U.S. Equity Bonds Total Director Internal Internal External Fund Invest. Invest. % of Invest. Mgmt. Mgmt. Mgmt. Mgmt. Admin. Division Total Total Compensation $0.86 $2.33 $2.34 $2.44 $2.32 $0.90 $11.19 6.0% Operating Budget less Compensation 0.70 0.62 0.74 2.24 1.16 0.39 5.85 3.1% Manager Fees 163.78 163.78 88.1% Custody and Overhead 5.10 2.7% Total Costs 1.56 2.94 3.08 168.46 3.48 1.28 185.91 100.0% Percent of Total 0.8% 1.6% 1.7% 90.6% 1.9% 0.7% Average 2008 Asset Size ($ billions) NA $8.68 $21.99 $33.13 $23.40 NA $87.20 Costs in Ba sis Points to Asse t Cla ss NA 3.4 1.4 50.9 1.5 NA NA Costs in Basis Points to Total Fund 0.2 0.3 0.4 19.3 0.4 0.1 21.3

CEM Benchmarking, Inc., an independent benchmarking firm for pension plans, estimates that the cost to run an investment program with characteristics similar to OPERS to be $157.8 million or 21.5 basis points of assets. The survey used an asset base of $78 billion for OPERS. The lower cost for OPERS is attributed to the greater use of internal management and the negotiation of lower external management fees.

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Defined Benefit Expected Asset Growth

The table below summarizes a probability estimate and confidence interval for the ending value of the Defined Benefit Fund at December 31, 2008. The pessimistic and optimistic estimates are based on the 2008 Return and Risk assumptions listed in the table in the Return and Risk section of the Defined Benefit Fund strategy section.

Defined Benefit Fund 2008 Expected Asset Growth Estimated Market Values, Returns and Cash Flows Pessimistic Base Optimistic Estimate Estimate Estimate 12/31/07 Market Value ($ billions) $71.3 $71.3 $71.3 Expected Total Return 3.49% 7.97% 11.48% Expected Investment Gain ($ billions) 2.5 5.7 8.2 Expected Cash Flow ($ billions) (1.4) (1.4) (1.4) 12/31/08 Market Value ($ billions) $72.5 $75.7 $78.2

The anticipated asset figure of $71.3 billion for December 31, 2007 is derived by a smoothing projection that incorporates both the actual Defined Benefit Fund return through July 31, 2007 and the expected full year return for 2007 presented in the 2007 Investment Plan.

The OPERS Asset Allocation study completed in 2006 indicated that the 15-year projected average annual return for the OPERS Defined Benefit asset mix will be 8.5% with an expected volatility of 12.8%.

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Defined Benefit Asset Allocation (continued) The 2008 target asset allocation and ranges for the Defined Benefit Fund are listed below along with actual allocations of comparable peers as of June 30, 2007:

12/31/08 Asset Class Target Range Peer Group* U.S. Equity 44.6% +/- 4% 38.1% Private Equity 3.4% 1%- 9% 8.0% Non-U.S. Equity 20.0% +/- 4% 18.7% Real Estate 8.0% +/- 4% 6.5% Subtotal Equity 76.0% 71.3% Global Bonds 24.0% +/- 4% 28.7% Subtotal Debt 24.0% 28.7% Total Fund 100.0% 100.0%

*Peer Group defined previously in the Investment Program section

The U.S. Equity asset class includes opportunistic assets. The Real Estate asset class includes Private and Public Real Estate. The Global Bonds asset class within the Defined Benefit Fund includes universal bonds and long-duration bonds.

A key change in the investment policy approved for 2007 was the expansion of ranges around each of the asset allocation targets to allow staff greater flexibility to manage the asset allocation within the approved ranges. Following the development of internal processes, procedures, parameters and an internal control framework approved by the Retirement Board, staff intends to manage the allocation either toward or away from the target allocation.

Throughout 2008 and beyond, staff will work with OPERS’ consultants to recommend certain enhancements to the asset mix and asset management strategies targeted at raising the expected return within acceptable risk levels. While not all of these actions have been identified, some are described in the Asset Class Strategies and Resources and Initiatives sections.

Estimated assets for December 31, 2008 are listed below and are based on December 31, 2008 target allocations and associated total Defined Benefit Fund estimated assets.

Actual Estimated Assets Assets Target ($ billions)($ billions) Allocation 07/31/07 12/31/07 2008 Average 12/31/08 12/31/08 U.S. Equity $30.3 $32.4 $33.1 $33.7 44.6% Private Equity 1.7 1.9 2.2 2.6 3.4% Non-U.S. Equity 14.8 14.3 14.7 15.1 20.0% Real Estate 4.9 5.3 5.7 6.1 8.0% Global Bonds 16.4 17.5 17.9 18.2 24.0% Total Fund $68.1 $71.3 $73.5 $75.7 100.0%

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Defined Benefit Composition of Investment Portfolio (continued) The table below shows the Defined Benefit Fund’s allocation between internal and external asset management by asset class, and as compared to a peer group of the public funds listed in the Investment Program section.

Internal Management External Management OPERS Peer Group OPERS Peer Group U.S. Equity 83.4% 61.9% 16.6% 38.1% Private Equity 0.0% 21.1% 100.0% 78.9% Non-U.S. Equity 0.0% 17.5% 100.0% 82.5% Real Estate 12.5% 22.9% 87.5% 77.1% Global Bonds 91.6% 78.5% 8.4% 21.5% Weighted Averages 62.5% 44.8% 37.5% 55.2%

The table shows that OPERS is similar to its peer group in the higher use of internal management for U.S. Equity and Global Bonds and the higher use of external management for the private market asset classes such as Private Equity and Real Estate. OPERS’ internal management of real estate is through real estate investment trust securities (REITs). OPERS is somewhat dissimilar to its peer group in using external asset management exclusively in the Non-U.S. Equity asset class. As noted in the Report from the Director of Investments, during 2008 staff will further explore managing passive Non-U.S. Equity assets internally.

OPERS’ use of internal asset management in the U.S. Equity and Global Bonds asset classes provides many advantages including: Flexibility: Rebalancing decisions are executed efficiently and effectively. Control over the assets enables OPERS to reposition its portfolios as opportunities arise.

Cost control: External asset management is a high-margin business, and over the long-term, asset management fees can create a material drag on net returns. Where internally managed portfolios meet or exceed expected excess return targets, there is a material benefit to OPERS in performance and cost savings. External asset management fees typically range from a multiple of six to 20 times the cost of managing assets internally.

Market insight: Internal asset management provides important information across asset classes to help in decision-making processes such as: External manager hiring and oversight—Staff is better able to assess external manager strengths and weaknesses. Across markets—Frequently, staff can leverage information garnered from one asset class to aid decision-making in another asset class.

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Defined Benefit The table below shows the Defined Benefit Fund’s allocation between active and passive asset (continued) management by asset class and in total, and compares the composition to a peer group of public funds listed in the Investment Program section. The U.S. Equity, Non-U.S. Equity, Global Bonds and REIT asset classes are managed identically for the Health Care and Defined Benefit Fund.

Active Management Passive Management OPERS Peer Group OPERS Peer Group U.S. Equity 36.2% 41.2% 63.8% 58.8% Private Equity 100.0% 100.0% 0.0% 0.0% Non-U.S. Equity 83.5% 67.3% 16.5% 32.7% Real Estate 100.0% 99.5% 0.0% 0.5% Global Bonds 99.6% 88.6% 0.4% 11.4% Weighted Averages 68.4% 69.1% 31.6% 30.9%

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Defined Benefit Strategies (continued) Return and Risk The Defined Benefit Fund’s performance objective is to earn a long-term rate of return that meets or exceeds the return of the Defined Benefit Fund policy benchmark. Where markets are generally efficient, such as U.S. Equity and Global Bonds, the outperformance goals are modest. In less- efficient markets, such as Non-U.S. Equity and Private Equity, the goals for incremental return above the indices are more aggressive.

The return estimates below were derived from the asset class return expectations developed by internal staff. The single-point estimate return of 7.97% is comprised of an expected return of 7.64% from the policy mix and an additional contribution of 0.33% through active management within the asset classes and individual portfolios.

2008 Return Assumptions Variability Information and Asset Classes Pessimistic Base Optimistic Risk Sharpe Ratios* U.S. Equity 5.00% 8.50% 12.00% Private Equity 6.00% 10.00% 14.00% Non-U.S. Equity 0.00% 7.50% 10.00% Real Estate 6.00% 8.00% 10.00% Global Bonds 2.80% 5.75% 8.70% Sources of Return and Risk Policy 3.56% 7.64% 10.71% 8.05% 0.36 Tactical -0.04% 0.00% 0.04% 0.04% Active -0.03% 0.33% 0.73% 0.38% 0.87 Total Return 3.49% 7.97% 11.48% 8.25% 0.39

Due to rounding, the total return may not appear to sum correctly from the sources of return.

*The Information Ratio is derived by dividing the Active Return by its associated Tracking Error and is an appropriate measure of the relationship between Active Returns and Risks. The Sharpe Ratio is derived by subtracting the Cash Return from the Policy and Total Returns, respectively, and dividing the difference by the associated Standard Deviation. The Sharpe Ratio is an appropriate measure of the relationship between Policy and Total Returns and Risks.

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Defined Benefit As stated in the Report from the Director of Investments, fund investments are measured and (continued) monitored within a specific framework, which identifies return and risk from three sources: Policy: The return and risk inherent in the policy asset mix adopted by the OPERS Retirement Board. The mix has expected return and variability characteristics that come from the underlying asset classes. The expected return of the OPERS Defined Benefit Fund policy mix is 7.64% for 2008 with an estimated risk, or variability, of 8.05%. As such, approximately two-thirds of the time, actual annual policy returns are expected to be within a range of –0.41% to +15.69%.

Tactical: The added return and risk introduced by allowing the actual asset mix to deviate from the policy asset mix. The table above does not show any excess expected return from tactical asset allocation activities. However, staff may propose for the Retirement Board’s approval in 2008 changes in the fund policy that will allow staff the flexibility of using a tactical asset allocation strategy.

Active: The return and risk introduced through the use of active management within asset classes and portfolios, arising from asset class and portfolio compositions that are different than that of their benchmarks.

In summary, the total expected return of the Defined Benefit Fund in 2008 is the expected policy return of 7.64% and active return of 0.33%, for a total of 7.97%. The estimated risk anticipated to achieve this return is the combination of the policy, tactical and active risk, which is 8.25%

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Defined Benefit Active Return and Risk (continued) The table below details the expected excess performance, or active return, and the tracking error (volatility of active returns) for each asset class, as well as the overall fund. Tracking error is a meaningful measure for public market asset classes and does not incorporate private market asset classes for the total Defined Benefit Fund.

2008 Performance Objectives and Tracking Errors Average Active Return Active Return Target Policy Performance Performance Tracking Target Allocation Objectives Contribution Error Information in Percent (bps) (bps) (bps) Ratio U.S. Equity 45.0% 24 10.7 34 0.71 Private Equity 3.0% 100 3.0 NA NA Non-U.S. Equity 20.0% 65 13.0 130 0.50 Real Estate 7.7% 7 0.5 NA NA Global Bonds 24.3% 25 6.1 50 0.50 Total Defined Benefit Fund 100.0% NA 33 38 0.87

The table above shows an anticipated active management contribution of 33 basis points to the fund’s return. The 38 basis points of estimated tracking error indicates a 68% probability that the active return (measured only for public market assets) will be in a range of -5 basis points to +71 basis points. This confidence interval is arrived at by subtracting the tracking error from, and adding the tracking error to, the expected active return. The target contribution to fund performance of 33 basis points is the same as projected for 2007.

The figures shown in the table above are aggregated from the component portfolios in each of the asset classes. The tracking error that results at the fund level is lower than would be suggested by a simple weighted average due to the diversifying effects of the active return interaction among the asset classes.

OPERS 2008 Investment Plan page 19 FUND STRATEGIES

Health Care Expected Asset Growth

The table below summarizes a probability estimate and confidence interval for the ending value of the Health Care Fund at December 31, 2008. The pessimistic and optimistic estimates are based on the 2008 Return and Risk assumptions listed in the table in the Return and Risk section of the Health Care Fund strategy section.

Health Care Fund 2008 Expected Asset Growth Estimated Market Values, Returns and Cash Flows Pessimistic Base Optimistic Estimate Estimate Estimate 12/31/07 Market Value ($ billions) $13.5 $13.5 $13.5 Expected Total Return 3.21% 7.00% 10.02% Expected Investment Gain ($ billions) 0.4 0.9 1.4 Expected Cash Flow ($ billions) (0.5) (0.5) (0.5) 12/31/08 Market Value ($ billions) $13.4 $13.9 $14.3

The anticipated asset figure of $13.5 billion for December 31, 2007 is derived by a smoothing projection that incorporates both the actual Health Care Fund return through July 31, 2007 and the expected full year return for 2007 presented in the 2007 Investment Plan.

Mercer Investment Consulting projects that the Investment Policy return for the OPERS Health Care asset mix over a 15-year time horizon will be 7.45% with an expected volatility of 10.7%.

page 20 OPERS 2008 Investment Plan FUND STRATEGIES

Health Care Asset Allocation (continued) The 2008 target asset allocation and ranges for the Health Care Fund are listed below:

12/31/08 Asset Class Target Range U.S. Equity 29.4% +/- 4% Private Equity 0.1% 0- 5% Non-U.S. Equity 24.5% +/- 4% REITS 6.0% +/- 4% Subtotal Equity 60.0% Global Bonds 40.0% +/- 4% Subtotal Debt 40.0% Total Fund 100.0%

There are no peer universes for comparable health care funds run by comparable large public pension funds. The U.S. Equity asset class includes Opportunistic and the Global Bonds asset class within the Health Care Fund includes universal bonds and short duration bonds and Treasury Inflation Protected Securities (TIPS).

The asset mix shown above was developed based on an asset-liability study completed in 2007, which established that the level of risk assumed in the asset mix is appropriate for OPERS’ characteristics and circumstances. In 2008, the Health Care Fund will be transitioned toward the target allocations in the revised Health Care Fund policy.

Throughout 2008 and beyond, staff will work with OPERS’ consultants to recommend certain enhancements to the asset mix and asset management strategies targeted at raising the expected return within acceptable risk levels. While not all of these actions have been identified, some are described in the Asset Class Strategies and Resources and Initiatives sections.

Estimated assets for December 31, 2008 are listed below and are based on December 31, 2008 target allocations and associated total Health Care Fund estimated assets.

Actual Estimated Assets Assets Target ($billions)($ billions) Allocation 07/31/07 12/31/07 2008 Average 12/31/08 12/31/08 U.S. Equity $3.8 $4.0 $4.1 $4.1 29.4% Private Equity 0.0 0.0 0.0 0.0 0.1% Non-U.S. Equity 2.2 2.0 2.7 3.4 24.5% REITs 0.5 0.7 0.8 0.8 6.0% Global Bonds 6.5 6.7 6.2 5.6 40.0% Total Fund $13.0 $13.5 $13.7 $13.9 100.0%

OPERS 2008 Investment Plan page 21 FUND STRATEGIES

Health Care Composition of Investment Portfolio (continued) The table below shows the Health Care Fund’s allocation between internal and external asset management by asset class, and in total.

Internal Management External Management OPERS OPERS U.S. Equity 83.4% 16.6% Private Equity 0.0% 100.0% Non-U.S. Equity 0.0% 100.0% REITs 100.0% 0.0% Global Bonds 91.6% 8.4% Weighted Averages 73.1% 26.9%

There are no peer universes for health care funds run by large public pension plans. OPERS utilizes internal management for the Health Care Fund, except for the Non-U.S. Equity and Private Equity components, which are managed exclusively by external managers. Furthermore, the Health Care Fund utilizes: A higher proportion of more liquid securities and no private real estate securities due to the greater need for liquidity and the shorter duration of this fund, relative to the Defined Benefit Fund.

Treasury inflation protected securities (TIPS) as a hedge against observed high inflation in health care costs.

OPERS’ use of internal asset management in the U.S. Equity and Global Bonds asset classes provides many advantages including: Flexibility: Rebalancing decisions are executed efficiently and effectively. Control over the assets enables us to reposition our portfolio when an opportunity occurs.

Cost control: External asset management is a high-margin business, and over the long-term, asset management fees can create a material drag on net returns. As long as internally managed portfolios generate the expected excess return, there is a material benefit to OPERS in performance and cost savings. External asset management fees typically range from a multiple of six to 20 times the cost of managing assets internally.

Market insight: Internal asset management provides important information across the marketplace to help in decision-making processes such as: External manager hiring and oversight—Staff is better able to assess external manager strengths and weaknesses.

Across markets—Frequently, staff can leverage information garnered from one asset class to aid decision-making in another asset class.

page 22 OPERS 2008 Investment Plan FUND STRATEGIES

Health Care The U.S. Equity, Non-U.S. Equity, Global Bonds and REIT asset classes are managed identically for (continued) the Health Care and Defined Benefit Fund. The table below shows The Health Care Fund’s active and passive asset management by asset class and in total.

Active Management Passive Management OPERS OPERS U.S. Equity 36.2% 63.8% Private Equity 100.0% 0.0% Non-U.S. Equity 83.5% 16.5% REITs 100.0% 0.0% Global Bonds 99.6% 0.4% Weighted Averages 73.1% 26.9%

There are no peer universes for comparable health care funds run by large public pension plans. Passive management is utilized in the more-efficient U.S. Equity asset class and to a lesser extent in the less-efficient Non-U.S. Equity asset class. The remainder of the fund is substantially actively managed.

Strategies

Return and Risk The Health Care Fund’s performance objective is to earn a long-term rate of return that meets or exceeds the return of the Health Care Fund policy benchmark. Where markets are generally efficient, such as U.S. Equity and Global Bonds, the outperformance goals are modest. In less- efficient markets, such as Non-U.S. Equity and Private Equity, the goals for incremental return above the indices are more aggressive.

The return estimates below were derived from the asset class return expectations developed by internal staff. The single-point estimate of return of 7.00% is comprised of an expected return of 6.67% from the policy mix and an additional contribution of 0.33% through active management within the asset classes and individual portfolios.

2008 Return Assumptions Variability Information and Asset Classes Pessimistic Base Optimistic Risk Sharpe Ratios* U.S. Equity 5.00% 8.50% 12.00% Private Equity NA NA NA Non-U.S. Equity 0.00% 7.50% 10.00% REITs 6.00% 8.00% 10.00% Global Bonds 3.14% 4.96% 7.22% Sources of Return and Risk Policy 3.23% 6.67% 9.34% 5.43% 0.26 Tactical -0.05% 0.00% 0.05% 0.05% Active 0.03% 0.33% 0.63% 0.30% 1.10 Total Return 3.21% 7.00% 10.02% 5.50% 0.25

Due to rounding, the total return may not appear to sum correctly from the sources of return.

*The Information Ratio is derived by dividing the Active Return by its associated Tracking Error and is an appropriate measure of the relationship between Active Returns and Risks. The Sharpe Ratio is derived by subtracting the Cash Return from the Policy and Total Returns, respectively, and dividing the difference by the associated Standard Deviation. The Sharpe Ratio is an appropriate measure of the relationship between Policy and Total Returns and Risks.

During the first year of the Health Care Private Equity program, return projections are difficult to make and are not applicable to the total fund return projections.

OPERS 2008 Investment Plan page 23 FUND STRATEGIES

Health Care As stated in the Report from the Director of Investments, fund investments are measured and (continued) monitored within a specified framework, which identifies return and risk from three sources: Policy: The return and risk inherent in the policy asset mix adopted by the OPERS Retirement Board. The mix has expected return and variability characteristics that come from the underlying asset classes. The expected return of the OPERS Health Care Fund policy mix is 6.67% for 2008 with an estimated risk, or variability, of 5.43%. As such, approximately two-thirds of the time, actual annual policy returns are expected to be within a range of +1.24% to +12.10%.

Tactical: The added return and risk introduced by allowing the actual asset mix to deviate from the policy asset mix. The table above does not show excess expected return from tactical asset allocation activities. However, staff may propose for the Retirement Board’s approval in 2008 changes in the fund policy that will allow staff the flexibility of using a tactical asset allocation strategy.

Active: The return and risk introduced through the use of active management within asset classes and portfolios, arising from asset class and portfolio compositions that are different than that of their benchmarks.

In summary, the total expected return of the Defined Benefit Fund in 2008 is the expected policy return of 6.67% and active return of 0.33%, for a total of 7.00%. The estimated risk anticipated to achieve this return is the combination of the policy, tactical and active risk, which is 5.50%

page 24 OPERS 2008 Investment Plan FUND STRATEGIES

Health Care Active Return and Risk (continued) The table below details the expected excess performance, or active return, and the tracking error (volatility of active returns) for each asset class, as well as the overall fund.

2008 Performance Objectives and Tracking Errors Average Active Return Active Return Target Policy Performance Performance Tracking Target Allocation Objectives Contribution Error Information in Percent (bps) (bps) (bps) Ratio U.S. Equity 29.7% 24 7.1 34 0.71 Private Equity 0.1% NA NA NA NA Non-U.S. Equity 19.8% 65 12.8 130 0.50 REITs 5.5% 50 2.8 200 0.25 Global Bonds 45.0% 23 10.4 30 0.77 Total Health Care Fund 100.0% NA 33 30 1.10

Tracking error is a meaningful measure for public market asset classes and does not incorporate private market asset classes for the total Health Care fund.

The table above shows an anticipated active management contribution of 33 basis points to the fund’s return. The 30 basis points of estimated tracking error indicates a 68% probability that the active return (measured only for public market assets) will be in a range of +3 basis points to +63 basis points. This confidence interval is arrived at by subtracting the tracking error from, and adding the tracking error to, the expected active return. The target contribution to fund performance of 33 basis points is higher than the 31 basis points projected for 2007.

The figures shown in the table above are aggregated from the component portfolios in each of the asset classes. The tracking error that results at the fund level is lower than would be suggested by a simple weighted average due to the diversifying effects of the active return interaction among the asset classes.

OPERS 2008 Investment Plan page 25 FUND STRATEGIES

Defined Asset Management Contribution From its inception on January 2, 2003 through July 31, 2007, the Defined Contribution Fund’s assets have grown to approximately $210 million. Asset growth has averaged approximately $50 million every 12 months. Future growth of the Defined Contribution Fund assets is expected to be equal to, or slightly above, historical averages due to the addition of nearly 2,000 new participants each year.

Defined Contribution Fund Assets Assets Assets Assets ($ millions) ($ millions) ($ millions) OPERS Investment Options 7/31/05 7/31/06 7/31/07 Stable Value $5.0 $7.7 $9.4 Bond 4.3 5.7 7.5 Stock Index 10.0 13.7 20.4 Large Cap 7.6 10.3 14.2 Small Cap 6.4 8.8 12.1 Non-U.S. 4.0 8.3 17.1 Conservative 7.0 8.8 11.8 Moderate 32.4 45.0 63.2 Aggressive 25.2 36.7 54.0 Total $101.9 $145.0 $209.6

Asset Allocation The target asset allocation and ranges for the pre-mix portfolios are shown in the table below. Target asset allocations for the pre-mix portfolios have not changed since the inception of the Defined Contribution Fund. The assets of the pre-mix portfolios are allocated across the six OPERS Funds.

OPERS Pre-Mix Portfolios Conservative Moderate Aggressive OPERS Funds Target Range Target Range Target Range Stable Value 35% +/- 2% 20% +/- 1% 10% +/- 1% Bond 35% +/- 2% 20% +/- 2% 10% +/- 1% Stock Index 12% +/- 2% 25% +/- 4% 30% +/- 5% Large Cap 10% +/- 2% 20% +/- 3% 25% +/- 4% Small Cap 3% +/- 1% 5% +/- 1% 10% +/- 3% Non-U.S. Stock 5% +/- 1% 10% +/- 2% 15% +/- 3% Total 100% 100% 100%

Quarterly, the asset allocation of each portfolio is compared to its range, and rebalanced to target if outside the range.

page 26 OPERS 2008 Investment Plan FUND STRATEGIES

Defined Composition of Investment Portfolios Contribution (continued) In 2002, OPERS staff and external consultants recommended the current Defined Contribution Fund investment structure, which includes a multi-tiered investment option line up with pre-mix funds and core investment options. This continues to be a popular structure, particularly within the large-plan segment of member-directed pension plans.

The investment structure is designed to satisfy the investment objective of the Defined Contribution Fund, which is to offer an array of funds that provides participants the ability to construct a portfolio that: Is diversified by asset class and investment style, Spans the risk-return spectrum, Outperforms appropriate benchmarks, and Avoids excessive risk

Current Defined Contribution Portfolio Structure OPERS Investment Options Benchmark Index Benchmark Peers Stable Value Custom Stable Value (1) Evestments Bond Lehman Brothers Universal Russell/Mellon Active Fixed Income Stock Index Russell 3000 Russell/Mellon Active U.S. Equity Large Cap Russell 1000 Russell/Mellon Active U.S. Equity Small Cap Russell 2000 Russell/Mellon Active Small Cap U.S. Equity Non-U.S. MSCI ACWI x U.S. Russell/Mellon Active non-U.S. Equity Conservative Custom Conservative (2) Russell/Mellon Active Balanced 30/70 Moderate Custom Moderate (3) Russell/Mellon Active U.S. Equity 60/40 Aggressive Custom Aggressive (4) Russell/Mellon Active U.S. Equity 80/20

1) The Custom Stable Value Index is 5% Merrill Lynch 3-Month Treasury Bills, 45% Lehman 1-5 Year Government/Corporate Bond, 35% Lehman Intermediate Government/Corporate and 15% Lehman Aggregate smoothed over three year periods. 2) The Custom Conservative Index is 35% Custom Stable Value, 35% Lehman U.S. Universal, 12% Russell 3000, 10% Russell 1000, 3% Russell 2000 and 5% MSCI All Country World x U.S. 3) The Custom Moderate Index is 20% Custom Stable Value, 20% Lehman U.S. Universal, 25% Russell 3000, 20% Russell 1000, 5% Russell 2000 and 10% MSCI All Country World x U.S. 4) The Custom Aggressive Index is 10% Custom Stable Value, 10% Lehman U.S. Universal, 30% Russell 3000, 25% Russell 1000, 10% Russell 2000 and 15% MSCI All Country World x U.S.

OPERS 2008 Investment Plan page 27 FUND STRATEGIES

Defined Plan Structure Contribution As stated in the Defined Contribution Fund’s Statement of Investment Objectives and Policies, (continued) creating the Defined Contribution Fund’s annual plan is the joint responsibility of the Investment Division and the Defined Contribution department. The Investment Division is primarily responsible for ensuring the plan meets the investment objectives of each investment option and the Defined Contribution department is primarily responsible for ensuring the plan design meets the needs of members.

The Defined Contribution Fund is composed of investments directed by members in the Member- Directed and Combined plans. At September 1, 2007, participation in the Member-Directed plan included approximately 8,100 members, while participation in the Combined plan included approximately 6,600 members. Over the last 12 months, new members have typically defaulted to the Traditional Pension plan. Of the new members who have actively selected a retirement plan, 73% have selected the Traditional Pension plan, 15% the Member-Directed plan and 12% the Combined plan.

Periodically, staff compares the OPERS Defined Contribution Fund to peers that provide defined contribution investment options to participants to stay abreast of best practices and monitor industry trends. Current findings on marketplace trends include: Many plan sponsors continue to offer a large number of investment options (15 or more options). However, some plan sponsors are reducing the number of investment options to simplify the account management process for participants.

Many plan sponsors offer a multi-tiered investment structure of balanced lifestyle and/or Life Cycle funds and individual funds.

Target retirement date (Life Cycle) funds are quickly gaining acceptance.

Self-directed brokerage accounts are used by a small number of corporate plan sponsors. However, participants do not typically utilize this service when it is available.

Consistent with findings presented in the OPERS Defined Contribution annual review conducted by Mercer Investment Consulting, staff is evaluating the alternative structures, benefits and costs of Life Cycle funds. The evaluation will indicate whether OPERS should provide Life Cycle funds, how they should be structured and methods to ensure the funds are appropriately utilized by members.

page 28 OPERS 2008 Investment Plan FUND STRATEGIES

Defined Expected Fees Contribution The tables below show the expected asset management fees for each investment option and (continued) underlying investment managers. The estimates of fees are based on a projected average of assets and expected basis points of fees for 2008 and reflect the benefit of consolidating portfolios across the Defined Benefit, Health Care and Defined Contribution Funds.

Estimate of External Management Fees in Dollars and Basis Points Total for 2008 Average Estimated Estimated Assets Annual Fees Annual Fees OPERS Investment Options ($ millions) ($ millions) (bps) Stable Value $11.4 $0.03 23 Bond 9.1 0.02 20 Stock Index 24.8 0.01 3 Large Cap 17.3 0.04 21 Small Cap 14.7 0.04 24 Non-U.S. 20.8 0.07 32 Conservative 14.4 0.03 20 Moderate 77.0 0.14 18 Aggressive 65.8 0.12 18 Total $255.5 $0.47 19

Estimate of Fees by Manager Mandate in Dolalrs and Basis Points Average Estimated Estimated OPERS Investment Underlying Investment Assets Annual Fees Annual Fees Options Manager ($ millions) ($ millions) (bps) Invesco Stable Value $26.9 $0.05 18 Stable Value Goode Stable Value 11.5 0.04 35 Pyramis Broad Market Duration 16.3 0.03 20 Smith Breeden Core 16.3 0.03 17 Bond Fort Washington High Yield 2.5 0.01 25 Capital Guardian Emerging Market Debt 1.1 0.01 47 Stock Index BGI Russell 3000 Index 65.6 0.02 3 GMO U.S. Core 20.3 0.09 46 Large Cap BGI Russell 1000 Index 30.4 0.02 5 Invesco Structured Small Cap 12.8 0.05 40 Small Cap BGI Russell 2000 Index 12.8 0.01 8 Alliance Bernstein ACWI xU.S. Active 15.4 0.05 33 Non-U.S. Acadian ACWI xU.S. Active 7.7 0.03 34 BGI ACWIxUS Index $2.6 $0.00 15

OPERS 2008 Investment Plan page 29 FUND STRATEGIES

Defined Strategies Contribution (continued) Asset Class Return and Risk The returns presented below are neither predictions of, nor guarantees for, future performance. The returns result from the performance objectives of the underlying Member-Directed funds stated in the Member-Directed Fund policy, which provide a framework for the Investment staff to manage the funds.

The returns of the pre-mix portfolios are comprised of asset class returns and active returns. The asset class returns and risk (defined by standard deviations) are provided by Mercer Investment Consulting, and are based on their capital markets modeling assumptions. Those assumptions are based on historical total returns, fundamental data and valuation levels. The Investment staff does not incur tactical risk in the management of the pre-mix portfolios and rebalances quarterly if the allocation is outside its range.

Asset Class and Pre-Mix Portfolio Expected Return & Risk Asset Classes Return Risk* Stable Value 4.8% 3.0% Bond 5.3% 5.5% Stock Index 8.0% 18.0% Large Cap 8.0% 18.0% Small Cap 8.4% 25.0% Non-U.S. Stock 8.2% 19.5% Pre-Mix Portfolios Conservative Composite 6.7% 6.4% Conservative Active 0.2% NA Conservative Total 7.0% NA Moderate Composite 8.1% 11.0% Moderate Active 0.3% NA Moderate Total 8.3% NA Aggressive Composite 9.0% 14.4% Aggressive Active 0.3% NA Aggressive Total 9.3% NA

*Risk is defined in this table as the annualized standard deviation of monthly returns over the past five years.

page 30 OPERS 2008 Investment Plan FUND STRATEGIES

Defined Active Return and Risk Contribution Active returns are estimated by applying the performance objectives listed on the subsequent table of (continued) the Member-Directed Funds to the target asset allocation of each pre-mix portfolio as listed previously in the OPERS pre-mix portfolios table.

Expected Active Return and Risk Pre-Mix Portfolios Conservative Moderate Aggressive Performance Objective 24 26 32 Tracking Error 60 83 110 Information Ratio 0.39 0.31 0.29

Member-Directed Funds The following summarizes notable Member-Directed Fund investment activities that will be completed in the coming year: The Large Cap Fund and Small Cap Fund have underperformed their benchmarks and staff is working with Mercer Investment Consulting to improve performance by enhancing manager diversification and utilizing enhanced index investment management strategies.

Investment staff and Mercer Investment Consulting will evaluate investment strategies with low cost and strong expected performance to support Life Cycle Funds as a potential future investment option.

The Stable Value Fund, Bond Fund, Stock Index Fund and Non-U.S. Stock Fund are currently meeting objectives and performing as expected and no changes are anticipated for these funds.

OPERS 2008 Investment Plan page 31 FUND STRATEGIES

Defined Performance Objectives and Risk Control Contribution The performance objectives and tracking errors listed below are neither predictions of, nor (continued) guarantees for, future performance. The performance objectives of the Member-Directed funds are defined by the Member-Directed Fund policy, which provides a framework for the Investment staff to manage the funds.

Schedule of Expected Performance and Volatility Average Assets Target Under Tracking Performance Tracking Target Management Target Error Objectives Error Information ($ millions) Allocation Benchmark (bps) (bps) Ratio OPERS Stable Value Invesco Stable Value $26.9 70% Custom SV* 10 NA NA Goode Stable Value 11.5 30% Custom SV* 10 NA NA Total Stable Value 38.4 100% Custom SV* 10 NA NA OPERS Bond Pyramis Broad Market Duration 16.3 45% LB Aggregate 50 60 0.83 Smith Breeden Core 16.3 45% LB Aggregate 50 60 0.83 Fort Washington High Yield 2.5 7% LB Ba/B HY 3% Cap 100 400 0.25 Capital Guardian Emerging Market Debt 1.1 3% JPM EMD 100 400 0.25 Total Bond 36.2 100% LB US Universal 30 70 0.43 OPERS Stock Index BGI Russell 3000 Index 65.6 100% Russell 3000 0 15 0.00 Total Stock Index 65.6 100% Russell 3000 0 15 0.00 OPERS Large Cap GMO U.S. Core 20.3 40% Russell 1000 100 400 0.25 BGI Russell 1000 Index 30.4 60% Russell 1000 0 25 0.00 Total Large Cap 50.6 100% Russell 1000 40 125 0.32 OPERS Small Cap Invesco Structured Small Cap 12.8 50% Russell 2000 120 500 0.24 BGI Russell 2000 Index 12.8 50% Russell 2000 0 75 0.00 Total Small Cap 25.6 100% Russell 2000 100 300 0.33 OPERS Non-U.S. Stock Alliance Bernstein ACWI xU.S. Active 15.4 60% MSCI ACWIxU.S. 200 400 0.50 Acadian ACWI xU.S. Active 7.7 30% MSCI ACWIxU.S. 350 600 0.58 BGI ACWIxUS Index 2.6 10% MSCI ACWIxU.S. 0 125 0.00 Total Non-U.S. Stock $25.6 100% MSCI ACWIxU.S. 50 250 0.20

*Custom SV benchmark is previously defined in the Defined Contribution Composition of Investment Portfolio section.

page 32 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Tactical Outlook This tactical outlook provides the background and context for the following asset class strategies and for the consideration of biases between the asset classes for the Defined Benefit and Health Care Funds.

Following are overviews of the two components of the tactical outlook: The economic outlook and the investment outlook. The economic outlook was provided by the Board’s investment consultant, Mercer Investment Consulting, in early October of 2007. The investments outlook, provided by OPERS’ Investment staff, is summarized by asset class.

Economic Outlook Concern has rightfully risen about the economy: housing, credit crunch, weak consumer spending, higher energy prices, and a declining dollar provide heightened worries. Recession risks have increased dramatically in the last couple of months, but they still remain less than 50% in our opinion.

We believe that the economy will continue to experience sub-par growth amid moderate inflation through the rest of 2007 and into 2008. We will be surprised if growth is above average over the next few quarters and expect it to range in the 1% to 2.5% corridor, with dips down to 1%. The economy will continue to experience sub-par growth amid moderate inflation through the rest of 2007 and into 2008.

Employment growth will trend below average and we expect the unemployment rate to rise slightly. We expect the unemployment rate to drift up to 5% in 2008.

The pressure on the dollar along with a Fed that is striving to liquefy capital markets presents clear dangers of rising inflation. A countervailing pressure is the decline in consumer demand and possible recession. Overall, the market signals have shown only a modest increase in inflationary expectation. Overall, we expect inflation to hover around 2.5%, just below its average of 2.7% for the last 16 years.

The dollar has continued its steady decline and we are beginning to see some benefits of a weaker dollar. However, we are of the opinion that the dollar is approaching undervaluation and has a good chance of starting to appreciate against other currencies. Trade deficits peaked two years ago and could improve rapidly if the global economy remains strong. Timing of any currency moves are notoriously difficult as this market exhibits a lot of momentum and can sustain imbalances for quote some time.

We believe that, finally after almost two years of flat and inverted yield curves, the yield curve as of September is quite sustainable and perfectly consistent with underlying economic fundamentals of slightly below average growth and average inflation. We expect yields to remain in this range into next year. Thus, we expect the 10-year Treasury to remain around 4.6% to 4.7% over the next 15 months.

Overall the U.S. economy has slumped mildly and is undergoing a somewhat normal correction to imbalances that have developed. The economy, however, is competitively positioned in the global marketplace and should be able to return to normal growth in late 2008.

OPERS 2008 Investment Plan page 33 ASSET CLASS STRATEGIES

Tactical Outlook Mercer is only moderately bullish on the global economy. Many other western nations (UK, for (continued) example) have as severe a housing bubble and reliance on cheap consumer credit. We expect the emerging markets to remain strong and start the gradual process of creating more balanced economies as well, by encouraging more consumer spending.

With its below average growth, the US is considered one of the weakest (if not the weakest), of the major industrialized economies. Growth has been extremely robust in Asia, Europe, and even Latin America. One way the U.S. can mend its imbalances (trade, savings, and housing) is if the global economy remains strong.

The dollar has continued its steady decline, but in fact, the dollar has been declining against major currencies for over 20 years. We are of the opinion that the dollar is approaching undervaluation and has a good chance of starting to appreciate against other currencies.

The complete 2008 Economic Outlook by Mercer Investment Consulting is provided as an appendix item and was provided in late November of 2007.

Investment Outlook

Information gathered from a variety of sources was used to determine the investment outlook for 2008. Information considered includes Mercer Investment Consulting’s outlook, research from investment banks, discussions with and research by investment managers, feedback from generalist and specialized consultants, discussions with peers and industry experts, and academic and informational periodicals.

U.S. Equity Outlook Expected returns are in the range of 5% to 12%.

The U.S. equity market is responding well to higher than expected rate cuts by the Federal Open Market Committee. This more aggressive approach by the Fed is taking its toll on the dollar, but is rapidly addressing the over $700 billion in loans that is assumed to be parked on investment bank balance sheets. As these liabilities are removed, capital markets activity should resume and a more normal tone of business should reappear.

This economic backdrop is very beneficial to securities that rely on the strength of the U.S. economy.

Additionally, emerging markets continue to march on with robust GDP growth rates. With an improving domestic backdrop for equities and a strong international picture along with higher exposures by large capitalization U.S. firms to foreign markets, 2008 is shaping up to be a healthy year for U.S. equity large capitalization securities.

Private Equity Outlook Expected return is 6% to 14% with a target return of 10%.

Corporate finance investments should experience more modest returns as lenders demand more favorable rates and terms, and purchasers of bank debt and high yield paper demand higher-risk premiums.

Venture capital investments are expected to show no significant gains or losses through 2008, as exit markets remain difficult. page 34 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Tactical Outlook Non-U.S. Equity Outlook (continued) Expected returns are in the range of 0% to 10%.

Base case is 7.5% returns, based on mid-single digit capital market returns and an extra 0 to 1% on currency return.

Global growth is expected to slow but remain positive in 2008.

Larger downside due to increased volatility and risk aversion, potential for a U.S. slowdown or recession impacting the global economy, liquidity risks subsequent to the recent sub-prime and credit market dislocations, and potential for short-term corrections.

Non-U.S. small cap stocks look overvalued relative to large cap. Non-U.S. small cap should remain close to neutral weight in 2008.

Emerging markets remain attractive fundamentally with long-term advantages in terms of growth, profitability and valuation, but could suffer short-term if markets pull back. Timing these markets is difficult so recommend maintaining long-term neutral to modest overweight position through 2008.

A long value cycle in non-U.S. may finally be turning towards growth.

No strong currency views. Secular U.S. Dollar weakness, particularly against Asian and developing market currencies, is more likely to continue than not, but it is difficult to predict the speed and magnitude of currency adjustments. The U.S. dollar may still be considered a “safe haven” during volatile times and that could lead to short-term stability or even moderate strengthening vs. some currencies.

Real Estate Outlook Expect total returns are in the range of 6% to 10%.

Property level fundamentals are expected to remain strong in 2008: Construction supply pipeline is modest Property supply and demand are in balance Rental rates are increasing

Capital markets are expected to react to the re-pricing of risk: Institutional investors have allocated equity for real estate investments, but anticipate underwriting to be more sensitive to asset quality and location risks. Lenders are anticipated to resume originating loans, but expect lenders to reduce loan amounts, increase debt service coverage ratios, and demand principal amortization.

Expect a price correction off the highs of mid-2007: Anticipate an increase of cap rates of 50 bps to 100 bps, moving average cap rates from a range of 4.5% to 5.5%, to a range of 5.0% to 6.5% for stabilized properties.

OPERS 2008 Investment Plan page 35 ASSET CLASS STRATEGIES

Tactical Outlook Global Bonds Outlook (continued) Expected returns are in the range of 3% to 9%.

In September, the Federal Open Market Committee reduced rates from 5.25% to 4.75% in response to the credit crunch and unexpected slowdown in economic growth and downtrend in inflation. The Fed Funds rate is expected to be in the 4.0% to 4.5% range in the first half of 2008.

Corporate bond valuations are more attractive than they have been in some time, but a weaker economy, and rising defaults may pressure valuations.

High yield bonds may underperform as a slower pace of economic activity leads to a rise in default rates.

Emerging market debt fundamentals remain strong, but valuations remain tight and may come under pressure with more modest economic growth.

page 36 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

U.S. Equity Strategy In 2007, the strategy for managing the risk and return of the U.S. Equity asset class was reevaluated resulting in the Board approving modifications to the U.S. Equity Policy. The new policy classifies equity investment strategies into one of three categories: index, enhanced index or active. The following table shows the ranges and targets for the new policy.

Categories Ranges Ranges

Index 50 – 80% 65% Enhanced Index 0 – 35% NA Active 0 – 15% NA

The structure for the U.S. Equity strategy provides greater flexibility for managing assets between categories and for managing allocations to managers with similar risk levels in the same category. This approach also specifically acknowledges that different types of strategies entail different levels of risk. It also facilitates building portfolios of managers with a high probability of achieving return targets rather than only focusing on risk control. The new strategy also allows for a more opportunistic approach for identifying managers with high alpha potential within the active management category.

2007 Transition and 2008 Plans Following the approval of the new U.S. Equity policy in March 2007, a $3.3 billion transition was completed in April 2007 with two external managers being terminated and allocations to other managers being adjusted. A $125 million transition was completed in July 2007 to fund the two managers of minority managers. Both the enhanced index category and the active category require further development particularly related to manager allocations. OPERS External Public Markets group intends to provide recommendations to address this matter shortly. Staff will also be working with Mercer to consider opportunities in this area.

Portfolio Allocation The 65% target allocation to the index category is a key risk control component of the asset class. Index or passive management is a portfolio management approach for gaining index or beta exposure to the asset class and exhibits very low tracking error of 0 to 50 basis points, or 0.50%. Tracking error is a measure of a portfolio’s variability of returns relative to that of the benchmark. The higher the tracking error, the wider the variation is expected to be between the portfolio’s performance and the benchmark’s performance. The portfolios in the index category are managed internally by Fund Management staff.

OPERS 2008 Investment Plan page 37 ASSET CLASS STRATEGIES

U.S. Equity Enhanced index managers employ a risk-controlled approach with the portfolios exhibiting low to (continued) moderate levels of tracking error. The tracking error of an enhanced index strategy is generally expected to be in the 50 (0.50%) to 250 (2.50%) basis point range. The enhanced index category is comprised of five managers, which have diversified sources of alpha from three general strategic approaches. Three portfolios are managed in a risk-controlled, quantitative fashion (Goldman, Barclays, Piedmont). Another portfolio is a synthetic enhanced index portfolio, which invests in fixed income securities and uses equity index futures to gain equity market exposure. The internal enhanced portfolio is a low risk fundamental analysis driven strategy managed by internal U.S. Equity staff.

The allocations to each of the four external enhanced index managers were increased in 2007 including PIMCO, which received its initial allocation in 2007. The allocation to the internal enhanced index portfolio was reduced in 2007 to more appropriately allocate assets within this category after evaluating risk and return contributions among the portfolios. In 2008, the allocations among the managers and the selection of managers in this category will be further reviewed. Additional managers may be needed which may result in manager and allocation proposals in 2008.

Active managers have tracking error levels of 250 basis points (2.50%) to 800 basis points (8.00%) or more. Managers with strategies on the low end of the tracking error spectrum are generally considered to be more core-oriented while high levels of risk may suggest that the manager has a style bias or a concentrated portfolio. The Active category is currently allocated among five managers with two managers being funded in 2007 for the manager of minority manager program. Leading Edge and Progress both manage portfolios of underlying managers and were funded with allocations of $75 million and $50 million, respectively. Leading Edge and Progress have manager selection and allocation authority and currently use eight and seven managers in their line-ups, respectively.

The other portfolios in the active management category are managed by Pyramis (formerly Fidelity), AllianceBernstein and Invesco. The active category also does not appear to have an adequate diversity of managers or manager styles, which will be addressed in 2008.

Performance Objectives and Risk Control The U.S. Equity asset class benchmark is the Russell 3000 Index which is a broad-based index representing the U.S. Equity universe. Allocations among the index, enhanced index and active management categories are managed in order to optimize the risk and return profile of the asset class portfolio. The general asset class strategy is to construct a portfolio of individually managed portfolios that achieves the outperformance objective while maintaining a balanced and risk- controlled profile that closely matches that of the benchmark. The composition of the asset class will continue to be assessed to determine the appropriate managers and the optimal allocations to achieve the performance objective while working within the allotted risk budget.

page 38 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

U.S. Equity The outperformance objective or alpha expectation for 2008 for the aggregate U.S. Equity asset class (continued) composite is 24 basis points as shown in the accompanying table. This objective is unchanged from the 2007 level. The allocation strategy among the portfolios, which have varying degrees of expected alpha, determines the aggregate alpha expectation. The primary sources of outperformance are the enhanced index and active management categories. The expected alphas for these managers fall in the 47 to 150 basis point range. The alpha expectations are based on the confidence level with each manager as well as the outlook for the specific strategy that each employs.

The asset class tracking error is determined by a risk budgeting process and model and is expected to be approximately 70 basis points per annum measured over three-to-five year periods. A tracking error target is established for each portfolio and each category of portfolios with the expectation that the overall asset class tracking error remains below approximately 70 basis points (approximately 85% of the time). When combining portfolios with different securities and varying strategies, a diversification benefit is achieved. Managers and strategies are selected in consideration of their interrelated risks and return characteristics or correlations. The diversification benefit results in a lower tracking error estimate than would be computed by a simple weighted average of the individual portfolio tracking errors. Therefore, despite tracking error estimates of up to 450 basis points, the resulting tracking error target is quite modest. For 2008, the asset class tracking error is targeted at 34 basis points. The tracking errors of the asset class, categories and individual portfolios are monitored on a regular basis to assure compliance with portfolio guidelines as well as with the targets described in the Investment Plan.

The Internal Russell 2000 and Internal Russell 1000 accounts are used in tandem for tactical asset allocation and for adjusting imbalances between small capitalization and large capitalization exposure within the asset class. The accounts are also used for conducting transition activity in a cost effective and operationally efficient manner. For example, the use of derivatives in the form of futures were employed throughout 2007 in transition activity to manage equity market exposure and for equitizing or raising cash as needs arose for meeting benefit payments or managing asset allocation across the total fund. The Internal Russell 1000 account was employed in both 2007 transitions, which consolidated trading activity thereby reducing transaction and opportunity costs.

OPERS 2008 Investment Plan page 39 ASSET CLASS STRATEGIES

U.S. Equity The portfolio composition and strategic allocation are managed to optimize the risk-return trade-off (continued) and achieve an attractive risk-adjusted return. A measure of the risk-return efficiency of a portfolio is the information ratio. The aggregate portfolio outperformance projection and tracking error are used to calculate the information ratio. The calculation is expected alpha divided by tracking error. The 2008 U.S. Equity portfolio is expected to have an information ratio of 0.71, the same expectation that appeared in the 2007 Investment Plan. The following schedule shows this metric, the tracking error target for each portfolio and the corresponding active return expectations.

Schedule of Expected Performance and Tracking Error Average % Performance Target Assets Under of Objectives Tracking Target Management Total (Net of Fees) Error Information ($ millions) U.S. Equity Benchmark (bps) (bps) Ratio Index Internal R3000 $22,700 61.9% Russell 3000 5 9 0.56 Internal R2000 404 1.1% Russell 2000 0 9 0.00 Internal R1000 297 0.8% Russell 1000 0 9 0.00 Total Index 23,401 63.8% Russell 3000 5 9 0.54 Enhanced Index Internal Enhanced 7,193 19.6% Russell 1000 47 125 0.38 BGI 2,147 5.9% Russell 1000 53 100 0.53 Piedmont 114 0.3% S&P 500 60 165 0.36 Goldman Sachs 1,446 3.9% S&P 500 60 200 0.30 PIMCO 980 2.7% S&P 500 50 125 0.40 Total Enhanced Index 11,880 32.4% 50 100 0.50 Active AllianceBernstein 547 1.5% Russell 1000 120 450 0.27 Leading Edge MOMM 81 0.2% Russell 3000 60 250 0.24 Progress MOMM 55 0.2% Russell 3000 60 250 0.24 Invesco 341 0.9% Russell 2000 120 500 0.24 Pyramis 396 1.1% Russell 2000 150 800 0.19 Total Active 1,420 3.9% 123 300 0.41 Total U.S. Equity $36,701 100.0% Russell 3000 24 34 0.71

page 40 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

U.S. Equity Portfolio Composition and Fees (continued) The table below is a summary of the allocations for the U.S. Equity portfolio, showing the internal and external managers and the active and passive components.

Estimate of Internal/External and Active/Passive Composition Est. Mid-Year 2007 Est. Mid-Year 2008 Active Passive Total Active Passive Total Internal 19.6% 64.0% 83.6% 19.6% 63.8% 83.4% External 16.4% 0.0% 16.4% 16.6% 0.0% 16.6% Total 36.0% 64.0% 100.0% 36.2% 63.8% 100.0%

The following table details the average assets under management by portfolio and the expected costs associated with each. For internally managed portfolios, cost components consist of the unit's total compensation and operating budget for 2008. The time spent by each staff member on the respective internal portfolios is the metric used to allocate costs.

Schedule of Portfolio, Size and Estimated Fees Average Assets Under Estimated Estimated Management Annual Fee Annual Fee Benchmark ($ millions) ($ millions) (bps) Index Internal R3000 Russell 3000 $22,700 $0.4 0.2 Internal R2000 Russell 2000 404 0.0 0.8 Internal R1000 Russell 1000 297 0.1 1.7 Total Index Russell 3000 23,401 0.5 0.2 Enhanced Index Internal Enhanced Russell 1000 7,193 3.0 4.1 BGI Russell 1000 2,147 3.5 16.4 Piedmont S&P 500 114 0.2 21.0 Goldman Sachs S&P 500 1,446 2.3 15.7 PIMCO S&P 500 980 2.7 28.0 Total Enhanced Index 11,880 11.7 9.9 Active AllianceBernstein Russell 1000 547 1.4 25.0 Leading Edge MOMM Russell 3000 81 0.5 60.0 Progress MOMM Russell 3000 55 0.3 60.0 Invesco Russell 2000 341 1.4 40.3 Pyramis Russell 2000 396 2.4 61.3 Total Active 1,420 6.0 42.1 Total U.S. Equity Russell 3000 $36,701 $18.2 5.0

OPERS 2008 Investment Plan page 41 ASSET CLASS STRATEGIES

Opportunistic Strategy Opportunistic investing allows OPERS to access investment strategies and new instruments that do not fit within one of the traditional asset class categories. There is no overall strategy for the asset class. Each potential strategy will be evaluated on its own merit and whether the strategy is feasible and scalable.

The Opportunistic strategies that have been approved by the OPERS Retirement Board are: Hedge Fund-of-Funds, Active Currency, and Commodities.

Hedge Fund-of-Funds This strategy is 100% externally managed by: Crestline Investors, Inc. and Pacific Alternative Asset Management Company. Each was initially funded with $25 million in early 2006. In May 2007, the Board of Trustees approved, and staff completed, an additional funding of $25 million with each manager.

Active Currency Initial research was presented at the August 2005 Investment Committee meeting on whether active currency mandates could be a source of alpha for OPERS, with additional research presented in August 2006. Active Currency was approved as an Opportunistic strategy at the August 2006 meeting. Mandates will be 100% externally and actively managed. A search for active currency managers was conducted in 2007. Manager selection, contract and fee negotiation and funding are expected to be complete by the end of 2007.

Commodities In 2004, staff researched real return investment strategies. Commodity exposure will be managed internally and passively. Staff is preparing for initial funding by the end of 2007.

Performance Objectives and Risk Control The limited size of the Opportunistic strategies is its primary risk-control mechanism. It is envisioned that once the asset class is mature, no single program or strategy within it will account for more than 35% of the total market value of the Opportunistic asset class. Performance objectives will be set for each program or strategy and is limited to a maximum of $100 million as an initial funding with a target initial funding of $25 million to $50 million.

page 42 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Opportunistic The following schedule details the tracking error target for each portfolio and the corresponding active (continued) return expectations.

Schedule of Expected Performance and Tracking Error Average % Performance Target Assets Under of Objectives Tracking Target Management Total (Net of Fees) Error Information ($ millions) Portfolio Benchmark (bps) (bps) Ratio Crestline Partners $50 25.0% LIBOR + 400 BPS 0 400 0.00 PAAMCO 50 25.0% LIBOR + 400 BPS 0 400 0.00 Active Currency 50 25.0% 10.0% 200 400 0.50 Commodities 50 25.0% GSCI & DJ AIG* 0 0 0.00 Total Opportunistic $200 100.0% Custom Benchmark** 50 250 0.20

*Benchmark is a blend of Goldman Sachs Commodity Index & Dow Jones American International Group Commodity Index. **The Custom Benchmark is the weighted average of the benchmarks for each opportunistic strategy.

Portfolio Composition and Fees The following schedule details the average assets under management by individual portfolio along with the expected fees or costs associated with each of the portfolios.

Schedule of Portfolio, Size & Estimated Fees Average Assets Under Estimated Estimated Management Annual Fee Annual Fee Benchmark ($ millions) ($ millions) (bps) Crestline Partners LiBOR + 400 BPS $50 $0.6 125.0 PAAMCO LiBOR + 400 BPS 50 0.5 100.0 Active Currency 10.0% 50 1.0 200.0 Commodities GSCI & DJ AIG* 50 0.0 0.0 Total Opportunistic Custom Benchmark** $200 $2.1 106.3

*Benchmark is a blend of Goldman Sachs Commodity Index & Dow Jones American International Group Commodity Index. **The Custom Benchmark is the weighted average of the benchmarks for each opportunistic strategy.

OPERS 2008 Investment Plan page 43 ASSET CLASS STRATEGIES

Private Equity Strategy OPERS seeks to maintain a top-tier Private Equity program that generates attractive, risk-adjusted long-term returns. The following information details the short and long-term strategic efforts for achieving this objective.

From inception of the new private equity program in 2001, only the Defined Benefit Fund contained an allocation to the Private Equity asset class, which is currently targeted at 5%. However, the OPERS Board recently approved a 5% allocation to the Health Care Fund with commitments expected to begin in 2008. The strategy is to invest on a pro rata basis along with the Defined Benefit Fund with a goal of reaching the Health Care Fund 5% target in five to seven years.

Performance Objectives and Risk Control The Private Equity Policy establishes the asset class objective, which is restated below:

OPERS Private Equity performance is benchmarked on a long-term, 7-10 year, rolling basis against the Russell 3000 plus 300 basis points using the internal rate of return (IRR) cash flow methodology.

The Private Equity Policy establishes the program risk controls listed below. The Private Equity Policy provides complete portfolio details.

Risk Management

Liquidity Currency Vintage Risk Industry Manager Risk Geography Firm Risk Leverage

Securities and Restricted Investments

Investment Types Ohio and Regional Co-Investments and Direct Placements Stock Distributions Hedge Funds Child Labor Derivatives Privatization Real Estate

page 44 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Private Equity Portfolio Composition (continued) The Private Equity portfolio had an unaudited market value of $1,872.8 million as of June 30, 2007. However, there are sections of the Investment Plan that reference real estate market values, which are computed monthly, with the most recent dated July 31, 2007. The following is an overview of the portfolio’s market value by geography and type:

Actual Portfolio Fair Market Value vs. Target Fair Market Value at the Partnership (or Fund) Level

Geographic Distribution by Market Value as of Type Distribution by Market Value as of June 30, 2007 June 30, 2007

21%

36% 10 % 69% 64%

Corporate Finance Venture Capital Domes tic International Special Situations

Domestic International Total Actual Target Actual Target Actual Target FMV FMV Difference FMV FMV Difference FMV FMV Difference Corporate Finance $771.9 $842.8 ($70.9) $514.4 $561.8 ($47.4) $1,286.3 $1,404.6 ($118.3) Venture Capital 178.3 187.3 (9.0) 16.8 0.0 16.8 195.1 187.3 7.8 Special Situations 242.7 187.3 55.4 148.7 93.6 55.1 391.4 280.9 110.5 Total $1,192.9 $1,217.3 ($24.4) $679.9 $655.5 $24.4 $1,872.8 $1,872.8 ($0.0)

Domestic International Total Actual % Target % Difference % Actual % Target % Difference % Actual % Target % Difference % Corporate Finance 41.2% 45.0% -3.8% 27.5% 30.0% -2.5% 68.7% 75.0% -6.3% Venture Capital 9.5% 10.0% -0.5% 0.9% 0.0% 0.9% 10.4% 10.0% 0.4% Special Situations 13.0% 10.0% 3.0% 7.9% 5.0% 2.9% 20.9% 15.0% 5.9% Total 63.7% 65.0% -1.3% 36.3% 35.0% 1.3% 100.0% 100.0% 0.0%

OPERS 2008 Investment Plan page 45 ASSET CLASS STRATEGIES

Private Equity Targeted Portfolio Structure (continued) The Private Equity portfolio will continue to be built over time and balances the need for exposure with investment opportunities and vintage risk. The figures presented within this section are best approximations and are designed to achieve the target portfolio structure by mid-year 2012 for the Defined Benefit Fund and 2015 for the Health Care Fund.

Targets by Percentage The Private Equity policy target of the 5% private equity market value established by the asset allocation and the long-term target portfolio structure is shown in the following table, which also shows long-term targeted portfolio exposure by type class.

Target Portfolio Structure

15% 10% Corporate Finance Venture Capital Special Situations 75%

The chart below shows the long-term targeted portfolio exposure by type class and geography. These targets are each bounded by +/- 10%.

Target Portfolio Geographic Exposure

CF Domestic 0% 5% VC Domestic SS Domestic 30% 45% CF International VC International 10% 10% SS International

page 46 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Private Equity Investment Pacing (continued) Investment pacing controls the commitment budget. Multi-factor models are used to determine the rate of commitments to achieve the target market value exposure over the target period of time. The graph below depicts the updated investment-pacing model in millions of dollars per year to achieve a 5% target, +/- 4%, for both the Defined Benefit and Health Care Funds. The pacing model estimates that the Defined Benefit Fund will reach the desired market value exposure by mid-year 2012, with the Health Care Fund reaching its target in approximately seven years. These pacing estimates may vary from year to year depending on realized performance and market conditions. As mentioned above, 2008 is the first year for a private equity allocation to the Health Care Fund as depicted in the chart below. Vintage year is the year in which a partnership makes its first investment; this sometimes differs from the year in which OPERS makes its commitment. The information below shows the actual and projected commitments made each year, rather than vintage year commitments.

Vintage Year Commitment Pacing

Annual Commitment Pacing

1,000 6.0%

4.9% 5.0% 4.8% 5.0% 800 4.7% 4.6% 4.1% 3.8% 4.0% 600 3.3% 2.7% 2.8% 3.0% 400 2.1%

$ in Millions 1. 7 % 2.0% 200 1. 4 % 0.8% 0.8% 1.0% 0.6% 0.7% 0.7% 0.2% 0 0.0% 0.0% 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E

Annual Commitments (DB) Annual Commitments (HC) FMV as % of Portfolio (DB) FMV as % of Portfolio (HC)

OPERS 2008 Investment Plan page 47 ASSET CLASS STRATEGIES

Private Equity The graph below illustrates aggregate commitments and fair market value for the Private Equity (continued) portfolio, based on the actual and projected commitment schedule.

Projected Fair Market Value and Aggregate Commitments

12.00 10 . 9 6 9.81

10.00 8.66

7.51 8.00 6.36

5.21 6.00 4.75 4.97 4.26 4.28 3.83 3.39 3.14 $ in Billions 4.00 2.65 2.36 1. 9 6 1. 8 7 1. 2 6 1. 3 9 2.00 0.80 0.79 0.26 0.33 0.45 0.00 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E

Aggregate Commitments (DB) Aggregate Commitments (HC) FMV (DB) FMV (HC)

Commitments in 2008 The 2008 investment pacing targets $1,150 million in commitments through both the Defined Benefit ($950 million) and Health Care ($200 million) Funds, with a range of $950-$1,350 million. Commitments are expected broadly across primary partnerships including domestic and international corporate finance, venture capital and special situations. The actual 2008 commitments are dependent on market opportunities and may vary from the anticipated commitments shown below.

Anticipated commitments in 2008 ($ millions) Domestic International Total Corporate Finance $475 - $675 $300 - $500 $825 - $1,125 Venture 25-750 -2525-75 Special Situations 50 - 100 25 - 75 75 - 175 Fund of Funds 0-250-0 0-25 Total $550 - $850 $350 - $550 $950 - $1,350

*Totals do not add due to interdependence of commitment selections.

page 48 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Private Equity Commitment Size (continued) This table shows the typical commitment range for primary partnerships and discretionary mandates.

Typical Commitments

Type Typical Commitment Range ($ millions)

Corporate Finance $25 - $200 Venture Capital $25 - $75 Special Situations $25 - $100 Fund of Funds $25 - $100

Strategic Implementation and Number of Commitments Capital will be invested through private equity partnerships and discretionary managers investing in private equity partnerships. Selecting the appropriate mix of partnerships requires balancing several factors such as maximizing performance, creating appropriate diversification, increasing negotiating leverage and minimizing the administrative burden. Here are the estimated commitments for 2008:

Anticipated number of commitments in 2008* Domestic International Total Corporate Finance 4-8 3-5 8-12 Venture 1-3 0-1 1-3 Special Situations 0-2 0-2 1-3 Fund of Funds 0-1 0-0 0-1 Total 7-123-7 11-16

*Totals do not add due to interdependence of commitment selections.

Fund of Funds Fund of Funds may be used to gain exposure to relatively small or niche portfolio components. Each Fund of Funds will make commitments to multiple primary partnerships over several years, which is expected to further improve portfolio diversification.

Staff completed its first three Fund of Funds commitments in 2004 and 2005 as shown below. During 2008, staff may consider further Fund of Funds mandates for accessing the lower end of the domestic buyout market, which is defined as managers raising funds below $500 to $700 million.

Discretionary Mandate Commitment ($ millions) Year

Broad Market $100 2004 Venture Capital $150 2004, 2007 Ohio/Midwest $100 2005, 2007 Total $350

OPERS 2008 Investment Plan page 49 ASSET CLASS STRATEGIES

Private Equity General Partners (continued) General partner selection is critical for outperformance and staff proactively seeks relationships with experienced, top-tier general partners. Working with the Private Equity advisors, peers and all available resources, staff filters and reviews the general partners in each subclass and initiates a dialogue regarding potential participation in their new partnerships. Further, staff limits exposure to first-time general partners. The Private Equity general partner selection procedures describe the due diligence process and factors for consideration.

The number of general partners is limited for several reasons. OPERS seeks to maximize its commitment size per general partner to increase the likelihood of advisory roles and improved negotiating leverage. Meaningful allocations also increase access to general partners, improving market knowledge and the opportunity for co-investment rights. Containing the number of general partners also minimizes administrative burdens and allows continued meaningful participation in a mature program. The vast majority of our commitments will be through primary participation in general partnerships.

Strategic Intangibles The following items describe additional approaches for maintaining a competitive Private Equity program:

Staff Development: The Private Equity staff will continue to build core competencies. These will include performing due diligence, administering advisory roles and monitoring portfolio compliance. Longer-term, staff will continue developing capabilities to capture the economic advantages of co- investment opportunities.

Networking: Information is critical and staff will maximize its market knowledge by participating in industry conferences and actively networking with peers, including public and corporate plans, endowments, foundations and financial institutions.

Active Participation in Partnerships: Partnership rights, including participation in advisory boards and valuation committees, will be fully exercised. Staff will also participate in all meetings and actively monitor partnership compliance.

Opportunistic Approach: While operating consistently with the Private Equity Policy, staff will remain alert and rapidly assess unforeseeable opportunities. As markets evolve, situations may arise that require timely, critical analysis and/or contrarian approaches. Staff must remain open to new ideas and unique investment structures.

Patient Capital: OPERS has a competitive advantage in the marketplace with the ability to provide long-term capital. OPERS remains committed to its policy and strategy and resists pressures to disrupt investment pacing or force sales.

page 50 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Private Equity Asset Management Fees (continued) The fees for Private Equity consist of two parts, the annual management fee, typically ranging from 1.0% to 2.0% of commitments through the term of the partnership, generally declining as funds mature and a carried interest taken from realized profits. The management fees are generally paid through capital calls quarterly or semi-annually. Fund of Funds have an additional layer of fees, generally about 1%. Partnership management fees may be offset, deferred or waived periodically. Carried interest varies with time and success. The following table estimates the Private Equity asset management fees for 2008. Note that Private Equity fees relative to market value are skewed in formative years due to the lag between commitments and investments. Significant portions of the fees are recoverable before general partners receive carry.

Estimate of Management Fees - 2008 ($ millions) Estimated Average Commitments $4,300 Estimated Average Market Value 2,220 Estimated Average Fee 1.25% Estimated Management Fee $53.8 Estimated Management Fee (bps) 242

OPERS 2008 Investment Plan page 51 ASSET CLASS STRATEGIES

Non-U.S. Equity Strategy The Non-U.S. Equity program is 100% externally managed. OPERS does not currently invest in Non-U.S. equity internally, although it is a 2008 initiative to implement some internal Non-U.S. passive management.

The program is 80% actively managed and 20% passively managed. Within the active component, a significant amount is allocated to enhanced index and core mandates. It is expected that active management can add value in the less-efficient Non-U.S. markets. The passive component is primarily to facilitate rebalancing.

The Non-U.S. Equity program performance benchmark is the Morgan Stanley Capital International All Country World Index Free excluding the United States index (MSCI ACWIF x U.S. Index), which incorporates developed and developing markets.

The program includes a 5% allocation to dedicated emerging markets mandates and a 3% target allocation to dedicated Non-U.S. small capitalization mandates. The program’s maximum aggregate exposure to Non-U.S. Equity emerging markets (including holdings in broad mandates and in dedicated emerging markets mandates) is limited to the MSCI ACWIF x U.S. Index emerging market weighting, plus 5% or 15% of Non-U.S. Equity holdings, whichever is greater.

The Non-U.S. Equity focus is on selecting a diverse group of managers, each of whom has the potential to add long-term value and on building a diversified portfolio that has no major structural mismatches or tilts that could overwhelm the Non-U.S. Equity asset class composite performance results. The program seeks to use a prudently diversified mix of managers including: Passive, enhanced index and active strategies at various risk levels, Quantitative and fundamental strategies, Value and growth styles, and All-country ex-U.S. broad mandates, specialist emerging markets and specialist international small cap.

Portfolio Allocation Staff monitors Non-U.S. markets and evolving strategies within those markets to identify potential improvements to the program.

Target Portfolio Allocation Range Target Active 70%-90% 80% Passive 10%-30% 20% Total Non-U.S. Equity - 100% ACWIFxU.S. Managers 88-95% 92% Emerging Market Managers 5-8% 5% Small Cap. Managers 2-5% 3%

page 52 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Non-U.S. Equity The current Non-U.S. Equity program has: (continued) Approximately $17.0 billion under management as of July 31, 2007, More than 50% passive, enhanced index and core strategies.

In addition, the current Non-U.S. Equity program is: Modestly overweight emerging markets, Neutral to the program’s dedicated small cap allocation, Generating a tracking error of under 100 basis points, while the target is 100-150 basis points.

An overview on positioning decisions follows: Enhanced index/core strategies The program uses both enhanced index managers and core managers. Enhanced index managers run portfolios with very tightly controlled risk management. Core strategies remain neutral to major risk factors such as value and growth styles. Core strategies have somewhat higher tracking error than enhanced index mandates, but lower tracking error than active strategies. OPERS continues to adhere to a program centered on enhanced index and core strategies as a proper match for OPERS’ risk tolerance.

Emerging markets Staff believes that emerging markets offer the potential for superior longer-term returns although there may be short-term volatility. Emerging markets continue to show more attractive growth, profitability and valuation than developed markets.

Small capitalization Non-U.S. small cap stocks are somewhat overvalued as a result of impressive returns over the last several years. In light of this valuation, staff has temporarily neutralized this position. Long term, it is expected that smaller companies may offer better growth opportunities.

The non-U.S. equity composite is neutral to value and growth biases. There is an argument for being neutral-to-positive long-term on value, based on absolute returns; that is, value will tend to protect absolute return better in down markets, and should deliver acceptable absolute returns in up markets even if it lags the benchmark in strong bull markets. However, value outperformed growth for five consecutive years in 2000-2006. Year to date in 2007, growth has outperformed value indicating that this cycle may be turning; but because the timing of such changes is so difficult to predict, staff has kept the program neutral to value versus growth.

OPERS 2008 Investment Plan page 53 ASSET CLASS STRATEGIES

Non-U.S. Equity Performance Objectives and Risk Control (continued) Staff and Mercer Investment Consulting are recommending that the Non-U.S. Equity program maintain a tracking error of 110-150 basis points relative to its benchmark, the MSCI ACWIF x U.S. Due to historically low levels of volatility prior to July 2007, realized tracking error has been somewhat lower. Given this level of tracking error, a value added expectation of 65 basis points annualized over a three-to-five-year market cycle, net of fees, is reasonable. As a result, an information ratio of 0.50 is expected, which is consistent with other asset classes.

The following table illustrates each existing portfolio, expected performance objectives, and forecasted contribution to the total asset class return:

n Schedule of Expected Performance and Tracking Error Average % of Performance Target Assets Under Total Objectives Tracking Target Management Non U.S. (Net of Fees) Error Information ($ millions) Equity Benchmark (bps) (bps) Ratio Index BGI Index $2,874 16.5% ACWIxU.S. 15 35 0.43 Total Index 2,874 16.5% ACWIxU.S. 15 35 0.43 Enhanced Index AllianceBernstein 1,602 9.2% ACWIxU.S. 200 400 0.50 BGI Enhanced 4,476 25.7% ACWIxU.S. 75 100 0.75 Baring 1,219 7.0% ACWIxU.S. 125 250 0.50 QMA 662 3.8% EAFE 150 200 0.75 Total Enhanced Index 7,959 45.7% 85 150 0.57 Active ACWIxU.S./EAFE Acadian Core 749 4.3% ACWIxU.S. 200 400 0.50 Brandes 1,602 9.2% ACWIxU.S. 350 700 0.50 JP Morgan 697 4.0% ACWIxU.S. 150 300 0.50 LSV 401 2.3% EAFE 300 500 0.60 TT International 714 4.1% ACWIxU.S. 150 650 0.23 Walter Scott 575 3.3% EAFE 250 800 0.31 Total Active ACWIxU.S./EAFE 4,737 27.2% 150 275 0.55 Active Emerging Markets Acadian Emerging 244 1.4% Emerging 300 500 0.60 The Boston Company 313 1.8% Emerging 200 700 0.29 Lazard 383 2.2% Emerging 150 700 0.21 T Rowe Price 244 1.4% Emerging 300 600 0.50 Total Active Emerging Markets 1,184 6.8% Emerging 200 350 0.57 Active Small Cap Acadian Small Cap 662 3.8% Small Cap 150 600 0.25 Total Active Small Cap 662 3.8% Small Cap 150 600 0.25 Total Non U.S. Equity $17,416 100.0% ACWIxU.S. 65 130 0.50

page 54 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Non-U.S. Equity Portfolio Composition and Fees (continued) As anticipated in the 2007 Investment Plan, the overall structure and risk profile of the program class have remained the same.

Estimate of Internal/ External and Active/Passive Composition Est. Mid-Year 2007 Est. Mid-Year 2008 Active Passive Total Active Passive Total Internal 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% External 83.5% 16.5% 100.0% 83.5% 16.5% 100.0% Total 83.5% 16.5% 100.0% 83.5% 16.5% 100.0%

The following table details the size of, and fees associated with, each manager in the program.

Schedule of Portfolio, Size and Estimated Fees Average Assets Under Estimated Estimated Management Annual Fee Annual Fee Benchmark ($ millions) ($ millions) (bps) Index BGI Index ACWIxU.S. $2,874 $0.9 3.0 Total Index ACWIxU.S. 2,874 0.9 3.0 Enhanced Index AllianceBernstein ACWIxU.S. 1,602 5.2 32.5 BGI Enhanced ACWIxU.S. 4,476 6.2 13.8 Baring ACWIxU.S. 1,219 1.8 15.0 QMA EAFE 662 1.8 27.1 Total Enhanced Index 7,959 15.0 18.8 Active ACWIxU.S./EAFE Acadian Core ACWIxU.S. 749 2.6 34.3 Brandes ACWIxU.S. 1,602 5.9 36.6 JP Morgan ACWIxU.S. 697 2.7 38.3 LSV EAFE 401 1.6 40.7 TT International ACWIxU.S. 714 1.7 24.0 Walter Scott EAFE 575 2.1 36.5 Total Active ACWIxU.S./EAFE 4,737 16.5 34.9 Active Emerging Markets Acadian Emerging Emerging 244 1.4 56.4 The Boston Company Emerging 313 2.2 71.6 Lazard Emerging 383 1.5 40.0 T Rowe Price Emerging 244 1.9 77.1 Total Active Emerging Markets Emerging 1,184 7.0 59.4 Active Small Cap Acadian Small Cap Small Cap 662 2.8 42.2 Total Active Small Cap Small Cap 662 2.8 42.2 Total Non U.S. Equity ACWIxU.S. $17,416 $42.2 24.2

OPERS 2008 Investment Plan page 55 ASSET CLASS STRATEGIES

Real Estate – Strategy Private Markets This plan establishes the short and long-term approaches for achieving the performance objective consistent with the requirements of the Real Estate Policy.

Investment Philosophy The private market Real Estate program consists of a stable portfolio and a high return portfolio. The objective of the stable portfolio is to mirror the NPI index in property composition and gross returns. The objective of the high return portfolio is to produce outperformance and generate high absolute returns.

The stable portfolio is the “keel in the water” and constitutes no less than 65% of the private market Real Estate portfolio. The stable portfolio is diversified by property type and geographic location, and is designed to mirror the construction and performance of the NPI. This portfolio serves as a proxy for index-like returns, since the NPI is not an investable index. The stable portfolio is expected to produce returns that after manager fees are consistent with the NPI index. The stable portfolio will consist primarily of the four traditional property types: office, industrial retail, and multifamily. The stable portfolio exposure is achieved through separate account and open-end fund investment channels. The stable portfolio will use only a modest amount of leverage, where the loan to value percentage is expected to be less than 25%. The stable portfolio will have a portfolio level occupancy goal of at least 80%.

page 56 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Real Estate – The high-return portfolio consists of all private market real estate investments that are not in the Private Markets stable portfolio. The high-return portfolio includes both U.S. and international real estate investments. (continued) Investment strategies may include development, redevelopment or repositioning of the traditional property types, entity level investments, structured finance, as well as investments in non-traditional property types. Staff anticipates using the majority of the leverage budget in the high return portfolio. Leverage is expected to average 65% to 75% loan to value for each closed-end fund relationship. The high return portfolio is dominated by commitments to closed-end fund relationships.

In summary, the staff’s successful implementation of this plan includes: Adhering to the policy parameters, Building the stable portfolio through the separate account and open-end fund channels to achieve index-like (NPI) returns, Building the high-return portfolio through closed-end fund channel to generate outperformance, Using the best-in-class managers for investing capital, and Maintaining a disciplined hold/sell approach to separate account assets.

Current Portfolio Composition Private Real Estate portfolio statistics are computed quarterly, with the most recent dated June 30, 2007. However, there are sections of the Investment Plan that reference real estate market values, which are computed monthly, with the most recent dated July 31, 2007.

Property Type Below is the composition of the portfolio by property type, as measured by the unaudited market value of the portfolio on June 30, 2007.

Property Type Total (millions)

Apartment $903 Industrial 566 Office 1,728 Retail 474 Other 656 Total $4,326

Performance Objective The Real Estate Policy establishes the performance objective of the private market Real Estate program. The private market Real Estate performance is benchmarked against the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (NPI). The private market Real Estate portfolio is measured net of manager fees (not including overhead expenses) and the NPI is unadjusted. The private market Real Estate portfolio is expected to meet or exceed the NPI over rolling five-year periods.

OPERS 2008 Investment Plan page 57 ASSET CLASS STRATEGIES

Real Estate – The portfolio is in compliance with the Real Estate Policy relative to property type ranges. Below is Private Markets the property type composition relative to the policy ranges. (continued) Property Type ExposureProperty Typeand Policy Exposure Ranges and asPolicy of June Ranges 30, 2007 A s o f Ju ne 30, 2007 50% 50% 40% 40%

30% 30% 20% 20%

Percentage Percentage 10% 10%

0% 0% Apartment IndustrialIndustrial OfficeOffice Retail Other

Risk Controls The Real Estate Policy establishes the program risk controls listed below. Please refer to the Real Estate Policy for details.

Private Market Risk Management Property Type Risk Manager Risk Life Cycle Risk Leverage Liquidity Currency Risk Geographic Exposure Valuations Single Investment Risk Vertical Integration

Risk Control Limits

Life Cycle Below are the policy limits and the current mix of core and non-core investments. Core properties represent operating assets that have occupancy rates of at least 60%. Non-core properties have occupancy rates of less than 60% and are in some state of development, redevelopment or repositioning.

Type Limit Actual Core >65% 86% Non-Core <35% 14%

Geographic Staff believes that opportunistic international investments will generate outperformance. Below is the policy limit on international investments and the current percentage.

Type Limit Actual United States >75% 96% International <25% 4%

Leverage Leverage will be used primarily in the non-core portfolio to enhance risk-adjusted returns. Below are the policy limit and the current portfolio loan to value percentage.

Loan-to-Value Percentage

Policy Limit 40% Actual 34% page 58 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Real Estate – Projected Investments by Channel Private Markets Staff uses a top-down approach to portfolio construction: open-end funds and separate accounts for (continued) the stable portfolio, and closed-end funds for the high return portfolio. Capital allocation decisions among the three investment channels are governed by an investment pacing model. Through an iterative process, staff works with The Townsend Group (Townsend) to model multi-year acquisition and disposition activity among the managers in the three channels. Staff will manage the portfolio to maintain compliance with property type targets. The projected investment activity is subject to change.

Open-End Funds Open-end funds provide OPERS with exposure to index-like returns. By year-end 2008, staff anticipates new acquisitions of approximately $100 million to U.S. core open-end funds. By year-end 2008, staff anticipates that the value of the OPERS investment in open-end funds will be approximately $966 million. The following table shows the anticipated 2008 investment activity through the open-end fund channel.

Anticipated Open End Fund Investment Activity for 2008 ($ millions) Additional Projected Market Value 2008 2008 Investment Market Value Property Type June 30, 2007 Dispositions Acquisitions Activity * December 31, 2008 Apartment $174 $0 $19 $11 $204 Industrial 91 0 11 0 102 Office 298 0 44 (3) 339 Retail 202 0 26 11 239 Other 62 0 0 20 82 Total $827 $0 $100 $39 $966

* Includes 2nd half 2007 acquisitions, dispositions and cumulative appreciation as of 12/31/2008. (subject to change)

Separate Accounts Staff is reducing the number of separate account relationships, selling assets in a disciplined manner, and redeploying capital through the open-end and closed-end funds. The separate account activity is most susceptible to changing market conditions and will change throughout the year. By year-end 2008, staff anticipates that the value of the OPERS’ investments through separate account relationships will be approximately $2.26 billion.

Anticipated Separate Account Investment Activity for 2008 ($ millions) Additional Projected Market Value 2008 2008 Investment Market Value Property Type June 30, 2007 Dispositions Acquisitions Activity * December 31, 2008 Apartment $689 $75 $44 ($195) $463 Industrial 459 117 123 98 563 Office 1,076 267 161 (453) 517 Retail 212 0 174 163 549 Other 390 206 47 (66) 165 Total $2,826 $665 $549 ($454) $2,257

* Includes 2nd half 2007 acquisitions, dispositions and cumulative appreciation as of 12/31/2008. (subject to change)

OPERS 2008 Investment Plan page 59 ASSET CLASS STRATEGIES

Real Estate – Closed-End Funds Private Markets Staff anticipates committing approximately $300 million to closed-end funds in 2008. This activity is (continued) anticipated to include commitments to domestic and international funds. With the new commitments, plus the anticipated funding of the current commitments, staff anticipates that the value of the portfolio through closed-end funds will be approximately $1.45 billion by year-end 2008. The following two tables show the anticipated closed-end fund commitment activity and investment activity, planned for 2008.

Anticipated Closed End Fund Investment Activity for 2008 ($ millions) Additional Projected Market Value 2008 2008 Investment Market Value Property Type June 30, 2007 Dispositions Acquisitions Activity * December 31, 2008 Apartment $40 $10 $88 $50 $167 Industrial 16 7 28 17 54 Office 353 85 123 167 558 Retail 60 13 65 57 169 Other 203 62 148 210 499 Total $672 $177 $451 $500 $1,447

* Includes second half 2007 acquisitions, dispositions and cumulative appreciation as of 12/31/2008. (subject to change)

Anticipated Closed End Fund Commitment Activity for 2008 ($ millions)

Domestic International Total Amount $150 - $200 $100 - $150 $250 - $350 Relationships 2 - 4 1 - 3 3 - 7 (subject to change)

Projected Portfolio Composition Staff seeks to assemble a diversified real estate investment portfolio. The table below shows the projected total portfolio activity for 2008. The remaining tables indicate that the program is projected to remain in compliance with the Real Estate Policy risk constraints.

Anticipated Total Private Market Real Estate Investment Activity for 2008 ($ millions) Additional Projected Market Value 2008 2008 Investment Market Value Property Type June 30, 2007 Dispositions Acquisitions Activity * December 31, 2008 Apartment $903 $85 $151 ($134) $834 Industrial 566 124 162 115 719 Office 1,728 352 328 (289) 1,414 Retail 474 13 265 231 957 Other 656 268 195 163 746 Total $4,325 $842 $1,100 $86 $4,670

* Includes second half 2007 acquisitions, dispositions and cumulative appreciation as of 12/31/2008. (subject to change)

page 60 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Real Estate – Property Type Private Markets The graph below shows the projected portfolio construction by property type as of year-end 2008. (continued) The projected 2008 property type exposure will be in compliance with the policy ranges.

ProjectedProjected 2008 2008 Property Property Type Type Exposure Exposure and Policyand Policy Ranges Ranges

50% 50% 40% 40% 30% 30% 20% 20%

Percentage Percentage 10% 10% 0% 0% ApartmentApartment IndustrialIndustrial OfficeOffice RetailOther

Life Cycle The table below shows the projected portfolio construction by life cycle as of year-end 2008.

Type Limit Projected

Core >65% 83% Non-Core <35% 17%

Geographic The table below shows the projected portfolio construction by geography as of year-end 2008.

Type Limit Projected

United States >75% 89% International <25% 11%

Leverage The table below shows the projected portfolio construction by leverage as of year-end 2008. Staff anticipates that the portfolio will approach the Real Estate Policy leverage limit in 2008, due primarily to closed end fund commitments. Staff anticipates that the portfolio level leverage will run near the limit.

Type Projected

40% 39%

OPERS 2008 Investment Plan page 61 ASSET CLASS STRATEGIES

Real Estate – Strategic Intangibles Private Markets The following items describe additional approaches for maintaining a competitive Real Estate (continued) program:

Staff Development: Staff intends to participate in conferences with real estate investors, real estate operating companies, and developers to gain additional professional insights, and identify new investment opportunities.

Active Participation in Partnerships: Staff will participate on advisory boards and valuation committees, and participate in meetings and actively monitor partnership compliance.

Opportunistic Approach: While working within the policy framework, Real Estate staff will rapidly assess and act upon unique opportunities. Staff will renew its efforts to seek, critically analyze, and offer up contrarian approaches and unique investment structures.

Patient Capital: The policy performance objective for the Real Estate portfolio is to outperform the policy benchmark over rolling five-year periods. Staff will remain committed to the policy strategies and resist pressure, caused by short-term performance, to disrupt investment pacing or force sales.

Asset Management Fees The Private Market Real Estate portfolio is invested through a combination of separate accounts, open-end funds and closed-end funds. Separate account fees consist of an asset management fee, plus an incentive fee based on portfolio returns in excess of a return hurdle, and the total of the two averages 80 basis points on invested capital. The fees charged by the open-end commingled funds average 100 basis points on invested equity. Fees for closed-end commingled funds consist of two parts: the annual asset management fee, typically 150 basis points on the committed equity, and a carried interest taken from realized profits. By year-end 2008, the anticipated portfolio will consist of 48% separate accounts, 21% open-end funds and 31% closed-end funds. This mix is subject to change.

Anticipated Manager Fees ($ millions) Average Estimated Estimated Channel Asset Base Fee % Fees Open-End $897 1.00% $9.0 Separate Account 2,542 0.80% $20.3 Closed-End * $985 1.50% $14.8 Total $44.0

* Based on commitments rather than market value

page 62 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Real Estate – Strategy Public Markets The strategy for the public Real Estate securities is under review by staff. Staff is evaluating the merits of expanding into international public market real estate. As part of the review, staff is working with its external consultants, Mercer and The Townsend Group, to determine the optimal mix of international public real estate combined with the internal active core portfolio that achieves the performance goal within the risk parameters stated in the Real Estate Policy.

Internal Active REIT Portfolio The internal active REIT Portfolio is a blend of quantitative and fundamental disciplines combined to create a low-turnover, diversified core portfolio that is able to produce consistent risk-adjusted returns. The portfolio utilizes a proprietary dynamic weighted quintile ranking stock selection system. The portfolio is managed with a relative value orientation and is focused on companies with conservative balance sheets, credible management teams and consistent earnings.

Performance Objectives & Risk Control The public market Real Estate performance is benchmarked against the Dow Jones Wilshire Real Estate Securities Index (WRESI). The public market Real Estate portfolio is measured net of fees (not including overhead expenses). WRESI is not adjusted for fees. The public market Real Estate portfolio is expected to exceed the benchmark returns by 50 basis points annualized over rolling five- year periods.

The Real Estate policy established the program risk controls and investable instruments listed below. Please refer to the Real Estate Policy for details.

Public Market Risk Management Public Market Investable Investments

Liquidity Common Stock Portfolio Composition Exchange-Trade Funds Single Security Risk American Depository Receipts Warrants Initial Public Offerings Preferred Securities Cash & Cash Equivalents, as necessary

OPERS 2008 Investment Plan page 63 ASSET CLASS STRATEGIES

Real Estate – Public market Real Estate has a targeted 1% allocation to the Defined Benefit Fund and a targeted Public Markets 6% allocation to the Health Care Fund. The public market Real Estate allocation serves as the real (continued) estate exposure in the Health Care Fund. This plan establishes the short and long-term approaches for achieving the performance objectives consistent with the requirements of the Real Estate policy. The tracking error for the portfolio is not to exceed 200 basis points.

Schedule of Expected Performance and Tracking Error Average % Performance Target Assets Under of Objectives Tracking Target Management Total Benchmark (Net of Fees) Error Information ($ millions) REITs (bps) (bps) Ratio Total Defined Benefit $736 49.4% Dow Jones Wilshire RESI 50 200 0.25 Total Health Care 755 50.6% Dow Jones Wilshire RESI 50 200 0.25 Total REITs $1,491 100.0% Dow Jones Wilshire RESI 50 200 0.25

Portfolio Composition and Fees

Estimate of Internal/External and Active/Passive Composition Est. Mid-Year 2007 Est. Mid-Year 2008 Active Passive Total Active Passive Total Internal 100.0% 0.0% 100.0% 100.0% 0.0% 100.0% External 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 100.0% 0.0% 100.0% 100.0% 0.0% 100.0%

Schedule of Portfolio, Size and Estimated Fees Average Assets Under Estimated Estimated Management Annual Fee Annual Fee Benchmark (Lehman) ($ millions) ($ millions) (bps) Total Defined Benefit Dow Jones Wilshire RESI $736 $0.3 3.5 Total Health Care Dow Jones Wilshire RESI 755 0.3 3.5 Total REITs Dow Jones Wilshire RESI $1,491 $0.5 3.5

page 64 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Global Bonds Strategy (continued) The Global Bonds asset class is composed of one composite, containing 11 underlying portfolios and three dedicated portfolios, each with a specific purpose: Global Bonds Universal composite: Provides broad exposure to fixed income assets through 11 underlying portfolios, Long Duration portfolio: Dedicated elements of asset-liability matching against long-term liabilities, Treasury Inflation Protected Securities (TIPS) portfolio: Dedicated hedge against inflation in health care costs; and Short Duration portfolio: Dedicated liquidity for the Health Care Fund.

The Global Bonds asset class uses both internal and external portfolio management. The majority of assets are internally managed. Internally managed portfolios employ risk-controlled strategies, focusing on investment-grade securities. External managers are used predominately for the high yield and emerging debt sectors.

Global Bonds Universal Composite—Defined Benefit and Health Care The Global Bonds Universal composite is managed against the Lehman Universal Index and includes core, high yield, and emerging market debt portfolios:

Core Internal staff, using a risk controlled core strategy, manages the majority of the core assets. Core portfolios seek to outperform the benchmark primarily through sector and security selection and typically have small duration deviations relative to the index. The internal core portfolio maintains a high level of issuer diversification and has less than 5% duration deviations relative to the index. The internal core portfolio has a target return objective of 23 basis points outperformance and a tracking error limit of 60 basis points relative to its benchmark.

There are three external core bond managers: AFL-CIO, Smith Breeden and Pyramis. The AFL- CIO portfolio, which focuses on government and mortgage securities, has an objective of providing 40 basis points of active return over the return of the Lehman Brothers Aggregate Index.

Smith Breeden and Pyramis utilize duration-neutral strategies. The managers use a combination of quantitative and qualitative analysis with the objective of outperforming the Lehman Aggregate Index by 50 basis points with a relatively modest level of tracking error.

High-Yield Debt High-yield securities represent approximately 6% of the Lehman Brothers Universal Index. The outperformance comes from security selection, which is supported by a labor-intensive credit research. To take advantage of opportunities in the sector, portfolio guidelines are formulated to give the managers broad discretion within the high-yield universe.

OPERS 2008 Investment Plan page 65 ASSET CLASS STRATEGIES

Global Bonds The manager line-up is comprised of four managers: Shenkman, Fort Washington, Goldman (continued) Sachs Asset Management, and Post Advisory. The high-yield allocation also includes an internally managed passive portfolio consisting primarily of Dow Jones high yield CDX securities. These securities provide broadly diversified exposure to the high-yield market and allow internal staff to tactically adjust exposure to the high-yield sector.

Emerging Market Debt Emerging market debt securities represent approximately 3% of the Lehman Brothers Universal Index. Emerging market debt managers primarily add value through country selection. OPERS employs two external managers, Stone Harbor and Capital Guardian.

Dedicated Portfolios

Long Duration—Defined Benefit The internally managed Long Duration portfolio was implemented in 2007 as a result of the review of the Defined Benefit Fund asset allocation completed in 2006. The review recommended that 40% of defined benefit Global Bond assets be in the long duration portfolio, with the remaining 60% in the Universal composite. The portfolio is designed to meet or exceed the return of the Lehman Long Government/Credit Index with a low level of tracking error. The primary source of outperformance for the fund is security selection.

Treasury Inflation Protected Securities (TIPS)—Health Care The internally managed TIPS portfolio started in 2005 as a result of the segregation of the pension and health care assets. The portfolio is designed to meet the return of the Lehman TIPS Index with a low level of tracking error.

Short Duration—Health Care The Short Duration portfolio was started in 2005 as a result of the segregation of pension and health care assets. The portfolio is structured to meet or exceed the return of the Lehman 1-3 Year Government Bond Index with a low level of tracking error. The primary source of outperformance is security selection.

Performance Objectives and Risk Control In the Defined Benefit Fund, staff transitioned to a new benchmark in 2007. The benchmark consists of 60% Lehman Universal Index and 40% Lehman Long Government/Credit Index. Health Care assets do not have a combined Global Bonds benchmark. Each segment (Global Bonds Universal, TIPS, and Short Duration) is measured against its own benchmark.

page 66 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Global Bonds Schedule of Expected Performance and Tracking Error (continued) Average % of Performance Target Assets Under Total Objectives Tracking Target Management UniversalBenchmark (Net of Fees) Error Information ($ millions) Bonds (bps) (bps) Ratio Universal Bonds Internal Core $10,299 82.9% Lehman Aggregate 23 50 0.46 Pyramis 370 3.0% Lehman Aggregate 50 60 0.83 Smith Breeden 374 3.0% Lehman Aggregate 50 60 0.83 AFL-CIO 104 0.8% Lehman Aggregate 40 200 0.20 Goldman Sachs 208 1.7% Lehman Corporate High Yield 2% 100 250 0.40 Shenkman Capital 175 1.4% Lehman Corporate High Yield 100 550 0.18 Post 226 1.8% Lehman Corporate High Yield 100 300 0.33 Fort Washington 117 0.9% Lehman Ba/B High Yield 3% Capped 100 400 0.25 Internal Passive HY 103 0.8% Lehman Corporate High Yield 0 700 0.00 Capital Guardian 246 2.0% JP Morgan EMBI Global 100 400 0.25 Stone Harbor 202 1.6% Lehman Emerging Markets Index 100 450 0.22 Total Universal Bonds 12,422 100.0% Lehman U.S. Universal (Univ) 32 60 0.53 Internal TIPS 2,736 Lehman TIPS 15 50 0.30 Internal Short-Dur Bonds 1,710 Lehman 1-3 Year Government 25 50 0.50 Internal Long-Dur Bonds 7,141 Lehman Long Gov/Credit (Long G/C) 15 40 0.38 Total Global Bonds $24,010

Total Defined Benefit Global Bonds $17,853 60% Univ/40% Long G/C 25 50 0.50 Total Health Care Global Bonds $6,157 NA* 23 30 0.77

*Total Health Care Global Bonds assets do not have a combined Global Bonds benchmark. Each segment is measured against its own benchmark.

The portfolios will be rebalanced as needed for the overall portfolio structure to remain within the specified ranges. Staff may rebalance to take advantage of short and longer-term opportunities in the market. In implementing portfolio adjustments, economic benefits versus the transaction costs are considered.

OPERS 2008 Investment Plan page 67 ASSET CLASS STRATEGIES

Global Bonds Portfolio Composition and Fees (continued) Here is a summary of the allocation of the Global Bonds portfolio by internal and external managers:

Estimate of Internal/External and Active/Passive Composition Est. Mid-Year 2007 Est. Mid-Year 2008 Active Passive Total Active Passive Total Internal 90.6% 0.4% 91.0% 91.2% 0.4% 91.6% External 9.0% 0.0% 9.0% 8.4% 0.0% 8.4% Total 99.6% 0.4% 100.0% 99.6% 0.4% 100.0%

The following table details the size of, and the fees associated with, each portfolio.

Schedule of Portfolio, Size and Estimated Fees Average Assets Under Estimated Estimated Management Annual Fee Annual Fee Benchmark ($ millions) ($ millions) (bps) Universal Bonds Internal Core Lehman Aggregate $10,299 $1.0 1.0 Pyramis Lehman Aggregate 370 0.5 14.1 Smith Breeden Lehman Aggregate 374 0.6 17.0 AFL-CIO Lehman Aggregate 104 0.4 35.0 Goldman Sachs Lehman Corporate High Yield 2% 208 1.1 51.8 Shenkman Capital Lehman Corporate High Yield 175 0.7 42.9 Post Lehman Corporate High Yield 226 1.1 49.4 Fort Washington Lehman Ba/B High Yield 3% Capped 117 0.3 25.0 Internal Passive HY Lehman Corporate High Yield 103 0.0 0.2 Capital Guardian JP Morgan EMBI Global 246 1.1 46.6 Stone Harbor Lehman Emerging Markets Index 202 0.9 45.0 Total Universal Bonds Lehman U.S. Universal (Univ) $12,422 $7.8 6.3 Internal TIPS Lehman TIPS 2,736 0.0 0.1 Internal Short-Dur Bonds Lehman 1-3 Year Government 1,710 0.1 0.8 Internal Long-Dur Bonds Lehman Long Gov/Credit (Long G/C) 7,141 0.7 1.0 Total Global Bonds $24,010 $8.7 3.6

Total Defined Benefit Global Bonds 60% Univ/40% Long G/C $17,853 $7.5 4.2 Total Health Care Global Bonds NA* $6,157 $1.2 2.0

*Total Health Care Global Bonds assets do not have a combined Global Bonds benchmark. Each segment is measured against its own benchmark.

page 68 OPERS 2008 Investment Plan ASSET CLASS STRATEGIES

Global Bonds Securities Lending (continued) The Securities Lending program uses a combination of lending agents to optimize the incremental return from this investment strategy. This move towards the diversification of agents coincides with the increase in lending revenue for OPERS in recent years. OPERS seeks agents who provide competitive fee splits, while providing adequate risk controls and segment expertise in the asset class being loaned.

There is a bias toward lending assets in an auction environment so that borrowers are providing maximum return in a competitive environment on a regular basis.

The Securities Lending program currently has the following structure:

Securities Lending Structure

Average Total Assets Lendable ($ billions) ($ billions) Lending Agent Auction U.S. Equity $34.6 $32.4 eSecLending x Global Bonds 21.8 Corporate Bonds 4.1 eSecLending x Emerging Market Debt 1.8 State Street Treasuries 6.1 State Street Agencies 1.2 State Street Mortgage-Backed Securities 1.8 Key Bank Non-U.S. Equity 16.2 Commingled Assets 6.5 BGI Separate Account Assets $5.6 State Street x

Cash Management The cash portfolios exhibit a low-to-moderate risk profile that results in principal preservation, while exceeding the performance of the respective benchmarks. The benchmark of the OPERS Short Term Investment Funds (STIF) is the 90-day Treasury bill. The benchmark for the Securities Lending STIF is the Fed Funds Open Rate. Each portfolio is run separately, with staff targeting assets that are most likely to generate performance above the respective portfolio benchmarks.

OPERS 2008 Investment Plan page 69 page 70 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Office of the Organizational Structure Director of The current organizational structure is as follows: Investments

Jennifer Hom Director of Investments

Mary Ann Kabbaz Executive Assistant

Vacant Deputy Director

The Office of the Director of Investments is currently composed of the Director of Investments and one executive assistant. The deputy director is a vacant position and is expected to be filled by June 2008.

Staffing Costs Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the Office of the Director of Investments unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $0.56 Benefits 0.20 Incentive Compensation 0.10 Total Compensation $0.86 Average Assets ($ billions) NA Cost in Basis Points NA

OPERS 2008 Investment Plan page 71 RESOURCES AND INITIATIVES

Office of the Operating Budget Director of The Office of the Director of Investments unit’s 2007 and 2008 operating budgets and their Investments differences are illustrated in the table below. The Office of the Director of Investments Unit continues (continued) to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $690,000 $641,500 ($48,500) -7.0% 91.9% Quotes & Data Feeds 28,500 28,500 0 0.0% 4.1% Research Services 0 0 0 0.0% 0.0% Analytics 0 0 0 0.0% 0.0% Communications 2,500 500 -2,000 -80.0% 0.1% Information Technology 0 0 0 0.0% 0.0% Office Equipment & Supplies 2,000 1,400 -600 -30.0% 0.2% Training & Travel Expenses 41,240 25,815 -15,425 -37.4% 3.7% Total $764,240 $697,715 ($66,525) -8.7% 100.0%

Total Costs The following table lists the estimated total costs for the Office of the Director of Investments.

Estimated 2008 Total Costs ($ millions) Total Compensation $0.86 Operating Budget less Compensation 0.70 Manager Fees - Total Costs $1.56 Average Assets ($ billions) NA Costs in Basis Points NA

page 72 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

U.S. Equity Internal Organizational Structure Management The current organizational structure is as follows:

Deryck Lampe Senior Portfolio Manager

Rob Ball Kevin Martin Portfolio Manager Senior Analyst

Tim Swingle Scott Murray Tim Steitz Senior Analyst Senior Analyst Portfolio Manager

Steve Barker Lewis Tracy Andy Lohof Senior Analyst Senior Analyst Equity Analyst

Chris O’Daniel Chris Gregson Senior Analyst Equity Analyst

The U.S. Equity Internal Management unit is currently organized with a total of eight equity analysts, two portfolio managers and a senior portfolio manager.

The U.S. Equity Internal Management unit is responsible for the internally managed enhanced index and REIT portfolios. The enhanced index portfolio has a Russell1000 benchmark and the REIT portfolio has a Dow Jones Wilshire RESI benchmark. The senior portfolio manager works closely with each analyst and portfolio manager to assess the relative strengths and weaknesses of each investment to ascertain and evaluate the best risk adjusted return opportunities.

Staffing Costs Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the U.S. Equity Internal Management unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $1.46 Benefits 0.54 Incentive Compensation 0.33 Total Compensation 2.33 Average Assets ($ billions) $8.68 Cost in Basis Points 2.7

OPERS 2008 Investment Plan page 73 RESOURCES AND INITIATIVES

U.S. Equity Internal Operating Budget Management The U.S. Equity Internal Management unit’s 2007 and 2008 operating budgets and their differences (continued) are illustrated in the table below. The U.S. Equity Internal Management unit continues to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $0 $0 $0 0.0% 0.0% Quotes & Data Feeds 290,040 347,313 57,273 19.7% 56.2% Research Services 119,900 57,240 -62,660 -52.3% 9.3% Analytics 119,350 57,850 -61,500 -51.5% 9.4% Communications 0 0 0 0.0% 0.0% Information Technology 24,150 0 -24,150 -100.0% 0.0% Office Equipment & Supplies 0 550 550 100.0% 0.1% Training & Travel Expenses 81,575 154,510 72,935 89.4% 25.0% Total $635,015 $617,463 ($17,552) -2.8% 100.0%

Total Costs The following table lists the estimated total costs for managing the U.S. Equity Internal Management unit.

Estimated 2008 Total Costs ($ millions) Total Compensation $2.33 Operating Budget less Compensation 0.62 Manager Fees - Total Costs 2.94 Average Assets ($ billions) $8,684 Cost in Basis Points 3.4

Initiatives

Evaluation of Higher Alpha Alternatives The staff will investigate and evaluate a number of higher return enhancement alternatives including, but not limited to, concentrated long only portfolios, short extension portfolios, fixed income enhanced options and higher tracking error deviations of long only portfolios. This evaluation will include the consideration of potential higher investment returns and the necessary infrastructure and risk controls.

page 74 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Global Bonds Organizational Structure Internal The current organizational structure is as follows: Management John Blue Senior Portfolio Manager

Mark Ehresman Eric France Jerry May Chris Rieddle Lead Analyst Portfolio Manager Cash/Securities Portfolio Manager Lending Manager

Todd Soots Erik Cagnina Teresa Black Senior Credit Analyst Portfolio Manager Cash/Securities Lending Analyst

Vacant JoAnn Yocum Senior Credit Analyst Investment Assistant II

Tony Enderle Senior Credit Analyst

The Global Bonds Internal Management unit is currently organized with a senior portfolio manager, four portfolio managers, one lead analyst, four analysts and an investment assistant II. The senior portfolio manager provides oversight of the unit and is responsible for the strategic positioning of all the bond portfolios.

The leads of the different functional areas are collectively responsible for the Global Bonds Internal Management investment decision-making process and report to the senior portfolio manager. They will also handle the day-to-day management of the internal portfolios. Authorized individuals in the Global Bonds Internal Management unit will handle trade execution.

One portfolio manager is responsible for corporate bonds, and works with the credit research group to identify and implement investment ideas within corporates including major themes, sector weightings and relative value opportunities.

The lead analyst provides oversight to the credit research group. The analysts are responsible for assigned industries in the corporate sector, which includes company analysis and the identification of relative value ideas. The Global Bonds Internal Management unit has three credit analysts. The credit analysts are responsible for assigned sectors and also provide back up to other sectors. This organizational structure ensures that all sectors are monitored constantly so that OPERS is in the position to take full advantage of marketplace opportunities.

OPERS 2008 Investment Plan page 75 RESOURCES AND INITIATIVES

Global Bonds Additional portfolio managers are responsible for the mortgage-backed securities (MBS), commercial Internal mortgage-backed securities (CMBS) and asset-backed securities (ABS) sectors. These two Management individuals are responsible for relative value within the structured sectors, individual security analysis (continued) and trading of securities within their assigned sectors. As with credit analysts, there are back up responsibilities for each assigned sector.

The cash securities/lending management staff manages the OPERS cash/securities lending programs across all asset classes. In addition, these individuals manage the cash portfolios supporting OPERS’ operating liabilities and cash collateral resulting from securities lending activities.

Staffing Costs Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the Global Bonds Internal Management unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $1.42 Benefits 0.54 Incentive Compensation 0.38 Total Compensation 2.34 Average Assets ($ billions) $21.99 Cost in Basis Points 1.1

Operating Budget The Global Bonds Internal Management unit’s 2007 and 2008 operating budgets and their differences are illustrated in the table below. The Global Bonds Internal Management unit continues to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $0 $0 $0 0.0% 0.0% Quotes & Data Feeds 240,300 274,200 33,900 14.1% 37.0% Research Services 264,200 211,360 -52,840 -20.0% 28.5% Analytics 136,000 130,000 -6,000 -4.4% 17.6% Communications 0 0 0 0.0% 0.0% Information Technology 56,350 56,350 0 0.0% 7.6% Office Equipment & Supplies 0 500 500 100.0% 0.1% Training & Travel Expenses 66,520 68,220 1,700 2.6% 9.2% Total $763,370 $740,630 ($22,740) -3.0% 100.0%

page 76 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Global Bonds Total Costs Internal The following table lists the estimated total costs for managing the Global Bonds Internal Management Management unit.

(continued) Estimated 2008 Total Costs ($ millions) Total Compensation $2.34 Operating Budget less Compensation 0.74 Manager Fees - Total Costs 3.08 Average Assets ($ billions) $21.99 Cost in Basis Points 0.4

Initiatives

Implementation of Direct Securities Lending–for Treasury and Agency Securities This initiative is the implementation of direct lending of treasury and agency securities. This is a continuation of the 2007 initiative to explore the viability of such a program, which was presented to the Investment Committee in August 2007. The implementation will include building the infrastructure for loaning the securities, as well as managing the associated cash collateral.

OPERS 2008 Investment Plan page 77 RESOURCES AND INITIATIVES

External Organizational Structure Management The current organizational structure is as follows:

Greg Uebele SIO - External Management

Julie Deisler Investment Assistant II

Phil Paroian Brad Sturm Vacant SIO - External Portfolio Manager Portfolio Manager Public Markets

Dan Sarver Stephen Stuckwisch Louis Darmstadter Portfolio Manager Portfolio Manager Portfolio Manager

DeAnne Rau Vacant Samir Sidani Portfolio Manager Senior Investment Investment Analyst Analyst

Vacant Portfolio Manager/Analyst

The External Management group consists of the External Public Markets, Private Real Estate and Private Equity teams. Each of these teams develops investment strategies, sources external managers, performs due diligence, selects external investment managers, monitors investments with external managers and adjusts portfolio exposures with prudence.

Staffing Costs Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the External Management unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $1.53 Benefits 0.56 Incentive Compensation 0.35 Total Compensation 2.44 Average Assets ($ billions) $33.13 Cost in Basis Points 0.7

page 78 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

External Operating Budget Management The External Management unit’s 2007 and 2008 operating budgets and their differences are (continued) illustrated in the table below. The External Management unit continues to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $2,017,500 $1,960,000 ($57,500) -2.9% 87.3% Quotes & Data Feeds 0 0 0 0.0% 0.0% Research Services 98,000 50,000 -48,000 -49.0% 2.2% Analytics 109,000 66,000 -43,000 -39.4% 2.9% Communications 0 0 0 0.0% 0.0% Information Technology 32,000 30,300 -1,700 -5.3% 1.3% Office Equipment & Supplies 0 217 217 100.0% 0.0% Training & Travel Expenses 137,707 137,928 221 0.2% 6.1% Total $2,394,207 $2,244,445 ($149,762) -6.3% 100.0%

Total Costs The following table lists the estimated total costs for managing the External Management unit. These figures incorporate both the department’s operating budget as well as projected external management fees.

Estimated 2008 Total Costs ($ millions) Internal External Total Total Compensation $2.44 - $2.44 Operating Budget less Compensation 2.24 - 2.24 Manager Fees - 163.78 163.78 Total Costs 4.68 163.78 168.46 Average Assets ($ billions) - $33.13 $33.13 Costs in Basis Points 49.4 50.9

OPERS 2008 Investment Plan page 79 RESOURCES AND INITIATIVES

Fund Management Organizational Structure The current organizational structure is as follows:

Bill Miller SIO - Fund Management

Cheryl Cade Investment Assistant II

Erick Weis Vacant J.G. Lee Joan Stack Fund Manager Risk Manager/Analyst Quantitative Manager Trading Manager

Matt Sforza Xinyang Gu Matt Sherman Investment Assistant II Quantitative Analyst Senior Equity Trader

Roger Tong Christy Ruoff Quantitative Analyst Equity Trader

Vacant Quantitative Analyst

Fund Management works closely with other areas of the Division and is responsible for both investment and non-investment activities. The team is responsible for:

Reviewing, monitoring, and implementing changes to the asset allocations and related risk budgets for the Defined Benefit and Health Care Funds;

Performing research and analysis on investment allocations to asset classes, sub-asset classes and portfolios;

Conducting Investment risk analysis, assessments and management for the Defined Benefit, Health Care and Defined Contribution Funds;

Providing quantitative research and analysis in support of internal asset management and other internal group activities;

Asset class beta management, which includes beta portfolios such as the U.S. Equity Index Portfolio and passive derivatives portfolios; and

Equity and derivatives trading for internal and external portfolios and asset allocation management.

page 80 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Fund Management The SIO of Fund Management reports directly to the Director of Investments and is responsible for (continued) assuring all area responsibilities are performed. Assisting the SIO are four managers: the fund manager, risk manager/analyst, quantitative analysis manager and trading manager.

The fund manager manages asset allocation activities including beta portfolios such as the U.S. Equity Index Portfolio and passive derivatives portfolios as well as analytical projects and various initiatives. The fund manager supervises one investment assistant responsible for procedural documentation, reporting, analytical and administrative support for the team.

The risk manager/analyst is responsible for managing the investment risk program focusing on: (1) market risk, (2) credit risk, (3) operational risk, and (4) reputation risk. This position replaces the index manager position that was absorbed by other positions.

The quantitative analysis manager supervises three quantitative analysts. This team provides research and analytic support for the entire Investment Division. The group maintains databases and analytic tools for evaluating the risk-and-return characteristics of the funds and the asset class composites across the Division. This team also provides quantitative research, support and maintenance for the internally managed U.S. Equity Research portfolio’s quantitative model and for the REIT portfolio’s quantitative model. This group also provides research and programming support for the algorithmic or rules-based trading platforms used in equity trading.

The trading manager manages two traders and is responsible for executing trades for the Fund Management group portfolios as well as the Internally Managed Enhance Index portfolio and REIT portfolio. Trading activities in support of the Fund Management group include executing trades for the externally managed portfolios during transitions. The trading area executes trades using a variety of tools including electronic algorithmic and program trading systems and, as such, works closely with the investment portfolio managers and the quantitative research group to incorporate enhancements into the trading systems. The area also performs and reviews the analysis of internal transactions from a pre-trade and post-trade perspective using transactions cost-analysis tools and models.

The Fund Management group has 12 positions, 10 of which are filled. Both the risk manager/analyst position and quantitative analyst position are expected to be filled in 2008.

OPERS 2008 Investment Plan page 81 RESOURCES AND INITIATIVES

Fund Management Staffing Costs (continued) Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, benefits and incentive compensation estimated to be paid in 2008 for the Fund Management unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $1.49 Benefits 0.54 Incentive Compensation 0.30 Total Compensation 2.32 Average Assets ($ billions) $23.40 Cost in Basis Points 1.0

Operating Budget The Fund Management unit’s 2007 and 2008 operating budgets and their differences are illustrated in the table below. The increase in research services is due to the addition of risk analytics. With respect to the other budget categories, the Fund Management unit continues to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $50,000 $50,000 $0 0.0% 4.3% Quotes & Data Feeds 491,420 515,839 24,419 5.0% 44.4% Research Services 64,500 63,000 -1,500 -2.3% 5.4% Analytics 298,100 370,100 72,000 24.2% 31.8% Communications 0 0 0 0.0% 0.0% Information Technology 114,800 107,900 -6,900 -6.0% 9.3% Office Equipment & Supplies 500 1,100 600 120.0% 0.1% Training & Travel Expenses 65,230 54,330 -10,900 -16.7% 4.7% Total $1,084,550 $1,162,269 $77,719 7.2% 100.0%

Total Costs The following table lists the estimated total costs for managing the Fund Management unit. The assets under management include the internally managed index portfolios, although the Fund Management resources will impact asset management decisions across the division. As a percent of the total Fund Management costs, internally managed assets will account for 100% of costs.

Estimated 2008 Total Costs ($ millions) Total Compensation $2.32 Operating Budget less Compensation 1.16 Manager Fees - Total Costs 3.48 Average Assets ($ billions) 23.40 Costs in Basis Points 0.1

page 82 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Fund Management Initiatives (continued) Enhanced Risk Management Staff will further develop the risk management efforts which include: (1) Market Risk Management such as expanded tactical asset allocation activities and the evaluation of alternative approaches toward risk budgeting; (2) Operational Risk Management such as further evolving the Operational Risk Management Committee and preparing for an “Investment Advisor” review; and (3) Counter Party Risk. In 2008, a newly created risk manager/analyst position is expected to be filled. This is intended to improve investment performance and reduce costs associated by effectively managing risks. The effort permeates throughout the Investment Division and related investment functions: Investment Accounting, IT, Internal Audit, Legal and Custodian.

Internal Non-U.S. Equity Management Exposure to Non-U.S. Equity markets using U.S. based securities and derivative instruments is expected to be implemented in 2008. This will enable staff to adjust market exposure in order to facilitate timely and efficient asset allocation. This approach can be implemented internally, which will reduce the impact and reliance on external active and index managers for raising cash or conducting asset allocation changes. Procedures and systems to report on and implement internal Non-U.S. Equity investing will be developed in coordination with the custodian, investment accounting, the Board’s investment consultant and IT staff.

OPERS 2008 Investment Plan page 83 RESOURCES AND INITIATIVES

Investment Organizational Structure Administration The current organizational structure is as follows:

Roger Fox Investment Administration Manager

Carol Hoover Investment Administration Technician

Kimberly Van Gundy Alan Davidson Investment Compliance Manger Administration Analyst

Melissa Stought Pat Edgington Investment Investment Reporting Administration Analyst Manager

Vacant Investment Administration Analyst

The Investment Administration department supports the Investment Division’s investment and risk management strategies by providing appropriate data and systems infrastructure, associated compliance and controls and business management resources. The department also manages the investments of the Defined Contribution Fund.

Infrastructure: The department coordinates activities and resources with the Investment Accounting and Investment Applications departments to develop and manage the data and systems necessary to provide accurate, consistent and automated inputs to investment and risk management strategies and decisions.

Compliance: The department coordinates and documents the development and monitoring of policies, guidelines and procedures for Investment Division activities. To this end, the department also coordinates activities related to legal, regulatory, internal audit, business continuity planning and record retention efforts.

Business Management: The department manages the budget, expense payments, equipment inventory and associated resources to ensure the investment division has the resources it needs to meet its investment and risk management objectives.

Defined Contribution: The department manages the investments of the Defined Contribution Fund by leveraging the investment division resources and coordinating with the Defined Contribution department.

page 84 OPERS 2008 Investment Plan RESOURCES AND INITIATIVES

Investment Staffing Costs Administration Assuming full staffing levels at year-end 2008, the chart below details the annual cost of salaries, (continued) benefits and incentive compensation estimated to be paid in 2008 for the Investment Administration unit.

Estimated 2008 Total Compensation Costs ($ millions) Salaries $0.64 Benefits 0.21 Incentive Compensation 0.05 Total Compensation $0.90 Average Assets ($ billions) NA Cost in Basis Points NA

Operating Budget The Investment Administration unit’s 2007 and 2008 operating budgets and their differences are illustrated in the table below. The 2008 budget decrease primarily reflects the transfer of Corporate Governance personnel from the Investment Division to the Legal Division. The Investment Administration unit continues to find ways to be more efficient with its resources and to achieve the investment objectives detailed in this annual investment plan.

Operating Budget less Total Compensation Percent 2007 Budget 2008 Budget Change $ Change % of Total Audit/Legal/Consulting Services $60,000 $4,000 ($56,000) -93.3% 3.5% Quotes & Data Feeds 0 0 0 0.0% 0.0% Research Services 171,000 48,000 -123,000 -71.9% 10.1% Analytics 100,000 125,000 25,000 25.0% 5.9% Communications 0 0 0 0.0% 0.0% Information Technology 198,550 188,550 -10,000 -5.0% 11.7% Office Equipment & Supplies 0 300 300 100.0% 0.0% Training & Travel Expenses 63,260 20,110 -43,150 -68.2% 3.7% Total $592,810 $385,960 ($206,850) -34.9% 100.0%

OPERS 2008 Investment Plan page 85 RESOURCES AND INITIATIVES

Investment Total Costs Administration The following table lists the estimated total costs for managing the Investment Administration unit. (continued) Estimated 2008 Total Costs ($ millions) Total Compensation $0.90 Operating Budget less Compensation 0.39 Manager Fees - Total Costs $1.28 Average Assets ($ billions) NA Cost in Basis Points NA

Initiatives

Front Office Systems Implementation Over the next three years staff will implement its Front Office Systems Plan, which was developed throughout 2007. The implementation will enhance the systems and data infrastructure for investment and risk management and promote a “total fund” approach for managing OPERS assets. The first phase of the implementation will begin in 2008 and focus on the installation of a new trade order management system and the development of associated data and messaging capabilities. Additional phases, taking place after 2008, will focus on centralized, consistent and automated risk measurement and attribution reporting tools.

Life Cycle Funds Staff will evaluate the alternative structures and approaches for including target year Life Cycle funds in the Defined Contribution Plan. Recommendations for the inclusion of target year Life Cycle funds will remain consistent with the Defined Contribution Plan’s principles of diversification, low fees and high-quality investment managers. Staff and Mercer Investment Consulting will deliver an update to the Investment Committee during the first quarter of 2008.

Health Care Fund Transition During 2008 staff will transition the Health Care Fund asset allocation to the targets approved by the OPERS Board in November 2007. The transition will be divided into approximately 12 equal monthly installments based on market opportunities. The increased allocation to Non-U.S. Equities will lead to detailed reviews of current manager capacity, an updated transition manager lineup and consideration of strategies for enhancing returns during the transition.

page 86 OPERS 2008 Investment Plan APPENDIX A

Consultants’ The Townsend Group International Real Estate Consultants Reviews

OPERS 2008 Investment Plan page 87 APPENDIX A

Consultants’ The Townsend Group International Real Estate Consultants Reviews (continued)

page 88 OPERS 2008 Investment Plan APPENDIX A

Consultants’ Hamilton Lane Private Equity Consultants Reviews (continued)

OPERS 2008 Investment Plan page 89 APPENDIX A

Consultants’ Mercer Investment Consulting Reviews (continued)

page 90 OPERS 2008 Investment Plan APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects

OPERS 2008 Investment Plan page 91 APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

page 92 OPERS 2008 Investment Plan APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

OPERS 2008 Investment Plan page 93 APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

page 94 OPERS 2008 Investment Plan APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

OPERS 2008 Investment Plan page 95 APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

page 96 OPERS 2008 Investment Plan APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

OPERS 2008 Investment Plan page 97 APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

page 98 OPERS 2008 Investment Plan APPENDIX B

Economic Outlook Mercer Investment Consulting – Economic Prospects (continued)

OPERS 2008 Investment Plan page 99 page 100 OPERS 2008 Investment Plan INVESTMENT STAFFING

Office of the Name Title Experience Director of Jennifer Hom Director of Investments 29 years Investments Experience

Hire Date Education Designations June 2002 1975: B.S. 1986: CFA Mathematics, College Charterholder of the Holy Spirit 1980: M.S. Mathematics, Purdue University

Name Title Experience Mary Ann Kabbaz Executive Assistant 8 years Experience

Hire Date Education January 2000 2004: A.S. Business, Ohio Dominican University

Designations

OPERS 2008 Investment Plan page 101 INVESTMENT STAFFING

Internal Active Name Title Experience Equity Deryck Lampe Senior Portfolio 15 years Manager

Hire Date Education Designations March 2007 1989: B.S. 1997: CFA Mathematics, Purdue Charterholder University 1991: M.S. Statistics, University of Cincinnati 1992: M.B.A. University of Cincinnati

Name Title Experience Robert G. Ball Portfolio Manager 24 years

Hire Date Education Designations August 1999 1979: B.S. Business 1989: CPA (Inactive) Administration, 1991: CFA Miami University Charterholder

Designations

Name Title Experience Steven F. Barker Senior Investment 8 years Analyst

Hire Date Education June 1999 1993: B.A. Business Administration, The Ohio State University 1999: M.B.A., The Ohio State University

Name Title Experience Christopher Gregson Investment Analyst 7 years

Hire Date Education Designations July 2000 1992: B.A. Psychology, 2001: CFA Indiana University Charterholder 1993: B.S. Business Finance, Indiana University

page 102 OPERS 2008 Investment Plan INVESTMENT STAFFING

Internal Active Name Title Experience Equity Andrew Q. Lohof Investment Analyst 9 years (continued)

Hire Date Education Designations June 1989 1990: B.S. International 2001: CFA Economics, Georgetown Charterholder University 1998: M.B.A., Indiana University

Name Title Experience Kevin Martin Senior Investment 9 years Analyst

Hire Date Education Designations June 1998 1994: B.A. Accounting, 1999: CPA Thomas More College 1998: M.B.A. University of Cincinnati

Name Title Experience Scott Murray Senior Investment 17 years Analyst

Hire Date Education Designations June 2005 1985: B.S. Political 2000: CFA Science, University of Charterholder Connecticut 1991: M.B.A. Washington University

Name Title Experience Christopher O’Daniel Senior Investment 19 years Analyst

Hire Date Education Designations June 2005 1983: B.A. Political 2001: CFA Science, College of Charterholder Wooster 1988: M.B.A. University of Dayton

OPERS 2008 Investment Plan page 103 INVESTMENT STAFFING

Internal Active Name Title Experience Equity Timothy C. Steitz Portfolio Manager 20 years (continued)

Hire Date Education Designations July 1990 1981: B.A. Economics 1989: CFA and Finance, Kent State Charterholder 2007: CMT University 1984: M.B.A. University of Akron

Name Title Experience Timothy J. Swingle Senior Investment 9 years Analyst

Hire Date Education Designations August 1998 1980: B.S. Business 1983: CPA (inactive) Administration, The 1988: CMA Ohio State University 1995: CFA Charterholder Designations 2007 CMT

Name Title Experience Lewis Tracy Senior Investment 7 years Analyst

Hire Date Education Designations August 2000 1980: B.A. Economics, 2001: CFA U.C. Berkeley Charterholder 1994: PhD. Russian Literature, The Ohio State University 2000: M.B.A. The Ohio State University

page 104 OPERS 2008 Investment Plan INVESTMENT STAFFING

Internal Bonds Name Title Experience John C. Blue Senior Portfolio 14 years Manager

Hire Date Education Designations October 1993 1989: B.S. Business 1997: CFA Administration, The Charterholder Ohio State University 1993: M.B.A. The Ohio State University

Name Title Experience Teresa Black Cash/Securities 12 years Lending Analyst

Hire Date Education Designations November 2000 1995: B.S. Finance, Level II candidate in The Ohio State the CFA program University

Name Title Experience Erik Cagnina Portfolio Manager 13 years

Hire Date Education Designations March 2006 1992: B.S. Finance, Level III candidate in Miami University the CFA program 1998: M.B.A. Case Western Reserve

Name Title Experience Mark Ehresman Senior Investment 6 years Analyst

Hire Date Education Designations June 2002 1997: B.S. Finance, 2005: CFA Miami University Charterholder 2002: M.B.A. Case Western Reserve

OPERS 2008 Investment Plan page 105 INVESTMENT STAFFING

Internal Bonds Name Title Experience (continued) Tony Enderle Senior Investment 6 years Analyst

Hire Date Education Designations January 2002 1994: B.S. Business 2002: CFA Administration, Bowling Charterholder Green University

Name Title Experience Eric France Portfolio Manager 22 years

Hire Date Education Designations January 2004 1968: B.A. European 1989: CFA History, Yale University Charterholder 1977: M.A. History, Ohio University 1985: M.A. Finance, The Ohio State University

Name Title Experience Jerry May Cash/Securities 16 years Lending Manager

Hire Date Education February 2004 1991: B. Business Administration, Abilene Christian University 2002: M.B.A. Ashland University

Name Title Experience Chris Rieddle Portfolio Manager 18 years

Hire Date Education Designations November 2007 1979: B.S. Finance, 1993: CFA Indiana University Charterholder 1982: M.B.A. Indiana University

page 106 OPERS 2008 Investment Plan INVESTMENT PROGRAM

Internal Bonds Name Title Experience (continued) Todd Soots Senior Investment 7 years Analyst

Hire Date Education Designations May 2002 1995: B.S. Finance, 2005: CFA The Ohio State Charterholder University 2002: M.B.A. The Ohio State University

Name Title Experience JoAnn Yocum Investment Assistant II 22 years

Hire Date Education December 2000 1987: A.S. Business, Bliss Business College

OPERS 2008 Investment Plan page 107 INVESTMENT STAFFING

External Name Title Experience Management Greg Uebele SIO – External 13 years Management

Hire Date Education Designations August 2001 1988: B.S. Physics, 1999: CFA Florida Institute of Charterholder Technology 2007: Chartered 1993: M.B.A. University Alternative Investment of Houston SM Analyst

Name Title Experience Julie Deisler Investment Assistant II 3 years

Photo not available Hire Date Education at this time September 2004 2001: B.A. English and Psychology, Elon University 2007: M.B.A. Capital University

page 108 OPERS 2008 Investment Plan INVESTMENT STAFFING

External Public Name Title Experience Markets Phil Paroian SIO – External Public 15 years Markets

Hire Date Education Designations March 2005 1984: B. Mathematics, 1986: ASA University of Waterloo 1994: CFA Charterholder

Name Title Experience DeAnne B. Rau Portfolio Manager 13 years

Hire Date Education Designations June 2001 1993: B.A. History, Mt. Level II candidate in the Holyoke College CFA program 1994: B.A. Economics, The Ohio State University 2007: M.B.A. The Ohio State University

Name Title Experience Daniel J. Sarver Portfolio Manager 23 years

Hire Date Education Designations June 1984 1982: B.S. Business 1988: CFA Administration and Charterholder Mathematics, Marietta College 1984: M.B.A. The Ohio State University

OPERS 2008 Investment Plan page 109 INVESTMENT STAFFING

Real Estate Name Title Experience Bradley E. Sturm Portfolio Manager 13 years

Hire Date Education February 1988 1979: B.A. Economics, University of Cincinnati 1982: M.A. Economics, University of Cincinnati 1982: M.A. Industrial Relations, University of Cincinnati 1993: M.B.A. The Ohio State University

Name Title Experience Stephen Stuckwisch Portfolio Manager 12 years

Hire Date Education Designations October 1995 1986: B.A. Economics, 2000: CFA Hanover College Charterholder 1991: M.B.A. The Ohio State University

page 110 OPERS 2008 Investment Plan INVESTMENT STAFFING

Private Equity Name Title Experience Louis Darmstadter Portfolio Manager 9 years

Hire Date Education Designations March 2007 1985: B.A. History, 2002: CFA Tulane University Charterholder 1992: M.B.A. University of Chicago 1992: M.A. Middle Eastern Studies, University of Chicago

Name Title Experience Samir Sidani Investment Analyst 6 years

Hire Date Education Designations June 2006 2000: B.A. Economics, 2005: CFA University of Rochester Charterholder 2007: Chartered Alternative Investment Analyst SM

OPERS 2008 Investment Plan page 111 INVESTMENT STAFFING

Fund Management Name Title Experience William Miller SIO – Fund 26 years Management

Hire Date Education Designations July 2005 1979: B.S. Mechanical 1985: CFA Engineering, Kettering Charterholder University 1981: M.B.A. University of Pennsylvania

Name Title Experience Cheryl Cade Investment Assistant II 14 years

Hire Date Education July 2006 1999: B.A. Finance, Franklin University 2003: M.B.A. Franklin University

Name Title Experience Xinyang Gu Quantitative Analyst 7 years

Hire Date Education October 2000 1982: B.S. Physics, Nanjing Institute of Technology China 1989: M.S. Physics, The Ohio State University

Name Title Experience J.G. Lee Quantitative Manager 11 years

Hire Date Education Designations January 2002 1996: PhD. Economics, 2001: CFA The Ohio State Charterholder University 2004: Financial Risk Manager 2004 Professional Risk Manager

page 112 OPERS 2008 Investment Plan INVESTMENT STAFFING

Fund Management Name Title Experience (continued) Christy Ruoff Equity Trader 25 years

Hire Date July 1982

Name Title Experience Matt Sforza Investment Assistant II 7 years

Hire Date Education June 2000 2000: B.S. Financial Management, The Ohio State University

Name Title Experience Matthew Sherman Senior Equity Trader 13 years

Hire Date Education May 2006 1994: B.A. Economics, The Ohio State University 2000: M.B.A. Otterbein College

Name Title Experience Joan Stack Trading Manager 32 years

Hire Date Education October 2003 1974: B.A. Economics, Mount Holyoke College 1977: M.B.A. Fordham University

OPERS 2008 Investment Plan page 113 INVESTMENT STAFFING

Fund Management Name Title Experience (continued) Roger Tong Quantitative Analyst 13 years

Hire Date Education Designations March 2004 1991: M.S. Mathematics, Level II candidate in the New Jersey Institute of CFA program Technology 1994: M.B.A. The college of Insurance

Name Title Experience Erick D. Weis Fund Manager 15 years

Hire Date Education Designations June 1994 1990: B.S. Business 2001: CFA Administration, Charterholder University of Toledo 1994: M.B.A. The Ohio State University

page 114 OPERS 2008 Investment Plan INVESTMENT STAFFING

Investment Name Title Experience Administration Roger Fox Investment 16 years Administration Manager

Hire Date Education Designations July 2000 1989: B.S. 2001: CFA Mathematics, Purdue Charterholder University 2005: M.B.A. Franklin University

Name Title Experience Alan J. Davidson Investment 43 years Compliance Manager

Hire Date Education Designations September 2006 1960: B.A. Political Attorney Science, Pennsylvania State University 1963: J.D. Harvard Law School

Name Title Experience Pat Edgington Investment Reporting 30 years Manager

Hire Date Education July 2000 1985: B.S. Finance, Miami University

Name Title Experience Carol Hoover Investment 11 years Administration Technician

Hire Date November 1990

OPERS 2008 Investment Plan page 115 INVESTMENT STAFFING

Investment Name Title Experience Administration Melissa Stought Investment 9 years (continued) Administration Analyst

Hire Date Education January 2007 1998: B.A. Psychology, Drew University 2006: M.B.A. Finance, New York University

Name Title Experience Kimberly Van Gundy Investment 6 years Administration Analyst

Hire Date Education April 1999 1993: B.S. Accounting, University of Dayton 2001: M.B.A. Franklin University

page 116 OPERS 2008 Investment Plan