2401 Colonial Drive, 3rd Floor
Helena, Montana

Thursday, April 17, 2003

AGENDA

I. CALL TO ORDER 1:00 p.m.
A. Roll Call
B. Approval of the March 13, 2003 Regular Meeting Minutes

II. EXECUTIVE DIRECTOR REPORTS - Carroll South 1:15 p.m.
A. Budget Status Report
B. Legislative Update (Verbal)
C. Out-of-State Travel Requests

III. BOND PROGRAM - Louise Welsh 1:30 p.m.
A. INTERCAP
1. Activity Report
2. Staff Approved Loans Report
3. Loan Requests
4. Issuance of INTERCAP Bonds - Resolution No. 201

IV. CHIEF INVESTMENT OFFICER REPORTS - Jim Penner, CFA 2:00 p.m.
A. Economic Overview - Newsletter
B. Asset Allocation

V. MONTANA LOAN PROGRAM - Delrene Rasmussen 2:15 p.m.
A. Consider Commercial/Multi-Family Loans
1. Creative Sales Company
B. Consider Value Added Loans
1. Jore Corporation
C. Coal Tax Loan Program Activity Report - February
D. Pension Mortgage Program Activity Report - February

VI. PRESENTATION - State Street Bank, Security Lending 2:30 p.m.
Jeffrey Trencher, CFA

VII. INVESTMENT ACTIVITY - External Management - Ed Kelly
A. Security Lending Active
1. Earnings Report - February
B. International Equity Active
1. Montana International Equity Program Review
C. Montana Private Equity Pool (MPEP)
1. Transactions - February
2. Holdings Report

VIII. INVESTMENT ACTIVITY - Internal Management
A. Domestic Equities (Montcomp) - Rande Muffick, CFA
1. Transactions - February
2. Holdings Report
3. Strategy
4. Portfolio Additions
a. Fortune Brands
b. Johnson Controls
c. Lehman Brothers
d. Medtronic
e. Xilinx

B. International Equities (MTIP) - Paul Runnalls
1. Internal Pool
a. Internal Transactions - February
b. Internal International Holdings Report
c. Strategy

C. Fixed Income - Rich Cooley, CFA
1. Transactions - February
2. Strategy
3. Investment Policy Statements
a. Treasure State Endowment Regional Water System Funds
b. Treasure State Endowment Funds
c. State Fund Insurance - Old Fund
d. State Fund Insurance - New Fund

D. STIP and Treasurer's Funds - Rich Cooley, CFA
1. STIP Transactions - February
2. STIP Holdings Report
3. Treasurer's Fund Transactions - February
4. Treasurer's Fund Holdings Report
5. Strategy

IX. ADJOURNMENT 5:00 p.m.

The Board of Investments makes reasonable accommodations for any known disability that may interfere with a person's ability to participate in public meetings. Persons needing an accommodations must notify the Board (call 444-0001) or write to P.O. Box 200126, Helena, Montana 59620) no later than three days prior to the meeting to allow adequate time to make needed arrangements.

2401 Colonial Drive, 3rd Floor
Helena, Montana
April 17, 2003

MINUTES

BOARD MEMBERS PRESENT:

Dennis Beams
Karen Fagg
Maureen Fleming
Jay Klawon
Joel Long
Terry Moore
Tim Ryan



BOARD MEMBERS ABSENT:

Dick Anderson, Chairman
Calvin Wilson


STAFF PRESENT:

Geri Burton, Deputy Director
Richard Cooley, CFA, Assistant Investment Officer
Kimberly Dallas, Program Assistant
Edward Kelly, Assistant Investment Officer
Herbert Kulow, Senior Portfolio Manager
Rande Muffick, CFA, Assistant Investment Officer
James R. Penner, CFA, Chief Investment Officer
Delrene Rasmussen, Assistant Investment Officer
Paul Runnalls, Investment Analyst, International Equities
Carroll V. South, Executive Director
Louise Welsh, Bond Program Officer


GUESTS:

Gordon Hoven, US Bancorp/Piper Jaffray
Kelly Grove, Jore Corporation
Frank Tiegs, Jore Corporation
Brenda Dennis, Jore Corporation
Billee Lee, Jore Corporation
Dale Taliaferro, Association of Montana Retired Public Employees
Mark Berry, State Fund
Darrell Beaton, State Fund
Jeffrey Trencher, CFA, State Street Bank Security Lending

CALL TO ORDER

Vice Chairman Ryan called the regular meeting of the Board of Investments (Board) to order at 1:00 p.m. in the conference room at 2401 Colonial Drive, 3rd Floor, Helena, Montana. As noted above, the meeting convened with seven members of the Board present. Member Anderson and Member Wilson were absent.

Member Beams motioned for approval of the March 13, 2003 minutes; Member Long seconded the motion and the motion was passed 7-0.

EXECUTIVE DIRECTOR REPORTS

Budget Status Report

Executive Director Carroll South presented this report for the period ending March 31, 2003.

Legislative Update

Executive Director Carroll South gave a Legislative Update to the Board:
" SB 131, Intermediary Lending Bill - Which permits the Board to lend money to local development organizations at 2.00 percent interest and permits the Board to buy seasoned loans from local development organizations has passed and is effective July 1, 2003. Staff is in the process of formulizing policy.

BOND PROGRAM

Activity Report

The Board reviewed this report for the period ending April 7, 2003

Staff Approved Loans Report

Ms. Louise Welsh reported that:

Borrower: Sweet Grass County
Purpose: To finance costs associated with improving the base and surface of tem miles of Otter Creek Road.
Staff Approval Date March 4, 2003
Board Loan Amount: $199,900
Term: 5 Years

Borrower: Sheaver's Creek - Lake County Water & Sewer District
Purpose: Anticipation of USDA Rural Development financing.
Staff Approval Date March 5, 2003
Board Loan Amount: $174,400
Term: 3 Years

Borrower: Woodsbay Homesites - Lake County Water & Sewer District
Purpose: To finance a portion of the costs associated with a preliminary engineering report.
Staff Approval Date March 10, 2003
Board Loan Amount: $6,700
Term: 3 years interest only; up to 3 additional years' interest and principal.

Borrower: Lewis & Clark County
Purpose: To finance costs associated with the purchase and installation of fiber cable and wireless networks.
Staff Approval Date March 11, 2003
Board Loan Amount: $199,000
Term: 7 Years

Borrower: City of Colstrip
Purpose: To finance the purchase of a 2003 Sterling jet vacuum truck.
Staff Approval Date March 12, 2003
Board Loan Amount: $100,000
Term: 10 Years

Borrower: Phillips County Green Meadows Water & Sewer District
Purpose: To finance a portion of the costs associated with a preliminary engineering report.
Staff Approval Date March 20, 2003
Board Loan Amount: $10,000
Term: 3 years interest only; up to 3 additional years' interest and principal.

Borrower: Scobey School District #1
Purpose: To finance a portion of the costs associated with replacing the heating system and coal boiler stoker.
Staff Approval Date March 20, 2003
Board Loan Amount: $140,000
Term: 10 Years

Borrower: City of Three Forks
Purpose: To finance the costs associated with installing arena lighting and a perimeter irrigation system for the fairgrounds.
Staff Approval Date March 24, 2003
Board Loan Amount: $30,000
Term: 10 Years

Borrower: Thompson Falls Rural Fire District
Purpose: To refinance the District's pumper truck and building loans.
Staff Approval Date March 26, 2003
Board Loan Amount: $124,615.54
Term: 10 Years

Borrower: Choteau County District Hospital (dba Missouri River Medical Center), Fort Benton
Purpose: To finance a real property purchase.
Staff Approval Date March 27, 2003
Board Loan Amount: $50,000
Term: 10 Years

Borrower: Headwaters Cooperative Recycling Project (Basin)
Purpose: To finance the purchase of two Molitor trucks.
Staff Approval Date March 28, 2003
Board Loan Amount: $83,500
Term: 5 Years

Borrower: Park County Rural Fire District #1 (Livingston)
Purpose: To finance the purchase of a metal building to house the Mill Creek Fire Substation.
Staff Approval Date April 2, 2003
Board Loan Amount: $90,000
Term: 10 Years

has been approved by staff.

INTERCAP

Ms. Louise Welsh presented staff's recommendation that the Board authorize staff to proceed with processing and closing the following loans using the Board's standard Bond Program Office procedures:

Borrower: Ethridge County Water District
Board Loan Amount: $700,000
Term: Interim loan in anticipation of Rural Development long term financing.
Purpose: Financing for a rural water distribution system.

Borrower: Town of Hot Springs
Board Loan Amount: $975,600
Term: Interim Loan in anticipation of Rural Development long term financing.
Purpose: To replace water service lines and associated connections, valves and hydrants.

Member Moore moved for approval of this recommendation; Member Beams seconded the motion and the motion was passed 6-0. Member Ryan abstained.

INTERCAP Series 2003 - Resolution No. 201

Ms. Geri Burton, Deputy Director presented staff recommendation for approval of Resolution No. 201, authorizing issuance and sale of the Series 2003 Bonds. Staff recommends that the Board:
1. Authorize staff to take steps as deemed necessary to issue $15 million in INTERCAP bonds for a term of 25 years.
2. Adopt the final bond resolution.

Member Fleming moved for approval of this recommendation; Member Klawon seconded the motion and the motion was passed 7-0.

CHIEF INVESTMENT OFFICER REPORTS

Asset Allocation Report

Mr. Jim Penner, Chief Investment Officer, presented the Asset Allocation report for April 15 and April 30 and May transactions.

French Divestment

Mr. Jim Penner reported to the Board that staff completed the divestment of internally-managed French company stock within the 30 days as was directed at the March 13, 2003 Board Meeting. Divestment was completed on April 10, 2003; the cost was $85,000 in transaction fees.

LOAN PROGRAMS

Consideration of Commercial Loan Participation - Permanent Coal Trust Fund

Ms. Delrene Rasmussen presented staff's recommendation to participate in the following loan request:

Borrower: Creative Sales Company
Lender: First Citizens Bank, Columbia Falls
Purpose of Loan: To purchase/remodel commercial real estate and purchase equipment.
Amount of Loan: $800,000
Board Loan Amount: $600,000
Board Participation: 75%
Term of Loan: 10 Years
Interest Rate: 6.75% + .50% LSF = 7.25%
Recommendation: Approval, subject to the terms and conditions in Schedule A.
Loan Committee Recommendation: Approve

Borrower: Jore Corporation (Participation Loan #7617)
Lender: Mountain West Bank, Helena
Purpose of Loan: To pay off GE Capital debt and to purchase new equipment.
Amount of Loan: $4,225,000
Board Loan Amount: $3,380,000
Board Participation: 80%
Term of Loan: 15 Years
Interest Rate: 7.00% Fixed
Recommendation: Approval, subject to the terms and conditions in Schedule A.
Loan Committee Recommendation: Approve subject to additional covenants at the direction of the loan committee.

Borrower: Jore Corporation (Value-Added Loan #7618)
Lender: Mountain West Bank, Helena
Purpose of Loan: To pay off GE Capital debt and to purchase new equipment.
Total Amount of Loan: $8,400,000
Board Loan Amount: $6,300,000
Board Participation: 75%
Term of Loan: 7 Years
Interest Rate: 2.50% Fixed for 5 Years; then 6.50% Fixed for 2 Years.
Recommendation: Approval, subject to the terms and conditions in Schedule A.
Loan Committee Recommendation: Approve subject to additional covenants at the direction of the loan committee.

Member Fleming moved for ratification of loan committee recommendations; Member Klawon seconded the motion and the motion was passed 7-0.

Coal Tax Loan Program Activity Report

Ms. Delrene Rasmussen presented and the Board reviewed this report for February.

Pension Mortgage Program Activity Report

The Board reviewed this report for February.

PRESENTATION

Mr. Jeffrey Trencher, CFA, State Street Bank Security Lending presented to the Board a report on Securities Lending. Mr. Trencher's report included Securities Lending Basics, The Lending and Reinvestment Markets, and Performance.

INVESTMENT ACTIVITY

Security Lending Active

Mr. Ed Kelly presented the Earnings Report for February.

International Equity Active

Montana International Equity Program Review

Montana Private Equity Pool (MPEP)

Mr. Ed Kelly presented February transactions and the holdings report as of February 28, 2003.

International Equity Program Review

Mr. Ed Kelly presented to the Board a brief review of the Montana International Equity Program from inception to date.

Montana's International Equity Investment Program has experienced a favorable performance history over the last 15 years while expanding as a percentage of the retirement fund asset allocation and in the scope of exposure to an increasingly global investment horizon. The recommendations made as part of this review are intended to sustain the favorable performance history and facilitate continued growth in the international equity asset allocation toward the target of 12%.

Staff outlined the following recommendations:
" Retain regional approach to international equity investing;
" Add a passive component to the international equity program by expanding relationship with Barclays Global Investors to include international indices.
" Issue a Request for Proposal for Pacific Basin active equity investment management on or before August 1, 2003.
" Eliminate MSCI Montana Custom Pacific Basin Index with issuance of the Request for Proposal for Pacific Basin active equity investment management

Member Beams moved for approval of staff recommendation; Member Long seconded the motion and the motion was passed 7-0.

Montcomp

Mr. Rande Muffick presented February transactions, the holdings report as of February 28, 2003 and the current investment strategy. Member Beams moved for approval of the Montcomp strategy as presented; Member Fagg seconded the motion and the motion was passed 7-0.

In addition, Mr. Muffick presented Fortune Brands, Johnson Controls, Lehman Brothers, Medtronic and Xilinx as a Portfolio Additions.

International Investment

Mr. Paul Runnalls presented February internal international transactions, the internal international holdings report as of February 28, 2003 and the current investment strategy. Member Klawon moved for approval of the International Investment strategy as presented; Member Fleming seconded the motion and the motion was passed 7-0.

Fixed Income

Mr. Rich Cooley presented February transactions, and the current investment strategy. Member Long moved for approval of the Fixed Income strategy as presented; Member Beams seconded the motion and the motion was passed 7-0.

In addition, Mr. Cooley presented the following Investment Policy Statements:
" Treasure State Endowment Regional Water System Funds; Member Beams moved for approval of the Investment Policy Statement as presented; Member Fleming seconded the motion and the motion was passed 7-0.

" Treasure State Endowment Funds; Member Fleming moved for approval of the Investment Policy Statement as presented; Member Long seconded the motion and the motion was passed 7-0.

" State Fund Insurance - Old Fund; Member Fleming moved for approval of the Investment Policy Statement as presented; Member Fagg seconded the motion and the motion was passed 7-0.

Mr. Penner presented the State Fund Insurance - New Fund Investment Policy Statement. Mr. Penner stated one correction that was made to this statement. On page 2, Client Preferences, Bullet #4 should read "Limit fixed income holdings rated lower than A3 or A- to a range of 15 - 20 percent." Member Beams moved for approval of the Investment Policy Statement as corrected; Member Klawon seconded the motion and the motion was passed 7-0.

Treasurer's and STIP Funds

Mr. Cooley also presented February STIP transactions the STIP holdings report as of February 28, 2003, the February Treasure's Fund transactions, the Treasurer's Fund holdings report as of February 28, 2003 and the current investment strategy for both of these funds. Member Long moved for approval of the STIP Fund and Treasurer's Fund strategy as presented; Member Beams seconded the motion and the motion was passed 7-0.

NEXT MEETING

The next regularly scheduled meeting of the Board will be May 23, 2003.

ADJOURNMENT

There being no further business, was adjourned at 4:00 p.m.

BOARD OF INVESTMENTS

APPROVE:
Tim Ryan, Vice Chairman

ATTEST:
Carroll South, Executive Director

DATE: