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Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

                            CHAPTER 604-S.F.No. 2316 
                  An act relating to public finance; providing for 
                  management of funds under the control of the state 
                  board of investment; limiting the investment authority 
                  of various local pension plans to the pre-1994 
                  investment authority of the state board of investment; 
                  changing certain debt service fund investment 
                  authority; amending Minnesota Statutes 1992, sections 
                  11A.17, subdivisions 1, 4, 9, 10a, and 14; 11A.18, 
                  subdivision 9; 11A.24, subdivisions 3, 5, and 6; 
                  353D.05, subdivision 2; 354B.07, subdivision 2; 
                  356A.06, subdivision 7; and 422A.05, subdivision 2c; 
                  Minnesota Statutes 1993 Supplement, sections 11A.24, 
                  subdivisions 1 and 4; 69.77, subdivision 2g; 69.775; 
                  352D.04, subdivision 1; 352D.09, subdivision 8; 
                  354B.05, subdivision 3; and 475.66, subdivision 3. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
                                   ARTICLE 1 
                      STATE BOARD OF INVESTMENT PROVISIONS
           Section 1.  Minnesota Statutes 1992, section 11A.17, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [PURPOSE.] The purpose of the supplemental 
        investment fund is to provide an investment vehicle for the 
        assets of various public retirement plans and funds.  The fund 
        consists of six seven investment accounts:  an income share 
        account, a growth share account, an international share account, 
        a money market account, a fixed interest account, a bond market 
        account, and a common stock index account.  The supplemental 
        investment fund is a continuation of the supplemental retirement 
        fund in existence on January 1, 1980. 
           Sec. 2.  Minnesota Statutes 1992, section 11A.17, 
        subdivision 4, is amended to read: 
           Subd. 4.  [INVESTMENT.] The assets of the supplemental 
        investment fund must be invested by the state board subject to 
        section 11A.24; provided, however, that: 
           (1) the bond market account and the money market account 
        must be invested entirely in debt obligations; 
           (2) the growth share account and the common stock index 
        account may be invested entirely in corporate stocks; and 
           (3) the international share account may be invested 
        entirely in international stocks; and 
           (4) the fixed interest account may be invested in 
        guaranteed investment contracts and debt obligations. 
           Sec. 3.  Minnesota Statutes 1992, section 11A.17, 
        subdivision 9, is amended to read: 
           Subd. 9.  [VALUATION OF INVESTMENT SHARES.] The value of 
        investment shares in the income share account, the growth share 
        account, the international share account, the bond market 
        account, and the common stock index account must be determined 
        by dividing the total market value of the securities 
        constituting the respective account by the total number of 
        shares then outstanding in the investment account.  The value of 
        investment shares in the money market account and the fixed 
        interest account is $1 a share.  Terms as to withdrawal 
        schedules will be agreed upon by the public retirement fund and 
        the state board. 
           Sec. 4.  Minnesota Statutes 1992, section 11A.17, 
        subdivision 10a, is amended to read: 
           Subd. 10a.  [DISTRIBUTION OF EARNINGS.] Once each month the 
        state board shall deduct from the investment earnings of each 
        account an amount equal to one-twelfth of an annual charge equal 
        to one-tenth 40/100 of one percent of the assets in each 
        account. Unless otherwise directed by the participating plan or 
        fund, the state board shall distribute the deductions to 
        participating plans or funds to pay administrative expenses.  
        Any deductions not distributed must be used to purchase 
        additional units in the accounts. 
           Sec. 5.  Minnesota Statutes 1992, section 11A.17, 
        subdivision 14, is amended to read: 
           Subd. 14.  [PROCEDURES FOR DISTRIBUTION OF INCOME FOR MONEY 
        MARKET ACCOUNT, AND FIXED INTEREST ACCOUNT.] At the end of each 
        month, the state board shall determine the earnings of the money 
        market account and the fixed interest account and deduct from 
        the earnings an amount equal to one-twelfth of an annual charge 
        equal to one-tenth 40/100 of one percent of the assets in each 
        account.  Unless otherwise directed by the participating plan or 
        fund, the state board shall distribute the deductions to 
        participating plans or funds to pay administrative expenses.  
        Any earnings not deducted and distributed must be used to 
        purchase additional shares in the respective accounts on behalf 
        of each participating public retirement plan or fund. 
           Sec. 6.  Minnesota Statutes 1992, section 11A.18, 
        subdivision 9, is amended to read: 
           Subd. 9.  [CALCULATION OF POSTRETIREMENT ADJUSTMENT.] (a) 
        Annually, following June 30, the state board shall use the 
        procedures in paragraphs (b), (c), and (d) to determine whether 
        a postretirement adjustment is payable and to determine the 
        amount of any postretirement adjustment. 
           (b) If the Consumer Price Index for urban wage earners and 
        clerical workers all items index published by the Bureau of 
        Labor Statistics of the United States Department of Labor 
        increases from June 30 of the preceding year to June 30 of the 
        current year, the state board shall certify the percentage 
        increase.  The amount certified may not exceed the lesser of the 
        difference between the preretirement interest assumption and 
        postretirement interest assumption in section 356.215, 
        subdivision 4d, paragraph (a), or 3.5 percent. 
           (c) In addition to any percentage increase certified under 
        paragraph (b), the board shall use the following procedures to 
        determine if a postretirement adjustment is payable under this 
        paragraph: 
           (1) The state board shall determine the market value of the 
        fund on June 30 of that year; 
           (2) The amount of reserves required for the annuity or 
        benefit payable to an annuitant and benefit recipient of the 
        participating public pension plans or funds shall be determined 
        by the commission-retained actuary as of the current June 30.  
        An annuitant or benefit recipient who has been receiving an 
        annuity or benefit for at least 12 full months as of the current 
        June 30 is eligible to receive a full postretirement 
        adjustment.  An annuitant or benefit recipient who has been 
        receiving an annuity or benefit for at least one full month, but 
        less than 12 full months as of the current June 30, is eligible 
        to receive a partial postretirement adjustment.  Each fund shall 
        report separately the amount of the reserves for those 
        annuitants and benefit recipients who are eligible to receive a 
        full postretirement benefit adjustment.  This amount is known as 
        "eligible reserves."  Each fund shall also report separately the 
        amount of the reserves for those annuitants and benefit 
        recipients who are not eligible to receive a postretirement 
        adjustment.  This amount is known as "noneligible reserves."  
        For an annuitant or benefit recipient who is eligible to receive 
        a partial postretirement adjustment, each fund shall report 
        separately as additional "eligible reserves" an amount that 
        bears the same ratio to the total reserves required for the 
        annuitant or benefit recipient as the number of full months of 
        annuity or benefit receipt as of the current June 30 bears to 12 
        full months.  The remainder of the annuitant's or benefit 
        recipient's reserves shall be separately reported as additional 
        "noneligible reserves."  The amount of "eligible" and 
        "noneligible" required reserves shall be certified to the board 
        by the commission-retained actuary as soon as is practical 
        following the current June 30; 
           (3) The state board shall determine the percentage increase 
        certified under paragraph (b) multiplied by the eligible 
        required reserves, as adjusted for mortality gains and losses 
        under subdivision 11, determined under clause (2); 
           (4) The state board shall add the amount of eligible and 
        ineligible required reserves determined under clause 
        (2) required for the annuities or benefits payable to annuitants 
        and benefit recipients of the participating public pension plans 
        or funds as of the current June 30 to the amount determined 
        under clause (3); 
           (5) The state board shall subtract the amount determined 
        under clause (4) from the market value of the fund determined 
        under clause (1); 
           (6) The state board shall adjust the amount determined 
        under clause (5) by the cumulative current balance determined 
        pursuant to clause (8) and any negative balance carried forward 
        under clause (9); 
           (7) A positive amount resulting from the calculations in 
        clauses (1) to (6) is the excess market value.  A negative 
        amount is the negative balance; 
           (8) The state board shall allocate one-fifth of the excess 
        market value or one-fifth of the negative balance to each of 
        five consecutive years, beginning with the fiscal year ending 
        the current June 30; and 
           (9) To calculate the postretirement adjustment under this 
        paragraph based on investment performance for a fiscal year, the 
        state board shall add together all excess market value allocated 
        to that year and subtract from the sum all negative balances 
        allocated to that year.  If this calculation results in a 
        negative number, the entire negative balance must be carried 
        forward and allocated to the next year.  If the resulting amount 
        is positive, a postretirement adjustment is payable under this 
        paragraph.  The board shall express a positive amount as a 
        percentage of the total eligible required reserves certified to 
        the board under clause (2).  
           (d) The state board shall determine the amount of any 
        postretirement adjustment which is payable using the following 
        procedure: 
           (1) The total "eligible" required reserves as of the first 
        of January next following the end of the fiscal year for the 
        annuitants and benefit recipients eligible to receive a full or 
        partial postretirement adjustment as determined by clause (2) 
        shall be certified to the state board by the commission-retained 
        actuary.  The total "eligible" required reserves shall be 
        determined by the commission-retained actuary on the assumption 
        that all annuitants and benefit recipients eligible to receive a 
        full or partial postretirement adjustment will be alive on the 
        January 1 in question; and 
           (2) The state board shall add the percentage certified 
        under paragraph (b) to any positive percentage calculated under 
        paragraph (c).  The board shall not subtract from the percentage 
        certified under paragraph (b) any negative amount calculated 
        under paragraph (c).  The sum of these percentages shall be 
        carried to five decimal places and shall be certified to each 
        participating public pension fund or plan as the full 
        postretirement adjustment percentage.  
           (e) A retirement annuity payable in the event of retirement 
        before becoming eligible for social security benefits as 
        provided in section 352.116, subdivision 3; 353.29, subdivision 
        6; or 354.35 must be treated as the sum of a period certain 
        retirement annuity and a life retirement annuity for the 
        purposes of any postretirement adjustment.  The period certain 
        retirement annuity plus the life retirement annuity shall be the 
        annuity amount payable until age 62 or 65, whichever applies.  A 
        postretirement adjustment granted on the period certain 
        retirement annuity must terminate when the period certain 
        retirement annuity terminates. 
           Sec. 7.  Minnesota Statutes 1993 Supplement, section 
        11A.24, subdivision 1, is amended to read: 
           Subdivision 1.  [SECURITIES GENERALLY.] The state board 
        shall have the authority to purchase, sell, lend or exchange the 
        following securities for funds or accounts specifically made 
        subject to this section including puts and call options and 
        future contracts traded on a contract market regulated by a 
        governmental agency or by a financial institution regulated by a 
        governmental agency.  These securities may be owned as units in 
        commingled trusts that own the securities described in 
        subdivisions 2 to 5 6.  
           Sec. 8.  Minnesota Statutes 1992, section 11A.24, 
        subdivision 3, is amended to read: 
           Subd. 3.  [CORPORATE OBLIGATIONS.] (a) The state board may 
        invest funds in bonds, notes, debentures, transportation 
        equipment obligations, or any other longer term evidences of 
        indebtedness issued or guaranteed by a corporation organized 
        under the laws of the United States or any state thereof, or the 
        Dominion of Canada or any province thereof if they conform to 
        the following provisions provided that: 
           (a) (1) the principal and interest of obligations of 
        corporations incorporated or organized under the laws of the 
        Dominion of Canada or any province thereof shall be payable in 
        United States dollars; and 
           (b) (2) obligations shall be rated among the top four 
        quality categories by a nationally recognized rating agency. 
           (b) The state board may invest in unrated corporate 
        obligations or in corporate obligations that are not rated among 
        the top four quality categories as provided in paragraph (a), 
        clause (2), provided that: 
           (1) the aggregate value of these obligations may not exceed 
        five percent of the market or book value, whichever is less, of 
        the fund for which the state board is investing; 
           (2) the state board's participation is limited to 50 
        percent of a single offering subject to this paragraph; and 
           (3) the state board's participation is limited to 25 
        percent of an issuer's obligations subject to this paragraph. 
           Sec. 9.  Minnesota Statutes 1993 Supplement, section 
        11A.24, subdivision 4, is amended to read: 
           Subd. 4.  [OTHER OBLIGATIONS.] (a) The state board may 
        invest funds in bankers acceptances, certificates of deposit, 
        deposit notes, commercial paper, mortgage participation 
        certificates and pools securities and asset backed securities, 
        repurchase agreements and reverse repurchase agreements, 
        guaranteed investment contracts, savings accounts, and guaranty 
        fund certificates, surplus notes, or debentures of domestic 
        mutual insurance companies if they conform to the following 
        provisions: 
           (1) bankers acceptances and deposit notes of United States 
        banks are limited to those issued by banks rated in the highest 
        four quality categories by a nationally recognized rating 
        agency; 
           (2) certificates of deposit are limited to those issued by 
        (i) United States banks and savings institutions that are rated 
        in the highest top four quality categories by a nationally 
        recognized rating agency or whose certificates of deposit are 
        fully insured by federal agencies; or (ii) credit unions in 
        amounts up to the limit of insurance coverage provided by the 
        National Credit Union Administration; 
           (3) commercial paper is limited to those issued by United 
        States corporations or their Canadian subsidiaries and rated in 
        the highest two quality categories by a nationally recognized 
        rating agency; 
           (4) mortgage participation or pass through certificates 
        evidencing interests in pools of first mortgages or trust deeds 
        on improved real estate located in the United States where the 
        loan to value ratio for each loan as calculated in accordance 
        with section 61A.28, subdivision 3, does not exceed 80 percent 
        for fully amortizable residential properties and in all other 
        respects meets the requirements of section 61A.28, subdivision 3 
        securities shall be rated in the top four quality categories by 
        a nationally recognized rating agency; 
           (5) collateral for repurchase agreements and reverse 
        repurchase agreements is limited to letters of credit and 
        securities authorized in this section; 
           (6) guaranteed investment contracts are limited to those 
        issued by insurance companies or banks rated in the top four 
        quality categories by a nationally recognized rating agency or 
        to alternative guaranteed investment contracts where the 
        underlying assets comply with the requirements of this section; 
        and 
           (7) savings accounts are limited to those fully insured by 
        federal agencies; and 
           (8) asset backed securities shall be rated in the top four 
        quality categories by a nationally recognized rating agency. 
           (b) Sections 16A.58 and 16B.06 do not apply to certificates 
        of deposit and collateralization agreements executed by the 
        state board under paragraph (a), clause (2). 
           (c) In addition to investments authorized by paragraph (a), 
        clause (4), the state board may purchase from the Minnesota 
        housing finance agency all or any part of a pool of residential 
        mortgages, not in default, that has previously been financed by 
        the issuance of bonds or notes of the agency.  The state board 
        may also enter into a commitment with the agency, at the time of 
        any issue of bonds or notes, to purchase at a specified future 
        date, not exceeding 12 years from the date of the issue, the 
        amount of mortgage loans then outstanding and not in default 
        that have been made or purchased from the proceeds of the bonds 
        or notes.  The state board may charge reasonable fees for any 
        such commitment and may agree to purchase the mortgage loans at 
        a price sufficient to produce a yield to the state board 
        comparable, in its judgment, to the yield available on similar 
        mortgage loans at the date of the bonds or notes.  The state 
        board may also enter into agreements with the agency for the 
        investment of any portion of the funds of the agency.  The 
        agreement must cover the period of the investment, withdrawal 
        privileges, and any guaranteed rate of return. 
           Sec. 10.  Minnesota Statutes 1992, section 11A.24, 
        subdivision 5, is amended to read: 
           Subd. 5.  [CORPORATE STOCKS.] The state board may invest 
        funds in stocks or convertible issues of any corporation 
        organized under the laws of the United States or the states 
        thereof, the Dominion of Canada or its provinces, or any 
        corporation listed on the New York Stock Exchange or the 
        American Stock Exchange, if they conform to the following 
        provisions: 
           (a) The aggregate value of corporate stock investments, as 
        adjusted for realized profits and losses, shall not exceed 85 
        percent of the market or book value, whichever is less, of a 
        fund, less the aggregate value of investments according to 
        subdivision 6; 
           (b) Investments shall not exceed five percent of the total 
        outstanding shares of any one corporation, except that the state 
        board may hold up to 20 percent of the shares of a real estate 
        investment trust. 
           Sec. 11.  Minnesota Statutes 1992, section 11A.24, 
        subdivision 6, is amended to read: 
           Subd. 6.  [OTHER INVESTMENTS.] (a) In addition to the 
        investments authorized in subdivisions 1 to 5, and subject to 
        the provisions in paragraph (b), the state board may invest 
        funds in:  
           (1) venture capital investment businesses through 
        participation in limited partnerships and corporations; 
           (2) real estate ownership interests or loans secured by 
        mortgages or deeds of trust or shares of real estate investment 
        trusts through investment in limited partnerships, bank 
        sponsored collective funds, trusts, mortgage participation 
        agreements, and insurance company commingled accounts, including 
        separate accounts; 
           (3) regional and mutual funds through bank sponsored 
        collective funds and open-end investment companies registered 
        under the Federal Investment Company Act of 1940; 
           (4) resource investments through limited partnerships, 
        private placements and corporations; and 
           (5) international securities. 
           (b) The investments authorized in paragraph (a) must 
        conform to the following provisions:  
           (1) the aggregate value of all investments made according 
        to paragraph (a), clauses (1) to (4), may not exceed 35 percent 
        of the market value of the fund for which the state board is 
        investing; 
           (2) there must be at least four unrelated owners of the 
        investment other than the state board for investments made under 
        paragraph (a), clause (1), (2), (3), or (4); 
           (3) state board participation in an investment vehicle is 
        limited to 20 percent thereof for investments made under 
        paragraph (a), clause (1), (2), (3), or (4); and 
           (4) state board participation in a limited partnership does 
        not include a general partnership interest or other interest 
        involving general liability.  The state board may not engage in 
        any activity as a limited partner which creates general 
        liability.  
           Sec. 12.  Minnesota Statutes 1993 Supplement, section 
        352D.04, subdivision 1, is amended to read: 
           Subdivision 1.  (a) An employee exercising an option to 
        participate in the retirement program provided by this chapter 
        may elect to purchase shares in one or a combination of the 
        income share account, the growth share account, the 
        international share account, the money market account, the bond 
        market account, the fixed interest account, or the common stock 
        index account established in section 11A.17.  The employee may 
        elect to participate in one or more of the investment accounts 
        in the fund by specifying, on a form provided by the executive 
        director, the percentage of the employee's contributions 
        provided in subdivision 2 to be used to purchase shares in each 
        of the accounts. 
           (b) A participant may indicate in writing on forms provided 
        by the Minnesota state retirement system a choice of options for 
        subsequent purchases of shares.  Until a different written 
        indication is made by the participant, the executive director 
        shall purchase shares in the supplemental fund as selected by 
        the participant.  If no initial option is chosen, 100 percent 
        income shares must be purchased for a participant.  A change in 
        choice of investment option is effective no later than the first 
        pay date first occurring after 30 days following the receipt of 
        the request for a change. 
           (c) One month before the start of a new guaranteed 
        investment contract, a participant or former participant may 
        elect to transfer all or a portion of the participant's shares 
        previously purchased in the income share, growth share, common 
        stock index, bond market, or money market accounts to the new 
        guaranteed investment contract in the fixed interest account.  
        Upon expiration of a guaranteed investment contract, the 
        participant's shares attributable to that contract must be 
        transferred to a new guaranteed investment contract unless the 
        executive director is otherwise directed by the participant.  
        Shares in the fixed interest account attributable to any 
        guaranteed investment contract as of July 1, 1994, may not be 
        withdrawn from the fund or transferred to another account until 
        the guaranteed investment contract has expired, unless the 
        participant qualifies for withdrawal under section 352D.05 or 
        for benefit payments under sections 352D.06 to 352D.075. 
           (d) A participant or former participant may also change the 
        investment options selected for all or a portion of the 
        participant's shares previously purchased in accounts other 
        than, subject to the provisions of paragraph (c) concerning the 
        fixed interest account.  Changes in investment options for the 
        participant's shares must be effected as soon as cash flow to an 
        account practically permits, but not later than six months after 
        the requested change. 
           Sec. 13.  Minnesota Statutes 1993 Supplement, section 
        352D.09, subdivision 8, is amended to read: 
           Subd. 8.  [ADMINISTRATIVE CHARGE DEDUCTIONS.] Any 
        administrative charges deducted under subdivision 7 that were in 
        excess of the administrative expenses between July 1, 1973, and 
        June 30, 1992, together with any investment gains or losses 
        based on fiscal year balances, must be recovered from the state 
        employees retirement plan and held in the unclassified plan to 
        pay future administrative expenses.  Any deductions to pay 
        administrative expenses under section 11A.17, subdivision 10a, 
        on contributions and investment returns attributable to 
        contributions made before July 1, 1992, must be credited back to 
        the participants in the unclassified plan.  Any deductions to 
        pay administrative expenses under section 11A.17, subdivision 
        10a, that exceed an amount equal to 1/12 of an annual charge 
        equal to one-tenth of one percent of the assets in each account 
        will be credited back to the participants. 
           Sec. 14.  Minnesota Statutes 1992, section 353D.05, 
        subdivision 2, is amended to read: 
           Subd. 2.  [INVESTMENT OPTIONS.] (a) A participant may elect 
        to purchase shares in the income share account, the growth share 
        account, the international share account, the money market 
        account, the bond market account, the fixed interest account, or 
        the common stock index account established by section 11A.17, or 
        a combination of those accounts.  The participant may elect to 
        purchase shares in a combination of those accounts by specifying 
        the percentage of the total contributions to be used to purchase 
        shares in each of the accounts. 
           (b) A participant or a former participant may indicate in 
        writing a choice of options for subsequent purchases of shares.  
        After a choice is made, until the participant or former 
        participant makes a different written indication, the executive 
        director of the association shall purchase shares in the 
        supplemental investment account or accounts specified by the 
        participant.  If no initial option is indicated by a participant 
        or the specifications made by the participant exceeds 100 
        percent to be invested in more than one account, the executive 
        director shall invest all contributions made by or on behalf of 
        a participant in the income share account.  If the 
        specifications are less than 100 percent, the executive director 
        shall invest the remaining percentage in the income share 
        account.  A choice of investment options is effective the first 
        of the month following the date of receipt of the signed written 
        choice of options. 
           (c) One month before the start of a new guaranteed 
        investment contract, a participant or former participant may 
        elect to transfer all or a portion of the participant's or 
        former participant's shares previously purchased in the income 
        share, growth share, common stock index, bond market, or money 
        market accounts to the new guaranteed investment contract in the 
        fixed interest account.  Upon expiration of a guaranteed 
        investment contract, the participant's or former participant's 
        shares attributable to that contract must be transferred to a 
        new guaranteed investment contract unless the executive director 
        is otherwise directed by the participant.  Shares in the fixed 
        interest account attributable to any guaranteed investment 
        contract as of July 1, 1994, may not be withdrawn from the fund 
        or transferred to another account until the guaranteed 
        investment contract has expired, unless the participant 
        qualifies for a benefit payment under section 353D.07. 
           (d) A participant or former participant may also change the 
        investment options selected for all or a portion of the 
        individual's previously purchased shares in accounts other than, 
        subject to the provisions of paragraph (c) concerning 
        the guaranteed return fixed interest account.  A change under 
        this paragraph is effective the first of the month following the 
        date of receipt of a signed written choice of options. 
           (e) The change or selection of an investment option or the 
        transfer of all or a portion of the deceased or former 
        participant's shares in the income share, growth share, common 
        stock index, bond market, international share, money market, or 
        guaranteed investment fixed interest accounts must not be made 
        following death of the participant or former participant. 
           Sec. 15.  Minnesota Statutes 1993 Supplement, section 
        354B.05, subdivision 3, is amended to read: 
           Subd. 3.  [SELECTION OF FINANCIAL INSTITUTIONS.] The 
        supplemental investment fund administered by the state board of 
        investment is one of the investment options for the plan.  The 
        state board of investment may select two other financial 
        institutions to provide annuity products.  In making their 
        selections, the board shall consider at least these criteria: 
           (1) the experience and ability of the financial institution 
        to provide retirement and death benefits suited to the needs of 
        the covered employees; 
           (2) the relationship of the benefits to their cost; and 
           (3) the financial strength and stability of the institution.
           The state board of investment must periodically review at 
        least every three years each financial institution selected by 
        the state board of investment.  The state board of investment 
        may retain consulting services to assist in the periodic review, 
        may establish a budget for its costs in the periodic review 
        process, and may charge a proportional share of those costs to 
        each financial institution selected by the state board of 
        investment.  All contracts must be approved by the state board 
        of investment before execution by the state university board and 
        the community college board.  The state board of investment 
        shall also establish policies and procedures under section 
        11A.04, clause (2), to carry out this subdivision. 
           The chancellor of the state university system and the 
        chancellor of the state community college system shall redeem 
        all shares in the accounts of the Minnesota supplemental 
        investment fund held on behalf of personnel in the supplemental 
        plan who elect an investment option other than the supplemental 
        investment fund, except that shares in the fixed interest 
        account attributable to any guaranteed investment contract as of 
        July 1, 1994, must not be redeemed until the expiration dates 
        for the guaranteed investment contracts.  The chancellors shall 
        transfer the cash realized to the financial institutions 
        selected by the state university board and the community college 
        board under section 354B.05.  
           Sec. 16.  Minnesota Statutes 1992, section 354B.07, 
        subdivision 2, is amended to read: 
           Subd. 2.  [REDEMPTIONS.] The chancellor of the state 
        university system and the chancellor of the state community 
        college system shall redeem all shares in the accounts of the 
        Minnesota supplemental investment fund held on behalf of 
        personnel in the supplemental plan who elect an investment 
        option other than the supplemental investment fund, except that 
        shares in the fixed interest account attributable to any 
        guaranteed investment contract as of July 1, 1994, may not be 
        redeemed until the expiration dates for the guaranteed 
        investment contracts.  The chancellors shall transfer the cash 
        realized to the financial institutions selected by the state 
        university board and the community college board under section 
        354B.05. 
           Sec. 17.  [REQUIREMENT FOR PROVISION OF CERTAIN 
        INFORMATION.] 
           The executive director of the state board of investment 
        shall report to the legislative commission on pensions and 
        retirement during fiscal year 1995 on any investments that it 
        made under Minnesota Statutes, section 11A.24, subdivision 3, 
        paragraph (b).  The report must be made in conjunction with the 
        regular annual report of the state board of investment. 
           Sec. 18.  [EFFECTIVE DATE.] 
           Section 6 is effective June 30, 1994.  The remaining 
        sections are effective July 1, 1994. 
                                   ARTICLE 2 
                 LIMIT ON INVESTMENT AUTHORITY FOR OTHER PUBLIC
                                     FUNDS
           Section 1.  Minnesota Statutes 1993 Supplement, section 
        69.77, subdivision 2g, is amended to read: 
           Subd. 2g.  [LOCAL POLICE AND PAID FIRE RELIEF ASSOCIATION 
        INVESTMENT AUTHORITY.] The funds of the association must be 
        invested in securities that are authorized investments under 
        section 356A.06, subdivision 6 or 7.  Notwithstanding the 
        foregoing, up to 75 percent of the market value of the assets of 
        the fund may be invested in open-end investment companies 
        registered under the federal Investment Company Act of 1940, if 
        the portfolio investments of the investment companies comply 
        with the type of securities authorized for investment by section 
        11A.24, subdivisions 2 to 5 under section 356A.06, subdivision 
        7.  Securities held by the association before June 2, 1989, that 
        do not meet the requirements of this subdivision may be retained 
        after that date if they were proper investments for the 
        association on that date. 
           The governing board of the association may select and 
        appoint investment agencies to act for and in its behalf or may 
        certify special fund assets for investment by the state board of 
        investment under section 11A.17.  The governing board of the 
        association may certify general fund assets of the relief 
        association for investment by the state board of investment in 
        fixed income pools or in a separately managed account at the 
        discretion of the state board of investment as provided in 
        section 11A.14.  The governing board of the association may 
        select and appoint a qualified private firm to measure 
        management performance and return on investment, and the firm 
        shall use the formula or formulas developed by the state board 
        under section 11A.04, clause (11). 
           Sec. 2.  Minnesota Statutes 1993 Supplement, section 
        69.775, is amended to read: 
           69.775 [INVESTMENTS.] 
           The special fund assets of the relief associations governed 
        by sections 69.771 to 69.776 must be invested in securities that 
        are authorized investments under section 356A.06, subdivision 6 
        or 7.  Notwithstanding the foregoing, up to 75 percent of the 
        market value of the assets of the fund may be invested in 
        open-end investment companies registered under the federal 
        Investment Company Act of 1940, if the portfolio investments of 
        the investment companies comply with the type of securities 
        authorized for investment by section 11A.24, subdivisions 2 to 5 
        under section 356A.06, subdivision 7.  Securities held by the 
        associations before June 2, 1989, that do not meet the 
        requirements of this section may be retained after that date if 
        they were proper investments for the association on that date.  
        The governing board of the association may select and appoint 
        investment agencies to act for and in its behalf or may certify 
        special fund assets for investment by the state board of 
        investment under section 11A.17.  The governing board of the 
        association may certify general fund assets of the relief 
        association for investment by the state board of investment in 
        fixed income pools or in a separately managed account at the 
        discretion of the state board of investment as provided in 
        section 11A.14.  The governing board of the association may 
        select and appoint a qualified private firm to measure 
        management performance and return on investment, and the firm 
        shall use the formula or formulas developed by the state board 
        under section 11A.04, clause (11). 
           Sec. 3.  Minnesota Statutes 1992, section 356A.06, 
        subdivision 7, is amended to read: 
           Subd. 7.  [EXPANDED LIST OF AUTHORIZED INVESTMENT 
        SECURITIES.] (a) [AUTHORITY.] Except to the extent otherwise 
        authorized by law or bylaws, a covered pension plan not 
        described by subdivision 6, paragraph (a), may invest its assets 
        only in accordance with section 11A.24 this subdivision. 
           (b) [SECURITIES GENERALLY.] The covered pension plan has 
        the authority to purchase, sell, lend, or exchange the 
        securities specified in paragraphs (c) to (g), including puts 
        and call options and future contracts traded on a contract 
        market regulated by a governmental agency or by a financial 
        institution regulated by a governmental agency.  These 
        securities may be owned as units in commingled trusts that own 
        the securities described in paragraphs (c) to (g).  
           (c) [GOVERNMENT OBLIGATIONS.] The covered pension plan may 
        invest funds in governmental bonds, notes, bills, mortgages, and 
        other evidences of indebtedness provided the issue is backed by 
        the full faith and credit of the issuer or the issue is rated 
        among the top four quality rating categories by a nationally 
        recognized rating agency.  The obligations in which funds may be 
        invested under this paragraph include guaranteed or insured 
        issues of (1) the United States, its agencies, its 
        instrumentalities, or organizations created and regulated by an 
        act of Congress; (2) Canada and its provinces, provided the 
        principal and interest is payable in United States dollars; (3) 
        the states and their municipalities, political subdivisions, 
        agencies or instrumentalities; (4) the International Bank for 
        Reconstruction and Development, the Inter-American Development 
        Bank, the Asian Development Bank, the African Development Bank, 
        or any other United States Government sponsored organization of 
        which the United States is a member, provided the principal and 
        interest is payable in United States dollars. 
           (d) [CORPORATE OBLIGATIONS.] The covered pension plan may 
        invest funds in bonds, notes, debentures, transportation 
        equipment obligations, or any other longer term evidences of 
        indebtedness issued or guaranteed by a corporation organized 
        under the laws of the United States or any state thereof, or the 
        Dominion of Canada or any province thereof if they conform to 
        the following provisions: 
           (1) the principal and interest of obligations of 
        corporations incorporated or organized under the laws of the 
        Dominion of Canada or any province thereof must be payable in 
        United States dollars; and 
           (2) obligations must be rated among the top four quality 
        categories by a nationally recognized rating agency. 
           (e) [OTHER OBLIGATIONS.] (1) The covered pension plan may 
        invest funds in bankers acceptances, certificates of deposit, 
        deposit notes, commercial paper, mortgage participation 
        certificates and pools, repurchase agreements and reverse 
        repurchase agreements, guaranteed investment contracts, savings 
        accounts, and guaranty fund certificates, surplus notes, or 
        debentures of domestic mutual insurance companies if they 
        conform to the following provisions: 
           (i) bankers acceptances and deposit notes of United States 
        banks are limited to those issued by banks rated in the highest 
        four quality categories by a nationally recognized rating 
        agency; 
           (ii) certificates of deposit are limited to those issued by 
        (A) United States banks and savings institutions that are rated 
        in the highest four quality categories by a nationally 
        recognized rating agency or whose certificates of deposit are 
        fully insured by federal agencies; or (B) credit unions in 
        amounts up to the limit of insurance coverage provided by the 
        National Credit Union Administration; 
           (iii) commercial paper is limited to those issued by United 
        States corporations or their Canadian subsidiaries and rated in 
        the highest two quality categories by a nationally recognized 
        rating agency; 
           (iv) mortgage participation or pass through certificates 
        evidencing interests in pools of first mortgages or trust deeds 
        on improved real estate located in the United States where the 
        loan to value ratio for each loan as calculated in accordance 
        with section 61A.28, subdivision 3, does not exceed 80 percent 
        for fully amortizable residential properties and in all other 
        respects meets the requirements of section 61A.28, subdivision 
        3; 
           (v) collateral for repurchase agreements and reverse 
        repurchase agreements is limited to letters of credit and 
        securities authorized in this section; 
           (vi) guaranteed investment contracts are limited to those 
        issued by insurance companies or banks rated in the top four 
        quality categories by a nationally recognized rating agency or 
        to alternative guaranteed investment contracts where the 
        underlying assets comply with the requirements of this 
        subdivision; and 
           (vii) savings accounts are limited to those fully insured 
        by federal agencies. 
           (2) Sections 16A.58 and 16B.06 do not apply to certificates 
        of deposit and collateralization agreements executed by the 
        covered pension plan under clause (1), item (ii). 
           (3) In addition to investments authorized by clause (1), 
        item (iv), the covered pension plan may purchase from the 
        Minnesota housing finance agency all or any part of a pool of 
        residential mortgages, not in default, that has previously been 
        financed by the issuance of bonds or notes of the agency.  The 
        covered pension plan may also enter into a commitment with the 
        agency, at the time of any issue of bonds or notes, to purchase 
        at a specified future date, not exceeding 12 years from the date 
        of the issue, the amount of mortgage loans then outstanding and 
        not in default that have been made or purchased from the 
        proceeds of the bonds or notes.  The covered pension plan may 
        charge reasonable fees for any such commitment and may agree to 
        purchase the mortgage loans at a price sufficient to produce a 
        yield to the covered pension plan comparable, in its judgment, 
        to the yield available on similar mortgage loans at the date of 
        the bonds or notes.  The covered pension plan may also enter 
        into agreements with the agency for the investment of any 
        portion of the funds of the agency.  The agreement must cover 
        the period of the investment, withdrawal privileges, and any 
        guaranteed rate of return. 
           (f) [CORPORATE STOCKS.] The covered pension plan may invest 
        funds in stocks or convertible issues of any corporation 
        organized under the laws of the United States or the states 
        thereof, the Dominion of Canada or its provinces, or any 
        corporation listed on the New York Stock Exchange or the 
        American Stock Exchange, if they conform to the following 
        provisions: 
           (1) The aggregate value of corporate stock investments, as 
        adjusted for realized profits and losses, must not exceed 85 
        percent of the market or book value, whichever is less, of a 
        fund, less the aggregate value of investments according to 
        subdivision 6; 
           (2) Investments must not exceed five percent of the total 
        outstanding shares of any one corporation. 
           (g) [OTHER INVESTMENTS.] (1) In addition to the investments 
        authorized in paragraphs (b) to (f), and subject to the 
        provisions in clause (2), the covered pension plan may invest 
        funds in:  
           (i) venture capital investment businesses through 
        participation in limited partnerships and corporations; 
           (ii) real estate ownership interests or loans secured by 
        mortgages or deeds of trust through investment in limited 
        partnerships, bank sponsored collective funds, trusts, and 
        insurance company commingled accounts, including separate 
        accounts; 
           (iii) regional and mutual funds through bank sponsored 
        collective funds and open-end investment companies registered 
        under the Federal Investment Company Act of 1940; 
           (iv) resource investments through limited partnerships, 
        private placements and corporations; and 
           (v) international securities. 
           (2) The investments authorized in clause (1) must conform 
        to the following provisions:  
           (i) the aggregate value of all investments made according 
        to clause (1) may not exceed 35 percent of the market value of 
        the fund for which the covered pension plan is investing; 
           (ii) there must be at least four unrelated owners of the 
        investment other than the state board for investments made under 
        clause (1), item (i), (ii), (iii), or (iv); 
           (iii) covered pension plan participation in an investment 
        vehicle is limited to 20 percent thereof for investments made 
        under clause (1), item (i), (ii), (iii), or (iv); and 
           (iv) covered pension plan participation in a limited 
        partnership does not include a general partnership interest or 
        other interest involving general liability.  The covered pension 
        plan may not engage in any activity as a limited partner which 
        creates general liability. 
           Sec. 4.  Minnesota Statutes 1992, section 422A.05, 
        subdivision 2c, is amended to read: 
           Subd. 2c.  [MINNEAPOLIS EMPLOYEES RETIREMENT FUND 
        INVESTMENT AUTHORITY.] (a) For investments made on or after July 
        1, 1991, the board shall invest funds only in investments 
        authorized by section 11A.24 356A.06, subdivision 7.  
           (b) However, in addition to real estate investments 
        authorized by section 11A.24 under paragraph (a), the board may 
        also make loans to purchasers of Minnesota situs nonfarm 
        residential real estate that is owned by the Minneapolis 
        employees retirement fund.  The loans must be secured by 
        mortgages or deeds of trust.  
           (b) (c) For investments made before July 1, 1991, the board 
        may, but is not required to, comply with section 11A.24 
        paragraph (a).  However, with respect to these investments, the 
        board shall act in accordance with subdivision 2a and chapter 
        356A. 
           Sec. 5.  Minnesota Statutes 1993 Supplement, section 
        475.66, subdivision 3, is amended to read: 
           Subd. 3.  Subject to the provisions of any resolutions or 
        other instruments securing obligations payable from a debt 
        service fund, any balance in the fund may be invested 
           (a) in governmental bonds, notes, bills, mortgages, and 
        other securities, which are direct obligations or are guaranteed 
        or insured issues of the United States, its agencies, its 
        instrumentalities, or organizations created by an act of 
        Congress, excluding mortgage-backed securities that are defined 
        as high risk pursuant to subdivision 5, or in certificates of 
        deposit secured by letters of credit issued by federal home loan 
        banks, 
           (b) in shares of an investment company (1) registered under 
        the Federal Investment Company Act of 1940, whose shares are 
        registered under the Federal Securities Act of 1933, and (2) 
        whose only investments are in (i) securities described in the 
        preceding clause, except that the exclusion of mortgage-backed 
        securities defined as high risk pursuant to subdivision 5 do 
        does not apply to shares mortgage-backed securities in the 
        portfolio of an investment company, (ii) general obligation 
        tax-exempt securities rated A or better by a national bond 
        rating service, and (iii) repurchase agreements or reverse 
        repurchase agreements fully collateralized by those securities, 
        if the repurchase agreements or reverse repurchase agreements 
        are entered into only with those primary reporting dealers that 
        report to the Federal Reserve Bank of New York and with the 100 
        largest United States commercial banks, 
           (c) in any security which is (1) a general obligation of 
        the state of Minnesota or any of its municipalities, or (2) a 
        general obligation of another state or local government with 
        taxing powers which is rated A or better by a national bond 
        rating service, or (3) a general obligation of the Minnesota 
        housing finance agency, or (4) a general obligation of a housing 
        finance agency of any state if it includes a moral obligation of 
        the state, or (5) a general or revenue obligation of any agency 
        or authority of the state of Minnesota other than a general 
        obligation of the Minnesota housing finance agency.  Investments 
        under clauses (3) and (4) must be in obligations that are rated 
        A or better by a national bond rating service and investments 
        under clause (5) must be in obligations that are rated AA or 
        better by a national bond rating service, 
           (d) in bankers acceptances of United States banks eligible 
        for purchase by the Federal Reserve System, 
           (e) in commercial paper issued by United States 
        corporations or their Canadian subsidiaries that is of the 
        highest quality and matures in 270 days or less, or 
           (f) in guaranteed investment contracts issued or guaranteed 
        by United States commercial banks or domestic branches of 
        foreign banks or United States insurance companies or their 
        Canadian or United States subsidiaries; provided that the 
        investment contracts rank on a parity with the senior unsecured 
        debt obligations of the issuer or guarantor and, (1) in the case 
        of long-term investment contracts, either (i) the long-term 
        senior unsecured debt of the issuer or guarantor is rated, or 
        obligations backed by letters of credit of the issuer or 
        guarantor if forming the primary basis of a rating of such 
        obligations would be rated, in the highest or next highest 
        rating category of Standard & Poor's Corporation, Moody's 
        Investors Service, Inc., or a similar nationally recognized 
        rating agency, or (ii) if the issuer is a bank with headquarters 
        in Minnesota, the long-term senior unsecured debt of the issuer 
        is rated, or obligations backed by letters of credit of the 
        issuer if forming the primary basis of a rating of such 
        obligations would be rated in one of the three highest rating 
        categories of Standard & Poor's Corporation, Moody's Investors 
        Service, Inc., or similar nationally recognized rating agency, 
        or (2) in the case of short-term investment contracts, the 
        short-term unsecured debt of the issuer or guarantor is rated, 
        or obligations backed by letters of credit of the issuer or 
        guarantor if forming the primary basis of a rating of such 
        obligations would be rated, in the highest two rating categories 
        of Standard and Poor's Corporation, Moody's Investors Service, 
        Inc., or similar nationally recognized rating agency.  
           The fund may also be used to purchase any obligation, 
        whether general or special, of an issue which is payable from 
        the fund, at such price, which may include a premium, as shall 
        be agreed to by the holder, or may be used to redeem any 
        obligation of such an issue prior to maturity in accordance with 
        its terms.  The securities representing any such investment may 
        be sold or hypothecated by the municipality at any time, but the 
        money so received remains a part of the fund until used for the 
        purpose for which the fund was created. 
           Sec. 6.  [EFFECTIVE DATE.] 
           Sections 1 to 5 are effective July 1, 1994. 
           Presented to the governor May 5, 1994 
           Signed by the governor May 6, 1994, 4:47 p.m.