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                                T H E   C A B I N E T

                          S T A T E   O F    F L O R I D A



                               STATE BOARD OF TRUSTEES
                            STATE BOARD OF ADMINISTRATION

                         The above agencies came to be heard before
               THE FLORIDA CABINET, Honorable Governor Bush presiding,
               in the Cabinet Meeting Room, LL-03, The Capitol,
               Tallahassee, Florida, on Tuesday, February 11, 2003
               commencing at approximately 9:10 a.m.

                                    Reported by:

                                  SANDRA L. NARGIZ

                          Registered Professional Reporter
                              Registered Merit Reporter
                             Certified Realtime Reporter

                         ACCURATE STENOTYPE REPORTERS, INC.
                                   100 SALEM COURT
                       TALLAHASSEE, FL  32301   (850)878-2221



                         Representing the Florida Cabinet:

                         JEB BUSH

                         CHARLES H. BRONSON
                         Commissioner of Agriculture

                         CHARLIE CRIST
                         Attorney General

                         TOM GALLAGHER
                         Chief Financial Officer

                                       * * *


                                      I N D E X

               ITEM                  ACTION                 PAGE

               (Presented by David Struhs)

               ITEM      ACTION                               PAGE

               1        Approved                                 4
               2        Approved                                24
               3        Approved/Deferred                       28

               (Presented by Coleman Stipanovich)

               ITEM  ACTION                                   PAGE

               1        Approved                                30
               2        Approved                                30
               3        Approved                                55
               4        Withdrawn                               55
               5        Approved                                57

               CERTIFICATE OF REPORTER                           58

           1                    P R O C E E D I N G S

           2             (The agenda items commenced at 9:10 a.m.)

           3             GOVERNOR BUSH:  Next Cabinet meeting will be

           4        Tuesday, February 25, 2003.

           5             Board of Trustees.  Unless this item is

           6        going to take six hours, I think we are going

           7        to be finished before we were two weeks ago.

           8             TREASURER GALLAGHER:  Motion on the minutes.

           9             COMMISSIONER BRONSON:  Second.

          10             GOVERNOR BUSH:  There is a motion and a

          11        second on the minutes.  The item passes without

          12        objection.

          13             Item 2.

          14             MR. STRUHS:  Item 2, receiving authorization

          15        to enter into an acquisition agreement with the

          16        St. Johns River Water Management District, and

          17        then to seek your authorization to acquire a

          18        75 percent undivided interest in the northeast

          19        Florida Blueway project for timberland.

          20             Finally, then to designate the Division of

          21        Forestry and DEP's Division of Recreation and

          22        Parks to co-manage that portion of the

          23        property.

          24             This property is a rare find on the east

          25        coast of these United States.  If acquired, you

           1        will protect 5 miles of shoreline on the

           2        Mantanzas River; it would be a substantial

           3        increase to the Faver-Dykes State Park, better

           4        protect the Guana-Tolomato-Mantanzas Natural

           5        Estuarine Research Reserve.

           6             It is the site of a variety of threatened

           7        and endangered species, including woodstorks

           8        and some bald eagle nests, protects water

           9        quality for four tributaries into the Mantanzas

          10        River and, in fact, protects water quality in

          11        the only area in St. Johns County that is

          12        consistently opened for shelf fish harvesting.

          13             This property has been on our A List for

          14        acquisition for quite a few years now.  We are

          15        quite proud and pleased to bring it to you.

          16             I would tell you that this property is

          17        currently zoned as agriculture.  And what we

          18        did is we looked at it and realized that even

          19        with that agriculture zoning, it allows up to

          20        one unit per 10 acres, and it would be -- a

          21        developer could cluster that development, so we

          22        would potentially allow about 1700 homes in an

          23        area that is, as you know, very fast growing in

          24        northeast Florida.

          25             GOVERNOR BUSH:  Hang on a second.  If we can

           1        stop here just for clarification.

           2             Is there someone from the county that

           3        might know more about their development process

           4        where I can save my questions?

           5             MR. STRUHS:  We have a local real estate

           6        broker from the area.  I don't know if we have

           7        anyone --

           8             GOVERNOR BUSH:  I want to question the

           9        clustering idea.  If ag land is one per 10 acres,

          10        it doesn't automatically presume that someone can

          11        go to the county and seek a -- it would have to be

          12        a DRI, I assume, that would cluster 1700 units;

          13        doesn't necessarily translate that one would lead

          14        to the other.  You have to get approval and the

          15        county has the power to disapprove that, I

          16        believe.

          17             MR. STRUHS:  For the clustering?

          18             GOVERNOR BUSH:  Yes, if it so desires, it

          19        doesn't have to approve that development order

          20        just because it's ag land.

          21             MR. STRUHS:  Okay.

          22             GOVERNOR BUSH:  You made a statement as

          23        though it was fact.  I am not sure it's fact, is

          24        my point.

          25             MR. CLEM:  Governor Bush, my name is Scott

           1        Clem, and I am the director of Growth Management

           2        for St. Johns County.

           3             GOVERNOR BUSH:  Welcome. Thank you.  Glad you

           4        are here.

           5             MR. CLEM:  To specifically answer your

           6        question, the comprehensive plan of St. Johns

           7        County does allow, by right -- I do need to

           8        correct that -- it's one unit per 5 acres for this

           9        property.  They do need to come in for a rezoning

          10        process, but the comprehensive plan itself allows

          11        that density on this property.

          12             GOVERNOR BUSH:  That's different than what I

          13        asked.  You could create 5-acre ranchettes, I

          14        guess, subject to building infrastructure that you

          15        would require, right?

          16             MR. CLEM:  Yes, although it really encourages

          17        clustering.  In this case, the process actually

          18        encourages clustering in lower density than the

          19        one unit per 5 acres.

          20             GOVERNOR BUSH:  Then I was accurate.

          21             MR. CLEM:  It makes sense.

          22             GOVERNOR BUSH:  I would think that people

          23        would go seek development rights, but it is not a

          24        foregone conclusion that whatever the ag land

          25        generates in terms of units on that property, that

           1        it would translate directly into that number of

           2        units in a plan that they would go seek approval

           3        from the county.

           4             The county would have the ability to say

           5        whether there was offsite mitigation, there is

           6        this, there is that, there is trade offs; it

           7        doesn't automatically -- the Secretary assumed

           8        that there was 1700 units, or whatever the

           9        number was that he said, that he made it appear

          10        like it was a foregone conclusion that those

          11        rights were inherent in this property.

          12             And my point is that no, one has to seek

          13        the -- go through the entire, some would say

          14        fairly cumbersome process on a property this

          15        size in getting the development rights from the

          16        county.

          17             MR. CLEM:  That's correct, yes, sir.

          18             GOVERNOR BUSH:  Thank you.

          19             We have happened to run across another,

          20        yet another property where there is an

          21        assumption of something and valuations I

          22        think -- let's go through it.  This will be

          23        fun.

          24             MR. STRUHS:  I think, Governor, Cabinet, one

          25        of the things we wanted to try to emphasize was

           1        that in looking at this property, it is likely

           2        that a developer, if they were to acquire the

           3        property, would likely seek over time to have

           4        higher levels density on the property; clearly not

           5        a foregone conclusion and indeed maybe never

           6        attainable.

           7             And yet, it's fair to say I think that the

           8        market pressures would be such that private

           9        interests would look to -- go through a DRI

          10        process and change the zoning and increase the

          11        development.

          12             What I wanted to try to emphasize to you

          13        today was that we purposefully did not allow

          14        that to affect our review of the property and

          15        looked only at its current existing zoning.

          16             We did have the good fortune to get one of

          17        the appraisers, one of the two appraisers to

          18        join us here this morning.  His name is Zac

          19        Ryan.  And he would be happy -- in fact, I

          20        would encourage to maybe walk you through the

          21        process by which the appraisal was made.

          22             I would point out --

          23             GOVERNOR BUSH:  Appraisers don't normally

          24        show up at these meetings.  This is good, I like

          25        this.

           1             MR. RYAN:  Good morning, Governor, I am

           2        looking forward to this fun that you talked about.

           3        After we finish with the fun, may I have my

           4        picture, also?

           5             GOVERNOR BUSH:  You bet.

           6             Okay.  David, what are we doing?

           7             MR. STRUHS:  What I would like to do is

           8        introduce Zac Ryan to go first, and then also

           9        identify three other individuals who would like to

          10        speak to this issue; Patrick Hamilton, who is a

          11        local resident and real estate broker; David

          12        Gluckman, from Florida Defenders of Wildlife; and

          13        Eric Draper from Florida Audubon.

          14             GOVERNOR BUSH:  Fantastic. Welcome.

          15             MR. RYAN:  Thank you very much.  Good

          16        morning.

          17             My name is Zac Ryan, I am a real estate

          18        appraiser.  Our firm specializes in large

          19        acreage to the exclusion of all other property

          20        types.  And to that end, we cover an extremely

          21        large geographic area.

          22             I am personally certified in Florida,

          23        Georgia, and South Carolina, temporarily

          24        certified in Texas to go complete a job out

          25        there this week.  This is the type product we

           1        deal with on a routine basis.

           2             Last year I did a very similar track north

           3        of Charleston, South of Myrtle Beach, an

           4        8,000-acre track that has five and a half miles

           5        of frontage on the intracoastal and a half mile

           6        of frontage on the Atlantic Ocean.

           7             When we came up to this property, we

           8        recognized immediately that it is a regional

           9        property and even a national property; it would

          10        trade on that basis, and would by no means be

          11        restricted to participants and players in the

          12        local market.

          13             So we approached the assignment from that

          14        standpoint and researched sales data not only

          15        locally but also up and down the east coast.

          16             GOVERNOR BUSH:  That's it?

          17             MR. RYAN:  I didn't know if you had any

          18        questions.

          19             GOVERNOR BUSH:  Yes, I am interested in the

          20        valuation.  The challenge we face is that this

          21        is -- I probably shouldn't speak for my fellow

          22        Cabinet members, but this is a beautiful piece of

          23        property that fits perfectly into a well,

          24        thought-out strategy for the state, in partnership

          25        with our local partner in this case to protect

           1        this ecosystem.  I don't think anybody has any

           2        disagreement about that.

           3             Where the disagreement comes in is this

           4        notion of prospective value which is created by

           5        local government, and in some cases by our own

           6        government, that raises the price for us to

           7        pay; which if you've seen -- I am sure you are

           8        rivetted at your computer the times when this

           9        is shown on video, and you have seen my tirades

          10        about this, so I am interested, not so much in

          11        what happened in South Carolina because I don't

          12        understand their development process; that's

          13        not particularly relevant here.  I am

          14        interested in the price and how you come up

          15        with -- how you came up with your valuation.

          16             Because just to kind of set the table,

          17        Secretary Struhs and others will come, and they

          18        will -- they won't brag, but they will come and

          19        typically say with pride this is X percent

          20        lower than a hundred percent of the appraised

          21        value when we purchase it.  And my thought is,

          22        that's great, all you do is if you jack up the

          23        price, you can always have something lower than

          24        a hundred percent.

          25             So at General Crist's suggestion, we are

           1        going to have a seminar of some kind or a

           2        conference where we discuss this in the broader

           3        aspect and we would love to have you come back

           4        for that as well if you could.

           5             Tell me how you got to the valuation.

           6             MR. RYAN:  We did not estimate a prospective

           7        value.  In our opinion, we are 100 percent

           8        convinced that we estimated the value of the

           9        property as it sits today.

          10             I broke my sales down into two different

          11        categories.  First category was sales which

          12        took place in the immediate local market.

          13             Second category, secondary sales, took

          14        place up and down the east coast.  The primary

          15        set of data that we focused on were for sales

          16        all in St. Johns County; two of those sales

          17        transferred under the exact same conditions as

          18        this property with ag zoning in place, no,

          19        enhanced zoning whatsoever.

          20             GOVERNOR BUSH:  Who were the purchasers?

          21             MR. RYAN:  They were private sector purchases

          22        who purchased them for mid to long-term hold.  One

          23        person in the confirmation process, it was learned

          24        they anticipated holding their tract for 20 years,

          25        15 to 20 years, and they were in the mid

           1        3,000-dollar range that they paid for their

           2        property.

           3             It was an inferior track to this property;

           4        it did not have the waterfront component.

           5             The second sale which transferred under

           6        the same set of conditions, ago zoning, no

           7        enhanced land use whatsoever, sold for $3,800

           8        an acre; and again, sold for mid term hold,

           9        speculative investment; they are manicuring and

          10        managing the tract.

          11             In fact, I have a second company, we are

          12        managing the timber for them on that property,

          13        and we are harvesting timber right now for the

          14        sole purpose of managing the tract for

          15        recreational purposes.

          16             The timber harvest that's taking place is

          17        at a break even point.  They are not making any

          18        funds off the timber.  Their intent in

          19        purchasing that property was purely for

          20        immediate recreation and mid term speculative

          21        investment.

          22             They paid $3,800 an acre for that tract;

          23        again, a inferior property, does not have the

          24        waterfront component that this tract has.

          25             The second two sales in our primary

           1        valuation consisted of properties which did

           2        have enhanced land use in place, purchased for

           3        immediate development.  Both of those we

           4        considered superior to our subject property.  I

           5        think the lowest sale was in the 7,000-dollar

           6        range; if my memory serves me correctly the

           7        next one is around $10,000 an acre.

           8             GOVERNOR BUSH:  How small or large?

           9             MR. RYAN:  These properties were in the, I

          10        think the 1500 to 3,000-acre range; somewhat

          11        smaller, but we -- in our large acreage market

          12        size, we still talk about the larger the tract,

          13        sometimes that diminishes the price per acre.  But

          14        size is getting to be a very rare commodity and in

          15        some instances it's bringing up premium because of

          16        enhanced flexibility.

          17             GOVERNOR BUSH:  So you did not place any

          18        prospective value on a potential DRI in the

          19        valuation of this, even though it states that in

          20        this information we have?

          21             MR. RYAN:  We stated throughout our report

          22        that it is our opinion ultimately the tract would

          23        go for a DRI.  But no, we did not place emphasis

          24        on that prospective value.

          25             We appraised it as-is, as it sits today.

           1        It is raw acreage that is there available to

           2        the regional and national market.  The end use

           3        would be as varied as the imagination and ego

           4        of the investors that step up to it.

           5             GOVERNOR BUSH:  And in the imagination and

           6        ego of the county, too.  This is not -- you don't

           7        just assume, just because someone buys it and they

           8        have an imagination, that they are going to secure

           9        development rights.  It may be that the

          10        requirements of St. Johns County are such that, in

          11        terms of the mitigation for the impacts on

          12        property like this, that it makes it

          13        extraordinarily expensive, and so their

          14        imagination needs to be curtailed.

          15             MR. RYAN:  Yes, sir, and I did not mean to

          16        suggest that I was assuming that.

          17             Many of those exact same assumptions exist

          18        in the comparable sales that I used.  Those

          19        people are purchasing these properties,

          20        assuming they can do something in the future.

          21        And it is -- I have to reflect -- I am here

          22        today to tell you what my honest opinion of

          23        what I think that property will trade for.  And

          24        I have to reflect on their assumptions as well.

          25             GOVERNOR BUSH:  I am not disagreeing with

           1        your, if you are looking at this on a market

           2        basis, that you factor what the actual prices

           3        were.  And I appreciate the fact that you are

           4        saying that the purchasers of the comparables all

           5        based this -- base their purchase on some in the

           6        future development of the property.

           7             But what I was told was that you were

           8        including that there was some factor for DRI

           9        inherent in your appraisal and you are saying

          10        that's not case?

          11             MR. RYAN:  Right.  We did a secondary

          12        analysis at the end of our report where we said if

          13        it were to achieve a DRI, it would probably trade

          14        in this range; it would be more similar to the

          15        second comparables, that would take a two to three

          16        year process at a minimum and it would cost a

          17        million and a half dollars.

          18             We just did a check of -- a calculation

          19        for a check of reasonableness at the end where

          20        we said a what-if scenario:  What if it did go

          21        to DRI?

          22             But our primary emphasis was on an as-is

          23        basis, as it sits today.

          24             GOVERNOR BUSH:  Primary or complete?

          25             MR. RYAN:  Our complete.  I am sorry.

           1             GOVERNOR BUSH:  Thank you.

           2             So there was no middle ground between a

           3        prospective value created by a DRI and an as-is

           4        property purchase?

           5             MR. RYAN:  I am not exactly sure how to

           6        answer that.

           7             I am a hundred percent convinced that my

           8        number that I picked today is an as-is number.

           9        So I guess I would have to say no.

          10             GOVERNOR BUSH:  Okay.  I don't have any

          11        concerns then.  I was misinformed.

          12             MR. RYAN:  Thank you.  I look forward to the

          13        opportunity to come back.

          14             GOVERNOR BUSH:  When you come, help us

          15        understand why it is in a fast-growing place,

          16        where there is rising property values, that people

          17        come -- this may not be one of these cases, but

          18        many cases we are the sole buyer and we are

          19        competing with ourselves, jacking up the prices,

          20        when there is an underlying assumption that the

          21        option is for a development that is never going to

          22        take place.  That's the part I've got a problem

          23        with.  You have convinced me in this case.

          24             MR. RYAN:  I would like to give you some

          25        degree of comfort that if you miss this one, it

           1        will have roof tops next year or in a very short

           2        period of time.  I don't think you are competing

           3        with yourself at all in this instance.

           4             GOVERNOR BUSH:  I appreciate you coming up.

           5             TREASURER GALLAGHER:  Motion on 2.

           6             MR. STRUHS:  There are a number of speakers

           7        if you wish to hear from them.

           8             GOVERNOR BUSH:  Sure.

           9             MR. STRUHS:  There were a couple of additions

          10        that apparently didn't get on my list early this

          11        morning, I apologize for that.  We have got Roger

          12        VanGlent and Scott Clem, both from St. John

          13        County, and Patrick Hamilton, David Gluckman and

          14        Eric Draper.

          15             If we can keep the comments very brief,

          16        please.

          17             GOVERNOR BUSH:  Who is first?  Good morning,

          18        Eric.

          19             MR. DRAPER:  Good morning, Governor, Members

          20        of the Cabinet, I am Eric Draper, Audubon,

          21        Florida.

          22             We think this is a very important

          23        purchase.  Our chapter helped nominate this

          24        project to the Florida Forever list.  It's a

          25        wonderful partnership between the state and the

           1        Water Management District to bring it ahead.

           2        And we encourage your approval of it.  Thank

           3        you.

           4             GOVERNOR BUSH:  Thank you, Eric.

           5             MR. GLUCKMAN:  Governor and Members of the

           6        Cabinet, my name is David Gluckman, and I am here

           7        on behalf of the Florida Wildlife Federation.

           8             We also strongly support this project, and

           9        Governor, at some point we need a good dialogue

          10        with you on the appraisal process.  We have

          11        been involved on this since the very beginning

          12        and it's a very difficult thing to deal with.

          13             And I understand your concerns, but there

          14        are a number of others who have gone through

          15        this.

          16             If you get a chance, talk to former

          17        Representative Herb Morgan, talk to him about

          18        the issue.  He was the one that started it back

          19        in 1978 or '79 when we first started.  And he's

          20        got some very interesting insights and I think

          21        sitting down maybe with some of the people from

          22        the department may help you a little bit

          23        because it's a very different process when you

          24        have to do appraisals from inside and a

          25        relatively risk-averse process where the state

           1        has its own requirements versus the private

           2        sector.

           3             And it creates a dynamic that's very

           4        interesting.  We are pleased that you are

           5        looking at it because it is obviously an

           6        extremely important issue for all of us because

           7        we want the most property we can get for our

           8        bucks.

           9             We appreciate your activity in that area.

          10        We certainly would like to talk to you about it

          11        if we get a chance.

          12             GOVERNOR BUSH:  I am looking forward to it.

          13        This is really important, because as we mature, as

          14        we evolve in our land purchasing, we are maturing

          15        towards properties like this that but for the

          16        state, the potential development is there; so the

          17        prices go up.

          18             And I want to make sure -- we are going to

          19        run out of dough, when we can't buy hundred

          20        thousand acres anymore $800 an acre or whatever

          21        it was when Preservation 2000 started and its

          22        predecessors.  So this is important.  And I am

          23        more than happy -- I look forward to the

          24        dialogue in our, whenever we are going to have

          25        our -- is it set up?

           1             GENERAL CRIST:  Yes, it's set up.

           2             GOVERNOR BUSH:  Hope you all will

           3        participate.

           4             MR. STRUHS:  March 6.

           5             MR. VANGLENT:  My name is Roger VanGlent. I

           6        live close to this property, just north of it.  I

           7        am chairman of the Land Acquisition Management

           8        Program, citizens committee established by the

           9        county, and president of the local Audubon

          10        Chapter.

          11             As I drive down U.S. 1 between St.

          12        Augustine and Palm Coast, in the southern part

          13        of St. Johns County, in the early morning I see

          14        a magnificent flock of over 100 woodstorks

          15        flying west to the freshwater wetlands in the

          16        center of St. Johns.

          17             In the early evening I see the same flock

          18        of these wonderful but threatened birds flying

          19        east to their roost in the woods along

          20        Mantanzas marshes in this property.

          21             We have a chance today of preserving this

          22        daily event for many, many years to come.  The

          23        citizens of southeast St. Johns County in their

          24        20/20 vision support this acquisition.  It is

          25        the result of years of work and the development

           1        of a comprehensive plan that identified the

           2        need for conservation and preservation in the

           3        county, a plan produced by our planning

           4        department -- Mr. Clem was in charge, is in

           5        charge of it; it is the result of the

           6        establishment by a citizens group of our Land

           7        Acquisition Management Program which encouraged

           8        and supported the Mantanzas Blueway, which you

           9        approved two years ago.

          10             And it is the result of hard work by a

          11        water management district in identifying

          12        critical water conservation recharge needs, in

          13        keeping our waters clean.  And it is the result

          14        of the Rayonier Company's commitment to keeping

          15        preservation a significant goal in their land

          16        management operations.

          17             In sum, it is a winning partnership

          18        between and among citizens, government, and

          19        industry.  We at Audubon thank you for

          20        supporting this acquisition.

          21             GOVERNOR BUSH:  Thank you, sir.  Thanks for

          22        coming.

          23             MR. STRUHS:  Were there other speakers?  I

          24        think the other speakers will pass.

          25             I just wanted to add one other point on

           1        this property that I should have mentioned up

           2        front.

           3             As we reviewed it, one of the things I

           4        found important to recognize was that while it

           5        is a waterfront property and there is a lot of

           6        marsh and cypress gums on this property, that,

           7        in fact, 78 percent of it is upland.  So we are

           8        not just buying wetland.  It's much, largely

           9        high and dry.

          10             GOVERNOR BUSH:  There is a motion and a

          11        second.  Any other discussion?  The item passes

          12        without objection.

          13             Thank you all very much.

          14             TREASURER GALLAGHER:  Who made the second?

          15             GOVERNOR BUSH:  He seconded it.

          16             COMMISSIONER BRONSON:  Yes.

          17             TREASURER GALLAGHER:  Good job.

          18             MR. STRUHS:  Item 3 is a waiver of eminent

          19        domain policy and eminent domain authorization for

          20        the Southern Golden Gate Estates properties.

          21             This is an issue that, as you remember, we

          22        discussed two weeks ago.  It breaks down into

          23        basically five different segments.

          24             What I would like to do is give you a

          25        little update and a recommendation as to how we

           1        might proceed.

           2             It breaks into the parcels that are owned

           3        by the Miccosukee Tribe, Mr. Miller's

           4        homestead, Mr. Hardy's homestead, eight vacant

           5        lots and roads and easements, all within the

           6        Southern Golden Gate Estates project.

           7             We have been working on this, as you might

           8        suspect, over the last two weeks since the last

           9        Cabinet meeting.  We are hopeful, given those

          10        discussions, that we may still find

          11        accommodations that will work for Mr. Hardy and

          12        Mr. Miller as well as potential ability to

          13        negotiate a mutual beneficial arrangement with

          14        the Miccosukee Tribe.

          15             Given that, what I would recommend is that

          16        we would defer the Miccosukee parcels,

          17        Mr. Miller's homestead and Mr. Hardy's

          18        homestead for two weeks, allowing us to

          19        continue those discussions which seem to be

          20        fruitful; and then to get your permission today

          21        to proceed with this agenda item for the eight

          22        vacant lots as well as the roads and easements.

          23             I can anticipate what your question might

          24        be on roads and easements, which is why I begin

          25        that process, if in fact we haven't yet secured

           1        all the parcels.

           2             But what I would tell you is that the

           3        lawyers advise us that this is going to be a

           4        long, time-consuming effort, and that we are

           5        better off at least beginning the process and

           6        reviewing the roads and easements now so that

           7        we are prepared in the event we are successful

           8        in acquiring these remaining parcels.

           9             So with that background, I would recommend

          10        approval of substitute item 3 with those

          11        amendments.

          12             TREASURER GALLAGHER:  Governor, I move item

          13        3, with deferring of the three mentioned by

          14        Secretary Struhs, which is Mr. Hardy's property,

          15        Mr. Miller's and Miccosukee Tribe, and defer those

          16        until March 13, and the others today.

          17             GENERAL CRIST:  Second.

          18             GOVERNOR BUSH:  Motion and a second.

          19             MR. STRUHS:  There were some speakers on

          20        this.  Does anybody wish to speak still?

          21             GOVERNOR BUSH:  Commissioner Bronson.

          22             COMMISSIONER BRONSON:  I heard David say two

          23        weeks, and we were concerned, would they have

          24        enough time; with the 13th, that gives you pretty

          25        much a month, that ought to be enough time

           1        hopefully.  So I will second the motion.

           2             GOVERNOR BUSH:  You will third it.

           3             Secretary Struhs, are we absolutely

           4        certain that we need to have this property in

           5        order for the Feds to authorize this project?

           6        Do we have to have fee simple title to the

           7        property before an authorization can take

           8        place?

           9             MR. STRUHS:  I am as sure about that as I am

          10        about anything regarding the Everglades.  We

          11        discussed it with the Army Corps of Engineers.

          12        There are -- not only is it customary; in fact, I

          13        think it's actually in the federal rules that all

          14        these property owners be treated consistently; but

          15        from a purely engineering point of view, the

          16        necessity of having all those parcels in fee

          17        simple ownership appears to be critical.

          18             GOVERNOR BUSH:  For the project itself,

          19        that's for the implementation, right, of the

          20        project?  But what about --

          21             MR. STRUHS:  To authorize the project?

          22             GOVERNOR BUSH:  Yes.

          23             MR. STRUHS:  Of course, Congress can do

          24        anything they want.  So I can't say for certain

          25        that Congress would not authorize this project if

           1        there was one or two remaining parcels unacquired.

           2             I think the reality is that our chances

           3        for that federal authorization increase

           4        dramatically if, in fact, we can state a

           5        hundred percent acquisition.

           6             And the point is we have come so far and

           7        we are so close, it would be unfortunate to

           8        have just a few remaining parcels stand in the

           9        way in from what will be a critical part of

          10        water supply, flood control and environmental

          11        restoration.

          12             We are, as I said, hopeful that the

          13        discussions the last two weeks which have been

          14        positive will continue for another two weeks

          15        and we'll be able to come back to you with

          16        solutions that will be respectful of

          17        Mr. Hardy's, Mr. Miller's, as well as the

          18        Miccosukee Tribe's unique situation.

          19             GOVERNOR BUSH:  Very good.  There is a motion

          20        to defer the two homestead properties and the

          21        Miccosukee lands until March 13 and approve the

          22        use of the eminent domain for the rights of way on

          23        the eight unimproved properties.  There is a

          24        motion and second.  Any other discussion?

          25             Without objection, the item passes -- is

           1        deferred, excuse me, until March 13.

           2             MR. STRUHS:  Passes and deferred.

           3             GOVERNOR BUSH:  I am getting old; 50.

           4             TREASURER GALLAGHER:  Comes quick, doesn't

           5        it?





















           1             GOVERNOR BUSH:  State Board of

           2        Administration.

           3             TREASURER GALLAGHER:  Motion on the minutes.

           4             COMMISSIONER BRONSON:  Second.

           5             GOVERNOR BUSH:  Moved and seconded.  Without

           6        objection, the item is approved.

           7             Item 2.  Is there a State Board of

           8        Administration?

           9             GOVERNOR BUSH:  Item 2.

          10             MR. STAPANOVICH:  Item 2 is a fiscal

          11        sufficiency, approval of fiscal determination of

          12        an amount not exceeding $12,270,000 tax exempt

          13        Florida Housing Finance Corporation Multifamily

          14        Mortgage Revenue Bonds, 2003 Series.  It's

          15        recommended that this fiscal sufficiency be

          16        approved.

          17             TREASURER GALLAGHER:  Motion.

          18             GENERAL CRIST:  Second.

          19             GOVERNOR BUSH:  Moved and seconded.  Without

          20        objection, the item passes.

          21             Item 3.

          22             MR. STAPANOVICH:  Item 3 is a total fund

          23        investment plan proposed changes.  As you recall,

          24        Governor and Members, it was deferred at the last

          25        meeting, and I was able to get through the process

           1        for the most part and some background information.

           2        And we got to the first recommendation, which was

           3        the investment objective.

           4             So what I would like to do, just briefly,

           5        is take just a minute and revisit, recap the

           6        process.

           7             It was a four-part approach in which we

           8        did asset/liability modeling; the second part

           9        was doing the portfolio modeling across the

          10        efficient frontier and trying to determine the

          11        appropriate asset allocation; and the third

          12        part was review of peer practices; and then the

          13        fourth and final part was looking at the

          14        comparative advantages and disadvantages of the

          15        organization.

          16             Resources employed; we used our general

          17        consultant Ennis Knupp, we also used Callen and

          18        Associates, which is our investment consultant

          19        at the board, as well as staff, of course, and

          20        then it was reviewed by the Investment Advisory

          21        Council and approved with the majority vote.

          22             We also consulted other national

          23        consultants around the country as well, like

          24        Wilshire and Associates and Russell and

          25        Company.

           1             What I would like to do is move you to, if

           2        you would look at your document in your packet

           3        you will see a presentation -- it's actually in

           4        slide form, and I will refer to it as a hard

           5        copy by pages.

           6             If you just pull out slide 29, that cuts

           7        to the chase in terms of what the key

           8        recommendations are.  Then I will talk about

           9        each key recommendation to some extent and then

          10        answer questions.

          11             The first recommendation is to adopt a

          12        4 percent real return objective.  The

          13        discussion at the last meeting was that we were

          14        revising this from 4.3 to 4.0 and the

          15        justification for doing that.

          16             As you recall, we talked somewhat

          17        extensively about capital market assumptions

          18        and that was part of the equation that has

          19        taken us to lower capital market assumptions,

          20        to a lower investment objective.

          21             Secondly, we talked about the actual rate,

          22        because the investment objective is designed to

          23        meet our liability stream looking out 30

          24        years -- in this particular study 15 years.

          25        And because of a number of things on the

           1        liability side, that there is lower inflation;

           2        in the '99 study the estimate was a

           3        3.5 percent; in the 2002 study that was just

           4        completed, I know we are in 2003, it's now

           5        2.5 percent.

           6             There is also lower wage growth, there is

           7        lower employment growth, but there are a number

           8        of factors that the liability stream is not

           9        what it was in 1999.  Therefore, that's another

          10        part of the equation again that allows us to

          11        reduce the investment objective.

          12             And the reason for doing this is then we

          13        don't need to -- we can continue to do a 4.3,

          14        but that's taking on an inordinate amount of

          15        risk to reach an objective that will keep us

          16        fully funded, a hundred percent projected,

          17        looking out over the next 15 years, so by

          18        reducing the investment objective to 4.0, it

          19        helps us as well as reduce our risk in terms of

          20        some volatility.

          21             And that has to do also with the asset

          22        allocation and how we reallocate assets in

          23        terms of reducing the volatility.

          24             The second recommendation, which is

          25        establishing a new global asset class,

           1        essentially that is not a great deal different

           2        than what we are already doing.  We have, of

           3        course, an international equity asset class, we

           4        have a domestic equity asset class.  The only

           5        thing we are doing with the global asset class

           6        is engaging global managers that review the

           7        world economy across all boundaries; they will

           8        not view it in just domestic or international.

           9             If they are looking at a car company, they

          10        are looking at the best valuation for a car

          11        company in the world and it makes no

          12        difference.

          13             There would be -- in the global asset

          14        class, unlike the other asset classes, there

          15        will be some strategic decisions made in which

          16        they might be a little more weighted, literally

          17        several percents more weighted in domestic

          18        equities or international at any point in time.

          19        So it's more of a strategic decision-making

          20        process, it's short term versus all the other

          21        asset classes which are -- excuse me --

          22        tactical, whereas all the other asset classes

          23        are strategic and static and we are very

          24        disciplined to those targets.

          25             The third recommendation is to authorize

           1        the following asset allocation revisions.

           2        Currently we are at 54 percent in domestic

           3        equities, we are at 12 percent international

           4        equities, 25 percent in fixed income, 4 percent

           5        in real estate, 4 percent in alternative

           6        investments and 1 percent in cash.

           7             The recommendation that we are making is

           8        to go from 54 to 48 percent in domestic

           9        equities; essentially that's a 6 percent

          10        reduction, and we would be moving 4 percent of

          11        that 6 percent to the global equities asset

          12        class, which would drive a benchmark that would

          13        be basically weighted 50/50.  Therefore,

          14        2 percent of that 4 would be international and

          15        2 percent would be domestic equities.

          16             The balance of 2 percent would go to

          17        international equities, raising that to a

          18        14 percent exposure.

          19             Fixed income, recommendation would move

          20        from 25 percent to 21 percent, a 4 percent

          21        reduction.  Essentially 3 of that 4 percent is

          22        going to real estate.  And real estate in terms

          23        of an asset class is probably, compared to the

          24        other asset classes, is much like a fixed

          25        income type investment as anything on the --

           1        across the asset classes.

           2             Then the balance of that 4 percent,

           3        1 percent would move to alternative investments

           4        moving that from 4 to 5 percent and cash target

           5        would remain at 1 percent.

           6             The final recommendation is to authorize a

           7        phased-in implementation over one year

           8        beginning in June.  And the reason we would be

           9        doing this is twofold.

          10             One is it would lessen the cost impact in

          11        terms of impact on the markets as you execute

          12        trades, as well as commission cost of trading;

          13        and then it gives us additional time to do our

          14        due diligence and prepare in the international

          15        asset class in terms of bringing in -- because

          16        the international asset class, the global asset

          17        class will roll up into the international asset

          18        class and that will enable them time to do

          19        their manager searches on the global side.

          20             In addition, in real estate, because that

          21        asset class will be going from 4 to 7 percent,

          22        that influx of capital, it will enable them

          23        time to do their due diligence and diversify

          24        their asset class and engage additional

          25        managers.

           1             The last document in your packet is

           2        actually what you are being asked to approve

           3        today, and that is the total fund investment

           4        plan.

           5             The principle recommendations again, which

           6        I've just gone through, are really on page 2,

           7        is the change in the investment objective; then

           8        on page 5 is the asset allocation and global

           9        equities; on page 6 and finally on page 8,

          10        recommendation 4, the implementation.

          11             What you are being asked to approve today,

          12        Governor and Members, is this total fund

          13        investment plan.

          14             TREASURER GALLAGHER:  I have a question.  For

          15        a long time, way before I was ever here the first

          16        time --

          17             GOVERNOR BUSH:  That's a long time.

          18             TREASURER GALLAGHER:  That is a long time.

          19        That's way before you were 50, that's for sure.

          20        In fact, it was before I was 50.

          21             Anyway, your organization has been known

          22        as the SBA for a long, long time and all of a

          23        sudden we are seeing this morphos into FSBA.

          24        Is there some reason for that?

          25             MR. STAPANOVICH:  Well, my investment

           1        communication manager keeps hounding me about this

           2        common theme of the Florida State Board of

           3        Administration as we deal with people out around

           4        the country.  We know in the state, State Board of

           5        Administration, and we are most often referred to

           6        as State Board of Administration.

           7             But as we deal with, as you are aware,

           8        Treasurer, like the Council for Institutional

           9        Investors and stuff, it better qualifies with

          10        the State Board of Administration, that's the

          11        Florida State Board of Administration, just

          12        like we have the California --

          13             TREASURER GALLAGHER:  Whatever your pleasure.

          14        Everybody out there for 50 years has known it as

          15        the SBA and I think you are going to confuse them

          16        more by making it the FSBA.

          17             GOVERNOR BUSH:  This is like, when I went to

          18        the University of Texas, Coleman; we didn't call

          19        it the University of Texas, we called it The

          20        University and everybody knew what we meant.

          21             TREASURER GALLAGHER:  Around the country,

          22        when you are fourth largest, everybody knows what

          23        the SBA is in Florida, especially those people

          24        that want to come invest money for us.

          25             MR. STAPANOVICH:  Then we can incorporate

           1        that change into your approval today, should you

           2        decide to approve this document, and we'll change

           3        Roman Numeral II to read overview as FRS and SBA

           4        rather than FSBA.

           5             GOVERNOR BUSH:  If that's the only problem

           6        you've got with this, then take your victory.

           7             TREASURER GALLAGHER:  It's sort of like UM;

           8        we know it isn't the University of Maine or

           9        Michigan or -- we know what it is and so does

          10        everybody else in the country, especially when we

          11        lose.

          12             MR. STAPANOVICH:  I fully understand.  It

          13        will be SBA moving forward.

          14             TREASURER GALLAGHER:  I don't know about ever

          15        and ever, just as long as I am around, I guess.

          16             GENERAL CRIST:  Coleman, I was curious, does

          17        this plan change, does that affect -- what is it,

          18        $86 billion?

          19             MR. STAPANOVICH:  Roughly, probably today

          20        it's closer to about 82 billion.

          21             GENERAL CRIST:  Just a couple of questions.

          22        When you look at the alternate investments, could

          23        you kind of define what that means?

          24             MR. STAPANOVICH:  Alternate investments, you

          25        will also hear referred to as a private asset

           1        equity class.

           2             The alternative investment asset class is

           3        the highest risk asset class that we have.  And

           4        the purpose of that asset class is to diversify

           5        across the risk reward continuum, and that the

           6        idea is that different asset classes, different

           7        assets move in different directions over

           8        different periods of time.  And believe it or

           9        not, by having a higher risk asset class like

          10        alternative investments, which would have

          11        subasset class investment, investment vehicles

          12        such as leverage buyouts, large leverage

          13        buyouts, middle market leverage buyouts,

          14        venture capital, mezzanine investing, distress

          15        debts, these are more risky investments.

          16             Now keep in mind that the benchmark for

          17        that asset class is also more aggressive

          18        because if you are taking on more risk, you

          19        expect to have a higher reward.

          20             So, for example, on domestic equities, our

          21        benchmark is the Russell 3000 which represents

          22        the broad domestic equity market.  In

          23        alternative investments, it's 600 basis points,

          24        6 percent over in addition to the return in the

          25        Russell 3000.

           1             So it's a more aggressive asset class.

           2        But at the same time, it reduces in the

           3        aggregate, the overall return reduces because

           4        of the co-variances going on, it reduces the

           5        volatility in the total return, even though

           6        it's a more volatile asset class.

           7             But funds our size, if you are looking at

           8        the top 20 funds in the country, you would

           9        find, maybe with the exception of two, they all

          10        have -- actually I think all 20 have

          11        alternative investment classes and only two

          12        that don't have venture capital in their asset

          13        classes.

          14             GENERAL CRIST:  So it's a high risk.

          15             MR. STAPANOVICH:  It is.

          16             GENERAL CRIST:  And we are increasing it.

          17             MR. STAPANOVICH:  By one percentage point,

          18        yes.

          19             GENERAL CRIST:  If I might, Governor.

          20             The fixed income category, we are -- is

          21        that considered high risk?

          22             MR. STAPANOVICH:  No.

          23             GENERAL CRIST:  Put we are reducing it?

          24             MR. STAPANOVICH:  We are.  That's primarily

          25        because we, the consultants primarily feel, and

           1        it's what's happening all over the country, not

           2        only do you see capital market assumptions coming

           3        down, but there is becoming a growing consensus.

           4        And this is aggressive and I will point this out.

           5        From going from 25 percent to 21 percent among our

           6        peers will put us in the bottom quartile in terms

           7        of exposure to fixed income.

           8             GENERAL CRIST:  What does that mean?

           9             MR. STAPANOVICH:  That means that 75 percent,

          10        and probably more, of our peers in the Cost

          11        Effective Measurement Services Universe or the

          12        Tucks Universe or the National Association of

          13        State Investment Officers Universe will put us in

          14        the bottom quartile; 75 of everybody else would

          15        have more fixed income exposure than we do today.

          16             GENERAL CRIST:  They would have more

          17        conservative investments than we do?

          18             MR. STAPANOVICH:  I don't know whether it

          19        would be more conservative investments, to answer

          20        your question specifically; it would be fixed

          21        income exposure.  If they got more exposure say to

          22        alternative investments, overall their investment

          23        strategy could be more aggressive than ours.

          24             But in terms of fixed income exposure,

          25        they certainly would have more fixed income

           1        exposure.

           2             Now that's trending down.  As these

           3        studies come in and more of these states and

           4        corporations do this, you are going to see the

           5        fixed income, I absolutely believe and the

           6        consultants are telling us you are going to see

           7        that trend down.

           8             We are at a 40-year low in fixed income

           9        rates.  You have got the long bond that is

          10        vacillating anywhere between 4 and 5 percent.

          11        It just can only go to zero.

          12             And I remember 198- -- that would have

          13        been 1981, August, September '81, it was like

          14        14 percent.

          15             And so again, I don't think we are going

          16        back there, but we see a lot more downside

          17        risks in fixed income than upside.

          18             GENERAL CRIST:  In any of the fixed income,

          19        do we invest in inflation bonds?

          20             MR. STAPANOVICH:  We do in the Lawton Chiles

          21        Endowment Fund, but not in the Pension Fund.  The

          22        reason is because that's a fairly small market;

          23        it's a fairly -- it may be even somewhat liquid,

          24        but it's such a small market; for us, a fund of

          25        our size, to have any exposure to those investment

           1        vehicles, to have an impact on the total fund

           2        return, it would have miniscule impact in terms of

           3        the amount that we would be willing to participate

           4        in that small market.

           5             We would not want to become a market.

           6        Don't get me wrong; it's much bigger than we

           7        are but the market is just too small.  Now as

           8        it grows and things change, we will revisit

           9        that.  But it is part of the Lawton Chiles

          10        Endowment Fund, which is about 1.4 billion

          11        today.

          12             GENERAL CRIST:  It just strikes me -- and you

          13        were kind and came by and visited yesterday, I

          14        appreciate that; and you have done a great job.

          15             But it looks like we are increasing our

          16        amount of real estate investments.  And some

          17        people argue -- Governor, this is your field,

          18        actually, so you would know better about this

          19        than I -- that we may be sort of at a bubble as

          20        it relates to real estate, and it's at the high

          21        end.

          22             And yet, we are going into it more deeply

          23        according to this strategy.  And we at war, but

          24        we may be going to a more intensive aspect of

          25        war shortly.

           1             And in terms of making a more risky, if

           2        you will, investment strategy at this time I

           3        have concerns.  I have a fiduciary

           4        responsibility in this new role.

           5             MR. STAPANOVICH:  Those are good questions,

           6        General, and you are absolutely right.  In the

           7        public equity market, we are at 66 percent

           8        currently; that means international and domestic,

           9        if you were to total them up, we are at

          10        66 percent.

          11             We still remain at 66 percent in this

          12        proposal, but in terms of non, in the asset

          13        classes, in terms of nonfixed income, these

          14        other asset classes, in this proposal we would

          15        move from 74 percent exposure across asset

          16        classes to 79 percent exposure.

          17             So this is a more risky investment

          18        approach because we are reducing our exposure

          19        to fixed income.

          20             However, 3 percent of that is -- excuse

          21        me --  yeah, is moving to real estate.  And our

          22        real estate unit is pretty much direct

          23        investments.  So you have some control over --

          24        what we read is that there is a bubble,

          25        certainly maybe in single family housing,

           1        certainly in housing on golf courses, beach

           2        property and that kind of thing.

           3             But there are certainly some other very

           4        opportunistic real estate investments across

           5        the country when you look at what's happening

           6        in the economy, with the tech bubble that burst

           7        and a lot of building, office building

           8        opportunities and stuff like that.

           9             So really it comes back to our

          10        organization, the people, the money managers we

          11        work with, the consultants that we work with.

          12        Part of that consideration was our staff at the

          13        board, is that they continued to do a good job

          14        in being very selective in what they invest in

          15        in real estate.  But there are certainly

          16        bubbles still out there, but there are

          17        opportunities as well.

          18             GOVERNOR BUSH:  Part of the -- I asked

          19        similar questions yesterday in our briefing

          20        because real estate and fixed income are both

          21        interest rate sensitive and I have no clue where

          22        interest rates are going.

          23             I know that the real estate strength is

          24        principally now interest rate driven because

          25        cap rates -- deals can be done significantly

           1        easier, they make more sense when rates are --

           2        you can go borrow at lever plus one and your

           3        all-inclusive rate is 3 percent or something.

           4        It's kind of hard not to make money on real

           5        estate.

           6             But I think the bigger question is how

           7        long is your horizon on these investments?  Not

           8        looking at it from the perspective of what's

           9        going to happen in March or April or May or a

          10        year from now.

          11             I think the fiduciary responsibility we

          12        have is to say what allocation of assets are

          13        appropriate for the next 10 years.  We may

          14        adjust every three years, but the perspective,

          15        the long-term returns are what matters.

          16             And so long as the risk and return profile

          17        is within the margin so that we are not way out

          18        there, either overly conservative or overly

          19        aggressive, I think this is the right approach.

          20             Who knows what is going to happen in the

          21        next month or two?  We are in very volatile

          22        times.  And how long will it take you to invest

          23        up to the 7 percent, if you go up that -- to

          24        the -- two years, is that right?

          25             MR. STAPANOVICH:  Well, the implementation

           1        period we are asking for approval for is one year,

           2        but that doesn't mean that we will get it all

           3        invested.  There are investment vehicles that are

           4        REIT-like that we can park money in until we can

           5        actually identify -- we are not going to rush in

           6        and try to -- whatever the number is, I think it

           7        is probably 3 billion, somewhere in the

           8        neighborhood of $3 billion -- and try to get

           9        $3 billion of property bought in one year; it

          10        won't happen.

          11             But there will be -- that money will be

          12        parked and we'll move that target over a year,

          13        and then we'll try to replicate it in more

          14        liquid type real estate investments until we

          15        can actually develop the entire strategy.

          16             GENERAL CRIST:  In terms of venture capital,

          17        are we increasing or decreasing in venture capital

          18        investments according to this new strategy?

          19             MR. STAPANOVICH:  The Trustees, prior to you

          20        coming on the board, General, the Trustees, the

          21        IEC and staff, we researched venture capital.

          22             What we have today in alternative

          23        investments is an asset class that looks like

          24        no other asset class of alternative investments

          25        among our peers in that we are not diversified

           1        in that asset class.

           2             We are 90 plus percent, really approaching

           3        99 percent leverage buyouts.  We have very

           4        little venture capital, literally maybe

           5        25 million or so, it could be a little more.

           6             GENERAL CRIST:  I am sorry?  How much?

           7             MR. STAPANOVICH:  25 million.  Remember, it's

           8        an asset class that is approaching $4 billion, but

           9        that's very miniscule.

          10             We don't have -- that's just inherent,

          11        some of the leverages -- Cypress Fund was one

          12        where we all might recall -- certainly

          13        Treasurer Gallagher would -- at that point in

          14        time because you were around, I believe,

          15        Treasurer, when Cypress Fund was approved and

          16        was a trustee in another capacity.

          17             That's the only exposure we have.  So we

          18        are looking to diversify that asset class.  And

          19        the Trustees, after much due diligence and

          20        vetting this with the IEC, et cetera, has

          21        approved a capital venture program and said the

          22        venture capital program is targeted to be about

          23        8 percent of that 4 percent.

          24             We are in the process now of manager

          25        searches and evaluations and this kind of

           1        thing.  So we look to invest about $300 million

           2        in venture capital over the next several years.

           3        So the program has been designed, it's

           4        established, and we are in the process of

           5        implementation.

           6             I will tell you today, though, there is a

           7        lot going on in the venture capital area and

           8        this would be a good opportune time just to

           9        touch on that.  And it has to do with

          10        disclosure issues.

          11             The venture capital community has been a

          12        very closed community in terms of revealing

          13        information and how they invest; it's very

          14        embryonic; a lot of what they do is very

          15        proprietary, and they consider most of what

          16        they do kind of insider stuff and they don't

          17        like it to be available to the general public.

          18             What happens is their competitors and

          19        other people with not good intentions use that

          20        information against them in doing what --

          21        something that's very specialized.

          22             So that issue is going on out there, and

          23        we are addressing it.  We are looking at what

          24        we need to do to -- because two things can

          25        happen, is if we are not able to possibly have

           1        some exemptions through legislation, to keep

           2        some of this information -- we do it in real

           3        estate already and we do it to some extent in

           4        the public markets where our transactions and

           5        our trades are not revealed for X amount of

           6        days, so people can't front run us and that

           7        kind of thing.

           8             So we are already doing it, but to some

           9        limited fashion; and in having some exemptions

          10        in the venture capital area, because if we

          11        don't, it's going to push us down to second

          12        tier or third tier of venture capital type

          13        firms; and when it does that, our

          14        recommendation will be to abandon the venture

          15        capital program because we will not have a

          16        venture capital program, as good fiduciaries,

          17        that is second tier and third tier.

          18             It's going to be the best we can find in

          19        the country or we won't do it at all.

          20             So that's a bit of an open question right

          21        now.  But to answer the question, I am sorry

          22        for being long winded, we will have a venture

          23        capital program hopefully.

          24             GENERAL CRIST:  Yeah, but I think my question

          25        was, is it going to be more or less?

           1             MR. STAPANOVICH:  More; we essentially have

           2        zero and we'll be moving to about 300 million.

           3             GENERAL CRIST:  Is that a good thing to do?

           4             MR. STAPANOVICH:  Yes, it is.

           5             TREASURER GALLAGHER:  I hope he is not here

           6        recommending it if it's a bad thing to do.

           7             GENERAL CRIST:  That would be my concern.

           8        That's why I am asking the questions.

           9             GOVERNOR BUSH:  If you look at these

          10        investment categories, and it would probably be

          11        worth getting an update on 10-year records,

          12        five-year records, 20-year records, one-year

          13        records, you will find that the higher risk

          14        investments have, on the one-year basis, have

          15        gigantic swings.  Venture capital, I would assume

          16        right now to use an old real estate expression, is

          17        probably sucking air.

          18             Real estate probably has the highest

          19        returns right now in those categories on a

          20        one-year basis.  But if you look at it as we

          21        need to over a long-term period, stocks, which

          22        have taken the greatest bath in the last three

          23        years since the depression, I assume, offers

          24        the highest return.

          25             And my guess is that nothing -- history is

           1        a pretty good guide that, if you went forward

           2        10 years or 20 years, that you would find -- it

           3        might all adjust up or down but the end result

           4        will be something similar to -- the risk return

           5        profile has worked pretty well and bonds would

           6        be the lowest with the greatest security;

           7        stocks would be second, in the long-term, it

           8        has the greatest combination of risk and return

           9        in terms of safety as well as high return and

          10        the other ones are more volatile.  But to mix

          11        it altogether is what you do and then get

          12        through.

          13             TREASURER GALLAGHER:  Motion on 3.

          14             GOVERNOR BUSH:  The other thing that's

          15        important is --

          16             TREASURER GALLAGHER:  There is a motion.

          17             GOVERNOR BUSH:  The other thing that's

          18        important is one of the questions I had related to

          19        your concerns the last two weeks ago which was are

          20        we lowering our return criteria in a vacuum

          21        basically which will automatically require a

          22        raising of the contribution rate?

          23             And Coleman confirmed with me, after

          24        checking with the others, with our peers, that

          25        almost everybody is lowering their's as well;

           1        it may not be the exact same number, it may not

           2        be 4 percent, it may be a little bit lower or a

           3        little bit higher, but there seems to be a

           4        general consensus of lowering the returns down.

           5             TREASURER GALLAGHER:  Weren't we lowering

           6        about three-tenths of a percent?

           7             GOVERNOR BUSH:  Yes, on that basis.

           8             MR. STAPANOVICH:  That was a question that

           9        Treasurer Gallagher asked at the last meeting and

          10        we did go out and do some surveying, as I shared

          11        with you all, and looked at other states, looked

          12        at other corporations; and we had already heard it

          13        from our consultants, and see some evidence of

          14        that in news print and it's pretty much confirmed

          15        that absolutely everybody is reducing.

          16             GOVERNOR BUSH:  There is a motion.  Is there

          17        a second?  There is only three of us; you have to

          18        second it or somehow --

          19             GENERAL CRIST:  Second.

          20             GOVERNOR BUSH:  There is a motion and second.

          21        Any other discussion?  In all in favor say aye.

          22             TREASURER GALLAGHER:  Aye.

          23             GOVERNOR BUSH:  Aye.

          24             All opposed?

          25             GENERAL CRIST:  I.

           1             GOVERNOR BUSH:  Motion passes, two to one.

           2             TREASURER GALLAGHER:  Motion on 4 to

           3        withdraw.

           4             GENERAL CRIST:  Second.

           5             GOVERNOR BUSH:  There is a motion to withdraw

           6        and a second.  Without objection, the item is

           7        withdrawn.

           8             Item 5.

           9             MR. STAPANOVICH:  Item 5 is a request for

          10        approval of some rule making.

          11             There are six rules that are in this

          12        agenda item.  Four are existing rules that need

          13        revisions and two are new rules.

          14             The CAT Fund requests that the Trustees

          15        approve the following, and this would be

          16        existing rules, the first four, and then we'll

          17        go through here for revision.

          18             And these rules have been taken to the

          19        Advisory Council of the CAT Fund in a workshop

          20        that took place on January 9 and a second

          21        workshop that took place on the 14th and they

          22        have approved these proposed rules that are

          23        coming to you today.

          24             So the first rule is filing a notice of

          25        proposed rulemaking of rules 19-8.010, Florida

           1        Administrative, FAC -- I forget what the C is.

           2        That has to do with reimbursement contracts.

           3             The second rule is 19-8.012, Procedures to

           4        Determine Ineligibility for Participation and

           5        Exemption from Participation in the Florida

           6        Hurricane Catastrophe Fund.

           7             The third one is 19-8.013, Revenue Bonds.

           8             And the final existing rule to be revised

           9        is 19-8.029, the 2003 Insurer Reporting

          10        Requirements.

          11             The two new rules are 19-8.030, the

          12        insurer responsibilities, and 19-8.031, having

          13        to do with hurricane mitigation.

          14             If you have any questions about that,

          15        someone from the CAT Fund is available.

          16             TREASURER GALLAGHER:  We are now saying prior

          17        fiscal year means what we knew we actually got in

          18        the prior fiscal year, so it's a fixed amount of

          19        money that could be appropriated, for mitigation,

          20        as opposed to prior year means the same year they

          21        are in, which there has always been a confusion;

          22        probably because people want a confusion.  I don't

          23        think everybody was confused but --

          24             MR. STAPANOVICH:  These rules should help.

          25             GENERAL CRIST:  Motion on 5.

           1             TREASURER GALLAGHER:  Second.

           2             GOVERNOR BUSH:  Moved and seconded.  Any

           3        other discussion?  The item passes without

           4        objections.

           5             Thank you very much.

           6             (The proceedings concluded at 10:30 a.m.)





















           2                 CERTIFICATE OF REPORTER




           6   STATE OF FLORIDA         )

           7   COUNTY OF LEON           )


           9             I, SANDRA L. NARGIZ, RMR, CRR, certify that I

          10   was authorized to and did stenographically report the

          11   proceedings herein, and that the transcript is a true

          12   and complete record of my stenographic notes.

          13             I further certify that I am not a relative,

          14   employee, attorney or counsel of any of the parties,

          15   nor am I a relative or employee of any of the parties'

          16   attorney or counsel connected with the action, nor am I

          17   financially interested in the action.

          18             WITNESS my hand and official seal this 19th

          19   day of February, 2003.



          22                       ______________________________

          23                       SANDRA L. NARGIZ, RMR, CRR
                                   100 SALEM COURT
          24                       TALLAHASSEE, FL  32301