Local government withdrawals from an investment plan operated by the state have slowed in recent weeks, the director of the Montana Board of Investments says.

Carroll South reported to lawmakers Monday that the situation in the Short Term Investment Pool seems to have improved.

The problem that began in November with reports about difficulties with an investment known as ''structured investment vehicles'' prompted local governments to withdraw millions of dollars. But South says the withdrawals have slowed considerably, and there has been little change in recent weeks from the roughly $350 million net reduction in the plan.

The account, used for short-term investment of cash, holds more than $2 billion in state and local government money. About $500 million was in an investment known as structured investment vehicles.

Unlike states like Florida that saw similar problems with their short-term investment pools, South said, Montana government agencies make up the bulk of the STIP money and served as an anchor during the run on the account.

''The stability of the state funds anchor has mitigated much of the impact of the large and sudden local government withdrawals,'' South said in a memo to the legislative State Administration and Veterans' Affairs Committee.

And he said moves made by the Board of Investment back in August, as problems in the sub-prime mortgage market became apparent, to increase liquidity in the fund helped.

The STIP fund still holds a number of the structured investment vehicles and plans to keep them as they work with other owners to restructure the underlying assets.

Any losses could be amortized over time to protect governments from losing money, possibly resulting in a lower yield, South has said.

South also said the board may seek legislation that allows them to decline deposits from local governments. He says this will help prevent people from pulling their money out and putting it back in a short time later.

The Board of Investments says it may also adjust its investment rules, and is less likely to rely on credit quality ratings provided by the major rating firms.