H.B. No. 2459
    1-1                                AN ACT
    1-2  relating to public funds investment.
    1-3        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-4        SECTION 1.  Chapter 2256, Government Code, is amended to
    1-5  conform to Section 1, Chapter 181, Section 1, Chapter 858, and
    1-6  Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
    1-7  Session, 1993, and amended to read as follows:
    1-8                CHAPTER 2256.  PUBLIC FUNDS INVESTMENT
    1-9    SUBCHAPTER A.  AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES
   1-10        Sec. 2256.001.  Short Title.  This chapter <subchapter> may
   1-11  be cited as the Public Funds Investment Act.
   1-12        Sec. 2256.002.  Definitions.  In this chapter <subchapter>:
   1-13              (1)  "Bond proceeds" means the proceeds from the sale
   1-14  of bonds, notes, and other obligations issued by an entity, and
   1-15  reserves and funds maintained by an entity for debt service
   1-16  purposes.
   1-17              (2)  "Book value" means the face or par value of an
   1-18  investment plus accrued interest or minus amortization or
   1-19  accretion.
   1-20              (3)  "Funds" means public funds in the custody of a
   1-21  state agency or local government that:
   1-22                    (A)  are not required by law to be deposited in
   1-23  the state treasury; and
   1-24                    (B)  the investing entity has authority to
    2-1  invest.
    2-2              (4)  "Institution of higher education" has the meaning
    2-3  assigned by Section 61.003, Education Code.
    2-4              (5)  "Investing entity" and "entity" mean an entity
    2-5  subject to this chapter and described by Section 2256.003.
    2-6              (6)  "Investment pool" means an entity  created under
    2-7  this code to invest public funds jointly on behalf of the entities
    2-8  that participate in the pool and whose investment objectives in
    2-9  order of priority are:
   2-10                    (A)  preservation and safety of principal;
   2-11                    (B)  liquidity; and
   2-12                    (C)  yield.
   2-13              (7)  "Local government" means a municipality, a county,
   2-14  a school district, a district or authority created under Section
   2-15  52(b)(1) or (2), Article III, or Section 59, Article XVI, Texas
   2-16  Constitution, a fresh water supply district, a hospital district,
   2-17  and any political subdivision, authority, public corporation, body
   2-18  politic, or instrumentality of the State of Texas, and any
   2-19  nonprofit corporation acting on behalf of any of those entities.
   2-20              (8)  "Market value" means the face or par value of an
   2-21  investment multiplied by the premium or discount quoted on the
   2-22  valuation date.
   2-23              (9)  "Pooled fund group" means an internally created
   2-24  fund of an investing entity in which one or more institutional
   2-25  accounts of the investing entity are invested.
   2-26              (10) <(2)>  "School district" means a public school
   2-27  district.
    3-1              (11)  "Separately invested asset" means an account or
    3-2  fund of a state agency or local government that is not invested in
    3-3  a pooled fund group.
    3-4              (12)  "State agency" means an office, department,
    3-5  commission, board, or other agency that is part of any branch of
    3-6  state government, an institution of higher education, and any
    3-7  nonprofit corporation acting on behalf of any of those entities.
    3-8        Sec. 2256.003.  Authority to Invest Funds; Entities Subject
    3-9  to This Chapter.  Each governing body of the following entities may
   3-10  purchase, sell, and invest its funds and funds under its control in
   3-11  investments authorized under this subchapter in compliance with
   3-12  investment policies approved by the governing body and according to
   3-13  the standard of care prescribed by Section 2256.006 <2256.005>:
   3-14              (1)  a local government <municipality>;
   3-15              (2)  a state agency <a county;>
   3-16              <(3)  a school district;>
   3-17              <(4)  a district or authority created under:>
   3-18                    <(A)  Article III, Section 52(b)(1) or (2), of
   3-19  the Texas Constitution; or>
   3-20                    <(B)  Article XVI, Section 59, of the Texas
   3-21  Constitution;>
   3-22              <(5)  an institution of higher education;>
   3-23              <(6)  a hospital district>;
   3-24              (3) <(7)>  a nonprofit corporation acting on behalf of
   3-25  a local government or a state agency <an entity listed in
   3-26  Subdivisions (1) through (6)>; or
   3-27              (4)  an investment pool acting on behalf of two or more
    4-1  local governments, state agencies, or a combination of those
    4-2  entities <(8)  a public funds investment pool created under Chapter
    4-3  791 acting on behalf of a combination of entities listed in
    4-4  Subdivisions (1) through (6)>.
    4-5        Sec. 2256.004.  APPLICABILITY.  This subchapter does not
    4-6  apply to:
    4-7              (1)  a public retirement system as defined by Section
    4-8  802.001;
    4-9              (2)  state funds invested as authorized by Section
   4-10  404.024;
   4-11              (3)  an institution of higher education having total
   4-12  endowments of at least $95 million in book value on May 1, 1995; or
   4-13              (4)  funds invested by the Veterans' Land Board as
   4-14  authorized by Chapter 161, 162, or 164, Natural Resources Code.
   4-15        Sec. 2256.005.  INVESTMENT POLICIES; INVESTMENT STRATEGIES;
   4-16  INVESTMENT OFFICER.  (a)  The governing body of an investing entity
   4-17  shall adopt by rule, order, ordinance, or resolution, as
   4-18  appropriate, a written investment policy regarding the investment
   4-19  of its funds and funds under its control.
   4-20        (b)  The investment policies must:
   4-21              (1)  be written;
   4-22              (2)  primarily emphasize safety of principal and
   4-23  liquidity; <and>
   4-24              (3)  address investment diversification, yield, and
   4-25  maturity and the quality and capability of investment management;
   4-26  and
   4-27              (4)  include:
    5-1                    (A)  a list of the types of authorized
    5-2  investments in which the investing entity's funds may be invested;
    5-3                    (B)  the maximum allowable stated maturity of any
    5-4  individual investment owned by the entity; and
    5-5                    (C)  for pooled fund groups, the maximum average
    5-6  dollar-weighted maturity allowed based on the stated maturity date
    5-7  for the portfolio.
    5-8        (c) <(b)>  The investment policies may provide that bids for
    5-9  certificates of deposit be solicited:
   5-10              (1)  orally;
   5-11              (2)  in writing;
   5-12              (3)  electronically; or
   5-13              (4)  in any combination of those methods.
   5-14        (d)  As an integral part of an investment policy, the
   5-15  governing body shall adopt a separate written investment strategy
   5-16  for each of the funds under its control.  Each investment strategy
   5-17  must describe the investment objectives for the particular fund
   5-18  using the following priorities in order of importance:
   5-19              (1)  understanding of the suitability of the investment
   5-20  to the financial requirements of the entity;
   5-21              (2)  preservation and safety of principal;
   5-22              (3)  liquidity;
   5-23              (4)  marketability of the investment if the need arises
   5-24  to liquidate the investment before maturity;
   5-25              (5)  diversification of the investment portfolio; and
   5-26              (6)  yield.
   5-27        (e)  The governing body of an investing entity shall review
    6-1  its investment policy and investment strategies not less than
    6-2  annually.
    6-3        (f)  Each investing entity shall designate, by rule, order,
    6-4  ordinance, or resolution, as appropriate, one or more officers or
    6-5  employees of the state agency, local government, or investment pool
    6-6  as investment officer to be responsible for the investment of its
    6-7  funds.  Unless otherwise authorized by law, a person may not
    6-8  deposit, withdraw, invest, transfer, or manage in any other manner
    6-9  funds of a state agency, local government, or investment pool
   6-10  without express written authority of the governing body, chief
   6-11  executive officer, or chief financial officer of the state agency,
   6-12  local government, or investment pool, consistent with the
   6-13  investment policy adopted by the entity.  Authority granted to a
   6-14  person to deposit, withdraw, invest, transfer, or manage an
   6-15  entity's funds is effective until rescinded by the investing entity
   6-16  or until termination of the person's employment by the investing
   6-17  entity.
   6-18        (g)  Subsection (f) does not apply to a state agency, local
   6-19  government, or investment pool for which an officer of the entity
   6-20  is assigned by law the function of investing its funds.
   6-21        (h)  An officer or employee of a commission created under
   6-22  Chapter 391, Local Government Code, is ineligible to be designated
   6-23  as an investment officer under Subsection (f).
   6-24        (i)  An investment officer of an entity who has a personal
   6-25  business relationship with an entity seeking to sell an investment
   6-26  to the entity shall file a statement disclosing that personal
   6-27  business interest.  An investment officer who is related within the
    7-1  second degree by affinity or consanguinity, as determined under
    7-2  Chapter 573, to an individual seeking to sell an investment to the
    7-3  investment officer's entity shall file a statement disclosing that
    7-4  relationship.  A statement required under this subsection must be
    7-5  filed with the Texas Ethics Commission and the governing body of
    7-6  the entity.
    7-7        (j)  The governing body of an investing entity may specify in
    7-8  its investment policy that any investment authorized by this
    7-9  chapter is not suitable.
   7-10        (k)  A written copy of the investment policy shall be
   7-11  presented to any person seeking to sell to the entity an authorized
   7-12  investment.  The registered principal of the business organization
   7-13  seeking to sell an authorized investment shall execute a written
   7-14  instrument substantially to the effect that the registered
   7-15  principal has:
   7-16              (1)  received and thoroughly reviewed the investment
   7-17  policy of the entity; and
   7-18              (2)  acknowledged that the organization has implemented
   7-19  reasonable procedures and controls in an effort to preclude
   7-20  imprudent investment activities arising out of investment
   7-21  transactions conducted between the entity and the organization.
   7-22        (l)  The investment officer of an entity may not buy any
   7-23  securities from a person who has not delivered to the entity an
   7-24  instrument in substantially the form provided by Subsection (k).
   7-25        (m)  An investing entity, in conjunction with its annual
   7-26  financial audit, shall perform a compliance audit of management
   7-27  controls on investments and adherence to the entity's established
    8-1  investment policies.  State agencies shall report the results of
    8-2  the audit performed under this subsection to the state auditor.
    8-3  The state auditor shall compile the results of reports received
    8-4  under this subsection and annually report those results to the
    8-5  legislative audit committee.
    8-6        Sec. 2256.006 <2256.005>.  Standard of Care.
    8-7  (a)  Investments shall be made with judgment and care, under
    8-8  prevailing circumstances, that a person of prudence, discretion,
    8-9  and intelligence would exercise in the management of the person's
   8-10  own affairs, not for speculation, but for investment, considering
   8-11  the probable safety of capital and the probable income to be
   8-12  derived.  Investment of funds shall be governed by the following
   8-13  investment objectives, in order of priority:
   8-14              (1)  preservation and safety of principal;
   8-15              (2)  liquidity; and
   8-16              (3)  yield.
   8-17        (b)  In determining whether an investment officer has
   8-18  exercised prudence with respect to an investment decision, the
   8-19  determination shall be made taking into consideration:
   8-20              (1)  the investment of all funds, or funds under the
   8-21  entity's control, over which the officer had responsibility rather
   8-22  than a consideration as to the prudence of a single investment; and
   8-23              (2)  whether the investment decision was consistent
   8-24  with the written investment policy of the entity.
   8-25        Sec. 2256.007.  INVESTMENT TRAINING; STATE AGENCY BOARD
   8-26  MEMBERS AND OFFICERS.  (a)  Each member of the governing board of a
   8-27  state agency and its investment officer shall attend at least one
    9-1  training session relating to the person's responsibilities under
    9-2  this chapter within six months after taking office or assuming
    9-3  duties.
    9-4        (b)  The governor's office shall provide training under this
    9-5  section for members and officers other than members and officers of
    9-6  an institution of higher education.  The Texas Higher Education
    9-7  Coordinating Board shall provide the training for members and
    9-8  officers of institutions of higher education.
    9-9        (c)  Training under this section must include education in
   9-10  investment controls, security risks, strategy risks, market risks,
   9-11  and compliance with this chapter.
   9-12        Sec. 2256.008.  INVESTMENT TRAINING; LOCAL GOVERNMENTS.
   9-13  (a)  The treasurer, the chief financial officer if the treasurer is
   9-14  not the chief financial officer, and the investment officer of a
   9-15  local government shall attend at least one training session
   9-16  relating to the treasurer's or officer's responsibilities under
   9-17  this chapter within 12 months after taking office or assuming
   9-18  duties.
   9-19        (b)  Training under this section must include education in
   9-20  investment controls, security risks, strategy risks, market risks,
   9-21  and compliance with this chapter.
   9-22        Sec. 2256.009 <2256.006>.  Authorized Investments:
   9-23  Obligations of, or Guaranteed by, Governmental Entities.
   9-24  (a)  Except as provided by Subsection (b), the <The> following are
   9-25  authorized investments under this subchapter:
   9-26              (1)  obligations of the United States or its agencies
   9-27  and instrumentalities;
   10-1              (2)  direct obligations of this state or its agencies
   10-2  and instrumentalities;
   10-3              (3)  collateralized mortgage obligations directly
   10-4  issued by a federal agency or instrumentality of the United States,
   10-5  the underlying security for which is guaranteed by an agency or
   10-6  instrumentality of the United States;
   10-7              (4)  other obligations, the principal and interest of
   10-8  which are unconditionally guaranteed or insured by, or backed by
   10-9  the full faith and credit of, this state or the United States or
  10-10  their respective agencies and <its> instrumentalities; and
  10-11              (5)  obligations of states, agencies, counties, cities,
  10-12  and other political subdivisions of any state rated as to
  10-13  investment quality by a nationally recognized investment rating
  10-14  firm not less than A or its equivalent.
  10-15        (b)  The following are not authorized investments under this
  10-16  section:
  10-17              (1)  obligations whose payment represents the coupon
  10-18  payments on the outstanding principal balance of the underlying
  10-19  mortgage-backed security collateral and pays no principal;
  10-20              (2)  obligations whose payment represents the principal
  10-21  stream of cash flow from the underlying mortgage-backed security
  10-22  collateral and bears no interest;
  10-23              (3)  collateralized mortgage obligations that have a
  10-24  stated final maturity date of greater than 10 years; and
  10-25              (4)  collateralized mortgage obligations the interest
  10-26  rate of which is determined by an index that adjusts opposite to
  10-27  the changes in a market index.
   11-1        Sec. 2256.010 <2256.007>.  Authorized Investments:
   11-2  Certificates of Deposit.  A certificate of deposit is an authorized
   11-3  investment under this subchapter if the certificate of deposit is
   11-4  issued by a state or national bank domiciled in this state or a
   11-5  savings and loan association domiciled in this state and is:
   11-6              (1)  guaranteed or insured by the Federal Deposit
   11-7  Insurance Corporation or its successor;
   11-8              (2)  secured by obligations that are described by
   11-9  Section 2256.009(a) <2256.006>, including mortgage backed
  11-10  securities directly issued by a federal agency or instrumentality
  11-11  that have a market value of not less than the principal amount of
  11-12  the certificates, but excluding those mortgage backed securities of
  11-13  the nature described by Section 2256.009(b); or
  11-14              (3)  secured in any other manner and amount provided by
  11-15  law for deposits of the investing entity.
  11-16        Sec. 2256.011 <2256.008>.  Authorized Investments:
  11-17  Repurchase Agreements.  (a)  A fully collateralized repurchase
  11-18  agreement is an authorized investment under this subchapter if the
  11-19  repurchase agreement:
  11-20              (1)  has a defined termination date;
  11-21              (2)  is secured by obligations described by Section
  11-22  2256.009(a)(1) <2256.006(1)>; and
  11-23              (3)  requires the securities being purchased by the
  11-24  entity to be <is> pledged to the entity, held in the entity's name,
  11-25  and deposited at the time the investment is made with the entity or
  11-26  with a third party selected and <or> approved by the entity; and
  11-27              (4)  is placed through a primary government securities
   12-1  dealer, as defined by the Federal Reserve, or a financial
   12-2  institution doing business in this state <a bank domiciled in this
   12-3  state>.
   12-4        (b)  In this section, "repurchase agreement" means a
   12-5  simultaneous agreement to buy, hold for a specified time, and sell
   12-6  back at a future date obligations described by Section
   12-7  2256.009(a)(1) <2256.006(1)>, at a <the principal and interest of
   12-8  which are guaranteed by the United States in> market value at the
   12-9  time the funds are disbursed of not less than the principal amount
  12-10  of the funds disbursed.  The term includes a direct security
  12-11  repurchase agreement and a reverse security repurchase agreement.
  12-12        (c)  Notwithstanding any other law, the term of any reverse
  12-13  security repurchase agreement may not exceed 90 days after the date
  12-14  the reverse security repurchase agreement is delivered.
  12-15        (d)  Money received by an entity under the terms of a reverse
  12-16  security repurchase agreement shall be used to acquire additional
  12-17  authorized investments, but the term of the authorized investments
  12-18  acquired must mature not later than the expiration date stated in
  12-19  the reverse security repurchase agreement.
  12-20        Sec. 2256.012 <2256.009>.  Authorized Investments:  Bankers'
  12-21  Acceptances.  A bankers' acceptance is an authorized investment
  12-22  under this subchapter if the bankers' acceptance:
  12-23              (1)  has a stated maturity of 270 days or fewer from
  12-24  the date of its issuance;
  12-25              (2)  will be, in accordance with its terms, liquidated
  12-26  in full at maturity;
  12-27              (3)  is eligible for collateral for borrowing from a
   13-1  Federal Reserve Bank; and
   13-2              (4)  is accepted by a bank organized and existing under
   13-3  the laws of the United States or any state, if the short-term
   13-4  obligations of the bank, or of a bank holding company of which the
   13-5  bank is the largest subsidiary, are rated not less than A-1 or P-1
   13-6  or an equivalent rating by at least one nationally recognized
   13-7  credit rating agency.
   13-8        Sec. 2256.013 <2256.010>.  Authorized Investments:
   13-9  Commercial Paper.  Commercial paper is an authorized investment
  13-10  under this subchapter if the commercial paper:
  13-11              (1)  has a stated maturity of 270 days or fewer from
  13-12  the date of its issuance; and
  13-13              (2)  is rated not less than A-1 or P-1 or an equivalent
  13-14  rating by at least:
  13-15                    (A)  two nationally recognized credit rating
  13-16  agencies; or
  13-17                    (B)  one nationally recognized credit rating
  13-18  agency and is fully secured by an irrevocable letter of credit
  13-19  issued by a bank organized and existing under the laws of the
  13-20  United States or any state.
  13-21        Sec. 2256.014 <2256.011>.  AUTHORIZED INVESTMENTS: MUTUAL
  13-22  FUNDS.  (a)  A no-load money market mutual fund is an authorized
  13-23  investment under this subchapter if the mutual fund:
  13-24              (1)  is regulated by <registered with> the Securities
  13-25  and Exchange Commission;
  13-26              (2)  has a dollar-weighted average stated <portfolio>
  13-27  maturity of 90 <120> days or fewer; and
   14-1              <(3)  is invested exclusively in obligations described
   14-2  by Sections 2256.006 through 2256.010; and>
   14-3              (3) <(4)>  includes in its investment objectives the
   14-4  maintenance of a stable net asset value of $1 for each share.
   14-5        (b)  In addition to a no-load money market mutual fund
   14-6  permitted as an authorized investment in Subsection (a), a no-load
   14-7  mutual fund is an authorized investment under this subchapter if
   14-8  the mutual fund:
   14-9              (1)  is registered with the Securities and Exchange
  14-10  Commission;
  14-11              (2)  has an average weighted maturity of less than two
  14-12  years;
  14-13              (3)  is invested exclusively in obligations approved by
  14-14  this subchapter;
  14-15              (4)  is continuously rated as to investment quality by
  14-16  at least one nationally recognized investment rating firm of not
  14-17  less than AAA or its equivalent; and
  14-18              (5)  conforms to the requirements set forth in Sections
  14-19  2256.016(b) and (c) relating to the eligibility of investment pools
  14-20  to receive and invest funds of investing entities.
  14-21        (c)  An entity is not authorized by this section to:
  14-22              (1)  invest in the aggregate more than 80 percent of
  14-23  its monthly average fund balance, excluding bond proceeds and
  14-24  reserves and other funds held for debt service, in money market
  14-25  mutual funds described in Subsection (a) or mutual funds described
  14-26  in Subsection (b), either separately or collectively;
  14-27              (2)  invest in the aggregate more than 15 percent of
   15-1  its monthly average fund balance, excluding bond proceeds and
   15-2  reserves and other funds held for debt service, in mutual funds
   15-3  described in Subsection (b);
   15-4              (3)  invest any portion of bond proceeds, reserves and
   15-5  funds held for debt service, in mutual funds described in
   15-6  Subsection (b); or
   15-7              (4) <(2)>  invest its funds or funds under its control,
   15-8  including <excluding> bond proceeds and reserves and other funds
   15-9  held for debt service, in any one <money market> mutual fund
  15-10  described in Subsection (a) or (b) in an amount that exceeds 10
  15-11  percent of the total assets of the <money market> mutual fund.
  15-12        Sec. 2256.015.  AUTHORIZED INVESTMENTS:  GUARANTEED
  15-13  INVESTMENT CONTRACTS.  (a)  A guaranteed investment contract is an
  15-14  authorized investment for state agencies for bond proceeds under
  15-15  this subchapter if the guaranteed investment contract:
  15-16              (1)  has a defined termination date;
  15-17              (2)  is secured by obligations described by Section
  15-18  2256.009(a)(1), excluding those obligations described by Section
  15-19  2256.009(b), in an amount at least equal to the amount of bond
  15-20  proceeds invested under the contract; and
  15-21              (3)  is pledged to the entity and deposited with the
  15-22  entity or with a third party selected and approved by the entity.
  15-23        (b)  Bond proceeds, other than bond proceeds representing
  15-24  reserves and funds maintained for debt service purposes, may not be
  15-25  invested under this subchapter in a guaranteed investment contract
  15-26  with a term of longer than five years from the date of issuance of
  15-27  the bonds.
   16-1        (c)  To be eligible as an authorized investment:
   16-2              (1)  the governing body of the entity must specifically
   16-3  authorize guaranteed investment contracts as an eligible investment
   16-4  in the order, ordinance, or resolution authorizing the issuance of
   16-5  bonds;
   16-6              (2)  the entity must receive bids from at least three
   16-7  separate providers with no material financial interest in the bonds
   16-8  from which proceeds were received;
   16-9              (3)  the entity must purchase the highest yielding
  16-10  guaranteed investment contract for which a qualifying bid is
  16-11  received;
  16-12              (4)  the price of the guaranteed investment contract
  16-13  must take into account the reasonably expected drawdown schedule
  16-14  for the bond proceeds to be invested; and
  16-15              (5)  the provider must certify the administrative costs
  16-16  reasonably expected to be paid to third parties in connection with
  16-17  the guaranteed investment contract.
  16-18        <Sec. 2256.012.  AUTHORIZED INVESTMENTS:  COMMON TRUST FUNDS.
  16-19  (a)  A qualified common trust fund is an authorized investment for
  16-20  the local funds of an institution of higher education and for the
  16-21  bond proceeds and reserves and other funds held for debt service of
  16-22  a municipality, county, school district, or navigation district if
  16-23  the common trust fund:>
  16-24              <(1)  is owned or administered by a bank domiciled in
  16-25  this state;>
  16-26              <(2)  consists exclusively of assets that are
  16-27  obligations described by Sections 2256.006 through 2256.010;>
   17-1              <(3)  complies with the Internal Revenue Code of 1986
   17-2  and applicable federal regulations governing the investment of bond
   17-3  proceeds and reserves and other funds held for debt service; and>
   17-4              <(4)  meets the cash flow requirements and the
   17-5  investment needs of the political subdivision or institution.>
   17-6        <(b)  In this section, "common trust fund" includes a
   17-7  comparable investment device.>
   17-8        Sec. 2256.016 <2256.013>.  AUTHORIZED INVESTMENTS: INVESTMENT
   17-9  POOLS.  (a)  An entity may invest its funds and funds under its
  17-10  control through an eligible investment pool if the governing body
  17-11  of the entity by rule, order, ordinance, or resolution, as
  17-12  appropriate, authorizes investment in the particular pool.  An
  17-13  investment pool shall invest the funds it receives from entities in
  17-14  authorized investments permitted by this subchapter.
  17-15        (b)  To be eligible to receive funds from and invest funds on
  17-16  behalf of an entity under this chapter, an investment pool must
  17-17  furnish to the investment officer or other authorized
  17-18  representative of the entity an offering circular or other similar
  17-19  disclosure instrument that contains, at a minimum, the following
  17-20  information:
  17-21              (1)  the types of investments in which money is allowed
  17-22  to be invested;
  17-23              (2)  the maximum average dollar-weighted maturity
  17-24  allowed, based on the stated maturity date, of the pool;
  17-25              (3)  the maximum stated maturity date any investment
  17-26  security within the portfolio has;
  17-27              (4)  the objectives of the pool;
   18-1              (5)  the size of the pool;
   18-2              (6)  the names of the members of the advisory board of
   18-3  the pool and the dates their terms expire;
   18-4              (7)  the custodian bank that will safekeep the pool's
   18-5  assets;
   18-6              (8)  whether the intent of the pool is to maintain a
   18-7  net asset value of one dollar and the risk of market price
   18-8  fluctuation;
   18-9              (9)  whether the only source of payment is the assets
  18-10  of the pool at market value or whether there is a secondary source
  18-11  of payment, such as insurance or guarantees, and a description of
  18-12  the secondary source of payment;
  18-13              (10)  the name and address of the independent auditor
  18-14  of the pool;
  18-15              (11)  the requirements to be satisfied for an entity to
  18-16  deposit funds in and withdraw funds from the pool and any deadlines
  18-17  or other operating policies required for the entity to invest funds
  18-18  in and withdraw funds from the pool; and
  18-19              (12)  the performance history of the pool, including
  18-20  yield, average dollar-weighted maturities, and expense ratios.
  18-21        (c)  To maintain eligibility to receive funds from and invest
  18-22  funds on behalf of an entity under this chapter, an investment pool
  18-23  must furnish to the investment officer or other authorized
  18-24  representative of the entity:
  18-25              (1)  investment transaction confirmations; and
  18-26              (2)  a monthly report that contains, at a minimum, the
  18-27  following information:
   19-1                    (A)  the types and percentage breakdown of
   19-2  securities in which the pool is invested;
   19-3                    (B)  the current average dollar-weighted
   19-4  maturity, based on the stated maturity date, of the pool;
   19-5                    (C)  the current percentage of the pool's
   19-6  portfolio in investments that have stated maturities of more than
   19-7  one year;
   19-8                    (D)  the book value versus the market value of
   19-9  the pool's portfolio, using amortized cost valuation;
  19-10                    (E)  the size of the pool;
  19-11                    (F)  the number of participants in the pool;
  19-12                    (G)  the custodian bank that is safekeeping the
  19-13  assets of the pool;
  19-14                    (H)  a listing of daily transaction activity of
  19-15  the entity participating in the pool;
  19-16                    (I)  the yield and expense ratio of the pool;
  19-17                    (J)  the portfolio managers of the pool; and
  19-18                    (K)  any changes or addenda to the offering
  19-19  circular.
  19-20        (d)  An entity by contract may delegate to an investment pool
  19-21  the authority to hold legal title as custodian of investments
  19-22  purchased with its local funds.
  19-23        (e)  In this section, "yield" shall be calculated in
  19-24  accordance with regulations governing the registration of open-end
  19-25  management investment companies under the Investment Company Act of
  19-26  1940, as promulgated from time to time by the federal Securities
  19-27  and Exchange Commission.
   20-1        Sec. 2256.017.  PORTFOLIO OF CERTAIN INVESTMENT POOLS.  A
   20-2  public funds investment pool created to function as a money market
   20-3  mutual fund must mark its portfolio to market daily and, to the
   20-4  extent reasonably possible, stabilize at a $1 net asset value.  If
   20-5  the ratio of the market value of the portfolio divided by the book
   20-6  value of the portfolio is less than 0.995 or greater than 1.005,
   20-7  portfolio holdings shall be sold as necessary to maintain the ratio
   20-8  between 0.995 and 1.005.
   20-9        Sec. 2256.018.  ADVISORY BOARD OF INVESTMENT POOLS.  (a)  An
  20-10  investment pool other than a pool described by Subsection (b) shall
  20-11  establish an advisory board composed of participants in the pool
  20-12  and other persons.
  20-13        (b)  A public funds investment pool created under Chapter 791
  20-14  and managed by a state agency shall establish an advisory board
  20-15  composed equally of participants in the pool and other persons who
  20-16  do not have a business relationship with the pool.  A board member
  20-17  must be qualified to advise the pool.
  20-18        Sec. 2256.019.  RATING OF CERTAIN INVESTMENT POOLS.  A public
  20-19  funds investment pool must be continuously rated no lower than AAA
  20-20  or AAA-m or at an equivalent rating by at least one nationally
  20-21  recognized rating service.  <BIDS FOR COMMON TRUST FUND
  20-22  INVESTMENTS.  (a)  An institution of higher education or a
  20-23  municipality, county, school district, or navigation district may
  20-24  invest in a common trust fund under Section 2256.012 only after
  20-25  soliciting orally or in another manner competitive bids from at
  20-26  least three banks.>
  20-27        <(b)  The solicitations for bids required by Subsection (a)
   21-1  for a county shall be made only to banks located in the county
   21-2  unless there are fewer than three banks available for the
   21-3  investment located in the county; in which case, the solicitations
   21-4  shall be made to each bank in the county and, as necessary to
   21-5  complete the solicitations, to banks located in this state.>
   21-6        <(c)  The solicitations for bids required by Subsection (a)
   21-7  for a municipality or a school district shall be made only to banks
   21-8  located in the municipality or school district unless there are
   21-9  fewer than three banks available for the investments located in the
  21-10  municipality or school district; in which case, the solicitations
  21-11  shall be made to each bank in the municipality or school district
  21-12  and, as necessary to complete the solicitations, to banks in a
  21-13  county in which the municipality or school district is located.  If
  21-14  there are fewer than three banks available for investments in the
  21-15  municipality or school district and in the counties in which the
  21-16  municipality or school district is located, the solicitations shall
  21-17  be made to each bank in the municipality or school district and in
  21-18  the counties in which the municipality or school district is
  21-19  located, and, as necessary to complete the solicitations, to banks
  21-20  located in this state.>
  21-21        <(d)  This section applies to a nonprofit corporation acting
  21-22  on behalf of a municipality, county, or school district as it
  21-23  applies to the municipality, county, or school district.>
  21-24        Sec. 2256.020 <2256.014>.  AUTHORIZED INVESTMENTS:
  21-25  INSTITUTIONS OF HIGHER EDUCATION.  In addition to the authorized
  21-26  investments permitted by this subchapter, an institution of higher
  21-27  education may purchase, sell, and invest its funds and funds under
   22-1  its control in the following:
   22-2              (1)  cash management and fixed income funds sponsored
   22-3  by organizations exempt from federal income taxation under Section
   22-4  501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
   22-5              (2)  negotiable certificates of deposit issued by a
   22-6  bank that has a certificate of deposit rating of at least 1 or the
   22-7  equivalent by a nationally recognized credit rating agency or that
   22-8  is associated with a holding company having a commercial paper
   22-9  rating of at least A-1, P-1, or the equivalent by a nationally
  22-10  recognized credit rating agency; and
  22-11              (3)  corporate bonds, debentures, or similar debt
  22-12  obligations rated by a nationally recognized investment rating firm
  22-13  in one of the two highest long-term rating categories, without
  22-14  regard to gradations within those categories.
  22-15        Sec. 2256.021.  EFFECT OF LOSS OF REQUIRED RATING.  An
  22-16  investment that requires a minimum rating under this subchapter
  22-17  does not qualify as an authorized investment during the period the
  22-18  investment does not have the minimum rating.  An entity shall take
  22-19  all prudent measures that are consistent with its investment policy
  22-20  to liquidate an investment that does not have the minimum rating.
  22-21        Sec. 2256.022.  EXPANSION OF INVESTMENT AUTHORITY.  Expansion
  22-22  of investment authority granted by this chapter shall require a
  22-23  risk assessment by the state auditor or performed at the direction
  22-24  of the state auditor.
  22-25        Sec. 2256.023.  INTERNAL MANAGEMENT REPORTS.  (a)  Not less
  22-26  than quarterly, the investment officer shall prepare and submit to
  22-27  the governing body of the entity a written report of investment
   23-1  transactions for all funds covered by this chapter for the
   23-2  preceding reporting period.
   23-3        (b)  The report must:
   23-4              (1)  describe in detail the investment position of the
   23-5  entity on the date of the report;
   23-6              (2)  be prepared jointly by all investment officers of
   23-7  the entity;
   23-8              (3)  be signed by each investment officer of the
   23-9  entity;
  23-10              (4)  contain a summary statement of each pooled fund
  23-11  group that states the:
  23-12                    (A)  beginning market value for the reporting
  23-13  period;
  23-14                    (B)  additions and changes to the market value
  23-15  during the period; and
  23-16                    (C)  ending market value for the period;
  23-17              (5)  state the book value and market value of each
  23-18  separately invested asset at the beginning and end of the reporting
  23-19  period by the type of asset and fund type invested;
  23-20              (6)  state the maturity date of each separately
  23-21  invested asset that has a maturity date;
  23-22              (7)  state the account or fund or pooled group fund in
  23-23  the state agency or local government for which each individual
  23-24  investment was acquired; and
  23-25              (8)  state the compliance of the investment portfolio
  23-26  of the state agency or local government as it relates to:
  23-27                    (A)  the investment strategy expressed in the
   24-1  agency's or local government's investment policy; and
   24-2                    (B)  relevant provisions of this chapter.
   24-3        (c)  The report shall be presented not less than quarterly to
   24-4  the governing body and the chief executive officer of the entity
   24-5  within a reasonable time after the end of the period.  <BANK
   24-6  UNWILLING TO BID; PRESUMPTION.  A governmental entity or nonprofit
   24-7  corporation that is notified by a bank that the bank is unable or
   24-8  unwilling to bid for investments under Section 2256.012 may presume
   24-9  that the bank continues to be unable or unwilling to bid for
  24-10  investments until the bank in writing notifies the entity
  24-11  otherwise.>
  24-12        Sec. 2256.024 <2256.015>.  SUBCHAPTER CUMULATIVE.  (a)  The
  24-13  authority granted by this subchapter is in addition to that granted
  24-14  by other law.  Except as provided by Subsection (b), this
  24-15  subchapter does not:
  24-16              (1)  prohibit an investment specifically authorized by
  24-17  other law; or
  24-18              (2)  authorize an investment specifically prohibited by
  24-19  other law.
  24-20        (b)  Except with respect to those investing entities
  24-21  described in Subsection (c), a security described in Section
  24-22  2256.009(b) is not an authorized investment for a state agency, a
  24-23  local government, or another investing entity, notwithstanding any
  24-24  other provision of this chapter or other law to the contrary.
  24-25        (c)  Mortgage pass-through certificates and individual
  24-26  mortgage loans that may constitute an investment described in
  24-27  Section 2256.009(b) are authorized investments with respect to the
   25-1  housing bond programs operated by:
   25-2              (1)  the Texas Department of Housing and Community
   25-3  Affairs or a nonprofit corporation created to act on its behalf;
   25-4              (2)  an entity created under Chapter 392, Local
   25-5  Government Code; or
   25-6              (3)  an entity created under Chapter 394, Local
   25-7  Government Code.
   25-8        <Sec. 2256.016.  SUBCHAPTER NOT APPLICABLE TO RETIREMENT
   25-9  SYSTEMS.  This subchapter does not apply to a public retirement
  25-10  system as defined by Section 802.001.>
  25-11    (Sections 2256.025 <2256.017>-2256.050 reserved for expansion)
  25-12                SUBCHAPTER B.  MISCELLANEOUS PROVISIONS
  25-13                      <INVESTMENT OF LOCAL FUNDS>
  25-14        Sec. 2256.051.  ELECTRONIC FUNDS TRANSFER.  Any local
  25-15  government may use electronic means to transfer or invest all funds
  25-16  collected or controlled by the local government.  <DEFINITIONS.  In
  25-17  this subchapter:>
  25-18              <(1)  "Investment pool" means an entity created under
  25-19  Chapter 791 to invest public funds of two or more local
  25-20  governments.>
  25-21              <(2)  "Local funds" means public funds in the custody
  25-22  of a state agency or political subdivision that:>
  25-23                    <(A)  are not required by law to be deposited in
  25-24  the state treasury; and>
  25-25                    <(B)  the agency or subdivision has authority to
  25-26  invest.>
  25-27              <(3)  "Political subdivision" means a county,
   26-1  municipality, or special purpose district.>
   26-2              <(4)  "State agency" means an office, department,
   26-3  commission, board, other agency, institution of higher education,
   26-4  or river authority that is part of any branch of state government.>
   26-5        <Sec. 2256.052.  ><Rules Governing Investment><.  Each state
   26-6  agency or political subdivision shall adopt rules governing the
   26-7  investment of its local funds, including rules specifying the scope
   26-8  of authority of officers and employees designated to invest local
   26-9  funds.>
  26-10        <Sec. 2256.053.  ><Investment Rate of Return><.  A state agency,
  26-11  political subdivision, or investment pool shall invest its local
  26-12  funds in investments that:>
  26-13              <(1)  yield the highest possible rate of return;>
  26-14              <(2)  protect the principal; and>
  26-15              <(3)  are consistent with the operating requirements of
  26-16  the agency, subdivision, or pool as determined by the governing
  26-17  body.>
  26-18        <Sec. 2256.054.  ><Designation of Investment Officer><.
  26-19  (a)  Each state agency or political subdivision shall designate, by
  26-20  rule, order, ordinance, or resolution, one or more officers or
  26-21  employees of the agency, subdivision, or investment pool to be
  26-22  responsible for the investment of its local funds.>
  26-23        <(b)  Subsection (a) does not apply if an officer of the
  26-24  agency or subdivision is assigned by law the function of investing
  26-25  its local funds.>
  26-26        <(c)  An officer or employee of a commission created under
  26-27  Chapter 391, Local Government Code, is ineligible to be designated
   27-1  as an investment officer under Subsection (a).>
   27-2        <Sec. 2256.055.  ><Express Authority Required><.  A person may
   27-3  not deposit, withdraw, invest, transfer, or manage in any other
   27-4  manner local funds of a state agency or political subdivision
   27-5  without express written authority of the governing body or chief
   27-6  executive officer of the agency or subdivision.>
   27-7        <Sec. 2256.056.  ><Legal Title in Investment Pool><.  A political
   27-8  subdivision by contract may delegate to an investment pool the
   27-9  authority to hold legal title as custodian of investments purchased
  27-10  with its local funds.>
  27-11        <Sec. 2256.057.  ><Internal Management Reports><.  (a)  At least
  27-12  annually, the investment officer of a state agency or political
  27-13  subdivision shall prepare a written report of the agency's or
  27-14  subdivision's local funds investment transactions for the preceding
  27-15  year.>
  27-16        <(b)  The report must:>
  27-17              <(1)  describe in detail the investment position of the
  27-18  agency or subdivision on the date of the report;>
  27-19              <(2)  be prepared jointly by all investment officers of
  27-20  the agency or subdivision; and>
  27-21              <(3)  be signed by each investment officer of the
  27-22  agency or subdivision.>
  27-23        <(c)  The report shall be delivered to the governing body and
  27-24  the chief executive officer of the agency or subdivision.>
  27-25        Sec. 2256.052 <2256.058>.  PRIVATE AUDITOR.  Notwithstanding
  27-26  any other law, a state agency shall employ a private auditor if
  27-27  authorized by the legislative audit committee either on the
   28-1  committee's initiative or on request of the governing body of the
   28-2  agency.
   28-3        <Sec. 2256.059.  ><Effect of Other Law><.  This subchapter does
   28-4  not:>
   28-5              <(1)  prohibit an investment specifically authorized by
   28-6  other law; or>
   28-7              <(2)  authorize an investment specifically prohibited
   28-8  by other law.>
   28-9         <Sections 2256.060-2256.100 reserved for expansion>
  28-10         <SUBCHAPTER C.  PAYMENT FOR AND DELIVERY AND DEPOSIT
  28-11                   OF SECURITIES PURCHASED BY STATE>
  28-12        <Sec. 2256.101.  ><Authorized Investments; Application of
  28-13  Income><.  (a)  A board or agency of the state that may direct the
  28-14  investment of funds of the board or agency may invest those funds
  28-15  in:>
  28-16              <(1)  direct obligations of the United States;>
  28-17              <(2)  obligations the principal and interest of which
  28-18  are guaranteed by the United States;>
  28-19              <(3)  direct obligations of or participation
  28-20  certificates guaranteed by:>
  28-21                    <(A)  a farm credit bank;>
  28-22                    <(B)  the Federal National Mortgage Association;>
  28-23                    <(C)  a federal home loan bank; or>
  28-24                    <(D)  a bank for cooperatives;>
  28-25              <(4)  certificates of deposit of a bank or trust
  28-26  company, the deposits of which are fully secured by a pledge of
  28-27  securities described by Subdivisions (1) through (3);>
   29-1              <(5)  other securities made eligible for investment by
   29-2  other law or the constitution; or>
   29-3              <(6)  a combination of securities described by
   29-4  Subdivisions (1) through (5).>
   29-5        <(b)  The board or agency shall direct the application of
   29-6  income from investments under this section.>
   29-7        Sec. 2256.053 <2256.102>.  PAYMENT FOR SECURITIES PURCHASED
   29-8  BY STATE.  The comptroller, the state treasurer, or the disbursing
   29-9  officer of an agency that has the power to invest assets directly
  29-10  may pay for authorized securities purchased from or through a
  29-11  member in good standing of the National Association of Securities
  29-12  Dealers or from or through a national or state bank on receiving an
  29-13  invoice from the seller of the securities showing that the
  29-14  securities have been purchased by the board or agency and that the
  29-15  amount to be paid for the securities is just, due, and unpaid.  A
  29-16  purchase of securities may not be made at a price that exceeds the
  29-17  existing market value of the securities.
  29-18        Sec. 2256.054 <2256.103>.  DELIVERY OF SECURITIES PURCHASED
  29-19  BY STATE.  A security purchased under this chapter <Section
  29-20  2256.102> may be delivered to the state treasurer, a bank, or the
  29-21  board or agency investing its funds.  The delivery shall be made
  29-22  under normal and recognized practices in the securities and banking
  29-23  industries, including the book entry procedure of the Federal
  29-24  Reserve Bank.
  29-25        Sec. 2256.055 <2256.104>.  DEPOSIT OF SECURITIES PURCHASED BY
  29-26  STATE.  At the direction of the state treasurer or the agency, a
  29-27  security purchased under this chapter <Section 2256.102> may be
   30-1  deposited in trust with a bank or federal reserve bank or branch
   30-2  designated by the treasurer, whether in or outside the state.  The
   30-3  deposit shall be held in the entity's name as evidenced by a trust
   30-4  receipt of the bank with which the securities are deposited.
   30-5        SECTION 2.  Section 51.003(b), Education Code, is amended to
   30-6  read as follows:
   30-7        (b)  The funds shall either be deposited in the depository
   30-8  bank or banks or invested as authorized by Chapter 2256, Government
   30-9  Code (<the> Public Funds Investment Act) <of 1987>.  Funds that are
  30-10  to be deposited in the depository bank or banks must be deposited
  30-11  within seven days from the date of collection.
  30-12        SECTION 3.  Section 51.0031(a), Education Code, is amended to
  30-13  read as follows:
  30-14        (a)  A governing board may deposit funds under its control as
  30-15  provided in Section 51.003 of this code, may invest funds under its
  30-16  control in accordance with Chapter 2256, Government Code <financial
  30-17  instruments eligible for investment of funds in the state treasury>
  30-18  and, with regard to donations, gifts, and trusts, may establish
  30-19  endowment funds that operate as trusts and are managed under
  30-20  prudent person standards.
  30-21        SECTION 4.  Subchapter A, Chapter 51, Education Code, is
  30-22  amended by adding Section 51.0032 to read as follows:
  30-23        Sec. 51.0032.  INVESTMENT REPORTS AND POLICIES.  (a)  A
  30-24  governing board shall adopt by rule or resolution a written
  30-25  investment policy for the investment of its institutional funds.
  30-26        (b)  Not less than quarterly, an institution of higher
  30-27  education shall prepare and submit to the governing board of the
   31-1  institution a written report of the institution's institutional
   31-2  funds investment transactions for the preceding reporting period.
   31-3        (c)  In addition to other information that may be required by
   31-4  the governing board, the report must contain:
   31-5              (1)  a summary statement of each pooled fund group that
   31-6  states the beginning market value for the reporting period,
   31-7  additions and changes to the market value during the period, and
   31-8  the ending market value for the period; and
   31-9              (2)  the book value and market value of each separately
  31-10  invested asset at the beginning and end of the reporting period by
  31-11  type of asset and fund type invested.
  31-12        (d)  In this section:
  31-13              (1)  "Governing board" means a governing board
  31-14  described in Section 51.0031(c).
  31-15              (2)  "Institution of higher education" means an
  31-16  institution of higher education under the governance of a governing
  31-17  board to which this section applies.
  31-18              (3)  "Pooled fund group" means an internally created
  31-19  fund of an institution of higher education in which one or more
  31-20  institutional accounts are invested.
  31-21              (4)  "Separately invested asset" means an account of an
  31-22  institution of higher education that is not invested in a pooled
  31-23  fund group.
  31-24        SECTION 5.  Section 1, Chapter 181; Section 1, Chapter 858;
  31-25  and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
  31-26  Session, 1993, are repealed.
  31-27        SECTION 6.  As provided by Section 1.02, Senate Bill No. 959,
   32-1  Acts of the 74th Legislature, Regular Session, 1995, this Act
   32-2  controls over Senate Bill No. 959 to the extent of any conflict.
   32-3        SECTION 7.  Each member of a governing board and each
   32-4  investment officer who is in office or who has assumed duties on
   32-5  September 1, 1995, and who would be required by Section
   32-6  2256.007(a), Government Code, as amended by this Act, to attend
   32-7  investment training within six months after taking office or
   32-8  assuming duties shall attend at least one training session relating
   32-9  to the person's responsibilities under Chapter 2256, Government
  32-10  Code, that meets the requirements of that section not later than
  32-11  March 1, 1996.
  32-12        SECTION 8.  Each treasurer, chief financial officer, and
  32-13  investment officer who is in office or who has assumed duties on
  32-14  September 1, 1995, and who would be required by Section
  32-15  2256.008(a), Government Code, as amended by this Act, to attend
  32-16  investment training within 12 months after taking office or
  32-17  assuming duties shall attend at least one training session relating
  32-18  to the person's responsibilities under Chapter 2256, Government
  32-19  Code, that meets the requirements of that section not later than
  32-20  September 1, 1997.
  32-21        SECTION 9.  The state auditor shall conduct, or shall hire an
  32-22  independent evaluator to conduct, an assessment of the risks and
  32-23  benefits associated with authorizing entities subject to this
  32-24  chapter to invest in mutual funds other than money market mutual
  32-25  funds, investment pools other than investment pools that function
  32-26  as money market mutual funds, and guaranteed investment contracts.
  32-27  The state auditor shall report these findings to the legislature
   33-1  not later than September 1, 1996.  This section expires on
   33-2  September 2, 1996.
   33-3        SECTION 10.  This Act takes effect September 1, 1995.
   33-4        SECTION 11.  An entity that acquired authorized investment
   33-5  securities under Chapter 2256, Government Code, before the
   33-6  effective date of this Act that are no longer authorized investment
   33-7  securities under that chapter as amended by this Act is not
   33-8  required by this Act to liquidate those securities before the final
   33-9  stated maturity of the investment.
  33-10        SECTION 12.  The importance of this legislation and the
  33-11  crowded condition of the calendars in both houses create an
  33-12  emergency and an imperative public necessity that the
  33-13  constitutional rule requiring bills to be read on three several
  33-14  days in each house be suspended, and this rule is hereby suspended.