1-1                                   AN ACT
 1-2     relating to investments and audits under the Public Funds
 1-3     Investment Act.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Section 2256.002(10), Government Code, is amended
 1-6     to read as follows:
 1-7                 (10)  "Qualified representative" means a person who
 1-8     holds a position with a business organization, who is authorized to
 1-9     act on behalf of the business organization, and who is one of the
1-10     following:
1-11                       (A)  for a business organization doing business
1-12     that is regulated by or registered with a securities commission, a
1-13     person who is registered under the rules of the National
1-14     Association of Securities Dealers;
1-15                       (B)  for a state or federal bank, a savings bank,
1-16     or a state or federal credit union, a member of the loan committee
1-17     for the bank or branch of the bank or a person authorized by
1-18     corporate resolution to act on behalf of and bind the banking
1-19     institution; [or]
1-20                       (C)  for an investment pool, the person
1-21     authorized by the elected official or board with authority to
1-22     administer the activities of the investment pool to sign the
1-23     written instrument on behalf of the investment pool; or
1-24                       (D)  for an investment management firm registered
 2-1     under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1
 2-2     et seq.) or, if not subject to registration under that Act,
 2-3     registered with the State Securities Board, a person who is an
 2-4     officer or principal of the investment management firm.
 2-5           SECTION 2.  Section 2256.003, Government Code, is amended to
 2-6     read as follows:
 2-7           Sec. 2256.003.  AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT
 2-8     TO THIS CHAPTER.  (a)  Each governing body of the following
 2-9     entities may purchase, sell, and invest its funds and funds under
2-10     its control in investments authorized under this subchapter in
2-11     compliance with investment policies approved by the governing body
2-12     and according to the standard of care prescribed by Section
2-13     2256.006:
2-14                 (1)  a local government;
2-15                 (2)  a state agency;
2-16                 (3)  a nonprofit corporation acting on behalf of a
2-17     local government or a state agency; or
2-18                 (4)  an investment pool acting on behalf of two or more
2-19     local governments, state agencies, or a combination of those
2-20     entities.
2-21           (b)  In the exercise of its powers under Subsection (a), the
2-22     governing body of an investing entity may contract with an
2-23     investment management firm registered under the Investment Advisers
2-24     Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State
2-25     Securities Board to provide for the investment and management of
2-26     its public funds or other funds under its control.  A contract made
2-27     under authority of this subsection may not be for a term longer
 3-1     than two years.  A renewal or extension of the contract must be
 3-2     made by the governing body of the investing entity by order,
 3-3     ordinance, or resolution.
 3-4           (c)  This chapter does not prohibit an investing entity or
 3-5     investment officer from using the entity's employees or the
 3-6     services of a contractor of the entity to aid the investment
 3-7     officer in the execution of the officer's duties under this
 3-8     chapter.
 3-9           SECTION 3.  Section 2256.004, Government Code, as amended by
3-10     Chapters 505 and 1421, Acts of the 75th Legislature, Regular
3-11     Session, 1997, is amended to read as follows:
3-12           Sec. 2256.004.  APPLICABILITY.  (a)  This subchapter does not
3-13     apply to:
3-14                 (1)  a public retirement system as defined by Section
3-15     802.001;
3-16                 (2)  state funds invested as authorized by Section
3-17     404.024;
3-18                 (3)  an institution of higher education having total
3-19     endowments of at least $95 million in book value on May 1, 1995;
3-20                 (4)  funds invested by the Veterans' Land Board as
3-21     authorized by Chapter 161, 162, or 164, Natural Resources Code;
3-22     [or]
3-23                 (5)  registry funds deposited with the county or
3-24     district clerk under Chapter 117, Local Government Code; or[.]
3-25                 (6) [(5)]  a deferred compensation plan that qualifies
3-26     under either Section 401(k) or 457 of the Internal Revenue Code of
3-27     1986 (26 U.S.C. Section 1 et seq.), as amended.
 4-1           (b)  This subchapter does not apply to an investment donated
 4-2     to an investing entity for a particular purpose or under terms of
 4-3     use specified by the donor.
 4-4           SECTION 4.  Section 2256.005, Government Code, is amended by
 4-5     amending Subsections (f), (k), and (m) and adding Subsections (n)
 4-6     and (o) to read as follows:
 4-7           (f)  Each investing entity shall designate, by rule, order,
 4-8     ordinance, or resolution, as appropriate, one or more officers or
 4-9     employees of the state agency, local government, or investment pool
4-10     as investment officer to be responsible for the investment of its
4-11     funds consistent with the investment policy adopted by the entity.
4-12     If the governing body of an investing entity has contracted with
4-13     another investing entity to invest its funds, the investment
4-14     officer of the other investing entity is considered to be the
4-15     investment officer of the first investing entity for purposes of
4-16     this chapter.  Authority granted to a person to invest an entity's
4-17     funds is effective until rescinded by the investing entity, [or]
4-18     until the expiration of the officer's term or the termination of
4-19     the person's employment by the investing entity, or if an
4-20     investment management firm, until the expiration of the contract
4-21     with the investing entity.  In the administration of the duties of
4-22     an investment officer, the person designated as investment officer
4-23     shall exercise the judgment and care, under prevailing
4-24     circumstances, that a prudent person would exercise in the
4-25     management of the person's own affairs, but the governing body of
4-26     the investing entity retains ultimate responsibility as fiduciaries
4-27     of the assets of the entity.  Unless authorized by law, a person
 5-1     may not deposit, withdraw, transfer, or manage in any other manner
 5-2     the funds of the investing entity.
 5-3           (k)  A written copy of the investment policy shall be
 5-4     presented to any person offering to engage in an investment
 5-5     transaction with an investing entity or to an investment management
 5-6     firm under contract with an investing entity to invest or manage
 5-7     the entity's investment portfolio.  For purposes of this
 5-8     subsection, a business organization includes investment pools and
 5-9     an investment management firm under contract with an investing
5-10     entity to invest or manage the entity's investment portfolio.
5-11     Nothing in this subsection relieves the investing entity of the
5-12     responsibility for monitoring the investments made by the investing
5-13     entity to determine that they are in compliance with the investment
5-14     policy.  The qualified representative of the business organization
5-15     offering to engage in an investment transaction with an investing
5-16     entity shall execute a written instrument in a form acceptable to
5-17     the investing entity and the business organization substantially to
5-18     the effect that the business organization has:
5-19                 (1)  received and reviewed the investment policy of the
5-20     entity; and
5-21                 (2)  acknowledged that the business organization has
5-22     implemented reasonable procedures and controls in an effort to
5-23     preclude investment transactions conducted between the entity and
5-24     the organization that are not authorized by the entity's investment
5-25     policy, except to the extent that this authorization is dependent
5-26     on an analysis of the makeup of the entity's entire portfolio or
5-27     requires an interpretation of subjective investment standards.
 6-1           (m)  An investing entity other than a state agency, in
 6-2     conjunction with its annual financial audit, shall perform a
 6-3     compliance audit of management controls on investments and
 6-4     adherence to the entity's established investment policies.  [State
 6-5     agencies shall report the results of the audit performed under this
 6-6     subsection to the state auditor.  The state auditor shall compile
 6-7     the results of reports received under this subsection and annually
 6-8     report those results to the legislative audit committee.]
 6-9           (n)  Except as provided by Subsection (o), at least once
6-10     every two years a state agency shall arrange for a compliance audit
6-11     of management controls on investments and adherence to the agency's
6-12     established investment policies.  The compliance audit shall be
6-13     performed by the agency's internal auditor or by a private auditor
6-14     employed in the manner provided by Section 321.020.  Not later than
6-15     January 1 of each even-numbered year, a state agency shall report
6-16     the results of the most recent audit performed under this
6-17     subsection to the state auditor.  A state agency also shall report
6-18     to the state auditor other information the state auditor determines
6-19     necessary to assess compliance with laws and policies applicable to
6-20     state agency investments.  A report under this subsection shall be
6-21     prepared in a manner the state auditor prescribes.
6-22           (o)  The audit requirements of Subsection (n) do not apply to
6-23     assets of a state agency that are invested by the comptroller under
6-24     Section 404.024.
6-25           SECTION 5.  Section 2256.007(c), Government Code, is amended
6-26     to read as follows:
6-27           (c)  Training under this section must include education in
 7-1     investment controls, security risks, strategy risks, market risks,
 7-2     diversification of investment portfolio, and compliance with this
 7-3     chapter.
 7-4           SECTION 6.  Section 2256.008, Government Code, is amended to
 7-5     read as follows:
 7-6           Sec. 2256.008.  INVESTMENT TRAINING; LOCAL GOVERNMENTS.  (a)
 7-7     Except as provided by Subsection (b), the [The] treasurer, the
 7-8     chief financial officer if the treasurer is not the chief financial
 7-9     officer, and the investment officer of a local government shall:
7-10                 (1)  attend at least one training session from an
7-11     independent source approved by the governing body of the local
7-12     government or a designated investment committee advising the
7-13     investment officer as provided for in the investment policy of the
7-14     local government and containing at least 10 hours of instruction
7-15     relating to the treasurer's or officer's responsibilities under
7-16     this subchapter within 12 months after taking office or assuming
7-17     duties; and
7-18                 (2)  except as provided by Subsection (b), attend an
7-19     investment training session not less than once in a two-year period
7-20     and receive not less than 10 hours of instruction relating to
7-21     investment responsibilities under this subchapter from an
7-22     independent source approved by the governing body of the local
7-23     government or a designated investment committee advising the
7-24     investment officer as provided for in the investment policy of the
7-25     local government.
7-26           (b)  An investing entity created under authority of Section
7-27     52(b), Article III, or Section 59, Article XVI, Texas Constitution,
 8-1     that has contracted with an investment management firm under
 8-2     Section 2256.003(b) and has fewer than five full-time employees or
 8-3     an investing entity that has contracted with another investing
 8-4     entity to invest the entity's funds may satisfy the training
 8-5     requirement provided by Subsection (a)(2) by having an officer of
 8-6     the governing body attend four hours of appropriate instruction in
 8-7     a two-year period.  The treasurer or chief financial officer of an
 8-8     investing entity created under authority of Section 52(b), Article
 8-9     III, or Section 59, Article XVI, Texas Constitution, and that has
8-10     fewer than five full-time employees is not required to attend
8-11     training required by this section unless the person is also the
8-12     investment officer of the entity.
8-13           (c)  Training under this section must include education in
8-14     investment controls, security risks, strategy risks, market risks,
8-15     diversification of investment portfolio, and compliance with this
8-16     chapter.
8-17           (d)  Not later than December 31 each year, each individual,
8-18     association, business, organization, governmental entity, or other
8-19     person that provides training under this section shall report to
8-20     the comptroller a list of the governmental entities for which the
8-21     person provided required training under this section during that
8-22     calendar year.  An individual's reporting requirements under this
8-23     subsection are satisfied by a report of the individual's employer
8-24     or the sponsoring or organizing entity of a training program or
8-25     seminar.
8-26           SECTION 7.  Section 2256.009(a), Government Code, is amended
8-27     to read as follows:
 9-1           (a)  Except as provided by Subsection (b), the following are
 9-2     authorized investments under this subchapter:
 9-3                 (1)  obligations of the United States or its agencies
 9-4     and instrumentalities;
 9-5                 (2)  direct obligations of this state or its agencies
 9-6     and instrumentalities;
 9-7                 (3)  collateralized mortgage obligations directly
 9-8     issued by a federal agency or instrumentality of the United States,
 9-9     the underlying security for which is guaranteed by an agency or
9-10     instrumentality of the United States;
9-11                 (4)  other obligations, the principal and interest of
9-12     which are unconditionally guaranteed or insured by, or backed by
9-13     the full faith and credit of, this state or the United States or
9-14     their respective agencies and instrumentalities; [and]
9-15                 (5)  obligations of states, agencies, counties, cities,
9-16     and other political subdivisions of any state rated as to
9-17     investment quality by a nationally recognized investment rating
9-18     firm not less than A or its equivalent; and
9-19                 (6)  bonds issued, assumed, or guaranteed by the State
9-20     of Israel.
9-21           SECTION 8.  Section 2256.014(c), Government Code, is amended
9-22     to read as follows:
9-23           (c)  An entity is not authorized by this section to:
9-24                 (1)  invest in the aggregate more than 15 [80] percent
9-25     of its monthly average fund balance, excluding bond proceeds and
9-26     reserves and other funds held for debt service, in [money market
9-27     mutual funds described in Subsection (a) or] mutual funds described
 10-1    in Subsection (b)[, either separately or collectively];
 10-2                (2)  [invest in the aggregate more than 15 percent of
 10-3    its monthly average fund balance, excluding bond proceeds and
 10-4    reserves and other funds held for debt service, in mutual funds
 10-5    described in Subsection (b);]
 10-6                [(3)]  invest any portion of bond proceeds, reserves
 10-7    and funds held for debt service, in mutual funds described in
 10-8    Subsection (b); or
 10-9                (3) [(4)]  invest its funds or funds under its control,
10-10    including bond proceeds and reserves and other funds held for debt
10-11    service, in any one mutual fund described in Subsection (a) or (b)
10-12    in an amount that exceeds 10 percent of the total assets of the
10-13    mutual fund.
10-14          SECTION 9.  The heading for Section 2256.015, Government
10-15    Code, is amended to read as follows:
10-16          Sec. 2256.015.  AUTHORIZED INVESTMENTS [FOR STATE AGENCIES]:
10-17    GUARANTEED INVESTMENT CONTRACTS.
10-18          SECTION 10.  Section 2256.015(a), Government Code, is amended
10-19    to read as follows:
10-20          (a)  A guaranteed investment contract is an authorized
10-21    investment [for state agencies] for bond proceeds under this
10-22    subchapter if the guaranteed investment contract:
10-23                (1)  has a defined termination date;
10-24                (2)  is secured by obligations described by Section
10-25    2256.009(a)(1), excluding those obligations described by Section
10-26    2256.009(b), in an amount at least equal to the amount of bond
10-27    proceeds invested under the contract; and
 11-1                (3)  is pledged to the entity and deposited with the
 11-2    entity or with a third party selected and approved by the entity.
 11-3          SECTION 11.  This Act takes effect September 1, 1999.
 11-4          SECTION 12.  The importance of this legislation and the
 11-5    crowded condition of the calendars in both houses create an
 11-6    emergency and an imperative public necessity that the
 11-7    constitutional rule requiring bills to be read on three several
 11-8    days in each house be suspended, and this rule is hereby suspended.
         _______________________________     _______________________________
             President of the Senate              Speaker of the House
               I certify that H.B. No. 3009 was passed by the House on May
         11, 1999, by a non-record vote; and that the House concurred in
         Senate amendments to H.B. No. 3009 on May 28, 1999, by a non-record
         vote.
                                             _______________________________
                                                 Chief Clerk of the House
               I certify that H.B. No. 3009 was passed by the Senate, with
         amendments, on May 26, 1999, by a viva-voce vote.
                                             _______________________________
                                                 Secretary of the Senate
         APPROVED:  _____________________
                            Date
                    _____________________
                          Governor