CHAPTER 2256. PUBLIC FUNDS INVESTMENT

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GOVERNMENT CODE

TITLE 10. GENERAL GOVERNMENT

SUBTITLE F. STATE AND LOCAL CONTRACTS AND FUND MANAGEMENT

CHAPTER 2256. PUBLIC FUNDS INVESTMENT

SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES

Sec. 2256.001. SHORT TITLE. This chapter may be cited as the

Public Funds Investment Act.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.002. DEFINITIONS. In this chapter:

(1) "Bond proceeds" means the proceeds from the sale of bonds,

notes, and other obligations issued by an entity, and reserves

and funds maintained by an entity for debt service purposes.

(2) "Book value" means the original acquisition cost of an

investment plus or minus the accrued amortization or accretion.

(3) "Funds" means public funds in the custody of a state agency

or local government that:

(A) are not required by law to be deposited in the state

treasury; and

(B) the investing entity has authority to invest.

(4) "Institution of higher education" has the meaning assigned

by Section 61.003, Education Code.

(5) "Investing entity" and "entity" mean an entity subject to

this chapter and described by Section 2256.003.

(6) "Investment pool" means an entity created under this code to

invest public funds jointly on behalf of the entities that

participate in the pool and whose investment objectives in order

of priority are:

(A) preservation and safety of principal;

(B) liquidity; and

(7) "Local government" means a municipality, a county, a school

district, a district or authority created under Section 52(b)(1)

or (2), Article III, or Section 59, Article XVI, Texas

Constitution, a fresh water supply district, a hospital district,

and any political subdivision, authority, public corporation,

body politic, or instrumentality of the State of Texas, and any

nonprofit corporation acting on behalf of any of those entities.

(8) "Market value" means the current face or par value of an

investment multiplied by the net selling price of the security as

quoted by a recognized market pricing source quoted on the

valuation date.

(9) "Pooled fund group" means an internally created fund of an

investing entity in which one or more institutional accounts of

the investing entity are invested.

(10) "Qualified representative" means a person who holds a

position with a business organization, who is authorized to act

on behalf of the business organization, and who is one of the

following:

(A) for a business organization doing business that is regulated

by or registered with a securities commission, a person who is

registered under the rules of the National Association of

Securities Dealers;

(B) for a state or federal bank, a savings bank, or a state or

federal credit union, a member of the loan committee for the bank

or branch of the bank or a person authorized by corporate

resolution to act on behalf of and bind the banking institution;

official or board with authority to administer the activities of

the investment pool to sign the written instrument on behalf of

the investment pool; or

(D) for an investment management firm registered under the

Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.)

or, if not subject to registration under that Act, registered

with the State Securities Board, a person who is an officer or

principal of the investment management firm.

(11) "School district" means a public school district.

(12) "Separately invested asset" means an account or fund of a

state agency or local government that is not invested in a pooled

fund group.

(13) "State agency" means an office, department, commission,

board, or other agency that is part of any branch of state

government, an institution of higher education, and any nonprofit

corporation acting on behalf of any of those entities.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1421, Sec. 1, eff. Sept. 1, 1997;

Acts 1999, 76th Leg., ch. 1454, Sec. 1, eff. Sept. 1, 1999.

Sec. 2256.003. AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT TO

THIS CHAPTER. (a) Each governing body of the following entities

may purchase, sell, and invest its funds and funds under its

control in investments authorized under this subchapter in

compliance with investment policies approved by the governing

body and according to the standard of care prescribed by Section

2256.006:

(1) a local government;

(2) a state agency;

(3) a nonprofit corporation acting on behalf of a local

government or a state agency; or

(4) an investment pool acting on behalf of two or more local

governments, state agencies, or a combination of those entities.

(b) In the exercise of its powers under Subsection (a), the

governing body of an investing entity may contract with an

investment management firm registered under the Investment

Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with

the State Securities Board to provide for the investment and

management of its public funds or other funds under its control.

A contract made under authority of this subsection may not be for

a term longer than two years. A renewal or extension of the

contract must be made by the governing body of the investing

entity by order, ordinance, or resolution.

investment officer from using the entity's employees or the

services of a contractor of the entity to aid the investment

officer in the execution of the officer's duties under this

chapter.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 1454, Sec. 2, eff. Sept. 1, 1999.

Sec. 2256.004. APPLICABILITY. (a) This subchapter does not

apply to:

(1) a public retirement system as defined by Section 802.001;

(2) state funds invested as authorized by Section 404.024;

(3) an institution of higher education having total endowments

of at least $95 million in book value on May 1, 1995;

(4) funds invested by the Veterans' Land Board as authorized by

Chapter 161, 162, or 164, Natural Resources Code;

(5) registry funds deposited with the county or district clerk

under Chapter 117, Local Government Code; or

(6) a deferred compensation plan that qualifies under either

Section 401(k) or 457 of the Internal Revenue Code of 1986 (26

U.S.C. Section 1 et seq.), as amended.

(b) This subchapter does not apply to an investment donated to

an investing entity for a particular purpose or under terms of

use specified by the donor.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 505, Sec. 24, eff. Sept. 1, 1997;

Acts 1997, 75th Leg., ch. 1421, Sec. 2, eff. Sept. 1, 1997; Acts

1999, 76th Leg., ch. 62, Sec. 8.21, eff. Sept. 1, 1999; Acts

1999, 76th Leg., ch. 1454, Sec. 3, eff. Sept. 1, 1999.

Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;

INVESTMENT OFFICER. (a) The governing body of an investing

entity shall adopt by rule, order, ordinance, or resolution, as

appropriate, a written investment policy regarding the investment

of its funds and funds under its control.

(b) The investment policies must:

(1) be written;

(2) primarily emphasize safety of principal and liquidity;

(3) address investment diversification, yield, and maturity and

the quality and capability of investment management; and

(4) include:

(A) a list of the types of authorized investments in which the

investing entity's funds may be invested;

(B) the maximum allowable stated maturity of any individual

investment owned by the entity;

maturity allowed based on the stated maturity date for the

portfolio;

(D) methods to monitor the market price of investments acquired

with public funds; and

(E) a requirement for settlement of all transactions, except

investment pool funds and mutual funds, on a delivery versus

payment basis.

certificates of deposit be solicited:

(1) orally;

(2) in writing;

(3) electronically; or

(4) in any combination of those methods.

(d) As an integral part of an investment policy, the governing

body shall adopt a separate written investment strategy for each

of the funds or group of funds under its control. Each investment

strategy must describe the investment objectives for the

particular fund using the following priorities in order of

importance:

(1) understanding of the suitability of the investment to the

financial requirements of the entity;

(2) preservation and safety of principal;

(3) liquidity;

(4) marketability of the investment if the need arises to

liquidate the investment before maturity;

(5) diversification of the investment portfolio; and

(6) yield.

(e) The governing body of an investing entity shall review its

investment policy and investment strategies not less than

annually. The governing body shall adopt a written instrument by

rule, order, ordinance, or resolution stating that it has

reviewed the investment policy and investment strategies and that

the written instrument so adopted shall record any changes made

to either the investment policy or investment strategies.

(f) Each investing entity shall designate, by rule, order,

ordinance, or resolution, as appropriate, one or more officers or

employees of the state agency, local government, or investment

pool as investment officer to be responsible for the investment

of its funds consistent with the investment policy adopted by the

entity. If the governing body of an investing entity has

contracted with another investing entity to invest its funds, the

investment officer of the other investing entity is considered to

be the investment officer of the first investing entity for

purposes of this chapter. Authority granted to a person to invest

an entity's funds is effective until rescinded by the investing

entity, until the expiration of the officer's term or the

termination of the person's employment by the investing entity,

or if an investment management firm, until the expiration of the

contract with the investing entity. In the administration of the

duties of an investment officer, the person designated as

investment officer shall exercise the judgment and care, under

prevailing circumstances, that a prudent person would exercise in

the management of the person's own affairs, but the governing

body of the investing entity retains ultimate responsibility as

fiduciaries of the assets of the entity. Unless authorized by

law, a person may not deposit, withdraw, transfer, or manage in

any other manner the funds of the investing entity.

(g) Subsection (f) does not apply to a state agency, local

government, or investment pool for which an officer of the entity

is assigned by law the function of investing its funds.

Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 685,

Sec. 1

(h) An officer or employee of a commission created under Chapter

391, Local Government Code, is ineligible to be an investment

officer for the commission under Subsection (f) if the officer or

employee is an investment officer designated under Subsection (f)

for another local government.

Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 1421,

Sec. 3

(h) An officer or employee of a commission created under Chapter

391, Local Government Code, is ineligible to be designated as an

investment officer under Subsection (f) for any investing entity

other than for that commission.

(i) An investment officer of an entity who has a personal

business relationship with a business organization offering to

engage in an investment transaction with the entity shall file a

statement disclosing that personal business interest. An

investment officer who is related within the second degree by

affinity or consanguinity, as determined under Chapter 573, to an

individual seeking to sell an investment to the investment

officer's entity shall file a statement disclosing that

relationship. A statement required under this subsection must be

filed with the Texas Ethics Commission and the governing body of

the entity. For purposes of this subsection, an investment

officer has a personal business relationship with a business

organization if:

(1) the investment officer owns 10 percent or more of the voting

stock or shares of the business organization or owns $5,000 or

more of the fair market value of the business organization;

(2) funds received by the investment officer from the business

organization exceed 10 percent of the investment officer's gross

income for the previous year; or

(3) the investment officer has acquired from the business

organization during the previous year investments with a book

value of $2,500 or more for the personal account of the

investment officer.

(j) The governing body of an investing entity may specify in its

investment policy that any investment authorized by this chapter

is not suitable.

(k) A written copy of the investment policy shall be presented

to any person offering to engage in an investment transaction

with an investing entity or to an investment management firm

under contract with an investing entity to invest or manage the

entity's investment portfolio. For purposes of this subsection, a

business organization includes investment pools and an investment

management firm under contract with an investing entity to invest

or manage the entity's investment portfolio. Nothing in this

subsection relieves the investing entity of the responsibility

for monitoring the investments made by the investing entity to

determine that they are in compliance with the investment policy.

The qualified representative of the business organization

offering to engage in an investment transaction with an investing

entity shall execute a written instrument in a form acceptable to

the investing entity and the business organization substantially

to the effect that the business organization has:

(1) received and reviewed the investment policy of the entity;

and

(2) acknowledged that the business organization has implemented

reasonable procedures and controls in an effort to preclude

investment transactions conducted between the entity and the

organization that are not authorized by the entity's investment

policy, except to the extent that this authorization is dependent

on an analysis of the makeup of the entity's entire portfolio or

requires an interpretation of subjective investment standards.

(l) The investment officer of an entity may not acquire or

otherwise obtain any authorized investment described in the

investment policy of the investing entity from a person who has

not delivered to the entity the instrument required by Subsection

(k).

(m) An investing entity other than a state agency, in

conjunction with its annual financial audit, shall perform a

compliance audit of management controls on investments and

adherence to the entity's established investment policies.

(n) Except as provided by Subsection (o), at least once every

two years a state agency shall arrange for a compliance audit of

management controls on investments and adherence to the agency's

established investment policies. The compliance audit shall be

performed by the agency's internal auditor or by a private

auditor employed in the manner provided by Section 321.020. Not

later than January 1 of each even-numbered year a state agency

shall report the results of the most recent audit performed under

this subsection to the state auditor. Subject to a risk

assessment and to the legislative audit committee's approval of

including a review by the state auditor in the audit plan under

Section 321.013, the state auditor may review information

provided under this section. If review by the state auditor is

approved by the legislative audit committee, the state auditor

may, based on its review, require a state agency to also report

to the state auditor other information the state auditor

determines necessary to assess compliance with laws and policies

applicable to state agency investments. A report under this

subsection shall be prepared in a manner the state auditor

prescribes.

(o) The audit requirements of Subsection (n) do not apply to

assets of a state agency that are invested by the comptroller

under Section 404.024.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 685, Sec. 1, eff. Sept. 1, 1997;

Acts 1997, 75th Leg., ch. 1421, Sec. 3, eff. Sept. 1, 1997; Acts

1999, 76th Leg., ch. 1454, Sec. 4, eff. Sept. 1, 1999; Acts 2003,

78th Leg., ch. 785, Sec. 41, eff. Sept. 1, 2003.

Sec. 2256.006. STANDARD OF CARE. (a) Investments shall be made

with judgment and care, under prevailing circumstances, that a

person of prudence, discretion, and intelligence would exercise

in the management of the person's own affairs, not for

speculation, but for investment, considering the probable safety

of capital and the probable income to be derived. Investment of

funds shall be governed by the following investment objectives,

in order of priority:

(1) preservation and safety of principal;

(2) liquidity; and

(3) yield.

(b) In determining whether an investment officer has exercised

prudence with respect to an investment decision, the

determination shall be made taking into consideration:

(1) the investment of all funds, or funds under the entity's

control, over which the officer had responsibility rather than a

consideration as to the prudence of a single investment; and

(2) whether the investment decision was consistent with the

written investment policy of the entity.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.007. INVESTMENT TRAINING; STATE AGENCY BOARD MEMBERS

AND OFFICERS. (a) Each member of the governing board of a state

agency and its investment officer shall attend at least one

training session relating to the person's responsibilities under

this chapter within six months after taking office or assuming

duties.

(b) The Texas Higher Education Coordinating Board shall provide

the training under this section.

investment controls, security risks, strategy risks, market

risks, diversification of investment portfolio, and compliance

with this chapter.

(d) An investment officer shall attend a training session not

less than once in a two-year period and may receive training from

any independent source approved by the governing body of the

state agency. The investment officer shall prepare a report on

this subchapter and deliver the report to the governing body of

the state agency not later than the 180th day after the last day

of each regular session of the legislature.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 73, Sec. 1, eff. May 9, 1997;

Acts 1997, 75th Leg., ch. 1421, Sec. 4, eff. Sept. 1, 1997; Acts

1999, 76th Leg., ch. 1454, Sec. 5, eff. Sept. 1, 1999.

Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)

Except as provided by Subsections (b) and (e), the treasurer, the

chief financial officer if the treasurer is not the chief

financial officer, and the investment officer of a local

government shall:

(1) attend at least one training session from an independent

source approved by the governing body of the local government or

a designated investment committee advising the investment officer

as provided for in the investment policy of the local government

and containing at least 10 hours of instruction relating to the

treasurer's or officer's responsibilities under this subchapter

within 12 months after taking office or assuming duties; and

(2) except as provided by Subsections (b) and (e), attend an

investment training session not less than once in a two-year

period and receive not less than 10 hours of instruction relating

to investment responsibilities under this subchapter from an

independent source approved by the governing body of the local

government or a designated investment committee advising the

investment officer as provided for in the investment policy of

the local government.

(b) An investing entity created under authority of Section

52(b), Article III, or Section 59, Article XVI, Texas

Constitution, that has contracted with an investment management

firm under Section 2256.003(b) and has fewer than five full-time

employees or an investing entity that has contracted with another

investing entity to invest the entity's funds may satisfy the

training requirement provided by Subsection (a)(2) by having an

officer of the governing body attend four hours of appropriate

instruction in a two-year period. The treasurer or chief

financial officer of an investing entity created under authority

of Section 52(b), Article III, or Section 59, Article XVI, Texas

Constitution, and that has fewer than five full-time employees is

not required to attend training required by this section unless

the person is also the investment officer of the entity.

investment controls, security risks, strategy risks, market

risks, diversification of investment portfolio, and compliance

with this chapter.

(d) Not later than December 31 each year, each individual,

association, business, organization, governmental entity, or

other person that provides training under this section shall

report to the comptroller a list of the governmental entities for

which the person provided required training under this section

during that calendar year. An individual's reporting requirements

under this subsection are satisfied by a report of the

individual's employer or the sponsoring or organizing entity of a

training program or seminar.

(e) This section does not apply to a district governed by

Chapter 36 or 49, Water Code.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1421, Sec. 5, eff. Sept. 1, 1997;

Acts 1999, 76th Leg., ch. 1454, Sec. 6, eff. Sept. 1, 1999; Acts

2001, 77th Leg., ch. 69, Sec. 4, eff. May 14, 2001.

Sec. 2256.009. AUTHORIZED INVESTMENTS: OBLIGATIONS OF, OR

GUARANTEED BY GOVERNMENTAL ENTITIES. (a) Except as provided by

Subsection (b), the following are authorized investments under

this subchapter:

(1) obligations, including letters of credit, of the United

States or its agencies and instrumentalities;

(2) direct obligations of this state or its agencies and

instrumentalities;

(3) collateralized mortgage obligations directly issued by a

federal agency or instrumentality of the United States, the

underlying security for which is guaranteed by an agency or

instrumentality of the United States;

(4) other obligations, the principal and interest of which are

unconditionally guaranteed or insured by, or backed by the full

faith and credit of, this state or the United States or their

respective agencies and instrumentalities;

(5) obligations of states, agencies, counties, cities, and other

political subdivisions of any state rated as to investment

quality by a nationally recognized investment rating firm not

less than A or its equivalent; and

(6) bonds issued, assumed, or guaranteed by the State of Israel.

(b) The following are not authorized investments under this

section:

(1) obligations whose payment represents the coupon payments on

the outstanding principal balance of the underlying

mortgage-backed security collateral and pays no principal;

(2) obligations whose payment represents the principal stream of

cash flow from the underlying mortgage-backed security collateral

and bears no interest;

(3) collateralized mortgage obligations that have a stated final

maturity date of greater than 10 years; and

(4) collateralized mortgage obligations the interest rate of

which is determined by an index that adjusts opposite to the

changes in a market index.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 1454, Sec. 7, eff. Sept. 1, 1999;

Acts 2001, 77th Leg., ch. 558, Sec. 1, eff. Sept. 1, 2001.

Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF DEPOSIT

AND SHARE CERTIFICATES. (a) A certificate of deposit or share

certificate is an authorized investment under this subchapter if

the certificate is issued by a depository institution that has

its main office or a branch office in this state and is:

(1) guaranteed or insured by the Federal Deposit Insurance

Corporation or its successor or the National Credit Union Share

Insurance Fund or its successor;

(2) secured by obligations that are described by Section

2256.009(a), including mortgage backed securities directly issued

by a federal agency or instrumentality that have a market value

of not less than the principal amount of the certificates, but

excluding those mortgage backed securities of the nature

described by Section 2256.009(b); or

(3) secured in any other manner and amount provided by law for

deposits of the investing entity.

(b) In addition to the authority to invest funds in certificates

of deposit under Subsection (a), an investment in certificates of

deposit made in accordance with the following conditions is an

authorized investment under this subchapter:

(1) the funds are invested by an investing entity through a

depository institution that has its main office or a branch

office in this state and that is selected by the investing

entity;

(2) the depository institution selected by the investing entity

under Subdivision (1) arranges for the deposit of the funds in

certificates of deposit in one or more federally insured

depository institutions, wherever located, for the account of the

investing entity;

(3) the full amount of the principal and accrued interest of

each of the certificates of deposit is insured by the United

States or an instrumentality of the United States;

(4) the depository institution selected by the investing entity

under Subdivision (1) acts as custodian for the investing entity

with respect to the certificates of deposit issued for the

account of the investing entity; and

(5) at the same time that the funds are deposited and the

certificates of deposit are issued for the account of the

investing entity, the depository institution selected by the

investing entity under Subdivision (1) receives an amount of

deposits from customers of other federally insured depository

institutions, wherever located, that is equal to or greater than

the amount of the funds invested by the investing entity through

the depository institution selected under Subdivision (1).

Amended by Acts 1995, 74th Leg., ch. 32, Sec. 1, eff. April 28,

1995; Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1, 1995;

Acts 1997, 75th Leg., ch. 1421, Sec. 6, eff. Sept. 1, 1997.

Amended by:

Acts 2005, 79th Leg., Ch.

128, Sec. 1, eff. September 1, 2005.

Sec. 2256.011. AUTHORIZED INVESTMENTS: REPURCHASE AGREEMENTS.

(a) A fully collateralized repurchase agreement is an authorized

investment under this subchapter if the repurchase agreement:

(1) has a defined termination date;

(2) is secured by obligations described by Section

2256.009(a)(1); and

(3) requires the securities being purchased by the entity to be

pledged to the entity, held in the entity's name, and deposited

at the time the investment is made with the entity or with a

third party selected and approved by the entity; and

(4) is placed through a primary government securities dealer, as

defined by the Federal Reserve, or a financial institution doing

business in this state.

(b) In this section, "repurchase agreement" means a simultaneous

agreement to buy, hold for a specified time, and sell back at a

future date obligations described by Section 2256.009(a)(1), at a

market value at the time the funds are disbursed of not less than

the principal amount of the funds disbursed. The term includes a

direct security repurchase agreement and a reverse security

repurchase agreement.

security repurchase agreement may not exceed 90 days after the

date the reverse security repurchase agreement is delivered.

(d) Money received by an entity under the terms of a reverse

security repurchase agreement shall be used to acquire additional

authorized investments, but the term of the authorized

investments acquired must mature not later than the expiration

date stated in the reverse security repurchase agreement.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.0115. AUTHORIZED INVESTMENTS: SECURITIES LENDING

PROGRAM. (a) A securities lending program is an authorized

investment under this subchapter if it meets the conditions

provided by this section.

(b) To qualify as an authorized investment under this

subchapter:

(1) the value of securities loaned under the program must be not

less than 100 percent collateralized, including accrued income;

(2) a loan made under the program must allow for termination at

any time;

(3) a loan made under the program must be secured by:

(A) pledged securities described by Section 2256.009;

(B) pledged irrevocable letters of credit issued by a bank that

is:

(i) organized and existing under the laws of the United States

or any other state; and

(ii) continuously rated by at least one nationally recognized

investment rating firm at not less than A or its equivalent; or

(i) 2256.009;

(ii) 2256.013;

(iii) 2256.014; or

(iv) 2256.016;

(4) the terms of a loan made under the program must require that

the securities being held as collateral be:

(A) pledged to the investing entity;

(B) held in the investing entity's name; and

or with a third party selected by or approved by the investing

entity;

(5) a loan made under the program must be placed through:

(A) a primary government securities dealer, as defined by 5

C.F.R. Section 6801.102(f), as that regulation existed on

September 1, 2003; or

(B) a financial institution doing business in this state; and

(6) an agreement to lend securities that is executed under this

section must have a term of one year or less.

Added by Acts 2003, 78th Leg., ch. 1227, Sec. 1, eff. Sept. 1,

2003.

Sec. 2256.012. AUTHORIZED INVESTMENTS: BANKER'S ACCEPTANCES. A

bankers' acceptance is an authorized investment under this

subchapter if the bankers' acceptance:

(1) has a stated maturity of 270 days or fewer from the date of

its issuance;

(2) will be, in accordance with its terms, liquidated in full at

maturity;

(3) is eligible for collateral for borrowing from a Federal

Reserve Bank; and

(4) is accepted by a bank organized and existing under the laws

of the United States or any state, if the short-term obligations

of the bank, or of a bank holding company of which the bank is

the largest subsidiary, are rated not less than A-1 or P-1 or an

equivalent rating by at least one nationally recognized credit

rating agency.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.013. AUTHORIZED INVESTMENTS: COMMERCIAL PAPER.

Commercial paper is an authorized investment under this

subchapter if the commercial paper:

(1) has a stated maturity of 270 days or fewer from the date of

its issuance; and

(2) is rated not less than A-1 or P-1 or an equivalent rating by

at least:

(A) two nationally recognized credit rating agencies; or

(B) one nationally recognized credit rating agency and is fully

secured by an irrevocable letter of credit issued by a bank

organized and existing under the laws of the United States or any

state.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.014. AUTHORIZED INVESTMENTS: MUTUAL FUNDS. (a) A

no-load money market mutual fund is an authorized investment

under this subchapter if the mutual fund:

(1) is registered with and regulated by the Securities and

Exchange Commission;

(2) provides the investing entity with a prospectus and other

information required by the Securities Exchange Act of 1934 (15

U.S.C. Section 78a et seq.) or the Investment Company Act of 1940

(15 U.S.C. Section 80a-1 et seq.);

(3) has a dollar-weighted average stated maturity of 90 days or

fewer; and

(4) includes in its investment objectives the maintenance of a

stable net asset value of $1 for each share.

(b) In addition to a no-load money market mutual fund permitted

as an authorized investment in Subsection (a), a no-load mutual

fund is an authorized investment under this subchapter if the

mutual fund:

(1) is registered with the Securities and Exchange Commission;

(2) has an average weighted maturity of less than two years;

(3) is invested exclusively in obligations approved by this

subchapter;

(4) is continuously rated as to investment quality by at least

one nationally recognized investment rating firm of not less than

AAA or its equivalent; and

(5) conforms to the requirements set forth in Sections

2256.016(b) and (c) relating to the eligibility of investment

pools to receive and invest funds of investing entities.

(1) invest in the aggregate more than 15 percent of its monthly

average fund balance, excluding bond proceeds and reserves and

other funds held for debt service, in mutual funds described in

Subsection (b);

(2) invest any portion of bond proceeds, reserves and funds held

for debt service, in mutual funds described in Subsection (b); or

(3) invest its funds or funds under its control, including bond

proceeds and reserves and other funds held for debt service, in

any one mutual fund described in Subsection (a) or (b) in an

amount that exceeds 10 percent of the total assets of the mutual

fund.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1421, Sec. 7, eff. Sept. 1, 1997;

Acts 1999, 76th Leg., ch. 1454, Sec. 8, eff. Sept. 1, 1999.

Sec. 2256.015. AUTHORIZED INVESTMENTS: GUARANTEED INVESTMENT

CONTRACTS. (a) A guaranteed investment contract is an

authorized investment for bond proceeds under this subchapter if

the guaranteed investment contract:

(1) has a defined termination date;

(2) is secured by obligations described by Section

2256.009(a)(1), excluding those obligations described by Section

2256.009(b), in an amount at least equal to the amount of bond

proceeds invested under the contract; and

(3) is pledged to the entity and deposited with the entity or

with a third party selected and approved by the entity.

(b) Bond proceeds, other than bond proceeds representing

reserves and funds maintained for debt service purposes, may not

be invested under this subchapter in a guaranteed investment

contract with a term of longer than five years from the date of

issuance of the bonds.

(1) the governing body of the entity must specifically authorize

guaranteed investment contracts as an eligible investment in the

order, ordinance, or resolution authorizing the issuance of

bonds;

(2) the entity must receive bids from at least three separate

providers with no material financial interest in the bonds from

which proceeds were received;

(3) the entity must purchase the highest yielding guaranteed

investment contract for which a qualifying bid is received;

(4) the price of the guaranteed investment contract must take

into account the reasonably expected drawdown schedule for the

bond proceeds to be invested; and

(5) the provider must certify the administrative costs

reasonably expected to be paid to third parties in connection

with the guaranteed investment contract.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1421, Sec. 8, eff. Sept. 1, 1997;

Acts 1999, 76th Leg., ch. 1454, Sec. 9, 10, eff. Sept. 1, 1999.

Sec. 2256.016. AUTHORIZED INVESTMENTS: INVESTMENT POOLS. (a)

An entity may invest its funds and funds under its control

through an eligible investment pool if the governing body of the

entity by rule, order, ordinance, or resolution, as appropriate,

authorizes investment in the particular pool. An investment pool

shall invest the funds it receives from entities in authorized

investments permitted by this subchapter.

(b) To be eligible to receive funds from and invest funds on

behalf of an entity under this chapter, an investment pool must

furnish to the investment officer or other authorized

representative of the entity an offering circular or other

similar disclosure instrument that contains, at a minimum, the

following information:

(1) the types of investments in which money is allowed to be

invested;

(2) the maximum average dollar-weighted maturity allowed, based

on the stated maturity date, of the pool;

(3) the maximum stated maturity date any investment security

within the portfolio has;

(4) the objectives of the pool;

(5) the size of the pool;

(6) the names of the members of the advisory board of the pool

and the dates their terms expire;

(7) the custodian bank that will safekeep the pool's assets;

(8) whether the intent of the pool is to maintain a net asset

value of one dollar and the risk of market price fluctuation;

(9) whether the only source of payment is the assets of the pool

at market value or whether there is a secondary source of

payment, such as insurance or guarantees, and a description of

the secondary source of payment;

(10) the name and address of the independent auditor of the

pool;

(11) the requirements to be satisfied for an entity to deposit

funds in and withdraw funds from the pool and any deadlines or

other operating policies required for the entity to invest funds

in and withdraw funds from the pool; and

(12) the performance history of the pool, including yield,

average dollar-weighted maturities, and expense ratios.

funds on behalf of an entity under this chapter, an investment

pool must furnish to the investment officer or other authorized

representative of the entity:

(1) investment transaction confirmations; and

(2) a monthly report that contains, at a minimum, the following

information:

(A) the types and percentage breakdown of securities in which

the pool is invested;

(B) the current average dollar-weighted maturity, based on the

stated maturity date, of the pool;

investments that have stated maturities of more than one year;

(D) the book value versus the market value of the pool's

portfolio, using amortized cost valuation;

(E) the size of the pool;

(F) the number of participants in the pool;

(G) the custodian bank that is safekeeping the assets of the

pool;

(H) a listing of daily transaction activity of the entity

participating in the pool;

(I) the yield and expense ratio of the pool;

(J) the portfolio managers of the pool; and

(K) any changes or addenda to the offering circular.

(d) An entity by contract may delegate to an investment pool the

authority to hold legal title as custodian of investments

purchased with its local funds.

(e) In this section, "yield" shall be calculated in accordance

with regulations governing the registration of open-end

management investment companies under the Investment Company Act

of 1940, as promulgated from time to time by the federal

Securities and Exchange Commission.

(f) To be eligible to receive funds from and invest funds on

behalf of an entity under this chapter, a public funds investment

pool created to function as a money market mutual fund must mark

its portfolio to market daily, and, to the extent reasonably

possible, stabilize at a $1 net asset value. If the ratio of the

market value of the portfolio divided by the book value of the

portfolio is less than 0.995 or greater than 1.005, portfolio

holdings shall be sold as necessary to maintain the ratio between

0.995 and 1.005.

(g) To be eligible to receive funds from and invest funds on

behalf of an entity under this chapter, a public funds investment

pool must have an advisory board composed:

(1) equally of participants in the pool and other persons who do

not have a business relationship with the pool and are qualified

to advise the pool, for a public funds investment pool created

under Chapter 791 and managed by a state agency; or

(2) of participants in the pool and other persons who do not

have a business relationship with the pool and are qualified to

advise the pool, for other investment pools.

(h) To maintain eligibility to receive funds from and invest

funds on behalf of an entity under this chapter, an investment

pool must be continuously rated no lower than AAA or AAA-m or at

an equivalent rating by at least one nationally recognized rating

service.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1421, Sec. 9, eff. Sept. 1, 1997.

Sec. 2256.017. EXISTING INVESTMENTS. An entity is not required

to liquidate investments that were authorized investments at the

time of purchase.

Added by Acts 1995, 74th Leg., ch. 76, Sec. 5.46(a), eff. Sept.

1, 1995; Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 10, eff.

Sept. 1, 1997.

Sec. 2256.019. RATING OF CERTAIN INVESTMENT POOLS. A public

funds investment pool must be continuously rated no lower than

AAA or AAA-m or at an equivalent rating by at least one

nationally recognized rating service or no lower than investment

grade by at least one nationally recognized rating service with a

weighted average maturity no greater than 90 days.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 11, eff.

Sept. 1, 1997.

Sec. 2256.020. AUTHORIZED INVESTMENTS: INSTITUTIONS OF HIGHER

EDUCATION. In addition to the authorized investments permitted

by this subchapter, an institution of higher education may

purchase, sell, and invest its funds and funds under its control

in the following:

(1) cash management and fixed income funds sponsored by

organizations exempt from federal income taxation under Section

501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));

(2) negotiable certificates of deposit issued by a bank that has

a certificate of deposit rating of at least 1 or the equivalent

by a nationally recognized credit rating agency or that is

associated with a holding company having a commercial paper

rating of at least A-1, P-1, or the equivalent by a nationally

recognized credit rating agency; and

(3) corporate bonds, debentures, or similar debt obligations

rated by a nationally recognized investment rating firm in one of

the two highest long-term rating categories, without regard to

gradations within those categories.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.0201. AUTHORIZED INVESTMENTS; MUNICIPAL UTILITY. (a)

A municipality that owns a municipal electric utility that is

engaged in the distribution and sale of electric energy or

natural gas to the public may enter into a hedging contract and

related security and insurance agreements in relation to fuel

oil, natural gas, coal, nuclear fuel, and electric energy to

protect against loss due to price fluctuations. A hedging

transaction must comply with the regulations of the Commodity

Futures Trading Commission and the Securities and Exchange

Commission. If there is a conflict between the municipal charter

of the municipality and this chapter, this chapter prevails.

(b) A payment by a municipally owned electric or gas utility

under a hedging contract or related agreement in relation to fuel

supplies or fuel reserves is a fuel expense, and the utility may

credit any amounts it receives under the contract or agreement

against fuel expenses.

utility or the body vested with power to manage and operate the

municipally owned electric or gas utility may set policy

regarding hedging transactions.

(d) In this section, "hedging" means the buying and selling of

fuel oil, natural gas, coal, nuclear fuel, and electric energy

futures or options or similar contracts on those commodities and

related transportation costs as a protection against loss due to

price fluctuation.

Added by Acts 1999, 76th Leg., ch. 405, Sec. 48, eff. Sept. 1,

1999.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

7, Sec. 1, eff. April 13, 2007.

Sec. 2256.0202. AUTHORIZED INVESTMENTS: MUNICIPAL FUNDS FROM

MANAGEMENT AND DEVELOPMENT OF MINERAL RIGHTS. (a) In addition

to other investments authorized under this subchapter, a

municipality may invest funds received by the municipality from a

lease or contract for the management and development of land

owned by the municipality and leased for oil, gas, or other

mineral development in any investment authorized to be made by a

trustee under Subtitle B, Title 9, Property Code (Texas Trust

Code).

(b) Funds invested by a municipality under this section shall be

segregated and accounted for separately from other funds of the

municipality.

Added by Acts 2009, 81st Leg., R.S., Ch.

1371, Sec. 1, eff. September 1, 2009.

Sec. 2256.0205. AUTHORIZED INVESTMENTS; DECOMMISSIONING TRUST.

(a) In this section:

(1) "Decommissioning trust" means a trust created to provide the

Nuclear Regulatory Commission assurance that funds will be

available for decommissioning purposes as required under 10

C.F.R. Part 50 or other similar regulation.

(2) "Funds" includes any money held in a decommissioning trust

regardless of whether the money is considered to be public funds

under this subchapter.

(b) In addition to other investments authorized under this

subchapter, a municipality that owns a municipal electric utility

that is engaged in the distribution and sale of electric energy

or natural gas to the public may invest funds held in a

decommissioning trust in any investment authorized by Subtitle B,

Title 9, Property Code.

Added by Acts 2005, 79th Leg., Ch.

121, Sec. 1, eff. September 1, 2005.

Sec. 2256.021. EFFECT OF LOSS OF REQUIRED RATING. An investment

that requires a minimum rating under this subchapter does not

qualify as an authorized investment during the period the

investment does not have the minimum rating. An entity shall take

all prudent measures that are consistent with its investment

policy to liquidate an investment that does not have the minimum

rating.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.022. EXPANSION OF INVESTMENT AUTHORITY. Expansion of

investment authority granted by this chapter shall require a risk

assessment by the state auditor or performed at the direction of

the state auditor, subject to the legislative audit committee's

approval of including the review in the audit plan under Section

321.013.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995. Amended by Acts 2003, 78th Leg., ch. 785, Sec. 42, eff.

Sept. 1, 2003.

Sec. 2256.023. INTERNAL MANAGEMENT REPORTS. (a) Not less than

quarterly, the investment officer shall prepare and submit to the

governing body of the entity a written report of investment

transactions for all funds covered by this chapter for the

preceding reporting period.

(b) The report must:

(1) describe in detail the investment position of the entity on

the date of the report;

(2) be prepared jointly by all investment officers of the

entity;

(3) be signed by each investment officer of the entity;

(4) contain a summary statement, prepared in compliance with

generally accepted accounting principles, of each pooled fund

group that states the:

(A) beginning market value for the reporting period;

(B) additions and changes to the market value during the period;

(D) fully accrued interest for the reporting period;

(5) state the book value and market value of each separately

invested asset at the beginning and end of the reporting period

by the type of asset and fund type invested;

(6) state the maturity date of each separately invested asset

that has a maturity date;

(7) state the account or fund or pooled group fund in the state

agency or local government for which each individual investment

was acquired; and

(8) state the compliance of the investment portfolio of the

state agency or local government as it relates to:

(A) the investment strategy expressed in the agency's or local

government's investment policy; and

(B) relevant provisions of this chapter.

governing body and the chief executive officer of the entity

within a reasonable time after the end of the period.

(d) If an entity invests in other than money market mutual

funds, investment pools or accounts offered by its depository

bank in the form of certificates of deposit, or money market

accounts or similar accounts, the reports prepared by the

investment officers under this section shall be formally reviewed

at least annually by an independent auditor, and the result of

the review shall be reported to the governing body by that

auditor.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 12, eff.

Sept. 1, 1997.

Sec. 2256.024. SUBCHAPTER CUMULATIVE. (a) The authority

granted by this subchapter is in addition to that granted by

other law. Except as provided by Subsection (b), this subchapter

does not:

(1) prohibit an investment specifically authorized by other law;

(2) authorize an investment specifically prohibited by other

law.

(b) Except with respect to those investing entities described in

Subsection (c), a security described in Section 2256.009(b) is

not an authorized investment for a state agency, a local

government, or another investing entity, notwithstanding any

other provision of this chapter or other law to the contrary.

loans that may constitute an investment described in Section

2256.009(b) are authorized investments with respect to the

housing bond programs operated by:

(1) the Texas Department of Housing and Community Affairs or a

nonprofit corporation created to act on its behalf;

(2) an entity created under Chapter 392, Local Government Code;

(3) an entity created under Chapter 394, Local Government Code.

Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.025. SELECTION OF AUTHORIZED BROKERS. The governing

body of an entity subject to this subchapter or the designated

investment committee of the entity shall, at least annually,

review, revise, and adopt a list of qualified brokers that are

authorized to engage in investment transactions with the entity.

Added by Acts 1997, 75th Leg., ch. 1421, Sec. 13, eff. Sept. 1,

1997.

Sec. 2256.026. STATUTORY COMPLIANCE. All investments made by

entities must comply with this subchapter and all federal, state,

and local statutes, rules, or regulations.

Added by Acts 1997, 75th Leg., ch. 1421, Sec. 13, eff. Sept. 1,

1997.

SUBCHAPTER B. MISCELLANEOUS PROVISIONS

Sec. 2256.051. ELECTRONIC FUNDS TRANSFER. Any local government

may use electronic means to transfer or invest all funds

collected or controlled by the local government.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.052. PRIVATE AUDITOR. Notwithstanding any other law,

a state agency shall employ a private auditor if authorized by

the legislative audit committee either on the committee's

initiative or on request of the governing body of the agency.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995.

Sec. 2256.053. PAYMENT FOR SECURITIES PURCHASED BY STATE. The

comptroller or the disbursing officer of an agency that has the

power to invest assets directly may pay for authorized securities

purchased from or through a member in good standing of the

National Association of Securities Dealers or from or through a

national or state bank on receiving an invoice from the seller of

the securities showing that the securities have been purchased by

the board or agency and that the amount to be paid for the

securities is just, due, and unpaid. A purchase of securities may

not be made at a price that exceeds the existing market value of

the securities.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.67, eff. Sept. 1,

1997.

Sec. 2256.054. DELIVERY OF SECURITIES PURCHASED BY STATE. A

security purchased under this chapter may be delivered to the

comptroller, a bank, or the board or agency investing its funds.

The delivery shall be made under normal and recognized practices

in the securities and banking industries, including the book

entry procedure of the Federal Reserve Bank.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.68, eff. Sept. 1,

1997.

Sec. 2256.055. DEPOSIT OF SECURITIES PURCHASED BY STATE. At the

direction of the comptroller or the agency, a security purchased

under this chapter may be deposited in trust with a bank or

federal reserve bank or branch designated by the comptroller,

whether in or outside the state. The deposit shall be held in the

entity's name as evidenced by a trust receipt of the bank with

which the securities are deposited.

Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,

1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.69, eff. Sept. 1,

1997.

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

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