OPERATIONS: INVESTMENTS

BUSINESS AND OPERATIONS: INVESTMENTS [LAW]

The school shall comply with §§ 2256.009 through 2256.016 of the Texas Public Funds Investment Act.

Tex. Educ. Code § 12.1053(b)(3).

1. Authorized Investments

A. The following investments, which are obligations of or guaranteed by a governmental entity, are authorized:

(1) Obligations, including letters of credit, of the United States or its agencies and instrumentalities;

(2) Direct obligations of the state of Texas 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, the state of Texas, 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;

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

Tex. Gov’t Code § 2256.009(a).

B. The following certificates of deposits and share certificates are authorized:

Certificates of deposit or share certificates issued by a state or national bank domiciled in Texas or a savings bank domiciled in Texas or a state or federal credit union domiciled in Texas that is guaranteed or insured by the FDIC or its successor or the National Credit Union Share Insurance Fund or its successor and is secured by obligations described in section (1)(A) of this policy, 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 described in § 2256.009(b), Tex. Gov’t Code (See below, Investments That are not Authorized, paragraph 2) or secured in any other manner and amount provided by law for the deposits of the investing entity.

Tex. Gov’t Code § 2256.010.

C. Repurchase Agreements

Fully collateralized repurchase agreements that have a defined termination date, are secured by obligations of the United States or its agencies and instrumentalities, are pledged to the school, held in the school’s name, and deposited with the school or a third party selected and approved by the board, and placed through a primary government securities dealer, as defined by the Federal Reserve or a financial institution doing business in Texas.

(1) The term of any reverse security repurchase agreement may not exceed 90 days after the date the reverse security repurchase agreement is delivered.

(2) Money received by the school 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.

Tex. Gov’t Code § 2256.011.

D. Authorized Investment: Banker’s Acceptance

A banker’s acceptance is an authorized investment if it:

(1) Has a stated maturity of 270 days or fewer from the date of issuance;

(2) Will be 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 (1) nationally recognized credit rating agency.

Tex. Gov’t Code § 2256.012.

E. Commercial paper is an authorized investment if it:

(1) Has a stated maturity of 270 days or fewer from the date of issuance;

(2) Is rated not less than A-1 or P-1 or an equivalent rating by at least two (2) nationally recognized credit rating agencies or by one (1) nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under U. S. law or the law of any state.

Tex. Gov’t Code § 2256.013.

F. Mutual Funds

(1) No-load money market mutual funds are authorized if they:

(a) Are registered with and regulated by the Securities and Exchange Commission (SEC);

(b) Provide the school with a prospectus and other information required by the Securities and Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.);

(d) Include in their investment objectives the maintenance of a stable net asset value of $1 for each share.

(2) No-load market mutual funds that:

(a) Are registered with the SEC;

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

(d) Are continuously rated by at least one (1) nationally recognized investment rating firm of not less than AAA or its equivalent; and

(e) Conform to the requirements in Tex. Gov’t Code § 2256.016(b) and (c) relating to the eligibility of investment pools to receive and invest funds of investing entities.

(3) Limitations – the school may not invest:

(a) In the aggregate more than 15% of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in mutual funds described above in subsection (F);

(b) Any portion of the bond proceeds, reserves, and funds held for debt service, in mutual funds described above in subsection (F);

(c) Funds or funds under its control, including bond proceeds and reserves and other funds held for debt service, in any one mutual fund described above in subsection (F) in an amount that exceeds 10% of the total assets of the mutual fund.

Tex. Gov’t Code § 2256.014.

G. Guaranteed Investment Contracts

A guaranteed investment contract, as an investment vehicle for bond proceeds, is authorized if:

(1) It has a defined termination date;

(2) It is secured by obligations described by § 2256.009(a)(1), Tex. Gov’t Code, excluding those obligations described by § 2256.009(b), in an amount at least equal to the amount of bond proceeds invested under the contract;

(3) It is pledged to the school and deposited with the school or with a third party selected and approved by the school;

(4) The board has specifically authorized guaranteed investment contracts as eligible investments in the order, ordinance, or resolution authorizing the issuance of bonds;

(5) The school has received bids from at least three (3) separate providers with no material financial interest in the bonds from which proceeds were received;

(6) The school has purchased the highest yielding guaranteed investment contract for which a qualifying bid is received;

(7) The price of the guaranteed investment contract must take into account the reasonably expected drawdown schedule for the bond proceeds to be invested. The provider must certify the administrative costs reasonably expected to be paid to third parties in connection with the guaranteed investment contract.

Tex. Gov’t Code § 2256.015.

H. Public Funds Investment Pools

Investment in a public funds investment pool is authorized if:

(1) The pool complies with the requirements of the Public Funds Investment Act; and

(2) The board has authorized the investment in the particular pool by resolution.

Tex. Gov’t Code § 2256.016(a).

2. Investments That are not Authorized

A. Certain Obligations of, or Guaranteed by, Governmental Entities

The following investments are not authorized:

(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;

(4) Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.

Tex. Gov’t Code § 2256.009(b).

B. Guaranteed Investment Contracts

Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt service purposes, may not be invested in a guaranteed investment contract with a term longer than five (5) years from the date of issuance of the bonds.

Tex. Gov’t Code § 2256.015(b).