H.B. No. 860
 
 
 
 
AN ACT
  relating to the management, investment, and expenditure of state
  funds and institutional funds and the adoption of the Uniform
  Prudent Management of Institutional Funds Act.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 163, Property Code, is amended to read as
  follows:
  CHAPTER 163. MANAGEMENT, INVESTMENT, AND EXPENDITURE OF
  INSTITUTIONAL FUNDS
         Sec. 163.001.  SHORT TITLE. This chapter may be cited as the
  Uniform Prudent Management of Institutional Funds Act.
         Sec. 163.002.  LEGISLATIVE FINDINGS AND PURPOSE. (a) The
  legislature finds that:
               (1)  institutions organized and operated exclusively
  for a charitable purpose perform essential and needed services in
  the state;
               (2)  uncertainty exists regarding the prudence
  standards for the management and investment of charitable funds and
  for endowment spending by institutions described by Subdivision
  (1); and
               (3)  the institutions, their officers, directors, and
  trustees, and the citizens of this state will benefit from removal
  of the uncertainty regarding applicable prudence standards and by
  permitting endowment funds to be invested for the long-term goals
  of achieving growth and maintaining purchasing power without
  adversely affecting the availability of funds for current
  expenditure.
         (b)  The purpose of this chapter is to provide guidance and
  authority through modern articulations of prudence standards for
  the management and investment of charitable funds and for endowment
  spending by institutions organized and operated exclusively for a
  charitable purpose in order to provide uniformity and remove
  uncertainty regarding those standards.
         Sec. 163.003.  DEFINITIONS. In this chapter:
               (1)  "Charitable purpose" means the promotion of a
  scientific, educational, philanthropic, or environmental purpose,
  social welfare, the arts and humanities, or another civic or public
  purpose described by Section 501(c)(3) of the Internal Revenue Code
  of 1986.
               (2)  "Endowment fund" means an institutional fund or
  part thereof that, under the terms of a gift instrument, is not
  wholly expendable by the institution on a current basis.  The term
  does not include assets that an institution designates as an
  endowment fund for its own use.
               (3)  "Gift instrument" means a record or records,
  including an institutional solicitation, under which property is
  granted to, transferred to, or held by an institution as an
  institutional fund.
               (4)  "Institution" means:
                     (A)  a person, other than an individual, organized
  and operated exclusively for charitable purposes;
                     (B)  a government or governmental subdivision,
  agency, or instrumentality, to the extent that it holds funds
  exclusively for a charitable purpose; and
                     (C)  a trust that had both charitable and
  noncharitable interests, after all noncharitable interests have
  terminated.
               (5)  "Institutional fund" means a fund held by an
  institution exclusively for charitable purposes. The term does not
  include:
                     (A)  program-related assets;
                     (B)  a fund held for an institution by a trustee
  that is not an institution; or
                     (C)  a fund in which a beneficiary that is not an
  institution has an interest, other than an interest that could
  arise upon violation or failure of the purposes of the fund.
               (6)  "Person" means an individual, corporation,
  business trust, estate, trust, partnership, limited liability
  company, association, joint venture, public corporation,
  government or governmental subdivision, agency, or
  instrumentality, or any other legal or commercial entity.
               (7)  "Program-related asset" means an asset held by an
  institution primarily to accomplish a charitable purpose of the
  institution and not primarily for investment.
               (8)  "Record" means information that is inscribed on a
  tangible medium or that is stored in an electronic or other medium
  and is retrievable in perceivable form.
         Sec. 163.004.  STANDARD OF CONDUCT IN MANAGING AND INVESTING
  INSTITUTIONAL FUND. (a) Subject to the intent of a donor expressed
  in a gift instrument, an institution, in managing and investing an
  institutional fund, shall consider the charitable purposes of the
  institution and the purposes of the institutional fund.
         (b)  In addition to complying with the duty of loyalty
  imposed by law other than this chapter, each person responsible for
  managing and investing an institutional fund shall manage and
  invest the fund in good faith and with the care an ordinarily
  prudent person in a like position would exercise under similar
  circumstances.
         (c)  In managing and investing an institutional fund, an
  institution:
               (1)  may incur only costs that are appropriate and
  reasonable in relation to the assets, the purposes of the
  institution, and the skills available to the institution; and
               (2)  shall make a reasonable effort to verify facts
  relevant to the management and investment of the fund.
         (d)  An institution may pool two or more institutional funds
  for purposes of management and investment.
         (e)  Except as otherwise provided by a gift instrument, the
  following rules apply:
               (1)  In managing and investing an institutional fund,
  the following factors, if relevant, must be considered:
                     (A)  general economic conditions;
                     (B)  the possible effect of inflation or
  deflation;
                     (C)  the expected tax consequences, if any, of
  investment decisions or strategies;
                     (D)  the role that each investment or course of
  action plays within the overall investment portfolio of the fund;
                     (E)  the expected total return from income and the
  appreciation of investments;
                     (F)  other resources of the institution;
                     (G)  the needs of the institution and the fund to
  make distributions and to preserve capital; and
                     (H)  an asset's special relationship or special
  value, if any, to the charitable purposes of the institution.
               (2)  Management and investment decisions about an
  individual asset must be made not in isolation but rather in the
  context of the institutional fund's portfolio of investments as a
  whole and as a part of an overall investment strategy having risk
  and return objectives reasonably suited to the fund and to the
  institution.
               (3)  Except as otherwise provided by law other than
  this chapter, an institution may invest in any kind of property or
  type of investment consistent with this section.
               (4)  An institution shall diversify the investments of
  an institutional fund unless the institution reasonably determines
  that, because of special circumstances, the purposes of the fund
  are better served without diversification.
               (5)  Within a reasonable time after receiving property,
  an institution shall make and carry out decisions concerning the
  retention or disposition of the property or to rebalance a
  portfolio, in order to bring the institutional fund into compliance
  with the purposes, terms, and distribution requirements of the
  institution as necessary to meet other circumstances of the
  institution and the requirements of this chapter.
               (6)  A person that has special skills or expertise, or
  is selected in reliance upon the person's representation that the
  person has special skills or expertise, has a duty to use those
  skills or that expertise in managing and investing institutional
  funds.
         Sec. 163.005.  APPROPRIATION FOR EXPENDITURE OR
  ACCUMULATION OF ENDOWMENT FUND; RULES OF CONSTRUCTION.  (a)  
  Subject to the intent of a donor expressed in the gift instrument
  and to Subsections (d) and (e), an institution may appropriate for
  expenditure or accumulate so much of an endowment fund as the
  institution determines is prudent for the uses, benefits, purposes,
  and duration for which the endowment fund is established. Unless
  stated otherwise in the gift instrument, the assets in an endowment
  fund are donor-restricted assets until appropriated for
  expenditure by the institution. In making a determination to
  appropriate or accumulate, the institution shall act in good faith,
  with the care that an ordinarily prudent person in a like position
  would exercise under similar circumstances, and shall consider, if
  relevant, the following factors:
               (1)  the duration and preservation of the endowment
  fund;
               (2)  the purposes of the institution and the endowment
  fund;
               (3)  general economic conditions;
               (4)  the possible effect of inflation or deflation;
               (5)  the expected total return from income and the
  appreciation of investments;
               (6)  other resources of the institution; and
               (7)  the investment policy of the institution.
         (b)  To limit the authority to appropriate for expenditure or
  accumulate under Subsection (a), a gift instrument must
  specifically state the limitation.
         (c)  Terms in a gift instrument designating a gift as an
  endowment, or a direction or authorization in the gift instrument
  to use only "income," "interest," "dividends," or "rents, issues,
  or profits," or "to preserve the principal intact," or words of
  similar import:
               (1)  create an endowment fund of permanent duration
  unless other language in the gift instrument limits the duration or
  purpose of the fund; and
               (2)  do not otherwise limit the authority to
  appropriate for expenditure or accumulate under Subsection (a).
         (d)  Except as provided in Subsection (f), appropriation for
  expenditure in any year of an amount greater than seven percent of
  the fair market value of an endowment fund with an aggregate value
  of $1 million or more, calculated on the basis of market values
  determined at least quarterly and averaged over a period of not less
  than three years immediately preceding the year in which the
  appropriation for expenditure was made, creates a rebuttable
  presumption of imprudence. For an endowment fund in existence for
  fewer than three years, the fair market value of the endowment fund
  must be calculated for the period the endowment fund has been in
  existence. This subsection does not:
               (1)  apply to an appropriation for expenditure
  permitted under law other than this chapter or by the gift
  instrument; or
               (2)  create a presumption of prudence for an
  appropriation for expenditure of an amount less than or equal to
  seven percent of the fair market value of the endowment fund.
         (e)  For an institution with an endowment fund with an
  aggregate value of less than $1 million, a rebuttable presumption
  of imprudence is created if more than five percent of the fair
  market value of the endowment fund is appropriated for expenditure
  in any year, calculated on the basis of market values determined at
  least quarterly and averaged over a period of not less than three
  years immediately preceding the year in which the appropriation for
  expenditure was made. For an endowment fund in existence for fewer
  than three years, the fair market value of the endowment fund must
  be calculated for the period the endowment fund has been in
  existence. This subsection does not:
               (1)  apply to an appropriation for expenditure
  permitted under law other than this chapter or by the gift
  instrument; or
               (2)  create a presumption of prudence for an
  appropriation for expenditure of an amount less than or equal to
  five percent of the fair market value of the endowment fund.
         (f)  This subsection applies only to a university system, as
  defined by Section 61.003(10), Education Code.  The appropriation
  for expenditure in any year of any amount greater than nine percent
  of the fair market value of an endowment fund with an aggregate
  value of $450 million or more, calculated on the basis of market
  values determined at least quarterly and averaged over a period of
  not less than three years immediately preceding the year in which
  the appropriation for expenditure was made, creates a rebuttable
  presumption of imprudence.  For an endowment fund in existence for
  fewer than three years, the fair market value of the endowment fund
  must be calculated for the period the endowment fund has been in
  existence.  This subsection does not:
               (1)  apply to an appropriation for expenditure
  permitted under law other than this chapter or by the gift
  instrument; or
               (2)  create a presumption of prudence for an
  appropriation for expenditure of an amount less than or equal to
  nine percent of the fair market value of the endowment fund.
         (g)  If an institution pools the assets of individual
  endowment funds for collective investment, this section applies to
  the pooled fund and does not apply to individual endowment funds,
  including individual endowment funds for which the nature of the
  underlying asset or donor restrictions preclude inclusion in a pool
  but which are managed by the institution in accordance with a
  collective investment policy.
         Sec. 163.006.  DELEGATION OF MANAGEMENT AND INVESTMENT
  FUNCTIONS.  (a) Subject to any specific limitation set forth in a
  gift instrument or in law other than this chapter, an institution
  may delegate to an external agent the management and investment of
  an institutional fund to the extent that an institution could
  prudently delegate under the circumstances. An institution shall
  act in good faith, with the care that an ordinarily prudent person
  in a like position would exercise under similar circumstances, in:
               (1)  selecting an agent;
               (2)  establishing the scope and terms of the
  delegation, consistent with the purposes of the institution and the
  institutional fund; and
               (3)  periodically reviewing the agent's actions in
  order to monitor the agent's performance and compliance with the
  scope and terms of the delegation.
         (b)  In performing a delegated function, an agent owes a duty
  to the institution to exercise reasonable care to comply with the
  scope and terms of the delegation.
         (c)  An institution that complies with Subsection (a) is not
  liable for the decisions or actions of an agent to which the
  function was delegated.
         (d)  By accepting delegation of a management or investment
  function from an institution that is subject to the laws of this
  state, an agent submits to the jurisdiction of the courts of this
  state in all proceedings arising from or related to the delegation
  or the performance of the delegated function.
         (e)  An institution may delegate management and investment
  functions to its committees, officers, or employees as authorized
  by law of this state other than this chapter.
         Sec. 163.007.  RELEASE OR MODIFICATION OF RESTRICTIONS ON
  MANAGEMENT, INVESTMENT, OR PURPOSE. (a) If the donor consents in a
  record, an institution may release or modify, in whole or in part, a
  restriction contained in a gift instrument on the management,
  investment, or purpose of an institutional fund. A release or
  modification may not allow a fund to be used for a purpose other
  than a charitable purpose of the institution.
         (b)  The court, upon application of an institution, may
  modify a restriction contained in a gift instrument regarding the
  management or investment of an institutional fund if the
  restriction has become impracticable or wasteful, if it impairs the
  management or investment of the fund, or if, because of
  circumstances not anticipated by the donor, a modification of a
  restriction will further the purposes of the fund. Chapter 123
  applies to a proceeding under this subsection.  To the extent
  practicable, any modification must be made in accordance with the
  donor's probable intention.
         (c)  If a particular charitable purpose or a restriction
  contained in a gift instrument on the use of an institutional fund
  becomes unlawful, impracticable, impossible to achieve, or
  wasteful, the court, upon application of an institution, may modify
  the purpose of the fund or the restriction on the use of the fund in
  a manner consistent with the charitable purposes expressed in the
  gift instrument. Chapter 123 applies to a proceeding under this
  subsection.
         (d)  If an institution determines that a restriction
  contained in a gift instrument on the management, investment, or
  purpose of an institutional fund is unlawful, impracticable,
  impossible to achieve, or wasteful, the institution, 60 days after
  receipt of notice by the attorney general, may release or modify the
  restriction, in whole or part, if:
               (1)  the institutional fund subject to the restriction
  has a total value of less than $25,000;
               (2)  more than 20 years have elapsed since the fund was
  established; and
               (3)  the institution uses the property in a manner
  consistent with the charitable purposes expressed in the gift
  instrument.
         (e)  The notification to the attorney general under
  Subsection (d) must be accompanied by a copy of the gift instrument
  and a statement of facts sufficient to evidence compliance with
  Subsections (d)(1), (2), and (3).
         Sec. 163.008.  REVIEWING COMPLIANCE. Compliance with this
  chapter is determined in light of the facts and circumstances
  existing at the time a decision is made or action is taken, and not
  by hindsight.
         Sec. 163.009.  RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
  AND NATIONAL COMMERCE ACT. This chapter modifies, limits, and
  supersedes the provisions of the Electronic Signatures in Global
  and National Commerce Act (15 U.S.C. Section 7001 et seq.) but does
  not modify, limit, or supersede Section 101 of that Act (15 U.S.C.
  Section 7001(a)) or authorize electronic delivery of any of the
  notices described in Section 103 of that Act (15 U.S.C. Section
  7003(b)).
         Sec. 163.010.  UNIFORMITY OF APPLICATION AND CONSTRUCTION.
  In applying and construing this chapter, consideration must be
  given to the need to promote uniformity of the law with respect to
  the subject matter of this chapter among states that enact a law
  substantially similar to this chapter.
         Sec. 163.011.  APPLICABILITY OF OTHER PARTS OF CODE.  
  Subtitle B, Title 9 (the Texas Trust Code), does not apply to any
  institutional fund subject to this chapter.
         [Sec.   163.001.     SHORT TITLE.     This chapter may be cited as
  the Uniform Management of Institutional Funds Act.
         [Sec.   163.002.     LEGISLATIVE FINDINGS AND PURPOSE.   (a)   The
  legislature finds that:
               [(1)     publicly and privately supported educational,
  religious, and charitable organizations perform essential and
  needed services in the state;
               [(2)     uncertainty regarding legal restrictions on the
  management, investment, and expenditure of endowment funds of the
  organizations has in many instances precluded obtaining the highest
  available return on endowment funds; and
               [(3)     the organizations, their officers, directors,
  and trustees, and the citizens of this state will benefit from
  removal of the uncertainty and by permitting endowment funds to be
  invested for the long-term goals of achieving growth and
  maintaining purchasing power without adversely affecting
  availability of funds for current expenditure.
         [(b)     The purpose of this chapter is to provide guidelines
  for the management, investment, and expenditure of endowment funds
  of publicly and privately supported educational, religious, and
  charitable organizations in order to eliminate the uncertainty
  regarding legal restrictions on the management, investment, and
  expenditure of the funds and to enable the organizations to
  maximize their resources.
         [Sec. 163.003.  DEFINITIONS.  In this chapter:
               [(1)     "Endowment fund" means an institutional fund, or
  any part of such a fund, not wholly expendable by the institution on
  a current basis under the terms of the applicable gift instrument.
               [(2)     "Gift instrument" means a will, deed, grant,
  conveyance, agreement, memorandum, writing, or other governing
  document, including the terms of any institutional solicitations
  from which an institutional fund resulted, under which property is
  transferred to or held by an institution as an institutional fund.
               [(3)     "Governing board" means the body responsible for
  the management of an institution or of an institutional fund.
               [(4)     "Historic dollar value" means the aggregate fair
  market value in dollars of:
                     [(A)     an endowment fund at the time it became an
  endowment fund;
                     [(B)     each subsequent donation to the fund at the
  time it is made; and
                     [(C)     each accumulation made pursuant to a
  direction in the applicable gift instrument at the time the
  accumulation is added to the fund.
               [(5)     "Institution" means an incorporated or
  unincorporated organization organized and operated exclusively for
  educational, religious, or charitable purposes, an institution of
  higher education, or a foundation chartered for the benefit of an
  institution of higher education. The term does not include a
  private foundation as defined by Section 509(a) of the Internal
  Revenue Code of 1986.
               [(6)     "Institutional fund" means a fund held by an
  institution for its exclusive use, benefit, or purposes, except a
  fund held for an institution by a trustee that is not an institution
  or a fund in which a beneficiary that is not an institution has an
  interest other than possible rights that could arise on violation
  or failure of the purposes of the fund.
               [(7)     "Institution of higher education" has the meaning
  assigned by Section 61.003, Education Code.
         [Sec.   163.004.     EXPENDITURES.   (a)   A governing board may
  appropriate for expenditure, for the uses and purposes for which
  the fund is established, the net appreciation, realized and
  unrealized, in the fair market value of the assets of an endowment
  fund over the historic dollar value of the fund to the extent
  prudent under the standard provided by Section 163.007.
         [(b)     A determination of the historic dollar value made in
  good faith by the governing board is conclusive.
         [(c)     Subsection (a) does not limit the authority of the
  governing board to expend funds as permitted under other law, the
  terms of the applicable gift instrument, or the charter or articles
  of incorporation of the institution.
         [(d)     Subsection (a) does not apply if the applicable gift
  instrument indicates the donor's intention that the net
  appreciation not be expended. A restriction on the expenditure of
  net appreciation may not be implied from a designation of a gift as
  an endowment or from a direction or authorization in the applicable
  gift instrument to use only "income." This rule of construction
  applies to gift instruments executed or in effect before, on, or
  after the effective date of this chapter.
         [Sec.   163.005.     INVESTMENT AUTHORITY.   In addition to an
  investment authorized by other law or by the applicable gift
  instrument, and without restriction to investments a fiduciary may
  make, the governing board, subject to any specific limitations in
  the applicable gift instrument or the applicable law other than law
  relating to investments by a fiduciary, may:
               [(1)     invest an institutional fund in any real or
  personal property, including mortgages, stocks, bonds, debentures,
  and other securities of profit or nonprofit corporations, shares in
  or obligations of associations, partnerships, or individuals, and
  obligations of any governmental entity, whether or not the property
  produces a current return;
               [(2)     retain property contributed by a donor to an
  institutional fund;
               [(3)     include all or any portion of an institutional
  fund in a pooled or common fund maintained by the institution; and
               [(4)     invest all or any portion of an institutional
  fund in a pooled or common fund, including shares or interests in
  regulated investment companies, mutual funds, common trust funds,
  investment partnerships, real estate investment trusts, or similar
  organizations in which funds are commingled and investment
  determinations are made by persons other than the governing board.
         [Sec.   163.006.     DELEGATION OF INVESTMENT MANAGEMENT.   Except
  as provided by the applicable gift instrument, the governing board
  may:
               [(1)     delegate to its committees, officers, or
  employees of the institution or the fund, and other agents,
  including investment counsel, the authority to act for the board in
  investment of institutional funds;
               [(2)     contract with independent investment advisors,
  investment counsel, investment managers, banks, or trust companies
  to act for the board in investment of institutional funds; and
               [(3)     authorize payment of compensation for investment
  advisory or management services.
         [Sec.   163.007.     STANDARD OF CONDUCT.   In the administration
  of the powers to appropriate appreciation, to make and retain
  investments, to develop and apply investment and spending policies,
  and to delegate investment management of institutional funds,
  members of a governing board shall exercise ordinary business care
  and prudence under the facts and circumstances prevailing at the
  time of the action or decision. The members shall consider both the
  long-term and short-term needs of the institution in carrying out
  its educational, religious, or charitable purposes, its present and
  anticipated financial requirements, the expected return on its
  investments, price level trends, and general economic conditions.
         [Sec.   163.008.     RELEASE OF RESTRICTIONS ON USE OR
  INVESTMENT.   (a)   With the written consent of the donor, the
  governing board may release, in whole or in part, a restriction
  imposed by the applicable gift instrument on the use or investment
  of an institutional fund.
         [(b)     If written consent of the donor cannot be obtained
  because of the donor's death, disability, unavailability, or
  impossibility of identification, the governing board may apply in
  the name of the institution to the district court for release of a
  restriction imposed by a gift instrument on the use or investment of
  an institutional fund. The attorney general must be notified of the
  application and given an opportunity to intervene in the same
  manner as provided by Chapter 123 for a proceeding involving a
  charitable trust. If the court finds that the restriction is
  obsolete, inappropriate, or impracticable, it may by order release
  the restriction in whole or in part. A release under this
  subsection may not change an endowment fund to another type of fund.
         [(c)     A release under this section may not allow a fund to be
  used for a purpose other than the educational, religious, or
  charitable purposes of the affected institution.
         [(d)     This section does not limit the application of the
  doctrine of "cy pres."
         [Sec.   163.009.     APPLICABILITY OF OTHER PARTS OF CODE.  
  Subtitle B, Title 9 (the Texas Trust Code), does not apply to any
  institutional fund subject to this chapter.]
         SECTION 2.  Sections 43.006(a) and (k), Education Code, are
  amended to read as follows:
         (a)  The State Board of Education may delegate investment
  authority [and contract] for the investment of the permanent school
  fund to the same extent as an institution [the governing board of an
  institution of higher education] with respect to an institutional
  fund under Chapter 163, Property Code.
         (k)  In this section, "institution" [:
               [(1)  "Governing board"] and "institutional fund" have
  the meanings assigned by Chapter 163, Property Code.
               [(2)     "Institution of higher education" has the meaning
  assigned by Section 61.003.]
         SECTION 3.  Section 66.08(a), Education Code, is amended to
  read as follows:
         (a)  The board may delegate investment authority [and
  contract] for the investment of the permanent university fund to
  the same extent as an institution [the governing board of an
  institution of higher education] with respect to an institutional
  fund under Chapter 163, Property Code.
         SECTION 4.  Section 66.08(o)(2), Education Code, is amended
  to read as follows:
               (2)  "Institution" and "institutional fund"
  ["Governing board," "institutional fund," and "institution of
  higher education"] have the meanings assigned by Chapter 163,
  Property Code.
         SECTION 5.  Section 404.024, Government Code, is amended by
  amending Subsections (b) and (l) and adding Subsections (m) and (n)
  to read as follows:
         (b)  State funds not deposited in state depositories shall be
  invested by the comptroller in:
               (1)  direct security repurchase agreements;
               (2)  reverse security repurchase agreements;
               (3)  direct obligations of or obligations the principal
  and interest of which are guaranteed by the United States;
               (4)  direct obligations of or obligations guaranteed by
  agencies or instrumentalities of the United States government;
               (5)  bankers' acceptances that:
                     (A)  are eligible for purchase by the Federal
  Reserve System;
                     (B)  do not exceed 270 days to maturity; and
                     (C)  are issued by a bank whose other comparable
  short-term obligations are rated in [that has received] the highest
  short-term [credit] rating category, within which there may be
  subcategories or gradations indicating relative standing,
  including such subcategories or gradations as "rating category" or
  "rated," by a nationally recognized statistical rating
  organization, as defined by Rule 2a-7 (17 C.F.R. Section 270.2a-7),
  promulgated under the Investment Company Act of 1940 by the
  Securities and Exchange Commission [investment rating firm];
               (6)  commercial paper that:
                     (A)  does not exceed 270 days to maturity; and
                     (B)  except as provided by Subsection (i), is
  issued by an entity whose other comparable short-term obligations
  are rated in [has received] the highest short-term [credit] rating
  category by a nationally recognized statistical rating
  organization [investment rating firm];
               (7)  contracts written by the treasury in which the
  treasury grants the purchaser the right to purchase securities in
  the treasury's marketable securities portfolio at a specified price
  over a specified period and for which the treasury is paid a fee and
  specifically prohibits naked-option or uncovered option trading;
               (8)  direct obligations of or obligations guaranteed by
  the Inter-American Development Bank, the International Bank for
  Reconstruction and Development (the World Bank), the African
  Development Bank, the Asian Development Bank, and the International
  Finance Corporation that have received the highest long-term 
  [credit] rating categories for debt obligations by a nationally
  recognized statistical rating organization [investment rating
  firm];
               (9)  bonds issued, assumed, or guaranteed by the State
  of Israel;
               (10)  obligations of a state or an agency, county,
  city, or other political subdivision of a state;
               (11)  mutual funds secured by obligations that are
  described by Subdivisions (1) through (6) or by obligations
  consistent with Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated
  by the Securities and Exchange Commission, including pooled funds:
                     (A)  established by the Texas Treasury
  Safekeeping Trust Company;
                     (B)  operated like a mutual fund; and
                     (C)  with portfolios consisting only of
  dollar-denominated securities; [and]
               (12)  foreign currency for the sole purpose of
  facilitating investment by state agencies that have the authority
  to invest in foreign securities;
               (13)  asset-backed securities, as defined by the
  Securities and Exchange Commission in Rule 2a-7 (17 C.F.R. Section
  270.2a-7), that are rated at least A or its equivalent by a
  nationally recognized statistical rating organization and that
  have a weighted-average maturity of five years or less; and
               (14)  corporate debt obligations that are rated at
  least A or its equivalent by a nationally recognized statistical
  rating organization and mature in five years or less from the date
  on which the obligations were "acquired," as defined by the
  Securities and Exchange Commission in Rule 2a-7 (17 C.F.R. Section
  270.2a-7).
         (l)  The comptroller may lend securities under procedures
  established by the comptroller. The procedures must be consistent
  with industry practice and must include a requirement to fully
  secure the loan with cash, obligations described by Subsections
  (b)(1)-(6), or a combination of cash and the described obligations.
  Notwithstanding any law to the contrary, cash may be reinvested in
  the items permitted under Subsection (b) or mutual funds, as
  defined by the Securities and Exchange Commission in Rule 2a-7 (17
  C.F.R. Section 270.2a-7)  [In this subsection, "obligation" means
  an item described by Subsections (b)(1)-(6)].
         (m)  In entering into a direct security repurchase agreement
  or a reverse security repurchase agreement, the comptroller may
  agree to accept cash on an overnight basis in lieu of the
  securities, obligations, or participation certificates identified
  in Section 404.001(3). Cash held by the state under this subsection
  is not a deposit of state or public funds for purposes of any
  statute, including this subchapter or Subchapter D, that requires a
  deposit of state or public funds to be collateralized by eligible
  securities.
         (n)  Notwithstanding any other law to the contrary, any
  government investment pool created to function as a money market
  mutual fund and managed by the comptroller or the Texas Treasury
  Safekeeping Trust Company may invest the funds it receives in
  investments that are "eligible securities," as defined by the
  Securities and Exchange Commission in Rule 2a-7 (17 C.F.R. Section
  270.2a-7), if it maintains a dollar-weighted average portfolio
  maturity of 90 days or less, with the maturity of each portfolio
  security calculated in accordance with Rule 2a-7 (17 C.F.R. Section
  270.2a-7), and meets the diversification requirements of Rule 2a-7.
         SECTION 6.  (a) Chapter 163, Property Code, as amended by
  this Act, applies only to an institutional fund existing on or
  established after the effective date of this Act.
         (b)  With respect to an institutional fund existing on the
  effective date of this Act, Chapter 163, Property Code, as amended
  by this Act, applies only to an action taken or decision made
  relating to the institutional fund occurring after August 31, 2007.
  An action taken or decision made relating to the institutional fund
  that occurs before the effective date of this Act is governed by
  Chapter 163, Property Code, as that chapter existed before
  amendment by this Act, and that chapter is continued in effect for
  that purpose.
         SECTION 7.  This Act takes effect September 1, 2007.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 860 was passed by the House on March
  28, 2007, by the following vote:  Yeas 145, Nays 0, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 860 on May 25, 2007, by the following vote:  Yeas 132, Nays 0, 3
  present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 860 was passed by the Senate, with
  amendments, on May 23, 2007, by the following vote:  Yeas 31, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor