Attachment B Permitted Investments and Restrictions 7-15-22.pdf

Statutory Restrictions

Pursuant to Ark. Code Ann. § 19-3-518, state funds in the Arkansas Treasury may be invested in:

(i) Certificates of deposit;

(ii) Direct obligations of the United States Government;

(iii) Obligations of agencies and instrumentalities created and authorized by act of the United States Congress to issue securities or evidences of indebtedness, regardless of guarantee of repayment by the United States Government;

(iv) Obligations in which the principal and interest are fully guaranteed by:

(a) The United States Government; or

(b) An agency or an instrumentality created by an act of the United States Congress and authorized by the United States Congress to issue the guarantee;

(v) Obligations in which the principal and interest are fully secured, insured, or covered by a commitment or agreement to purchase the obligation by:

(a) The United States Government; or

(b) An agency or instrumentality created by an act of the United States Congress and authorized by the United States Congress to issue the commitment or agreement;

(vi) General obligations of the states of the United States and of the political subdivisions, municipalities, commonwealths, territories, or insular possessions of the states of the United States;

(vii) Obligations issued by the State Board of Education under authority of the Arkansas Constitution or applicable statutes;

(viii) Warrants of a political subdivision or municipality of the State of Arkansas having maturities not exceeding one (1) year;

(ix) Prerefunded municipal bonds, if the principal and interest of the municipal bonds are fully secured by the principal and interest of a direct obligation of the United States Government;

(x) The sale of federal funds with a maturity of not more than one (1) business day;

Attachment B Permitted Investments and Restrictions 7-15-22

(xi) Demand, savings, or time deposits or accounts of a depository institution chartered by the United States, a state of the United States, or the District of Columbia if funds invested in the demand, savings, or time deposits or accounts are fully insured by a federal deposit insurance agency;

(xii) Repurchase agreements that are fully collateralized by securities stated in subdivisions (b)(1)(B)(ii)-(v) of this section if the repurchase agreement provides for taking delivery of the collateral directly or through an authorized custodian;

(xiii) A securities or other interest in an open-end type investment company or investment trust registered under the Investment Company Act of 1940 and that is defined as a “money market fund” under 17 C.F.R. § 270.2a-7 if:

(a) The portfolio of the investment company or investment trust is limited principally to United States Government obligations and to repurchase agreements fully collateralized by United States Government obligations; and

(b) The investment company or investment trust takes delivery of the collateral either directly or through an authorized custodian; or

(xiv) As approved by the guidelines established by the State Treasury investment policy approved by the State Board of Finance, a corporate obligation with an investment grade rating of at least BBB, A2, P2, or an equivalent rating as indicated by at least two (2) nationally recognized statistical rating organizations.

Regulatory Restrictions

The Arkansas State Board of Finance has placed the following additional restrictions on the Treasury’s investment activities:

Eligible investments are limited to those securities and deposits authorized by ARK. CODE ANN. § 19-3-518 and ARK. CODE ANN. § 19-8-111. Eligible investments as outlined in the aforementioned statutes may include:

• direct obligations of the U.S. government;

• obligations of agencies and instrumentalities created by act of the United States Congress and authorized thereby to issue securities or evidences of indebtedness, regardless of guarantee of repayment by the United States Government;

• obligations the principal and interest of which are fully guaranteed by the United States Government or an agency or an instrumentality created by an act of the United States Congress and authorized thereby to issue such guarantee;

• obligations the principal and interest of which are fully secured, insured, or covered by commitments or agreements to purchase by the United States Government or an agency or instrumentality created by an act of the United States Congress and authorized thereby to issue such commitments or agreements;

• commercial paper that is readily marketable and investment grade as indicated by at least two (2) NRSROs. No investment shall be made in commercial paper which, at the time of purchase, holds the minimum rating and is on negative credit watch by either of the NRSROs used to rate the paper;

• corporate bond issues that are investment grade as indicated by at least two (2) NRSROs. No investment shall be made in bonds which have maturity beyond ten (10) years. No investment shall be made in bonds which hold the minimum rating if, at the time of purchase, the issue is on negative credit watch by either of the NRSROs used to rate the issue;

• repurchase agreements as set forth in ARK. CODE ANN. § 19-3- 518(b)(1)(B)(xii);

• the State Treasury Money Management Trust;

• prerefunded municipal bonds whose principal and interest are fully secured by the principal and interest of a direct obligation of the United States Government;

• securities of any open-end type investment company or investment trust registered under the Investment Company Act of 1940 and that is defined as a “money market fund ” under 17 C.F.R. § 270.2a-7 whose portfolio is principally U.S. government obligations and repurchase agreements fully collateralized by U.S. government obligations and the collateral is either taken directly by the investment company or investment trust or through an authorized custodian;

• certificates of deposit, demand, or savings deposits with financial institutions provided they are fully insured by a federal deposit insurance agency for one hundred percent (100%) of the principal and accrued interest of the deposit;

• certificates of deposit pursuant to ARK. CODE ANN. § 19-8-111

(CDARS.);

• all or any part of the bonds of local industrial development corporations, authorized and issued under the Arkansas Industrial Development Act, § 15-4-101 et seq., and all or any part of the bonds of municipalities and counties, authorized and issued under the Municipalities and Counties Industrial Development Revenue Bond Law, ARK. CODE ANN. § 14-164-201 et. seq.;

• obligations issued by the State Board of Education under the authority of the State Constitution; and,

• warrants of a political subdivision or municipality of the State of Arkansas having maturities not exceeding one (1) year;

• general obligations of the states of the United States and of the political subdivisions, municipalities, commonwealths, territories, or insular possessions of the states of the United States which are investment grade;

• obligations in which, the principal and interest are fully guaranteed, secured, insured, or covered by a commitment or agreement to purchase the obligation by the United States Government or an agency or an instrumentality created by an act of the United States Congress and authorized by the United States to issue the guarantee, commitment, or agreement (if notes hold the rating of SP- 1, or the equivalent, or above, or if bonds hold the rating of AA, or the equivalent, or above).

• Bonds from the State of Israel that are guaranteed and backed by the full faith and credit of the government of Israel as the sovereign debt of the State of Israel, pursuant to ARK. CODE ANN. § 19-3-523.

• Investment pools or funds comprised exclusively of assets or securities that the Treasurer is permitted to purchase directly.

To provide for the safety and liquidity of Treasury Funds, the investment portfolio is subject to the following restrictions:

• the weighted average maturity of the total portfolio shall not exceed ten (10) years;

• the expected maturity of any security shall not exceed ten (10) years, with the exception of the following:

(a) securities used as collateral in repurchase agreements, Arkansas Capital Corporation Bonds, State Board of Finance and State Building Services Certificates of Indebtedness, direct obligations of the U.S. government, and obligations of agencies and instrumentalities created by act of the United States Congress and authorized thereby to issue securities or evidences of indebtedness, regardless of guarantee of repayment by the United States Government.

(b) U.S. Agency mortgage-backed securities, collateralized mortgage obligations, and municipal bonds which return principal in scheduled payments prior to final maturity shall not have, at the time of purchase, an average life exceeding fifteen (15) years using average life assumptions while employing Prepayment Speed Assumption (PSA) and/or Conditional Prepayment Rate (CPR) analysis models. Average life at the time of purchase shall be used as opposed to maturity. U.S. Agency mortgage-backed securities and collateralized mortgage obligations which have an average life greater than 10 years shall not exceed 5% of the total portfolio at the time of purchase.

• No investment in corporate debt shall be made in any single issuer, which—at the time of purchase—exceeds five percent (5%) of the total portfolio of the Treasury, including both commercial paper and bonded debt of that issuer.

• The maturity of repurchase agreements shall be calculated by the date of repurchase, not the maturity of the underlying instrument.

Investments in non-government securities shall not exceed the following percentages of the total portfolio:

Total Debt of Corporations, including Bonds and Commercial Paper* 30%

*Second-tier Commercial Paper—including but not limited to Commercial

Paper rated A2 by Standard and Poor’s Ratings Services, and P2 by Moody’s Investors Service—shall not exceed five percent (5%) of the Total Portfolio.

Repurchase agreements are subject to the following additional restrictions:

• transactions shall be documented with master repurchase agreements;

• securities accepted as collateral shall be readily marketable;

• repurchase agreements with any dealer or financial institution are not to exceed fifty percent (50%) of the total portfolio; and,

• repurchase agreements are not to exceed one hundred eighty (180) days, and the share of the portfolio allocated to repurchase agreements with maturities beyond thirty (30) days are not to exceed thirty percent (30%) of the total portfolio.

Pursuant to Arkansas Code § 25-1-501 et. seq., a public entity shall not invest in companies that boycott Israel. In a good-faith effort to comply with this law, the State Treasury may rely on the list of entities that is published by the New York Office of General Services and may be located online at the following web address: New York OGS - Israel Boycott List

All purchases and sales of securities shall be made with the goals of: (a) obtaining the optimal price and value for securities, and (b) not showing preference for any securities broker.

Pre-trade analysis shall be performed for all bond purchases and sales.

Where appropriate, that analysis should include market conditions, how the security fits the Treasury’s investment strategy, and any other securities reviewed at the time of execution.

For asset classes where quotation bids are applicable and appropriate, purchases and sales of securities by the Treasurer of State shall be made upon receipt of not less than three (3) quotation bids from securities brokers.

For asset classes where quotation bids are inapplicable or inappropriate, the Treasurer of State shall retain documentation sufficient to indicate that broker selection was competitive and met the spirit of Ark. Code Ann.

§ 19-3-518(b)(3)(B).

https://www.ogs.state.ny.us/eo/157/Docs/EO157_Institutions_Companies_List.pdf