HOUSE BILL No. 5754 May 9, 2000, Introduced by Reps. Vander Roest, DeHart, Jelinek, Richner, Patterson, Jansen and Birkholz and referred to the Committee on Senior Health, Security and Retirement. A bill to amend 1965 PA 314, entitled "Public employee retirement system investment act," by amending sections 12b, 12c, 12d, 13, 13a, 14, 16, 17, 19, 20a, 20c, 20d, and 20e (MCL 38.1132b, 38.1132c, 38.1132d, 38.1133, 38.1133a, 38.1134, 38.1136, 38.1137, 38.1139, 38.1140a, 38.1140c, 38.1140d, and 38.1140e), sections 12b, 12c, and 12d as added and sections 13, 14, 16, 17, 19, 20a, 20d, and 20e as amended by 1996 PA 485, section 13a as added by 1998 PA 343, and section 20c as amended by 1997 PA 42; and to repeal acts and parts of acts. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 12b. (1) "Defined contribution plan" means a defined 2 contribution plan as defined in section 414(i) in the internal 3 revenue code. 4 (2) "Derivative" means either of the following: 06107'00 ** TJS 2 1 (a) A contract or convertible security that changes in value 2 in concert with a related or underlying security, future, or 3 other instrument or index; or obtains much of its value from 4 price movements in a related or underlying security, future, or 5 other instrument or index; or both. 6 (b) A contract or security, such as an option, forward, 7 swap, warrant, or a debt instrument with 1 or more options, for- 8 wards, swaps, or warrants embedded in it or attached to it, the 9 value of which contract or security is determined in whole or in 10 part by the price of 1 or more underlying instruments or 11 markets. 12 (3) "Equity interests" means limited partnership interests 13 and other interests in which the liability of the investor is 14 limited to the amount of the investment, but does not mean gen- 15 eral partnership interests or other interests involving general 16 liability of the investor. 17 (4) "Foreign security" means any of the following: 18 (a) A fixed income security issued by a government, a gov- 19 ernmental agency, or a public or private company that is traded 20 outside of the United States and issued in a currency other than 21 the United States dollar. 22 (b) An equity position in a company traded on an exchange 23 outside of the United StatesofOR a security issued in a cur- 24 rency other than the United States dollar or an unregistered 25 American depository receipt. 26 (c) An equity or fixed income derivative that derives its 27 value from an investment described in subdivision (a) or (b) or a 06107'00 ** 3 1 foreign stock or bond index traded on an exchange outside of the 2 United States. 3 Sec. 12c. (1) "Investment fiduciary" means a person other 4 than a participant directing the investment of the assets of his 5 or her individual account in a defined contribution plan who does 6 any of the following: 7 (a) Exercises any discretionary authority or control in the 8 investment of a system's assets. 9 (b) Renders investment advice for a system for a fee or 10 other direct or indirect compensation. 11 (2) "Invest" or "investment" means the utilization of money 12 in the expectation of future returns in the form of income or 13 capital gain. Investments initially purchased in accordance with 14 this act which subsequently do not qualify for purchase for any 15 reason, shall be considered to continue to meet the requirements 16 of this act. Investment includes a guarantee by an investment 17 fiduciary.under section 20i.18 (3) "Investment grade" means graded in the top 4 major 19 grades as determined by 2 national rating services. 20 Sec. 12d. (1) "National rating services" means ANY NATION- 21 ALLY RECOGNIZED STATISTICAL RATING ORGANIZATION INCLUDING Moody's 22 investors service, inc.; Standard & Poor's ratings group; Fitch 23 investors service inc.; Duff & Phelps credit rating corp.; or any 24 other firm as determined by the state treasurer. 25 (2) "Net earnings available for fixed charges" means net 26 income after deducting operating and maintenance expenses, taxes 27 other than federal and state income taxes, depreciation, and 06107'00 ** 4 1 depletion, but excluding extraordinary expenses appearing in the 2 regular financial statements of the system. 3 (3) "Obligations" means bonds, notes, collateral trust cer- 4 tificates, convertible bonds, debentures, equipment trust certif- 5 icates, conditional sales agreements, guaranteed mortgage certif- 6 icates, pass-through certificates, participation certificates, 7 mortgages, trust deeds, general obligation bonds, revenue bonds, 8 or other similar interest bearing instruments of debt. 9 Obligations may be secured or unsecured and may be publicly 10 offered or privately placed. 11 (4) "Party in interest" means, as it relates to a system, 12 any of the following: 13 (a) An investment fiduciary, counsel, or employee of the 14 system. 15 (b) A person providing services to the system. 16 (c) The political subdivision sponsoring the system. 17 (d) An organization, any of whose members are covered by the 18 system. 19 (e) A spouse, ancestor, lineal descendant, or spouse of a 20 lineal descendant of an individual described in subdivision (a) 21 or (b). 22 (f) An entity controlled by an individual or organization 23 described in subdivisions (a) to (e). 24 (5) "Portfolio company" means an entity in which the invest- 25 ment fiduciary has invested or has considered investing system 26 assets. 06107'00 ** 5 1 Sec. 13. (1) The provisions of this act shall supersede any 2 investment authority previously granted to a system under any 3 other law of this state. 4 (2) The assets of a system may be invested, reinvested, held 5 in nominee form, and managed by an investment fiduciary subject 6 to the terms, conditions, and limitations provided in this act. 7 An investment fiduciary of a defined contribution plan may 8 arrange for 1 or more investment options to be directed by the 9 participants of the defined contribution plan. The limitations 10 on the percentage of total assets forinvestmentINVESTMENTS 11 provided in this act do not apply to a defined contribution plan 12 in which a participant directs the investment of the assets in 13 his or her individual account, and that participant is not con- 14 sidered an investment fiduciary under this act. 15 (3) An investment fiduciary shall discharge his or her 16 duties solely in the interest of the participants and the benefi- 17 ciaries, and shall do all of the following: 18 (a) Act with the same care, skill, prudence, and diligence 19 under the circumstances then prevailing that a prudent person 20 acting in a similar capacity and familiar with those matters 21 would use in the conduct of a similar enterprise with similar 22 aims. 23 (b) Act with due regard for the management, reputation, and 24 stability of the issuer and the character of the particular 25 investments being considered. 26 (c) Make investments for the exclusive purposes of providing 27 benefits to participants and participants' beneficiaries, and of 06107'00 ** 6 1 defraying reasonable expenses of investing the assets of the 2 system. 3 (d) Give appropriate consideration to those facts and cir- 4 cumstances that the investment fiduciary knows or should know are 5 relevant to the particular investment or investment course of 6 action involved, including the role the investment or investment 7 course of action plays in that portion of the system's invest- 8 ments for which the investment fiduciary has responsibility; and 9shallact accordingly. For purposes of this subsection, 10 "appropriate consideration" includes but is not limited to a 11 determination by the investment fiduciary that a particular 12 investment or investment course of action is reasonably designed, 13 as part of the investments of the system, to further the purposes 14 of the system, taking into consideration the risk of loss and the 15 opportunity for gain or other return associated with the invest- 16 ment or investment course of action; and consideration of the 17 following factors as they relate to the investment or investment 18 course of action: 19 (i) The diversification of the investments of the system. 20 (ii) The liquidity and current return of the investments of 21 the system relative to the anticipated cash flow requirements of 22 the system. 23 (iii) The projected return of the investments of the system 24 relative to the funding objectives of the system. 25 (e) Give appropriate consideration to investments that would 26 enhance the general welfare of this state and its citizens if 27 those investments offer the safety and rate of return comparable 06107'00 ** 7 1 to other investments permitted under this act and available to 2 the investment fiduciary at the time the investment decision is 3 made. 4 (f) Prepare and maintain written objectives, policies, and 5 strategies with clearly defined accountability and responsibility 6 for implementing and executing the system's investments. 7 (g) Monitor the investment of the system's assets with 8 regard to the limitations on those investments pursuant to this 9 act. Upon discovery that an investment causes the system to 10 exceed a limitation prescribed in this act, the investment fidu- 11 ciary shall reallocate assets in a prudent manner in order to 12 comply with the prescribed limitation. 13 (4) An investment fiduciary may use a portion of the income 14 of the system to defray the costs of investing, managing, and 15 protecting the assets of the system; may retain investment and 16 all other services necessary for the conduct of the affairs of 17 the system; and may pay reasonable compensation for those 18 services. Subject to an annual appropriation by the legislature, 19 a deduction from the income of a state administered system 20 resulting from the payment of those costs shall be made. 21 (5) The system shall be a separate and distinct trust fund 22 and the assets of the system shall be for the exclusive benefit 23 of the participants and their beneficiaries and of defraying rea- 24 sonable expenses of investing the assets of the system. With 25 respect to a system, an investment fiduciary shall not cause the 26 system to engage in a transaction if he or she knows or should 06107'00 ** 8 1 know that the transaction is any of the following, either 2 directly or indirectly: 3 (a) A sale or exchange or a leasing of any property from the 4 system to a party in interest for less than the fair market 5 value, or from a party in interest to the system for more than 6 the fair market value. 7 (b) A lending of money or other extension of credit from the 8 system to a party in interest without the receipt of adequate 9 security and a reasonable rate of interest, or from a party in 10 interest to the system with the provision of excessive security 11 or at an unreasonably high rate of interest. 12 (c) A transfer to, or use by or for the benefit of, the 13 political subdivision sponsoring the system of any assets of the 14 system for less than adequate consideration. 15 (d) The furnishing of goods, services, or facilities from 16 the system to a party in interest for less than adequate consid- 17 eration, or from a party in interest to the system for more than 18 adequate consideration. 19 (6) With respect to a system subject to this act, an invest- 20 ment fiduciary shall not do any of the following: 21 (a) Deal with the assets of the system in his or her own 22 interest or for his or her own account. 23 (b) In his or her individual or any other capacity act in 24 any transaction involving the system on behalf of a party whose 25 interests are adverse to the interests of the system or the 26 interest of its participants or participants' beneficiaries. 06107'00 ** 9 1 (c) Receive any consideration for his or her own personal 2 account from any party dealing with the system in connection with 3 a transaction involving the assets of the system. 4 (7) This section does not prohibit an investment fiduciary 5 from doing any of the following: 6 (a) Receiving any benefit to which he or she may be entitled 7 as a participant or participant's beneficiary of the system. 8 (b) Receiving any reimbursement of expenses properly and 9 actually incurred in the performance of his or her duties for the 10 system. 11 (c) Serving as an investment fiduciary in addition to being 12 an officer, employee, agent, or other representative of the 13 political subdivision sponsoring the system. 14 (d) Receiving agreed upon compensation for services from the 15 system. 16 (8) Except for an employee of a system, this state, or the 17 political subdivision sponsoring a system, when acting in the 18 capacity as an investment fiduciary, an investment fiduciary who 19 is qualified under section 12c(1)(b) shall meet 1 of the follow- 20 ing requirements: 21 (a) Be a registered investment adviser underbothEITHER 22 the investment advisers act of 1940, title II of chapter 686, 54 23 Stat. 847, 15 U.S.C. 80b-1 to 80b-21,andOR the uniform secur- 24 ities act,Act No. 265 of the Public Acts of 1964, being25sections 451.501 to 451.818 of the Michigan Compiled Laws1964 26 PA 265, MCL 451.501 TO 451.818. 06107'00 ** 10 1 (b) Be a bank as defined under the investment advisers act 2 of 1940. 3 (c) Be an insurance company qualified under section 16(3). 4 (9) An investment fiduciary shall not invest in a debt 5 instrument issued by a foreign country that has been identified 6 by the United States state department as engaging in or sponsor- 7 ing terrorism. 8 (10) A system shall annually publish and make available to 9 the plan participants and beneficiaries a list of all expenses 10 paid by soft dollars. 11 Sec. 13a. (1) As used in this section, "MacBride 12 principles" means those requirements for companies doing business 13 in Northern Ireland designed to do all of the following: 14 (a) Increase the representation of individuals from under- 15 represented religious groups in the work force including manage- 16 rial, supervisory, administrative, clerical, and technical jobs. 17 (b) Provide adequate security for the protection of minority 18 employees both at the workplace and while traveling to and from 19 the workplace. 20 (c) Ban provocative religious or political emblems from the 21 workplace. 22 (d) Publicly advertise all employment openings and make spe- 23 cial recruitment efforts to attract applicants from underrepre- 24 sented religious groups. 25 (e) Provide that layoff, recall, and termination procedures 26 shall not in practice favor particular religious groupings. 06107'00 ** 11 1 (f) Abolish job reservations, apprenticeship restrictions, 2 and differential employment criteria, which discriminate on the 3 basis of religion or ethnic origin. 4 (g) Develop training programs that will prepare substantial 5 numbers of current minority employees for skilled jobs, including 6 the expansion of existing programs and the creation of new pro- 7 grams to train, upgrade, and improve the skills of minority 8 employees. 9 (h) Establish procedures to assess, identify, and actively 10 recruit minority employees with potential for further 11 advancement. 12 (i) Appoint senior management staff members to oversee the 13 efforts to comply with these principles and the implementation of 14 timetables to achieve these principles. 15 (2)TheWITH RESPECT TO INVESTMENTS QUALIFIED UNDER SEC- 16 TION 14 OR 20K, THE investment fiduciary shall use all capital 17 stock, common stock, preferred stock, American depository 18 receipts, or any other evidence of residual ownership of a corpo- 19 ration in which it has investments to support either of the 20 following: 21 (a) Shareholder resolutions and initiatives proposing the 22 adoption of the MacBride principles for companies doing business 23 in Northern Ireland. 24 (b) Shareholder resolutions and initiatives proposing to 25 recognize efforts to end employment discrimination contained in 26 any agreement between the government of the Republic of Ireland 27 and the government of the United Kingdom, signed on November 15, 06107'00 ** 12 1 1985, which agreement is commonly referred to as the Anglo-Irish 2 agreement. 3 (3) If a provision of the MacBride principles is found to be 4 in violation of the law of the United Kingdom by a court in the 5 United States or the United Kingdom, then the duties of the 6 investment fiduciary prescribed by this section shall not apply 7 to the extent that a shareholder resolution or initiative 8 includes the provision that has been found unlawful. 9 Sec. 14. (1) An investment fiduciary may invest not more 10 than65%70% of a system's assets in stock. An investment 11 fiduciary shall not invest in more than 5% of the outstanding 12 stock of any 1 corporation,norOR invest more than 5% of a 13 system's assets in the stock of any 1 corporation, unless other- 14 wise provided in this act. 15 (2) Stock invested in under this section shall meet 1 of the 16 following requirements: 17 (a) Be registered on a national securities exchange regu- 18 lated under title I of the securities exchange act of 1934, chap- 19 ter 404, 48 Stat. 881, 15 U.S.C. 78a to 78l, 78m to 78o, 78o-3 20 to 78dd-1, 78ee to 78hh, and 78kk to 78ll. 21 (b) Be on the national association of securities dealers 22 automated quotation system or a successor to this system. 23 (c) Be issued pursuant to rule 144a under the securities act 24 of 1933, 17 C.F.R. 230.144a. 25 (3) NOTWITHSTANDING SUBSECTION (2), AN INVESTMENT FIDUCIARY 26 MAY DESIGNATE AN AMERICAN DEPOSITORY RECEIPT THAT SATISFIES THE 27 REQUIREMENTS OF SUBSECTION (2) AS AN INVESTMENT QUALIFIED UNDER 06107'00 ** 13 1 THIS SECTION OR AS AN INVESTMENT IN FOREIGN SECURITIES QUALIFIED 2 UNDER SECTION 20K. 3 Sec. 16. (1) An investment fiduciary may invest in annuity 4 investment contracts or participations in separate real estate, 5 mortgage, bond, stock, or other special investment accounts of a 6 life insurance company authorized to do business in this state. 7 An investment in such a separate account shall be considered an 8 investment in stock under section 14 only to the extent that the 9 separate account's assets include stock, and then only for the 10 purpose of determining the65%70% maximum investment limit 11 under section 14. An investment in such a separate account shall 12 also be considered an investment in real or personal property 13 under section 19(2), but only to the extent that the separate 14 account's assets include real or personal property, and then only 15 for the purpose of determining the 5% maximum investment limit 16 under section19(2)19(1). 17 (2) An investment fiduciary may invest in the general 18 account of a life insurer authorized to do business in this state 19 under the insurance code of 1956,Act No. 218 of the Public Acts20of 1956, being sections 500.100 to 500.8302 of the Michigan21Compiled Laws1956 PA 218, MCL 500.100 TO 500.8302, but the 22 total amount of assets of any 1 system invested in any 1 insurer 23 shall not exceed 50% of the capital and surplus of the insurer. 24 (3) A life insurance company under this section shall have 25 been in operation for at least 5 years and have assets under man- 26 agement of more than $500,000,000.00. The insurance company 27 shall have a claims-paying ability rating no less than single A 06107'00 ** 14 1 according to A.M. Best & company or AA- according to Duff & 2 Phelps credit rating corp., and AN overall company financial 3 strength rating no less than Aa3 according to Moody's investors 4servicesSERVICE, inc. or AA- according to Standard & Poor's 5 ratings group. 6 Sec. 17. (1) An investment fiduciary may invest in any of 7 the following: 8 (a) Obligations issued, assumed, or guaranteed by a solvent 9 entity created or existing under the laws of the United States or 10 of any state, district, or territory of the United States, which 11 are not in default as to principal or interest, including but not 12 limited to the following: 13 (i) Obligations secured by the mortgage of real property or 14 the pledge of adequate collateral if, during any 3, including 1 15 of the last 2, of the 5 fiscal years immediately preceding the 16 time of investment, the net earnings of the issuing, assuming, or 17 guaranteeing entity available for fixed charges, as determined in 18 accordance with standard accounting practice, shall have been not 19 less than the total of its fixed charges for the year on an over- 20 all basis, nor less than 1-1/2 times its fixed charges for the 21 year on a priority basis after excluding interest requirements on 22 obligations subordinate to the issue as to security. 23 (ii) Equipment trust certificates of railroad companies 24 organized under the laws of any state of the United States or of 25 Canada or any of its provinces, payable within 20 years from 26 their date of issue, in annual or semiannual installments, 27 beginning not later than the fifth year after the date of issue, 06107'00 ** 15 1 which certificates are a first lien on the specific equipment 2 pledged as security for the payment of the certificates, and 3 which certificates are either the direct obligations of the rail- 4 road companies or are guaranteed by the railroad companies, or 5 are executed by trustees holding title to the equipment. 6 (iii) Obligations other than those described in subpara- 7 graphs (i) and (ii), if the net earnings of the issuing, assum- 8 ing, or guaranteeing entity available for fixed charges during 9 each of any 3, including 1 of the last 2, of the 5 fiscal years 10 immediately preceding the time of investment, shall have been not 11 less than 1-1/2 times the total of the entity's fixed charges for 12 such year, or if the obligations are of investment grade. 13 (b) Obligations secured by a security interest in real or 14 personal property and a lease obligation given by a solvent 15 entity whose obligations would be qualified investments under the 16 provisions of this act, if the investment does not exceed 100% of 17 the appraised value of the property subject to the lease, and if 18 all of the following requirements are met: 19 (i) The lease has an unexpired term equal to or exceeding 20 the remaining term of the investment. 21 (ii) The lease is noncancelable unless the lessee first pays 22 the sum of all unpaid rents due or to become due during the 23 remaining lease term. 24 (iii) The lease provides for net rental payments equal to or 25 exceeding the periodic payments on the investment. 06107'00 ** 16 1 (iv) The lease provides that the net rental payments are to 2 be made without abatement or offset during the full term of the 3 lease. 4 (v) The lease and the lease payments are assigned to the 5 system, an agent of the system, or an independent trustee. 6 (c) Obligations issued, assumed, or guaranteed by the United 7 States, its agencies, or United States government-sponsored 8 enterprises. 9 (d) Obligations of a possession, territory, or public 10 instrumentality of the United States, or of any state, city, 11 county, township, village, school district, authority, or any 12 other governmental unit having the power to levy taxes, or in 13 obligations of other similar political units of the United 14 States. These investments shall be of investment grade. These 15 investments shall not be permitted if in the 3 preceding years 16 the governmental unit has failed to pay its debt or any part of 17 its debt or the interest on the debt. The aggregate investments 18 made under this subdivision shall not exceed 5% of the system's 19 total assets. 20 (e) Banker's acceptances, commercial accounts, certificates 21 of deposit, or depository receipts issued by a bank, trust com- 22 pany, savings and loan association, or a credit union. 23 (f) Commercial paper rated at the time of purchase within 24 the 2 highest classifications established by not less than 2 25 national rating services,as determined by the state treasurer,26 and which matures within 270 days after the date of issue. 06107'00 ** 17 1 (g) Repurchase agreements for the purchase of securities 2 issued by the United States government or its agencies and 3 executed by a bank or trust company or by members of the associa- 4 tion of primary dealers or other recognized dealers in United 5 States government securities. 6 (h) Reverse repurchase agreements for the sale of securities 7 issued by the United States government or its agencies and exe- 8 cuted with a bank or trust company or with members of the associ- 9 ation of primary dealers or other recognized dealers in United 10 States government securities. 11 (i) Any investment otherwise permitted by this section in 12 which the interest rate varies from time to time. 13 Notwithstanding a provision of any other act to the contrary, a 14 loan shall not be considered to be in violation of the usury 15 statutes of this state by virtue of the fact that the loan is 16 made on a variable interest rate basis. 17 (j) Obligations secured by any of the obligations described 18 in subdivision (a) or (c). 19 (k) Dollar denominated obligations issued in the United 20 States by foreign governments, supranationals, banks, or 21 corporations. These investments shall be of investment grade. 22 (2) Except as otherwise provided in this act and except for 23 obligations described in subsection (1)(c), an investment fidu- 24 ciary shall not do any of the following: 25 (a) Invest in more than 5% of the outstanding obligations of 26 any 1 issuer. 06107'00 ** 18 1 (b) Invest more than 5% of a system's assets in the 2 obligations of any 1 issuer. 3 Sec. 19. (1) An investment fiduciary may invest up to 5% of 4 a system's assets in publicly or privately issued real estate 5 investment trusts or in real or personal property otherwise qual- 6 ified pursuant to section 15, 16, or 20c. 7 (2) In addition to investments authorized under 8 subsection (1), an investment fiduciary of a system having assets 9 of more than $100,000,000.00 may do any of the following: 10 (a) Invest in, buy, sell, hold, improve, lease, or acquire 11 by foreclosure or an agreement in lieu of foreclosure, real or 12 personal property or an interest in real or personal property. 13 (b) Develop, maintain, operate, or lease the real or per- 14 sonal property referred to in subdivision (a). 15 (c) Form 1 or more limited partnerships, corporations, 16 limited liability companies, trusts, or other organizational 17 entities for which liability of an investor cannot exceed the 18 amount of the investment under the laws of the United States or 19 of any state, district, or territory of the United States to hold 20 title to, improve, lease, manage, develop, maintain, or operate 21 real or personal property whether currently held or acquired 22 after the effective date of the amendatory act that added this 23 subdivision. An entity formed pursuant to this subdivision has 24 the right to exercise all powers granted to the entity by the 25 laws of the jurisdiction of formation, including, but not limited 26 to, the power to borrow money in order to provide additional 06107'00 ** 19 1 capital to benefit and increase the overall return on property 2 held by the entity. 3 (d) Invest in investments otherwise qualified pursuant to 4 subsection (1). 5 (3) Except as otherwise provided in this section, the aggre- 6 gate investments made under subsection (2) shall not exceed 5% of 7 the assets of the system. The purchase price of an investment 8 made under this section shall not exceed the appraised value of 9 the real or personal property. 10 (4) If the investment fiduciary of a system is the state 11 treasurer, investments described in subsection (1) or (2) may 12 exceed 5% of the assets of the system. 13 (5) An investment qualified under this section in which the 14 underlying asset is an interest in real or personal property con- 15 stitutes an investment under this section for the purpose of 16 meeting the asset limitations contained in this act. This sub- 17 section applies even though the investment may be qualified else- 18 where in this act.An investment in stock under this section19shall not be considered an investment in stock under section 14.20 NOTWITHSTANDING THIS SUBSECTION, AN INVESTMENT FIDUCIARY MAY DES- 21 IGNATE A REAL ESTATE INVESTMENT TRUST WHICH SATISFIES THE 22 REQUIREMENTS OF SECTION 14(2) AS AN INVESTMENT QUALIFIED UNDER 23 THIS SECTION OR AS AN INVESTMENT IN STOCK UNDER SECTION 14. 24 Sec. 20a. (1) Except as provided in subsection (2), an 25 investment fiduciary of a system having assets of more than 26 $250,000,000.00 may invest not more than 2% of a system's assets 27 in a debt, warrant, or equity interest in a small business having 06107'00 ** 20 1 more than 1/2 of the small business's assets or employees within 2 this state, or in a debt, warrant, or equity interest in a small 3 business investment company or venture capital firm having its 4 principal office or more than 1/2 of its assets within this 5 state, or the system may create, own, hold, buy, sell, operate, 6 manage, and direct 1 or more small business investment companies 7 or venture capital firms designed to invest in small businesses 8 having more than 1/2 of their assets or employees within this 9 state. An investment fiduciary may also join with a group com- 10 posed of other public employee retirement systems, pension sys- 11 tems subject to the employee retirement income security act of 12 1974, Public Law 93-406, 88 Stat. 829, financial institutions, 13 corporations, or governmental agencies or instrumentalities to 14 accomplish the purposes of this section. An investment in stock 15 under this section shall be considered an investment in stock 16 under section 14 only for the purpose of determining the65%17 70% maximum investment limitation contained in section 14. 18 (2) If the investment fiduciary of a system is the state 19 treasurer, investments described in subsection (1) may exceed 2% 20 of the assets of the system, but shall not exceed 5% of the 21 assets of the system. 22 Sec. 20c. (1) A financial institution, A TRUST COMPANY, a 23 management company qualified under section 15, or any affiliate 24 of a person described in this section if that affiliate qualifies 25 as an investment fiduciary under section 13(8)(a), retained to 26 act as an investment fiduciary may invest the assets of a system 27 in any collective investment fund, common trust fund, or pooled 06107'00 ** 21 1 fund that is established and maintained for investment of those 2 assets by the financial institution, TRUST COMPANY, or management 3 company under federal or state statutes or rules or regulations. 4 An investment in a collective investment fund, common trust fund, 5 or pooled fund shall be considered an investment in the underly- 6 ingassetASSETS OF THAT FUND FOR ALL PURPOSES UNDER THIS ACT. 7 (2) As used in this section, "financial institution" means a 8 state or nationally chartered bank or a state or federally 9 chartered savings and loan association, savings bank, or credit 10 union whose deposits are insured by an agency of the United 11 States government and which maintains a principal office or 12 branch office located in this state under the laws of this state 13 or the United States. 14 Sec. 20d. (1) An investment fiduciary of a system having 15 assets of less than $250,000,000.00 may invest not more than 5% 16 of the system's assets in investments not otherwise qualified 17 under this act, whether the investments are similar or dissimilar 18 to those specified in this act. 19 (2) An investment fiduciary of a system having assets of 20 $250,000,000.00 or more may invest not more than 10% of the 21 system's assets in investments described in subsection (1). 22 (3) AN INVESTMENT FIDUCIARY OF A SYSTEM HAVING ASSETS OF 23 $1,000,000,000.00 OR MORE MAY INVEST NOT MORE THAN 15% OF THE 24 SYSTEM'S ASSETS IN INVESTMENTS DESCRIBED IN SUBSECTION (1). 25 (4)(3)An investment fiduciary of a system who is the 26 state treasurer may invest not more than15%20% of the 27 system's assets in investments described in subsection (1). 06107'00 ** 22 1 (5)(4)If an investment described in subsection (1) is 2 subsequently determined to be permitted under another section of 3 this act, then the investment shall no longer be included under 4 this section. 5 (6)(5)This section shall not be used to exceed a percen- 6 tage of total assets limitation for an investment provided in any 7 other section of this act. 8 Sec. 20e. (1) An investment fiduciary may loan bonds, 9 stocks, or other securities if at the time the loan is executed, 10 at least 102% of the full market value of the security loaned is 11 secured by collateral of cash to be invested ininvestment grade12securities or repurchase1 OR MORE OF THE FOLLOWING: 13 (A) SECURITIES GRADED IN THE TOP 4 MAJOR GRADES AS DETER- 14 MINED BY 2 NATIONAL RATING SERVICES, OR IF ONLY GRADED BY 1 15 NATIONAL RATING SERVICE, THEN IN THE TOP 4 MAJOR GRADES AS DETER- 16 MINED BY THAT NATIONAL RATING SERVICE, OR DETERMINED BY THE 17 INVESTMENT FIDUCIARY TO BE OF COMPARABLE QUALITY IN THE CASE OF 18 UNRATED SECURITIES. 19 (B) REPURCHASE agreements collateralized byinvestment20gradesecurities, irrevocableGRADED IN THE TOP 4 MAJOR 21 GRADES AS DETERMINED BY 2 NATIONAL RATING SERVICES, OR IF ONLY 22 GRADED BY 1 NATIONAL RATING SERVICE, THEN IN THE TOP 4 MAJOR 23 GRADES AS DETERMINED BY THAT NATIONAL RATING SERVICE, OR DETER- 24 MINED BY THE INVESTMENT FIDUCIARY TO BE OF COMPARABLE QUALITY IN 25 THE CASE OF UNRATED SECURITIES. 26 (C) IRREVOCABLE bank letters of credit., or securities06107'00 ** 23 1 (D) SECURITIES issued or guaranteed by the United States 2 government or an agency of the United States government. 3 (2) At all times during the term ofeach suchA loan UNDER 4 SUBSECTION (1), the collateral shall be equal to not less than 5 100% of the full market value of the security loaned. 6 Enacting section 1. Section 20i of the public employee 7 retirement system investment act, 1965 PA 314, MCL 38.1140i, is 8 repealed. 06107'00 ** Final page. TJS