0001|                            HOUSE BILL 229
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0002|     43RD LEGISLATURE - STATE OF NEW MEXICO - SECOND SESSION, 1998
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0003|                            INTRODUCED BY
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0004|                         RICHARD T. KNOWLES 
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0005|     
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0006|                                   
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0007|     
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0008|                                   
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0009|     
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0010|                                AN ACT
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0011|     RELATING TO THE INVESTMENT OF THE STATE PERMANENT FUNDS;
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0012|     AMENDING SECTIONS 6-8-9 AND 7-27-5.1 NMSA 1978 (BEING LAWS
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0013|     1957, CHAPTER 179, SECTION 9 AND LAWS 1983, CHAPTER 306,
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0014|     SECTION 8, AS AMENDED).
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0015|     
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0016|     BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
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0017|          Section 1.  Section 6-8-9 NMSA 1978 (being Laws 1957,
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0018|     Chapter 179, Section 9, as amended) is amended to read:
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0019|          "6-8-9.  SECURITIES AND INVESTMENT.--
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0020|               A.  Money made available from the land grant
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0021|     permanent funds for investment for a period in excess of one
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0022|     year may be invested in the following classes of securities
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0023|     and investments:
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0024|                    (1)  bonds, notes or other obligations of the
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0025|     United States government, its agencies, government-sponsored
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0001|     enterprises, corporations or instrumentalities and that
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0002|     portion of bonds, notes or other obligations guaranteed as to
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0003|     principal and interest and issued by the United States
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0004|     government, its agencies, government-sponsored enterprises,
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0005|     corporations or instrumentalities or issued pursuant to acts
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0006|     or programs authorized by the United States government;
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0007|                    (2)  bonds, notes, debentures and other
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0008|     obligations issued by the state of New Mexico or a
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0009|     municipality or other political subdivision of the state that
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0010|     are secured by an investment grade bond rating from a national
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0011|     rating service, pledged revenue or other collateral or
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0012|     insurance necessary to satisfy the standard of prudence set
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0013|     forth in Section 6-8-10 NMSA 1978;
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0014|                    (3)  bonds, notes, debentures, ~[equipment
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0015|     trust certificates]~ |instruments|, conditional sales
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0016|     agreements, |securities| or other evidences of indebtedness of
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0017|     any corporation, |partnership or trust| organized and
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0018|     operating within the United States rated not less than Baa or
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0019|     BBB or the equivalent by a national rating service;
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0020|                    (4)  notes or obligations securing loans or
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0021|     participation in loans to business concerns or other
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0022|     organizations that are obligated to use the loan proceeds
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0023|     within New Mexico, to the extent that loans are secured by
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0024|     first mortgages on real estate located in New Mexico and are
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0025|     further secured by an assignment of rentals, the payment of
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0001|     which is fully guaranteed by the United States in an amount
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0002|     sufficient to pay all principal and interest on the mortgage;
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0003|                    (5)  common and preferred stocks and
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0004|     convertible issues of any corporation; provided that it has
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0005|     ~[a minimum net worth of twenty-five million dollars
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0006|     ($25,000,000) and]~ securities listed on one or more national
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0007|     stock exchanges or included in a nationally recognized list of
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0008|     stocks; and provided further that the fund shall not own more
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0009|     than five percent of the voting stock of any company; 
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0010|                    (6)  securities of non-United States
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0011|     governmental, quasi-governmental, |partnership, trust| or
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0012|     corporate entities, and these may be denominated in foreign
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0013|     currencies; provided:
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0014|                         (a)  aggregate non-United States
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0015|     investments shall not exceed fifteen percent of the book value
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0016|     of the land grant permanent funds;
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0017|                         (b)  for non-United States stocks and
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0018|     non-United States bonds and notes, issues permitted for
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0019|     purchase shall be limited to those issues traded on a national
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0020|     stock exchange or included in a nationally recognized list of
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0021|     stocks or bonds;
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0022|                         (c)  currency contracts may be used for
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0023|     investing in non-United States securities only for the purpose
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0024|     of hedging foreign currency risk and not for speculation;
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0025|                         (d)  the investment management services
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0001|     of a trust company or national bank exercising trust powers or
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0002|     of an investment counseling firm may be employed; and
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0003|                         (e)  reasonable compensation for
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0004|     investment management services and other administrative and
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0005|     investment expenses related to these investments shall be paid
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0006|     directly from the assets of the funds, subject to budgeting
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0007|     and appropriation by the legislature; and
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0008|                    (7)  stocks or shares of a diversified
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0009|     investment company registered under the federal Investment
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0010|     Company Act of 1940, as amended, and listed securities of
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0011|     long-term unit investment trusts or individual, common or
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0012|     collective trust funds of banks or trust companies that invest
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0013|     primarily in equity securities authorized in Paragraphs (5)
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0014|     and (6) of this subsection; provided that the investment
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0015|     company has total assets under management of at least one
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0016|     hundred million dollars ($100,000,000); and provided further
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0017|     that the council may allow reasonable administrative and
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0018|     investment expenses to be paid directly from the assets
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0019|     derived from these investments, subject to budgeting and
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0020|     appropriation by the legislature.
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0021|               B.  Not more than sixty-five percent of the book
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0022|     value of the land grant permanent funds shall be invested at
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0023|     any given time in securities described in Paragraphs (5), (6)
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0024|     and (7) of Subsection A of this section, and no more than ten
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0025|     percent of the book value of the land grant permanent funds
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0001|     shall be invested at any given time in securities described in
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0002|     Paragraph (3) of Subsection A of this section that are rated
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0003|     Baa or BBB.  Assets of the land grant permanent funds may be
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0004|     combined for investment in common pooled funds to effectuate
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0005|     efficient management.
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0006|               C.  Commissions paid for the purchase and sale of
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0007|     any security shall not exceed brokerage rates prescribed and
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0008|     approved by national stock exchanges or by industry practice."
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0009|          Section 2.  Section 7-27-5.1 NMSA 1978 (being Laws 1983,
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0010|     Chapter 306, Section 8, as amended) is amended to read:
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0011|          "7-27-5.1.  MARKET RATE INVESTMENTS.--
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0012|               A.  Money made available from the severance tax
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0013|     permanent fund for investment for a period in excess of one
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0014|     year in market rate investments may be invested in the
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0015|     following classes of securities and investments:
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0016|                    (1)  bonds, notes or other obligations of the
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0017|     United States government, its agencies, government-sponsored
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0018|     enterprises, corporations or instrumentalities and that
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0019|     portion of bonds, notes or other obligations guaranteed as to
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0020|     principal and interest and issued by the United States
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0021|     government, its agencies, government-sponsored enterprises,
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0022|     corporations or instrumentalities or issued pursuant to acts
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0023|     or programs authorized by the United States government;
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0024|                    (2)  bonds, notes, debentures and other
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0025|     obligations issued by the state of New Mexico or a
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0001|     municipality or other political subdivision of the state that
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0002|     are secured by an investment grade bond rating from a national
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0003|     rating service, pledged revenue or other collateral or
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0004|     insurance necessary to satisfy the standard of prudence set
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0005|     forth in Section 6-8-10 NMSA 1978;
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0006|                    (3)  bonds, notes, debentures, ~[equipment
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0007|     trust certificates]~ |instruments|, conditional sales
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0008|     agreements, |securities| or other evidences of indebtedness of
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0009|     any corporation, |partnership or trust| organized and
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0010|     operating within the United States rated not less that Baa or
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0011|     BBB or the equivalent by a national rating service;
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0012|                    (4)  notes or obligations securing loans or
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0013|     participation in loans to business concerns or other
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0014|     organizations that are obligated to use the loan proceeds
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0015|     within New Mexico, to the extent that loans are secured by
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0016|     first mortgages on real estate located in New Mexico and are
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0017|     further secured by an assignment of rentals, the payment of
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0018|     which is fully guaranteed by the United States in an amount
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0019|     sufficient to pay all principal and interest on the mortgage;
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0020|                    (5)  common and preferred stocks and
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0021|     convertible issues of any corporation; provided that it has
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0022|     ~[a minimum net worth of twenty-five million dollars
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0023|     ($25,000,000) and]~ securities listed on one or more national
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0024|     stock exchanges or included in a nationally recognized list of
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0025|     stocks; and provided further that the fund shall not own more
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0001|     than five percent of the voting stock of any company;
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0002|                    (6)  securities of non-United States
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0003|     governmental, quasi-governmental, |partnership, trust| or
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0004|     corporate entities, and these may be denominated in foreign
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0005|     currencies; provided:
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0006|                         (a)  aggregate non-United States
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0007|     investments shall not exceed fifteen percent of the book value
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0008|     of the severance tax permanent fund;
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0009|                         (b)  for non-United States stocks and
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0010|     non-United States bonds and notes, issues permitted for
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0011|     purchase shall be limited to those issues traded on a national
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0012|     stock exchange or included in a nationally recognized list of
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0013|     stocks or bonds;
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0014|                         (c)  currency contracts may be used for
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0015|     investing in non-United States securities only for the purpose
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0016|     of hedging foreign currency risk and not for speculation;
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0017|                         (d)  the investment management services

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0018|     of a trust company or national bank exercising trust powers or
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0019|     of an investment counseling firm may be employed; and
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0020|                         (e)  reasonable compensation for
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0021|     investment management services and other administrative and
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0022|     investment expenses related to these investments shall be paid
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0023|     directly from the assets of the fund, subject to budgeting and
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0024|     appropriation by the legislature;
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0025|                    (7)  stocks or shares of a diversified
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0001|     investment company registered under the federal Investment
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0002|     Company Act of 1940, as amended, and listed securities of
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0003|     long-term unit investment trusts or individual, common or
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0004|     collective trust funds of banks or trust companies that invest
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0005|     primarily in equity securities authorized in Paragraphs (5)
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0006|     and (6) of this subsection; provided that the investment
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0007|     company has total assets under management of at least one
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0008|     hundred million dollars ($100,000,000); and provided further
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0009|     that the council may allow reasonable administrative and
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0010|     investment expenses to be paid directly from the assets
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0011|     derived from these investments, subject to budgeting and
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0012|     appropriation by the legislature; and 
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0013|                    (8)  participation interests in New Mexico
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0014|     real-property-related business loans.  The actual amount
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0015|     invested under this paragraph shall not exceed ten percent of
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0016|     the severance tax permanent fund and shall be included in any
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0017|     minimum amount of severance tax permanent fund investments
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0018|     required to be placed in New Mexico certificates of deposit. 
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0019|     Investments authorized in this paragraph are subject to the
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0020|     following:
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0021|                         (a)  the state investment officer may
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0022|     purchase from eligible institutions a participation interest
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0023|     of up to eighty percent in any loan secured by a first
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0024|     mortgage or a deed of trust on the real property located in
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0025|     New Mexico of an eligible business entity, or its subsidiary,
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0001|     that is operating or shall use loan proceeds to commence
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0002|     operations within New Mexico plus any other guarantees or
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0003|     collateral that may be judged by the eligible institution or
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0004|     the state investment officer to be prudent.  To be eligible
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0005|     for investment the following minimum requirements shall be
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0006|     met:  1) the loan proceeds shall be used exclusively for the
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0007|     purpose of expanding or establishing businesses in New Mexico,
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0008|     including the refinancing of such businesses for expansion
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0009|     purposes only.  If a portion of the loan proceeds were used
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0010|     for refinancing or repaying an existing loan and payment of
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0011|     principal and interest to the state has not been made within
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0012|     ninety days from the due date, unless extended pursuant to
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0013|     agreement between the originating institution and the state
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0014|     investment officer, the originating institution shall buy back
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0015|     the state's participation interest in the loan and begin
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0016|     foreclosure proceedings; 2) eligible business entities shall
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0017|     not include public utilities or financial institutions or
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0018|     shopping centers, apartment buildings or other such passive
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0019|     investments; 3) the minimum loan amount shall be two hundred
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0020|     fifty thousand dollars ($250,000) and may be met by packaging
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0021|     up to ten separate loans satisfying the requirements of this
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0022|     paragraph.  The maximum loan amount shall be two million
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0023|     dollars ($2,000,000); 4) the loan maturity shall be not less
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0024|     than five years or more than thirty years; 5) the maximum
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0025|     loan-to-value ratio shall be seventy-five percent and based on
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0001|     current appraisal of the real property by an appraiser who is
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0002|     licensed or certified in New Mexico and approved by the state
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0003|     investment officer, which shall be made not more than one
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0004|     hundred eighty days from the loan origination date; 6) the
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0005|     interest rate of the loan shall be fixed for five years and
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0006|     shall be adjusted at every fifth anniversary of the note to
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0007|     the rate specified in Item 7) of this subparagraph; 7) the
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0008|     yield on the state's participation interest shall in no case
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0009|     be less than the greater of the then-prevailing yield on
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0010|     United States treasury securities of five-year maturity plus
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0011|     two and one-half percent or the yield received by the lending
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0012|     institution calculated exclusive of servicing fees; 8) if
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0013|     payment of principal or interest has not been made within one
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0014|     hundred eighty days from the due date, unless extended
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0015|     pursuant to agreement between the originating institution and
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0016|     the state investment officer, the originating institution
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0017|     shall buy back the state's participation interest in the loan,
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0018|     substitute another qualifying loan or begin foreclosure
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0019|     proceedings; and 9) if foreclosure proceedings are commenced,
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0020|     the state and the originating institution shall share in
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0021|     proportion to their participation interest, as provided in
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0022|     this subparagraph, in the legal and other foreclosure expenses
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0023|     and in any loss incurred as a result of a foreclosure sale;
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0024|                         (b)  a standardized participation
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0025|     agreement, the form of which shall be approved by the attorney
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0001|     general's office, shall be executed between the investment
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0002|     office and each eligible originating institution.  The
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0003|     participation agreement shall provide that the originating
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0004|     institution shall not assign its interest in any loan covered
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0005|     by the agreement without the prior written consent of the
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0006|     state investment officer;
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0007|                         (c)  a formal forward commitment program
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0008|     may be instituted by the state investment officer with the
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0009|     approval of the council;
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0010|                         (d)  the council shall adopt
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0011|     regulations:  1) defining passive investments; 2) establishing
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0012|     underwriting guidelines; 3) ensuring diversification across a
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0013|     variety of types of collateral, types of businesses and
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0014|     regions of the state; and 4) providing for the review by the
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0015|     state investment officer of servicing and other fees that may
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0016|     be charged by the eligible institution;
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0017|                         (e)  eligible institutions include
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0018|     banks, savings and loan associations and credit unions
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0019|     operating in the state; and
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0020|                         (f)  real property is defined as land
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0021|     and attached buildings, but excludes all interests that may be
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0022|     secured by a security interest under Article 9 of the Uniform
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0023|     Commercial Code, and mineral resource values.
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0024|               B.  Not more than sixty-five percent of the book
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0025|     value of the severance tax permanent fund shall be invested at
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0001|     any given time in securities described in Paragraphs (5), (6)
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0002|     and (7) of Subsection A of this section, and no more than ten
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0003|     percent of the book value of the severance tax permanent fund
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0004|     shall be invested at any given time in securities described in
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0005|     Paragraph (3) of Subsection A of this section that are rated
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0006|     Baa or BBB.  Assets of the severance tax permanent fund may be
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0007|     combined for investment in common pooled funds to effectuate
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0008|     efficient management.
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0009|               C.  Commissions paid for the purchase and sale of
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0010|     any security shall not exceed brokerage rates prescribed and
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0011|     approved by national stock exchanges or by industry practice."
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0012|                              
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