(a) The board of trustees of any public employee retirement system of any political subdivision of the State of Arkansas shall, from time to time, as funds are available for investment purposes, invest in obligations set out in this section.

(b) The boards of trustees of public employees retirement systems of political subdivisions of the state shall have the power to invest and reinvest the moneys in their respective funds and to hold, purchase, sell, assign, transfer, and dispose of any securities and investments held in the funds, except that the investments and reinvestments shall be limited to the following:

(1) Direct general obligations of the United States Government;

(2) Bonds, notes, debentures, or other obligations issued by an agency of the United States Government, the principal and interest of which are guaranteed in full by the United States Government;

(3)

(A) Direct general obligations of the State of Arkansas;

(B) Capital notes issued pursuant to § 23-32-215 [repealed] by banks and trust companies organized or operated under the laws of this state and subordinated debt securities of savings and loan associations in this state whose deposits are secured by the Federal Savings and Loan Insurance Corporation [abolished];

(C) Certificates of deposit of any bank in Arkansas if the bank is insured by the Federal Deposit Insurance Corporation;

(4) Revenue bonds issued by the University of Arkansas and by the other respective state-supported institutions of higher learning;

(5) Ad valorem tax bonds of counties issued under the authority of the Arkansas Constitution, Amendments 10;

(6) Ad valorem tax bonds of cities of the first and cities of the second class issued under the authority of the Arkansas Constitution, Amendments 10;

(7) Valid warrants of local school districts of the State of Arkansas, but the warrants may be purchased only from the local school district board and only during the fiscal year in which issued;

(8) Revolving loan bonds and revolving loan certificates of indebtedness held in the Revolving Loan Fund in the State Treasury under the jurisdiction of the State Board of Education;

(9) Bonds of local school districts, sometimes referred to as "commercial bonds", whereof a continuing ad valorem tax levy of a given number of mills on each dollar of the assessed valuation of all taxable real and personal property within the bounds of the district shall have been voted for the specific primary purpose of paying the principal of, and interest on, the bonds, as distinguished from the excess collections of taxes derived through levies made to pay other issues of bonds of the district;

(10) First lien serial coupon bonds of local industrial development corporations organized under the authority of the Arkansas Industrial Development Act, § 15-4-101 et seq., but the bonds may be purchased only from the State Board of Finance;

(11) (A) (i) Obligations consisting of notes, bonds, or debentures which are direct obligations of an industrial corporation, or a corporation engaged primarily in the production, transportation, distribution, or sale of electricity, gas, or water or the operation of telephone or telegraph systems, or any combination of them.

(ii) The obligor corporation shall be incorporated under the laws of the United States, any state, or the District of Columbia.

(iii) These obligations shall, at the time of purchase, be rated within the three (3) highest classifications by at least two (2) standard rating services.

(B)

(i) Funds of the system may not be used in the purchase of common or preferred stocks, or of other equity capital, by whatever name called.

(ii) No such obligations as may be owned by the system may ever be exchanged for any stock or other equity capital; and

(12) (A) Notes secured by:

(i) Mortgages on real estate, which are guaranteed as to payment of principal and interest either by the United States Government or an agency thereof; or

(ii) A corporation, approved by the Insurance Commissioner, which is licensed to do business in the State of Arkansas as an insurer.

(B) (i) (a) Notes or obligations securing loans to Arkansas businesses made by banks and savings and loan associations pursuant to the Small Business Act, 15 U.S.C. § 631 et seq., only to the extent that both principal and interest are guaranteed by the United States Government.

(b) The applicant bank or savings and loan association shall be required to enter into an indemnity agreement, which meets the approval of the board of trustees, to pay off the investments, together with interest and any unpaid costs and expenses in connection therewith, in the event the United States Government refuses to honor its guarantee.

(ii) The board of trustees may enter into conventional agreements for the servicing of the loans and the administration of receipts therefrom.

(iii) Any servicing agreement may contain such reasonable and customary provisions as the board of trustees may deem advisable and as may be agreed upon.