Section 38. With the exception of funds used in connection with a deferred compensation program for state employees, and funds of the state employees' retirement system or the teachers' retirement system, all funds over which the commonwealth has exclusive control shall be invested by the state treasurer as follows:

(a) In the public funds of the United States or of the District of Columbia or of this commonwealth, or in the legally authorized bonds of any other state of the United States, other than a territory or dependency of the United States, which has not within the 20 years prior to the making of such investment defaulted in the payment of any part of either principal or interest of any legal debt.

(b) In repurchase agreements secured by United States Treasury obligations or United States Treasury obligations bearing a maturity date not later than 1 year.

(c) In the bonds or notes of a county, city or town of this commonwealth.

(d) In shares of beneficial interest issued by money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, operated under section 270.2a–7 of Title 17 of the Code of Federal Regulations, that have received the highest possible rating from at least 1 nationally recognized statistical rating organization. The purchase price of shares of beneficial interest purchased under this section shall not include a commission charged by the money market funds.

(e) In any other security that qualifies for inclusion in a fund operated under section 270.2a–7 of Title 17 of the Code of Federal Regulations, as amended.

(f) In investment agreements or guaranteed investment contracts rated, or with a financial institution whose senior long-term debt obligations are rated, or guaranteed by a financial institution whose senior long-term debt obligations are rated, at the time the agreement or contract is entered into, in 1 of the 2 highest rating classifications by a nationally recognized rating service if the agreements or contracts do not exceed 1 year in duration, or, in the case of bond proceeds, do not exceed 3 years in duration.

(g) In investment agreements with a corporation whose principal business is to enter into the agreements if: the corporation and the investment agreements of the corporation are each rated in 1 of the 2 highest rating classifications by a nationally-recognized rating service; the commonwealth has an option to terminate each agreement in the event that the rating is downgraded below the 2 highest rating classifications; and the agreements or contracts do not exceed 1 year in duration, or, in the case of bond proceeds, do not exceed 3 years in duration.

(h) In the promissory notes of an industrial, commercial, finance, banking, railroad or public utility corporation conducting business in this state when such notes mature not later than 1 year subsequent to their respective dates of issue; provided, however, that, at the time of any such investment, (1) such corporation has capital stock, premium thereon and surplus of at least $25,000,000, (2) the securities of such corporation are eligible for investment by life insurance companies authorized to do business 1 in the commonwealth, and (3) all outstanding debt obligations of such corporation which have any rating from 2 or more standard rating services are rated within the 3 highest classifications established by at least 2 such rating services, or, if none of the outstanding debt obligations of such corporation has any rating from 2 such rating services, that such outstanding debt obligations are rated at the time of investment within the 3 highest classifications established by at least 2 such rating services, or the notes of such corporation at the time of investment are rated prime by the National Credit Office; provided, further, that the commonwealth investment in the notes of any 1 company shall not exceed 20 per cent of the capital and surplus of such company.

(i) In bankers acceptances and bills of exchange eligible for purchase by federal reserve banks and which have been accepted by a bank, a trust company, a private banker or an investment company, or by a banking corporation which is organized under the laws of the United States or of any state thereof and which is a member of the federal reserve system.

The state treasurer may purchase with a portion of the State Lottery and Gaming Fund, as established and defined in section 35 of chapter 10, from insurance companies lawfully doing business in the commonwealth, annuities payable to the commonwealth to be used for payment of lottery prizes. Such annuities shall not be subject to section 118 of chapter 175 limiting payment of annuities to individuals, and shall, to the extent that such annuities are payable to the commonwealth, be exempt from taxation under section 20 of chapter 63. Contracts for the purchase of such annuities shall be subject to competitive bidding and shall be awarded to the lowest responsible bidder. All such bids and contracts shall be public records.

The state treasurer may also purchase with a portion of the State Lottery and Gaming Fund, bonds, notes, shares in combined investment funds or other interest bearing obligations under the standards in subdivision (3) of section 23 of chapter 32.

Funds in connection with a deferred compensation program for state employees may be invested by the treasurer under section 64; provided, however, that such funds, whether or not invested, shall remain in the sole control of the treasurer, and may be used by the commonwealth at any time and for any purpose.

The treasurer may lend securities purchased from funds authorized by this section, provided that at the time of the execution of the loan at least 100 per cent of the market value of the security lent shall be secured by cash or securities guaranteed by the United States government or any agency of the United States government. At all times during the term of each such loan the collateral shall be equal to not less than 95 per cent of the full market value of the security and said collateral shall not be more than $100,000 less than the full market value of the security.