3103 AUTHORIZED INVESTMENTS

3103.1 Any HMO may acquire the assets set forth in subsections 3103.2 through 3103.18, inclusive. Any restriction, exclusion or provision appearing in any subsection shall apply only with respect to the authorization of the particular subsection in which it appears and shall not constitute a general prohibition and shall not be applicable to any other subsection. The qualifications or disqualifications of an investment under one subsection shall not prevent its qualification in whole or in part under another subsection, and an investment authorized by more than one subsection may be held under whichever authorizing subsection the HMO elects. An investment which qualified under any subsection at the time it was acquired or entered into by an HMO shall continue to be qualified under that subsection. An investment in whole or in part may be transferred from time to time, at the election of the HMO, to the authority of any subsection under which it qualifies, whether originally qualifying thereunder or not.

3103.2 Direct obligations of the United States for the payment of money, or obligations for the payment of money, to the extent guaranteed or insured as to the payment of principal and interest by the United States.

3103.3 Direct obligations for the payment of money, issued by an agency or instrumentality of the United States, or obligations for the payment of money to the extent guaranteed or insured as to the payment of principal and interest by an agency or instrumentality of the United States.

3103.4 Direct, general obligations of the District or any state of the United States for the payment of money, or obligations for the payment of money to the extent guaranteed or insured as to the payment of principal and interest by the District or any state of the United States, on the following conditions:

(a) The state or the District has the power to levy taxes for the prompt payment of the principal and interest of such obligations; and

(b) The state or the District shall not be in default in the payment of principal or interest on any of its direct, guaranteed or insured general obligations at the date of such investment.

3103.5 Direct, general obligations of any political subdivision of any state of the United States for the payment of money, or obligations for the payment of money to the extent guaranteed as to the payment of principal and interest by any political subdivision of any state of the United States, on the following conditions:

(a) The obligations are payable or guaranteed from ad valorem taxes;

(b) Such political subdivision is not in default in the payment of principal or interest on any of its direct or guaranteed obligations;

(c) No investment shall be made under this section in obligations which are secured only by special assessments for local improvements; and

(d) An HMO shall not invest under this section more than two percent (2%) of its admitted assets in obligations issued or guaranteed by any one such political subdivision.

3103.6 Anticipation obligations of any political subdivision of any state of the United States, including but not limited to bond anticipation notes, tax anticipation notes, preliminary loan anticipation notes, revenue anticipation notes and construction anticipation notes, for the payment of money

within twelve (12) months from the issuance of the obligation on the following conditions:

(a) Such anticipation notes must be a direct obligation of the issuer under the conditions set forth in subsection 3103.5.

(b) Such political subdivision is not in default in the payment of the principal or interest on any of its direct general obligations or any obligation guaranteed by such political subdivision;

(c) The anticipated funds must be specifically pledged to secure the obligations; and

(d) An HMO shall not invest under this subsection more than two percent (2%) of its admitted assets in the anticipation obligations issued by any one such political subdivision.

3103.7 Obligations of any state of the United States, a political subdivision thereof, or a public instrumentality of any one or more of the foregoing, for the payment of money, on the following conditions:

(a) The obligations are payable from revenues or earnings of a public utility of such state, political subdivision, or public instrumentality which are specifically pledged therefor;

(b) The law under which the obligations are issued requires rates for service to be charged and collected at all times such that they will produce sufficient revenues, in addition to the revenues needed to pay all operating and maintenance charges of the public utility, to pay all principal and interest on such obligations;

(c) No prior or parity obligations payable from the revenues or earning of that public utility are in default at the date of such investment;

(d) An HMO shall not invest more than twenty percent (20%) of its admitted assets under this section; and

(e) An HMO shall not invest under this section more than two percent (2%) of its admitted assets in the revenue obligations issued in connection with any one facility.

3103.8 Obligations of any state of the United States, a political subdivision thereof, or a public instrumentality of any one or more of the foregoing, for the payment of money, on the following conditions:

(a) The obligations are payable from revenues or earnings, excluding revenues or earnings from public utilities, specifically pledged therefor by such state, political subdivision, or public instrumentality;

(b) No prior or parity obligation of the same issuer payable from revenues or earnings from the same source has been in default as to principal or interest during the five (5) years preceding the date of such investment, but such issuer need not have been in existence for that period, and obligations acquired under this section may be newly issued;

(c) An HMO shall not invest in excess of twenty percent (20%) of its admitted assets under this subsection;

(d) An HMO shall not invest under this section more than two percent (2%) of its

admitted assets in the revenue obligations issued in connection with any one facility; and

(e) An HMO shall not invest under this section more than two percent (2%) of its admitted assets in revenue obligations payable from revenue or earning sources which are the contractual responsibility of any one single credit risk.

3103.9 Direct, unconditional obligations of a solvent business corporation for the payment of money, including obligations to pay rent for equipment used in this business on the following conditions:

1. (a) The corporation shall be incorporated under the laws of the District, the United States or any state thereof;
2. (b) The corporation shall have tangible net worth of not less than \$1,000,000;
3. (c) No such obligation of the corporation has been in default as to principal or interest during the five (5) years preceding the date of investment, but the corporation need not have had obligations, guarantees, or insurance outstanding during that period and need not have been in existence for that period, and obligations acquired under this subsection may be newly issued;
4. (d) An HMO shall not invest more than two percent (2%) of its admitted assets in obligations issued, guaranteed, or insured by any one such corporation;
5. (e) An HMO may invest under this subsection up to an additional two percent (2%) of its admitted assets in obligations which:
6. (1) are issued, guaranteed or insured by any one or more such corporations, each having a tangible net worth of not less than \$25,000,000; and
7. (2) mature within twelve (12) months from the date of acquisition;
8. (f) An HMO may invest not more than one-half (1/2) of one percent (1%) of its admitted assets in such obligations of corporations which do not meet the condition of paragraph (b) of this subsection; and
9. (g) An HMO shall not invest more than seventy-five percent (75%) of its admitted assets under this subsection.

3103.10 Direct, unconditional obligations for the payment of money to the extent guaranteed as to principal and interest by a solvent not-for-profit corporation on the following conditions:

1. (a) The corporation shall be incorporated under the laws of the District, the United States or any state thereof;
2. (b) The corporation shall have been in existence for at least five (5) years and shall have assets of at least \$2,000,000;
3. (c) Revenues or other income from such assets and the services or commodities dispensed by the corporation shall be pledged for the payment of the obligations or guarantees;
4. (d) No such obligation or guarantee of the corporation has been in default as to principal or interest during the five (5) years preceding the date of such

investment, but the corporation need not have had obligations or guarantees outstanding during that period and obligations acquired under this subsection may be newly issued;

(e) An HMO shall not invest more than fifteen percent (15%) of its admitted assets under this section; and

(f) An HMO shall not invest under this subsection more than two percent (2%) of its admitted assets in the obligations issued or guaranteed by any one such corporation.

3103.11 Direct, unconditional non-demand obligations for the payment of money issued by a solvent bank, savings bank, or trust company on the following conditions:

(a) The bank, savings bank, or trust company shall have tangible net worth of not less than $1,000,000;

(b) Such obligations must be of the type which are insured by an agency of the United States or have a maturity of no more than one (1) day;

(c) An HMO shall not invest under this subsection more than the amount which is fully insured by an agency of the United States plus two percent (2%) of its admitted assets in non-demand obligations issued by any one such financial institution; and

(d) An HMO may invest under this subsection up to an additional eight percent (8%) of its admitted assets in non-demand obligations which:

(1) are issued by any such banks, savings banks or trust companies, each having a tangible net worth of not less than $25,000,000; and

(2) mature within twelve (12) months from the date of acquisition.

3103.12 Preferred or guaranteed stocks issued or guaranteed by a solvent business corporation incorporated under the laws of the District, the United State or any state thereof, on the following conditions:

(a) The corporation shall have tangible net worth of not less than $1,000,000;

(b) If such stocks have been outstanding prior to purchase, an HMO shall not invest under this subsection in such stock if prescribed current or cumulative dividends are in arrears;

(c) An HMO shall not invest more than thirty-three and one-third percent (33 1/3%) of its admitted assets under this subsection and an HMO shall not invest more than fifteen percent (15%) of its admitted assets under this subsection in stocks which, at the time of purchase, are not sinking fund stocks. An issue of preferred or guaranteed stock shall be a sinking fund stock when:

(1) such issue is subject to a one hundred percent (100%) mandatory sinking fund or similar arrangement which will provide for the redemption of the entire issue over a period not longer than forty (40) years from the date of purchase;

(2) annual mandatory sinking fund installments on each issue commence not more than ten (10) years from the date of issue; and

1. (3) each annual sinking fund installment provides for the purchase or redemption of at least two and one-half percent (2 1/2%) of the original number of shares of such issue; and
2. (d) An HMO shall not invest under this subsection more than two percent (2%) of its admitted assets in the preferred or guaranteed stocks of any one such corporation.3103.13 Common stock issued by any solvent business corporation incorporated under the laws of the District, the United States or any state thereof, on the following conditions:- (a) The issuing corporation must have tangible net worth of \$1,000,000 or more;
3. (b) An HMO may not invest more than an amount equal to its net worth under this section;
4. (c) An HMO may not invest under this subsection an amount equal to more than ten percent (10%) of its net worth in the common stock of any one corporation;3103.14 Shares of common stock or units of beneficial interest issued by a solvent business corporation or trust incorporated or organized under the laws of the District, the United States or any state thereof, on the following conditions:- (a) If the issuing corporation or trust is advised by an investment advisor which is the HMO or an affiliate of the HMO, the issuing corporation or trust shall have net assets of \$100,000 or more, or if the corporation or trust has an unaffiliated investment advisor, the issuing corporation or trust shall have net assets of \$10,000,000 or more;
5. (b) The issuing corporation or trust is registered as an investment company with the Securities and Exchange Commission pursuant to the Investment Company Act of 1940, as amended, 15 U.S.C. §§ 80a-1 et seq.;
6. (c) An HMO shall not invest under this subsection more than the greater of \$100,000 or ten percent (10%) of its admitted assets in any one bond fund, municipal bond fund, or money market fund;
7. (d) An HMO shall not invest under this subsection more than ten percent (10%) of its net worth in any one common stock fund, balanced fund, or income fund;
8. (e) An HMO shall not invest more than fifty percent (50%) of its admitted assets in bond funds, municipal bond funds, and money market funds under this subsection; and
9. (f) An HMO's investments in common stock funds, balanced funds or income funds when combined with its investments in common stocks made under subsection 3103.13 shall not exceed the aggregate limitation provided by subsection 3103.13(b).3103.15 Shares of, or accounts or deposits with, savings and loan associations or building and loan associations, on the following conditions:- (a) The shares, accounts, or deposits, or investments in any form legally issuable shall be of a withdrawable type and issued by an association which has the insurance protection afforded by the Federal Savings and Loan Insurance Corporation. Nonwithdrawable accounts which are not eligible for insurance by the Federal

Savings and Loan Insurance Corporation shall not be eligible for investment under this subsection;

(b) The association shall have tangible net worth of not less than $1,000,000;

(c) The investment shall be in the name of and owned by the HMO, unless the account is under a trusteeship with the HMO named as the beneficiary;

(d) An HMO shall not invest more than fifty percent (50%) of its admitted assets under this subsection; and

(e) Under this subsection, an HMO shall not invest in any one such association an amount in excess of two percent (2%) of its admitted assets or an amount which is fully insured by the Federal Savings and Loan Insurance Corporation, whichever is greater.

3103.16 Direct, unconditional obligations for the payment of money secured by the pledge of any investment which is authorized by any of the preceding subsections, on the following conditions:

(a) The investment pledged shall by its terms be legally assignable and shall be validly assigned to the HMO;

(b) The investment pledged shall have a fair market value which is at least twenty-five percent (25%) greater than the amount invested under this subsection, except that a loan may be made up to 100% of the full fair market value of the collateral that would qualify as an investment under subsection 3103.2 provided it qualifies under paragraph (a) of this subsection; and

(c) An HMO's investment under this subsection when added to its investment of the category of the collateral pledged shall not cause the sum to exceed the limits provided by the subsection authorizing that category of investments.

3103.17 Real estate (including leasehold estates and leasehold improvements) for the convenient accommodation of the HMO's business operations, including home office, branch office, medical facilities and field office operations, on the following conditions:

(a) Any parcel of real estate acquired under this subsection may include excess space for rent to others, if it is reasonably anticipated that such excess will be required by the HMO for expansion or if the excess is reasonably required in order to have one or more buildings that will function as an economic unit; and

(b) Such real estate may be subject to a mortgage.

3103.18 Investments of any kind, in the complete discretion of the HMO, without regard to any condition of, restriction in, or exclusion from subsections 3103.2 through 3103.17, inclusive, and regardless of whether the same or a similar type of investment has been included in or omitted from any such subsection; provided that an HMO shall not invest under this subsection more than the lesser of: (1) ten percent (10%) of its admitted assets; or (2) 50% of the amount by which its net worth exceeds the minimum requirements of a new HMO to qualify for a certificate of authority.

SOURCE: Final Rulemaking published at 46 DCR 5925(July 16, 1999).