                       The Attorney              General of Texas
                                           March 21, 1980

MARK WHITE
Attorney General


                   Honorable Leonard Prewitt                   Opinion No.   MW-152
                   Teacher Retirement System of Texas
                   1001Trinity Street                          Re: Authority         of the ‘Teacher
                   Austin Texas 78701                          Retirement       System to invest in
                                                               real       estate       or   mortgage
                                                               certificates       secured   by   real
                                                               property.

                   Dear Mr. Prewitt:

                         You have requested our opinion regarding the authority of the Teacher
                   Retirement System to invest in real estate or mortgage certificates secured
                   by real property.

                         The Teacher Retirement       System    is a constitutionally     recognized
                   agency whose duty it is

                              (b) . . . to provide benefits for persons employed in
                              the public schools,       colleges,  and universities
                              supported wholly or partly by the state. . . .

                   Tex. Const. art. XVI, 5 67. Section 3.60(a) of the Education Code provides
                   that

                               [tlhe State Board of Trustees shall be the trustee of
                               all funds, securities, money, and other assets of the
                               retirement   system with full power to invest and
                               reinvest them, as authorized by Article XVI, Section
                               67, of the Texas Constitution.

                   Article XVI, section    6’7 of the Texas Constitution      directs   the board of
                   trustees

                                       to administer the system and to invest the
                               (3) . . .
                               funds of the system in such securities as the board
                               may consider prudent investments. . . .




                                                 p.   488
Honorable Leonard Prewitt       -    Page Two        (NW-152 1



(Emphasis added).

     “Securities,” under the Texas Blue Sky Law, article 581-4, V.T.C.S., includes

           A . . . . % share, stock, treasury stock, stock certificate under a
           voting trust agreement, collateral            trust certificate,     equipment
           trust     certificate,     preorganization         certificate    or    receipt,
            subscriotion or reornanization       certificate.      note. bond. debenture.
           mortgage certificate       or other evidence of indebtedness, any form
           of commercial paper, certificate          m or under a profit sharing or
           participation agreement, certificate or any instrument representing
           any interest in or under an oil, gas or mining lease, fee or title, or
           any certificate or instrument representing or secured by an interest
           in any or all of the capital, property, assets, profits or earnings of
           my ~mww,             investment    contract,     or any other instrument
            commonly known as a security, whether similar to those herein
           referred to or not. Provided, however, that this definition shall not
           apply to any insurance policy, endowment policy, annuity contract,
           optional annuity contract, or any contract or agreement in relation
           to and in consequence of any such policy or contract, issued by an
           insurance company subject to the supervision or control of the
           Board of Insurance Commissioners when the form of such policy or
           contract has been duly filed with the Board as now or hereafter
           required by law.

(Emphasis added). It is generally recognized that the term “securities” embraces “any and
all evidences of debt.” Huckabee v. Hansen, 422 S.W.2d 606, 608 (Tex. Civ. App. -
Corpus Christi 1967, no d it). See also Florida Realty, Inc. v. Kirkpatrick, 509 S.W.%l 114,
118 (MO. Sup. 1974); Allied Leasine Core.     Murphy, 233 S.E.2d 499, 500 (Ga. App. 1977).
Thus, we believe that mortgage ! certificates secured by real estate ought ~ordinarily to be
deemed “securities” for purposes of article XVI, section 67 of the Texas Constitution.

      On the other hand, article 581-4, V.T.C S., does not include any kind of real estate
within its purview. Furthermore, Texas courts and most others have held that real estate
is not a “security” within the contemplation of various securities acts. Kadane v. Clark,
134 S.W.2d 448, 453 (Tex. Civ. App. -- Fort Worth 19391, rev’d on other grounds, 143 S.W.2d
197 (Tex. 1940). See also Securities & Exchange Comm’n v. Federal Shopping Way, Inc.,
433 F.2d 148, 149I9th.      1970); Polikoff v. Levy, 204 N.E.2d 807, 809-10 (Ill. App. 19651;
Securities & Exchange Comm’n v. W. J. Howey Co., 60 F. Supp. 440, 441 (S. D. Fla. 1945);
Pratt v. Worrell, 57 A. 450, 453 (N. J. 1904).

      We must conclude, therefore, that pursuant to the terms of article XVI, section 67,
of the Texas Constitution,   the Teacher Retirement System is authorized to invest its
funds in mortgage certificates   secured by real estate, provided the board of trustees
determines such to constitute a “prudent investment.”      The board may not, however,
invest its funds in the realty itself.   In view of the long established and dominant




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        Honorable Leonard Prewitt      -   Page Three      (NW-152)



        legislative and judicial construction that realty is not within the ambit of “securities,” it is
        our opinion that a constitutional amendment would be necessary to enable the board of
        trustees of the Teacher Retirement System to invest its funds in real property.

                                                SUMMARY

                    The Board of Trustees of the Teacher Retirement System may
                    invest its funds, or a portion thereof, in mortgage certificates
                    secured by real property, provided the board determines such to
                    constitute a prudent investment.     A constitutional amendment
                    would be necessary, however, to enable the board to invest its
                    funds in realty.




                                                        MARK     WHITE
                                                        Attorney General of Texas

        JOHN W. FAINTER, JR.
        First Assistant Attorney General

        TED L. HARTLEY
        Executive Assistant Attorney General

        Prepared by Rick Gilpin
        Assistant Attorney General

        APPROVED:
        OPINION COMMITTEE

        C. Robert Heath, Chairman
        Walter Davis
        Susan Garrison
        Rick Gilpin
        Tom Pollan
        Bruce Y oungblood




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