Ron. Ge0rge.B; Butler, Chairman
Board of Insvanee Comlssloners
Austin, Texas            Oplalon Ilo. v-1070.
                          Re:   The ellglblllty of &area
                                of ,stockol’locorpcmated
                                “open-cod nanagement ln-
                                reatment eompaaletP a8 in-
                                oestmirte r0r funds OS
                                Texan .lnmrance companies
                                under.,Articles4706 and
                                4725, B.C.S., ,ln rebdneld-
                                eratlon of former Oplnlon
Dear Sir:                       Ho. .Oy3013.
          Your request Sor an oplnlon aska whether or
not the share8 oi.ao-aalled “open-end” Investment con-
panlea are ellglble for Investment by insurance compa-
nies under Articles 4706(d) and 4725; Section 3, Vernon’s
Civil Statutes       such company 1s (1 fsolvent,(2) ln-
corporated, (31 doY vldeed-paying, and 14) has not default-
ed in the paymemt of any of its obligations   for   a period
o? fire years lmaedlately preceding the date of the ln-
oestmeat.~ You call our attention to Opinion Ho. o-3015,
rendered January 22, 1941, with the iollowiog statement:
a
           “This opinion D-30157 ‘concern8the ell-
     glblllty or shares la the following companlee,
     as Investments   l’orTexas Insurance companies:
     SiauaaohusettsInvestors Truet, Hamilton Trust,
     and Boston Fund. 1 am informed that there are
     some 87 open-end investment oompanler,whose op-
     erationa are substantially th& same aa thoue
     enuyrated above.
          ‘It oan be determined thit at leaat some
     of these 87 companlee are solvent, dlrldend-
     paying oorporationa which hare~not defaulted
     in the payment of ag obligat,lonw~lthlnfloe
     years Immediately preceding ‘%he’dateon which
     they offer their shares ‘aa lqtestments to Texas
     lnsuraqce companltis. These conrpanlespurchase,
     and hold for Investment purpoaes,~stocks, bonds,
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                                                              ..



Hon. George B. Butler, Page 2,   V-lG'j'0.


     and llke securitiee of &her corporations.
     They value their own shires at rtated ln-
     tervala by calculating the llquidatlng val-
     ue of all aecurltiee held by them and dlvid-
     lng thle value by the number of their own
     share8 outstanding. Thus they arrive at
     the llquldatlng value of their own 8haree
     and offer them for aale at thie price plus
     a emallloading. At the time of aale, the
     company agree8 to repurahase it8 om shares
     at their llquldatlug value.
           *In view of the amendment8 made to Ar-
     tlcles 4706 and 4725 and in order that this
     department may iolloy a conrrlstentpolicy
     lo approvlag Invertrents   for T-a8 lnsnranoe
     eoapanles, it 1~8rerpectfully requested that
     Opl~lon lie. O-3015 be reconsidered and that
     the following Inquiry be answerea:




     lnve8tment7
      .~
          f’For your aonvezalen6$ we'-    enelorli%g
     ioWe Qsi;pnleta.w&lOa dtsbrlb6 the ‘t@e5atioa8
    ,of aertaln open-bud Investment oompanle8i'

          Artlale 4706 provides, In part:
          "Ho company, except aBy wrltllrgLife,
     Health and Aeoident Irr8urance,.organlzed'
     under the proiirioas of tHl8 Chapta,  sllall
     lnrest~lts fund8 over and above its paid-up
     capital stock in any other manner than a8
     iollows:
          ". . .

          "(d) 1..In the 8tock8, boti8, debentures,
     bill8 of ewhaugb !or other oommerolal note8 Or
     bills and lreourltlesof any solvent dlrldeud
     payln&corporatlon, inoorporated under the laws
     or thjr rrtate,~oroS the United States, or oi
,..-   .




           Hon. George B. Butler, Page 3,     V-lg0.


                 any state, which ha8 not defaulted In the
                 payment of any of it8 obllgat~gas for a
                 period of five (5~)years, lam&lately  pre-
                 ceding the.date of the InvesQment; . . .
                      "2. The surplu8 fund@ of such lneur-
                 ante cOIUpanie8may be invested in the ~StOCkS,
                 bonds or debenture8 of any solvent corpora-
                 tion organited under the laws of this state,
                 or of the United States, or of any state.
                      “3. Rotwlth8tanding any and all pro-
                 visions of sub-dioisiona 1 and 2 of this sec-
                 tion (d), tio'suchInsurance company shall in-
                 Vest any Of it8 funds. . . ,ia~~~a~ay
                                                   stock on
                 aocouut of which the holders,~or~ownerethere-
                 of may, in any event, be or become liable ,to
                 arVga88e888b9llt,
                                 except for taxes."
                      Article 4725 provides, :lnpart:
                       "A llfi insurance companyorganl8ed ua-
                 der the laws of thfs.State may invest in. . .
                 the following secnritles, and '@one others,
                 via :                                                  I




                      “3.   It may invest   its &@ltal, surplus
                 and coatlagency funds over an&above    the a-
                 nolmt of its policy re,aenes in the capital
                 stock, bonds, bills Q? exchange, or other com-
                 mercial notes or bills and seeirritie8;~6?~auy
                 aolv&nt:izorporationWhich h&h:&ot.de?&ulted
             -   iti'thepaylnentof a~y'debt~withln~f~lPe~(5)
                 years next precediug such inVeStment.   . ..pro-
                 vlded that It shall not Invest. . . more than
                 ten per teat (1%) of the aaount of its cap-
                 ital, surplus,   atidcontiugeney funds in the,
                 8tOCk o? any one corporation. . . and provided
                 further that it shall uot invest any of its
                 funds nor take as collateral security any stock
                 on amount of which the holder or owner there-
                 of may in any event be or become liable to any
                 aeeeeement   except for taxes."
                     Ullder the literal provIsIona of these statutes,
           the StOCk of any corporation which meets the quallfica-
           tloaa set out therein is eligible for investment by the
           lnsur~ce corapaales governed by the.statutea to which you
           refer.  The material which you have:attached, containing
.    *




    Hon. George B. Butler, Page 4,   V-lC'i'0.


    deSCriptiOu8 of the operations of a atunberof such "open-
    end Investment companies," contains nothing which distin-
    guishes fundamentally the etook 0s these concerns from
    that of any other corporation contemplated by the Stat-
    utes. For the purpose herein Inquired about, the busi-
    ness~la which the corporation engages is not m8terlal.
              Opinion lo. O-3015 consldered several so-called
    "Investment trusts,' some of which were apparently unln-
    corporated; and It was there held that, In addition to
    the question of whether or not the certificates constl-
    tuted shares~o? stock In a "corporation," the securltles
    there described did not constitute *8took8" or 'capital
    stock" within the meaning 0s the then existing statutes.
    It was concluded In that opinion that the certl?loates
    exhibited ?Or study cvidenaed merely participating inter-
    ests of the holders in the net proflt8, if any; 0s the
    issuing conaera. The material submltted by you evidences
    no suoh limited interest on the part of stockholder8. On
    the oontrary, the interest Of the StOCkhOlderS18 SUbStan-
    tially similar to the Interests normally pertaining to
    StOckhOld~S o? other corporatloas. In so far as anJ ln-
    vestment corporation m&eta the qualiiicatioas 0s the cited
    statutes, and the shares Of stock are comparable to~those
    of other eligible corporations, Opinion Ro. O-3015 la not
    applicable.
              or c0=8e, each corporation and its stock or
    other 8ecurltlea must necess8rily be lndioldually consid-
    ered . Our COlt~1USiOll
                          18, merely, that the Share8 Of stock
    in incorporated "open-end" Investment companies are not
    per se laellglble for Investment under the cited statutea.
       c
                           SUBMARY
              Shares of stook in Incorporated *open-
         end" Investment corporations are not per se
         lnellglble for investment by Insurance com-
         panies under Articles 4706 and 4725, V.C.S.
         Each such corporation and its securrities
         must be lndlvldually considered to determine
         whether they meet such statutory qualiflca-
         tlons.

    APPRCVED:                        Your8 verftruly,

    Joe R. Greenhill                   PRICE DAXfIRL
    First Asai&aUt

    Price Daniel
    Attomey General                         Assistant
    HMc:Jmc
