                             August 20, 1990



    Ms. Helen Campbell                Opinion No.   JM-1210
    Commissioner
    Office of Firemenrs              Re: Authority of the City of
      Pension Commissioner           Austin Fire Fighter's Relief
    3910 South IH 35, Suite 235      and Retirement Fund to enter
    Austin, Texas 78704              into   "securities    lending
                                     agreements" with a corporate
                                     borrower   (RQ-1847)

    Dear   Ms. Campbell:

         On behalf of the City of Austin Fire Fighters Relief
    and Retirement Fund you pose questions about the authority
    of the trustees   of the fund to enter into "securities
    lending agreements."  You advise:
P
              Securities lending contracts are usually made
              between a corporate    securities dealer,    as
              'borrower,' and a pension       fund or other
              investor, as 'lender,' and involve securities
              already owned by the lender.         Under the
              lending agreement, the lender agrees         to
              deliver and transfer the securities to the
              borrower (so as to register the securities in
              the borrower's   name as owner), and at the
              same time the borrower delivers to the lender
              collateral securities   of equal or greater
              value than the borrowed securities.      During
              the period of the 'loan,' these agreements
              provide that, as between the borrower and the
              lender, the lender remains the owner of the
              'borrowed securities'      (and the    borrower
              remains 'owner' of the 'collateral'      secur-
              ities) with the lender entitled to receive
              (from the borrower) the amount of dividends,
              interest, or earnings attributable      to the
              'borrowed' securities,   and the borrower    is
              entitled to receive     from the lender the
              dividends or earnings attributable      to the
              'collateral'   securities.    However,  it    '
              expressly provided in the agreement that tkz
P             borrower is to be invested with the indicia




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Ms. Helen Campbell - Page 2   (JM-1210)




        of complete title to the borrowed securities,
        and has the right to sell or transfer       the
        borrowed securities to others, so as to have,
        as to all third parties, ownership      of the
        securities.   At the conclusion of the period
        of the lending agreement, the borrower       is
        required to 'return' the borrowed securities,
        or more precisely, to deliver to the lender
        the same amount and type of         securities
        borrowed,   but not    necessarily  the    same
        certificates: and the lender is required     to
        redeliver to the borrower    the 'collateral'
        securities.

     Briefs received in support of the power of the fund to
enter such agreements    characterize  them as similar to
"repurchase agreements."  The only difference, it is said,
between a securities lending agreement and such a purchase/
sale agreement is that in a securi.ties lending agreement,
title to the securities  does not pass to the borrower   and
title to the collateral   securities does not pass to the
board.

     Such transactions  do not involve investments  by the
lender in the securities     loaned or in the collateral
received:  rather, they    constitute investments  in   the
contractual obligations of the borrower (to deal with the
loaned property in a particular way). m   Attorney  General
Opinion JM-1201 (1990); JM-23 (1983).

     Your first question reads:

           Are the trustees of the Fund authorized
           under subsection  (g) of Section   10, or
           other law to     enter into    "securities
           lending agreements"    with a    corporate
           borrower?  [of article 6243e.1, V.T.C.S.]

     Section 10, subsection   (g), provides:

           ts) When, in the opinion of the board of
        trustees,  there is on hand in the fire
        fighter's relief and retirement fund of any
        city under this Act a surplus over and above
        a reasonable and safe amount to take care of
        the current demands on the fund, the surplus,
        or so much of it as in the judgment of the
        board is deemed safe, may be invested in:




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Ms. Helen Campbell - Page 3   (JM-1210)




           (1) United States Treasury notes,    bonds,
        and bills;

           (2) United States government agency obli-
       gations;

          (3) corporate bonds rated 'A' or better
       by Moody's  or Standard and Poor's    bond
       ratings:

           (4)   preferred corporate stocks:

           (5) commercial paper rated 'P2' or better
       by Standard and Poor's and 'A2' or better by
       Moody's bond ratings:

           (6)   state, county, or municipal bonds;

           (7) shares or share accounts of savings
        and loan associations, if the shares or share
        accounts are insured by the Federal Savings
        and Loan Insurance Corporation:

          (8) shares or share accounts of banks, if
       the shares or share accounts are insured by
       the Federal Deposit Insurance' Corporation:

           (9) short-term investment    funds, mutual
        funds, or their equivalent, which may include
        investments in bank certificates of deposit:

          (10) notes and other evidence of debt
       secured by mortgages insured or guaranteed by
       the Federal Housing Administration under the
       National Housing Act (12 U.S.C. Section   1701
       et sea.):

           (11) common stocks of companies   incorpo-
       rated within the United States that have paid
       cash dividends for at least five consecutive
       years immediately before the date of pur-
       chase, are rated  'B' or better by Standard
       and Poor's bond ratings or are equivalent,
       and are listed on an exchange registered with
       the Securities and Exchange Commission: and

           (12) common stocks of foreign corpora-
       tions that are designated   in United States
       dollars   and   are   registered    with the
       Securities and Exchange Commission.




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Ms. Helen Campbell - Page 4   (JM-1210)




The legislature     did not    include "securities    lending
agreements"   among the   transactions  the statute     would
sanction.   See Attorney    General Opinion MN-506     (1982)
(firemen's relief fund may not be invested         in   local
partnership under statute). See aen ralJ,y Tex. Const. art.
XVI, § 67(a) (11, (a)(3) (investmentepolicy  for retirement
systems and related programs).

     In response to your first question, we advise that the
trustees of the fund are not authorized by subsection (g) of
section 10 of article 6243e.1, V.T.C.S., or any other law,
to enter into "securities lending agreements" with a corpo-
rate borrower.   In view of this answer, we do not reach your
other questions.

                       SUMMARY

           The trustees of the City of Austin     Fire
        Fighters Relief and Retirement Fund are not
        authorized to enter into "securities   lending
        agreements" with a corporate borrower.




                                   JIM     MATTOX
                                   Attorney General of Texas

MARY KELLER
First Assistant Attorney General

MU MCCRHARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Rick Gilpin
Assistant Attorney General




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