                               @ffice of toe Plttornep General
                                       Mate of Qexarr
                                               January 28.1993
DAN   MORALES
 ATTORNEYGENERAL
        Honorable Jii Tallas                      Opiion No. DM-202
        Chairman
        Committee on Fiicial  Institution         Re: Whether the Public Funds Investmeot Act,
        TexasHouseofRepresentatives               V.T.C.S. article 842a-2, authorizes cities,
        P. 0. Box 2910                            counties, and certain other public entities to
        Austin, Texas 78768-2910                  invest public Iimds in mutual ibnds holding only
                                                  adjustable rate mortgages that United States
                                                  agencies have issued (RQ-334)
        DearRepresentativeTallas:
                You have requested an ioterpmtation of section 2 of the Public Funds
        investment Act of 1987 (the “PFIA”), V.T.C.S. article 842a-2. Section 2 states in
        perthalt part as foknvs:
                         (a) An incaporated city or town, a county, a public school
                   district, a district or authority created under Article IlI, Section
                   52(b)(l) or (2), or Article XVl, Section 59, Texas Constitution,
                   an iosdmtion of higher education as d&ed by Section 61.003 of
                   the Education Code, a hospital district, a fksh water supply
                   distric4 or any nonprofit caporation acting on behalf of any of
                   thOSCUltiti~llUy,itlttC.COdanCeWithtlIiSAct,pIUCllaSC,sell,and
                   invest its fuods and !bnds under its control in the following:

                            (1) obligations of the United States or its agencies and
                   iostrumentalities;l


                 ‘~~~lcgiJnhm~acmion2(a)foortim&                              SeeActs1989,7111L~g.,ch
        39. 8 1, at 3=-X; id. d’. 62% 0 1, U 2099-100; id. ch 693, 0 4, at X99-Zoo; id. cb. 730, 5 1, at
        3333. one of Ik eodawms I3mcndsIbcFFIAtoinclodeinIklinof~nddivirionr
       allkidcinvcslpur6oamIotbcPFxA*adkuitaor~acltcdoImor~m,sstion
       52@X1)or 0). or ktkk xvr, Section59, of th Texas Caastitndon” (sn Acts 1989,71x1 LcS., ch.
       39.P1.~32526);olu~IbcpFutoindudc=adirtricloppltborityEnattd~~~
       SccIia’ 52@)(l) or (2). or Ardck XVI, Soztkn 59. Texas Coslrtitution”as well ~1 “a hospital d&&
       [sDdla~water~~“(srrid.ch.628.~1,it2099);onc~t\r~~~~~~
       ~gatioo~organinduoderArcidc~,seclion52,orArtidexvI.seaion59,oftbeT~
       connitution    (sre id. ch 750, 8 1, at 3333); one amends the FFIA to &kdc yw]        pablic f‘,~&
       invaanau Pool c’ea@d under The Intalod Cooperation AC’(A’lkle 4413(32c). [V.T.C.S.)”(see id.
       d1.693.P4,at3200).        Bccauscoufprimarycmcemlurcismrrseuingrection2(d),wcneednot
       Izco~etluvsrkos-.                   Seeshults”. State, 6% S.W.2d 126,131 (Tex. App.-Dallas 1985,
       writ ref’d n&c.) (quoting Wrightv. Limeter, 1% S.W.2d 82, 85 vex. 1946)) (stating rule that when
       co-         XIS psged during same legisktive scssio& latter provisionrepealsformer provisiononly if
       the kIIer pmkk”       arprcsJly ‘qcak former, or if pmvisions ue immcikbly        vqqnant).     For
       plrposcrofthisopinion,wcwilluEcthc~ooofarbrcdion(a)~inthcna*mnt~
       added Eubsstion (d). Acls 1989,‘IlR Leg. ch. 628.5 1, at 2099-100.



                                                p.   1068
Honorable Jii Tallas - Page 2            (D&202)




                ....

                (d) In addition to the m                 deauii by Subsection
           (a)ofthissection.~entitylirttdinthat~b~onmsy.in
           acw~witlltllisAct,plrchase,sell,andinvutitsfilndsand
           fimdsunderitscwtrolin[aSecurhic3andExchangeCom-
           mission]-r@ter&        no-load2 money market mutual ibnd with a
           dollar-weighted average poltfolio matmity of 120 days or kss
           whoseassetsc4msist~0ftheobligati~thatare
           de&bed by Subseuion (a) of this section aud whose w
           objcctivaaincludeseakingto~astablenetassetvalueof
           Sl per share. No entity listed in Subsection (a) of this section is
           allthhdbythisActtoimestinthe~emorethau20
           percentofitsmonthlyaveragefimdbalanc+excludingbond
           proce&sinmoneymarketmutualtImdsdescriiinthis
           subsectionortohestitshdsorhndsunderitacontrol,
           excbIdingbondproceeds,inanyonemoneymarketmutualfundin
           anamomltthatexcccda10pacartoftlletotalassusofthe
           moneymarkumutualfbnd.

(h~tnote~ added.) You ask whethex section 2(d) of the PPIA authorizes the public
andnonproMentitieslistedinsectionz(a)toimnsttbdrfiudsandfiradsuadatheir
w~liamoneymarket~fiuds~l~onlyadjustablentemo~tht
United States agencies have issued. We conclude that it does, provided that the mutual
fiud~therequircmmts~~~in~onz(d)aodthttbelistedenti~invests
in the mutual fimd only that portion of its money that section 2(d) permits.




         Sectioo 270.2a-7 of pat 17. Cuk of Fakd          Rc~&hs,    arsMirbes tk coditiom   a
rcsistncd’          tcompanymostpatisfyloholditsolfouttoinvcmas~anIenaynIarltmmuturl
fid. See 17 C.F.lL # 270.2a=l(b).

        ‘Forpuposcsofsxtion2oftt1c~.bond~i~ddi~~dt0u,~~
lheaakofhondsandr            and funds maim&al fa dcht sewice puposcr.’ V.T.C.S. art. 842a-2.
Q2&X1).


                                        p.   1069
HonorableJiiTaUas      - Page 3            CD!+202)




         TbelegishreeoactedtbePFL%inl987toeMblecertainaltitiestomske
mvummts that previously had been prohii.             See Acts 1987. 70th Leg.. ch. 889,
8 2, at 2985; see ako Tex. Const. art. III, 5 52(e). In 1989 the legishue amended the
PFIA by, among other things, adding subsection (d), because, “[a]s impo~         as the
Public Funds Imnstmaa Act was, it did not completely satis@ the need for diversifi-
cation in tbe managemeot of public ihds or tbe need for spehhcd             iovestment
vehicles to deal with the arbitrage rebate requhmeots of the Tax Refom~ Act of 1986.”
House Comm. ooFii             Inshutions, Bill Analyh, C.S.S.B. 1342,716 Leg. (1989);
see Acts 1989, 71st Leg., ch. 628. The legihure           intended the ame&nents to
libaalizethePFIAbypmmhdngthelistc!dentitiestoinvesttheirfundsandfimdsunder
theircootrolinprimemoneymarkethstmmu&andim&mentsecur&s.                     SeeHouse
Comm. on Fii            Institutions, Bii Analysis, C.S.S.B. 1342, 7lst Leg. (1989);
Hearings on S.B. 1342 Before the Senate Comm. 011State Affairs, 71st Leg. (Apr. 12,
1989) (testimony of Senator Leedom, sponsor of S.B. 1342) (tape available from
senate statrservices).

         We understand that an “adjustable rate mortgage” is a mortgage in which the
 i”taest rate 00 the loan is reset paiodic.auy. cutain federal govemment agenci~
 such as the Federal National Mortgage Assohtion (Fannie Mae). the Federal Home
 Loan Mortgage Corporation (Freddie Mac), and the Gonmmart National Mortgage
 Corporation (Ginnie Mae), issue or guarantee adjustable rate mortgages. We note that
 a Aness who testified before the House Committee on Fii               htitutions in 1989
 did not include adjustable rate mortgages as an example of the iovestmm money
market mutual hds typically made at that time. See Hearings on H.B. 1751 Befon
the House Comm. on Fiicial         hstitutioos, 7lst Leg. (Apr. 17, 1989) (testimony of
W-on        Evans, Director of Revenue and Taxation for the Cii of Dallas) (tape
available corn House Committee Coordinator) (stating that money market mutual iimd
might have investments in treasuy billq commd           paper, and banked a6zpmms).
Nevatheless, section 2(d) explicitly authorizes an entity listed in section 2(a) to invest
aspecifiedportionofitsfUndsMdfUndsundaitscontrol”inmSEC-ngistaed,~
load money market mutual hod. . . whose (LFset co&si exch&&y of theob&atims
that are &scribed by Subsection (a) of thissection.”Because subsection (d) descrii
generally the money market mutual hnds in which the listed entities could invest, we
do not believe that the legislature intended to limit such an entity to iovesting in mutual
ikds that invested only in investments available in 1989. Thus, so long as the
adjustable rate mortgages in which the money market mutual timd invests fal within
one of the categories of obligations listed in section 2(a) of the ac& we believe that a
listed entity may invest in that money market mutual tImd.

         As stated above, section 2(a)(l) of the PFIA authorizes a listed entity to invest
in an obligation of a United States agency. As you have described it, M adjustable rate
mortgage that a federa government agency has issued or guaranteed constitutes an
obligation that falls within the scope of section Z(a)(l).       Accordingly, the plain
language of subsection (d) authorizes a listed entity to invest a specified portion of its
hnds and funds under its control in a money msrket mutual fund that includes in its


                                      p.     1070
HonorableJiiTalh       - Page 4      (DM-202)




pott6olio adjustsblo rate mortgages obligathg an rgayr of the hi+    govanmeat   (so
longasthemoneymarketmutualfuadcomplieswithtbeothrrtclutrancntr~~
section 2(d)).’


                                  SUMMARY
               TbePublicFundshatment           Act, V.T.C.S. mtide 84%2,
          autllorizes~wunticountieqandceftainotherpublicandwnprofh
          ensitiestoiUXSttkkfiUldSUldfilDdSUWktl.l&WllWOliU
          mutual funds hokling only adjustable rate mortgagu that obligate
          unitedstatesagdesprovideduuttbemutualfiudcomplic?
          withaectioo2(d)oftheact,mdpmvidedtlmttbeaaityimmts
          Iromonofitsmorreyintbemutualfiud~~oo2(d)pamitr.




                                                   DAN     MORALES
                                                   AttomyGamlofTexas

WILL PRYOR
FiiAssimMtAttorneyoeneral

MARYKELLER
Deputy-Atlomeyou’eml




MADEL.ElNE B. JOHNSON
chair, opiioo committee




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