Hon. 0. P, Lockhart           Opinion No. O-5473
Chairman                      Re:     Do the Texas and Pacific       Rail-
Board of Insurance            way Company Ffrst     Mortgage 5% Bonds
Commissioners                 qualffy    as tax reducing   securities
Austin,  Texas                under Article     7064, Vernon’s Annotated
                              Civil   Statutes?
Dear Sir:

              Your letter of July 20, 1943> requesting     the opinion
of this     department on the above stated question    reads as fol-
1owsr
             “Your opinion    is requested    as to whether or
      not Texas and Pacfffc       RaLlway Company First    Mort-
      gage 5s Bonds due 2000 qualify        as tax reducing
      securftfes    under Article    7064. We are giving you
      some general    information    about the nature of this
      company and the nature of the bond issue.           It may
      be that this bond issue qualifies         as tax reducing
      under the term in said Article        7064: Ior other
      property    fn this state in which by law such lnsur-
      ante carriers     may invest   ,theEr funds.’   The quoted
      phrase names a type of securfty        which is classed
      as tax reducfng.

            “The home office of the     Texas and Pacific
      Raflway Company is en Dallas,      Texas.

              “Out of the total  mileage,    1,800,  about   1,200
     mfles     o,f the Railway are located    fn Texas.

             “Beca,use of the condftions  listed in the next
      preceding    paragraph a majority  of the employees
      are residents     of Texas and most of the money dis-
      bursed by the company is spent in Texas.

            “The company operates     under a Federal     charter,
      but  some other securi,ties    qualify    as tax reducing
     where   the corporateons     or associations     have Federal
     charters   such as Savings and Loan Associations.

             “There is also attached  for your     information       a
      detailed    statement of this particular     bona issue.”
                                                                                        --     -




Hon.    0.    P. Lockhart,      page 2       (o-5473)

             The detailed            statement  of the bonds under considera-
tion    which is attached            to your inquiry  is as follows:



                            Due J\ana 1.         2004

              “$24,989,000   outstanding - Closed Mortgage (no
        further    bonds ranking equally with or prior   to this
        mortgage can be issued.)

               “Secured   by a first   lien on 1394.38 miles of
        railroad    from Texarkana     Texas, via Marshall    and
        Whitesboro,     to Sierra B 5.anca, Texas (near El Paso),
        with branch from Marshall        to Thurber,  Texas, from
        Marshall to Reisor,      La., and from Shreveport,     La.
        to New Orleans,     La. with branches     to Port Allen and
        Indian Village,     La.; a second lien on 387.96 miles
        of road.

                “Legal for pu.rchase by savings banks in Cali-
        fornia,    Maine, Massachusetts,  New Hampshire, New York
        and Rhode Island.

              “Total value           of   road    and equipment       approximately
        $19090009000 Q

              “First  Mortgage Bonds are followed    by junior
        debt in the amount of about ~52,000,000,by $23,-
        703,000   (Par $100) 5% non-cumulative   preferred    stock
        and $,38,755,000   (Par $100) common stock.

                “Interest  on all          debt    earned    as follows:
        1930          1.36 times                                1.92 times
        ;;g                                       3:            3.34 ”
                      x20      11
                               )’                 1943          3.49 times       (12
                                                               mos. ending       May
                                                                   31, 1943)
                Interest      payments have been made promptly,                  when
        due,    for the      past ten years.”

             Article         7064,    Vernon’s         Annotated    Civil   Statutes,        pro-
vides    in part:

                “Every insurance       corporation,       Lloyds or recip-
        rocals,    and any other organization             or concern trans-
        acting the business         of fire,      marine, marine inland,
        accident 9 credit      title,     livestock,      fidelity,      guaranty,
        surety,    casualty,     or   any   other    kind   or   character    of
        insurance     business     other ,than the business           of life
 -      -




Hon.        0.   P. Lockhart,    page   3   (0-5473)


            insurance,      and other than fraternal           benefit    asso-
            ciations,     within   this State at the time of filing
            its annual statement , shall report              to the Board of
            Insurance      Commissioners     the gross      amount of premiums
            received     upon property     located      in this state       or on
            risks    located    in this State during the preceding
            year, and each of such insurance              carriers      shall pay
            an annual tax upon such gross premium receipts                    as
            follows :              If any such insurance           carriers
            shall have’ag &ch as one-fourth               of its ‘entire      as-
            sets,    as shown by said sworn statement              invested     in
            any or all of the following            securities;      real estate
            in this State,       bonds of this state or of any county,
            incorporated      city or town of this 3tate,              or other
            property     in this State in which by law such insur-
            ance carriersmay       invest    their    funds,    then the annual
            tax of any such insurance           carrier     shall be one and
            one-half     cl*) percent     of its said gross premium re-
            ceipts;     . . .I’

                  Article  7064, supra,  provides for a further   reduc-
tion        in taxes where greater    amounts of the funds mentioned in
said        statute   are invested in securities  therein  named.

              Article 4706, Vernon’s   Annotated Civil   3tatutes,     sets
forth  or n&ties the securities   in which Insurance   companies,     ex-
cept companies writing     life, health and accident   insurance,     may
invest  their   funds over and above their    paid up capital    stock.

                 Article     4706,   Vernon’s     Annotated    Civil   Statutes,     pro-
vides        in partr
                  “No company, except any writing       Life, Health,
            and Accident  Insurance,   organized    under the provi-
            sions of this Chapter shall Invest       its funds over
            and above its paid-up    capital   stock in any other
            manner than as follows:



                   “cd)    In the capital     stock,   bonds,    debentures,
            bills    of exchange or other commercial          notes or bills
            and securities      of any solvent     dividend    paying cor-
            poration    which has not defaulted         in the payment of
            any of its o’bligations       for a period     of five    (5)
            years;    provided   that no such insurance        company
            shall invest      in its own stock,      and provided     that
            no such insurance       company shall     invest   any of its
            funds in any stock on account           of which the holders
            or owners thereof       may, in any event,       be or become
            liable    to any ,assessment     except for taxes,      nor in
Hon.     0.   P. Lockhart,   page 4     (O-5473)


         the stock of any oil          manufacturing     or mercantile
         corporation      organize !i under the laws of this 3tate
         unless    such corporation       had a net worth of not less
         than Two Hundred Fifty          Thousand ($25O,OGO.O0) Dol-
         lars provided      that such corporation        is solvent,
         dividend    paying,    and has not defaulted       in the’pay-
         ment of any of Its obligations            for a period    of five
         (5) years, nor in the stock of any oil, manufactur-
         ing or mercantile        corporation     not organized    under
         the laws of this State unless            such corporation     has
         a capital     stock of not less than Five Million
        ($5,000,000.00)       Dollars    and unless    such corpora-
         tion is solvent,       dividend     paying,   and has not de-
         faulted    in the payment of any of its obligations
         for a period      of five    (5) years.”

            A representative     of your department has informed us
orally  that there is no available      information  in the insurance
department reflecting      whether or not the corporation   whose bonds
are offered    for sale is a dividend    paying corporation  which has
not defaulted     in the payment of any of its obligations     for a
period   of five years.

            In view of the foregoing            statutes,    you are respectful-
ly advised that it is our opinion             that the insurance       carriers
mentioned in Article        4706, Vernon’s       Annotated Civil      Statutes,
are authorized     to invest     in such bonds provided         the corpora-
tion selling     or offering     to sell     such bonds is a dividend         pay-
ing corporation     which has not defaulted            in the payment 01 any
of its obligations       for a period      of five years.       It is our
further   opinion   that the above mentioned bonds are eligible
as tax reducing      securities    under Article        7064, supra, provided,
such bonds are within         the State of Texas for any tax year for
which they are offered         or claimed as tax reducing          securities
and provided,     as above stated,       that the corporation         selling    such
bonds is a dividend        paying corporation        which has not defaulted
in the payment of any of its obligations                for a period     of five
years.

                                          Yours very truly
                                          ATTORNEYGENERALOF TEXAS
                                          By /s/ Ardell Williams
                                          Ardell Williams,  Assistant
 APPROVEDWC 12, 1943
/s/  Grover Sellers
FIRST ASSISTANT ATTORNEYGENERAL

(This     opinion   considered    and approved      in limited    conference)

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