Eon. Robert S. Calvert      Opinion NO. W-69,      '
State Comptroller
Austin, Texas               Re: Constltutionallty of
                                proposed procedtpe ior
lion.Jeeee Jamee                investment of PerPsnent
State Treasurer                 University Funde under
Auatln, Texas                   Art. VII, Se&ion ill

Gentlemen:
Ybur joint request for an opinion of thle office pkeents
the following quetltlona:
          1.   Is th@.prbposed procedure for the 'I'
               purchsee:and sale of cor$onte'~~e-'
               curSIXes for~snd on:~beh&lf'kfthe
               Permanent University Fund ~ln'coti- ,'-
               pliiincewith Article VII, Section
               l.l(e)of the Constitution? ,'.   ,~
                                           ,.,'.,,.
                                                 -,
          2.   From what fund are the doc&iientarJ',
               atamp~~ksxes;transfer taxcn-'snd'fees,
               snd~oomm~bslons
                         .     Fayable?.   ; ‘ .> ~.~
                        ,,.~               .,.
A pior  opinion of thiii   office, Attqrbey, f3en&ral Opinion
MS-263 (19%) ; hela that the ‘Board oC’Rhgentc. ‘of .th6 Uni- ,,~
versity :or Texas~&e not 'authorized td-pled&e,~or:lend the
credit-of 'theState, and,.thcaddition 'oi'A~tici~',~I,~"Sec-
tlon-11(s) to our.Con8titutSon .doe8 riotgrant',8udh'iuthorl-,
ty.'~:.In..that~opinionthis ~Offlc~ held that-the llri~v~rslty,
rather than lend the credit of the State, mustemploy the
          busine88 pr6ctices whereby the title to sec~$:
CU8tOIIUIry
ties,-wllil
          ps88 ,to the ;~*otwkr~*lo~; to the ~*+e ,3+8+ipX.;
pOSSeSSiOn :lg acqutr6d:;:

The g8WpO8ed steps 'outlined In your letter (attached to
this opinion a8 Appendix A) dare based upon the 'rktlozifile
outlined in our prior opinion. We have carefully examined
the prOpO8ed procedure and find that it will not result In
Hon. Robert S. Calvert
Hon. Jesse James       - page   2   (W-691

the lending of the credit of the Ltate and that It will
comply vlth the requirements of Article VII, Section 11(a)
of the Constitution.   Your first question Is answered In
the afflrmetlve.
Your second questIon relates to the proper treatment of
documentary stamp taxes, transfer taxes and fees and com-
mI68lon8 a8 expenses In connectlon with the acqulaltlon
of thensecurltl&s. Theee Ikeme of expenee muet be dle-
tlngulshed from premIum6,di8COunt8, accrued Interest, ln-
vestment counsel fee8 and admlnlatratlve expenses which
are not conaldered by thl8 opinion.
In Attorney General Opinion MS-263 (19%), consideration
Ya8 given to the general effect of the new conatltutional
prOvI8lon, and It ii68there stated:
          "A consideration of the provIsion of
          ArtIcSe 7, Sections 10, 11, 11(a), 12
          and 15 of the Constitution of Texas,
          Show8 quite clearly that the Only Change
          In our Constitution affectdd by-the
          adoptlon of Article 7, Sect'idn.
                                         12('s)'use
          to increase the perm$ssive.inVestiment6:
          of the Pennenent University Fund. The
          sole purpdae of'the endowment or non-
          expendable fund la to produce revenue
          to malntaln the IndtItutIon endowed,
          and the new provision of the Constitu-
          tion 18 merely to aid in the procure-
          ment of that objective by the broaden-
          ing of-the investment portiolio."
We hold to the vley therein expressed; no basic change ha8
been made in the time-honored dl8tlnCtlOn and sepu-ation  be-
tveenUeAvailable and Permanent University Funds, the only
question being which fund should pay such expense8 of 8c-
Wiring the securltlee under Article VII, Section 11(a) of
the Constitution.
Article VII, Section 11 of the Constitution still require8
that the Permanent Unfverelty Fund be retained In the
Treaeum of the State. Article   VII, Section 11(a), by Its
own term8, IS self-enacting and the 8b8OlUtely e88ential
powers to carry the program into effect are neceesarlly
conferred upon the Board of Regent8 by Impllcatlon. The
Hon. Robert S. Calvert
Hon. Jesse James       - page 3 (W-69)


payment of such required COmmf66IOn6, fees and taxes, be-
fore the delivery of the securities to the Permanent Unl-
VerSfty Fund at the State Treasury, are costs of acquiring
the securities and must be paid from the permanent Unlver-
6itg Fund. This 18 the ordinary and customary buSIne66
and accounting practice and the constitutional provision
Infers thet the customary buslneas procedure6 will be
followed.

                           SUMMARY
            The procedure for the purchase of cor-
            porate securities submitted (attached
            a6 Appendix A)'complled with Article
            VII, Section 11(a) of the Constitution
            of Texans,and doe6 not lend the credit
            of the State. Applicable documentary
            stamp taxes, transfer taxes and fees,
            and CO~i66iOn6 required t0 be paid t0
            effect delivery of securities purchased
            under Article VII, Section 11(a) are
            costs of acquisltlon and payable from
            the Permanent University Fund.




                                  Very truly yours,

                                  WILL WILSON
                                  Attorney Qeneral


                                     Elbert M. Morrow
EMM-6                                   Assistant
APPROVED:
OPINION COMMITTEE
By: H. Grady Chandler, Chairman
                               APPENDIX "A"

                  PROPOSED PRGCELWRE IN CONNECTIiN WITH
            PAYMEN? FOR AND DELIVERY OF CORPORATE SK3RITIES
          PURCHASED AND SOLD FOR THE PERMANENT UNIVERSITY FUND
                          - Purchase Of StOCk8 '-

A.   Payment:
     1. Endowment Office to place order for purchase of 8tOCk;
         broker to purcha8e stock as lnetructed; payment to be
         made to broker on fourth buSlne88'day lolloulng day on
         which stock 18   rCha8ed. (Saturday 1~8not a bu8lne88
         day for broker.r
     2.   Broker to,confIrm purchase vlth ,telegx+m to Endovment
          Officer on daysof purcha8e, the telegram toreport price
          and total extenalons.

     3.   Endowment Office to prepare voucher land supporting letter8
          on day of purtihaeeand turnsover~to.~UnIversltyAuditor
          for prOCe88ing, COnfirmlhg telegram t0 be attached until
          lnvolces~~canbe received from broker.
     4.   On day of purchase, broker to air mall to gndoument Of-'
                            In trLpllcate wIth'~notarized@ffIdavlt
          ricer i&n lntioice~
          attached tqorlglnal; Invoice to arrIie.not later t&n
          8eCOnd~bUsiM88 day fOllOWi~ pll-Cb8e.
                                    c
     5.   On third business day folloulng Faha8e,  Auditor18 Office
          to Foce88 ,voucherat State Comptroller18 a& State Trea-
          surer's Offices.                           ,

     6.   State warrant to be i88Ued payable,to looal bank for
          acaount of biyker; varrant to be turned:over to local
          balw.on thlrd~bu8ine88 day;.bank to give receLpt for
          vamant; bank to lxahange varrant at.State Treasurer~8'
          Office cm third buuslnessday for bar& draft (probably
          on Dallas bank); loaalbank to .vlre iand8'to broker on
          fourth,buSw88   day'to constitute required payment.
          (In thls,aonnection, It vlll be neae88az-yfor each broker
          who 18 paid through a local bank to give the bank a
          pover of attorney luthorIH?q bank to endor80 State
          varrant and excbnge for a'bank draft.)
B . Ri;+nbs.#z;k          C~tlfl~
                 8Q\I twle
     1. .Inxment   letter pread
        trbn8fer agent.*0 be bdvi8ed to have the~regI8trbtiOn and
        delivery of 8tOCk certificates and the subsequent mailing
        address for dlvldends, report8, etc., a8

                                     -l-
                                     y Ibnti of Tht?University of Texas
                  Per9rlent Urr!v+r:-LL
                  Austin 12, Texas
                  Care of Endowment Officer
     2.   Upon receipt of registered 6tOCk certificates (u6ublly by
          registered mall) by Endowment Officer, certificates received
          to Se checked,for proper registration, number of shares, etc.

     3.   Endowment Officer to prepare deposit warrant request ad-
          dressed to State Comptroller and to turn over dtock Certl-
          flcates with deposit warrant request to Unlver8Ity Auditor.     "-
          Auditor to eet up proper purchase record on his card sys-
          tem files.
     4.   Auditor to deliver registered stock certlflcates to State
          Treasurer on the following day after receipt from Endov-
          ment Officer. The State Treasurer to check correctness
          and give the University Auditor a rece'iptfor the stock
          certificates. (This receipt could be tiffectedby having
          the State Treasurer'6 authorized representative countersign
          the copy of the deposit uarraritrequest designated for the
          University Auditor. The Auditor would in turn conform the
          copy designated for the Endowment Office.)

     5.   Upon receipt of Cash dividends &n the form of Check8 by En-
          dovment Office, Endowment Office to ch*ck for cortiectnese
          according to dividend8 declared by company, to post to En-
          dovment Office records, and to turn over dividend check8
          to University Auditor, after endorsement on behalf of the
          University by the Endowment Officer or the ASsiStant to the
          Endovment Officer.
     6.   Auditor to post dividends to proper card PeCOFd8 In Audl-
          tort8 Office and to follow routine procedure a8 currently
          folloved in turning over Interest check8 on Government
          Bond8 to State Trea‘surer. The schedule used by Auditor
          would be revised for dividend payments alnce amortI8atlon
          will not be Involved.
     7.   Stock dividend certificate8 received by Endowment Office
          to be ;checkedand processed in the same manner as the hand-
          .l&ledf stock certlflcate8 received a6 a result of ripur-
               .
C.   Stock Solits and stock Rluhta:
      . certlfb?&es for Stock 8plits t0 be received by Endowmed
         office and pFoCe68ed a6 are Certificate8  for a stock purr:
         chase. In some instances, It might be required that old
         certificate8 would .haveto be sent in and new certlflcates
        .foruarded. lh lfeu thereof; but current practice 1s for the
         holder to retain old certlflcates and to receive enough;
         new certlfIcates to effect split with stickers furnished,
         indicating the change In par value, to be placed on old
         atock CertifICbteS.

                                     -2-
     2.   Subscription warrants for stock rlghtv to be received by
          Endowment Offloe. Endowment Office to;prepare Voucher
          for purchase of stock authorized (exercise of stock
          rights), lncludfng any rlccees~~~rohase    of rights to
          round out for pnratmse of-full &hare ho? stock. Photo-
          static copies~'of'vubecrlptlon varraritare to ,baattached
          to each copy of voucher as supporting 'data.
          The subscription varrant to be signed on behalf of The
          Pernnnent University Fund of The Unlveraltg Of Texabdy
          both the Endowment Officer (or the Asrlstaht to theaEn-
          dovment Officer and the State Treasurer (or the Acting
          State Treasurer 1 .
          Subscription warrant and State v-rant to be turned over
          by University Auditor to loaal broker';?or   exercise of all
          BtOCk rights. Local broker to effe~t'exerclse of rights
          and have ce&+,l?lcateefor BtOCk regletered and aailed as
          ~lndlcatedin B. 1. Endovment Office ,tOibandle    BtOCk cer-
          tificates in the vame ma nner le the.handllng outlined for
          other purchaeee of stock,
                          Purehave gL cornorate m      6
A.   Pynen,~~:~         ed;nFteut    ?arments:
                                 eadj on market (secon~~market)      --
          a. Endovment Office to-place order.?or&urcheee .o?ear-
              porate bondv;.broker to purch?me bonds av lmtntcted;
              payment to be made on-fourth buslnese -~y~?ollovlng
             .day on vhloh bonds are purchased; vlth aoc,ruedlnter-
              eet to be .paldto fourth ,busineaiday; 'payment to bti
              effected through local bank 80 outlined in A. 6.
          b.   Delivery of bond&to be nude by broker through 8
               lucrl~bankdlrect to,State Trersurtr, i Upon advice
               ?rom,State Treamrer that~bonde tie 1~ hand (letter
               to be vrltten by State Treaeurer~s~~repreaentatlve
               to .BndovmentOffice vlth aopy ~to:A~dlt,w,.   ~givfng
               numbem and denomlnatlone.ho? bonds..andbtrtlng
               coupone attaahed), Endovment Offrce~to-wepare de-
               posit varrant~requevt ,ln eame mere      as currently
               1s follovid for munl&l.palbonds purchased for the
               Permanent Unlvervlty Fund:
     2.   For corporate bonde on original issue --
          a. Endovment Office to place order for purchase of part
              of bonds or an orlglnal lsrrueof c,orporatebonds.
          b.   Payment and dellverP~to.be effegted-in (18memanner
               as purchave~o? lnltirl lrrue of munlolpal bonds for
               the Permnent Unlverelty Rmd, vlth adcrued lntereet
               to be paid to date of payment and delivery through
               local bank vhen nev ltmue SB ready for delivery.


                                       -3-
     3.   Interest Payments --
          Same procedbre to be ?ollowed,as currently Is being
          followed byeUniversity Auditor for municipal bonds.
          Auditor to:prepare coupon clipping and amortlzatlon
          schedule and turn over to State Treasurer; State
          Treasurer ‘to send coupons through for collection.
                          - Sale
                            --    of Securities -
                                             ._
A.   Dellveq of Securitg &,Broker:
     1. It vlll.be .neceeaarywhen a sale &d&r is placed with
         &broker to get the-actual securIty'~fromthe State Tree-.
         surer and deliver it to the broker at the time 'theorder
         is placed to sell..
           . L
         a. If regletered  stock br bond , assignment In blank ~111
            be signed by the Endoument Officer or the Aeslstant
            to the Endovment Officer   and by .theState Treasurer
            or the Acting State Treasurer;~.vIth~ slgna ures guar&-~-
            'teed by b&nk or member of NevYork Stock b.xchange.
          b.    For secur.Itgreasons~,sales (which vi11 be Infrequent)
               w&l.1be handled through's local.broker.    *
          c. En:dbvmentOffice to~prepare sale ,ow&er~lette'rto broker,
            :copy being made ior.,State,Treaaurei;
                                                 ,,tate.Comptroller,
                                                  &'    .
             and Unlvereity Auditor. Endowment.Of* ce to pCep?are
             letter to State Comptroller requesting that heiroeuthorlte
             the State Treasurer to wIthdrav~sCGurItie8 to be sold
             and to deliver upon receipt to local,broke~. Attached
             to the request to State Comptroller vi11 be a certified
             copy of Minutes of the Board of Regents authorizing
             sale of the speclilc securlties.~ ~'
          d. State Treaaurer.to-vlthdrav securities ,upon authorlaa-
             tlon by..theState,.Comptroller..tJniVerBity~.h'uditOrand
             .representative tif:.local
                                      broker,,to.
                                                meet at.State.Trea-
             aurer.1aOffice.to effect dellvery-,o?~the,eecwitles,
              the..&udltor-processlDg~therequest..:?or.ulthdraval
             through Comptroller to Treasurer.~,*Broker'to glve
             receipt-?or~~securl$lesto State:.Treasurer. University
                        con?orm~coples'of receipt for-Auditor ‘B
             Auditor.,-to
             files and Endowment Offlce~s ~flles;:.     ~, iJ
          e. Broker $0 sell security as lnstruqted.ar!d:~tion?lrm
                                                                to
             EndowmelitO??loe. I
                                     ,,.   ._.
          f. Endowment Off&e to:~epare.~l$vol&'~tobroker,' copies
             being ,-de ~SorState C~ptrollez!,jgtate Treaqrer,
             and University Auditor. Invoi-cc-,presented~to broker
             vho vi11 pay net amount due+n~?ouPth business day by
             check turned.over::$oEndoument .O??ioeri
          8. Endowment Office to oheckcextenelons on sale and turn
             over sale check and schedule tO.State Treasurer, copy of
             schedule being made for State Cotiptrollerand Endowment
             Office.
                                         -4-
