The Attorney General of Texas
March 21, 1980
MARK WHITE
Attorney General
Honorable Leonard Prewitt Opinion No. MW-152
Teacher Retirement System of Texas
1001Trinity Street Re: Authority of the ‘Teacher
Austin Texas 78701 Retirement System to invest in
real estate or mortgage
certificates secured by real
property.
Dear Mr. Prewitt:
You have requested our opinion regarding the authority of the Teacher
Retirement System to invest in real estate or mortgage certificates secured
by real property.
The Teacher Retirement System is a constitutionally recognized
agency whose duty it is
(b) . . . to provide benefits for persons employed in
the public schools, colleges, and universities
supported wholly or partly by the state. . . .
Tex. Const. art. XVI, 5 67. Section 3.60(a) of the Education Code provides
that
[tlhe State Board of Trustees shall be the trustee of
all funds, securities, money, and other assets of the
retirement system with full power to invest and
reinvest them, as authorized by Article XVI, Section
67, of the Texas Constitution.
Article XVI, section 6’7 of the Texas Constitution directs the board of
trustees
to administer the system and to invest the
(3) . . .
funds of the system in such securities as the board
may consider prudent investments. . . .
p. 488
Honorable Leonard Prewitt - Page Two (NW-152 1
(Emphasis added).
“Securities,” under the Texas Blue Sky Law, article 581-4, V.T.C.S., includes
A . . . . % share, stock, treasury stock, stock certificate under a
voting trust agreement, collateral trust certificate, equipment
trust certificate, preorganization certificate or receipt,
subscriotion or reornanization certificate. note. bond. debenture.
mortgage certificate or other evidence of indebtedness, any form
of commercial paper, certificate m or under a profit sharing or
participation agreement, certificate or any instrument representing
any interest in or under an oil, gas or mining lease, fee or title, or
any certificate or instrument representing or secured by an interest
in any or all of the capital, property, assets, profits or earnings of
my ~mww, investment contract, or any other instrument
commonly known as a security, whether similar to those herein
referred to or not. Provided, however, that this definition shall not
apply to any insurance policy, endowment policy, annuity contract,
optional annuity contract, or any contract or agreement in relation
to and in consequence of any such policy or contract, issued by an
insurance company subject to the supervision or control of the
Board of Insurance Commissioners when the form of such policy or
contract has been duly filed with the Board as now or hereafter
required by law.
(Emphasis added). It is generally recognized that the term “securities” embraces “any and
all evidences of debt.” Huckabee v. Hansen, 422 S.W.2d 606, 608 (Tex. Civ. App. -
Corpus Christi 1967, no d it). See also Florida Realty, Inc. v. Kirkpatrick, 509 S.W.%l 114,
118 (MO. Sup. 1974); Allied Leasine Core. Murphy, 233 S.E.2d 499, 500 (Ga. App. 1977).
Thus, we believe that mortgage ! certificates secured by real estate ought ~ordinarily to be
deemed “securities” for purposes of article XVI, section 67 of the Texas Constitution.
On the other hand, article 581-4, V.T.C S., does not include any kind of real estate
within its purview. Furthermore, Texas courts and most others have held that real estate
is not a “security” within the contemplation of various securities acts. Kadane v. Clark,
134 S.W.2d 448, 453 (Tex. Civ. App. -- Fort Worth 19391, rev’d on other grounds, 143 S.W.2d
197 (Tex. 1940). See also Securities & Exchange Comm’n v. Federal Shopping Way, Inc.,
433 F.2d 148, 149I9th. 1970); Polikoff v. Levy, 204 N.E.2d 807, 809-10 (Ill. App. 19651;
Securities & Exchange Comm’n v. W. J. Howey Co., 60 F. Supp. 440, 441 (S. D. Fla. 1945);
Pratt v. Worrell, 57 A. 450, 453 (N. J. 1904).
We must conclude, therefore, that pursuant to the terms of article XVI, section 67,
of the Texas Constitution, the Teacher Retirement System is authorized to invest its
funds in mortgage certificates secured by real estate, provided the board of trustees
determines such to constitute a “prudent investment.” The board may not, however,
invest its funds in the realty itself. In view of the long established and dominant
P. 489
. .
Honorable Leonard Prewitt - Page Three (NW-152)
legislative and judicial construction that realty is not within the ambit of “securities,” it is
our opinion that a constitutional amendment would be necessary to enable the board of
trustees of the Teacher Retirement System to invest its funds in real property.
SUMMARY
The Board of Trustees of the Teacher Retirement System may
invest its funds, or a portion thereof, in mortgage certificates
secured by real property, provided the board determines such to
constitute a prudent investment. A constitutional amendment
would be necessary, however, to enable the board to invest its
funds in realty.
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
TED L. HARTLEY
Executive Assistant Attorney General
Prepared by Rick Gilpin
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
C. Robert Heath, Chairman
Walter Davis
Susan Garrison
Rick Gilpin
Tom Pollan
Bruce Y oungblood
P. 490