Ron. Ge0rge.B; Butler, Chairman
Board of Insvanee Comlssloners
Austin, Texas Oplalon Ilo. v-1070.
Re: The ellglblllty of &area
of ,stockol’locorpcmated
“open-cod nanagement ln-
reatment eompaaletP a8 in-
oestmirte r0r funds OS
Texan .lnmrance companies
under.,Articles4706 and
4725, B.C.S., ,ln rebdneld-
eratlon of former Oplnlon
Dear Sir: Ho. .Oy3013.
Your request Sor an oplnlon aska whether or
not the share8 oi.ao-aalled “open-end” Investment con-
panlea are ellglble for Investment by insurance compa-
nies under Articles 4706(d) and 4725; Section 3, Vernon’s
Civil Statutes such company 1s (1 fsolvent,(2) ln-
corporated, (31 doY vldeed-paying, and 14) has not default-
ed in the paymemt of any of its obligations for a period
o? fire years lmaedlately preceding the date of the ln-
oestmeat.~ You call our attention to Opinion Ho. o-3015,
rendered January 22, 1941, with the iollowiog statement:
a
“This opinion D-30157 ‘concern8the ell-
glblllty or shares la the following companlee,
as Investments l’orTexas Insurance companies:
SiauaaohusettsInvestors Truet, Hamilton Trust,
and Boston Fund. 1 am informed that there are
some 87 open-end investment oompanler,whose op-
erationa are substantially th& same aa thoue
enuyrated above.
‘It oan be determined thit at leaat some
of these 87 companlee are solvent, dlrldend-
paying oorporationa which hare~not defaulted
in the payment of ag obligat,lonw~lthlnfloe
years Immediately preceding ‘%he’dateon which
they offer their shares ‘aa lqtestments to Texas
lnsuraqce companltis. These conrpanlespurchase,
and hold for Investment purpoaes,~stocks, bonds,
- ..
..
Hon. George B. Butler, Page 2, V-lG'j'0.
and llke securitiee of &her corporations.
They value their own shires at rtated ln-
tervala by calculating the llquidatlng val-
ue of all aecurltiee held by them and dlvid-
lng thle value by the number of their own
share8 outstanding. Thus they arrive at
the llquldatlng value of their own 8haree
and offer them for aale at thie price plus
a emallloading. At the time of aale, the
company agree8 to repurahase it8 om shares
at their llquldatlug value.
*In view of the amendment8 made to Ar-
tlcles 4706 and 4725 and in order that this
department may iolloy a conrrlstentpolicy
lo approvlag Invertrents for T-a8 lnsnranoe
eoapanles, it 1~8rerpectfully requested that
Opl~lon lie. O-3015 be reconsidered and that
the following Inquiry be answerea:
lnve8tment7
.~
f’For your aonvezalen6$ we'- enelorli%g
ioWe Qsi;pnleta.w&lOa dtsbrlb6 the ‘t@e5atioa8
,of aertaln open-bud Investment oompanle8i'
Artlale 4706 provides, In part:
"Ho company, except aBy wrltllrgLife,
Health and Aeoident Irr8urance,.organlzed'
under the proiirioas of tHl8 Chapta, sllall
lnrest~lts fund8 over and above its paid-up
capital stock in any other manner than a8
iollows:
". . .
"(d) 1..In the 8tock8, boti8, debentures,
bill8 of ewhaugb !or other oommerolal note8 Or
bills and lreourltlesof any solvent dlrldeud
payln&corporatlon, inoorporated under the laws
or thjr rrtate,~oroS the United States, or oi
,..- .
Hon. George B. Butler, Page 3, V-lg0.
any state, which ha8 not defaulted In the
payment of any of it8 obllgat~gas for a
period of five (5~)years, lam&lately pre-
ceding the.date of the InvesQment; . . .
"2. The surplu8 fund@ of such lneur-
ante cOIUpanie8may be invested in the ~StOCkS,
bonds or debenture8 of any solvent corpora-
tion organited under the laws of this state,
or of the United States, or of any state.
“3. Rotwlth8tanding any and all pro-
visions of sub-dioisiona 1 and 2 of this sec-
tion (d), tio'suchInsurance company shall in-
Vest any Of it8 funds. . . ,ia~~~a~ay
stock on
aocouut of which the holders,~or~ownerethere-
of may, in any event, be or become liable ,to
arVga88e888b9llt,
except for taxes."
Article 4725 provides, :lnpart:
"A llfi insurance companyorganl8ed ua-
der the laws of thfs.State may invest in. . .
the following secnritles, and '@one others,
via : I
“3. It may invest its &@ltal, surplus
and coatlagency funds over an&above the a-
nolmt of its policy re,aenes in the capital
stock, bonds, bills Q? exchange, or other com-
mercial notes or bills and seeirritie8;~6?~auy
aolv&nt:izorporationWhich h&h:&ot.de?&ulted
- iti'thepaylnentof a~y'debt~withln~f~lPe~(5)
years next precediug such inVeStment. . ..pro-
vlded that It shall not Invest. . . more than
ten per teat (1%) of the aaount of its cap-
ital, surplus, atidcontiugeney funds in the,
8tOCk o? any one corporation. . . and provided
further that it shall uot invest any of its
funds nor take as collateral security any stock
on amount of which the holder or owner there-
of may in any event be or become liable to any
aeeeeement except for taxes."
Ullder the literal provIsIona of these statutes,
the StOCk of any corporation which meets the quallfica-
tloaa set out therein is eligible for investment by the
lnsur~ce corapaales governed by the.statutea to which you
refer. The material which you have:attached, containing
. *
Hon. George B. Butler, Page 4, V-lC'i'0.
deSCriptiOu8 of the operations of a atunberof such "open-
end Investment companies," contains nothing which distin-
guishes fundamentally the etook 0s these concerns from
that of any other corporation contemplated by the Stat-
utes. For the purpose herein Inquired about, the busi-
ness~la which the corporation engages is not m8terlal.
Opinion lo. O-3015 consldered several so-called
"Investment trusts,' some of which were apparently unln-
corporated; and It was there held that, In addition to
the question of whether or not the certificates constl-
tuted shares~o? stock In a "corporation," the securltles
there described did not constitute *8took8" or 'capital
stock" within the meaning 0s the then existing statutes.
It was concluded In that opinion that the certl?loates
exhibited ?Or study cvidenaed merely participating inter-
ests of the holders in the net proflt8, if any; 0s the
issuing conaera. The material submltted by you evidences
no suoh limited interest on the part of stockholder8. On
the oontrary, the interest Of the StOCkhOlderS18 SUbStan-
tially similar to the Interests normally pertaining to
StOckhOld~S o? other corporatloas. In so far as anJ ln-
vestment corporation m&eta the qualiiicatioas 0s the cited
statutes, and the shares Of stock are comparable to~those
of other eligible corporations, Opinion Ro. O-3015 la not
applicable.
or c0=8e, each corporation and its stock or
other 8ecurltlea must necess8rily be lndioldually consid-
ered . Our COlt~1USiOll
18, merely, that the Share8 Of stock
in incorporated "open-end" Investment companies are not
per se laellglble for Investment under the cited statutea.
c
SUBMARY
Shares of stook in Incorporated *open-
end" Investment corporations are not per se
lnellglble for investment by Insurance com-
panies under Articles 4706 and 4725, V.C.S.
Each such corporation and its securrities
must be lndlvldually considered to determine
whether they meet such statutory qualiflca-
tlons.
APPRCVED: Your8 verftruly,
Joe R. Greenhill PRICE DAXfIRL
First Asai&aUt
Price Daniel
Attomey General Assistant
HMc:Jmc