DAN MORALES 

## @fficeof toe Plttornep General Mate ofQexarr January 28.1993

**ATTORNEY GENERAL**  Honorable Jii Tallas Chairman Committee on Fiicial Institution TexasHouseofRepresentatives P. 0. Box 2910 Austin, Texas 78768-2910 Opiion No. DM-202

Re: Whether the Public Funds Investmeot Act, V.T.C.S. article 842a-2, authorizes cities, counties, and certain other public entities to 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 asfoknvs:

(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 itsfuods and !bnds under its control inthe 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, 04, at X99-Zoo; id. cb. 730, 5 1, at 3333. one of Ik eodawms I3mcndsIbcFFIAtoinclodeinIklinof~nddivirionr allkidcinvcslpur6oamIotbcPFxA*adkuitaor~acltcdoImor~m,sstion 52@X1) or0). orktkk xvr, Section59,ofth Texas Caastitndon ” (sn Acts 1989,71x1LcS.,ch. 39.P1.~32526);olu~IbcpFutoindudc=adirtricloppltborityEnattd~~~ SccIia’ 52@)(l) or (2).orArdck XVI, Soztkn 59. Texas Coslrtitution ”aswell ~1“ahospital 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 Poolc’ea@dunderThe 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.2d126,131 (Tex.App.-Dallas 1985, writ ref ’dn&c.) (quoting Wright v. Limeter, 1% S.W.2d82, 85 vex. 1946)) (stating rulethat when

co- XISpsged duringsame legisktive scssio& latterprovision repeals formerprovision

onlyif the kIIer pmkk” arprcsJly ‘qcak former, **or** if pmvisions ue immcikbly vqqnant). For plrposcrofthisopinion,wcwilluEcthc~ooofarbrcdion(a)~inthcna*mnt~ addedEubsstion (d).Acls 1989,‘IlR Leg. ch. 628.5 1,at2099-100.

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. . . . (d) In addition to the m deauii by Subsection (a)ofthissection.~entitylirttdinthat~b~onmsy.in acw~witlltllisAct,plrchase,sell,andinvutitsfilndsandfimdsunderitscwtrolin[aSecurhic3andExchangeCommission]-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 inthe mutual fimd only that portion ofits 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 17C.F.lL #270.2a=l(b).

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

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TbelegishreeoactedtbePFL%inl987toeMblecertainaltitiestomske mvummts that previously had been prohii. See Acts 1987. 70th Leg.. ch. 889, 82, at 2985; see ako Tex. Const. art. III, 552(e). In 1989the 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 diversification in tbe managemeot of public ihds or tbe need for spehhcd iovestment vehicles to deal with the arbitrage rebate requhmeots ofthe 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. 1342Before the Senate Comm. 011 State 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 (LFsetco&si exch&&y ofthe ob&atims thatare &scribed bySubsection (a) ofthis section.”

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 inthat money market mutual tImd.

As stated above, section 2(a)(l) ofthe PFIA authorizes a listed entity to invest in an obligation of aUnited States agency. Asyou 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

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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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