DAN MORALES 

@ffice of toe Plttornep General 

Mate of Qexarr 

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 as foknvs: 

(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 its fuods and !bnds under its control in the 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, 0 4, at X99-Zoo; id. cb. 730, 5 1, at 

3333. one of Ik eodawms I3mcndsIbcFFIAtoinclodeinIklinof~nddivirionr 

allkidcinvcslpur6oamIotbcPFxA*adkuitaor~acltcdoImor~m,sstion 

52@X1) or 0). or ktkk xvr, Section 59, of th Texas Caastitndon” (sn Acts 1989,71x1 LcS., ch. 

39.P1.~32526);olu~IbcpFutoindudc=adirtricloppltborityEnattd~~~ 

SccIia’ 52@)(l) or (2). or Ardck XVI, Soztkn 59. Texas Coslrtitution” as well ~1 “a hospital 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 Pool c’ea@d under The 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.2d 126,131 (Tex. App.-Dallas 1985, 

writ ref’d n&c.) (quoting Wright v. Limeter, 1% S.W.2d 82, 85 vex. 1946)) (stating rule that when 

co- XIS psged during same legisktive scssio& latter provision repeals former provision only if 

the kIIer pmkk” arprcsJly ‘qcak former, or if pmvisions ue immcikbly vqqnant). For 

plrposcrofthisopinion,wcwilluEcthc~ooofarbrcdion(a)~inthcna*mnt~ 

added Eubsstion (d). Acls 1989,‘IlR Leg. ch. 628.5 1, at 2099-100. 

p. 1068 
Honorable Jii Tallas - Page 2 (D&202) 

. . . . 

(d) In addition to the m deauii by Subsection 

(a)ofthissection.~entitylirttdinthat~b~onmsy.in 

acw~witlltllisAct,plrchase,sell,andinvutitsfilndsand 

fimdsunderitscwtrolin[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 

in the mutual fimd only that portion of its 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 17 C.F.lL # 270.2a=l(b). 

‘Forpuposcsofsxtion2oftt1c~.bond~i~ddi~~dt0u,~~ 

lheaakofhondsandr and funds maim&al fa dcht sewice puposcr.’ V.T.C.S. art. 842a-2. 

Q 2&X1). 

p. 1069 
HonorableJiiTaUas - Page 3 CD!+202) 

TbelegishreeoactedtbePFL%inl987toeMblecertainaltitiestomske 

mvummts that previously had been prohii. See Acts 1987. 70th Leg.. ch. 889, 

8 2, at 2985; see ako Tex. Const. art. III, 5 52(e). In 1989 the 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 of the 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. 1342 Before 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 (LFset co&si exch&&y of the ob&atims 

that are &scribed by Subsection (a) of this 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 in that money market mutual tImd. 

As stated above, section 2(a)(l) of the PFIA authorizes a listed entity to invest 

in an obligation of a United States agency. As you 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 

p. 1070 
HonorableJiiTalh - Page 4 (DM-202) 

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 

p. 1071