,, ,,   Aug~uv          11) ‘J%XAS
 PRICE   DANlEL
*T¶w,YNrV ..mcTzYil.,I.                      .’
                                              April 22‘.J&7..;~,

          Honorable Ceo&‘D.   $utlejj:’   ’
          Life Insurance Comlssioner.      .:
          and Chairman of the Beard of
          Insuranoe Commiesionere
                     Texq _ ... . Opi&n'.Ns. V-L53
          Austin :.JJ+,.
                                             * Be:.     Whether new issues OS dapital
                                                      : atook of certain oorporations
                                   .                    whtih have paid dividends on
                                         :              all gw.r olde$r1sslaasOf,
                              i.                        ste@  oaoli .year ror rive’ ‘years
                                                      -.U;r ‘eligible.for imbatmant by-
                                                        liir . *suranoi saapakio6 under
                                   :.,                  ~aa$loa    3.0f Artiole :4?25,,
                                                                                      V.C.
                                                          W, pna related queatiena.
                   . .,                                         ._
          Dear Sir:                                      :;.       :     ..
                          Your ~equet3t’
                                       ,f& a&i&                    is as follo43:
                      WPlease’advise ne whether under Set-
                 tioti3. Artiole 4725~. a life i&4.rauce Corn-
                pmy tif invest in the newly .isaued oapital
                stock, IT reeenting either inoxoaaed oapltal
                or refundL3 or substitution of*outstanding
                stock, of a solvent oorporatlon, rqhlohhas
                not defaulted in the -payment of any of:.ita
                obli’gatlonsfor a period of,five years, and
                whioh has paid dividends on,all of its stock
                each year qor,five years or more, .exoept on
                the newly !&sued.stwk whloh ,jma not yet
                reached or passed its divid8ndpaylng purled,
                                                ,.
                      “‘Pleaseadvise clewhether, Imae; ‘the
              f above.seotioti,a 1iPe iiastir’anoeooiapqy may,
                invest,in -any.of the capital stock of a sol-
              ’vent co&oration. whioh has,uot~, defaulted ifi
                the payment of any ‘of its.obligations for a
                period of five years and which has paid div-
                idends on oertaiu .alasaes .(suoh as preferred)
                of its stocrk-each y~ear.   five years or mom
                                        .fo.v
               but has failed during one or more years with-
                in the last five years to pay dividends on
               certain other olaaees (such as oomuon stock).
        .



            Honorable George B. Butler - Page 2 V-153


            If your answer should-be in the affirmative,
            we assume that the olasses of stock meeting
            the five year dividend payment requirement
            would be eligible and that olaseea of stock
            on which the corporation has defaulted in
            the payment of dividends within the five year
            period, would not be ellglble for llfe in-
            suranoe company investments. Please 00nrilln
            or oorrect us as to this."
                       The rirst paragraph of Seotion.3 of Artiole
4725,       V.C.S.,   with whleh you are o.onoerned,is as follows:
                   "Any life insurano6 Company of the
         State, for the purpose of investing Its capital
         and surplus or eny part thereof, over and above
         the amount of Its reservee,*,maypurohaae and        #.
         hold as oollateral security, or otherwlso, and
         sell and oonvey the capital &took, bonds, billa
         or exohange orother oommemlal notes~or bille
         and seauritles of anysdlaent'dividend paying
         corporation whioh has not.defaulted in the pay-
         ment of any of.5,ta'obligations~,for a pertod of
         rive (5) yeah, the o~urrentmarket value of       .'
        whioh auoh stook, bonds, bills of exchange br
         other oommerofal notes~or~bl1l.sand eeouritiee
         shall be at all time@ during the oontinuanee
         or such 1oe.nat least IWty per oent (50%)
        more than the sum ,loanedthereon; provided that
        no such company shall loan or Invest in It8 o!?n
        stook, nor more than ten peroent (lO$) of the,
        amount 0r its qapital, surplus and oontlngent
        funds in the stook'or any.oorporation, and pro-
        vided further that no euoh company shall in-
        vest any of Its runQa in any stook 'onacoount
        or which the holders or ownera thereof may In
        any event, be, or beoome liable to any assess-
        ment exoept for ~taxea, nor .In the stook of~~any *~j
        oil oompany or manuraoturlng oompany unless
        such oorporatlon has capltal~etook of not less
        than Five Million, ($5,OOO,OOO)~Dollars and un-
        less suoh oorporatlon has paid dividends for a
        period or five (5’) .yeare and has .not defaulted
        in the payment or any of ite-debts for a period
        or five (51 years."

               In 0 inion No, O-4295a rendered under a forms,r
Attorney General, tii
                    e phrase *divide& paying oorporationn
was construed in oonneotion with investments by other than
 Honorable George B. Butler - Page 3 v-153


 life insuxanoe ooinpanies,as that phrase is used in Ar-
 ticle 4706, .V&.S.. The language and objeot of Article
4706 arc similar itimost mter$al'respects to Article
4725, the main distinction insofar as pertinent to your
present partioular question being that Artlole 4725,
dealing with.llfe insurarme oompany investmenta, requires,
in addition.'that certain coroorations shall have wid
dividends for a period of five years. 1i1Cpinion'fio.O-
4295a, it was held that the prtioular type of stook in
which an investment was to be made must be on a dividend
paylqg basis. That oonolusion was rsached in answer to
a question by your board whether'the dividend paying re-
oord of the oorporatioushould be baaed upon the oommon
or upon the preferred,'stook,or upon other types Of
stook, or 'upona combination ~of.fesasthan all of the
olasaes of atook outstanding. ;.

         Jollowing the priaoiples as stated in Opinion
No. O-4295&, if the qew issue la ofa olans or type ~4th
preferenoe on the'earnings of the corporation squal to
or higher than a type or olass of stook that has the re-
quired dlvidend.r86otid,and it has the othar~quallfica-
tlons underthe statute, It is eligible ror investment.
lVoreason appears why suoh a stock .lssue should not have
the benerit or the~divldend paying reoord of the.oldez
ieaues~of the same or a lower class.. Your rivet question
ls~answered ti,the affirmative.
          As to your seooridquestion, following the rule
as stated in Opinion l?o. O-4295a investment may be n&de
in a class or type of stockmeeting the rive year dividend
paying requirement, but investment may not be raada.'lua
olass or type or stook upon whloh the corporation hae
failed during one or more years ~withln the last'five year8
to pay dividenda.



         Under Seotion 3 of'Artiole 4725, V.C.S..,
    new stook issues of a type or olass with pre-
    ferenoe on the earnings 0r the oorporation e-
    qual to or higher than a type or olass of stook
    having the required dividend paying record;
    other quallrloations under the law existing,
    are eligible for investment by 11,feinsuranoe
    oompanies. Opinion~No. O-4295,.
Honorable~George B. Butler - Page 4   V-153


         Investment may be made under Swtion 3
    of Artlole 4725, V.C.S., In a class or t
    of stock having the required dividend pacrng
    record, though investment may not be made In
    another olass or type of stook or the same
    corporation upon which suoh oorporation has
    failed to pay dividends during any one or
    more or the past rive years. Opinion No. O-
    4295a.
                                 Toura very tnaly
                              AlTORNEyGJmERAL OFT&S



                                              Ned &Daniel
    NNO/JhfO/~                                   Aaaistant