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June 12, 1970
Honorable William J.S. "Bill" May
State Representative, Third District
W. 711 Waverly Place
Spokane, Washington 99205
Cite as: AGLO 1970 No. 92
We are in receipt of your letter dated June 10, 1970, by which you have raised a question pertaining to the investment of certain municipal retirement funds in the shares of a certain open-end investment company pursuant to the authority granted by § 1, chapter 211, Laws of 1969, Ex. Sess. (House Bill No. 425).
The act in question authorizes
"Any city or town now or hereafter operating an employees' pension system, established and operated pursuant to state statute or charter provision, or any pension system operating now or hereafter under state statute or charter provision exclusively for employees of cities or towns, . . ."
to invest the funds of such pension system in a number of specified types of investments.
Subsection (18) of this statute pertains to the investment of pension funds in open-end investment companies, and reads as follows:
"Subject to the limitations hereinafter provided, investments may be made in amounts not to exceed thirty-five percent of the system's total investments in the shares of certain open-end investment companies: PROVIDED, That not more than five percent of the system's total investments may be made in the shares of any one such open-end investment company. The total amount invested in any one company shall not exceed five percent of the assets of such company and shall only be made in the shares of such companies as are registered as 'open-end companies' under the federal Investment Company Act of 1940, as amended. Such company must be at least ten years old and have net assets of at least ten million dollars. [[Orig. Op. Page 2]] It must have no outstanding bonds, debentures, notes, or other evidences of indebtedness, or any stock having priority over the shares being purchased, either as to distribution of assets or payment of dividends. It must have paid dividends from investment income in each of the ten years next preceding purchase;" (Emphasis supplied.)
Your question pertains to the eligibility for investment of the shares of an open-end investment company known as the Investment Company of America ‑ with particular reference to the condition which we have underscored in quoting the provisions of subsection (18), supra. Your concern, as you have indicated in your letter, is whether certain outstanding warrants which have been issued by this company would constitute either "outstanding bonds, debentures, notes, or other evidences of indebtedness" or "stock having priority over the shares being purchased, either as to distribution of assets or payment of dividends."
We have examined the prospectus which you transmitted with your opinion request, with particular reference to the portions thereof which describe the status of the warrants in question, and we are of the opinion that these warrants, which simply constitute options to purchase designated numbers of shares in the company at specified prices, would not constitute either outstanding evidences of indebtedness or shares having priority either as to distribution of assets or payment of dividends ‑ assuming, as appears from the description contained in the prospectus, that the shares purchased through the exercise of the warrants will have no such priority in relation to shares which may be purchased on the open market.
It is hoped that the foregoing will be of some assistance to you.
Very truly yours,
FOR THE ATTORNEY GENERAL
Philip H. Austin
Assistant Attorney General