April 9, 1970 

Honorable Marie Winters 

Firemen's Pension 

Commissioner 

Sam Houston Building 

Austin, Texas 78701 

Opinion No.?+607 

Re: Eligiblity of local 

Pension Board to invest 

in mutual funds. 

Dear Mrs. Winters: 

You have requested the opinion of this office regarding 

the above question, and in this connection our attention has 

been specifically drawn to the Washington Mutual Investors Fund. 

The extent of the investment authority of a Board of 

Trustees for a Firemen's Relief and Retirement Fund is set 

forth in Section 23A, Article 6243e, Vernon's Civil Statutes, 

as follows: 

"Sec. 23A. (a) This Section applies to the 

Firemen's Relief and Retirement Fund in any city 

having a population of less than 185,000 according to the last preceding Federal Census. 

"(b) Whenever, in the opinion of the Board 

of Trustees, there is on hand in the Firemen's 

Relief and Retirement Fund a surplus over and 

above a reasonably safe amount to take care of 

current demands upon such fund, such surplus, or 

so much thereof as in the judgment of the Board is 

deemed proper, may be invested in bonds or other 

interest-bearing obligations and securities of the 

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. . . 

Hon. Marie Winters, page 2 (M-607) 

United States, the State of Texas, or any county, 

city or other political subdivision of the State 

of Texas: in shares or share accounts of savings and 

loan associations, where such shares or share accounts 

are insured under and by virtue of the Federal Savings 

and Loan Insurance Corporation: in first lien real 

estate mortgage securities insured by the Federal 

Housing Administration under the National Housing Act 

of the United States, as amended from time to time: 

and in such corporation bonds, preferred stocks and 

common stocks as the Board may deem to be proper investments for the fund. 

"(c) In making each and all of such investments 

the Board shall exercise the judgment and care under 

the circumstances then prevailing which men of 

ordinary prudence, discretion, and intelligence 

exercise in the management of their own affairs not 

in regard to speculation but in regard to the permanent 

disposition of their funds, considering the probable 

income therefrom as well as the probable safety of 

their capital. 

"(a)..... 

"(e) Stocks eligible for purchase shall be 

restricted to stocks of companies incorporated within 

the United States which have paid dividends for ten 

(10) consecutive years or longer immediately prior 

to the date of purchase and which, except for bank 

stocks and insurance stocks, are listed upon an 

exchange registered with the Securities and Exchange 

Commission or its successors." (Emphasis added.) 

Section 23B, Article 6243e. also bears upon this problem, 

and is quoted as follows: 

"Sec. 23B. The Board of Trustees of a full paid 

fire department may engage and employ professional 

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Hon. Marie Winters, page 3 (M-607) 

investment counselors to advise and assist the 

board in the investment of the assets of the fund. 

The investment counseling service must be provided 

by a nationally known organization whose business 

functions include rendering continuous investment 

advisory service to public pension and retirement 

funds. The city may pay the entire cost of this 

counseling service: if not paid by the city the cost 

may be paid from the assets of the fund." 

We have been unable to discover any reported case in this 

or any other jurisdiction wherein the investment quality of mutual 

funds is discussed. Accordingly, we must be guided solely by 

the terms of the statute which authorizes the particular investment. 

The statute above quoted is very specific as to the 

character of investments that are authorized for Firemen's 

Relief and Retirement Funds. The enumerated list of investments 

does not include mutual funds. We are aware that a mutual fund 

by contract with the investor, might set up a program of investments that will meet the particular investor's criteria. In 

particular, we have examined the prospectus of the Washington 

Mutual Investors Fund, which complies with the requirements 

for the List of Legal Investments for Trust Funds In The District 

of Columbia. A close examination of the prospectus reveals that 

the common stock investments of the Washington Mutual Investors 

Fund apparently meet or exceed all of the statutory requirements 

for common stock investment by a Firemen's Relief and Retirement 

Fund. Nevertheless, in the absence of express authority, and 

in view of the underscored language of Section 23A(b), supra, 

we hold that the Board of Trustees may not delegate to a mutual 

fund the discretion or judgment as to what securities shall be 

"proper investments for" the Firemen's Relief and Retirement 

Funds. 

Accordingly, you are advised that it is the opinion of the 

Attorney General that a Firemen's Relief and Retirement Fund 

coming withintbe provisions of Section 23A, Article 6243e, 

Vernon's Civil Statutes, may only invest its excess funds in 

the securities specifically listed in said statute, and mutual 

funds are not an authorized investment. 

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Hon. Marie Winters, page 4 (M-607) 

SUMMARY 

Under Section 23A, Article 6243e, V.C.S., 

The Board of Trustees for a Firemen's Relief and 

Retirement Fund may not invest in mutual funds. 

Atto $ey General of Texas 

t 

Prepared by Malcolm L. Quick 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

W. E. Allen, Acting Co-Chairman 

Jack Sparks 

Linward Shivers 

Phil Warner 

Bennie Bock 

MEADE F. GRIFFIN 

Staff Legal Assistant 

ALFRED WALKER 

Executive Assistant 

NOIA WHITE 

First Assistant 

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