April 9, 1970

Honorable Marie Winters Firemen's Pension Commissioner SamHouston Building Austin, Texas 78701 Opinion No.?+607
Re: Eligiblity of local Pension Board to invest inmutual 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 theWashington Mutual Investors Fund. The extent of the investment authority of aBoard of Trustees for aFiremen's Relief and Retirement Fund is set forth inSection 23A,Article 6243e, Vernon's Civil Statutes, as follows:

"Sec. 23A. (a)This Section applies to the Firemen's Relief and Retirement Fund inany city having apopulation of less than 185,000 according to the lastpreceding Federal Census. "(b) Whenever, in the opinion of theBoard of Trustees, there is onhand in the Firemen's Relief and Retirement Fund a surplus over and above areasonably safe amount to take care of current demands upon such fund, such surplus, or somuch thereof as in the judgment of the Board is deemed proper, maybe invested inbonds or other interest-bearing obligations and securities of the

-2898-. . .

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

United States, the State ofTexas, 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 andby virtue of the Federal Savings and Loan Insurance Corporation: in first lien real estate mortgage securities insuredby the Federal Housing Administration under theNational Housing Act of the United States, as amended from time to time: and in such corporation bonds, preferred stocks and common stocks as theBoard may deem tobe proper investments for the fund. "(c) Inmaking each and all of such investments theBoard shall exercise the judgment and care under the circumstances then prevailing which men of ordinary prudence, discretion, and intelligence exercise in themanagement of their own affairs not in regard to speculation but inregard to thepermanent disposition of their funds, considering theprobable income therefrom aswell as theprobable safety of their capital. "(a)..... "(e) Stocks eligible forpurchase shallbe 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 ofpurchase and which, except forbank stocks and insurance stocks, are listed upon an exchange registered with the Securities and Exchange Commission or its successors." (Emphasisadded.) Section 23B,Article 6243e. alsobears upon this problem, and isquoted as follows:

"Sec. 23B. The Board ofTrustees of a fullpaid fire department may engage and employ professional

-2899-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 beprovided by a nationally known organization whose business functions include rendering continuous investment advisory service topublic pension and retirement funds. The city may pay the entire cost of this counseling service: ifnotpaid by the city the cost may bepaid from the assets of the fund."
We have been unable todiscover any reported case in this or any other jurisdiction wherein the investment quality ofmutual funds isdiscussed. Accordingly, we must be guided solely by the terms of the statute which authorizes theparticular investment.The statute above quoted isvery specific as to the character of investments that are authorized forFiremen's Relief and Retirement Funds. The enumerated list of investments does not include mutual funds. We are aware that amutual fund by contract with the investor, might set up aprogram of investments that will meet theparticular investor's criteria. In particular, we have examined theprospectus of theWashington Mutual Investors Fund, which complies with the requirements for the List of Legal Investments for Trust Funds InThe District of Columbia. A close examination of theprospectus reveals that the common stock investments of theWashington Mutual Investors Fund apparently meet or exceed all of the statutory requirements for common stock investment by aFiremen's Relief and Retirement Fund. Nevertheless, in the absence of express authority, and inview of the underscored language of Section 23A(b), supra, we hold that the Board of Trustees may not delegate to amutual fund the discretion or judgment as towhat 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, andmutual funds are not an authorized investment.

-2900-Hon. Marie Winters, page 4 (M-607)

SUMMARY Under Section 23A,Article 6243e,V.C.S., The Board ofTrustees for aFiremen's Relief and Retirement Fund may not invest inmutual funds.

Atto $ey General of Texas t Prepared byMalcolm L. Quick Assistant Attorney General
APPROVED: OPINION COMMITTEE
Kerns Taylor, Chairman W. E.Allen, Acting Co-Chairman Jack Sparks Linward Shivers PhilWarner Bennie Bock
MEADE F. GRIFFIN Staff Legal Assistant
ALFRED WALKER Executive Assistant
NOIA WHITE First Assistant

-2901-