Honorable Gordon H. Lloyd

Executive Secretary Employees Retirement System of Texas Capitol Station Austin 11, Texas

Dear Mr. Lloyd: Opinion No.WW-548

Re:Whether retirement funds of the Employees Retirement System may be invested incorporation stocks andbonds other than those inwhich the Permanent University Fund of The University of Texas is invested,

Your request for anopinion is, inpart, as follows:

I

~ . . , isthe investment of Employees Retirement Funds incorporate bonds, preferred stocks and common stocks subject to the discretion of the Board of Trustees of the Employees Retirement System, within those limits set out in Section lla of Article VII of the Constitution for guidance of the Board ofRegents of the University, ormay the Board of Trustees of the Employees Retirement System make such investments within its discretion, but only in the specific stocks andbonds which have been deemed proper investments for the Permanent Un,iversity Fund by the Board ofRegents of the University of Texas?"

When the amendment of Section 62(a) ofArticle XVI of the Constitution of Texas was adopted inNovember, 1957, the amendment of Article 6228a, V.C.S., by Acts of the 55th Legislature, Regular Session, 1957, Chapter 402, page 1208, became effective and this statute, as thereby amended, became operative on September 1, 1958.Honorable Gordon H. Lloyd, page 2 (WW-548)

The pertinent portion of the constitutional amendment isas follows:

"All funds provided from the compensation

of such person orby the State of Texas for such Retirement, Disability and Death Compensation Fund, asare received by the Treasury of the State of Texas. shall be invested inbonds of the United States, or inbonds issued by any agency of the United States Government, the payment of the principal of and interest onwhich isguaranteed by the United States: or in such other securities asare now orhereafter may be permitted by law as investments for the Permanent University Fund or for the Permanent School Fund of this State, under the same limitations and restrictions imposed by the Constitution for investment of those funds and subject to such regulations as the Leqislature may provide.* (Emphasis added)

The applicable provisions of the statute, asamended, appear in Section 7Athereof, as followsr

"The State Board of Trustees shall be the Trustees of the several funds asherein created by this Act andlshalk ,haue.full power to invest and reinvest such funds subject to the following limitations and restrictions:

'All retirement funds asare received by the Treasury of the State of Texas asdeposits from contributions of employees or employer
asherein provided, may be invested only in

. . . ;and in securities inwhich the State Permanent School Fund or the Permanent University Fund of the University of Texas mSy be invested under present orhereafter enacted laws.' (Emphasis added)Honorable Gordon H,Lloyd, page 3 (WW-548)

We find no authority for the investment of the State Permanent School Fund incorporation bonds and stocks, but such investment of the Permanent University Fund of the University of Texas ispermitted 

### by Section lla of Article VII of the Constitution of Texas, which follows:

"In addition to thebonds now enumerated in Section 11of'Article VII of the Constitution of the State of Texas, the Permanent University Fund may be invested in first lien real estate mortgage securities guaranteed inanvmanner inwhole by the United~States Government or any agency thereof and insuch corporation bonds, preferred stocks and common stocks as the Board ofRegents of The University of Texas may deem tobe proper investments for said fund; and the interest and dividends accruing from the securities listed in Section 11and Section lLa, except the portion thereof which isappropriated by the operation of Section 18ofArticle VII for the payment of principal and interest onbonds ornotes issued thereunder, shall be subject toappropriation by the Legislature toaccomplish the purposed declared in Section 10ofArticle VII of this Constitution. Inmaking each 

### andall of such investments said Board of Regents shall exercise the judgment and care under the circumstances then prevailing ~which
men ofordinary prudence, discretion, and intelligence exercise in the management of their
own affairs not inregard to speculation but inregard to the permanent disposition of their funds, considering the probable income therefrom aswell as the probable safety of their capital: provided, however, that not more than fifty per cent (50%) of said fund s,hallbe inveeted stany given time incorporate stocks and bonds, nor shall more than one per cent (1%)of said fund be invested in securities issued by any one (1)corporation, nor shallHonorable Gordon H. Lloyd, page 4 (WW-548)

more than five per cent (5%)of the voting stock of any one (1)corporation be owned: and provided, further, that 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 ofpurchase and which, except forbank stocks and insurance stocks, are listed upon an exchange registered with the Securities and Exchange Commission or its successors. This amendment shall be self-enacting, and shall become effective upon its adoption, provided, however, that the Legislature shall provide by law for full disclosure of all details concerning the investments incorporate stocks andbonds and other investments authorized herein." (Emphasis added)

Neither the underlined language in Section 62(a) of Article XVI of the Constitution of Texas, supra, nor that inArticle 6228a, supra, issufficient within itself to serve asacomplete guide for the investment of the Employees Retirement Funds incorporation stocks or corporation bonds forboth refer to andwholly depend upon what ". . .may be permitted by law as investments for the Permanent University Fund. . .I This, in turn, isclearly set out in Section lla ofArticle VII, supra, asbeing only "such corporation bonds, preferred stocks and common stocks as the Board of Regents of The University of Texas may deem tobe proper investments for said fund." There follows adelineation of certain further limits and conditions governing such investments.
Certainly the Permanent University Fund may notbe invested in any or all corporation stocks andbonds which are tobe found in the market, but only in those which fall within such limits and conditions as are set out in Section lla ofArticle VII, supra, andwhich the said Board of Regents "may deem tobe proper investments for said fund." "Deem" does not signify an arbitrary exercise ofwill, but adeliberate exercise of judgment.Honorable Gordon H. Lloyd, page 5 (WW-548)

"To deem" isto think, judge, hold as anopinion, decide or believe on consideration, toadjudge. State v. Cohen, 63A. 928, 930, 73N.H. 543.

Since no investment of the Permanent University Fund incorporation stocksand bonds ispermitted by law unless it isdeemed tobe aproper investment by the Board of Regents, and since Employees Retirement funds may be invested insuch corporation stocks andbonds only if they are "permitted by law" as investments for the Permanent University Fund, it follows that if the Employees Retirement funds are invested incorporation stocks andbonds, only those particular corporation stocks andbonds
are eligible which are deemed tobe proper by the Board of Regents of the University of Texas as investments for the Permanent University Fund. The best evidence ofwhat these may be is the actual investment of the Permanent University Fund within the limitations of Section lla ofArticle VII, supra, as shown by public records both at the University and at the office of the State Comptroller of Public Accounts.

This isnot to 'saythat when the Permanent University Fund is invested inaparticular security, such security must also be purchased by the Employees Retirement funds. Purchase of that security thereby becomes permissive inrespect to the Employees Retirement funds andwhether ornot it isactually purchased is
ama,tterresting within the sound discretion of the State Board of Trustees of the Employees Retirement System of Texas.
Since theword "invested" contemplates not only the original purchase but theholding of aparticular security as an investment, we ,th,inkthat if the Permanent University Fund iswithdrawn from investment inaparticular security the Employees Retirement funds must likewise bewithdrawn within areasonable time.

Retirement funds of the Employees Retirement System of 'Texasmay not be invested in corpcration stocks andbonds other than those inwhich the Permanent Universi,ty Fund of The University of Texas is invested.Honorable Gordon H. Lloyd, page 6 (wW-548)

Very truly yours,

WILL WILSON Attorney Cj&eral of Texas

Hww s

APPROVED:

OPINION COMMITTEE

W. R.Hemphill, Chairman

Marietta Payne Thomas Burrus Robert T. Lewis 

# BY

Howard W. Mays Assistant Attorniy General

REVIEWED FOR THE ATTORNEY GENERAL By: Morgan Nesbitt