Honorable 

Executive 

June 7, 1966 

Gordon ,H. Lloyd ODinion No. C-704 

Secretary - 

Employees Retirement System of Texas Re: 

Capitol S~atlon 

Austin, Texas 

Whether the retirement funds of the 

Employees Retirement System may be 

invested in corporate stocks and bonds 

other than those ir 

which the Permanent 

University Fund of 

the University of 

Dear Mr. Lloyd: Texas is invested. 

We are in receipt of your letter for an opinion in 

which the following question is posed: 

Is the Investment of Employees Retirement Fund 

in corporate 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 

of Regents of the University, or may the Board of 

Trustees of the Employees Retirement System make 

such investments within its discretion, but only 

in the specific stocks and bonds which have been 

deemed, proper investments for the Permanent University Fund by the Board of Regents of the University of Texas. 

After carefully reviewing the Constitution and statud~ 

tes of this state and previous Attorney General Opinions related to this question, we have come to the definite conclusion 

that the Investment of the 

“p 

lcyees Retirement Funds, created 

by provisions of Section 62(a , Article XVI of the Texas Constitution, In such securities as corporate bonds and preferred 

and common stocks is subject to the discretionary determination 

of the Board of Trustees of the Employees Retirement System of 

Texas but within the same limitations and restrictions as are 

provided in Sectfon 11(a) of Article VII of the Texas Constitution. In this connection, we hold that the Board of Trustees 

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Hon. Gordon Lloyd, page 2 (C-704) 

is vested with the same discretion in the investment of its 

funds as is vested In the University of Texas Board of Regents in the investment of the funds entrusted to that Board. 

It is our further conclusion that the Board of Trustees is in 

no way limited in its d.nvestments to the specific stocks and 

bonds which the Board of Regents has determined proper investments for the Permanent University Fund. 

In reaching our above conclusions, we must first 

observe the unambiguous guidelines provided in Section 62(a) 

of Article XVI of the Constitution of Texas, adopted in 

November, 1957, which reads in part as follows: 

"All funds provided from the compensation of 

such person or by the State of Texas for such Retirement, Disability and Death Compensation Fund, 

as are received by the Treasury of the St&e of 

Texas,, shall be invested in bonds of the United 

States, or in bonds issued by any agency of the 

United States Government, the payment of the 

orincical of and interest on which is guaranteed 

to meet the immediate payment of the amount 

likely to become due each year out of said Fund, 

such amount of funds to be kept on hand to be 

determined by the agency which may be provided 

by law to administer said Fund. 

Should the Legislature enact enabling laws 

in anticipation of the adoption of the Amendment, 

such legislation shall not be invalid by reason 

of its anticipatory character. As amended Nov. 4, 

1958. " (Emphasis added) 

Pursuant to the passage of the above constitutional 

amendment, the Legislature, by Article 6228(a), Vernon's Civil 

Statutes, named the Board of Trustees of the Employees Retirement System as the agency to make the investments and administer the funds. Said Article 6228(a) provides, in part, the 

following: 

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, - 

Hon. Gordon Lloyd, page 3 (c-704) 

"Sec. 7.A. The State Board of Trustees ahall 

be the Trustees of the several funds as herein created 

by this Act.and shall have full power to invest and 

reinvest such funds subjects to the following limitations and restrictions: 

All retirement funds as are received by the 

Treasury of the State of Texas as deposits from 

coMbutions of members or employer as herein 

provided, may be invested only in bonds and other 

evidences of indebtedness of the United States, 

and all other bonds or evidences of indebtedness 

which are guaranteed as to principal and interest 

by the United States; in bonds and other evidences 

of indebtedness, both general and special obligations, of the State of Texas and any of its agencies; 

in bonds or other evidences of indebtedness of municipal corporations or political subdivisions of the 

State of Texas both general and special obligations, 

which have been approved as to legality by,the Attorney General of the State of Texas; and in securities 

in which the State Permanent School Fund of the University of Texas may be invested under present or 

hereafter enacted laws. The State Board of Trustees 

shall have full power by proper resolution to hold, 

pure hny ase se ass n 

of the securities and investments in which any of the 

funds credited herein shall have been invested, as 

well as the proceeds of said investments and any 

moneys belonging to said funds, provided that any 

money on hand shall be subject to the State Depository Laws of Texas." (Emphasis added.) 

The delegation of such duties of trust and discretion 

In the investment of the funds into certain corporate stocks 

and bonds (within the limitations provided by law) is thus 

clearly vested in the Board of Trustees of the Employees Retirement System. No such authority is given, and no such delegation of those discretionary duti.8 of trust is made, to the 

separate agency, the Board of Regents of the University of 

Texas. 

By virtue of the provisions of Section 62(a) of 

Article XVI of the Constitution of Texas, that limitation 

provided by law in the discretionary investment of funds is 

set out in Section 11(a) of Article VII of the Constitution of 

Texas and reads as follows: 

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Hon. Gordon Lloyd, pc,ge 4 (c-704) 

“In addition to the bonds now enumerated in 

Section 11 of 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 in any macner in whole 

by the.United SteWGovernment or any agency thereof and In such corporation bonds, preferred stocks 

and common stocks as the Board of Regents of the 

University of Texas may deem to be proper investments’ for said fund; and the interest and dividends accruing from the securities listed in 

Section 11 and Section lla, except the portion 

thereof which is appropriated by the operation of 

Section 18 of Article VII for the payment of principal and Interest on bonds or notes issued thereunder, shall be subject to appropriation by the 

Legislature to accomplish the purposes declared 

in Section 10 of Article VII of this Constitution. 

In making each and all of such investments said 

Board of Regents 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 inky 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; 

provided, however, that not more than fifty per 

cent (50$) of said fund shall be invested at any 

given time in corporate stocks and bonds, nor shall 

more than one per cent (1s) of said fund be invested in securities issued by any one (1) corporation, nor shall 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 of purchase and which, except for bank stocks 

and Insurance stocks, are listed upon an exchange 

registered with the @curities 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 in corporate stocks and bonds and other investments authorized herein. Adopted Nov. 6, 1956. (Emphasis added.) 

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. . 

Hon. Gordon Lloyd, page 5 (c-704) 

This same Section 11(a) of Article 'VII of the Constltut%on of Texas likewise sets forth the following investment limitations and restrictions applicable to corporate 

securities which must b,e observed by the Board of Trustees: 

1. In making such investments said Board of 

Trustees "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 rggard to the 

permanent disposition of their funds. (Prudent 

man's rule) 

2. The Board of Trustees must 'consider the 

probable income therefrom as well as the probable 

safety of their capital". 

3. It is provided further for the Board of 

Trustees "that not more than fifty per cent (5&l 

of said fund shall be invested at any given time 

in corporate stocks and bonds". 

4. The Board of Trustees also is required to 

see that funds invested in corporate securities 

"shall be invested at any given time in corporate 

stocks and bonds, nor shall more than one 

securitiei 

er cent 

(1%) of said. fund be invested in issued 

by any one corporation". 

5. The Board of Trustees is required to invest in such corporate securities and shall not 

~~~~~ rre than five per cent,(5$) of the voting 

f any one corporation be owned". 

6. The Board of Trustees Is restricted to 

"stocks eligible for purchase shall be restricted 

to stock of companies incorporated within the, 

'United States". 

7. A further restriction on the Board of 

Trustees reouires that stocks cannot be purchased "unless the stocks purchased have paid 

dividends for ten consecutive years or longer 

‘immediately prior to the date of purchase and 

which, except for bank stocks and insurame 

stocks, are li t d upon an exchange registered 

-he Securities and Exchange Commission or 

its successorsn. 

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. . 

Bon. Gordon Lloyd, page 6 (C-704) 

It is, therefore, the opinion of this office that 

the language in Section 62(a) of Article XVI of the Constitution of Texas and in the enabling legislation as provided in 

Article 6228(a) is legally sufficient and Intended to constitute the entire legal criteria and guidelines governing the 

discretionary investment of the Employees aetirement Funds in 

corporate bonds and stocks. Furthermore, we are unable to 

find within either the Constitution or statute any intent that 

the Board of Regents' judgment and discretion in making investments for the Permanent University Fund was to substitute 

for or govern over that judgment and discretion granted separately to the Board of Trustees in the investment of the Employees Retirement Funds as contemplated by the Texas Constitution in Section 62(a) of Article XVI. On the contrary, 

we hold that the exercise of the duties of trust, judgment, 

care, and discretion of the Board of Trustees of the Employees Retirement System of Texas is subject to the identical 

limitations and restrictions in the investment of the funds 

entrusted to it as apply to the University of Texas Board 

of Regents in carrying out their separate and distinct investment functions and duties of trust under Section 11(a) 

of Article VII of the Constitution of Texas. 

In Attorney General's Opinion WW 548(195p), it was 

held that Section 11(a) of Article VII of the Texas Constitution is to be applied to the investment of the Permanent University Funds in corporate stocks and bonds; and the Board of 

Regents msyinvest the funds in such securities as the Board 

may deem to be proper investments for said fund. That Opinion 

further concluded that this language extended to and was controlling in the investmentof Employees Retirement Funds. 

That language, however, does not fall within the limitations 

and restrictions provided in Section 11(a) of .Irticle VII of 

the Constitution of Texas but merely provides that the Board 

of Regents may exercise its discretion in selecting the securities, provided they meet the requirements of Section 11(a) 

of Article VII of the Texas Constitution. It is our opinion 

that the Board of Trustees of the Employees Retirement System 

has this same discretion. To apply such meaning to ,Section 

11s or Article VII of the Constitution of Texas as reasoned 

inOpInion WW 548 would, in effect, be substituting the judgment and discretion of the Board of Regents of the University 

of Texas for that of the Trustees of the Employees Retirement 

Fund. We understand that the Board of Regents of the University of Texas has the right to exercise its judglaent in 

what it %ay deem to be proper investments for said Iundbut only for the fund over'which it has the right to exercise 

col?trol. 

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Hon. Gordon Lloyd, ‘page 7 (C-704) 

We therefore overrule Attorney Oeneral Opinions 

WW 548(1959) and ~*971(1960) to the extent that they are 

In conflict with this opinion. 

SUl4MRY. 

The investment, of .the Employees Retirement Funds in corporate securities’ is subject 

to the discretion and.judgmene of the Board 

of Trustees of the Employees Retirement System 

of Texas, and not that of the Board of Regents 

of the University of Texas.4 subject, however, 

to the limitation and restrictions Imposed by 

Section 11(a) of Article VII of the Constitution 

of Texas. The Board of Trustees and the Board 

of Regents, as separate agencies, have the right 

to exercise independent discretion and judgment 

In the investment of their respective trust 

funds and are subject ti, the same limitation 

and restrictions governing their investments. 

Attorney ffeneral Opinions ww 548(m) 

and WW 971(1960) are overruled to the extent 

that they conflict with this opinion. 

Yours very truly, 

WAGGONER CARR 

Attorpq General of Texas 

JBB:mh 

By: 

Assistant Attorney General 

APPROVED : 

OPIBIOR COMKITTEE 

W. V. Geppert, Chairman 

Job Reeves 

J. C. Davis 

Malcolm Quick 

Roy Johnson 

APPROVED FOR THE ATTORNEY QBNBRAL 

By: T. B. Wright 

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