Honorable   Gordon H. Lloyd                Opinion   No. WW-548
Executive   Secretary
Employees   Retirement System              Re: Whether retirement    funds
    of Texas                                   of the Employees   Retire-
Capitol Station                                ment System may be in-
Austin 11, Texas                               vested in corporation
                                               stocks and bonds other
                                               than those in which the
                                               Permanent  University   Fund
                                               of The University   of Texas
Dear   Mr.   Lloyd:                            is invested,

Your   request       for an opinion   is, in part,   as follows:


                 I
                     ~   . is the investment
                             .   ,            of Employees
               Retirement   Funds in corporate bonds, pre-
               ferred 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 gui-
               dance of the Board of Regents of the Uni-
               versity, 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 Per-
               manent Un,iversity Fund by the Board of Re-
               gents of the University    of Texas?"

When the amendment of Section 62(a) of Article XVI of the Con-
stitution of Texas was adopted in November,  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 Sep-
tember 1, 1958.
Honorable   Gordon   H. Lloyd,   page   2 (WW-548)



The pertinent   portion   of the constitutional        amendment   is 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 State 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 prin-
             cipal of and interest on which is guaranteed
             by the United States: or in such other se-
             curities as are now or hereafter     may be per-
             mitted by law as investments     for the Perma-
             nent 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 Leq-
             islature may provide.*     (Emphasis added)


The applicable provisions of the statute,            as amended,   appear
in Section 7A thereof, as followsr

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

             'All retirement   funds as are received by the
             Treasury of the State of Texas as deposits
             from contributions   of employees   or employer
             as herein provided,    may be invested only in
             . . . ; and in securities    in which the State
             Permanent  School Fund or the Permanent     Uni-
             versity Fund of the University     of Texas mSy
             be invested under present or hereafter      en-
             acted laws.'     (Emphasis added)
Honorable   Gordon   H, Lloyd,   page   3 (WW-548)



We find no authority  for the investment  of the State Permanent
School Fund in corporation   bonds and stocks, but such invest-
ment of the Permanent  University  Fund of the University of Texas
is permitted by Section lla of Article VII of the Constitution
of Texas, which follows:

            "In addition to the bonds now enumerated
            in Section 11 of'Article     VII of the Con-
            stitution   of the State of Texas, the Per-
            manent University    Fund may be invested in
            first lien real estate mortgage       securities
            guaranteed   in anv manner in whole by the
            United~ States Government    or any agency
            thereof and in such corporation       bonds, pre-
            ferred 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 Sec-
            tion lLa, except the portion thereof which
            is appropriated    by the operation    of Section
            18 of Article VII for the payment of princi-
            pal and interest on bonds or notes issued
            thereunder,   shall be subject to appropria-
            tion by the Legislature     to accomplish    the
            purposed 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 in-
            telligence   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 there-
            from as well as the probable safety of their
            capital: provided, however, that not more than
            fifty per cent (50%) of said fund s,hall be in-
            veeted st any given time in corporate        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 shall
Honorable   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 immedi-
             ately prior to the date of purchase and
             which, except for bank stocks and insurance
             stocks, are listed upon an exchange regis-
             tered with the Securities     and Exchange Com-
             mission or its successors.      This amendment
             shall be self-enacting,     and shall become
             effective  upon its adoption, provided,      how-
             ever, that the Legislature     shall provide by
             law for full disclosure     of all details con-
             cerning the investments     in corporate   stocks
             and bonds 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 in Article
6228a, supra, is sufficient     within itself to serve as a com-
plete guide for the investment      of the Employees   Retirement
Funds in corporation   stocks or corporation     bonds for both
refer to and wholly depend upon what ". . . may be permitted
by law as investments   for the Permanent    University   Fund. . .I
This, in turn, is clearly set out in Section lla of Article
VII, supra, as being only "such corporation       bonds, preferred
stocks and common stocks as the Board of Regents of The Uni-
versity of Texas may deem to be proper investments         for said
fund."   There follows a delineation     of certain further limits
and conditions  governing   such investments.

Certainly   the Permanent  University Fund may not be invested in
any or all corporation    stocks and bonds which are to be found
in the market, but only in those which fall within such limits
and conditions    as are set out in Section lla of Article VII,
supra,  and  which  the said Board of Regents "may deem to be
proper investments    for said fund."   "Deem" does not signify an
arbitrary   exercise of will, but a deliberate   exercise of judg-
ment.
Honorable   Gordon   H. Lloyd,   page   5 (WW-548)



"To deem" is to think, judge, hold as an opinion, decide or
believe on consideration,  to adjudge. State v. Cohen, 63 A.
928, 930, 73 N.H. 543.

Since no investment     of the Permanent    University   Fund in corpor-
ation stocksand     bonds is permitted by law unless it is deemed
to be a proper investment     by the Board of Regents, and since
Employees   Retirement   funds may be invested in such corporation
stocks and bonds only if they are "permitted by law" as invest-
ments for the Permanent     University   Fund, it follows that if the
Employees   Retirement   funds are invested in corporation       stocks
and bonds, only those particular       corporation   stocks and bonds
are eligible which are deemed to be proper by the Board of Re-
gents of the University     of Texas as investments      for the Permanent
University   Fund.   The best evidence of what these may be is the
actual investment    of the Permanent    University    Fund within the
limitations   of Section lla of Article VII, supra, as shown by
public records both at the University        and at the office of the
State Comptroller    of Public Accounts.

This is not to 'say that when the Permanent       University   Fund is
invested in a particular    security,   such security must also be
purchased  by the Employees   Retirement    funds.    Purchase of that
security thereby becomes permissive      in respect to the Employees
Retirement  funds and whether or not it is actually purchased          is
a ma,tter resting within the sound discretion       of the State Board
of Trustees of the Employees     Retirement   System of Texas.

Since the word "invested"   contemplates   not only the original
purchase but the holding of a particular      security as an invest-
ment, we ,th,inkthat if the Permanent    University   Fund is with-
drawn from investment  in a particular    security the Employees
Retirement  funds must likewise be withdrawn     within a reasonable
time.




            Retirement  funds of the Employees    Retire-
            ment System of 'Texas may not be invested
            in corpcration   stocks and bonds other than
            those in which 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



                                               BY     Howard W. Mays
Hww   s                                          Assistant  Attorniy       General

APPROVED:

OPINION     COMMITTEE

W. R. Hemphill,         Chairman

Marietta Payne
Thomas Burrus
Robert T. Lewis


REVIEWED FOR THE ATTORNEY            GENERAL
By:      Morgan Nesbitt
