Chapter 061

2009 -- H 5244

Enacted 06/30/09

A N A C T

RELATING TO FIDUCIARIES - UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS

Introduced By: Representative Arthur J. Corvese

Date Introduced: January 29, 2009

It is enacted by the General Assembly as follows:

SECTION 1. Chapter 18-12 of the General Laws entitled "Uniform Management of

Institutional Funds" is hereby repealed in its entirety.

CHAPTER 18-12

Uniform Management of Institutional Funds

18-12-1. Definitions. -- (a) "Endowment fund" means an institutional fund, or any part of

it, not wholly expendable by the institution on a current basis under the terms of the applicable

gift instrument.

(b) "Gift instrument" means any will, deed, grant, conveyance, agreement, or other

governing document, including the terms of any institutional solicitation from which an

institutional fund resulted, under which property is transferred to or held by an institution for its

exclusive use, benefit, or purposes.

(c) "Governing board" means the group of individuals responsible for the overall

management of an institution, or an institutional fund, whether denominated as trustees, directors,

managers, regents, wardens, or other words of similar import.

(d) "Historic dollar value" means the initial value in dollars of an endowment fund at the

time it first became an endowment fund plus the value in dollars of each subsequent gift, grant, or

other addition to the fund as of the time the addition was added to the fund, except that in the case

of an endowment fund in existence at May 4, 1972, "historic dollar value" means the value in

dollars of the endowment fund on May 4, 1972, or, at the option of the institution, the value at the

close of the fiscal year of the institution either preceding that date by one or two (2) years, plus

the value in dollars of each subsequent gift, grant, or other addition to the fund as of the time the

addition is added to the fund. The historic dollar value of an endowment fund shall be prudently

adjusted from time to time to reflect the change, if any, in the purchasing power of the historic

dollar value of the fund.

(e) "Institution" means an incorporated or unincorporated organization organized and

operated exclusively for educational, religious, charitable, or other eleemosynary purposes and a

governmental organization to the extent that it hold funds exclusively for these purposes.

(f) "Institutional fund" means any fund held by an institution for its exclusive use,

benefit, or purposes. It does not include any fund in which any beneficiary other than the

institution has an interest until the interest of the other beneficiary has terminated.

18-12-2. Appropriation of net appreciation. -- (a) In order to permit investments which

do not have a high annual cash return while preserving the institution's right to a prudent amount

of annual income, the governing board of an institution may from time to time appropriate to the

uses and purposes for which an endowment fund was established as much of the net realized and

unrealized appreciation in the market value of the endowment fund over the historic dollar value

of the fund as is prudent under the standard established by section 18-12-6.

(b) This section does not limit the authority of the governing board to expend funds as

permitted under other law, the terms of the applicable gift instrument, or the charter of the

institution.

18-12-3. Rule of construction. -- Section 18-12-2, authorizing the appropriation of net

appreciation in the market value of the investments of an endowment fund, does not apply if the

gift instrument specifies that it shall not apply. No restriction upon the application of that section

shall be implied from a direction or authorization in a gift instrument to use only "income,"

"interest," "dividends," "rents, issues, or profits," or words of similar import, and this direction or

authorization shall be construed to permit the appropriation of net appreciation in market value

under the terms of this chapter. This rule of construction applies to gift instruments executed or in

effect before, as well as after, May 4, 1972.

18-12-4. Investment authority. -- In addition to any investments otherwise authorized

by law or by any gift instrument, and without restriction to investments authorized to a fiduciary,

the governing board, subject to any specific limitations set forth in the gift instrument or, in the

case of governmental institutions or funds, specific limitations set forth in applicable law other

than law relating to investments by fiduciaries generally, may:

(1) Invest and reinvest an institutional fund in real estate (whether improved, or

unimproved) and personal property of any kind, including, without limitation:

(i) Mortgages;

(ii) Stocks (common, preferred or other) and bonds, debentures, and other securities of

profit or nonprofit corporations;

(iii) Shares in or obligations of associations, partnerships, or individuals;

(iv) Obligations of any government or subdivision or instrumentality thereof;

(v) Common trust funds;

(vi) Income producing facilities of its own or other institutions; and

(vii) Any other investment deemed advisable by the governing board or its agents;

(2) Retain property contributed by a donor to an institutional fund for as long as the

governing board deems advisable; and

(3) Include all or parts of an institutional fund in any pooled or common fund maintained

by the institution, and invest all or parts of an institutional fund in any other pooled or common

fund available for investment, including shares or interests in regulated investment companies, or

mutual funds, or investment partnerships, or real estate investment trusts, or similar activities in

which funds are commingled and investment determinations are made by persons other than the

governing board.

18-12-5. Delegation of investment management. -- Except as otherwise provided by

applicable law relating to governmental institutions or funds, the governing board may delegate to

committees of the board, or to officers or employees of the institution or the fund, or to agents

(including investment counsel), the authority to act in place of the board in investment and

reinvestment of institutional funds, and it may contract with independent investment advisors,

investment counsel or managers, or trust companies or other professionals to act, and it may

authorize the payment of compensation for investment management services.

18-12-6. Standard of conduct. -- In the administration of the powers to appropriate

appreciation, to make investments, and to delegate investment management of institutional funds,

a governing board and its members shall exercise ordinary business care and prudence under the

facts and circumstances prevailing at the time of the action or decision in providing for the long

and short term needs and interests of the institution, taking into account changes in the purchasing

power of the fund and the educational, religious, charitable, or other eleemosynary purposes of

the institution, and may take into account the problems peculiar to the institution, its present and

anticipated financial needs, the expected total return on its investments, and general economic

conditions.

18-12-7. Restrictions on use or investment. -- Any restriction on the use or investment

of an institutional fund imposed by the gift instrument may be released in whole or in part:

(1) By written agreement or consent of the donor;

(2) In the case of an institution subject to the supervision of the attorney general, by

written agreement or consent of the attorney general when consent of the donor cannot be

obtained by reason of death, disability, unavailability, or impossibility of identification of the

donor; or

(3) By order of the superior court following application by the governing board and

notice to the attorney general and the donor, if living and identifiable, upon a showing that the

restriction on the use or investment of the fund is obsolete, inappropriate, or impracticable, or not

in keeping with the purposes of the institution.

18-12-8. Uniformity of law. -- This chapter shall be applied and construed to effectuate

its general purpose to make uniform the law with respect to the subject of this chapter among

those states that enact it.

18-12-9. Short title. -- This chapter may be cited as the "Uniform Management of

Institutional Funds Act".

SECTION 2. Title 18 of the General Laws entitled "FIDUCIARIES" is hereby amended

by adding thereto the following chapter:

CHAPTER 12.1

UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT

18-12.1-1. Short title. -- This chapter shall be known and may be cited as the "Uniform

Prudent Management of Institutional Funds Act."

18-12.1-2. Definitions. – As used in this chapter: (1) "Charitable purpose" means the

relief of poverty, the advancement of education or religion, the promotion of health, the

promotion of a governmental purpose, or any other purpose the achievement of which is

beneficial to the community.

(2) "Endowment fund" means an institutional fund or part thereof that, under the terms of

a gift instrument, is not wholly expendable by the institution on a current basis. The term does not

include assets that an institution designates as an endowment fund for its own use.

(3) "Gift instrument" means a record or records, including an institutional solicitation,

under which property is granted to, transferred to, or held by an institution as an institutional

fund.

(4) "Institution" means:

(i) a person, other than an individual, organized and operated exclusively for charitable

purposes;

(ii) a government or governmental subdivision, agency, or instrumentality, to the extent

that it holds funds exclusively for a charitable purpose; or

(iii) a trust that had both charitable and noncharitable interests, after all noncharitable

interests have terminated.

(5) "Institutional fund" means a fund held by an institution exclusively for charitable

purposes. The term does not include:

(i) program-related assets;

(ii) a fund held for an institution by a trustee that is not an institution; or

(iii) a fund in which a beneficiary that is not an institution has an interest, other than an

interest that could arise upon violation or failure of the purposes of the fund.

(6) "Person" means an individual, corporation, business trust, estate, trust, partnership,

limited liability company, association, joint venture, public corporation, government or

governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.

(7) "Program-related asset" means an asset held by an institution primarily to accomplish

a charitable purpose of the institution and not primarily for investment.

(8) "Record" means information that is inscribed on a tangible medium, or that is stored

in an electronic or other medium, and is retrievable in perceivable form.

18-12.1-3. Standard of conduct in managing and investing institutional fund. --

(a) Subject to the intent of a donor expressed in a gift instrument, an institution, in

managing and investing an institutional fund, shall consider the charitable purposes of the

institution and the purposes of the institutional fund.

(b) In addition to complying with the duty of loyalty imposed by law other than this

chapter, each person responsible for managing and investing an institutional fund shall manage

and invest the fund in good faith and with the care an ordinarily prudent person in a like position

would exercise under similar circumstances.

(c) In managing and investing an institutional fund, an institution:

(1) May incur only costs that are appropriate and reasonable in relation to the assets, the

purposes of the institution, and the skills available to the institution; and

(2) Shall make a reasonable effort to verify facts relevant to the management and

investment of the fund.

(d) An institution may pool two (2) or more institutional funds for purposes of

management and investment.

(e) Except as otherwise provided by a gift instrument, the following rules apply:

(1) In managing and investing an institutional fund, the following factors, if relevant,

must be considered:

(i) General economic conditions;

(ii) The possible effect of inflation or deflation;

(iii) The expected tax consequences, if any, of investment decisions or strategies;

(iv) The role that each investment or course of action plays within the overall investment

portfolio of the fund;

(v) The expected total return from income and the appreciation of investments;

(vi) Other resources of the institution;

(vii) The needs of the institution and the fund to make distributions and to preserve

capital; and

(viii) An asset's special relationship or special value, if any, to the charitable purposes of

the institution.

(2) Management and investment decisions about an individual asset must be made not in

isolation but rather in the context of the institutional fund's portfolio of investments as a whole

and as a part of an overall investment strategy having risk and return objectives reasonably suited

to the fund and to the institution.

(3) Except as otherwise provided by law other than this chapter, an institution may invest

in any kind of property or type of investment consistent with this section.

(4) An institution shall diversify the investments of an institutional fund unless the

institution reasonably determines that, because of special circumstances, the purposes of the fund

are better served without diversification.

(5) Within a reasonable time after receiving property, an institution shall make and carry

out decisions concerning the retention or disposition of the property or to rebalance a portfolio, in

order to bring the institutional fund into compliance with the purposes, terms, and distribution

requirements of the institution as necessary to meet other circumstances of the institution and the

requirements of this chapter.

(6) A person that has special skills or expertise, or is selected in reliance upon the

person's representation that the person has special skills or expertise, has a duty to use those skills

or that expertise in managing and investing institutional funds.

18-12.1-4. Appropriation for expenditure or accumulation of endowment fund; rules

of construction. -- (a) Subject to the intent of a donor expressed in the gift instrument [and to

subsection (d)], an institution may appropriate for expenditure or accumulate so much of an

endowment fund as the institution determines is prudent for the uses, benefits, purposes, and

duration for which the endowment fund is established. Unless stated otherwise in the gift

instrument, the assets in an endowment fund are donor-restricted assets until appropriated for

expenditure by the institution. In making a determination to appropriate or accumulate, the

institution shall act in good faith, with the care that an ordinarily prudent person in a like position

would exercise under similar circumstances, and shall consider, if relevant, the following factors:

(1) The duration and preservation of the endowment fund;

(2) The purposes of the institution and the endowment fund;

(3) General economic conditions;

(4) The possible effect of inflation or deflation;

(5) The expected total return from income and the appreciation of investments;

(6) Other resources of the institution; and

(7) The investment policy of the institution.

(b) To limit the authority to appropriate for expenditure or accumulate under subsection

(a), a gift instrument must specifically state the limitation.

(c) Terms in a gift instrument designating a gift as an endowment, or a direction or

authorization in the gift instrument to use only "income", "interest", "dividends", or "rents, issues,

or profits", or "to preserve the principal intact", or words similar import:

(1) Create an endowment fund of permanent duration unless other language in the gift

instrument limits the duration or purpose of the fund; and

(2) Do not otherwise limit the authority to appropriate for expenditure or accumulate

under subsection (a).

(d) The appropriation for expenditure in any year of an amount greater than seven (7%)

percent of the fair market value of an endowment fund, calculated on the basis of market values

determined at least quarterly and averaged over a period of not less than three (3) years

immediately preceding the year in which the appropriation for expenditure is made, creates a

rebuttable presumption of imprudence. For an endowment fund in existence for fewer than three

(3) years, the fair market value of the endowment fund must be calculated for the period the

endowment fund has been in existence. This subsection does not:

(1) Apply to an appropriation for expenditure permitted under law other than this chapter

or by the gift instrument; or

(2) Create a presumption of prudence for an appropriation for expenditure of an amount

less than or equal to seven (7%) percent of the fair market value of the endowment fund.

18-12.1-5. Delegation of management and investment functions. -- (a) Subject to any

specific limitation set forth in a gift instrument or in law other than this chapter, an institution

may delegate to an external agent the management and investment of an institutional fund to the

extent that an institution could prudently delegate under the circumstances. An institution shall

act in good faith, with the care that an ordinarily prudent person in a like position would exercise

under similar circumstances, in:

(1) Selecting an agent;

(2) Establishing the scope and terms of the delegation, consistent with the purposes of the

institution and the institutional fund; and

(3) Periodically reviewing the agent's actions in order to monitor the agent's performance

and compliance with the scope and terms of the delegation.

(b) In performing a delegated function, an agent owes a duty to the institution to exercise

reasonable care to comply with the scope and terms of the delegation.

(c) An institution that complies with subsection (a) is not liable for the decisions or

actions of an agent to which the function was delegated.

(d) By accepting delegation of a management or investment function from an institution

that is subject to the laws of this state, an agent submits to the jurisdiction of the courts of this

state in all proceedings arising from or related to the delegation or the performance of the

delegated function.

(e) An institution may delegate management and investment functions to its committees,

officers, or employees as authorized by law of this state other than this chapter.

18-12.1-6. Release or modification of restrictions on management, investment, or

purpose. – (a) If the donor consents in a record, an institution may release or modify, in whole or

in part, a restriction contained in a gift instrument on the management, investment, or purpose of

an institutional fund. A release or modification may not allow a fund to be used for a purpose

other than a charitable purpose of the institution.

(b) The court, upon application of an institution, may modify a restriction contained in a

gift instrument regarding the management or investment of an institutional fund if the restriction

has become impracticable or wasteful, if it impairs the management or investment of the fund, or

if, because of circumstances not anticipated by the donor, a modification of restriction will further

the purposes of the fund. The institution shall notify the attorney general of the application, and

the attorney general must be given an opportunity to be heard. To the extent practicable, any

modification must be made in accordance with the donor's probable intention.

(c) If a particular charitable purpose or a restriction contained in a gift instrument on the

use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful,

the court, upon application of an institution, may modify the purpose of the fund or the restriction

on the use of the fund in a manner consistent with the charitable purposes expressed in the gift

instrument. The institution shall notify the attorney general of the application, and the attorney

general must be given an opportunity to be heard.

(d) If an institution determines that a restriction contained in a gift instrument on the

management, investment, or purpose of an institutional fund is unlawful, impracticable,

impossible to achieve, or wasteful, the institution, sixty (60) days after notification to the attorney

general, may release or modify the restriction, in whole or part, if:

(1) The institutional fund subject to the restriction has a total value of less than twenty-

five thousand dollars ($25,000);

(2) More than twenty (20) years have elapsed since the fund was established; and

(3) The institution uses the property in a manner consistent with the charitable purposes

expressed in the gift instrument.

18-12.1-7. Reviewing compliance. -- Compliance with this chapter is determined in light

of the facts and circumstances existing at the time a decision is made or action is take, and not by

hindsight.

18-12.1-8. Application to existing institutional funds. -- This chapter applies to

institutional funds existing on or established after the effective date of this chapter. As applied to

institutional funds existing on the effective date of this chapter, this chapter governs only

decisions made or actions taken on or after that date.

18-12.1-9. Relation to electronic signatures in global and national commerce act. –

This chapter modified, limits, and supersedes the Electronic Signatures in Global and National

Commerce Act, 15 U.S.C. Section 7001 et seq., but does not modify, limit, or supersede Section

101 of that act, 15 U.S.C. Section 7001(a), or authorize electronic delivery of any of the notices

described in Section 103 of that act, 15 U.S.C. Section 7003(b).

18-12.1-10. Uniformity of application and construction. -- In applying and construing

this uniform act, consideration must be given to the need to promote uniformity of the law with

respect to its subject matter among states that enact it.

SECTION 3. This act shall take effect upon passage.

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LC00681

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