UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT*
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
MEETING IN ITS ONE-HUNDRED-AND-FIFTEENTH YEAR
HILTON HEAD, SOUTH CAROLINA
JULY 7-14, 2006
UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT
WITHOUT PREFATORY NOTE OR COMMENTS
Copyright © 2006
By
National Conference of Commissioners
on Uniform State Laws
* The
following text is subject to revision by the Committee on Style of the National
Conference of Commissioners on Uniform State Laws.
ABOUT NCCUSL
The National Conference of
Commissioners on Uniform State Laws (NCCUSL), now in its 115th
year, provides states with non-partisan, well-conceived and well-drafted
legislation that brings clarity and stability to critical areas of state
statutory law.
Conference members must be
lawyers, qualified to practice law. They are practicing lawyers, judges,
legislators and legislative staff and law professors, who have been appointed
by state governments as well as the District of Columbia, Puerto Rico and the
U.S. Virgin Islands to research, draft and promote enactment of uniform state
laws in areas of state law where uniformity is desirable and practical.
•
NCCUSL strengthens the federal system by providing
rules and procedures that are consistent from state to state but that also
reflect the diverse experience of the states.
•
NCCUSL statutes are representative of state experience,
because the organization is made up of representatives from each state,
appointed by state government.
•
NCCUSL keeps state law up-to-date by addressing
important and timely legal issues.
•
NCCUSL’s efforts reduce the need for individuals and
businesses to deal with different laws as they move and do business in
different states.
•
NCCUSL’s work facilitates economic development and
provides a legal platform for foreign entities to deal with U.S. citizens and
businesses.
•
NCCUSL Commissioners donate thousands of hours of their
time and legal and drafting expertise every year as a public service, and
receive no salary or compensation for their work.
•
NCCUSL’s deliberative and uniquely open drafting
process draws on the expertise of commissioners, but also utilizes input from
legal experts, and advisors and observers representing the views of other legal
organizations or interests that will be subject to the proposed laws.
•
NCCUSL is a state-supported organization that
represents true value for the states, providing services that most states could
not otherwise afford or duplicate.
DRAFTING COMMITTEE ON UNIFORM PRUDENT MANAGEMENT OF
INSTITUTIONAL FUNDS ACT
The Committee appointed by and
representing the National Conference of Commissioners on Uniform State Laws in
drafting this Act consists of the following individuals:
BARRY C. HAWKINS, 300 Atlantic St., Stamford, CT
06901, Chair
JOHN P. BURTON, P.O. Box 1357, 315 Paseo de Peralta,
Santa Fe, NM 87501
MARY JO HOWARD DIVELY, Carnegie Mellon University,
5000 Forbes Ave., Pittsburgh, PA
15213
L.S. JERRY KURTZ, JR., 1050 Beech Ln., Anchorage, AK 99501
SHELDON F. KURTZ, University of Iowa, College of Law,
446 BLB, Iowa City, IA 52242
JOHN H. LANGBEIN, Yale Law School, P.O. Box 208215,
New Haven, CT 06520 -8215
JOHN J. MCAVOY, 3110 Brandywine St. NW, Washington, DC
20008
MATTHEW S. RAE, JR., 520 S. Grand Ave., 7th Floor, Los
Angeles, CA 90071-2645
GLEE S. SMITH, P.O. Box 667, Lawrence, KS 66044
SUSAN N. GARY, University of Oregon, School of Law,
1515 Agate St., Eugene, OR 97403,
Reporter
EX OFFICIO
HOWARD J. SWIBEL, 120 S. Riverside Plaza, Suite 1200,
Chicago, IL 60606, President
TOM BOLT, Corporate
Place, 5600 Royal Dane Mall, St. Thomas, VI 00802-6410, Division Chair
AMERICAN BAR
ASSOCIATION ADVISORS
CAROL G. KROCH, Rodney Square North, 1100 Market St.,
Wilmington, DE 19890, ABA Advisor
JOHN K. NOTZ, JR., 191 N. Wacker Dr., Chicago, IL
60606-1698, ABA Section Advisor CYNTHIA ROWLAND, One Ferry Building,
Suite 200, San Francisco, CA 94111, ABA Section Advisor
EXECUTIVE
DIRECTOR
WILLIAM
H. HENNING, University of Alabama School of Law, Box 870382, Tuscaloosa, AL
35487-0382, Executive Director
Copies of this Act
may be obtained from:
NATIONAL CONFERENCE
OF COMMISSIONERS
ON UNIFORM STATE
LAWS
211 E. Ontario
Street, Suite 1300
Chicago, Illinois
60611
312/915-0195
www.nccusl.org
UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL
FUNDS ACT
TABLE OF
CONTENTS
SECTION 1. SHORT TITLE.......................................................................................................... 1
SECTION 2. DEFINITIONS.......................................................................................................... 1
SECTION 3. STANDARD OF CONDUCT IN MANAGING AND INVESTING
INSTITUTIONAL FUND 2
SECTION 4. APPROPRIATION FOR EXPENDITURE OR ACCUMULATION
OF ENDOWMENT FUND; RULES OF CONSTRUCTION........................................................................................... 3
[SECTION 5. DELEGATION OF MANAGEMENT AND INVESTMENT
FUNCTIONS.......... 5
SECTION 6. RELEASE OR MODIFICATION OF RESTRICTIONS ON
MANAGEMENT, INVESTMENT, OR PURPOSE............................................................................................................................ 5
SECTION 7. REVIEWING COMPLIANCE.................................................................................. 6
SECTION 8. APPLICATION TO EXISTING INSTITUTIONAL FUNDS................................... 6
SECTION 9. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
AND
NATIONAL COMMERCE ACT........................................................................................ 7
SECTION 10. UNIFORMITY OF APPLICATION AND CONSTRUCTION............................. 7
SECTION 11. EFFECTIVE DATE................................................................................................. 7
SECTION 12. REPEAL.................................................................................................................. 7
UNIFORM PRUDENT MANAGEMENT OF
INSTITUTIONAL FUNDS ACT
SECTION
1. SHORT TITLE. This [act] may
be cited as the Uniform Prudent Management of Institutional Funds Act.
SECTION
2. DEFINITIONS. In this [act]:
(1) “Charitable purpose” means the relief of
poverty, the advancement of education or religion, the promotion of health, the
promotion of governmental purposes, and any other purpose the achievement of
which is beneficial to the community.
(2) “Endowment fund” means an institutional fund,
or any part thereof, not wholly expendable by the institution on a current
basis under the terms of a gift instrument. The term does not include assets of
an institution designated by the institution 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:
(A) a person, other than an individual, organized
and operated exclusively for charitable purposes;
(B) a government or a governmental subdivision,
agency, or instrumentality to the extent that it holds funds exclusively for a
charitable purpose; and
(C) 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:
(A) program-related assets;
(B) a fund held for an institution by a trustee
that is not an institution; or
(C) 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 appreciation or the production of income.
(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.
SECTION
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 [act], 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 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:
(A) general economic conditions;
(B) the possible effect of inflation or
deflation;
(C) the expected tax consequences, if any, of
investment decisions or strategies;
(D) the role that each investment or course of
action plays within the overall investment portfolio of the fund;
(E) the expected total return from income and the
appreciation of investments;
(F) other resources of the institution;
(G) the needs of the institution and the fund to
make distributions and to preserve capital; and
(H) 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 [act], an institution may
invest in any kind of property or type of investment consistent with the
standards of 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 implement 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, distribution
requirements, and other circumstances of the institution and the requirements
of this [act].
(6) A person who 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 special skills or that
expertise in managing and investing institutional funds.
SECTION
4. APPROPRIATION FOR EXPENDITURE OR
ACCUMULATION OF ENDOWMENT FUND; RULES OF CONSTRUCTION.
(a) Subject to the intent of a donor expressed in
a gift instrument [and to subsection (d)], an institution may appropriate for
expenditure or accumulate so much of an endowment fund as the institution
determines to be prudent for the uses, benefits, purposes, and duration for
which the endowment fund is established. Unless stated otherwise in a 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 similar words:
(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 percent of the fair market value an endowment
fund, calculated on the basis of market values determined at least quarterly
and averaged over a period of not less than three years immediately preceding
the year in which the appropriation for expenditure was made, creates a
rebuttable presumption of imprudence. For
an endowment fund in existence for fewer than three years, the fair market
value of the endowment fund shall be calculated for the period of time the
endowment fund has been in existence. This
subsection does not:
(1)
apply to an appropriation for
expenditure permitted under law other than this [act] or the gift instrument;
or
(2)
create a presumption of prudence for an appropriation
for expenditure of an amount less than or equal to seven percent of the fair
market value of the endowment fund.]
[SECTION
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 [act], 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 other than this [act].]
SECTION
6. RELEASE OR MODIFICATION OF
RESTRICTIONS ON MANAGEMENT, INVESTMENT, OR PURPOSE.
(a) With the donor’s consent 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) If a restriction contained in a gift
instrument on the management or investment of an institutional fund becomes
impracticable or wasteful or impairs the management or investment of the fund, or
if because of circumstances not anticipated by the donor a modification of a
restriction will further the purposes of the fund, the court, upon application
of the institution, may modify the restriction.
The institution shall notify the [Attorney General], who 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], who 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, [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 [$25,000];
(2) more than [20] years have elapsed since the
fund was established; and
(3) the institution uses the property in a manner
the institution reasonably determines to be consistent with the
charitable purposes expressed in the gift instrument.
SECTION
7. REVIEWING COMPLIANCE. Compliance
with this [act] is determined in light of the facts and circumstances existing
at the time a decision is made or action is taken, and not by hindsight.
SECTION
8. APPLICATION TO EXISTING INSTITUTIONAL
FUNDS. This [act] applies
to institutional funds existing on or established after the effective date of
this [act]. As applied to institutional funds existing on its effective date,
this [act] governs only decisions made or actions taken after that date.
SECTION
9. RELATION TO ELECTRONIC SIGNATURES IN
GLOBAL AND NATIONAL COMMERCE ACT. This [act]
modifies, 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)).
SECTION
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
11. EFFECTIVE DATE. This [act]
takes effect . . . .
SECTION
12. REPEAL. The following
acts and parts of acts are repealed:
(a) [The Uniform Management of Institutional
Funds Act]
