CHAPTER 163. MANAGEMENT, INVESTMENT, AND EXPENDITURE OF INSTITUTIONAL FUNDS - Texas Statutes

PROPERTY CODE

TITLE 10. MISCELLANEOUS BENEFICIAL PROPERTY INTERESTS

SUBTITLE B. FIDUCIARIES

CHAPTER 163. MANAGEMENT, INVESTMENT, AND EXPENDITURE OF

INSTITUTIONAL FUNDS

Sec. 163.001. SHORT TITLE. This chapter may be cited as the

Uniform Prudent Management of Institutional Funds Act.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.002. LEGISLATIVE FINDINGS AND PURPOSE. (a) The

legislature finds that:

(1) institutions organized and operated exclusively for a

charitable purpose perform essential and needed services in the

state;

(2) uncertainty exists regarding the prudence standards for the

management and investment of charitable funds and for endowment

spending by institutions described by Subdivision (1); and

(3) the institutions, their officers, directors, and trustees,

and the citizens of this state will benefit from removal of the

uncertainty regarding applicable prudence standards and by

permitting endowment funds to be invested for the long-term goals

of achieving growth and maintaining purchasing power without

adversely affecting the availability of funds for current

expenditure.

(b) The purpose of this chapter is to provide guidance and

authority through modern articulations of prudence standards for

the management and investment of charitable funds and for

endowment spending by institutions organized and operated

exclusively for a charitable purpose in order to provide

uniformity and remove uncertainty regarding those standards.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989. Amended by Acts 1993, 73rd Leg., ch. 240, Sec. 1, eff. May

22, 1993.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.003. DEFINITIONS. In this chapter:

(1) "Charitable purpose" means the promotion of a scientific,

educational, philanthropic, or environmental purpose, social

welfare, the arts and humanities, or another civic or public

purpose described by Section 501(c)(3) of the Internal Revenue

Code of 1986.

(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:

(A) a person, other than an individual, organized and operated

exclusively for charitable purposes;

(B) a government or 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 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.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989. Amended by Acts 1993, 73rd Leg., ch. 240, Sec. 2, eff. May

22, 1993.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.004. 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 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 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.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989. Amended by Acts 1993, 73rd Leg., ch. 240, Sec. 3, eff. May

22, 1993; Acts 2001, 77th Leg., ch. 1158, Sec. 88, 89, eff. June

15, 2001.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.005. 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

Subsections (d) and (e), 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 of

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) Except as provided in Subsection (f), appropriation for

expenditure in any year of an amount greater than seven percent

of the fair market value of an endowment fund with an aggregate

value of $1 million or more, 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 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 percent of

the fair market value of the endowment fund.

(e) For an institution with an endowment fund with an aggregate

value of less than $1 million, a rebuttable presumption of

imprudence is created if more than five percent of the fair

market value of the endowment fund is appropriated for

expenditure in any year, 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. For an endowment fund in

existence for fewer than three 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 five percent of

the fair market value of the endowment fund.

(f) This subsection applies only to a university system, as

defined by Section 61.003(10), Education Code. The appropriation

for expenditure in any year of any amount greater than nine

percent of the fair market value of an endowment fund with an

aggregate value of $450 million or more, 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 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 nine percent of

the fair market value of the endowment fund.

(g) If an institution pools the assets of individual endowment

funds for collective investment, this section applies to the

pooled fund and does not apply to individual endowment funds,

including individual endowment funds for which the nature of the

underlying asset or donor restrictions preclude inclusion in a

pool but which are managed by the institution in accordance with

a collective investment policy.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.006. 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.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.007. 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 a

restriction will further the purposes of the fund. Chapter 123

applies to a proceeding under this subsection. 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. Chapter 123 applies to a

proceeding under this subsection.

(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 receipt of

notice by 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 consistent

with the charitable purposes expressed in the gift instrument.

(e) The notification to the attorney general under Subsection

(d) must be accompanied by a copy of the gift instrument and a

statement of facts sufficient to evidence compliance with

Subsections (d)(1), (2), and (3).

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.008. 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 taken, and

not by hindsight.

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.009. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND

NATIONAL COMMERCE ACT. This chapter modifies, limits, and

supersedes the provisions of 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)).

Added by Acts 1989, 71st Leg., ch. 213, Sec. 1, eff. May 26,

1989.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.010. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In

applying and construing this chapter, consideration must be given

to the need to promote uniformity of the law with respect to the

subject matter of this chapter among states that enact a law

substantially similar to this chapter.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.

Sec. 163.011. APPLICABILITY OF OTHER PARTS OF CODE. Subtitle B,

Title 9 (the Texas Trust Code), does not apply to any

institutional fund subject to this chapter.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 1, eff. September 1, 2007.