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COMMITTEE AMENDMENT NO. 1 |
By: Williams |
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Amend HB 860 as follows: |
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(1) on page 4, line 10 strike the word "The" and insert in |
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lieu thereof "Except as provided in subsection (f)." |
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(2) add a new subsection (f) on page 4, after line 44 to read |
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as follows: |
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(f) This subsection applies only to a university system, as |
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defined by Section 61.003(10), education code. The appropriation |
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for expenditure in any year of an amount greater than nine percent |
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of the fair market value of an endowment fund with an aggregate |
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value of $450 million or more, calculated on the basis of market |
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values determined at least quarterly and averaged over a period of |
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not less than three years immediately preceding the year in which |
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the appropriation for expenditure was made, creates a rebuttable |
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presumption of imprudence. For an endowment fund in existence for |
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fewer than three years, the fair market value of the endowment fund |
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must be calculated for the period the endowment fund has been in |
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existence. This subsection does not: |
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(1) apply to an appropriation for expenditure |
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permitted under law other than this chapter or by the gift |
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instrument; or |
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(2) create a presumption of prudence for an |
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appropriation for expenditure of an amount less than or equal to |
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nine percent of the fair market value of the endowment fund. |
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(3) renumber subsequent subsections accordingly. |
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A BILL TO BE ENTITLED
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AN ACT
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relating to management, investment, and expenditure of |
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institutional funds and adoption of the Uniform Prudent Management |
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of Institutional Funds Act. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Chapter 163, Property Code, is amended to read as |
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follows: |
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CHAPTER 163. MANAGEMENT, INVESTMENT, AND EXPENDITURE OF |
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INSTITUTIONAL FUNDS |
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Sec. 163.001. SHORT TITLE. This chapter may be cited as the |
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Uniform Prudent Management of Institutional Funds Act. |
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Sec. 163.002. LEGISLATIVE FINDINGS AND PURPOSE. (a) The |
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legislature finds that: |
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(1) institutions organized and operated exclusively |
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for a charitable purpose perform essential and needed services in |
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the state; |
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(2) uncertainty exists regarding the prudence |
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standards for the management and investment of charitable funds and |
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for endowment spending by institutions described by Subdivision |
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(1); and |
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(3) the institutions, their officers, directors, and |
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trustees, and the citizens of this state will benefit from removal |
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of the uncertainty regarding applicable prudence standards and by |
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permitting endowment funds to be invested for the long-term goals |
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of achieving growth and maintaining purchasing power without |
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adversely affecting the availability of funds for current |
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expenditure. |
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(b) The purpose of this chapter is to provide guidance and |
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authority through modern articulations of prudence standards for |
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the management and investment of charitable funds and for endowment |
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spending by institutions organized and operated exclusively for a |
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charitable purpose in order to provide uniformity and remove |
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uncertainty regarding those standards. |
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Sec. 163.003. DEFINITIONS. In this chapter: |
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(1) "Charitable purpose" means the promotion of a |
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scientific, educational, philanthropic, or environmental purpose, |
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social welfare, the arts and humanities, or another civic or public |
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purpose described by Section 501(c)(3) of the Internal Revenue Code |
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of 1986. |
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(2) "Endowment fund" means an institutional fund or |
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part thereof that, under the terms of a gift instrument, is not |
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wholly expendable by the institution on a current basis. The term |
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does not include assets that an institution designates as an |
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endowment fund for its own use. |
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(3) "Gift instrument" means a record or records, |
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including an institutional solicitation, under which property is |
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granted to, transferred to, or held by an institution as an |
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institutional fund. |
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(4) "Institution" means: |
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(A) a person, other than an individual, organized |
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and operated exclusively for charitable purposes; |
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(B) a government or governmental subdivision, |
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agency, or instrumentality, to the extent that it holds funds |
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exclusively for a charitable purpose; and |
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(C) a trust that had both charitable and |
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noncharitable interests, after all noncharitable interests have |
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terminated. |
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(5) "Institutional fund" means a fund held by an |
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institution exclusively for charitable purposes. The term does not |
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include: |
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(A) program-related assets; |
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(B) a fund held for an institution by a trustee |
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that is not an institution; or |
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(C) a fund in which a beneficiary that is not an |
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institution has an interest, other than an interest that could |
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arise upon violation or failure of the purposes of the fund. |
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(6) "Person" means an individual, corporation, |
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business trust, estate, trust, partnership, limited liability |
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company, association, joint venture, public corporation, |
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government or governmental subdivision, agency, or |
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instrumentality, or any other legal or commercial entity. |
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(7) "Program-related asset" means an asset held by an |
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institution primarily to accomplish a charitable purpose of the |
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institution and not primarily for investment. |
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(8) "Record" means information that is inscribed on a |
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tangible medium or that is stored in an electronic or other medium |
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and is retrievable in perceivable form. |
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Sec. 163.004. STANDARD OF CONDUCT IN MANAGING AND INVESTING |
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INSTITUTIONAL FUND. (a) Subject to the intent of a donor expressed |
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in a gift instrument, an institution, in managing and investing an |
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institutional fund, shall consider the charitable purposes of the |
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institution and the purposes of the institutional fund. |
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(b) In addition to complying with the duty of loyalty |
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imposed by law other than this chapter, each person responsible for |
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managing and investing an institutional fund shall manage and |
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invest the fund in good faith and with the care an ordinarily |
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prudent person in a like position would exercise under similar |
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circumstances. |
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(c) In managing and investing an institutional fund, an |
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institution: |
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(1) may incur only costs that are appropriate and |
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reasonable in relation to the assets, the purposes of the |
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institution, and the skills available to the institution; and |
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(2) shall make a reasonable effort to verify facts |
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relevant to the management and investment of the fund. |
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(d) An institution may pool two or more institutional funds |
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for purposes of management and investment. |
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(e) Except as otherwise provided by a gift instrument, the |
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following rules apply: |
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(1) In managing and investing an institutional fund, |
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the following factors, if relevant, must be considered: |
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(A) general economic conditions; |
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(B) the possible effect of inflation or |
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deflation; |
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(C) the expected tax consequences, if any, of |
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investment decisions or strategies; |
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(D) the role that each investment or course of |
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action plays within the overall investment portfolio of the fund; |
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(E) the expected total return from income and the |
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appreciation of investments; |
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(F) other resources of the institution; |
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(G) the needs of the institution and the fund to |
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make distributions and to preserve capital; and |
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(H) an asset's special relationship or special |
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value, if any, to the charitable purposes of the institution. |
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(2) Management and investment decisions about an |
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individual asset must be made not in isolation but rather in the |
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context of the institutional fund's portfolio of investments as a |
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whole and as a part of an overall investment strategy having risk |
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and return objectives reasonably suited to the fund and to the |
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institution. |
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(3) Except as otherwise provided by law other than |
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this chapter, an institution may invest in any kind of property or |
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type of investment consistent with this section. |
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(4) An institution shall diversify the investments of |
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an institutional fund unless the institution reasonably determines |
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that, because of special circumstances, the purposes of the fund |
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are better served without diversification. |
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(5) Within a reasonable time after receiving property, |
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an institution shall make and carry out decisions concerning the |
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retention or disposition of the property or to rebalance a |
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portfolio, in order to bring the institutional fund into compliance |
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with the purposes, terms, and distribution requirements of the |
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institution as necessary to meet other circumstances of the |
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institution and the requirements of this chapter. |
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(6) A person that has special skills or expertise, or |
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is selected in reliance upon the person's representation that the |
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person has special skills or expertise, has a duty to use those |
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skills or that expertise in managing and investing institutional |
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funds. |
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Sec. 163.005. APPROPRIATION FOR EXPENDITURE OR |
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ACCUMULATION OF ENDOWMENT FUND; RULES OF CONSTRUCTION. (a) |
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Subject to the intent of a donor expressed in the gift instrument |
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and to Subsections (d) and (e), an institution may appropriate for |
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expenditure or accumulate so much of an endowment fund as the |
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institution determines is prudent for the uses, benefits, purposes, |
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and duration for which the endowment fund is established. Unless |
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stated otherwise in the gift instrument, the assets in an endowment |
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fund are donor-restricted assets until appropriated for |
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expenditure by the institution. In making a determination to |
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appropriate or accumulate, the institution shall act in good faith, |
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with the care that an ordinarily prudent person in a like position |
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would exercise under similar circumstances, and shall consider, if |
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relevant, the following factors: |
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(1) the duration and preservation of the endowment |
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fund; |
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(2) the purposes of the institution and the endowment |
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fund; |
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(3) general economic conditions; |
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(4) the possible effect of inflation or deflation; |
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(5) the expected total return from income and the |
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appreciation of investments; |
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(6) other resources of the institution; and |
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(7) the investment policy of the institution. |
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(b) To limit the authority to appropriate for expenditure or |
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accumulate under Subsection (a), a gift instrument must |
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specifically state the limitation. |
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(c) Terms in a gift instrument designating a gift as an |
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endowment, or a direction or authorization in the gift instrument |
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to use only "income," "interest," "dividends," or "rents, issues, |
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or profits," or "to preserve the principal intact," or words of |
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similar import: |
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(1) create an endowment fund of permanent duration |
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unless other language in the gift instrument limits the duration or |
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purpose of the fund; and |
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(2) do not otherwise limit the authority to |
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appropriate for expenditure or accumulate under Subsection (a). |
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(d) The appropriation for expenditure in any year of an |
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amount greater than seven percent of the fair market value of an |
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endowment fund with an aggregate value of $1 million or more, |
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calculated on the basis of market values determined at least |
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quarterly and averaged over a period of not less than three years |
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immediately preceding the year in which the appropriation for |
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expenditure was made, creates a rebuttable presumption of |
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imprudence. For an endowment fund in existence for fewer than three |
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years, the fair market value of the endowment fund must be |
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calculated for the period the endowment fund has been in existence. |
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This subsection does not: |
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(1) apply to an appropriation for expenditure |
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permitted under law other than this chapter or by the gift |
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instrument; or |
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(2) create a presumption of prudence for an |
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appropriation for expenditure of an amount less than or equal to |
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seven percent of the fair market value of the endowment fund. |
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(e) For an institution with an endowment fund with an |
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aggregate value of less than $1 million, a rebuttable presumption |
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of imprudence is created if more than five percent of the fair |
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market value of the endowment fund is appropriated for expenditure |
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in any year, calculated on the basis of market values determined at |
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least quarterly and averaged over a period of not less than three |
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years immediately preceding the year in which the appropriation for |
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expenditure was made. For an endowment fund in existence for fewer |
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than three years, the fair market value of the endowment fund must |
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be calculated for the period the endowment fund has been in |
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existence. This subsection does not: |
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(1) apply to an appropriation for expenditure |
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permitted under law other than this chapter or by the gift |
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instrument; or |
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(2) create a presumption of prudence for an |
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appropriation for expenditure of an amount less than or equal to |
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five percent of the fair market value of the endowment fund. |
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(f) If an institution pools the assets of individual |
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endowment funds for collective investment, this section applies to |
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the pooled fund and does not apply to individual endowment funds, |
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including individual endowment funds for which the nature of the |
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underlying asset or donor restrictions preclude inclusion in a pool |
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but which are managed by the institution in accordance with a |
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collective investment policy. |
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Sec. 163.006. DELEGATION OF MANAGEMENT AND INVESTMENT |
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FUNCTIONS. (a) Subject to any specific limitation set forth in a |
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gift instrument or in law other than this chapter, an institution |
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may delegate to an external agent the management and investment of |
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an institutional fund to the extent that an institution could |
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prudently delegate under the circumstances. An institution shall |
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act in good faith, with the care that an ordinarily prudent person |
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in a like position would exercise under similar circumstances, in: |
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(1) selecting an agent; |
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(2) establishing the scope and terms of the |
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delegation, consistent with the purposes of the institution and the |
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institutional fund; and |
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(3) periodically reviewing the agent's actions in |
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order to monitor the agent's performance and compliance with the |
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scope and terms of the delegation. |
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(b) In performing a delegated function, an agent owes a duty |
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to the institution to exercise reasonable care to comply with the |
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scope and terms of the delegation. |
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(c) An institution that complies with Subsection (a) is not |
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liable for the decisions or actions of an agent to which the |
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function was delegated. |
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(d) By accepting delegation of a management or investment |
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function from an institution that is subject to the laws of this |
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state, an agent submits to the jurisdiction of the courts of this |
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state in all proceedings arising from or related to the delegation |
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or the performance of the delegated function. |
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(e) An institution may delegate management and investment |
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functions to its committees, officers, or employees as authorized |
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by law of this state other than this chapter. |
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Sec. 163.007. RELEASE OR MODIFICATION OF RESTRICTIONS ON |
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MANAGEMENT, INVESTMENT, OR PURPOSE. (a) If the donor consents in a |
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record, an institution may release or modify, in whole or in part, a |
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restriction contained in a gift instrument on the management, |
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investment, or purpose of an institutional fund. A release or |
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modification may not allow a fund to be used for a purpose other |
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than a charitable purpose of the institution. |
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(b) The court, upon application of an institution, may |
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modify a restriction contained in a gift instrument regarding the |
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management or investment of an institutional fund if the |
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restriction has become impracticable or wasteful, if it impairs the |
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management or investment of the fund, or if, because of |
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circumstances not anticipated by the donor, a modification of a |
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restriction will further the purposes of the fund. Chapter 123 |
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applies to a proceeding under this subsection. To the extent |
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practicable, any modification must be made in accordance with the |
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donor's probable intention. |
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(c) If a particular charitable purpose or a restriction |
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contained in a gift instrument on the use of an institutional fund |
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becomes unlawful, impracticable, impossible to achieve, or |
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wasteful, the court, upon application of an institution, may modify |
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the purpose of the fund or the restriction on the use of the fund in |
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a manner consistent with the charitable purposes expressed in the |
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gift instrument. Chapter 123 applies to a proceeding under this |
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subsection. |
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(d) If an institution determines that a restriction |
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contained in a gift instrument on the management, investment, or |
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purpose of an institutional fund is unlawful, impracticable, |
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impossible to achieve, or wasteful, the institution, 60 days after |
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receipt of notice by the attorney general, may release or modify the |
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restriction, in whole or part, if: |
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(1) the institutional fund subject to the restriction |
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has a total value of less than $25,000; |
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(2) more than 20 years have elapsed since the fund was |
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established; and |
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(3) the institution uses the property in a manner |
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consistent with the charitable purposes expressed in the gift |
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instrument. |
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(e) The notification to the attorney general under |
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Subsection (d) must be accompanied by a copy of the gift instrument |
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and a statement of facts sufficient to evidence compliance with |
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Subsections (d)(1), (2), and (3). |
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Sec. 163.008. REVIEWING COMPLIANCE. Compliance with this |
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chapter is determined in light of the facts and circumstances |
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existing at the time a decision is made or action is taken, and not |
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by hindsight. |
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Sec. 163.009. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL |
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AND NATIONAL COMMERCE ACT. This chapter modifies, limits, and |
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supersedes the provisions of the Electronic Signatures in Global |
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and National Commerce Act (15 U.S.C. Section 7001 et seq.) but does |
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not modify, limit, or supersede Section 101 of that Act (15 U.S.C. |
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Section 7001(a)) or authorize electronic delivery of any of the |
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notices described in Section 103 of that Act (15 U.S.C. Section |
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7003(b)). |
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Sec. 163.010. UNIFORMITY OF APPLICATION AND CONSTRUCTION. |
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In applying and construing this chapter, consideration must be |
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given to the need to promote uniformity of the law with respect to |
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the subject matter of this chapter among states that enact a law |
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substantially similar to this chapter. |
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Sec. 163.011. APPLICABILITY OF OTHER PARTS OF CODE. |
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Subtitle B, Title 9 (the Texas Trust Code), does not apply to any |
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institutional fund subject to this chapter. |
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[Sec.
163.001.
SHORT TITLE.
This chapter may be cited as
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the Uniform Management of Institutional Funds Act.
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[Sec.
163.002.
LEGISLATIVE FINDINGS AND PURPOSE.
(a)
The
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legislature finds that:
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[(1)
publicly and privately supported educational,
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religious, and charitable organizations perform essential and
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needed services in the state;
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[(2)
uncertainty regarding legal restrictions on the
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management, investment, and expenditure of endowment funds of the
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organizations has in many instances precluded obtaining the highest
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available return on endowment funds; and
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[(3)
the organizations, their officers, directors,
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and trustees, and the citizens of this state will benefit from
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removal of the uncertainty and by permitting endowment funds to be
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invested for the long-term goals of achieving growth and
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maintaining purchasing power without adversely affecting
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availability of funds for current expenditure.
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[(b)
The purpose of this chapter is to provide guidelines
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for the management, investment, and expenditure of endowment funds
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of publicly and privately supported educational, religious, and
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charitable organizations in order to eliminate the uncertainty
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regarding legal restrictions on the management, investment, and
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expenditure of the funds and to enable the organizations to
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maximize their resources.
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[Sec. 163.003. DEFINITIONS. In this chapter:
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[(1)
"Endowment fund" means an institutional fund, or
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any part of such a fund, not wholly expendable by the institution on
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a current basis under the terms of the applicable gift instrument.
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[(2)
"Gift instrument" means a will, deed, grant,
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conveyance, agreement, memorandum, writing, or other governing
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document, including the terms of any institutional solicitations
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from which an institutional fund resulted, under which property is
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transferred to or held by an institution as an institutional fund.
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[(3)
"Governing board" means the body responsible for
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the management of an institution or of an institutional fund.
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[(4)
"Historic dollar value" means the aggregate fair
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market value in dollars of:
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[(A)
an endowment fund at the time it became an
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endowment fund;
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[(B)
each subsequent donation to the fund at the
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time it is made; and
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[(C)
each accumulation made pursuant to a
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direction in the applicable gift instrument at the time the
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accumulation is added to the fund.
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[(5)
"Institution" means an incorporated or
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unincorporated organization organized and operated exclusively for
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educational, religious, or charitable purposes, an institution of
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higher education, or a foundation chartered for the benefit of an
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institution of higher education. The term does not include a
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private foundation as defined by Section 509(a) of the Internal
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Revenue Code of 1986.
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[(6)
"Institutional fund" means a fund held by an
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institution for its exclusive use, benefit, or purposes, except a
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fund held for an institution by a trustee that is not an institution
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or a fund in which a beneficiary that is not an institution has an
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interest other than possible rights that could arise on violation
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or failure of the purposes of the fund.
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[(7)
"Institution of higher education" has the meaning
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assigned by Section 61.003, Education Code.
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[Sec.
163.004.
EXPENDITURES.
(a)
A governing board may
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appropriate for expenditure, for the uses and purposes for which
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the fund is established, the net appreciation, realized and
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unrealized, in the fair market value of the assets of an endowment
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fund over the historic dollar value of the fund to the extent
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prudent under the standard provided by Section 163.007.
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[(b)
A determination of the historic dollar value made in
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good faith by the governing board is conclusive.
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[(c)
Subsection (a) does not limit the authority of the
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governing board to expend funds as permitted under other law, the
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terms of the applicable gift instrument, or the charter or articles
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of incorporation of the institution.
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[(d)
Subsection (a) does not apply if the applicable gift
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instrument indicates the donor's intention that the net
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appreciation not be expended. A restriction on the expenditure of
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net appreciation may not be implied from a designation of a gift as
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an endowment or from a direction or authorization in the applicable
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gift instrument to use only "income." This rule of construction
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applies to gift instruments executed or in effect before, on, or
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after the effective date of this chapter.
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[Sec.
163.005.
INVESTMENT AUTHORITY.
In addition to an
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investment authorized by other law or by the applicable gift
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instrument, and without restriction to investments a fiduciary may
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make, the governing board, subject to any specific limitations in
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the applicable gift instrument or the applicable law other than law
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relating to investments by a fiduciary, may:
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[(1)
invest an institutional fund in any real or
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personal property, including mortgages, stocks, bonds, debentures,
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and other securities of profit or nonprofit corporations, shares in
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or obligations of associations, partnerships, or individuals, and
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obligations of any governmental entity, whether or not the property
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produces a current return;
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[(2)
retain property contributed by a donor to an
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institutional fund;
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[(3)
include all or any portion of an institutional
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fund in a pooled or common fund maintained by the institution; and
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[(4)
invest all or any portion of an institutional
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fund in a pooled or common fund, including shares or interests in
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regulated investment companies, mutual funds, common trust funds,
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investment partnerships, real estate investment trusts, or similar
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organizations in which funds are commingled and investment
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determinations are made by persons other than the governing board.
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[Sec.
163.006.
DELEGATION OF INVESTMENT MANAGEMENT.
Except
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as provided by the applicable gift instrument, the governing board
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may:
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[(1)
delegate to its committees, officers, or
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employees of the institution or the fund, and other agents,
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including investment counsel, the authority to act for the board in
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investment of institutional funds;
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[(2)
contract with independent investment advisors,
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investment counsel, investment managers, banks, or trust companies
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to act for the board in investment of institutional funds; and
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[(3)
authorize payment of compensation for investment
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advisory or management services.
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[Sec.
163.007.
STANDARD OF CONDUCT.
In the administration
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of the powers to appropriate appreciation, to make and retain
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investments, to develop and apply investment and spending policies,
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and to delegate investment management of institutional funds,
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members of a governing board shall exercise ordinary business care
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and prudence under the facts and circumstances prevailing at the
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time of the action or decision. The members shall consider both the
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long-term and short-term needs of the institution in carrying out
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its educational, religious, or charitable purposes, its present and
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anticipated financial requirements, the expected return on its
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investments, price level trends, and general economic conditions.
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[Sec.
163.008.
RELEASE OF RESTRICTIONS ON USE OR
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INVESTMENT.
(a)
With the written consent of the donor, the
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governing board may release, in whole or in part, a restriction
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|
imposed by the applicable gift instrument on the use or investment
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|
of an institutional fund.
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[(b)
If written consent of the donor cannot be obtained
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|
because of the donor's death, disability, unavailability, or
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|
impossibility of identification, the governing board may apply in
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|
the name of the institution to the district court for release of a
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|
restriction imposed by a gift instrument on the use or investment of
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|
an institutional fund. The attorney general must be notified of the
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|
application and given an opportunity to intervene in the same
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|
manner as provided by Chapter 123 for a proceeding involving a
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|
charitable trust. If the court finds that the restriction is
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|
obsolete, inappropriate, or impracticable, it may by order release
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|
the restriction in whole or in part. A release under this
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|
subsection may not change an endowment fund to another type of fund.
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[(c)
A release under this section may not allow a fund to be
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|
used for a purpose other than the educational, religious, or
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|
charitable purposes of the affected institution.
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[(d)
This section does not limit the application of the
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|
doctrine of "cy pres."
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[Sec.
163.009.
APPLICABILITY OF OTHER PARTS OF CODE.
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Subtitle B, Title 9 (the Texas Trust Code), does not apply to any
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|
institutional fund subject to this chapter.] |
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SECTION 2. Sections 43.006(a) and (k), Education Code, are |
|
amended to read as follows: |
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(a) The State Board of Education may delegate investment |
|
authority [and contract] for the investment of the permanent school |
|
fund to the same extent as an institution [the governing board of an
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|
institution of higher education] with respect to an institutional |
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fund under Chapter 163, Property Code. |
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(k) In this section, "institution" [:
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|
[(1) "Governing board"] and "institutional fund" have |
|
the meanings assigned by Chapter 163, Property Code. |
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[(2)
"Institution of higher education" has the meaning
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|
assigned by Section 61.003.] |
|
SECTION 3. Section 66.08(a), Education Code, is amended to |
|
read as follows: |
|
(a) The board may delegate investment authority [and
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|
contract] for the investment of the permanent university fund to |
|
the same extent as an institution [the governing board of an
|
|
institution of higher education] with respect to an institutional |
|
fund under Chapter 163, Property Code. |
|
SECTION 4. Section 66.08(o)(2), Education Code, is amended |
|
to read as follows: |
|
(2) "Institution" and "institutional fund" |
|
["Governing board," "institutional fund," and "institution of
|
|
higher education"] have the meanings assigned by Chapter 163, |
|
Property Code. |
|
SECTION 5. (a) Chapter 163, Property Code, as amended by |
|
this Act, applies only to an institutional fund existing on or |
|
established after the effective date of this Act. |
|
(b) With respect to an institutional fund existing on the |
|
effective date of this Act, Chapter 163, Property Code, as amended |
|
by this Act, applies only to an action taken or decision made |
|
relating to the institutional fund occurring after August 31, 2007. |
|
An action taken or decision made relating to the institutional fund |
|
that occurs before the effective date of this Act is governed by |
|
Chapter 163, Property Code, as that chapter existed before |
|
amendment by this Act, and that chapter is continued in effect for |
|
that purpose. |
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SECTION 6. This Act takes effect September 1, 2007. |
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* * * * * |