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Indicates Matter Stricken
Indicates New Matter
Indicates Matter Stricken
Indicates New Matter
COMMITTEE AMENDMENT ADOPTED
March 13, 2008
S. 1007
S. Printed 3/13/08--S.
Read the first time January 17, 2008.
TO AMEND CHAPTER 6 OF TITLE 34, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE SOUTH CAROLINA UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT, SO AS TO REVISE ITS NAME TO THE "SOUTH CAROLINA UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT" AND TO PROVIDE UPDATED ARTICULATIONS OF THE PRUDENCE STANDARDS FOR THE MANAGEMENT AND INVESTMENT OF CHARITABLE FUNDS AND FOR ENDOWMENT SPENDING, APPLY PRINCIPLES OF MANAGEMENT AND INVESTMENT OF INSTITUTIONAL FUNDS TO CHARITIES ORGANIZED AS A TRUST, A NONPROFIT CORPORATION, OR OTHER ENTITY, IMPOSE ADDITIONAL DUTIES ON THOSE WHO MANAGE AND INVEST CHARITABLE FUNDS, AND UPDATE RULES GOVERNING EXPENDITURES FROM ENDOWMENT FUNDS AND PROVISIONS GOVERNING THE RELEASE AND MODIFICATION OF RESTRICTIONS ON CHARITABLE FUNDS.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 6, Title 34 of the 1976 Code, as added by Act 390 of 1990, is amended to read:
Section 34-6-10. As used in this chapter:
(1) "Institution" means an incorporated or unincorporated organization organized and operated exclusively for educational, religious, charitable, or other eleemosynary purposes, or a governmental organization to the extent that it holds funds exclusively for any of these purposes.
(2) "Institutional fund" means a fund held by an institution for its exclusive use, benefit, or purposes, but does not include (i) a fund held for an institution by a trustee that is not an institution or (ii) a fund in which a beneficiary that is not an institution has an interest, other than possible rights that could arise upon violation or failure of the purposes of the fund or (iii) funds other than endowment funds held by a governmental organization.
(3) "Endowment fund" means an institutional fund, or any part of it, not wholly expendable by the institution on a current basis under the terms of the applicable gift instrument.
(4) "Governing board" means the body responsible for the management of an institution or of an institutional fund.
(5) "Historic dollar value" means the aggregate fair value in dollars of (i) an endowment fund at the time it became an endowment fund, (ii) each subsequent donation to the fund at the time it is made, and (iii) each accumulation made pursuant to a direction in the applicable gift instrument at the time the accumulation is added to the fund. The determination of historic dollar value made in good faith by the institution is conclusive.
(6) "Gift instrument" means a will, deed, trust, grant, conveyance, agreement, memorandum, writing, or other governing document (including the terms of any institutional solicitations from which an institutional fund resulted) under which property is transferred to or held by an institution as an institutional fund.
Section 34-6-20. The governing board may appropriate for expenditure for the uses and purposes for which an endowment fund is established so much of the net appreciation, realized and unrealized, in the fair value of the assets of an endowment fund over the historic dollar value of the fund as is prudent under the standard established by Section 34-6-60. This section does not limit the authority of the governing board to expend funds as permitted under other law, the terms of the applicable gift instrument, or the charter of the institution.
Section 34-6-30. Section 34-6-20 does not apply if the applicable gift instrument indicates the donor's intention that net appreciation must not be expended. A restriction upon the expenditure of net appreciation may not be implied from a designation of a gift as an endowment, or from a direction or authorization in the applicable gift instrument to use only "income", "interest", "dividends", or "rents, issues, or profits", or "to preserve the principal intact", or a direction which contains other words of similar import. This rule of construction applies to gift instruments executed or in effect before or after the effective date of this chapter.
Section 34-6-40. In addition to an investment otherwise authorized by law or by the applicable gift instrument, and without restriction to investments a fiduciary may make, the governing board, subject to any specific limitations set forth in the applicable gift instrument or in the applicable law other than law relating to investments by a fiduciary, may, subject to Section 34-6-60:
(1) invest and reinvest an institutional fund in any real or personal property considered advisable by the governing board, whether or not it produces a current return, including mortgages, stocks, bonds, debentures, and other securities of profit or nonprofit corporations, shares in or obligations of associations, partnerships, or secured obligation of individuals, and obligations of any government or subdivision or instrumentality of it;
(2) retain property contributed by a donor to an institutional fund for as long as the governing board considers advisable;
(3) include all or any part of an institutional fund in any pooled or common fund maintained by the institution; and
(4) invest all or any part of an institutional fund in any other pooled or common fund available for investment, including shares or interests in regulated investment companies, mutual funds, common trust funds, investment partnerships, real estate investment trusts, or similar organizations in which funds are commingled and investment determinations are made by persons other than the governing board.
Section 34-6-50. Except as otherwise provided by the applicable gift instrument or by applicable law relating to governmental institutions or funds, the governing board may:
(1) delegate to its committees, officers, or employees of the institution or the fund, or agents, including investment counsel, the authority to act in place of the board in investment and reinvestment of institutional funds;
(2) contract with independent investment advisors, investment counsel or managers, banks, or trust companies, so as to act; and
(3) authorize the payment of reasonable compensation for investment advisory or management services.
Section 34-6-60. In the administration of the powers to appropriate net appreciation, to make and retain investments, and to delegate investment management of institutional funds, members of a governing board shall exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of the action or decision. In so doing they shall consider long and short-term needs of the institution in carrying out its educational, religious, charitable, or other eleemosynary purposes, its present and anticipated financial requirements, expected total return on its investment, price level trends, and general economic conditions.
Section 34-6-70. (A) With the written consent of the donor, the governing board may release, in whole or in part, a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund.
(B) If written consent of the donor cannot be obtained by reason of his death, disability, unavailability, or impossibility of identification, the governing board may:
(1) release, in whole or in part, a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund, if the governing board first obtains the written consent of all of the children or heirs of the donor in the generation closest to donor's which has a living heir; or
(2) apply in the name of the institution to the circuit court for release of a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund. The Attorney General must be notified of the application and must be given an opportunity to be heard. If the court finds that the restriction is obsolete, inappropriate, or impracticable, it may by order release the restriction in whole or in part. A release under this subsection may not change an endowment fund to a fund that is not an endowment fund.
(C) A release under this section may not allow a fund to be used for purposes other than the educational, religious, charitable, or other eleemosynary purposes of the institution affected.
(D) This section does not limit the doctrine of cy pres.
SECTION 34-6-80. This chapter may be cited as the "South Carolina Uniform Management of Institutional Funds Act". Section 34-6-10. This chapter may be cited as the 'South Carolina Uniform Prudent Management of Institutional Funds Act'.
Section 34-6-20. In this chapter:
(1) 'Charitable purpose' means the relief of poverty, the advancement of education or religion, the promotion of health, the promotion of a governmental purpose, or another purpose the, achievement of which is beneficial to the community.
(2) 'Endowment fund' means an institutional fund or part of one 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 charitable purposes; or
(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 the 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 cooperation, government or governmental subdivision, agency, or instrumentality, or 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.
Section 34-6-30. (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 costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institutions; 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.
Section 34-6-40. (A) Subject to the intent of a donor expressed in the gift instrument, 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 this 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 pursuant to 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 pursuant to subsection (A).
Section 34-6-50. (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.
Section 34-6-60. (A) If the donor consent is 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 purpose of the fund. The institution shall notify the Attorney General of the application, and the Attorney General must be given an opportunity to be heard. To the extent practicable, any modifications must be made in accordance with the donor's probable intention.
(C) If a particular charitable purpose or a restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument. The institution shall notify the Attorney General of the application, and the Attorney General must be given an opportunity to be heard.
(D) If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, sixty 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 then twenty-five thousand dollars;
(2) more than twenty years have elapsed since the fund was established; and
(3) the institution uses the property in a manner consistent with charitable purposes expressed in the gift instrument.
Section 34-6-70. 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.
Section 34-6-80. This chapter applies to institutional funds existing on or established after its effective date. As applied to institutional funds existing on the effective date of this chapter, this chapter governs only decisions made or actions taken on or after that date.
Section 34-6-90. This chapter modifies, limits, and supersedes the Electronic Signatures in Global and National Commerce Act, 15 USC Section 7001, et seq., but does not modify, limit, or supersede Section 101 of that act, 15 USC Section 7001(a), or authorize electronic delivery of any of the notices described in Section 103 of that act, 15 USC Section 7003(b).
Section 34-6-100. 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 2. This act takes effect upon approval by the Governor and applies to institutional funds as provided in Section 34-6-80.
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