As Reported by the House Civil and Commercial Law Committee

127th General Assembly Regular Session 2007-2008

Am. H. B. No. 522

Representative Oelslager 

Cosponsors: Representatives McGregor, J., Combs, Coley 

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A BILL

To amend sections 1715.51, 1715.52, 1715.55, 1715.56,

1

1715.57, 1715.58, 1715.59, 3345.05, and 5813.06;

2

to amend, for the purpose of adopting new section

3

numbers as indicated in parentheses, sections

4

1715.52 (1715.53), 1715.55 (1715.54), 1715.56

5

(1715.52), and 1715.57 (1715.55); to enact new

6

sections 1715.56 and 1715.57; and to repeal

7

sections 1715.53 and 1715.54 of the Revised Code

8

for the purpose of adopting the Uniform Prudent

9

Management of Institutional Funds Act by revising

10

the Ohio Uniform Management of Institutional Funds

11

Act.

12

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 1715.51, 1715.52, 1715.55, 1715.56,	13
1715.57, 1715.58, 1715.59, 3345.05, and 5813.06 be amended;	14
sections 1715.52 (1715.53), 1715.55 (1715.54), 1715.56 (1715.52),	15
and 1715.57 (1715.55) be amended for the purpose of adopting new	16
section numbers as indicated in parentheses; and new sections	17
1715.56 and 1715.57 of the Revised Code be enacted to read as	18
follows:	19

Sec. 1715.51.  As used in sections 1715.51 to 1715.59 of the	20
Revised Code:	21

(A) "Charitable purpose" means any purpose the achievement of	22
which is beneficial to the community, including the relief of	23
poverty, the advancement of education or religion, the promotion	24
of health, and the promotion of a governmental purpose.	25

(B) "Institution" means an incorporated or unincorporated	26
organization that isany of the following:	27

(1) A person, other than an individual, organized and	28
operated exclusively for educational, religious, charitable, or	29
other eleemosynary purposes or a;	30

(2) A governmental organization to the extent that it holds	31
funds exclusively for any of those purposesa charitable purpose;	32

(3) A trust that had both charitable and noncharitable	33
interests and the noncharitable interests have terminated.	34

(B)(C) "Institutional fund" means a fund that is held by an	35
institution exclusively for its exclusive use, benefit, or	36
charitable purposes. "Institutional fund" does not include either	37
any of the following:	38

(1) Program related assets;

39

(2) A fund held for an institution by a trustee that is not	40
an institution;	41

(2)(3) A fund in which a beneficiary that is not an	42
institution has an interest other than a rightan interest that	43
may arise upon a violation of or the failure of the purposes of	44
the fund.	45

(C)(D) "Endowment fund" means an institutional fund, or aany	46
part of an institutional fund,thereof that, under the terms of a	47
gift instrument, is not wholly expendable by the institution on a	48
current basis under the terms of the applicable gift instrument.	49
"Endowment fund" does not include assets that an institution	50
designates as an endowment fund for its own use.	51

(D) "Governing board" means the body responsible for the	52
management of an institution or an institutional fund.	53

(E)(1) "Historic dollar value" means the aggregate fair value	54
in dollars of the following:	55

(a) An endowment fund at the time it became an endowment	56
fund;	57

(b) Each subsequent donation to an endowment fund at the time	58
it is made;	59

(c) Each accumulation made pursuant to a direction in the	60
applicable gift instrument at the time the accumulation is added	61
to an endowment fund.	62

(2) A determination of historic dollar value made in good	63
faith by an institution is conclusive.	64

(F) "Gift instrument" means a will, deed, grant, conveyance,	65
agreement, memorandum, writing, or other governing documentrecord	66
or records, including the terms of anyan institutional	67
solicitations from which an institutional fund resulted	68
solicitation, under which property is granted to, transferred to,	69
or held by an institution as an institutional fund.	70

(F) "Person" means an individual, corporation, business	71
trust, estate, trust, partnership, limited liability company,	72
association, joint venture, public corporation, governmental	73
organization, or any other legal or commercial entity.	74

(G) "Program related asset" means an asset held by an	75
institution primarily to accomplish a charitable purpose of the	76
institution and not primarily for investment.	77

(H) "Record" means information that is inscribed on a	78
tangible medium or that is stored in an electronic or other medium	79
and is retrievable in perceivable form.	80

Sec. 1715.56.        Sec. 1715.52. In the administration of the powers to	81
appropriate appreciation, to make and retain investments, and to	82
delegate investment management of(A) Subject to the intent of a	83
donor expressed in a gift instrument, an institution, in managing	84
and investing an institutional fund, shall consider the charitable	85
purposes of the institution and the purposes of the institutional	86
fund.	87

(B) In addition to complying with any other duty of loyalty	88
imposed by law, each person responsible for managing and investing	89
an institutional funds, members of a governing board of an	90
institutionfund shall exercise ordinary businessmanage and	91
invest the fund in good faith and with the care and prudencean	92
ordinarily prudent person in a like position would exercise under	93
the facts andsimilar circumstances prevailing at the time of the	94
action or decision. In so doing, they shall consider the long and	95
short term needs of the institution in carrying out its	96
educational, religious, charitable, or other eleemosynary	97
purposes, its present and anticipated financial requirements, the	98
expected total return on its investments, price level trends, and	99
general	100

(C) In managing and investing an institutional fund, an	101
institution may incur only costs that are appropriate and	102
reasonable in relation to the assets, the purposes of the	103
institution, and the skills available to the institution, and	104
shall make a reasonable effort to verify facts relevant to the	105
management and investment of the fund.	106

(D) An institution may pool two or more institutional funds	107
for purposes of management and investment.	108

(E) Except as otherwise provided by a gift instrument, all of	109
the following apply:	110

(1) In managing and investing an institutional fund, the	111
following factors, if relevant, shall be considered:	112

(a) General economic conditions;

113

(b) The possible effect of inflation or deflation;

114

(c) The expected tax consequences, if any, of investment	115
decisions or strategies;	116

(d) The role that each investment or course of action plays	117
within the overall investment portfolio of the fund;	118

(e) The expected total return from income and the	119
appreciation of investments;	120

(f) Other resources of the institution;

121

(g) The need of the institution and of the fund to make	122
distributions and preserve capital;	123

(h) An asset's special relationship or special value, if any,	124
to the charitable purposes of the institution.	125

(2) Management and investment decisions about an individual	126
asset shall be made not in isolation but rather in the context of	127
the institutional fund's portfolio of investments as a whole and	128
as a part of an overall investment strategy having risk and return	129
objectives reasonably suited to the fund and to the institution.	130

(3) Except as otherwise provided by law, an institution may	131
invest in any kind of property or type of investment consistent	132
with this section.	133

(4) An institution shall diversify the investments of an	134
institutional fund unless the institution reasonably determines	135
that, because of special circumstances, the purposes of the fund	136
are better served without diversification.	137

(5) Within a reasonable time after receiving property, an	138
institution shall make and carry out decisions concerning the	139
retention or disposition of the property or the rebalancing of a	140
portfolio, in order to bring the institutional fund into	141
compliance with the purposes, terms, and distribution requirements	142
of the institution and as necessary to meet other circumstances of	143
the institution and the requirements of sections 1715.51 to	144
1715.59 of the Revised Code.	145

(6) A person that has special skills or expertise, or is	146
selected in reliance upon the person's representation of the	147
person's special skills or expertise, has a duty to use those	148
skills or that expertise in managing and investing institutional	149
funds.	150

Sec. 1715.52.        Sec. 1715.53. The governing board of(A) Subject to	151
the intent of a donor expressed in the gift instrument and to	152
division (D) of this section, an institution may appropriate for	153
expenditure or accumulate so much of an endowment fund as the	154
institution determines is prudent for the uses and, benefits,	155
purposes, and duration for which an endowment fund is established	156
so much of the net appreciation, realized and unrealized, in the	157
fair value of. Unless stated otherwise in the gift instrument, the	158
assets of thein an endowment fund over the historic dollar value	159
of the fund as isare donor-restricted assets until appropriated	160
for expenditure by the institution. In making a determination to	161
appropriate or accumulate, the institution shall act in good	162
faith, with the care that an ordinarily prudent under the standard	163
established by section 1715.56 of the Revised Code. This section	164
does not limit the authority of a governing board to expend funds	165
as permitted under other law, the terms of the applicable gift	166
instrument, or the charter of the institutionperson in a like	167
position would exercise under similar circumstances, and shall	168
consider, if relevant, the following factors:	169

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

170

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

171

(3) General economic conditions;

172

(4) The possible effect of inflation or deflation;

173

(5) The expected total return from income and the	174
appreciation of investments;	175

(6) Other resources of the institution;

176

(7) The investment policy of the institution.

177

(B) To limit the authority to appropriate for expenditure or	178
accumulate under division (A) of this section, a gift instrument	179
shall specifically state the limitation.	180

(C) Terms in a gift instrument designating a gift as an	181
endowment, or a direction or authorization in the gift instrument	182
to use only "income," "interest," "dividends," or "rents, issues,	183
or profits" or "to preserve the principal intact," or words of	184
similar import, create an endowment fund of permanent duration,	185
unless other language in the gift instrument limits the duration	186
or purpose of the fund, and do not otherwise limit the authority	187
under division (A) of this section to appropriate for expenditure	188
or accumulate.	189

(D)(1) The appropriation for expenditure in any year of an	190
amount not greater than five per cent of the fair market value of	191
an endowment fund, whether or not the total expenditure from it	192
exceeds five per cent, calculated on the basis of market values	193
that are determined at least quarterly and averaged over a period	194
of not less than three years immediately preceding the year in	195
which the appropriation for expenditure was made, creates an	196
irrebuttable presumption of prudence. With respect to an endowment	197
fund in existence for fewer than three years, the fair market	198
value of the endowment fund shall be calculated for the period the	199
endowment fund has been in existence.	200

(2) Nothing in division (D)(1) of this section shall be	201
construed to restrict an appropriation for expenditure permitted	202
by the gift instrument or to create a presumption of imprudence or	203
prudence for that part, if any, of an appropriation for	204
expenditure that exceeds five per cent of the fair market value of	205
the endowment fund.	206

Sec. 1715.55.        Sec. 1715.54. Except as otherwise provided by the	207
applicable(A)(1) Subject to any specific limitation set forth in	208
a gift instrument or by applicablein any other provision of law	209
relating to governmental institutions or funds, the governing	210
board of an institution may do all of the following:	211

(A) Delegatedelegate to an external agent the management and	212
investment of an institutional fund to the extent that an	213
institution could prudently delegate under the circumstances. An	214
institution shall act in good faith, with the care that an	215
ordinarily prudent person in a like position would exercise under	216
similar circumstances, in doing all of the following:	217

(a) Selecting an agent;

218

(b) Establishing the scope and terms of the delegation,	219
consistent with the purposes of the institution and the	220
institutional fund;	221

(c) Periodically reviewing the agent's actions to monitor the	222
agent's performance and compliance with the scope and terms of the	223
delegation.	224

(2) An agent, in performing a delegated function, shall owe a	225
duty to the institution to exercise reasonable care to comply with	226
the scope and terms of the delegation. By accepting delegation of	227
a management or investment function from an institution that is	228
subject to the laws of this state, an agent submits to the	229
jurisdiction of the courts of this state in all proceedings	230
arising from or related to the delegation or the performance of	231
the delegated function.	232

(3) An institution that complies with division (A)(1) of this	233
section is not liable for the decisions or actions of an agent to	234
which the function was delegated.	235

(B) An institution may delegate management and investment	236
functions to its committees, officers, or employees of the	237
institution or of an institutional fund, or agents, including	238
investment counsel, the authority to act in place of the board in	239
investment and reinvestment of institutional funds;	240

(B) Contract with independent investment advisors, investment	241
counsel or managers, banks, or trust companies, to act in the	242
manner described in division (A) of this section;	243

(C) Authorize the payment of compensation for investment	244
advisory or management servicesas otherwise provided by law.	245

Sec. 1715.57.        Sec. 1715.55.  (A) With the written consent of theIf	246
a donor consents in a record, the governing board of an	247
institution may release or modify, in whole or in part, a	248
restriction imposed by the applicablecontained in a gift	249
instrument on the use ormanagement, investment, or purpose of an	250
institutional fund. A release or modification shall not, however,	251
permit a fund to be used for a purpose other than a charitable	252
purpose of the institution.	253

(B) If written consent of a donor as described in division	254
(A) of this section cannot be obtained by reason of the donor's	255
death, disability, unavailability, or impossibility of	256
identification, the governing board of an institution may apply in	257
the name of the institution to theThe appropriate court for	258
release of, upon application of an institution, may modify a	259
restriction imposed by the applicablecontained in a gift	260
instrument onregarding the usemanagement or investment of an	261
institutional fund if the restriction has become impracticable or	262
wasteful, if it impairs the management or investment of the fund,	263
or if, because of circumstances not anticipated by the donor, a	264
modification of a restriction will further the purposes of the	265
fund. The attorney general is a necessary party to and shall be	266
served with process in all proceedings pertaining to an	267
application of that nature, and a judgment rendered in proceedings	268
pertaining to an application of that nature without the service of	269
process upon the attorney general is void. To the extent	270
practicable, any modification shall be made in accordance with the	271
donor's probable intention.	272

If the court finds in proceedings pertaining to an	273
application of that nature that the restriction involved is	274
obsolete, inappropriate, inpracticable, or impossible, it may	275
order the release of the restriction in whole or in part.	276

(C) A release of a restriction by a court order under	277
division (B) of this section may not change an endowment fund to a	278
fund that is not an endowment fund. A release of a restriction	279
under division (A) or (B) of this section may not allow a fund to	280
be used for purposes other than the educational, religious,	281
charitable, or other eleemosynary purposes of the institution	282
involvedThe court, upon application of an institution, may modify	283
the charitable purpose of an institutional fund or a restriction	284
contained in a gift instrument on the use of the fund if the	285
particular charitable purpose or restriction becomes unlawful,	286
impracticable, impossible to achieve, or wasteful. The attorney	287
general is a necessary party to and shall be served with process	288
in all proceedings pertaining to an application of that nature.	289
Any modification shall be made in a manner consistent with the	290
charitable purposes expressed in the gift instrument.	291

(D) This section does not limit the application of the	292
doctrine of cy presIf an institution determines that a	293
restriction contained in a gift instrument on the management,	294
investment, or purpose of an institutional fund is unlawful,	295
impracticable, impossible to achieve, or wasteful, the institution	296
may, after providing sixty-days advanced notice to the attorney	297
general, release or modify the restriction, in whole or in part,	298
if all of the following conditions are met:	299

(1) The institutional fund subject to the restriction has a	300
total value of less than two hundred fifty thousand dollars;	301

(2) More than ten years have elapsed since the fund was	302
established;	303

(3) The institution uses the property in a manner consistent	304
with the charitable purposes expressed in the gift instrument.	305

Sec. 1715.56.  Compliance with sections 1715.51 to 1715.59 of	306
the Revised Code shall be determined in light of the facts and	307
circumstances existing at the time a decision is made or action is	308
taken, and not by hindsight.	309

Sec. 1715.57.  (A) Sections 1715.51 to 1715.59 of the Revised	310
Code shall be construed as modifying, limiting, and superseding	311
the "Electronic Signatures in Global and National Commerce Act,"	312
114 Stat. 464, 15 U.S.C. 7001 et seq., with the exception of	313
section 101 of that act, 15 U.S.C. 7001(a).	314

(B) Sections 1715.51 to 1715.59 of the Revised Code shall not	315
be construed as authorizing electronic delivery of any of the	316
orders, notices, or documents described in section 103 of that	317
act, 15 U.S.C. 7003(b).	318

Sec. 1715.58.  In so far as is possible on and after the	319
effective date of this amendmentJanuary 1, 2009, sections 1715.51	320
to 1715.59 of the Revised Code shall be applied and construed to	321
effectuate the general purpose to make uniform the law with	322
respect to the subject of those sections among the states that	323
enact the uniform prudent management of institutional funds act.	324

Sec. 1715.59.  Sections 1715.51 to 1715.59 of the Revised	325
Code may be cited as the uniform prudent management of	326
institutional funds act.	327

Sec. 3345.05.  (A) All registration fees, nonresident tuition	328
fees, academic fees for the support of off-campus instruction,	329
laboratory and course fees when so assessed and collected, student	330
health fees for the support of a student health service, all other	331
fees, deposits, charges, receipts, and income from all or part of	332
the students, all subsidy or other payments from state	333
appropriations, and all other fees, deposits, charges, receipts,	334
income, and revenue received by each state institution of higher	335
education, the Ohio state university hospitals and their	336
ancillary facilities, the Ohio agricultural research and	337
development center, and the Ohio state university cooperative	338
extension service shall be held and administered by the	339
respective boards of trustees of the state institution of higher	340
education; provided, that such fees, deposits, charges, receipts,	341
income and revenue, to the extent required by resolutions, trust	342
agreements, indentures, leases, and agreements adopted, made, or	343
entered into under Chapter 154. or section 3345.07, 3345.11, or	344
3345.12 of the Revised Code, shall be held, administered,	345
transferred, and applied in accordance therewith.	346

(B) The Ohio board of regents shall require annual reporting	347
by the Ohio agricultural research and development center and by	348
each university and college receiving state aid in such form and	349
detail as determined by the board in consultation with such	350
center, universities and colleges, and the director of budget and	351
management.	352

(C) Notwithstanding any provision of the Revised Code to the	353
contrary, the title to investments made by the board of trustees	354
of a state institution of higher education with funds derived	355
from any of the sources described in division (A) of this section	356
shall not be vested in the state or the political subdivision but	357
shall be held in trust by the board. Such investments shall be	358
made pursuant to an investment policy adopted by the board in	359
public session that requires all fiduciaries to discharge their	360
duties with the care, skill, prudence, and diligence under the	361
circumstances then prevailing that a prudent person acting in	362
like capacity and familiar with such matters would use in the	363
conduct of an enterprise of a like character and with like aims.	364
The policy also shall require at least the following:	365

(1) A stipulation that investment of at least twenty-five per	366
cent of the average amount of the investment portfolio over the	367
course of the previous fiscal year be invested in securities of	368
the United States government or of its agencies or	369
instrumentalities, the treasurer of state's pooled investment	370
program, obligations of this state or any political subdivision	371
of this state, certificates of deposit of any national bank	372
located in this state, written repurchase agreements with any	373
eligible Ohio financial institution that is a member of the	374
federal reserve system or federal home loan bank, money market	375
funds, or bankers acceptances maturing in two hundred seventy	376
days or less which are eligible for purchase by the federal	377
reserve system, as a reserve;	378

(2) Eligible funds above those that meet the conditions of	379
division (C)(1) of this section may be pooled with other	380
institutional funds and invested in accordance with section	381
1715.541715.52 of the Revised Code.	382

(3) The establishment of an investment committee.

383

(D) The investment committee established under division	384
(C)(3) of this section shall meet at least quarterly. The	385
committee shall review and recommend revisions to the board's	386
investment policy and shall advise the board on its investments	387
made under division (C) of this section in an effort to assist it	388
in meeting its obligations as a fiduciary as described in division	389
(C) of this section. The committee shall be authorized to retain	390
the services of an investment advisor who meets both of the	391
following qualifications:	392

(1) The advisor is either:

393

(a) Licensed by the division of securities under section	394
1707.141 of the Revised Code;	395

(b) Registered with the securities and exchange commission.

396

(2) The advisor either:

397

(a) Has experience in the management of investments of public	398
funds, especially in the investment of state-government investment	399
portfolios;	400

(b) Is an eligible institution referenced in section 135.03	401
of the Revised Code.	402

(E) As used in this section, "state institution of higher	403
education" means a state institution of higher education as	404
defined in section 3345.011 of the Revised Code.	405

Sec. 5813.06.  (A) Nothing in sections 5813.01 to 5813.05 of	406
the Revised Code affects the construction or interpretation of	407
sections 1715.51 to 1715.59 of the Revised Code relating to the	408
uniform prudent management of institutional funds act.	409
Specifically, neither the percentage set forth in division (B) of	410
section 1340.325813.02 of the Revised Code nor the amount	411
actually requested by a governing board pursuant to that section	412
5813.02 of the Revised Code shall be construed or interpreted to	413
limit or expand what is a prudent amount that can be expended by a	414
governing board of an institution under sections 1715.51 to	415
1715.59 of the Revised Code.	416

(B) If an institutional trust fund is also an institutional	417
fund as defined in division (B)(C) of section 1715.51 of the	418
Revised Code with the result that sections 1715.51 to 1715.59 of	419
the Revised Code also are applicable to the institutional trust	420
fund, then sections 1715.51 to 1715.59 of the Revised Code apply	421
to the institutional trust fund, and sections 5813.01 to 5813.07	422
of the Revised Code do not apply to the institutional trust fund.	423

Section 2. That existing sections 1715.51, 1715.52, 1715.55,	424
1715.56, 1715.57, 1715.58, 1715.59, 3345.05, and 5813.06 and	425
sections 1715.53 and 1715.54 of the Revised Code are hereby	426
repealed.	427

Section 3. Sections 1 and 2 of this act shall take effect	428
January 1, 2009, and apply only to the following:	429

(A) Institutional funds established after that date.

430

(B) Institutional funds existing on that date, but only with	431
respect to decisions made or actions taken on or after that date.	432