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H.63

AN ACT RELATING TO THE UNIFORM PRUDENT INVESTOR ACT

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 9 V.S.A. chapter 147 is added to read:

CHAPTER 147. UNIFORM PRUDENT INVESTOR ACT

§ 4651. PRUDENT INVESTOR RULE

(a) Except as otherwise provided in subsection (b) of this section, a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in this chapter.

(b) The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust.

§ 4652. STANDARD OF CARE; PORTFOLIO STRATEGY; RISK AND RETURN OBJECTIVES

(a) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

(b) A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as apart of an overall investment strategy having risk and return objectives reasonably suited to the trust.

(c) Among circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries:

(1) general economic conditions;

(2) the possible effect of inflation or deflation;

(3) the expected tax consequences of investment decisions or strategies;

(4) the role that each investment or course of action plays within the overall trust portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property;

(5) the expected total return from income and the appreciation of capital;

(6) other resources of the beneficiaries;

(7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and

(8) an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

(d) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.

(e) A trustee may invest in any kind of property or type of investment consistent with the standards of this chapter.

(f) A trustee who has special skills or expertise, or is named trustee in reliance uponthe trustee’s representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.

§ 4653. DIVERSIFICATION

A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.

§ 4654. DUTIES AT INCEPTION OF TRUSTEESHIP

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

§ 4655. LOYALTY

A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries.

§ 4656. IMPARTIALITY

If a trust has two or more beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.

§ 4657. INVESTMENT COSTS

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skillsof the trustee.

§ 4658. REVIEWING COMPLIANCE

Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.

§ 4659. DELEGATION OF INVESTMENT AND MANAGEMENT FUNCTIONS

(a) A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:

(1) selecting an agent;

(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and

(3) periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the terms of the delegation.

(b) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with the terms of the delegation.

(c) A trustee who complies with the requirements of subsection (a) of this section is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.

(d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state.

§ 4660. LANGUAGE INVOKING STANDARD OF THIS CHAPTER

The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment or strategy permitted under this chapter: "investments permissible by law for investment of trust funds," "legal investments," "authorized investments," "using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital," "prudent man rule," "prudent trustee rule," "prudent person rule," and "prudent investor rule."

§ 4661. APPLICATION TO EXISTING TRUSTS

This chapter applies to trusts existing on and created after its effective date. As applied to trusts existing on its effective date, this chapter governs only decisions or actions occurring after that date.

§ 4662. UNIFORMITY OF APPLICATION AND CONSTRUCTION

This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among the states enacting it.

Sec. 2. 8 V.S.A. § 1361 is added to read:

§ 1361. FIDUCIARY INVESTMENTS

(a) In the absence of an express prohibition in the instrument, judgment, decree, power, order or other writing creating a trust or other fiduciary relationship, a bank ortrust company acting as fiduciary may invest and reinvest funds held by it in a fiduciary capacity in the securities of an investment company.

(b) The investments authorized in subsection (a) of this section may be made even if the bank or trust company, or an affiliate thereof, is providing services to the investment company and is receiving reasonable compensation for such services as an advisor, manager, sponsor, administrator, broker, distributor, custodian, shareholder servicing agent, transfer agent, registrar or any related services. At least annually, the bank or trust company shall disclose in a clear and conspicuous manner to the principal of each fiduciary account the fees it has charged or received for such services and the basis upon which compensation is calculated, expressed either in a specific amount or as a percentage of asset value.

(c) For purposes of this section:

(1) "Affiliate" of a bank or trust company shall mean any person or entity that controls, is controlled by or is under common control with such bank or trust company.

(2) "Bank" and "trust company" means a bank exercising trust powers, or a trust company, as the case may be, organized under the laws of any state or the United States.

(3) "Investment company" means an open-end or closed-end investment company or investment trust registered under 15 U.S.C. 80al-80a-64 (Investment Company Act of 1940), as that act exists now or as amended in the future.

(4) "Principal" shall mean the individual or entity to whom the bank or trust company ordinarily furnishes statements of account and other customer information.

Sec. 3. 16 V.S.A. § 1943 is amended to read:

§ 1943. INVESTMENTS; INTEREST RATE; DISBURSEMENTS

*[(a) The members of the retirement board shall be the trustees of the several funds created by this chapter, and with respect to them may:]*

*[(1) Invest and reinvest the funds, and hold, purchase, sell, assign, transfer and dispose of the securities and investments in which the funds have been invested and reinvested, subject to the terms, conditions, limitations and restrictions imposed by the laws of this state upon life insurance companies in making and disposing of investments;]*

*[(2) Invest and reinvest in common stocks, except that no investment may]*

*[ be made under this subdivision which will cause the aggregate market value of investments not eligible under subdivision (1) of this subsection to exceed 70 percent of the aggregate market value of all of the property in each fund at the time the investment is made. Sale or other liquidation of any investment is not required solely because of a change in the relative market value of investments made eligible by this subdivision and by subdivision (1).]*

*[(3) Invest not more than one percent of the assets of the retirement system in the Vermont venture capital fund under the terms and conditions and for the purposes set forth in chapter 14 of Title 10.]*

(a) The members of the retirement board shall be the trustees of the funds created by this subchapter, and with respect to them may invest and reinvest the funds, and hold, purchase, sell, assign, transfer and dispose of the securities and investments in which thefunds have been invested and reinvested. Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of capital as well as the probable income to be derived.

(b) The board from time to time shall set rates of regular interest at such percentages compounded annually as it determines to be equitable both to members and to taxpayers of the state, but not less than three percent nor more

than five percent.

(c) The state treasurer shall be the custodian of the several funds of the system. All payment from such funds shall be made by him or by a deputy treasurer, only upon vouchers signed by two persons designated by the board. A duly attested copy of a resolution of the board designating such persons and bearing on its face specimen signatures of such persons shall be filed with the state treasurer as his authority for making payments upon such vouchers. No vouchers shall be drawn unless it has previously been authorized by resolution of the board.

*[(d) For the purpose of meeting disbursements for pensions, annuities, and other payments, there may be kept available cash, not exceeding ten percent of the total amount in the several funds of the system, on deposit in one or more banks or trust companies in the state, organized under the laws of the state, or of the United States, provided that the sum on deposit in any one bank or trust company shall not exceed twenty-five percent ofthe paid up capital and surplus of such bank or trust company.]*

*[(e)]*(d) Except as otherwise herein provided, no trustee and no employee of the board shall have any direct interest in the gains or profits of any investment made by the board; nor shall any trustee or employee of the board, directly or indirectly, for himself or as an agent, in any manner use the same except to make such current and necessary payments as are authorized by the board; nor shall any trustee or employee of the board become an endorser or surety, or in any manner an obligor, for the moneys loaned to or borrowed from the board. The board shall adopt by rule standards of conduct for trustees and employees of the board in order to maintain and promote public confidence in the integrity of the board. Such rules shall prohibit trustees and employees from receiving or soliciting any gift, including meals, alcoholic beverages, travel fare, room and board, or any other thing of value, tangible or intangible, from any vendor or potential vendor of investment services, management services, brokerage services, and other services to the board.

Sec. 4. 3 V.S.A. § 472 is amended to read:

§ 472. INVESTMENTS; INTEREST RATE; DISBURSEMENTS

(a) *[The members of the retirement board shall be the trustees of the funds created by this subchapter, and with respect to them may:]*

*[(1) Invest and reinvest the funds, and hold, purchase, sell, assign, transfer and dispose of the securities and investments in which the funds have been invested and reinvested, subject to the terms, conditions, limitations and restrictions imposed by the laws of this state upon life insurance companies in making and disposing of investments.]*

*[(2) Invest and reinvest in common stocks, except that no investment may be made under this subdivision which will cause the aggregate market value of investments not eligible under subdivision (1) to exceed 70 percent of the aggregate market value of all the property in each fund at the time the investment is made. Sale or other liquidation of any investment is not required solely because of a change in the relative market value of investments made eligible by this subdivision and by subdivision (1).]*

*[(3) Invest not more than one percent of the assets of the retirement system in the Vermont venture capital fund under the terms and conditions and for the purposes set forth in chapter 14 of Title 10.]* The members of the retirement board shall be the trustees of the funds created by this subchapter, and with respect to them may invest and reinvest the funds, and hold, purchase, sell, assign, transfer and dispose of the securities and investments in which the funds have been invested and reinvested. Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of capital as well as the probable income to be derived.

(b) From time to time, the retirement board shall set the rate or rates of regular interest at such percent rate compounded annually as shall be determined by the board, such rate to be limited to a minimum of three percent and a maximum of five percent.

(c) The state treasurer shall be the custodian of the funds of the retirement system. All payments from such funds shall be made by him or by deputy treasurer, with approval of theretirement board. A duly attested copy of a resolution of the retirement board designating such persons and bearing on its face specimen signatures of such persons shall be filed with the state treasurer as his authority for making payments upon such vouchers.

*[(d) For the purpose of meeting disbursements for pensions, annuities, and other payments, there may be kept available cash, not exceeding ten percent of the total amount in the several funds of the system, on deposit in one or more banks or trust companies in the state, organized under the laws of the state, or of the United States, provided that the sum on deposit in any one bank or trust company shall not exceed twenty-five percent of the paid up capital and surplus of such bank or trust company.]*

*[(e)]*(d) Except as otherwise herein provided, no trustee and no employee of the board shall have any direct interest in the gains or profits of any investment made by the board; nor shall any trustee or employee of the board, directly or indirectly, for himself or as an agent, in any manner use the same except to make such current and necessary payments as are authorized by the board; nor shall any trustee or employee of the board become an endorser or surety, or in any manner an obligor, for the moneys loaned to or borrowed from the board. The board shall adopt by rule standards of conduct for trustees and employees of the board in order to maintain and promote public confidence in the integrity of the board. Such rules shall prohibit trustees and employees from receiving or soliciting any gift, including meals, alcoholic beverages, travel fare, room and board, or any other thing of value, tangible or intangible, from any vendor or potential vendor of investment services, management services, brokerage services, and other services to the board.