Sec. 712.0352. MODIFICATION OF DISTRIBUTION METHOD. (a) Except as otherwise provided by this subchapter, the trustee of a fund shall use the net income method to determine permissible distributions from the fund to the corporation.

(b) A corporation on concurrence of the corporation's trustee may modify the terms of the trust instrument governing the fund to require the trustee to use the total return method in determining permissible distributions to the corporation. To convert a net income fund to a total return fund, at least 60 days before the effective date of the conversion, which must be the first day of the fund's next fiscal year, the corporation shall submit written documentation to the commissioner in support of the conversion that includes:

(1) a copy of the trust instrument governing the fund and any proposed amendments to the instrument necessary to authorize the conversion;

(2) the trustee's estimates of the current fair market value and the average fair market value of the fund as of the effective date of the conversion, as determined under Section 712.0353, and actions by the trustee to finalize the trustee's determination of both current and average fair market value of the fund and to advise the corporation and the commissioner as soon as reasonably possible after the effective date;

(3) a description of the method the trustee used or will use to determine the fair market value of any unique and hard-to-value asset in the fund, and identification and explanation of any asset the trustee excluded or will exclude from the average fair market value calculation;

(4) the total return percentage selected by the trustee under Section 712.0354, and the reasons for the selection;

(5) a copy of the written investment policy for the fund as modified to support use of the total return method; and

(6) any additional information required by rules adopted under this chapter.

(c) A corporation that converts the corporation's fund to a total return fund under this section may elect to reconvert the fund to a net income fund and modify the terms of the trust instrument governing the fund to require the trustee to calculate permissible distributions under the net income method. To reconvert a total return fund to a net income fund, the corporation must submit written documentation to the commissioner in support of the reconversion before the proposed effective date of the reconversion, that includes:

(1) a copy of the trust instrument governing the fund and any proposed amendments to the instrument necessary to authorize the reconversion;

(2) the proposed effective date of the reconversion, provided that the effective date must be the first day of the fund's next fiscal year unless the total distributions received or to be received from the fund in the current fiscal year would not exceed the distributions permissible for a net income fund at the beginning of the current fiscal year; and

(3) any additional information required by rules adopted under this chapter.

(d) The trustee of a net income fund or a total return fund shall make distributions to the corporation, annually or in more frequent installments agreed to by the trustee and the corporation, to be used by the corporation in the manner required by Section 712.025.

Added by Acts 2017, 85th Leg., R.S., Ch. 1051 (H.B. 1948), Sec. 1, eff. September 1, 2017.