I think you could do any of the three, with the proper conditions.  Since it doesn’t sound like the fund was set up as an endowment—to use the income only, and not the principal, for assistance—and since it doesn’t sound like you established strict criteria that were adopted by the donors, I think you could spend the fund down by making assistance grants even without a showing of strict financial need, while trying to help those who are most deserving. 

You could give the funds to another similar organization with the same restrictions as those that were imposed on the original gifts, although it doesn’t sound like you know exactly what those restrictions were.

If you have other important projects that need funding and know the identity of the original donors, you could ask them to release the restrictions on their donations and allow them to be used for the other projects (or for the general purposes of the organization).  To the extent that you don’t get 100% approval, you should use the remaining funds for options 1 or 2.  Whether you want to use option 3 may depend on how important the other projects are and how much work you want to do in getting individual approvals.  Expanding the applicant pool in option 1 sounds like the easiest and most closely aligned disposition of the fund, but I think you are correct that you could pursue the other options as well.