Collective investment funds.
(a) In general.
Where consistent with applicable law, a national bank may invest assets that it holds as fiduciary in the following collective investment funds: 1
1 In determining whether investing fiduciary assets in a collective investment fund is proper, the bank may consider the fund as a whole and, for example, shall not be prohibited from making that investment because any particular asset is nonincome producing.
A fund maintained by the bank, or by one or more affiliated banks, 2 exclusively for the collective investment and reinvestment of money contributed to the fund by the bank, or by one or more affiliated banks, in its capacity as trustee, executor, administrator, guardian, or custodian under a uniform gifts to minors act.
2 A fund established pursuant to this paragraph (a)(1) that includes money contributed by entities that are affiliates under
12 U.S.C. 221a(b)
, but are not members of the same affiliated group, as defined at
26 U.S.C. 1504
, may fail to qualify for tax-exempt status under the Internal Revenue Code. See
26 U.S.C. 584
A fund consisting solely of assets of retirement, pension, profit sharing, stock bonus or other trusts that are exempt from Federal income tax.
A national bank may invest assets of retirement, pension, profit sharing, stock bonus, or other trusts exempt from Federal income tax and that the bank holds in its capacity as trustee in a collective investment fund established under paragraph (a)(1) or (a)(2) of this section.
A national bank may invest assets of retirement, pension, profit sharing, stock bonus, or other employee benefit trusts exempt from Federal income tax and that the bank holds in any capacity (including agent), in a collective investment fund established under this paragraph (a)(2) if the fund itself qualifies for exemption from Federal income tax.
A national bank administering a collective investment fund authorized under paragraph (a) of this section shall comply with the following requirements:
(1) Written plan.
The bank shall establish and maintain each collective investment fund in accordance with a written plan (Plan) approved by a resolution of the bank's board of directors or by a committee authorized by the board. The bank shall make a copy of the Plan available for public inspection at its main office during all banking hours, and shall provide a copy of the Plan to any person who requests it. The Plan must contain appropriate provisions, not inconsistent with this part, regarding the manner in which the bank will operate the fund, including provisions relating to:
Investment powers and policies with respect to the fund;
Allocation of income, profits, and losses;
Fees and expenses that will be charged to the fund and to participating accounts;
Terms and conditions governing the admission and withdrawal of participating accounts;
Audits of participating accounts;
Basis and method of valuing assets in the fund;
Expected frequency for income distribution to participating accounts;
Minimum frequency for valuation of fund assets;
Amount of time following a valuation date during which the valuation must be made;
Bases upon which the bank may terminate the fund; and
Any other matters necessary to define clearly the rights of participating accounts.
(2) Fund management.
A bank administering a collective investment fund shall have exclusive management thereof, except as a prudent person might delegate responsibilities to others. 3
3 If a fund, the assets of which consist solely of Individual Retirement Accounts, Keogh Accounts, or other employee benefit accounts that are exempt from taxation, is registered under the Investment Company Act of 1940 (
15 U.S.C. 80a-1
et seq.), the fund will not be deemed in violation of this paragraph (b)(2) as a result of its compliance with section 10(c) of the Investment Company Act of 1940 (
15 U.S.C. 80a-10(c)
(3) Proportionate interests.
Each participating account in a collective investment fund must have a proportionate interest in all the fund's assets.
(i) Frequency of valuation.
A bank administering a collective investment fund shall determine the value of the fund's readily marketable assets at least once every three months. A bank shall determine the value of the fund's assets that are not readily marketable at least once a year.
(ii) Method of valuation—
(A) In general.
Except as provided in paragraph (b)(4)(ii)(B) of this section, a bank shall value each fund asset at market value as of the date set for valuation, unless the bank cannot readily ascertain market value, in which case the bank shall use a fair value determined in good faith.
(B) Short-term investment funds.
A bank may value a fund's assets on a cost, rather than market value, basis for purposes of admissions and withdrawals, if the Plan requires the bank to:
(1) Maintain a dollar-weighted average portfolio maturity of 90 days or less;
(2) Accrue on a straight-line basis the difference between the cost and anticipated principal receipt on maturity; and
(3) Hold the fund's assets until maturity under usual circumstances.
(5) Admission and withdrawal of accounts—
(i) In general.
A bank administering a collective investment fund shall admit an account to or withdraw an account from the fund only on the basis of the valuation described in paragraph (b)(4) of this section.
(ii) Prior request or notice.
A bank administering a collective investment fund may admit an account to or withdraw an account from a collective investment fund only if the bank has approved a request for or a notice of intention of taking that action on or before the valuation date on which the admission or withdrawal is based. No requests or notices may be canceled or countermanded after the valuation date.
(iii) Prior notice period for withdrawals from funds with assets not readily marketable.
A bank administering a collective investment fund described in paragraph (a)(2) of this section that is invested primarily in real estate or other assets that are not readily marketable, may require a prior notice period, not to exceed one year, for withdrawals.
(iv) Method of distributions.
A bank administering a collective investment fund shall make distributions to accounts withdrawing from the fund in cash, ratably in kind, a combination of cash and ratably in kind, or in any other manner consistent with applicable law in the state in which the bank maintains the fund.
(v) Segregation of investments.
If an investment is withdrawn in kind from a collective investment fund for the benefit of all participants in the fund at the time of the withdrawal but the investment is not distributed ratably in kind, the bank shall segregate and administer it for the benefit ratably of all participants in the collective investment fund at the time of withdrawal.
(6) Audits and financial reports—
(i) Annual audit.
At least once during each 12-month period, a bank administering a collective investment fund shall arrange for an audit of the collective investment fund by auditors responsible only to the board of directors of the bank. 4
4 If a fund, the assets of which consist solely of Individual Retirement Accounts, Keogh Accounts, or other employee benefit accounts that are exempt from taxation, is registered under the Investment Company Act of 1940 (
15 U.S.C. 80a-1
et seq.), the fund will not be deemed in violation of this paragraph (b)(6)(i) as a result of its compliance with section 10(c) of the Investment Company Act of 1940 (
15 U.S.C. 80a-10(c)
), if the bank has access to the audit reports of the fund.
(ii) Financial report.
At least once during each 12-month period, a bank administering a collective investment fund shall prepare a financial report of the fund based on the audit required by paragraph (b)(6)(i) of this section. The report must disclose the fund's fees and expenses in a manner consistent with applicable law in the state in which the bank maintains the fund. This report must contain a list of investments in the fund showing the cost and current market value of each investment, and a statement covering the period after the previous report showing the following (organized by type of investment):
A summary of purchases (with costs);
A summary of sales (with profit or loss and any other investment changes);
Income and disbursements; and
An appropriate notation of any investments in default.
(iii) Limitation on representations.
A bank may include in the financial report a description of the fund's value on previous dates, as well as its income and disbursements during previous accounting periods. A bank may not publish in the financial report any predictions or representations as to future performance. In addition, with respect to funds described in paragraph (a)(1) of this section, a bank may not publish the performance of individual funds other than those administered by the bank or its affiliates.
(iv) Availability of the report.
A bank administering a collective investment fund shall provide a copy of the financial report, or shall provide notice that a copy of the report is available upon request without charge, to each person who ordinarily would receive a regular periodic accounting with respect to each participating account. The bank may provide a copy of the financial report to prospective customers. In addition, the bank shall provide a copy of the report upon request to any person for a reasonable charge.
(7) Advertising restriction.
A bank may not advertise or publicize any fund authorized under paragraph (a)(1) of this section, except in connection with the advertisement of the general fiduciary services of the bank.
(8) Self-dealing and conflicts of interest.
A national bank administering a collective investment fund must comply with the following (in addition to § 9.12 ):
(i) Bank interests.
A bank administering a collective investment fund may not have an interest in that fund other than in its fiduciary capacity. If, because of a creditor relationship or otherwise, the bank acquires an interest in a participating account, the participating account must be withdrawn on the next withdrawal date. However, a bank may invest assets that it holds as fiduciary for its own employees in a collective investment fund.
(ii) Loans to participating accounts.
A bank administering a collective investment fund may not make any loan on the security of a participant's interest in the fund. An unsecured advance to a fiduciary account participating in the fund until the time of the next valuation date does not constitute the acquisition of an interest in a participating account by the bank.
(iii) Purchase of defaulted investments.
A bank administering a collective investment fund may purchase for its own account any defaulted investment held by the fund (in lieu of segregating the investment in accordance with paragraph (b)(5)(v) of this section) if, in the judgment of the bank, the cost of segregating the investment is excessive in light of the market value of the investment. If a bank elects to purchase a defaulted investment, it shall do so at the greater of market value or the sum of cost and accrued unpaid interest.
(9) Management fees.
A bank administering a collective investment fund may charge a reasonable fund management fee only if:
The fee is permitted under applicable law (and complies with fee disclosure requirements, if any) in the state in which the bank maintains the fund; and
The amount of the fee does not exceed an amount commensurate with the value of legitimate services of tangible benefit to the participating fiduciary accounts that would not have been provided to the accounts were they not invested in the fund.
A bank administering a collective investment fund may charge reasonable expenses incurred in operating the collective investment fund, to the extent not prohibited by applicable law in the state in which the bank maintains the fund. However, a bank shall absorb the expenses of establishing or reorganizing a collective investment fund.
(11) Prohibition against certificates.
A bank administering a collective investment fund may not issue any certificate or other document representing a direct or indirect interest in the fund, except to provide a withdrawing account with an interest in a segregated investment.
(12) Good faith mistakes.
The OCC will not deem a bank's mistake made in good faith and in the exercise of due care in connection with the administration of a collective investment fund to be a violation of this part if, promptly after the discovery of the mistake, the bank takes whatever action is practicable under the circumstances to remedy the mistake.
(c) Other collective investments.
In addition to the collective investment funds authorized under paragraph (a) of this section, a national bank may collectively invest assets that it holds as fiduciary, to the extent not prohibited by applicable law, as follows:
(1) Single loans or obligations.
In the following loans or obligations, if the bank's only interest in the loans or obligations is its capacity as fiduciary:
A single real estate loan, a direct obligation of the United States, or an obligation fully guaranteed by the United States, or a single fixed amount security, obligation, or other property, either real, personal, or mixed, of a single issuer; or
A variable amount note of a borrower of prime credit, if the bank uses the note solely for investment of funds held in its fiduciary accounts.
In a fund maintained by the bank for the collective investment of cash balances received or held by a bank in its capacity as trustee, executor, administrator, guardian, or custodian under a uniform gifts to minors act, that the bank considers too small to be invested separately to advantage. The total assets in the fund must not exceed $1,000,000 and the number of participating accounts must not exceed 100.
(3) Trust funds of corporations and closely-related settlors.
In any investment specifically authorized by the instrument creating the fiduciary account or a court order, in the case of trusts created by a corporation, including its affiliates and subsidiaries, or by several individual settlors who are closely related.
(4) Other authorized funds.
In any collective investment authorized by applicable law, such as investments pursuant to a state pre-need funeral statute.
(5) Special exemption funds.
In any other manner described by the bank in a written plan approved by the OCC. 5 In order to obtain a special exemption, a bank shall submit to the OCC a written plan that sets forth:
5 Any institution that must comply with this section in order to receive favorable tax treatment under
26 U.S.C. 584
(namely, any corporate fiduciary) may seek OCC approval of special exemption funds in accordance with this paragraph (c)(5).
The reason that the proposed fund requires a special exemption;
The provisions of the proposed fund that are inconsistent with paragraphs (a) and (b) of this section;
The provisions of paragraph (b) of this section for which the bank seeks an exemption; and
The manner in which the proposed fund addresses the rights and interests of participating accounts.
[61 FR 68554, Dec. 30, 1996, as amended at 68 FR 70131, Dec. 17, 2003]