Kan. Admin. Regs. § 121-4-10 - Collective investment

Current through Register Vol. 40, No. 39, September 30, 2021

(a) Funds held by a corporate credit union as fiduciary may be invested collectively:
(1) in a common trust fund maintained by the corporate credit union exclusively for the collective investment and reinvestment of moneys contributed to the common trust fund by the corporate credit union in its capacity as trustee; or
(2) in a fund consisting solely of assets of retirement, pension, profit-sharing, stock bonus or other trusts, if all such assets are only from retirement, pension, profit-sharing, stock bonus or other trusts that provide the corporate credit union with a certification of exemption from federal income tax under the internal revenue code.
(b) Collective investment funds, as defined in subsection (b) of K.A.R. 121-4-1, shall be administered as follows:
(1) Each collective investment fund shall be established and maintained in accordance with a written plan, referred to in this regulation as the plan, which shall be approved by a resolution of the corporate credit union board of directors and filed with the administrator.
(A) The plan shall contain appropriate provisions not inconsistent with the rules and regulations of the administrator as to the manner in which the fund is to be operated. The plan shall include provisions relating to:
(i) the investment powers and the investment policy of the corporate credit union with respect to the fund;
(ii) the allocation of income, profits and losses;
(iii) the terms and conditions governing the admission or withdrawal of participations in the fund;
(iv) the auditing of accounts of the corporate credit union with respect to the fund;
(v) the basis and method of valuing assets in the fund, setting forth criteria for each type of asset;
(vi) the minimum frequency for valuation of assets of the fund;
(vii) the period following each such valuation date during which the valuation may be made which shall not exceed 10 business days, except in unusual circumstances.
(viii) the basis upon which the fund may be terminated; and
(ix) any other matters as may be necessary to define clearly the rights of participants in the fund.
(B) Except as otherwise provided in paragraph (b)(15) of this regulation, fund assets shall be valued at market value unless that value is not readily ascertainable, in which case a fair value determined in good faith by the fund trustees may be used.
(C) The corporate credit union shall make a copy of the plan available for inspection at its principal office during all business hours, and upon request, shall furnish a copy of the plan to any person.
(2) Property held by a corporate credit union in its capacity as trustee of retirement, pension, profit-sharing, stock bonus, or other trusts may be invested in collective investment funds, subject to the provisions herein contained pertaining to such funds.
(3) All participants in the collective investment fund shall be on the basis of a proportionate interest in all of the assets. In order to determine whether the investment of funds received or held by a corporate credit union as fiduciary in a participation in a collective investment fund is proper, the corporate credit union may consider the collective investment fund as a whole and shall not be prohibited from making the investment because any particular asset is non-income producing.
(4) At least once every three months, a corporate credit union administering a collective investment fund shall determine the value of the assets in the fund as of the date set for the valuation of assets.
(A) A participation shall not be admitted to or withdrawn from the fund except:
(i) on the basis of the valuation; and
(ii) as of the valuation date.
(B) A participation shall not be admitted to or withdrawn from the fund unless a written request for or notice of intention of taking such action has been entered in the fiduciary records of the corporate credit union on or be fore the valuation date and approved in the manner prescribed by the board of directors. No requests or notices may be canceled or countermanded after this valuation date.
(C) If a fund described in paragraph (a)(2) of this regulation is to be invested in assets which are not readily marketable, the corporate credit union may require a prior notice of withdrawal. The required notice shall not exceed one year.
(5)
(A) At least once during each 12-month period, each corporate credit union administering a collective investment fund shall cause an adequate audit to be made of the collective investment fund by auditors responsible only to the supervisory committee of the corporate credit union. If the audit is performed by independent public accountants, the reasonable expenses of the audit may be charged to the collective investment fund.
(B) At least once during each 12-month period, each corporate credit union administering a collective investment fund shall prepare a financial report of the fund. This report shall be based upon the above audit and shall contain a list of investments in the fund showing:
(i) the cost and current market value of each investment;
(ii) a statement for the period since the previous report showing each purchase, and its cost;
(iii) a statement for the period since the previous report showing each sale, and its profit or loss, and any other investment changes;
(iv) income and disbursements; and
(v) an appropriate notation as to any investments in default.
(C) The financial report may include a description of the fund's value on previous dates, as well as its income and disbursements during previous accounting periods. Predictions or representations as to future results shall not be made. In addition, as to funds described in paragraph (a)(1) of this regulation, neither the report nor any other publication of the corporate credit union shall make reference to the performance of funds other than those administered by the corporate credit union.
(D) The corporate credit union shall furnish a copy of the financial report, or shall give notice that a copy of the report is available and will be furnished without charge upon request, to each person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account. A copy of the financial report may also be furnished to prospective beneficial owners. The corporate credit union shall bear the cost of printing and distributing these reports. In addition, a copy of the report shall be furnished upon request to any person for a reasonable charge. The corporate credit union may publicize the availability of the report for any fund described in paragraph (a)(1) of this regulation solely in connection with the promotion of the fiduciary services of the corporate credit union.
(E) Except as provided in this regulation, the corporate credit union shall not advertise or publicize its collective investment fund or funds described in paragraph (a)(1) of this regulation.
(6) When a participation is withdrawn from a collective investment fund, distributions may be made in cash or ratably in kind, or partly in cash and partly in kind; provided that all distributions as of any one valuation date shall be made on the same basis.
(7) If, for any reason, 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 and the investment is not distributed ratably in kind, it shall be segregated and administered or realized upon for the benefit ratably of all participants in the collective investment fund at the time of withdrawal.
(8)
(A) A corporate credit union shall not have any interest in a collective investment fund other than in its fiduciary capacity. Except for temporary net cash overdrafts or as otherwise specifically provided in this regulation, a corporate credit union shall not lend money to a fund, or sell property to, or purchase property from a fund. Assets of a collective investment fund shall not be invested in stock or obligations, including share and share certificate accounts, of the corporate credit union or any of its affiliates except that funds awaiting investments or distribution may be invested in such share and share certificate accounts. Subject to all other provisions of this regulation, funds held by a corporate credit union as fiduciary for its own employees may be invested in a collective investment fund. A corporate credit union shall not make any loan on the security of a participation in a fund. If the corporate credit union acquires an interest in a participation in a fund due to a creditor relationship or other factors, the participation shall be withdrawn on the first date on which such a withdrawal can be effected. An unsecured advance to an account holding a participation shall not be deemed to constitute the acquisition of an interest by a corporate credit union until the next established valuation date.
(B) Any corporate credit union administering a collective investment fund may purchase from the fund, for its own account, any defaulted fixed income investment held by the fund, if in the judgment of the board of directors, the cost of segregating the investment would be greater than the difference between its market value and its principal amount plus interest and penalty charges due. If the corporate credit union elects to purchase the investment, it shall make the purchase at the investment's market value or at the sum of its cost, accrued unpaid interest, and penalty charges, whichever is greater.
(9) Except in the case of collective investment funds described in paragraph (a)(2) of this regulation, the following requirements shall apply.
(A) Funds or other property shall not be invested in a participation in a collective investment fund if as a result of the investment the participant would have an aggregate interest in excess of 10 percent of the then market value of the fund. In applying this limitation, if two or more accounts are created by the same person or persons, and at least one-half of the income or principal of each account is payable or attributable to the use of the same person or persons, those accounts shall be considered as one.
(B) An investment for a collective investment fund shall not be made in stocks, bonds or other obligations of any one person, firm or corporation if, as a result of such investment, the total amount invested in stocks, bonds, or other obligations issued or guaranteed by that person, firm or corporation would exceed 10 percent of the then market value of the fund. This limitation shall not apply to investments in direct obligations of the United States or other obligations fully guaranteed by the United States as to principal and interest.
(C) Each corporate credit union administering a collective investment fund shall maintain, in cash and readily marketable investments, a percentage of the assets of the fund which is sufficient to provide adequately for the liquidity needs of the fund and to prevent inequities among fund participants.
(10) The reasonable expenses incurred in servicing mortgages held by a collective investment fund may be charged against the income account of the fund and paid to servicing agents, including the corporate credit union administering the fund.
(11)
(A) Any corporate credit union may transfer up to five percent of the net income derived by a collective investment fund from mortgages held by such fund during any regular accounting period to a reserve account unless the transfer would cause the amount in the reserve account to exceed one percent of the outstanding principal amount of all mortgages held in the fund. The amount of such a reserve account, if established, shall be deducted from the assets of the fund in determining the fair market value of the fund for the purposes of admissions and withdrawals.
(B) At the end of each accounting period, the corporate credit union shall charge all interest payments which are due but unpaid with respect to mortgages in the fund against the reserve account to the extent available and credited to income distributed to participants. If such interest payments are subsequently recovered by the fund, the reserve account shall be credited with the amount so recovered.
(12)
(A) Each corporate credit union administering a collective investment fund shall have the exclusive management thereof.
(B) The corporate credit union may charge a fee for the management of the collective investment fund provided that the fractional part of the fee which is proportionate to the interest of each participant shall not, when added to any other compensations charged by a corporate credit union to a participant, exceed the total amount of compensation which would have been charged to the participant if no assets of the participant had been invested in a participation in the fund.
(C) The corporate credit union shall absorb the costs of establishing or reorganizing a collective investment fund.
(13) A corporate credit union administering a collective investment fund shall not issue any certificate or other document evidencing a direct or indirect interest in such fund in any form.
(14) A mistake made in good faith and in the exercise of due care in connection with the administration of a collective investment fund shall not be deemed to be a violation of this regulation if promptly after the discovery of the mistake the corporate credit union takes whatever action may be practicable in the circumstances to remedy the mistake.
(15) Short-term investment funds established under subsection (a) of this regulation may be operated on a cost basis, rather than market value basis, for purposes of admissions and withdrawals, if the plan of operation satisfies each of the following conditions.
(A) Investments shall be limited to bonds, notes or other evidences of indebtedness which:
(i) are payable on demand, including variable amount notes; or
(ii) have a maturity date not exceeding 91 days from the date of purchase. However, 20 percent of the value of the fund may be invested in longer term obligations.
(B) The difference between the cost and anticipated principal receipt on maturity shall be accrued on a straight-line basis.
(C) Assets of the fund shall be held until maturity under usual circumstances.
(D) After effecting admissions and withdrawals, not less than 20 percent of the value of the remaining assets of the fund shall be composed of cash, demand obligations and assets that will mature on the fund's next business day.
(c) In addition to the investments permitted under subsection (a) of this regulation, funds or other property received or held by a corporate credit union as fiduciary may be invested collectively, to the extent not prohibited by applicable federal or state law or regulation, as follows:
(1) Such funds or property may be invested in shares of a mutual trust investment company, organized and operated pursuant to a statute that specifically authorizes the organization of such companies exclusively for the investment of funds held by corporate fiduciaries, commonly referred to as a "bank or trust company fiduciary fund."
(2) Such funds or property may be invested in the following:
(A) a single real estate loan;
(B) a direct obligation of the United States or an obligation fully guaranteed by the United States; or
(C) in a single fixed amount security, obligation or other property, either real, personal or mixed, of a single issuer. However, the corporate credit union shall not participate in such loans or obligations and shall not have an interest in any investment therein except in its capacity as fiduciary.
(3) Such funds or property may be invested in a common trust fund maintained by the corporate credit union for the collective investment of cash balances received or held by a corporate credit union in its capacity as trustee which the corporate credit union considers to be individually too small to be invested separately to advantage.
(A)
(i) The total investment for such fund shall not exceed $100,000.
(ii) The number of participating accounts shall be limited to 100.
(iii) No participating account may have an interest in the fund in excess of $10,000.
(B) In applying these limitations, if two or more accounts are created by the same person or persons, and at least one-half of the income or principal of each account is presently payable or attributable to the use of the same person or persons, such accounts shall be considered as one.
(C) A corporate credit union shall not establish or operate a fund under this paragraph for the purpose of avoiding the provisions of subsection (b) of this regulation.
(4) Such funds or property may be invested, in the case of trusts created by a corporation, its subsidiaries and affiliates or by several individual settlors who are closely related, in any investment specifically authorized by court order, or authorized by the instrument creating the fiduciary relationship. An investment shall not be made under this paragraph for the purpose of avoiding the provisions of subsection (b) of this regulation.
(5) Such funds or property may be invested in such other manner as shall be approved in writing by the administrator.

Notes

Kan. Admin. Regs. § 121-4-10
Authorized by and implementing K.S.A. 17-2214; effective Jan. 31, 1997.

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