Wis. Admin. Code Department of Financial Institutions DFI-SL 17.14 - Common trust funds

Investment of funds or other property under s. DFI-SL17.13 shall be administered as follows:

(1) Each collective investment fund shall be established and maintained in accordance with a written plan which shall be approved by a resolution of the association's board of directors and filed with the division. A copy of the plan shall be available at the principal office of the association for inspection during all business hours, and upon request a copy of the plan shall be furnished to any person. The plan shall contain appropriate provisions not inconsistent with this chapter as to the manner in which the fund is to be operated. The plan shall include provisions relating to:

(a) The investment powers and a general statement of the investment policy of the association with respect to the fund;

(b) The allocation of income, profits and losses;

(c) The terms and conditions governing the admission or withdrawal of participations in the fund;

(d) The auditing of accounts of the association with respect to the fund;

(e) The basis and method of valuing assets in the fund, setting forth specific criteria for each type of asset;

(f) The minimum frequency for valuation of assets of the fund;

(g) The period following each valuation date during which the valuation may be made (which period in usual circumstances shall not exceed 10 business days);

(h) The basis upon which the fund may be terminated; and

(i) Other matters as may be necessary to define clearly the rights of participants in the fund.

(2) Property held by an association in its capacity as trustee of retirement, pension, profit-sharing, stock bonus or other trusts which are exempt from federal income taxation under any provisions of the Internal Revenue Code may be invested in collective investment funds established under s. DFI-SL 17.13(1) (a) or (b) subject to restrictions under this section. Assets of retirement, pension, profit-sharing, stock bonus, or other trusts which are exempt from federal income taxation under section 401 of the Internal Revenue Code may be invested in collective investment funds established under s. DFI-SL 17.13(1) (b) if the fund qualifies for tax exemption under Revenue Ruling 56.267 and following rulings.

(3) All participants in a 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 an association as fiduciary in a participation in a collective investment fund is proper, the association may consider the collective investment fund as a whole and shall not, for example, be prohibited from making the investment because any particular asset is non-income producing.

(4) Not less frequently than once during each period of 3 months an association 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. No participation shall be admitted to or withdrawn from the fund except:

(a) On the basis of the valuation;

(b) As of the valuation date; and

(c) On written request for or notice of intention of taking that action which is entered on or before the valuation date in the fiduciary records of the association and approved in the manner the board of directors prescribes. No requests or notice may be canceled or countermanded after the valuation date.

(5)

(a) An association administering a collective investment fund shall at least once during each period of 12 months cause an adequate audit to be made of the collective investment fund by auditors responsible only to the board of directors of the association. In the event the audit is performed by independent public accountants, the reasonable expenses of the audit may be charged to the collective investment fund.

(b) An association administering a collective investment fund shall at least once during each period of 12 months prepare a financial report of the fund. This report, based upon the audit required under par. (a), shall contain a list of investments in the fund showing the cost and current market value of each investment; a statement for the period since the previous report showing purchases, with cost; sales, with profit or loss and any other investment changes; income and disbursements; and an appropriate notation as to any investments in default.

(c) The financial report under par. (b) may include a description of the fund's value on previous dates, as well as its income and disbursements during previous accounting periods. No predictions or representations as to future results may be made. In addition, as to funds described in s. DFI-SL 17.13(1) (a) neither the report nor any other publication of the association may make reference to the performance of funds other than those administered by the association.

(d) A copy of the financial report required under par. (b) shall be furnished, or notice shall be given 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 be furnished to prospective customers. The cost of printing and distribution of these reports shall be borne by the association. In addition, a copy of the report shall be furnished upon request to any person for a reasonable charge. The fact of the availability of the report for any fund described in s. DFI-SL 17.13(1) (a) may be given publicity solely in connection with the promotion of the fiduciary services of the association.

(e) Except as provided in this section an association may not advertise or publicize its collective investment fund described in s. DFI-SL 17.13(1) (a).

(5m) When participations are withdrawn from a collective investment fund, distributions may be made in cash or ratably in kind, or partly in cash and partly in kind except that all distributions as of any one valuation date shall be made on the same basis.

(6) 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.

(7)

(a) No association may 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 under this section, it may not lend money to a fund, sell property to, or purchase property from a fund. No assets of a collective investment fund may be invested in stock or obligations, including time or savings deposits, of the association or any of its affiliates except that deposits may be made of funds awaiting investment or distribution. Subject to this chapter, funds held by an association as fiduciary for its own employees may be invested in a collective investment fund. An association may not make any loan on the security of a participation in a fund. If, because of a creditor relationship or otherwise, the association acquires an interest in a participation in a fund, the participation shall be withdrawn on the first date on which withdrawal can be affected. However, an unsecured advance until the time of the next valuation date to an account holding a participation is not deemed to constitute the acquisition of an interest by the association.

(b) Any association administering a collective investment fund may purchase for its own account from the fund any defaulted fixed income investment held by the fund, if in the judgment of the board of directors the cost of segregation of the investment would be greater than the difference between its market value and its principal amount plus interest and penalty charges due. If the association elects to so purchase the investment, it shall do so at its market value or at the sum of cost, accrued unpaid interest, and penalty charges, whichever is greater.

(8) Except in the case of collective investment funds described in s. DFI-SL 17.13(1) (b):

(a) No funds or other property may be invested in a participation in a collective investment fund if as a result of the investment the participant would have an interest aggregating in excess of 10 percent of the then market value of the fund except in applying this limitation if two or more accounts are created by the same persons and as much as one-half of the income or principal of each account is payable or applicable to the use of the same persons the accounts shall be considered as one.

(b) No investment for a collective investment fund shall be made in stocks, bonds, or other obligations of any one person, firm, or corporation if as a result of the investment the total amount invested in stocks, bonds or other obligations issued or guaranteed by the person, firm or corporation would aggregate in excess of 10% of the then market value of the fund except this limitation does 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) Any association administering a collective investment fund shall maintain in cash and readily marketable investments a portion of the assets of the fund sufficient to provide adequately for the needs of participants and to prevent inequities between the participants. If, prior to any admissions to or withdrawals from a fund, the association determines that after affecting the admissions and withdrawals which are to be made less than 40% of the value of the remaining assets of the collective investment fund would be composed of cash and readily marketable investments, no admissions to or withdrawals from the fund may be permitted as of the valuation date upon which the determination is made except a ratable distribution upon all participants may be made.

(9) 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 association administering the fund.

(10)

(a) An association may transfer up to 5% of the net income derived by a collective investment fund from mortgages held by the fund during any regular accounting period to a reserve account. No transfers shall be made which would cause the amount in the account to exceed 1% of the outstanding principal amount of all mortgages held in the fund. The amount of the 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 all interest payments which are due but unpaid with respect to mortgages in the fund shall be charged against the reserve account to the extent available and credited to income distributed to participants. If interest payments are subsequently recovered by the fund, the reserve account shall be credited with the amount recovered.

(11) An association administering a collective investment fund shall exclusively manage the fund. The association may charge a fee for the management of the collective investment fund. The fractional part of the fee proportionate to the interest of each participant shall not, when added to any other compensations charged by an association to a participant, exceed the total amount of compensations which would have been charged to the participant if no assets of the participant had been invested in participations in the fund. The association shall absorb the costs of establishing or reorganizing a collective investment fund.

(12) No association administering a collective investment fund may issue any certificate or other document evidencing a direct or indirect interest in the fund in any form.

(13) No mistake made in good faith and in the exercise of due care in connection with the administration of a collective investment fund violates this chapter if promptly after the discovery of the mistake the association takes whatever action may be practicable in the circumstances to remedy the mistake.

Notes

Wis. Admin. Code Department of Financial Institutions DFI-SL 17.14

CR Register, June, 1989, No. 402, eff. 7-1-89; correction made under s. 13.93(2m) (b) 1, Register, September, 1995, No. 477.