Release No. 33-5896

Release No. 34-14363

Release No. IC-10089

January 10, 1978

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

SUMMARY: These rules have the effect, provided certain conditions are met, of treating common trust funds for several banks in the same affiliated group ("multi-bank common trust funds") in the same manner as traditional single bank common trust funds which are ordinarily exempt from regulation as investment companies, and from the registration and reporting requirements normally applicable to publicly held companies and other issuers of securities. Some state laws permit multi-bank common trust funds, which under recent amendments to the federal tax laws may operate as non-taxable entities. In the absence of the rules now being adopted, multi-bank common trust funds might be treated differently under the federal securities laws from single bank common trust funds.

EFFECTIVE DATE: January 10, 1978.

FOR FURTHER INFORMATION CONTACT:

Lawrence R. Bardfeld, Esq.

Office of the Chief Counsel 

Division of Investment Management 

Securities and Exchange Commission 

500 North Capitol Street 

Washington, D.C. 20549

(202) 376-8056

SUPPLEMENTARY INFORMATION:

Bank holding companies and representatives of the banking industry have recently indicated an interest in using "multi-bank common trust funds," i.e., common trust funds maintained by one constituent bank of a bank holding company for assets contributed thereto by the bank or by other constituent banks in the same holding company in their capacity as trustee, executor, administrator or guardian. Some state laws allow such common trust funds, and recent federal legislation permits such funds to be operated as non-taxable entities. ¹

At present, common trust funds maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian, and interests or participations therein, are exempted or excluded from provisions of the federal securities laws by section 3(a)(2) 15 U.S.C. 77c(a)(2) of the Securities Act of 1933 15 U.S.C. 77a et seq. ("Securities Act"), section 3(a)(12) 15 U.S.C. 78c(a)(12) and rule 12h-2 17 CFR 240.12h-2 of the Securities Exchange Act of 1934 15 U.S.C. 78a et seq. ("Exchange Act"), and section 3(c)(3) 15 U.S.C. 80a-3(c)(3) of the Investment Company Act of 1940 15 U.S.C. 80a-1 et seq. ("Investment Company Act"). ² Because the present definition of "common trust fund" in the federal securities laws refers to a fund maintained by "a bank" for assets contributed to the fund by "such bank," ³ it appears that, as presently drafted, the exclusionary and exemptive provisions in the federal securities laws would not be available if one bank in a bank holding company maintained a common trust fund which included assets contributed by other bank members of the same holding company.

On October 28, 1977 the Commission published in the FEDERAL REGISTER (42 FR 56754) proposed rules which would define the term "common trust fund" so as to include such multi-bank common trust funds, and thus have the effect of exempting them from the provisions of the Investment Company Act. Also, under those rules interests or participations therein would be exempt from the registration requirements in section 5 15 U.S.C. 77e of the Securities Act and section 12(g) of the Exchange Act 15 U.S.C. 78l(g), and be "exempted securities" under section 3(a)(12) of the Exchange Act.

Public Comments on the Proposed Rules

The comments received concerning the proposed rules unanimously favored their adoption, supporting the rules both in concept and substance.

Commission Action

PART 230 - GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

Part 230 of Chapter II of Title 17 of the Code of Federal Regulations, General Rules and Regulations, Securities Act of 1933, is hereby amended by adding a new section 230.132 to read as follows:

§230.132 Definition of "common trust fund" as used in section 3(a)(2) of the Act.

The term "common trust fund" as used in section 3(a)(2) of the Act 15 U.S.C. 77c(a)(2) shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in section 1504(a) of the Internal Revenue Code of 1954 26 U.S.C. 1504(a), and which is maintained exclusively for the collective investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian, provided that:

(a) the common trust fund is operated in compliance with the same state and federal regulatory requirements as would apply if the bank maintaining such fund and any other contributing banks were the same entity; and

(b) the rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator, or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group.

* * * * *

(15 U.S.C. 77s(a)).

PART 240 - GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

Part 240 of Chapter II of Title 17 of the Code of Federal Regulations, General Rules and Regulations, Securities Exchange Act of 1934, is hereby amended by revising paragraph (b) of section 240.12h-2 to read as follows:

§240.12h-2 Exemptions from registration under section 12(g) of the act.

* * * * *

(b) Any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of monies contributed thereto by the bank in its capacity as a trustee, executor, administrator, or guardian. For purposes of this paragraph (b), the term "common trust fund" shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in section 1504(a) of the Internal Revenue Code of 1954 26 U.S.C. 1504(a), and which is maintained exclusively for the investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian, provided that:

(1) the common trust fund is operated in compliance with the same state and federal regulatory requirements as would apply if the bank maintaining such fund and any other contributing banks were the same entity; and

(2) the rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group; and

* * * * *

(15 U.S.C. 78c(b), 781).

Part 240 of Chapter II of Title 17 of the Code of Federal Regulations, General Rules and Regulations, Securities Exchange Act of 1934, is hereby amended by adding a new section 240.3a12-6 to read as follows:

§240.3a12-6 Definition of "common trust fund" as used in section 3(a)(12) of the act.

The term "common trust fund" as used in section 3(a)(12) of the Act 15 U.S.C. 78c(a)(12) shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in section 1504(a) of the Internal Revenue Code of 1954 26 U.S.C. 1504(a), and which is maintained exclusively for the collective investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian, provided that:

(a) the common trust fund is operated in compliance with the same state and federal regulatory requirements as would apply if the bank maintaining such fund and any other contributing banks were the same entity; and

(b) the rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator, or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group.

* * * * *

(15 U.S.C. 78c(b)).

PART 270 - RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

Part 270 of Chapter II Title 17 of the Code of Federal Regulations, Rules and Regulations, Investment Company Act of 1940, is hereby amended by adding a new section 270.3c-4 to read as follows:

§270.3c-4 Definition of "common trust fund" as used in section 3(c)(3) of the Act.

The term "common trust fund" as used in section 3(c)(3) of the Act 15 U.S.C. 80a-3(c)(3) shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in section 1504(a) of the Internal Revenue Code of 1954 26 U.S.C. 1504(a), and which is maintained exclusively for the collective investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian, provided that:

(a) the common trust fund is operated in compliance with the same state and federal regulatory requirements as would apply if the bank maintaining such fund and any other contributing banks were the same entity; and

(b) the rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator, or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group.

* * * * *

(15 U.S.C. 80a-6(c), 80a-37(a)).

George A. Fitzsimmons

Secretary

¹ Pub. L. No. 94-414, 90 Stat. 1273, amending 26 U.S.C. 584(a).

² These provisions apply only to common trust funds for assets contributed by a bank in a bona fide fiduciary capacity and incidental to the banks traditional trust department activities.

³ Section 3(c)(3) of the Investment Company Act uses the equivalent expression "the bank" instead of "such bank."