BILL NUMBER: AB 512 AMENDED
BILL TEXT
AMENDED IN SENATE SEPTEMBER 1, 1995
AMENDED IN SENATE AUGUST 24, 1995
AMENDED IN SENATE JULY 14, 1995
AMENDED IN SENATE JUNE 22, 1995
AMENDED IN ASSEMBLY MAY 17, 1995
INTRODUCED BY Assembly Member Richter
FEBRUARY 17, 1995
An act to add Section 1561.1 to the Financial Code, relating to
trust companies.
LEGISLATIVE COUNSEL'S DIGEST
AB 512, as amended, Richter. Trust companies: investments.
Under existing law, a trust company can invest its contributed
capital only in the securities and properties in which a commercial
bank can invest its funds, or in loans on real property that
commercial banks are permitted to make, as specified.
This bill would provide that a trust company may invest or
reinvest in the securities or other interests of any mutual fund for
which the trust company or its affiliate is providing specified
investment or management services. The trust company would provide
notice of these investments to certain persons and would make
specified disclosures concerning the investments and compensation
received for its services.
The bill would provide that , unless otherwise
authorized, the amount of compensation that the trust
company receives for providing investment advisory or investment
management services shall be reduced by an amount equal to any
compensation received by the trust company or its affiliates for
providing investment advisory or investment management services to
the mutual fund for the portion of the trust invested in the fund.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature in enacting this
chapter to enable California trust companies as defined in Section
107 of the Financial Code to achieve competitive equality with
out-of-state institutions offering trust services to California
residents by enabling banks and trust companies to
invest fiduciary accounts in mutual funds to which the bank
trust company acts as an investment adviser or
provides related investment services. The Legislature finds and
declares:
(a) This legislation is necessary to achieve parity with 47 other
states that have enacted similar legislation permitting
banks and trust companies to invest fiduciary accounts in
mutual funds for which the bank or trust company
provides advisory services.
(b) Without this legislation, California banks and
trust companies cannot offer this investment service to
their existing fiduciary trust accounts without a court order or
specific consent or authorizing language in the trust instrument.
(c) It is proper and appropriate to use the investment expertise
of California banks and trust companies for the
benefit of their fiduciary clients.
SEC. 2. Section 1561.1 is added to the Financial Code, to read:
1561.1. (a) As used in this section:
(1) "Fund" means any investment company registered under the
Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), as
amended from time to time.
(2) "Trust" means any court trust or private trust.
(3) "Trust law Law " means Division
9 (commencing with Section 15000) of the Probate Code.
(b) Within the standards of care established by
trust law, including, but not limited to, Division 9
(commencing with Section 15000) of the Probate Code, a trust
company acting in any capacity under a trust may, in the exercise of
its investment discretion unless the trust instrument provides
expressly to the contrary, invest and reinvest in the securities of
or other interests in any fund to which the trust company or its
affiliate is providing services including, but not limited to
, services as an investment adviser,
sponsor, distributor, custodian, agent, registrar, administrator,
servicer, or manager, and for which the trust company or its
affiliate receives compensation.
(c) At least 30 days before an initial investment under the
exercise of discretionary powers authorized by subdivision (b), the
trust company, acting in any capacity under a trust, shall furnish
written notice of the exercise of the discretionary powers and a copy
of the prospectus relating to the securities to all persons to whom
the trust company is required to render statements of account
pursuant to applicable provisions of the trust law and
Trust Law or to whom the trust company regularly
provided provides a statement of
account unless specifically waived in writing.
(d) With respect to any trust so invested, the trust company shall
disclose to all persons identified in subdivision (c), at least
annually by prospectus, statement of account, or other written
notice, a brief description of the fees or rates charged by the trust
company and its affiliates for its services as investment adviser or
investment manager to the fund.
(e) Unless otherwise authorized by the trust instrument, court
order, the person holding the power to revoke the trust, or the
beneficiaries of the trust, the
(e) In connection with an investment or reinvestment authorized by
subdivision (b), the portion of compensation a trust company
receives from the trust reasonably attributable to investment
advisory or investment management services to the trust shall be
reduced (but not below zero) by an amount equal to compensation that
is received by the trust company or its affiliates for providing
investment advisory or investment management services to the fund for
the portion of the trust invested in the fund.