Trust Assets: Investment of Trust Assets in Bank Proprietary Mutual Funds
(Letter Report, 03/16/95, GAO/GGD-95-21).

Pursuant to a congressional request, GAO provided information on the
extent to which banks have invested trust assets into proprietary mutual
funds, focusing on: (1) the disclosure and consent requirements that
apply when trust assets are invested into these funds; (2) whether
double fees on invested trust assets are legal; and (3) the regulatory
controls that prevent banks from acting in their own self-interest.

GAO found that: (1) most banks have not invested trust assets in
proprietary mutual funds; (2) the majority of funds invested in bank
proprietary mutual funds are from non-trust assets; (3) by the end of
1992, about $24 billion in trust assets had been used to start up
proprietary mutual funds which represented about 15 percent of the total
assets in these funds; (4) the bank industry believed the trust asset
investments were understated because the estimates did not take into
account conversions and new trust investments; (5) in 1993, about $45
billion in employee benefit and personal trust assets were invested in
short-term money market mutual funds; (6) industry and regulatory
officials believe that trust investments are becoming more attractive to
investors for tax reasons; (7) investment disclosure requirements vary
by state and most states that allow proprietary mutual fund investments
do not require beneficiary consent; (8) although 8 states are in
compliance with the double fee prohibitions on employee accounts, 27
states allow double fees to be charged; (9) most banks lack incentives
to charge double fees because of competition and the possibility of
federal penalties and beneficiary lawsuits; (10) when investing trust
assets, banks are prohibited from acting in their own self-interest,
must justify their investments, and are subject to federal review; and
(11) the effectiveness of trust examinations could not be determined,
since the number of examinations are limited and use of proprietary
mutual funds in trusts is new.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-95-21
     TITLE:  Trust Assets: Investment of Trust Assets in Bank 
             Proprietary Mutual Funds
      DATE:  03/16/95
   SUBJECT:  Assets
             Bank management
             Banking regulation
             Investments
             Insured commercial banks
             Mutual funds
             Financial institutions
             Disclosure law
             Investment planning
             Bank examination