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4000 - Advisory Opinions

Insurance Coverage of Beneficial Interest in Trust Funds Invested in Money Market Accounts


January 5, 1988

Gerald J. Gervino, Senior Attorney

In your letter of December 10, 1987 you have requested written confirmation of our telephone conversation on December 1, 1987. You have described the following factual situation and requested our opinion as to the insurance coverage afforded certain deposits.

Various organizations ("participants") that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code and are listed (or affiliated with entities listed) in the Official Catholic Directory are the sole investors in the *** Trust ("Trust"). The Trust is sponsored by *** Services, Inc. The moneys invested in the Trust, in turn, are apportioned among several funds. These funds are each invested in different kinds of investment vehicles. The Trustees of the Trust ("Trustees") have investment discretion with respect to the funds, provided that, (x) the trust agreement limits permissible investment vehicles to a certain extent and (y) the Trustees may delegate some of this discretion to investment advisors registered under the Investment Advisors Act of 1940. The Trust has received a no-action letter from the Securities and Exchange Commission exempting it from registration as an investment company under the Investment Company Act of 1940.

You have been informed that on each business day the Trust calculates the principal balance and interest earned in each account as of the close of business on that day. Each participant may choose whether or not it wishes to have any of its moneys invested in a fund and the extent of its investment. However, all moneys from all participants invested in a fund are deemed invested in each investment made by the fund on the same proportional basis. The Trust also maintains daily records as to the portion of each participant's account invested in each fund in the Trust. Therefore, on any business day, the Trust can calculate the portion of each investment made by each fund allocable to each participant.

The Trustees, on behalf of the Trust, are considering depositing a portion of the Trust moneys in a money market account ("account") at the *** ("Bank"). The account would be in the name of the Trustees on behalf of the money market fund of the Trust. You would appreciate our written confirmation that as long as the Trust maintains records that enable it to calculate each participant's proportionate interest in the account in a manner substantially similar to that described above (and the Bank otherwise remains qualified for deposit insurance), the interest of each participant in the account, together with all other deposits, if any, of that participant at the Bank, will be insured by the Federal Deposit Insurance Corporation up to the maximum amount permitted for separate depositors at a single insured bank.

As we indicated in our previous conversation, even though the trust here resembles a mutual fund, it is not one which would be deemed to be a corporation for purposes of determining deposit insurance coverage under § 330.5 of our regulations, since it has neither filed nor, you represent, is required to file a registration statement with the Securities and Exchange Commission pursuant to section 8 of the Investment Company Act of 1940. For this conclusion, we are relying upon your representation that the Securities and Exchange Commission has provided the trust with a no-action letter to that effect.

Section 330.1(b) of our regulations states that the deposit account records of the insured bank are conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and upon which a claim for insurance coverage is founded. Thus, the trust relationship between the trustees and the Trust beneficiaries must be disclosed on the records of the bank in order to establish an insurance claim with respect to the ownership interests of the beneficiaries. At that point, § 330.1(b)(2) of our regulations allows a claimant to present details of the relationship as to the interest of other parties in the account which can be ascertained either from the records of the bank or the records of the depositor maintained in good faith and in the regular course of business. A beneficial interest in a single trust deposited in a single account would be separately insured if the value of the trust interest is capable of determination, without evaluation of contingencies, except for those covered by the present worth tables and rules of calculation for their use set forth in § 20.2031-7 of the Federal State Tax Regulations (26 C.F.R 20.2031-7). Since the interests of various beneficiaries appear to be valued on a daily basis, this test should be easily met under the facts you have presented.

Thus, under the facts you have presented, it appears that the beneficial interest of each participant in the *** Trust would be separately insured, if the records of the depository bank indicate the nature of the relationship and the trustees' records indicate the beneficial interest of the various participants.

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