Collective Investment Funds

Audits and Financial Reports – 9.18(b)(6)

Every CIF must be audited at least once every 12 months by auditors responsible only to the bank’s board of directors. The OCC provides a narrow exemption from the audit requirement for funds that consist exclusively of IRAs, Keogh accounts, or other employee benefit accounts that are exempt from taxation and registered under the ’40 Act. If those funds comply with section 10(c) of the ’40 Act, which authorizes certain director affiliations between the fund and the bank, then those funds may use their ’40 Act audit, so long as they provide a copy of their audit report to the administering bank.

A bank must also prepare a financial report, based on the annual audit, at least once during each 12-month period for each CIF it administers. The financial report must disclose the fund’s fees and expenses in a manner that is consistent with applicable law in the state in which the bank maintains the fund.

At a minimum, the financial report must contain the following items:

• A list of investments in the fund showing the cost and current market value of each investment; and

• A statement covering the period after the previous report showing the following (organized by type of investment):

  • A summary of purchases (with costs);

  • A summary of sales (with profit or loss and any other investment changes);

  • Income and disbursements; and

  • An appropriate notation of any investments in default.

A bank may include in the financial report a description of the fund’s value on previous dates, as well as its income and disbursements during previous accounting periods. A bank may not, however, publish in the financial report any predictions or representations as to future performance. To ensure that A1 funds fall within the exclusion from the definition of an investment company under section 3(c)(3) of the ’40 Act, 9.18(b)(7) imposes an additional advertising restriction on banks administering these funds.

A bank must provide either a copy of the financial report, or must provide notice that a copy of the report is available without charge, to each person who ordinarily would receive a regular periodic accounting with respect to each participating account. Banks may also provide copies of the financial report to prospective customers. While banks are required to provide a copy of this report to any requestor, they may impose a reasonable charge for them.

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