03/21/1995 01:43 PM Senate L&C

 SL&C 3/21/95                                                                  
               SB 131 INVESTMENTS BY FIDUCIARIES                              
                                                                              
 SENATOR KELLY announced SB 131 to be up for consideration.                    
                                                                               
 VERNON SAYLES, Executive Vice President and Manager, Key Trust Co.,           
 said the bill addresses how they, as fiduciaries and trustees for             
 customers, can provide better investment management services                  
 through using common trust funds and through the concept of mutual            
 funds including proprietary mutual funds.                                     
                                                                               
 The difference between a common fund and a mutual fund comes down             
 to who is responsible for the regulatory authority over those funds           
 and the regulations that are applied as a result of that, he                  
 explained.  Common funds are typically administered and reviewed by           
 state and federal banking regulatory authorities and mutual funds             
 are primarily regulated by the Securities and Exchange Commission.            
 They both provide a pool of money to customers so they can better             
 diversify their investments, take advantage of economies of size              
 and scale, lower expense ratios, and provide better liquidity to              
 the customer with their investment vehicles.                                  
                                                                               
 Number 341                                                                    
                                                                               
 SUSAN LOCKE, Vice President and Senior Counsel, Key Management                
 Services, answering Senator Kelly's inquiry about the definition of           
 a fiduciary, explained that it is an individual or corporation who            
 is charged with responsibility for discharging certain duties.  The           
 duties can be imposed under law or under specific agreements.  The            
 duties may involve to care for, to conserve, and to invest assets             
 or to discharge a plan for fiduciary administration for different             
 trust areas.  The obligations of the fiduciary are very specific              
 involving very high standards of care, management, honor, honesty,            
 and integrity.                                                                
                                                                               
 SENATOR SALO asked her if she would characterize the legislation              
 before them as increasing or decreasing risk to their investors.              
 MR. SAYLES said this legislation didn't really affect risk.  In               
 theory, it should provide a better investment opportunity, and                
 possibly reduced risk, for customers by offering a broader range of           
 services.                                                                     
                                                                               
 MS. LOCKE said she felt that the belief in the industry is that it            
 would tend to lower risk.                                                     
                                                                               
 WILLIS KIRKPATRICK, Division of Banking, said he had no objections            
 to SB 131.                                                                    
                                                                               
 MR. SAYLES explained that in most cases they are looking at pooling           
 money within the smaller customer accounts.  The real purpose is to           
 take advantage of the economies of size that would hopefully reduce           
 risk.                                                                         
                                                                               
 MR. KIRKPATRICK said he thought the trust customer would be helped            
 in the case of a small trust company.  It would provide the smaller           
 funds that are registered under the Investment Company Act of 1940            
 to be allowed as one of the products of the trust company.  The               
 limiting factor is that it specifics what those can be, but it                
 would aid in the common trust business.                                       
 This bill also allows the affiliates to do things with one another            
 which can be very helpful in an area where the financial                      
 institution is quite small, but has an affiliate that has a better            
 base, better services, and more products to offer the trust                   
 customer.                                                                     
                                                                               
 Number 460                                                                    
                                                                               
 SENATOR TORGERSON moved to pass SB 131 from committee with                    
 individual recommendations.  There were no objections and it was so           
 ordered.