SB 131 - INVESTMENTS BY FIDUCIARIES Number 025 CHAIRMAN PETE KOTT announced the first order of business would be SB 131, "An Act relating to investments by fiduciaries." He asked if there was anybody present from the Senate Labor and Commerce Committee to present the bill. Chairman Kott didn't get a response to his question. He noted there is a sponsor statement in each of the committee member's file. Chairman Kott asked Mr. Kirkpatrick to come forward and give his perspective on SB 131. Number 240 WILLIS KIRKPATRICK, Director, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development, explained SB 131 has been considered in prior years and may have been included in the Eighteenth Legislature. He said the bill would assist trust companies operating in Alaska, specifically the larger trust companies, by giving them a little more latitude to do their business with affiliates outside the state. It also provides for an investment that is called an investment of the trust companies called proprietary investment of the press company's parents or affiliates that may be used in a common trust situation. Mr. Kirkpatrick said SB 131 is almost verbatim of a Washington State law. He informed the committee that over the past couple of years, he has been in contact with Washington's trust company concerning this type of legislation and how they administer it in that state. They have informed him they have had no particular problems with this bill. They very closely examine the trust company's activities. He said in Alaska, they examine the only trust company which is Key Trust of Alaska. It is over two billion in size and is a substantial company. Mr. Kirkpatrick said he would be happy to answer questions. Number 396 CHAIRMAN KOTT asked if the bill would permit trust funds to be invested in mutual funds. MR. KIRKPATRICK said it would, but it's defined as to what the mutual fund can have as its portfolio which are governments or better. So a bank's proprietary fund investment, which may be an investment company registered under the 1940 Securities and Exchange Commission Act, which is commonly known as a mutual fund, has as its portfolio specific defined investments. In that connotation, under SB 131, those investments of that mutual fund or that investment company would have to meet certain investment criteria. That is what is generally called governments or better. The common trust would probably be made up of those things that are extremely liquid and risk free. REPRESENTATIVE NORMAN ROKEBERG referred to Mr. Kirkpatrick saying that there was only one trust company in Alaska and asked if this would affect the trust departments of national charter banks in the state of Alaska. MR. KIRKPATRICK clarified there is one trust company in Alaska under his regulation. He answered in the affirmative to the question. Number 545 VERN SAYLES, Executive Vice President and Manager Key Trust Company of Alaska, said he was would testify on behalf of the Alaska Bankers Association via teleconference from Anchorage. The following is Mr. Sayles testimony: "As Mr. Kirkpatrick has outlined the purpose of the bill is really twofold to provide, in our minds, more investment opportunities for the Alaska consumer. We feel that these opportunities will include a better opportunity for diversification of the consumer's portfolios, to provide lower costs, also by doing that it will lower the potential risk of the individual investor, provides for better (indisc.). We feel the bill addresses this opportunity in two ways. One is to expand the current state statutes in reference to common funds to include the word `affiliate,' and second, to add specific language for the use of mutual funds. Most of us, I believe, are familiar with mutual funds in the concept of basically investing pools of money that have been accepted and created from individuals and institutional investors. These types of investments are normally sold across state lines, subject to federal regulation. "Common funds, on the other hand, are not always available across state lines unless specific reference to affiliates are included. By incorporating that reference, it would be able then to offer to our customers here in the state of Alaska those types of investments that are now being offered in states such as Washington, Oregon, specifically Utah and the West. We feel these changes will definitely enhance the ability of the consumer to receive a good investment product. At this point in time, I would certainly entertain any question that you may have as well." Number 689 REPRESENTATIVE ROKEBERG referred to trust departments of banks and said in terms of their investments for their clients, they cannot invest in mutual funds presently. MR. SAYLES said there is no specific reference in the state statutes that allows for it. It doesn't disallow for it obviously, but they feel it would be a necessary addition to the statute to specifically include that as a reference. Number 780 REPRESENTATIVE JERRY SANDERS asked Mr. Sayles if he or any of the banks currently invest in any other instruments, other than mutual funds, that aren't specifically in the statute. MR. SAYLES responded that he isn't aware of any. The statute is fairly general but it usually refers to individual stocks, bonds, those types of real estate investments. He noted that most of the investments in the state that he is familiar with would certainly fall in those categories as do the mutual funds. It is a matter that those funds are not clearly defined. The underlying investments with the pools within the pools would probably meet the state statute requirements. The statute allows for investment in common stocks, but not specifically the fund approach. Representative Sanders asked that if this is put into statute, it wouldn't in any way make the state of Alaska responsible for any problems that may occur. MR. SAYLES said, "Absolutely not." Number 878 There being no further testimony, REPRESENTATIVE KIM ELTON made a motion to move SB 131 out of committee with the attached zero fiscal note and individual recommendations. Hearing no objection, SB 131 moved out of the House Labor and Commerce Committee.