Audit and Accounting Guide: Investment Companies

Appendix B Common or Collective Trusts

This appendix is nonauthoritative and is included for informational purposes only.

Common or collective trusts (CCTs) are established by a bank (or trust company) as part of their fiduciary (trust) operations and are intended to facilitate the investment of monies entrusted to them. Investment in CCTs is open only to fiduciary clients of the bank, and the bank holds legal title to all CCT assets. CCTs typically issue units of participation, which can be thought of as partnership interests in unitized form. Units of participation are not evidenced by certificates. Although participants are beneficial owners of the CCT, interests in the trust are not tradeable, and participants may not pledge their interests in a CCT.

CCTs are extensively regulated under the federal tax and securities laws, and both federal and state banking regulations. There are two principal types of CCTs: common trust funds and employee-benefit collective funds. Each have distinct purposes and regulation.

Common Trust Funds

Common trust funds (CTFs) accept and aggregate funds from fiduciary clients of the bank. By aggregating fiduciary clients, the bank may lower the operational and administrative expenses associated with investing fiduciary client assets. The bank may take on substantial risk depending on the investment strategy of the fund and the bank’s ability to meet the investment objectives of the fund. For tax purposes, CTFs are governed by IRC Section 584, which ...