The growth of money market mutual funds (open-end, diversified management investment companies, as defined in the Investment Company Act of 1940), which generally take the form of Massachusetts business trusts, has led banks to inquire if they may purchase shares of such funds pursuant to investment authority granted in Section 154 of the Michigan Banking Code of 1969. Some banks have expressed concern that the Section 159 prohibition on purchases of shares of capital stock of a corporation would preclude banks' purchase of shares of a money market mutual fund.

The Bureau's research disclosed that, in addition to statutory distinctions, beneficial ownership of a fund's assets and the "creditor" status of its shareholder distinquish a business trust (money market fund) from a corporation. Legal and equitable title to corporate property is in the corporation, not in the stockholders. Corporate stockholders occupy a position subordinate to that of all creditors of the corporation, being entitled only to dividends declared and a pro rata share of any assets remaining upon liquidation of the corporation. Although the Massachusetts business trust or similar form of money market mutual fund is the legal owner of its assets, the beneficial owner of the fund's investment portfolio is the shareholder. That is, the legal owner holds the assets for the benefit of the beneficial owner. Viewed in this way, the fund is simply a mechanism through which the bank's investment in securities is accomplished.

It is the position of the Financial Institutions Bureau that a bank may purchase shares or certificates on an open-end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 if the following conditions are met:

1. The fund's assets consists solely of and are limited to investment securities which are eligible for purchase by a state bank in unlimited amounts.

2. The fund's shares are bought and sold at par.

3. The shareholder has an equitable and undivided interest in the underlying assets of the fund.

4. Shareholders are not personally liable for acts or obligations of the fund.

5. The bank's investment policy specifically provides for such investments and procedures, standards, and controls for the implementation of such investments have been established.

6. The bank's investment in any one fund does not exceed the limitations imposed upon purchase of investment securities which are not eligible for unlimited investment. At present, this limit is set forth in R 487.1423 of the Michigan Administrative Code.