• Lasured plans or portions of plans that are funded by insurance should be omitted. ** If separate asset values are available; if not, combined data for the subject accounts should be placed in columnn (4). SUPPLEMENTAL INFORMATION If values as of review dates are used, indicate approximately the percentage of assets valued during the following period for each type of account: If review dates are not used, indicate date market values were determined in last 60 days CHEMICAL BANK (Report from the Trust and Investment Bank) I-Introduction Chemical Bank is organized into four functional units Metropolitan Bank Corporate Bank Trust and Investment Bank Each unit renders its particular services in different areas of the financial world. In this report, the purposes and operations of the Trust and Investment Bank are described. Because these services are used by so many people, they should be understood by all. WHAT IS THE TRUST AND INVESTMENT BANK? In general, the Trust and Investment Bank furnishes investment management or advice in the handling of other people's property, together with all types of administrative services. To provide the specialized services which meet customers' needs and problems, the Bank serves them through two groups, the Personal Group and the Corporate and Institutional Group. V-"CORPORATE CONTROL"-VOTING OF PROXIES In recent years, the spectre of the trust departments of the nation's banks investing their trust assets for the purpose of acquiring control of corporations has been raised repeatedly in surveys, investigations, reports and speeches. Chemical Bank believes that any such inferences are unrealistic and incorrect. As far as Chemical itself is concerned, it buys stocks for its personal and corporate fiduciary accounts solely for the purpose of investment and not, to the slightest extent, for control. As executor and as trustee, the Bank is under the serious legal responsibility of managing the accounts solely for the benefit of the beneficiaries and no other considerations affect its investment policy. The Trust and Investment Bank does not want to control corporations or to manage their affairs. Not only does it lack the experience and the time to manage national businesses, but its only purpose is to make prudent and promising investments for the estates and trusts committed to it. It cannot be restated too emphatically: In its capacity as executor or as trustee, Chemical buys stocks because they appear to be attractive investments and not for any other ulterior purpose. Inevitably, a large corporate fiduciary will find itself with substantial holdings of stock of one or more corporations. Where this exists at Chemical, it is because the stock was received from the decedent as part of his estate or was placed in trust by the person creating the trust, and the companies are usually small or closely held corporations. In those instances, and to the extent that the Bank does have a substantial voice in the corporations' affairs, it uses its position solely in the interests of the estate or trust involved. The tables which appear subsequently in this Report show that (aside from such situations) the combined holdings of the estates and trusts administered by the Bank do not approach anything like control of any corporation. Voting of Proxies: The Bank recognizes its responsibility in voting proxies for shares in trust accounts. Only those shares which the Bank holds as sole trustee with complete investment discretion are voted. Proxies held in custody or agency accounts or where there is shared control (such as a co-trustee) are forwarded to the customer or co-trustee to be voted by him. A special proxy review committee of senior officers thoroughly reviews all proxy material and shareholder proposals. Available to this committee is the objective factual material provided by the Investor Responsibility Research Center, Inc. which analyzes shareholder positions in corporate voting. The recommendations of the proxy review committee are submitted to senior management of the Trust and Investment Bank. 1- pt. 3 - 26 The actual division of assets in any one account may vary substantially from the aggregates shown above. This is due to differences in basic investment objectives and, in many cases, investment instructions or directions from authorized persons outside the bank. Each account is governed by its own authorization document, is a completely separate and distinct legal and investment entity and has a beneficiary or beneficiaries ranging from one individual to many thousands of people in the case of a large pension trust. 20 Largest Holdings (Market Value on December 31, 1973) of Common Stocks Represented on Trust Department Working List The preceding table shows the 20 largest common stock holdings from the Trust Department's Working List. The Working List is comprised of those common stocks that have been approved for broad use in accounts where the Trust Department has investment responsibility. In each case, these holdings are spread among a large number of separate accounts including one or more commingled funds. For instance, stock of International Business Machines is held in 1,444 accounts and four commingled funds in which 2,300 additional accounts participate. The number of shares held and the market value of such holdings are constantly changing because of individual investment decisions relating to separate accounts and because of daily changes in security prices. Most of the stock holdings mentioned in this report are registered in the names of these Trust Department nominees: Act & Co., Donson & Co., Emp & Co., Gale & Co., Hap & Co., Hit & Co., Ord & Co. and Wait & Co. A nominee is used to improve service and minimize customer costs by reducing paper work involved in completing sales, effecting transfers and collecting dividends. Not included in the above data is the principal amount outstanding of debt securities for which the bank serves as corporate trustee. These securities amounted to approximately $7.5 billion at year end. Outside political factors continue to have an impact on Trust Department activity. In April 1973, the Illinois Supreme Court construed the November 3, 1970 Constitutional Amendment as leaving personal property owned by a trustee or other fiduciary for the benefit of an individual subject to the personal property tax (pension and profit sharing trusts are exempt by statute). On the other hand, such property directly owned by the same individual is clearly exempt from the tax. Important steps are being taken through litigation brought on behalf of both corporate fiduciaries and individual beneficiaries to have this serious inequity remedied. Nationally, Congress continues to study proposals for changes in income, estate and gift tax laws. Pending Federal pension legislation may combine constructive changes with new limitations on the tax deductibility of contributions that would irreparably harm the private retirement system, particularly profit sharing plans. Chalkley J. Hambleton, President of Harris Bankcorp and Harris Bank, is currently serving as the President of the Trust Division of the American Bankers Association. This is a demanding position of leadership in the rapidly developing, increasingly complex and sometimes misunderstood trust industry. |