Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-06-08
Special Dispatch to The Star.

Special Dispatch to The Star.
CHICAGO, June "a very definite
stand on management practices of in
vestment trusts, especially in relation
to full information for and safeguard
ing of investors, is taken by the Invest
ment Bankers Association of America
in its Investment Companies Commit
tee report, which will be made public
tomorrow in the June number of the
associa tons official publication, In
vestment Banking The report, which
was adopted at the recent annual May
meeting of the associations board of
governors at White Sulphur Springs,
has been the subject of much conjec-
ture in financial circles and is awaited
with much interest by investment bank
ing institutions. The report refers to
the position on investment trusts re-
Gently taken by the New York Stock
Exchange as IAN effort to establish the
highest standards of practice" and it
recommends that these complete and
carefully. thought-out regulations should
be studied and that they be followed
by all members of this association.
whether or not they are members of
the New York Stock Exchange"
The report focuses its recommended
tons, in turn, on the management type
OF investment trusts and then on fixed
trusts. For the management type it
specifies, among other things, that the
reports Of management investment
trusts should give complete informa ZION
as to the financial position of the trusts
as well as a clear statement Of opera
tons.
List of Investments.
In particular" the committee as
sertS, the annual report should con-
TAIN complete statement o. the in
veStmentS held in the portfolio of the
trust. Stockholders and prospective
stockholders have a right to know in
exactly what securities the management
OF the investment trust has invested
their funds In order that this may be
accomplished the list of securities should
give the names and amounts of each
security
Securities should be carried on the
balance sheet at cost, and it is recon-
mended that costs be computed on an
average basis. 1t is desirable that the
total market value of securities be given
in the report, in order that stockholders
may be able to determine the actual
nquidating value of their shares. or.
preferably, this liquidating value should
be stated in the report and its method
of computation clearly shown in a table
experimenting the income statement
The amount of the unrealized losses or
depreciation, If any, of the portfolio
should be clearly stated. If reserves are
set up against unrealized losses or for
other reasons the nature and purpose
OF these reserves should be indicated
with statement as to whether they
were created out of income or out of
surplus, either earned or paid in"
Pursuing its purpose. to bring about
a clearer understanding of this SUBJ
Ject by the investing public" the re-
port makes specific recommendations on
the reporting of profits, as follows:
In the income account it is recon-
rended that profits realized on the sale
of securities be shown separately from
other ordinary income items. In the
event, however. that the management
of an investment trust includes realized
proftS and losses in the income account
it is recommended that if either OF
these is included, both should be in
Guided
These recommendations in connec-
ton with the method of reporting real
lied profits are made so that the in
come account will not be n1isinterpreted
by investors who are unfamiliar with
accounting practice. If abnorma
profits are included in the income ac-
count. it is likely that some of the
stockholders or prospective stockholders
will be led to believe that such gains
are to be expected in the normal course
of business"
After discussing characteristics Of
management. the report refers to in
| vestment banking institutions selling
securities to the trusts they sponsor.
Several investment trusts says the
report. have been criticized for pur-
chasing securities with which the spon-
soring house had been directly or in
directly identified. There may be moth
ing unsound in a specific purchase by
an investment trust of securities with
which sponsoring houses have been
identified. but such dealings are pecu-
liarly liable to abuse and to criticism on
the part of the investing public. Al
though it is perfectly possible that tha
practice of purchase OF securities from a
sponsoring or affilia. ed investment house
may never have been abused, and may