Evening star., 1950-06-18
BY Lawrence L. McKenno

i By Lawrence L. MeKenno
experienced and the most un-
skilled person who may be named
as a trustee"
Such a list, prepared under
State authority. always tends to
give false sense of securities to
the inexperienced among trustees.
To appreciate its dangers, one
must consider that from 1892 to
1910 a total par amount of over
$3.50 million of railroad securities
on the New York Legal List went
to default.
/ Nevertheless, that State is now
only abandoning this formula: or,
more property speaking. partially
abandoning it: for, come July
next, the Legal List in New York
will still be maintained and con-
tinue mandatory for investments
OF IS per cent Of all restricted trust
funds: only IS per cent thereof be-
ing. under the new law, released
for investment, at the discretion Of
trustees, In all types of securities.
The significance of this New
York State legislation (enacted
only after publication of a 168-
page Report of Trust Investment
Study Committee of the Trust Di-
vision of the New York State
Bankers Association in which that
committee recommended its en-
actment) lies not so much in the
fact that come July large
amounts Of restricted trust funds
will become available for invest
ment in common stocks. More
significant is that the legisla-
tion probably signals forthcoming
changes in the investment powers
Of insurance companies, savings
banks and other investors who
are restricted to the Legal List
Formula. That such q develop
ment is desirable land perhaps
likely) may be found in the fact
that the present world trend
towards socialism. in progress
since World War I. has been great
ly accelerated by the destruction
Of a large portion of outstanding
debt obligations principally those
of various governments), mainly
through colossal government ex-
penditures which have the effect
Of destroying the value Of a ma
tion's unit Of account-which, in
our case, means the dollar.
How 1t Works Here
Incidentally. in the District Of
Columbia, where the legal list
formula rather than the prudent
man rule prevails, it became legal
for trustees to invest trust funds
in preferred and common stocks,
up to 40% Of the trust, beginning
July 1, 1949-one year prior to
the New York law becoming effec-
tive.
Here in Washington, the United
States District Court for the Dis
trict Of Columbia is, under the
Code. given authority in matters
concerning trustees and other
f1duciaries accountable to it. In
the exercise Of this authority, the
Court, until July l, 1949, limited
investments of trust funds to GER
tain bonds and mortgage obliga-
tions which, under a formula, met
certain specifications. But last
year the Court amended its rule in
this respect so as to permit invest
ment of 40% of trust funds in pre-
ferred and common stocks.
Therefore, beginning July /.
1949. the list of legal investments
in the District of Columbia, pub
lished semi-annually by the regis
ter of wills, who is charged with
the duty of implementing the
courts rule with respect to trusts.
contains q list of preferred and
common stocks, in addition to a
list Of bonds and other mortgage
obligations, from which trustees
might select investments for trust
funds. Currently this list, issued
January l. 1850, contains approxi-
mately 208 preferred and 167 COM
mon stocks.
Since the New York law, which
becomes effective July /, 1860.
does not provide, as the District
of Columbia Court ruling does, a
formula for selecting preferred
and common stocks deemed suit
able for trust funds. trustees in
that State presumably will be
limited in making selections only
by the prudent man rule govern
ing the investment of trust funds.
Be that as it may, analysts to-
day are asking: % What approx
mately is the total of all forms of
trust funds now available Cat the
discretion Of the trustee) for in