Boston Trusts

Rounding out the second month of its methodical exploratory tour of the U. S. investment trust business ordered by Congress, the Securities & Exchange Commission figuratively arrived last week in Boston. In so doing, it unearthed not one whiff of scandal, received for a change an instructive lesson in safe money management.

Trusts in all their variations are woven into the whole fabric of Boston life. A Bostonian who is not either a beneficiary or trustee of at least one personal trust fund is liable to find himself at a distinct social disadvantage. Boston is the home of the oldest investment trust in the U. S.--Boston Personal Property Trust, founded in 1893. Boston is also the home of the open-end or mutual general management trust, which is usually called the "Boston-type trust."*

Boston-type trusts are 1) always in the process of selling more stock to the public and 2) always willing to buy back their stock at approximately its liquidating value. Thus they have the "open-end" feature of fixed trusts, the management feature of common trusts and their own unique feature, redeemable shares. Last week at hearings in Washington, SEC inspected the oldest (1924), biggest ($110,000,000) Boston-type trust in the U. S. -- Massachusetts Investors Trust.

Most important factor in M.I.T.'s existence is a concern which has the exclusive right to sell its stock. Directly and through dealers Massachusetts Distributors, Inc. last year sold $38,000,000 worth of M.I.T. shares. The trust receives an amount equal to the liquidating value of its shares already outstanding on the day new shares are sold, so that there is no dilution of equity. For its commission the selling company adds about 5% (reduced from 8%). On repurchases from stockholders who want to sell the trust pays the full liquidating value, though it has the right to offer 1% less. Last year it had to repurchase only $700,000 worth of its shares.

Active head of M.I.T. is Merrill Griswold, a 50-year-old Boston lawyer who married a Lowell. There are two other trustees and a five-man advisory board, heavily Harvard, predominantly Bostonian. Leading the board's list is Charles Francis Adams, great-great-great-grandson of the second President of the U. S.. Herbert Hoover's Secretary of the Navy and reputedly the richest member of his ancient family. Another is Roger Amory. the philosophical president of Consolidated Investment Trust. He lists his hobbies as books, walks and lying in the sun. wrote for his 25th Harvard Class (1910) Book: "I believe in the consanguinity and spiritual relationship of potentate and mollusk and in the infiniteness of the universe and the inflexibility of natural law.''

An M.I.T. adviser who believes in the inflexibility of economic law is Oliver Mitchell Wentworth Sprague, the Harvard seer who quit his advisory job in the Treasury in a huff over New Deal monetary policy. Last week in Washington Mr. ' Sprague held forth upon investment policy for the benefit of SEC. Pointing out that M.I.T. was deeply concerned with steady income. he observed that if appreciation were the chief object, a trust should be a one-man affair.

"Ours is not like that," said the conservative economist. "Our plan makes for slow action, probably for hesitation if you please, for caution and with resultant failure to secure that degree of appreciation, that quick action which might be very well expected if an investment trust were conducted, let us say, by Mr. Barney Baruch."

In enlarging upon the relative merits of dividend and nondividend paying stock, he observed: "Personally, I am unwilling to buy stock unless I can receive a dividend in eight months." Asked whether he would make public his reasons for resigning from a corporation, Mr. Sprague declared, referring to his self-dedicated effort to change the course of the New Deal:

"I did once resign on a notable occasion and I gave my reasons to the public."

The policies of Mr. Sprague and his colleagues have yielded M.I.T. dividends in every year since the trust was founded. M.I.T. investors have been able to sell their stock for its real worth at times when shares in common trusts were selling at disastrous discounts from liquidating value. If they were primarily seeking to increase their capital, M.I.T. investors must have been disappointed. High for M.I.T. stock in 1929 was about $65 per share, the 1932 low about $11. Since then the price, which is approximately the liquidating value, has risen to $28, still less than one-half the boomtime figure and not much above the figure for 1924, the year M.I.T. began business.

* As pleasing to Boston-type trusts as it is irritating to other business is the Revenue Act of 1936. Specifically exempted from both income taxes and undistributed profit taxes were" mutual" trusts which pass on to their stockholders all their net income including gains from the sale of securities. Since the law's definition of mutual seems to turn on the redemption feature of the Boston-type trust, other trusts are now engaged in a three-cornered tussle with SEC and the Treasury against what they consider gross discrimination.

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