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TIME Magazine, July 11, 1949, p. 84:

How to Keep a Buck a world of welfare states populated with security-minded people, more investors than ever are engaged in a ceaseless search of their own for security.

    Out of this quest has arisen the busiest, fastest-growing phenomenon in U.S. finance: the investment trust, notably the "open end" or "Boston-type" trust. Though the ailing securites market in general is barely breathing, the nation's investment companies sold $80 million worth of their own shares in the first quarter of this year, an increase of 26% over 1948. Said Edmund Brown Jr., president of Manhattan's fast-selling Fundamental Investors, Inc.: "May was the biggest month in our history and June was almost as big. Last year's business was around $10,000,000; this year we're running at the rate of $12 million." The open-end trust business, combined with the $1.7 billion assets owned by the so called "closed-end" trusts, is now a $3.2 billion giant.

    Wide Range. The investment trusts all grew from a simple idea spawned in Belgium more than a century ago. The idea was to help the investor who did not have time or knowledge to know what stocks to buy or when to buy them. An investment company sells him its own stock, then uses his money and that of other investors to buy the shares of a wide range of companies.

    The original trusts were all "closed"-- i.e., they had a fixed capital for investment. As their shares were traded in the open market, the prices did not necessarily reflect the value of the assets they represented; in bad times when few wanted to buy, the shares would be well below the actual values. The open-end trust was not invented until 1924, when Boston's Massachusetts Investors Trust was formed.

    Instead of having a fixed number of shares, M.I.T. issued new shares whenever anyone wanted to buy--and thus kept increasing its investment capital. It computes the actual market price of the stocks then owned by the company (plus a salesman's commission, or "load," of 7%). Whenever anyone wants to sell his shares, M.I.T. buys them back at a price calculated in the same manner, without commission.

    Heavy Load. Investors liked the idea; they could get their money out at any time at the current value of their shares. Securities salesmen liked it even more; the handsome 7% commission gave them three to four times the profit they could make by handling individual securities. Other brokers were quick to catch on, and soon M.I.T. had some imitators.

    M.I.T. is still the biggest of the open-end trusts. In Boston, where the managing of other people's money has always been the highest calling (short of the pulpit or the presidency of Harvard), M.I.T. does not suffer from the fact that a Cabot, a Lowell and an Adams are on its advisory board--and that Merrill Griswold, its Harvard Law School-trained chairman, was once married to a Lowell.

    From its original 200 stockholders and $50,000 capital, M.I.T. has grown to 68,000 stockholders and assets (as of last week) of $211.1 million. Over the years it has paid out about $14 million from capital gains and nearly $100 million in dividends. Though it has large blocks of stock in more than 125 companies, it follows investment-trust practice by keeping its fingers out of management.

    The Heavy Top. M.I.T. suffers from some of the ills of bigness. It cannot quickly unload any of its large blocks of stock (for fear of breaking the market), hence it does not offer investors much chance for quick gains. This fact was spotted by Minneapolis-born Sidney L. Sholley, a statistician and financial analyst who had settled in Boston. In 1932, he organized a new Boston-type trust called Keystone Custodian Funds, Inc., which offered customers as conservative or as speculative a program they wanted. If their main interest was income, they could buy any of four bond funds, or two preferred-stock funds; if they wanted to gamble for quick profits they could choose from four speculative common-stock funds. Sholley's plan paid off; today Keystone, with $170 million in assets, is second only to M.I.T...


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