26 NOVEMBER 1937, Page 40



MR. McCURDY ON MARKETABILITY THE third annual general meeting of the Trust of Insurance Shares Limited, was held on Tuesday, November 23rd, at the registered office, 3o Cornhill, London, E.C.

The Right Hon. Charles A. McCurdy, K.C. (the Chairman) presided. The Chairman said : Since I last addressed you, the company has brought into existence three new Unit Trusts : The Trust of Scottish Bank, Insurance and Investment Trust Units, for which the Royal Bank of Scotland act as trustees and bankers.

Investment Trust Units, for which Lloyds Bank Ltd., act as bankers and custodian trustees, and The Cornhill Trust, which was successfully launched last week, with the Midland Bank Executor and Trustee Company Ltd., as trustees.

The creation of the Scottish Trust and the Investment Trust Units raised a question of great importance to unit holders, viz., the maintenance at all times of free marketability in their units. The purpose for which Investment Trust Units was formed—a purpose which we also had in mind in creating the Scottish Trust —was to give the investing public an opportunity of acquiring an interest in the stocks and shares of the best of the old-established managed Investment Trusts, incorporated under the Companies Acts, in a form that would always be readily marketable. The Investment Trust companies, I need hardly remind you, are limited liability companies, managed by experts who by their training and experience and the control of substantial resources are in a position to invest capital to better advantage than the average individual. There are in existence in Great Britain some 200 Investment Trust companies with an aggregate share and loan capital of, approximately, L300,000,00o. Some of these companies have a long record of steadily growing prosperity and constitute an excellent investment with however one drawback : the limited marketability of their stocks and shares. It is often a matter of extreme difficulty to buy or sell any substantial amount of stocks and shares of the best Investment Trust companies and, in times of market depression, such as we are now experiencing, it would be very difficult to realise any substantial block of shares without severe repercussions upon prices. The portfolios of the Scottish Trust and of Investment Trust Units are made up partly in the one case and wholly in the other of stocks and shares selected from some of the best known and oldest established of the Investment Trust companies and offer to the public an investment in the form of Units which are, at all times, readily marketable for cash. To achieve this result we took very special precautions. Marketability means that when shares or units have to be sold there is, or should be, no difficulty in finding a purchaser. It is not secured by merely obtaining for a security an official quotation on the Stock Exchange, nor do the provisions commonly found in the Trust Deeds of the Unit Trusts for liquidating a part of their underlying securities in order to pay out a unit holder in case of need make the Units marketable, on the contrary, they provide a method of partial liquidation of the Unit Trust which is not necessary so long as the Units enjoy a free market.

In the case of Investment Trust Units and the Scottish Trust we therefore made special provision, whereby in the one case, a sum of £250,000 and in the other a sum of Doo,000 can be made available if required for the repurchase of Units or for the realisation of underlying securities without the necessity of throwing stocks on the market, if at any time the markets are difficult. Up to now the Units in these Trusts have proved freely marketable without the necessity of resorting to those special provisions.

In our view, the holding of Units in a properly constituted Unit Trust ought at all times to possess two advantages over the direct holding by an investor of the underlying securities :

I. A greater stability in price movement ; and 2. A treer market for the investor who desires to realise his holding.

It is well known that we are always ready to deal in our Units either way, at the bid and offer prices of the day. These prices are nett, and include commission at the usual rates on purchase or sale, as well as the transfer stamp duty, where payable.

The marketability of our Units, apart from any of these pro- visions, is secured by the fact that they are not speculative. They are bought for investment and for investment only, and during the worst periods of crisis through which the markets have recently passed, the bona fide investor was still seeking safety-first invest- ments, and there were no speculative accounts in our Units to be liquidated.

It may interest you to know that yesterday and today the demand for our Units in our older Trusts as well as in the new ones was well maintained.

Last week we issued a new Trust—the Cornhill Trust—the success of which during a period of depressed markets is extremely gratifying to your Directors.

The features of this new Trust were described very neatly by the City Editor of The Times as " a new type of investment which has been . . . designed to meet the persistent demand in the first place, for a short-dated debenture in the high-grade investment

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class and, in the second, for a type of issue which has as its chief attraction the prospect of capital appreciation over a period of years."

The Debenture Units of the Cornhill Trust represent the most marketable type of security known to the City—a short-medium- dated debenture, fully secured, which gives to the holder the right to receive on fixed dates definite sums of money in respect of capital, interest and redemption premium. For securities of this type there is always a very wide class of buyers, ranging from insurance companies and Savings Banks to the small individual investor, and a price can always be obtained varying only within narrow limits as current interest rates may vary.

Our experience last week is, I think, conclusive evidence on that point. The initial issue of 600,000 Debenture Units was immedi- ately subscribed, and as the initial offer was by no means sufficient to meet market demands, arrangements were made to increase the funds and a further issue of 300,000 Debenture Units was created, the greater part of which has since been subscribed at the current price of 2IS.