TRUSTEE INVESTMENTS ACT , 1961 .sx THIS Act received the Royal Assent on August 3 , 1961 , and came into force on the same day .sx Trustees can invest their trust funds only in investments authorised either by the express terms of their trust instrument or by statute .sx Before this new Act the investments authorised by statute did not include any " equities " and were a limited range prescribed , in England by the Trustee Act , 1925 , and in Scotland by the Trusts ( Scotland ) Act , 1921 , with subsequent statutory extensions .sx Generally speaking , the statutory Trustee List was restricted to stocks issued by the British Government and by the governments of Commonwealth countries and the colonies , stocks guaranteed by the British Government , stocks and mortgages issued by British local authorities , and mortgages of land in Great Britain .sx Most of the investments in the List earn interest at a fixed rate and , with certain notable exceptions , are eventually repayable at par .sx In recent years there have been serious disadvantages in the old List .sx The immediately realisable market values of investments eventually repayable at par have fluctuated widely , with the variations in the prevailing rates of interest ; and , in the case of the " undated " stocks in the List , market values have declined very seriously .sx Eventual repayment of invested capital at its nominal par value takes no account of inflation and the decline in the value of money , and represents , in real values , a capital loss .sx In the case of a trust fund established twenty or more years ago , with investments limited to the statutory List , the annual trust income may be nominally the same today as when the trust began , although of course the income will buy far less than when the trust began .sx A life tenant depending for his income and standard of living on such a trust would be much worse off today than twenty years ago ; and the real value of the trust capital may be disastrously less than when the trust began .sx This sort of case history is , unhappily , not unusual .sx The statutory Trustee List has always had two objects :sx first , the protection of trustees ; secondly , the protection of the beneficiaries , by ensuring both the preservation of trust capital and a steady yield of income .sx The first object has always been successfully achieved .sx Trustees who invested within the range permitted by the statutory List were reasonably safe from legal attack by disgruntled beneficiaries .sx But , for more than twenty years before the passing of the new Act , the second object had not been achieved at all .sx The statutory List ( which was always somewhat out of date ) provided no " hedge " against inflation and no protection against the continuous fall in the value of the + .sx Experience of investment within the range provided by the statutory List offered a sad contrast with the profitable experience of other people able to invest in equities .sx For years most lawyers have advised settlors and testators to confer on their trustees much wider investment powers than those permitted by the statutory List .sx In the House of Lords debate on the Second Reading of the Trustee Investments Bill a peer who is a solicitor of great experience said :sx " In the course of some forty years of practice I have made it a point always to advise that settlors and testators should leave the widest possible discretion to their trustees ; that the powers contained in the Trustee Act were far too limited .sx " Naturally enough , the demand for reform of the List has grown and has commanded some powerful supporters .sx In 1952 the Report of the ( Nathan ) Committee on the Law and Practice relating to Charitable Trusts advocated reform .sx In 1955 a White Paper on Government Policy on Charitable Trusts in England and Wales referred to the Government's intention to propose a general reform of the statutory List .sx Charities were already able to obtain from the court a general extension of investment powers ; and , particularly after a decision in 1955 drew professional attention to this , a number of the larger charities obtained wide powers of investment in the ordinary and other shares of the larger companies .sx In 1958 the Variation of Trusts Act permitted applications to the court for ( 6inter alia ) extended powers of investment ; and applications under that Act were soon very widely used for the purpose of obtaining power to invest in equities .sx But applications to the court cost money , and the power conferred by the 1958 Act was no substitute for general reform of the statutory List .sx On May 13 , 1959 , a statement in the House of Lords promised early legislation ; and in December 1959 a White Paper was published setting out the Government's proposals .sx These proposals , with some minor changes , were embodied in the Bill introduced into the House of Lords in November 1960 .sx The period of almost a year between the publication of the White Paper and the introduction of the Bill was intended to provide time for interested persons and bodies to consider , and make representations about , the Government's proposals .sx This was a good idea , and the time was not wasted ; but the period might have been more useful if the White Paper had included a draft of the intended Bill .sx This Bill , when published , turned out to be quite complicated ; and it soon received anxious scrutiny from professional bodies , including the Law Society , whose simplifying amendments were debated at length when the House of Commons was considering the Bill in committee .sx The Act replaces the former statutory Trustee List .sx The new List , set out in the First Schedule to the Act , is divided into three parts .sx Parts =1 and =2 list the " narrower-range " investments .sx Part =3 lists the " wider-range " investments .sx The narrower-range comprises mainly fixed-interest investments , and includes the whole of the former statutory List with some changes and additions .sx These additions include fixed-interest securities issued in the U.K. by the International Bank for Reconstruction and Development ; the debentures ( not being convertible debentures ) of United Kingdom companies that comply with certain conditions ; and deposits in the ordinary and special investment departments of trustee savings banks .sx Commonwealth government stocks are included in the narrower-range without the governments concerned having to comply with the conditions laid down in the Colonial Stock Acts .sx The difference between Part =1 and Part =2 of the narrower-range is that trustees may invest in Part =1 without first obtaining advice , whereas they may not make an investment in Part =2 of the narrower-range without obtaining and considering proper advice as to the suitability of the investment .sx Part =1 is very simple .sx It includes Defence Bonds , National Savings Certificates and Ulster Savings Certificates ; and deposits in the Post Office Savings Bank , in the ordinary departments of a trustee savings bank and in savings banks certified under section 9 ( 3 ) of the Finance Act , 1956 .sx Deposits with designated building societies are in Part =2 of the narrower-range ; and it is puzzling that trustees should not be allowed to make such deposits without obtaining expert , written advice .sx The greatest interest , however , attaches to the new wider-range .sx This includes the shares , stock and convertible debentures of United Kingdom companies that comply with certain conditions ; the shares of designated building societies ; and units of authorised unit trusts ( i.e. , authorised by order of the Board of Trade under the Prevention of Fraud ( Investments ) Act , 1958 , or by the Ministry of Commerce under the Prevention of Fraud ( Investments ) Act ( Northern Ireland ) , 1940) .sx The " equities " ( i.e. , ordinary shares and stock ) and other securities of U.K. companies are included in the wider-range only if the particular company has a total issued and paid-up share capital of at least +1 million and has paid dividends on all its issued shares in each of the five years preceding the year in which the investment is made .sx As with Part =2 of the narrower-range , investments must not be made in the wider-range unless the trustees obtain and consider written expert advice about the particular investments .sx Further , trustees are not to make or retain investments in the wider-range unless their trust fund has been divided into two parts .sx This once-for-all division of the trust fund is the most important ( and controversial ) feature of the new statutory scheme for permitting wider-range investments .sx The division must be into two equal parts ; but there is power for the Treasury , by statutory instrument , to order that division shall be into unequal parts ( provided that such an order shall not authorise a division in which the narrower-range part is less than one-quarter of the fund at the time of division) .sx The division , once made , is permanent .sx Thereafter , funds belonging to the narrower-range part must be invested in narrower-range investments , while funds belonging to the wider-range part may be invested in wider-range or narrower-range investments .sx It is not essential for the whole of the wider-range part to be invested immediately in wider-range investments .sx The discretion to invest in the wider-range is available only in respect of the wider-range part .sx If property is transferred from one part of the divided fund to the other , there must be a " compensating transfer " in the opposite direction .sx Where any property accrues to a trust fund that has been divided , and the accruing property is not otherwise obviously attributable to some particular part of the fund , the accruing property must be divided so that each part of the fund is increased in value by the same amount .sx Where capital is taken out of the trust fund ( as , for example , in the exercise of the statutory power of advancement ) , the trustees are not required to take it equally from the two parts of the divided fund :sx the Act does not fetter their discretion as to the choice of property to be taken out .sx The new statutory powers of investment are additional to any special powers , e.g. , those conferred expressly by the will or settlement .sx Any property ( not including statutory narrower-range investments , but including statutory wider-range investments ) which trustees are authorised to hold pursuant to such special powers , must be carried to a separate " special-range " part of the fund .sx The effect may be that a single fund will be divided into three parts :sx the special-range part , the wider-range part and the narrower-range part .sx Division of the fund into two parts and the subsequent maintenance of that division will require very careful administration and records ; and even greater care will be needed where the division is into three parts .sx Will ordinary private trustees be able to do the necessary administration and keep satisfactory records ?sx In the case of the larger trust funds , where the expense of obtaining constant professional assistance is not regarded as extravagant , the additional work will present no problem .sx But , with a relatively small trust fund , the trouble and expense may perhaps be too great , and the trustees may therefore decide that they cannot operate the statutory scheme for investment in the wider-range .sx The fear of undue complexity in the administration of relatively small trust funds led the Law Society to advocate a scheme permitting investment in the wider-range without a once-for-all division of the fund ; but the advocacy was unsuccessful ; the complexity remains ; and time will show to what extent , in practice , trustees of small trust funds take advantage of the new power to invest in the wider-range .sx The other provisions of the Act do not call for extended comment .sx Section 6 ( 1 ) is of interest in that it attempts a statutory definition of a trustee's duty in choosing investments .sx He must have regard- " ( a ) to the need for diversification of investments of the trust in so far as is appropriate to the circumstances of the trust ; ( b ) to the suitability to the trust of investments of the description of investment proposed and of the investment proposed as an investment of that description .sx " The new powers apply to persons and bodies , not being trustees , who have trustee investment powers .sx Section 9 ( 1 ) amends section 10 ( 3 ) of the Trustee Act , 1925 to remove a defect ( disclosed in Re Walker's Settlement ) which has occasionally caused trouble where trustees hold shares in a company that is the subject of a " take-over " bid .sx