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COVINGTON & BURLING

Smithsonian Institution
April 18, 1972
Page Five

toward the purposes specified in the instruments creating them. Second, they must try to preserve the principal of the funds. This second obligation implies not only maintenance of the original historic dollar value, but also maintenance of the purchasing power of the funds and, indeed, increase of that purchasing power when reasonably feasible. 4/ Professor Scott has summarized similar obligations in the context of private trusts as follows:

"He [the trustee] is under a duty to the [remainder] beneficiary to take care to preserve the principal of the trust property for him. He is not under a duty to the beneficiary entitled to the income to risk the safety of the principal in order to produce a larger income, but he is under a duty to him not to sacrifice income for the purpose of increasing the value of the principal. Thus he is under a duty to the beneficiary entitled to the income not to purchase unproductive property or property which yields an income substantially lower than that which is normally earned by trust investments although it may be probable that the property will appreciate in value. On the other hand, he is under a duty to the beneficiary who is ultimately entitled to the principal not to purchase property which is certain or likely to depreciate in value, although the property yields a large income." (Emphasis added.) 5/

Confronted with an investment market where bond prices have generally declined since World War II, 6/ together with the continuing erosion of the purchasing power of the dollar through inflation, 7/ charitable institutions find it to be