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COVINGTON & BURLING

Smithsonian Institution 
April 18, 1972
Page Nine

Under the law applicable to private trusts, any appreciation or depreciation in the value of trust assets is allocated to principal. Both the 1931 and 1962 editions of the Uniform Principal and Income Act, one or the other of which has been adopted in a majority of states, so provide.19/

Neither the original nor the revised Uniform Act, however, should be considered to apply to charitable institutions with endowment funds. Sections 3(b) of the 1962 Act, similar to Section 1 of the 1931 Act, defines principal as "property which has been set aside by the owner... so that it is held in trust eventually to be delivered to a remainderman while the return or use of the principal is in the meantime taken or received by or held for accumulation for an income beneficiary." In the situation of a charitable institution, the income beneficiary and remainderman--as well as the trustee-- are the same, and the principal is not eventually "delivered" to a remainderman. In addition, Judge Charles E. Clark, the principal draftsman of the 1931 Act, in explaining that the Act did not purport to establish rules for perpetual charitable trusts, said that this was "a question of the most profound public importance but hardly to be solved without extensive study of its social implications." Professor Allison Dunham,