University of Virginia Library

A special meeting of the Rector and Visitors was held on this date at 10:30 o'clock in the
office of the President. There were present the Rector, R. Gray Williams, Visitors James H. Corbitt,
Christopher B. Garnett, Miss Bessie C. Randolph, Hollis Rinehart and Beverley D. Tucker, Jr., and
President Newcomb.

The President made the following announcements:

Enrollment: 2982.

GIFTS:

           
From the Graham F. Blandy bequest  $647,107.18 
From the Rockefeller Foundation toward the support
of the Bureau of Public Administration, over a four-year
period, beginning July 1, 1940 
24,000.00 
From Dr. Stephen H. Watts, to be used as an
endowment of the Medical School Library of the
University of Virginia 
10,000.00 
From Dr. W. E. Hopkins, to be used in aid of the
Medical Library 
1,000.00 
From the University Hospital League to be used by the
McIntire Tumor Clinic 
100.00 
From Mr. and Mrs. Alfred Akerman 1.1 acres of land
adjoining the Seward Forest in Brunswick County, Va 
100.00 

RESIGNATIONS:

The President presented the resignation of Dr. John Calvin Metcalf, Linden Kent Memorial
Professor of English Literature, and Dr. Richard Henry Wilson, Professor of Romanic Languages, which
were accepted and the following resolutions adopted:

RESOLVED, by the Board of the Rector and Visitors of the University of Virginia
that the resignation of Dr. James Calvin Metcalf, effective June 15, 1940, be accepted
with deep regret. The Board desires to record its appreciation of his long and distinguished
service to this University as Linden Kent Memorial Professor of English


342

Literature and Dean of the Graduate School. Dr. Metcalf has carried forward his work here with
devotion and distinction and the Rector and Visitors wish for him the joy that comes of work
ably done and hopes that he may have many years of happiness in his retirement.

RESOLVED, by the Board of the Rector and Visitors of the University of Virginia that the
resignation of Dr. Richard Henry Wilson as Professor of Romanic Languages be accepted with deep
regret, effective June 15, 1940. Dr. Wilson has carried forward his work here since 1899 with
devotion and skill and the Rector and Visitors wish for him the joy that comes of work well done
and hopes he may have many years of happiness in his retirement.

ELECTION:

Upon the recommandation of the President Dr. Lucius Gaston Moffatt was elected Professor of
Romanic Languages and Head of the Department in the University of Virginia, at a salary of $4,500, -
tenure to begin September 15, 1940.

CHANGE IN NAME OF SCHOOL OF BIBLICAL HISTORY AND LITERATURE TO SCHOOL OF RELIGION:

The President presented an addendum to the Trust Agreement between the "Christian Woman's Board
of Missions, of Indianapolis, Indiana, and the Board of the Rector and Visitors of the University for
the establishment of a Chair of Biblical History and Literature within the said University", dated
December 17, 1908, which addendum was duly signed by the President of the Christian Woman's Board of
Missions, and, after full discussion, it was-

RESOLVED, by the Board of the Rector and Visitors of the University of Virginia
that the purpose of this addendum, which is to substitute "Religion" for "Biblical History and
Literature" in the title of the professorship and of the School, be and the same is hereby
approved.

RESOLVED, further, that the Rector be and bw is hereby authorized and requested
to sign on behalf of the Rector and Board of Visitors an original and one copy of this
addendum.

SALE OF POWER LINE AT MOUNTAIN LAKE BIOLOGICAL STATION TO APPALACHIAN ELECTRIC POWER COMPANY:

The President presented to the meeting a form of deed or bill of sale by which the University
conveys to Appalachian Electric Power Company the physical properties and right of way of the 6900 volt
electric distribution line owned by the University and situated in Pembroke and Newport Districts of
Giles County, Virginia, on the waters of Mountain Lake, which nov serves the University's Biological
Station. Said instrument recites the fact that said conveyance is made in the interest of more efficient
service and in consideration of the sum of $487,00 to be paid in cash by the Appalachian Power Company
to the University. The President further stated that the form of this instrument had been approved by
Mr. Perkins, Attorney for the University, and in the opinion of the President should be executed and
delivered in the form submitted. It was, therefore-

RESOLVED that Dr. J. L. Newcomb, President of the University, be and he is hereby
authorized and empowered to execute and deliver said deed or bill of sale to Appalachian
Electric Power Company in the form submitted to this meeting, and that E. I. Carruthers,
Secretary of the Board, be and he is hereby authorized and directed to affix the corporate
seal of The Rector and Visitors of the University of Virginia to said instrument and to
attest the same, delivery of said instrument to be made upon receipt of $487.00 from said
Appalachian Power Company.

REQUEST FOR GOVERNOR PRICE TO RECOMMEND ADDITIONAL $25,000 IN HIS 1940 BUDGET TO SUPPLEMENT $250,000
APPROPRIATED BY GENERAL ASSEMBLY OF 1938 FOR WEST ADDITION TO HOSPITAL:

The President presented to the Board of the Rector and Visitors a copy of a letter written
by him to Governor James H. Price, under date of November 24, 1939, requesting authority for the
Board of the Rector and Visitors to create a deficit in the sum of $25,000 for the construction of
the West Addition to the University of Virginia Hospital. It was, therefore-

RESOLVED, by the Board of the Rector and Visitors of the University of Virginia
that this request be and the same is hereby approved, and the letter is directed to be
spread upon the minutes of the Board.

Governor James H. Price
Governor's Office
Richmond, Virginia.
Dear Governor Price:

I am writing in the name of the Rector and Board of Visitors of the University
of Virginia to request you to authorize them to create a deficit in the sum of $25,000
for the construction of the West Extension of the University of Virginia Hospital, putting
this additional $25,000 as a recommended appropriation in your Budget to the General
Assembly of 1940. This means that the Legislative Appropriation of $250,000 for the
construction of this building would be increased to $275,000.

This is necessary for the following reasons:

1. Anticipating the inability to get the building within the appropriation, we
cut out all requirements which were not absolutely necessary in the preparation of our plans
and specifications.

2. We have availed ourselves of all deductible alternates which would not leave
the structure in an unsatisfactory incomplete condition.

3. Bids have been opened publicly for this construction and the lowest bid
exceeds the available money by $31,800. It is our purpose to forego reconditioning the rooms
in the old Wing where they join on to the new; to give up all walks and landscaping, and to
effect other economies in administration, which reduces to an absolute minimum a cost of $275,000.


343

4. To bring the construction within the $250,000 appropriation would be to leave
unfinished and unfurnished the entire fourth floor of this building, which would leave out
entirely all space for the important department of Ear, Nose and Throat, and when this work
comes to be done at some later date, when the rest of the building will have been occupied,
it means not only great inconvenience and trouble in the operation of the Hospital, but a
substantial increase in cost necessitated by building over floors which are occupied and in
the upstairs of a building which has been closed off. I estimate the increased cost to be
at least 40%.

5. We think it would be decidedly unwise to reject these bids and ask for new
ones, because we are convinced that in the re-bidding on this job the low bid would be above
the low bid of the present contractor. The price of materials is increasing all the time,
and a careful estimate made by us indicates that the present low bid is a very favorable
one for us.

We feel strongly that a real emergency exists here which can only be wisely
remedied by an authorization of an additional $25,000 of money, and we beg that you will
make this authorization, both in the interest of efficiency of the University Hospital,
and in the interest of economy for the State.

Faithfully yours,
(Signed) J. L. Newcomb.
President.

CONTRACT WITH THE CIVIL AERONAUTICS AUTHORITY:

The President presented to the Board a copy of a proposed contract covering the flight
training of students under the agreement with the Civil Aeronautics Authority, which contract had
been prepared by Mr. W. Allan Perkins, Attorney for the University, and approved by Prof. F. T.
Morse, Director of Aeronautical Training for the University of Virginia. It was thereupon-

RESOLVED, by the Board of the Rector and Visitors of the University of Virginia
that the President, J. L. Newcomb, be and he is hereby authorized and directed to
execute this contract for and on behalf of the Rector and Visitors of the University
of Virginia.

RELEASE TO SIDNEY S. YOUNG IN SETTLEMENT OF NOTE FOR FEES:

The following was adopted:

RESOLVED, by the Rector and Visitors of the University of Virginia that the
President be and he is hereby authorized to execute a release to Sidney S. Young
upon the payment to the University of the sum of $270.00 covering the face value
of a note given the University in settlement of his tuition fees.

REQUEST OF COLLEGE TOPICS TO INCREASE THE STUDENT SUBSCRIPTION RATE TO $2.50.

The President presented the request of the College Topics Staff to increase the student
subscription rate from $1.50 to $2.50 per session in order to provide sufficient funds to permit
of five issues per week instead of three issues as at present. After consideration of the Mater
the request was declined.

RE: DISPOSITION OF CERTAIN COINS IN THE ESTATE OF THE LATE DR. CUMBERLAND GEORGE HERNDON:

Mr. Garnett stated to the Board that he had received a letter dated October 20, 1939,
from Mr. J. Barrett Carter, representing Mrs. Elizabeth Herndon Rixey, only surviving heir and
next of kin of Mrs. Betty C. Herndon, deceased, stating that Second National Bank of Culpeper
has in its possession a collection of foreign coins which were placed with it many years ago for
exhibition purposes. From Mr. Carter's letter it appears that these coins had been given to Mrs.
Betty C. Herndon by her son, Dr. Cumberland George Herndon; that Mrs. Herndon had lent the coins
to her son-in-law, Mr. C. J. Rixey, for display at Second National Bank of Culpeper, of which Mr.
C. J. Rixey was then president. Mrs. Elizabeth Herndon Rixey has asked the Bank of Culpeper to
give her the coins which she feels she is entitled to as the only surviving heir of Mrs. Betty C.
Herndon.

The Bank asserts no ownership over the coins and will be glad to turn them over to
Mrs. Rixey if in so doing it will incur no liability.

Dr. Cumberland George Herndon, the original owner of these coins dies May 5, 1911, leaving
a will dated August 21, 1902. The residuary clause of his will gave certain bonds to the University
which are to be held in trust and the income used for a scholarship in the Medical School.

By a contract dated March 28, 1913, Mrs. Lizzie H. Stearns, Mrs. George H. Sinclair and the
University of Virginia being the only parties interested in the residuum of said estate, agreed among
themselves how their respective interests in the residuum should be paid. Final settlement was made
with the University on April 4, 1916, and the University has received its interest in the estate in full.

From the information we have been able to obtain in the matter, it would seem-

(1) That Dr. Herndon had given his mother the coins in question several years before he died;

(2) Therefore, none of the legatees under Dr. Herndon's will have any interest in these
coins;

(3) It appears that Mrs. Elizabeth Herndon Rixey is the only surviving heir and next of
kin of Mrs. Betty C. Herndon;

(4) While inquiry has been made as to the value of these coins we do not feel that this
is really a pertinent question if we are correct in the statement of the foregoing facts;

I therefore suggest that the following resolution be adopted-


344

RESOLVED, that, in so far as the University's interest in the estate of Dr. Cumberland
George Herndon, deceased, is concerned, Second National Bank of Culpeper be and is hereby
authorized to deliver the box of coins now in its possession and claimed by Mrs. Elizabeth
Herndon Rixey to the said Mrs. Elizabeth Herndon Rixey, or to such other person as may be
able to establish a clear right to the coins as Executor, only heir, or next of kin of Mrs.
Betty C. Herndon, deceased.

JEFFERSON PORTRAITS:

The President advised the Board that he had purchased a lot of Thomas Jefferson Portraits for
the University at a cost of $150.00. The Bursar was authorized to pay for same from University funds.

REPORT OF THE FINANCE COMMITTEE OF THE BOARD OF VISITORS OF THE UNIVERSITY OF VIRGINIA:

To the Honorable Board of Visitors of the University of Virginia:

Mr. Frederic W. Scott became chairman of the Finance Committee of this Board in 1921 and
continued in that position until his death in October, 1939. During this long period of eighteen years
Mr. Scott gave his great ability and large experience to the investment and management of the funds of
the University that are under the control of this Board.

Mr. Scott's sudden death made it important to the Finance Committee of this Board, and the
new Rector, that a study should be made of the University of Virginia investments.

This committee arranged with Messrs. Scudder, Stevens and Clark, Investment Counsel, to
make an appraisal and classification of certain University of Virginia funds, to-wit: Consolidated
Funds, Seward Estate, Blandy bequest and real estate and fraternity loans and the report made by
these Investment Counsel is returned herewith. This report is dated December 15, 1939 and the
schedules therefor are largely self explanatory.

In the brief introduction to the schedules the Investment Counsel give a summary of the
distribution of capital according to the Moody ratings. The figures apply only to the Consolidated
Funds, which are of dominant importance in the combined appraisal.

In a summary at the bottom of page 3 the Investment Counsel find that about 40% of the
capital in the Consolidated Funds represents issues of bond grade and the average current interest
yield from this group is 3.91%. "In a current appraisal of the defensive strength of the position",
say Investment Counsel, "approximately 9% in available cash should really be added to the prime bonds,
making a total of 49%, or almost half of the capital in what could be termed a defensive backlog."

This report further finds that there is about 6% in second grade issues having a higher
yield of 5.82%.

Investment Counsel then make this important summary:

"This brings the proportion of the Consolidated Fund accounted for to 55%, leaving a balance
of 45%. Aside from the 2% in miscellaneous holdings, there is 30% in common stocks and 13% in the
remaining bonds and preferred stocks which should realistically be considered the full equivalent of
common stocks from the risk standpoint. A number of these high issues are not now paying income,
but the majority are and on them the average yield is almost 7%, a clear indication that their
intrinsic quality is open to question in the market."

"In summary, therefore, what might be called the `Risk Capital' in the Consolidated Fund
comes close to half of the total and is not fully revealed by the 30% common stocks alone."

It must not be forgotten that Investment Counsel did rate appraise and classify all the
endowment funds of the University of Virginia, amounting in 1939 to more than eleven million dollars
($11,020,113) but confined their study to the Consolidated Fund, the total of which is shown in their
summary as $2,494,978.56; to Seward Estate funds shown in their total as $257, 925. 24, and the Blandy
bequest shown in their summary as a total of $461,542.22, and Real Estate Notes and Fraternity Loans
amounting to $247,195.27. The grand total for the funds named is $3,461.29. In round figures 8% of
this total was in cash, 10% was invested in real estate and fraternity loans, 46% was invested in bonds,
21% was invested in common stocks and 11% was invested in preferred and guaranteed stocks. The income
from these investments was about $123,000, or a yield of nearly 4%.

We insert at this point an exhibit under the capiton "A Study of Investments Of All the
Endowment Funds of the University of Virginia, Excluding the Folkes Scholarship Fund, for the two
fiscal years 1938-39." The total of such investments for 1939 is a little over eleven million dollars
and the total income therefrom is a little over $422,000, or an average return of 3.82%, but the test
of good management applied to this Board must be the funds, covered by the appraisal and classification
made by the Investment Counsel, for these are the funds under themanagement of this Board.

After obtaining the appraisal and classification from Investment Counsel, the Finance Committee
spent some time in conference with Mr. James H. Scott and Mr. Buford Scott. We were advised that Mr.
James H. Scott was the constant assistant of the late Rector in the management and investment of the
investment funds of the University, immediately under control of the Board of Visitors, while Mr.
Buford Scott was both the son and partner of Mr. Frederic W. Scott.

Mr. James H. Scott supplied the Rector and members of the Finance Committee with a copy of a
letter that he wrote Mr. Frederic W. Scott on the 18th of last August and this letter is filed as a
part of this report.

It appears that in 1930 the book values of the investments were changed to the then market
and that this resulted in a net write-up of the book values of the various sums in the total of $235,928.14.
Between 1930 and June 30, 1939, Mr. Scott reports that the sale and redemption of securities in the
Consolidated Funds resulted in net profits of $56,823.68 over the book values as established in 1930.
He then adds these profits to the write-up and gets a total addition to the book value of the Consolidated
Fund of $292,752.00 and this sum he claims should be credited against the unrealized
depreciation from book values on June 30, 1939 in the sum of $446,210.00, leaving a net shrinkage of
$153,458.00.

The Board will be interested in determining the source of any profit realized on the sale of
securities. Mr. Scott reports that most of the profit of $56,823.00, realized on the sale of securities
between 1930 and 1939, was made from the sale and redemption of bonds in the industrial and miscellaneous


345

bond group. After emphasizing that the principal losses have been in the railroad bond group and
the railroad preferred and guaranteed stock group, Mr. Scott declares as follows, to-wit:

"While these losses have been offset in part by profit on industrial and
miscellaneous bonds, the larger profits have come from the retention of common stocks
received as legacies and held by the University over a long period. Through this
combination the fund has been substantially kept intact through the recent difficult years."

It is common knowledge that it is very difficult to invest large funds in safe properties
or securities and to obtain a satisfactory yield from such investments. If this Board should confine
its investments to those investments in which section 5431 of the Code declares "fiduclaries may
invest", the yield in income would be insufficient to meet appropriations that this Board now makes
for the support of this University.

The fundamental question is, however, is this Board confined to the investments, sometime
designated as legal investments, under section 5431 of the Code of Virginia. This committee requested
an opinion upon this question from Mr. W. Allan Perkins, the attorney for the University, and he
advised that section 5431 was not mandatory, but permissive and that this section does not exclude
the right of the fiduciary to invest in other securities than those enumerated in 5431, when in so
doing the fiduciary exercises sound discretion.

It is the duty of this Board to exercise care and diligence; we are trustees who must
exercise good faith, sound discretion, prudence and care.

While the section defining investments that a fiduciary may make is permissive and not
exclusive, we must not forget that this section is a deliberate definition by the General Assembly
of Virginia of the character of investments that are considered safe for trust funds.

While we do not think that this Board should be confined to the investments nominated in
the statute, yet we do not think that this Committee should buy common stocks, without first obtaining
the deliberate approval of the Board of Visitors of such investments.

Mr. James Scott's letter finds "that the unrealized depreciation of $78,524.00 in the
common stock group would show instead an unrealized profit of approximately $140,000, if referred
back to the original price at which the securities were bought or taken over."

There are many arguments in favor of prudent investment and careful dealing in high grade
common stocks. This committee is aware that the trustees of a number of our educational funds do
invest a considerable percentage of such funds in common stocks and that the results, over a period of
years, often justifies such investment.

Mr. James Scott's finding indicates that the investments made in common stocks by Mr.
Fred Scott of certain of the funds under control of this Board were profitable. Of course, it must
be remembered also that profits were realized from common stocks that came to this Board as gifts.

Even if no new common stocks be purchased at the present, the Finance Committee will still
be faced with the continuing problem of when and at what price to sell common stocks that were not
purchased by this Board, but that came into the portfolio of this Board by gift. It is, of course,
the duty of this Board to exercise a wise and informed discretion in determining when and at what
price disposition should be made of any of the investments. This Board has a clear right to retain
common stocks that are a part of gifts to the University of Virginia as long as it would appear
wise to retain such stocks. The problem is to determine when a particular investment, including
common stocks, should be sold and there should be no general rule against the retention of such common
stocks.

The Committee has gone over the list of investments shown in the report made by Scudder,
Stevens and Clark and has marked the particular investments that should be held and those that
should be disposed of. It is suggested that the Board consider giving the Finance Committee
suthority and discretion to dispose of any of these securities at such time and at such price
as deemed best, or to exercise the Committee's best judgement in retaining any of these investments.

HOW SHALL THIS FUND BE MANAGED HEREAFTER?

The Finance Committee has considered the advisability of employing investment counsel.
The cost of employing investment sounsel for this fund is estimated to be more than $7000.00 per
year. This is a large sum and it is doubtful if the value of the services to be rendered by
investment counsel will do more to promote a reasonably safe and profitable operation of the funds
than can be accomplished by obtaining the constant advise of experienced and dependable investment
bankers.

For the present the Finance Committee recommends that this Board continue to consult Scott
and Stringfellow, Investment Bankers, of Richmond, who are familiar with our funds and especially
continue to consult Mr. James H. Scott, who worked intimately with Mr. Fred Scott for some years
up to the time of his death, However, this Board should retain its freedom of action in order that
it may have the right to consult other investment bankers or even, if and when deemed desirable,
to consult investment counsel.

Respectfully submitted,
R. Gray Williams,
Hollis Rinehart,
James H. Corbitt,
Robert W. Daniel.
Finance Committee of the Board of Visitors
of the University of Virginia.

346

LETTER FROM JAMES H. SCOTT:

SCOTT & STRINGFELLOW

Mr. R. Gray Williams
Rector of the University of Virginia
Winchester, Virginia
Dear Mr. Williams:

You asked me last Friday to send you and each member of the Finance Committee of the
University of Virginia Board of Visitors a copy of a portion of a letter written by me last
August 18th to Mr. Fred W. Scott in which I summarized certain figures in regard to the handling
of the Endowment Funds of the University in past years. I am, therefore, quoting below all of
the letter which I read you that concerns the above matters omitting only certain personal matters
contained at the end of my letter.

"From time to time you seem to be worried over the shrinkage in value sustained by many
of the University's securities. While all funds of this kind have had a similar experience this
is a poor consolation. However, you may be interested in some of the following facts in this
connection.

"In 1930 Mr. Carruthers and I worked out a plan to consolidate many of the small
funds of the University. Some of these had increased in value and others had diminished from
their book values. In order to treat the funds equitably it was necessary to change our book
values to the then market. This resulted in a net write-up of the book values of the various funds
amounting to $235,928.14. Between 1930 and June 30, 1939 the sale and redemption of securities in
the Consolidated Funds has resulted in net profits of $56,823.68 over the book values as
established in 1930. Adding these profits to the above write-up makes a total of $292,752 which
has been added to the book value of the Consolidated Funds. So while the Consolidated Funds
together with the Seward Estate Fund showed an unrealized depreciation from book values on June 30,
1939 amounting to $446,210, there should be credited against this the above mentioned profits
and write-up of $292,752, leaving a net shrinkage of $153,458.

"I have been unable to secure the figures showing realized profits in the separate funds
from the time you became Chairman of the Finance Committee in 1921 up until 1930 but I am satisfied
that these profits were considerable as this was, generally speaking, a period of rising prices.
It was during this period, for instance, that you sold the stock of the Massachusetts Gas Companies
on which a profit of $57,444 was realized. I feel pretty safe in saying that the profits realized
prior to 1930 will more than take care of the loss in the unmarketable real estate loans which are
included at their book values in the assets of the Consolidated Funds because no market values
are obtainable.

"While the University will undoubtedly eventually sustain some severe losses in its
holdings of railroad securities, these are partially offset in the totals as indicated above
by several very handsome profits still unrealized - for instance, you will recall that the
1940 1400 shares of DuPont stock received from the Wills Johnson Estate and since multiplied
through stock split ups was originally taken over (after adjustment for sale of rights and
odd shares) at $18,146 and is now worth $224,000."

I enclose a summary of the investments of the University giving book values and present
market values indicating an unrealized depreciation in the securities held by the University of
$325,637 as of the close of the year 1939 as compared with an unrealized depreciation of $446,210
on June 30, 1939 as mentioned in my letter of August 18th, quoted above, so in other words, the
securities have increased in value approximately $120,000 during the last six months of 1939,
leaving an actual net loss in the funds of about $33,000 or a little over 1%.

Mr. Daniel asked how the University's investments had fared as between the different
security classifications. I am not able to give you this information in full and accurate detail
and a complete statement would require a considerable investigation in the records of the Bursar.
However, I think the following information will be sufficient for your present purposes. The
write-up in book value of securities in 1930 represented an increase in value entirely in the
stock groups, there being a slight decline at that time in the value of the bond groups. The
entry made on the Bursar's records at that time does not divide the write-up as between the common
stock group and the preferred and guaranteed stocks. However, I have looked up the principal items
of the write-up which are attached hereto in a separate memorandum. This does not include a large
number of small items but it is quite apparent from this memorandum that at least 90% of the
write-up occurred in the common stock group, the total of the eight items listed being over
$220,000. It therefore appears that the unrealized depreciation of $78,524. in the common stock
would show instead as an unrealized profit of approximately $140,000 if referred back to the
original prices at which the securities were bought or taken over. In the preferred and guaranteed
stock group the unrealized loss would be slightly reduced if referred to the original cost basis.

Most of the $56,823.68 profit realized on sale of securities between 1930 and 1939 was
made from the sale and redemption of bonds, principally from those in the industrial and
miscellaneous bond group. This group has, therefore, netted the University realized profits and
also shows an unrealized profit of a similar amount, the combined total being in the neighborhood
of $100,000. Profits realized in the past nine years in the railroad bond group would slightly
reduce the unrealized losses now indicated in this classification but the railroad bond group
would still show the largest depreciation of all, somewhere between $160,000 and $170,000.

It is rather interesting that the principal losses which have been sustained in the
University's Endowment Funds have been in the railroad bond group and to a lesser extent in the
railroad preferred and guaranteed stocks, most of which were considered very conservative
high-grade investments at the time they were acquired. While these losses have been offset in
part by profits on industrial and miscellaneous bonds, the larger profits have come from the
retention of common stocks received as legacies and held by the University over a long period.
Through this combination the Fund has been substantially kept intact through the recent difficult years.

I trust the above gives you the information desired.

Very truly yours,
(Signed) James H. Scott.

LETTER FROM MR. W. ALLAN PERKINS, ATTORNEY FOR THE UNIVERSITY:

To the Finance Committee of the Board of Visitors
of the University of Virginia
Gentlemen:

At the request of the Rector, I am submitting herewith a statement upon the
subject of the authority, duties, and liabilities of the Board of Visitors in connection
with investment of funds belonging to the University, primary consideration being given to
the question of whether the Board of Visitors shall be confined in making investments of
University funds to so-called "lawful investments" or whether, in the exercise of a sound
discretion, the Board may, without liability to its members, place the funds of the
University in securities not included within the list of such "lawful investments" as
defined by Section 5431 of the Code of Virginia.

FIRST

AUTHORITY OF THE BOARD OF VISITORS

Section 806 of our Code provides, among other things, that the University of
Virginia shall be continued and the Visitors thereof shall be and remain a corporation
under the style of- "The Rector and Visitors of the University of Virginia", and among
other powers shall have the "power to accept, execute and administer any trust in which
it may have an interest under the terms of the instrument creating the trust".

A careful search of our Code sections and Acts of Assembly has failed to
disclose any specific limitation upon the foregoing broad grant of powers in the execution
of trusts by the Board of Visitors. I am of opinion, therefore, that the Visitors of the
University do not stand upon ground differing in any way from that occupied by any other
trustee or fiduciary, and therefore in the management of all trusts committed to their
care for the benefit of the University of Virginia, the Visitors are subject only to the
principles of law applicable to fiduciaries generally.

SECOND

DUTIES OF THE BOARD IN MAKING INVESTMENTS

If I am correct in the foregoing conclusion, the statement of your duties
becomes little more than an expression of elementary principles-

A trustee should exercise common skill, common prudence, and common caution; he
must represent and protect the interest of all beneficiaries impartially, he must act
honestly and in utmost good faith. A trustee must exercise sound judgement and prudence
and due diligence, or that care and diligence which an ordinarily prudent man would exercise
in the management of his own affairs. However, a trustee is not an insurer of the trust
property or of results, and when it is shown that a trustee has been faithful and diligent,
the Court will view his acts with liberality and indulgence and will not hold him responsible
for more mistakes or errors of judgement, or for losses not attributable to lack of
fidelity. (65 C. J., 648.

Section 5431 of the Code of Virginia authorizes fiduciaries to make investments
in the securities enumerated or of the class or classes defined therein. The language of
this statute is permissive. Fiduciaries may invest in these securities but this statute
does not in any way exclude the right of the fiduciary to invest in other securities when
in so doing he exercises a sound discretion.

Pre-eminent knowledge and uncommon foresight are not required of a trustee, but
all that is required is that he should act in good faith and with the same care and diligence
that a prudent man is accustomed to exercise in the management of his own affairs. To require
more than this of a Trustee would be to deter man of integrity from taking upon themselves an
office so necessary in the concerns of life from fear of anxiety, trouble and risk involved.
(Elliott v. Carter, 9 Gratt. 541, Davis v. Harman 121 Gratt. 194; Cogbill v. Boyd, 77 Va. 450).

It is well settled that it is the duty of a trustee to preserve and protect the trust
property for the benefit of the beneficiaries. Nothing more is required of a trustee than
that he should act in good faith and with the same prudence and discretion that a prudent man
exercises in his own affairs. (Shepherd v. Darling 120 Va. 586; Winder v. Nock 104 Va. 759;
Halstead's Ex'rs. v. Ingram, 163 Va. 229.

THIRD

LIABILITIES OF THE BOARD

There is, of course, no question of liability where funds are placed only in "lawful
investments" within the terms of the permissive statute above referred to. There are
authorities in some of the jurisdictions which hold that where a trustee does not take advantage
of the permissive statute, he will be held responsible for loss, but the great weight of
authority, and certainly the practice in Virginia has been to regard these statutes simply as
permissive and not as exclusive statutes. (1 Perry on Trusts, Sec. 459, Harrison on Wills and
Administration, Pr. 381.) If, as stated above, the whole duty of a trustee is to exercise care
and diligence, as expressed under the second heading above, then it follows as a corollary to
said duty that liability will result where there is a failure to exercise such good faith,
sound discretion, common prudence, and care.

Respectfully submitted,
(Signed) W. Allan Perkins
Attorney for the University
of Virginia.

348

The following action was taken by the Board on the foregoing report of the Finance Committee:

WHEREAS, the Finance Committee of this Board has presented a report on the investments
of the endowment funds of this University and made certain recommendations:

Now, therefore, be it RESOLVED that said report be filed, approved and
recorded, and that the Finance Committee of this Board is authorized to invest,
collect and reinvest the endowment funds under control of this Board in its careful and
prudent discretion without limitation as to the persons who may be consulted as to
such investments, and, in accordance with the advice of legal counsel, that Code Section
5431 as to restrictions as to legal investments are permissive rather than mandatory,
provided that no investment shall be made in common stocks except with the approval
first obtained of this Board.

The meeting then adjourned.

R. Gray Williams
Rector.
E. I. Carruthersa
Secretary.