{\it Life Insurance Companies as Financial Institutions}, 1962. (Englewood Cliffs, N.J.: Prentice-Hall). (Fed lib HG8771.L72) p. 51. `There have been several factors influencing the amount of stocks held by the companies: (1) statuatory requirements and limitations, (2) valuation regulations, and (3) investment policies. With respect to statuatory provisions, which are discussed more fully in Chapter 5, the provisions of New York State law in particular have had an important influence on the amount of stocks held by all life insurance companies since companies domiciled the the state have constituted a large, although varying, segment of the industry. (fn 4) Under the New York law, investment in preferred stocks was not permited from 1906 until 1928 and in common stocks from 1906 until 1951. (fn 5). The laws of other states also have not permitted stock investment. When such investment has been permitted there have been limitations on the amount of such holdings. These limitations are often expressed as a percentage of assets or surplus and help to account for the relatively small investment in equities by life companies.' (Table 3.6 shows holdings, 1899-1959) pp. 75- Review of state laws and their effects. 159 Raymond W. Goldsmith, 1973. {\it Institutional Investors and Corporate Stock---A Background Study}. National Bureau of Economic Research. (New York, N.Y.: Columbia University Press). p. 52. `Although commercial banks are the largest single group of financial institutions if measured by size of assets, they have hardly ever been important holders of corporate stock. (fn 14) This fact is mostly due to regulation. National banks are virtually precluded from owning corporate stock except that of Federal Reserve banks. While the regulations are not as strict in many states, they still severely limit the freedom of state-chartered banks to invest in corporate stocks even if they desire to.' (Table 2.7 shows holdings 1860-1952). p. 226. `In the years immediately following the war [WWII], the interest rates on long-term government bonds (pegged at 2 1/2 percent) kept interest rates on private bonds at similar low levels. The higher returns on common stock investments were strong inducement for bank trustees to invest an increasing share in stocks. Accordingly, uninsured pension funds quickly sold off the government securites which they had accumulated during WWII and invested primarily in corporate stocks and bonds, a process that can be followed in Table 5-2. This change was made possible by a revision in New York State law allowing trustees to invest up to 35 percent of a fund in stocks. (fn 20)' p. 230. `Historically, life insurance companies have been very conservative investors, on the presumption that their fundamental objective should be safety of principal. As a result over three-fourths of all life insurance assets have been invested in corporate bonds and mortgages (Table 5-3 and 5-4). A variety of statuatory and institutional considerations reduced the investment alternatives in corporate stock that were available to life insurance companies; state laws provide very strict limitations. (fn 25) Most life insurance company assets are held by companies licensed in New York. Originally, New York State law prohibited investment in corporate stock. Relaxation of this restriction in 1951 allowed life insurance companies to invest up to 3 percent of total assets in common stock; an amendment in 1957 raised the limit to 5 percent. The law also prescribes limits on the type of company whose stock is eligible. A company must have paid a dividend in each of the previous ten years, and dividends must not have exceeded earnings in any year. Obviously, these restrictions severely limit the choice of stocks open to life insurance companies.' p. 231. `The rules for valuation of assets constitute the second major deterrent to stock investment by life insurance companies. Most life insurance companies are mutual companies and are required by law to return profits in excess of a stated level of net policy liabilities. Thus, determining asset values critically affects a company's cash flow and almost since its beginning has been the subject of dispute in the industry. (fn 29)' p. 253. `A trust agreement is an arrangement by which the trustee assumes fiduciary responsibility for managing assets for the benefit of another. (fn 45) The agreement typically defines that responsibility, the degree of discretion of the trustee, and the rules for distributing benefits of the trust. The definition of fiduciary discretion has many dimensions. Often it limits the the extent of corporate stock and other types of investments; it may impose limits on the share of funds that may be invested in a single company; and it may lay out guidelines, indicating which companies are eligible. Also state laws and state courts interpret the nature and limites of trustee discretion differently. In some cases the trustee is limited to selecting from a "legal list" of eligible investments maintained by many states. Within the agreed upon limits of fiduciary responsibility trustees typically are limited by the "prudent man" rule. (fn 46, Harvard College vs. Amory 1835). Raymond W. Goldsmith, Dorothy S. Brady, an Horst Mendershausen, 1956. {\it A Study of Saving in the United States, Volume III}. (Princeton, N.J.: Princeton University Press. p. 42 National Balance Sheets, 1900-1949