The first half of 1962 witnessed one of the most precipitous decliues in stock market prices in recent history. In terms of the volume of trading and the magnitude of the daily erosion of stock values, one must look back to the crashed of 1929 and 1937 to find parallels. Moreover, the decline was not confined to U. S. stock prices, for a world-wide revaluation of equity values was transmitted from New York. For most professional financial observers of these developments, two aspects of the decline served as the foci of their analysis. There was first the sharp drop in the level of share prices. Second, and perhaps more interesting, there was a marked change in the structure of share prices, i.e. the relationships among equities of different characteristics.

The conventional financial rule under which institutions deriving at least part of their income from securities have traditionally operated is that dividends and interest may be spent but not capital gains. In recent years the conventional wisdom has been attacked, partly on the grounds that it ill serves the institutions in question. ' The purpose of this paper is (a) briefly to examine the principal reasons for employing a definition of endowment income different from that implied by the conventional spending rule, (b) to discuss the implementation of the new definition which was designed at Princeton University and contrast it with some alternatives, and (c) to indicate the new spending rule's operation with the aid of some sampling experiments.