Chap. 412.—-An ACT to amend and re-enact Section 5431 of the Code of Virginia,
as amended, relating to securities in which fiduciaries may invest. [S B 117]

Approved April 4, 1942

1. Be it enacted by the General Assembly of Virginia, That sec-
tion fifty-four hundred and thirty-one of the Code of Virginia, as
amended, be amended and re-enacted, as follows:

Section 5431. In What Securities Fiduciaries May Invest—(A)
Executors, administrators, trustees, and other fiduciaries, both individual
and corporate, may invest the funds held by them in a fiduciary capacity
in the following securities, which are and shall be considered lawful in-
vestments :

1. Stocks, bonds, notes, and other evidences of indebtedness of the
State of Virginia, and those unconditionally guaranteed as to the payment
of principal and interest by the State of Virginia.

2. Stocks, bonds, treasury notes and other evidences of indebted-
ness of the United States, and those unconditionally guaranteed as to the
payment of principal and interest by the United States; and bonds of
the District of Columbia, farm loan bonds issued under an act of Con-
gress approved July seventeenth, nineteen hundred and sixteen, and
amendments thereto, known as the Federal Farm Loan Act, and bonds
and notes of the Federal National Mortgage Association and the Federal
Home Loan Banks.

3. Stocks, bonds, notes and other evidences of indebtedness of any
State of the United States upon which there is no default and upon which
there has been no default for more than ninety days; provided, that
within the twenty fiscal years next preceding the making of such invest-
ment, such State has not been in default for more than ninety days in the
payment of any part of principal or interest of any debt authorized by
the legislature of such State to be contracted.

4. Stocks, bonds, notes and other evidences of indebtedness of
any county, city, town or district in the State of Virginia upon which
there is no default; provided, that the said stocks, bonds, notes and
other evidences of indebtedness are either the direct legal obligations of,
or those unconditionally guaranteed as to the payment of principal and
interest by, the county, city, town or district in question.

, 5. -Legally authorized stocks, bonds, notes and other evidences of
indebtedness of any city, county, town or district situated in any one of
the States of the United States upon which there is no default and upon
which there has been no default for more than ninety days; provided,
that, within the twenty fiscal years next preceding the making of such
investment, such city, county, town or district has not been in default
for more than ninety days in the payment of any part of principal or
interest of any stock, bond, note or other evidence of indebtedness issued
by it; and provided, (a) that such city, county, town or district shall have
been in continuous existence for at least twenty years, and (b) that it
has a population, as shown by the Federal census next preceding the
making of such investment, of not less than twenty-five thousand
inhabitants, and (c) that the stocks, bonds, notes or other evidences of in-
debtedness in which such investment is made are the direct legal obliga-
tions of the city, county, town or district issuing the same, and (d) that the
city, county, town or district has power to levy taxes on the taxable real
property therein for the payment of such obligations without limitation
of rate or amount, and (e) that the net indebtedness of such city, county,
town or district (including the issue in which such investment is made),
after deducting the amount of its bonds issued for self-sustaining public
utilities, does not exceed ten per centum of the value of the taxable
property in such city, county, town or district, to be ascertained by the
valuation of such property therein for the assessment of taxes next pre-
ceding the making of such investment.

6. Bonds and negotiable notes directly secured by a first lien on
improved real estate or farm property in the State of Virginia, not to
exceed sixty per centum of the fair market value of said real estate,
including any improvements thereon at the time of making such invest-
ments, as ascertained by an appraisal thereof made by two reputable
persons who are not interested in whether or not such investments are
made.

7. Bonds and negotiable notes directly secured by a first lien on
improved real estate situated in any incorporated city in any of the States
of the United States which lie wholly or in part within the Fifth Federal
Reserve District of the United States as now constituted (pursuant to
the act of Congress of December twenty-third, nineteen hundred and
thirteen, known as the Federal Reserve Act, as amended), not to exceed
sixty per centum of the fair market value of said real estate, with the
improvements thereon, at the time of making such investments, as ascer-
tained by an appraisal thereof made by two reputable persons who are
not interested in whether or not such investments are made; and provided
that such city has a population, as shown by the Federal census next
preceding the making of such investments, of not less than five thousand
inhabitants.

8. Bonds of any of the educational institutions of the State of Vir-
ginia, which have been or may be authorized to be issued by the General
Assembly of the State of Virginia.

9. “Stocks, bonds and other securities of the Richmond, Fredericks-
burg and Potomac Railroad Company, including bonds or other secur-
ities guaranteed by the Richmond, Fredericksburg and Potomac Railroad
Company. |
, 10. Bonds, notes and other evidences of indebtedness (including
equipment trust obligations) which are direct legal obligations of, or
which have been unconditionally assumed or guaranteed as to the pay-
ment of principal and interest by any railroad corporation operating
within the United States which meets the following conditions and re-
quirements:

(a) The gross operating revenue of the said corporation for the
fiscal year preceding the making of such investment, or the average of
the gross operating revenue for the five fiscal years next preceding the
making of such investment, whichever of these two is the larger, shall
have been not less than ten million dollars,

(b) The total fixed charges of the said corporation, as reported
for the fiscal year next preceding the making of the investment, shall
have been earned an average of at least two times annually during the
seven fiscal years preceding the making of the investment and at least
one and one-half times during the fiscal year immediately preceding the
making of the investment.

The term “total fixed charges” as used in this paragraph shall be
deemed to refer to the term used in the accounting reports of common
carriers as prescribed by the regulations of the Interstate Commerce
Commission ; and

(c) The aggregate of the average market prices of the total
amounts of each of the individual securities of such corporation junior
to its bonded debt and outstanding at the time of the making of such
investment shall be equal to at least two-thirds of the total fixed charges,
as defined in paragraph (b) of clause ten of this subsection, for such
railroad corporation for the fiscal year next preceding the making of such
investment capitalized at an interest rate of five per centum per annum.
Such average market price of any one of the said individual securities
shall be determined by the average of the highest quotation and the
lowest quotation of the individual security for a period immediately pre-
ceding the making of such investment, which period shall be the full
preceding calendar year plus the then expired portion of the calendar
year in which such investment is made; provided, that if more than six
months of the calendar year in which such investment is made shall have
expired, then such period shall be only the then expired portion of the
calendar year in which such investment is made; and provided further,
that 1f such individual security shall not have been outstanding during
the full extent of such period, such period shall be deemed to be the
length of time such individual security shall have been outstanding.

Il. Stocks, bonds, notes, other evidences of indebtedness and any
other securities of any railroad corporation operating within the United
States the railroad lines of which have been leased by a railroad cor-
poration, either alone or jointly with other railroad corporations, whose
bonds, notes and other evidences of indebtedness shall, at the time of
the making of such investment, qualify as lawful investments for fiduc-
laries under the terms of clause ten of this subsection; provided, that
the terms of such lease shall provide for the payment by the said lessee
railroad corporation individually, irrespective of the liability of other
joint lessee railroad corporations, if any, in this respect, of an annual
rental of an amount sufficient to defray the total operating expenses and
cH. 412] ACTS OF ASSEMBLY 0509

maintenance charges of the lessor railroad corporation plus its total fixed
charges, plus, in the event of the purchase of such a stock as aforesaid, a
fixed dividend upon any issue of such stock in which such investment
is made, and provided, that if such investment so purchased shall consist
of an obligation of definite maturity, such lease shall be one which shall,
according to its terms, provide for the payment of the obligation at matur-
ity or extend for a period of not less than twenty years beyond the matur-
ity of such obligations so purchased, or if such investment so purchased
shall be a stock or other form of investment having no definite date of
maturity, such lease shall be one which shall, according to its terms, ex-
tend for a period of at least fifty years beyond the date of the making of
such investment.

12. Equipment trust obligations issued under the “Philadelphia
Plan” in connection with the purchase for use on railroads of new
standard guage rolling stock provided, that the owner, purchaser, or
lessee of such equipment or one or more of such owners, purchasers,
or lessees shall be a railroad corporation whose bonds, notes and other
evidences of indebtedness shall, at the time of the making of such invest-
ment, qualify as lawful investments for fiduciaries under the terms of
clause ten of this sub-section, and provided that all of such owners, pur-
chasers, or lessees shall be both jointly and severally liable under the
terms of the said contract of purchase or lease, or both, for the fulfillment
thereof.

13. Any preference stock of any railroad corporation operating
within the United States, provided the said stock and the said railroad
corporation meet the following conditions and requirements :

(a) Such stock shall be preferred as to dividends, the said divi-
dends shall be cumulative and the said stock shall be preferred as to
assets in the event of liquidation or dissolution ;

(b) The gross operating revenue of the said corporation for the
fiscal year preceding the making of such investment, or the average of
the gross operating revenue for the five fiscal years next preceding the
making of such investment, whichever of these two is the larger, shall
have been not less than ten million dollars ;

(c) The total fixed charges, as defined in paragraph (b) of clause
ten of this subsection, of the said corporation, as reported for the fiscal
year next preceding the making of such investment, plus the amount, at
the time of making such investment, of the annual dividend requirements
on the said preference stock and any preference stock having the same
or senior rank, such fixed charges and dividend requirements being con-
sidered the same for every year, shall have been earned an average of
at least two and one-half times annually for the seven fiscal years pre-
ceding the making of such investment and at least two times for the fiscal

ear immediately. preceding the making of such investment ; and

(d) The aggregate of the average market prices of the total
amount of each of the individual securities of the said corporation, junior
to the said preference stock and outstanding at the time of the making
of such investment, shall be at least equal to the par value of the total
issue of the preference stock in question plus the total par value of all
other issues of its preference stock having either the same rank as, or a
senior rank to, the issue of its said preference stock plus total fixed
charges, as defined in paragraph (b) of clause ten of this subsection, for
such railroad corporation for the fiscal year next preceding the making
of such investment capitalized at an interest rate of five per centum per
annum. Such average market price of any one of the said individual
securities shall be determined in the same manner as prescribed in para-
graph (c) of clause ten of this subsection. |

14. Bonds, notes and other evidences of indebtedness of any public
utility operating company operating within the United States, provided,
the said company meets the following conditions and requirements:

(a) The gross operating revenue of the said public utility operat-
ing company for the fiscal year preceding the making of such investment,
or the average of the gross operating revenue for the five fiscal years
next preceding the making of such investment, whichever of these two
is the larger, shall have been not less than five million dollars;

(b) The total fixed charges of the said corporation, as reported
for the fiscal year next preceding the making of the investment, shall
have been earned, after deducting operating expenses, depreciation and
taxes, other than income taxes, an average of at least one and three-quar-
ters times annually during the seven fiscal years preceding the making of
the investment and at least one and one-half times during the fiscal year
immediately preceding the making of the investment:

(c) In the fiscal year next preceding the making of such invest-
ment the ratio of the total par value of the bonded debt of the said public
utility operating company including the total bonded indebtedness of all
of its subsidiary companies, whether assumed by the public utility operat-
ing company in question or not, to its gross operating revenue shall not
be greater than four to one; and

(d) The said public utility operating company shall be subject to
permanent regulation by a State commission or other duly authorized
and recognized regulatory body.

The term “public utility operating company” as used in this sub-
section fourteen shall mean a public utility or public service corporation
of whose total income available for fixed charges for the fiscal year next
preceding the making of such investment at least fifty-five per centum
thereof shall have been derived from direct payments by customers for
service rendered them and of whose total operating revenue for the fiscal
year next preceding the making of such investment at least sixty per
centum thereof shall have been derived from the sale of electric power,
gas, water, or telephone service and not more than ten per centum thereof
shall have been derived from traction operations. Any company whose
total operating revenues are derived more than twenty per centum from
gas shall have its gas properties all within the limits of one State.

15. Any preference stock of any public utility operating company
operating within the United States, provided, the said stock and the said
company meet the following conditions and requirements :

(a) Such stock shall be preferred as to dividends, the said divi-
dends shall be cumulative, and the said stock shall be preferred as to
assets in the event of liquidation or dissolution :
cH. 412] ACTS OF ASSEMBLY 657

(b) The gross operating revenue of the said public utility operat-
ing company for the fiscal year preceding the making of such investment,
or the average of the gross operating revenue for the five fiscal years next
preceding the making of such investment, whichever of these two is the
larger, shall have been not less than five million dollars;

(c) The total fixed charges of the said public utility operating
company, as reported for the fiscal year next preceding the making of
such investment, plus the amount, at the time of making such investment,
of the annual dividend requirements on the said preference stock and
any preference stock having the same or senior rank, such fixed charges
and dividend requirements being considered the same for every year, shall
haye been earned, after deducting operating expenses, depreciation and
taxes, including income taxes, an average of at least two times annually
for the seven fiscal years preceding the making of such investment and
at least two times for the fiscal year immediately preceding the making
of such investment ;

(d) In the fiscal year next preceding the making of such invest-
ment, the ratio of the sum of the total par value of the bonded debt of
the said public utility operating company, the total par value of the issue
of its said preference stock, and the total par value of all other issues of
its preference stock having the same or senior rank to its gross operating
revenue shall not be greater than four to one; and

(e) The said public utility operating company shall be subject
to permanent regulation by a State commission or other duly authorized
and recognized regulatory body.

For the purposes of clause fifteen of this sub-section, the term “pub-
lic utility operating company” shall be construed in the same manner
as defined in clause fourteen of this subsection.

16. Bonds, notes and other evidences of indebtedness of the
American Telephone and Telegraph Company, and bonds, notes and
other evidences of indebtedness unconditionally assumed or guaranteed
as to the payment of principal and interest by the American Telephone
and Telegraph Company; provided that the total fixed charges, as re-
ported for the fiscal year next preceding the making of the investment,
of the said company and all of its subsidiary corporations on a con-
solidated basis shall have been earned, after deducting operating ex-
penses, depreciation and taxes, other than income taxes, an average of
at least one and three-quarters times annually during the seven fiscal
years preceding the making of the investment and at least one and one-
half times during the fiscal year immediately preceding the making of
the investment.

17. The stocks, bonds, notes and other evidences of indebtedness
of any electric, gas or water department of any state, county, city, town
or district whose obligations would qualify as legal for purchase under
sub-sections three, four or five of this section, the interest and principal
of which are payable solely out of the revenues from the operations of
the facility for which the obligations were issued, provided that the de-
partment issuing such obligations meets the requirements applying to
public utility operating companies as set out in sub-paragraphs (a), (b)
and (c) of paragraph fourteen (14) of this section.
658 ACTS OF ASSEMBLY [va., 1942

18. Bonds, notes and other evidence of indebtedness of any in-
dustrial corporation incorporated under the laws of the United States
or of any State thereof, which corporation meets the following condi-
tions and requirements :

(a) The gross operating revenue of the said corporation for the
fiscal year preceding the making of such investment, or the average of
the gross operating revenue for the five fiscal years next preceding the
making of such investment, whichever of these two is the larger, shall
have been not less than ten million dollars ;

(b) The total fixed charges of the said corporation, as reported for
the fiscal year next preceding the making of the investment, shall have
been earned, after deducting operating expenses, depreciation and taxes,
other than income taxes, and depletion in the case of companies commonly
considered as depleting their natural resources in the course of business,
an average of at least three times annually during the seven fiscal years
preceding the making of the investment and at least two and one-half
times during the fiscal year immediately preceding the making of the
investment ;

(c) The net working capital of the said industrial corporation, as
shown by its last published fiscal year and statement prior to the making
of such investment, or in the case of a new issue, as shown by the financial
statement of said corporation giving effect to the issuance of any new
security, shall be at least equal to the total par value of its bonded debt
as shown by such statement; and

(d) The aggregate of the average market prices of the total
amounts of each of the individual securities of the said industrial cor-
poration, junior to its bonded debt and outstanding at the time of the
making of such investment, shall be at least equal to the total par value
of the bonded debt of the said industrial corporation at the time of the
making of such investment. Such average market price of any one of the
said individual securities shall be determined in the same manner as pre-
scribed in paragraph (c) of clause ten of this sub-section.

19. Any preference stock of any industrial corporation incor-
porated under the laws of the United States or of any State thereof,
provided, the said stock and the said industrial corporation meet the fol-
lowing conditions and requirements:

(a) Such stock shall be preferred as to dividends, the said divi-
dends shall be cumulative and the said stock shall be preferred as to
assets in the event of liquidation or dissolution ;

(b) The gross operating revenue of the said corporation for the
fiscal year preceding the making of such investment, or the average of the
gross operating revenue for the five fiscal years next preceding the mak-
ing of such investment, whichever of these two is the larger, shall have
been not less than ten million dollars ; :

(c) The total fixed charges of the said corporation, as reported for
the fiscal year next preceding the making of such investment, plus the
amount, at the time of making such investment, of the annual dividend
requirements on the said preference stock and any preference stock
having the same or senior rank, such fixed charges and dividend re-
quirements being considered the same for every year, shall have been
earned, after deducting operating expenses, depreciation and taxes, in-
cluding income taxes, and depletion in the case of companies commonly
considered as depleting their natural resources in the course of business,
an average of at least four times annually for the seven fiscal years pre-
ceding the making of such investment and at least three times for the
fiscal year immediately preceding the making of such investment ;

(d) The net working capital of the said industrial corporation, as
shown by its last published fiscal year end statement prior to the making
of such investment, or, in the case of a new issue, as shown by the finan-
cial statement of said corporation giving effect to the issuance of any
new security, shall be at least equal to the total par value of its bonded
debt plus the total par value of the issue of its said preference stock plus
the total par value of all other issues of its preference stock having the
same or senior rank; and

(e) The aggregate of the lowest market prices of the total amounts
of each of the individual securities of the said industrial corporation
junior to the said preference stock and outstanding at the time of the
making of such investment shall be at least two and one-half times the
par value of the total issue of the said preference stock plus the total
par value of all other issues of its preference stock having the same or
senior rank plus the par value of the total bonded debt of the said in-
dustrial corporation. Such lowest market price of any one of the said
individual securities shall be determined by the lowest single quotation
of the individual security for a period immediately preceding the making
of such investment, which period shall be the full preceding calendar
year plus the then expired portion of the calendar year in which such
investment is made, and provided, that if such individual security shall
not have been outstanding during the full extent of such period, such
period shall be deemed to be the length of time such individual security
shall have been outstanding.

20. Bonds, notes and other evidences of indebtedness of any
finance corporation incorporated under the laws of the United States
or of any State thereof which corporation meets the following conditions
and requirements:

(a) The gross operating income of the said corporation for the
fiscal year preceding the making of such investment or the average of
the gross operating income for the five fiscal years next preceding the
making of such investment, whichever of these two is the larger, shall
have been not less than five million dollars;

(b) The total fixed charges of the said corporation, as reported
for the fiscal year next preceding the making of the investment, shall
have been earned, after deducting operating expenses, depreciation and
taxes, other than income taxes, an average of at least two and one-half
times annually during the seven fiscal years preceding the making of the
investment and at least two times during the fiscal year immediately
preceding the making of the investment ;

(c) The aggregate indebtedness of the said finance corporation as
shown by its last fiscal year end statement, or, in the case of a new
issue, as shown by the financial statement giving effect to the issuance
of any new securities, shall be no greater than three times the aggregate
net worth, as represented by preferred and common stocks and surplus
of the said corporation ;

(d) The aggregate of the average market prices of the total
amounts of each of the individual securities of the said finance corpora-
tion, junior to its bonded debt and outstanding at the time of the making
of such investment, shall be at least equal to one-third of the sum of the
par value of the bonded debt plus all other indebtedness of the said
finance corporation as shown by the last published fiscal year end state-
ment. Such average market price of any one of the said individual secur-
ities shall be determined in the same manner as prescribed in paragraph
(c) of clause ten of this sub-section.

21. Any preference stock of any finance corporation, incorporated
under the laws of the United States or of any State thereof, provided, the
said stock and the said corporation meet the following conditions and
requirements :

(a) Such stock shall be preferred as to dividends, the said divi-
dends shall be cumulative, and the said stock shall be preferred as to
assets in the event of liquidation or dissolution ;

(b) The gross operating income of the said corporation for the
fiscal year preceding the making of such investment or the average of
the gross operating income for the five fiscal years next preceding the
making of such investment, whichever of these two is the larger, shall
have been not less than five million dollars ; |

(c) The total fixed charges of the said finance corporation, as
reported for the fiscal year next preceding the making of such invest-
ment, plus the amount, at the time of making such investment, of the
annual dividend requirements on the said preference stock and any
preference stock having the same or senior rank, such fixed charges and
divided requirements being considered the same for every year, shall
have been earned, after deducting operating expenses, depreciation and
taxes, including income taxes, an average of at least three and one-half
times annually for the seven fiscal years preceding the making of
such investment and at least three times for the fiscal year immediately
preceding the making of such investment ;

(d) The aggregate indebtedness and par value of the purchased
stock, both the issue in question and any issues equal or senior thereto,
of said finance corporation as shown by its last published fiscal year end
statement, or in the case of a new issue as shown by the financial state-
ment giving effect to the issuance of any new securities, shall be no
greater than three times the aggregate par value of the junior securities
and surplus of said corporation ; and

(e) The aggregate of the lowest market prices of the total amounts
of each of the individual securities of the said finance corporation junior
to the said preference stock and outstanding at the time of the making
of such investment shall be at least equal to one-third of the sum of the
par value of the said preference stock plus the total par value of all
‘other issues of preference stock having the same or senior rank plus the
cH. 412| ACTS OF ASSEMBLY 661

par value of the total bonded debt plus all other indebtedness of the said
finance corporation as shown by the last published fiscal year end state-
ment: Such lowest market price of any one of the said individual secur-
ities shall be determined in the same manner as prescribed in paragraph
(e) of clause nineteen of this subsection.

22. First mortgage real estate loans insured by the Federal Housing
Administrator, under Title II of the National Housing Act.—

23. Certificates of deposit of, and savings accounts in any bank,
banking institution or trust company, whose deposits are insured by the
Federal Deposit Insurance Corporation at the prevailing rate of interest
on such certificates or savings accounts; provided, however, no such
fiduciary shall invest in such certificates of, or deposits in, any one bank,
banking institution or trust company an amount from any one fund in
his or its care which shall be in excess of such amount as shall be fully
insured as a deposit in such bank, banking institution or trust company
by the Federal Deposit Insurance Corporation, nor shall the guardian
of any minor so invest any funds in his hands as such for a longer period
than six months, unless the same be first approved by the court by which
he was appointed, by an order entered of record in the common law
order book of said court. A corporate fiduciary shall not, however, be
prohibited by the terms of this clause twenty-three of this sub-section
from depositing in its own banking department, in the form of demand
deposits, savings accounts, time deposits or certificates of deposit, funds
in any amount awaiting investments or distribution, provided that it
shall have complied with the provisions of sub-section (n) of section
seventy-one of the Virginia Banking Act, with reference to the securing
of such deposits.

(B) Wherever in this section the par value of a preference stock
is required to be used in a computation, there shall be used instead of
such par value the liquidating value of such preference stock in the case
of involuntary liquidation, as prescribed by the terms of its issue, in the
event that such liquidating value shall be greater than the par value of
such preference stock; or in the event that the preference stock in ques-
tion has no par value, then such liquidating value shall be used instead;
or in a case where such preference stock shall be one of no par value
and one for which no such liquidating value shall have been so prescribed,
then for the purposes of such computation the preference stock in ques-
tion shall be deemed to have a value of one hundred dollars per share.

(C) When any security provided for herein is purchased by a
fiduciary and at the time of such purchase the statement for the pre-
ceding fiscal year of the corporation issuing the security so being pur-
chased has not been published and is therefore not available, the state-
ment of such corporation for the fiscal year immediately prior to such
preceding fiscal year shall be considered the statement for such preceding
fiscal year and shall, for the purposes of this section, have the same
force and effect as the statement for the fiscal year preceding such pur-
chase, provided the date of such purchase is not more than four months,
after the end of the last fiscal year of the corporation.
(D) In testing a new issue of securities under the provisions of
this section, it shall be permissible, in determining the number of times
that fixed charges and/or preferred dividend requirements have been
earned, to use pro forma fixed charges and/or dividend requirements,
provided the corporation or its corporate predecessor has been in exist-
ence for a period of not less than seven years.

(E) Investments made under the provisions of this section, if in
conformity with the requirements of the section at the time such invest-
ments were made, may be retained even though they cease to be eligible
for purchase under the provisions of this section, unless the exercise of
reasonable care requires the sale or other disposition of such investments.

(Ff) The Bureau of Insurance and Banking of Virginia shall
annually prepare and transmit to the clerks of each of the circuit, corpora-
tion and chancery courts of this State a list of securities which come
within the provisions of this act.