CHAPTER 83

AN ACT to amend and reenact § 26-40, as amended, of the Code of Vir-
ginia, relating to securities in which fiduciaries may invest. (H 149]

Approved February 21, 1956

Be it enacted by the General Assembly of Virginia:

1. That § 26-40, as amended, of the Code of Virginia be amended and
reenacted as follows:

§ 26-40. 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 investments:

(1) Obligations of the Commonwealth.—Stocks, bonds, notes, and
other evidences of indebtedness of the State of Virginia, and those uncon-
ditionally guaranteed as to the payment of principal and interest by the
State of Virginia.

(2) Obligations of the United States, etc.—Stocks, bonds, treasury
notes and other evidences of indebtedness 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 Congress 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) Obligations of other states.—Stocks, bonds, notes and other evi-
dences 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 pre-
ceding the making of such investment, 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) Obligations of Virginia counties, cities, ete.—Stocks, bonds, notes
and other evidences of indebtedness of any county, city, town, district,
authority or other public body in the State of Virginia upon which there
is no default. * " ¢

(5) Obligations of cities, counties, etc., of other states—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, (a) 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, (b) such city, county,
town or district shall have been in continuous existence for at least twenty
years, (c) such city, county, town or district has a population, as shown
by the Federal census next preceding the making of such investment, of
not less than twenty-five thousand inhabitants, (d) the stocks, bonds, notes
or other evidences of indebtedness in which such investment is made are
the direct legal obligations of the city, county, town or district issuing the
same, (e) 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 (f) 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 secured on real estate.—Bonds and negotiable notes di-
rectly secured by a first lien on improved real estate or farm property in
the State of Virginia, or in any state contiguous to the State of Virginia
within a fifty-mile area from the borders of the State of Virginia, not to
exceed sixty per centum of the fair market value of such real estate,
including any improvements thereon at the time of making such invest-
ment, as ascertained by an appraisal thereof made by two reputable
persons who are not interested in whether or not such investment is made.

(7) Bonds secured on city property in Fifth Federal Reserve Dis-
trict—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 constituted on June eighteenth,
nineteen hundred and twenty-eight 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
CH. 88] ACTS OF ASSEMBLY 87

fair market value of such real estate, with the improvements thereon, at
the time of making such investment, as ascertained by an appraisal thereof
made by two reputable persons who are not interested in whether or not
such investment is made; provided, that such city has a population, as
shown by the Federal census next preceding the making of such invest-
ments, of not less than five thousand inhabitants.

(8) Bonds of Virginia educational institutions.—Bonds of any of the
educational institutions of the State of Virginia, which have been or may
= authorized to be issued by the General Assembly of the State of

irginia. ;

(9) Securities of the R. F. & P.—Stocks, bonds and other securities

of the Richmond, Fredericksburg and Potomac Railroad Company, in-
cluding bonds or other securities guaranteed by the Richmond, Fredericks-
burg and Potomac Railroad Company.
; (10) Obligations of railroads.—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 payment of principal and interest by, any railroad corporation
operating within the United States which meets the following conditions
and requirements:

(a) The gross operating revenue of such 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 such 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 this clause (10) of this section, for such railroad cor-
poration 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 such individual securities shall be determined
by the average of the highest quotation and the lowest 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; 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 invest-
ment is made; and provided further, 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.

(11) Obligations of leased railroads.—Stocks, bonds, notes, other
evidences of indebtedness and any other securities of any railroad cor-
poration apenaling within the United States the railroad lines of which
have been leased by a railroad corporation, either alone or jointly with
other railroad corporations, whose bonds, notes and other evidences of
88 ACTS OF ASSEMBLY [va., 1956

indebtedness shall, at the time of the making of such investment, qualify
as lawful investments for fiduciaries under the terms of clause (10) of
this section; provided, that the terms of such lease shall provide for
the payment by such 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 maintenance charges of the lessor railroad cor-
poration 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 s

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 maturity or extend for a period of not less
than twenty years beyond the maturity 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, extend for a period of at least fifty
years beyond the date of the making of such investment. ;

(12) Equipment trust obligations—Equipment trust obligations
issued under the “Philadelphia Plan” in connection with the purchase for
use on railroads of new standard gauge 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 investment, qualify as lawful investments for fiduciaries
under the terms of clause (10) of this section, and provided that all of
such owners, purchasers, or lessees shall be both jointly and severally
liable under the terms of such contract of purchase or lease, or both,
for the fulfillment thereof.

(18) Preferred stock of railroads—Any preference stock of any
railroad corporation operating within the United States, provided such
stock and such railroad corporation meet the following conditions and
requirements:

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

(b) The gross operating revenue of such 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
(10) of this section, of such 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
such 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 year 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 such corporation, junior to such
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 such preference stock plus total fixed charges, as
CH. 83] ACTS OF ASSEMBLY 89

defined in paragraph (b) of clause (10) of this section, for such rail-
road 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 such individual securities shall
be determined in the same manner as prescribed in paragraph (c) of
clause (10) of this section.

(14) Obligations of public utilities——Bonds, notes and other evi-
dences of indebtedness of any public utility operating company operating
within the United States, provided, such company meets the following
conditions and requirements:

(a) The gross operating revenue of such public utility operating
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 such 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-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;

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

(d) Such public utility operating company shall be subject to perma-
nent regulation by a State commission or other duly authorized and recog-
nized regulatory body; .

The term “public utility operating company” as used in this clause
(14) shall mean a public utility or public service corporation (i) 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, (ii) of whose total operating revenue for the fiscal year next pre-
ceding 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, and (iii) whose gas properties are
all within the limits of one state of more than twenty per centum of its
total operating revenues are derived from gas.

(15) Preferred stock of public utilities—Any preference stock of
any public utility operating company operating within the United States,
provided such stock and such company meet the following conditions and
requirements:

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

(b) The gross operating revenue of such public utility operating
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

rger, shall have been not less than five million dollars;

(c) The total fixed charges of such public utility operating company,
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 such preference stock and any prefer-
ence stock having the same or senior rank, such fixed charges and divi-
dend 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 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 investment,
the ratio of the sum of the total par value of the bonded debt of such
public utility operating company, the total par value of the issue of such
preference stock, and the total par value of all other issues of its prefer-
ence stock having the same or senior rank to its gross operating revenue
shall not be greater than four to one; and

(e) Such public utility operating company shall be subject to perma-
nent regulation by a State commission or other duly authorized and recog-
nized regulatory body;

_._For the purposes of this clause (15) of this section, the term “public
utility operating company” shall be construed in the same manner as
defined in clause (14) of this section.

(16) Obligations of the A. T. & T. Co.—Bonds, notes and other evi-
dences of indebtedness of the American Telephone and Telegraph Com-
pany; and bonds, notes and other evidences of indebtedness uncondition-
ally 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 reported for the fiscal year next preceding the
making of the investment, of such company and all of its subsidiary cor-
porations on a consolidated basis shall have been earned, after deducting
operating expenses, 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) Obligations of municipally owned utilities —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 clauses (8), (4) or (5) 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 department issuing such obligations meets
the requirements applying to public utility operating companies as set
out in paragraphs (a), (b) and (c) of clause (14) of this section.

(18) Obligations of industrial corporations.—Bonds, notes and other
evidence of indebtedness of any industrial corporation incorporated under
the laws of the United States or of any state, thereof, provided such cor-
poration meets the following conditions and requirements:

(a) The gross operating revenue of such 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 such 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
CH. 83] ACTS OF ASSEMBLY 91

times during the fiscal year immediately preceding the making of the
investment;

(c) The net working capital of such 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 financial state-
ment of such 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 such industrial corporation, 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 such industrial corporation at the time of the making of such
investment, such average market price of any one of such individual
securities being determined in the same manner as prescribed in para-
graph (c) of clause (10) of this section.

(19) Preferred stock of industrial corporations—Any preference
stock of any industrial corporation incorporated under the laws of the
United States or of any state thereof, provided such stock and such indus-
trial corporation meet the following conditions and requirements:

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

(b) The gross operating revenue of such 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 of such 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 require-
ments on such 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, after deducting
operating expenses, depreciation and taxes, including 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 preceding the making of such
investment and at least three times for the fiscal year immediately pre-
ceding the making of such investment;

(d) The net working capital of such 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 financial state-
ment of such 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 such preference stock plus the total par
al of . other issues of its preference stock having the same or senior
rank; an

(e) The aggregate of the lowest market prices of the total amounts
of each of the individual securities of such industrial corporation junior
to such 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 such 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 such industrial corpora-
tion. Such lowest market price of any one of such individual securities
shall be determined by the lowest single quotation of the individual
security for a period immediately preceding the making of such invest-
ment, 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) Obligations of finance corporations.—Bonds, notes and other
evidences of indebtedness of any finance corporation incorporated under
the laws of the United States or of any state thereof, provided such cor-
poration meets the following conditions and requirements:

(a) The gross operating income of such 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 such 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 such 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 such
corporation;

(d) The aggregate of the average market prices of the total amounts
of each of the individual securities of such finance corporation, junior to
its bonded debt and outstanding at the time of the making of such invest-
ment, shall be at least equal to one-third of the sum of the par value of
the bonded debt plus all other indebtedness of such finance corporation as
shown by the last published fiscal year end statement, such average market
price of any one of such individual securities being determined in the same
manner as prescribed in paragraph (c) of clause (10) of this section.

(21) Preferred stock of finance corporations.—Any preference stock
of any finance corporation, incorporated under the laws of the United
States or of any state thereof, provided, such stock and such corporation
meet the following conditions and requirements:

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

(b) The gross operating income of such 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 such finance 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 such 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 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
CHS. 83, 84] ACTS OF ASSEMBLY 93

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 such
finance corporation as shown by its last published fiscal year end state-
ment, 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 par value of the junior securities and
surplus of such corporation; and

(e) The aggregate of the lowest market prices of the total amounts
of each of the individual securities of such finance corporation junior
to such 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 such preference stock plus the total par value of all other
issues of preference stock having the same or senior rank plus the par
value of the total bonded debt plus all other indebtedness of such finance
corporation as shown by the last published fiscal year end statement,
such lowest market price of any one of such individual securities being
determined in the same manner as prescribed in paragraph (e) of clause
(19) of this section.

(22) Federal Housing loans.—First mortgage real estate loans in-
sured by the Federal Housing Administrator, under Title II of the National
Housing Act.

(23) Certificates of deposit and savings accounts.—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 such
court. A corporate fiduciary shall not, however, be prohibited by the
terms of this clause (23) of this 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 §§ 6-98 and 6-99, with reference to the securing of
such deposits.

(24) Obligations of International Bank.—Bonds and other obliga-
tions issued, guaranteed or assumed by the International Bank for Re-
construction and Development.