Chap. 106.—An ACT to amend and re-enact Section 5431 of the Code of Vir-
ginia, as heretofore amended, relating to securities in which fiduciaries may
invest funds. [H B 80]

Approved March 5, 1936

1. Be it enacted by the General Assembly of Virginia, That section
fifty-four hundred and thirty-one of the Code of Virginia, as heretofore
amended, be amended, and re-enacted so as to read as follows:

Section 5431. In what securities fiduciaries may invest —(A) Execu-
tors, 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. Stocks, bonds, notes, and other evidences of indebtedness of the
State of Virginia, and those unconditionally guaranteed as to the pay-
ment of principal and interest by the State of Virginia.

2. Stocks, bonds, treasury notes and other evidences of indebtdeness
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, and 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.

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
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. Stocks, bonds, notes and other evidences of indebtedness of any
county, city or town in the State of Virginia; 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 or town
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 mak-
ing 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 vears, 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 indebtedness in which such investment is made
are the direct legal obligations 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 pay-
ment 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 deduct-
ing 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 preceding
the making of such investment.

6. Bonds and negotiable notes directly secured by a first lien on
real estate 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 investments, 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 con-
stituted (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 ascertained 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 popula-
tion, 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
Virginia, 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 securi-
ties guaranteed by the Richmond, Fredericksburg and Potomac Rail-
road 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
payment of principal and interest by, any railroad corporation operat-
ing within the United States which meets the following conditions
and requirements:

(a) The gross operating revenue of such corporation in each of
the five fiscal years next preceding the making of such investment shall
not be less than ten million dollars ;

(b) The total fixed charges of the corporation shall have been
earned an average of at least two times during the seven fiscal years
and at least one and one-half times during the one fiscal year next
preceding the making of such investment. The term “total fixed
charges” used in the preceding sentence shall be deemed to refer to
the accounting term by that name used in the accounting reports of
common carriers as prescribed by the accounting 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 invest-
ment shall be equal to at least two-thirds of the total fixed charges,
as defined in paragraph (b) of clause ten of this sub-section, 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 im-
mediately 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 investment 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. 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 fiduciaries under the terms of clause ten of this sub-section; pro-
vided, 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 re-
spect, 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
stock in which such investment is made, and provided, that if such
investment so purchased shall consist of an obligation of definite ma-
turity, such lease shall be one which shall, according to its terms, 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 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
investment, qualify as lawful investments for fiduciaries under the
terms of clause ten of this sub-section, and provided that all of such
owners, purchasers, 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 dividends
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 in each
of the five fiscal years next preceding the making of such investment
shall not be less than ten million dollars ;
(c) The total fixed charges, as defined in paragraph (b) of clause
ten of this sub-section, of the said corporation, as reported for each
respective year, plus the amount of the annual dividend requirements
on the said preference stock, such requirements being considered for
every year the same as the total annual requirements on such stock
at the time of the making of such investment, shall have been earned
an average of at least two and one-half times during the seven fiscal
years and at least two times during the one fiscal year next preceding
the making such investment; and

(d) The aggregate of the average market prices of the total amounts
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 sub-section,
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 pre-
scribed in paragraph (c) of clause ten of this sub-section.

14. Bonds, notes and other evidences of indebtedness of any public
utility electric operating company or of any public utility telephone
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 (electric
or telephone) operating company in each of the five fiscal years next
preceding the making of such investment, shall not be less than ten
million dollars ;

(b) The total fixed charges of the said public utility (electric or
telephone) operating company, as reported for each respective fiscal
year, shall have been earned in the respective fiscal years, after deduct-
ing operating expenses including depreciation, an average of at least
one and three-fourths times, for the seven fiscal years, and at least one
and one-half times for the one fiscal year, next preceding the making
of such 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 (electric or telephone) operating company including the
total bonded indebtedness of all of its subsidiary companies, whether
assumed by the public utility (electric or telephone) operating com-
pany in question or not, to its gross operating revenue shall not be
greater than four to one; and

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

The term “public utility electric operating company” as used in
this sub-section fourteen shall mean a public utility or public service
corporation of whose total revenue for the fiscal year next preceding
the making of such investment at least four-fifths 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 six-tenths thereof
shall have been derived from the sale of electric power and not more
than one-tenth thereof shall have been derived from traction opera-
tions. The term “public utility telephone operating company” as used
in this sub-section fourteen shall mean a public utility or public service
corporation rendering telephone service of whose total revenue for
the fiscal year next preceding the making of such investment at least
four-fifths thereof shall have been derived from direct payments by
customers for service rendered them.

15. Any preference stock of any public utility electric operating
company or of any public utility telephone operating company, operat-
ing 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 ;

(b) In each of the five fiscal years next preceding the making of
such investment the gross operating revenue of the said public utility
(electric or telephone) operating company shall not be less than ten
million dollars ;

(c) In the case of the public utility (electric or telephone) operat-
ing company in question the ratio of the net operating income of the
said public utility (electric or telephone) operating company plus other
income from all sources, less depreciation, as reported for each re-
spective fiscal year, to the sum of total fixed charges for each respec-
tive year and the amount of the annual dividend requirements on the
said preference stock in question, such requirements being considered
for every year the same as the total annual requirements on such stock
at the time of the making of such investment, shall be as great as two to
one on an average for the seven fiscal years and as great as one and
three-fourths to one for the one fiscal year next 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 (electric or telephone) 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 either
the same rank as, or a senior rank to, the issue of its said preference
stock to its gross operating revenue shall not be greater than four
to one; and

(e) The said public utility (electric or telephone) operating com-
pany 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 terms
“public utility electric operating company” and “public utility tele-
phone operating company” shall be construed in the same manner as
defined in clause fourteen of this sub-section,
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 Tele-
phone and Telegraph Company; provided, that the said company and
all of its subsidiary corporation on a consolidated basis shall have
earned their total fixed charges, after deducting operating expenses,
including depreciation, as reported for each respective fiscal year, an
average of at least one and three-fourths times for the seven fiscal
years, and at least one and one-half times for the one fiscal year, next
preceding the making of such investment.

17. Bonds, notes and other evidences 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) In each of the five fiscal years next preceding the making of
such investment, the gross revenue of the said industrial corporation
shall not be less than ten million dollars ;

(b) The total fixed charges of the said industrial corporation, as
reported for each respective fiscal year, shall have been earned in the
respective fiscal years, after deducting operating expenses including
depreciation, and depletion in the case of companies commonly con-
sidered as depleting their natural resources in the course of business,
an average of at least three times for the seven fiscal years, and at
least two and one-half times for the one fiscal year, next preceding
the making of such investment ;

(c) The net working capital of the said industrial corporation, as
shown by its last published statement prior to the making of such
investment, 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 prescribed in paragraph (c) of clause ten of this sub-
section.

18. Any preference stock of any industrial corporation incorporated
under the laws of the United States or of any State thereof, provided,
the said stock and the said industrial 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) In each of the five fiscal years next preceding the making of
such investment, the gross revenue of the said industrial corporation
shall not be less than ten million dollars;

(c) The total fixed charges of the said industrial corporation in
question, as reported for each respective fiscal year, plus the amount
of the annual dividend requirements on the preference stock in ques-
tion, such requirements being considered for every year the same as
the total annual requirements on such stock at the time of the making
of such investment, shall have been earned in the respective fiscal
years, after deducting operating expenses including depreciation, 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 for the seven fiscal years, and at least three times for the
one fiscal year, next preceding the making of such investment ;

(d) The net working capital of the said industrial corporation, as
shown by its last published statement prior to the making of such
investment, 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
either the same rank as, or a senior rank to, the issue of its said
preference stock, all as shown by such statement; and

(e) In the case of the industrial corporation in question, 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 either the same
rank as, or a senior rank to the issue of its said preference stock plus
the par value of the total bonded debt of the said industrial corpora-
tion. 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 two full preceding calendar
years 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 one full calendar year next preceding the
calendar year in which such investment is made plus the then expired
portion of the calendar year in which such investment 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.

19. First mortgage real estate loans insured by the Federal Housing
Administrator.

20. Certificates of deposits 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 priod 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 of this sub-section from depositing in its own banking depart-
ment, 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 Acct,
as amended, 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 question 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 question shall be deemed to have a value of
one hundred dollars per share.

(C) The legality and validity of investments previously made in
accordance with the provisions of this section prior to this amendment
thereof shall not be affected by the amendments contained herein, The
Bureau of Insurance and Banking of Virginia shall annually prepare
and transmit to the clerks of each of the circuit, corporation and
chancery courts of this State a list of securities which come within
the provisions of this act.