CHAPTER 600

An Act to amend and reenact § 26-40 of the Code of Virginia, relating
to securities in which certain fiduciaries may invest, so as to include
certain additional securities therein.

[H 788]

Approved April 6, 1954
Be it enacted by the General Assembly of Virginia:

i That § 26-40 of the Code of Virginia be amended and reenacted as
ollows:

§ 26-40. In what securities fiduciaries may invest.—Executors, ad-
ministrators, trustees, and other fiduciaries, both individual and corpo-
rate, may invest the funds held by them in a fiduciary capacity in the
following securities, which are and shall be considered lawful invest-
ments: .

(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, nine-
teen 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
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 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, etc.—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
such 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) 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 popula-
tion, 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 pay-
ment 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 preceding the making of such
investment.

(6) Bonds secured on real estate—Bonds and negotiable notes
directly 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 Vir-
ginia, 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 investment, as ascertained by an appraisal thereof made by two
reputable persons who are not interested in whether or not such invest-
Ment 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
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 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 Virginia educational institutions.—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

irginia.

(9) Securities of the R. F. & P.—Stocks, bonds and other securities
of the Richmond, Fredericksburg and Potomac Railroad Company, includ-
ing 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 mak-
ing 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 Com-
merce 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 this clause (10) of this 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 such individual securi-
ties 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 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) Obligations of leased railroads.—Stocks, bonds, notes, other
evidences of indebtedness and any other securities of any railroad cor-
poration operating 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
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
stock in which such investment is made, and provided, that, if such
investment so purchased shall consist of an obligation of definite matur-
ity, 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.

(13) Preferred stock of railroads.—Any preference stock of any rail-
road 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 considered 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 preceding 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 invest-
ment, 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 defined in
paragraph (b) of clause (10) of this 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 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 evidences
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 invest-
ment 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 per-
manent regulation by a State commission or other duly authorized and
recognized 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 preced-
ing 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 if 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, pro-
vided 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 com-
pany for the fiscal year preceding the making of such investment, or the
average of the gross operating revenue for the five fiscal years next pre-
ceding 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 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 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, includ-
ing 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 prefer-
ence 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) Such public utility operating company shall be subject to per-
manent regulation by the State commission or other duly authorized and
recognized 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
evidences of indebtedness of the American Telephone and Telegraph Com-
pany ; 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 reported for the fiscal year next preceding the making of the
investment, of such company and all of its subsidiary corporations 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-quarter 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 (3), (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
evidences 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 con-
sidered as depleting their natural resources in the course of business, an
average of at least three times annually during the seven fiscal years pre-
ceding 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 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 invest-
ment, 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 paragraph (c) of clause
(10) of this section.

(19) Preferred stock of industrial corporation.—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 industrial
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
value of al 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 corporation. 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 imme-
diately preceding the making of such investment, which period shall be
the full preceding calendar year plus the then expired portion of the calen-
dar 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 secur-
ities, 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 divi-
dend requirements on such preference stock and any preference stock
having the same or senior rank, such fixed charges and dividend require-
ments 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 issue equal or senior thereto,
of such finance corporation as shown by its last published fiscal year and
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 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 he 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 cor-
poration as shown by the last published fiscal year end statement, such
lowest market price of any one of such individual securities being deter-
mined in the same manner as prescribed in paragraph (e) of clause (19)
of this section.

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

(283) 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 Insur-
ance 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 com-
plied 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 Ke-
construction and Development.