CHAPTER 224 - COURT OF CHANCERY

AN ACT IN RELATION TO INVESTMENTS BY TRUSTEES, GUARDIANS, AND OTHER FIDUCIARIES AND TO PROPERTY TAKEN OVER BY THEM, BEING AN AMENDMENT TO CHAPTER 117 OF THE REVISED CODE OF THE STATE OF DELAWARE AS AMENDED BY CHAPTER 259, VOLUME 37, LAWS OF DELAWARE."

Be it enacted by the Senate and House of Representatives of the State of Delaware in General Assembly met:

Section 1. That Section 35 of Chapter 117 of the Revised Code of Delaware (1935), being section 4401 of said Code, as amended by Chapter 149, Volume 42, Laws of Delaware, be and the same is hereby further amended by striking out and repealing all of 4401, Section 35 of said Chapter 117, as contained in the Revised Code of Delaware (1935) and as contained in Chapter 149, Volume 42, Laws of Delaware, and inserting in lieu thereof the following new section to be known and styled as 4401, Section 35:

4401. Section 35. TRUST SECURITIES DESIGNATED. Trustees, Guardians and other fiduciaries may invest the funds of their trusts as follows:

In accordance with the provisions pertaining to investments contained in instruments under which they are acting.

In the absence of any such provisions, then in securities of the following classes:

(1) Bonds and other interest-bearing obligations of the United States for the payment of interest and principal of which the faith and credit of the United States are pledged and interest-bearing obligations of any debtor or promisor for the payment of interest and principal of which the faith and credit of the-United States Government are pledged.

(2) Bonds and other interest-bearing obligations of the State of Delaware and of any other State of the United States and of the District of Columbia for which the faith and credit of any such State or District are pledged to provide for the payment of the interest and principal thereof; provided the State or the District, as the case may be, shall not have been in default of interest or principal payments on any of its obligations for more than six months during any time within five years prior to the date of purchase.

(3) Bonds and other interest-bearing obligations of any county of the State of Delaware, for which the faith and credit of any such county are pledged to provide for the payment of the interest and principal thereof.

(4) Bonds and other interest-bearing obligations of any county of any state in the United States, outside of Delaware, for which the faith and credit of such county are pledged to provide for payment of interest and principal thereof, provided that the county shall have a population of not less than fifty thousand (50,000) persons according to the most recent Federal census, and at at the time of purchase the net debt shall not exceed three per cent (3% ) of the taxable valuation and that the direct and local net debt shall not exceed twelve per cent (12%) of the taxable valuation and provided the county shall not have been in default of interest or principal payments on any of its obligations for more than six months during any time within five years prior to the date of purchase. The phrase "direct and local net debt" shall be construed to mean the combined bonded debt of the county and of all political subdivisions within the county, less sinking funds and self-supporting water and other utility debt.

(5) Bonds and other interest-bearing obligations of any school district of the State of Delaware issued pursuant to the authority of the law relating thereto and for which the faith and credit of any such district are pledged to provide for the payment of the interest and principal thereof.

(6) Bonds and other interest-bearing obligations of any incorporated city or town of the State of Delaware for which the faith and credit of any such city or town are pledged to provide for the payment of the interest and principal hereof.

(7) Bonds and other interest-bearing obligations of any incorporated city of any state of the United States (other than the State of Delaware) for which the faith and credit of the city issuing the same are pledged to provide for the payment of the interest and principal thereof; provided that at the date of purchase of such obligation the city issuing the same shall have a population of not less than seventy-five thousand (75,000) persons, according to the most recent Federal census, and shall have a total net debt (determined in accordance with the law applicable to such city defining its total net debt) of not more than ten per cent (10%) of the most recent assessed valuation of the taxable property in such city; and provided the city shall not have been in default of interest or principal payments on any of its obligations for more than six months during any time within five years prior to the date of purchase.

(8) Bonds and other interest-bearing obligations of the Dominion of Canada for which the faith and credit of the Dominion of Canada are pledged to provide the payment of interest and principal thereof and interest-bearing obligations of any debtor or promisor for which the faith and credit of the Dominion of Canada are pledged to provide the payment of interest and principal thereof.

(9) Bonds of natural persons or corporations secured by first mortgage on improved and productive real estate, located in Delaware (including buildings occupied by owner) provided that the amount of said mortgage does not exceed sixty per cent (60% ) of the value of the property covered thereby as determined at the date of investment.

(10) Bonds of corporations incorporated in one or more states of the United States, secured by mortgage upon the whole or a part of the physical properties of such corporations, the earnings available for fixed charges of which, after depreciation and taxes, for the period of five fiscal years immediately preceding the date of the purchase, have averaged, in the case of railroad corporations, one and thirty-five one hundredths (1.35) times; in the case of public utility corporations, one and eight-tenths (1.8) times; and in the case of other corporations, three (3) times the total fixed charges (including therein interest on funded debt, on bank loans and other forms of floating debt, amortization charges, and discounts on securities sold); provided, however, that in each year of such five year period the earnings after depreciation and taxes shall be, in the case of railroad corporations, at least equal to, and in the case of public utility corporations, at least one and one-half (11/2) times, the total fixed charges as above defined; and that if a corporation shall not have had fixed charges in one or more of the five fiscal years immediately preceding the date of purchase, the coverage ratios of fixed charges for such years, as hereinabove required, may be determined, for the purposes of this Act, by assuming such fixed charges to have been the same as at the date of purchase.

(11) Mortgage bonds, the principal and interest of which have been assumed or guaranteed by corporations whose own mortgage bonds qualify under clause numbered (10) hereof; provided, however, that no default has occurred in the payment of interest of such bonds for a period of five years next preceding date of purchase thereof.

(12) Equipment trust obligations, issued in connection with the purchase of new standard gauge equipment for use on railroads incorporated in one or more states of the United States, secured by an instrument vesting title to such equipment in a trustee free of any prior encumbrance; provided, however, that the maximum amount of such obligations so issued shall not exceed eighty per cent (80% ) of the cost of such equipment, and that such obligations shall mature within fifteen years from the date of issue in approximately equal annual or semi-annual installments, beginning not later than three years after the date of issue.

(13) Unsecured obligations of industrial corporations, including finance companies, incorporated in one of the states of the United States, maturing in not more than fifteen years from the date of the purchase, provided that the unsecured obligation purchased shall not be convertible into stock or carry warrants to purchase stock and shall be protected by restrictions prohibiting the creation of mortgage debt maturing after one year without the said unsecured obligation being equally secured; and provided further that as of the close of the corporation's last fiscal year preceding the date of purchases:

(a) The total assets of the corporation after accrued depreciation and depletion shall have been not less than One Hundred Million Dollars ($100,000,000);

(b) The total secured debt of the corporation shall have been not greater than ten per cent (10%) of the total unsecured debt of the corporation; and

(c) The net working capital of the corporation shall have been at least equal to the total of the secured debt and unsecured debt, other than current debt, of the corporation, and provided further that the net earnings available for fixed charges of the corporation after depreciation, depletion and taxes, for a period of five fiscal years immediately preceding the date of the purchase, shall have averaged three (3) times total fixed charges; that in the latest of such five fiscal years and in each of three out of the remaining four such five fiscal years net earnings available for fixed charges shall have been at least two (2) times total fixed charges (as defined in paragraph (10) of this subdivision); and that if a corporation shall not have had fixed charges in one or more of the five fiscal years immediately preceding the date of purchase, the coverage ratios of fixed charges for such years, as hereinabove required, may be determined, for the purposes of this Act, by assuming such fixed charges to have been the same as at the date of purchase.

(14) Preferred stocks of any industrial corporation incorporated in one of the states of the United States, listed on the New York Stock Exchange, which stocks shall not be convertible into any other class of stock, shall have prior participation in earnings and in distribution of assets on dissolution over all other classes of stock, and the dividends upon which shall be fully cumulative, provided that as of the close of the corporation's last fiscal year preceding the date of purchase the total assets of the corporation after deducting depreciation and other reserves, patents and good will, shall have been not less than One Hundred Million Dollars ($100,000,000) and shall be at least ten (10) times the total funded debt of the corporation, the net working capital of the corporation shall have been not less than one and one-half (11/2) times its total funded debt other than current debt, and the net earnings available for fixed charges of the corporation after depreciation, depletion and taxes for the period of five fiscal years immediately preceding the date of the purchase shall have averaged four (4) times fixed charges and preferred dividend requirements, and that in the latest of such five fiscal years and in each of three out of the remaining four such fiscal years net earnings available for fixed charges shall have been at least three (3) times such fixed charges and preferred dividend requirements, but if the corporation shall not have had fixed charges and preferred dividend requirements in any one or more of the five fiscal years immediately preceding the date of purchase, the coverage ratios of fixed charges and preferred dividend requirements for such years, as hereinabove required, may be determined, for the purposes of this Act, by assuming such fixed charges and preferred dividend requirements to have been the same as at the date of purchase, which preferred stocks may be purchased to the extent of thirty per cent (30% ) in the aggregate of the principal of the trust, and that for the purposes of this paragraph the value of the principal of the trust may be determined by the latest valuation or appraisal thereof made by the trustee, guardian or other fiduciary within twelve months preceding the date of such purchase, adjusted for subsequent additions to and withdrawals from the principal of the trust.

(15) Common stocks of any industrial corporation incorporated in one of the states of the United States, listed on the New York Stock Exchange, and upon which dividends shall have been paid in each of the ten years prior to the date of purchase, the net working capital of which corporation shall have been not less than two (2) times its total funded debt, other than current debt, at the close of the fiscal year immediately preceding the date of the purchase of such stock, and common stocks of any bank having a capital and declared surplus of not less than Fifty Million Dollars ($50,000,000) and whose principal office and place of business is in the City of New York, which common stocks of such industrial corporations and such Banks may be purchased to the extent of ten per cent (10%) in the aggregate of so much of the principal of the trust as shall not exceed Twenty-five Thousand Dollars ($25,000) in value and thirty per cent (30%) in the aggregate of the principal of the trust as shall exceed Twenty-five Thousand Dollars ($25,000) in value, if any, and any one such stock may be purchased to the extent of five per cent (5%) in .the aggregate of the principal of the trust, and for the purposes of this paragraph the value of the principal of the trust may be determined by the latest valuation or appraisal thereof made by the trustee, guardian or other fiduciary within twelve months preceding the date of such purchase, adjusted for subsequent additions to and withdrawals from the principal of the trust.

(16) Such stocks, bonds and securities as may be approved by the Court having jurisdiction.

(17) A bank or trust company authorized to act in a fiduciary capacity and acting in such a capacity, other than merely as Agent, may invest funds held by it for investment as fiduciary in fractional undivided interests in a common fund composed exclusively .of securities of any one or more of the classes described in paragraphs (1) to (16), both inclusive, of this subdivision (B) of this Section 35 and of cash, provided that such common fund shall have been created and is managed exclusively by such bank or trust company as trustee under a written plan of which an original executed by such bank or trust company has been filed and is recorded in the Office of the Register in Chancery of the County in which such bank or trust company is located; and also provided that under such a plan it shall not be permitted that any such fractional interests shall at any time be owned by any other than such bank or trust company as trustee under will, under agreement or for an insane person, or as guardian of a minor, or as executor or administrator; and also provided that at least once each three months, as of a predetermined date, the fair value of the assets of the common fund shall be ascertained, and that a fractional interest in such common fund may only be acquired or redeemed on such predetermined dates or within two business days thereafter by payment, in the case of acquisition, of an amount in cash or, in the case of redemption, of an amount in cash or in kind, or partly in cash and partly in kind, equal to its proportionate part of the fair value of the Common fund, and also provided that at the time of the making of an investment in such Common fund there shall not be held in the fund any asset which, because of the nature of such asset, the bank or trust company might not then properly purchase as an investment for the fiduciary account for which the investment in the common fund is made; and also provided that the bank or trust company shall not charge a fee or commission to the common fund for its management or receive any fees or commissions from any fiduciary estate which may be invested in a common fund other than those it would be entitled to receive if such estate were otherwise invested, provided, however, that nothing contained in paragraphs (14) and (15) of this subdivision (B) of this Section 35 shall constitute any limitation upon the amount of funds that may be invested by a trustee, guardian or other fiduciary in a fractional undivided interest in a common fund as provided for in this paragraph (17).

(C) The foregoing specification of the classes of securities in which trustees, guardians and other fiduciaries may invest funds shall not be construed to relieve such trustees, guardians and other fiduciaries from the duty of exercising reasonable care in selecting securities within such classes.

(D) Nothing contained in this section shall be interpreted as prohibiting a trustee, guardian or other fiduciary from taking over (other than by purchase) from any source whatsoever (including property taken in exchange in connection with reorganizations and other financial readjustments of corporations) property of any kind, including securities not within any of the classes specified in subdivision (B) hereof; but a trustee, guardian or other fiduciary may take over such property and may without liability for any loss or depreciation therein continue to hold the same until in the exercise of due care it shall become no longer wise so to do, provided, however, that in case a trustee, guardian or other fiduciary is acting under authority of an instrument, the terms and provisions of such instrument shall be controlling as to the power and duty of such trustee, guardian or other fiduciary.

(E) Securities and/or other property which at the time they were acquired or invested in by a trustee, guardian or other fiduciary were in conformity with the law of the State of Delaware and which later cease to be in conformity with the law of the State of Delaware may, nevertheless, be retained by such trustee, guardian or other fiduciary without liability for any loss or depreciation until in the exercise of due care it shall become no longer wise so to do.

Approved April 17, 1941.