1000. As used in this chapter, unless the context requires
otherwise, the following terms have the following meanings:
(a) "Net direct debt" of any public corporation means all
indebtedness of every kind after deducting from the indebtedness
sinking funds available for the payment thereof, any indebtedness
evidenced by tax anticipation notes for the payment of which
nondelinquent taxes are pledged, obligations payable only from
special assessments, revenue obligations payable only from special
revenues pledged for their payment, and such proportion of any
indebtedness issued for revenue producing works, properties, or
utilities that have been in operation for at least one year as the
amount of the annual net revenue therefrom bears to the amount of the
annual debt service requirements of those bonds.
(b) "Net overlapping debt" of any public corporation means the
proportion of the net direct debt as above defined of any other
public corporation (herein called overlapping corporation) that lies
wholly or partially within the boundaries of the public corporation
as the assessed valuation of the taxable property of the overlapping
public corporation lying within the boundaries of the public
corporation as shown by the last official equalized county assessment
roll bears to the assessed valuation of all taxable property of the
overlapping public corporation as shown by the last official
equalized county assessment roll.
(c) "Funded debt," as used in this chapter, means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date the indebtedness was incurred.
1001. Any securities or other assets that are described in Sections
1003 to 1018, inclusive, are legal investments for savings banks.
1002. Where any laws of this state provide that the moneys of any
pension fund, retirement plan, trust fund, or the moneys of any
special fund the investment of which is governed by law, or the funds
of any political subdivision or public corporation may or shall be
invested in securities which are a legal investment for savings
banks, that law shall be deemed to authorize or require, as the case
may be, that those moneys be invested in securities in which savings
banks were authorized to invest their funds by the provisions of the
Bank Act as it read prior to January 1, 1949, other than paragraph
(f) of subdivision 5 of Section 61 of that act, or in bonds,
debentures, and notes legal for investments for savings banks in the
State of New York or the State of Massachusetts as of the time the
investment is made or in securities in which commercial banks are
authorized to invest their funds by the provisions of Sections 1003
to 1018, inclusive.
1003. Gold and silver bullion and United States mint certificates
of ascertained value.
1004. Stock of a federal reserve bank or of a federal home loan
bank to the extent authorized by Section 754.
1005. Bonds or other interest-bearing notes and obligations of the
United States and those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
1006. Bonds of the State of California and those for which the
faith and credit of the State of California are pledged for the
payment of principal and interest and in registered warrants of the
State of California.
1007. Bonds of any flood control and water conservation districts,
or any zone thereof, having an assessed valuation on taxable real
property of not less than one million dollars ($1,000,000), county,
city and county, city, metropolitan water district, municipal utility
district, special districts established by and within any municipal
utility district, transit district, rapid transit district including
sales tax revenue bonds of the district, metropolitan transit
authority, flood control district, or school district of the State of
California (herein referred to generally as public corporation)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by savings banks by regulations
of the commissioner.
1008. Bonds of any other political subdivision, public corporation,
or district of the State of California (herein referred to generally
as public corporations) having the power, without limit as to rate
or amount; to levy taxes to pay the principal and interest of the
bonds upon all property within its boundaries subject to taxation by
such public corporation, provided the net direct debt of such public
corporation together with its net overlapping debt does not exceed 25
percent of the assessed valuation of the taxable property within its
boundaries according to the last official equalized county
assessment roll.
1009. (a) Any of the following subject to the conditions set forth
in subdivision (b) to (d), inclusive.
(1) Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by the Dominion of Canada, the State of
Israel, the United States of Mexico, the Commonwealth of Puerto Rico,
or any state of the United States other than California, for the
payment of both principal and interest of which in United States
dollars, the faith and credit of the entity is pledged.
(2) Limited obligations of any state of the United States, other
than California, or the Commonwealth of Puerto Rico, payable only
from special taxes that are pledged to the payment of principal and
interest of the limited obligations.
(3) Bonds or other evidences of indebtedness of any city, county,
political subdivision, public corporation, or district (herein
referred to generally as public corporations) of any state of the
United States, other than California, or of the Dominion of Canada,
or of the State of Israel, or of the United States of Mexico or of
the Commonwealth of Puerto Rico, having the power without limit as to
rate or amount to levy taxes to pay the principal and interest of
the bonds upon all property within its boundaries subject to taxation
by the public corporation.
(b) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, such state,
commonwealth, dominion, or country has not within 10 years prior to
the investment defaulted for a period of more than 90 days in the
payment of any part of either principal or interest of any of its
debts.
(c) In the case of limited obligations of any state, or
commonwealth, all of the following conditions are met:
(1) The state or commonwealth has not, within 10 years prior to
the date of the investment, defaulted for a period of more than 90
days in the payment of either principal or interest of any of its
debts.
(2) The special taxes pledged for the payment of the limited
obligations shall have been collected for five years and shall have
averaged at least one and one-half times the debt service
requirements, including those for principal, interest, and sinking
fund, on all special obligations existing at the time.
(3) The special taxes for each of the five fiscal years shall have
equaled at least the amount of all the debt service requirements on
the special obligations.
(d) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of any
commonwealth, all of the following conditions are met:
(1) The public corporation has had a corporate existence or been
otherwise established and functioning for at least 10 years prior to
the time of the investment.
(2) The public corporation has a population of at least 50,000
inhabitants according to the last federal or state census.
(3) The public corporation for a period of at least 10 years prior
to the investment has not defaulted in the payment of any part of
the principal or interest of any of its debts for a period of more
than 90 days.
(4) The net direct debt together with the net overlapping debt of
the public corporation does not exceed 10 percent of the assessed
valuation of the property subject to taxation by the public
corporation according to the last official equalized assessment roll
or list upon the basis of which taxes for debt service are based.
1010. Bonds of any irrigation district, water storage district,
water conservation district, county water district, reclamation
district, drainage district, and any district the primary function of
which is the irrigation, reclamation or drainage of land within its
boundaries, located in California, other than bonds referred to in
Section 1007, provided either of the following conditions are met:
(a) The bonds qualify under Section 1008.
(b) The bonds have been certified as legal securities for savings
banks pursuant to Chapter 1 (commencing with Section 20000) of
Division 10 of the Water Code and the certification remains unrevoked
and the total outstanding bonded indebtedness of the district
including bonds authorized but not issued, but excluding bonds
payable solely from revenues and not directly or indirectly from
assessments, does not exceed 50 percent of the aggregate of the
assessed value of the lands, exclusive of improvements, subject to
assessment by the district, and the value of the property owned by
the district or to be acquired or constructed with the proceeds of
the bonds under consideration.
1011. (a) Bonds, consolidated bonds, collateral trust debentures,
consolidated debentures, or other obligations issued by federal land
banks or federal intermediate credit banks established under the
Federal Farm Loan Act, as amended, and the Farm Credit Act of 1971.
(b) Debentures and consolidated debentures issued by the Central
Bank for Cooperatives and banks for cooperatives established under
the Farm Credit Act of 1933, as amended, and the Farm Credit Act of
1971.
(c) Bonds or debentures of the Federal Home Loan Bank Board
established under the Federal Home Loan Bank Act.
(d) Bonds of any federal home loan bank established under the
Federal Home Loan Bank Act.
(e) Stocks, bonds, debentures, participations and other
obligations of or issued by the Federal National Mortgage
Association, the Student Loan Marketing Association, the Government
National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
1012. Bonds, notes or other obligations issued by the Federal
Financing Bank, the United States Postal Service, or issued or
assumed by the International Bank for Reconstruction and Development,
the Tennessee Valley Authority, the Inter-American Development Bank,
the Government Development Bank for Puerto Rico, the Asian
Development Bank, the International Finance Corporation, or the
African Development Bank.
1013. (a) Notes with a maturity not exceeding 15 months after the
date of issue, issued in anticipation of uncollected taxes, income,
revenue, cash receipts, and other moneys of the State of California
or any city, county, city and county, or school district thereof;
provided the notes and warrants and the interest thereon shall be a
first lien and charge against, and shall be payable from, the first
moneys received by the local agency from such pledged moneys;
provided the total amount of the notes issued at any one time or
during any specified period does not exceed 85 percent of the
receipts or revenues.
(b) Grant anticipation notes issued by the agencies and payable
not later than 36 months after the date of issue, provided that the
total amount of the notes and interest payable thereon issued at any
one time or during any specified period does not exceed 80 percent of
the grant funds stated in writing by the granting authority as
committed or appropriated, and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
1014. Revenue securities of any state of the United States, or of
the Commonwealth of Puerto Rico, and of any city, county, city and
county, political subdivision, public corporation, or district
(herein referred to generally as public corporations) of any state or
commonwealth and of any department, board, agency, or authority of
any state or commonwealth or of any public corporation, if the
following conditions are met:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by a state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
the revenues.
(b) Either of the following paragraphs apply:
(1) (A) The net income from the property available for the payment
of the securities for the five fiscal years next preceding any such
investment, shall have averaged at least one and one-tenth times all
debt service requirements for principal, interest, and sinking fund
of all revenue securities payable only out of the revenues from that
property during each of those fiscal years, and for each of the five
fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of the
securities, and for the last fiscal year shall have amounted to at
least the maximum annual debt service requirement for any fiscal year
thereafter on all such securities that were outstanding during such
last fiscal year and which will be outstanding in any fiscal year
thereafter.
(B) The gross income from the property, the net income from which
is pledged for the payment of the securities, in the last fiscal year
prior to the investment was not less than one million dollars
($1,000,000) if located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
(C) The issuer is obligated to maintain rates at least sufficient
to meet debt service requirements and such obligation is legally
enforceable.
(2) (A) The issuer of the securities is entitled to receive under
a legally enforceable contract with a corporation any of the
securities of which are a legal investment for savings banks under
this chapter annual payments averaging not less than nine hundred
thousand dollars ($900,000) a year commencing with the completion of
a project or projects as fixed in the construction contract therefor
and continuing during the maximum term for which said revenue
securities are to mature.
(B) The issuer of the securities is obligated to maintain rates to
produce revenue, or will receive contract payments, either or both
of which will be sufficient to meet debt service requirements and
such obligation or contract is legally enforceable.
(c) The public corporation or any department, board, agency, or
authority thereof which issues the securities, if existing elsewhere
than in California, has not within 10 years prior to such investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
1015. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) that are secured by
either of the following:
(a) An agreement between the public housing agency and the Public
Housing Administration in which the public housing agency agrees to
borrow from the Public Housing Administration, and the Public Housing
Administration agrees to lend to the public housing agency, prior to
the maturity of the obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount that
(together with any other moneys irrevocably committed to the payment
of interest on such obligations) will suffice to pay the principal of
the obligations with interest to maturity thereon, which moneys
under the terms of the agreement are required to be used for the
purpose of paying the principal of and the interest on such
obligations at their maturity.
(b) A pledge of annual contributions under an annual contributions
contract between such public housing agency and the Public Housing
Administration if the contract shall contain the covenant by the
Public Housing Administration that is authorized by subsection (b) of
Section 22 of the United States Housing Act of 1937, as amended, and
if the maximum sum and the maximum period specified in such contract
pursuant to that subsection 22(b) shall not be less than the annual
amount and the period for payment that are requisite to provide for
the payment when due of all installments of principal and interest on
the obligations.
1015.5. Bonds secured by an insurance commitment of the Federal
Housing Administration.
1016. Evidences of indebtedness of companies incorporated in the
United States and, directly or indirectly, engaged in manufacturing,
extraction, merchandising, or commercial financing and in bonds of
authorities established pursuant to the California Industrial
Development Financing Act (Title 10 (commencing with Section 91500)
of the Government Code), to which these companies are obligated with
respect to payment subject to the following conditions:
(a) Any unsecured evidences of indebtedness shall be issued by a
company substantially all of whose property is free of mortgage and
shall carry a covenant by the obligor that they will be secured
equally with any mortgage bond, except a purchase money mortgage,
which may be later issued.
(b) The company is of a size as to attract at least statewide
interest in its publicly held securities and its gross income shall
have averaged not less than ten million dollars ($10,000,000) and its
net income shall have averaged not less than one million dollars
($1,000,000) for the five fiscal years preceding the investment and
its gross income was not less than ten million dollars ($10,000,000)
and its net income not less than one million dollars ($1,000,000) for
at least three of these five fiscal years.
(c) Working capital, as measured by consolidated current assets
less consolidated current liabilities as shown in the latest
published balance sheet, shall exceed 150 percent of the total of
consolidated debt due in longer than one year and "minority interest."
For that purpose, "minority interest" means any outstanding interest
in a subsidiary having a prior claim on the earnings of the
subsidiary. However, the foregoing ratio requirement shall not apply
in the case of evidences of indebtedness of any corporation whose
consolidated gross assets less any valuation reserves exceed five
hundred million dollars ($500,000,000) and whose consolidated current
assets exceed consolidated current liabilities by at least one
hundred million dollars ($100,000,000) as shown by the latest
published balance sheet. When new financing is involved, the changes
in gross assets, capital structure and working capital shall be
considered and reliance may be placed on the representations made in
the official prospectus prepared under the rules of the Securities
and Exchange Commission as to the application of the proceeds of the
financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest," as shown on the latest published
balance sheet, does not exceed 33 1/3 percent of its gross assets
less valuation reserves.
(e) The consolidated annual net income for the five fiscal years
next preceding the investment, before deduction of state and federal
taxes imposed on or measured by income or profits but after deducting
all charges, including reserves, regularly recurring charges for
amortization of discount, and expense allocable to funded debt (1)
shall have averaged not less than six times the annual consolidated
interest charges existing at the time the investment is made; (2) in
at least three of the five fiscal years shall have been at least four
times the annual consolidated interest charges for the same year;
and (3) for the fiscal year next preceding the investment shall have
been not less than six times the consolidated interest charges for
that year and not less than six times the annual consolidated charges
on the funded debt outstanding at the time of the investment.
1017. Fixed interest railroad bonds meeting the requirements of
subdivisions (a) and (b); bonds secured by a mortgage on jointly
operated railroad facilities meeting the requirements of subdivision
(c); and railroad equipment trust certificates meeting the
requirements of subdivision (d).
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company that meets
all of the following conditions:
(1) Operates at least 500 miles of standard gauge road within the
continental United States and which has had average annual operating
revenues of at least ten million dollars ($10,000,000) during the
five years next preceding the investment.
(2) Has an average annual balance of income available for fixed
charges for the last 15 years for which the necessary statistical
data are available, when divided by an amount equal to its fixed
charges for the last fiscal year, shall produce a quotient which is
at least 15 percent higher than the quotient obtained by dividing the
average annual balance of income available for fixed charges of all
class 1 railroads for the same one 5-year period by an amount equal
to the fixed charges of all class 1 railroads for the last year in
the period.
(3) Has an average "balance of net income" (computed by deducting
the sum of its fixed charges and contingent interest charges for the
latest fiscal year from the average annual balance available for
fixed charges for the latest 15 years for which the necessary
statistical data are available) when divided by its average annual
railroad operating income for the same 15-year period, shall produce
a quotient at least 15 percent greater than the quotient obtained by
dividing the average balance of income of all class 1 railroads,
computed in the same manner, by the average annual railway operating
income of all class 1 railroads for the same 15-year period.
(4) Has an average balance of income available for fixed charges
for the last three fiscal years preceding the investment that has not
been less than one and one-half times its fixed charges for the last
fiscal year.
(b) The railroad bonds are secured by any of the following:
(1) A mortgage, either direct or collateral, which shall be a
first mortgage on not less than 75 percent of the mileage subject to
the mortgage.
(2) A first mortgage on terminal properties comprising the company'
s principal freight or passenger terminal in a city of not less than
250,000 population according to the latest federal or state census.
(3) A refunding mortgage on not less than 75 percent of the
railroad mileage owned or operated by the issuing company under which
bonds may be issued for retirement or refunding of all debts secured
by prior liens on all or any part of the property (other than liens
on equipment) subject to the mortgage; provided, that the amount of
debt senior to the refunding mortgage is not more than 50 percent of
the sum of all senior debt and the refunding mortgage, or that
underlying mortgage bonds in an amount equal to at least 50 percent
of the debt outstanding under the refunding mortgage are pledged as
security under the refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company where the lease extends beyond the maturity date of
the bonds and the company has guaranteed, assumed, or committed
itself under the terms of the lease to pay principal and interest on
the bonds.
(c) Bonds secured by a mortgage on jointly operated railroad
facilities must be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads which
have jointly and severally agreed unconditionally to pay the interest
and principal of the bonds or have unconditionally guaranteed or
assumed such payment, one of which railroads must meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates must be issued by a
solvent class 1 railroad whose average balance of income available
for fixed charges for the last three fiscal years preceding the
investment shall be not less than one and one-half times its fixed
charges for the last fiscal year. The certificates must be issued to
provide funds for the construction or acquisition of new standard
gauge railroad equipment made with the approval of the Interstate
Commerce Commission and be secured by equipment trust, lease,
conditional sales contract, or first lien on such equipment. The
aggregate principal amount of such obligations shall not exceed 80
percent of the purchase price of the equipment and the certificates
shall mature within 15 years from date of issuance in equal annual,
semiannual, or monthly installments, beginning not later than one
year after the date of issuance.
(e) As used in this section, the terms "balance of income
available for fixed charges," "fixed charges," "contingent interest,"
and "railway operating income" shall have the same meaning as in the
accounting reports filed by common carriers by rail pursuant to
regulations of the Interstate Commerce Commission except that
"balance of income available for payment of fixed charges" shall be
computed before deduction of federal income or excess profits taxes,
and "fixed charges" and "contingent interest" of the railroad shall
be such charges existing as of the time the computation is made
excluding charges with respect to debt which has been retired or will
be retired within six months and for the payment of which funds have
been or are contemporaneously being set aside in trust but including
charges with respect to new debt issued or in the process of being
issued.
1018. Bonds and debentures of gas, electric, or gas and electric
companies meeting the requirements of subdivision (a); bonds and
debentures of telephone companies meeting the requirements of
subdivision (b); and bonds and debentures of water companies meeting
the requirements of subdivision (c).
(a) Bonds or debentures of a gas, electric, or gas and electric
company shall be of an issue that originally amounted to not less
than one million dollars ($1,000,000) and, if bonds, be secured by a
mortgage on substantially all of its physical property, and, if
debentures, shall be issued by a company substantially all of whose
physical property is free of mortgage and must carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a public utility corporation that meets all of the
following conditions:
(1) Derives more than 50 percent of its gross operating revenue
from the business of supplying electricity, artificial gas, or
natural gas or all or any of them, and at least 80 percent of its
gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Shall have had a gross operating revenue of not less than
seven million five hundred thousand dollars ($7,500,000) for its most
recent fiscal year.
(3) Has a funded debt not exceeding two-thirds of the value of its
physical property as shown by the books of the corporation or by a
statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves for depreciation, retirement, or
amortization of that physical property. Physical property of a
corporation shall include the physical property of a subsidiary
corporation if the corporation owns not less than 90 percent of the
outstanding voting shares of the subsidiary corporation.
(4) Shall have had earnings including earnings of subsidiaries
mentioned in paragraph (3), available for interest payments, before
deduction of state and federal taxes imposed on or measured by income
or profits, during four of the five most recent fiscal years and
during the most recent fiscal year equal to at least twice the
existing annual interest charges on the corporation's total funded
debt during those respective fiscal years.
(b) Bonds or debentures of telephone companies shall be of an
issue originally amounting to at least one million dollars
($1,000,000) and, if bonds, be secured by a mortgage on substantially
all of the physical property of the company, and if debentures shall
be issued by a company substantially all of whose physical property
is free of mortgage and shall carry a covenant to be secured equally
with any mortgage indebtedness, except a purchase money mortgage,
subsequently issued, and both bonds and debentures shall be issued by
a company that meets all of the following conditions:
(1) During its last fiscal year had gross revenues of at least
seven million five hundred thousand dollars ($7,500,000), more than
50 percent of which was derived from owned properties used in
furnishing telephone and other communication services and at least 80
percent of its gross revenues from all or any of the public utility
businesses enumerated in this section.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the books of the corporation or by
a statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves shown on the statement for depreciation,
retirement or amortization of such physical property. Physical
property of a corporation shall include the physical property of a
subsidiary corporation if the corporation owns not less than 90
percent of the outstanding voting shares of the subsidiary
corporation.
(3) Which for four of the five most recent fiscal years and for
the last fiscal year had earnings including earnings of subsidiaries
mentioned in paragraph (2) available for the payment of interest
charges, before deduction of state and federal taxes imposed on or
measured by income or profits, at least equal to twice the interest
charges on the company's total funded debt during such respective
fiscal years.
(c) Water company bonds or debentures shall be of an issue
originally amounting to at least one million dollars ($1,000,000) and
if bonds, be secured by a first mortgage on the company's property,
and if debentures, shall be issued by a company substantially all of
whose property is free of mortgage and shall carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a company that meets all of the following
conditions:
(1) Is the supplier of substantially all water for domestic use in
a community or communities having a population of not less than
25,000.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the published statement of the
company for its next preceding fiscal period, less the amount of any
reserves shown for depreciation, retirement or amortization of such
physical property. Physical property of a corporation shall include
the physical property of a subsidiary corporation if the corporation
owns not less than 90 percent of the outstanding voting shares of the
subsidiary corporation.
(3) Which for four out of the five most recent fiscal years and
for the most recent fiscal year shall have had earnings including
those of subsidiaries mentioned in paragraph (2) available for the
payment of interest charges, before deduction of state and federal
taxes imposed on or measured by income or profits, of at least one
and one-half times the interest charges on the company's total funded
debt during the respective fiscal years.
1000. As used in this chapter, unless the context requires
otherwise, the following terms have the following meanings:
(a) "Net direct debt" of any public corporation means all
indebtedness of every kind after deducting from the indebtedness
sinking funds available for the payment thereof, any indebtedness
evidenced by tax anticipation notes for the payment of which
nondelinquent taxes are pledged, obligations payable only from
special assessments, revenue obligations payable only from special
revenues pledged for their payment, and such proportion of any
indebtedness issued for revenue producing works, properties, or
utilities that have been in operation for at least one year as the
amount of the annual net revenue therefrom bears to the amount of the
annual debt service requirements of those bonds.
(b) "Net overlapping debt" of any public corporation means the
proportion of the net direct debt as above defined of any other
public corporation (herein called overlapping corporation) that lies
wholly or partially within the boundaries of the public corporation
as the assessed valuation of the taxable property of the overlapping
public corporation lying within the boundaries of the public
corporation as shown by the last official equalized county assessment
roll bears to the assessed valuation of all taxable property of the
overlapping public corporation as shown by the last official
equalized county assessment roll.
(c) "Funded debt," as used in this chapter, means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date the indebtedness was incurred.
1001. Any securities or other assets that are described in Sections
1003 to 1018, inclusive, are legal investments for savings banks.
1002. Where any laws of this state provide that the moneys of any
pension fund, retirement plan, trust fund, or the moneys of any
special fund the investment of which is governed by law, or the funds
of any political subdivision or public corporation may or shall be
invested in securities which are a legal investment for savings
banks, that law shall be deemed to authorize or require, as the case
may be, that those moneys be invested in securities in which savings
banks were authorized to invest their funds by the provisions of the
Bank Act as it read prior to January 1, 1949, other than paragraph
(f) of subdivision 5 of Section 61 of that act, or in bonds,
debentures, and notes legal for investments for savings banks in the
State of New York or the State of Massachusetts as of the time the
investment is made or in securities in which commercial banks are
authorized to invest their funds by the provisions of Sections 1003
to 1018, inclusive.
1003. Gold and silver bullion and United States mint certificates
of ascertained value.
1004. Stock of a federal reserve bank or of a federal home loan
bank to the extent authorized by Section 754.
1005. Bonds or other interest-bearing notes and obligations of the
United States and those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
1006. Bonds of the State of California and those for which the
faith and credit of the State of California are pledged for the
payment of principal and interest and in registered warrants of the
State of California.
1007. Bonds of any flood control and water conservation districts,
or any zone thereof, having an assessed valuation on taxable real
property of not less than one million dollars ($1,000,000), county,
city and county, city, metropolitan water district, municipal utility
district, special districts established by and within any municipal
utility district, transit district, rapid transit district including
sales tax revenue bonds of the district, metropolitan transit
authority, flood control district, or school district of the State of
California (herein referred to generally as public corporation)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by savings banks by regulations
of the commissioner.
1008. Bonds of any other political subdivision, public corporation,
or district of the State of California (herein referred to generally
as public corporations) having the power, without limit as to rate
or amount; to levy taxes to pay the principal and interest of the
bonds upon all property within its boundaries subject to taxation by
such public corporation, provided the net direct debt of such public
corporation together with its net overlapping debt does not exceed 25
percent of the assessed valuation of the taxable property within its
boundaries according to the last official equalized county
assessment roll.
1009. (a) Any of the following subject to the conditions set forth
in subdivision (b) to (d), inclusive.
(1) Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by the Dominion of Canada, the State of
Israel, the United States of Mexico, the Commonwealth of Puerto Rico,
or any state of the United States other than California, for the
payment of both principal and interest of which in United States
dollars, the faith and credit of the entity is pledged.
(2) Limited obligations of any state of the United States, other
than California, or the Commonwealth of Puerto Rico, payable only
from special taxes that are pledged to the payment of principal and
interest of the limited obligations.
(3) Bonds or other evidences of indebtedness of any city, county,
political subdivision, public corporation, or district (herein
referred to generally as public corporations) of any state of the
United States, other than California, or of the Dominion of Canada,
or of the State of Israel, or of the United States of Mexico or of
the Commonwealth of Puerto Rico, having the power without limit as to
rate or amount to levy taxes to pay the principal and interest of
the bonds upon all property within its boundaries subject to taxation
by the public corporation.
(b) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, such state,
commonwealth, dominion, or country has not within 10 years prior to
the investment defaulted for a period of more than 90 days in the
payment of any part of either principal or interest of any of its
debts.
(c) In the case of limited obligations of any state, or
commonwealth, all of the following conditions are met:
(1) The state or commonwealth has not, within 10 years prior to
the date of the investment, defaulted for a period of more than 90
days in the payment of either principal or interest of any of its
debts.
(2) The special taxes pledged for the payment of the limited
obligations shall have been collected for five years and shall have
averaged at least one and one-half times the debt service
requirements, including those for principal, interest, and sinking
fund, on all special obligations existing at the time.
(3) The special taxes for each of the five fiscal years shall have
equaled at least the amount of all the debt service requirements on
the special obligations.
(d) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of any
commonwealth, all of the following conditions are met:
(1) The public corporation has had a corporate existence or been
otherwise established and functioning for at least 10 years prior to
the time of the investment.
(2) The public corporation has a population of at least 50,000
inhabitants according to the last federal or state census.
(3) The public corporation for a period of at least 10 years prior
to the investment has not defaulted in the payment of any part of
the principal or interest of any of its debts for a period of more
than 90 days.
(4) The net direct debt together with the net overlapping debt of
the public corporation does not exceed 10 percent of the assessed
valuation of the property subject to taxation by the public
corporation according to the last official equalized assessment roll
or list upon the basis of which taxes for debt service are based.
1010. Bonds of any irrigation district, water storage district,
water conservation district, county water district, reclamation
district, drainage district, and any district the primary function of
which is the irrigation, reclamation or drainage of land within its
boundaries, located in California, other than bonds referred to in
Section 1007, provided either of the following conditions are met:
(a) The bonds qualify under Section 1008.
(b) The bonds have been certified as legal securities for savings
banks pursuant to Chapter 1 (commencing with Section 20000) of
Division 10 of the Water Code and the certification remains unrevoked
and the total outstanding bonded indebtedness of the district
including bonds authorized but not issued, but excluding bonds
payable solely from revenues and not directly or indirectly from
assessments, does not exceed 50 percent of the aggregate of the
assessed value of the lands, exclusive of improvements, subject to
assessment by the district, and the value of the property owned by
the district or to be acquired or constructed with the proceeds of
the bonds under consideration.
1011. (a) Bonds, consolidated bonds, collateral trust debentures,
consolidated debentures, or other obligations issued by federal land
banks or federal intermediate credit banks established under the
Federal Farm Loan Act, as amended, and the Farm Credit Act of 1971.
(b) Debentures and consolidated debentures issued by the Central
Bank for Cooperatives and banks for cooperatives established under
the Farm Credit Act of 1933, as amended, and the Farm Credit Act of
1971.
(c) Bonds or debentures of the Federal Home Loan Bank Board
established under the Federal Home Loan Bank Act.
(d) Bonds of any federal home loan bank established under the
Federal Home Loan Bank Act.
(e) Stocks, bonds, debentures, participations and other
obligations of or issued by the Federal National Mortgage
Association, the Student Loan Marketing Association, the Government
National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
1012. Bonds, notes or other obligations issued by the Federal
Financing Bank, the United States Postal Service, or issued or
assumed by the International Bank for Reconstruction and Development,
the Tennessee Valley Authority, the Inter-American Development Bank,
the Government Development Bank for Puerto Rico, the Asian
Development Bank, the International Finance Corporation, or the
African Development Bank.
1013. (a) Notes with a maturity not exceeding 15 months after the
date of issue, issued in anticipation of uncollected taxes, income,
revenue, cash receipts, and other moneys of the State of California
or any city, county, city and county, or school district thereof;
provided the notes and warrants and the interest thereon shall be a
first lien and charge against, and shall be payable from, the first
moneys received by the local agency from such pledged moneys;
provided the total amount of the notes issued at any one time or
during any specified period does not exceed 85 percent of the
receipts or revenues.
(b) Grant anticipation notes issued by the agencies and payable
not later than 36 months after the date of issue, provided that the
total amount of the notes and interest payable thereon issued at any
one time or during any specified period does not exceed 80 percent of
the grant funds stated in writing by the granting authority as
committed or appropriated, and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
1014. Revenue securities of any state of the United States, or of
the Commonwealth of Puerto Rico, and of any city, county, city and
county, political subdivision, public corporation, or district
(herein referred to generally as public corporations) of any state or
commonwealth and of any department, board, agency, or authority of
any state or commonwealth or of any public corporation, if the
following conditions are met:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by a state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
the revenues.
(b) Either of the following paragraphs apply:
(1) (A) The net income from the property available for the payment
of the securities for the five fiscal years next preceding any such
investment, shall have averaged at least one and one-tenth times all
debt service requirements for principal, interest, and sinking fund
of all revenue securities payable only out of the revenues from that
property during each of those fiscal years, and for each of the five
fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of the
securities, and for the last fiscal year shall have amounted to at
least the maximum annual debt service requirement for any fiscal year
thereafter on all such securities that were outstanding during such
last fiscal year and which will be outstanding in any fiscal year
thereafter.
(B) The gross income from the property, the net income from which
is pledged for the payment of the securities, in the last fiscal year
prior to the investment was not less than one million dollars
($1,000,000) if located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
(C) The issuer is obligated to maintain rates at least sufficient
to meet debt service requirements and such obligation is legally
enforceable.
(2) (A) The issuer of the securities is entitled to receive under
a legally enforceable contract with a corporation any of the
securities of which are a legal investment for savings banks under
this chapter annual payments averaging not less than nine hundred
thousand dollars ($900,000) a year commencing with the completion of
a project or projects as fixed in the construction contract therefor
and continuing during the maximum term for which said revenue
securities are to mature.
(B) The issuer of the securities is obligated to maintain rates to
produce revenue, or will receive contract payments, either or both
of which will be sufficient to meet debt service requirements and
such obligation or contract is legally enforceable.
(c) The public corporation or any department, board, agency, or
authority thereof which issues the securities, if existing elsewhere
than in California, has not within 10 years prior to such investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
1015. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) that are secured by
either of the following:
(a) An agreement between the public housing agency and the Public
Housing Administration in which the public housing agency agrees to
borrow from the Public Housing Administration, and the Public Housing
Administration agrees to lend to the public housing agency, prior to
the maturity of the obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount that
(together with any other moneys irrevocably committed to the payment
of interest on such obligations) will suffice to pay the principal of
the obligations with interest to maturity thereon, which moneys
under the terms of the agreement are required to be used for the
purpose of paying the principal of and the interest on such
obligations at their maturity.
(b) A pledge of annual contributions under an annual contributions
contract between such public housing agency and the Public Housing
Administration if the contract shall contain the covenant by the
Public Housing Administration that is authorized by subsection (b) of
Section 22 of the United States Housing Act of 1937, as amended, and
if the maximum sum and the maximum period specified in such contract
pursuant to that subsection 22(b) shall not be less than the annual
amount and the period for payment that are requisite to provide for
the payment when due of all installments of principal and interest on
the obligations.
1015.5. Bonds secured by an insurance commitment of the Federal
Housing Administration.
1016. Evidences of indebtedness of companies incorporated in the
United States and, directly or indirectly, engaged in manufacturing,
extraction, merchandising, or commercial financing and in bonds of
authorities established pursuant to the California Industrial
Development Financing Act (Title 10 (commencing with Section 91500)
of the Government Code), to which these companies are obligated with
respect to payment subject to the following conditions:
(a) Any unsecured evidences of indebtedness shall be issued by a
company substantially all of whose property is free of mortgage and
shall carry a covenant by the obligor that they will be secured
equally with any mortgage bond, except a purchase money mortgage,
which may be later issued.
(b) The company is of a size as to attract at least statewide
interest in its publicly held securities and its gross income shall
have averaged not less than ten million dollars ($10,000,000) and its
net income shall have averaged not less than one million dollars
($1,000,000) for the five fiscal years preceding the investment and
its gross income was not less than ten million dollars ($10,000,000)
and its net income not less than one million dollars ($1,000,000) for
at least three of these five fiscal years.
(c) Working capital, as measured by consolidated current assets
less consolidated current liabilities as shown in the latest
published balance sheet, shall exceed 150 percent of the total of
consolidated debt due in longer than one year and "minority interest."
For that purpose, "minority interest" means any outstanding interest
in a subsidiary having a prior claim on the earnings of the
subsidiary. However, the foregoing ratio requirement shall not apply
in the case of evidences of indebtedness of any corporation whose
consolidated gross assets less any valuation reserves exceed five
hundred million dollars ($500,000,000) and whose consolidated current
assets exceed consolidated current liabilities by at least one
hundred million dollars ($100,000,000) as shown by the latest
published balance sheet. When new financing is involved, the changes
in gross assets, capital structure and working capital shall be
considered and reliance may be placed on the representations made in
the official prospectus prepared under the rules of the Securities
and Exchange Commission as to the application of the proceeds of the
financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest," as shown on the latest published
balance sheet, does not exceed 33 1/3 percent of its gross assets
less valuation reserves.
(e) The consolidated annual net income for the five fiscal years
next preceding the investment, before deduction of state and federal
taxes imposed on or measured by income or profits but after deducting
all charges, including reserves, regularly recurring charges for
amortization of discount, and expense allocable to funded debt (1)
shall have averaged not less than six times the annual consolidated
interest charges existing at the time the investment is made; (2) in
at least three of the five fiscal years shall have been at least four
times the annual consolidated interest charges for the same year;
and (3) for the fiscal year next preceding the investment shall have
been not less than six times the consolidated interest charges for
that year and not less than six times the annual consolidated charges
on the funded debt outstanding at the time of the investment.
1017. Fixed interest railroad bonds meeting the requirements of
subdivisions (a) and (b); bonds secured by a mortgage on jointly
operated railroad facilities meeting the requirements of subdivision
(c); and railroad equipment trust certificates meeting the
requirements of subdivision (d).
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company that meets
all of the following conditions:
(1) Operates at least 500 miles of standard gauge road within the
continental United States and which has had average annual operating
revenues of at least ten million dollars ($10,000,000) during the
five years next preceding the investment.
(2) Has an average annual balance of income available for fixed
charges for the last 15 years for which the necessary statistical
data are available, when divided by an amount equal to its fixed
charges for the last fiscal year, shall produce a quotient which is
at least 15 percent higher than the quotient obtained by dividing the
average annual balance of income available for fixed charges of all
class 1 railroads for the same one 5-year period by an amount equal
to the fixed charges of all class 1 railroads for the last year in
the period.
(3) Has an average "balance of net income" (computed by deducting
the sum of its fixed charges and contingent interest charges for the
latest fiscal year from the average annual balance available for
fixed charges for the latest 15 years for which the necessary
statistical data are available) when divided by its average annual
railroad operating income for the same 15-year period, shall produce
a quotient at least 15 percent greater than the quotient obtained by
dividing the average balance of income of all class 1 railroads,
computed in the same manner, by the average annual railway operating
income of all class 1 railroads for the same 15-year period.
(4) Has an average balance of income available for fixed charges
for the last three fiscal years preceding the investment that has not
been less than one and one-half times its fixed charges for the last
fiscal year.
(b) The railroad bonds are secured by any of the following:
(1) A mortgage, either direct or collateral, which shall be a
first mortgage on not less than 75 percent of the mileage subject to
the mortgage.
(2) A first mortgage on terminal properties comprising the company'
s principal freight or passenger terminal in a city of not less than
250,000 population according to the latest federal or state census.
(3) A refunding mortgage on not less than 75 percent of the
railroad mileage owned or operated by the issuing company under which
bonds may be issued for retirement or refunding of all debts secured
by prior liens on all or any part of the property (other than liens
on equipment) subject to the mortgage; provided, that the amount of
debt senior to the refunding mortgage is not more than 50 percent of
the sum of all senior debt and the refunding mortgage, or that
underlying mortgage bonds in an amount equal to at least 50 percent
of the debt outstanding under the refunding mortgage are pledged as
security under the refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company where the lease extends beyond the maturity date of
the bonds and the company has guaranteed, assumed, or committed
itself under the terms of the lease to pay principal and interest on
the bonds.
(c) Bonds secured by a mortgage on jointly operated railroad
facilities must be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads which
have jointly and severally agreed unconditionally to pay the interest
and principal of the bonds or have unconditionally guaranteed or
assumed such payment, one of which railroads must meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates must be issued by a
solvent class 1 railroad whose average balance of income available
for fixed charges for the last three fiscal years preceding the
investment shall be not less than one and one-half times its fixed
charges for the last fiscal year. The certificates must be issued to
provide funds for the construction or acquisition of new standard
gauge railroad equipment made with the approval of the Interstate
Commerce Commission and be secured by equipment trust, lease,
conditional sales contract, or first lien on such equipment. The
aggregate principal amount of such obligations shall not exceed 80
percent of the purchase price of the equipment and the certificates
shall mature within 15 years from date of issuance in equal annual,
semiannual, or monthly installments, beginning not later than one
year after the date of issuance.
(e) As used in this section, the terms "balance of income
available for fixed charges," "fixed charges," "contingent interest,"
and "railway operating income" shall have the same meaning as in the
accounting reports filed by common carriers by rail pursuant to
regulations of the Interstate Commerce Commission except that
"balance of income available for payment of fixed charges" shall be
computed before deduction of federal income or excess profits taxes,
and "fixed charges" and "contingent interest" of the railroad shall
be such charges existing as of the time the computation is made
excluding charges with respect to debt which has been retired or will
be retired within six months and for the payment of which funds have
been or are contemporaneously being set aside in trust but including
charges with respect to new debt issued or in the process of being
issued.
1018. Bonds and debentures of gas, electric, or gas and electric
companies meeting the requirements of subdivision (a); bonds and
debentures of telephone companies meeting the requirements of
subdivision (b); and bonds and debentures of water companies meeting
the requirements of subdivision (c).
(a) Bonds or debentures of a gas, electric, or gas and electric
company shall be of an issue that originally amounted to not less
than one million dollars ($1,000,000) and, if bonds, be secured by a
mortgage on substantially all of its physical property, and, if
debentures, shall be issued by a company substantially all of whose
physical property is free of mortgage and must carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a public utility corporation that meets all of the
following conditions:
(1) Derives more than 50 percent of its gross operating revenue
from the business of supplying electricity, artificial gas, or
natural gas or all or any of them, and at least 80 percent of its
gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Shall have had a gross operating revenue of not less than
seven million five hundred thousand dollars ($7,500,000) for its most
recent fiscal year.
(3) Has a funded debt not exceeding two-thirds of the value of its
physical property as shown by the books of the corporation or by a
statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves for depreciation, retirement, or
amortization of that physical property. Physical property of a
corporation shall include the physical property of a subsidiary
corporation if the corporation owns not less than 90 percent of the
outstanding voting shares of the subsidiary corporation.
(4) Shall have had earnings including earnings of subsidiaries
mentioned in paragraph (3), available for interest payments, before
deduction of state and federal taxes imposed on or measured by income
or profits, during four of the five most recent fiscal years and
during the most recent fiscal year equal to at least twice the
existing annual interest charges on the corporation's total funded
debt during those respective fiscal years.
(b) Bonds or debentures of telephone companies shall be of an
issue originally amounting to at least one million dollars
($1,000,000) and, if bonds, be secured by a mortgage on substantially
all of the physical property of the company, and if debentures shall
be issued by a company substantially all of whose physical property
is free of mortgage and shall carry a covenant to be secured equally
with any mortgage indebtedness, except a purchase money mortgage,
subsequently issued, and both bonds and debentures shall be issued by
a company that meets all of the following conditions:
(1) During its last fiscal year had gross revenues of at least
seven million five hundred thousand dollars ($7,500,000), more than
50 percent of which was derived from owned properties used in
furnishing telephone and other communication services and at least 80
percent of its gross revenues from all or any of the public utility
businesses enumerated in this section.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the books of the corporation or by
a statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves shown on the statement for depreciation,
retirement or amortization of such physical property. Physical
property of a corporation shall include the physical property of a
subsidiary corporation if the corporation owns not less than 90
percent of the outstanding voting shares of the subsidiary
corporation.
(3) Which for four of the five most recent fiscal years and for
the last fiscal year had earnings including earnings of subsidiaries
mentioned in paragraph (2) available for the payment of interest
charges, before deduction of state and federal taxes imposed on or
measured by income or profits, at least equal to twice the interest
charges on the company's total funded debt during such respective
fiscal years.
(c) Water company bonds or debentures shall be of an issue
originally amounting to at least one million dollars ($1,000,000) and
if bonds, be secured by a first mortgage on the company's property,
and if debentures, shall be issued by a company substantially all of
whose property is free of mortgage and shall carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a company that meets all of the following
conditions:
(1) Is the supplier of substantially all water for domestic use in
a community or communities having a population of not less than
25,000.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the published statement of the
company for its next preceding fiscal period, less the amount of any
reserves shown for depreciation, retirement or amortization of such
physical property. Physical property of a corporation shall include
the physical property of a subsidiary corporation if the corporation
owns not less than 90 percent of the outstanding voting shares of the
subsidiary corporation.
(3) Which for four out of the five most recent fiscal years and
for the most recent fiscal year shall have had earnings including
those of subsidiaries mentioned in paragraph (2) available for the
payment of interest charges, before deduction of state and federal
taxes imposed on or measured by income or profits, of at least one
and one-half times the interest charges on the company's total funded
debt during the respective fiscal years.
1000. As used in this chapter, unless the context requires
otherwise, the following terms have the following meanings:
(a) "Net direct debt" of any public corporation means all
indebtedness of every kind after deducting from the indebtedness
sinking funds available for the payment thereof, any indebtedness
evidenced by tax anticipation notes for the payment of which
nondelinquent taxes are pledged, obligations payable only from
special assessments, revenue obligations payable only from special
revenues pledged for their payment, and such proportion of any
indebtedness issued for revenue producing works, properties, or
utilities that have been in operation for at least one year as the
amount of the annual net revenue therefrom bears to the amount of the
annual debt service requirements of those bonds.
(b) "Net overlapping debt" of any public corporation means the
proportion of the net direct debt as above defined of any other
public corporation (herein called overlapping corporation) that lies
wholly or partially within the boundaries of the public corporation
as the assessed valuation of the taxable property of the overlapping
public corporation lying within the boundaries of the public
corporation as shown by the last official equalized county assessment
roll bears to the assessed valuation of all taxable property of the
overlapping public corporation as shown by the last official
equalized county assessment roll.
(c) "Funded debt," as used in this chapter, means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date the indebtedness was incurred.
1001. Any securities or other assets that are described in Sections
1003 to 1018, inclusive, are legal investments for savings banks.
1002. Where any laws of this state provide that the moneys of any
pension fund, retirement plan, trust fund, or the moneys of any
special fund the investment of which is governed by law, or the funds
of any political subdivision or public corporation may or shall be
invested in securities which are a legal investment for savings
banks, that law shall be deemed to authorize or require, as the case
may be, that those moneys be invested in securities in which savings
banks were authorized to invest their funds by the provisions of the
Bank Act as it read prior to January 1, 1949, other than paragraph
(f) of subdivision 5 of Section 61 of that act, or in bonds,
debentures, and notes legal for investments for savings banks in the
State of New York or the State of Massachusetts as of the time the
investment is made or in securities in which commercial banks are
authorized to invest their funds by the provisions of Sections 1003
to 1018, inclusive.
1003. Gold and silver bullion and United States mint certificates
of ascertained value.
1004. Stock of a federal reserve bank or of a federal home loan
bank to the extent authorized by Section 754.
1005. Bonds or other interest-bearing notes and obligations of the
United States and those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
1006. Bonds of the State of California and those for which the
faith and credit of the State of California are pledged for the
payment of principal and interest and in registered warrants of the
State of California.
1007. Bonds of any flood control and water conservation districts,
or any zone thereof, having an assessed valuation on taxable real
property of not less than one million dollars ($1,000,000), county,
city and county, city, metropolitan water district, municipal utility
district, special districts established by and within any municipal
utility district, transit district, rapid transit district including
sales tax revenue bonds of the district, metropolitan transit
authority, flood control district, or school district of the State of
California (herein referred to generally as public corporation)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by savings banks by regulations
of the commissioner.
1008. Bonds of any other political subdivision, public corporation,
or district of the State of California (herein referred to generally
as public corporations) having the power, without limit as to rate
or amount; to levy taxes to pay the principal and interest of the
bonds upon all property within its boundaries subject to taxation by
such public corporation, provided the net direct debt of such public
corporation together with its net overlapping debt does not exceed 25
percent of the assessed valuation of the taxable property within its
boundaries according to the last official equalized county
assessment roll.
1009. (a) Any of the following subject to the conditions set forth
in subdivision (b) to (d), inclusive.
(1) Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by the Dominion of Canada, the State of
Israel, the United States of Mexico, the Commonwealth of Puerto Rico,
or any state of the United States other than California, for the
payment of both principal and interest of which in United States
dollars, the faith and credit of the entity is pledged.
(2) Limited obligations of any state of the United States, other
than California, or the Commonwealth of Puerto Rico, payable only
from special taxes that are pledged to the payment of principal and
interest of the limited obligations.
(3) Bonds or other evidences of indebtedness of any city, county,
political subdivision, public corporation, or district (herein
referred to generally as public corporations) of any state of the
United States, other than California, or of the Dominion of Canada,
or of the State of Israel, or of the United States of Mexico or of
the Commonwealth of Puerto Rico, having the power without limit as to
rate or amount to levy taxes to pay the principal and interest of
the bonds upon all property within its boundaries subject to taxation
by the public corporation.
(b) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, such state,
commonwealth, dominion, or country has not within 10 years prior to
the investment defaulted for a period of more than 90 days in the
payment of any part of either principal or interest of any of its
debts.
(c) In the case of limited obligations of any state, or
commonwealth, all of the following conditions are met:
(1) The state or commonwealth has not, within 10 years prior to
the date of the investment, defaulted for a period of more than 90
days in the payment of either principal or interest of any of its
debts.
(2) The special taxes pledged for the payment of the limited
obligations shall have been collected for five years and shall have
averaged at least one and one-half times the debt service
requirements, including those for principal, interest, and sinking
fund, on all special obligations existing at the time.
(3) The special taxes for each of the five fiscal years shall have
equaled at least the amount of all the debt service requirements on
the special obligations.
(d) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of any
commonwealth, all of the following conditions are met:
(1) The public corporation has had a corporate existence or been
otherwise established and functioning for at least 10 years prior to
the time of the investment.
(2) The public corporation has a population of at least 50,000
inhabitants according to the last federal or state census.
(3) The public corporation for a period of at least 10 years prior
to the investment has not defaulted in the payment of any part of
the principal or interest of any of its debts for a period of more
than 90 days.
(4) The net direct debt together with the net overlapping debt of
the public corporation does not exceed 10 percent of the assessed
valuation of the property subject to taxation by the public
corporation according to the last official equalized assessment roll
or list upon the basis of which taxes for debt service are based.
1010. Bonds of any irrigation district, water storage district,
water conservation district, county water district, reclamation
district, drainage district, and any district the primary function of
which is the irrigation, reclamation or drainage of land within its
boundaries, located in California, other than bonds referred to in
Section 1007, provided either of the following conditions are met:
(a) The bonds qualify under Section 1008.
(b) The bonds have been certified as legal securities for savings
banks pursuant to Chapter 1 (commencing with Section 20000) of
Division 10 of the Water Code and the certification remains unrevoked
and the total outstanding bonded indebtedness of the district
including bonds authorized but not issued, but excluding bonds
payable solely from revenues and not directly or indirectly from
assessments, does not exceed 50 percent of the aggregate of the
assessed value of the lands, exclusive of improvements, subject to
assessment by the district, and the value of the property owned by
the district or to be acquired or constructed with the proceeds of
the bonds under consideration.
1011. (a) Bonds, consolidated bonds, collateral trust debentures,
consolidated debentures, or other obligations issued by federal land
banks or federal intermediate credit banks established under the
Federal Farm Loan Act, as amended, and the Farm Credit Act of 1971.
(b) Debentures and consolidated debentures issued by the Central
Bank for Cooperatives and banks for cooperatives established under
the Farm Credit Act of 1933, as amended, and the Farm Credit Act of
1971.
(c) Bonds or debentures of the Federal Home Loan Bank Board
established under the Federal Home Loan Bank Act.
(d) Bonds of any federal home loan bank established under the
Federal Home Loan Bank Act.
(e) Stocks, bonds, debentures, participations and other
obligations of or issued by the Federal National Mortgage
Association, the Student Loan Marketing Association, the Government
National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
1012. Bonds, notes or other obligations issued by the Federal
Financing Bank, the United States Postal Service, or issued or
assumed by the International Bank for Reconstruction and Development,
the Tennessee Valley Authority, the Inter-American Development Bank,
the Government Development Bank for Puerto Rico, the Asian
Development Bank, the International Finance Corporation, or the
African Development Bank.
1013. (a) Notes with a maturity not exceeding 15 months after the
date of issue, issued in anticipation of uncollected taxes, income,
revenue, cash receipts, and other moneys of the State of California
or any city, county, city and county, or school district thereof;
provided the notes and warrants and the interest thereon shall be a
first lien and charge against, and shall be payable from, the first
moneys received by the local agency from such pledged moneys;
provided the total amount of the notes issued at any one time or
during any specified period does not exceed 85 percent of the
receipts or revenues.
(b) Grant anticipation notes issued by the agencies and payable
not later than 36 months after the date of issue, provided that the
total amount of the notes and interest payable thereon issued at any
one time or during any specified period does not exceed 80 percent of
the grant funds stated in writing by the granting authority as
committed or appropriated, and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
1014. Revenue securities of any state of the United States, or of
the Commonwealth of Puerto Rico, and of any city, county, city and
county, political subdivision, public corporation, or district
(herein referred to generally as public corporations) of any state or
commonwealth and of any department, board, agency, or authority of
any state or commonwealth or of any public corporation, if the
following conditions are met:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by a state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
the revenues.
(b) Either of the following paragraphs apply:
(1) (A) The net income from the property available for the payment
of the securities for the five fiscal years next preceding any such
investment, shall have averaged at least one and one-tenth times all
debt service requirements for principal, interest, and sinking fund
of all revenue securities payable only out of the revenues from that
property during each of those fiscal years, and for each of the five
fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of the
securities, and for the last fiscal year shall have amounted to at
least the maximum annual debt service requirement for any fiscal year
thereafter on all such securities that were outstanding during such
last fiscal year and which will be outstanding in any fiscal year
thereafter.
(B) The gross income from the property, the net income from which
is pledged for the payment of the securities, in the last fiscal year
prior to the investment was not less than one million dollars
($1,000,000) if located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
(C) The issuer is obligated to maintain rates at least sufficient
to meet debt service requirements and such obligation is legally
enforceable.
(2) (A) The issuer of the securities is entitled to receive under
a legally enforceable contract with a corporation any of the
securities of which are a legal investment for savings banks under
this chapter annual payments averaging not less than nine hundred
thousand dollars ($900,000) a year commencing with the completion of
a project or projects as fixed in the construction contract therefor
and continuing during the maximum term for which said revenue
securities are to mature.
(B) The issuer of the securities is obligated to maintain rates to
produce revenue, or will receive contract payments, either or both
of which will be sufficient to meet debt service requirements and
such obligation or contract is legally enforceable.
(c) The public corporation or any department, board, agency, or
authority thereof which issues the securities, if existing elsewhere
than in California, has not within 10 years prior to such investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
1015. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) that are secured by
either of the following:
(a) An agreement between the public housing agency and the Public
Housing Administration in which the public housing agency agrees to
borrow from the Public Housing Administration, and the Public Housing
Administration agrees to lend to the public housing agency, prior to
the maturity of the obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount that
(together with any other moneys irrevocably committed to the payment
of interest on such obligations) will suffice to pay the principal of
the obligations with interest to maturity thereon, which moneys
under the terms of the agreement are required to be used for the
purpose of paying the principal of and the interest on such
obligations at their maturity.
(b) A pledge of annual contributions under an annual contributions
contract between such public housing agency and the Public Housing
Administration if the contract shall contain the covenant by the
Public Housing Administration that is authorized by subsection (b) of
Section 22 of the United States Housing Act of 1937, as amended, and
if the maximum sum and the maximum period specified in such contract
pursuant to that subsection 22(b) shall not be less than the annual
amount and the period for payment that are requisite to provide for
the payment when due of all installments of principal and interest on
the obligations.
1015.5. Bonds secured by an insurance commitment of the Federal
Housing Administration.
1016. Evidences of indebtedness of companies incorporated in the
United States and, directly or indirectly, engaged in manufacturing,
extraction, merchandising, or commercial financing and in bonds of
authorities established pursuant to the California Industrial
Development Financing Act (Title 10 (commencing with Section 91500)
of the Government Code), to which these companies are obligated with
respect to payment subject to the following conditions:
(a) Any unsecured evidences of indebtedness shall be issued by a
company substantially all of whose property is free of mortgage and
shall carry a covenant by the obligor that they will be secured
equally with any mortgage bond, except a purchase money mortgage,
which may be later issued.
(b) The company is of a size as to attract at least statewide
interest in its publicly held securities and its gross income shall
have averaged not less than ten million dollars ($10,000,000) and its
net income shall have averaged not less than one million dollars
($1,000,000) for the five fiscal years preceding the investment and
its gross income was not less than ten million dollars ($10,000,000)
and its net income not less than one million dollars ($1,000,000) for
at least three of these five fiscal years.
(c) Working capital, as measured by consolidated current assets
less consolidated current liabilities as shown in the latest
published balance sheet, shall exceed 150 percent of the total of
consolidated debt due in longer than one year and "minority interest."
For that purpose, "minority interest" means any outstanding interest
in a subsidiary having a prior claim on the earnings of the
subsidiary. However, the foregoing ratio requirement shall not apply
in the case of evidences of indebtedness of any corporation whose
consolidated gross assets less any valuation reserves exceed five
hundred million dollars ($500,000,000) and whose consolidated current
assets exceed consolidated current liabilities by at least one
hundred million dollars ($100,000,000) as shown by the latest
published balance sheet. When new financing is involved, the changes
in gross assets, capital structure and working capital shall be
considered and reliance may be placed on the representations made in
the official prospectus prepared under the rules of the Securities
and Exchange Commission as to the application of the proceeds of the
financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest," as shown on the latest published
balance sheet, does not exceed 33 1/3 percent of its gross assets
less valuation reserves.
(e) The consolidated annual net income for the five fiscal years
next preceding the investment, before deduction of state and federal
taxes imposed on or measured by income or profits but after deducting
all charges, including reserves, regularly recurring charges for
amortization of discount, and expense allocable to funded debt (1)
shall have averaged not less than six times the annual consolidated
interest charges existing at the time the investment is made; (2) in
at least three of the five fiscal years shall have been at least four
times the annual consolidated interest charges for the same year;
and (3) for the fiscal year next preceding the investment shall have
been not less than six times the consolidated interest charges for
that year and not less than six times the annual consolidated charges
on the funded debt outstanding at the time of the investment.
1017. Fixed interest railroad bonds meeting the requirements of
subdivisions (a) and (b); bonds secured by a mortgage on jointly
operated railroad facilities meeting the requirements of subdivision
(c); and railroad equipment trust certificates meeting the
requirements of subdivision (d).
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company that meets
all of the following conditions:
(1) Operates at least 500 miles of standard gauge road within the
continental United States and which has had average annual operating
revenues of at least ten million dollars ($10,000,000) during the
five years next preceding the investment.
(2) Has an average annual balance of income available for fixed
charges for the last 15 years for which the necessary statistical
data are available, when divided by an amount equal to its fixed
charges for the last fiscal year, shall produce a quotient which is
at least 15 percent higher than the quotient obtained by dividing the
average annual balance of income available for fixed charges of all
class 1 railroads for the same one 5-year period by an amount equal
to the fixed charges of all class 1 railroads for the last year in
the period.
(3) Has an average "balance of net income" (computed by deducting
the sum of its fixed charges and contingent interest charges for the
latest fiscal year from the average annual balance available for
fixed charges for the latest 15 years for which the necessary
statistical data are available) when divided by its average annual
railroad operating income for the same 15-year period, shall produce
a quotient at least 15 percent greater than the quotient obtained by
dividing the average balance of income of all class 1 railroads,
computed in the same manner, by the average annual railway operating
income of all class 1 railroads for the same 15-year period.
(4) Has an average balance of income available for fixed charges
for the last three fiscal years preceding the investment that has not
been less than one and one-half times its fixed charges for the last
fiscal year.
(b) The railroad bonds are secured by any of the following:
(1) A mortgage, either direct or collateral, which shall be a
first mortgage on not less than 75 percent of the mileage subject to
the mortgage.
(2) A first mortgage on terminal properties comprising the company'
s principal freight or passenger terminal in a city of not less than
250,000 population according to the latest federal or state census.
(3) A refunding mortgage on not less than 75 percent of the
railroad mileage owned or operated by the issuing company under which
bonds may be issued for retirement or refunding of all debts secured
by prior liens on all or any part of the property (other than liens
on equipment) subject to the mortgage; provided, that the amount of
debt senior to the refunding mortgage is not more than 50 percent of
the sum of all senior debt and the refunding mortgage, or that
underlying mortgage bonds in an amount equal to at least 50 percent
of the debt outstanding under the refunding mortgage are pledged as
security under the refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company where the lease extends beyond the maturity date of
the bonds and the company has guaranteed, assumed, or committed
itself under the terms of the lease to pay principal and interest on
the bonds.
(c) Bonds secured by a mortgage on jointly operated railroad
facilities must be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads which
have jointly and severally agreed unconditionally to pay the interest
and principal of the bonds or have unconditionally guaranteed or
assumed such payment, one of which railroads must meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates must be issued by a
solvent class 1 railroad whose average balance of income available
for fixed charges for the last three fiscal years preceding the
investment shall be not less than one and one-half times its fixed
charges for the last fiscal year. The certificates must be issued to
provide funds for the construction or acquisition of new standard
gauge railroad equipment made with the approval of the Interstate
Commerce Commission and be secured by equipment trust, lease,
conditional sales contract, or first lien on such equipment. The
aggregate principal amount of such obligations shall not exceed 80
percent of the purchase price of the equipment and the certificates
shall mature within 15 years from date of issuance in equal annual,
semiannual, or monthly installments, beginning not later than one
year after the date of issuance.
(e) As used in this section, the terms "balance of income
available for fixed charges," "fixed charges," "contingent interest,"
and "railway operating income" shall have the same meaning as in the
accounting reports filed by common carriers by rail pursuant to
regulations of the Interstate Commerce Commission except that
"balance of income available for payment of fixed charges" shall be
computed before deduction of federal income or excess profits taxes,
and "fixed charges" and "contingent interest" of the railroad shall
be such charges existing as of the time the computation is made
excluding charges with respect to debt which has been retired or will
be retired within six months and for the payment of which funds have
been or are contemporaneously being set aside in trust but including
charges with respect to new debt issued or in the process of being
issued.
1018. Bonds and debentures of gas, electric, or gas and electric
companies meeting the requirements of subdivision (a); bonds and
debentures of telephone companies meeting the requirements of
subdivision (b); and bonds and debentures of water companies meeting
the requirements of subdivision (c).
(a) Bonds or debentures of a gas, electric, or gas and electric
company shall be of an issue that originally amounted to not less
than one million dollars ($1,000,000) and, if bonds, be secured by a
mortgage on substantially all of its physical property, and, if
debentures, shall be issued by a company substantially all of whose
physical property is free of mortgage and must carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a public utility corporation that meets all of the
following conditions:
(1) Derives more than 50 percent of its gross operating revenue
from the business of supplying electricity, artificial gas, or
natural gas or all or any of them, and at least 80 percent of its
gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Shall have had a gross operating revenue of not less than
seven million five hundred thousand dollars ($7,500,000) for its most
recent fiscal year.
(3) Has a funded debt not exceeding two-thirds of the value of its
physical property as shown by the books of the corporation or by a
statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves for depreciation, retirement, or
amortization of that physical property. Physical property of a
corporation shall include the physical property of a subsidiary
corporation if the corporation owns not less than 90 percent of the
outstanding voting shares of the subsidiary corporation.
(4) Shall have had earnings including earnings of subsidiaries
mentioned in paragraph (3), available for interest payments, before
deduction of state and federal taxes imposed on or measured by income
or profits, during four of the five most recent fiscal years and
during the most recent fiscal year equal to at least twice the
existing annual interest charges on the corporation's total funded
debt during those respective fiscal years.
(b) Bonds or debentures of telephone companies shall be of an
issue originally amounting to at least one million dollars
($1,000,000) and, if bonds, be secured by a mortgage on substantially
all of the physical property of the company, and if debentures shall
be issued by a company substantially all of whose physical property
is free of mortgage and shall carry a covenant to be secured equally
with any mortgage indebtedness, except a purchase money mortgage,
subsequently issued, and both bonds and debentures shall be issued by
a company that meets all of the following conditions:
(1) During its last fiscal year had gross revenues of at least
seven million five hundred thousand dollars ($7,500,000), more than
50 percent of which was derived from owned properties used in
furnishing telephone and other communication services and at least 80
percent of its gross revenues from all or any of the public utility
businesses enumerated in this section.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the books of the corporation or by
a statement of a certified public accountant issued within one year,
which statement may be based upon the books of the corporation, less
the amount of any reserves shown on the statement for depreciation,
retirement or amortization of such physical property. Physical
property of a corporation shall include the physical property of a
subsidiary corporation if the corporation owns not less than 90
percent of the outstanding voting shares of the subsidiary
corporation.
(3) Which for four of the five most recent fiscal years and for
the last fiscal year had earnings including earnings of subsidiaries
mentioned in paragraph (2) available for the payment of interest
charges, before deduction of state and federal taxes imposed on or
measured by income or profits, at least equal to twice the interest
charges on the company's total funded debt during such respective
fiscal years.
(c) Water company bonds or debentures shall be of an issue
originally amounting to at least one million dollars ($1,000,000) and
if bonds, be secured by a first mortgage on the company's property,
and if debentures, shall be issued by a company substantially all of
whose property is free of mortgage and shall carry a covenant to be
secured equally with any mortgage indebtedness, except a purchase
money mortgage, subsequently issued, and both bonds and debentures
shall be issued by a company that meets all of the following
conditions:
(1) Is the supplier of substantially all water for domestic use in
a community or communities having a population of not less than
25,000.
(2) Whose funded debt does not exceed two-thirds of the value of
its physical property as shown by the published statement of the
company for its next preceding fiscal period, less the amount of any
reserves shown for depreciation, retirement or amortization of such
physical property. Physical property of a corporation shall include
the physical property of a subsidiary corporation if the corporation
owns not less than 90 percent of the outstanding voting shares of the
subsidiary corporation.
(3) Which for four out of the five most recent fiscal years and
for the most recent fiscal year shall have had earnings including
those of subsidiaries mentioned in paragraph (2) available for the
payment of interest charges, before deduction of state and federal
taxes imposed on or measured by income or profits, of at least one
and one-half times the interest charges on the company's total funded
debt during the respective fiscal years.
