7260. Stock of a Federal Reserve bank.
7261. 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 registered warrants of the
State of California.
7262. 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, any special district established by and within any
municipal utility district, transit district, rapid transit district,
including sales tax revenue bonds of that district of the State of
California (herein referred to generally as public corporations)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by commercial banks by
regulations of the commissioner.
7263. 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 those
bonds upon all property within its boundaries subject to taxation by
the public corporation, if the net direct debt of that 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.
7264. Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by 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 that entity is pledged; in limited obligations; and in
the 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 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 those bonds upon all property
within its boundaries subject to taxation by that public corporation;
subject to the following:
(a) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, the state,
commonwealth, dominion, or country has not within 10 years prior to
that 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.
(b) In the case of limited obligations of any such state or
commonwealth, (1) that 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 fiscal
years next preceding any investment and during the five fiscal years
shall have averaged at least 1 1/2 times the debt service
requirements, including those for principal, interest, and sinking
fund, on all such special obligations existing at the time; and (3)
the special taxes for each of those five fiscal years shall have
equaled at least the amount of all the debt service requirements on
those special obligations.
(c) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of such
commonwealth:
(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.
For the purposes of this subdivision:
(A) The term "net direct debt" of any public corporation means all
indebtedness of every kind after deducting from that 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 the proportion of any
indebtedness issued for revenue-producing works, properties, or
utilities which 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) The term "net overlapping debt" of any public corporation
means that proportion of the net direct debt, as defined, of any
other public corporation (herein called overlapping corporation)
which 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.
7265. 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 7262, subject to any of the following:
(a) The bonds qualify under Section 7263.
(b) The bonds have been certified as legal securities pursuant to
Chapter 1 (commencing with Section 20000) of Division 10 of the Water
Code and the certification remains unrevoked.
(c) 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.
7266. 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, the Farm Credit Act of 1971, in
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, and
in 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.
7267. Bonds, notes, or other obligations issued by the Federal
Financing Bank, the United State 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, or the African Development Bank.
7268. (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, therefore,
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 the 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, appropriated and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
7269. In 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 such
state or commonwealth and of any department, board, agency, or
authority of any such state or commonwealth or of any public
corporation subject to the following:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by the state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
those revenues.
(b) Either:
(1) The new 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 requirement for principal, interest, and sinking fund of
all revenue securities payable only out of the revenues from the
property during each of those fiscal years, and for each of those
five fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of those
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 which were outstanding during the
last fiscal year and which will be outstanding in any fiscal year
thereafter.
The gross income from the property, the net income from which is
pledged for the payment of those securities, in the last fiscal year
prior to that investment was not less than one million dollars
($1,000,000), is located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
The issuer is obligated to maintain rates at least sufficient to
meet debt service requirements and those obligations are legally
enforceable.
(2) 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 commercial banks under Division
1, 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 therefore and
continuing during the maximum term for which those revenue securities
are to mature.
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 that
obligation 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 that investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
7270. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) as are secured either,
(a) by 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 those obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount which
(together with any other moneys irrevocably committed to the payment
of interest on the obligations) will suffice to pay the principal of
those obligations with interest to maturity thereon, which moneys
under the terms of that agreement are required to be used for the
purpose of paying the principal of, and the interest on, those
obligations at their maturity, or (b) by a pledge of annual
contributions under an annual contributions contract between the
public housing agency and the Public Housing Administration if the
contract shall contain the covenant by the Public Housing
Administration which 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 the contract pursuant
to subsection (b) of Section 22 of the United States Housing Act of
1937 shall not be less than the annual amount and the period for
payment which are requisite to provide for the payment when due of
all installments of principal and interest on those obligations.
7271. Bonds secured by an insurance commitment of the Federal
Housing Administration.
7272. 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 those institutions are obligated
with respect to payment, provided:
(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 such 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 one million dollars ($1,000,000)
for at least three of those 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"
(i.e., any outstanding interest in a subsidiary having a prior claim
on the earnings of the subsidiary), except that 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 that financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest" (i.e. any outstanding interest in
a subsidiary having a prior claim on the earnings of the
subsidiary), 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 deductions 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 those 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.
7273. 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), as follows:
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision is made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company:
(1) That operates at least 500 miles of standard gauge road within
the continental United States and that has had average annual
operating revenues of at least ten million dollars ($10,000,000)
during the five years next preceding the investment.
(2) Whose 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 that 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 15-year period by an amount equal to
the fixed charges of all class 1 railroads for the last year in the
period.
(3) Whose 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) Whose average balance of income available for fixed charges
for the last three fiscal years preceding the investment, or for the
lesser number of fiscal years that may have elapsed since December
31, 1946, 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, that 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, if 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 if 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 that refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company if 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 shall be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads that
have jointly and severally agreed unconditionally to pay the interest
and principal payment, one of which railroads shall meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates shall 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, or for the lesser number of fiscal years that may have
elapsed since December 31, 1946, shall be not less than one and
one-half times its fixed charges for the last fiscal year. Those
certificates shall 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 secured by an
equipment trust, lease, conditional sales contract, or first lien on
the equipment. The aggregate principal amount of the obligations
shall not exceed 80 percent of the purchase price of the equipment
and the certificates shall mature within 15 years of the 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, "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 of excess profits taxes, and "fixed
charges" and "contingent interest" of the railroad shall be those
charges existing as of the time the computation is made, excluding
charges with respect to debt that 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.
7274. 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 the bonds and debentures of water companies
meeting the requirements of subdivision (c), as follows:
(a) Bonds or debentures of gas, electric, or gas and electric
companies 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 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 public utility corporation, which does all of
the following:
(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 these services, and at least 80 percent
of its gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Has 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 the 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) Has 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, secured by a mortgage on substantially
all of the physical property of the company, and, if debentures, 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 subject to the following:
(1) The company has 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) The 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 as the 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) For four of the five most recent fiscal years and for the last
fiscal year has 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 those 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, secured by a first mortgage on the company's property,
and, if debentures, issued by a company substantially all of whose
property is free of mortgage and 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 subject to the following:
(1) The company 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) The funded debt of the company 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 the 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) For four out of the five most recent fiscal years and for the
most recent fiscal year has 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 those respective fiscal years.
7275. As used in this article, "funded debt" means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date it was incurred.
7260. Stock of a Federal Reserve bank.
7261. 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 registered warrants of the
State of California.
7262. 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, any special district established by and within any
municipal utility district, transit district, rapid transit district,
including sales tax revenue bonds of that district of the State of
California (herein referred to generally as public corporations)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by commercial banks by
regulations of the commissioner.
7263. 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 those
bonds upon all property within its boundaries subject to taxation by
the public corporation, if the net direct debt of that 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.
7264. Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by 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 that entity is pledged; in limited obligations; and in
the 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 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 those bonds upon all property
within its boundaries subject to taxation by that public corporation;
subject to the following:
(a) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, the state,
commonwealth, dominion, or country has not within 10 years prior to
that 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.
(b) In the case of limited obligations of any such state or
commonwealth, (1) that 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 fiscal
years next preceding any investment and during the five fiscal years
shall have averaged at least 1 1/2 times the debt service
requirements, including those for principal, interest, and sinking
fund, on all such special obligations existing at the time; and (3)
the special taxes for each of those five fiscal years shall have
equaled at least the amount of all the debt service requirements on
those special obligations.
(c) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of such
commonwealth:
(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.
For the purposes of this subdivision:
(A) The term "net direct debt" of any public corporation means all
indebtedness of every kind after deducting from that 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 the proportion of any
indebtedness issued for revenue-producing works, properties, or
utilities which 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) The term "net overlapping debt" of any public corporation
means that proportion of the net direct debt, as defined, of any
other public corporation (herein called overlapping corporation)
which 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.
7265. 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 7262, subject to any of the following:
(a) The bonds qualify under Section 7263.
(b) The bonds have been certified as legal securities pursuant to
Chapter 1 (commencing with Section 20000) of Division 10 of the Water
Code and the certification remains unrevoked.
(c) 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.
7266. 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, the Farm Credit Act of 1971, in
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, and
in 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.
7267. Bonds, notes, or other obligations issued by the Federal
Financing Bank, the United State 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, or the African Development Bank.
7268. (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, therefore,
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 the 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, appropriated and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
7269. In 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 such
state or commonwealth and of any department, board, agency, or
authority of any such state or commonwealth or of any public
corporation subject to the following:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by the state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
those revenues.
(b) Either:
(1) The new 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 requirement for principal, interest, and sinking fund of
all revenue securities payable only out of the revenues from the
property during each of those fiscal years, and for each of those
five fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of those
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 which were outstanding during the
last fiscal year and which will be outstanding in any fiscal year
thereafter.
The gross income from the property, the net income from which is
pledged for the payment of those securities, in the last fiscal year
prior to that investment was not less than one million dollars
($1,000,000), is located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
The issuer is obligated to maintain rates at least sufficient to
meet debt service requirements and those obligations are legally
enforceable.
(2) 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 commercial banks under Division
1, 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 therefore and
continuing during the maximum term for which those revenue securities
are to mature.
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 that
obligation 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 that investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
7270. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) as are secured either,
(a) by 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 those obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount which
(together with any other moneys irrevocably committed to the payment
of interest on the obligations) will suffice to pay the principal of
those obligations with interest to maturity thereon, which moneys
under the terms of that agreement are required to be used for the
purpose of paying the principal of, and the interest on, those
obligations at their maturity, or (b) by a pledge of annual
contributions under an annual contributions contract between the
public housing agency and the Public Housing Administration if the
contract shall contain the covenant by the Public Housing
Administration which 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 the contract pursuant
to subsection (b) of Section 22 of the United States Housing Act of
1937 shall not be less than the annual amount and the period for
payment which are requisite to provide for the payment when due of
all installments of principal and interest on those obligations.
7271. Bonds secured by an insurance commitment of the Federal
Housing Administration.
7272. 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 those institutions are obligated
with respect to payment, provided:
(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 such 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 one million dollars ($1,000,000)
for at least three of those 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"
(i.e., any outstanding interest in a subsidiary having a prior claim
on the earnings of the subsidiary), except that 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 that financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest" (i.e. any outstanding interest in
a subsidiary having a prior claim on the earnings of the
subsidiary), 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 deductions 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 those 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.
7273. 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), as follows:
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision is made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company:
(1) That operates at least 500 miles of standard gauge road within
the continental United States and that has had average annual
operating revenues of at least ten million dollars ($10,000,000)
during the five years next preceding the investment.
(2) Whose 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 that 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 15-year period by an amount equal to
the fixed charges of all class 1 railroads for the last year in the
period.
(3) Whose 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) Whose average balance of income available for fixed charges
for the last three fiscal years preceding the investment, or for the
lesser number of fiscal years that may have elapsed since December
31, 1946, 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, that 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, if 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 if 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 that refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company if 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 shall be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads that
have jointly and severally agreed unconditionally to pay the interest
and principal payment, one of which railroads shall meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates shall 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, or for the lesser number of fiscal years that may have
elapsed since December 31, 1946, shall be not less than one and
one-half times its fixed charges for the last fiscal year. Those
certificates shall 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 secured by an
equipment trust, lease, conditional sales contract, or first lien on
the equipment. The aggregate principal amount of the obligations
shall not exceed 80 percent of the purchase price of the equipment
and the certificates shall mature within 15 years of the 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, "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 of excess profits taxes, and "fixed
charges" and "contingent interest" of the railroad shall be those
charges existing as of the time the computation is made, excluding
charges with respect to debt that 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.
7274. 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 the bonds and debentures of water companies
meeting the requirements of subdivision (c), as follows:
(a) Bonds or debentures of gas, electric, or gas and electric
companies 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 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 public utility corporation, which does all of
the following:
(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 these services, and at least 80 percent
of its gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Has 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 the 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) Has 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, secured by a mortgage on substantially
all of the physical property of the company, and, if debentures, 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 subject to the following:
(1) The company has 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) The 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 as the 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) For four of the five most recent fiscal years and for the last
fiscal year has 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 those 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, secured by a first mortgage on the company's property,
and, if debentures, issued by a company substantially all of whose
property is free of mortgage and 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 subject to the following:
(1) The company 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) The funded debt of the company 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 the 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) For four out of the five most recent fiscal years and for the
most recent fiscal year has 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 those respective fiscal years.
7275. As used in this article, "funded debt" means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date it was incurred.
7260. Stock of a Federal Reserve bank.
7261. 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 registered warrants of the
State of California.
7262. 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, any special district established by and within any
municipal utility district, transit district, rapid transit district,
including sales tax revenue bonds of that district of the State of
California (herein referred to generally as public corporations)
except the bonds of any particular such public corporation which may
be declared ineligible for investment by commercial banks by
regulations of the commissioner.
7263. 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 those
bonds upon all property within its boundaries subject to taxation by
the public corporation, if the net direct debt of that 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.
7264. Bonds or other evidences of indebtedness of, or which are
unconditionally guaranteed by 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 that entity is pledged; in limited obligations; and in
the 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 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 those bonds upon all property
within its boundaries subject to taxation by that public corporation;
subject to the following:
(a) In the case of bonds constituting general obligations of any
such state, commonwealth, dominion, or country, the state,
commonwealth, dominion, or country has not within 10 years prior to
that 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.
(b) In the case of limited obligations of any such state or
commonwealth, (1) that 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 fiscal
years next preceding any investment and during the five fiscal years
shall have averaged at least 1 1/2 times the debt service
requirements, including those for principal, interest, and sinking
fund, on all such special obligations existing at the time; and (3)
the special taxes for each of those five fiscal years shall have
equaled at least the amount of all the debt service requirements on
those special obligations.
(c) In the case of bonds or other evidences of indebtedness of any
public corporation of any state other than California, or of such
commonwealth:
(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.
For the purposes of this subdivision:
(A) The term "net direct debt" of any public corporation means all
indebtedness of every kind after deducting from that 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 the proportion of any
indebtedness issued for revenue-producing works, properties, or
utilities which 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) The term "net overlapping debt" of any public corporation
means that proportion of the net direct debt, as defined, of any
other public corporation (herein called overlapping corporation)
which 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.
7265. 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 7262, subject to any of the following:
(a) The bonds qualify under Section 7263.
(b) The bonds have been certified as legal securities pursuant to
Chapter 1 (commencing with Section 20000) of Division 10 of the Water
Code and the certification remains unrevoked.
(c) 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.
7266. 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, the Farm Credit Act of 1971, in
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, and
in 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.
7267. Bonds, notes, or other obligations issued by the Federal
Financing Bank, the United State 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, or the African Development Bank.
7268. (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, therefore,
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 the 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, appropriated and shall be paid on a specified date or
dates within a 36-month period from the dating of the notes.
7269. In 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 such
state or commonwealth and of any department, board, agency, or
authority of any such state or commonwealth or of any public
corporation subject to the following:
(a) The revenue securities constitute obligations payable out of
the revenues from a revenue-producing property owned, controlled, or
operated by the state, commonwealth, public corporation, or by a
department, board, agency, or authority thereof and are secured by
those revenues.
(b) Either:
(1) The new 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 requirement for principal, interest, and sinking fund of
all revenue securities payable only out of the revenues from the
property during each of those fiscal years, and for each of those
five fiscal years shall have equaled at least all debt service
requirements for principal, interest, and sinking fund of those
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 which were outstanding during the
last fiscal year and which will be outstanding in any fiscal year
thereafter.
The gross income from the property, the net income from which is
pledged for the payment of those securities, in the last fiscal year
prior to that investment was not less than one million dollars
($1,000,000), is located in California, and was not less than five
million dollars ($5,000,000) if located elsewhere.
The issuer is obligated to maintain rates at least sufficient to
meet debt service requirements and those obligations are legally
enforceable.
(2) 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 commercial banks under Division
1, 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 therefore and
continuing during the maximum term for which those revenue securities
are to mature.
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 that
obligation 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 that investment
defaulted for a period of more than 90 days in the payment of
principal or interest on any of its debts.
7270. Bonds of any local public housing agency (as defined in the
United States Housing Act of 1937, as amended) as are secured either,
(a) by 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 those obligations (which obligations shall have a
maturity of not more than 18 months), moneys in an amount which
(together with any other moneys irrevocably committed to the payment
of interest on the obligations) will suffice to pay the principal of
those obligations with interest to maturity thereon, which moneys
under the terms of that agreement are required to be used for the
purpose of paying the principal of, and the interest on, those
obligations at their maturity, or (b) by a pledge of annual
contributions under an annual contributions contract between the
public housing agency and the Public Housing Administration if the
contract shall contain the covenant by the Public Housing
Administration which 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 the contract pursuant
to subsection (b) of Section 22 of the United States Housing Act of
1937 shall not be less than the annual amount and the period for
payment which are requisite to provide for the payment when due of
all installments of principal and interest on those obligations.
7271. Bonds secured by an insurance commitment of the Federal
Housing Administration.
7272. 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 those institutions are obligated
with respect to payment, provided:
(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 such 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 one million dollars ($1,000,000)
for at least three of those 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"
(i.e., any outstanding interest in a subsidiary having a prior claim
on the earnings of the subsidiary), except that 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 that financing.
(d) The total consolidated debt of the company including current
liabilities and "minority interest" (i.e. any outstanding interest in
a subsidiary having a prior claim on the earnings of the
subsidiary), 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 deductions 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 those 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.
7273. 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), as follows:
(a) The railroad bonds are issued by or are assumed, guaranteed,
or provision is made unconditionally for the payment of principal and
interest on specified dates, by a solvent railroad company:
(1) That operates at least 500 miles of standard gauge road within
the continental United States and that has had average annual
operating revenues of at least ten million dollars ($10,000,000)
during the five years next preceding the investment.
(2) Whose 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 that 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 15-year period by an amount equal to
the fixed charges of all class 1 railroads for the last year in the
period.
(3) Whose 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) Whose average balance of income available for fixed charges
for the last three fiscal years preceding the investment, or for the
lesser number of fiscal years that may have elapsed since December
31, 1946, 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, that 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, if 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 if 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 that refunding mortgage.
(4) A first mortgage on railroad property leased to and operated
by the company if 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 shall be secured by a first mortgage on a terminal, depot,
tunnel, or bridge used by or leased to two or more railroads that
have jointly and severally agreed unconditionally to pay the interest
and principal payment, one of which railroads shall meet the
requirements set forth in subdivision (a).
(d) Railroad equipment trust certificates shall 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, or for the lesser number of fiscal years that may have
elapsed since December 31, 1946, shall be not less than one and
one-half times its fixed charges for the last fiscal year. Those
certificates shall 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 secured by an
equipment trust, lease, conditional sales contract, or first lien on
the equipment. The aggregate principal amount of the obligations
shall not exceed 80 percent of the purchase price of the equipment
and the certificates shall mature within 15 years of the 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, "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 of excess profits taxes, and "fixed
charges" and "contingent interest" of the railroad shall be those
charges existing as of the time the computation is made, excluding
charges with respect to debt that 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.
7274. 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 the bonds and debentures of water companies
meeting the requirements of subdivision (c), as follows:
(a) Bonds or debentures of gas, electric, or gas and electric
companies 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 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 public utility corporation, which does all of
the following:
(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 these services, and at least 80 percent
of its gross operating revenue from all or any of the public utility
businesses enumerated in this section.
(2) Has 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 the 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) Has 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, secured by a mortgage on substantially
all of the physical property of the company, and, if debentures, 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 subject to the following:
(1) The company has 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) The 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 as the 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) For four of the five most recent fiscal years and for the last
fiscal year has 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 those 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, secured by a first mortgage on the company's property,
and, if debentures, issued by a company substantially all of whose
property is free of mortgage and 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 subject to the following:
(1) The company 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) The funded debt of the company 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 the 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) For four out of the five most recent fiscal years and for the
most recent fiscal year has 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 those respective fiscal years.
7275. As used in this article, "funded debt" means all
interest-bearing indebtedness of a corporation not maturing within
one year of the date it was incurred.
