CHAPTER 73 - Municipalities Investments

The term "fiduciary" as used in this chapter shall include an administrator of a municipal pension or retirement plan and any other person whose fiduciary duties are, by statute, governed by the principles of this chapter. The provisions of this chapter shall apply only to such fiduciaries.

§ 7302. Authorized investments; in general.

(a) Specifically authorized. - Subject only to the provisions of the governing instrument, if any, a fiduciary may accept, hold, invest in, and retain, any of the investments authorized by this chapter, and shall not be liable for loss on such investments so long as he exercises due care and prudence in the performance of his duties in regard to them. "Legal investment" or "authorized investment" or words of similar import used in a trust instrument shall be construed to mean any investment authorized by this chapter.

(b) Prudent man rule. - Any investment shall be an authorized investment if purchased or retained in the exercise of that degree of judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income to be derived therefrom as well as the probable safety of their capital. The authorization to make and retain investments pursuant to this subsection shall be in addition to, and independent of, authorizations to make investments pursuant to other provisions of this chapter and requirements applicable under other provisions of this chapter shall not affect investments also authorized by this subsection.

§ 7303. Government obligations.

Obligations of the following governmental bodies shall be authorized investments:

(1) United States. - Obligations of the United States or the United States Treasury or those for the payment of which, the faith and credit of the United States is pledged, including obligations of the District of Columbia. The obligations may be held directly or in the form of securities of or other interest in any open-end or closed-end management-type investment company or investment trust registered under the Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. § 80a-1 et seq.), if the portfolio of the investment company or investment trust is limited to such obligations and repurchase agreements fully collateralized by such obligations.

(2) Pennsylvania. - Obligations of the Commonwealth of Pennsylvania or those for the payment of which the faith and credit of the Commonwealth is pledged.

(3) State and local government. - Obligations of any commonwealth or state of the United States, or any county, city, borough, town, township, school district, institution district, or other political subdivision, having the power to levy taxes, of any such commonwealth or state: Provided, That the faith and credit of such commonwealth, state, or political subdivision thereof, is pledged for the payment of said obligations: And provided further, That at the date of the investment in such obligations, such commonwealth, state, or political subdivision, is not in default in the payment of any part of the principal or interest owing by it upon any part of its funded indebtedness.

(4) International bank for reconstruction and development. - Bonds, notes or other obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development which contain an unconditional promise to pay by the International Bank for Reconstruction and Development, or an unconditional guarantee by the International Bank for Reconstruction and Development of the payment of the interest thereon regularly, and the principal thereof on or before a specified date, in lawful currency of the United States. Not more than 2% of the funds in the custody or under the control of the fiduciary at the time of making the investment shall be invested in such bonds, notes or obligations. The principal office of the obligor shall be located within the United States.

§ 7304. Obligations of Federal organizations.

Obligations of the following organizations constituted under the laws of the United States shall be authorized investments:

(1) National Housing Administration.- Obligations issued pursuant to any housing act of the United States heretofore or hereafter enacted, but only if fully and unconditionally guaranteed as to principal and interest by the United States.

(2) Federal land banks. - Obligations of any Federal land bank and consolidated obligations, being the joint and several obligations of all Federal land banks, issued pursuant to the act of Congress of July 17, 1916 (39 Stat. 380), and its amendments and supplements heretofore or hereafter enacted.

(3) Federal home loan banks. - Obligations of any Federal home loan bank and consolidated obligations, being the joint and several obligations of all Federal home loan banks, issued pursuant to the act of Congress of July 22, 1932 (47 Stat. 725), and its amendments and supplements heretofore or hereafter enacted.

(4) Federal intermediate credit banks.- Consolidated obligations, being the joint and several obligations of all Federal intermediate credit banks, issued pursuant to the act of Congress of March 4, 1923 (42 Stat. 1456), and its amendments and supplements heretofore or hereafter enacted.

(5) Federal National Mortgage Association.- Obligations of the Federal National Mortgage Association issued pursuant to the act of Congress of August 2, 1954 (68 Stat. 612), and its amendments and supplements.

(6) Banks for cooperatives. - Obligations of the Central Bank for Cooperatives and consolidated obligations of the Central Bank for Cooperatives, and the regional banks for cooperatives issued pursuant to the provisions of the act of Congress of June 16 1933, known as the "Farm Credit Act of 1933" (48 Stat. 257), and its amendments and supplements heretofore or hereafter enacted.

(7) Tennessee Valley Authority. - Obligations issued, assumed or guaranteed by the Tennessee Valley Authority.

§ 7305. Obligations of Pennsylvania governmental organizations.

Obligations of the following Pennsylvania governmental organizations shall be authorized investments:

(1) General State Authority and other State authorities. - Obligations issued by The General State Authority and other authorities created by the General Assembly of the Commonwealth of Pennsylvania, for the payment of which faith and credit of the authority is pledged.

(2) Housing authorities.- Obligations of any housing authority issued pursuant to the laws of the Commonwealth relating to the creation or operation of housing authorities.

(3) Pennsylvania Housing Agency.- Bonds and notes of the Pennsylvania Housing Agency created by the "Housing Agency Law."

(4) Municipality authorities.- Obligations of any municipality authority issued pursuant to the laws of the Commonwealth relating to the creation or operation of municipality authorities, if the obligations are not in default and if the project for which the obligations were issued is under lease to a school district or school districts, or if the obligations are not in default and if the project for which the obligations were issued is under lease to a municipality or municipalities or subject to a service contract with a municipality or municipalities, pursuant to which the authority will receive lease rentals or service charges available for fixed charges on the obligations, which will average not less than one and one-fifth times the average annual fixed charges of such obligations over the life thereof, or if the obligations are not in default and if for the period of five fiscal years next preceding the date of acquisition, the income of such authority available for fixed charges has averaged not less than one and one-fifth times its average annual fixed charges of such obligations over the life of such obligations. As used in this clause, the term "income available for fixed charges" shall mean income after deducting operating and maintenance expenses, and, unless the obligations are payable in serial, annual maturities, or are supported by annual sinking fund payments, depreciation, but excluding extraordinary nonrecurring items of income or expenses; and the term "fixed charges" shall include principal, both maturity and sinking fund, and interest on bonded debt. In computing such income available for fixed charges for the purposes of this paragraph, the income so available of any corporation acquired by any municipality authority may be included, such income to be calculated as though such corporation has been operated by a municipality authority and an equivalent amount of bonded debt were outstanding. The eligibility for investment purposes of obligations of each project of a municipality authority shall be separately considered hereunder.

(5) Parking authorities, public auditorium authorities, and port authorities.- Obligations of any parking authority, public auditorium authority, or port authority issued pursuant to the Parking Authority Law, the Public Auditorium Authorities Law or the Second Class County Port Authority Act, as the same have been heretofore or may be hereafter amended, if the obligations are not in default and if the project or facility for which the obligations were issued is under lease to a municipality or municipalities or is subject to a service contract or grant contract with a municipality or municipalities, and if the term of such lease or contract is not less than the term of the final maturity of the obligations, and if the authority will receive or is entitled to receive under such lease or contract annual rentals, service charges, or grants available for fixed charges on such obligations of not less than the average annual fixed charges on such obligations over the life thereof, or if the obligations are not in default, and if for the period of five fiscal years next preceding the date of acquisition the income of such authority available for fixed charges has averaged not less than one and one-fifth times its average annual fixed charges of such obligation over the life of such obligations. As used in this paragraph, the term "income available for fixed charges" shall mean income after deducting operating and maintenance expenses and, unless the obligations are payable in serial, annual maturities, or are supported by annual sinking fund payments, depreciation, but excluding extraordinary nonrecurring items of income or expenses, and the term "fixed charges" shall include principal, both maturity and sinking fund, and interest on bonded debt.

(6) Delaware River Joint Commission. - Obligations of the Delaware River Joint Commission issued pursuant to the act of June 12, 1931 (P.L.575, No.200), and its amendments and supplements heretofore or hereafter enacted.

(7) Delaware River Joint Toll Bridge Commission. - Obligations of the Delaware River Joint Toll Bridge Commission issued pursuant to the act of June 25, 1931 (P.L. 1352, No.332), and its amendments and supplements heretofore or hereafter enacted.

(8) Delaware Tunnel Board. - Obligations issued by or with the approval of the Delaware Tunnel Board pursuant to the act of July 8, 1947 (P.L.1452, No.561), and its amendments and supplements heretofore or hereafter enacted.

(9) Pennsylvania Turnpike Commission. - Obligations of the Pennsylvania Turnpike Commission issued pursuant to:

(i) the act of May 2l, 1937 (P.L.774, No.211);

(ii) the Pennsylvania Turnpike Philadelphia Extension Act of May 16, 1940 (Spec.Sess. P.L.949, No. 11); and

(iii) the Western Pennsylvania Turnpike Extension Act of June 11, 1941 (P.L.101, No.53); and the amendments and supplements of each heretofore or hereafter enacted.

(10) Pennsylvania Parkway Commission. - Obligations of the Pennsylvania Parkway Commission, issued pursuant to the act of July 16, 1941 (P. L. 386, No. 149), and its amendments and supplements heretofore or hereafter enacted.

(11) Redevelopment authorities. - Obligations of any redevelopment authority issued pursuant to the laws of the Commonwealth relating to the creation or operation of redevelopment authorities.

(12) The Pennsylvania State University. - Obligations of The Pennsylvania State University.

(13) Municipalities issuing nondebt revenue bonds. - Obligations issued pursuant to subdivision (b) of Article VI of the act of June 25, 1941 (P.L.159, No.87), known as the "Municipal Borrowing Law," and its amendments, if the obligations are not in default and if, for the period of five fiscal years next preceding the date of acquisition the income of the municipality issuing such obligations from the facility from which revenues are pledged for the payment for such obligations, available for fixed charges has averaged not less than one and one-fifth times the average annual fixed charges of such obligations over the life of such obligations. As used in this paragraph, the term "income available for fixed charges" shall mean income after deducting operating and maintenance expenses, and, unless the obligations are payable in serial, annual maturities, or are supported by annual sinking fund payments, depreciation, but excluding extraordinary nonrecurring items of income or expenses; and the term "fixed charges" shall include principal, both maturity and sinking fund, and interest on bonded debt.

§ 7306. Obligations of governmental organizations existing pursuant to the laws of Pennsylvania, other states and the District of Columbia.

Obligations of any authority, commission or similar governmental organization existing pursuant to the laws of this Commonwealth or the laws of any other state or of the District of Columbia shall be authorized investments if purchased or retained in the exercise of that degree of judgment and care, under circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income to be derived therefrom as well as the probable safety of their capital. The authorization to make and retain investments pursuant to this section shall be in addition to, and independent of, authorizations to make investments pursuant to other provisions of this chapter and requirements applicable under other provisions of this chapter shall not affect investments also authorized by this section.

§ 7307. Corporate bonds.

(a) In general. - Any interest-bearing obligation, including bonds, notes, debentures, and car-trust certificates, issued, guaranteed, or assumed by, a corporation organized under the laws of the United States, of any commonwealth or state thereof, or of the District of Columbia, shall be an authorized investment if purchased or retained in the exercise of that degree of judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income to be derived therefrom as well as the probable safety of their capital.

(b) Definition. - As used in this section "corporation" shall include a voluntary association, a joint-stock association or company, a business trust, a Massachusetts trust, a common-law trust, a municipal or quasi-municipal corporation by whatever name called, and any other organization organized and existing for any lawful purpose and which, like a corporation, continues to exist notwithstanding changes in the personnel of its members or participants, and conducts its affairs through a committee, a board, or some other group acting in a representative capacity.

§ 7308. Mortgages.

One or more bonds or other obligations secured by one or more mortgages, or in connection with which the obligor gives one or more mortgages to indemnify the insurer of the obligation, shall be an authorized investment if:

(1) Insured by Federal Housing Administrator. - Insured by the Federal Housing Administrator pursuant to the National Housing Act of June 27, 1934 (48 Stat. 1246), and its amendments and supplements heretofore or hereafter enacted; or

(2) Guaranteed or insured under Federal Servicemen's Readjustment Act. - Guaranteed or insured under the Federal Servicemen's Readjustment Act of June 22, 1944 (58 Stat. 284), and its amendments and supplements heretofore or hereafter enacted: Provided, That at the date of acquisition the guaranty shall be in an amount not less than one-third of the sum invested, or, if an insured mortgage, the insurance shall be in an amount not less than 15% thereof; or

(3) Insured by the Farmers Home Administration, United States Department of Agriculture.- Insured by the Farmers Home Administration, United States Department of Agriculture, pursuant to the Bankhead-Jones Farm Tenant Act of July 22, 1937 (50 Stat. 522), and its amendments and supplements heretofore or hereafter enacted, or pursuant to the act of August 28, 1937 (50 Stat. 869), and its amendments and supplements heretofore or hereafter enacted; or

(4) Other mortgages. - At the date of the acquisition or of any extension of the mortgage it shall meet the following requirements:

(i) Contain an unconditional promise to pay the principal of and interest upon obligations which it secures.

(ii) Be a first lien upon improved real estate situated within the Commonwealth, including improved farm lands, prior to all other liens except the lien of taxes previously levied or assessed but not then payable and except taxes then due or payable or delinquent for the payment of which taxes provision is made in the mortgage settlement.

(iii) The unpaid principal amount of the obligations shall not exceed four-fifths of the fair value of the real estate as fixed by two persons familiar with real estate values in the vicinity who shall have actually inspected it and shall so certify in a written appraisement preserved among the records of the fiduciary.

(iv) The principal debt evidenced by the obligations shall be payable in not more than five years after the date of acquisition by the fiduciary, or be amortized within a period of not exceeding 30 years from the date of the acquisition in substantially equal payments at successive intervals of not more than one year each and in an amount sufficient to pay the principal debt and interest thereon within the term of the loan.

(v) All interest has been paid in full to the next preceding interest payment date.

Nothing in this paragraph shall be construed to be a limitation upon the power of a fiduciary to accept a purchase money obligation in exchange for an asset of the estate or trust upon such terms and conditions and with such security as shall be reasonable under the circumstances.

§ 7309. Fractional interests.

(a) Mortgages. - A fractional interest in an obligation naming a fiduciary as the obligee, secured by one or more mortgages, shall be an authorized investment for an estate of which the fiduciary is sole fiduciary or co-fiduciary, if the whole of the obligation would be an authorized investment under the provisions of section 7308 (relating to mortgages). Appraisement, of the real estate subject to the lien of such mortgage or mortgages need not be made concurrently with the acquisition of such fractional interest, if:

(1) it is a fractional interest in a mortgage referred to in section 7308(1) or (2); or

(2) an appraisement has been made within three years immediately preceding the acquisition, in accordance with the requirements of section 7308(4), and if a person qualified at the time of the acquisition to serve as an appraiser of the real estate shall certify, in a writing to be preserved among the fiduciary's records, that at the date of the acquisition the unpaid principal amount of the obligation does not exceed four-fifths of the fair value of the real estate.

(b) Government obligations. - A fractional interest in a governmental obligation, the whole of which would be an authorized investment under section 7303, whether it be in bearer form or names the fiduciary as the obligee, shall be an authorized investment for an estate of which the fiduciary is sole fiduciary or co-fiduciary.

§ 7310. Stocks.

(a) Preferred and common stock.- Preferred and common stock of any corporation organized under the laws of the United States or of any commonwealth or state thereof, or of the District of Columbia, shall be an authorized investment if purchased or retained in the exercise of that degree of judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income to be derived therefrom as well as the probable safety of their capital.

"Corporation" as used in this subsection shall include an investment company (as hereinafter defined), a voluntary association, a joint-stock association or company, a business trust, a Massachusetts trust, a common-law trust, and any other organization organized and existing for any lawful purpose and which, like a corporation, continues to exist notwithstanding changes in the personnel of its members or participants, and conducts its affairs through a committee, a board, or some other group acting in a representative capacity.

"Investment company" as used in this subsection shall mean a corporation (as defined in this subsection) which is registered as an investment company under the Federal Investment Company Act of 1940, as from time to time amended, and which has no preferred stock, bonds, loans or, any other outstanding securities having preference or priority as to assets or earnings over its common stock and which shall have net assets of not less than $10,000,000 at the date of purchase.

"Common stock" as used in this subsection shall include the stock certificates, certificates of beneficial interests or trust participation certificates issued by any corporation or unincorporated association included under the definition of "corporation" in this subsection.

(b) Savings accounts insured by Federal savings and loan insurance corporation. - Savings accounts of any savings association incorporated under the laws of the Commonwealth, or of any Federal savings and loan association incorporated under the laws of the United States shall be an authorized investment if the withdrawal or repurchase value thereof is insured by the Federal savings and loan insurance corporation pursuant to the act of Congress of June 27, 1934 (48 Stat. 1255), and its supplements and amendments heretofore or hereafter enacted.

§ 7310.1. Further investment authority.

Unless a contrary intent is clearly expressed in the instrument, the authority to invest in specified types of investments will include authorization to invest in the stock of any investment company as defined in this chapter, or in any common or collective trust fund established and maintained by a corporate fiduciary, or by any affiliate of a corporate fiduciary within the meaning of section 1504 of the Internal Revenue Code of 1954 (68A Stat. 3, 26 U.S.C. § 1504), or any successor provision, if the portfolio of the investment company or of the common or collective trust fund consists of such specified types of investments and is otherwise in conformity with the laws of the Commonwealth and of the United States.

§ 7311. Real estate.

Real estate located in Pennsylvania, other than ground rents, shall be an authorized investment if the court, upon petition, aided if necessary by the report of a master, and being of the opinion that the investment will be for the advantage of the estate and that no change will be made in the course of succession by the investment, shall direct such investment.

§ 7312. Ground rent.

A ground rent secured upon unencumbered improved real estate located within the Commonwealth shall be an authorized investment if the reserved annual rent, capitalized at the rate of 5% per annum, shall not exceed four-fifth of the fair value of the real estate out of which it issues, determined by appraisal, as in the case of mortgages.

§ 7313. Interest-bearing deposit.

An interest-bearing deposit in any bank, bank and trust company, savings bank, or national banking association, located within the Commonwealth, shall be an authorized investment if:

(1) the maturity date or the permissible date of withdrawal does not exceed one year from the date of the deposit or any renewal thereof; and

(2) such deposits do not exceed the amount which is fully insured by the Federal Deposit Insurance Corporation, pursuant to the act of Congress of June 16, 1933 (48 Stat. 168), and its supplements and amendments, heretofore or hereafter enacted.

§ 7314. Common trust fund and mortgage investment fund.

Any corporate fiduciary and its co-fiduciary, if any, may invest in:

(1) Common trust fund. - A common trust fund containing only investments authorized for fiduciaries, established and maintained by the corporate fiduciary or by any affiliate of the corporate fiduciary within the meaning of section 1504 of the Internal Revenue Code and otherwise in conformity with the laws of the Commonwealth and of the United States; and

(2) Mortgage investment fund. - A mortgage investment fund containing only mortgages and other investments authorized for fiduciaries, established and maintained by the corporate fiduciary in conformity with the laws of the Commonwealth and of the United States.

§ 7314.1. Mutual funds.

Notwithstanding that a bank or trust company or an affiliate provides services to the investment company or investment trust, including that of an investment advisor, custodian, transfer agent, registrar, sponsor, distributor or manager, and receives reasonable compensation for those services and notwithstanding any other provision of law, a bank or trust company acting as a fiduciary, agent or otherwise may invest and reinvest in the securities of an open-end or closed-end management investment company or investment trust registered under the Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. § 80a-1 et seq.) if the portfolio of the investment company or investment trust consists substantially of investments not prohibited by the governing instrument. With respect to any funds invested, the basis upon which compensation is calculated, expressed as a percentage of asset value or otherwise, shall be disclosed by prospectus, account statement or otherwise to all persons to whom statements of the account are rendered.

§ 7315. Retention of investments.

A fiduciary, if he exercises the same care and prudence as he would in the case of an authorized investment, may retain without liability for resulting loss:

(1) any asset received in kind, even though it is not an authorized investment;

(2) any asset purchased in reliance upon a construction, by the court, of the instrument or a provision contained therein even though the court in a subsequent proceeding adopts a contrary construction thereof; and

(3) shares of stock or other securities (and securities received as distributions in respect thereof) of a holding company subject to the Federal Bank Holding Company Act of 1956, as amended, received upon conversion of, or in exchange for, shares of stock or other securities of a bank or a holding company subject to the Federal Bank Holding Company Act of 1956, as amended, which the fiduciary was directed or authorized to retain, in the instrument establishing the trust or otherwise.

§ 7315. 1. Retention of cash; temporary investments.
(a) Uninvested cash. - A fiduciary may hold cash uninvested:

(1) which he reasonably expects to:

(i) distribute to beneficiaries as income on a quarterly or more frequent basis;

(ii) use for payment of debts, taxes, expenses of administration or reinvestment within the next 90 days; or

(2) when the amount available for investment does not justify the administrative burden of making the investment determined in the light of the facilities available to the fiduciary.

A corporate fiduciary may deposit uninvested funds in its own commercial department.

(b) Temporary investments. - A fiduciary may make temporary investment of funds which he is entitled to hold uninvested or which he wishes to hold in liquid form in short-term interest-bearing obligations or deposits, or other short-term liquid investments, selected in each case in compliance with the standards of section 7302(b) (relating to authorized investments; in general), but without regard to any investment restrictions imposed by the governing instrument and may make a reasonable charge, in addition to all other compensation to which he is entitled, for services rendered in making the temporary investment.

§ 7316. Life insurance, building and loan shares, and similar assets.

A fiduciary receiving in kind a contract of life insurance, stock in a building and loan association, or any similar asset providing for periodic payments, may retain it and continue to make the periodic payments and otherwise comply with the provisions thereof without liability for resulting loss so long as he, in the exercise of due care and prudence, shall consider advisable under the circumstances.

§ 7317. Investments which become unauthorized.

A fiduciary may retain without liability for resulting loss any investment which was authorized when received or made although such investment no longer qualifies as an authorized investment, provided he exercises due care and prudence in the disposition or retention of any such nonlegal investment.

§ 7318. Court direction.

A fiduciary appointed by the court and not acting under a trust instrument, in addition to or in place of the investments authorized by this chapter, may make and retain without liability for resulting loss, such investments as the court, upon petition of the fiduciary or of any party in interest, and after such notice as it shall direct, aided by the report of a master if necessary, shall authorize or direct, subject only to such conditions and limitations as shall be fixed by the court in the decree authorizing or directing the investment.

§ 7319. Directions of testator or settlor.

(a) General rule. - The testator or settlor in the instrument establishing a trust may prescribe the powers, duties and liabilities of the fiduciary regarding the investment or noninvestment of principal and income and the acquisition, by purchase or otherwise, retention, and disposition, by sale or otherwise, of any property which, at any time or by reason of any circumstance, shall come into his control; and whenever any such provision shall conflict with this chapter, such provision shall control notwithstanding this chapter, unless the court having jurisdiction over the trust shall otherwise decree pursuant to subsection (b) of this section. In the absence, however, of an express restriction to the contrary in the trust instrument, the fiduciary may invest in any investment authorized by this chapter.

(b) Exception. - Where the instrument establishing a trust contains a restriction on the fiduciary's power of investment and the court having jurisdiction over the trust finds that adherence to the restriction is impractical or that the existing or reasonably foreseeable economic conditions are so far different from those prevailing at the creation of the trust that adherence to the restriction might deprive the respective beneficiaries of income and principal of the full benefits the testator or settlor intended them to enjoy, the court may release the fiduciary from the restriction to such extent and on such conditions, if any, as the court may deem appropriate.