[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24682]


[[Page Unknown]]

[Federal Register: October 6, 1994]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 344

[Department of the Treasury Circular, Public Debt Series No. 3-72]

 

United States Treasury Certificates of Indebtedness, Treasury 
Notes, and Treasury Bonds--State and Local Government Series

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the 
Treasury.

ACTION: Proposed rule.

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SUMMARY: The Department of the Treasury hereby publishes, for comment, 
a proposed rule governing United States Treasury Certificates of 
Indebtedness, Notes, and Bonds of the State and Local Government 
Series. These securities are available for purchase, as provided in 
this offering, by State and local governments and certain other 
entities with proceeds (or amounts treated as proceeds) which are 
subject to yield restrictions or arbitrage rebate requirements under 
the Internal Revenue Code. The securities are characterized in the 
regulations as time deposit, demand deposit, and special zero interest.
    This proposed rulemaking sets out the regulatory requirements which 
stem from the Department of the Treasury's new processing environment 
for United States Treasury Certificates of Indebtedness, Notes, and 
Bonds of the State and Local Government Series (SLGS).
    The Bureau of the Public Debt is implementing operational and 
regulatory changes expected to benefit investors by providing 
streamlined procedures, a centralized processing facility, and improved 
customer services.

DATES: Comments must be received on or before October 21, 1994.

ADDRESSES: Comments should be sent to: Division of Special Investments, 
Bureau of the Public Debt, 200 Third Street, P.O. Box 1328, 
Parkersburg, West Virginia 26106-1328. Comments received will be 
available for public inspection and copying at the Treasury Department 
Library, FOIA Collection, Room 5030, Main Treasury Building, 1500 
Pennsylvania Avenue, NW., Washington, DC 20220. Persons wishing to 
visit the library should call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Fred Pyatt, Director, Division of 
Special Investments, Bureau of the Public Debt (304) 480-7752, Ed 
Gronseth, Deputy Chief Counsel, or Jim Kramer-Wilt, Attorney-Adviser, 
Office of the Chief Counsel, Bureau of the Public Debt (304) 480-5190.

SUPPLEMENTARY INFORMATION:

I. Background

    The proposed rule is a revision of existing regulations codified at 
31 CFR part 344, published on July 7, 1989, at 54 FR 28752, with 
technical corrections published July 7, 1993, at 58 FR 31908.
    In 1992, the Bureau of the Public Debt established the Division of 
Special Investments at its offices in Parkersburg, West Virginia (WV). 
The primary mission of the Division of Special Investments has been to 
provide policy guidance and direction for the State and Local 
Government Series securities program. The Division has reviewed the 
current processing environment and is implementing operational and 
regulatory changes which are expected to benefit investors in United 
States Treasury securities of the State and Local Government Series by 
providing streamlined procedures, a centralized processing facility, 
and improved customer services.
    In the current processing environment for State and Local 
Government Series securities, the Bureau of the Public Debt has 
authorized selected Federal Reserve Banks or Branches, acting as fiscal 
agents of the United States, to provide services in connection with the 
purchase of, transactions involving, and redemption of, the securities. 
Subscriptions for the purchase of State and Local Government Series 
securities are accepted at designated Federal Reserve Banks or 
Branches, subject to verification by the Bureau of the Public Debt. 
Full payment for each subscription must be available in an account for 
debit by the Federal Reserve Bank or Branch on or before the date of 
issue.
    The current processing environment requires that staffing and 
technical expertise be maintained at 12 designated Federal Reserve 
Banks or Branches to provide unique services in connection with State 
and Local Government Series securities. The Bureau of the Public Debt, 
Office of Securities and Accounting Services, Division of Special 
Investments (hereafter referred to as the Division of Special 
Investments) has determined that the volume of transactions in this 
securities program does not merit the expense of maintaining technical 
expertise at 12 different locations.
    The Bureau of the Public Debt has decided to centralize all 
issuance, funds collection, and accounting functions for the State and 
Local Government Series securities program in the Division of Special 
Investments. The responsibility for these functions will be withdrawn 
from the designated Federal Reserve Banks beginning on a specific issue 
date which will be announced in the final rule. It is anticipated that 
this date will be January 3, 1995.
    After centralization, Federal Reserve Bank or Branch involvement in 
this program will be limited to processing interest and redemption 
payments made through reserve account credits for a very small number 
of existing securities accounts. This method of payment is limited to 
securities for which subscriptions were submitted prior to February 1, 
1987. More than 98% of all interest and redemption payments for State 
and Local Government Series securities are made by the Automated 
Clearing House method (ACH), with credit directed to the owner's 
account at a financial institution.
    Beginning on the effective date of the final rule, subscriptions 
for the purchase of State and Local Government Series securities which 
request issuance on or after a designated date will only be accepted by 
the Division of Special Investments. Full payment for each subscription 
will be submitted by the investor's financial institution on or before 
the issue date utilizing the Fedwire funds transfer system which is 
available throughout the commercial banking industry. It will no longer 
be necessary for investors to deposit the funds in an account subject 
to debit by a Federal Reserve Bank or Branch on or before the date of 
issue.
    This proposed rule change is expected to provide investors in State 
and Local Government Series securities with several benefits. Investors 
will enjoy a higher level of customer service and more consistent 
application of the regulations pertaining to this securities program. 
Investors will be dealing directly with staff in the Division of 
Special Investments who are trained and skilled in the many unique 
aspects of this securities program and whose principal responsibility 
it is to manage the State and Local Government Series securities 
program.
    In addition, United States taxpayers will benefit in terms of the 
reduced costs of operating this securities program which will be 
realized by centralizing operations within the Division of Special 
Investments.
    Because the responsibility for all issuance, funds collection, and 
accounting functions for the State and Local Government Series 
securities program will be withdrawn from the designated Federal 
Reserve Banks and because the Division of Special Investments must 
assume these operations on or about January 3, 1995, the Bureau of the 
Public Debt has determined that a comment period of 15 days is 
necessary. This will allow time for comments to be incorporated in a 
final rule within operational time constraints. Although most of the 
changes in this proposed rule are ministerial in nature (for example, 
changes to increase the use of facsimile transmittals and to provide 
new addresses), proposed changes concerning amending subscriptions 
(Sec. 344.3(b)(3)(iv) and Sec. 344.7(b)) and concerning waivers and 
fees associated with the failure to settle subscriptions (Sec. 344.4(b) 
and Sec. 344.8(b)) merit special attention.
    The Department of the Treasury is also in the process of 
considering the revision of the regulations governing the State and 
Local Government Series securities program, with a view to increasing 
the flexibility of the program. The proposed rule does not include 
these types of changes due to the need to adopt the proposed rule very 
quickly. Changes to the State and Local Government Series securities 
program could include changes in the certification requirements and in 
the rules relating to the redemption of SLGS securities before 
maturity.

II. Section By Section Summary

Subpart A--General Information

    Provisions included in the general information section apply to 
time deposit, demand deposit, and special zero interest State and Local 
Government Series securities. Proposed changes from the 1989 
regulations are as follows:
    (1) Section 344.0--The term ``date telecopied'' for material sent 
by facsimile equipment is defined as the date transmitted as it appears 
on the document received. In the case of other carrier services, the 
term ``date-stamp'' is defined as the date affixed by the carrier 
service upon the carrier's taking receipt of the material.
    (2)-(3) Section 344.1(a) and Section 344.1(b)--The agency's 
Parkersburg, WV, address is substituted for its former Washington, DC, 
address.

Subpart B--Time Deposit Securities

    Time deposit Treasury securities are offered to State and local 
government investors to enable these investors to satisfy yield 
restrictions prescribed by the Internal Revenue Code and regulations. 
Changes from the 1989 regulations are as follows:
    (1) Section 344.2(b)--This section would delete reference to the 
Federal Reserve Banks as a receiving point for initial subscriptions to 
reflect the consolidation of program administration in Parkersburg, WV, 
and would expressly allow for sending of initial subscriptions by 
facsimile equipment (FAX) or other carriers, in addition to postal 
delivery.
    (2) Section 344.2(c)(2)--This section would clarify the authority 
governing Automated Clearing House payments on account of United States 
securities.
    (3) Section 344.2(c)(2)(iii)--This section would clarify that 
fiscal agency checks, rather than Treasury checks, are an alternative 
payment mechanism for securities for which subscriptions were submitted 
prior to February 1, 1987.
    (4) Section 344.3(a)--This section would delete reference to the 
Federal Reserve Banks as the receiving point for subscriptions for 
purchase of securities under this offering, as well as the reference to 
in person delivery to such Banks, to reflect the consolidation of 
program administration in Parkersburg, WV. In addition, this section 
would expressly allow for sending of initial subscriptions by facsimile 
equipment. Whether subscriptions are sent by FAX, mail or other 
carrier, subscribers are encouraged to expedite delivery.
    (5) Section 344.3(b)(1)--This section would permit sending of 
initial subscriptions by facsimile and other carriers. The Bureau of 
the Public Debt is substituted for the Federal Reserve Banks to reflect 
the consolidation of program administration in Parkersburg, WV.
    (6) Section 344.3(b)(3)--The current rule requires that amendments 
to initial subscriptions be filed on or before the issue date. As 
proposed, this section would add a 3 p.m., Eastern time, submission 
deadline. In addition, this section would permit sending of amendments 
to initial subscriptions by facsimile, provided the notification is 
clearly identified as an amendment and is immediately followed by the 
submission by mail or other carrier of written notification of the 
amendment.
    (7) Section 344.3(b)(3)(i)--This section would clarify that an 
amendment to an initial subscription may not change the issue date to 
require issuance earlier than the issue date originally specified. In 
this section, the Bureau of the Public Debt is substituted for the 
Federal Reserve Banks to reflect the consolidation of program 
administration in Parkersburg, WV. The current regulation requires that 
changes under this section be submitted no later than one business day 
before the originally specified issue date. As proposed, this section 
would add a 3 p.m., Eastern time, submission deadline.
    (8) Section 344.3(b)(3)(ii) and (iii)--This section would make 
technical changes required by the addition of new section 
344.3(b)(3)(iv).
    (9) Section 344.3(b)(3)(iv)--This new section would govern 
amendments to initial subscriptions which are not submitted timely. 
Under this proposed new section, where an amendment is not submitted 
timely, the Division of Special Investments may determine, pursuant to 
the provisions governing waiver of regulations set forth under 31 CFR 
306.126, that such an amendment is acceptable on an exception basis. 
Where an amendment is determined to be acceptable on an exception 
basis, the amended information shall be used as the basis for issuing 
the securities, and an administrative fee of $100 per subscription will 
be assessed. The Secretary reserves the right to reject amendments 
which are not submitted timely.
    (10) Section 344.3(c)--In this section, the Bureau of the Public 
Debt is substituted for the Federal Reserve Banks to reflect the 
consolidation of program administration in Parkersburg, WV. The current 
rule requires that a final subscription must be submitted on or before 
the issue date. As proposed, this section would add a 3 p.m., Eastern 
time, submission deadline. In addition, this proposed section is 
updated to reflect sending of a final subscription by facsimile 
equipment.
    (11) Section 344.3(c)(1)--A typographical error in the current 
regulation is corrected.
    (12) Section 344.4--The current section is divided into two parts, 
(a) and (b).
    (13) Section 344.4(a)--This section would require that the issue 
date selected by the subscriber must be a business day and would allow 
for the sending of initial subscriptions by facsimile or other carrier. 
In this section, the Bureau of the Public Debt is substituted for the 
Federal Reserve Banks. The current rule requires investors to make 
payment by having their financial institution deposit funds in a 
reserve account for debit by a Federal Reserve Bank or Branch on or 
before the date of issue. Under the proposed section, full payment for 
each subscription must be submitted utilizing the Fedwire funds 
transfer system.
    (14) Section 344.4(b)--The current regulation provides that any 
subscriber which fails to make settlement on a subscription once 
submitted is ineligible thereafter to subscribe for securities under 
this offering for a period of six months. Under the current regulation, 
the Commissioner of the Public Debt may determine, given the 
circumstances of the case, that the six month penalty need not apply. 
As proposed, the Division of Special Investments may determine to waive 
the six month penalty, pursuant to the provisions governing waiver of 
regulations set forth under 31 CFR 306.126. Where settlement occurs 
after the proposed issue date and the Division of Special Investments 
determines, pursuant to 31 CFR 306.126, that settlement is acceptable 
on an exception basis, the six month penalty will be waived, and the 
subscriber shall be subject to a late payment assessment. The 
assessment will include payment of an amount equal to the amount of 
interest that would have accrued on the securities from the proposed 
issue date to the date of settlement, as well as an administrative fee 
of $100 per subscription. Assessments under this subsection are due on 
demand. Failure to pay an assessment shall render the subscriber 
ineligible thereafter to subscribe for securities under this offering 
until the assessment is paid.
    (15) Section 344.5(b)(2)--This section would add a reference to a 
designated Treasury form and delete a reference to wire as an 
authorized means of submitting notice for redemption prior to maturity. 
The agency's Parkersburg, WV, address is substituted for its former 
Washington, DC, address. This proposed section would allow the notice 
of redemption to be sent by facsimile or by other carriers. The current 
regulation provides that notice of redemption must be received no less 
than 15 calendar days before the requested redemption date. However, 
owners are encouraged to provide as much notice of redemption as 
possible to assure that payment can be timely made. As proposed, this 
section would provide that notice be submitted no less than 15 calendar 
days and no more than 60 calendar days before the requested redemption 
date.
    (16) Section 344.5(b)(3)(ii)--The current regulation states that 
the applicable rate table for determining the ``current borrowing 
rate'' is the one in effect on the day the request for early redemption 
is received or, where mailed, the postmark date. This section would 
clarify that the applicable rate table is the one in effect on the day 
the request for early redemption is telecopied, postmarked, or where 
delivered by other carrier, date-stamped.

Subpart C--Demand Deposit Securities

    The Tax Reform Act of 1986 imposed arbitrage rebate requirements on 
issuers of tax-exempt bonds and directed the Department of the Treasury 
to accommodate such requirements by enabling entities to invest 
qualifying funds in a Treasury money-market type investment vehicle. 
Accordingly, the Department expanded the State and Local Government 
Series program, beginning with its 1986 regulations, to include a 
demand deposit security offering. This security is not treated as 
investment property for purposes of sections 143(g)(3) and 148 of the 
Internal Revenue Code and, therefore, enables eligible entities to 
invest proceeds of tax-exempt bonds in an obligation which avoids the 
earning of arbitrage subject to rebate. Proposed changes from the 
current rule are as follows:
    (1) Section 344.6(c)--A typographical error in the current 
regulation is corrected.
    (2) Section 344.7(a)--A typographical error in the current 
regulation is corrected, and the Bureau of the Public Debt is 
substituted for the Federal Reserve Banks to reflect the consolidation 
of program activities in Parkersburg, WV. The current regulation 
provides that subscriptions must be received under this section at 
least three business days before the issue date, by a 1 p.m., Eastern 
time, deadline. The proposed section would clarify that subscriptions 
may be submitted by certified or registered mail, or by other carrier. 
In addition, the proposed section provides that a subscription may be 
submitted by facsimile equipment, at least three business days before 
the issue date, provided that the original subscription form is 
submitted by mail, or other carrier, and is received by the Bureau of 
the Public Debt by 3 p.m., Eastern time, on the issue date.
    (3) Section 344.7(b)--Current Sec. 344.7(b) is redesignated 
Sec. 344.7(c) and a new Sec. 344.7(b) is added. The current regulation 
provides that the principal amount to be invested may be changed 
without penalty so long as notice is provided by 1 p.m., Eastern time, 
at least one business day before the issue date. The proposed section 
provides that the principal amount to be invested may be changed 
without penalty on or before the issue date, but no later than 1 p.m., 
Eastern time, on the issue date. This section would allow for sending 
of amendments to original subscriptions by facsimile, provided the 
notification is clearly identified as an amendment and is immediately 
followed by the submission, by mail or other carrier, of written 
notification of the amendment. In addition, this section would provide 
that, where an amendment is not submitted timely, the Division of 
Special Investments may determine, pursuant to the provisions governing 
waiver of regulations set forth under 31 CFR 306.126, that such an 
amendment is acceptable on an exception basis. Where an amendment is 
determined to be acceptable on an exception basis, the amended 
information shall be used as the basis for issuing the securities, and 
an administrative fee of $100 per subscription will be assessed. The 
Secretary reserves the right to reject amendments which are not 
submitted timely.
    (4) Section 344.7(c)--Current Sec. 344.7(b) is redesignated as 
Sec. 344.7(c). A typographical error in current Sec. 344.7(b)(5)(vii) 
is corrected.
    (5) Section 344.8--The current section is divided into two parts, 
(a) and (b).
    (6) Section 344.8(a)--In this section, the Bureau of the Public 
Debt is substituted for the Federal Reserve Banks to reflect the 
consolidation of program activities in Parkersburg, WV. The current 
rule requires investors to deposit funds in an account for debit by a 
Federal Reserve Bank or Branch on or before the date of issue. As 
proposed, this section would require that full payment for each 
subscription be submitted utilizing the Fedwire funds transfer system.
    (7) Section 344.8(b)--The current regulation provides that any 
subscriber which fails to make settlement on a subscription once 
submitted is ineligible thereafter to subscribe for securities under 
this offering for a period of six months. Under the current regulation, 
the Commissioner of the Public Debt may determine, given the 
circumstances of the case, that the six month penalty need not apply. 
As proposed, the Division of Special Investments may determine to waive 
the six month penalty, pursuant to the provisions governing waiver of 
regulations set forth under 31 CFR 306.126. Where settlement occurs 
after the proposed issue date and the Division of Special Investments 
determines, pursuant to 31 CFR 306.126, that such settlement is 
acceptable on an exception basis, the six month penalty will be waived, 
and the subscriber shall be subject to a late payment assessment. The 
assessment will include payment of an amount equal to the amount of 
interest that would have accrued on the securities from the proposed 
issue date to the date of settlement, as well as an administrative fee 
of $100 per subscription. Assessments under this subsection are due on 
demand. Failure to pay an assessment shall render the subscriber 
ineligible thereafter to subscribe for securities under this offering 
until the assessment is paid.
    (8) Section 344.9(b)--The Bureau of the Public Debt is substituted 
for the Federal Reserve Banks to reflect the consolidation of program 
activities in Parkersburg, WV. This section would allow for sending of 
the notice of redemption by facsimile or by other carriers. The notice 
must show the account number and the tax identification number of the 
subscriber. Under this proposed section, the notice must be received at 
the Bureau of the Public Debt by 1 p.m., Eastern time, one business day 
prior to the requested redemption date.

Subpart D--Special Zero Interest Securities

    To give investors flexibility in investing certain proceeds that 
may become subject to yield restrictions, a new special zero interest 
security was offered for the first time with the 1989 rule. Under the 
terms of this offering, subscribers are not required to certify that as 
of the date of investment all the proceeds subject to yield 
restrictions are being invested in State and Local Government 
securities. With exceptions, this offering is the same as that for time 
deposit securities. Proposed changes from the 1989 rule are as follows:
    (1) Section 344.13--This section would add a reference to a 
designated Treasury form and delete a reference to wire as an 
authorized means of submitting notice for redemption prior to maturity. 
The agency's Parkersburg, WV, address is substituted for its former 
Washington, DC, address. In addition, the section would allow for 
sending of the notice for redemption by facsimile or by other carriers. 
The current regulation provides that notice of redemption must be 
received no less than 15 calendar days before the requested redemption 
date. However, owners are encouraged to provide as much notice of 
redemption as possible to assure that payment can be timely made. Under 
this proposed section, notice is to be submitted no less than 15 
calendar days and no more than 60 calendar days before the requested 
redemption date.

Procedural Requirements

    It has been determined that this proposed rule is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, an 
assessment of anticipated benefits, costs and regulatory alternatives 
is not required.
    Although this rule is being issued in proposed form to secure the 
benefit of public comment, the rule relates to matters of public 
contract, as well as the borrowing power and fiscal authority of the 
United States. The notice and public procedures requirements of the 
Administrative Procedure Act are inapplicable, pursuant to 5 U.S.C. 
553(a)(2). As no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do 
not apply.
    The collections of information contained in this regulation have 
been previously reviewed and approved by the Office of Management and 
Budget, in accordance with the requirements of the Paperwork Reduction 
Act (44 U.S.C. 3507) under control number 1535-0091. The principal 
purpose of the proposed rule is to change the address of the receiving 
entity. The revision would not impose a new collection of information 
requirement.

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Securities.

    Dated: September 30, 1994.
Gerald Murphy,
Fiscal Assistant Secretary.

    For the reasons set out in the preamble, 31 CFR Chapter II, 
Subchapter B, Part 344 is proposed to be revised to read as follows:

PART 344--REGULATIONS GOVERNING UNITED STATES TREASURY CERTIFICATES 
OF INDEBTEDNESS--STATE AND LOCAL GOVERNMENT SERIES, UNITED STATES 
TREASURY NOTES--STATE AND LOCAL GOVERNMENT SERIES, AND UNITED 
STATES TREASURY BONDS--STATE AND LOCAL GOVERNMENT SERIES

Subpart A--General Information

Sec.
344.0  Offering of securities.
344.1  General provisions.

Subpart B--Time Deposit Securities

344.2  Description of securities.
344.3  Subscription for purchase.
344.4  Issue date and payment.
344.5  Redemption.

Subpart C--Demand Deposit Securities

344.6  Description of Securities.
344.7  Subscription for purchase.
344.8  Issue date and payment.
344.9  Redemption.

Subpart D--Special Zero Interest Securities

344.10  General.
344.11  Description of securities.
344.12  Subscription for purchase.
344.13  Redemption.

Appendix A to Part 344--Early Redemption Market Change Formulas and 
Examples

    Authority: 31 U.S.C. 3102, et seq.

Subpart A--General Information


Sec. 344.0  Offering of securities.

    (a) In order to provide issuers of tax exempt securities with 
investments which allow them to comply with yield restriction and 
arbitrage rebate provisions of the Internal Revenue Code, the Secretary 
of the Treasury offers for sale the following State and Local 
Government Series securities:
    (1) Time deposit securities:
    (i) United States Treasury Certificates of Indebtedness,
    (ii) United States Treasury Notes, and
    (iii) United States Treasury Bonds.
    (2) Demand deposit securities--United States Treasury Certificates 
of Indebtedness.
    (3) Special zero interest securities:
    (i) United States Treasury Certificates of Indebtedness.
    (ii) United States Treasury Notes.
    (b) As appropriate, the definitions of terms used in this Part 344 
are those found in the relevant portions of the Internal Revenue Code 
and regulations. The term ``government body'' refers to issuers of 
State or local government bonds described in section 103 of the 
Internal Revenue Code, as well as to any other entity subject to the 
yield restrictions in sections 141-150 of the Internal Revenue Code, or 
the arbitrage rebate requirements in section 143(g)(3) or 148 of the 
Internal Revenue Code. The term ``postmark date'' refers to the date 
affixed by the U.S. Postal Service, not to a postage meter date. The 
``date telecopied'' for material sent by facsimile equipment is the 
date transmitted as it appears on the document received. The term 
``date-stamp'' refers to the date affixed by the carrier service upon 
the carrier's taking receipt of the material.
    (c) This offering will continue until terminated by the Secretary 
of the Treasury.


Sec. 344.1  General provisions.

    (a) Regulations. United States Treasury State and Local Government 
Series securities shall be subject to the general regulations with 
respect to United States securities, which are set forth in the 
Department of the Treasury Circular No. 300 (31 CFR part 306), to the 
extent applicable. Copies of the circular may be obtained from the 
Bureau of the Public Debt, Forms Management--Room 301, 200 Third 
Street, PO Box 396, Parkersburg, WV 26102-0396, or a Federal Reserve 
Bank or Branch.
    (b) Issuance. The securities will be issued in book-entry form on 
the books of the Department of the Treasury, Bureau of the Public Debt, 
Parkersburg, WV 26102-0396. Transfer of securities by sale, exchange, 
assignment or pledge, or otherwise will not be permitted.
    (c) Transfers. Securities held in an account of any one type, i.e., 
time deposit, demand deposit, or special zero interest, may not be 
transferred within that account or to an account of any other type.
    (d) Fiscal agents. Selected Federal Reserve Banks and Branches, as 
fiscal agents of the United States, may be designated to perform such 
services as may be requested of them by the Secretary of the Treasury 
in connection with the purchase of, transactions involving, and 
redemption of, the securities.
    (e) Authority of subscriber. Where a commercial bank submits an 
initial or final subscription on behalf of a government body, it must 
certify that it is acting under the latter's specific authorization; 
ordinarily, evidence of such authority will not be required. 
Subscriptions submitted by an agent other than a commercial bank must 
be accompanied by evidence of the agent's authority to act. Such 
evidence must describe the nature and scope of the agent's 
authorization, must specify the legal authority under which the agent 
was designated, and must relate by its terms to the investment action 
being undertaken. Subscriptions unsupported by such evidence will not 
be accepted.
    (f) Reservations. Transaction requests, including requests for 
subscription and redemption, will not be accepted if unsigned, 
inappropriately completed, or not timely submitted. The Secretary of 
the Treasury reserves the right:
    (1) To reject any application for the purchase of securities under 
this offering;
    (2) To refuse to issue any such securities in any case or any 
class(es) of cases; and
    (3) To revoke the issuance of any security, and to declare the 
subscriber ineligible thereafter to subscribe for securities under this 
offering, if any security is issued on the basis of an improper 
certification or other misrepresentation by the subscriber, other than 
as the result of an inadvertent error, if the Secretary deems such 
action to be in the public interest.
    (4) Any of these actions shall be final. The authority of the 
Secretary to waive regulations under 31 CFR 306.126 applies to this 
Part 344.
    (g) Debt limit contingency. The Department of the Treasury reserves 
the right to change or suspend the terms and conditions of this 
offering, including provisions relating to subscriptions for, and 
issuance of, securities, interest payments, redemptions, and rollovers, 
as well as notices relating hereto, at any time the Secretary 
determines that issuance of obligations sufficient to conduct the 
orderly financing operations of the United States cannot be made 
without exceeding the statutory debt limit. Announcement of such 
changes shall be provided by such means as the Department deems 
appropriate.

(Approved by the Office of Management and Budget under control 
number 1535-0091)

Subpart B--Time Deposit Securities


Sec. 344.2  Description of securities.

    (a) Terms.
    (1) Certificates of Indebtedness. The certificates will be issued 
in a minimum amount of $1,000, or in any larger amount, in multiples of 
$100, with maturity periods fixed by the government body, from 30 
calendar days up to and including one year, or for any intervening 
period.
    (2) Notes. The notes will be issued in a minimum amount of $1,000, 
or in any larger amount, in multiples of $100, with maturity periods 
fixed by the government body, from one year and one day up to and 
including 10 years, or for any intervening period.
    (3) Bonds. The bonds will be issued in a minimum amount of $1,000, 
or in any larger amount, in multiples of $100, with maturity periods 
fixed by the government body, from 10 years and one day up to and 
including 30 years, or for any intervening period.
    (b) Interest rate. Each security shall bear such rate of interest 
as the government body shall designate, but the rate shall not exceed 
the maximum interest rate. The applicable maximum interest rates for 
each day shall equal rates shown in a table (Form PD 4262), which will 
be released to the public by 10 a.m., Eastern time, each business day. 
If the Treasury finds that due to circumstances beyond its control the 
rates will not be available to the public by 10 a.m., Eastern time, on 
any given business day, it will provide an immediate announcement of 
that fact and advise that the applicable interest for the last 
preceding business day shall apply. The applicable rate table for any 
subscription is the one in effect on the date the initial subscription 
is telecopied, if transmitted by facsimile equipment, postmarked, if 
mailed, or carrier date-stamped, if the initial subscription is 
delivered by other carrier. Subscriptions telecopied, postmarked, or 
date-stamped on a non-business day will be subject to those interest 
rates which are in effect for the next business day. The rates 
specified in the tables are one-eighth of one percent below the then 
current estimated Treasury borrowing rate for a security of comparable 
maturity.
    (c) Payment.
    (1) Interest computation and payment dates. Interest on a 
certificate will be computed on an annual basis and will be paid at 
maturity with the principal. Interest on a note or bond will be paid 
semiannually. The subscriber will specify the first interest payment 
date, which must occur any time between 30 days and one year of the 
date of issue, and the final interest payment date must coincide with 
the maturity date of the security. Interest for other than a full 
semiannual interest period is computed on the basis of a 365-day or 
366-day year (for certificates) and on the basis of the exact number of 
days in the half-year (for notes and bonds). See appendix to subpart E 
of part 306 of this chapter for rules regarding computation of 
interest.
    (2) Method of payment. For securities for which subscriptions are 
submitted on or after February 1, 1987, payment will only be made by 
the Automated Clearing House method (ACH) for the owner's account at a 
financial institution designated by the owner. To the extent 
applicable, provisions of Sec. 357.26 on ``Payments,'' as set forth in 
31 CFR part 357 and provisions of 31 CFR part 370, shall govern ACH 
payments made under this offering. For securities for which 
subscriptions were submitted prior to February 1, 1987, payment will be 
made:
    (i) By a direct credit to a Federal Reserve Bank or Branch for the 
account of the financial institution servicing the investor; or
    (ii) By ACH for the owner's account at a financial institution; or
    (iii) By fiscal agency check; or
    (iv) In accordance with other prior arrangements made by the 
subscriber with the Bureau of the Public Debt.


Sec. 344.3  Subscription for purchase.

    (a) Subscription requirements. Subscriptions for purchase of 
securities under this offering must be submitted to the Division of 
Special Investments, Bureau of the Public Debt, 200 Third Street, PO 
Box 396, Parkersburg, WV 26102-0396. Initial and final subscriptions 
may be submitted by facsimile equipment at (304) 480-6818, by mail, or 
by other carrier. All subscriptions submitted by mail, whether initial 
or final, should be sent by certified or registered mail.
    (b) Initial subscriptions. (1) An initial subscription, either on a 
designated Treasury form or in letter form, stating the principal 
amount to be invested and the issue date, must be telecopied, 
postmarked, or where delivered by other carrier, must be date-stamped 
at least 15 calendar days before issue date. For example, if the 
securities are to be issued on March 16, the subscription must be 
telecopied, postmarked, or date-stamped no later than March 1. If the 
initial subscription is in letter form, it should read substantially as 
follows:

To: Bureau of the Public Debt

    Pursuant to the provisions of Department of the Treasury Circular, 
Public Debt Series No. 3-72, current revision, the undersigned hereby 
subscribes for United States Treasury Time Deposit Securities--State 
and Local Government Series, to be issued as entries on the books of 
the Bureau of the Public Debt, Department of the Treasury, in the total 
amount and with the issue date shown below, which date is at least 15 
calendar days after the date of this subscription:
Principal Amount
$---------------------------------------------------------------------
Issue Date
----------------------------------------------------------------------

    The undersigned agrees that the final subscription and payment will 
be submitted on or before the issue date.
(Tax I.D. Number of State or local government body or other entity 
eligible to purchase State and Local Government Series securities)

(Name of State or local government body or other entity eligible to 
purchase State and Local Government Series securities)

----------------------------------------------------------------------
(Date)

by---------------------------------------------------------------------
(Signature and Title)

    (2) The provisions set out in paragraph (e) of Sec. 344.1, dealing 
with the authority of the subscriber to act on behalf of a government 
body, and in Sec. 344.4, relating to the failure to complete a 
subscription, apply to initial, as well as final subscriptions.
    (3) An initial subscription may be amended on or before the issue 
date, but no later than 3 p.m., Eastern time, on the issue date. 
Notification may be telecopied by facsimile equipment to the Bureau of 
the Public Debt at (304) 480-6818 provided the request is clearly 
identified as an amendment and is immediately followed by the 
submission, by mail or other carrier, of written notification. 
Amendments to initial subscriptions are acceptable with the following 
exceptions:
    (i) The issue date may not be changed to require issuance earlier 
than the issue date originally specified or to require issuance more 
than seven calendar days later than originally specified. If such 
change is made, notification should be provided to the Bureau of the 
Public Debt as soon as possible, but no later than 3 p.m., Eastern 
time, one business day before the originally specified issue date;
    (ii) The aggregate amount may not be changed by more than the ten 
percent limitation set out in paragraph (c) of this section;
    (iii) An interest rate may not be changed to a rate that exceeds 
the maximum interest rate in the table that was in effect on the date 
the initial subscription was submitted; and
    (iv) Where an amendment is not submitted timely, the Division of 
Special Investments may determine, pursuant to the provisions governing 
waiver of regulations set forth under 31 CFR 306.126, that such an 
amendment is acceptable on an exception basis. Where an amendment is 
determined to be acceptable on an exception basis, the amended 
information shall be used as the basis for issuing the securities, and 
an administrative fee of $100 per subscription will be assessed. The 
Secretary reserves the right to reject amendments which are not 
submitted timely.
    (4) No initial subscription will be required where a final 
subscription is received or postmarked at least 15 calendar days before 
the issue date. Such final subscription will be treated as the initial 
subscription for purposes of determining the applicable interest rate 
table (see Sec. 344.2(b)), and may be amended on or before the issue 
date, subject to the exceptions in paragraph (b)(3) of this section.
    (c) Final subscriptions. A final subscription must be received by 
the Bureau of the Public Debt on or before the issue date, but no later 
than 3 p.m., Eastern time, on the issue date. The final subscription 
may be telecopied by facsimile equipment to the Bureau of the Public 
Debt at (304) 480-6818 provided the facsimile is properly identified as 
a final subscription and is immediately followed by the submission of 
the original subscription form by mail or other carrier. The final 
subscription must be for a total principal amount that is no more than 
ten percent above or below the aggregate principal amount specified in 
the initial subscription. The final subscription, dated and signed by 
an official authorized to make the purchase and showing the taxpayer 
identification number of the beneficial owner, must be accompanied by a 
copy of the initial subscription, where applicable. The various 
maturities, interest rates, and semiannual interest payment dates (in 
the case of notes and bonds), must be specified in the final 
subscription, as well as the title(s) of the designated official(s) 
authorized to request early redemption. Final subscriptions submitted 
for certificates, notes and bonds must separately itemize securities of 
each maturity and each interest rate. The final subscription must 
contain a certification by the subscriber that, as of the date of 
investment (without regard to any temporary period of no longer than 30 
days):
    (1) The total investment consists only of proceeds (including 
amounts treated as proceeds) of a tax-exempt bond issue which are 
subject to yield restrictions under sections 141-150 of the Internal 
Revenue Code during the entire period of investment;
    (2) The total investment is not less than all of such proceeds 
except for--
    (i) An amount not to exceed $100, and
    (ii) Amounts required for payment due less than 30 days from the 
date of issue;
    (3) None of the proceeds submitted in payment is derived (directly 
or indirectly) from the redemption before maturity of other securities 
of the State and Local Government Series; and
    (4)(i) No portion of the investment is being made (directly or 
indirectly) with amounts that are to be used to discharge a tax-exempt 
bond issue and that are derived or are to be derived (directly or 
indirectly) from the sale of escrowed open market securities, the 
proceeds of which were to be used to discharge a tax-exempt bond issue; 
or
    (ii) Although a portion of the investment is being made (directly 
or indirectly) with amounts that are to be used to discharge a tax-
exempt bond issue and that are derived or are to be derived (directly 
or indirectly) from the sale of escrowed open market securities, the 
proceeds of which were to be used to discharge a tax-exempt bond issue, 
the composite yield to maturity of all investments being purchased with 
such amounts does not exceed the composite yield to maturity of the 
securities that were sold, based on the price at which they were sold.
    (5) Where proceeds are subject to yield restrictions for a limited 
period of time, under paragraph (c)(1) of this section, no investment 
of such proceeds beyond such period may be made. For example, if a 
reserve fund of a refunding issue is subject to yield restrictions for 
a period of four years, the securities purchased as an investment of 
the reserve fund may not have a maturity longer than four years. With 
respect to obligations described in section 103 of the Internal Revenue 
Code issued after January 31, 1987, paragraph (c)(2) of this section is 
satisfied only if on the date of investment, all the proceeds of the 
issue which are subject to yield restrictions are invested in State and 
Local Government Series securities. Paragraph (c)(2) of this section 
does not apply to purpose investments, such as mortgage notes or 
student loan obligations. Transferred proceeds of the tax exempt bond 
issue that were proceeds of another issue shall not be treated as 
proceeds for purposes of paragraph (c)(2) of this section if no portion 
of the total investment consists of such proceeds. See Sec. 344.1(f) as 
to improper certifications.

(Approved by the Office of Management and Budget under control 
number 1535-0091)


Sec. 344.4  Issue date and payment.

    (a) General. The subscriber shall fix the issue date of each 
security in the initial subscription. The issue date must be a business 
day and may not exceed by more than 60 calendar days either the date 
the initial subscription was telecopied to the Bureau of the Public 
Debt or, where mailed, the postmark date, or where delivered by other 
carrier, the carrier date-stamp thereof. Full payment for each 
subscription must be submitted by the Fedwire funds transfer system 
with credit directed to the Treasury's General Account. Full payment 
should be submitted by 3 p.m., Eastern time, to ensure that settlement 
on the securities occurs on the date of issue.
    (b) Noncompliance. The penalty imposed on any subscriber which 
fails to make settlement on a subscription once submitted shall be to 
render the subscriber ineligible thereafter to subscribe for securities 
under this offering for a period of six months, beginning on the date 
the subscription is withdrawn or the proposed issue date, whichever 
occurs first. The Division of Special Investments may determine to 
waive the six month penalty, pursuant to the provisions governing 
waiver of regulations set forth under 31 CFR 306.126. Where settlement 
occurs after the proposed issue date and the Division of Special 
Investments determines, pursuant to 31 CFR 306.126, that settlement is 
acceptable on an exception basis, the six month penalty will be waived, 
and the subscriber shall be subject to a late payment assessment. The 
assessment will include payment of an amount equal to the amount of 
interest that would have accrued on the securities from the proposed 
issue date to the date of settlement, as well as an administrative fee 
of $100 per subscription. Assessments under this subsection are due on 
demand. Failure to pay an assessment shall render the subscriber 
ineligible thereafter to subscribe for securities under this offering 
until the assessment is paid.

(Approved by the Office of Management and Budget under control 
number 1535-0091)


Sec. 344.5  Redemption.

    (a) General. A security may not be called for redemption by the 
Secretary of the Treasury prior to maturity. Upon the maturity of a 
security, the Department will make payment of the principal amount and 
interest due to the owner thereof. A security scheduled for redemption 
on a non-business day will be redeemed on the next business day.
    (b) Before maturity.
    (1) In general. A security may be redeemed at the owner's option no 
earlier than 25 calendar days after the issue date in the case of a 
certificate, and one year after the issue date in the case of a note or 
bond. Partial redemptions may be requested in multiples of $100; 
however, an account balance of less than $1,000 will be redeemed in 
total.
    (2) Notice. Notice of redemption prior to maturity must be 
submitted, either on a designated Treasury form or by letter, by the 
official(s) authorized to redeem the securities, as shown on the final 
subscription form, to the Division of Special Investments, Bureau of 
the Public Debt, 200 Third Street, PO Box 396, Parkersburg, WV 26102-
0396. The notice may be submitted by facsimile equipment to the Bureau 
of the Public Debt at (304) 480-6818, by mail, or by other carrier. The 
notice must show the account number, the maturities of the securities 
to be redeemed, and the tax identification number of the subscriber. 
The notice of redemption must be telecopied, postmarked, or where 
delivered by other carrier, must be date-stamped no less than 15 
calendar days before the requested redemption date, but no more than 60 
calendar days before the requested redemption date. A notice of 
redemption prior to maturity may not be cancelled.
    (3) Redemption proceeds--Subscriptions on or after September 1, 
1989. For securities subscribed for on or after September 1, 1989, the 
amount of the redemption proceeds is calculated as follows:
    (i) Interest. If a security is redeemed before maturity on a date 
other than a scheduled interest payment date, interest will be paid for 
the fractional interest period since the last interest payment date.
    (ii) Market charge. An amount shall be deducted from the redemption 
proceeds in all cases where the current borrowing rate of the 
Department of the Treasury for the remaining period to original 
maturity of the security prematurely redeemed exceeds the rate of 
interest originally fixed for such security. The amount shall be the 
present value of the future increased borrowing cost to the Treasury. 
The annual increased borrowing cost for each interest period is 
determined by multiplying the principal by the difference between the 
two rates. For notes and bonds, the increased borrowing cost for each 
remaining interest period to original maturity is determined by 
dividing the annual cost by two. For certificates, the increased 
borrowing cost for the remaining period to original maturity is 
determined by multiplying the annual cost by the number of days 
remaining until original maturity divided by the number of days in the 
calendar year. Present value shall be determined by using the current 
borrowing rate as the discount factor. The term ``current borrowing 
rate'' means the applicable rate shown in the table of maximum interest 
rates payable on United States Treasury securities--State and Local 
Government Series--for the day the request for early redemption is 
telecopied, postmarked, or where delivered by other carrier, date-
stamped, plus one-eighth of one percentage point. Where redemption is 
requested as of a date less than 30 calendar days before the original 
maturity date, such applicable rate is the rate shown for a security 
with a maturity of 30 days. The market charge for bonds, notes, and 
certificates of indebtedness can be computed by use of the formulas in 
Appendix A to this part.
    (4) Redemption proceeds--Subscriptions from December 28, 1976 
through August 31, 1989. For securities subscribed for from December 
28, 1976 through August 31, 1989, the amount of the redemption proceeds 
is calculated as follows:
    (i) Interest. Interest for the entire period the security was 
outstanding shall be recalculated on the basis of the lesser of the 
original interest rate at which the security was issued, or the 
interest rate that would have been set at the time of the initial 
subscription had the term for the security been for the shorter period. 
If a note or bond is redeemed before maturity on a date other than a 
scheduled interest payment date, no interest will be paid for the 
fractional interest period since the last interest payment date.
    (ii) Overpayment of interest. If there have been overpayments of 
interest, as determined under paragraph (b)(4)(i) of this section, 
there shall be deducted from the redemption proceeds the aggregate 
amount of such overpayments, plus interest, compounded semiannually, 
thereon from the date of each overpayment to the date of redemption. 
The interest rate to be used in calculating the interest on the 
overpayment shall be one-eighth of one percent above the maximum rate 
that would have applied to the initial subscription had the term of the 
security been for the shorter period.
    (iii) Market charge. An amount shall be deducted from the 
redemption proceeds in all cases where the current borrowing rate of 
the Department of the Treasury for the remaining period to original 
maturity of the security prematurely redeemed exceeds the rate of 
interest originally fixed for such security. The amount shall be 
calculated using the formula in paragraph (b)(3)(ii) of this section.
    (5) Redemption proceeds--Subscriptions on or before December 27, 
1976. (i) For securities subscribed for on or before December 27, 1976, 
the amount of the redemption proceeds is calculated as follows.
    (ii) The interest for the entire period the security was 
outstanding shall be recalculated on the basis of the lesser of the 
original interest rate at which the security was issued, or an adjusted 
interest rate reflecting both the shorter period during which the 
security was actually outstanding and a penalty. The adjusted interest 
rate is the Treasury rate which would have been in effect on the date 
of issuance for a marketable Treasury certificate, note, or bond 
maturing on the quarterly maturity date prior to redemption (in the 
case of certificates), or on the semiannual maturity period prior to 
redemption (in the case of notes and bonds), reduced in either case by 
a penalty which shall be the lesser of:
    (A) One-eighth of one percent times the number of months from the 
date of issuance to original maturity, divided by the number of full 
months elapsed from the date of issue to redemption, or
    (B) One-fourth of one percent.

There shall be deducted from the redemption proceeds, if necessary, any 
overpayment of interest resulting from previous payments made at a 
higher rate based on the original longer period to maturity.

(Approved by the Office of Management and Budget under control 
number 1535-0091)

Subpart C--Demand Deposit Securities


Sec. 344.6  Description of securities.

    (a) Terms. The securities are defined as one-day certificates of 
indebtedness. The securities will be issued in a minimum of $1,000 and 
any increment above that amount. Each subscription will be established 
as a unique account. Securities will be automatically rolled over each 
day unless redemption is requested.
    (b) Interest rate. (1) Each security shall bear a variable rate of 
interest based on an adjustment of the average yield for three-month 
Treasury bills at the most recent auction. A new rate will be effective 
on the first business day following the regular auction of three-month 
Treasury bills and will be shown in the table (Form PD 4262), available 
to the public on such business day. Interest will be accrued and added 
to the principal daily. Interest will be computed on the balance of the 
principal, plus interest accrued through the immediately preceding day.
    (2)(i) The annualized effective demand deposit rate in decimals, 
designated ``I'' in Equation 1 is calculated as:

I=[(100/P)Y/DTM-1] (1-MTR)-TAC
(Equation 1)
where
P=The average auction price for the Treasury bill, per hundred, to 
three decimal places.
Y=365 if the year following issue date does not contain a leap year day 
and 366 if it does contain a leap year day.
DTM=The number of days from date of issue to maturity for the auctioned 
Treasury bill.
MTR=Estimated average marginal tax rate, in decimals, of purchasers of 
short-term tax exempt bonds.
TAC=Treasury administrative costs, in decimals.

    (ii) The daily factor for the demand deposit rate is then 
calculated as:

DDR=(1+I)1/Y-1
(Equation 2)
    (3) Information as to the estimated average marginal tax rate and 
costs for administering the demand deposit State and Local Government 
Series securities program, both to be determined by Treasury from time 
to time, will be published in the Federal Register.
    (c) Payment. Interest earned on the securities will be added to the 
principal and will be reinvested daily until redemption. At any time 
the Secretary determines that issuance of obligations sufficient to 
conduct the orderly financing operations of the United States cannot be 
made without exceeding the statutory debt limit, the Department will 
invest any unredeemed demand deposit securities in special 90-day 
certificates of indebtedness. These 90-day certificates will be payable 
at maturity, but redeemable before maturity, provided funds are 
available for redemption, or reinvested in demand deposit securities 
when regular Treasury borrowing operations resume, both at the owner's 
option. Funds invested in the 90-day certificates of indebtedness will 
earn simple interest equal to the daily factor in effect at the time 
demand deposit security issuance is suspended, multiplied by the number 
of days outstanding.


Sec. 344.7  Subscription for purchase.

    (a) Subscription requirements. Subscriptions for purchase of 
securities under this offering must be submitted to the Division of 
Special Investments, Bureau of the Public Debt, 200 Third Street, PO 
Box 396, Parkersburg, WV 26102-0396. Subscriptions must be submitted on 
a designated Treasury form, must specify the principal amount to be 
invested and the issue date, and must be signed by an official 
authorized to make the purchase. The Bureau of the Public Debt must 
receive the subscription at least three business days before the issue 
date. The subscription may be submitted by certified or registered 
mail, or by other carrier. The subscription may also be submitted by 
facsimile equipment at (304) 480-6818, at least three business days 
before the issue date, provided that the original subscription form is 
submitted by mail, or by other carrier, and is received by the Division 
of Special Investments by 3 p.m., Eastern time, on the issue date.
    (b) Amending subscriptions. The principal amount to be invested may 
be changed without penalty on or before the issue date, but no later 
than 1 p.m. Eastern time, on the issue date. Notification may be 
telecopied by facsimile equipment to the Division of Special 
Investments at (304) 480-6818, provided the request is clearly 
identified as an amendment and is immediately followed by the 
submission, by mail or other carrier, of written notification. Where an 
amendment is not submitted timely, the Division of Special Investments 
may determine, pursuant to the provisions governing waiver of 
regulations set forth under 31 CFR 306.126, that such an amendment is 
acceptable on an exception basis. Where an amendment is determined to 
be acceptable on an exception basis, the amended information shall be 
used as the basis for issuing the securities, and an administrative fee 
of $100 per subscription will be assessed. The Secretary reserves the 
right to reject amendments which are not submitted timely.
    (c) Certification. By completing the subscription form, subscribers 
certify to the following:
    (1) Neither the aggregate issue price nor the stated redemption 
price at maturity of the bonds that are part of the tax-exempt issue 
exceeds $35 million. Issue price and stated redemption price at 
maturity have the meanings given such terms in sections 1273 and 1274 
of the Internal Revenue Code;
    (2) No portion of the tax-exempt bond issue has been or will be 
issued or permitted to remain outstanding, and the expenditure of gross 
proceeds of the tax-exempt bond issue has not and will not be delayed, 
for the principal purpose of investing in demand deposit securities;
    (3) Only eligible gross proceeds of the tax-exempt bond issue have 
been and will be submitted in payment for demand deposit securities. 
Eligible gross proceeds are all gross proceeds of the tax-exempt bond 
issue except--
    (i) Gross proceeds of an advance refunding issue to be used to 
discharge another issue;
    (ii) Gross proceeds accumulated in a reserve or replacement fund 
(other than a bona fide debt service or reasonably required reserve or 
replacement fund); and
    (iii) Solely for purposes of this paragraph (c)(3), gross proceeds 
previously invested at any time pursuant to any exception in paragraph 
(c)(5) of this section, other than paragraph (c)(5)(vi) (Exception 6) 
(relating to amounts of less than $25,000) and paragraph (c)(5)(viii) 
(Exception 8) (relating to inadvertent error).
    (4) At least 25 percent of the eligible gross proceeds received 
from the sale of the tax-exempt bond issue have been or will be 
invested in demand deposit securities within three business days of the 
date of receipt thereof;
    (5) All eligible gross proceeds of the tax-exempt bond issue have 
been and will be invested within four business days of the date of 
receipt thereof in demand deposit securities (principal repayments on 
purpose investments are treated as gross proceeds received on the date 
of repayment). This paragraph (c)(5) shall not apply to gross proceeds 
that are at all times (prior to the date of expenditure thereof) 
invested pursuant to one of the exceptions:
    (i) Exception 1. Gross proceeds that are invested solely in 
investments the earnings on which are not subject to rebate under 
section 148(f) or 143(g)(3) of the Internal Revenue Code (whichever 
applies).
    (ii) Exception 2. Gross proceeds that are invested in obligations 
the earnings on which are not reasonably expected to be subject to 
rebate by reason of section 148(f)(4)(A)(ii) (relating to certain bona 
fide debt service funds) of the Internal Revenue Code or section 
148(f)(4)(B) (relating to exception for temporary investments) of the 
Internal Revenue Code.
    (iii) Exception 3. Gross proceeds that are not reasonably expected 
to be gross proceeds of the tax-exempt bond issue for more than seven 
business days.
    (iv) Exception 4. Gross proceeds that are part of a reasonably 
required reserve or replacement fund (other than a bona fide debt 
service fund) for the tax-exempt bond issue.
    (v) Exception 5. Gross proceeds that are invested in taxable 
obligations, but only if the yield on each obligation (computed 
separately and on the basis of an arm's length purchase price) is no 
higher than the yield on the tax-exempt bond issue.
    (vi) Exception 6. Eligible gross proceeds that are not invested in 
one-day certificates of indebtedness or pursuant to paragraphs 
(c)(5)(i-v) (Exceptions 1 through 5), but only if the total amount of 
such eligible gross proceeds on any particular day is less than 
$25,000. This paragraph (c)(5)(vi) (Exception 6) shall not apply to 
gross proceeds that are part of a reasonably required reserve or 
replacement fund (other than a bona fide debt service fund).
    (vii) Exception 7. Gross proceeds that are not invested pursuant to 
paragraph (c)(5)(iv) (Exception 4) or paragraph (c)(5)(vi) (Exception 
6), and that are invested in any taxable obligation the yield on which 
is higher than the yield on the tax-exempt bond issue, but only if 
taxable obligations described in paragraph (c)(5)(v) (Exception 5), and 
the tax-exempt obligations described in (c)(5)(i) (Exception 1) are not 
available for investment (for example, because market interest rates 
are too high and statutory or indenture restrictions prevent 
investments in tax-exempt obligations).
    (viii) Exception 8. Gross proceeds that are not invested in demand 
deposit securities due to an inadvertent error.
    (6) See Sec. 344.1(f) as to improper certifications.


Sec. 344.8  Issue date and payment.

    (a) General. The subscriber shall fix the issue date on the 
subscription, the issue date to be a business day at least three 
business days after receipt of the subscription by the Division of 
Special Investments. Full payment for each subscription must be 
submitted by the Fedwire funds transfer system with credit directed to 
the Treasury's General Account. Full payment should be submitted by 3 
p.m., Eastern time, to ensure that settlement on the securities occurs 
on the date of issue.
    (b) Noncompliance. The penalty imposed on any subscriber which 
fails to make settlement on a subscription once submitted shall be to 
render the subscriber ineligible thereafter to subscribe for securities 
under this offering for a period of six months, beginning on the date 
the subscription is withdrawn or the proposed issue date, whichever 
occurs first. The Division of Special Investments may determine to 
waive the six month penalty, pursuant to the provisions governing 
waiver of regulations set forth under 31 CFR 306.126. Where settlement 
occurs after the proposed issue date and the Division of Special 
Investments determines, pursuant to 31 CFR 306.126, that settlement is 
acceptable on an exception basis, the six month penalty will be waived, 
and the subscriber shall be subject to a late payment assessment. The 
assessment will include payment of an amount equal to the amount of 
interest that would have accrued on the securities from the proposed 
issue date to the date of settlement, as well as an administrative fee 
of $100 per subscription. Assessments under this subsection are due on 
demand. Failure to pay an assessment shall render the subscriber 
ineligible thereafter to subscribe for securities under this offering 
until the assessment is paid.

(Approved by the Office of Management and Budget under control 
number 1535-0091)


Sec. 344.9  Redemption.

    (a) General. A security may be redeemed at the owner's option, 
provided a request for redemption is received not less than one 
business day prior to the requested redemption date. Partial 
redemptions may be requested; however, an account balance of less than 
$1,000 will be redeemed in total. Payment will be made by crediting the 
reserve account maintained at the Federal Reserve Bank or Branch by the 
financial institution servicing the account owner.
    (b) Notice. Notice of redemption must be submitted, either on a 
designated Treasury form or by letter, by the official(s) authorized to 
redeem the securities, as shown on the subscription form, to the 
Division of Special Investments, Bureau of the Public Debt, 200 Third 
Street, PO Box 396, Parkersburg, WV 26102-0396. The notice may be 
submitted by facsimile equipment to the Bureau of the Public Debt at 
(304) 480-6818, by mail, or by other carrier. The notice must show the 
account number and the tax identification number of the subscriber. The 
notice of redemption must be received at the Bureau of the Public Debt 
by 1 p.m., Eastern time, one business day prior to the requested 
redemption date.
    (c) Certification. By completing the redemption form, subscribers 
certify to the fact that the proceeds to be received will be expended 
within one day of receipt thereof for the purpose for which the tax-
exempt bond was issued.

Subpart D--Special Zero Interest Securities


Sec. 344.10  General.

    Provisions of subpart B of this part (Time Deposit Securities) 
apply except as specified in subpart D of this part.


Sec. 344.11  Description of securities.

    (a) Terms. Only certificates of indebtedness and notes are offered.
    (1) Certificates of Indebtedness. The certificates will be issued 
in a minimum amount of $1,000, or in any larger amount, in multiples of 
$100, with maturity periods fixed by the government body, from 30 
calendar days up to and including one year, or for any intervening 
period.
    (2) Notes. The notes will be issued in a minimum amount of $1,000, 
or in any larger amount, in multiples of $100, with maturity periods 
fixed by the government body, from one year and one day up to and 
including 10 years, or for any intervening period.
    (b) Interest rate. Each security shall bear no interest.


Sec. 344.12  Subscription for purchase.

    In lieu of the certification under Sec. 344.3(c), the final 
subscription must contain a certification by the subscriber that:
    (a) The total investment consists only of original or investment 
proceeds of a tax-exempt bond issue that are subject to yield 
restrictions under sections 141-150 of the Internal Revenue Code;
    (b) None of the original proceeds of the tax-exempt bond issue were 
subject to arbitrage yield restrictions under section 148 of the 
Internal Revenue Code on the date of receipt thereof; and
    (c) None of the proceeds submitted in payment are proceeds of an 
advance refunding issue to be used to discharge another issue or part 
of a reserve or replacement fund for the advance refunding issue.


Sec. 344.13  Redemption.

    (a) General. Provisions of Sec. 344.5(a) apply.
    (b) Before maturity.
    (1) In general. A security may be redeemed at the owner's option no 
earlier than 25 calendar days after the issue date in the case of a 
certificate and one year after the issue date in the case of a note. No 
market charge or penalty shall apply in the case of the redemption of a 
special zero interest security before maturity.
    (2) Notice. Notice of redemption prior to maturity must be 
submitted, either on a designated Treasury form or by letter, by the 
official(s) authorized to redeem the securities, as shown on the final 
subscription form, to the Division of Special Investments, Bureau of 
the Public Debt, 200 Third Street, PO Box 396, Parkersburg, WV 26102-
0396. The notice may be submitted by facsimile equipment to the Bureau 
of the Public Debt at (304) 480-6818, by mail, or by other carrier. The 
notice must show the account number, the maturities of the securities 
to be redeemed, and the tax identification number of the subscriber. 
The notice of redemption must be telecopied, postmarked, or where 
delivered by other carrier, must be date-stamped no less than 15 
calendar days before the requested redemption date, but no more than 60 
calendar days before the requested redemption date. A notice of 
redemption prior to maturity cannot be cancelled.

(Approved by the Office of Management and Budget under control 
number 1535-0091)

Appendix A to Part 344--Early Redemption Market Change Formulas and 
Examples

    A. The amount of the market charge for bonds and notes can be 
determined through use of the following formula:

TP06OC94.000

where
M=market charge
b=increased annual borrowing cost (i.e., principal multiplied by the 
excess of the current borrowing rate for the period from redemption 
to original maturity of note or bond over the rate for the security)
r=number of days from redemption to beginning of next semiannual 
interest period
s=number of days in current semiannual period
i=current borrowing rate for period from redemption to maturity 
(expressed in decimals)
n=number of remaining full semiannual periods to the original 
maturity date

TP06OC94.001


TP06OC94.002

    B. The application of this formula may be illustrated by the 
following example:
    (1) Assume that a $600,000 note is issued on July 1, 1985, to 
mature on July 1, 1995. Interest is payable at a rate of 8% on 
January 1 and July 1.
    (2) Assume that the note is redeemed on February 1, 1989, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 6 years and 150 days is 11%.
    (3) The increased annual borrowing cost is $18,000. 
($600,000)x(11%-8%)
    (4) The market charge is computed as follows:

TP06OC94.003


TP06OC94.004


TP06OC94.005


TP06OC94.006


TP06OC94.007


TP06OC94.008

    C. The amount of the market charge for certificates can be 
determined through use of the following formula:

TP06OC94.009

where
M=market charge
b=increased borrowing cost for full period
r=number of days from redemption date to original maturity date
s=number of days in current annual period (365 or 366)
i=current borrowing rate expressed in decimals (discount factor)

    D. The application of this formula may be illustrated by the 
following example:
    (1) Assume that a $50,000 certificate is issued on March 1, 
1987, to mature on November 1, 1987. Interest is payable at a rate 
of 10%.
    (2) Assume that the certificate is redeemed on July 1, 1987, and 
that the current borrowing cost to Treasury for the 123-day period 
from July 1, 1987, to November 1, 1987, is 11.8%.
    (3) The increased annual borrowing cost is $900. ($50,000-11.8%-
10%)
    (4) The market charge is computed as follows:

TP06OC94.010


TP06OC94.011


TP06OC94.012

[FR Doc. 94-24682 Filed 10-5-94; 8:45 am]
BILLING CODE 4810-39-P