[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Rules and Regulations]
[Pages 55690-55707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27365]



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Part II





Department of the Treasury





_______________________________________________________________________



Fiscal Service



Bureau of the Public Debt



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31 CFR Part 344



Regulations Governing United States Treasury Certificates of 
Indebtedness, Treasury Notes, and Treasury Bonds--State and Local 
Government Series; Final Rule



Demand Deposit Securities of the State and Local Government Series; 
Notice

  Federal Register / Vol. 61, No. 209 / Monday, October 28, 1996 / 
Rules and Regulations  

[[Page 55690]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 344

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


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

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

ACTION: Final rule.

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SUMMARY: The Department of the Treasury hereby publishes a final rule 
governing United States Treasury Certificates of Indebtedness, Notes, 
and Bonds of the State and Local Government Series (SLGS). These 
securities are available for purchase by issuers of state and local 
government bonds described in Section 103 of the Internal Revenue Code 
for proceeds (or amounts treated as proceeds) which are subject to 
yield restrictions or arbitrage rebate requirements of the Income Tax 
regulations under sections 103, 148, 149 and 150 of the Internal 
Revenue Code (tax regulations). This final rule makes the SLGS 
securities program more flexible in a manner consistent with tax policy 
objectives.

DATEs: The regulations are effective October 28, 1996, for securities 
where the subscription is received on or after October 28, 1996 and are 
applicable except that the revised notice period for early redemptions 
applies to all SLGS issues. Subscribers for SLGS securities can 
continue to use the current forms, lining out any obsolete parts, until 
new forms are distributed.

FOR FURTHER INFORMATION CONTACT: Fred Pyatt, Director, or Howard 
Stevens, Supervisory Program Analyst, Division of Special Investments, 
at 304-480-7752 or Ed Gronseth, Deputy Chief Counsel, or Jim Kramer-
Wilt, Attorney/Adviser, Office of the Chief Counsel, at 304-480-5190.

SUPPLEMENTARY INFORMATION:

I. Background

    The Department of the Treasury, Bureau of the Public Debt, is 
attempting to make the SLGS securities program more attractive and 
flexible for State and local government issuers of debt obligations 
that are subject to the arbitrage and rebate rules of the Internal 
Revenue Code. It is the Department's intent to do so in a manner 
consistent with tax policy objectives and in a manner that is cost 
effective.
    In recent years, market participants have advised the Department 
that aspects of the existing SLGS securities regulations impose burdens 
that are not needed or cost effective. On April 30, 1996, the 
Department published an Advanced Notice of Proposed Rulemaking, noting 
ten general changes the Department was considering in order to make the 
SLGS securities program more flexible.
    There were eight letters received commenting on the Advanced Notice 
of Proposed Rulemaking (ANPR). In general, the comments were in favor 
of the ten items contained in the ANPR. Several comments suggested 
specific parameters for some of the ten items while others suggested 
the Treasury Department consider changes not contained in the ANPR.
    On July 26, 1996, the Department published a proposed rule, 
outlining specific changes to the SLGS securities program. There were 
five letters received which provided seven different comments on the 
proposed rule.
    (a) One commenter suggested that the Department consider amending 
31 CFR Sec. 344.2(a)(3) to permit issuing bonds with a maturity period 
exceeding 30 years. The commenter acknowledged that the calculation of 
SLGS securities rates past the 30-year yield curve would be difficult 
and indicated a willingness to accept a 30-year rate for maturities in 
excess of 30 years.
    The Department amended the final rule to permit the issuance of 
bonds with maturities of up to 40 years. The maximum applicable rate 
for securities with a maturity in excess of 30 years is the 30-year 
rate.
    (b) There were four comments received concerning the apparent 
elimination of the ``mailbox rule''. This rule had provided that the 
applicable rate table for any subscription was the one in effect on the 
date the initial subscription was faxed, post-marked or carrier date-
stamped, rather than on the date received under the proposed rule. The 
commenters argued that if a subscriber could not lock in the SLGS rate 
on the pricing date, many issuers will choose open market securities in 
order to lock in the required yield.
    The commenters argued for issuers to have the option to use the 
mailbox rule, rather than the ``actual receipt'' rule. The comments 
suggested that in order to accommodate the Department's need for five 
or seven days notice, the regulations should permit the issuer to lock 
in the maximum interest rate by mailing the initial subscription, so 
long as a copy of the initial subscription form (clearly marked to 
indicate it is a duplicate of the mailed subscription), together with 
proof of mailing is separately sent by means reasonably designed to 
arrive at the Bureau of the Public Debt within the required five/seven 
days notice period.
    The Department considered this suggestion and amended the final 
rule to provide that an issuer can either lock in a SLGS rate with a 
timely fax to the Division of Special Investments, or, if a 
subscription is mailed, it must be received by Public Debt on or before 
the required five/seven day notice period in order to lock in the SLGS 
rate for the day of mailing.
    The Department considers it the responsibility of the subscriber to 
confirm the receipt of any fax sent to Public Debt. The Division of 
Special Investments has multiple fax machines that register the fax 
number of the subscriber, even if a paper jam occurs. Therefore, 
subscribers sending faxed subscriptions after the close of business at 
Public Debt on the last day of the notice period should not have a 
problem getting their fax timely received or getting confirmation the 
next morning. If a failed attempt to subscribe is confirmed the 
following morning, the subscriber can lock in the SLGS rates for the 
previous day by immediately faxing another subscription.
    (c) There were four comments stating that the addition in the 
proposed rule of two new standards under which the Secretary can revoke 
a subscription, 31 CFR Sec. 344.1(f)(3)(ii) and 31 CFR 
Sec. 344.1(f)(3)(iii), are too ambiguous and, unlike non-callable open 
market securities, permit the revocation of a SLGS subscription after 
issuance. One of the commenters suggested that the previous language be 
reinstated and that the regulations require a certification by the 
subscriber that the amounts invested were gross proceeds of a tax-
exempt bond. Another commenter suggested that the authority of the 
Secretary to revoke issuance of SLGS securities be limited to 
circumstances where the issuance of SLGS securities is inconsistent 
with the SLGS regulations and the Secretary determines that revocation 
is in the public interest.
    The Department considered the issues raised by these comments and 
has deleted the language of the proposed regulations and has retained 
the authority of the Secretary to revoke subscriptions for improper 
certifications consistent with the previous regulations. Use of SLGS 
securities in a manner which violates the tax regulations will be dealt 
with under the tax laws.
    (d) Another comment suggested that the Department consider issuing 
zero interest SLGS securities where the

[[Page 55691]]

subscriptions for such securities are received more than 60 days before 
the issue date (the current requirement). The suggestion was that the 
Department extend this period to one year.
    The Department decided that maintaining subscription requests for 
longer than 60 days is an administrative burden and is not including 
this suggestion in the final rule.
    (e) One comment suggested that Public Debt put the daily SLGS 
interest rate table on the World Wide Web.
    Public Debt is currently posting these rates on the Internet at 
ftp://ftp.publicdebt.treas.gov/secrate.txt
    (f) Another comment advised that the terms used in the summary of 
the proposed regulations and the text of the proposed regulations to 
describe amounts which can be invested in SLGS securities are 
inconsistent and create ambiguity.
    The Department considered the suggestion and amended section 
344.0(a) to specify that SLGS can be purchased with any amounts that 
constitute gross proceeds of an issue or any other amounts which assist 
an issuer of tax-exempt bonds in complying with any applicable 
provisions of the Internal Revenue Code relating to such tax exemption.
    (g) The final comment expressed the concern that the requirement 
for a subscriber to provide the employer identification number only for 
the issuer would unfairly penalize issuers in cases where the six-month 
penalty for failure to settle a SLGS securities subscription is due to 
the actions of a conduit borrower.
    The concern of the commenter was that most states and cities have 
loan programs for various purposes such as housing, health care and 
education which service multiple conduit obligors. However, if any one 
conduit obligor's failure to comply could subject all conduit obligors 
under such a program to a six-month freeze-out, then no conduit obligor 
could structure its plan of investment based on the assumption that 
SLGS securities would be available to it as needed.
    The Department decided to amend the language of section 344.1(h) to 
provide that the six-month penalty applies to the government body 
unless the government body provides the Tax Identification Number of 
the conduit borrower to the Department when non-settlement occurs.
    The Department made three additional changes that clarify or 
improve the SLGS securities program.
    (i) In section 344.5(a)(3)(ii), it is now clear that either a 
premium or discount can occur when calculating early redemption value, 
depending on whether the Treasury borrowing rate is lower or higher 
than the stated interest rate of the early-redeemed SLGS security.
    The Department added language to this section and to Appendix B to 
make this clarification.
    (ii) The maximum amount by which a subscription can be amended is 
given greater flexibility by making the standard of section 
344.3(b)(3)(ii) ``the greater of $10 million or ten percent of the 
initial subscription amount.''
    (iii) Section 344.5(a)(3)(ii) is revised to read that the term 
``current Treasury borrowing rate'' means the applicable rate shown in 
the table of maximum interest rates payable on United States 
securities--State and Local government Series, for the day the request 
for early redemption is received by Public Debt, plus 5 basis points. 
Sections 344.5(a)(4)(ii) and 344.5(a)(5)(iii) are revised to refer to 
the definition of the term ``current Treasury borrowing rate'' as set 
forth in section 344.5(a)(3)(ii).

II. Section By Section Summary

Subpart A--General Information

Provisions included in the general information section apply to time 
deposit and demand deposit State and Local Government Series 
securities. Changes from the 1995 regulations are as follows:
Subpart A--General Information
    (1) Section 344.0(a)--This section is amended to read that SLGS can 
be purchased with any amounts that constitute gross proceeds of an 
issue or any other amounts which assist an issuer of tax-exempt bonds 
in complying with applicable provisions of the Internal Revenue Code 
relating to such tax exemption.
    (2) Section 344.0(b)--This section is changed to redefine the term 
``government body'' to make it clear SLGS securities are issued only to 
state and local governments and not to conduit borrowers.
    (3) Section 344.0(c)--A new section is added to indicate that time 
deposit SLGS securities are issued in a minimum amount of $1,000, or in 
any increments of not less than $1.00. Demand Deposit securities are 
still issued in any increment over the $1,000 minimum. The minimum 
maturity period for zero percent certificates of indebtedness is 
reduced from thirty days to fifteen days.
    (4) Section 344.1(a)--This section is changed to note that copies 
of the circular can be obtained from the Division of Special 
Investments.
    (5) Section 344.1(h)--A new section is added on noncompliance which 
applies to all subparts and the previous noncompliance section in each 
subpart is deleted. This section also clarifies that late payment fees 
and administrative fees are due on demand. This section further 
clarifies that the term ``government body'' is defined as the state or 
local government entity rather than the conduit borrower for the 
placement of the penalty for non-compliance, unless the state or local 
government entity provides the Tax Identification Number of the conduit 
borrower that caused the non-settlement to occur.
    (6) Section 344.1(i)--Another general section is added, titled 
General Redemption Provisions, stating a security will not be called 
for redemption by the Secretary of the Treasury prior to maturity. If a 
security matures on a non-business day, it will be redeemed on the next 
business day. This section applies to all subparts and duplications of 
this section that exist in the previous regulations are deleted.
    (7) Section 344.1(j)--A new section is added to clarify that any 
reference to days refers to calendar days, unless otherwise noted.
Subpart B--Time Deposit Securities
    (1) Section 344.2(a)(1)--The reference to the $1,000 minimum is 
deleted.
    (2) Section 344.2(a)(2)--In light of Section 344.0(c), the 
reference to the $1,000 minimum amount and the $100 increment above 
this amount is deleted.
    (3) Section 344.2(a)(3)--In light of Section 344.0(c), the 
reference to the $1,000 minimum amount and the increment above this 
amount is deleted. This section is also amended to provide for the 
issuance of bonds with maturities up to 40 years. The maximum 
applicable rate for securities with maturities in excess of 30 years is 
the 30-year rate.
    (4) Section 344.2(b)--The last sentence of this section states the 
rates specified in the tables are five basis points below the then 
current estimated Treasury borrowing rate for a security of comparable 
maturity.
    (5) Section 344.2(c)(2)--This section is amended to provide for 
alternative methods of payment of redemptions prior to maturity, such 
as by Fedwire.
    (6) Section 344.3(b)(1)--This section is amended to indicate that 
subscriptions must be received by Public Debt at least five days prior 
to issue date for subscriptions of $10 million or less and seven days 
for subscriptions of more than $10 million. Subscriptions of $10 
million or less can be canceled without penalty up to five

[[Page 55692]]

days before the date of issuance. Subscriptions of more than $10 
million can be canceled without penalty up to seven days before the 
date of issuance.
    This section also notes that a subscription sent in letter form 
will not be accepted unless it provides the Tax Identification Number 
of the government body.
    In the example of an initial subscription in letter form, the words 
``or other entity'' have been deleted to emphasize that the proper Tax 
Identification Number to insert is that of the state or local 
government owner, not that of a trustee bank or a conduit borrower.
    This section further provides that a subscriber can lock in the 
SLGS rates for the day it either sends a fax to Public Debt on or 
before the five/seven day notice period or by mailing a subscription, 
provided the mailed subscription is received by Public Debt on or 
before the five/seven day notice period. It is the responsibility of 
the sender of the fax to confirm its receipt.
    (7) Section 344.3(b)(4)--This section is revised to read that no 
initial subscription is required when a final subscription is received 
at least five days before the issue date for subscriptions of $10 
million or less or at least seven days before the issue date for 
subscriptions of over $10 million.
    (8) Section 344.3(c)--This section is amended to eliminate all 
certifications other than the former section 344.3(c)(3), which has 
been revised. The ``all or nothing'' rule of the certification in the 
former section 344.3(c)(1) is eliminated to facilitate the use of the 
time deposit securities for investment of proceeds that are subject to 
arbitrage rebate. This change alleviates some of the need to calculate 
rebate if funds can be invested at the bond yield for a longer term. In 
general, to the extent that the certifications were a result of 
concerns about abuse of the tax regulations and the SLGS program, the 
Department determined that the yield restriction and rebate rules are 
more appropriately enforced under the tax regulations. The 
certification formerly in section 344.3(c)(3) is revised to apply only 
to SLGS securities subscribed for prior to December 27, 1976. The 
certification formerly in section 344.3(c)(4) is eliminated because of 
certain prior changes to the SLGS securities regulations (such as the 
change to daily SLGS securities rates), and because of changes to the 
early redemption penalties under section 344.5, contained in these 
final regulations. Additionally, the word ``beneficial owner'' is 
changed to ``government body'' to make it clear that the proper Tax 
Identification Number is that of the government entity.
    (9) Section 344.3(b)(3)(ii)--This section is amended to read that 
the aggregate subscription amount can not be changed by more than the 
greater of $10 million or ten percent of the initial subscription 
amount.
    (10) Section 344.4(b)--This section is eliminated.
    (11) Section 344.3(b)(4)(c)--This section is amended to read that 
the final subscription must be for a total principal amount that is no 
more than the greater of either $10 million or ten percent above or 
below the aggregate principal amount specified in the initial 
subscription.
    (12) Section 344.5(a)--This section is eliminated.
    (13) Section 344.5(b)(1)--This section is renumbered 344.5(a)(1) 
and is amended to provide that zero interest certificates can be 
redeemed before maturity at the owner's option no earlier than fifteen 
days before maturity for certificates of fifteen to twenty-nine days 
duration and no earlier than thirty days after the issue date in the 
case of all other certificates, notes or bonds.
    (14) Section 344.5(a)(2)--This section is a new section number and 
the body of the section consists of the former section 344.5(b)(2). It 
is amended to change the word ``subscriber'' to ``government body'' in 
the 3rd sentence of this section. This section is further amended to 
read that notice of redemption must be received by Public Debt no less 
than ten days before the requested redemption date, rather than the 
current fifteen-day requirement.
    (15) Section 344.5(a)(3)--This is a new section which provides for 
the calculation of redemption proceeds for SLGS securities subscribed 
for on or after the effective date of this final rule. This section 
changes the formula for determining the early redemption value of SLGS 
securities to one where the remaining interest and principal payments 
are discounted by the current Treasury borrowing rate for the remaining 
term to maturity of the security redeemed.
    This results in a premium or a discount in cases where the Treasury 
borrowing rate is lower or higher than the stated interest rate of the 
SLGS securities. This section further refers to Appendix B at the end 
of Part 344 for the calculation of the formula.
    This section provides no market charge for zero interest time 
deposit securities. The redemption proceeds for a zero interest 
security are a return of the principal invested.
    (16) Sections 344.5(a)(3)(ii), 344.5(a)(4)(ii) and 344.5(a)(5)(iii) 
are amended to redefine the term ``current Treasury borrowing rate''. 
The term is defined in section 344.5(a)(3)(ii) and the other two 
sections refer to the definition in this section.
    (17) Sections 344.5(b)(3), (b)(4) and (b)(5)--These sections are 
renumbered 344.5(a)(4), (a)(5) and (a)(6) respectively and remain 
unchanged.
Subpart C--Demand Deposit Securities
    (1) Section 344.6(a)--This section is revised to delete the 
reference to a $1,000 minimum investment. This is now incorporated into 
the new general section, 344.0(c).
    (2) Section 344.6(b)(3)--Simultaneously with the publication of 
these final regulations, the Department is publishing a Federal 
Register notice which provides the marginal tax rate and the Treasury 
Administrative Cost (TAC) used in the demand deposit program.
    (3) Section 344.7(a)--This section is amended by stating that 
subscriptions for $10 million or less must be received by Public Debt 
at least five days prior to the date of issue and requires that 
subscriptions of over $10 million be received by Public Debt at least 
seven days prior to the date of issue.
    (4) Section 344.7 (c)(1)--This section is removed since under the 
final rule, the $35 million cap on issues of demand deposit securities 
is eliminated.
    (5) Section 344.7(c)(2) through (c)(6)--These sections are 
eliminated because the certifications can be administered more 
effectively under the tax regulations of Section 148 of the Internal 
Revenue Code. The tax regulations will be amended to reflect the 
transfer of these certifications (to the extent not already covered by 
the tax regulations).
    (6) Section 344.8(b)--This section is eliminated.
    (7) Section 344.9(a)--This section is amended to state that notice 
of redemptions for subscriptions of more than $10 million must be 
received at least three business days prior to the scheduled date of 
redemption. Redemption notice for subscriptions of $10 million or less 
remains unchanged at one business day. This section also provides for 
payments by Fedwire.
    (8) Section 344.9(c)--This section is eliminated because the rules 
regarding expenditure of proceeds are covered by the tax regulations.
Subpart D--Special Zero Interest Securities
    (1) Section 344.10--This section is amended to state that the 
Department has discontinued the issuance of this type of security as of 
October 28, 1996.

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The amendment to the time deposit security subpart, which permits 
investment for rebate and yield restriction purposes, eliminates the 
need for a separate Special Zero Interest Program. Under the revisions, 
the following sections of this Subpart apply only to special zero 
interest securities subscribed for before October 28, 1996. Subpart B, 
governing time deposit securities, is changed in a manner that permits 
the redemption of time deposit zero interest securities without 
penalty. Investors that hold special zero interest securities 
subscribed for before October 28, 1996 can still redeem these 
securities without penalty.
    (2) Section 344.11--This section is eliminated.
    (3) Section 344.12--This section is eliminated.
    (4) Section 344.13--This section is renumbered section 344.11 and 
remains in effect for the special zero interest accounts now 
outstanding. The word ``subscriber'' is changed to ``government body'' 
to clarify that the proper Tax Identification Number is that of the 
government entity. Redemption notices must be received by Public Debt 
within the proscribed limits.
    Appendix A to Part 344--There is a clarifying statement that these 
formulas apply to SLGS securities subscribed for before the effective 
date of this final rule.
    Appendix B to Part 344--This appendix contains a new formula for 
determining the redemption value for all early-redeemed time deposit 
SLGS securities. This formula reflects the change that the remaining 
interest and principal payments are discounted by the Treasury 
borrowing rate for the remaining term to maturity of the security 
redeemed. This results in a premium or a discount, depending on whether 
the Treasury borrowing rate is lower or higher than the stated interest 
rate of the SLGS security.

Procedural Requirements

    This final 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.
    This final rule relates to matters of public contract and 
procedures for United States securities. The notice and public 
procedures requirements of the Administrative Procedure Act are 
inapplicable, pursuant to 5 U.S.C. 553(a)(2). Since no notice of 
proposed Rulemaking was required, the provisions of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) do not apply.
    The final rule does not alter the collection of information 
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 final rule is to make the SLGS securities program more 
attractive and flexible for investors. The revision does not impose a 
new collection of information requirement.

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Securities.

    Dated: October 21, 1996.
Gerald Murphy,
Fiscal Assistant Secretary.
    For the reasons set forth in the preamble, Part 344 of title 31 of 
the Code of Federal Regulations is revised to read as follows:

PART 344--REGULATIONS GOVERNING UNITED STATES TREASURY CERTIFICATES 
OF INDEBTEDNESS, TREASURY NOTES, AND 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  Redemption.

Appendix A to Part 344--Early Redemption Market Charge Formulas and 
Examples for Subscriptions From September 1, 1989, Through October 27, 
1996

Appendix B to Part 344--Formula for Determining Redemption Value for 
Securities Subscribed for and Early-Redeemed on or After October 28, 
1996

    Authority: 26 U.S.C. 141 note; 31 U.S.C. 3102.

Subpart A--General Information


Sec. 344.0   Offering of securities.

    (a) In order to provide issuers of tax exempt securities with 
investments from any amounts that constitute gross proceeds of an issue 
or any other amounts which assist an issuer of tax-exempt bonds in 
complying with applicable provisions of the Internal Revenue Code 
relating to such tax exemption, 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.
    (b) As appropriate, the definitions of terms used in Part 344 are 
those found in the relevant portions of the Internal Revenue Code and 
the tax regulations. The term ``government body'' refers to issuers of 
state or local government bonds described in section 103 of the 
Internal Revenue Code.
    (c) The securities in paragraph (a) of this section are issued in a 
minimum amount of $1,000, or in any larger amount, in increments of not 
less than $1.00 for time deposit securities and in any increments over 
the $1,000 minimum for demand deposit securities.
    (d) This offering continues until terminated by the Secretary of 
the Treasury.


Sec. 344.1   General provisions.

    (a) Regulations. United States Treasury securities--State and Local 
Government Series 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 can be obtained from the 
Bureau of the Public Debt, Division of Special Investments--Room 309, 
200 Third Street, P.O. Box 396, Parkersburg, WV 26102-0396.
    (b) Issuance. The securities are issued in book-entry form on the 
books of the Department of the Treasury, Bureau of the Public Debt, 
Parkersburg, WV. Transfer of securities by sale, exchange, assignment, 
pledge, or otherwise is not permitted.
    (c) Transfers. Securities held in an account of any one type, i.e., 
time deposit, demand deposit, or special zero interest, cannot 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, can be designated to perform such 
services requested of them by the Secretary of the Treasury in 
connection with the

[[Page 55694]]

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 it is acting under the latter's specific authorization. 
Ordinarily, evidence of such authority is not 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 undertaken. 
Subscriptions unsupported by such evidence are not acceptable.
    (f) Reservations. Transaction requests, including requests for 
subscription and redemption, are not acceptable if unsigned, 
inappropriately completed, or not timely submitted. Any of these 
actions shall be final. The authority of the Secretary to waive 
regulations under 31 CFR 306.126 applies to Part 344. 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 in the public interest.
    (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 the 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 Secretary deems 
appropriate.
    (h) Noncompliance. The penalty imposed on any government body which 
fails to make settlement on a subscription once submitted and not 
canceled timely shall be to render the government body ineligible 
thereafter to subscribe for securities under any offering in Part 344 
for a period of six months, beginning on the date the subscription is 
withdrawn or the proposed issue date, whichever occurs first.
    (1) The penalty is imposed on the government body unless the 
government body provides the Tax Identification Number of a conduit 
borrower that is the actual party failing to make settlement of a 
subscription. If this number is provided for a conduit borrower, the 
conduit borrower shall be the entity on which the six-month penalty is 
imposed.
    (2) The Division of Special Investments can determine to waive the 
six-month penalty, pursuant to the provisions governing the 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 
government body shall be subject to a late payment assessment. The late 
payment assessment will equal the amount of interest that will 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 of late payment fees and administrative fees under Part 344 
are due on demand.
    (i) General redemption provisions. A security can 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 maturity on a non-business day will be redeemed on the 
next business day.
    (j) Business or calendar days. Unless otherwise noted, any 
reference herein to days refers to calendar days.

Subpart B--Time Deposit Securities


Sec. 344.2  Description of securities.

    (a) Terms. (1) Certificates. The certificates are issued with 
maturity periods fixed by the government body, from thirty days up to 
and including one year, or for any intervening period; provided, for 
certificates that bear no interest, the maturity period can be fixed by 
the government body from fifteen days up to and including one year or 
for any intervening period.
    (2) Notes. The notes are issued with maturity periods fixed by the 
government body, from one year and one day up to and including ten 
years, or for any intervening period.
    (3) Bonds. The bonds are issued with maturity periods fixed by the 
government body, from ten years and one day up to and including forty 
years, or for any intervening period; provided that for any 
subscription for a bond exceeding 30 years, the maximum available rate 
shall be the rate on a 30-year bond.
    (b) Interest rate. Each security shall bear such rate of interest 
the government body designates, but the rate shall not exceed the 
maximum interest rate. The applicable maximum interest rates for each 
day shall equal rates shown in a SLGS securities rate table, which is 
released by the Department to the public by 10:00 a.m., Eastern time, 
each business day. If the Department finds that due to circumstances 
beyond its control the rates are not available to the public by 10:00 
a.m., Eastern time, on any given business day, 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 faxed, postmarked or carrier date stamped. The rates 
specified in the tables are five basis points below the then current 
estimated Treasury borrowing rate for a Treasury security of comparable 
maturity. These rates can be obtained:
    (1) In the Commerce Department's Economic Bulletin Board;
    (2) By contacting the Division of Special Investment's automated 
fax at (304) 480-7548;
    (3) By calling the Division of Special Investments at (304) 480-
7752; or
    (4) On the Internet at ftp://ftp.publicdebt.treas.gov/secrate.txt
    (c) Payment. (1) Interest computation and payment dates. Interest 
on a certificate is computed on an annual basis and is paid at maturity 
with the principal. Interest on a note or bond is paid semi-annually. 
The government body specifies the first interest payment date, which 
must occur any time between thirty 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 semi-
annual 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 the appendix to subpart E of 
Part 306 of this chapter for rules regarding computation of interest.
    (2) Method of payment. Payment can be made by the Automated 
Clearing House method (ACH) for the owner's account at a financial 
institution

[[Page 55695]]

designated by the owner. Redemptions prior to maturity are paid by 
Fedwire. To the extent applicable, provisions of Sec. 357.26 on 
``Payments'', set forth in 31 CFR Part 357 and provisions of 31 CFR 
Part 370, shall govern ACH payments made under this offering. The 
Department of the Treasury can employ alternate payment procedures, 
instead of ACH, in any case, or class of cases where operational 
considerations necessitate such action.


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, P.O. 
Box 396, Parkersburg, WV 26102-0396. Initial and final subscriptions 
can be submitted by fax 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 received by Public 
Debt at least five days before the issue date for subscriptions of $10 
million or less, and at least seven days before the issue date for 
subscriptions of over $10 million, but in no event will subscriptions 
be received more than 60 days prior to issue date. Subscriptions can be 
sent by fax on (304) 480-6818, carrier service, U.S. Postal Service or 
other means. If the subscription is faxed, the original document must 
be received by Public Debt no later than the issue date. Initial 
subscriptions of $10 million or less can be canceled without penalty by 
the subscriber prior to the fifth day before issue date. If the fifth 
day before issue date is a non-business day, the cancellation must 
occur on the preceding business day. Subscriptions of more than $10 
million can be canceled without penalty by the subscriber prior to the 
seventh day before issue date. For example, if securities totaling $10 
million or less are to be issued on March 16, the initial subscription 
must be received by Public Debt no later than March 11. If securities 
totaling more than $10 million are to be issued on March 16, the 
initial subscription must be received by Public Debt no later than 
March 9. A subscriber can lock in the SLGS rate for the day it submits 
its subscription by sending a fax to the Division of Special 
Investments on or before the five/seven day notice period. A subscriber 
can also lock in the SLGS rate on the date of the postmark of a mailed 
subscription, provided the subscription is received on or before the 
five/seven day notice period. It is the responsibility of the sender of 
a faxed subscription to confirm its receipt. If the initial 
subscription is in letter form, it must contain the Tax Identification 
Number of the government body or it is unacceptable. 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, 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 five/seven days after the date of this 
subscription:

Principal Amount
$----------------------------------------------------------------------
Issue Date
----------------------------------------------------------------------
    The undersigned agrees the final subscription and payment will 
be submitted on or before the issue date.

----------------------------------------------------------------------
(Tax I.D. Number of state or local government body eligible to 
purchase State and Local Government Series securities)

----------------------------------------------------------------------
(Name of state or local government body 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. 344.1(h), relating to the failure to complete a 
subscription, apply to initial and to final subscriptions.
    (3) An initial subscription can be amended on or before the issue 
date, but no later than 3:00 p.m., Eastern time, on the issue date. 
Notification can be faxed 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 can not be changed to require issuance earlier 
than the issue date originally specified. The issue date can be changed 
up to 7 days after the original issue date. If such a change is made, 
notification should be provided to the Bureau of the Public Debt as 
soon as possible, but no later than 3:00 p.m., Eastern time, one 
business day before the originally specified issue date;
    (ii) The aggregate amount can not be changed by more than the 
greater of $10 million or ten percent above or below the aggregate 
principal amount specified in the initial subscription;
    (iii) An interest rate can not be changed to a rate that exceeds 
the maximum interest rate in the table that was in effect for a 
security of comparable maturity on the date the initial subscription 
was submitted under the provisions of Sec. 344.3(b)(1); and
    (iv) Where an amendment is not submitted timely, the Division of 
Special Investments can 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 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. This 
administrative fee is due on demand as provided for in Sec. 344.1(h). 
The Secretary reserves the right to reject amendments which are not 
submitted timely.
    (4) No initial subscription is required where a final subscription 
is received at least five days before the issue date for subscriptions 
of $10 million or less and at least seven days before the issue date 
for subscriptions of over $10 million. Such final subscription is 
treated as the initial subscription for purposes of determining the 
applicable interest rate table (see Sec. 344.2(b)), and can 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 3:00 p.m., Eastern time, on the issue date. The final subscription 
can be faxed to the Bureau of the Public Debt at (304) 480-6818, 
provided the fax 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 the greater of either $10 
million or 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 government body, must be 
accompanied by a copy of the initial subscription, where applicable. 
The various maturities, interest rates, and interest payment dates (in 
the case of

[[Page 55696]]

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 statement by the 
subscriber that 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 subscribed for on 
or before December 27, 1976.


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 can not exceed by more than sixty days the date the initial 
subscription is received by Public Debt. 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 3:00 p.m., Eastern time, to ensure that 
settlement of the securities occurs on the date of issue.
    (b) [Reserved].


Sec. 344.5  Redemption.

    (a) Redemption before maturity--(1) In general. A security can be 
redeemed at the owner's option no earlier than twenty-five days after 
the issue date in the case of a certificate of thirty days or more, no 
earlier than fifteen days before the scheduled maturity for zero 
interest certificates of fifteen to twenty-nine days maturity, and no 
earlier than thirty days after the issue date in the case of a note or 
bond. Partial redemptions can be requested in any amount; 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, P.O. Box 396, Parkersburg, WV 26102-
0396. The notice must be received by Public Debt no less than ten days 
before the requested redemption date, but no more than sixty days 
before the requested redemption date. The notice must show the account 
number, the maturities of the securities to be redeemed, and the Tax 
Identification Number of the government body. A notice of redemption 
prior to maturity can not be canceled.
    (3) Redemption proceeds--Subscriptions on or after October 28, 
1996. For securities subscribed for on or after October 28, 1996, 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 is paid for the 
fractional interest period since the last interest payment date.
    (ii) Redemption value. The remaining interest and principal 
payments are discounted by the current Treasury borrowing rate for the 
remaining term to maturity of the security redeemed. This results in a 
premium or discount to the government body, depending on whether the 
current Treasury borrowing rate is lower or higher than the stated 
interest rate of the early-redeemed SLGS security. This does not apply 
to SLGS securities subscribed for before October 28, 1996. The term 
``current Treasury 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 received by Public Debt, plus five basis 
points. There is no market charge for the redemption of zero interest 
time deposit securities subscribed for on or after October 28, 1996. 
Redemption proceeds in the case of a zero-interest security are a 
return of the principal invested. The formulas for calculating the 
redemption value under this section, including examples of the 
determination of premiums and discounts are set forth in Appendix B of 
this Part.
    (4) Redemption proceeds--Subscriptions from September 1, 1989, 
through October 27, 1996. For securities subscribed for from September 
1, 1989, through October 27, 1996, 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 is 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 
Treasury borrowing rate as the discount factor. The term ``current 
Treasury borrowing rate'' is determined in section 344.5(a)(3)(ii). 
Where redemption is requested on a date less than thirty days before 
the original maturity date, such applicable rate is the rate shown for 
a security with a maturity of thirty 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.
    (5) 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 is 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 (a)(5)(i) of this section, 
there shall be deducted from the redemption proceeds the aggregate 
amount of such overpayments, plus interest, compounded semi-annually 
thereon, from the date of each overpayment to the date of redemption. 
The interest rate used 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

[[Page 55697]]

prematurely redeemed exceeds the rate of interest originally fixed for 
such security. The amount shall be calculated using the formula in 
paragraph (a)(3)(ii) of this section.
    (6) Redemption proceeds--Subscriptions on or before December 27, 
1976. For securities subscribed for on or before December 27, 1976, the 
amount of the redemption proceeds is calculated as follows.
    (i) The interest for the entire period the security was outstanding 
shall be re-calculated 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 semi-annual 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.
    (ii) 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.
    (b) [Reserved]

Subpart C--Demand Deposit Securities


Sec. 344.6   Description of securities.

    (a) Terms. The securities are one-day certificates of indebtedness. 
Each subscription is established as a unique account. Securities are 
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 is effective on the first business 
day following the regular auction of three-month Treasury bills and is 
shown in the SLGS rate table, available to the public on such business 
day. Interest is accrued and added to principal daily. Interest is 
computed on the balance of the principal, plus interest accrued through 
the preceding day.
    (2)(i) The annualized effective demand deposit rate in decimals, 
designated ``I'' in Equation 1 is calculated as:
[GRAPHIC] [TIFF OMITTED] TR28OC96.000

where
P=Average auction price for the most recently auctioned 13-week 
Treasury bill, per hundred, to three decimals.
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 most 
recently auctioned 13-week Treasury bill.
MTR=Estimated marginal tax rate, in decimals, of purchasers of tax-
exempt bonds.
TAC=Treasury administrative costs, in decimals.
    (ii) The daily factor for the demand deposit rate is then 
calculated as follows:
[GRAPHIC] [TIFF OMITTED] TR28OC96.001

    (3) Information on 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 is added to the 
principal and is 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 ninety-day 
certificates of indebtedness. These ninety-day certificates are 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 ninety-day certificates of indebtedness 
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, P.O. 
Box 396, Parkersburg, WV 26102-0396. Subscriptions must be submitted on 
a designated Treasury form, must specify the principal amount 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 five days before the issue date for subscriptions 
of $10 million or less and at least seven days before the issue date 
for subscriptions of more than $10 million. Subscriptions for $10 
million or less can be canceled without penalty up to five days prior 
to the issue date. Subscriptions for more than $10 million can be 
canceled without penalty up to seven days prior to the issue date. The 
subscription can be submitted by fax at (304) 480-6818, by certified or 
registered mail, or by other carrier. If faxed, the original 
subscription form must be received by the Division of Special 
Investments by 3:00 p.m., Eastern time, on the issue date. Public Debt 
will not accept subscriptions for demand deposit securities more than 
60 days prior to the issue date.
    (b) Amending subscriptions. The principal amount to be invested can 
be changed without penalty on or before the issue date, but no later 
than 1:00 p.m. Eastern time, on the issue date. The request must be 
clearly identified as an amendment and must be followed immediately by 
the submission, by mail or other carrier, of written notification. 
Where an amendment is not submitted timely, the Division of Special 
Investments can determine, pursuant to the provisions governing waiver 
of

[[Page 55698]]

regulations set forth under 31 CFR 306.126, that such an amendment is 
acceptable on an exception basis. Where an amendment is determined 
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 is then assessed. This administrative fee is due 
on demand as provided for in Sec. 344.1(h). The Secretary reserves the 
right to reject amendments which are not submitted timely.


Sec. 344.8   Issue date and payment.

    The subscriber shall fix the issue date on the subscription at 
least five days after receipt of the subscription by the Division of 
Special Investments for subscriptions of $10 million or less and seven 
days after receipt of the subscription by the Division of Special 
Investments for subscriptions of more than $10 million. 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 received by the Division of Special Investments by 
3:00 p.m., Eastern time, to ensure that settlement on the securities 
occurs on the issue date.


Sec. 344.9  Redemption.

    (a) General. A security can 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 for redemptions of 
$10 million or less and received not less than three business days for 
redemptions of more than $10 million. Partial redemptions can be 
requested in any amount; however, an account balance of less than 
$1,000 is redeemed in total. Payment is made by Fedwire.
    (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, P.O. Box 396, Parkersburg, WV 26102-0396. The notice can be 
submitted by fax 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 government body. The notice of 
redemption must be received at the Bureau of the Public Debt by 1:00 
p.m., Eastern time on the required day.

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. Special zero 
interest securities can not be subscribed for after October 28, 1996. 
All zero interest securities subscribed for after October 28, 1996 will 
be zero interest time deposit securities, subject to the rules of 
subpart B of this Part.


Sec. 344.11  Redemption.

    (a) Before maturity. Provisions of Section 344.5(a) apply. In 
general, a security can be redeemed at the owner's option no earlier 
than twenty-five 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.
    (b) 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, P.O. Box 396, Parkersburg, WV 26102-
0396. The notice can be submitted by fax 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 government body. The 
notice must be received by Public Debt no less than ten days before the 
requested redemption date, but no more than sixty days before the 
requested redemption date. A notice of redemption prior to maturity 
cannot be canceled.

Appendix A to Part 344--Early Redemption Market Charge Formulas and 
Examples for Subscriptions From September 1, 1989, Through October 
27, 1996

    A. The amount of the market charge for bonds and notes subscribed 
for before October 28, 1996 can be determined by the following formula:
[GRAPHIC] [TIFF OMITTED] TR28OC96.002

where:

M=Market charge
b=increased annual borrowing cost (i.e., principal multiplied by the 
excess 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 date to next interest payment date
s=number of days in current semi-annual period
i=Treasury borrowing rate over the remaining term to maturity, based on 
semi-annual interest payments and expressed in decimals.
n=number of remaining full semi-annual periods from the redemption date 
to the original maturity date, except that if the redemption date is on 
an interest payment date, n will be one less than the number of full 
semi-annual periods remaining to maturity.
vn=1/(1 + i/2)n=present value of 1 due at the end of n 
periods (Equation 2)
aa = (1-vn)/(i/2) = v + v2 + v3 + ... + vn = 
present value of 1 per period for n periods (Equation 3)
    B. The application of this formula can 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:

[[Page 55699]]

[GRAPHIC] [TIFF OMITTED] TR28OC96.003


[GRAPHIC] [TIFF OMITTED] TR28OC96.004

    C. The amount of the market charge for certificates subscribed for 
before October 28, 1996 can be determined through use of the following 
formula:
[GRAPHIC] [TIFF OMITTED] TR28OC96.005

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 can 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)  x  
(11.8%-10%)
    (4) The market charge is computed as follows:

[[Page 55700]]

[GRAPHIC] [TIFF OMITTED] TR28OC96.006



Appendix B to Part 344--Formula for Determining Redemption Value 
for Securities Subscribed for and Early-Redeemed on or After 
October 28, 1996

    This results in a premium or discount to the government body, 
depending on whether the current Treasury borrowing rate at the time of 
early redemption is lower or higher than the stated interest rate of 
the early-redeemed SLGS security.
    A. The total redemption value for bonds and notes can be determined 
by the following two steps:
    First, accrued interest payable in accordance with 
Sec. 344.5(a)(3)(i) is calculated using the following formula:
[GRAPHIC] [TIFF OMITTED] TR28OC96.007

where
RV=Redemption value
F=Face amount redeemed
AI=Accrued interest=[(s-r)/s] x (C/2)
r=Number of days from redemption date to next interest payment date
s=number of days in current semi-annual period
i=Treasury borrowing rate over the remaining term to maturity, based on 
semi-annual interest payments and expressed in decimals
C=the regular annual interest
n=number of remaining full semi-annual periods from the redemption date 
to the original maturity date, except that, if the redemption date is 
an interest payment date, n will be one less than the number of full 
semi-annual periods remaining to maturity
vn=1/(1+i/2) n=present value of 1 due at the end of n periods
aa=(1-vn)/(i/2)=v + v2 + v3 + ... + vn = 
present value of 1 per period for n periods
    B. The application of this formula can be illustrated by the 
following examples:
    (i) The first example is for a redemption at a premium.
    (1) Assume that an $800,000 2-year note is issued on December 10, 
1996, to mature on December 10, 1998. Interest is payable at a rate of 
7% on June 10 and December 10.
    (2) Assume that the note is redeemed on October 21, 1997, and that 
the current borrowing rate for Treasury at that time for the remaining 
period of 1 year and 50 days is 6.25%.
    (3) The redemption value is computed as follows:
    First, the accrued interest payable is calculated as:

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    (ii) The second example is for a redemption at a discount and it 
uses the same assumptions as the first example, except the current 
Treasury borrowing cost is assumed to be 8.00%:
    (1) Assume that an $800,000 2-year note is issued on December 10, 
1996, to mature on December 10, 1998. Interest is payable at a rate of 
7% on June 10 and December 10.
    (2) Assume that the note is redeemed on October 21, 1997, and that 
the current borrowing rate for Treasury at that time for the remaining 
period of 1 year and 50 days is 8.00%.
    (3) The redemption value is computed as follows. First, the accrued 
interest payable is caculated as:

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    C. The total redemption value for certificates can be determined by 
the following two steps:
    First, accrued interest payable in accordance with Section 
344.5(a)(3)(i) is calculated using the following formula:

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where:

RV=Redemption value
F=Face amount redeemed
AI=Accrued interest = [(d-r)/y] x C
d=Number of days from original issue of the certificate to its maturity 
date
r=Number of days from redemption date to the certificate's maturity 
date
y=365, if the number of days in the year following issue of the 
certificate does not include a leap year day; 366, if the number of 
days following issue of the certificate does include a leap year day
i=Treasury borrowing rate over the remaining term to maturity, 
expressed in decimals
C=the regular annual interest
    D. The application of this formula can be illustrated by the 
following examples.
    (i) First, for a redemption at a premium:
    (1) Assume that a $300,000 security is issued on December 5, 1996, 
to mature in 151 days on May 5, 1997. Interest at a rate of 5% is 
payable at maturity.
    (2) Assume that the security is redeemed on April 9, 1997, and that 
the current borrowing rate for Treasury at that time for the remaining 
period of 26 days is 4.00%.
    (3) The redemption value is computed as follows. First, the accrued 
interest payable is calculated as:
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    (ii) Secondly, for a redemption at a discount:
    (1) Assume that a $300,000 security is issued on December 5, 1996, 
to mature in 151 days on May 5, 1997. Interest at a rate of 5% is 
payable at maturity.
    (2) Assume that the security is redeemed on April 9, 1997, and that 
the current borrowing rate for Treasury at that time for the remaining 
period of 26 days is 6.25%.
    (3) The redemption value is computed as follows. First, the accrued 
interest payable is calculated as:

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[FR Doc. 96-27365 Filed 10-21-96; 4:58 pm]
BILLING CODE 4810-39-W