Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds (Department of the Treasury Circular, Public Debt Series No. 1-93)

SUMMARY: The Department of the Treasury (``Department'' or

``Treasury'') is proposing for comment an amendment to 31 CFR Part 356

(Uniform Offering Circular for the Sale and Issue of Marketable Book-

Entry Treasury Bills, Notes, and Bonds). This proposed amendment makes

changes necessary to accommodate the public offering of new Treasury

inflation-protection securities by the Department. In addition, the

proposed amendment makes certain technical clarifications and

conforming changes.

DATES: Comments must be received on or before October 28, 1996.

ADDRESSES: This proposed rule has also been made available for

downloading from the Bureau of the Public Debt home page at the

following address: http://www.ustreas.gov/treasury/bureaus/pubdebt/

pubdebt.html. Written comments should be sent to: Government Securities

Regulations Staff, Bureau of the Public Debt, 999 E Street N.W., Room

515, Washington, D.C. 20239-0001. Comments may also be sent through the

Internet to the Government Securities Regulations Staff at

[email protected]. When sending comments by the Internet, please

use an ASCII file format and provide your full name and mailing

address. Comments received will be available for public inspection and

downloading on the Internet and for public inspection and copying at

the Treasury Department Library, Room 5030, Main Treasury Building,

1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.

FOR FURTHER INFORMATION CONTACT: Ken Papaj (Director), Lee Grandy,

Chuck Andreatta or Kurt Eidemiller (Government Securities Specialists),

Bureau of the Public Debt, Government Securities Regulations Staff,

(202) 219-3632.

SUPPLEMENTARY INFORMATION:

I. Background

31 CFR Part 356, also referred to as the uniform offering circular,

sets out the terms and conditions for the sale and issuance by the

Department of the Treasury to the public of marketable Treasury bills,

notes, and bonds. The uniform offering circular, in conjunction with

offering announcements, represents a comprehensive statement of those

terms and conditions.1

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\1\ The uniform offering circular was published as a final rule

on January 5, 1993 (58 FR 412). Amendments to the circular were

published on June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR

13906), July 16, 1996 (61 FR 37007), and August 23, 1996 (61 FR

43626).

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The Department has decided to offer a new type of security,

referred to as a Treasury inflation-protection security,2 whose

principal value will be adjusted for inflation as measured by the

United States Government. The Department believes the issuance of these

new inflation-protection securities will reduce interest costs to the

Treasury over the long term and will broaden the types of debt

instruments available to investors in U.S. financial markets.

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\2\ This Part is being revised to accommodate offerings of both

inflation-protection notes and inflation-protection bonds in order

to give the Department the flexibility to issue both types of

inflation-protection securities in the future. However, the

Department initially plans to offer only one maturity for inflation-

protection securities.

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A. Summary

As explained in more detail below, after considering the comments

provided, Treasury has made the following decisions concerning its

offering of inflation-protection securities with the goal of achieving

the broadest market appeal. The inflation-protection securities will be

structured, with some modifications, based on the model of the Real

Return Bonds currently issued by the Government of Canada. The

principal of the security will be adjusted for changes in the level of

inflation. Semiannual interest payments will be made based on a

constant rate of interest determined at auction. The index for

measuring the inflation rate for the inflation-protection securities

will be the non-seasonally adjusted U.S. City Average All Items

Consumer Price Index for All Urban Consumers published monthly by the

Bureau of Labor Statistics of the U.S. Department of Labor.

Further, the Department has decided to begin auctioning 10-year

inflation-protection notes in January 1997 and quarterly thereafter.

Specific terms and conditions of each issue will be announced prior to

each auction. Additional maturities, such as 30-year bonds or 2 to 5-

year notes, are expected to be auctioned later in 1997.

The principal value of the securities will be adjusted semiannually

for inflation by multiplying the stated value at issuance, or par

amount, by an index ratio. The index ratio is the reference CPI

applicable to a particular valuation day divided by the reference CPI

applicable to the original issue date. The inflation adjustment will

not be payable until maturity, when the securities will be redeemed at

their inflation-adjusted principal amount. The securities will be

issued with a stated rate of interest that remains constant until

maturity. Interest payments for a particular security will be

determined by multiplying the inflation-adjusted principal by one half

of the stated rate of interest on each semiannual interest payment

date.

Inflation-protection notes will be issued with maturities of at

least one year but no more than ten years. Inflation-protection bonds

will be issued with maturities of more than ten years. The inflation-

protection securities will be sold at discount, par, or premium and

will pay interest semiannually. The auctions for inflation-protection

securities will be conducted as single-price auctions in which

competitive bidders will bid in terms of a desired real yield (yield

prior to inflation adjustment), expressed as a percentage with three

decimals, e.g., 3.630%. The interest rate established as a result of

the auction will be set at one-eighth of one percent increments that

produce the price closest to, but not above, par when evaluated at the

highest real yield at which bids were accepted. The offering

announcement issued by the Department for each new inflation-protection

security offering will contain the specific details for that offering.

The inflation-protection securities will be eligible for STRIPS

(Separate Trading of Registered Interest and Principal of Securities)

immediately upon their issuance by the Treasury. The securities, and

their related stripped components, will also be eligible to serve as

collateral for Treasury Tax and Loan, Circular 176, and Circular 154

accounts. Anyone interested in the use of inflation-protection

securities, and their related stripped components, for such collateral

purposes should refer to the relevant Financial Management Service

circulars for more information.

B. Participation in Rulemaking Process/Solicitation of Comments

The Department believes that extensive discussion about, and

participant involvement in, the design of the inflation-protection

security is critical and will result in a new investment product that

will have wider acceptance and broader market appeal.

[[Page 50925]]

In developing the structure and design features of the inflation-

protection security, the Department used a wide variety of approaches

to obtain the views of potential investors and market participants. It

issued an Advance Notice of Proposed Rulemaking (ANPR) on May 20,

1996.3 The ANPR stated the Department's intention to issue a new

type of marketable book-entry security with a nominal return linked to

the inflation rate, addressed several approaches and issues to be

considered in developing the features of the security and the terms and

conditions for its sale to the public, and solicited comments and

suggestions. Specifically, the Treasury sought comments concerning the

choice of inflation index, structure of the security, auction

technique, offering sizes, and maturities. Comments were also solicited

on any other issues that would be relevant to the issuance of a

Treasury marketable inflation-protection security.

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\3\ 61 FR 25164 (May 20, 1996).

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The original 30-day public comment period on the ANPR was

subsequently extended through July 3, 1996,4 to allow for the

submission of additional views and suggestions. On July 24, 1996 the

Department held a public symposium, announced through an additional

ANPR,5 to discuss the advantages and disadvantages of certain

proposed security structures under consideration. In addition to

announcing this symposium to discuss the proposed features, the second

ANPR posed additional specific questions regarding the proposed

features and requested written comments in response.

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\4\ 61 FR 31072 (June 19, 1996).

\5\ 61 FR 38127 (July 23, 1996).

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Since announcing Treasury's intention to issue inflation-protection

securities in May 1996, the Department staff has also held more than 30

meetings with more than 800 investors, dealers, and other interested

parties in Washington, D.C., New York, Boston, Chicago, San Francisco,

London, and Tokyo, and by teleconference with Melbourne and Sydney.

These meetings provided forums for exchanges of ideas and opinions, and

for interested parties to provide their views on the proposed new

security. In developing the design and structural terms of the

inflation-protection security and the proposed rule, Department staff

has also spoken and consulted with various government officials and

market participants in Canada, the United Kingdom, and Australia,

countries that currently issue inflation-indexed securities, to gather

information on their respective countries' experience with this type of

security.

II. Consultation and Comments

A. Introduction

The Department has received 55 comment letters, summarized herein,

in response to the two ANPRs. The letters and comments were submitted

by a wide range of individuals, academicians, investment management

firms, dealers and institutional investors. Specifically, 6 letters

were received from trade, legal and/or research organizations; 11

letters from primary government securities dealers; 7 letters from

finance and economics professors; 20 letters from commercial banking,

advisory, and institutional and individual investment management firms;

and 11 letters from individual investors.6 In addition, the

Department received numerous comments and suggestions from the investor

meetings.

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\6\ Several commenters submitted more than one letter, with each

letter counted separately in arriving at the total count of 55

letters. All of the comment letters and summaries of the investor

meetings are available to the public.

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While spanning a wide spectrum, with a few commenters not

supporting the issuance of an inflation-indexed security, the

overwhelming majority of commenters favored and supported the issuance

of such a marketable security. A few letters suggested that a non-

marketable security, such as a modified U.S. Savings Bond, might be a

better inflation-protection investment vehicle.

The comments, while varied, expressed several consistent and

reoccurring themes. These themes included the need for simplicity in

structure and ease in understanding, the need for liquidity in the

issues of inflation-protection securities, and a preference to have the

new security conform as much as possible to Treasury's currently issued

securities (e.g., use the same auction technique). Generally, there was

a desire to avoid the introduction of a security that would differ

widely from current market patterns and practices.

The Department has carefully considered all of the comments that

were received. While the written comments are summarized below, each

comment letter did not necessarily address all aspects of the proposed

new security for which comments were solicited. The comments have been

summarized and organized into the following five basic categories: the

choice of inflation index, the type of structure, taxation issues,

auction technique and initial offering amounts, and maturities.

B. Choice of Inflation Index

Many commenters discussed the advantages and disadvantages of the

various potential indices that could be used to measure inflation,

including the indices on which the Department specifically requested

comments: the Consumer Price Index for All Urban Consumers (CPI-U), the

core CPI (the CPI-U minus the food and energy components of the CPI-U),

the Gross Domestic Product (GDP) deflator, and the Employment Cost

Index (ECI). Comments were also requested on whether a seasonally or

non-seasonally adjusted series would be preferred. The letters

indicated a clear consensus that the selected index should be:

recognized widely, published frequently, accurate, easily obtainable,

easily understood, and not revised retroactively. While each index had

some support, the vast majority of those who commented on the index

selection advocated that the Consumer Price Index (CPI-U) would be the

most appropriate index. Many of those who recommended using the CPI-U

noted that it measures the price changes for the market basket of goods

and services that most investors are concerned about. Additionally,

they noted that it is most similar to the indices used by other

countries that currently issue indexed debt, and thus would facilitate

understanding the terms of the security.

C. Structure

The ANPRs proposed several structures and design features on which

an inflation-protection security could be modelled. These models

included: (1) A Canadian-style structure, which is a modification of

the United Kingdom's index-linked gilts, in which interest is paid

semiannually and the principal amount is adjusted for inflation, so

that the inflation-adjusted principal and interest payments remain the

same in constant dollars; (2) a zero-coupon structure; (3) a structure

that would pay out principal and interest in periodic intervals,

similar to a price level adjusted mortgage; and (4) a current-pay

structure where all the inflation compensation and real interest is

paid out semiannually. Aside from the commenters' opinions on the

choice of index, the discussion of possible structures and security

design features generated the most discussion and reaction since this

decision would directly affect such issues as liquidity, when income is

paid, investor appeal and preference, and cost of issuance to Treasury.

All of the proposed structures were commented on, with at least one

[[Page 50926]]

commenter supporting each structure. However, the one structure that

was discussed the most and was supported by the majority of commenters

was the one modelled on the Real Return Bonds currently issued by the

Government of Canada.

After the first ANPR was published, some commenters at the investor

meetings suggested that a fourth alternative, the current-pay

structure, be considered. Therefore, a second ANPR was published to

solicit views on this alternative and to determine which of these

structures commenters preferred. In response to the second ANPR, the

majority of commenters still preferred the Canadian structure.

Many commenters expressed the view that inflation-protection

securities should be eligible for stripping as soon as possible,

preferably beginning with the first issue, since stripping would meet

market demand for different maturities which would effectively provide

for a full term structure of real interest rates. It was generally

believed that the Canadian structure would make stripping easier.

There was strong support for reopenings of these securities with a

general belief that reopenings would be important for market liquidity

and thus would lower Treasury's borrowing costs. Several commenters

favored reopenings to prevent market problems due to shortages in an

issue. Other commenters believed that the interest paid on the

security, rather than the principal amount, should be indexed to the

CPI, essentially providing for a floating-rate security. The majority

of commenters, however, said they would prefer a Canadian-style

security over the current-pay structure.

D. Taxation

The subject of taxation on income earned on the securities was

addressed by many respondents. Several advocated that only the interest

actually paid should be taxable in the year received, while the

inflation adjustment, if accrued rather than paid, should be taxable

when actually received by the investor. There was much discussion about

whether or not the taxation of the inflation adjustment might reduce

demand by non-tax-advantaged investors and that, with the proposed tax

treatment, primarily tax-advantaged investors would be initial

purchasers and holders of these securities. Other commenters advocated

that, regardless of the tax treatment, the tax rules should be easy to

understand and administer. Others stated that any inflation adjustment

payments should not be taxed.

E. Auction Technique and Initial Offering Amounts

Several commenters addressed the proposed auction technique. As

stated in the first ANPR, Treasury proposed that a single-price auction

format be adopted with three different bidding options given for

consideration. The comments overwhelmingly favored an auction technique

with which the market is familiar. These commenters supported the use

of the single-price auction format with competitive bids expressed on a

real yield basis. The majority of the commenters recommended that

interest rates be set in one-eighth of one percent increments that

would result in a price at or just below par. Several of these

commenters believed this would simplify stripping and facilitate

reopenings of the issue. The auction processes recommended by the

commenters essentially conform to those techniques currently employed

by the Department.

The Department also requested comments on the appropriate size of

the initial offering amounts of the auctions and stated its intention

to increase the offering sizes over time. Commenters generally

supported issues with offering amounts in the $2-$5 billion range,

increased over time through reopenings.

In the first ANPR, comments were solicited on whether the Treasury

should announce, prior to an auction of an inflation-protection

security, that it retains, and may exercise, the option to award an

amount greater or less than the announced public offering amount. Those

commenters who addressed this issue stated that, while they

acknowledged Treasury's right to award more or less than the announced

public offering amount, such right should be exercised only under

extreme circumstances. A general view was that awarding more or less

than the stated offering amount would be inconsistent with Treasury's

long-standing policy of regular and predictable debt issuance and would

contribute to market uncertainty.

F. Maturities

The subject of which maturities the Department should offer

resulted in a large number of comments. The ANPR had proposed

maturities of either 10 or 30 years. Those who attended the investor

meetings, in general, preferred an intermediate-term security, such as

a 10-year note, indicating that a 30-year maturity would be too long

for the probable investors in this type of security. Some of the

written comments stated that the issuance of an inflation-protection

security should initially be in the 10-year range, with a 30-year bond

being included later on a regular basis. Others advocated the reverse

pattern, with an initial 30-year bond issuance followed by a 10-year

note. Several of the letters recommending a longer-term maturity stated

that, through stripping, any investor demand for shorter-term

inflation-protection securities could be met. Some argued that 10-30

years would be too long. Some also commented that, with limited

knowledge of investor preferences prior to implementation of these new

securities, some experimentation with different maturity sectors would

be appropriate.

Several commenters expressed an interest in a shorter-term

security, such as one with a 2-5 year maturity. Some commenters

expressed the view that a broad range of maturities covering the short,

intermediate, and long ends of the maturity spectrum, or a variation

that would provide for a series of maturities in 5-year intervals,

should be provided to promote liquidity and meet demand by investors

with various maturity horizons.

Some commenters believed that, regardless of the maturities

selected, inflation-protection securities should be auctioned at the

same time as Treasury's fixed-principal securities with the same, or

similar, maturities, believing that this would result in better pricing

and liquidity. Others took the opposite view and recommended that the

auctions not be part of the quarterly refundings because of the already

large amounts of Treasury securities that are auctioned at those times.

G. Other

Additional comments expressed support for the development of

futures and other derivative instruments to ensure a deep and liquid

market; opposition to a minimum payment guarantee in the belief that

this might put downward pressure on the security's price over time; and

the need to disclose potential market or interest rate risk to all

investors, particularly retail investors, who otherwise might not be

aware that there could be a period of negative real return.

III. Section-by-Section Analysis

Based largely on the comments received in response to the ANPRs and

the feedback obtained in the various investor meetings, the Department

has decided to issue inflation-protection securities similar to the

Real Return Bonds issued by the Government of Canada. The proposed

securities also are more similar to inflation-indexed securities that

have been issued in other

[[Page 50927]]

countries, such as the United Kingdom, than they are to the other

alternative structures presented in the ANPRs. Under the Canadian

structure, the principal amount of the security is adjusted for

inflation so that the adjusted value remains the same in constant

dollars. The interest rate remains fixed throughout the life of the

security, and interest payments are based on the security's inflation-

adjusted principal at the time the interest is paid.

The Department believes that the similarity of the proposed

structure to inflation-indexed securities issued by other countries is

a positive feature. Since many investors are already familiar with this

structure, the liquidity of the security on a global basis may be

enhanced. In addition, the two structures presented in the ANPRs that

would have provided greater cash flows (i.e., paying out the inflation

adjustment of the principal and/or interest at periodic intervals)

during the period the security was outstanding were not selected

because they would have been more complicated and would have carried

more reinvestment risk than the Canadian model securities. The other

structure presented in the first ANPR, a zero-coupon inflation-indexed

security, is being accommodated by making the inflation-protection

securities eligible for stripping in the commercial book-entry system,

i.e., TRADES (Treasury/Reserve Automated Debt Entry System),

immediately upon issuance.

Of the price or wage indices under consideration, the non-

seasonally adjusted CPI-U was selected because it is the best known and

most widely accepted measure of inflation. This index was also the

choice of a substantial majority of commenters to the ANPRs.

Commenters also advocated using the same auction process (e.g.,

bidding procedures) for inflation-protection securities that is

currently used for other marketable Treasury securities. Accordingly,

Treasury has decided to use a single-price auction, with bidding on the

basis of real yield, expressed with three decimals. The interest rate

will be set at the one-eighth of one percent increment that produces

the price closest to, but not more than, par when evaluated at the

highest real yield awarded to competitive bidders.

As is the case with all marketable Treasury securities, the size

and specific terms of the initial issue of the inflation-protection

security will be announced shortly before the first auction. The

Treasury intends to begin by issuing 10-year inflation-protection notes

on January 15, 1997, and on a quarterly basis thereafter (i.e., the

15th of April, July, October and January). Additional maturities are

expected to be auctioned within a year of the first auction of 10-year

notes.

This proposed amendment, when finalized, would make the necessary

revisions to accommodate the sale and issuance of marketable book-entry

Treasury inflation-protection securities. This rule would amend

Secs. 356.2, 356.3, 356.5, 356.10, 356.12, 356.13, 356.17, 356.20,

356.25, 356.30, 356.31, 356.32, Appendix B, and Exhibit A of the

uniform offering circular. This rule also would create two new

appendices--Appendix C and Appendix D.

A. Definitions

Specifically, the terms ``business day,'' ``Consumer Price Index,''

``daily interest decimal,'' ``index,'' ``index ratio,'' ``inflation-

adjusted principal,'' ``real yield'' and ``reference CPI'' have been

added to the listing of definitions in Sec. 356.2.

Several other definitions have been slightly modified to

incorporate minor conforming changes. For instance, the definition of

``book-entry security'' has been modified by adding a sentence

referencing the two systems in which marketable Treasury book-entry

securities may be held--TRADES and TREASURY DIRECT. Also, the

definition of ``par amount'' has been modified slightly to indicate

that the term refers to the stated value of a security at original

issuance (i.e., the date from which interest accrues). The meaning of

the term, however, essentially remains unchanged. For example, for

Treasury bills and fixed-principal securities, the par amount still is

the principal amount to be paid at maturity. For inflation-protection

securities, par amount does not include an inflation adjustment after

issuance. Further, par amount refers to the amount at which all

marketable Treasury securities (including inflation-protection

securities) will be maintained and transferred in TRADES or TREASURY

DIRECT.

The definition of ``settlement amount'' also has been modified to

indicate that, for inflation-protection securities, such amount

includes an inflation adjustment, if any. This could happen in the case

of reopenings or when the date interest begins to accrue is different

from the actual issue date. For fixed-principal securities, the

definition of settlement amount is unchanged. Readers should refer to

Appendix B, Section III, for examples of settlement amount computations

for inflation-protection securities.7

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\7\ The examples in Appendix B, Section II, pertaining to price

computations for fixed-principal securities do not include

settlement amount calculations. However, settlement amounts in those

examples can be derived by multiplying the price in terms of a

percentage of par by the awarded par amount and by adding to that

amount any accrued interest.

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B. Conforming Changes

Changes have been made to Sec. 356.3 to reflect more completely the

operation of TRADES. In this system, marketable Treasury book-entry

securities are held through a tiered system of ownership, and Treasury

discharges its payment obligation when payment is credited to a

person's or entity's account maintained at a Federal Reserve Bank. The

system is described in Treasury's rules for Treasury securities held in

TRADES.8 The changes to Sec. 356.3 also clarify Treasury's payment

obligation with respect to Treasury securities held in the TREASURY

DIRECT system. This section has also been modified to note that

inflation-protection securities are maintained and transferred at their

par amount in both systems. Adjustments for inflation are not included

in the par amount.

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\8\ 61 FR 43626 (August 23, 1996).

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In Sec. 356.5, the description of Treasury securities has been

modified to distinguish between Treasury securities with fixed-

principal amounts and those whose principal amounts will be adjusted

for inflation. The Department will nonetheless continue to refer to

securities with a fixed-principal amount as ``Treasury notes'' or

``Treasury bonds'' in official Treasury publications, such as the

offering announcement and auction results press release, as well as in

auction systems. Securities whose principal amounts will be adjusted

for inflation will be referred to as ``Treasury inflation-protection

notes'' or ``Treasury inflation-protection bonds.'' New paragraphs

(b)(2) and (c)(2) provide a brief description of such inflation-

protection securities.

In paragraph 356.12(a), a change has been made to clarify that, for

reopenings of all securities, bidding will be in terms of par amount.

It is noted, however, that in the case of reopenings of inflation-

protection securities, the par amount of awarded bids will be

multiplied by the applicable index ratio for the additional (reopening)

issue date to determine the settlement amount. Treasury will provide

this index ratio in the offering announcement for the reopened

security. Readers are referred to Appendix B, Section III, Paragraph B

of the proposed rules for an example that

[[Page 50928]]

illustrates how bids are to be submitted and how the settlement amount

will be calculated for a reopening of an inflation-protection security.

A modification has been made to paragraph 356.12(b)(2) under

``additional restrictions'' to bidding in auctions. This modification

clarifies that a noncompetitive bid cannot be made by any bidder who

has held, at any time between the offering announcement and the closing

time for receipt of competitive tenders, a position in when-issued

trading or in futures or forward contracts in the security being

auctioned. This clarifying change is consistent with Treasury's current

application of this provision of the uniform offering circular.

In Sec. 356.13, changes have been made to highlight the fact that

the net long position reporting threshold amount will always be

provided in the offering announcement for each security. This is

consistent with Treasury's current practice. The net long position

reporting threshold will continue to be $2 billion for bills, notes,

and bonds unless otherwise stated in the offering announcement. For

example, the Department anticipates that the net long position

reporting threshold for smaller securities offerings, such as initial

offerings of inflation-protection securities and certain cash

management bills, may be lower than $2 billion. As is currently the

case, the provisions of the offering announcement control whenever any

provision of the offering announcement is inconsistent with any

provision of the uniform offering circular. (See 31 CFR Sec. 356.10.)

Paragraphs 356.17(a) and (b) contain minor conforming

clarifications to reflect that bidders submitting payment with their

tender may have to include, in addition to announced accrued interest,

an inflation-adjustment amount with their payment.

In Sec. 356.20, paragraph (c)(2) has been expanded to clarify that,

for inflation-protection securities, the price for securities awarded

to competitive and noncompetitive bidders reflects the highest real

yield at which bids were accepted.

No changes have been made to the current $500 million customer

confirmation threshold in Sec. 356.24(d). Thus, any customer awarded a

par amount of $500 million or more of an inflation-protection security

is required to furnish to the Federal Reserve Bank to which the bid was

submitted a confirmation of its bid and net long position, if any. As

with the net long position threshold, if the Department modifies the

customer confirmation threshold for any particular auction, the revised

customer confirmation threshold will be stated in the offering

announcement for that auction, and the offering announcement will

govern.

A conforming change has been made to paragraph 356.25(a)(2) to

state that additional amounts due at settlement may include inflation

adjustments. Additionally, a new paragraph (c) has been added to

Sec. 356.25 to provide that the payment amount for awarded securities

will be the settlement amount, as that term is defined in Sec. 356.2.

The last sentence in Sec. 356.30(a) has been modified to reflect

that the term ``business day'' has been added as a defined term to

Sec. 356.2.

A new paragraph (b) has been added to Sec. 356.30 to guarantee an

investor's par amount of inflation-protection securities. If at

maturity the inflation-adjusted principal is less than the par amount

of the security, an additional amount will be paid at maturity so that

the additional amount plus the inflation-adjusted principal equals the

par amount. However, interest payments will always be based on the

inflation-adjusted principal.

New paragraphs (c), (d), (e), and (f) have been added to

Sec. 356.31 to provide separate descriptions of principal and interest

components stripped from fixed-principal and inflation-protection

securities. Paragraphs (d) and (f), respectively, distinguish between

interest components stripped from fixed-principal securities and

interest components stripped from inflation-protection securities in

regard to their ``fungibility.'' Interest components having the same

maturity date that have been stripped from fixed-principal securities

are fungible (i.e., have the same CUSIP number) regardless of the

underlying security from which the interest payments were stripped.

Interest components stripped from inflation-protection securities,

however, will not be fungible with interest components stripped from

other inflation-protection or fixed-principal securities, even if they

have the same maturity date. Making interest components of inflation-

protection securities fungible is not practical because the amount of a

particular interest payment for such securities reflects in part the

reference CPI for the issue date of that security. Different underlying

inflation-protection securities will have different issue dates with

different reference CPI numbers. However, Treasury has the ability to

increase the amount outstanding of these non-fungible stripped

components through reopenings of the underlying inflation-protection

securities.

Section 356.31 also has been revised to distinguish between

principal components stripped from fixed-principal and inflation-

protection securities, which are maintained and transferred in TRADES

at their par amount, and interest components stripped from fixed-

principal and inflation-protection securities, which are maintained and

transferred in TRADES at their original payment value. This value is

derived by applying the semiannual interest rate to the par amount. For

inflation-protection securities, the amounts maintained and transferred

in TRADES are different from the actual value of the principal and

interest components as adjusted for inflation. For stripped principal

components of inflation-protection securities, the holder will receive

the inflation-adjusted principal value or the par amount, whichever is

greater, at maturity. For stripped interest components of these

securities, the amount payable to the holder will be derived by

applying the semiannual interest rate to the inflation-adjusted

principal of the underlying security.

Section 356.32 has been reorganized. Paragraph (a) provides a

general taxation provision applicable to all marketable Treasury

securities. Paragraph (b) applies only to inflation-protection

securities. It directs investors to the relevant Internal Revenue

Service (IRS) regulations that will be published concurrently with the

final rule amending the uniform offering circular for further

information about the tax treatment and reporting of inflation-

protection securities. From the publication date of this proposed

amendment to the uniform offering circular until the date of issuance

of the final rule, investors are advised to refer to IRS Notice 96-51

published in the Internal Revenue Bulletin 1996-42 (October 15, 1996)

for information regarding taxation of inflation-protection securities

and the stripped components of such securities. Additionally,

concurrent with the filing of these proposed rules, Treasury is issuing

a statement providing a more detailed explanation of the federal income

tax treatment for inflation-protection securities and stripped

components thereof. Readers interested in receiving a copy of this

statement should call the Department's Public Affairs automated

facsimile system at 202-622-2040. After issuance of the final uniform

offering circular amendment, investors are advised to refer to the

applicable proposed and temporary regulations issued under

Secs. 1275(d) and 1286 of the Internal

[[Page 50929]]

Revenue Code. In the preamble to the final amendment to the uniform

offering circular rules, the Department will reference the Federal

Register and Code of Federal Regulations citations for the IRS

regulations, as available.

Minor revisions have been made to existing paragraphs A through D

of Appendix B, Section I, by redesignating the paragraphs as numerical

subparagraphs and inserting the term ``Treasury fixed-principal

securities'' at the beginning (as paragraph A) to clarify that these

paragraphs relate specifically to fixed-principal notes and bonds, not

inflation-protection securities. A new paragraph B has been added to

Section I of Appendix B that describes and illustrates with an example

how the principal value of an inflation-protection security will be

adjusted for inflation, how interest payments will be calculated, and

how the index ratio for a particular date will be calculated. Unlike

paragraph A, which includes examples of short and long interest

payments, paragraph B provides only an example of regular half-year

interest payments since Treasury does not anticipate short and long

interest payments for Treasury inflation-protection securities.

Treasury does not intend to publish the index ratio or any

reference CPIs since market participants should be able to make the

computations themselves. However, Treasury requests comments on whether

or not a monthly publication of the daily index ratios or reference

CPIs would be useful to market participants. The Treasury will issue a

press release monthly that will provide the non-seasonally adjusted CPI

for each of the prior three months. Treasury intends to provide this

information through media such as the Internet, telephone recordings,

and TAAPS (Treasury Automated Auction Processing System). The monthly

CPI numbers are also available from the Bureau of Labor Statistics of

the U.S. Department of Labor.

Paragraph B of Section I also explains what Treasury's course of

action will be if, while an inflation-protection security is

outstanding, the index is revised, rebased to a different year, not

reported, or discontinued. The procedures are the same as those

originally stated in the first ANPR. If a previously reported CPI is

revised, Treasury will continue to use the previously reported CPI in

calculating the inflation-adjusted principal and interest payments. If

the CPI is rebased to a different year, Treasury will continue to use

the CPI based on the base reference period in effect when the security

was first issued, as long as that CPI continues to be published. The

specific CPI-U series for each inflation-protection security will be

provided in the Treasury offering announcement. If the CPI is

discontinued or substantially altered while an inflation-protection

security is outstanding, Treasury will consult with the Bureau of Labor

Statistics or its successor agency to determine an appropriate

substitute index and methodology for linking the two series. Treasury

would then notify the public of the substitute index and methodology.

For new issues of Treasury inflation-protection securities, if the

Federal Government commences publication of an index that is more

accurate or otherwise more appropriate for indexation than the Consumer

Price Index, Treasury would also notify the public. Moreover, the

uniform offering circular would be amended, as appropriate, to reflect

changes in the use of the index.

The previous paragraph E to Section I of Appendix B has been

redesignated as paragraph C and expanded to include a description of

the accrued interest payable calculation for an inflation-protection

security if accrued interest covers a fractional portion of the first

full half-year period.

Minor changes have been made to paragraphs A through G of Appendix

B, Section II, to reflect their applicability solely to fixed-principal

securities. A disclaimer has been added near the beginning of Appendix

B to clarify that any numbers in the examples are provided only for

illustrative purposes and are not intended to be predictions of

interest rates for Treasury securities. In addition, a statement

regarding intermediate rounding used in the examples has been moved

toward the beginning of Appendix B.

A new Section III has been included in Appendix B to illustrate the

calculation of the settlement amount for inflation-protection

securities with a regular first interest payment period and to

illustrate the calculation of the settlement amount, including

predetermined accrued interest and inflation adjustment, of a reopened

inflation-protection security. Accompanying definitions have also been

added.

A new Appendix C containing investment considerations for

inflation-protection securities has been added because of the unique

factors facing prospective investors in this new security.

A new Appendix D has been added to provide a description of the

Consumer Price Index for All Urban Consumers.

Finally, a new Section IV has been added to Exhibit A that provides

an example of an offering announcement press release by the Treasury to

the public for an inflation-protection security. The press release

includes accompanying highlights.

IV. Procedural Requirements

This proposed rule does not meet the criteria for a ``significant

regulatory action'' pursuant to Executive Order 12866.

Although this rule is being issued in proposed form to secure the

benefit of public comment, 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 is required, the provisions

of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.

There is no new collection of information contained in this

proposed rule, and, therefore, the Paperwork Reduction Act does not

apply. The collections of information of 31 CFR Part 356 have been

previously approved by the Office of Management and Budget under

section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.

Chapter 35) under control number 1535-0112. Under this Act, an agency

may not conduct or sponsor, and a person is not required to respond to,

a collection of information unless it displays a valid OMB control

number.

List of Subjects in 31 CFR Part 356

Bonds, Federal Reserve System, Government securities, Securities.

Dated: September 23, 1996.

Donald V. Hammond,

Deputy Fiscal Assistant Secretary.

For the reasons set forth in the preamble, 31 CFR Chapter II,

Subchapter B, Part 356, is proposed to be amended as follows:

PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS,

NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT

SERIES NO. 1-93)

1. The authority citation for part 356 continues to read as

follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

2. Section 356.2 is amended by revising the definitions of

``Accrued interest,'' ``Book-entry security,'' ``Customer,'' ``Interest

Rate,'' ``Multiple-price auction,'' ``Par amount,'' ``Settlement

amount,'' ``STRIPS,'' and ``Yield;'' and adding in alphabetical order

the definitions of ``Business day,''

[[Page 50930]]

``Consumer Price Index,'' ``Daily interest decimal,'' ``Index,''

``Index ratio,'' ``Inflation-adjusted principal,'' ``Real yield,'' and

``Reference CPI'' to read as follows:

Sec. 356.2 Definitions.

* * * * *

Accrued interest means an amount payable to the Department for such

part of the next semiannual interest payment that represents interest

income attributed to the period prior to the date of issue. (See

Appendix B, Section I, Paragraph C.)

* * * * *

Book-entry security means a security the issuance and maintenance

of which are represented by an accounting entry or electronic record

and not by a certificate. Treasury book-entry securities may generally

be held in either TRADES or in TREASURY DIRECT. (See Sec. 356.3.)

Business day means any day other than a Saturday, Sunday, or other

day on which the Federal Reserve Banks are not open for business.

* * * * *

Consumer Price Index (CPI) means the non-seasonally adjusted U.S.

City Average All Items Consumer Price Index for All Urban Consumers,

published by the Bureau of Labor Statistics of the Department of Labor.

(See Appendix D.)

* * * * *

Customer means a bidder on whose behalf a depository institution or

dealer has been directed to submit or forward a competitive or

noncompetitive bid for a specified amount of securities in a specific

auction. Only depository institutions and dealers may submit or forward

bids for customers, whether directly to a Federal Reserve Bank or the

Bureau of the Public Debt, or through an intermediary depository

institution or dealer.

Daily interest decimal means, for a fixed-principal security, the

interest factor attributable to one day of an interest payment period

per $1,000 par amount.

* * * * *

Index means the Consumer Price Index, which is used as the basis

for making adjustments to principal amounts of inflation-protection

securities. (See Appendix D.)

Index ratio means, for any particular date and any particular

inflation-protection security, the Reference CPI applicable to such

date divided by the Reference CPI applicable to the original issue date

(or dated date, when the dated date is different from the original

issue date). (See Appendix B, Section I, Paragraph B.)

Inflation-adjusted principal means, for an inflation-protection

security, the value of the security derived by multiplying the par

amount by the applicable index ratio as described in Appendix B,

Section I, Paragraph B.

Interest rate means the annual percentage rate of interest paid on

the par amount or the inflation-adjusted principal of a specific issue

of notes or bonds. (See Appendix B for methods and examples of interest

calculations on notes and bonds.)

* * * * *

Multiple-price auction means an auction in which each successful

competitive bidder pays the price equivalent to the yield or rate that

it bid.

* * * * *

Par amount means the stated value of a security at original

issuance.

* * * * *

Real yield means, for an inflation-protection security, the yield

based on the payment stream in constant dollars, i.e., before

adjustment by the index ratio.

Reference CPI (Ref CPI) means, for an inflation-protection

security, the index number applicable to a given date. (See Appendix B,

Section I, Paragraph B.)

* * * * *

Settlement amount means the par amount of securities awarded less

any discount amount and plus any premium amount and/or any accrued

interest. For inflation-protection securities, the settlement amount

also includes any inflation adjustment when such securities are

reopened or when the dated date is different from the issue date.

* * * * *

STRIPS (Separate Trading of Registered Interest and Principal of

Securities) means the Department's program under which eligible

securities are authorized to be separated into principal and interest

components, and transferred separately. These components are maintained

in book-entry accounts, and transferred, in TRADES.

* * * * *

Yield, also referred to as ``yield to maturity,'' means the

annualized rate of return to maturity on a fixed-principal security

expressed as a percentage. For an inflation-protection security, yield

means the real yield. (See Appendix B.)

3. Section 356.3 is amended by revising the introductory paragraph

and the heading of paragraph (a) and removing footnote 1; adding three

sentences at the end of paragraph (a); and adding a second sentence at

the end of paragraph (b), to read as follows:

Sec. 356.3 Book-entry securities and systems.

Securities issued subject to this Part shall be held and

transferred in either of the two book-entry securities systems--TRADES

or TREASURY DIRECT--described in this section. Securities are

maintained and transferred, to the extent authorized in 31 CFR 357, in

these two book-entry systems at their par amount, e.g., for inflation-

protection securities, adjustments for inflation will not be included

in this amount. Securities may be transferred from one system to the

other in accordance with Treasury regulations governing book-entry

Treasury bills, notes, and bonds. See Department of the Treasury

Circular, Public Debt Series No. 2-86, as amended (31 CFR Part 357).

(a) Treasury/Reserve Automated Debt Entry System (TRADES). * * *

For accounts maintained in TRADES, Treasury discharges its payment

obligations when payment is credited to the applicable account

maintained at a Federal Reserve Bank or payment is made in accordance

with the instructions of the person or entity maintaining such account.

Further, neither Treasury nor the Federal Reserve Banks have any

obligations to, nor will they recognize any claims of, any person or

entity that does not have an account at a Federal Reserve Bank. In

addition, neither Treasury nor the Federal Reserve Banks will recognize

the claims of any person or entity with respect to any accounts not

maintained at a Federal Reserve Bank.

(b) * * * In TREASURY DIRECT, Treasury discharges its payment

obligations when payment is made to a depository institution for credit

to the account specified by the owner of the security, or when payment

is made in accordance with the instructions of the owner of the

security.

* * * * *

4. Section 356.5 is amended by revising the introductory text and

paragraphs (b) and (c) to read as follows:

Sec. 356.5 Description of securities.

Securities offered pursuant to this Part are offered exclusively in

book-entry form and are direct obligations of the United States, issued

under Chapter 31 of Title 31 of the United States Code. The securities

are subject to the terms and conditions set forth in this Part,

including the appendices, as well as the regulations governing book-

entry Treasury bills, notes, and bonds (31 CFR Part 357), and the

offering announcements, all to the extent applicable. When the

Department issues additional securities with the same CUSIP number as

outstanding

[[Page 50931]]

securities, all securities with the same CUSIP number are considered

the same security.

* * * * *

(b) Treasury notes--(1) Treasury fixed-principal \1\ notes.

Treasury fixed-principal notes are issued with a stated rate of

interest to be applied to the par amount, have interest payable

semiannually, and are redeemed at their par amount at maturity. They

are sold at discount, par, or premium, depending upon the auction

results. They have maturities of at least one year, but not more than

ten years.

---------------------------------------------------------------------------

\1\ The term ``fixed-principal'' is used in this Part to

distinguish such securities from ``inflation-protection''

securities. Fixed-principal notes and fixed-principal bonds are

referred to as ``notes'' and ``bonds'' in official Treasury

publications, such as offering announcements and auction results

press releases, as well as in auction systems.

---------------------------------------------------------------------------

(2) Treasury inflation-protection notes. Treasury inflation-

protection notes are issued with a stated rate of interest to be

applied to the inflation-adjusted principal on each interest payment

date, have interest payable semiannually, and are redeemed at maturity

at their inflation-adjusted principal, or at their par amount,

whichever is greater. They are sold at discount, par, or premium,

depending upon the auction results. They have maturities of at least

one year, but not more than ten years. (See Appendix B for price and

interest payment calculations and Appendix C for Investment

Considerations.)

(c) Treasury bonds--(1) Treasury fixed-principal bonds. Treasury

fixed-principal bonds are issued with a stated rate of interest to be

applied to the par amount, have interest payable semiannually, and are

redeemed at their par amount at maturity. They are sold at discount,

par, or premium, depending upon the auction results. They typically

have maturities of more than ten years.

(2) Treasury inflation-protection bonds. Treasury inflation-

protection bonds are issued with a stated rate of interest to be

applied to the inflation-adjusted principal on each interest payment

date, have interest payable semiannually, and are redeemed at maturity

at their inflation-adjusted principal, or at their par amount,

whichever is greater. They are sold at discount, par, or premium,

depending upon the auction results. They typically have maturities of

more than ten years. (See Appendix B for price and interest payment

calculations and Appendix C for Investment Considerations.)

5. Section 356.10 is amended by adding a sentence at the end of the

paragraph, before the parenthetical last sentence, to read as follows:

Sec. 356.10 Offering announcement.

* * * Accordingly, bidders should read the applicable offering

announcement in conjunction with this Part. * * *

6. Section 356.12 is amended by revising the first sentence of

paragraph (a); revising paragraphs (b)(2), (c)(1) (i) and (ii); and

adding new paragraph (c)(1)(iii) to read as follows:

Sec. 356.12 Noncompetitive and competitive bidding.

(a) General. All bids, including bids for reopenings, must state

the par amount of securities bid for and must equal or exceed the

minimum bid amount stated in the offering announcement. * * *

(b) * * *

(2) Additional restrictions. A bidder may not bid noncompetitively

for its own account if, in the security being auctioned, it holds or

has held a position in when-issued trading or in futures or forward

contracts at any time between the date of the offering announcement and

the designated closing time for the receipt of competitive tenders. * *

*

(c) * * *

(1) * * *

(i) Treasury bills. A competitive bid must show the discount rate

bid, expressed with two decimals, e.g., 3.10. Fractions may not be

used.

(ii) Treasury fixed-principal securities. A competitive bid must

show the yield bid, expressed with three decimals, e.g., 4.170.

Fractions may not be used.

(iii) Treasury inflation-protection securities. A competitive bid

must show the real yield bid, expressed with three decimals, e.g.,

3.070. Fractions may not be used.

* * * * *

7. Section 356.13 is amended by revising paragraph (a) to read as

follows:

Sec. 356.13 Net long position.

(a) Reporting net long positions. When bidding competitively, a

bidder must report the amount of its net long position when the total

of all of its bids in an auction plus the bidder's net long position in

the security being auctioned equals or exceeds the net long position

reporting threshold amount. The threshold amount for any particular

security will be as stated in the offering announcement for that

security. (See Sec. 356.10.) That amount will be $2 billion for bills,

notes, and bonds unless otherwise stated in the offering announcement.

For example, the net long position reporting threshold amount may be

less than $2 billion for smaller security offerings, e.g., certain

inflation-protection securities or cash management bills. If the bidder

either has no position or has a net short position and the total of all

of its bids equals or exceeds the threshold amount, e.g., $2 billion, a

net long position of zero must be reported. * * *

* * * * *

8. Section 356.17 is amended by revising the last sentence in the

introductory paragraph and the introductory text of paragraphs (a) and

(b) to read as follows:

Sec. 356.17 Responsibility for payment.

* * * The specific requirements, outlined in this section, depend

on whether awarded securities will be delivered in TREASURY DIRECT or

TRADES.

(a) TREASURY DIRECT. For securities to be held in TREASURY DIRECT,

payment of the par amount and announced accrued interest and/or

inflation adjustment, if any, must be submitted with the tender unless

other provision has been made, such as provision for payment by charge

to the funds account of a depository institution.

* * * * *

(b) TRADES. For securities to be held in TRADES, payment of the par

amount and announced accrued interest and/or inflation adjustment, if

any, must be submitted with the tender unless provision has been made

for payment by charge to the funds account of a depository institution.

* * * * *

9. Section 356.20 is amended by revising the introductory text of

paragraph (c) and adding a sentence to the end of paragraph (c)(2) to

read as follows:

Sec. 356.20 Determination of auction awards.

* * * * *

(c) Determining purchase prices for awarded securities. Price

calculations will be rounded to three decimal places on the basis of

price per hundred, e.g., 99.954. (See Appendix B.)

* * * * *

(2) * * * For inflation-protection securities, the price of such

securities will be the price equivalent to the highest real yield at

which bids were accepted.

10. Section 356.25 is amended by revising the last sentence in

paragraph (a)(2), and adding paragraph (c) to read as follows:

Sec. 356.25 Payment for awarded securities.

* * * * *

(a) * * *

(2) * * * Such additional amount may be due if the auction

calculations result

[[Page 50932]]

in a premium or if accrued interest and/or inflation adjustment is due.

* * * * *

(c) Amount of payment for awarded securities. The payment amount

for awarded securities will be the settlement amount as defined in

Sec. 356.2. (See formulas in Appendix B.)

11. Section 356.30 is amended by redesignating the text of the

current section as (a), adding a heading of ``General'' and revising

the last sentence in newly redesignated paragraph (a), and adding

paragraph (b) to read as follows:

Sec. 356.30 Payment of principal and interest on notes and bonds.

(a) General. * * * In the event any principal or interest payment

date is not a business day, the amount is payable (without additional

interest) on the next business day.

(b) Treasury inflation-protection securities. If at maturity the

inflation-adjusted principal is less than the par amount of the

security, an additional amount will be paid at maturity so that the

additional amount plus the inflation-adjusted principal equals the par

amount. If a security has been stripped, any such additional amount

will be paid at maturity to holders of principal components only.

Regardless of whether or not an additional amount is paid, the final

interest payment will be based on the inflation-adjusted principal at

maturity.

12. Section 356.31 is amended by revising paragraph (a) and the

first sentence of paragraph (b), redesignating paragraphs (c) and (d)

as paragraphs (g) and (h) respectively, adding new paragraphs (c)

through (f), adding a third and fourth sentence to newly redesignated

paragraph (g) and revising newly redesignated paragraph (h) to read as

follows:

Sec. 356.31 STRIPS.

(a) General. A note or bond may be designated in the offering

announcement as eligible for the STRIPS program. At the option of the

holder, and generally at any time from its issue date until its call or

maturity, any such security may be ``stripped,'' i.e., divided into

separate principal and interest components. A short or long first

interest payment and all interest payments within a callable period are

not eligible to be stripped from the principal component. The CUSIP

numbers and payment dates for the principal and interest components are

provided in the offering announcement if not previously announced.

(b) Minimum par amounts required for STRIPS. For a note or bond to

be stripped into the components described above, the par amount, which

is not adjusted for inflation, of the note or bond must be in an amount

that, based on its interest rate, will produce a semiannual interest

payment in a multiple of $1,000. * * *

(c) Principal components stripped from fixed-principal securities.

Principal components stripped from fixed-principal securities are

maintained in accounts, and transferred, in TRADES at their par amount.

The principal components have a CUSIP number that is different from the

CUSIP number of the fully-constituted (unstripped) security.

(d) Interest components stripped from fixed-principal securities.

Interest components stripped from fixed-principal securities are

maintained in accounts, and transferred, in TRADES at their original

payment value, which is derived by applying the semiannual interest

rate to the par amount. When an interest component is created, the

interest payment date becomes the maturity date for the component. All

such components with the same maturity date have the same CUSIP number,

regardless of the underlying security from which the interest payments

were stripped. All interest components have CUSIP numbers that are

different from the CUSIP number of any fully-constituted security and

any principal component.

(e) Principal components stripped from inflation-protection

securities. Principal components stripped from inflation-protection

securities are maintained in accounts, and transferred, in TRADES at

their par amount. At maturity, the holder will receive the inflation-

adjusted principal value or the par amount, whichever is greater. (See

Sec. 356.30.) Principal components have a CUSIP number that is

different from the CUSIP number of the fully-constituted (unstripped)

security.

(f) Interest components stripped from inflation-protection

securities. Interest components stripped from inflation-protection

securities are maintained in accounts, and transferred, in TRADES at

their original payment value, which is derived by applying the

semiannual interest rate to the par amount. When an interest component

is created, the interest payment date becomes the maturity date for the

component. Each such component has a unique CUSIP number that is

different from the CUSIP number of any interest components stripped

from different securities, even if the components have the same

maturity date. All interest components have CUSIP numbers that are

different from the CUSIP number of any fully-constituted security and

any principal component. At maturity, the payment to the holder will be

derived by applying the semiannual interest rate to the inflation-

adjusted principal of the underlying security.

(g) Reconstituting a security. * * * Interest components stripped

from inflation-protection securities are different from interest

components stripped from fixed-principal securities and, accordingly,

are not interchangeable for reconstitution purposes. Interest

components stripped from one inflation-protection security are not

interchangeable for reconstitution purposes with interest components

stripped from another inflation-protection security.

(h) Applicable regulations. Unless otherwise provided in this Part,

notes and bonds stripped into their STRIPS components are governed by

Subparts A, B and D of Part 357 of this title.

13. Section 356.32 is revised to read as follows:

Sec. 356.32 Taxation.

(a) General. Securities issued under this Part are subject to all

applicable taxes imposed under the Internal Revenue Code of 1986, or

successor. Under section 3124 of Title 31, United States Code, the

securities are exempt from taxation by a State or political subdivision

of a State, except for State estate or inheritance taxes and other

exceptions as provided in that section.

(b) Treasury inflation-protection securities. Special federal

income tax rules for inflation-protection securities, and principal and

interest components stripped from such securities, are set forth in

Internal Revenue Service regulations.

14. Appendix B to Part 356 is amended by revising the list of

section titles, and adding two new paragraphs following the list to

read as follows:

Appendix B to Part 356--Formulas and Tables

I. Computation of Interest on Treasury Bonds and Notes.

II. Formulas for Conversion of Fixed-Principal Security Yields to

Equivalent Prices.

III. Formulas for Conversion of Inflation-Protection Security Yields

to Equivalent Prices.

IV. Computation of Purchase Price, Discount Rate, and Investment

Rate (Coupon-Equivalent Yield) for Treasury Bills.

The numbers in this appendix are examples given for illustrative

purposes only and are in no way a prediction of interest rates on any

bills, notes, or bonds issued under this Part.

In some of the following examples, intermediate rounding is used to

allow

[[Page 50933]]

the reader to follow the calculations. In actual practice, the

Department generally does not round prior to determining the final

result.

15. Appendix B, Section I is amended as follows: by redesignating

paragraphs A through D and their corresponding Examples as paragraphs

A.1. through A.4. respectively, and adding a new title for paragraph A,

revising newly redesignated paragraph A.1., revising the first sentence

in newly redesignated paragraphs A.2., A.3. and its Example, and A.4.

and its Example; by adding a new paragraph B; and by redesignating

paragraph E as paragraph C, revising the second paragraph, adding a

third paragraph prior to the Examples in newly redesignated paragraph

C., redesignating the headings for Examples C. (1) and (2) as C.(1)(i)

and C.(1)(ii) respectively, and adding a new heading for Example C.(1).

I. Computation of Interest on Treasury Bonds and Notes

A. Treasury Fixed-Principal Securities

1. Regular Half-Year Payment Period

Interest on marketable fixed-principal securities is payable on a

semiannual basis. The regular interest payment period is a full half-

year of six calendar months. Examples of half-year periods are: (1)

February 15 to August 15, (2) May 31 to November 30, and (3) February

29 to August 31 (in a leap year). Calculation of an interest payment

for a fixed-principal security with a par amount of $1,000 and an

interest rate of 8% is made in this manner: ($1,000 x .08) $40.

Specifically, a semiannual interest payment represents one half of one

year's interest, and is computed on this basis regardless of the actual

number of days in the half-year.

2. Daily Interest Decimal

In cases where an interest payment period for a fixed-principal

security is shorter or longer than six months or where accrued interest

is payable by an investor, a daily interest decimal, based on the

actual number of days in the half-year or half-years involved, must be

computed. ***

* * * * *

3. Short First Payment Period

In cases where the first interest payment period for a fixed-

principal security covers less than a full half-year period (a ``short

coupon''), the daily interest decimal is multiplied by the number of

days from, but not including, the issue date to, and including, the

first interest payment date, resulting in the amount of the interest

payable per $1,000 par amount.* * *

Example. A 2-year fixed-principal note paying 8\3/8\% interest

was issued on July 2, 1990, with the first interest payment on

December 31, 1990. * * *

4. Long First Payment Period

In cases where the first interest payment period for a fixed-

principal security covers more than a full half-year period (a ``long

coupon''), the daily interest decimal is multiplied by the number of

days from, but not including, the issue date to, and including, the

last day of the fractional period that ends one full half-year before

the interest payment date. * * *

Example. A 5-year 2-month fixed-principal note paying 7-7/8%

interest was issued on December 3, 1990, with the first interest

payment due on August 15, 1991. * * *

B. Treasury Inflation-Protection Securities

1. Indexing Process

Interest on marketable Treasury inflation-protection securities is

payable on a semiannual basis. The inflation-protection securities are

issued with a stated rate of interest which remains constant for the

term of the particular security. Interest payments are based on the

security's inflation-adjusted principal at the time interest is paid.

This adjustment is made by multiplying the par amount of the security

by the applicable index ratio.

2. Index Ratio

The numerator of the Index ratio, the Ref CPIDate, is the index

number applicable for a specific day, and the denominator of the Index

ratio is the Ref CPI applicable for the original issue date. However,

when the dated date is different from the original issue date, the

denominator is the Ref CPI applicable for the dated date. The formula

for calculating the Index ratio is:

[GRAPHIC] [TIFF OMITTED] TP27SE96.000

Where Date = valuation date

Treasury does not intend to publish the Index ratio for use by

market participants. Rather dealers, financial institutions, and other

market participants that need the Index ratio for trading purposes are

expected to calculate the ratio using the formula provided above.

3. Reference CPI

The Ref CPI for the first day of any calendar month is the CPI for

the third preceding calendar month. For example, the Ref CPI applicable

to April 1 in any year is the CPI for January, which is reported in

February. The Ref CPI for any other day of a month is determined by a

linear interpolation between the Ref CPI applicable to the first day of

the month in which such day falls (in the example, January) and the Ref

CPI applicable to the first day of the month immediately following (in

the example, February). For purposes of interpolation, calculations

with regard to the Ref CPI and the Index ratio for a specific date will

be truncated to six decimal places and rounded to five decimal places

such that the Ref CPI and the Index ratio for that date will be

expressed to five decimal places. The formula for the Ref CPI for a

specific date is:

[GRAPHIC] [TIFF OMITTED] TP27SE96.001

Where Date = valuation date

D = the number of days in the month in which Date falls

t = the calendar day corresponding to Date

Ref CPIM = Ref CPI for the first day of the calendar month in which

Date falls

Ref CPIM + 1 = Ref CPI for the first day of the calendar month

immediately following Date

For example, the Ref CPI for April 15, 1996 is calculated as

follows:

[GRAPHIC] [TIFF OMITTED] TP27SE96.002

[[Page 50934]]

where D = 30, t = 15

Ref CPIApril 1, 1966 = 154.40, the nonseasonally adjusted CPI-U

for January 1996.

Ref CPIMay 1, 1966 = 154.90, the nonseasonally adjusted CPI-U for

February 1996.

Putting these values in the equation above:

[GRAPHIC] [TIFF OMITTED] TP27SE96.003

This value truncated to six decimals is 154.633333; rounded to five

decimals it is 154.63333.

To calculate the index ratio for April 16, 1996, for an inflation-

protection security issued on April 15, 1996, the Ref CPIApril 16,

1966 must first be calculated. Using the same values in the equation

above except that t=16, the Ref CPIApril 16, 1966 is 154.65000.

The index ratio for April 16, 1996 is: Index RatioApril 16,

1966 = 154.65000/154.63333 = 1.000107803.

This value truncated to six decimals is 1.000107; rounded to five

decimals it is 1.00011.

4. Index Contingencies

If a previously reported CPI is revised, Treasury will continue to

use the previously reported CPI in calculating the principal value or

interest payments.

If the CPI is rebased to a different year, Treasury will continue

to use the CPI based on the base reference period in effect when the

security was first issued, as long as that CPI continues to be

published.

If the CPI is discontinued or substantially altered while an

inflation-protection security is outstanding, Treasury will consult

with the Bureau of Labor Statistics, or any successor agency, to

determine an appropriate substitute index and methodology for linking

the two series. Treasury will then notify the public of the substitute

index and methodology. Determinations of the Secretary in this regard

will be final.

If the CPI for a particular month is not reported by the last day

of the following month, the Treasury will announce an index number

based on the last twelve-month change in the CPI available. Any

calculations of the Treasury's payment obligations on the inflation-

protection security that rely on that month's CPI will be based on the

index number that the Treasury has announced. For example, if the CPI

for month M is not reported timely, the formula for calculating the

index number to be used is:

[GRAPHIC] [TIFF OMITTED] TP27SE96.004

This index number will be used for all subsequent calculations that

rely on that month's index number and will not be replaced by the

actual CPI when it is reported.

Generalizing for the last reported CPI issued N months prior to

month M:

[GRAPHIC] [TIFF OMITTED] TP27SE96.005

5. Computation of Interest for a Regular Half-Year Payment Period

Interest on marketable Treasury inflation-protection securities is

payable on a semiannual basis. The regular interest payment period is a

full half-year or six calendar months. Examples of half-year periods

are January 15 to July 15, and April 15 to October 15. An interest

payment will be a fixed percentage of the value of the inflation-

adjusted principal, in current dollars, for the date on which it is

paid. Interest payments will be calculated by multiplying one-half of

the specified annual interest rate for the inflation-protection

securities by the inflation-adjusted principal for the interest payment

date. Specifically, a semiannual interest payment is computed on the

basis of one half of one year's interest regardless of the actual

number of days in the half-year.

Example. A 10-year inflation-protection note paying 3% interest

was issued on July 15, 1996, with the first interest payment on

January 15, 1997. The Ref CPI on July 15, 1996 (Ref CPIIssue

Date) was 120, and the Ref CPI on January 15, 1997 (Ref

CPIDate) was 132. For a par amount of $100,000, the inflation

adjusted principal on January 15, 1997 was (132/120) x $100,000,

or $110,000. This amount was then multiplied by .03/2, or .015,

resulting in a payment of $1,650.00.

C. Accrued Interest

* * * * *

For a fixed-principal security, if accrued interest covers a

fractional portion of a full half-year period, the number of days in

the full half-year period and the stated interest rate will determine

the daily interest decimal to be used in computing the accrued

interest. The decimal is multiplied by the number of days for which

interest has accrued. If a reopened fixed-principal security has a long

first interest payment period (a ``long coupon''), and the dated date

for the reopened issue is less than six full months before the first

interest payment, the accrued interest will fall into two separate

half-year periods, and a separate daily interest decimal must be

multiplied by the respective number of days in each half-year period

during which interest has accrued. All accrued interest computations

are rounded to five decimal places for a $1,000 inflation-adjusted

principal, using normal rounding procedures. Accrued interest for a par

amount of securities greater than $1,000 is calculated by applying the

appropriate multiple to accrued interest payable for $1,000 par amount,

rounded to five decimal places.

For an inflation-protection security, accrued interest will be

calculated as shown in Section III, Paragraphs A and B of this

Appendix.

Examples. (1) Fixed-Principal Securities

(i) Involving One Half-Year: * * *

(ii) Involving Two Half-Years: * * *

16. Appendix B, Section II is amended by removing footnote 1, revising

the Section heading, revising the definition of ``C='', and revising

the headings of paragraphs A through G to read as follows:

II. Formulas for Conversion of Fixed-Principal Security Yields to

Equivalent Prices

Definitions

* * * * *

C = the regular annual interest per $100, payable semiannually, e.g.,

10.125 (the dollar equivalent of a 10-\1/8\% interest rate)

* * * * *

[[Page 50935]]

A. For fixed-principal securities with a regular first interest

payment period:

* * * * *

B. For fixed-principal securities with a short first interest

payment period:

* * * * *

C. For fixed-principal securities with a long first interest

payment period:

* * * * *

D. (1) For fixed-principal securities reopened during a regular

interest period where the purchase price includes predetermined accrued

interest.

(2) For new fixed-principal securities accruing interest from the

coupon frequency date immediately preceding the issue date, with the

interest rate established in the auction being used to determine the

accrued interest payable on the issue date.

* * * * *

E. For fixed-principal securities reopened during the regular

portion of a long first payment period:

* * * * *

F. For fixed-principal securities reopened during a short first

payment period:

* * * * *

G. For fixed-principal securities reopened during the fractional

portion (initial short period) of a long first payment period:

* * * * *

17. Appendix B is amended by redesignating Section III as Section

IV and adding a new Section III to read as follows:

III. Formulas for Conversion of Inflation-Protection Security

Yields to Equivalent Prices

Definitions

P = unadjusted or real price per 100 (dollars)

Padj = inflation adjusted price; P x Index RatioDate

A = unadjusted accrued interest per $100 original principal

Aadj = inflation adjusted accrued interest; A x Index

RatioDate

SA = settlement amount including accrued interest in current dollars

per $100 original principal; Padj + Aadj

r = days from settlement date to next coupon date

s = days in current semiannual period

i = real yield, expressed in decimals (e.g., 0.0325)

C = real annual coupon, payable semiannually, in terms of real dollars

paid on $100 initial, or real, principal of the security

n = number of full semiannual periods from issue date to maturity date,

except that, if the issue date is a coupon frequency date, n will be

one less than the number of full semiannual periods remaining until

maturity. Coupon frequency dates are the two semiannual dates based on

the maturity date of each note or bond issue. For example, a security

maturing on July 15, 2026 would have coupon frequency dates of January

15 and July 15.

vn = 1/(1 + i/2)n

[GRAPHIC] [TIFF OMITTED] TP27SE96.049

Date = valuation date

D=the number of days in the month in which Date falls

t=calendar day corresponding to Date

CPI=Consumer Price Index number

Ref CPIM=reference CPI for the first day of the calendar month in

which Date falls

Ref CPIM+1=reference CPI for the first day of the calendar month

immediately following Date

Ref CPIDate=Ref CPIM+[(t-1)/D][Ref CPIM+1-Ref CPIM]

Index RatioDate=Ref CPIDate/Ref CPIIssue Date

A. For inflation-protection securities with a regular first

interest payment period:

Formulas:

[GRAPHIC] [TIFF OMITTED] TP27SE96.006

Padj=P x Index RatioDate

A=[(s-r)/s] x (C/2)

Aadj=A x Index RatioDate

SA=Padj+Aadj

Index RatioDate=Ref CPIDate/Ref CPIIssue Date

Example. The Treasury issues a 10-year inflation- protection note

on July 15, 1996. The note is issued at a discount to yield 3.1%

(real). The note bears a 3% real coupon, payable on January 15 and July

15 of each year. The base CPI index applicable to this note is 120.\1\

Calculate the settlement amount.

\1\ This number is normally derived using the interpolative

process described in Appendix B, Section I, Paragraph B.

---------------------------------------------------------------------------

Definitions:

C=3.00

i=0.0310

n=19 (There are 20 full semiannual periods but n is reduced by 1

because the issue date is a coupon frequency date.)

r=184 (July 15, 1996 to January 15, 1997)

s=184 (July 15, 1996 to January 15, 1997)

Ref CPIDate=120

Ref CPIIssue Date=120

Resolution:

Index RatioDate=Ref CPIDate/Ref CPIIssue Date=120/120=1

A=[(184-184)/184] x \3/2\=0

Aadj=0 x 1=0

vn=1/(1+i/2)n=1/(1+.031/2)\19\=0.74658863

[GRAPHIC] [TIFF OMITTED] TP27SE96.045

[GRAPHIC] [TIFF OMITTED] TP27SE96.007

P=99.14578432

Padj=P x Index RatioDate

Padj=99.14578432 x 1=99.14578432

SA=Padj+Aadj

SA=99.14578432+0=99.14578432

B. For inflation-protection securities reopened during a regular

interest period where the purchase price includes predetermined accrued

interest:

Bidding:

The dollar amount of each bid is in terms of the par amount. For

example, if the Ref CPI applicable to the issue date of the bond is

120, and the reference CPI applicable to the reopening issue date is

132, a bid of

[[Page 50936]]

$10,000 will in effect be a bid of $10,000 x (132/120), or $11,000.

Formulas:

[GRAPHIC] [TIFF OMITTED] TP27SE96.008

Padj=P x Index RatioDate

A=[(s-r)/s] x (C/2)

Aadj = A x Index RatioDate

SA = Padj + Aadj

Index RatioDate = Ref CPIDate/Ref CPIIssue Date

Example. A 3% 10-year inflation-protection note was issued July

15, 1996, due July 15, 2006, with interest payments on January 15

and July 15. For a reopening on April 15, 1997, with inflation

compensation accruing from July 15, 1996 to April 15, 1997, and

accrued interest accruing from January 15, 1997 to April 15, 1997,

(90 days) solve for the price per 100 (P) at a real yield, as

determined in the reopening auction, of 3.40%. The base index

applicable to the issue date of this note is 120 and the reference

CPI applicable to April 15, 1997, is 132.

Definitions:

C = 3.00

i = 0.0340

n = 18

r = 91 (April 15, 1997, to July 15, 1997)

s = 181 (January 15, 1997, to July 15, 1997)

Ref CPIDate = 132

Ref CPIIssue Date = 120

Resolution:

Index RatioDate = Ref CPIDate/Ref CPIIssue Date = 132/

120 = 1.100

vn = 1/(1 + i/2)a = 1/(1 + .0340/2)18 = 0.73828296

[GRAPHIC] [TIFF OMITTED] TP27SE96.047

[GRAPHIC] [TIFF OMITTED] TP27SE96.009

P = 96.841049

Padj = P x Index RatioDate

Padj = 96.841049 x 1.100 = 106.525154

A = [(181-91)/181] x 3/2 = 0.745856

Aadj = A x 1.100 = 0.820442

SA = Padj + Aadj = 106.525154 + 0.820442

SA = 107.345596

* * * * *

18. Part 356 is amended by adding new Appendixes C and D to read as

follows:

Appendix C to Part 356--Investment Considerations

I. Inflation-Protection Securities

A. Principal and Interest Variability

An investment in securities with principal or interest determined

by reference to an inflation index involves factors not associated with

an investment in a fixed-principal security. Such factors may include,

without limitation, the possibility that the inflation index may be

subject to significant changes, that changes in the index may or may

not correlate to changes in interest rates generally or with changes in

other indices, that the resulting interest may be greater or less than

that payable on other securities of similar maturities, and that, in

the event of sustained deflation, the amount of the semiannual interest

payments, the inflation-adjusted principal of the security, and the

value of stripped components, will decrease. However, if at maturity

the inflation-adjusted principal is less than a security's par amount,

an additional amount will be paid at maturity so that the additional

amount plus the inflation-adjusted principal equals the par amount.

Regardless of whether or not such an additional amount is paid,

interest payments will always be based on the inflation-adjusted

principal as of the interest payment date. If a security has been

stripped, any such additional amount will be paid at maturity to

holders of principal components only. (See Sec. 356.30.)

B. Trading in the Secondary Market

The Treasury securities market is the largest and most liquid

securities market in the world. While Treasury expects that there will

be an active secondary market for inflation-protection securities, that

market initially may not be as active or liquid as the secondary market

for Treasury fixed-principal securities. In addition, as a new product,

inflation-protection securities may not be as widely traded or as well

understood as Treasury fixed-principal securities. Lesser liquidity and

fewer market participants may result in larger spreads between bid and

asked prices for inflation-protection securities than the bid-asked

spreads for fixed-principal securities with the same time to maturity.

Larger bid-asked spreads normally result in higher transaction costs

and/or lower overall returns. The liquidity of an inflation-protection

security may be enhanced over time as Treasury issues additional

amounts or more entities participate in the market.

C. Tax Considerations

Treasury inflation-protection securities and the stripped interest

and principal components of these securities are subject to specific

tax rules provided by Treasury regulations issued under sections

1275(d) and 1286 of the Internal Revenue Code of 1986, as amended.

D. Indexing Issues

While the CPI measures changes in prices for goods and services,

movements in the CPI that have occurred in the past are not necessarily

indicative of changes that may occur in the future.

The calculation of the index ratio incorporates an approximate

three-month lag, which may have an impact on the trading price of the

securities, particularly during periods of significant, rapid changes

in the index.

The CPI is reported by the Bureau of Labor Statistics, a bureau

within the Department of Labor. The Bureau of Labor Statistics operates

independently of the Treasury and, therefore, Treasury has no control

over the determination, calculation, or publication of the index. For a

discussion of how the CPI will be applied in various situations, see

Appendix B, Section I, Paragraph B.

Appendix D to Part 356--Description of the Consumer Price Index

The Consumer Price Index (``CPI'') for purposes of inflation-

protection securities is the non-seasonally adjusted U.S. City Average

All Items Consumer Price Index for All Urban Consumers, published

monthly by the Bureau of Labor Statistics of the Department of Labor.

The CPI is a measure of the average change in consumer prices over time

in a fixed market basket of goods and services, including food,

clothing, shelter, fuels, transportation, charges for doctors' and

dentists' services, and drugs.

In calculating the index, price changes for the various items are

averaged together with weights that represent their importance in the

spending of urban households in the United States. The contents of the

market basket of goods and services and the weights assigned to the

various items are updated periodically to take into account changes in

consumer expenditure patterns.

[[Page 50937]]

The CPI is expressed in relative terms in relation to a time base

reference period for which the level is set at 100. For example, if the

CPI for the 1982-84 reference period is 100.0, an increase of 16.5

percent from that period would be shown as 116.5. The CPI for a

particular month is released and published during the following month.

From time to time, the CPI is rebased to a more recent base reference

period. The base reference period for a particular inflation-protection

security will be provided on the offering announcement for that

security.

Further details about the CPI may be obtained by contacting the

Bureau of Labor Statistics.

19. Exhibit A to Part 356 is amended by adding a new Section IV to

the list of section titles and to the text of Exhibit A to read as

follows:

Exhibit A to Part 356--Sample Announcements of Treasury Offerings to

the Public

* * * * *

IV. Treasury Inflation-Protection Note Announcement

* * * * *

IV. Treasury Inflation-Protection Note Announcement

EMBARGOED UNTIL 2:30 P.M. October 2, 20XX

CONTACT: Office of Financing 202/219-3350

TREASURY TO AUCTION $5,500 MILLION OF 10-YEAR INFLATION-PROTECTION

NOTES

The Treasury will auction $5,500 million of 10-year inflation-

protection notes to raise cash. In addition, there is $7,906 million of

publicly-held securities maturing October 15, 20XX.

In addition to the public holdings, Federal Reserve Banks hold $327

million of the maturing securities for their own accounts, which may be

exchanged for additional amounts of the new securities.

The maturing securities held by the public include $584 million

held by Federal Reserve Banks as agents for foreign and international

monetary authorities. Amounts bid for these accounts by Federal Reserve

Banks will be added to the offering.

The auction will be conducted in the single-price auction format.

All competitive and noncompetitive awards will be at the highest yield

of accepted competitive tenders.

Tenders will be received at Federal Reserve Banks and Branches and

at the Bureau of the Public Debt, Washington, D.C. This offering of

Treasury securities is governed by the terms and conditions set forth

in the Uniform Offering Circular (31 CFR Part 356) for the sale and

issue by the Treasury to the public of marketable Treasury bills,

notes, and bonds.

Details about the new security are given in the attached offering

highlights.

HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF 10-YEAR INFLATION-

PROTECTION NOTES TO BE ISSUED OCTOBER 15, 20XX

October 2, 20XX

Offering Amount........................... $5,500 million

Description of Offering:

Term and type of security................. 10-year inflation-protection

notes

Series.................................... D-20XX

CUSIP number.............................. 912XXX XX X

Auction date.............................. October 9, 20XX

Issue date................................ October 15, 20XX

Dated date................................ October 15, 20XX

Maturity date............................. October 15, 20XX

Interest Rate............................. Determined based on the

highest accepted bid

Real yield................................ Determined at auction

Interest payment dates.................... April 15 and October 15

Minimum bid amount........................ $1,000

Multiples................................. $1,000

Accrued interest payable by investor...... None

Premium or discount....................... Determined at auction

STRIPS Information:

Minimum amount required................... Determined at auction

Corpus CUSIP number....................... 912XXX XX X

Due dates and CUSIP numbers for additional TINTs:

912XXX

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

April 15, 20XX............................................... XX X

October 15, 20XX............................................. XX X

Submission of Bids:

Noncompetitive bids: Will be accepted in full up to $5,000,000 at

the highest accepted yield.

Competitive bids:

(1) Must be expressed as a real yield with three decimals, e.g.,

3.120%.

(2) Net long position for each bidder must be reported when the

sum of the total bid amount, at all yields, and the net long

position is $____ billion or greater.

(3) Net long position must be determined as of one half-hour

prior to the closing time for receipt of competitive tenders.

Maximum Recognized Bid at a Single Yield: 35% of public offering

Maximum Award: 35% of public offering

Receipt of Tenders:

Noncompetitive tenders: Prior to 12:00 noon Eastern Daylight Saving

time on auction day.

Competitive tenders: Prior to 1:00 p.m. Eastern Daylight Saving time

on auction day.

Payment Terms: Full payment with tender or by charge to a funds

account at a Federal Reserve Bank on issue date.

Indexing Information:

CPI Base Reference Period: 19XX-XX

Ref CPI 10/15/20XX: XXX.XXXXX

[FR Doc. 96-24860 Filed 9-25-96; 12:09 pm]

BILLING CODE 4810-39-W