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 publishing in final form 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 amendment makes

changes necessary to accommodate the public offering of new Treasury

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

amendment makes certain technical clarifications and conforming

changes. The proposed rule was published for public comment on

September 27, 1996.

EFFECTIVE DATE: January 6, 1997.

ADDRESS: This rule has been made available for downloading from the

Bureau of the Public Debt web site at the following address:

www.publicdebt.treas.gov.

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), August 23, 1996 (61 FR 43626),

and October 22, 1996 (61 FR 54908).

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

referred to as a Treasury inflation-indexed 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-indexed 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-indexed notes and inflation-indexed bonds in order to give

the Department the flexibility to issue both types of securities in

the future. However, the Department initially plans to offer only

one maturity, a 10-year note. Inflation-indexed securities were

referred to as inflation-protection securities in the proposed rule.

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As explained in more detail below, after considering the comments

provided, Treasury has determined that the structure of the inflation-

indexed securities will remain unchanged from its description in the

proposed rule. The securities will be based, with some modifications,

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 these

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

Items Consumer Price Index for All Urban Consumers (``CPI'' or ``CPI-

U'') published monthly by the Bureau of Labor Statistics of the U.S.

Department of Labor.

Further, the Department has announced its intention to begin

auctioning inflation-indexed securities in January 1997 and quarterly

thereafter. The first auction will be of 10-year inflation-indexed

notes. Specific terms and conditions of each issue, including the

auction date, issue date, and public offering amount, will be announced

prior to each auction. Over time, the Department expects to offer

additional maturities of inflation-indexed securities, such as 30-year

bonds or shorter-term notes. The Department expects to offer the first

additional maturity later in 1997.

The inflation-adjusted principal value of the securities can be

obtained for any date by multiplying the stated value at issuance, or

par amount, by the index ratio applicable to that date. The index ratio

is the reference CPI applicable to a particular valuation date divided

by the reference CPI applicable to the original issue date. The

inflation adjustment to the principal will not be payable until

maturity, when the securities will be redeemed at the greater of their

inflation-adjusted principal amount or par 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-indexed notes will be issued with maturities of at least

one year but not more than ten years. Inflation-indexed bonds, when

offered, will be issued with maturities of more than ten years. The

inflation-indexed securities will be sold at discount, par, or premium

and will pay interest semiannually. The auctions for inflation-indexed

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., 3.230%. The interest rate established as a result of

the auction will generally 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-

indexed security will contain the specific details for that offering.

The inflation-indexed securities will be eligible for the STRIPS

program (Separate Trading of Registered Interest and Principal of

Securities) immediately upon their issuance by the Treasury.

The securities will also be eligible to serve as collateral for

Treasury programs (e.g., Treasury Tax and Loan accounts). Anyone

interested in the use of inflation-indexed securities for such

collateral purposes should contact the Department's Office of the

Fiscal Assistant Secretary for more information. The Department also

intends to make components stripped from these securities eligible for

collateral at a later date. The Department will notify the public of

their eligibility when the valuation of the stripped components for

collateral purposes has been determined.

II. Comments Received in Response to the Proposed Rule

The Department published for public comment a proposed amendment to

the uniform offering circular on September 27, 1996,3 which laid

out the proposed structure, design, terms, and conditions of the new

inflation-indexed security. The closing date for comments was October

28, 1996. A few minor typographical and technical errors in the

proposed rule text and formulas were subsequently corrected and

[[Page 847]]

changed in a correction notice published on October 4, 1996.4

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\3\ 61 FR 50924 (September 27, 1996).

\4\ 61 FR 51851 (October 4, 1996).

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In developing the proposed rule, the Department took into

consideration the numerous comments, suggestions, and recommendations

that were received in response to two Advance Notices of Proposed

Rulemakings; 5 at more than 30 meetings attended by more than 800

investors, dealers and interested parties in nine cities world-wide;

and at a public symposium sponsored by the Department. The Department

believes that this extensive discussion with, and participation by,

market participants in the design of the inflation-indexed security was

extremely useful in developing a new investment product that will have

wide acceptance and broad market appeal.

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\5\ 61 FR 25164 (May 20, 1996) and 61 FR 38127 (July 23, 1996).

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The Department received eight letters from seven commenters in

response to the proposed rule.6 The letters, listed

chronologically in order of date received, were submitted by Apex

Investment Associates, Inc.; Reed Smith Shaw & McClay; Wrightson

Associates; L. Napoleon Cooper (two letters); Robert L. Elgin; HSBC

Securities, Inc.; and PSA The Bond Market Trade Association.7

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\6\ The comment letters are available to the public for

inspection and downloading on the Internet, at the address provided

earlier in this rule, and for inspection and copying at the Treasury

Department Library, Room 5030, Main Treasury Building, 1500

Pennsylvania Avenue NW., Washington, DC. 20220.

\7\ See letters from Alexander A. Lothan, President, Apex

Investment Associates, Inc. (September 26, 1996); William Morris,

Reed Smith Shaw & McClay (September 27, 1996); Louis Crandall,

Wrightson Associates (October 21, 1996); L. Napoleon Cooper (October

23 and November 12, 1996); Robert L. Elgin (October 25, 1996);

Robert D. Sbarra, Chief Operating Officer-Fixed Income, HSBC

Securities, Inc. (October 25, 1996); Edwin F. Payne, Chairman, PSA

Government and Federal Agency Division, PSA The Bond Market Trade

Association (November 6, 1996).

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Two commenters proposed an entirely different security structure.

One of these commenters submitted a proposal that would allow for a new

series of federal debt, and would result in a substantially different

structure. The other commenter proposed a structure for, and suggested

features to be incorporated in, a non-marketable, floating rate,

inflation-indexed savings bond. A third commenter expressed support for

the process of involving market participants in the design and

implementation of these securities, and stated, ``as far as the

securities themselves are concerned, there is little or nothing we

would care to ask be changed.'' It was this commenter's view, however,

that the stripped securities as designed would not provide for a very

liquid market because of the lack of fungibility of the inflation-

indexed stripped components. The commenter proposed and described an

inflation-indexed ``strip that would be entirely fungible with other

inflation-protection strips.'' Under the commenter's proposal, the

inflation-indexed securities would be stripped into pieces of equal

``real'' value. The commenter indicated that its approach to creating

fungible STRIPS would require that Treasury relax its requirement that

STRIPS be sold in $1,000 increments.

Two of the remaining commenters confined their comments to taxation

issues. One of these commenters expressed its belief that inflation-

indexed securities would be a great success, but that the inflation

adjustment to the principal should be treated as a capital gain or as

taxable income at either redemption or sale by the investor. The other

commenter recommended that, before inflation-indexed securities are

offered to the public, Treasury should ask Congress to provide

statutory authority to exclude the inflation adjustment from taxation.

The commenter said that, without such an exclusion, taxable investors

would receive less than full inflation protection.

One commenter specifically addressed the subject of reopenings of

the security as stated in the proposed rule. In its letter, the

commenter stated its belief that it is extremely important to reopen

inflation-indexed securities to consolidate issues, especially since

stripped coupons from different inflation-indexed securities will not

be interchangeable. The commenter indicated that rules in the tax code

restrict reopenings of conventional bonds that might otherwise be

desirable, and stated that this may also be true for inflation-indexed

securities. The commenter offered two alternatives to resolve this

``original-issue-discount'' or ``OID'' problem. One alternative would

be to relax the OID restrictions for inflation-indexed securities. A

second alternative would be to make an adjustment to the current

single-price auction procedures so that the coupon rate would be

rounded up instead of down. As a result, the initial price would always

be at or above par, causing the new security to be issued further above

the OID limit and thus making it easier to reopen.

Another letter, submitted by an industry trade association, had the

following comments. While expressing support for particular design

details of the security (e.g., modelling the securities on Canada's

Real Return Bonds, selecting the CPI-U as the inflation index, adopting

a current auction technique and making the securities eligible for

stripping), the commenter stressed its concern and belief ``that there

are a number of market practice, regulatory, operational and technical

issues which must be resolved in order to foster a smooth and orderly

auction and efficient secondary market for the new securities in

January.'' To this end, ``firms will have to make significant changes

to their internal trading, trade processing, settlement, risk

management, accounting, regulatory and tax reporting systems, among

others, leaving market participants little time to build, test, and

implement such internal systems changes before trading in the new

securities commences in January.'' The commenter indicated that it

previously advised Treasury that its members would need approximately

six months from publication of the final rules to prepare for trading,

clearance and settlement of the new securities.

The letter highlighted the commenter's specific concerns, which

included: (1) The timing of the planned first issue; (2) a preference

to have more time to program systems based on the final rules and more

time to study the Boskin Commission's Report (methodology for

calculating the CPI which was released on December 4); (3) the lack of

fungibility of stripped interest components and its potential affect on

liquidity, and the need to devise a viable method to create fungible

strips; and (4) the need for a market convention for the appropriate

factor or formula, preferably to be provided by Treasury, for valuing

stripped interest components.

The letter recommended that Treasury should: (1) Provide a monthly

publication of reference CPI numbers for at least the preceding three

months as well as a monthly publication of daily index ratios; (2)

maintain a permanent and public record of all reference CPI numbers

ever used to provide for a single reference source; (3) clarify in the

final rules that, in the event of any discrepancies between CPI numbers

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

Labor and the Treasury, those published by Treasury will take

precedence; (4) clarify in the final rules the payment of the minimum

guarantee; (5) add to the final rules hypothetical examples and sample

calculations; and (6) with other regulators, provide formal guidance as

to how the securities are required to be valued, recorded and reported

under different regulatory regimes.

[[Page 848]]

III. Changes from the Proposed Rule

A. General

After taking into consideration the comments received, the

Department is adopting as a final rule this amendment to the uniform

offering circular setting out the terms, conditions and features of

Treasury inflation-indexed securities. The final rule adopts the

proposed rule without significant changes. A summary of the main

features of the final rule that remain unchanged from the proposed rule

are: (1) The inflation-indexed securities will be structured similarly

to the Real Return Bonds issued by the Government of Canada; (2) the

interest rate, which is set at auction, will remain fixed throughout

the life of the security while the principal amount of the security

will be adjusted for inflation, and interest payments will be based on

the inflation-adjusted principal at the time the interest is paid; (3)

the non-seasonally adjusted CPI-U will be the inflation index; (4) the

auction process will use a single-price auction method that is the same

as that currently used for two-year and five-year Treasury notes; and

(5) inflation-indexed securities will be eligible immediately for

stripping into their principal and interest components.

The proposed changes in Secs. 356.2; 356.3; 356.5; 356.10; 356.12;

356.13; 356.20; 356.32; Appendix B, Section I, Paragraphs A and C;

Appendix B, Section II; Appendices C and D; and Exhibit A, Section IV

are being adopted as originally proposed. Readers should refer to the

preamble of the proposed rule 8 for a description of the above

provisions being adopted in this final rule.

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\8\ See supra note 3.

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B. Section 356.17 Responsibility for Payment

The proposed rule, in paragraphs 356.17 (a) and (b), contained

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.

The wording in paragraphs (a) and (b) has been modified from the

proposed rule to reflect a recent amendment to the offering circular,

which added payment by authorized electronic means as a payment

option.9

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\9\ 61 FR 54908 (October 22, 1996).

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C. Section 356.25 Payment for Awarded Securities

In the proposed rule, a conforming change was made to paragraph

356.25(a)(2) to state that additional amounts due at settlement may

include inflation adjustments. The proposed rule also added a new

paragraph (c) to provide that the payment amount for awarded securities

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

The substance of these two provisions remains unchanged in the final

rule. However, in the final rule, new paragraph (c) has been

redesignated as paragraph (d) to reflect a recent amendment to the

uniform offering circular authorizing payment by electronic

means,10 which was effective after publication of the proposed

rule.

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\10\ Id.

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D. Section 356.30 Payment of Principal and Interest on Notes and Bonds

Proposed paragraph 356.30(b) has been modified in accordance with

one commenter's suggestion that the Department make clear in this

section its obligation to pay at maturity the greater of the inflation-

adjusted principal amount or par amount.

E. Section 356.31 STRIPS

No substantive changes have been made in this section from the

proposed rule, which permits inflation-indexed securities to be

stripped into separate principal and interest components. Unlike the

conventional STRIPS program in which interest components having the

same payment/maturity date are fungible (i.e., have the same CUSIP

number), interest components stripped from different inflation-indexed

securities will not be fungible even if they have the same payment/

maturity date.

Some commenters have maintained that the creation of fungible

stripped interest components is essential to provide sufficient

liquidity in the market for these components. One commenter provided an

alternative method that would achieve fungibility for inflation-indexed

interest components. This method was supported by a second commenter.

The Department understands these concerns and strongly supports the

development of an active, liquid market for inflation-indexed

securities, including their stripped components. Making the securities

attractive to a broad investor base and ensuring the development of a

liquid market have been two of Treasury's primary objectives throughout

the securities' design and development. The Department is evaluating

alternative methodologies, including the recommendation mentioned

above, for creating fungible stripped interest components from

inflation-indexed securities. However, we are not yet in a position to

adopt a methodology that would permit fungibility. We have decided to

proceed with the STRIPS program as described in the proposed rule and

will continue to work on making interest components fungible in a

manner that is operationally feasible. We believe that this approach is

preferable to not having the securities strippable at the time they are

first offered.

F. Section 356.32 Taxation

No change has been made to this section from the proposed rule.

However, readers should note that they are directed in paragraph (b) to

the relevant Internal Revenue Service (IRS) regulations for further

information about the tax treatment, and reporting, of inflation-

indexed securities. The IRS rules are expected to be publicly available

and published in the Federal Register at the same time as this final

rule is published, or shortly thereafter. The IRS regulations will be

issued under Secs. 1275(d) and 1286 of the Internal Revenue Code.

In the meantime, prospective 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-

indexed securities and the stripped components of such securities.

Additionally, in September, Treasury issued a statement providing an

explanation of the federal income tax treatment for these securities

and their stripped components. Readers interested in receiving a copy

of this statement should call the Department's Office of Public Affairs

automated facsimile system at 202-622-2040 and request Document No.

1290.

The Department also wishes to respond to the concern expressed by

one of the commenters regarding rules in the tax code that could limit

Treasury's ability to reopen issues of inflation-indexed securities. We

note that the IRS regulations will permit reopenings of inflation-

indexed securities without regard to the OID rules, provided that the

reopenings occur not more than one year after the original securities

were first issued to the public.

G. Appendix B, Section I, Paragraph B

In the proposed rule, Treasury stated that it did not intend to

publish the index ratio for use by market participants. However, in the

preamble, the Department specifically asked for comments on whether a

monthly publication of the daily index ratios or

[[Page 849]]

reference CPIs would be useful to market participants. One of the

commenters strongly urged that Treasury publish both the reference CPI

numbers for at least the three preceding months and the daily index

ratios on a month-to-month basis. Treasury will support this request.

Although Appendix B has been revised by deleting the language from the

proposed rule and is now silent with respect to publication of the

daily index ratios, Treasury intends to provide monthly the daily

reference CPI numbers and the daily index ratios on a pilot basis for

one year. This information will be available through such means as a

monthly press release, the Internet, and automated facsimile systems.

After a year, the Department will determine whether there is still

a need for this information to be provided by Treasury. It is our

understanding that most market participants will incorporate the

formulas for calculating the reference CPIs and index ratios into their

trading or other automated systems. Additionally, it is reasonable to

expect that the major electronic financial service providers (e.g.,

Bloomberg, Telerate, Reuters) will provide this information, or

substantially similar information, to their subscribers. Further,

Treasury will maintain an archival record of the reference CPIs and the

daily index ratios throughout the life of each inflation-indexed

security. This information will be readily available to market

participants.

In addition to the publication of reference CPIs and index ratios,

the Treasury will provide monthly the non-seasonally adjusted CPI for

each of the prior three months.

Changes have been made to the paragraph that addresses index

contingencies. Language has been revised to clarify Treasury's course

of action if the CPI is: Discontinued, or in the judgment of the

Secretary, either fundamentally altered in a manner materially adverse

to the interests of an investor in the security or altered by

legislation or Executive Order in a manner materially adverse to the

interests of an investor in the security.

A change to the CPI would be considered fundamental if it affected

the character of the CPI. Technical changes made by the Bureau of Labor

Statistics (BLS) to the CPI to improve its accuracy as a measure of the

cost of living would not be considered fundamental changes. Technical

changes include, but are not limited to, changes in: (1) The specific

items (e.g., apples or major appliances) to be priced for the index;

(2) the way individual price quotations are aggregated to construct

component price indices for these items (aggregation of item sub-

strata); (3) the method for combining these component price indices to

obtain the comprehensive, all-items CPI (aggregation of item strata);

and (4) the procedures for incorporating new goods into the index and

making adjustments for quality changes in existing goods.

Technical changes to the CPI previously made or announced by BLS

include introducing probability sampling to select the precise items

for which prices are collected and the stores in which collection takes

place, and changing the way in which price movements of major

components, such as shelter costs for homeowners in the early 1980s and

medical care costs beginning in 1997, are measured.

The Advisory Commission to Study the Consumer Price Index (the

Boskin Commission) made a number of recommendations to improve the

calculation of changes in the cost of living. Some of these

recommendations were directed to BLS and were designed to improve the

calculation of the monthly CPI. These recommendations, if and to the

extent implemented by BLS, would constitute technical changes rather

than fundamental changes.

The Boskin Commission also recommended construction of an annual

measure of the cost of living as a supplement to the monthly CPI.

Development and use of such a supplement, by itself, would not change

the monthly CPI itself. While the Boskin Commission did not suggest

that such a measure replace the CPI, a decision by BLS to replace,

rather than supplement, the current monthly CPI with an annual measure

of consumer prices, would constitute a fundamental change.

In addition, if the Secretary determines that the CPI is altered by

legislation or Executive Order in a manner that is materially adverse

to the interests of an investor in the security, the Secretary would

propose an alternative index.

A minor, technical change has also been made to clarify Treasury's

intention in the situation where the CPI for a particular month is not

reported by the last day of the following month. In such a situation,

the last CPI that has been reported (including any revision of a

previously reported CPI number) will be used to calculate CPI numbers

for months for which the CPI has not been reported by such day.

H. Appendix B, Section III

Minor, technical changes have been made to certain formulas and

examples by adding a definition of one variable, and by elaborating on

the definitions of two other variables.

I. Other Issues

One commenter raised a number of issues pertaining to the

regulatory treatment of inflation-indexed securities, which are outside

the scope of the uniform offering circular regulations. Specifically,

the commenter questioned how these securities are to be valued,

recorded and reported under various regulatory regimes for purposes

such as large position reporting, determining regulatory capital and

margin amounts, and broker-dealer reporting. The Treasury has given

informal, general guidance on some of these issues as they pertain to

the Government Securities Act (GSA) regulations, 17 CFR Chapter IV,

(e.g., large position reporting, capital and haircut treatment,

recordkeeping and financial reporting), and will respond to additional

questions as they arise. The Treasury is also considering issuing an

interpretation of the GSA regulations to provide formal clarification

and guidance on regulatory issues within the scope of its authority.

Additionally, Treasury has been coordinating and consulting with other

regulators, such as staff of the Securities and Exchange Commission,

the Board of Governors of the Federal Reserve System, and the Federal

Reserve Bank of New York, to address the various regulatory issues

raised by the commenter and to foster consistent regulatory treatment

where possible and appropriate.

The commenter also raised concerns that a number of questions

remain unanswered regarding market practice, trading, accounting and

operational issues related to the new securities. While these issues

are also outside the scope of both the uniform offering circular rules

and Treasury's authority under the GSA, Treasury appreciates the need

for consistent and widely accepted trading practices and industry

conventions for quoting, pricing, and valuing inflation-indexed

securities. Treasury strongly supports and encourages industry efforts,

including the formation of the PSA Inflation Bond Trading Practices

Task Force, to develop trading and market practice conventions. We are

confident the industry will be successful in this effort and we will

continue to provide guidance as needed.

IV. Procedural Requirements

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

regulatory action'' pursuant to Executive Order 12866.

[[Page 850]]

Although this rule was issued in proposed form to secure the

benefit of public comment, the notice and public comment procedures

requirements of the Administrative Procedure Act are inapplicable,

pursuant to 5 U.S.C. 553(a)(2).

As no notice of proposed rulemaking was 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 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: December 30, 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 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,'' ``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 monthly 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-indexed

securities. (See Appendix D.)

Index ratio means, for any particular date and any particular

inflation-indexed 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-indexed

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-indexed 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-indexed 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-indexed 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-indexed 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 part

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

inflation-indexed

[[Page 851]]

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 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-indexed'' 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-indexed notes. Treasury inflation-indexed

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-indexed bonds. Treasury inflation-indexed

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-indexed 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-indexed 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. * * *

* * * * *

[[Page 852]]

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 provisions have been made, such as payment by an authorized

electronic means providing for immediately available funds or 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 other provisions have

been made, such as payment by an authorized electronic means providing

for immediately available funds or 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-indexed 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 (d) to read as follows:

Sec. 356.25 Payment for awarded securities.

* * * * *

(a) * * *

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

calculations result in a premium or if accrued interest and/or

inflation adjustment is due.

* * * * *

(d) 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-indexed securities. At maturity, the

inflation-adjusted principal will be paid, unless the inflation-

adjusted principal is less than the par amount of the security, in

which case 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 of the

note or bond must be in an amount that, based on its interest rate,

would produce a semiannual interest payment, before adjustment for

inflation, 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-indexed

securities. Principal components stripped from inflation-indexed

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 security.

(f) Interest components stripped from inflation-indexed securities.

Interest components stripped from inflation-indexed 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

[[Page 853]]

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-indexed 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-indexed security are not

interchangeable for reconstitution purposes with interest components

stripped from another inflation-indexed 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-indexed securities. Special federal income

tax rules for inflation-indexed securities, and principal and interest

components stripped from such securities, are set forth in Internal

Revenue Service regulations.

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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-Indexed 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-indexed 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-indexed 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-

indexed 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-indexed security may be

enhanced over time as Treasury issues additional amounts or more

entities participate in the market.

C. Tax Considerations

Treasury inflation-indexed 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. In

addition, for a discussion of actions that Treasury would take in

the event the CPI is: discontinued; in the judgment of the

Secretary, fundamentally altered in a manner materially adverse to

the interests of an investor in the security; or, in the judgment of

the Secretary, altered by legislation or Executive Order in a manner

materially adverse to the interests of an investor in the security,

see Appendix B, Section I, Paragraph B.4.

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

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

indexed 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.

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-indexed 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-Indexed Note Announcement

* * * * *

IV. TREASURY INFLATION-INDEXED 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-Indexed Notes

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

indexed 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-

Indexed 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-indexed 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.

[[Page 874]]

STRIPS Information:

Minimum amount required--Determined at auction

Corpus CUSIP number--912XXX XX X

STRIPS Information:

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. 96-33396 Filed 12-31-96; 10:08 am]

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