The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF DALLAS FISCAL AGENT O F THE UNITED STATES Dallas, Texas, March 15, 1961 PRELIM INARY A N N O U N C E M E N T A D V A N C E R E F U N D IN G E X C H A N G E O FFER IN G To All Banking Institutions and Others Concerned in the Eleventh Federal Reserve District: A press statement issued today by the Treasury Department in regard to an advance refunding is quoted on the following pages. Official circulars and subscription forms for the exchange offering will be mailed as soon as possible. Yours very truly, Watrous H. Irons President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ADVANCE REFUNDING OFFER The U. S. Treasury offers to the holders of four issues of outstanding Treasury Bonds and Notes which mature from June 15, 1962, through August 15, 1963, two issues of 3%% and 3%% intermediate-term bonds in exchange as of March 15, 1961, on mutually advantageous terms to the holder and the Treasury. The Treasury will in this way offer holders of intermediate-term securities maturing within the next 2V years an opportunity of remaining invested in new intermediate-term securities in the six and seven-year ^ maturity range. By means of this advance refunding the Treasury can reduce the volume of outstanding debt to be refinanced on final maturity during the next 2 years. In view of the large volume of other issues in the short-term area, any reduction of the congested maturity schedule in 1962 and 1963 will be of material advantage in the management of the debt and will reduce the over-all burden of interest costs. The offering is made attractive to investors by providing an immediate increase in interest return, in consideration of acceptance of a security of somewhat longer maturity. Market 3uelds on the new issues are at least equal to those on outstanding issues of comparable maturity on the date of this offering. The investment return to holders for the period of the extension as summarized herein, would appear to compare favorably with prospective yields that might be obtained on reinvestment at the time when these four outstanding securities are scheduled to mature. The transfer of old for new securities will not be treated as a sale and purchase for tax purposes, thereby avoiding immediate charging of book losses on the securities being accepted by the Treasury in exchange for the new issues. Terms and Conditions of the Advance Refunding Offer 1. To all holders owning $500, or more, of the following outstanding Treasury bends: Description of bonds and notes 21/4% 21/4% 2% % 21/2% bonds bonds notes bonds of of of of Issue dcrte 6/15/59-62 12/15/59-62 2/15/63 8/15/63 June 1,1945 Nov. 15,1945 Apr. 15,1958 Dec. 15,1954 M crturity date June Dec. Feb. Aug. 15,1962 15,1962 15,1963 15,1963 Remaining term to maturity (Yrs. — Mos.) Amount outstanding (in billions) 1— 3 1— 9 1— 11 2— 5 $5.3 3.4 4.0 6.8 New bonds to be issued: Description Issue date Maturity date Interest starts^ Interest payable 3V8% bonds of 1967 3%% bonds of 1966 March 15,1961 March 15,1961 Nov. 15,1967 Nov. 15,1966 March 15,1961 March 15,1961 May 15 & Nov. 15 May 15 & Nov. 15 ^Interest on the bonds and notes surrendered stops on March 15,1961. 3. Terms of the exchange: Exchanges will be made on the basis of par for par in multiples of $500, and with adjustments of accrued interest to March 15, 1961, and payments to the Treasury as indicated below: Outstanding bonds and notes 21/4% 21/4% 2% % 21/2% bonds bonds notes bonds 6/15/59-62 ] 12/15/59-62? 2/15/63 ) 8/15/63 Exchangeable only for bonds Payment to Treasury on account of $100 issue prlce^ 3%% of Nov. 15, 1967 $0.30 3%% of Nov. 15, 1966 _ _ _ _ __ Accrued interest payable to Investor (per $100 face amount) $0,556 .556 .203 .193 Extension of maturity Yrs. — Mos. 5— 5 4— 11 4— 9 3— 3 ^To be deducted from amount of accrued interest shown in next column. 4. Limitation on amount of new bonds to be issued: While it is not practicable to estimate the extent of investor acceptance, the Treasury is placing an outside limit of $5 billion, or thereabouts, on the aggregate amount of 3%% bonds of Nov. 15, 1967, and $3 billion, or thereabouts, on the aggregate amount of 3%% bonds of Nov. 15, 1966, to be issued to the public. In the event the limit on either issue is exceeded, subscriptions to the respective issue will be subject to allotment. In addition, exchange subscriptions not to exceed $250,000,000, in the aggregate, from Govern ment Investment Accounts to these two issues will be allotted in full. 5. Books open for subscriptions for the new bonds: Books will be open for subscriptions from March 20 through March 22, 1961. Subscriptions accompanied by eligible bonds and notes and placed in the mail by midnight March 22, 1961, addressed to Treasurer, U. S., Washington 25, D. C., or any Federal Reserve Bank or Branch will be accepted. The use of registered mail is recommended for bondholders’ protection. The new bonds will be delivered to subscribers on March 30, 1961. 6. Requirements applicable to subscriptions: Subscriptions will be received at the Federal Reserve Banks and Branches and at the Office of the Treasurer of the United States, Washington, D. C. Banking institutions generally may submit subscriptions for account of customers, provided the names of the customers are set forth in such subscriptions. Subscriptions which are subject to allotment from banking institutions for their own account. Federallyinsured savings and loan associations. States, political subdivisions or instrumentalities thereof, public pension and retirement and other public funds, international organizations in which the United States holds membership, foreign central banks and foreign States, Federal Reserve Banks, and Government Investment Accounts will be received without deposit. Subscriptions which are subject to allotment from all others must be accompanied by deposit of eligible securities in an amount equal to 10% of the bonds applied for. 7. Denominations and other characteristics of new bonds: $500, $1,000, $5,000, $10,000, $100,000, and $1,000,000 in coupon and registered forms. They will be acceptable to secure deposits of public moneys. 8. Nonrecognition of gain or loss for Federal income tax purposes: Pursuant to the provisions of section 1037(a) of the Internal Revenue Code of 1954 as added by Public Law 86-346 (approved Sept. 22, 1959) the Secretary of the Treasury has declared that no gain or loss shall be recognized for Federal income tax purposes, upon the exchange of the eligible bonds and notes solely for the new 3%% or 3%% bonds. For tax pui'poses, therefore, the investor will carry the new bonds on his books at the same amount as he is now carrying the eligible bonds and notes, plus the amount of premium, if any, paid on the new bonds. Gain or loss, if any, upon the obligations surrendered in exchange will be taken into account upon the disposition or redemption of the new bonds. 9. Federal estate tax option in new bonds: The option to redeem the eligible 2Vi% bonds of June 15, 1959-62, and December 15, 1959-62, at par and accrued interest prior to maturity for the purpose of using the proceeds in payment of Federal estate taxes (if the bonds were owned by the deceased at the time of his death) is not applicable to the new 3%% bonds issued in exchange. 10. Book value of new bonds to banking institutions: The Comptroller of the Currency, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation have indicated to the Treasury that banks under their supervision may place the new 3%% and 3%% bonds received in exchange on their books at an amount not greater than the amount at which the eligible bonds and notes surrendered by them are carried on their books, plus the amoimt of premium, if any, paid on the new bonds, and that they will so advise their examiners. 11. Computation of investment return for the extension of maturity: A holder of the outstanding eligible bonds or notes has the option of accepting the Treasurj^s exchange offer or of holding the eligible bonds or notes to maturity. Consequently, he can compare his return resulting from exchanging now with the return that he might obtain by reinvesting the proceeds of the eligible bonds or notes at maturity. The return before tax for making the extension now through exchange will be the coupon rate on the new issue. If a holder of the eligible bonds or notes does not make the exchange, he would receive only the respective interest rates to their maturity and would have to reinvest at that time at a rate equal to that indicated in Section 12 below for the remaining term of the issue now offered, in order to equal the return he would receive by accepting the exchange offer. For example, if the 2 Vi percent bonds of June 15, 1959-62, are exchanged for the new 3% percent 6-year 8-month bonds, the rate for the entire 6 years and 8 months will be 3% percent. If the exchange is not made, a 2 V4 percent rate will be received until June 1962 requiring reinvestment of the proceeds of the 2 V ’s at the time at a rate of at least 3.89 percent for ^ the remainder of the 6 years and 8 months, all at compound interest, to average out to a 3% percent rate for 6 years, 8 months. This minimum reinvestment rate for the extension period is shown in the table under Section 12 and is the investment return for the extension period if the exchange is made now. The minimum reinvestment rates for the other issues included in the exchange are also shown in the table under Section 12. 12. Investment return on the 3% % and 3% % bonds offered in exchange, to the holders of the eligible bonds and notes: Eligible bonds and notes___________________ 2 bonds 2 Vi %bonds 2%% notes 2V^%bonds Aug. 15, Feb. 15, Dec. 15, June 15, 1963 1963 1959-62 1959-62 Payment to Treasury on account of $100 issue price_______________ $0.30 Nov. 15, 1967 ----------------- ______ Nov. 15, 1966 3Vs% bond offered in exchange-------- ---- — 3%% bond offered in exchange-------------- -------- — Approximate investment return: From issue date (March 15, 1961) to maturity^ -----. ------------------------- ... For the extension of maturity*: Nontaxable holder (or before tax)___ ______ ... Taxable holder; equivalent rate® if cost (book value) of eligible bond or note (per $100 face value) is: $102^ - - -100 ____ -. ____ - 98 ___ - ____ ______ 96 ___ .... ___ ___ ... ______ ___ 94 .... 92 ... .. ... 90 - .... ___ ... 3.75% 3.75% 3.75% 3.63% 3.98 4.10 4.08 4.09 — — 3.96 3.98 4.00 4.02 4.04 4.06 4.07 4.06 4.08 4.10 4.12 4.14 4.02 4.05 4.07 4.09 4.11 4.13 4.15 4.02 4.06 4.08 4.09 4.11 4.13 4.15 Yield to a nontaxable holder, or before tax. Based on mean of bid and ask prices of eligible bonds and notes at noon on March 15, 1961. ^For explanation see paragraph 11 above. 3 Rate of return during extension which, combined with the respective interest rates until maturity of the eligible bond or note, would provide the same return as the applicable new bond for its full term after tax (on basis of 52% tax on ordinary income and 25% tax on long-term capital gain at maturity of the new bond). To obtain approximate equivalent rates between those for book value shown, interpolation may be applied. ^Holders of the 2^^ percent bonds are assumed to have amortized any premium when purchased to par at first call date in 1959. Holders of the 2 % percent notes and 2 V2 percent bonds with book cost above par are assumed to be amortizing any premium to par at maturity. 1