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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


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102