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Annual Report ofthe Secretary of the Treasury on the State of the Finances For the Fiscal Year Ended June 30, 1965 TREASURY DEPARTMENT DOCUMENT NO. 3236 Secretary UNITED STATES GOVERNMENT P R I N T I N G OFFICE, WASHINGTON : 1966 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C, 20402 - Price ^2.50 (paper cover) JHEETO HI 10 fi CONTENTS /^ Page Statement by the Secretary of the Treasury xvii REVIEW OF FISCAL OPERATIONS Summary of financial operations Administrative budget receipts and expenditures Receipts . Estimates of receipts Expenditures Estimates of expenditures Trust receipts and expenditures ... Receipts Estimates of receipts . Expenditures Estimates of expenditures _. Receipts from and payments to the pubhc . Corporations and other business-type activities of the Federal Government. Account of the Treasurer of the United States PubHc debt management and ownership Financing operations Ownership of Federal securities . Taxation developments International financial affairs.. ^ ADMINISTRATIVE REPORTS Management improvement program Comptroller of the Currency, Office of the Customs, Bureau of Director of Practice, Office of the Domestic Gold and Silver Operations, Office of Engraving and Printing, Bureau of Fiscal Service . Accounts, Bureau of_ . Pubhc Debt, Bureau of the Treasurer of the United States, Office of the Foreign Assets Control, Office of . Internal Revenue Service International Affairs, Office of the Assistant Secretary for Mint, Bureau of the Narcotics, Bureau of . ^ United States Coast Guard United States Savings Bonds Division United States Secret Service 3 4 4 6 10 11 11 11 12 12 13 13 14 15 17 20 29 34 49 69 73 78 91 92 93 98 98 104 108 114 115 129 130 137 142 154 157 '. EXHIBITS PUBLIC DEBT OPERATIONS, CALLS OF GUARANTEED SECURITIES, REGULATIONS, AND LEGISLATION Treasury Notes and Treasury Bonds Offered and Allotted 1. Treasury notes 2. Treasury bonds 165 172 Treasury Bills Offered and Tenders Accepted ;^>^ 3. Treasury bills _... 189 Guaranteed Debentures Called 4. Calls for partial redemption, before maturity, of insurance fund and home improvement account debentures . III 200 IV CONTENTS Regulations Page 5. Revision, December 4, 1964, of Department Circular No. 853, regulations governing restrictive endorsements of United States bearer securities 6. Third revision, December 23, 1964, of Department Circular No. 300, general regulations with respect to United States securities 7. Ninth revision, December 23, 1964, of Department Circular No. 530, regulations governing United States savings bonds . 8. Sixth revision, December 23, 1964, of Department Circular No. 653, offering of United States savings bonds. Series E 9. Fifth amendment, December 23, 1964, of Department Circular No. 750, regulations governing payments by banks and other financial institutions in connection with the redemption of United States savings bonds : 10. Third revision, December 23, 1964, of Department Circular No. 905, offering of United States savings bonds. Series H 206 208 236 261 269 269 Legislation 11. An act to provide for a temporary increase in the public debt limit set forth in section 21 of the Second Liberty Bond Act 274 FINANCIAL POLICY 12. Statement by Secretary of the Treasury Dillon, February 22, 1965, before the Joint Economic Committee 13. Remarks by Secretary of the Treasury Dillon, October 27, 1964, before the 90th annual convention of the American Bankers Association, on fiscal and economic policies 14. Remarks by Secretary of the Treasury Dillon, March 19, 1965, before the 13th annual monetary conference of the American Bankers Association, Princeton, N.J., on capital markets, interest rates, and balance of payments 15. Remarks by Secretary of the Treasury Dillon, March 26, 1965, before the American Bankers Association Symposium on Federal Taxation, on fiscal and tax policy : ... 16. Remarks by Secretary of the Treasury Fowler, April 17, 1965, before the annual convention of the American Society of Newspaper Editors, on economic policy 17. Other Treasury testimony published in hearings before congressional committees, July 1, 1964-June 30, 1965 274 280 285 289 293 297 MONETARY DEVELOPMENTS 18. Statement by Secretary of the Treasury Dillon, February 1, 1965, before the House Committee on Banking and Currency, on H.R. 3818, an act to eliminate the provision of existing law that Federal Reserve banks hold gold certificates equivalent to at least 25 percent of their own deposit liabilities •__ 19. An act to eliminate the requirement that Federal Reserve banks maintain certain reserves in gold certificates against deposit liabilities . 20. Message from the President, June 3, 1.965, relative to the coinage program 21. Statement by Secretary of the Treasury Fowler, June 4, 1965, before the House Banking and Currency Committee, on the .President's coinage and silver proposals ,22. Statement by Leland Howard, Director, Office of Domestic Gold and Silver Operations, June 8, 1965, before the House Committee on Interior and Insular Affairs, on silver policy 23. An act to provide for the coinage of the United States 24. Other Treasury testimony published in hearings before congressional committees, July 1, 1964-June 30, 1965 . 297 302 302 307 312 316 321 PUBLIC DEBT MANAGEMENT 25. Statement by Secretary of the Treasury Fowler, June 15, 1965, before the Senate Finance Committee, on the debt limit 321 CONTENTS ^ . V Page 26. Remarks by Under Secretary of the Treasury for Monetary Affairs Roosa, November 19, 1964, before the Bankers Club of Chicago, on debt management, liquidity, and monetary stability 27. Remarks by Under Secretary of the Treasury for Monetary Affairs Deming, June 8, 1965, at the National Mortgage Banking Conference of the INlortgage Bankers Association of America, Minneapolis, Minn., on debt management and the long-term capital market 28. Remarks by Deputy Under Secretary of the Treasury for Monetary Affairs Volcker, IVIarch 9, 1965, before the North Texas Industrial Payroll Savings Bond Campaign, Dallas, Tex., on debt management and the savings bond program 29. Other Treasury testimony pulDhshed in hearings before congressional committees, July 1, 1964-June 30, 1965 324 329 333 336 TAXATION DEVELOPMENTS 30. Message from the President to the Congress, May 17, 1965, transmitting proposed recommendations relative to excise and fuel taxes 336 31. Statement by Secretary of the Treasury Fowler, June 8, 1965, before the Senate Finance Committee, on H.R. 8371, the Excise Tax Reduction Act of 1965 344 32. Statement by Assistant Secretary of the Treasury Surrey, June 8, 1965, before the Senate Finance Committee, on H.R. 8371, the Excise Tax Reduction Act of 1965 -, 347 33. Statement by the President, June 21, 1965, at the signing .of the excise tax reduction bill 351 34. Statement by Secretary of the Treasury Fowler, June 30, 1965, before the Committee on Ways and Means of the House of Representatives, on H.R. 5916, a bill to reduce tax barriers to foreign investment . • 352 35. Press release, February 19, 1965, on liberalization of depreciation rules . 357 36. Statement by Secretary of the Treasury Dillon, July 21, 1964, before Subcommittee No. 1 of the Select Committee on Small Business of the House of Representatives, on tax-exempt foundations 361 37. Introduction and summary of U.S. Treasury Department report on private foundations, February 2, 1965 364 38. Other Treasury testimony pubhshed in hearings before congressional committees, July 1, 1964-June 30, 1965 369 INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS 39. Excerpts from remarks by Secretary of the Treasury Dillon, February 17, 1965, before the Government-Industrial Conference of the National Industrial Conference Board 40. Statement by Secretary of the Treasury Dillon, March 9, 1965, before the Subcommittee on International Finance of the Senate Banking and Currency Committee 41. Remarks by Under Secretary of the Treasury for Monetary Affairs Roosa, September 28, 1964, before the sixth annual meeting of the National Association of Business Economists, on the meaning of international financial cooperation 42. Remarks by Under Secretary of the Treasury for Monetary Affairs Roosa, October 14, 1964, at the conference on 'Tnternational Financing—1964" of the National Industrial Conference Board, Inc., on the future of the international monetary system 43. Remarks by Under Secretary of the Treasury for IVtonetary Affairs Deming, April 29, 1965, at the Ohio State University, in connection with "Distinguished Lectures in Monetary Policy" 44. Excerpts from remarks by Under Secretary of the Treasury for Monetary Affairs Deming, May 18, 1965, at the 43d annual meeting of the Bankers Association for Foreign Trade, on the U.S. balance of payments—problem and program 45. Excerpts from remarks by Under Secretary of the Treasury for Monetary Affairs Deming, June 22, 1965, at the annual convention of the Washington State Bankers Association, on international banking in^relation to the balance of payments and international liquidity 370 373 379 385 393 399 403 VI CONTENTS Page 46. Remarks by Assistant Secretary of the Treasury for I n t e r n a t i o n a l Affairs Trued, M a y 18, 1965, before t h e Financial Analysts Federation 18th annual convention, on the interest equalization tax 47. Remarks by D e p u t y Under Secretary of the Treasury for M o n e t a r y Affairs Volcker, J u n e 8, 1965, before t h e Forecasting Conference of the Chicago Chapter of the American Statistical Association, on critical factors in the balance-of-payments problems 48; Treasury and Federal Reserve foreign exchange operations, M a r c h August 1964 49. Treasury and Federal Reserve foreign exchange operations, September 1964-February 1965 '. .-.. 50. Press Release, July 23, 1964, announcing renewal of s t a n d b y arrangem e n t with t h e International Monetary F u n d 51. Press Release, July 30, 1964, announcing Treasury rescheduling of Brazilian obligations 52. Press Release, August 10, 1964, on U.S. program of assistance for t h e Dominican Republic 53. Press Release, September 1, 1964, announcing the third U.S. drawing from t h e International Monetary F u n d 54. Press Release, September 30, 1964, announcing t h e fourth U.S. drawing from the International Monetary F u n d 55. Press Release, November 25, 1964, on assistance to the United Kingdom 56. Press Release, December 7, 1964, announcing a U.S. drawing in Germ a n marks from the I n t e r n a t i o n a l M o n e t a r y F u n d 57. Press Release, December 16, 1964, containing t h e text of a communique on t h e Ministerial Meeting of the Group of Ten 58. Press Release, February 4, 1965, announcing the signing of an exchange agreement by t h e United States and Chile 59. Press Release, February 4, 1965, on President de Gaulle's s t a t e m e n t on t h e gold s t a n d a r d 60. Press Release, February 10, 1965, on Treasury actions following t h e President's Balance-of-Payments Message 61. Press Release, February 23, 1965, announcing t h e signing of a new exchange agreement between t h e United States a n d Brazil 62. Press Release, M a r c h 22", 1965, announcing the first U.S. drawing in 1965 from t h e I n t e r n a t i o n a l M o n e t a r y F u n d _ . 63. Press Release, April 6, 1965, announcing t h a t t h e B a h a m a s , Bermuda, Ireland, Kuwait, and Portugal are to be made subject to interest equahzation t a x . 64. Press Release, Maj^ 20, 1965, announcing t h a t U.S. citizens m a y b u y Indian rupees Owned by t h e U.S. Government 65. Press Release, J u n e 16, 1965, announcing t h e intention of France to m a k e a further p r e p a y m e n t on its d e b t to t h e United States 66. S t a t e m e n t on discussions held J u n e 29, 1965, by Chancellor of t h e Exchequer James Callaghan of Great Britain and Secretary of t h e Treasury H e n r y H , Fowler a t t h e U.S. Treasury 67. Press Release, July 1, 1965, announcing t h e consent of the United States to an increase in its quota in t h e International M o n e t a r y Fund . 68. Other Treasury testimony pubhshed in hearings before congressional committees, July 1, 1964-June 30, 1965 . . 408 412 417 429 439 439 439 440 440 441 441 441 442 442 442 444 444 444 445 445 446 447 447 ORGANIZATION AND PROCEDURE 69. Secretaries, Under Secretaries, General Counsels, Assistant Secretaries, and D e p u t y Under Secretaries for M o n e t a r y Affairs serving in t h e Treasury D e p a r t m e n t from September 11, 1789, to J a n u a r y 20, 1965, and the Presidents under whom they served 70. Treasury D e p a r t m e n t orders relating to organization and p r o c e d u r e . 449 458 ADVISORY COMMITTEES 71. Advisory committees utilized b y t h e Treasury D e p a r t m e n t under Executive Order 11007 465 TABLES Bases of tables Description of accounts relating to cash operations 485 486 CONTENTS VII SUMMARY OF FISCAL OPERATIONS Page 1. Summary of fiscal operations, fiscal years 1940-65 and monthly 1965. 488 RECEIPTS AND EXPENDITURES 2. Receipts and expenditures, fiscal years 1789-1965 . 3. Refunds of receipts and transfers to trust funds, fiscal years 1931-65. 4. Administrative budget receipts and expenditures, fiscal years 1963, 1964, and 1965 5. Trust receipts and expenditures, fiscal years 1963, 1964, and 1965 6. Investments in public debt and agency securities (net), fiscal years 1963, 1964, and 1965 7. Sales and redemptions of Government agency securities in market (net), fiscalyears 1963, 1964, and 1965 8. Interfund transactions excluded from both net budget receipts and budget expenditures, fiscal years 1962-65 __. 9. Interfund transactions excluded from both net trust account receipts and net trust account expenditures, fiscal years 1962-65 10. Pubhc enterprise (revolving) funds, receipts and expenditures for fiscalyear 1965 and net for 1964 and 1965 11. Trust enterprise (revolving) funds, receipts and expenditures for fiscal year 1965 and net for 1964 and 1965 12. Administrative budget receipts and expenditures monthly and total for fiscal year 1965 13. Trust receipts and expenditures monthly and total for fiscal year 1965. 14. Trust receipts by sources and expenditures by major functions, fiscal years 1957-65 15. Administrative budget receipts by sources and expenditures by major functions, fiscal years 1957-65 . 16. Trust and other transactions by major classifications, fiscal years 1955-65 17. Receipts from and payments to the public, fiscal years 1955-65 18. Administrative budget receipts and expenditures based on existing and proposed legislation, actual for the fiscal year 1965 and estimated for 1966 and 1967 19. Trust and other transactions, actual for the fiscal year 1965 and estimated for 1966 and 1967 . 20. Effect of financial operations on the public debt, actual for the fiscal year 1965 and estimated for 1966 and 1967 21. Internal revenue collections by tax sources, fiscal years 1936-65 22. Internal revenue collections and refunds by States, fiscal year 1965.. 23... Deposits by the Federal Reserve banks representing interest charges on Federal Reserve notes, fiscal years 1947-65 24. Customs collections and payments by districts, fiscal year 1965 25. Summary of customs collections and expenditures, fiscal years 1964 and 1965 26. Postal receipts and expenditures, fiscal years 1926-65 ^ 27. Increment resulting from reduction in weight of the gold dollar, as of June 30, 1965 : 28. Seigniorage on coin and silver bulhon, January 1, 1935-June 30, 1965. _ 490 498 500 512 517 518 519 520 521 523 524 526 527 528 532 534 536 539 541 542 548 549 550 551. 552 553 553 PUBLIC DEBT, GUARANTEED DEBT, ETC. I.—Outstanding 29. 30. 31. 32. 33. 34. 35. 36. Principal of the public debt, fiscal years 1790-1965 Public debt and guaranteed debt outstanding June 30, 1934r-65 Public debt outstanding by classification, June 30, 1955-65 Guaranteed securities issued by Government corporations and other business-type activities and held outside the Treasury, June 30, 1955-65 Interest-bearing securities outstanding issued by Federal agencies but not guaranteed by the U.S, Government, fiscal years 1955-65 Maturity distribution and average length of marketable interestbearing public debt, June 30, 1946-65 Summary of public debt and guaranteed debt by classification, June 30, 1965 Description of public debt issues outstanding June 30, 1965 554 556 557 560 561 562 562 564 VIII CONTENTS Page 37. Description of guaranteed, debt held outside the Treasury, J u n e 30, 1965 38. Postal savings systems' deposits and Federal Reserve notes outstanding, J u n e 30, 1946-65 . 39. S t a t u t o r y limitation on the public debt and guaranteed debt, J u n e 30, 1965 . 40. D e b t limitation under the Second Liberty Bond Act, as amended, 1917-65 --- 592 594 595 596 II.—Operations 41. Public debt receipts and expenditures by classes, monthly for fiscal year 1965 and totals for 1964 and 1965 42. Public d e b t increases and decreases, and balances in t h e account of the Treasurer of the United States, fiscal years 1916-65. 43. Changes in public debt issues, fiscalyear 1965 44. Issues, maturities, and redemptions of interest-bearing public d e b t securities, excluding special issues, July 1964-June 1965.45. Allotments by investor classes on subscriptions for public marketable securities other t h a n regular weekly Treasury bills, fiscal year 1 9 6 5 . 46. S t a t u t o r y d e b t r e t i r e m e n t s , fiscalyears 1918-65 _. 47. Cumulative sinliing fund, fiscal years 1921-65 598 609 610 634 666 668 669 III.—United States savings bonds 48. Sales and redemptions of Series E through K savings bonds by series, fiscalyears 1941-65 and monthly 1965 49. Sales and redemptions of Series E and H savings bonds by denominations, fiscal years 1941-65 and monthly 1965 50. Sales of Series E and H savings bonds by States, fiscal years 1964, 1965, and cumulative . 670 674 676 IV.—Interest 51. Amount of interest-bearing public debt outstanding, t h e computed a n n u a l interest charge, and t h e computed rate of interest, J u n e 30, 1939-65, and a t t h e end of each m o n t h during 1965 52. Computed annual interest rate and computed annual interest charge on t h e public d e b t by classes, J u n e 30, 1939-65 53. Interest on t h e public debt by classes, fiscal years 1961-65 677 678 680 V.—Prices and yields of securities 54. Average yields of taxable long-term Treasury bonds by m o n t h s , October 1941-June 1965 55. Prices and yields of taxable public debt marketable issues J u n e 30, 1964, and J u n e 30, 1965, and price range since first traded 681 682 Vl.—Ownership of governmental securities 56. E s t i m a t e d ownership of interest-bearing g o v e r n m e n t a l securities outstanding June 30, 1954-65, by t y p e of i s s u e r . . . 57. S u m m a r y of Treasury survey of ownership of interest-bearing public debt a n d guaranteed securities, J u n e 30, 1964 and 1965 685 686 ACCOUNT OF THE TREASURER OF THE UNITED STATES 58. Assets and liabilities in t h e account of t h e Treasurer of t h e United States, J u n e 30, 1964 and 1965 59. Analysis of changes in tax and loan account balances, fiscal years 1955-65__ . -. ' 688 689 STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES 60. Stock of money, money in t h e Treasury, in t h e Federal Reserve banks, and in circulation, by kinds, J u n e 30, 1965 61. Stock of money, money, in the Treasury, in the Federal Reserve banks, and in circulation, selected years, J u n e 30, 1930-65 62. Stock of money by kinds, selected years, J u n e 30, 1930-65 63. Money in circulation by kinds, selected years, J u n e 30, 1930-65 690 692 693 695 CONTENTS IX Page 64. Location of gold, silver bulhon at monetary value, and coin held by -the Treasury on June 30, 1965... 65. Paper currency issued and redeemed during the fiscal year 1965 and outstanding June 30, 1965, by classes and denominations 696 697 TRUST AND OTHER FUNDS 66. Holdings of public debt and agency securities by Government agencies and accounts, June 30, 1961-65 67. Civil service retirement and disability fund, June 30, 1965 68. District of Columbia teachers' retirement and annuity fund, June 30, 1965 69. Employees health benefits fund, Civil Service Commission, June 30, 1965 70. Retired employees health benefits fund. Civil Service Commission, June 30, 1965 ..-. 71. Employees' life insurance fund. Civil Service Commission, June 30, 1965 72. Federal disability insurance trust fund, June 30, 1965 73. Federal old-age and survivors insurance trust fund, June 30, 1965 74. Foreign service retirement and disability fund, June 30, 1965 75. Highway trust fund, June 30, 1965 76. Judicial survivors annuity fund, June 30, 1965 77. Library of Congress trustfunds, June 30, 1965 78. National service life insurance fund, June 30, 1965 79. Pershing Hall Memorial fund, June 30, 1965 80. Philippine Government pre-1934 bond account, June 30, 1965 81. Railroad retirement account, June 30, 1965 82. Unemployment trust fund, June 30, 1965 83. U.S. Government life insurance fund, June 30, 1965 698 701 703 704 705 706 708 710 712 713 714 715 716 717 718 719 721 728 FEDERAL AID TO STATES 84' Federal grants in aid to State and local governments and to individuals and private institutions within the States, fiscal year 1965 729 CUSTOMS OPERATIONS 85. Merchandise entries, fiscal years 1964 and 1965 86. Principal commodities on which drawback was paid, fiscal years 1964 and 1965 . . 87. Carriers and persons arriving in the United States, fiscal years 1964 and 1965 88. Aircraft and aircraft passengers entering the United States, fiscal years 1964 and 1965 89. Seizures for violations of customs laws, fiscal years 1964 and 1965 90. Investigative activities, fiscal years 1964 and 1965 752 752 753 754 755 756 ENGRAVING AND PRINTING PRODUCTION 91. New postage stamp issues delivered, fiscal year 1965 92. Dehveries of finished work by the Bureau of Engraving and Printing, fiscal years 1964 and 1965 756 757 INTERNATIONAL CLAIMS 93. Status of Class III awards of the Mixed Claims Commission, United States and Germany, and Private Law 509 as of June 30, 1965 94. Status of claims of American nationals against certain foreign governments as of June 30, 1965 . . 758 759 INTERNATIONAL FINANCIAL TRANSACTIONS 95. U.S. net monetary gold transactions with foreign countries and international institutions, fiscalyears 1945-65 96. Estimated gold reserves and dollar holdings of foreign countries and international institutions as of June 30, 1964, December 31, 1964, and June 30, 1965 97. U.S. gold stock, and holdings of convertible foreign currencies by U.S. monetary authorities, fiscal years 1952-65 . .. 760 762 765 X CONTENTS Page 98. International investment position of the United States, total December 31, 1950; by area, December 31, 1963 and 1964 ^ 99. U.S. t)alance of payments, calendar year 1964 and January-June 19651 100. Assets and liabilities of the Exchange Stabilization Fund as of June 30, 1964 and 1965 101. Summary of receipts, withdrawals, and balances of foreign currencies acquired by the United States without purchase with dollars, fiscal year 1965 102. Balances of foreign currencies acquired by the United States without purchase with dollars, June 30, 1965 766 768 770 773 774 INDEBTEDNESS OF FOREIGN GOVERNMENTS 103. Status of indebtedness of foreign governments to the United States arising from World War I as of June 30, 1965 104. Status of German World War I indebtedness as of June 30, 1965 105. Outstanding indebtedness of foreign countries on U.S. Government , credits (exclusive of indebtedness arising from World War I) as of June 30, 1965, by area, cbuntry, and major program 106. Status of accounts under lend-lease and surplus property agreements (World War II) as of June 30, 1965 776 777 778 780 CORPORATIONS AND OTHER BUSINESS-TYPE ACTIVITIES OF THE UNITED STATES GOVERNMENT 107. Comparative statement of securities of Government corporations and other business-type activities held by the Treasury, June 30, 1955-65 . 108. Capital stock, notes, bonds, and other securities of Government agencies held by the Treasury or other Government agencies, June 30, 1964 and 1965, and changes during 1965 109. Borrowing authority and outstanding issues of Government corporations and other business-type activities whose securities are issued to the Secretary of the Treasury, June 30, 1965 110. Description of securities of Government corporations and other business-type activities held by the Treasury, June 30, 1965 111. Summary statements of financial condition of Government corporations and other business-type activities, June 30, 1965 112. Statement of loans outstanding of Government corporations and other business-type activities, June 30, 1965 113. Dividends, interest, and similar earnings received by the Treasury from Government corporations and other business-type activities, fiscalyears 1964 and 1965 782 783 786 787 791 793 796 GOVERNMENT LOSSES IN SHIPMENT 114. Government losses in shipment revolving fund, June 30, 1965 797 PERSONNEL 115. Number of employees in the departmental and field services of the Treasury Department quarterly from June 30, 1964, to June 30, 1965 . .... 799 INDEX 801 SECRETARIES, UNDER SECRETARIES, GENERAL COUNSEL, ASSISTANT SECRETARIES, SPECIAL ASSISTANT TO THE SECRETARY (FOR ENFORCEMENT), AND DEPUTY UNDER SECRETARIES FOR MONETARY AFFAIRS, SERVING IN THE TREASURY DEPARTMENT FROM JANUARY 20, 1965, THROUGH DECEMBER 31, 1965 i Term of service Official To From Secretaries of ihe Treasury Jan. 21, 1961 Apr. 1, 1965 Apr. 1, 1965 Douglas Dillon, New Jersey. Henry H. Fowler, Virginia. Under Secretary Joseph W. Barr, Indiana. Apr. 29, 1965 Under Secretary of the Treasury for Monetary Affairs Feb. Frederick L. Deming, Minnesota. 1, 1965 General Counsel Nov. 16, 1962 Jan. 31, 1965 G. d'Andelot Belin, Massachusetts. Assistant Secretaries Apr. Dec. Sept. Apr. Sept. 24, 20, 18, 29, 14, 1961 1961 1963 1965 1965 Sept. 1, 1965 Stanley S. Surrey, Massachusetts. James A. Reed, Massachusetts. Robert A, Wallace, Illinois. Merlyn N. Trued, New Jersey. W. True Davis, Jr., Missouri. Special Assistant to the Secretary (for Enforcement) David C. Acheson, District of Columbia. Sept. 16, 1965 Deputy Under Secretaries of the Treasury for Monetary Affairs Dec. 3, 1963 Nov. 24, 1965 Nov. 23, 1965 Paul A. Volcker, New Jersey. Peter D. Sternlight, New York. Fiscal Assistant Secretary June 15, 1962 John K. Carlock, Arizona. Assistant Secretary for Administration Sept. 14, 1959 A. E. Weatherbee, Maine. I For officials from Sept. 11,1789, to Jan. 20,1965, see exhibit ( XI PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE TREASURY DEPARTMENT AS OF DECEMBER 31, 1965 Secretary of the Treasury i__ Special Assistant to the Secretary Under Secretary of the Treasury Under Secretary for Monetary Affairs Deputy Under Secretary for Monetary Affairs.-. Director, Office of Domestic Gold and Silver Operations.: Director, Office of Financial Analysis Director, Office of Debt Analysis ^ Assistant to the Secretary (Debt Management).. General Counsel Deputy General Counsel Assistant General Counsel Assistant General Counsel Assistant General Counsel.. Assistant General Counsel Chief Counsel, Fpreign Assets Control Director of Practice Assistant Secretary. . Director, Office of Tax Analysis Tax Legislative Counsel Special Assistant for International Tax Affairs Assistant Secretary.. Special Assistant to Assistant Secretary Director, Employment Policy Program Assistant Secretary.. Deputy Assistant Secretary Deputy to Assistant Secretary for International Monetary Affairs Deputy to Assistant Secretary for International Financial and Economic Affairs Assistant Secretary Deputy Assistant Secretary Aide to the Assistant Secretary Henry H. Fowler Douglass Hunt Joseph W. Barr Frederick L. Deming Peter D. Sternlight Leland Howard John H. Auten (Acting) R. Duane Saunders Franklin R. Saul Fred B. Smith (Acting) Fred B. Smith Roy T. Englert Charlotte Tuttle Lloyd Hugo A. Ranta Vacancy Stanley L. Sommerfield Thomas J. Reilly Stanley S. Surrey Gerard M. Brannon (Acting) Lawrence M. Stone Richard O. Loengard, Jr. Robert A. Wallace Thomas W. Wolfe Mrs. Mary F. Nolan Merlyn N. Trued Winthrop Knowlton George H. WiUis Ralph Hirschtritt W. True Davis, Jr. James P. Hendrick Commander G. H. Patrick Bursley, USCG Assistant to the Assistant Secretary Matthew J. Marks Special Assistant to the Secretary (for Enforcement) _ David C. Acheson Staff Assistant. . . Robert E. Jordan, III Staff Assistant..^ Anthony A. Lapham Director, Office of Law Enforcement Coordination. Arnold Sagalyn Fiscal Assistant Secretary. John K. Carlock Deputy Fiscal Assistant Secretary.. George F. Stickney Assistant Fiscal Assistant Secretary Hampton A. Rabon, Jr. Assistant to Fiscal Assistant Secretary Boyd A. Evans Assistant to Fiscal Assistant Secretary Sidney Cox Assistant Secretary for Administration A. E. Weatherbee Deputy Assistant Secretary for Administration and Director, Office of Budget and Finance Ernest C. Betts, Jr. Director, Office of Personnel Amos N. Latham, Jr. Director, Office of Management and Organization. James H. Stover Director, Office of Administrative Services Paul McDonald Director, Office of Security Thomas M. Hughes Director, Office of Planning and Program Evaluation Vacancy Assistant to the Secretary (Congressional Relations). . Joseph M. Bowman, Jr. Deputy Assistant to the Secretary (Congressional Relations)'. Joseph L. Spilman XII PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS Assistant to the Secretary (PubHc Affairs) Deputy Assistant to the Secretary (Pubhc Affairs) Assistant to the Secretary (National Security Affairs). Financial Adviser National Security Affairs Adviser ' Director, Office of Foreign Assets Control . Senior Consultant Special Assistant to the Secretary and Director, Executive Secretariat • XIII Dixon Donnelley Mark T. Sheehan Charles A. Sullivan Robert W. Bean Raymond J. Albright Mrs. Margaret W. Schwartz Seymour E. Harris Robert J. Moody BUREAU OF ACCOUNTS Commissioner of Accounts Assistant Commissioner Comptroller Chief Disbursing Officer ... Deputy Commissioner for Central Accounts and Reports Deputy Comissioner for Deposits and Investments.. _ Sidney S. Sokol L. D. Mosso Ray T. Bath Lester W. Plumley Howard A. Turner Sebastian Fama BUREAU OF CUSTOMS Commissioner of Customs Assistant Commissioner of Customs Deputy Commissioner, Office of Administration Deputy Commissioner, Office of Investigations Deputy Commissioner, Office of Operations Deputy Commissioner, Appraisement Deputy Commissioner, Technical Deputy Commissioner, Collectors Operations Deputy Commissioner, Office of Regulations and Rulings ^ Deputy Commissioner, Classification and Drawbacks Deputy Commissioner, Entry, Value, and Penalties Acting Deputy Commissioner, Marine Administration Chief Counsel ^ Lester D. Johnson Edwin F. Rains N. G. Strub Lawrence Fleishman David C. Ellis Walter G. Roy George Vlases, Jr. Thomas J. Gorman, Jr. Robert V. Mclntyre . Wilham E. Higman Vacancy John P. Tebeau Donald L. Ritger BUREAU OF ENGRAVING AND P R I N T I N G Director, Bureau of Engraving and Printing Henry J. Holtzclaw Assistant Director, Bureau of Engraving and Printing i Frank G. Uhler BUREAU OF T H E M I N T Director of the Mint Assistant Director of the Mint Miss Eva Adams Frederick W. Tate BUREAU OF NARCOTICS Commissioner of Narcotics Deputy Commissioner of Narcotics Assistant to the Commissioner of Narcotics Henry L. Giordano George H. Gaffney John R. Enright BUREAU OF THE PUBLIC DEBT Commissioner of the Pubhc Debt Assistant Commissioner Deputy Commissioner Deputy Commissioner in Charge, Chicago Office..... Donald M. Merritt Ross A. Heffelfinger, Jr. Michael E. McGeoghegan Jack P. Thompson XIV PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS I N T E R N A L REVENUE SERVICE Commissioner of Internal Revenue Deputy Commissioner Assistant Commissioner (Administration) Assistant Commissioner (Inspection) Assistant Commissioner (Compliance) Assistant Commissioner (Data Processing) Assistant Commissioner (Planning and Research) Assistant Commissioner (Technical) Chief Counsel Sheldon S. Cohen Bertrand M. Harding Edward F. Preston Vernon D. Acree Donald W. Bacon Robert L. Jack William H. Smith Harold T. Swartz Mitchell Rogovin OFFICE OF THE COMPTROLLER OF THE CURRENCY Comptroller of the Currency First Deputy Comptroller Administrative Assistant to the Comptroller Deputy Comptroller (Bank Supervision and Examination) Deputy Comptroller (Mergers and Branches) --Deputy Comptroller (New Charters) Deputy Comptroller (Domestic Bank Operations) Deputy Comptroller (Trusts) Deputy Comptroller (International Banking and Finance) . Director, Department of Banking and Economic Research Chief Counsel . .. .. Chief National Bank Examiner James J. Saxon William D. Camp Anthony G. Chase Justin T. Watson R. J. Blanchard Thomas G. DeShazo R. C. Egertson Dean E. Miller E. R. Park Victor Abramson Robert Bloom Vacant OFFICE OF THE TREASURER OF T H E U N I T E D STATES Treasurer of the United States Deputy Treasurer. _. Assistant-Deputy Treasurer Mrs. Kathryn O'Hay Granahan William T. Howell Willard E. Scott U N I T E D STATES COAST GUARD Commandant, U.S. Coast Guard Assistant Commandant Chief of Staff Admiral Edwin J. Roland Vice Admiral W. D. Shields Rear Admiral Paul E. Trimble U N I T E D STATES SAVINGS BONDS DIVISION National Director Assistant National Director William H. Neal Bill McDonald U N I T E D STATES SECRET SERVICE Director Assistant Director (Investigations) Assistant Director (Protective Forces) Assistant Director (Protective Intelligence) James J. Rowley Thomas J. Kelley Rufus Youngblood Walter Young COMMITTEES AND BOARD Chairman, Treasury Management Committee Chairman, Treasury Awards Committee Chairman, Treasury Wage Board Employment Policy Officer Principal Compliance Officer A. E. Weatherbee Amos N. Latham, Jr. Amos N. Latham, Jr. Robert A. Wallace Robert A. Wallace •ORGANIZATION OF THE DEPARTMENT OF THE TREASURY- December 9,1965 1flSSTTO THE SEMETftRr I H y } Office \ I ofthe } \ Secretory,' ASST TO THE SECRETftRY t (Public A) foir.) I ^ OlfKC Of Bureau of Accounts Office of the Treosurer of fhe U.S. Bufeou of the Public Debt Office I Internol Revenue Service Office of the Comptroller of the Currency Bureauof Narcotics USSovinos Bonds Diviaon < SflSci o( lha SecrtUiy of the Ireasuy CHART US. Secret Service 1 Bureou of Engraving and Printing ANNUAL REPORT ON THE FINANCES TREASURY DEPARTMENT, Washington, May 9, 1966. : I have the honor to report to you on the finances of the Federal Government for the fiscal year 1965. Details on Treasury operations and administrative reports for the fiscal year 1965 will be found in the full text of this report. This introduction will be concerned with major fiscal and financial developments during the calendar year 1965 and the early part of 1966. SIRS OveraU Review The period under review was one of chaUenge and accomplishment, both domestically and internationally. At home a continuing expansion in production and incomes, unparalleled in our peacetime history, carried us closer to the goals of a Great Society. Although margins of unutilized industrial capacity and unemployed labor remained by the end of 1965, they had been narrowed significantly by the pace of steady expansion, supported by an act of Congress in June eliminating most excise taxes and reducing others. But, as 1965 drew to a close, it was becoming apparent that our steadfast commitment to the cause of freedom in Viet Nam would entail a much larger claim upon the nation's resources, both material and human. The new economic challenge was to insure the balanced growth of a nearly fully employed economy, free from inflationary excesses, while providing all that our commitments in Southeast Asia and elsewhere might require. There was every reason for confidence that the vast productive power of our economy, strengthened during recent years by tax reduction and high rates of investment, would be equal to the foreseeable demands that might be placed upon it. But, it was essential, if serious inflationary strains were to be avoided, that the Federal fiscal influence should shift from one of steady stimulus to aggregate demand to one of moderate restraint. Therefore, the President's January 1966 budgetary recommendations combined strict economy in nondefense expenditure programs witlj proposals for further tax action to augment the increases in social security and medicare taxes already going into effect at the beginning of 1966. Prompt congressional enactment of that further tax action, in almost the exact form requested, was an impressive demonstration of the flexibility of fiscal policy, and of the willingness of the Congress to act promptly to prevent overstraining the economy. Whether further fiscal action . xvn 783-556—66—^1-^2 XVIII 19 65 REPORT OF T H E SECRETARY OF TIIE> TREASiURY would be required was uncertain, but the President had made it amply clear in his Budget Message, that: '^if . . . events in Southeast Asia so develop that additional funds are required, I will not hesitate to request the necessary sums. And should that contingency arise, or should unforeseen inflationary pressures develop, I will propose such fiscal actions as are appropriate to maintain economic stability.'' In our international financial relations, the challenge at the beginning of 1965 was twofold. First, it was essential to reverse the worsening in our balance-of-payments position that had developed in late 1964 and to move promptly toward a secure equilibrium in our international accounts. Second, beyond that immediate necessity, there was the very great desirability of making timely progress toward agreement with other nations on the form that improved international monetary arrangements should take. The President's comprehensive voluntary balance-of-payments program announced February 10, 1965, and further tightened in December 1965, was chiefly responsible for an approximate halving of our 1964 balance-of-payments deficit as measured on the liquidity basis. The goal of the Administration was to cover the remaining distance to payments equilibrium by the end of 1966, although it was recognized that the direct and indirect impact of Viet Nam might temporarily delay achievement of that goal. Following a series of bilateral talks with the financial officials of a number of other countries, new negotiating machinery was established in September 1965, to achieve improvements in the international monetary situation. The major objective is to arrange for dependable new sources of liquidity as required in the future to finance growing international trade in the absence of dollar deficits. Negotiations have been pursued actively and progress is being made toward reaching a consensus on the essential features of an international system for creating reserves. Treasury debt management faced new challenges in the past year even though the Treasury's net cash borrowings were relatively modest. The rise in longer term interest rates after mid-1965 was the first significant upturn during the present extended period of prosperity and created a new environment for debt management. As described below and discussed more fully in the text of this report, financing operations were successfully adjusted to the changing market situation, and continued to serve the overall objectives of economic policy. In addition to these major domestic and international financial developments, the past year was an active and important one for the Treasury in many other respects, a few of which are noted below. At a conference in Manila in early Deceniber 1965, the United States and 21 other countries signed the charter of an Asian Develop- ANNUAL REPORT ON THE FINANCES XIX ment Bank with an authorized capital of $1 billion, of which the U.S. subscription is $200 million. Nine other countries became charter members by signing and making a pledge by January 31, 1966. In his Message to the Congress recommending approval of U.S. participation, President Johnson pointed out that the new Bank ''is the product of Asian initiative, and it offers the nucleus around which Asians can make a cooperative response to the most critical economic problems-—national and regional." The Congress approved the enabling legislation and it was signed by President Johnson on March 16, 1966. As an outgrowth of action initiated at the September 1964 meeting of the International Monetary I und, the Congress authorized an increase of $1,035 billion in the U.S. quota in the International Monetary Fund in June 1965. The U.S. action was part of a general increase by all of the participating countries in their respective Fund quotas, to become effective upon ratification by members holding two-thirds of present quotas. This point was reached on February 23, 1966. The quota expansion had been strongly supported by President Johnson and by his National Advisory Council on International Monetary and Financial Problems. The realities of the silver supply situation made it impossible to continue indefinitely the production of high-content silver coins. Therefore, a necessary change in our coinage system was made with the passage of the Coinage Act of 1965 which removed silver from the dime and quarter and reduced the silver content of the half dollar to 40 percent. New coinage alloys, reflecting the latest developments in modern technology, insured the consistent operation of the new dimes, quarters, and half dollars in all of our millions of coin-operated machines. Late in 1965, the new quarters began to go into circulation, followed by the dimes and half dollars in early 1966. Details of the new coinage system and a description of the successful efforts of the Bureau of the Mint in overcoming recent coin shortages will be found in the accompanying report (pages 131-4). A comprehensive study, initiated in 1963, on the mission, organization, and management of the Bureau of Customs was released in March 1965. At the same time, President Johnson announced a major program, under the terms of Reorganization Plan No. 1 of 1965 which became effective May 25, to make maximum use of the skill and talent of the career employees of the Customs Service and to achieve annual savings estimated at $9 million. Major management improvements in other Treasury agencies and bureaus are described in the accompanying report. Tax Policy The economic expansion that began in early 1961 continued strongly through calendar year 1965 and into 1966. National output rose 5K XX 19 65 REPORT OF T H E 'SECRETARY OF T H E TREAS'URY percent in real terms during 1965 and our record of cost-price stability remained superior to that of any other major industrial nation, despite growing pressures by the end of the year. Unemployment was reduced to just over 4 percent by the end of 1965 and declined further in early 1966. Tax reduction and reform was again a central element in overall economic policy. Forward impetus was provided to the economy by the second-stage tax reductions of the Revenue Act of 1964, which has convincingly demonstrated its success, and by the first stage of the Excise Tax Reduction Act of 1965, signed into law by President Johnson on June 21, 1965. Very general agreement had developed that many of our excise taxes had no place in a permanent tax system. Extensive hearings had been held on excise tax reduction before the House Ways and Means Committee in the summer of 1964 preparing the way for prompt action in 1965. The President stated in his Budget Message of January 25, 1965, that attention should now be given to the repeal of some excise taxes and the reduction of others. Such action would provide further aid to economic growth and minimize the burden on consumers and business resulting from taxes which were often costly and difficult to administer and which frequently distorted consumer choices as among different goods. On May 17 the President sent a message to the Congress with the details of an excise tax reduction program, modified in the light of the current and prospective economic situation, and totaling $3.9 billion at estimated fiscal 1966 levels of income. To insure the maximum contribution to continued price stability and balanced prosperity, the President requested that business promptly pass forward to consumers the full amount of excise tax reductions. This request was emphasized again when he signed the bill on June 21, and, by and large, was carried into effect in ensuing months. The tax repeals or reductions under the final legislation amounted to $4.7 billion at fiscal 1966 levels of income, rather than the $3.9 billion recommended by the President. ' This resulted chiefly from eventual reduction of the tax on passenger automobiles to one percent, rather than five percent as recommended, and to a lesser extent from minor changes which are detailed later in this report (pages 37-40). Of the total $4.7 billion, about $1.75 billion became effective on June 22, 1965, and an approximately equal amount became effective on January 1, 1966, with additional reductions to be effective in three stages, on January 1, 1967, 1968, and 1969. Another taxation development during 1965 that deserves mention here was the modification of the depreciation guideline procedures initiated in 1962. Those 1962 procedures were instituted as part of a thoroughgoing depreciation reform designed to encourage the use of more rapid equipment modernization in industry. At that time. ANNUAL REIPORT ON T H E FINANCES XXI taxpayers were allowed a three-year transitional period. Study of the depreciation practices of several hundred large firms conducted at the request of the Treasury in 1964 by the National Industrial Conference Board and independent studies by the Internal Revenue Service suggested that some liberalization of guideline procedures was necessary if businesses were to obtain full benefit from the 1962 depreciation reform. At the same time, the Treasury recognized the need to apply limitations in the use of certain accounting techniques found to be incompatible with the guideline procedure. The combination of the new liberalized rules and the new limitations was estimated, to result in increasing depreciation tax benefits during 1965 by some $600 million-$800 million over what they would have been if the 1962 reform had not been modified. The overall fiscal position in late 1965 and early 1966 was substantially influenced by the amendment of the Social Security Act in July 1965, in line with recommendations by the President. Old age benefits were liberalized retroactively to January 1, 1965, with, disbursement of the retroactive portion made in September 1965. However, the increase of some $2 billion annually in transfer payments was to be more than offset by the increase in social security and medicare payroll taxes of $6 biUion, annual rate, going into effect January 1, 1966. With medicare payments not beginning until the second half of 1966, the net effect would be some increase in fiscal restraint in the first haff of 1966 because of the higher payroll taxes. Late in 1965 it became apparent that the increased commitment in Viet Nam might be sufficiently large to require offsetting fiscal action, beyond that which would result from the higher payroll taxes and rigorous control of nondefense expenditures. In his Budget Message of January 24, 1966, President Johnson announced that apart from the special military and economic assistance costs in Viet Nam, expenditures for the regular programs of the Federal Government in fiscal 1967 were estimated at $102.3 billion, a rise of $0.6 billion from fiscal 1966, only six-tenths of one percent. But, because increased special costs associated with Viet Nam would add an estimated $4.7 billion in fiscal year 1966 expenditures and $10.5 billion in fiscal year 1967 expenditures over the amounts estimated in January 1965, it would be necessary to raise additional revenues. As the President had expressed the matter on January 19, .1966: ''Under these circumstances, I was faced with three choices: —A deficit in excess of $6.5 billion, which would require the Government to borrow the additional money. —^An increase in corporate and personal income tax rates, or other new taxes. —Temporary restoration of certain excise taxes, and adoption of graduated withholding of individual income taxes and current payment of corporate income taxes—to put the American XXII 19 65 REPORT OF T H E SECRETARY OF T H E TREASURY people on a pay-as-you-go basis without increasing the total tax bill due. "Over the past several weeks I discussed these alternatives and countless variations of them with my advisers. I made two decisions. "First, w^e could raise revenue or borrow it. I chose to raise the money. "Second, I chose to raise that money without any increases in personal and corporate income tax liabilities, but through changes that affect only the timing of tax payments and the temporary restoration of certain excise taxes on telephones and automobiles." Therefore, the President recommended tax legislation involving (a) temporary restoration of the rates of excise taxes on automobiles and telephones that were in effect at the end of 1965 and (b) the adoption of collection procedures which would put income and selfemployment tax payments closer to a pay-as-you-go system, thereby increasing current revenues without changing income tax rates and without changing anyone's final tax liabilities. I t took only about 60 days from the time the tax program was outlined in mid-January for it to be enacted, essentially in its original form as regards the impact on fiscal years 1966 and 1967, as the Tax Adjustment Act of 1966. That legislation was expected to generate approximately $6 billion extra revenue in the 15 months following its enactment—through fiscal year 1967. In terms pf cash payments, the changes in the new law were estimated to take about $2.7 billion out of the individual and corporate spending stream in calendar 1966. Whether the degree of fiscal restraint embodied in the Tax Adjustment Act of 1966 would prove sufficient, or whether further fiscal or other action would be required, could only be determined with the passage of time. Full effects of the Federal Reserve's monetary tightening signaled by the December 1965 increase in the discount rate were yet to be registered, and further evidence was needed on the strength of private spending plans. I t was clear, however, that the • flexible adaptation of fiscal policy to changing needs had already been convincingly demonstrated. In the recent past, tax reduction actions had included the investment credit in the Revenue Act of 1962, the individual and corporate income tax reductions in the Revenue Act of 1964, the Excise Tax Reduction Act of 1965, and the administrative depreciation reforms of 1962 and 1965. Despite tax reductions that cut the burden of taxes by some $20 billion at current levels of income, revenues were estimated at $21 billion higher in fiscal year 1966 than in fiscal year 1961. This contrasts with a growth in receipts of only $10 billion in the 5 years preceding 1961, a period in which there was no significant tax reduction. I n commenting upon this remarkable growth in revenues in his January 24, 1966, Budget Message, President Johnson noted that we ANNUAL REPORT ON T H E FINANCED XXIII have had a clear illustration of the direct relationship between tax policies, economic growth, and Federal revenues. He went on to observe that: " T a x policy, however, must be used flexibly. We must be equally prepared to employ it in restraint of an overly rapid economic expansion as we were to use it as a stimulus to a lagging economy. The current situation calls for a modest measure of fiscal restraint." Balance of Payments The U.S. balance-of-payments deficit increased sharply during the last half of calendar 1964, reaching an annual rate of $5.5 billion in the fourth quarter (liquidity basis), primarily because of a substantial increase in net outflows of U.S. private capital. By leading to temporarily excessive increases in foreign dollar holdings the larger deficit was aggravating the gold outflow problem. Therefore, President Johnson announced a comprehensive balance-of-payments program on February 10, 1965. The program was the result of a careful review of the situation by the Cabinet Committee on the Balance of Payments, chaired by the Secretary of the Treasury. The essentiaUy new element in the program was its reliance upon the voluntary cooperation of the commercial and financial community. U.S. banks were asked to hold total claims outstanding on foreign residents to 105 percent of the level at the end of 1964. Guidelines developed by the Board of Governors of the Federal Reserve System for implementing this program were designed to assure that credits to finance U.S. exports, and loans to less-developed countries, could be adequately met. I n addition, consideration for the special positions of Canada, Japan, and the United Kingdom was requested. Within these broad guidelines each bank was to decide the direction of its particular overseas activities. A similar approach was permitted nonbank financial institutions in their foreign lending and investing activities. U.S. industrial corporations also were asked to improve their individual balance-of-payments accounts, combining all transactions such as exports, dividend income, royalties, fees, and capital outflows from the United States. The objective was to leave the corporations free to adjust these components of their individual payments accounts while achieving a significant net payments improvement. To reduce the tourist deficit, Americans as well as foreigners were encouraged to travel more in this country. Legislation was recommended and subsequently enacted on June 30, 1965 (Public Law 89-62), reducing the duty exemption on purchases made abroad by returning U.S. residents. The February 10 program also called for extension of the interest equalization tax for two years beyond December 31, 1965, broadening its coverage to include nonbank credit of one-to-three year maturity. XXIV 19 65 REPORT OF T H E SECRETARY OF THE TREASURY and activation of the Presidential authority under the Gore Amendment to the act to apply the interest equalization tax to bank loans of one year or more. (The Interest Equalization Act was broadened in coverage and extended to July 31, 1967, by Public Law 89-243, October 9, 1965.) To stop any excessive flow of funds to Canada under its special exemption from the interest equalization tax, the President sought and received firm assurance that the policies of the Canadian Government would be directed towiard limiting borrowing in the United States to the maintenance of a stable level of Canada's foreign exchange reserves. The program also caUed for an intensification of U.S. Government efforts to minimize the foreign exchange costs of our defense and aid programs; an increase in our efforts to promote U.S. exiports; and, finally, encouragement of more investments from abroad, by increasing, through new tax legislation, the incentive of foreigners to invest in U.S. securities. The prograin of voluntary cooperation that President Johnson called for in his Balance-of-Payments Message of February 10, 1965, proved to be highly effective. For the year 1965, there was a $1.5 bUlion net reduction in the payments deficit on a liquidity basis despite heavy outflows on private capital account during the early months and despite setbacks for the year as a whole in trade and other accounts. The $1.3 bUlion deficit in 1965 w^as the smaUest since 1957 and less than half the size of our deficits of $2.8 billion in 1964 and $2.7 billion in 1963. On the other principal accounting basis, official reserve transactions, our deficit in 1965 was also $1.3 billion, about the same as the 1964 deficit on that basis. Gold outflows rose sharply to $1,665 billion for the year as a whole. However, there was a pattern of steady improvement during the course of the year. From a high of $832 million in the first quarter, the outflow declined to $590 million in the second quarter (including a $259 million payment of the gold portion of the increased U.S. subscription to the I M F ) , and fell further to $124 miUion in the third quarter, and $119 million in the fourth quarter. Late in 1965, at the.request of the President, the Cabinet Com- < mittee on the Balance of Payments, under the chairmanship of the Secretary of the Treasury, conducted an intensive review of the U.S. balance-of-payments situation. The recommended measures for 1966 involve, essentially, a sharpening and reinforcing of the 1965 program with continued emphasis upon its voluntary, comprehensive, and balanced character. Corporations are requested, through a strengthened Commerce Department Program, to meet overall balance-of-payment targets simUar to those of 1965; and also to meet specific targets for direct investment which are expected to result in balance-of-payments savings of up to $1 bUlion in 1966. CeUings on lending under the Federal Reserve voluntary program are to rise by the end of 1966 to ANNUAL REPORT ON T H E FINANCE'S XXV 109 percent of the December 1964 base for banks and nonbank financial institutions and small banks wUl be permitted to increase their loans somewhat more than this. These changes recognize the outstanding contribution of banking institutions to the 1965 program, and wUl help to insure more fully the adequacy of credit for financing of U.S. exports and the achievement of other desired objectives. Other important features of the program include an intensified effort to hold down the balance-of-payments cost of Government programs, encouragement of both foreign and domestic tourism in the United States, stepped-up effort to expand U.S. export trade^ and the recommendation that legislation to encourage foreign investment in the United States now before the Congress be enacted as soon as possible. The main balance-of-payments imponderables in early 1966 were the exact extent to which there would be rising balance-of-payments costs in Southeast Asia in both the mUitary and aid programs and the direct and indirect impact of Viet Nam on the domestic economy and the balance of trade. International Financial Arrangements A summary of a wide range of developments in international financial affairs will be found in the text of this report (pages 49-65). The discussion here will be limited to a brief review of the major steps taken during the calendar year 1965 to achieve further progress toward improved international monetary arrangements. The need for improved arrangements arises from the fact that growth in international monetary reserves—primarUy gold and dollars—has been largely dependent over the past decade upon increases in official foreign dollar holdings. New gold supplies moving into monetary use have been accounting for a relatively small proportion of total reserve growth. Therefore, as the U.S. payments deficit is removed, the major source of recent growth in international liquidity wUl also be removed. To assure ample world liquidity for the years ahead—when U.S. payments wUl not be in chronic deficit— the United States, in cooperation with other leading financial countries, is seeking workable ways of strengthening and improving international financial arrangements. I n a Ministerial Statement of August 1964, the Group of Ten countries—Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States— stated that while supplies of gold and reserve currencies are fuUy adequate for the present and are likely to be for the immediate future, the continuing growth of world trade and payments is lUiely to require larger international liquidity. I t was recognized that world liquidity needs might be met by larger credit facilities or might call for some new form of reserve asset. Therefore, a Study Group was set up " t o examine various proposals regarding the creation of reserve assets XXVI 19 65 REPORT OF THE SECRETARY OF THE TREASURY either through the I M F or otherwise." Their valuable study—the so-called Ossola Report—was submitted to the Group of Ten on June 1, 1965, and was published later. By mid-1965 with this and other technical studies completed and with the U.S. balance-of-payments program demonstrating its effectiveness, it was appropriate to press forward toward a stage of more conclusive negotiations. Therefore, on July 10, 1965, the Secretary of the Treasury announced his intention of conducting a series of informal discussions with ranking financial officials of other Group of Ten countries to ascertain firsthand their views on the most practical and promising ways of furthering progress toward improved international monetary arrangements. I n that statement, it was made clear that the United States was prepared to participate in an international monetary conference at some appropriate future time. I t was also pointed out that before such a conference took place, there should be reasonable certainty of measurable progress through prior agreement on basic points. I t was announced at the same time that President Johnson had approved the recommendation of the Secretary of the Treasury and had created an Advisory Committee on International Monetary Arrangements, chaired by the former Secretary of the Treasury, Douglas DUlon. The Advisory Committee membership includes: Robert V. Roosa, former Under Secretary of the Treasury for Monetary Affairs; Kermit Gordon, former Director of the Bureau of the Budget; Edward Bernstein, economic consultant specializing in international monetary policy; Andre Meyer, of the investment banking firm of Lazard Freres; David Rockefeller, President of the Chase Manhattan Bank; Charles Kindleberger, Professor of Economics at Massachusetts Institute of Technology; Walter Heller, former Chairman of the Council of Economic Advisers; and Frazar Wilde, Chairman of the Board of Trustees, Committee for Economic Development. In September, following a series of bilateral talks between the Secretary of the Treasury and foreign financial officials, new negotiating machinery was established at the time of the annual meeting of the International Monetary Fund. The Finance Ministers of the Group of Ten countries instructed their Deputies to seek a basis of agreement on the improvements needed in the international monetary system, including arrangements for the future creation of reserve assets. I t was further provided that once a basis for agreement on essential points was reached, it would be necessary to proceed from this first phase to a second phase, involving a much larger group of countries. At the same time, the Managing Director of the I M F , who participates in the ministerial meetings of the Group of Ten, indicated that the Fund would pursue its own investigation of the ways and ineans of creating international reserves. Since last fall, negotiations have ANNUAL REPORT ON T H E FINANCES XXVII been pursued actively. The Deputies are proceeding to draft their report to the Ministers, which it is hoped wiU show considerable progress toward a consensus on the essential features of an international system for creating reserves. Debt Management During the course of calendar 1965, record flows of funds moved through our domestic financial markets but at higher rates of interest. For short-term rates, this marked a continuation of the more or less steady advance dating from the beginning of the current expansion in early 1961, which has made our o^vn short-term rates more competitive with key rates abroad. For longer term rates, the rise after mid-1965 was the first significant upturn since the present expansion began. Yields moved upward in all maturity ranges of Treasury securities from mid-1965 until early December, and then rose sharply following the December 6 increase in the Federal Reserve discount rate (jdelds from 1960 to mid-1965 are shown in chart 3, page 18 of the accompanying report). The yield on 3-month bills advanced from about 3.80 percent at mid-1965 to 4H percent in early December, rose sharply to about 4)2 percent by the end of the year, and worked its way irregularly higher in early 1966. Treasury coupon issues in the 5-year range, which were a bit above 4^8 percent at midyear, rose to about 4K percent by early December, and 4% by yearend. Longer term yields in the 20-year range moved from a little below 4% percent at mid-1965, to around 4K percent by the end of 1965. This background of rising rates, which continued into early 1966, formed the environment for Treasury debt management operations after mid-1965. (A detailed review of public debt management and ownership developments during fiscal 1965 is provided on pages 17-34 of the accompanying report.) Following an August 1965 refunding operation, the Treasury conducted the bulk of its financing for the rest of the year in the form of tax anticipation bills. A $4 billion tax anticipation bill package in September was followed by a November auction of another $2.5 billion in tax bills. On October 27 the Treasury announced the terms for refinancing $9.7 billion of notes maturing November 15. The refinancing took the form of a cash offering of a new 18-month, 4K percent note, priced to yield about 4.37 percent. At the end of 1965 the average length of the marketable interest-bearing public debt was 5 years, the same as a year earlier b u t 4 months shorter than the average maturity at the end of fiscal 1965 which had reflected the lengthening impact of an advance refunding in January 1965. In early 1966, after a $1.5 billion cash offering and $1 billion in additional tax anticipation bills in January, the Treasury took advantage of favorable market conditions in February to achieve some XXVIII 19 65 REPORT OF T H E (SECRETARY C F T H E TREASURY moderate b u t useful debt lengthening, and also to lighten the task of refunding issues that would be maturing later in the year. The successful February operation was a combined refunding of February 15 and April 1 debt maturities into 18-month or 4% year notes, along with a prerefunding of issues maturing in May and August into the 4% year option. With its completion. Treasury flnancing operations for the fiscal year were virtually completed, except for routine rollovers. The savings bond program received an important stimulus early in 1966 when President Johnson announced an increase in the rate to 4.15 percent from the previous 3.75 percent effective from December 1, 1965. The Presidential action also raised the earnings after December 1, 1965, of outstanding Series E and H savings bonds. The new, higher rate was clearly justified not only in view of the higher rates available on various private savings accounts, but also in the light of current needs to sustain vigorous noninflationary growth and manage the public debt soundly. Corporate and Federal campaigns to increase participation in the payroll savings plan were being pressed intensively and substantial results were expected. H E N R Y H . FOWLER, Secretary of the Treasury. T o THE PRESIDENT OF THE SENATE. To THE SPEAKER OF THE H O U S E OF REPRESENTATIVES. R E V I E W OF F I S C A L OPERATIONS S u m m a r y of Financial Operations The administrative budget deficit for the. fiscal year 1965 was $3.4 billion, $4.8 billion less than the 1964 deficit and $2.8 billion less than estimated in the 1966 budget document. Net administrative budget receipts during the year totaled $93.1 billion and net expenditures amounted to $96.5 billion—receipts being $3.6 billion higher and expenditures $1.2 billion lower than the preceding year. Net reoeipts of trust funds during fiscal 1965 exceeded net trust expenditures by. $1.4 billion, with net reoeipts rising to $31.0 billion and net expenditures to $29.6 billion. On the basis of a consolidated cash statement, total receipts from the public during the year amounted to $119.7 billion, and total payments to the public amounted to $122.4 billion, resulting in an excess of payments to the public of $2.7 billion. The public debt outstanding June 30, 1965, totaled $317.3 billion, a net increase of $5.6 billion during the year. A summary of the Government's fiscal operations during the 1964-65 fiscal years and their effect on the public debt follows: In billions of dollars Administrative budget receipts and expenditures: Netreceipts (—) Net expenditures Administrative budget deficit... Trust receipts and expenditures: Netreceipts (—) Net expenditures ---. Excess of receipts (—), or expenditures Net investments in public debt and agency securities Net sales (—) of Govemment agency securities in the market Increase (—), or decrease in checks outstanding, deposits in transit (net), etc. Increase (—), or decrease in public debt interest accrued Change in cash balances, increase, or decrease (—): Treasurer's account Held outside Treasury . Net increase in cash balances Increase in public debt.., *Less than $50 million. 1965 REPORT OF THE SECRETARY OF THE TREASURY Administrative Budget Receipts and E x p e n d i t u r e s CHART 2 The Administrative Budget Receipts The increase of $3.6 billion in net administrative budget receipts during fiscal 1965 brought the total to $93.1 billion, thus marking the fourth successive year in which new peaks have been established. This overall rise occurred despite the impact of reduced individual and corporate income tax rates under the Revenue Act of 1964. The bulk of the tax reduction went into effect early in the calendar year 1964 and the remainder on January 1, 1965. Economic activity continued to expand throughout the fiscal year 1965 and tax receipts accompanied this general rise. A comparison of net administrative budget receipts by major sources for fiscal years 1964 and 1965 is shown below. Additional data for 1965 on the gross basis are presented in table 18. 1965 1964 Source I n millions of doUars Internal revenue: I n d i v i d u a l inconie taxes C o r p o r a t i o n income taxes Excise taxes E s t a t e a n d gift t a x e s . Total internal revenue C u s t o m s duties Miscellaneous receipts . .. , - - 48,697 23,493 10, 211 2,394 48,792 25, 461 10,911 2,716 95 1,968 700 323 -- 84,794 1,252 3 412 87,880 1,442 3 749 3,086 190 337 -. 89,459 93 072 3,613 - - -- -- N e t a d m i n i s t r a t i v e b u d e e t receiots _ . - Increase REVIEW OF FISCAL OPERATIONS 5 Individual income taxes.—Receipts from individual income taxes amounted to $48.8 billion in fiscal 1965, accounting for over one-half of total budget revenues but, because of the rate reduction, for only 3 percent of the year's increase. The net gain of $95 million over fiscal 1964 occurred despite the effect of the tax reduction under the Revenue Act of 1.964. Corporation incoone taxes.—Corporation income tax receipts rose to $25.5 billion in the fiscal year 1965, $2.0 billion above the previous year's receipts, despite the reduced tax rates. Receipts from corporation income taxes depend primarily on the amount of corporation profits earned during the calendar year w-hich ends within the fiscal year. Corporation profits rose substantially from calendar year 1963 to 1964, up $6.2 billion on a national accounts basis. Tax receipts in fiscal 1965 were further bolstered by the speedup in estimated payments required under the Revenue Act of 1964. This speedup in payments adds to Government receipts in the fiscal years involved but does not affect the tax liabilities computed under the new lower rates. Excise taxes.—Receipts from excise taxes are shown in the following table. 1964 1965 Increase, or decrease ( - ) Source I n millions of dollars Alcohol taxes T o b a c c o taxes T a x e s on d o c u m e n t s , other i n s t r u m e n t s , a n d p l a y i n g cards M a n u f a c t u r e r s excise taxes Retailers excise taxes . Al iscellaneous excise taxes U n d i s t r i b u t e d d e p o s i t a r y receipts a n d u n a p p l i e d collections Gross excise taxes -. Less: R e f u n d s of receipts Transfers to h i g h w a y t r u s t fund N e t excise taxes .. - -- - -- --. -. 3,577 2,053 172 6,021 475 1,547 106 3,773 2,149 186 6,418 513 1,786 -32 195 96 15 398 38 239 -139 13,950 14, 793 843 220 3,519 223 3.659 3 139 10,211 10,911 700 Net excise tax receipts, after deduction of refunds and transfers to the highway trust fund, rose $700 million to $10.9 billion for the fiscal year 1965. Increases were pervasive among the many forms of excises reflecting the sustained expansion in economic activity. Miscellaneous excise taxes showed the largest relative increase, the bulk of it due to increased collections from telephone and other communications services. Estate and gift taxes.—Estate and gift tax collections reached $2.7 billion in fiscal 1965, $323 million larger than in the previous fiscal year. Since estate taxes are not payable until 15 months after death 6 19 65 REPORT OF THE SECRETARY OF T H E TREASURY and the valuation of the estate is the lesser of the value at time of death or one year later, the rise refiected the strong upsurge in stock prices which began late in the calendar year 1962. Customs.—Customs duties increased 15 percent during the year reaching a net total of $1,442 million. This rise reflected a substantial increase in taxable imports accompanying the general rise in economic activity. Miscellaneous receipts.—^Miscellaneous receipts are the total of receipts by the Government of varied forms of income other than taxes. The total of $3.7 billion received in the flscal year 1965 was $337 million or 10 percent larger than in 1964. The net overall rise is a composite of divergent movements in the various forms of nontax receipts. Sales of Govemment property and products, dividends and other earnings, and seigniorage showed advances, offset in part by smaller realizations on loans and investments. Estimate of receipts The Secretary of the Treasury is required each year to prepare and submit in his annual report to Congress estimates of public revenue for the current fiscal year and for the fiscal year next ensuing (act of February 26,1907 (5 U.S.C. 265)). The estimates of receipts from taxes and customs for the current and ensuing fiscal years are prepared by the Treasury Department. In general, the estimates of miscellaneous receipts are prepared by the agencies depositing these receipts in the Treasury. The estimates of receipts and the legislative and economic assumptions upon which they are based are the same as those presented in the Budget message of the President of January 24, 1966. Briefly, the recommendations involve (a) rescheduling the 1966-69 reductions in the automobile and telephone excise taxes to the period 196871 and (b) the adoption of certain collection procedures which will put income tax payments closer to a pay-as-you-go system, thereby increasing current revenues without changing income tax rates and without changing final tax liabilities. . Excise tax rates on automobiles and general and long distance telephone and teletype services would be restored to the rates in effect before January 1, 1966, and the successive reductions scheduled until January 1, 1969, would be deferred. The estimate assumes that the telephone and teletype taxes would return to 10 percent on April 1, 1966, and the tax on automobiles would return to 7 percent from 6 percent on March 15,1966. The proposed graduated withholding schedule on wage and salary income tax liabilities affects the timing of tax payments during the year, but it does not change the tax liabilities. Under present legisla- REVIEW OF FISCAL OPERATIONS 7 tion, a flat 14 percent is withheld on taxable salaries and wages; this corresponds to the tax on the lowest income bracket, and it is applied regardless of the amount of income. As a result, the taxes withheld on higher bracket wage earners are generally too small. The proposed new schedule would increase the amounts withheld as taxable salaries and wages increase, and thereby would reduce underwithholding to a small proportion of total income tax liability. The new withholding schedules are assumed to become effective on May 1,1966. Under present law quarterly corporation payments on estimated tax liabilities greater than $100,000 per year are being adjusted to a schedule that would run concurrently with the accrual of tax liabilities during each tax year. The size of payments on estimated tax is being adjusted gradually to reach lan even quarterly pattern by calendar year 1970. The legislation proposed in this budget would require a naore rapid adjustment and would complete the transition in the 1967 tax: year. The 'accelerated schedule would first apply to payments due April 15, 1966. Legislation authorizing additional user charges and extending others is recommended, in keeping with the policy that a greater share of the costs of certain programs which provide special benefits or privileges should be borne by identifiable primary beneficiaries. The user charges program also is being extended by administrative action throughout the executive branch where legislative authority exists, and present charges are reexamined regularly to assure that they adequately reflect the costs incurred. The tax on air passenger traffic would be raised from 5 .percent to 6 percent until January 1, 1969. A tax of 2 percent on air freight waybills would be instituted and an additional 2 percent added on> January 1, 1969, raising this tax to 4 percent. The growth of air transportation should generate sufficient receipts from these taxes to meet commercial aviation's share of the cost of the Federal airways. Accordingly, the present 2 cents per gallon tax on gasoline used in commercial aviation would be repealed, leaving fuels used in commercial aviation untaxed. Gasoline and jet fuels used in general aviation would be taxed at 4 cents per gallon, and all of the receipts retained in the general fund. A user charge of 2 cents per gallon is proposed on fuel used by vessels navigating the inland waterways. User charges are also being recommended in several other programs. Some of these charges would become miscellaneous receipts of the general fund. In other instances, the charges would be used to offset the costs of operation, as in: (1) meat and poultry inspections; (2) commodity inspection and classification and warehouse inspecting and 8 1965 REPORT OF THE SECRETARY OF T H E TREASURY licensing; (3) administration of workmen's compensation and safety programs for longshoremen and harbor w^orkers; and (4) overtime border inspections of private vessels and aircraft. Legislation has been requested to create revolving funds for the Rural Electrification Administration ( R E A ) and three power administrations—Bonneville, Southeastern, and Southwestern. With authority to operate as revolving funds, the agencies would be able to use collections on outstanding loans and revenues from power sales to help finance their current operations and necessary capital outlays, while remaining subject to control through the regular appropriations process. Enactment of this legislation will reduce, equally, miscellaneous receipts of tHe Treasury and expenditures by the agencies without effect upon the budgetary surplus or deficit. The nation's output of goods and services for calendar year 1966 is expected to be within a $10 billion range centered on $722 billion, an increase of $46i/^ billion over 1965 at the midpoint of the range. Substantial gains in personal income and corporate profits will accompany the groAvth in output. Specifically, the fiscal year revenue estimates are based on the following economic assumptions: Calendar years 1965 preliminary 1964 actual 1966 estimate X I n billions of dollars Gross n a t i o n a l p r o d u c t Personal i n c o m e . . C o r p o r a t e profits before t a x e s . . . . .. __. . . . . . . _. 628.7 495.0 64.8 675.6 530.7 74.6 722 567 80 Estimates of tax revenues cannot be derived directly and simply from the assumed levels of aggregate economic performance. The definitions of taxable income in the tax statutes, which determine tax liabilities, differ from the economic or statistical definitions of income which are used to measure economic performance. . I n addition, tax payments are received by the Treasury after the period i n which tax liabilities are incurred. For example, corporation income tax collections lag six months behind the period when the taxable income was earned; there is also some lag between the time when individual income and social security taxes are deducted from earnings and the time employers transfer these sums to the Treasury. The 1964 income tax legislation decreased tax liabilities by successively greater amounts in calendar years 1964 and 1965. Despite the losses from income tax reduction and, in fiscal 1966, from the excise tax 9 REVIEW OF FISCAL OPERATIONS cuts of 1965, total revenues rose in fiscal 1964 and 1965 and are exjDccted to continue rising in the fiscal years 1966 and 1967. Receipts for fiscal 1966 are estimated to increase $7 billion over actual receipts in 1965 to $100 billion. A further increase of $11 billion to a total of $111 billion is estimated for 1967. Receipts will have risen for six consecutive years by the fiscal year 1967, reaching a level $33 billion above 1961. This revenue gain reflects an increase of $218 billion in gross national product from the calendar year 1960 to the calendar year 1966. Actual administrative budget receipts for the fiscal year 1965 and estimated receipts for 1966 and 1967 are compared by major sources in the accompanying table. Amounts shown for each revenue source are the net amounts after deduction of refunds, transfers to trust funds, and interfund transactions. Fiscal years 1965 actual 1966 estimate 1967 estimate Increase, or decrease (—), 1966 to 1967 In millions of dollars Individuallncome taxes Corporation income taxes. Excise taxes Estate and gift taxes Customs Miscellaneous receipts _. ._ __ __ Net administrative budget receipts .. _ _ -___ 48,792 25,461 10,911 2,716 1,442 3,749 51,400 29,700 9,169 2,932 1, 655 5,144 56,240 34,400 8,879 3,301 1,845 6,335 4,840 4,700 -290 369 190 1,191 _. 93,072 100,000 111, 000 11,000 Individual income taxes.—Collections of individual income taxes amounted to $48.8 billion in fiscal year 1965. They are estimated to rise to $51.4 billion in fiscal 1966 and to $56.2 billion in fiscal 1967, an increase of $4.8 billion. The rise of $2.6 billion in fiscal 1966 reflects a substantial increase in the individual income tax base offset in part by the second stage reduction of tax rates which Avent into effect on January 1, 1965. The larger rise in 1967 is almost wholly due to higher incomes, bolstered by the proposed introduction of a graduated withholding system. Corporation income taxes.—Corporate receipts which amounted to $25.5 billion in the fiscal year 1965, are expected to reach $29.7 billion in 1966, and $34.4 billion in 1967. Receipts in 1966 are depressed by the second stage of tax rate reduction but are increased by $1.0 billion because of the further speedup in the payment schedule. The 1967 revenue increase of $4.7 billion reflects both increased profits and a $3.2 billion effect of the proposed speedup. 10 19 65 REPORT OF THE SECRETARY OF THE TREASURY Excise taxes,—Net excise tax revenues, excluding taxes collected and transferred to the highway trust fund, are estimated to fall to $9.2 billion in fiscal year 1966 from $10.9 billion in 1965. A further decrease to $8.9 billion is estimated for 1967. Losses in 1967 from the several excises repealed as of January 1, 1966, will be substantially offset if the proposals relating to the auto and telephone excises are accepted by the Congress. Also, there would be some offset if the various user charge proposals are adopted. Collections are also increasing from the excises not affected by the excise reduction act, reflecting increased sales of the products and services involved. Estate and gift taxes,—Estate and gift tax receipts are estimated to increase from $2.7 billion in 1965 to $2.9 billion in 1966. A rise to $3.3 billion is expected in 1967. Receipts from this source arise mostly from collections of estate taxes which are payable 15 months after death. The estimated increases in the fiscal years 1966 and 1967 therefore reflect rises in asset valuations occurring some time earlier. CustoTns,—Customs receipts are estimated to increase from $1,442 million in fiscal year 1965, to $1,655 million in 1966, and to $1,845 million in 1967. Enlarged receipts from customs duties reflect increasing imports associated with a continued expansion of economic activity. Miscellaneous receipts.—Miscellaneous receipts, which are all those received by the general fund of the Treasury except for taxes and customs duties, are shown in the above table net of interfund transactions. Such receipts are estimated to increase from $3.7 billion in fiscal 1965, to $5.1 billion in 1966, and to $6.3 billion in 1967. Over half of the increases of $1.4 billion in 1966 and $1.2 billion in 1967 are attributable to seigniorage profits arising from full-scale production of coins with the new composition authorized by the Coinage Act of 1965.^ Also adding to the increases are accelerated sales of excess strategic and critical materials, increased receipts from the Outer Continental Shelf lands as new areas are opened for exploration, and higher payments of earnings by the Federal Reserve System. Expenditures Net administrative budget expenditures decreased ihore than $1 billion in fiscal 1965 from the preceding fiscal year, the first such yearto-year reduction in expenditures in five years. A two-year comparative summary by major functions is set forth below; more detailed information on administrative budget expenditures is contained in table 15. 1 See exhibit 23. 11 REVIEW OF FISCAL OPEKATIONS 1965 Program Increase, or decrease (—) In millions of dollars National defense Interest payments Health, labor, and welfare Veterans' benefits and services Space research and technology International affairs and finance Agriculture and agricultural resources. Commerce and transportation Other 1: . Less interfund transactions Total 54,181 10, 765 5,475 5,492 4,171 3,687 r 5, 475 3,002 ^ 6,102 664 50,163 11,435 5,898 5,495 5,093 4,304 4,898 3,499 6,592 870 -4, 018 670 423 3 922 617 -577 497 490 206 97,684 96, 507 -1,177 r Revised. I Includes programs relating to natural resources, housing and community development, education, and general government. Expenditures for national defense, though significantly below the preceding year, accounted for 52 percent of total administrative budget expenditures. Interest payments increased during the year to account for 12 percent of administrative budget expenditures; health, labor, and welfare programs accounted for over 6 percent; and veterans' benefits and services something less than 6 percent. Estimates of expenditures Administrative budget expenditures in the fiscal years 1966.and 1967 are expected to be $106.4 billion and $112.8 billion, respectively. The following summary shows the estimated expenditures for these two years by major programs. Table 18 shows estimated administrative budget expenditures for these years by agencies. 1965 actual- 1966 estimate Program Increase, or decrease ( - ) , 1966 from 1965 1967 estimate Increase, or decrease ( - ) , 1967 from 1966 I n millions of dollars N a t i o n a l defense Interest payments H e a l t h , labor, a n d welfare . . . . V e t e r a n s ' benefits a n d services. Space research and technology I n t e r n a t i o n a l aflairs a n d finance. _ Agriculture a n d agricultural resources Commerce and transportation. Other 1 . _ Less i n t e r f u n d transactions Total 50,163 11,435 6,898 5,495 5,093 4,304 4,898 3,499 6,592 870 56,560 12,104 8,377 5,122 5,600 3,932 4,313 3,202 7,866 647 96,507 106,428 6,397 . .. 60,541 12,854 669 9,962 2,479 5,721 -373 5,300 507 4,177 -372 3,372 -585 2,672 -297 8,960 1,274 712 -223 9,921 112,847 ... 3,981 750 1,585 599 -300 245 -941 -530 • 1,094 65 6,419 1 Includes programs relating to natural resources, housing and community development, education, and general government. T r u s t Receipts and Expenditures Receipts I n fiscal 1965, net trust receipts rose to $31.0 billion, an increase of $.7 billion over 1964. Detailed information on net trust receipts is 12 19 65 REPORT OF THE SECRETARY OF THE TREASURY given in table 5; the following summary shows the two year comparison of net trust receipts, by source for fiscal years 1964 and 1965. Increase 1964 Source In millions of dollars Employment taxes __. Unemployment tax deposits by States. Excise taxes. Interest on trust funds Other trust receipts i Less interfund transactions Net trust receipts 16,832 3,042 3,519 1,613 5,845 521 16,905 3,052 3,659 1,770 6,299 638 30,331 31,047 73 10 140 157 454 117 1 Includes Federal employee and agency payments to retirement funds, veterans' life insurance premiums, and other miscellaneous trust receipts. Estimates of receipts In the fiscal years 1966 and 1967 trust receipts are expected to rise to $33.5 billion and $41.6 billion, respectively. The rise will be due principally to employment tax receipts. In fiscal 1966, employment taxes are estimated to increase $1.9 billion over 1965, and in 1967 by $5.5 billion over 1966. These increases will develop primarily from the higher social security tax rates and larger wage base, effective January 1, 1966. On that date the combined employer-employee rate is raised from 7.25 percent to 8.4 percent and the covered annual wage base from $4,800 to $6,600. On January 1,1967, existing law provides for the combined tax rate to be further increased to 8.8 percent. Detailed estimates of trust fund receipts are contained in table 19; a suriimary by principal source follows: Source 1965 actual 1966 estimate Increase, or decrease ( - ) , 1966 from 1965 1967 estimate Increase, or decrease ( - ) , 1967 from 1966 In millions of dollars Employment taxes Unemployment tax deposits by States . . Excise taxes. Interest on trust funds _ _. __ _ ._ Other 1 Less interfund transactions __ . _ Net trust receipts 16,905 3,052 3,659 1,770 6,299 638 18,819 2,900 3,859 1,822 6,933 795 1,914 -152 200 52 634 157 24,339 2,900 4,378 1,970 8,787 767 5,520 31,047 33,539 2,492 41.608 8,069 519 148 1,854 -28 1 Includes Federal employee and agency payments to retirement funds, veterans' life insurance premiums, and other miscellaneous trust receipts. Expenditures Net trust expenditures in fiscal 1965 amounted to $29.6 billion, an increase over the preceding year of $.7 billion. Programs of a health, labor, and welfare nature accounted for 78 percent of total trust ex- REVIEW OF FISCAL 13 OPERATIONS penditures, while commerce and transportation programs (mainly highway trust fund expenditures) made up 13 percent of the total. Details regarding trust expenditures are contained in table 5; a summary by major function follows comparing fiscal 1965 trust expenditures with those of 1964. 1964 1965 Program Increase, or decrease (—) In millions of dollars Health, labor, and welfare , Commerce and transportation I-Iousing and community development Veterans' benefits and services Agriculture and agricultural resources.. National defense Other 1 _. Less interfund- transactions Net trust expenditures 22,733 3,482 1,889 666 496 487 -348 521 23,186 3,864 1,136 624 751 -213 638 453 382 -753 -42 431 264 135 117 28, 885 29, 637 752 927 1 Includes programs relating to natural resources, international affairs and finance, education, and general government; also includes net transactions in deposit fund accounts. Estimates of expenditures I n the fiscal years 1966 and 1967 trust expenditures are expected to reach $33.8 billion and $37.9 billion, respectively. The following summary shows by major functions the estimated trust expenditures for 1966 and 1967, compared with the preceding year. Trust expenditures for these years are shown in more detail in table 19. 1965 actual Program Increase, or decrease ( - ) , 1966 from 1965 1966 estimate 1967 estimate Increase, or decrease ( - ) , 1967 from 1966 In millions of dollars Health, labor, and welfare. _ Commerce and transportation Housing and community development Veterans' benefits and services Agriculture and agricultural resources National defense Other 1 Less interfund transactions..' Net trust expenditures .. . . _. 23,186 3,864 1,136 624 927 751 -213 638 26, 589 3,780 1,988 554 600 875 194 795 3,403 -84 852 -70 -327124 407 157 31,110 3,895 1,194 682 623 898 248 767 4,521 115 -794 128 23 23 54 -28 29, 637 33, 786 4,149 37,882 4,096 1 Includes programs relating to natural resources, international affairs and finance, education, and general government; also includes net transactions in deposit funds. Receipts F r o m and P a y m e n t s to the Public A summary of Federal Government cash transactions with the public during fiscal year 1965 shows total receipts from the public to have amounted to $119.7 billion, while total payments to the public reached $122.4 billion, resulting in an excess of payments totaling $2.7 billion. 14 19.65 REPOIIT OF T H E SECRETARY OF T H E TREASURY The consolidated cash statement is considered helpful in assessing the results of the Federal Government's financial operations, since it presents the flow of cash transactions between the Federal Government and the public. The totals of the administrative budget receipts and expenditures are added to the trust fund receipts and expenditures, with appropriate deductions for intragovernmental transactions, an adjustment to expenditures for debt issuances in lieu of checks, and certain other adjustments for transactions not involving cash exchanges with the public. The 1962 annual report, page 31, contains a detailed explanation of the procedure for compiling the consolidated cash statement. Table 17 provides an ll-year comparative table showing details of cash transactions with the public. Tlie following summary shows such transactions for fiscal years 1964-65 and estimates for 1966-67. Actual Receipts from and pasonents to the public 1964 Estimated 1965 1966 1967 In millions of dollars Receipts from the public: Administrative budget (net) . Trust and other fnet). Intragovernmental and other noncash items 89,459 30,331 93, 072 31,047 100,000 33, 539 111. 000 41,608 -4,259 - 4 , 420 -5,385 -7,069 Totalreceipts from the public 115, 530 119, 699 128,154 145, 539 Payments to the public: Administrative budget (net) Trust a.nd other (net) Intragovemmental and other noncash items 97,684 28, 885 96, 507 29, 637 106,428 33, 786 112,847 37, 882 Total payments to the public Excess of cash receipts from, or payments to ( - ) , the public -6,237 - 3 , 749 -5,166 -5,681 120,332 122,395 135,048 145, 048 -4,802 - 2 , 696 - 6 , 894 491 Corporations and Other Business-Type Activities of the Federal Government The business-type programs which Govemment corporations and agencies administer are financed by various means: appropriations, sales of capital stock, borrowings from either the U.S. Treasury or the public, or by revenues derived from their own operations. Corporations or agencies having legislative authority to borrow from the Treasury issue their formal securities to the Secretary of the Treasury. Amounts borrowed are reported in the periodic financial statements of the Government corporations and agencies as part of the Government's net investment in the enterprise. I n fiscal 1965, borrowings from the Treasury, exclusive of refinancing transactions, totaled $7,450 million, repayments were $8,352 million, and outstanding loans on June 30, 1965, totaled $28,354 million. REVIEW OF FISCAL OPERATIONS 15 Those agencies having legislative authority to borrow from the public must either consult with the Secretary of the Treasury regarding the proposed offering, or have the terms of the securities to be offered approved by the Secretary. During fiscal 1965 Congress granted new authority to borrow from the Treasury in the total amount of $1,050 million, and reduced existing authority by $924 million, resulting in a net increase of $126 million. The status of borrowing authority and the amount of corporation and agency securities outstanding as of June 30, 1965, are shown in table 109. Unless otherwise specifically fixed by law, the Treasury each month determines interest rates on its loans to agencies by considering the Government's cost for its borrowings in the current market, as reflected by prevailing market yields on Government securities with comparable maturities. A description of the Federal agencies' securities held by the Treasury on June 30, 1965, is shown in table 110. During fiscal 1965, $1.1 billion was received by the Treasury as interest on borrowings by agencies, dividends, and similar payments. Quarterly statements of financial condition, income and expense, and source and application of funds are submitted to the Treasury by Government corporations and agencies. Semiannual statements of financial contingencies are also submitted. These statements serve as the basis for the combined financial statements compiled by the Treasury which, together with the individual statements, are published periodically in the Treasury Bulletin, Summary statements of the finiancial condition of Government corporations and other business-type activities, as of June 30, 1965, are shown in table 111. Account of the T r e a s u r e r of the United S t a t e s Gold, silver, and the general account are the three major categories of the account of the Treasurer of the United States. On June 30, 1965, gold held was valued at $13,934 million, the principal amount being at the Fort Knox Depository with lesser amounts at mints and assay offices. Gold liabilities totaled $13,826 million and included gold certificates (series 1934), the reservation for the gold certificate fund of the Federal Reserve Board of Governors, and reserves against Federal Reserve notes and U.S. notes. Assets of the silver account, consisting of silver bullion and silver dollars had a value of $1,270 million as of June 30, 1965. Liabilities against the silver account (currency issued against free silver, etc.) amounted to $889 million, leaving a silver balance totaling $382 million. 16 1965 REPORT OF THE SECRETARY OF THE TREASURY Transactions affecting the account of the Treasurer of ihe United States, fiscal year 1965 [In millions of dollars] Balance June 30, 1964 Excess of deposits, or withdrawals (—), budget, trust, and other accounts: Deposits Withdrawals ( - ) Excess of deposits, or withdrawals (—), public debt accounts: Increase in gross public debt Deduct: Excess of Govemment agencies' investments in public debt issues 2,422 Accruals on savings and retirement plan bonds and Treasury bills (iucluded in increase in gross public debt above) 3, 7l7 Certain public debt redemptions (iQcluded above in withdrawals, budget, trust, and other accounts) —3, 467 Net deductions 11,036 125,464 . 126,395 -931 5, 561 2,672 Excess of sales of Government agencies' securities in the market •__ Net transactions in clearing accounts (documents not received or classified by the Office of the Treasurer) Balance June 30, 1965 -__ 2,889 201 —584 12,610 REVIEW OF FISCAL OPERATIONS 17 The assets of the general account of the Treasurer at fiscal yearend included the gold and silver balances against which there were no reserves or specific liabilities, cash in the form of currency and coin, unclassified collections, and funds on deposit with Federal Reserve banks and other depositaries. During the year the balance in the general account increased by $1,575 million. The net change is accounted for in the preceding table. Table 58 is a balance sheet presentation of the account of the Treasurer of the United States. Public Debt Management and Ownership I n the fiscal year 1965 Treasury debt management operations were primarily designed to secure the funds needed for Government expenditures in excess of revenues and for the refinancing of maturing Treasury securities. I n addition to meeting these basic housekeeping requirements, decisions were also shaped by major economic policy objectives—including the achievement of progress toward equilibrium in the U.S. balance of payments, and the achievement of growth and price stability of the domestic economy. I n brief, these goals called for maintaining a level of short-term interest rates that would be sufficiently competitive with rates available in other financial centers, while avoiding an excessive buildup in short dated debt (with its implicit inflationary potential) or upward pressure on long-term interest rates, which would impede domestic investment. A t the same time a continuing effort was made to retain and improve upon a debt maturity structure that would assure flexibility in future fmancing decisions. With the domestic economy expanding and total credit flows proceeding at record levels, these objectives presented no serious conflict with one another. Flows of funds proceeded through the market at record levels, helping to lift economic activity to new highs while longer term interest rates were essentially steady—despite sizable sales of long-term Treasury issues through the advance refunding of shorter debt. The price level in the economy rose slightly during the year. The balance.of payments was in deficit for the period as a whole, but showed a marked improvement wdthin the year and actually registered a surplus in the April-June 1965 quarter. This improvement largely reflected the initial impact of President Johnson's voluntary restraint program of February 10,1965, but the higher level of short-term interest rates in this country was also helpful. 78;2-5.56—66 2 18 19 65 REPORT OF THE SECRETARY OF THE TREASURY The form and scope of Treasury borrowing operations in fiscal 1965 depended to a great extent upon the investment environment at each particular financing juncture. Early in the fiscal year the investment climate was generally marked by invesstor confidence in the existing yield levels which, in turn, reflected the noticea;ble improvement in the U.S. balance-of-payments situation in the second half of the previous fiscal year and the continued steady growth of the domestic economy. This favorable atmosphere was clouded during the fall months, however, as the extent of the British balance-of-payments problems became publicized and the increase in the Bank of England bank rate was closely followed in late November by a rise in the Federal Reserve discount rate. The credit market impact of the British payments crisis was almost entirely confined to the money market area where, for example, average issuing rates on three-month Treasury bills rose from 3|% percent early in the fiscal year to 3 % percent by calendar yearend. (See chart 3.) Prices of long-term securities faltered, but recovered quickly as a steady volume of investment demand continued to be the predominate factor in capital markets. The extent of this demand was highlighted by the very active investor participation in the Treasury's advance refunding offering in January and the aggressive bidding for corporate and municipal securities offered at that time. CHAET 3 Market Yields At Constant Maturities' I960"'65 3>h LW tr 1 Estimated yields of U.S. (Government securities a t 1, 5, and 20 y e a r s ; bank r a t e s on bills ; monthly averages of end of week figures. discount REVIEW OF FISCAL OPERATIONS 19 Short-term rates, after declining somewhat from December highs, turned up again in January and reached record levels in late February 1965 for the current business expansion. Growing concern over the deteriorating U.S..balance-of-payments position and the accompanying gold losses created uncertainties in the money market, which were in part abated by the President's February 10 message to Congress introducing the voluntary foreign credit restraint program. As the efficacy of this program became apparent, investor confidence reemerged and short-term as well as long-term interest rates were generally steady to lower throughout the remainder of the fiscal year. By the end of the fiscal year the market rate on 3-month bills, after reaching 4.0 percent, declined to about 3.8 percent while the average yield on long-term Treasury bonds fell slightly to about 4% percent. The Treasury was also aided in debt management efforts by a continuation of the trend of recent years toward smaller year-to-year increases in the Federal debt (the public debt and guaranteed debt not owned by the Treasury). The total debt rose by $5.3 billion in fiscal 1965 compared with increases of $6.1 billion in fiscal 1964, $7.8 billion in fiscal 1963, and $9.4 billion in fiscal 1962. Marketable securities, which comprised almost two-thirds of the debt on June 30,1965, totaled just $2.2 billion higher than a year earlier, marking the smallest fiscal year increase in this category of debt since fiscal year 1957. Moreover, the supply of marketable Treasury securities held by the public actually declined by $2.4 billion as Govemment investment accounts and the Federal Reserve System absorbed $4i/^ billion of marketable issues duruig the year. Official accounts also added $2 billion to their holdings of nonmarketable securities, for a total net acquisition that was $1.2 billion greater than the $5.3 billion increase in the Federal debt. As illustrated by chart 4, commercial banks (particularly large reserve city banks) continued to liquidate holdings of Govermnent securities durmg the past fiscal year. These holdings declined by $2 billion, following a $4 billion decline in fiscal 1964. Large nonfinancial corporations were also net sellers of governments in fiscal 1965 as the yields on alternative money market instruments attracted an increasingly larger share of the corporate short-term investment funds which remained after heavier capital spending outlays. As was true in fiscal 1964 net new investment in Federal securities in fiscal 1965, other than that represented by Govemment investment account and Federal Reserve purchases, was largely concentrated in the portfolios of State and local government general and pension funds, individuals, and corporate pension funds. 20 10 65 REPORT OF THE SECRETARY OF THE TREASURY CHART 4 Changes in Public Debt Holdings by Investor Classes $Bil. •4^h- Fiscal Year 1964 < •2^ +23 0^ M .*.4,3 Fiscal Year ^1965 f*2.8f 1 -2 -3.5 -£• FINANCING OPERATIONS As the new fiscal year began the financing outlook had improved from earlier projections due to the stronger than anticipated budget position during the last few inonths of fisoal 1964. The Treasurer's account balance reached a relatively high level of $11 billion on June 30,1964, and earlier expectations of moderately heavy cash borrowing in the upcoming July-September period were revised downward. The budget deficit for fiscal 1965 w^as viewed as certain to be significantly less than the $81/4 billion fiscal 1964 total with expenditures held below^ the level of the previous year and revenues rising somewhat. Reflecting the seasonally light flow of receipts \h^ budget deficit in the first six inonths of the new fiscal year was expected to approach $9 billion, follow^ed by a substantial surplus in the subsequent six-month period. However, by drawing down the seasonally high cash balance at the start of the fiscal year and entering the inarket for about $2 billion of new money in July or August, it appeared that the Treasury could postpone the bulk of new cash borrowing until the October-December quarter. This favorable cash outlook, together with outward signs of strength in the Governinent securities market, presented the Treasury with an opportunity to make a major debt restructuring effort. Consideration centered on the possibility of including an early refunding in advance of maturity of issues due m August and November 1964 into longer term securities in addition to the advance refundinp' of selected issues REVIEW OF FISCAL OPERATIONS . 21 in the short to intermediate maturity range. With close to $30 billion of coupon issues maturing on the 4 quarterly refunding dates of fiscal year 1965 and $16% billion of the total held by the public (that is, in the hands of individual, business, and institutional investors other than the Federal Reserve banks and Government investment accounts) it was hoped to refund a significant portion of these nearby maturities,, along with some other short-term issues, in the existing receptive market. A reduction in the volume of short dated debt also would provide greater flexibility in the later fall cash operations by making it possible to borrow through regular bills and tax anticipation bills without adding so much to the economy's liquidity as to be an inflationary influence. Accordingly, on July 8, the Treasury announced that the improvement of its cash position made unnecessary any immediate substantial cash borrowing. At the same time, an advance refundmg offering was made to holders of $42 billion of 9 selected note and bond issues maturing from August 1964-February 1967. This first financing of the new fiscal year provided an opportunity for holders of these issues ($261^ billion in public hands) to exchange for reopened 4 percent bonds of October 1969, new 4% percent bonds of 1973, and reopened 4^4 percent bonds of August 1987-92. The terms of the offering were W'ell received by investors .and public subscriptions reached a record high for advance refundings of $9.3 billion, 35 percent of eligible public holdings. As a result of the large conversion public holdings of Issues maturing in fiscal year 1965 were reduced by some $41^ billion, $114 billion was added to the volmne of long-term debt outstanding, and the average maturity of the marketable debt rose by almost 5 months tO' the highest level in 8 years. The successful offering was particularly helpful in tightening the August and Noveihber maturities, reducing public holdings of issues maturing in each of those months to a very manageable $214 billion. The Treasury also announced at the time of the advance refunding in July that the immediate cash needs of the Treasury would be met through increases in the regular weekly bill offerings beginning with a $100 million addition to the weekly auction of bills dated July 16. The following two weekly auctions were increased by a like amount. The demand for bills expanded sharply during the refunding period, however, as some sellers of advance refunding "rights" entered the bill market and reinvestment demand also developed from holders of the $2 billion one year bills maturuig July 15. Bill rates moved appreciably lower. Responding to the market demand, and mindful of near-term needs for additional cash, the Treasury announced, on July 20, a cash offering of a $1 billion strip of bills consisting of an additional $100 million each of 10 weekly series dated October 15—• 22 19 65 REPORT OF THE.SECRETARY OF THE TREASURY December 17, 1964. Bill rates immediately steadied and then turned upward as supplies were enlarged and as market observers interpreted the move as a sign of official concern over the trend and level of shortterm rates compared with those abroad. The $4 billion remainder of the 5 percent notes and 3 % percent notes maturing on August 15 were refinanced through a cash offering of new 3 % percent 18-month notes, at par. The cash refinancing offer was favorably received and subscriptions totaled $14.9 billion for the $4 billion, or thereabouts, to be issued. Subscriptions received from States and funds of other political subdivisions, Govemment investment accounts, Federal Reserve banks, international organizations and foreign official accounts totaled $2.0 billion and were allotted in full upon receipt of the required certification of ownership of the maturing securities. Subscriptions for less than $100,000 were allotted in full while larger subscriptions were subject to a 15-percent allotment but were assured of a minimum award of $100,000. The second major step taken to meet the anticipated cash requirements of the fall period was announced on August 21, 1964. Subscriptions were invited for $1 billion of 201-day tax anticipation bills to be dated September 2, 1964, and to mature March 22, 1965. On August 31, the Treasury announced a $100 million increase in the following regular weekly bill auction, and similar additions were made for the next three weeks bringing the net hew cash borrowed through the first three months of fiscal 1965 to $2% billion. Treasury financing decisions through the remainder of the calendar year 1964 were influenced by a combination of international and domestic developments. I n the international area imcertainties arose over the British and U.S. balance-of-payments positions and were strengthened, by the sterling crisis and resultant increases in the British bank rate and Federal Reserve discount rate in late November. Added to these concerns there were increased discussions in the market of the possibility that domestic price stability might be threatened by rising private credit demand associated with expanding business activity. The outcome of the labor negotiations in the automobile industry also generated a degree of market caution. I n mid-October Treasury again entered the Govemment securities market to borrow $ 1 % billion through the auction of additional March 22, 1965, tax anticipation bills. This step had been anticipated by market observers in view of expected Treasury cash requirements and commercial banks bid aggressively in the auction to obtain the Treasury tax and loan account credit which was permitted up to 50 percent of bank allotments. On October 28, the Treasury announced plans to refinance the $83^4 billion of 4 % percent notes and 3 % percent notes maturing Novem- REVIEW OF FISCAL OPERATIONS 23 ber 15,1964. The Treasury offered $914 billion, or thereabouts, of new 4 percent 18-month notes for cash in order to pay off the maturing securities and raise a moderate amount of new money. Subscriptions totaling $21.9 billion were received for the issue and those received from States, political subdivisions, Govemment investment accounts, Federal Reserve banks, international organizations and foreign official accounts were allotted in full if accompanied by the required certification of ownership of the maturing notes. All other subscriptions were allotted in full up to $100,000 and larger subscriptions were subject to a 16.5 percent allotment ratio with a minimum award of $100,000. Additional new cash was raised in November with an offering of $1.5 billion of tax anticipation bills to- mature in June 1965. As in October, the Treasury allowed commercial banks to pay for 50 percent of their purchases through direct crediting of tax and loan accounts, and this resulted again in vigorous bank bidding for the bills. This offering marked the completion of the borrowing program (aside from regular bill rollovers) for the July-December half of the fiscal year with a total of $6i/^ billion of new oash raised, primarily through bills, and $22 billion of notes and bonds issued in exchange and cash refunding operations. Throughout the closing months of the calendar year the Treasury considered possibilities for borrowing operations in the January-June 1965 period. While financial developments in late November, as mentioned earlier, provided an additional complication, plans continued to focus on advance refunding possibilities should conditions favor such an undertaking in the months ahead. Remaining cash borrowing needs for the fiscal year were expected to be relatively light with most of the total to be raised through additional June tax anticipation bills. The market for longer term governments improved in early December and prices climbed back to the levels existing before the discount rate increase in November. While bond prices declined moderately by yearend, there appeared to be sufficient demand for intermediate and longer term governments to warrant another advance refunding offering in early January. A good availability of funds for long-term investment was in evidence with some signs of easing in the demand for mortgage loans and no particular pressures noticeable in either the corporate or municipal sectors. The flow of liquid savings continued at record high levels and it was felt that by moving ahead at the turn of the calendar year, the Treasury would remove some uncertainties surrounding new investment programs for the coming year, and provide investors with an opportunity to extend their holdings at then current yield levels. It would 24 19 65 REPORT OF THE SECRETARY OF THE TREASURY also be useful for the Treasury to gain the benefit of private investors' desires to achieve debt extention and thus increase the flexibility of future Treasury operations. The announceinent on December 30 of an advance refunding offering was well received by the market. Holders of $33 billion of 8 outstanding issues, including the nearby inaturing February 1965 bonds, in addition to those maturing from Noveinber 1965—November 1967, w^ere given an opportunity to extend their holdings into new 4 percent bonds of February 1970, new 41/8 percent bonds of February 1974, and reopened 4^4 percent bonds of August 1987-92. A total of $9.1 billion or 41 percent of the $22.1 billion of eligible public holdings, were exchanged for the new issues. The Treasury was well satisfied with the results of the offering, which exceeded earlier expectations, and welcomed the expression of iiiA^estor confidence in current interest rate levels. Secondary distribution proceeded smoothly assisted by a favorable market reaction to the President's Budget Message and news of improvement in the British balance-ofpayments situation. At the same time that the January advance refunding was announced, the Treasury indicated the intent to borrow shortly from $ 1 % billion to $2 billion by adding to the outstanding June tax anticipation bill. The formal offering of $ 1 % billion of this issue was made on January 6, for cash subscription on January 12. Commercial banks were again allowed a 50 percent credit to their Treasury tax and loan accounts in payment for their allotments and as a result the auction attracted good commercial bank participation. A technical shortage of short-term regular bills developed in the inarket during the advance refunding period as strong reinvestment demand originated from sellers of "rights." T o help counteract this shortage and maintain international short-term interest rate relationships, as well as help cover some of the remaining fiscal year 1965 cash borrowing needs, the Treasury announced on January 13 that $100 million would be added to the regular weekly auctions in coming weeks. Each of the seven auctions for the bills issued from J'anuary 21—^March 4, w^as increased by this amount as well as the auctions for the March 25, April 1, and April 15 issues. One auction, the issue of April 8, was increased by $200 inillion to even out the existing pattern, leaving a cycle of $2.2 billion regular weekly bills maturing and offered each w^eek: $1.2 billion of the 13-week bill and $1.0 billion of the 26-week issue. This cycle was maintained through the balance of fiscal 1965, along with the regular cycle of one-year bills maturing on month-end dates, each in the amount of $1 billion. The remainder of the 2% percent bonds maturing February 15,1965, were paid off in cash from the proceeds of a routine offering of an REVIEW OF FISCAL OPERATIONS 25 equivalent amount of 4 percent, 21-month notes priced at 99.85, to yield 4.09 percent. The $2.2 billion of these 2%s to reach final maturity represented less than one-third of the amount originally issued in June 1958. The issue had been made eligible in three advance refunding offerings and in the last of these, in January, $1.8 billion was exchanged for the longer term securities then being offered. Subscriptions for the new 4 percent notes totaled $10.6 billion and those received from official institutions and public funds were allotted in full. Subscriptions of $100,000 or less were also allotted in full while larger subscriptions were subject to a 15 percent allotment ratio but assured of a $100,000 miniinum aAA-ard. The 21-inonth maturity of the notes offered in this refinancing represented a slight departure from the length of short-term securities in recent cash and exchange offerings and, in fact, was the only such maturity issued in more than 20 years. The final financing operation of fiscal year 1965 consisted of the refinancing of $81/^ billion securities maturing May 15, 1965. The two. inaturing issues were a 4% percent note and a 3 % percent note with some $4.1 billion of the maturing total in public hands. This total represented the largest public holding of the four quarterly refundings during the year and the largest since the $4.2 billion public holding of May 1964, just a year earlier. The market environment was also similar to that of the previous spring, with long-term yields down slightly and intermediate rates generally unchanged from a year earlier. The only significant change in the yield structure had occurred in the shortterm area where the three-month bill rate had climbed nearly one-half of one percent and one-year yields had increased a little over oneeighth of one percent. The budget picture was also one of improvement from the latest January estimates, with projected revenue flows adequate to meet expenditures through the remainder of the fiscal year. The securities offered in the May refunding, in exchange for the maturing notes were also similar to those offered a year earlier. Investors were given the opportunity to exchange for 4 percent 15-month notes (priced to yield 4.12 percent) and 41/4 percent, 9-year bonds (priced to yield 4.22 percent). The latter option was the same issue that had been offered in 1964, reopened at a slight premium. Interest centered primarily on the 414 percent bonds and public subscriptions to this issue totaled $2.0 billion, compared to $1.7 billion for the shorter term notes. The two accompanying tables smnmarize the Treasury's major financing operations during the fiscal year and table 45 provides data 26 19 65 REPORT OF T H E SECRETARY OF T H E TREASURY on allotments by investor classes. The exhibits on public debt operations provide further information on public offerings and allotments by issues in tables and representative circulars. Public offerings of marketable Treasury securities excluding refinancing of regular bills (three-month, six-month, and one-year) fiscal year 1965 [In millions of dollars] Issued for cash Issued i n exchange Total Description Date For new money For For refund- m a t u r ing ing issue I n advance refunding BONDS AND N O T E S 1961^ Apr, 1 J u l y 22 J u l y 22 J u l y 22 A u g . 15 Oct. 1 N o v . 16 13'^% exchange n o t e - A p r . 1,1969 i 4 % b o n d - O c t 1,1969, a d d i t i o n a l 4 H % b o n d - N o v , 15, 1973 4 H % b o n d - A u g 15, 1987-92, additional 3 % % n o t e - F e b . 15, 1966 3 -_ iy^% exchange n d t e - O c t . 1,1969 i 4% n o t e - M a y 15, 1966 3 1965 J a n . 15 J a n . 15 J a n . 15 F e b . 15 Apr. 1 M a y 15 M a y 15 4 % b o n d - F e b . 15, 1970 4V^% b o n d - F e b . 15,1974 434% b o n d - A u g . 15, 1987-92, a d d i t i o n a l 4 % n o t e - N o v 15, 1966 ' 1 H % exchange n o t e - A p r . 1,1970 i 4% n o t e - A u g . 15, 1966, a d d i t i o n a l a t 99.85 i H % b o n d - M a y 15, 1974, a d d i t i o n a l a t 100 25 2 48 '"3,'726" 4,357 1,198 4,040 159 811 _.. 86 1964 1965 897 N o v . 24 1965 J a n . 18 O t h e r bill offerings: 3.505% 109.6-day average for s t r i p * 3.580% 201-day (tax anticipation) M a r . 22, 1 9 6 5 . . 3.518% 147-day (tax anticipation) M a r . 22, 1965, additional.3.639% 210-day (tax anticipation) J u n e 22, 1965 3.711% 155-day (tax anticipation) J u n e 22, 1965, additional T o t a l bills T o t a l p u b l i c offerings _ __ 4,381 3,130 2,254 4,381 3,130 2,254 2,254 31 5,904 2,062 19, 046 43, 063 2,168 14, 916 8,204 VALUE) Increase i n t h r e e - m o n t h a n d six-month bills: July through September October t h r o u g h D e c e m b e r January through March April through June .. _ T o t a l increase 1964 J u l y 29 Sept. 2 Oct. 26 ........ 31 5,904 2,062 T o t a l b o n d s a n d notes BILLS * (MATURITY 8,708 48 3,726 4,357 1,198 . 4,040 159 9,519 _ -. . 608 100 802 399 608 100 802 399 1,909 1,909 1,001 1,001 1, 001 1,001 1,503 1,505 1,503 1,505 1,758 1,758 8,677 9,574 14, 916 8,204 19, 046 8,677 51, 740 1 Issued only on demand in exchange for 2^4% Treasury Bonds, Investment Series B-1975-80. 2 Issued subsequent to June 30,1964. 3 A cash offering (all subscriptions subject to allotment) was made for the purpose of paying off the maturing securities in cash. Holders of the maturing securities were permitted to present them in payment in lieu of cash to the extent subscriptions were allotted. For further detail see exhibit 1. 4 Treasury bills are sold on a discount basis with competitive bids for each issue. The average price for auctioned issues gives an approximate yield on a bank discount basis as indicated for each series. 5 Consists of additional amounts of 10 series of outstanding regular weekly Treasury bills, $100 million maturmg each week from Oct. 15 through Dec. 17, 1964. REVIEW OF FISCAL 27 OPERATIONS Disposition of marketable Treasury securities excluding regular bills (three-month, six-month, arid one-year) fiscal year 1965 [In millions of dollars] Securities D a t e of refundm g or retirement 1964 J u l y 22 J u l y 22 J u l y 22 J u l y 22 J u l y 22 J u l y 22 J u l y 22 J u l y 22 J u l y 22 A u g . 15 A u g . 15 Oct. 1 N o v . 15 N o v . 15 1965 J a n . 15 J a n . 15 J a n . 15 J a n . 15 J a n , 15 J a n 15 J a n . 15 J a n 15 F e b . 15 Apr. 1 M a y 15 M a y 15 Description a n d m a t u r i t y d a t e Issue d a t e E x c h a n g e d for n e w issue Total At maturity In advance refunding B O N D S AND N O T E S 5% n o t e - A u g . 15, 1964 3^4% n o t e - A u g . 15, 1964 4 ^ % n o t e - N o v . 15, 1964 3 % % n o t e - N o v . 15, 1964 Z H % n o t e - M a y 15, 1965 3 ^ % n o t e - F e b . 15, 1966 Z H % b o n d - M a y 15, 1966 4 % n o t e - A u g . 15, 1966 3 ^ % n o t e - F e b . 15, 1967 5% n o t e - A u g . 15, 1964 Z H % n o t e - A u g . 15, 1964 1 H % exchange n o t e - O c t . 1, 1964 i H % n o t e - N o v , 15, 1964 3 % % n o t e - N o v . 15, 1964 Oct. Aug. Feb. Aug. Nov. May Nov. Feb. Mar, Oct. Aug. Oct. Feb. Aug. 15,1959 1,1961 15,1960 15,1963 15,1963 15,1962 . 15,1960 15,1962 15,1963 15,1959 1,1961 1,1959 15,1960 15,1963 2 ^ % b o n d - F e b , 15, 1965 33^% n o t e - N o v , 15, 1965 _ 4 % n o t e - N o v , 15, 1965 3 ^ % n o t e - F e b . 15, 1966 3 ^ i % n o t e - F e b . 15, 1966.— 3 M % b o n d - M a y 15, 1966 3-K% n o t e - A u g . 15, 1967 3 ^ % b o n d - N o v 15, 1967 2 ^ % b o n d - F e b . 15, 1965 13^% exchange n o t e - A p r . 1, 1965 4 ^ % n o t e - M a y 15, 1965 ZH7o n o t e - M a y 15,1965 June Nov. May May Aug. Nov, Sept, Mar, June Apr, May Nov. 15,1958 15,1962 15,1964 15,1962 15,1964 15,1960 15,1962 15,1961 15,1958 1,1960 15,1960 15,1963 Total bonds and notes 1965 M a r 22 M a r . 22 J u n e 22 J u n e 22 Redeemed for cash or carried to matured debt 1,061 1,094 490 901 1,182 845 1,175 600 519 1,357 2,392 612 664 1,117 845 1,175 600 519 1,357 2,392 612 664 1,117 1,198 2,910 490 3,267 5,441 1,808 1,337 461 1,065 1,443 563 1,504 1,584 1,808 1,337 461 1,065 1,443 563 1,504 1,584 2,168 466 1,816 6,620 19, 046 43, 423 1137 11,817 1 2,366 1 4, 260 1,649 466 281 189 1,535 6,431 7,313 17, 064 1518 BILLS 3.580% 3.518% 3 639% 3.711% (tax (tax (tax (tax anticipation) anticipation) anticipation) anticipation) Sept. . . Oct. Nov. Jan. T o t a l bills.' T o t a l securities 22,1964 26,1964 24,1964 18,1965 1,001 1,503 1,505 1,758 2 1, 001 21, 503 21, 505 21, 758 5,767 13, 080 17, 064 19,046 5,767 49,190 1 Accepted in payment in lieu of cash. 2 Including tax anticipation issues returned for taxes. Public debt changes The Treasury issued $51.7 billion of new marketable securities during fiscal 1965, exclusive of the refinancing of regular three-month, six-month, and one-year bills, or slightly more than the $51.6 billion volume of fiscal 1964. Over $9.6 billion of the 1965 total represented securities for new cash, of which $5.8 billion w^as seasonal borrowing through tax anticipation bills issued and redeemed within the fiscal year. Of the remaining $3.8 billion new cash raised, $2.2 billion represented an increase in the marketable debt. The remaining $1.6 billion was used to pay off maturing exchange notes in October 1964 and April 1965, to retire unexchanged maturing securities in the May refunding, and to redeem Treasury bonds during the year for the payment of estate taxes. I n addition to new cash operations, $19 billion 28 19 65 REPORT OF THE SECRETARY OF THE TREASURY of longer term securities were placed with investors in the advance refundings of July 1964 and January 1965, and over $23 billion of notes and bonds were issued to replace securities maturing during the year. Over one-fourth of the $155% billion marketable notes and bonds outstanding on June 30, 1964, were extended during the subsequent 12 months, while the $50% biUion outstanding bills were rolled over an averaa'e of almost two and one-half times. June 30, 1965 June 30, 1964 Increase, or (-) Class of debt In billions of dollars Pubhc debt: Marketable public issues, maturing: Within one year . One to five years Five to twenty years Over twenty years . Total marketable issues Nonmarketable public issues: Saving^ bonds: Series E and H Other series Investment series bonds Foreign series securities Foreign currency series securities.. Other nonmarketable debt Total nonmarketable issues Special issues to Government investment accounts.. Noninterest-bearing debt Total pubhc debt Guaranteed debt not owned by Treasury. Total gross pubhc debt and guaranteed debt.. 81.4 65.5 43.3 16.3 87.6 56.2 47.6 17.2 206.5 208.7 47.7 1.6 3.5 .4 1.2 3.3 1.1 1.1 .2 6.2 -9.3 4.3 1.1 -.3 -.3 .7 .3 (*) 54.2 46.6 4.4 55.8 48.6 4.2 1.5 2.0 311.7 317.3 .6 5.6 -,2 317.9 5.3 *Less then $50 million. Although the shortest term marketable debt—that maturing within the foUowing year—increased by $614 billion in fiscal 1965 as the volume of regular Treasury bills rose and the terms of outstanding issues shortened, the debt inaturing w^ithin the potentially troublesome one-to-five year area declined by $9% billion. The total of debt maturing beyond 5 years was increased by $514 billion, or by almost 9 percent. Further use of the advance refmiding technique played a major role in achieving this rise in longer term debt. I n the advance refundings of July 1964 and January 1965 holders of $19 billion of issues maturing within 3 years elected to exchange for bonds inaturing in from 5 to 28 years. Of the exchanges, $3l^ billion were for 27-28 year maturities, $7% biUion for the approximately 9-year issues, and the remaining $8 billion for tlie 5-year issues made available. Tlie net eft'ect of all Treasury financing operations during fiscal year 1965 was to uicrease the average niaturity of the marketable debt by 4 months to 5 years 4 months, the highest June 30 level since 1956. Public nonmarketable debt increased by $1.5 billion during the year, reaching $55.8 billion on June 30, 1965. The change during the year REVIEW OF FISCAL OPERATIONS 29 was largely the result of $1.1 billion increase in Series E and H savings bonds and $1.1 billion increase in securities issued directly to foreign official agencies, offset by declines in discontinued Series J and K savings bonds and investment Series A and B bonds. The increase in Series E and H savings bonds, which are purchased principally by individuals, brought the total for these two series to $48.8 billion, or 16 percent of the total interest-bearing debt on June 30, 1965. The $0.7 billion increase in foreign series securities and the $0.3 billion increase in securities denominated in foreign currencies are discussed on page 32. Special securities issued directly to Governnient trust funds and accounts rose by $2.0 billion during fiscal 1965, mainly reflecting the surplus of receipts over expenditures in the civil service retirenient, unemployment, and Federal old age and survivors insurance trust funds. The fiscal year 1965 income, expenditure and investment activities of the major trust funds and accounts are detailed in tables 66—83 and discussed on page 33. Guaranteed debt not owned by Treasury consists of $20 million District of Columbia stadium bonds, due in 1979, and $569 million Federal Housing Admmistration debentures issued under the Housing Act of 1934. The $0.2 billion decline in this category during fiscal 1965 was entirely the.result of F H A debentures called for redemption during the year. OWNERSHIP OF FEDERAL SECURITIES Of the $317.9 billion Federal securities outstanding at the end of thefiiScalyear 1965, Governmeiit investnient accounts and Federal Reserve banks held $102.5 billion, or close to one-third of the total. Commercial banks held $58.3 billion, or just under one-fifth, and private nonbank investors held almost one-half, or $157.1 billion. The June 30, 1965, ownership distribution of the debt is graphically illustrated in chart 5 and a further classification of investor ownership on selected dates is presented in the following table. Individuals, the investor group wdth the largest holdings of the public debt, increased their ownership of Federal securities by $2.0 billion during fiscal 1965. Although more than half of this increase was due to the continued rise in the value of their Series E and H savings bond holdings, individuals also added to their accumulation of marketable Government securities. The increase in holdings of marketable securities in fiscal 1965 was in all probability concentrated •within the personal trust and partnership areas, however, certain long-term deep discount securities continue to be attractive to wealthy individuals as evidenced by the $0.3 billion unmatured Treasury bonds redeemed during fiscal 1965 in payment of estate taxes. 30 19 65 REPORT OF THE SECRETARY OF THE TREASURY CHART 5 Ownership of the Federal Debt June 30,1965 $Bil. Totol Gov't Invest. ' Accounts 300 • Federal ' Reserve 200 • Private Nonbank Investors ComI B a n k s i 318 IX/ 71/^ * ^ Individuals lOO--- Savings ^ ^ K Z ^ M Milutiof^s y^m^^^.^corps All Other ^ V y i ^ ' k ' Ownership of Federal securities^ by investor classes on selected dates, 1941-65 [Dollar amounts in billons] Estimated ownership by: Private nonbank investors: Individuals: s Series E and H saving bonds Other securities Total individuals Insurance companies Mutual savings banks Savings and loan associations State and local governments Foreign and international *.. Corporations * _ Miscellaneous investors * ,. Total private nonbank investors nnTnmero.ial bfl.nks Federal Reserve banks Federal Government investment accounts. Total gross debt outstanding Change during fiscal year 1965 June 30, 1941 Feb. 28, 1946 2 June 30, 1964 June 30, 1965 $0.2 11.0 $30.8 33.3 $47.3 21.9 $48.3 22.8 $1.0 .9 11.2 7.1 3.4 .1 .6 .2 2.0 .4 64.1 24.4 11.1 2.5 6.7 2.4 19.9 4.0 ••69.2 10.9 6.0 6.7 22.5 15.6 '•18.5 7.0 71.1 10.6 5.8 7.2 24.1 15.7 15.1 7.6 2.0 -.3 -.2 .6 1.6 .1 —3.6 .6 25.0 19.7 2.2 8.5 135.1 93.8 22.9 28.0 156.4 60.2 34.8 61.1 157.1 58:3 39.1 63.4 .7 -2.0 4.3 2.3 55.3 279.8 312.5 317.9 5.3 Percent Percent owned by: Individuals .-... ,_ Other private nonbank investors Commercial banks Federal Reserve banks Federal Government investment accounts Total gross debt outstanding 20 25 36 4 15 23 25 34 8 10 22 28 19 11 20 23 • 27 18 12 20 100 100 100 100 r Revised. ' Gross public debt, and guaranteed debt ofthe Federal Government held outside the Treasury. 2 Immediate postwar peak of debt. 3 Includes partnerships and personal trust accounts. Nonprofit institutions and corporate pension,trust funds are included under "Miscellaneous investors." 4 Includes the investments of foreign balances and international accounts in the United States. 5 Exclusive of banks.and insurance companies. 6 Includes nonprofit institutions, corporate pension trust funds, and nonbank Government security dealers. REVIEW OF FISCAL OPERATIONS 31 The Government security holdings of insurance companies declined during fiscal 1965 as life companies liquidated $0.3 billion and fire, casualty and marine companies showed a small increase for the year. On June 30, 1965, life insurance companies held $5.2 billion governments while property and casualty insurance companies held $5.4 billion. Although the average maturity of marketable governments held by life insurance companies feU nine months during fiscal 1965, the end-of-year level was still high at 19 years 11 months, as these institutions continue to hold a large proportion of their portfolios in long-term securities. In contrast the fire, casualty and marine companies, with a less predictable claim experience, tend to hold short and intermediate-term securities as primary and secondary reserves. However, the average maturity of their marketable governments rose sharply during the fiscal 1965, from 5 years 9 months at the beginning of the year to 6 years 11 months on June 30, 1965, ^as these companies exchanged for higher-yielding issues in the July 1964 and January 1965 advance refundings. Mutual savings banks reduced their holdings of governments by $0.2 billion in fiscal 1965 to a level of $5.8 billion at yearend. These institutions typically use short-term Treasury securities as a form of liquid reserve and as tempoi'ary investments for funds earmarked for future mortgage acquisitions, while maintaining an investment position in longer term issues. During the fiscal year 1965 their holdings of Treasury bills rose by $0.2 billion, other securities declined by $0.4 billion, and the average maturity of all marketables increased by three months to 10 years 10 months. The increase in the average maturity of marketable holdings was also primarily due to participation in the two advance refundings during thefiscalyear. Savings and loan associations have increased their holdings of Govemment securities during each of the past 11 fiscal years, rising from less than $2 billion on June 30,1954, to $7.2 billion at the end of fiscal 1965. Held primarily as liquidity reserves, the Federal securities purchased by savings and loan associations are generally short to intermediate-term maturities. Close to 75 percent of their Govemment portfolio matures within 10 years with the heaviest concentration of holdings in bonds with from 5-10 years to maturity. State and municipal governments held $24.1 billion of Federal securities on June 30, 1965, $1.6 billion more than at the end of the fiscal year 1964. Pension funds of State and municipal employees continued to add to holdings of governments, acquiring a net $0.5 billion during fiscal 1965. As would be expected by the nature of these funds the bulk of investment is in long-term Treasury issues, as evidenced by the 20 year 10 month average maturity of their June 30,1965, 32 19 65 REPORT OF THE SECRETARY OF THE TREASURY holdings. The general purpose funds of States and municipalities, on the other hand, are invested in goveniinents for a relatively short period of time, generally as seasonally surplus tax revenues. During the high revenue spring months these investments are increased, only to be drawn down during the fall months when expenditures exceed current revenues. As a result the shortest term Treasury securities are purchased (to avoid the risk of price fluctuations) and Treasury bills are in particularly heavy demand for this purpose. I n addition to excess tax revenues the proceeds of capital niarket borrowings are also invested in Treasury securities until needed, as are the receipts to speciah purpose funds, such as sinking, endowment, and workmen's conipensation funds. During the fiscal year 1965 all of the nonretirement type funds showed an increase of $1.1 billion in holdings of Government securities. Foreign and international investments in U.S. Govermnent securities rose by $0.1 billion in fiscal 1965 as a $0.4 billion increase (from $9.9 billion to $10.3 billion) in foreign holdings was partially offset by a $0.3 billion reductioii (froin $5.7 billion to $5.4 billion) in securities held by international and regional institutions. Within the foreign group, liquidation of official French and Gernian holdings, totaling $1.0 billion, was more than balanced by Italian and United Kingdom acquisitions totalmg $1.1 billion, also primarily for official accounts. Sjpecial nonmarketable securities, issued directly to foreign inonetary authorities, Avere increased by $1.1 billion durmg the fiscal year while holdings of marketable Treasury securities fell by $0.7 billion. The decline in international and regional institutions' holdings consisted of a $0.2 billion drop in marketable securities held by the International Bank for Reconstruction and Development and a $0.1 billion reduction of special iioiiiiiterest-bearing notes issued to the International Monetary Fund. On June 30, 1965, the securities held for international and regional accounts consisted of $3.5 billion noninterest-bearing special notes and $1.9 billion marketable Treasury bills, notes, and bonds. Nonfinancial corporations were heavy liquidators of Federal securities during the fiscal year as holdings fell to the lowest levels since the recession induced loAvs.of 1958. Almost all of the $3.5 billion fiscal year 1965 decline in corporate holdings of governments appear to be related to switching on the part of large industrial firms mto higher yielding alternative short-term investments. Federal securities have historically been used by corporations as convenient investments of funds earmarked for income tax, dividend, and other anticipated nearterm payments, i During the past few years, however, conimercial REVIEW OF FISCAL OPERATIONS 33 bank certificates of deposit and open market paper have assumed a major role in this area. The trend toward greater investment in non-Federal money market instruments began in the early 1960s and became pronounced in the fiscal years 1964 and 1965 following the July 1963 and November 1964 revisions in the maximum rates payable by Federal Reserve meinber banks on time and savings deposits. Prior to fiscal 1965 much of the flow into these instruments appeared to be net new investment and conversioii of demand deposits to time, with holdings of governments remaining relatively stable from year to year. During the fiscal year 1965, how^ever, corporate investment in governments declined by almost 20 percent as holdings of negotiable certificates of deposit and commercial paper combined increased by approximately 30 percent, or $4i/^ billion. Activity of the remaining private nonbank investor groups (nonprofit institutions, nonbank dealers, corporate pension funds, and miscellaneous smaller institutions) resulted in a $0.5 billion increase during the fiscal year. Commercial banks were net sellers of Federal securities in fiscal year 1965 for the third consecutive year. Although banks were active purchasers of governments during most of the first six months of the fiscal year, heavy liquidation in the last half of the year brought total holdings down by $2.0 billion for the full 12-month period. The larger reserve city commercial banks acquired $1.4 billion governments frpm June 30 to Deceinber 31, 1964, then sold a net $3.3 billion during the following six months in order to meet sharply rising loan demands. Smaller commercial banks (country and nonmember institutions) were also actively purchasing governnients through December 1964, adding a total of $2.4 billion, and then liquidating a like aniount in the following 6-month period. The Federal Reserve Systeni acquired a net $4.3 billion Govemment securities in fiscal year 1965, $1.5 billion more than in fiscal 1964. The increase in net purchases during fiscal 1965 was necessary in order to offset reserve drains caused by increased sales of gold and other technical factors as well as to provide for growth in member bank reserves. Acquisitions of Treasury bills accounted for $2.8 billion of the increase and the remaining $1.5 billion was in coupon securities. The average maturity of the $39.1 billion Federal securities held in the System Open Market Account on.June 30,1965, was 15% months, two months lower than a year earlier. The holdings of Government investment accounts rose by $2.3 billion in the fiscal year 1965, or by $0.5 billion less than in fiscal 1964. The largest increases during 1965 were registered by the Government employee retirement funds ($1.2 billion) and the unemployment trust fund ($1.0 biUion). Of the $63.4 biUion Federal securities held by 34 1965 REPORT OF THE SECRETARY OF THE TREASURY these accounts on June 30,1965, $48.6 billion, or over three-fourths of the total, was in the form of special issues held only by these accounts. The remaining one-fourth of the total consisted of $2.2 billion of nonmarketable securities (primarily investment series bonds) and $12.4 billion of intermediate and longer term marketable issues. A summary of the Treasury survey of ownership of the interestbearing public debt and guaranteed debt for fiscal 1965 is shown in table 57. Taxation Developments Taxation developments in 1965 were highlighted by the passage of the Excise Tax Reduction Act of 1965. The measure was designed to simplify the tax system, lessen the burden of regressive taxes, and provide more purchasing power with the consequent creation of employment opportunities for the expanding labor force. The legislation eliminated, as of June 22, 1965, the 10-percent retailers excise tax on such items as toilet articles, wallets and handbags, jewelry, and furs. I n addition, manufacturers excise taxes on many other items were eliminated or reduced on the same date with later reductions scheduled for January 1,1966, January 1,1967, January 1, 1968, and January 1,1969. The total annual excise tax reduction, when the program is in full effect, will be about $4.7 billion. About $1.75 billion of the reduction became effective on June 22,1965, and an approximately equal amount wUl become effective on January 1, 1966. The tax reduction for 1966 will thus total about $3.4 billion. The additional reductions will be effective in three stages, on January 1,1967,1968, and 1969. Modifications of the application of the depreciation guideline procedure initiated in 1962 liberalized the manner in which depreciation deductions may be taken and increased depreciation benefits in 1965 by some $600 million to $800 million as compared to the results that w^ould have occurred if the procedure had remained unchanged. The Interest Equalization Tax Extension Act of 1965, designed to strengthen our international economic position, was pending before the Ways and Means Committee at the end of fiscal 1965 and was subsequently approved. I n response to requests by the Senate Committee on Finance and the House Committee on Ways and Means, the Treasury Department examined the activities of private foundations for possible tax abuses. The Department's report on this subject, which was printed, by the Committee on Finance on February 2, 1965,^ indicated that serious abuse of the tax exemption privilege occurred among only a minority 1 See exhibit 37. REVIEW OF FISCAL OPERATIONS 35 of foundations. Recommendations were made for additional legislative measures to meet problems disclosed by the study. Excise Tax Reduction Act of 1965 The Excise Tax Reduction Act of 1965, Public Law 89-44, was approved by President Johnson on June 21,1965. Since the revenue acts of 1962 and 1964 had been devoted to income tax adjustments and reductions, the President stated in his budget message of January 25, 1965, that attention should now be given to excise reductions as a means of providing further aid to economic growth and of minimizing the burden on consumers and business resulting from the taxes on sales of selected goods and services. Accordingly, the President stated that he planned to transmit to the Congress an excise reduction program, $1,750 miUion of whicii was to be effective before July 1,1965. Other excise proposals in the budget message related to user charges for highways, airways, and waterways. The highway user charge proposals of the President involved increasing the tax on diesel fuel from 4 cents to 7 cents a gallon, increasing the use tax on heavy trucks from $3 to $5 per 1,000 pounds, and increasing the tax on tread rubber from 5 cents to 10 cents a pound. Increased revenue from the proposals was estimated to be $206 million per year. The highway user charge proposals had two objectives: To provide increased revenues to meet the new cost estimates of completing the Interstate System and to obtain from heavier trucks the highway construction costs attributable to them. To finance the increased construction costs, the President recommended an extension of the taxes used to finance the highway trust fund beyond the present expiration date of September 30, 1972. The President subsequently recommended an extension to February 28,1973. The President recommended, as an airways user charge system, continuation of the 5-percent tax on amounts paid for transportation of persons by air, a tax of 2 percent on air freight waybills, a tax of 2 cents a gallon on jet fuel (which is not now taxed although aviation gasoline is taxed at 2 cents a gallon), and an additional tax of 2 cents a gallon on fuel used in general (noncommercial) aviation. He recommended that revenues from the tax on aviation gasoline be retained in the general fund of the Treasury rather than transferred to the highway trust fund. Revenue from the recommendations for these tax increases was estimated at $86 million. As a waterways user charge, the President recommended a tax of 2 cents a g-allon on all fuel used in boats with a draft of 15 feet or less using the domestic waterways and not engaged in foreign trade. Gasoline, but not diesel fuel or bunker fuel, used in boats is now taxable 36 19 65 REPORT OF THE SECRETARY OF THE TREASURY at a net rate of 2 cents a gallon. The present tax thus is largely limited to fuel used in pleasure boats. The new tax was estimated to raise $8 million. On May 17 the President sent a message ^ to the Congress with the details of an excise reduction program totaling $3.9 billion at estimated fiscal 1966 levels of income. Highlights of the program had been made public by the President on May 15. Of the total, a reduction of $1,750 million was recommended for July 1, 1965, about the same amount for January 1, 1966, and further reductions totaling $464 million for January 1, 1967, 1968, and 1969. The increase from the aniount recommended in January was made possible by the improved economic situation over that foreseen in January. The reductions suggested for January 1966 were deemed desirable to avoid the possibility that the tax system would be taking too much buying power out of the private economy. To insure that the reductions made the maximum contribution to continued price stability and balanced prosperity, the President requested that business promptly pass forward to consumers the full amount of the reductions. The President reemphasized this when he signed the Excise Tax Reduction Act of 1965 on June 21.^ The hearings published by the Senate Finance Committee, as a result of a request by a member of the committee, contain copies of telegrams to the Chairman of the Committee from the four largest doniestic passenger car manufacturers expressing their intention to reflect any excise reduction in their suggested retail prices on passenger cars. The President's recommendations in May contemplated eventual repeal of all excises except those on: (1) alcoholic beverages, (2) tobacco products, (3) passenger automobiles (to be reduced by onehalf), (4) truck parts and accessories, (5) pistols and revolvers, and (6) a nuniber of levies designed as control measures (e.g., the taxes on narcotics, white phosphorous matches, wagers, and machine guns). The taxes used to finance specific expenditure programs, or which were in the nature of user charges were also to be retained. These were the taxes on motor fuels, trucks, tires and tubes, tread rubber, truck use, fishing equipment, sporting firearms and ammunition, and transportation of persons by air. I t was also recommended that the tax reductions scheduled for July 1,1965, on alcoholic beverages, cigarettes, and truck parts, and the repeal of the tax on air transportation be removed from the law. Refunds of tax already paid on items subject to manufacturers excises and held by wholesalers and retailers for sale on the date of tax reduction or repeal were recommended in all cases except: fountain 1 See exhibit 3'0. 2 See exhibit 33. REVIEW OF FISCAL OPERATIONS 37 and ball-point pens and mechanical pencils, cigarette lighters, playing cards, passenger automobile parts and accessories, and sporting goods. An innovation in Federal tax policy was the recommendation for a refund to consumers (through the medium of the manufacturers and their dealers) of the tax on purchases of passenger automobiles and air conditioners between May 15 and the effective date of the law. May 15 was recommended because the President's statement on that date specifically mentioned his intended recommendations with respect to reduction and repeal of these taxes. Such refunds were proposed in order to prevent disruption of sales as a result of consumer anticipation of price reductions. Air conditioners have a unique seasonal pattern with a high proportion of retail sales normally occurring in June. I h the case of automobiles, the large dollar amount per unit of the proposed tax reduction was deemed a possible sales deterrent. The consumer refund recommendation was limited to these two items because other businesses affected by the tax reduction recommendations felt that the complexity and cost of the paperwork involved would outweigh the benefits. Since the House Ways and Means Committee had held extensive hearings on excise tax reduction in the summer of 1964, the committee held no further hearings on the President's recommendations. Hearings before the Senate Finance Committee were limited to statements by Secretary Fowler and Assistant Secretary Surrey on June 8.^ The House and Senate agreed to the conference report on the President's recommendations on June 17, 1965. On June 21, the President signed the bill to become effective on June 22. The Congress had provided that the effective date should be the day after enactment of the law in order to minimize the postponement of purchases by consumers and distributors. Tax repeals or reductions under the act ultimately will total $4.7 billion at fiscal 1966 levels of income. (See exhibit 33). Practically all of the difference from the $3.9 billion program recommended by the President ^ is accounted for by the fact that the act provides for eventual reduction of the tax on passenger automobiles to one percent of manufacturers sales prices, rather than to five percent recommended by the President. The additional four points reduction will result in a revenue loss of $760 million. Reductions taking effect in fiscal 1966, however, will be practically the same as the $3.5 billion recommended by the President. The House Ways and Means Committee decided not to consider user charges as part of the excise tax legislation, except to make permanent the 5-percent tax on ainounts paid for transportation of per1 See exhibits 31 and 32. 2 See exhibit 30. 38 19 65 REPORT OF T H E SECRETARY OF T H E TRE.ASURY sons by air. Consequently, the other recommendations of the President respecting user charges were not considered in the course of the legislation. Another variation from the President's recommendations was the repeal of the 10 cents per pound tax on smoking and chewing tobacco and snuff effective January 1, 1966. The estiinated revenue loss is $18 inillion. Conversely, the act retains the 6 cents per gallon tax on lubricating oil if used in a highway motor vehicle. Taxation was continued because the Congress felt that repeal would seriously affect operations of rerefiners of used oil and add to the water pollution problem if waste oil were disposed of in streams because it was not collected by rerefineries. I n the case of the taxes on truck parts and accessories and lubricating oil, provision was made for the transfer of the revenues therefrom from the general fund to the highway trust fund beginning January 1, 1966. Revenues to be so transferred are estimated to be $50 million per year from lubricating oil and $20 million from truck parts. The eft'ective date for repeal of the tax on conveyances of realty was advanced from January 1, 1966, as originally recommended by the President, to January 1,1968, in order to give the States time to enact a similar tax if they wished. A number of new exemptions from taxes not otherwise repealed were added by the act. So called camper coaches and bodies for miobile homes were exempted from the taxes on manufacturers sales of trucks (10 percent) or truck parts (8 percent). Exempted from the tax on trucks were three wheel trucks if the gross weight of the chassis does not exceed 1,000 pounds and the motor is not over 18 brake horsepower. The tax on trucks also was removed from school buses sold to any person for use in transporting students and employees of public and private nonprofit schools. Also exempted from the truck tax and truck parts t a x ' w e r e bodies and parts and accessories primarily designed for use in processing, hauling, spreading, loading or unloading, feed, seed, or fertilizer for use on farms. Exemption from the tax on transportation of persons by air was provided within the concept of "uninterrupted international air transportation" for payments by servicemen traveling in uniform at their owii expense if they purchase their tickets for the second portion of their trip within 6 hours after the end of the first portion and utilize the first accommodations available for such subsequent portion. An exemption from the wagering tax retroactive to Marcli 10, 1964, was enacted for sweep. stakes or lotteries conducted by a State. As of the end of fiscal 1965 New Hampshire was the only State operating sweepstakes. REVIEW OF FISCAL OPERATIONS 39 I n addition to the floor stocks refunds recommended by the President, provision was made for refunds on passenger automobile parts and accessories, sporting goods, playing cards, and cutting oil. Under prior law, refunds (in whole or in part) of the excise tax on gasoline were made to the ultimate purchaser for gasoline used on a farm for farming purpoises, for nonhighway purposes, and for certain local transit operations. Under the Excise Tax Reduction Act, such "refunds" will be made in the form of credits against income tax. In the case of a typical calendar year taxpayer, the credit will be taken first on the income tax return filed for the calendar year 1966 and will cover gasoline used from July 1, 1965, through December 31, 1966. However, the United States, a State, or political subdivision, and organizations exempt from income tax under section 501 of the Intemal Revenue Code (other than those subject to inconie tax on certain inconie) will continue to apply directly for refunds. I n the case of gasoline used for off-highway and local transit purposes, a direct claini for refund is permitted for any of the first three quarters of the user's taxable year for any quarter in which the claim is $1,000 or more. Prior law contained this quarterly refund provision, but for all four quarters of the year. A similar system for credit against income tax, direct quarterly refunds, or direct refunds to the United States, etc., was enacted for the 6 cents a gallon tax on lubricating oil for oil used other than in a highway motor vehicle after December 31, 1965. Credits or refunds will not be available for oil previously used, since the sale of used or rerefined oil is not subject to tax. Cutting oil, which is to be exempted • from tax as of January 1, 1966, will qualify for exemption under the normal procedure rather than through a credit or refund to the ultimate purchaser. The act also contains a number of technical revisions of taxes continued in effect. The definitions of a cigarette and cigar were revised in recognition of the development and use of homogenized tobacco for use as wrappers of tobacco products. Prior law defined a cigarette as a roll of tobacco wrapped in paper or any substance other than tobacco. A cigar was defined as a roll of tobacco wrapped in tobacco. The new law expands the definitions to make the classification of a product also dependent on its appearance, type of tobacco used in the filler, and its packing and labeling. Gasoline was redefined as "all products comnionly or coromercially known or sold as gasoline whicii are suitable for use as a motor fuel." Prior law did not include the "suitability" test, and the law specifically included casinghead and natural gasoline. Thus, some products, such as casinghead and natural gasoline and certain petrochemicals, were 40 19 65 REPORT OF THE SECRETARY OF THE TREASURY taxed as gasoline although they could not be used in a modern automobile. The retail tax on special motor fuels was amended, however, to tax casinghead and natural gasoline if sold for use or used as a fuel for a motor vehicle, motorboat, or airplane. The definitions of local telephone service (previously general telephone service), toll telephone service, and teletypewriter exchange service were revised to clarify the services taxable. Other teclinical changes covered: Determination of tax on installment sales made before tax repeals or reductions; electric light bulbs incorporated in other articles between June 22 and Deceniber 31,1965 ; the definition of truck parts or accessories; the definition of the taxable price of truck parts made with used components furnished by the customer; the use of new parts in rebuilding and reconditioning automobile and truck parts; bonding requirenients for producers and importers of gasoline; registration by purchasers of tax-free supplies for vessels or aircraft; the method of payment of the tax on foreign insurance policies; credit or refund of tax for distilled spirits returned to bonded premises; exemption from rectification tax for certain mingling of distilled spirits; refund or credit of tax for distilled spirits returned to bonded preniises and voluntarily destroyed; redistillation of articles containing denatured distilled spirits; relanding of exported distilled spirits; the amount of carbon dioxide permitted in still wines; wine inventory reserve requirements and certain restrictions relating to the use of sugar in wines; the tax-free shipment of distilled spirits to possessions of the United States; credit to the manufacturer or importer for tax on tobacco products or cigarette papers or tubes withdrawn from the niarket or destroyed by casualty; the definition of "manufacturer of tobacco products"; and the fonn in whicii a retum has to be filled out to start the running of the statute of limitations. Other excise tax legislation Legislation approved August 31,1964 (26 U.S.C. 5062(c)), provided for credit or refund of internal revenue taxes on imported alcoholic beverages which, after having been found to be unmerchantable or not to conform to sample or specifications, are returned to customs custody, and then exported or destroyed. Doniestic alcoholic beverages already were accorded substantially sunilar treatment. The Land and Water Conservation Fund Act of 1965, Public Law 88-578, approved September 3, 1964, provided that the estimated revenues from the taxes on gasoline and special motor fuels used in motorboats shall be transferred to the land and water conservation fund. Transfers are effective with respect to revenues received after January 1, 1965, and before July 1, 1989. Previously, such revenues accrued to the highw^ay trust fund. F o r the fiscal year 1966, it is estimated that $28 million will be so transferred. 41 REVIEW OF FISCAL OPERATIONS Rate reductions and revenue loss under ihe Excise Tax Reduction Act of 1965 [Dollar amounts in millions] Tax Changes effective June 22, 1965: Retail taxes: Jewelry Furs Toilet preparations Luggage Subtotal Manufacturers taxes: Automobiles 2 Trucks and truck parts: "Camper coaches" 3 School buses Farm feed, seed, and fertilizer equipment. Small three-wheeled trucks Business machines Sporting goods (except fishing eqmpment). Phonograph records Musical instruments Television sets Radios and-phonographs Photographic equipment Rate prior to Excise Tax Reduction Act Rate under Excise Tax Reduction Act 10%. 10%-. 10%-. 10%.. Full year revenue loss 1 $220 30 210 90 550 10% 7%.. 10% and 8%-. 10% 10% and 8%-. 0.... 0—. 0.... 10%.. 10%-. 10%-. 570 (*) (*) 10% 10% 10%.. 10% Cameras and film, 10%; projectors, 5%. 5%. Refrigerators and freezers 10% Room air conditioners * Electric, gas, and oil appliances... 5% 10% Pens and mechanical pencils 10%, not to exceed 100 per unit. Lighters Plain, 10%, not to exceed 20 Matches per 1,000; fancy wooden, 5H^ per 1,000. 130 per pack Playing cards.. Subtotal Other taxes: * Coin-operated amusement devices. Bowling alleys, billiard, and pool tables. Leases of safe deposit boxes Wagering: State-conducted sweepstakes s.. 75 25 30 27 135 90 40 41 34 85 8 3 4 11 1,188 $10 per device per year 6 $20 per aUey or table per year.. 7 10% of amount paid 7 (*) 10% of amount wagered; $50 per year for each person receiving wagers. SubtotalTotal effective June 22,1965... Changes effective January 1,1966: Tobacco taxes: Chewing and smoking tobacco and snuff. Manufacturers taxes: Automobiles Automobile parts ahd accessories, except truck parts. Lubricating oil: Cutting oil Other, used other than in a highway vehicle. Electric light bulbs Subtotal Admissions and club dues: General admissions ^ Cabarets ^ _ Club dues and initiation fees «. SubtotalFootnotes at end of table. 1,758 100 per pound.. 10% 6%-. 0—. 190 230 30 per gallon.. 60 per gallon. 28 10% 45 511 10 for each 100 in excess of $1; race tracks, 10 for each 60 of full price. 10% of bill 20% of amount paid if annual dues are in excess of $10. 55 47 85 42 19 65 REPORT OF THE SECRETARY OF THE TREASURY Rate reductions and revenue loss under ihe Excise Tax Reduction Act of 1965Continued [Dollar amounts in millions] Tax Changes effective January 1,1966— Continued Communications raxes: Local and long distance telephone service and teletypewriter exchange service. Private telephonic conmiunications service. Telegraph service . Wire and e quipment service . Subtotal Documentary stamp taxes: Issuance of stocks and bonds: Stocks, except mutual funds. Mutual fund shares Bonds -^ Transfer of stocks and bonds: Stocks Bonds Rate prior to Excise Tax Reduction Act 10% of amount paid. Rate under Excise Tax Reduction Act 3% of amount paid. Full year revenue loss 1 $639 10% of amount paid.. 10% of amount paid.. 8% of amount paid... 17 15 801 100 per $100 of actual value. 40 per $100 of actual value.. 110 per $100 of face value.... 153 40 per $100 of actual value, but not more than 80 per share or less than 40 per sale. 50 per $100 of face value Total effective January 1,1966. 1,652 Total 1965 and 1966 changes. 3,410 Changes effective January 1,1967: Automobiles Local and long distance telephone service and teletypewriter exchange service. 10% of manufacturers price.. 10% of amount paid 4% of manufacturers price. 2% of amount paid... 91 2% of manufacturers price. 1% of amount paid... 91 Total effective January 1,1967... Changes effective January 1,1968: Automobiles Local and long distance telephone service and teletypewriter exchange service. Deeds of conveyance . 10% of manufacturers price.. 10% of amount paid 550 per $500 of the consideration if in excess of $100. 42 Total effective January 1,1968.. Changes effective January 1,1969: Automobiles Local and long distance telephone service and teletypewriter exchange service. Total effective January 1,1969... Grand total.^ 513 10% of manufacturers price.. 10% of amount paid 1% of manufacturers price. 0 190 92 282 4,676 *Less than $1 million. J At fiscal 1966 levels of income. 2 Effective May 15,1965. 8 Includes bodies for self-propelled mobile homes. * Effective July 1,1965. fi Effective Mar. 10,1964. 6 Exemption achieved by refund to ultimate purchaser. 7 Effective at noon, Dec. 31,1965. 8 Effective July 1,1965, for initiation fees to a new club which first makes its facilities available to members on or after that date. Public Law 88-653, approved October 13, 1964, made three amendments to the excise tax provisions. Rebuilt automobile parts were exempted from the 8-percent manufacturers tax on automobile parts and accessories. The value of a television picture tube taken in trade REVIEV7 OF FISCAL OPERATIONS 43 on a rebuilt tube was excluded from the taxable price for purposes of the 10 percent manufacturers tax on radio and television parts. Exclusion of the value of a "trade in" had previously been in effect for purposes of computing the tax on rebuilt automobile parts. The act also contained a provision making it possible to produce wine by removing the volatile fruit-flavor concentrate from the juice before fermentation and then to add it back to the wine after fermentation. The act made clear that such an operation would not result in the wine having to be classified as "imitation" wine. Depreciation developments On February 19, 1965, the Treasury Department announced ^ several measures modifying the application of the new depreciation guideline procedure initiated in 1962 (Revenue Procedure 62-21). In general, the new measures liberalized the manner in which income tax deductions for depreciation of plant and equipment can be taken to insure that business may reap the full benefit of the 1962 depreciation reform. At the same time, the Treasury limited the ways in which guideline depreciation can be calculated to exclude certain accounting techniques that are incompatible with the guideline procedure. The combination of the new liberalized rules and the new limitations was estimated to result in increasing depreciation tax benefits during 1965 by some $600 million to $800 million over what they would have been if the 1962 reform had not been modified. The new liberalizing measures and limitations were subsequently set forth in Eevenue Procedure 65-13 of May 7, 1965, supplementing Revenue Procedure 62-21, Depreciation Guidelines and Rules, The new liberalizing measures are: (1) a method (called the "guideline form of the reserve ratio test") which allows each taxpayer to compute a reserve ratio upper limit more correctly tailored to his individual circumstances, as an alternative to determining such limit from the Reserve Ratio Table under the "tabular form" of the test; (2) a "transitional allowance rule" which eases and extends the transition from previous depreciation practices and gives taxpayers additional time to conform their replacement policy to the new guideline lives; it will do so by raising the effective reserve ratio upper limit, determined under either the tabular form or the guideline form of the test, over a new lengthened transition period equal to one guideline life beginning with the termination of the original three-year moratorium on the application of the reserve ratio test; and (3) a "minimal adjustment rule" which reduces the lengthening adjustments of depreciable life in cases where the reserve ratio test is not met from generally 25 percent under the original procedure to 5 percent or 10 percent, de1 See exhibit 35. 44 19 65 REPORT OF THE SECRETARY OF THE TREASURY pending on the extent by which the taxpayer fails to meet the reserve ratio test. Also added are limitations on the use of depreciation calculation techniques, involving the use of multiple-asset open end accounts in conjunction with the straight line or sum-of-the-years-digits method, designed to prevent exaggerated depreciation deductions under the guideline procedure, particularly during the liberalized transition period. Accounts depreciated under the declining balance method are not affected. Without the new liberalization, an estimated 60 percent of larger firms would not have qualified under the reserve ratio test in 1965. This would have reduced total tax benefits in 1965 resulting from the 1962 guideline revision, estimated at $1.8 billion, by some $700 million to $900 million. The three liberalizing measures will allow the great bulk of firms which would have failed the test in 1965 to meet it, continuing some $600 million to $800 million of the benefits which otherwise they would not have been eligible to receive. Other legislation enacted Legislation approved July 17, 1964 (26 U.S.C. 512(b) (14)), provides an exemption from the tax on unrelated business income in the case of labor unions and agricultural or horticultural organizations where three conditions are met. First, the inconie must be used to establish, maintain, or operate a retirement home, hospital, or similar facility operated for the exclusive use of aged and infirm members of such organizations. Second, the income must be derived from agricultural pursuits on ground contiguous to the home, hospital, etc. Third, this income may not represent more than 75 prcent of the cost of maintaining and operating the facilities. Public Law 88-484, approved August 22, 1964, amends the "collapsible corporation" provisions of the tax laws so that they will not apply to the sale of stock in a corporation whicii consents to a special tax treatment on any later disposition by it of its noncapital assets as of the date of sale of the stock. Public Law 88-554, approved August 31,1964, extends for two more years certain temporary rules with respect to the deductibility of accrued vacation pay. Public Law 88-570, approved September 2, 1964, provides that gain from installment obligations which were transmitted to a taxpayer at the time of death of a decedent in taxable years before 1954, but on whicii payments are still being made, may be reported by the recipient on a pro rata basis as he receives installment payments without the necessity, lieretof ore required, of maintaining a bond with the Internal Revenue Service to assure this reporting of income. This law also provided that where real property is sold and the seller receives a REVIEW OF FISCAL OPERATIONS 45 mortgage on such property, and subsequently is forced to repossess the property, any gain resulting from such repossession is to be limited to money (and value of other property) received by the seller before the repossession to the extent such ainounts have not already been reported ias income. Public Law 88-571, approved September 2, 1964, makes five modifications in the tax treatment of life insurance coinpanies and two other amendments. The life insurance modifications are as follows: First, it extends the 8-year loss carryover to new life insurance companies regardless of whether they are affiliated with other companies. Second, it corrects an imperfection in prior law which permitted a double inclusion in the "shareholders surplus account" with respect to the excess of net long-term capital gains over net short-term capital losses. This double inclusion, which was removed by the act, permitted the distribution to shareholders of an amount equal to twice this capital gain without the paynient of tax at the time of distribution (with certain other adjustnients) under what is called "phase 3." Third, the act corrects an imperfection in the additions whicii are required to be made to the "policyholders surplus account." The new law provides . that if any amount added to the policyholders surplus account for any year increases or creates a loss from operations, and part or all of that loss cannot be used in any other year to reduce the company's taxable incoine, then the policyholders surplus account for the last year to which this loss may be carried is to be reduced by the amount of the unused loss or, if less, the amount in the policyholders account (before making any subtractions for that year). Fourth, the act adds a new exception to the phase 3 tax which makes that tax inapplicable in the case of spin-offs of the stock of an 80-perceiit controlled fire or casualty subsidiary to the shareholders of a life insurance coinpany, subject to certain restrictions. Fifth, the new law permits the investment incoine of life insurance companies to reniain free of tax to the extent attributable to reserves for retirement annuities of public school systems. I n addition, the act provides that all ores of beryllium are to receive the same percentage depletion treatment when domestically produced as domestically produced beryl, and that foreign expropriation capital losses may be carried over 10 years rather than for the usual period of 5 years. Public Law 88-650, approved October 13, 1964, contains provisions affecting the old-age, survivors, and disability insurance program in three ways: first, it permits a disabled worker to establish the beginning of his disability, for purposes of social security protection, as of the date he actually became disabled regardless of when he files his application; second, it extends through April 15,1965, the time within which certain ministers can elect to be covered under social security; 46 19 65 REPORT OF THE SECRETARY OF THE TREASURY and, third, it validates certain earnings reported under social security of engineering aides working for soil and water conservation districts in Oklahoma. Legislation pending as of June 30,1965 H.R. 6675, passed by the House on April 8, 1965, and reported with amendments by the 'Senate Finance Committee on June 30, 1965, includes provisions which establish a health insurance system, increase social security benefits, raise the wage base and the rates of contribution for employees, employers, and the self-employed, and make some changes in the uicome tax treatment of medical expenses. As passed by the House, the bill would terminate the special treatment of.the medical expenses of taxpayers who are 65 or over. Thus, the provision of present law limiting medical expense deductions for a taxpayer, his spouse, or his dependents under age 65 to the amount of such expenses in excess of three percent of adjusted gross income, including expenses for medicine and drugs to the extent they exceed one percent of adjusted gross income, is extended to all taxpayers, spouses, and dependents regardless of age. In addition, the bill provides that all taxpayers itemizing their deductions are to be granted a deduction, without regard to the three-percent floor, for one-half the cost of medical care insurance but not to exceed $250. The other half of any preniiums paid, plus any excess over the $250 limit for medical care insurance, will continue to be subject to the three-percent floor and only when they plus any other allowable medical expenses exceed three percent of adjusted gross income will they be deductible. The House bill would also cover tips under social security and the withholding of income tax. Administration, interpretation, and clarification of tax laws During the fiscal year the Treasury Department stepped up its program of issuing regulations under the Internal Revenue Code. Seventy-seven final regulations, 13 Executive orders, and 58 notices of proposed rulemaking, relating to matters other than alcohol and tobacco taxes, were published in the Federal Register, A special effort was made to publish those regulations interpreting the important provisions of the revenue acts of 1962 and 1964. Fifteen of the published Treasury decisions related to regulations under the Revenue Act of 1964, and nine notices of proposed rulemaking were published in connection with other regulations under that act. Fourteen of the published Treasury decisions related to regulations under the Revenue Act of 1962, and six notices of proposed rulemaking were published in connection with other regulations under that act. At the end of fiscal 1965, final or proposed regulations had been published for every significant provision of the 1962 act and for all REVIEW OF FISCAL OPERATIONS 47 but eight of the significant provisions under the 1964 act. In addition, the Treasury decisions published in 1965 included significant regulations under other revenue acts and some significant amendments in earlier regulations. Among the issues covered in the Treasury decisions published were the sick pay exclusion, the deduction of moving expenses, the limitation on the medicine and drug deduction, the acceleration of corporate estimated tax, lobbying expenses, the minimum standard deduction, the retirement income credit, the denial of a deduction for certain State and local taxes, the income of export trade corporations and foreign investment companies, professional service corporations, distributions by foreign corporations, foreign controlled corporations, and foreign investment companies. Notices of proposed rulemaking published during the fiscal year and still pending at the end of the year included those relating to: group term insurance; foreign expropriation losses and other net operating loss deductions; employee stock options and purchase plans; interest on deferred payments; and investment credit recapture. International tax matters H.R. 4750, the Interest Equalization Tax Extension Act of 1965,^ was pending before the House Ways and Means Committee on June 30, 1965. (It was enacted and approved by President Johnson on October 9, 1965 (Public Law 89-243).) It extends the termination date of the interest equalization tax on the acquisition by a U.S. person of stock of a foreign issuer, or a debt obligation of a foreign obligor with a period remaining to maturity of three years or more, from December 31, 1965, to July 31, 1967, and enlarges its scope to make taxable the acquisition after February 10, 1965 (the date of President Johnson's Special Message to Congress on the Balance of Payments) by a U.S. person of a debt obligation of a foreign obligor with a period remaining to maturity between one year and three years. Other technical amendments included in the act have the effect of granting exclusions for specific acquisitions whose deterrence is not required to further the balance-of-payments policies implemented by the tax. H.R. 5916, a bill to encourage investment by foreign persons in the United States which was prompted by the 1964 Report of the Fowler Task Force, was also pending before the House Ways and Means Committee on June 30, 1965. A new bill embodying committee amendments (H.R. 11297) was introduced in September 1965 and circulated for public comment. The new income tax convention with Luxembourg was ratified by the Senate in July 1964. Instruments of ratification were exchanged 1 See exhibit 46. 48 19 65 REPORT OF THE SECRETARY OF THE TREASURY in December 1964, and the treaty is effective for taxable years beginning on or after January 1,1964. Two supplementary protocols to the tax convention with Japan came into force during fiscal year 1965. The first, signed in May 1960, came into force in September 1964. The second, signed in August 1962, came into force in May 1965. Discussions on a protocol to the income tax treaty with Belgium were concluded during the year, and a protocol was signed in May 1965, which revises the treaty largely to take account of the 1962 Belgian income tax law. Discussions were concluded during the year with Germany on a protocol to update the present German income tax treaty. Both protocols were signed and were the subject of hearings before the Subcommittee on Tax Treaties of the Senate Committee oil Foreign Relations. Negotiations were begun with France to revise the present French treaty signed in 1945. Although negotiations were still in progress at the close of fiscal 1965, it is expected that the new treaty will be patterned after the model inconie tax convention prepared by the Organization for Economic Cooperation and Development ( O E C D ) . Negotiations were also initiated with Portugal on an income tax convention. Three income tax treaties were negotiated with less-developed countries during fiscal 1965: A treaty was signed with the Philippines on October 10, 1964; on March 1, 1965, a treaty was signed with Thailand ; and on June 29, 1965, one was signed with Israel. The Israeli and Thai treaties contain provisions which have not appeared previously in U.S. tax treaties and which are designed specifically for income tax treaties with less-developed countries. The most important of these is a credit to be granted American investors against their U.S. tax liability on income from any source equal to seven percent of the capital invested in a qualified enterprise in the less-developed country and a similar credit for the reinvestment of amounts in excess of one-half the profits of such enterprise. Hearings were held by the Senate Subcommittee on the treaty with Thailand but action on it was deferred until 1966. Income tax treaty negotiations were also held with India during the year, but were not concluded. Tentative agreement was reached to include the investnient credit provision in the new Indian treaty. Treasury representatives participated in the preparation of a report on "Fiscal Incentives for Private Investment in Developing Countries" which was adopted by the O E C D Fiscal Committee and published during the year. The Fiscal Committee also made progress toward completion of a model estate tax convention. REVIEW OF FISCAL OPERATIONS 49 I n t e r n a t i o n a l Financial Affairs The U.S. balance of payments and gold and dollar movements The U..S, balance of payments,—The payments situation deteriorated during the last half of the calendar year 1964, reaching an annual rate of $6.2 billion during the fourth quarter. The deficit resulted from a substantial increase in net outflows of private U.S. capital. On February 10, 1965, President Johnson transmitted a special Balance-of-Pa3nnents Message to the Congress calling for a wide range of new, primarily voluntary, nieasures to extend the balance-of-payments program to the bulk of our international transactions. The American commercial and financial communities responded with their immediate support of the new payments program. Particularly significant was the reversal of the flow of short-term U.S. liquid funds, which swung from a heavy net outflow to a net inflow. I n March the United States had a substantial payments surplus. The improvement continued throughout the second.quarter of 1965 when the first quarterly surplus in several years was registered. The net deficit registered during the first half of calendar 1965 resulted from the combination of large deficits in January and February, and surpluses in March through June. While the turnaround was in good part ascribable to the President's payments program, the improvement also reflected certain special, transient factors. During the first half of 1965 the paynients deficit on regular transactions ran at an annual rate of $1.3 billion, seasonally adjusted; this compared favorably with the more than $6 billion annual rate deficit registered in the fourth quarter of 1964, and the $3.1 billion deficit recorded for the calendar year 1964. U.S. gold sales (excluding the increased gold subscription to the International Monetary Fund) amounted to $1.2 billion. These were the counterpart of a reduction in holdings of foreign official dollar balances of nearly $1.0 billion. The cashing-in of these holdings for gold reflected in part the unusually large foreign ojficial acquisitions during the fourth quarter of 1964. The U.S. payments deficit on regular transactions, which excludes special inter-Government transactions, amounted to $3.1 billion in 1964, a slight improvement over the 1963 deficit. The overall 1964 deficit—which includes as receipts, in addition to the regular transactions, any net inflows arising out of special intergovernmental transactions (sales of special nonmarketable, nonconvertible Treasury bonds to official foreign institutions, prepayments to the U.S. Government of official foreign debts, and prepayments for U.S. Govemment military exports)—came to $2.8 billion, compared with $2.7 billion in 1963. 782-556'--6i6^ 4 50 19 65 REPORT OF THE SECRETARY OF THE TREASURY However, the full measure of the deterioration in the U.S. payments position is masked by these year-to-year comparisons. I n the fourth quarter of 1963 the overall deficit at an annual rate was $612 million, compared with $5.5 billion in the fourth quarter of 1964. This $4.9 billion deterioration mainly reflected the $4.3 billion increase in outflows of private U.S. capital. Over the same period the U.S. commercial current account surplus rose by $1.6 billion to an annual rate of $5.5 billion. The President^, program.—The President's message of February 10, 1965, recommended a new balance-of-payments program which was the result of a careful review of the situation by the Cabinet Committee on the Balance of Payments, chaired by the Secretary of the Treasury. I t was designed to respect the criteria and decisions of the marketplace, as opposed to the use of compulsory controls. Therefore, a prime element in the prograni was its reliance on the voluntary cooperation of the U.S. commercial and financial community. U.S. banks were asked to hold total claims outstanding on foreign residents to 105 percent of the level at the end of 1964. Guidelines developed by the Board of Governors of the Federal Reserve System for implementing this program were designed to assure that credits to finance U.S. exp'orts, and loans to less-developed countries, could be adequately met. I n addition, consideration for the special positions of Canada, ^ Japan, and the United Kingdom was requested. Within these broad guidelines each bank decides the direction of its particular overseas activities. A similar approach was permitted nonbank financial institutions in their foreign lending and investing activities. U.S. industrial corporations also were asked to improve their individual balance-of-payments accounts, combining all transactions such as exports, dividend income, royalties, fees, and capital outflows from the United States. The objective was to leave the corporations free to adjust these components of their individual payments accounts while achieving a significant net payments improvement. To reduce the tourist deficit, Americans as well as foreigners were encouraged to travel more in this country. Legislation was recommended and subsequently enacted on June 30, 1965 (Public Law 89-62), reducing the duty exemption on purchases made abroad by returning U.S. residents. The February 10 program also: Extended the interest equalization tax through July 1967; broadened the interest equalization tax to include lending of one to three years' maturity; and activated the President's authority to apply the interest equalization tax to bank loans of one year or more maturity. To stop any excessive flow of funds to Canada under its special exemption from the interest equali- REVIEW OF FISCAL OPERATIONS 51 zation tax, the President sought and received firm assurance that the policies of the Canadian Governinent would be directed toward limiting such outflows to the maintenance of a stable level of Canada's foreign exchange reserves. The program also called for an intensification of U.S. Governnient efforts to minimize the foreign exchange costs of our defense.and aid programs; an increase in our efforts to promote U.S. exports; and finally, encouraging more investments from abroad, by increasing, through new tax legislation, the incentive of foreigners to invest in U.S. securities. The effect of the payments program.—On the basis of seasonally adjusted data, an improvement of $950 million in the overall payments balance was achieved from the first to the second quarters of the calendar year 1965. The details of quarterly balance-of-payments statistics from January 1964—June 1965 are contained in table 99. The reduction in the net outflow of private U.S. capital, from $1.5 billion in the first quarter of 1965 to $264 million in the second quarter accounted for a good part of the improvement. The largest quarterto-quarter change occurred in U.S. net bank claiins on foreigners: an outflow of $435 rnillion in the first quarter was converted to an inflow of $369 million in the second quarter. This improvement reflected a reduction in net U.S. bank loans to developed countries, indicating bank compliance with the priorities suggested by the Federal Reserve guidelines. The total bank inflows from March through June were sufficient to place banks under the ceilings suggested in the Federal Reserve guidelines and to leave adequate room for expansion of bank credits to finance U.S. exports. U.S. corporations repatriated large amounts of short-term liquid investments abroad in the March-June period. I n the first two quarters of 1965 nonbank, short-term U.S. capital showed an inflow of $575 million seasonally adjusted, compared to an outflow of $588 million in the full year 1964. U.S. direct investment outlays in the second quarter amounted to about $880 million. While this represented a decline from the first quarter rate, it was at an annual rate considerably 'above the total for 1964. This continued high level of direct investment outlays may have reflected in part the difficulty in tapering, off already-developed capital expenditure plans. Treasury foreign exchange reporting system.—A number of steps were taken in fiscal 1965 to improve the reporting of capital movements statistics which enter into the U.S. balance of payments, particularly by nonbanking concerns. Procedures for the monthly reports of liquid assets held abroad by large companies were changed to expand the. reporting group and to ensure more accurate reporting of monthly changes in holdings. At the same time the exemption level 52 19 65 REPORT OF THE SECRETARY OF THE TREASURY for the quarterly reports was raised to exempt smaller firms from the reporting requirement, without significantly affecting the statistics. Special instructions were issued to reporting firms to ensure proper reporting of funds placed abroad. Following the initiation in February 1965 of the President's voluntary balance-of-payments program, various types of nonbanking financial firms were informed of the Treasury reporting requirements. Early in the year, a survey was made to ascertain the types of shortterm dollar liabilities to foreigners, aside from deposits and Government obligations, held for the account of foreigners. I n connection with the publication of the capital movements statistics in the Treasury Bulletin.^ a number of changes were introduced, including the publication of liabilities to foreign official institutions by area (beginning with the September 1964 issue), and a breakdown by type of shortterm liabilities and claims of nonbanking concerns (first published in May 1965). Gold and dollar Koldings.—The gold and dollar holdings of foreign countries (excluding gold holdings of the U.S.S.R., other Eastern European countries, and China Mainland) amounted to an estimated $51.4 billion as of June 30, 1965. Of this total, official gold holdings were $26.9 billion. Official and private short-term dollar assets held with banks in the United'States were $22.9 billion, and estimated official and private holdings of inarketable U.S. Government bonds and notes amounted to $1.6 billion. (See table 96.) During fiscal 1965 gold and dollar holdings of foreign countries increased by $3.4 billion. Official gold holdings derived from all sources increased by $1.9 billion. The increase of $1.5 billion in the dollar holdings of foreign countries accrued entirely to private accounts, with officia;l holdings declining by $13 million. Western European countries increased their gold and dollar assets by $2.5 billion during fiscal 1965, substantiaUy more than the gain of $1.1 billion during fiscal 1964. Italy gained $785 million; the United Kingdom $662 million; and France $643 million. The gold and dollar assets of most other Western European countries increased, except for the decreases of $698 million for the Federal Republic of Germany and $17 million for Austria. Canadian gold and dollar holdings declined by $141 million and African holdings by $164 million. Latin American holdings rose by $251 million. The total gain of Asiatic countries was $807 million, of which $377 million was made by Japan. The rest of the world gained $115 million. The gold and dollar holdings of international and regional organizations decreased by $874 million during fiscal 1965: Those of the International Monetary Fund declined by $649 million, while the holdings REVIEW OF FISCAL OPERATIONS 53 of other international and regional organizations declined by $225 million. The F u n d gold holdings exclude payments made to it in anticipation of increases in quotas, including the $259 million in gold paid by the United States in June 1965 as part of its increase. These payments will not be taken into the Fund's regular accounts until the requisite nuniber of countries (having two-thirds of the quotas in effect on February 26,1965) consent to their quota increases. The official gold holdings of the world (excluding the U.S.S.R., other Eastern European countries, and China Mainland) increased by an estimated $75 million during fiscal 1965, amounting on June 30,1965, to $43.0 billion. Of the world total, the United States held $14.0 billion and international and regional institutions $1.8 billion. See tables 96 and 97. Treasury exchange and stabilization agreements During the fiscal year 1965 Treasury exchange agreements were in effect with Brazil, Chile, the Dominican Republic, and Mexico. A one year Treasury exchange agreement in tlie amount of $6,250,000 was concluded with the Dominican Republic ^ on August 10, 1964. A $16,120,000 Treasury exchange agreement wath Chile ^ was signed on February 4, 1965, effective for one year. On February 23,1965, a one year Treasury exchange agreement in the aniount of $53,660,000 was signed with Brazil.^ Foreign exchange operations The dollar, after generally weakening against most major currencies from July-December 1964, showed renewed strength in the exchange markets after the President's February 1965 message. Despite the large U.S. payments deficit incurred in the last quarter of 1964 and the severe pressure, at times, on sterling, the dollar was not under speculative attack. This was largely because speculation has been discouraged by the network of defenses which have been steadily erected over the past five years and because the President in his Balance-of-Payments Message of February 10 reaffirmed the determination of the United States to eliminate its deficit. The dominant force on exchange markets during the year was selling pressure on sterling. Through November, short-term assistance to the Bank of England in financing market operations was provided by a nuniber of foreign central banks as well as through utiliza;tion of the Federal Reserve swap arrangement. This assistance was repaid in early December when the United Kingdom drew $1 billion from the I M F . At the end of November, in further support of the United 1 See exhibit 52 and table 100. 2 See exhibit 58 and table 100. 3 See exhibit U m ^ table 100. 54 19 65 REPORT OF THE SECRETARY OF THE TREASURY Kingdom's determination to defend sterling, the United States joined 10 other countries and the Bank for Intemational Settlements in arrangements to provide the United Kingdom with the equivalent of $3 billion of additional assurance. Through the next six months the United Kingdom utilized portions of this to help finance exchange operations. On May 28, 1965, it drew $1.4 biUion from the I M F , a large part of whicii was used to repay drawings from the $3' billion "package." Cumulative deficits in the U.S. balance of payments over recent years, accentuated by a heavy capital outflow in the last three months of 1964 and in January 1965, led to an accumulation of dollar reserves by certain foreign central banks in excess of desired levels and to large purchases of gold in the latter part of the fiscal year. One important objective of Treasury and Federal Reserve foreign exchange operations was to ease demands for gold by absorbing dollars held by the central banks and facilitating shifts from official to private holdings. To some extent, official dollar gains resulted from flows which appeared likely to be reversed in the future. These could appropriately be offset by short-term operations such as the utilization of Federal Reserve swap facilities, forward market operations, and swaps with the Bank for International Settlements involving foreign currencies. I n addition, the Treasury issued further amounts of special mediumterm, nonmarketable securities to Austria, Germany, and Switzerland. The operations undertaken by the Treasury and Federal Reserve are described in detail in articles published semiannually by the Federal Reserve Bank of New York which, as agent or manager, carries out the operations of both the Treasury and the Federal Reserve. See exhibits 48 and 49. The International Morietary Fiind During fiscal 1965, 27 member countries drew the equivalent of $3,180.7 million in convertible currencies from the Fund, an increase bf 41.5 percent in the total assistance made available by the Fund since it began operations in 1947. Total drawings as of June 30,1965, were $10,841.2 million equivalent. The exceptional activity of the Fund reflected the support operation for the pound sterling. Assistance to the United Kingdom totaled $2,400 million equivalent, or more than three-fourths of total Fund lending during the fiscal year. For the first time, the General Arrangements to Borrow (GAB) was activated. The GAB is an agreement among 10 major industrial countries (the Group of Ten) to provide mutual financial assistance. The Fund borrowed $405 million equivalent from 8 countries for relending to the United Kingdom in December 1964, and $525 million in May 1965. I n associated REVIEW OF FISCAL OPERATIONS 55 transactions Switzerland made available to the United Kingdom the equivalent of $80 million, and $40 million, respectively. Switzerland is not a member of the Ten, but is associated with them by special agreement. In neither instance did the Fund borrow from the United States. The United States was the second largest user of the Fund during fiscal 1965, with drawings amounting to $350 million.^ All U.S. drawings of currencies were intended for sale for U.S. dollars at par by the United States to countries holding reserves in dollars and wishing to make repurchases of their own currencies from the Fund. Under Article V, Section 7(b), the Fund is precluded from accepting for repurchase any currency of which the Fund's holdings are 75 percent of the country's quota. During all of fiscal 1965 the Fund's holdings of. dollars exceeded 75 percent of the U.S. quota and no repayments were accepted in dollars. The U.S. drawings, however, enabled countries holding dollars to make repayments to the Fund without inconvenience. The Deutsche Mark was the currency most used in Fund transactions. The equivalent of $862.2 million in Deutsche, Marks (27.1 percent of total drawings) was drawn from the Fund, compared with drawings of $485.5 million in dollars. Repurchases amounted to $492.1 million equivalent, of which $276.4 million (56.2 percent) were made in Deutsche Marks. The United States has made no repurchases from the Fund, but its net indebtedness had been reduced to $123.4 million as of June 30, 1965, as the result of drawings by other countries. During fiscal 1965, 22 countries arranged standby credit facilities, amounting to $2,127.8 million with the Fund. Of this amount, $1,643.1 million was actually drawn during the year. Fund membership remained at 102 throughout the year. Preparations have been made to increase member quotas by 25 percent to about $21 billion,, sub ject to ratification of members holding two-thirds of the total quota. In addition, several countries have consented to an increase in their quota by more than 25 percent. Legislation authorizing a 25 percent increase in the U.S. quota was approved in June 1965 (Public Law 89-21). One quarter of the $1,035 million increase or $258.75 million, was paid in gold on June 30, 1965; the remainder is represented by a letter of credit. The U.S. gold payment is exactly offset by an increase in the amount of credit automatically available to the United States from the Fund. The total potential credit available to the United States under normal Fund policy relating to the credit tranches will be increased by an amount equal to the quota increment. 1 See exhibits 53, 54, 56, and 62. 56 19 65 REPORT OF THE SECRETARY OF THE TREASURY Both in the I M F and in other forums there was continuing study of proposals to strengthen the international monetary systeni, including proposals for increasing international liquidity in the future through the creation of a new type of reserve asset. The "Study Group on the Creation of Reserve Assets" of the Group of Ten published a report (Ossola Report) on August 1,1965, examining several of these proposals. Programs for financing economic development The Intemational Bank.—During fiscal 1965 the International Bank for Reconstruction and Development ( I B R D ) authorized 38 loans in 27 eountries amounting to $1,023 million. Loans to Asia and the Middle East amounted to $395.5 million; to Europe, $292.5 million; to the Western Hemisphere, $212.3 million; and to African countries, $123 million. India received the largest loan, $134 million. Distribution of I B R D loans by purpose was as follows: transportation, $411.7 million; electric power, $321.4 million; industry, $179 million; agriculture, $78.2 million; water supply, $27 million; and education, $6 million. Disbursements amounted to $606 million, compared with $559 miUion in fiscal 1964. The Bank's funded debt increased by about $232 miUion to $2,724 million as a result of its active borrowing. New bonds amounted to $299.6 million, including an issue of $200 million in the United States (the first U.S. issue in three years). I n addition, $298 million of maturing bonds and notes were refunded through placements outside the United States, including a maturing $100 million issue of U.S. dollar bonds. Two issues, both held outside the United States, totaling $18.4 million, were paid off. Borrowers repaid $300 million on outstanding Bank loans during fiscal 1965: $137 million to the Bank and $163 million to investors holding participations in Bank loans. Sales for the year of portions of Bank loans totaled $106 million, compared to $173 million the year before. Sales from portfolio accounted for $76 million and the remaining $30 million represented participations by investors who agreed to take up parts of Bank loans at the time loan agreements were signed. The reduction in sales was due in part to the policy of the Bank not to sell the obligations of countries subject to the U.'S. interest equalization tax in the United States. Through June 30, 1965, the Bank had extended a total of 424 loans in 77 countries and territories, with gross commitments amounting to $8,954.6 million, of whicii $6,590.1 million had been disbursed. A total of $1,884.8 million in outside participations had been sold by the Bank. This, along with exchange adjustments, cancellations, and repayments, reduced net I B R D commitments to $5,966.8 million. To- REVIEW OF FISCAL OPERATIONS 57 tal reserves were $956.5 million. Subscribed capital amounted to $21,669.4 million. Eight members increased their subscriptions to the Bank's capital stock as a concomitant to increases in their Fund quotas. The Bank has adopted a policy of differentiating between the interest rates on loans to developing countries and those on loans to industrialized countries. Therefore, a loan to Japan carried aii interest rate of 6i/^ percent and one to Italy at shorter maturity a rate of 6l^ percent, compared to 5^/^ percent for all other loans. During the year the Executive Directors completed a draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The convention provides for the establishment of an Intemational Center for Settlement of Investment Disputes under the auspices of the Bank. It will provide facilities for conciliation and arbitration, on a voluntary basis, of disputes arising between any contracting nation and investors who are nationals of other countries. The convention will become effective after it has been signed and ratified by at least 20 governments. At the end of fiscal 1965 it was before the member governments for appropriate action. The Bank continued its technical, advisory, and planning assistance, as well as its activities in helping to coordinate the aid projects of major capital-exporting countries to certain countries. The Bank is a member of consortia on India, Pakistan, Greece, and Turkey and participates in Consultative Groups for Colombia, Nigeria, the Sudan, Tunisia, and Ecuador. Most of these consortia and Consultative Groups have been formed at the initiative of the IBRD. The Intemational Developm^ent Association.—The International Development Association (IDA) an affiliate of the IBRD, during fiscal 1965 approved 20 credits totaling $309 million in 11 member countries—an increase of $26 million over authorizations in the preceding fiscal year. Aggregate credits approved by the IDA through June 30, 1965, were thereby increased to a cumulative net total of $1,085.5 million, covering 77 credits in 29 countries and territories. Disbursements during the 1965 fiscal year increased from $192.5 mUUon on June 30, 1964, to $414.7 million as of June 30, 1965, or about 38 percent of net credits authorized. With the addition of Belgium in July 1964, the membership of the IDA on June 30, 1965, increased to 94, consisting of 18 Part I (economically advanced) members, and 76 Part I I members. As indicated in the 1964 annual report, page 58, the proposed increase of $750 million in the freely usable resources of the IDA became effective on June 29, 1964, when 12 members (including the 58 19 65 REPORT OF THE SECRETARY OF THE TREASURY United States) formally notified the Association that they would contribute new resources to the I D A in excess of the required $600 million. As of July 1965, all of the remaining P a r t I countries had agreed to contribute the amounts allotted to them. The Intemational Finance Corporation.—The International Finance Corporation ( I F C ) is an affiliate of the I B R D designed to encourage the growth of private enterprise in less-developed countries by investing in debt and equity issues of private firms without governmental guaranty of repayment. The Corporation acts for the I B R D and the I D A and on its own behalf in the technical and financial appraisal, preparation, and supervision of industrial, mining, and development finance company projects. During fiscal 1965 the I F C invested $26 million in 11 countries in 15 enterprises, mostly basic industries, including cement, steel, textiles, paper, and food products. Eight of these investments, totaling $9.9 million, represented second or third commitments to firms in which I F C had outstanding investments. New commitments included approximately $15 million in loans and $11 million in equity. As of June 30, 1965, the I F C had made total commitments of $137 million involving 103 transactions in 32 countries. About 56 percent ($77 million) of this represents investments in the Western Hemisphere. The I F C has been able to revolve more than one-third of its •entire commitments through sales from its portfolio and principal repayments. Membership remained unchanged during the year at 78. Amendments to the Articles of Agreement of the I F C and of the I B R D were proposed to the members by the Board of Governors in September 1964, to permit the Bank to lend to the I F C and to permit the I F C to borrow from the Bank in an 'amount up to four times the unimpaired subscribed capital and surplus of the I F C . Member governments, including the United States, approved the amendments,^ which became effective after the close of the fiscal year. Approximately $400 million will be added to the potential resources of the I F C for relending to private enterprise. The Inter-American Development Banh.—The Inter-American Development Bank ( I D B ) was established on December 30, 1959, began operations in the fall of 1960, and made its first loan on February 3, 1961. All of the countries of the Organization of American States are members of the I D B . Cuba is not a member and is no longer eligible to join. The Bank has up to now carried on its financing operations through three "windows." 1 The necessary legislation was passed by the U.S. Senate June 30, 1965. The bill became law on Aug. 14, 1965 (79 Stat. 519). REVIEW OF FISCAL OPERATIONS 59 The Ordinary Capital resources provide development funds on conventional ternis in much the same manner as the World Bank. It commenced operations with governmental subscriptions but now obtains its funds largely from private financial markets in the same way as the World Bank. The Fund for Special Operations offers financing on easy repayment terms entirely from resources provided by the United States and the Latin American members of the Bank. The Social Progress Trust Fund has been administered by the Bank since mid-1961 on behalf of the United States, whicii provided all of its funds. Loans from the Fund are repayable on easy terms and are made in four areas of social development: water supply and sanitation, advanced education, housing, and land settlement and improved land use. The authorized Ordinary Capital of the Bank is the equivalent of $2,150 million (of which the total U.S. share is $762 miUion), composed of $475 mUlion in paid-in capital (U.S. portion, $150 ihillion) and $1,675 million in callable capital (U.S. portion, $612 million). To obtain resources for its lending operations, the Bank, through June 30, 1965, had borrowed $285 million equivalent secured by its callable capital. In October 1964 the Bank borrowed $100 million in the United States, its third bond issue here, bringing to $225 million the total raised in U.S. markets. There were three Bank borrowings abroad in fiscal year 1965: A $15 million equivalent Deutsche Mark bond issue in Germany in July 1964; an $8.4 million equivalent sterling bond issue in the United Kingdom in September 1964; and a $12.5 million direct borrowing of U.S. dollars from the Government of Spain on March 30, 1965. Added to the $24.2 million Italian lira bond issue in April 1962, these Bank borrowings brought the total raised in foreign markets to the equivalent of $60 million. On March 31, 1965, pursuant to recommendations of the fifth annual meeting of the Board of Governors of the IDB (see 1964 annual report, page 61), an expansion of the Fund for Special Operations by $900 million equivalent became effective. The U.S. share of the increase is $750 m.illion, while the Latin American members are contributing $150 million in their national currencies. This is to provide sufficient funds for operations during the three years 1965-67. The contributions are to be paid in three equal instaUments, of whicii the first was paid by the United States before June 30, 1965, the second will be due before December 31, 1965, and the last will be due by the end of 1966. The Social Progress Trust Fund was financed solely by the United States by appropriations of May 27, 1961, for $394 million and of January 6,1964, for $131 million. This Trust Fund has never formed 60 1965 REPORT OF THE SECRETARY OF THE TREASURY part of the Bank's resources, but has been administered by the Bank as trustee. The funds are now nearing exhaustion and the United States announced, in comiection with the recent expansion of the Fund for Special Operations, that the United States will make no further contributions to the Social Progress Trust Fund. Its loan functions have been delegated by the Governors of the Bank to the expanded Fund for Special Operations. Through June 30,1965, the Bank had authorized 115 loans amounting to $583.7 million equivalent from its Ordinary Capital, 56 loans amounting to $192.4 million from the Fund for Special Operations, and 112 loans from the Social Progress Trust Fund amounting to $482.4 million—a total of 283 loans amounting to. $1,258.5 million. Total disbursements from all three funds amounted to $602.1 million through the fiscal year 1965. Disbursements in the fiscal year 1965 roughly equaled those made during the entire prior period from the Bank's inception through June 30,1964. During the fiscal year, the Bank entered into two agreements with the Government of Canada which provided 25 million Canadian dollars for loans to Latin American member countries for purchases in Canada. An agreement of December 1964, provided that 10 million Canadian dollars would be made available through the Bank by the Govemment of Canada at low or no interest and with maturities of up to 50 years. In the second agreement, the Canadian Government reserved an additional 15 million Canadian dollars through the Export Credits Insurance Corporation for credits of up to 20 years at commercial interest rates. The Export-Import Banh.—During the fiscal year 1965 the ExportImport Bank authorized over $1.8 billion in loans, guaranties and export credit insurance to assist in financing the sale of American goods and services overseas. Authorizations for long-term capital loans totaled $435.2 million; and exporter credits and guaranties amounted to $282.9 million. Export credit insurance extended through the Foreign Credit Insurance Association (FCIA) amounted to $721.5 million in the fiscal year. Other authorizations included $340 million in emergency foreign trade credits, $76.3 million in commodity credits, and $3.1 million for insurance covering U.S. goods on consignment. The bank disbursed $403.2 million in fiscal 1965. During the year, private participation in the Bank's loans totaled $614.7 million, of which $450 million represented sales of portfolio participation certificates to private financial institutions. The Bank earned $177.8 million in interest and fees, and paid $15.1 million in interest on funds borrowed from the Treasury. In addition, the Bank paid $44 million in interest on participation certificates and $.5 million in interest to commercial banks. A dividend of $50 million was declared on the REVIEW OF FISCAL OPERATIONS 61 stock of the Bank held by the Secretary of the Treasury. A t the close of the fiscal year, the Bank's retained income reserve for contingencies amounted to $944 million, and its uncommitted lending authority was $3,299 million. Receipts of principal and interest on the Bank's outstanding credits during fiscal 1965 contributed over $553 million to the U.S. balance of international payments. The Agency for International Development.—^The Agency for International Development ( A I D ) is responsible for the economic assistance activities of the United States. These include development lending, development grants and technical cooperation, supporting assistance, investment guaranties, surveys of investment opportunities and negotiation of loans involving U.'S.-owned local currencies including those acquired under section 104(e) and 104(g) of Public Law 480, as amended. A I D is also responsible for administering funds appropriated for development loans and grants for Latin America. Total U.S. dollar commitments by A I D during fiscal 1965 amounted to $2.2 billion, of whicii $1.2 billion, or 55 percent, was on a loan basis. The Near East and South Asia received $694 million, of which $605 million, or 87 percent, was in the form of loans; Latin America received $588 million, of which $454 million was on a loan basis; the F a r East received $450 million; including $69 million in loans; and Africa received $164 million, of which $76 million was on a loan basis. The balance ($282 million) was utilized for nonregional programs such as U.N. Technical Assistance, the U.N. Children's Fund, plus general program support and administrative expenses. A I D continued the policy of direct procurement in the United States to minimize the impact of its expenditures on the U.S. balance of payments. A t the close of fiscal 1965, over 85 percent of all A I D dollars were committed directly for the purchase of U.S. goods and services. Annual meetings of international financial institutions International Monetary F u n d and International Bank.—The annual meetings of the Boards of Governors of the International Monetary F u n d and of the International Bank for Reconstruction and Development and its affiliates were held in Tokyo in September 1964. The Governors adopted a resolution requesting the Executive Directors to report on the desirability of increasing Fund quotas. Subsequently, the Directors submitted a report proposing increases in Fund quotas generally by 25 percent, with special increases for certain countries whose economic positions had changed considerably since the last revision of the quotas. At the meeting of the Bank and its affiliates approval was given to certain changes in their lending policies, as well as a request to the Executive Directors of the Bank to 62 19 65 REPORT OF THE SECRETARY OF THE TREASURY draft a convention for the arbitration and conciliation of investment disputes.^ Inter-American Developnient Bank.—Mr. David E. Bell, Administrator of the Agency for International Development (AID), as Alternate U.S. Governor of the Bank, led the U.S. delegation to the Sixth Annual Meeting of the Bank held in Asuncion, Paraguay, in April 1965. The delegation also included Mr. Tom Killefer, U.S. Executive Director of the Bank, representatives of the agencies constituting the National Advisory Council on International Monetary and Financial Problems and Members of Congress. The Governors concerned themselves principally with the problem of obtaining financial and technical resources from nonmember countries and emphasized the broadest possible support for the Bank's efforts to promote the process of Latin American integration. Organization foT Economic Cooperation and Development.—The fourth Ministerial Council Meeting of the Organization for Economic Cooperation and Development (OECD) met in Paris on Deceinber 2-3, 1964. Acting Assistant Secretary of the Treasury Merlyn N. Trued served as a member of the U.S. delegation. The Council of Ministers reaffirmed the target established in 1961 for expanding by 50 percent the combined output of the Organization's 21 member nations over the decade ending in 1970. Noting the satisfactory progress achieved thus far in meeting this objective, the Council approved a proposal for a comprehensive mid-term review in 1965. The Council called for a continuation of efforts within the OECD to improve the capital markets of member countries, both as a means of facilitating economic growth and of contributing to balance-of-payments equilibrium. Work on capital market development has continued in the Committee for Invisible Transactions (a Treasury official is the U.S. expert on this Coirimittee), the body within the OECD primarily responsible for the progressive removal of restrictions on international movements of capital and services. The Organization's Econoniic Policy Committee continued to meet regularly throughout the year to discuss the overall economic situation of the member countries. Under Secretary of the Treasury for Monetary Affairs Robert V. Roosa was a member of the U.S. delegation at the meetings early in the fiscal year, and his successor, Frederick L. Deming, served in that capacity at the later meetings. A Treasury official also served on the U.S. delegation to the Economic Policy Committee Working Party on Policies for the Promotion of Economic Growth (Working Party 2), which is concerned with implementing the collective growth target mentioned above. ^ These meetings were discussed in the 1964 a n n u a l report pages 62-4, 32 and 33 in the 1964 a n n u a l report. See also exhibits REVIEW OF FISCAL OPERATIONS 63 The Economic Policy Committee's Working Party on Policies for the Promotion of Better Payments Equilibrium (Working Party 3) met at intervals of four to six weeks over the past year, with the Under Secretary of the Treasury for Monetary Affairs as Chairman of the U.S. delegation. In addition to its reviews of the external payments situation of both surplus and deficit countries in which special attention has been devoted to the United Kingdom and its efforts to achieve coordinated action toward the goal of international monetary stability, the Working Party, at the request of the Group of Ten, began a study of the adjustment process and undertook a continuing multilateral surveillance of the ways and means of financing balahce-ofpayments disequilibrium. As a part of the Trade Committee's continuing efforts to expand trade among nations, discussions were held on the changes in the U.S. antidumping regulations as well as on the antidumping laws and regulations in other member countries. The Assistant Secretary of the Treasury for International Affairs is the principal U.S. representative on the Trade Committee's Group on Export Credit Guarantees which met several times during the year to examine questions of mutual interest in this area of activity. The Treasury Department provides the U.S. representation on the Fiscal Committee, which has been developing model income tax conventions, examining the estate tax field, and encouraging international cooperation in other tax policy areas. The Treasury representative is Vice Chairman of the Fiscal Committee and has headed a working committee which published a report on "Fiscal Incentives for Private Investment in Developing Countries" during the fiscal year. The Development Assistance Committee (DAC) of the OECD continues to coordinate development aid policies of member countries to achieve a greater degree of harmonization of the programs of donor countries and more effective use of such aid. Assistant Secretary of the Treasury John C. BuUitt served as a senior member of the U.S. delegation to the DAC Ministerial meeting in July 1964. Austria and Sweden became members of DAC in 19'65, bringing its membership to 15. The Annual Aid Review of the DAC provides for careful study and examination of each member's program and permits a comparison of relative aid burdens and general aid policies. The review of the United States was held in May of 1965. The Economic Development and Review Committee of the OECD reviews annually the economies of the member countries and issues a public report; the Treasury participated in the Committee's formal examination of the U.S. economy in November 1964. A Treasury 64 19 65 REPORT OF THE SECRETARY OF THE TREASURY observer regularly attended meetings of the Managing Board of the European Monetary Agreement. The General Agreement on Tariffs and Trade,—The General Agreement (GATT) is the principal instrument used by the United States to reduce and eliminate obstacles to the expansion of international trade. I n the framework of developing the policy of the U.S. Government in the trade field, the Treasury continued to participate in the work of the Trade Expansion Act Advisory Committee, the Trade Executive Conimittee, the Trade Staff Committee, and the Trade Information Committee. The negotiating phase of the Kennedy round began on November 16, 1964, when the industralized countries in the G A T T submitted their lists of items to be excepted from the 50 percent linear tariff cut. I n the absence of an agreed set of rules to govern negotiations on agricultural products, the exceptions lists tabled on November 16 covered only industrial products. Insofar as agricultural products are concerned, the subsequent discussions in the Kennedy round forum have sought to clarify and identify the possible scope and content of future negotiations. Septeinber 16, 1965, was set as the date for the tabling of agricultural offers. The United States has made it clear that the ultimate Kennedy round agreement must include the liberalization of trade in agricultural products as well as industrial products. Discussions were also initiated in the Kennedy round negotiations on nontariff barriers to trade. These covered both complaints by the United States on the practices of other countries and complaints by others on U.S. practices. The latter group included such issues as the use of the American selling price in determining the value of certain imports and the U.S. antidumping law and regulations; in the former group, the United States raised such issues as the assessment of road taxes that appeared to place a greater burden on U.S. automobiles than on other types of cars and quantitative restrictions on imports of U.S. goods. During the.year a Treasury representative was a member of the U.S. delegation to the annual meeting of the G A T T Contracting Parties, to the G A T T Comniittee on Balance-of-Payments Restrictions, and to the special G A T T Working Party whicii consulted with the United Kingdom on its application of a 15 percent temporary surcharge on imports in order to safeguard its external financial position and to correct its balance of payments. The United Nations Conference on Trade and Development.—The First Session of the Trade and Development Board of the Conference met in New York April 5-30,1965. The Board held its Second Session in Geneva August 24 to September 15, 1965. During these Sessions, REVIEW OF FISCAL 65 OPERATIONS the Board gave shape and direction to the new U.N. economic machinery, approved by the General Assembly on Deceinber 30, 1964, to deal with a variety of problems involving the developing countries. I t established terms of reference for four principal subsidiary committees (Commodities, Manufactures, Invisibles, and Financing Related to Trade and Shipping), elected the members of the Committees, established a work program for the Board, and adopted a set of rules of procedure. The Treasury continued to participate in this general framework of activity. Lend-lease silver The liquidation of all obligations on account of Treasury silver transferred to certain countries during World W a r I I under the authority of the Lend-Lease Act of March 11, 1941, was completed by repayments during fiscal 1965. The Lend-Lease Silver Liability Account of the Government of India was settled and closed on the books of the Treasury Department upon receipt from that Government of 324,809.08 fine troy ounces of silver. A final cash payment of $137,328.73, equivalent to 106,215.19 fine troy ounces of silver converted on the basis of the monetary value, was received from Pakistan and its account has also been settled and closed. Lend-lease silver transactions as of J u n e 30, 1965 [In millions of fine ounces except where otherwise specifically indicated] Silver transferred from the Treasury to lend-lease for account of foreign governments ^ Australia Belgium Ethiopia ^inopd India.Netherlands Pakistan Saudi Arabia _ _ _ United "RTingdom Total Silver returned and taken into the account of the Treasurer of the United States 11.8 .3 6.4 .2 172.6 66.7 63.5 2 22.3 88.1 11.8 .3 6.4 .2 172.5 56.7 48.8 1.4 88.1 410.8 385.2 Silver being returned Dollar repayments (millions) Silver tobe returned i$6.6 8 20.4 . 26.0 1 Equivalent to 4.7 million fine troy ounces of silver converted on the basis of the market price on dates of receipts, or the monetary value. 2 Includes 1,031,250 ounces lost at sea while tn transit. 3 Equivalent to 19.9 miUion fine troy ounces of silver converted on basis of the market price on dates of receipts. 782-556—66 ^5 ADMINISTRATIVE REPORTS Management Improvement Program The Treasury Department's management improvement program seeks to insure maximum effectiveness in reducing costs, increasing productivity, and improving efficiency at all operating and staff levels. During fiscal 1965, as a result of continued cost consciousness of employees throughout the Department, Treasury's management improveraent program achieved another record. Savings resulting from the program were estimated at $24.2 million on an annual recurring basis, while one-time savings reached $14.8 million making a fiscal year total of $39.0 million. Of these amounts, $3,369,000 was the result of the incentive awards program and $788,000 was achieved in Coast Guard's military awards program. The more significant management improvements of Treasury bureaus are highlighted in the administrative reports of the individual offices and bureaus which follow. Special studies and projects The final report of the survey of the mission, organization, and management of the Bureau of Customs begun in 1963 was issued in March 1965. Simultaneously the President submitted Reorganization Plan No. 1 of 1965 to the Congress. This plan, designed to streamline and improve the operation and management of the Customs service,^ became law on May 25, 1965. In conjunction with Secret Service personnel, staff of the Assistant Secretary for Administration participated in several studies which included a survey of the budgetary, manpower, and equipment resources required for Presidential protection and an examination of the overall management and organization of the Secret Service. The staff also assisted the Bureau of the Mint in acquiring sufficient heavy manufacturing equipment to avert a critical coin shortage while the new mint in Philadelphia is under construction. From surplus or reserve equipment held by the General Services Administration and the Department of Defense, the Mint was able to obtain over $1 million worth of industrial presses, tools, and other equipment. Financial management The Office of Budget and Finance continued to provide staff support and direction for the Secretary in the financial management of the Department's operating funds. Preparatory to presenting the 1967 operating expense budget, on the program or mission basis long sought by the Bureau of the Budget and the Department, Coast Guard revised its accounting and operational reporting systems to provide proper support. The 1966 budget was presented in both the conventional and revised formats and was well received. Provision was made for more precise distriSee Bureau of Customs administrative report 69 70 19 65 REPORT OF THE SECRETARY OF THE TREASURY bution of Coast Guard aircraft operating costs to the specific programs served by the aircraft. Plans were made for the establishment of a computerized servicewide pa3a'oll service for reservists' drill pay and retirement point records at Coast Guard Headquarters. This centralization will result in personnel savings of approximately 16 man-years and $77,600. The management reporting system for the expanded capital outlay program of the Coast Guard was redesigned to provide a more timely and coordinated flow of management planning and progress information. Automated payroll operations The continuing program for automation of payrolls resulted in converting two additional Treasury organizations to the I R S computer system. Plans were completed and the actual work of conversion was well underway at fiscal yearend for a third large bureau. By the close of fiscal 1965 five organizations had been converted and tests had been initiated for conversion of a sixth. Through this system the usual payroll operations are performed with magnetic tape records producing checks, savings bonds, personnel statistics, related accounting statements, and other information for each pay period. Benefits to the bureaus include reduction in manpower expended in payroll and related accounting.functions. The accounts maintained by IRS for employee payxoll withholdings and employer contributions of Treasury bureau payrolls were consolidated into a single set of accounts. The reporting of the funds disbursed for these withholdings and contributions was also consolidated. This eliminated the maintenance of as many as 16 accounts for each bureau serviced by the Internal Revenue Service. Disbursement procedures from these funds require only one payment document for similar type transactions in place of one for each bureau. Accounting systems Improvement was made in the accrual accounting system of several bureaus as the result of the development of accounting manuals. Bureaus which developed and submitted manuals to the General Accounting Office for review were: the Bureau of Public Debt; the Bureau of Narcotics; and the Oflice of the Treasurer of the United States. The Bureau of Accounts system of internal cost-based budgeting was initially adopted in the fiscal year 1964. Improvements in the system during fiscal 1965 provided a better basis for operational planning and control as weU as a means to measure the attainment of self-imposed goals. The Bureau is modifying administrative accounting in regional offices so that actual and budgeted cost data may be computerized. The Bureau also prepares monthly cost reports showing actual progress compared to budget plans. These reports are tailored to management needs and provide a sounder basis for formulating operating cost budgeting forecasts. A number of bureaus revised their systems for controlling and accounting for nonexpendable property. Generally these systems reduced the number of items on inventory through the establishment ADMINISTRATIVE REPORTS 71 of a $50 minimum as the basis for capitalization and control. These simplified systems have reduced paperwork and facilitated the physical inventory process without eliminating essential controls. Internal auditing Internal auditing is handled through a departmental audit staff in the Office of the Secretary and the staffs in 12 bureaus and offices. In addition to performing audits relating to funds appropriated to the Office of the Secretary, the departmental audit staff periodically reviews the internal audit systems of other Treasury bureaus and offices. Such reviews emphasize the necessity for adequate audit coverage, audit work programs, and effective reporting as a constructive service to management. During fiscal 1965, the departmental audit staff completed reviews and appraisals of the systems of internal auditing in two Treasury bureaus, and audited payrolls and other related administrative activities in the Office of the Secretary. Although corrective actions taken by bureaus and offices as a result of internal audit recommendations can sometimes be stated in monetary terms, most 1965 actions resulted in intangible improvements. In most Treasury bureaus these benefits were confined primarily to the strengthening of internal controls, improvements in procedures, and better utilization of personnel and space. In the Internal Revenue Service, work of the internal audit staff also resulted in corrective actions which effected additional tax revenue, or other matters having an impact on the revenue, of about $30 million. Personnel management In fiscal 1965 major emphasis was placed on evaluating programs, implementing new Government-wide programs, and strengthening existing personnel programs. A comprehensive personnel management review of the Bureau of Narcotics was initiated with visits to headquarters and 18 field offices; the report of the review is to be submitted to the Commissioner of Narcotics during the fiscal year 1966. Evaluations of the personnel programs in the Bureau of Accounts, the U.S. Coast Guard, the Internal Revenue Service, the Bureau of the Mint, and the Bureau of the Public Debt were in process at the end of fiscal 1965. The majority of these are cooperative efforts involving the Office of Personnel and the Civil Service Cominission. The Treasury Department was commended for its increased employment of the handicapped by the Chairman of the Civil Service Commission, the District of Columbia Commissioners' Committee on Employment of the Handicapped, and the President's Committee on the Emplojmient of the Handicapped. A program for placing returning Peace Corps volunteers was successfully initiated, as was the nationwide youth opportunity corps in which Treasury exceeded its quota of 884 by over 52 percent. A new centralized summer employment program in the Washington area during the summer of 1965 resulted in less expenditure of manpower in handling summer employment and in hiring better quality personnel. 72 1965 REPORT OF THE SECRETARY OF THE TREASURY Comprehensive regulations were issued on premium pay and wage boards appeals. A supplementary guide for classification of criminal investigator positions was cleared with the Civil Service Commission and readied for issuance. The basis for pay of 1,700 noncraft employees in the Bureau of Engraving and Printing was revised to a modified version of the Army-Air Force Wage Board System, effective April 25, 1965, thus aligning pay scales with prevailing industrial rates in this area. A study was completed of the Bureau of the Mint wage-fixing system, which involved some 1,000 wage board employees. Significant developments occurred in employee-management relations. An arbitrator ruled in favor of local units rather than the National Association of Internal Revenue Employees (NAIRE) proposed nationwide unit in Internal Revenue. Other activities included an impasse in negotiations and a charge of unfair labor practices. All of these cases reflected issues and changes in relationships brought about by Executive Order 10988 and the striving to establish a framework for improved relationships. The Office of Personnel continued to stress the use of external as well as internal resources in meeting employee training needs effectively and economically. During fiscal 1965 it published and distributed a reporti on classroom training for the fiscal years 1962-64, which helped Treasury bureaus evaluate their training efforts. The report reflected a heavy emphasis on technical training in the Department, a steady growth in employee training in bureaus other than I R S , and a significant increase in training at other Government agencies and non-Government facilities by most Treasury bureaus. Incentive awards program In support of the President's program to reduce costs and improve productivity, all Treasury bureaus were encouraged to increase their emphasis on employee suggestions and all phases of the incentive awards program. Suggestions received in fiscal 1965 increased by 68 percent; adopted suggestions increased by 64 percent; and estimated first-year benefits from the suggestion program increased by 96 percent to a total of $1,182,835. The number of perf ormance awards and quality pay increases also rose. Total estimated benefits from all phases of the incentive awards program amounted to over $3.3 million. On September 2, 1964, the First Annual Treasury Awards Ceremony was held at which 236 employees were recognized for their outstanding service and significant contributions to Treasury operations during fiscal 1964. Treasury's two top awards, for Exceptional Service or Meritorious Service, went to 44 employees. Thirty-four employees received recognition for outstanding suggestions or service, and 144 in the Washington area were cited for more than 40 years of Federal service. Property and facilities management The number of excess real properties disposed of during the past year was the largest since the inception of the program. Title and descriptive data were transmitted to GSA regional offices on 41 excess real properties involving 442 acres of land with improvements ADMINISTRATIVE REPORTS 73 and a total acquisition cost of $1,250,000. These properties will either be sold by GSA with the proceeds going into the Treasury, transferred to other Govemment departments for further use, or conveyed to the States for use by historical, educational, or health institutions. Consolidation of space was achieved in a number of Treasury activities. In nine cities, single locations were established to eliminate a number of previously separated activities. In 26 dift'erent locations offices were relocated from leased to Government-owned buildings, which will result in annual savings of $22,000. In addition, 26 offices were closed. The Bureau of Narcotics and the Washington Secret Service Field Office were relocated into new quarters. Additional space was also obtained for the I R S National Training School and the Bureau of Customs headquarters. Personal property determined excess during the fiscal year exceeded $9.4 million. During the same period, $559,000 of excess property was reassigned for further utilization withiii the Department. Property transferred to other Federal agencies totaled $3.2 million and, in turn. Treasury received $6.6 million of excess property from other Federal agencies, without reimbursement. Safety program Figures for the calendar year 1964 indicated that Treasury's disabling injury frequency rate (the number of lost-time injuries per million man-hours worked) was somewhat higher than the rates of recent years. However, it still remains considerably below, the all-Federal rate, indicating the continuing effectiveness of this program. To maintain interest in the program, a safety emblem contest was sponsored by the Treasury Safety Council with 532 Treasury employees submitting 1,150 different designs. An emblem was selected and has been adopted by the Treasury Safety Council for use in promoting safety awareness throughout the Department. On February 24, 1965, the Secretary of the Treasury issued Administrative Circular No. 125, transmitting President Johnson's memorandum of February 16, 1965, announcing the initiation of Mission SAFETY-70. This is a new program to reduce Federal work injm-ies and costs, year by year, until a total 30 percent reduction is achieved by 1970. On May 7, 1965, Secretary Fowler met with the heads of Treasury bureaus to discuss their plans to implement Mission SAFETY-70. At the meeting bureau heads reported to the Secretary on their plans for the balance of calendar year 1965. The Secretary stated that he had assured the President that Treasury would achieve a 2.6 injmy frequency rate by 1970 and that he expected the support of each bm-eau in this achievement. ' Office of the Comptroller of the Currency The ComptroUer of the Currency, as the Administrator of the National Banking System, is charged with the responsibility of maintaining the public's confidence in the System by sustainiug the banks' solvency and liquidity. An equaUy important public objec- 74 1965 REPORT OF THE SECRETARY OF THE TREASURY tive is to fashion the controls over banking so that banks may have the discretionary power to adapt their operations sensitively and efficiently to the needs of a growing economy. The banking structure that is most ideal in terms of the public need will vary with the changing requirements for banking services and facilities. In our prosperous society these changes are constant, far-reaching, and of compeUing importance. Increases in personal income and population affect the volume of savings seeking productive uses. The growth of capital and advances in technology bring new products and new industries. These, in turn, often give rise to new communities and shifts of population. Population movements are further accelerated as income levels rise and permit the purchase of new homes. AU of these factors have worked to produce demands for additional types of banking services and for banking facilities at new locations. During the period from 1961 to mid-1965, the Nation enjoyed its longest peacetime economic expansion in history. Real gross national product was 17 percent higher in 1964 than in 1960. Population continued to grow at a much higher rate than during the economically depressed 1930's. The number of commercial banking offices increased by 18.5 percent during the years 1961-64, compared with a 12.9 percent increase in 1957-60, and an 8.7 percent increase in 1953-56. The 1961-64 expansion occurred in response to the banking needs generated by the economic growth of the years. The 102d Annual Report of the Comptroller oj the Currency contains a statement of policy on the evolution of the banking structure, the texts of merger decisions, and summaries of litigation. Information relating to administrative matters, including a comparative statement of assessment and other operating iucome, and of financial operations, from 1958-64 is also given. The 1964 report continues the innovations of the 1963 report by presenting the Comptroller's principal addresses, his testimony before congressional committees, selected correspondence, and new rulings and interpretations. Management improvement Where economy or effectiveness warrants, the policy of decentralization of duties has been continued. The 14 regional comptrollers were given additional discretionary functions formerly reserved to the Washington office. Attorneys were assigned to several regional headquarters, resulting in more immediate and frequent transmission of Office opinion to bankers and other interested parties. The regional offices have assumed the responsibUity for examining travel vouchers and reviewing certain aspects of bank examination reports. The performance of these functions was improved by their allocation to points closer to the traveling force and the bankers, and effected a substantial saving in time and nioney. New travel regulations, providing more equitable reimbursement to the force, also yielded considerable savings. The Office conducted a one-week program in wliich regional personnel were instructed in the performance of their new duties. An Uluminating side effect of this school was the discussion of problems ADMINISTRATIVE REPORTS 75 common to both Washington and regional personnel. In addition, increased Washington-region communication at the highest levels has succeeded in establishing a common concern for efficiency. Regional visits by high-echelon members of the Washington staff, including Deputy Comptrollers, economists, and attorneys, as well as regional comptrollers' conferences, have been successful in bringing about this objective. The Bureau of Accounts Audit Staff conducted an independent audit of the financial statements and supporting records of the Office of the Comptroller of the Currency for the calendar year 1963, and one for 1964 was in progress at the end of the fiscal year. Status of national banks The result of the effort to broaden the opportunities for national banks and enable them to meet the demands of commerce and industry is shown in the accompanjdng record of bank performance. In December 1964, there were 4,780 commercial banks under the supervision of the Comptroller of the Currency, including 7 nonnational banks in the District of Columbia, an increase of 3.4 percent since 1963. During the year there were 232 national bank charters issued, of which 205 were primary organizations and 27 were conversions from State banks; 782 branches were opened of which 60.6 percent, or 474, were located in communities with a population of less than 25,000, and 30.6 percent, or 239, belonged to banks with total resources of less than $25 miUion. The assets of national banks grew 11.7 percent. Loans and discounts registered a 14.6 percent increase over 1963 and grew from 49.0 percent to 50.3 percent of the total assets. Securities displayed an increment of 4.2 percent but as a percentage of total assets, securities dropped from 30.6 in 1963 to 28.6 in 1964. U.S. Government securities increased 0.4 percent; however, their percentage of total assets decreased from 19.6 to 17.6. On the other hand. State and local obligations rose from 9.6 percent to 9.8 percent of total assets. This increase in loans and discounts, as contrasted with the relative decrease in securities holdings, reflected the brisk demand for loans from the private sector of the economy. 76 19 65 REPORT OF THE SECRETARY OF THE TREASURY Number of naiional banks and banking ofiices, by Staies, June SO, 1965 National banks state Total Unit 3,521 United States 2 Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho ^ Illinois.. Indiana i. Iowa Kansas Kentucky Louisiana Maine Maryland. M assachusetts Michigan . Minnesota Mississippi Missouri Montana. Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsyl vania Rhode Island South Carolina South Dakota Tennessee ^^ Texas Utah ....... Vermont. Virginia Washington West Virginia Wisconsin Wyoming-..* Virgin Islands D.C—alH 84 5 4 65 94 117 27 5 8 192 54 2 9 415 125 102 170 81 47 21 50 94 97 193 34 96 48 125 3 50 147 34 198 30 42 223 222 12 377 4 24 33 75 544 13 27 121 31 79 110 39 1 59 0 1 40 60 117 11 3 0 192 30 0 3 415 64 80 146 40 17 8 24 33 42 191 9 82 48 108 1 32 52 16 105 9 37 97 ' 197 7 230 0 5 28 28 544 9 18 53 14 79 98 39 0 With branches Number of branches of national banks Number of national banking offices 1 1,282 8,254 13,057 25 5 3 25 34 0 16 2 8 0 24 2 6 0 61 22 24 41 30 13 26 61 55 2 25 14 0 17 2 18 95 18 93 21 5 126 25 5 147 4 19 5 47 0 4 9 68 17 0 12 0 1 110 38 168 53 1,681 0 158 4 46 0 103 39 91 0 247 24 24 117 127 65 177 312 377 6 48 14 0 17 32 22 406 49 792 256 5 489 25 203 752 53 168 35 185 0 54 27 299 330 0 24 0 2 194 43 172 118 1, 775 117 185 9 54 192 157 41 100 415 372 126 194 198 174 86 227 406 474 199 82 110 48 142 35 72 553 83 990 286 47 712 247 215 1.129 57 192 68 260 544 67 54 420 361 79 134 39 3 81 96 1 Number of banking offices is the sum of total national banks and niunber of branches of national banks. 2 Includes Virgin Islands. 3 Includes Deposit Insurance National Bank of Dell City, Tex., and Deposit Insurance National Bank of Newport News, Va.—organized under Section 11 of the Federal Deposit Insurance Act—to operate no longer than a two-3'ear period. * Includes national and nonnational banks in the District of Colurabia, all of which are supervised by the Comptroller of the Currency. ADMINISTRATIVE 77 REPORTS A s s e t s , l i a b i l i t i e s , a n d c a p i t a l a c c o u n t s of n a i i o n a l b a n k s o n J u n e 3 0 , 1 9 6 4 , D e c e m b e r 31, 1964, a n d J u n e 30, 1965 [In millions of dollars] June 30, 1964 Dec. 31; 1964 June 30, 1965 (4,702 banks) (4,773 banks) (4,803 banks) ASSETS Loans and discounts _. U.S. Government securities, direct and guaranteed Securities of States and political subdivisions Other bonds, notes, and debentures 88, 519 31, 551 17, 591 2,191 95, 577 33, 537 18, 592 2,237 102, 059 30, 323 20, 460 2,439 139,852 149,943 155,281 761 47 821 81 1,059 188 29, 513 2,683 1,642 34, 066 2,789 652 1,760 31, 595 2,893 723 1,860 175,107 190,113 193; 599 66,030 74,200 61,000 5,999 12,228 8,648 2,075 64, 763 3,787 13, 647 10,733 2, 486 69, 931 6,912 13,941 9,408 2.349 ._ 155, 980 169, 617 171, 528 Demand deposits . ." Time and savings deposits Rediscounts and other liabilities for borrowed money Federal funds purchased Acceptances executed by or for account of banks and outstanding— : other liabihties 89,681 66,299 79 787 98, 660 • 70, 957 299 827 620 3,344 666 3,656 Total loans and securities Federal funds sold .. Direct lease financing _ Balances with other banks, and cash items in^ process of collection Fixed assets Customers' liabiUty on acceptances outstanding Other assets ._ Totalassets LIABILITIES Demand deposits of mdividuals, partnerships, and corporations... Time and savings deposits of individuals, partnerships, and corporations Deposits of U.S. Government Deposits of States and pohtical subdivisions _. Deposits of banks ... Certified and officers' checks Total deposits Totaliiabilities 160,810 94,826 76, 702 603 . 959 732 • 3,-924 • 177, 746 CAPITAL ACCOUNTS Debentures . Capital stock, total Common stock Preferred stock Surplus.. Undivided profits Reserves .. Total capital accounts Total liabilities and capital accounts. 4,190 4,314 4,..607 4,162 28 4,286 28 4,578 29 6,950 2,491 362 7,207 2,657 393 7,311 2,741 380 14,297 15, 853 175,107 193, 599 78 19 65 REPORT OF THE SECRETARY OF THE TREASURY Bureau of Customs The major responsibility of the Bureau of Customs is to administer the Tariff Act of 1930, as amended. Primary duties include the assessment and collection of all duties, taxes, and fees on imported merchandise, the enforcement of customs and related laws, and the administration of certain navigation laws and treaties. As an enforcement organization, it engages in combating smuggling and frauds on the revenue and enforces the regulations of numerous other Federal agencies. Management improvement program Special search jor economies.—During fiscal 1965, intensive efforts were made to initiate improvements to cope with increasing workloads. These improvements, when fuUy effective, are expected to result in savings and cost avoidance estimated at more than $1,204,700. Over 40 percent of the total savings realized resulted from progressive policies and measures for reducing backlogs. One substantial reduction, amounting to a cost avoidance of approximately $350,000 was effected by special administrative instructions concerning unappraised invoices on hand over 30 days and fUed prior to August 31, 1963. Management surveys.—An Evaluation oj Mission, Organization and Management oj the Bureau oj Customs, a major management survey, was released on March 21, 1965. In the implementation of recommendations in this report, the President on March 25, 1965, submitted Reorganization Plan Number One of 1965 to the Congress. Under this plan which became effective May 25, 1965, all positions previously fUled by Presidential appointment in the Bureau of Customs are to be abolished. The President's plan permits a major reorganization of the customs field structure during the coming year in which administrative and some supervisory functions wUl be consolidated in nine regional headquarters. This wUl result in a reduction in the number of district offices and release their personnel to provide improved service to the importing and traveling public. The reorganization, begun in fiscal 1965, is essential because of the Bureau's expanding workload from increased trade and travel. Much of the management activity throughout the year was concentrated on implementing Treasury Order No. 165-15, effective October 1, 1964^ Better functional supervision of the major field programs was achieved by Bureau headquarters reorganization which established four major offices in lieu of seven divisions; and by certain transfers of functions and delineations of responsibUities to improve operationahdirection and technical advice to field offices. A savings of $75,000 was realized by the adoption of random sampling to verify liquidated formal entries and by improving the review of these entries under an internal check system in the coUectors offices. Essential features of an improved and expanding Training and Career Development Program adopted recently include: A Training and Career Development CouncU in Bureau headquarters to assist 1 See exhibit 70. ADMINISTRATIVE REPORTS 79 in planning and carrying out a Bureauwide Career Development and Executive Development Program; an Executive Evaluation Board to review the qualifications of applicants for middle management and executive positions; a Servicewide Management Intern Training Program to provide trained people for future assignments; and an intensified Reports Analysis Program in the Bureau headquarters which wiU be a continuing program covering all customs field activity reports which are prepared to identify, correct, or eliminate weaknesses and problems in field activities. Significant management improvements made at local offices and having possible application at other ports are given servicewide circulation through the periodical ^^Management Progress Digest.'' This digest summarizes local improvements and makes provision for furnishing more detailed information to interested offices. Liquidation oj entries.—During fiscal 1965, for the fourth consecutive year, the backlog of formal entries ready for tentative liquidation was reduced very substantially. The number of entries decreased 50.7 percent from 1964 to 144,000 on June 30, 1965.^ This reduction was achieved by introducing new simplified liquidating procedures and by reassigning entries to districts where the backlog had been eliminated. Facilitation oj international trade.—The number of ports designated for entering antique furniture, claimed free of duty for consumption, has been increased from 10 ports to aU ports in 24 collection districts. The designation of these additional ports by the Secretary of the Treasury improves customs service to the importing public and better equalizes the examination workload of customs officers. The sections of the Customs Regulations pertaining to the administration of the Antidumping Act of 1921 have been amended. The amended regulations make Government policy on antidumping claims more explicit and provide exporters, importers, and domestic industry representatives with additional information regarding evidence produced by interested persons to show either the existence or nonexistence of sales at less than fair value. An intransit manifest developed jointly by Customs officials of the United States and Canada, may now be used to document merchandise moving in bond from the port of origin to the port of destination through either country. The new procedures permit bonded shipments to transit either country two or more times without additional documentation if the movement is continuous from the original port of entry to the ultimate destination. Delegations oj authority.—The authority of the Commissioner of Customs to sign any decision with respect to claims, fines, or penalties (including forfeitures) arising from violations of Customs laws was increased from $20,000 to $100,000, by a recent Treasury Decision. This permits more expeditious settlement of many major penalty cases and reduces the number of cases referred to the Secretary's office for decision. To improve and facUitate administration of vessels documented in the United States, coUectors of customs have been authorized to delegate authority to deputy collectors in charge of ports of entry to waive requirement for production of recordable instruments of conveyance and approve designation of home ports. 80 1965 REPORT OF THE SECRETARY OF THE TREASURY Collectors of customs also were granted authority to satisfy claims of. error in admeasurement procedure when the claimant and the collector are in agreement with respect to: The error; the assigned tonnage; and the action to be taken. When there is an unresolved question, the Commissioner of Customs will make the decision. This change will expedite processing claims of error and adjustment of tonnage without jeopardizing the claimant's right to appeal when there is a disagreement. Legislation.—On June 30, 1965, the Congress enacted major changes' in the tourist exemption law for returning residents to be effective on October 1, 1965. The amendments include: The elimination of the privilege of allowing ^'articles to follow," declared at the time the traveler returns to the United States, to be later admitted free of duty within his exemption; retention of the returning resident's exemption in the amount of $100 based on the aggregate fair retail value of the articles rather than on wholesale A^alue; a provision for a $200 exemption in the case of residents arriving from American Samoa, Guam, and the Virgin Islands of the United States of which no more than $100 may be acquired elsewhere than in the islands; a reduction from one gallon of alcoholic beverages per person to one quart jyer adult resident m t h the exception of residents returning from specified insular possessions who retain the one gallon exemption provided that no more than one quart is acquired elsewhere than in the islands; and a provision that the dollar value of the exemptions allowable under the $10 gift section of the tariff act be computed on the basis of the aggregate fair retail value in the country of shipment of the articles. The elimination of the ''articles to follow" pri^dlege will result in some savings to Customs. Fees and charges.—^As part of the program to insure that special services are as self-sustaining as possible, the fees charged for such services were reviewed. As a result, it was determined that three fees were no longer adequate to recover the cost of the services and were increased. A $6.00 fee was set to recover the administrative and overhead costs involved in processing and issuing a yacht commission. Formerly, any vessel belonging to a regularly organized and incorporated 3^ach.t club, licensed as a yacht, and meeting certain other requirements could, upon application^ receive a free commission which identified the yacht and its owner during one foreign voyage. . Training and orientation.—During fiscal 1965 technical training was provided to inspectors, examiners, agents, and port investigators in field procedures as well as to management officials in the Bureau headquarters. Within the orientation program, 22 new headquarters employees participated. As part of the development and refinement of a servicewide training course for all new customs inspectors, a permanent staff of instructors was recruited and trained. The course was shortened from 6 weeks to 4 weeks primarUy by providing orientation material to participants before the course began. 1 Public law 89-62. ADMINISTRATIVE REPORTS 81 Forms management.—During fiscal 1965, 31 customs forms were revised, 4 new ones established, 4 consolidated, and 4 abolished. A program is underway to revamp the local forms program in each field office, to reduce their number and to eliminate unnecessary duplication. Based on the special review completed during fiscal 1965 of 156 reporting requirements imposed on the public, 102 forms are being simplified or eliminated. All saleable customs forms are being reviewed to determine whether current prices are adequate to cover costs to the Bureau. Incentive awards.—To improve the effectiveness of employee participation in the Bureau of Customs Incentive Awards Program several innovations were made. The Customs Regulations were revised to increase the authority of field officers to consider and evaluate local employee suggestions; the average time required to take action on suggestions in the Bureau was reduced from 90 to 60 days; and a followup system was established to insure implementation of adopted suggestions. Tangible savings for fiscal 1965 resulting from adopted suggestions were approximately $72,000, an increase of about 250 percent over fiscal 1964. Customs cooperation with the Agency jor International Development.—: The Bureau of Customs, and the AID on May 11, 1965, signed a Participating Agency Service Agreement (PASA) for a customs technical assistance corps. Under the terms of the agreement, AID wiU reimburse Customs for the costs of recruiting and training 12 customs employees for overseas technical assistance assignments and for the costs of program direction and support for the AID assistance projects. The training period wiU be for approximately one year and those who successfully complete the course wUl be expected to serve in overseas assignments for a minimum of four years. Prior to the establishment of this program, each request from AID for customs personnel was advertised throughout the Customs Service and the chosen candidate was indoctrinated by AID before reporting overseas. Under this program. Customs wUl be able to provide well-qualified and trained Customs employees upon request by AID, without the delays formerly encountered. During the fiscal year, in cooperation with AID, 71 customs officials from 19 foreign countries participated in a Bureau of Customs program of training which included meetings with key officials in Bureau headquarters to discuss management and technical subjects and visits to field offices to observe customs operations. Work related to cotton textiles.—Upon receipt of directives issued by the President's Cabinet Textile Advisory Committee under the LongTerm Cotton TextUe Arrangement, Customs implemented and admhiistered 153 import quotas on cotton textiles and cotton textile products manufactured or produced in various countries; ia addition, special visaed invoice requirements were enforced on cotton textiles in specific categories from 3 countries, all 64 categories in the case of 1 country and 1 category each in the case of 2 other countries. Weekly status,reports on all the quotas and weekly cumulative import statistics on merchandise in nine categories under observation were furnished the Interagency TextUe Administrative Committee for its use. 782-556—66 6 82 19 65 REPORT OF THE SECRETARY OF THE TREASURY Collections Revenue coUected by the Customs Service during fiscal 1965, reached an alltime high of $2,062 miUion, including customs duty coUections, excise taxes on imported merchandise collected for the Internal Revenue Service, and certain miscellaneous coUections. Larger customs collections than in 1964 were reported by 39 out of the 45 customs districts. Collections and payments by customs districts are shown in table 24. The major classes of all collections by the Customs Bureau are shown in table 25. More than 36 percent of all imports into the United States during fiscal 1965 were duty free and included commodities imported free for Government stockpile purposes or authorized by special acts of Congress for free entry. The remaining 64 percent constituted the basis of customs duties on imports. Bureau operations Carriers and persons entering.—More than 181 million persons were subject to customs inspection in fiscal 1965, a 5.7 percent increase in carriers, and a 4 percent increase in persons entering the United States, as shown in tables 87 and 88. Entries oj merchandise.—The volume and value of imports into the United States continued their rise in fiscal 1965, with total value reaching $19.7 bUlion. The volume and type of entries handled during the past two years are shown in table 85. Drawback ^transactions.-^Drawback allowance on the exportation of merchandise manufactured from imported materials and for certain other export transactions usually amounts to 99 percent of the customs duties paid at the time the goods are entered. The total drawback paid in fiscal 1965 as reflected in table 86 by principal commodities was $17,585,376. Appraisement oj merchandise (including Customs Injormation Exchange).—Invoices ffled during fiscal 1965 amounted to 2,841,601, while the number of packages examined by appraisers' personnel totaled 1,875,027. The backlog of unappraised invoices more than 30 days old declined to 413,829, a decrease of 24.8 percent from fiscal 1964. During the year, 3,203,000 individual line items were verified, each requiring a verification of four factors. Of these, changes were made in roughly 59 percent of the verified elements, a substantial portion of which were of an editorial nature. Substantive changes were necessary in approximately 20 percent of the reports. Under the Antidumping Act of 1921, as amended (19 U.S.C. 160171), 22 complaints were received, compared with 27"* in fiscal 1964. The disposal of 30 cases left 21 under investigation at the end of fiscal 1965. Five cases were referred to the U.S. Tariff Commission for a determination as to possible injury to American industry. Two findings of dumping were made. Two new cases of countervailing duty were received, and three were closed. • Revised. ADMINISTRATIVE 83 REPORTS One new case involving convict labor was received during this year and none were closed. The activities of the Customs Information Exchange in New York, N.Y., continued at approximately the same high level as that of 1964. Appraisers' reports of classification and value, covering a cross section of imported merchandise received at each port, totaled 83,146 compared with 79,000 in 1964. There were 6,889 reports of value differences during fiscal 1965 as compared with 6,091 in 1964. Differences in classification totaled 7,000 during 1965 compared with 6,947, in 1964, indicating an increase in new commodities received. DetaUed investigations abroad to obtain information for appraisement increased to 231 in fiscal 1965. Technical services.—The 9 district laboratories and 1 branch laboratory of the Division of Technical Services analyzed over 129,000 samples in fiscal 1965. Despite changes brought about by Tariff Schedules of the United States and an extensive shipping strike, the laboratories analyzed almost 3,000 more samples than during the previous year. Most of these were submitted to the laboratories to assist in appraisement and tariff classification. Other classes analyzed were seizm*es (mainly narcotics and other prohibited merchandise), samples tested for other Government agencies, and preshipment samples (submitted by importers when requesting the rate of duty on a prospective import). Extensive research was carried out on tests for rubber and fluorspar. The Division of Technical Services also analyzed cargo sample weighing data to assure accuracy and precision within statistical control limits. Final approval was made of one bulk weighing and sampling equipment installation and tentative approval given for another. Installation of one truck scale was completed and another is in progress at Boston, Mass. Another was being installed in New York, N.Y., at the end of the fiscal year. The improvement of U.S. border , stations in cooperation with the Immigration and Naturalization Service was continued. Three new stations were completed, two occupied, three under construction, and contracts awarded for seven others during the fiscal year. Construction plans prepared by the General Services Administration for 19 major projects, providing space for Customs, were reviewed and appropriate changes recommended. Such facilities were completed at three locations. Export control.—The following table compares export control activities in the fiscal years 1964 and 1965. Activity Export declarations authenticated Shipments examined Number of seizures Value of seizures Export control employees 1964 5,065, 217 359,097 403 $421,778 218 1965 6,308,272 465, 226 360 $336,105 245 Percentage increase, or decrease (—) 4.8 29.6 -10.7 -20.3 12.4 84 1965 REPGRT OF THE SECRETARY OF THE TREASURY Protests and appeals.—Protests ffled by importers against the rate and amount of duty assessed and appeals for reappraisement ffled by importers who did not agree with appraisers as to the value of merchandise are shown in the foUowing table • Protests and appeals Protests: Filed with coUectors by .importers (formal) Filed with collectors by importers (informal) Appeals for reappraisement filed with collectors 1964 - 37, 050 57, 586 25,700 1965 47 445 61 010 24 071 Percentage increase, or decrease (—) 28.1 5.9 -6.3 • Marine activities.—Dviring fiscal 1965 one meeting of the Subcommittee on Tonnage Measurement of the Maritime Safety Committee of the Intergovernmental Maritime Consultative Organization (IMCO) and one meeting of its working group were held in London to consider matters affecting the international tonnage measurement of ships. The U.S. delegation to each meeting was led by a Customs representative. The working group initiated and the Subcommittee approved a computer study for assessing parameters proposed by various nations for bases for a universal system of tonnage measurement of ships. A customs representative, an observer for the United States, attended the first fuU conference of the Convention for a Uniform System of Tonnage Measurement of Ships since that convention was signed at Oslo on June 10, 1947. The conference, held at Oslo in May, was attended by member delegations from Denmark, the Federal Republic of Germany, Finland, France, Iceland, Israel, the Netherlands, Norway, Poland, and Sweden. Observers represented Italy, Japan, and the United Kingdom, as well as the United States; IMCO, the Panama Canal, and five classification societies were also represented by observers. The primary purpose of the conference was to amend the tonnage measurement regulations to implement the recommendations on the treatment of shelter-deck and other ''open" spaces adopted by the Third Assembly of IMCO. Identical bUls, S. 906 and H.R. 3351, sponsored by the Treasury Department were introduced in the 89th Congress to implement the recommendations in the United States. The United States was particularly interested in the consideration given to the possible relaxing of the 19-percent limit in the Oslo Rules for deductible water-ballast space. A customs representative again participated in the work of the Group of Experts established by IMCO to study measures to facilitate maritime travel and the transport of goods by sea at its fflth and fhial session, January 18-22, 1965. The group considered the comments and proposals made by governments concerning a draft Convention on FacUitation of Maritune Traffic, a draft annex to that Convention, and certain draft resolutions. The draft Convention is. intended as the legal foundation for the annex, which contains a number of detaUed technical provisions to ADMINISTRATIVE REPORTS 85 facUitate maritime traffic and prevent unnecessary delays to ships, passengers, crews, cargoes, and baggage by reducing to a minimum the formalities, documentary requirements, and procedures required in connection with arrivals and departures of ships engaged in iaternational travel. The group prepared reports on the drafts for the International Conference on Facilitation of Maritime Travel and Transport. The International Conference on Facilitation of Maritime Travel and Transport, under the auspices of IMCO, convened in London on March 24, 1965. I t established and opened for acceptance and signature the Convention and annex referred to in the paragraph above. The annex consists of standards and recommended practices to be followed by governmental authorities with a view to facilitating maritune traffic and simplification of the formalities, documentary requirements, and procedures in connection with arrivals and departures of ships on international voyages. The Conference was attended by delegates from 57 countries, observers from 11, as well as representatives from various intergovernmental and nongovernmental organizations. The 18-member U.S. delegation was led by a Customs representative and included other Treasury and congressional representatives. The Conference adopted various recommendations designed to furthur the purposes of the Convention and its annex and to provide for future work in facUitating maritime traffic. A Customs representative also led the U.S. delegation to a meeting of the Group of Experts on FacUitation of International Waterborne Transportation under the auspices of the Organization of American States (OAS) at Lima, Peru, from AprU 20-24, 1965. After consideration of the comments submitted by various Governments on a preliminary draft of an annex to the Convention of Mar del Plata signed June 7, 1963, by a number of countries including the United States, the Group prepared the final draft. This draft followed the pattern of the annex adopted by the IMCO council mentioned above. The Permanent Technical Committee on Ports met following the meeting of the Group of Experts and adopted the draft annex. This Committee proposed that a special Inter-American Port and Harbor Conference be convened to consider and act upon their recommendations on the proposed annex, as soon as the Secretary-General of the OAS determines that enough member governments are williug to participate. Admeasurement.—A total of 4,410 admeasurements of vessels of all sizes and types for all ports were completed during fiscal 1965. In addition there were 360 readmeasurements and adjustments of tonnages of vessels. The total admeasurements for the 2 years were 4,770 and 4,544, respectively. At the end of fiscal 1965, there were 343 pendiag applications for measurements of commercial vessels and 310 pending applications for yachts. Documentation.—Vessels in the American merchant marine documented for commercial use increased t o 46,604 in fiscal 1965 while 86 19 65 REPORT OF THE SECRETARY OF THE TREASURY those documented as yachts rose to 12,344. The following table compares the volume of marine documentation during fiscal years 1964 and 1965. Activity Total vessels documented at end of year Documents issued (registers, enrollments, and licenses) Licenses renewed and changes of master endorsed. Mortgages, satisfactions, notices of lien, bills of sale, abstracts of title, and other instruments of title recorded Abstracts of title and certificates of ownership issued Certificates and permits Name changes . . 1964 56,549 18,984 62,324 16,503 7,311 1,550 1,515 1965 ' Percentage increase 58,948 19,205 53,841 4.2 1.2 2.9 17,542 7, 744 1,632 1,536 ! 6.3 6.9 6.3 1.4 Legislation.—Treasury Department sponsored bUls were iatroduced in the 89th Congress to simplify the admeasurement of small vessels and to amend the laws relating to admeasurement to permit implementation by the United States of the recommendations adopted by the Assembly of the IMCO on the treatment of shelter-deck and other "open" spaces. Legislation was again proposed to repeal and amend certain statutes to permit the fixing of charges for various services rendered the public under the navigation laws on the basis of cost to the Government. No action had been taken on these bills at the close of the fiscal year. The Marine Section in fiscal 1965 began a revision of the codification of the navigation laws in title 46, United States Code, which the Bureau of Customs administers. Tonnage taxes.—Cyprus and Monaco were added to the list of nations which are exempt from the payment of special tonnage tax and light money. Waivers.—In a few instances waivers of the coastwise shipping laws and other navigation laws in the interest of national defense were issued upon the request of the Assistant Secretary of Defense or the heads of other agencies of the Government. Novel among these was a waiver of certain of the navigation laws upon request of the Assistant Secretary of Defense to permit the experimental use of two foreign-buUt hovercraft by the City of Oakland, Calif., between points in the San Francisco Bay area for a period of 20 months. Entry, clearance, and use oj vessels.—Appropriate instructions were issued: To insure observance of the time limitations for the filing of applications for relief from duties assessed on the costs of repairs to and equipment for vessels of the United States obtained in foreign countries; to restate the requirements applicable to the landing of fish by foreign-fiag vessels in U.S. ports in certain circumstances; to update and combine in one chcular the list of countries having ratified and acceded to the International Load Line Convention of 1930; and to restate the requirement that an unmanned barge under American registry must be accompanied on a foreign voyage by the master whose name is endorsed on its register. The foUowing table compares entrances and clearances of vessels in fiscal year 1965 with 1964. ADMINISTRATIVE Vessel m o v e m e n t s Entrances: D i r e c t from foreign p o r t s Via other domestic p o r t s 1964 __ Total _. . .. Clearances: D i r e c t to foreign p o r t s Via other domestic p o r t s . T o t a l __ _ ._ 87 REPOETS 1965 Percentage increase, or decrease ( - ) 48,651 40,172 49,426 38,071 1.6 -5.2 88,823 87,497 — 1.5 47,386 40,091 47,954 37,936 1.2 —5.4 87,477 85,890 —1 8 Law enforcement and investigative activities On M a y 20, 1964, legislation was enacted (16 U.S.C. 1081-1085) "To prohibit fishiag in territorial waters of the United States and in certain other areas by vessels other than vessels of the United States and by persons in charge of such vessels." Interim procedures for the enforcement of this law were issued by the Bureau of Customs during fiscal 1965. Investigations completed.—The Customs Agency Service completed 21,019 investigations during fiscal 1965. The number and types of cases investigated during fiscal years 1964 and 1965 under customs, navigation, and related laws administered and enforced by Customs are shown in table 90. The most active enforcement regions were: Western (headquarters at Los Angeles, Calif.), with 1,163 arrests and 591 convictions; Southwestern (headquarters at Houston, Tex.), with 616 arrests and 258 convictions; and Northeastern (headquarters at New York, N.Y.), with 284 arrests and 34 convictions. The foUowiag table shows the number of arrests and dispositions thereof during fiscal years 1964 and 1965. Activity Under or awaiting indictment at beginning of year. Arrests Turned over to other agencies Prosecutions declined ., Not indicted Convictions Dismissals and acquittals Nolle prossed Under or awaiting indictment at end of year. 1964 '620 1,801 386 338 14 780 115 '20 '768 1965 768 2,205 412 354 2 944 123 29 1,109 Percentage mcrease, or decrease (—) 23.9 22.4 6.7 4.7 -85.7 21.0 7.0 45.0 44.4 ' Revised. Cooperation vnth other officers,—Officers of the Customs Agency Service cooperated with Federal, State, and local law enforcement agencies and with officials of foreign governments in 7,769 cases compared with 5,470'' last year. 'Revised, 88 19 65 REPORT OF THE SECRETARY OF THE TREASURY Seizures,, general.—^A total of 7,836 seizures (aside from those of narcotics and other drugs) was made by the Customs Agency Service in fiscal 1965, having an appraised value of $16,827,588, while fines and penalties associated with the seizures amounted to $19,441,763. Seizures, narcotic and other drugs.—The substantial increase in marihuana seizures was concentrated on the California border and involved gangs of Cuban refugees who were engaged in supplyiag the eastern market tributary to New York City, N.Y., and Miami, Fla. A record 22 pounds (9,979.20 grams) of cocaine from ChUe was seized at New York which led to the ultimate arrest of seven violators in this country and four in Chile. Two seizures of cocaine made at Miami were traced back to a violator who had jumped baU in that city after being convicted in 1961. The largest seizure (34,629.53 grams) of French heroin ever recorded on the Mexican border by customs officers at Laredo, Tex., was reported in the 1964 annual report, page 89. That offense implicated the head of a gang with powerful political connections who made every effort to obstruct justice and eventually escaped from jaU. However, he was recaptured and with three associates extradited to the United States where trial of the four was pending at the end of fiscal 1965. The foUowing table compares seizures of narcotic drugs and marihuana in 1965 with 1964. Drug seizures Narcotic drugs (weight in grams) Heroin. Number of seizures... Raw opium Number of seizures Smoking opium Number of seizures... Others Number of seizures Marihuana: Bulk (weight in kilograms).. Number of seizures Cigarettes (number) Number of seizures.... Fiscal years Percentage increase, or decrease (—) 1964 1965 ' 41,774.73 '210 13,021. 71 8 32,734.33 17 12,919. 87 '325 11, 029. 24 238 15,511.12 11 15,588. 26 16 16,706.37 232 -73.6 13.3 19.1 37.5 -^52.4 -5.9 29.3 -28.6 4,339.897 678 841 179 35.6 16.1 -10.9 26.1 ' 3,200. 726 '584 944 '142 ' Revised. Work oj joreign offices.—^European offices of the Bureau supplied 291 inf ormation leads which resulted in 98 seizures having an appraised value of $136,000, and fines and penalties amounting to $294,000. Customs offices in the Far East are credited with 31 seizures having an appraised value of $825,000 and fines and penalties totaling $563,000. A principal activity of aU the foreign offices was the investigation of valuation frauds. Especially common in the Far East was the overstating of nondutiable components of inclusive prices, or inventing fictitious nondutiable components. Other violations included faUure to declare purchases of expensive jewelry and clothing and the widespread practice by which foreign sellers declare goods sold to tourists as unsolicited gifts. ADMINISTRATIVE REPORTS 89 A significant occurrence during fiscal 1965 was the trial at Los Angeles, Calif., of a firm which had grossly undervalued over 30,000 transistor radios imported from Japan and Okinawa. Government agents and other witnesses were brought from Japan, New York, and Chicago. Both the firm and its vice president were found guUty and fined on 12 counts. Other irregularities included misdeclarations of national origin, involving such commodities as stockings from Yugoslavia, mink skins from Russia, and jade articles from Communist China. Customs bureau disclosure of abuses with jade articles caused Hong Kong authorities to suspend the issuance of certificates of origin covering this item. Our Tokyo office reported that whUe only two new dumping inquiries were initiated duriag the year, extreme interest in the subject was shown by the Japanese press, industry, and officials, in connection with new customs regulations. A finding of dumping promulgated as the result of an earlier investigation is believed to be the first ever made on a Japanese product. Customs seizures of merchandise throughout the country during fiscal 1965 for violation of laws enforced by the Customs Service showed an increase of 2.6 percent in the number of seizures and a decrease of 44.1 percent in the appraised value, as compared with fiscal 1964. Details of these seizures by number and value are shown in table 89. Foreign trade zones During fiscal 1965 the number of entries received in Foreign Trade Zone No. 1, New York, N.Y., were 6.1 percent less than in fiscal 1964. Other activities in the zone also decreased. Large quantities of dates, machinery, zinc and lead ingots, wool and cotton piece goods, bottled and bulk liquors, chemicals, radios, cameras, Brazil nuts, alligator sldns, caviar, talc, and tungsten ore were stored and approximately 7,000 manipulations operations were performed. Thirteen ships used the zone facUities for discharging cargo from foreign countries. The number of entries received in Foreign Trade Zone No. 2 at New Orleans, La., increased 1.2 percent over last year. The foUowing manipulations operations were performed in the zone: Fumigation of 17 different commodities, commingling, grinding and rebagging of casein, manufacture of lead and lead oxide into battery plates and storage batteries, markiag of country of origin on musical instruments, sampling and affixing city and State stamps on whiskey and wine, repackaging of twist drUls and packaging of personal and household effects for export, manufacture of wire rope into bridles, cutting of galvanized chain into various lengths, repackaging of bird seed, and destroying of chemical compounds. Entries received in Foreign Trade Zone No. 3 at San Francisco, Calif., increased 2.8 percent over fiscal 1964, whUe long tons received in the zone increased 65.4 percent and their value 6.2 percent. There were 933 manipulations operations performed in the zone, an increase of 58.1 percent over last year. Fiscal 1965 was the first full year of operation for Foreign Trade Subzone No. 3-A, at San Francisco, Calif. This subzone contaias a manufacturiag plant for the production of semifinished and finished 90 19 65 REPORT OF THE SECRETARY OF THE TREASURY wearing apparel from imported woven wool fabric. Semifinished apparel is cut to pattern and entered into U.S. Customs territory and transferred to a nearby plant operated by this firm where fiaished apparel is produced for domestic and foreign markets. Although the number of entries received in Foreign Trade Zone No. 5 at Seattle, Wash., during fiscal 1965, decreased 7.3 percent from the year before, there were substantial increases in the foUowing activities: Long tons received, 127.9 percent; value of goods entering the zone, 108.5 percent; long tons delivered from the zone, 138.1 percent; value of goods delivered from the zone, 135.5 percent; and duties and internal revenue taxes collected, 8.1 percent. Manipulations operations in the zone consisted of converting trucks into campers, cutting steel piling and woolen fabrics into lengths, replacing gaskets and tuning diesel engines, testing and repacking tape recorders, repacking salmon roe, compasses, and microscope parts. There were substantial increases in the following activities at Foreign Trade Zone No. 7, at Mayaguez, P.R.: Entries received, 318.2 percent; long tons received, 60 percent; value of long tons received, 68.2 percent; long tons delivered from the zone, 153.8 percent; and value of goods delivered from the zone, 231 percent. The number of entries received at subzone No. 7-A, Penuelas, P.R., duringfiscal 1965 increased 200 percent over fiscal 1964. Thirteen ships used the zone facUities for discharging cargo from foreign countries and 10 ships berthed in the zone to lade domestic ship cargo. There were decreases in all activities at Foreign Trade Zone No. 8, at Toledo, Ohio, with the exception of duties and internal revenue taxes collected which showed an increase of 21.7 percent. Operations in the zone consisted of public warehousing, converting panel trucks to campers, sorting and repacking twist driUs, and combining cartons of alcoholic beverages for shipment and recoopering. The foUowing table summarizes foreign trade zone operations during fiscal 1965. Trade zone Number of entries Received ui zone Long tons New York New Orleans San Francisco San Francisco (subzone) Seattle Mayaguez Penuelas (subzone) Toledo 1 4,965 3.038 6,689 356 1, 039 92 36 452 Value 25,156 $34,804,505 24,742 10,700,611 2,305 3,176,629 170 1,169,970 1,055 2,466,791 24 64,766 232, 253 3,917,061 14,561 7,923,923 Delivered from zone Long tons Value 32,354 $32,952,408 25,368 10,781,677 2,276 2,568,667 229 770,655 1,055 2,444,229 33 143,426 133,771 8,365,404 17,363 12,100,535 Duties and intemal revenue taxes collected $6,555,718 •1,247,926 676,372 230,942 178,197 2,981 125,941 1,283,636 Customs ports of entry, stations, and airports The limits of the ports of Aberdeen, Wash.; Muskegon, Mich.; Pascagoula, Miss.; Wrangell, Alaska; and Port Allen, Kauai, Hawaii, were extended and redescribed to include areas not heretofore covered. Changes in customs stations during the year included the designation of Wild Horse, Mont., and Willow Creek, Mont., and the revocation of Havre, Mont. The official port name of Los Angeles, Calif., was changed to Los Angeles-Long Beach, Calif.; and Port Allen, Kauai, Hawaii, was changed to NawUiwUi-Port Allen, Kauai, Hawaii. The ADMINISTRATIVE 91 REPORTS designation of the Malone-Dufort Airport, Malone, N.Y., as an international ahport was revoked. Cost of administration Customs operating expenses amounted to $82,289,912, including export control expenses and the cost of additional inspection reimbursed by the Department of Agriculture. The following table shows man-year employment data in the fiscal years 1964 and 1965. Man-years 1964 operation Regular customs operations: Nonreimbursable Re.imbnr.«?abie i. .. 7,792 351 Total regular customs employment Export control ... . Additional inspection for Department of Agriculture Total employment Man-years 1965 . . . _. 8,143 218 228 8,589 . Percentage uicrease 7,939 369 1.9 5.1 8,308 245 236 2.0 12.4 3.5 8,789 2.3 1 Salaries reunbursed to the Government by the private firms who received the exclusive services of these employees. Office of t h e Director of Practice The Office of the Director of Practice is a part of the Office of the Secretary of the Treasury, under the immediate supervision of the General Counsel. The Director of Practice receives and acts upon applications for enrollment to practice as attorneys or agents before the Internal Revenue Service; institutes and provides for the conduct of disciplinary proceedings relating to enrolled attorneys and agents; makes inquiries with respect to matters under his jurisdiction; and performs such other duties as are necessary or appropriate, or as are prescribed by the Secretary of the Treasury. Internal reorganization of the Office of the Director of Practice was effected within the fiscal year, with the simultaneous transfer of the functions of the former Enrollment Section into the functionally enlarged and concurrently established Applications Section, which is under the general supervision of an attorney advisor. During the year the Office put into operation an electronic data processing (magnetic tape) system, for the purpose of maintaining its enrollment and related rosters. This Director of Practice E D P system is being coordinated and further implemented through facilities of the Office of the Treasurer of the United States. Applications for enrollment approved this year totaled 7,650 (4,098 attorneys and 3,552 agents, consisting of certified public accountants, successful Special Enrollment Examination candidates, and former Internal Revenue Service employees). Approximately 89,000 attorneys and agents were enrolled to practice before the Service at the end of fiscal 1965. Renewed cards issued during the year totaled 6,124, consisting of 2,826 to attorneys and 3,298 to agents. The Special Enrollment Examination, held in Internal Revenue Service ciistrict offices in September 1964, was taken by 797 persons, of whom 480 achieved passing grades. During the year 424 successful examination candidates were enrolled to practice. Examinees have a 92 19 65 REPORT OF THE SECRETARY OF THE TREASURY period of three years in which to file for enrollment after notification of their successful completion of the examination. The Office processed and closed 362 derogatory information cases during the fiscal year, and had 259 cases under review on June 30,1965, 89 relating to attorneys, and 170 relating to agents. There were also 173 cases under investigation at the close of the fiscal year, 60 relating to attorneys and 113 relating to agents. During the year there were 107 cases in which a discipline was imposed oy this Office, or from which a related action resulted, such as the withdrawal or abandonment of an application for enrollment while under evaluation, or the acceptance of a resignation from enrollment. I n addition, and as a result of disciplinary proceedings instituted by this Office, a hearing examiner imposed two disbarments and one suspension for four months. A t the end of the fiscal year one additional case was awaiting trial before a hearing examiner. Each district director of the Internal Revenue Service has authority to determine that a particular unenrolled person who signs a tax return as preparer is ineligible to exercise the privilege of limited practice without enrollment if the preparer is not of good character or reputation, or if the preparer conducts his practice in an unethical manner. The scope of requirements concerning limited practice without enrollment, applicable to those who prepare and sign Federal income tax returns, is set forth in Revenue Procedure 64-47, which became effective November 1, 1964. A district director's decision of ineligibility under this procedure may be appealed by the unenrolled preparer to the Director of Practice. During the fiscal year 11 such appeals were filed with the Director of Practice by unenrolled preparers of tax returns. I n eight of these cases, the district director's decision was affirmed; in one case the decision was modified and affirmed; in one case the decision was reversed; and one appeal is awaiting final action. Office of Domestic Gold a n d Silver Operations The Office of Domestic Gold and Silver Operations, in the Office of the Under Secretary for Monetary Affairs, assists the Under Secretary in the formulation, execution, and coordination of policies and programs relating to gold and silver in both their monetary and commercial aspects. The Office administers the Treasury Department Gold Regulations relating to the purchase, sale, and control of industrial gold, gold coin, and gold certificates; issues licenses and other authorizations for the use, import and export of gold, and for the importation and exportation of gold coin; receives and examines reports of operations; and investigates and supervises the activities of users of gold. Investigations into possible violations of the Gold Regulations are coordinated with the U.S. Secret Service, the Bureau of Customs, and other enforcement agencies. Gold controls The comprehensive examination of gold reports, verification of records, and field inspections have been continued. Purchases of gold for industrial use from the Treasury.—The gross sales of gold for industrial use by the Treasury increased in the calen- ADMINISTRATIVE 93 REPORTS dar year 1964 to 3,665,245 fine troy ounces, as compared with 3,068,345 •; ounces in calendar year 1963, and 2,746,046 ounces in calendar 1962. j Examinations of the books and reports of the gold users, however, •'^ continue to show no indication of hoarding or excessive inventories. Golcl coin licensing,—The volume of requests for the importation of gold coin and the cases involving coins acquired abroad without a license by uninformed tourists, continued at a high rate. Their settlement has been expedited to a large extent by the use of form letters and circulars which set forth the condition's governmg the importation of gold coins. E n d uses of gold,—End-Use Certificates with detailed information concerning the end use of gold were in effect throughout the calendar year 1964. The estimated allocation by use for 1964 is shown in the table below. E s t i m a t e d allocation of gold by use for the year 1964 E n d use Jewelry and a r t s . . Dental Space a n d defense, electrical a n d electronics. Space a n d defense, other I n d u s t r i a l , electrical, a n d electronics Industrial, other. i Total ....: F i n e ounces .. Dollars, based o n $35 per ounce Percent 2, 664, 274 550,171 282, 020 23,957 432, 908 249,657 $93,249, 590 19, 255, 985 9,870,700 838,495 15,151,780 8,737, 995 63.39 13.09 6.71 .57 10.30 5.94 . 4,202,987 147,104,545 100. 00 Silver legislation On June 3, 1965, the Treasury Staff Study of Silver and Coinage was released reviewing the increasing imbalance between silver supplies and uses and possible alternatiA^es to our present silver coinage. The President transmitted to the Congress a bill providing for a new metallic composition of the 10 cent, 25 cent, and 50 cent pieces; for {he purchase of newly-mined domestic silver should the price drop below the monetary price; and for certain standby authorities for the prevention of melting and hoarding of silver coins. Hearings were held on this bill in June 1965 ^ and legislation was enacted on July 23,1965.^ The elimination of silver from the 10 cent and 25 cent pieces and the sharply reduced silver content of the 50 cent piece authorized by this legislation will assure maintenance of an ample supply of coinage in the 3^ears ahead. B u r e a u of Engraving and P r i n t i n g The Bureau of Engraving and Printing designs, engraves, and prints U.S. currency, Federal Reserve notes, securities, postage and revenue stamps, and various commissions, certificates, and other forms of engraved work for U.S. Government agencies, as well as bonds and postage and revenue stamps for the governments of various territories administered by the United States. 1 See exhibits 21 and 22. 2 See exhibit 23. 94 1965 REPORT OF THE SECRETARY OF THE TREASURY Management attainments Throughout the year, the Bureau concentrated on expanding the^ conversion from wet to dry intaglio printing of currency. ^ A second v area for the production of currency, similar to the existiag rotary X ; currency area, has been set up. Four new four-plate, sheet-fed rotary intaglio presses of ultramodern design, embodying the latest engineering principles, have been purchased and put into production. Bureau personnel are currently making studies, adjustments, and modifications, as needed, to improve the operating characteristics of the presses and to correct mechanical deficiencies. Associated overprinting presses, processing machines, and equipment have been relocated in this area and are now in operation. Production and processing operations are continually reviewed in an effort to keep production costs to a minimum. A comparison of the base manufacturing cost rate for producing currency 18 subjects to a sheet with a projected rate for producing currency 32 subjects to the sheet on the new presses indicates that annual recurring savings estimated at approximately $3,200,000 will be realized. I n fiscal 1965, there were 632,691 people escorted on guided tours of Bureau operations. To accommodate visitors, the Bureau, over a period of years, has used a trained guide force of as many as 30 employees, most of whom were detailed from the production divisions during the busy tourist season from April to September. Concurrent with the installaition of the four new sheet-fed rotary intaglio currency presses and the planning for related processing functions adjacent to these presses, a new and improved tour facility was constructed in which production operations will be described by audio-visual methods. Under the new arrangement, visitors will reach and leave the gallery by means of escalators eliminating the need for personal guide service. It is expected that the installation of this facility will preclude the necessity for detailing employees to the guide force during the tourist season, with a reduction in associated personnel costs of approximately $70,000 annually for the operation of this facility. I n the interest of maintaining efficient and economical operations, the Bureau has carried on intensive research, engineering, and development activities and a continuing program of production and quality control studies. Financial and management type audits made by the Bureau's internal auditors indicate that Bureau policies have been effectively carried out. There were 25 recommendations outstanding on July 1,1964. During fiscal 1965, 72 reports of audit, containing 46 additional recommendations, were released. Thirty-six recommendations were outstanding at the close of the year. Through the excess property program, the Bureau received $2,634 from the sale of obsolete equipment and material declared excess to Bureau needs; and obtained equipment and furniture valued at $25,403 at no charge, through the Federal excess property utilization program. The Bureau was awarded a certificate of achievement by the National Safety Council for the largest percentage reduction in the 1964 injury frequency rate among 26 printing and publishing establishments. I n fiscal 1965, the Bureau initiated a program bf offering 95 ADMINISTRATIVE REPORTS prescription safety eyeglasses to maintenance employees who require prescription-ground glasses. Employees were continuously urged to make suggestions for improvements in work processes as an eff'ort toward accomplishment of the President's program to reduce costs and improve productivity. Estimated annual recurring savings of $17,396 and a one-time savings of $1,415 wUl accrue to the Bureau as a result of suggestions adopted through the incentives award program in fiscal 1965. During the year, 293 Bureau employees participated in 27 Bureau traming sessions; 100 employees completed 46 courses conducted by other Government agencies; and 46 employees attended seminars and training classes sponsored by non-Government organizations. Estimated savings resulting from nianagement improvements during fiscal 1965 totaled 6 man-years and approximately $88,000 on a recurring annual basis. All savmgs realized were applied against production costs and were reflected in the Bureau's billing rates to customer agencies. New issues of postage stamps and deliveries of finished work New issues of postage stamps delivered by the Bureau in fiscal 1965 are shown in table 91. . A comparative statement of deliveries of finished work for the fiscal year 1964 and 1965 aj^pears in table 92. Finances Bureau operations are financed by reimbursements to the Bureau of Engraving and Printing fund, as authorized by law. Comparative . financial statements follow. Statement of financial condition June 30, 1965 and 1964 • Assets C u r r e n t assets: Cash: On hand With t h e T r e a s u r y A c c o u n t s receivable ^ Inventories: 2 F i n i s h e d goods Work i n process R a w materials Stores P r e p a i d expenses J u n e 30,1965 J u n e 30, 1964 $824 4, 427, 824 4, 215, 264 $12 5, 333,878 2,664,730 1,238,819 3,412, 963 684, 501 1, 021, 704 83,493 1,940,984 3,649,869 969,258 1,044,655 57,176 T o t a l c u r r e n t assets 15,085,392 15, 560, 562 Fixed assets: 3 Plant machinery and equipment Motor vehicles Office m a c h i n e s F u r m t u r e a n d fixtures Dies, rolls, a n d plates Building appurtenances Fixed assets u n d e r construction 21,767,112 160, 616 259,173 489,607 3, 955,961 3,143, 755 410,342 20,116,698 146, 665 251,174 468, 778 3,955, 961 2, 676,807 295,267 30,186,566 14, 980, 051 27,911,350 13, 730,821 15,206, 515 14,180, 629 ._ _ „. Less a c c u m u l a t e d depreciation Excess fixed assets ( w r i t t e n d o w n to 20% a n d 10% of book v a l u e , 1965 a n d 1964, respectively) T o t a l fixed assets Deferred charges Totalassets _ F o o t n o t e s a t end of t a b l e . _ _ _ 4,466 455 15,210,981 14,180,984 156,050 147,119 30,452,423 29,888,665 96 19 65 REPORT OF THE SECRETARY OF THE TREASURY Statement of financial condition June SO, 1965 and 1964—Continueci Liabilities and investment of the United States Liabilities: Accounts payable —_ Accrued liabihties: Payroll 4 ____ Accrued leave ^ Other Trust and deposit liabilities Other habilities ^ June 30, 1965 June 30,1964 $736,851 $1,116, 028 1,919,346 1,821, 656 214,307 800,453 11, 510 1,142, 663 1,686, 726 136, 905 624,930 307 .....^ 5, 604,122 4,706,449 Investment ofthe U.S. Government: Appropriation from U.S. Treasury , Donated assets, net ^ 3,250,000 22, 000,930 3,250,000 22, 000,930 25,250,930 -302,629 25,250,930 • -68,714 Total investment of the U.S. Governinent 24,948,301 25,182,216 Total liabilities and investment of the U.S. Government 30,452,423 29,888,665 Total habihties s...: _ —_ Accumulated earnings, or deficit (—) ^ 1 Accounts receivable at June 30,1965, include $134,242 representiag the value of finished goods and work in process inventories destroyed as a result of a fire as weU as misceUaneous expenses iacurred in connection thereto. A claim of negligence assessed against the contractor engaged in a construction project at the time of the fire waS'pendiag at the close of the fiscal year. 2 Finished good's and work in process inventories are valued at cost, includiag administrative and service overhead. Except for the distiactive paper which is valued at the acquisition cost, raw materials and stores inventories-are valued at the ayerage cost of the materials and supphes on hand. 3 Plant machinery and equipment, furniture and fixtures, office machines, and motor vehicles acquired Oh or before June 30, 1950, are stated at appraised values. Additions siace June 30, 1950, and all building appurtenances are valued at acquisition cost. The Act of Aug. 4, 1950 (31 U.S.C. 181a) which established the Bureau of Engtaving and Printing fund specificaUy excluded land and buildings valued at about $9,000,000 from the assets of the fund. Also excluded are appropriated funds of about $6,766,000 expended or transferred to (>SA for extraordinary expenses in connection with uncapitalized building repairs and air conditioning. Dies, rolls, ahd plates were capitalized at July 1, 1951, on the basis of average unit costs of manufacture, reduced to recognize their estimated useful life. Since July 1,1951, all costs of dies, rolls, and plates have been charged to operations in the year acquired. 4 Accrued payroU and other habihties at June 30,1965, include $207,211 and $9,113, respectively, for clauned retroactive overtime pay due building guards or the estates of deceased buUding guards for services performed during the period October 1954-0ctober 1964 in accordance with. Comptroller General's Decision B-156197, dated Oct. 8, 1964, and Mar. 17, 1965. A contingent habihty of an undetermined amount exists for former guards who may file claims. 6 In addition, outstanding commitments with suppliers for unperformed contracts and undelivered purchase orders totaled $7,264,767 as of June 30, 1965, as compared with $7,906,174 at June 30, 1964; unperformed contracts at both dates include $2,177,087, representmg the balance due for a prototype multicolor postage stamp web-fed intagho printing press to be dehvered in fiscal year 1966. The balance for the most part represents annual term; contracts for materials and supphes for delivery ia the ensuing fiscal year 6 See foUowing page, footnote 3. ADMINISTRATIVE 97 REPORTS Statement of income and expense, fiscal years 1965 and 1964 Income and expense Operating revenue: Sales of engraving and printing •_._ Operating costs: Cost of sales: Direct labor. Direct materials used Prime cost Overhead costs: Salaries and indirect labor' __ Factory supplies Repair parts and supplies Employer's share personnel benefits 1964 1965 __ __ ____ Rp.nts, c o m m n n i c a t i o n s , a n d n t i h t i e s O t h e r services Depreciation a n d amortization G a i n s (—), or losses on disposal or r e t i r e m e n t of fixed assets S u n d r y expense (net) $31,028,383 $26,424, 992 12, 004, 970 4,852, 260 10,099,336 4, 242, 064 16,857,230 14, 341,400 8, 968,383 1,188, 731 316, 596 1, 458, 417 528,106 319, 651 1, 706,814 29, 675 . 56,037 8,165, 638 1,191, 023 310, 949 1,386, 242 503, 736 253, 081 1, 601, 022 - 2 , 634 46, 531 Total overhead 14, 572, 409 13, 455, 588 T o t a l costs 2 31,429, 639 27, 796, 988 424, 564 647, 606 2,242 369, 331 479,177 Less: N o n p r o d u c t i o n costs: S h o p costs capitalized Cost of miscellaneous services r e n d e r e d o t h e r agencies Cost of special services rendered—fire Cost of p r o d u c t i o n ._ _. N e t increase (—), or decrease i n finished goods a n d w o r k in process i n v e n t o r i e s from operations . Cost of sales O p e r a t i n g profit, or loss (—) '. Nonoperating revenue: Operation a n d m a i n t e n a n c e of incinerator a n d space u t i h z e d b y o t h e r agencies .. O t h e r direct charges for misceUaneous services _ C l a i m receivable for fire loss _ _ _ _ N o n o p e r a t i n g costs: Cost of miscellaneous services r e n d e r e d other agencies Cost of special services rendered—fire W o r k i n process a n d finished goods i n v e n t o r y loss d u e to fire 974, 412 848, 508 30,455,227 26, 948, 480 807,071 -490,894 31, 262,298 26, 457, 686 - 2 3 3 , 915 - 3 2 , 594 469, 767 77,839 134, 242 421,323 57, 854 681, 848 479,177 547, 606 2,242 132,000 479,177 681,848 N e t profit, or loss (—) for t h e y e a r 3 _ _ _ - 2 3 3 , 915 .. . 479,177 -32,594 1 Includes $216,324 in 1965 to cover the cost of retroactive overtime pay for buUding guards, most ofwhich was applicable to prior years. 2 No amounts are included in the accounts of the fund for (1) interest on the investment of the Govemment in the Bureau of Engraving and Printing fund, (2) depreciation on the Bureau's buildings excluded from the assets of the fund by the Act of Aug. 4,1950, and (3) certain costs of services performed by other agencies on behalf of the Bureau. 3 The Act of Aug. 4,1950, provided that customer agencies make payment to the Bureau at prices deemed adequate to recover all costs incidental to performing work or services requisitioned. Any surplus accruing to the fund in any fiscal year is to be paid into the general fund of the Treasury as miscellaneous receipts except that any surplus is applied first to restore any impairment of capital by reason of variations between prices charged and actual costs. 782-556—66 98 19 65 REPORT OF THE SECRETARY OF THE TREASURY Statement of source and application of funds, fiscal years 1965 and 1964 Funds provided and applied Funds provided: Sales of engraving and printing Operation and maintenance of incinerator and space utilized by other agencies J Other direct charges for miscellaneous services Claim receivable for fire loss 1966 1964 $31,028,383 $26,424, 992 469,767 77,839 134, 242 421, 323 67, 854 31, 710, 231 26, 904,169 30,207, 657 26, 338,375 Sale of surplus equipment.. _ Decrease in working capital. 1, 602, 674 6,430 1, 272, 843 1, 565,794 17, 810 734, 551 Total funds provided 2, 781,847 2,318,155 2, 706,967 2, 245, 012 Less cost of sales and service (excludiag depreciation and other charges not requiring expenditure of funds: Fiscal year 1965, $1,736,489; fiscal year 1964, $1,598,388)— Funds applied: Acquisition of fixed assets 1 Acquisition of experimental equipment; and plant repairs and alterations to be charged to future operations Total funds applied. 74, 880 73,143 2,781,847 2,318,156 Fiscal Service BUREAU OF ACCOUNTS Functions of the Bureau of Accounts have Government-wide scope. They include central accounting and financial reporting; disbursing for virtually all civilian agencies; supervising the Government's depositary system; determining qualifications of insurance companies to do surety business with Government agencies; a variety of fiscal activities such as investment of trust funds, agency borrowings from the Treasury, and international claims and indebtedness; and Treasury staff representation in the Joint Financial Management Improvement Program. Management improvement Annual recurring savings of $1,056,000 were realized from the continuing management improvement program during fiscal 1965, attributable to further improvements in technology and systems, major realignments of organization and staffing, and the fruits of the continuing programs for the development of people in management skills at all levels. Systems improvement Bureau staff continued to represent Treasury on the steering committee and survey teams of the Joint Financial Management Improvement Program. Primary attention was given to assisting Government agencies to improve advance financing practices through letters of credit, pursuant to Department Circular No. 1075. (For details on the purpose of this circular, see 1964 annual report, page 101.) ADMINISTRATIVE REPORTS 99 More than 1,500 letters of credit were issued in fiscal year 1965 by the Departments of Agriculture; Labor; and Health, Education, and Welfare; Office of Economic Opportunity; National Aeronautics and Space Administration; National Science Foundation; Agency for International Development; and Atomic Energy Commission. Letters of credit were also utilized by the Treasury Department in making U.S. subscriptions to the International Monetary Fund and contributions to programs of the Inter-American Development Bank. Total disbursements drawing down letters of credit in fiscal 1965 exceeded $1.3 billion. The Office of Civil Defense, the State Department, and the Department of the Interior plan to use the procedure in fiscal 1966. Department Circular No. 918, which regulates the withholding of State income taxes by Federal agencies, was supplemented to modify timing of payments and filing of tax returns. Agreements for withholding taxes were concluded with Arkansas, Kansas, and Rhode Island. These cooperative arrangements are now in effect for 30 States, including the District of Columbia. Other systems work during the year included various studies to improve central accounting operations, administrative accounting procedures, and internal financial reporting. At the end of fiscal 1965, work was in process on a consolidated manual of all Treasury regulations on central accounting, reporting, and other fiscal matters, for the guidance of all Federal agencies. This manual covers certain prescribed forms and procedures which have been, or will be, dropped from titles 6 and 7 of the General Accounting Office Policy and Procedures Manual for Guidance of Federal Agencies, Central accounting and reporting Consolidation of the central accounting and central reporting organizations in April 1964 was instrumental in achieving considerable progress during fiscal 1965 toward maximum integration of the central accounting and reporting operations by use of the Bureau's E D P equipment originally acauired for disbursing work. The central accounts are now entirely in the computer system. A number of financial report operations have been so converted, including several tables in the monthly statement of receipts and expenditures. Computer programs for other tables appearing in this monthly report and other reports are expected to be developed and installed in fiscal year 1966. This looks to the capability for computer printouts of "camera" copies, for use in reproducing certain major Govemment-wide financial reports. Department Circular No. 966, which covers business-type financial statements, was revised to update Treasury requirements for descriptive narrative submissions on the source of data included in statements ; an explanation of accounting bases, principles, and standards; and the nature of underlying assets and liabilities. A completely new set of regulations was in process at the end of fiscal 1965 and is targeted for completion in fiscal 1966, to amalgamate all prior modifications, define terms more precisely, and achieve greater conformity between the agencies, the Bureau of the Budget, and the Treasury in the treatment of a wide variety of accounting transactions. 100 19 65 REPORT OF THE SECRETARY OF THE TREASURY The reservation of foreign currencies on an unfunded basis continued to yield benefits to the Govemment through its favorable impact on cash financing costs and the balance of payments. Amendment No. 1 to Department Circular 930, Revised, establishing regulations for further unfunding of foreign currencies, was issued during the year. A total of 3,528,041 accounting items was processed by the central and regional oiiices through the central accounting system during fiscal 1965, a slight increase over the preceding year. Internal auditing Twenty audits of Bureau and nonbureau activities were begun during the fiscal year; two were in progress at yearend. Thirteen of these audits were of fiscal functions, five of management operations, and two included both areas. General coordination and staff assistance were furnished for the annual audit of the Exchange Stabilization Fund. Also, an auditor was loaned to the Intemal Audit Division, Office of the Secretary, for their audit of the administrative accounts of the Office of the Secretary. Disbursing operations . The average unit cost for all- disbursing operations reached a low of 2.98 cents in fiscal 1965; the unit cost in fiscal 1964 was 3.05 cents.^ These figures cover the cost of all goods and services consumed in the central disbursing function, including depreciation of owned equipment in relation to the quantities of checks and savings bonds produced. (It does not include the cost of postage, which has no bearing on operational efficiency in the disbursing functions.) Productivity per employee increased by 10 percent in 1965 over 1964. During the year 11 regional disbursing: offices were in operation, servicing over 1,500 offices of agencies. Certain foreign service posts in Central and South America and the F a r East also received disbursing services from the Washington and Manila regional offices, respectively. More than 93 pigrcent of all of the Bureau's checks and bonds were produced on computers, as conversions of payments to electronic data processing continued during the year. A centralized electronic microfilm system was installed in the Chicago regional office, resulting in considerable savings. This system produces microfilm, records directly from data on magTietic tapes generated by the six largest regional disbursing offices. Special machines for preparing checks for miscellaneous payments, using a heat transfer process, which imprint payee information on checks directly from vouchers submitted by the agencies, were installed in the 8 regional disbursing offices within the 48 contiguous States. Substantial savings result from the elimination of check typing and proofreading work in this area of the Division of Disbursement's operations. 1 The unit cost of 3.11 cents shown in the 1964 annual report, page 102, did not include disbursing activities financed by reimbursements from certain agencies. ADMINISTRATIVE 101 REPORTS There follows a comparision of the fiscal year 1964 with the 1965 workload. Volume Classification 1964 Operations financed by appropriated funds: Checks: Social security benefits Veterans'benefits .., Tnnnmft tax refunds Veterans'national service life insurance dividends. Other . Savings bonds issued Adjustments and transfers, . ,, . Total workload financed by appropriated funds. . ,. _ Operations financed by reimbursements: Railroad Retirement Board __ Department of Agriculture (ACP)„ Bureau ofthe PubUc Debt (certam savings bonds) Total workload-reimbursable iterns^. ^ Total workload . 1966 189,431,084 62,721.888 42,358,609 4,406,015 45,932,888 5,087,062 111,758 198 593,859 68,976,138 39 841,453 • 4,279,794 40,209,189 6,500,741 54,371 350,049,304 357,455,545 12, 267, 997 360,615 798,670 12,153, 862 13,427, 282 13,004,316 363,476, 686 370,459, 860 850, 463 Deposits, investments, and related activities Federal depositary system,—The types of depositary services and number of commercial banking institutions authorized to provide each service, as of June 30,1965, are shown in the following table. Type of service provided by depositaries Receive proceeds of deposits by taxpayers and from sale of public debt securities, for credit in Treasury tax and loan accounts _. Receive deposits from district directors of internal revenue, military finance oflicers, and other Government oificers Maintain official checking accounts of postmasters, clerks of U.S. courts, and other Government officers _ : Furnish bank drafts to Government officers in exchange for coUections Service State unemployment compensation benefit payments and clearing accounts Operate limited banking facihties at miUtary instaUations: In the United States and its outlying areas Foreign ___! .__ . Number of banking institutions 12,186 1,036 6,780 2,250 56 274 153 Investmients,—Government trust funds are invested in marketable U.S. securities and special securities issued for purchase by the major trust funds as authorized by law. During the year legislation was enacted to authorize the Secretary of the Treasury to invest two additional funds. Legislation approved October 13, 1964 (38 U.S.C. 725(b)), established the veterans' reopened insurance fund, which permits certain veterans to reinstate national service life insurance, and authorizes the Secretary of the Treasury to sell to the fund special interest-bearing securities of the United States. These special securities bear interest at a rate equal to the average market yield on marketable U.S, securities not due or callable until after the expiration of four years. The District of Columbia judicial retirement and survivors annuity fund was established under legislation approved October 13, 1964 (78 Stat. 1061). The Secretary of the Treasury is authorized to invest 102 19 65 REPORT OF THE SECRETARY OF THE TREASURY this fund in interest-bearing securities of the United States or Federal farm loan bonds. Table 66 shows the holdings of public debt and agency securities by Government agencies and accounts. Loans i y the Treasury,—The Bureau administers loan agreements with those Government corporations and agencies that have authority to borrow from the Treasury to finance certain programs. Legislation was enacted during the year authorizing borrowing to finance parking facilities for the iJohn F . Kennedy Center for the Performing Arts, established January 23, 1964 (78 Stat. 5). The Board of Eegents of the Smithsonian Institution is authorized to sell to the Secretary of the Treasury revenue bonds which are to be retired by the Board from parking facility revenues. Tables 108, 109, and 110 show the status of Treasury loans to Government corporations and agencies as of June 30, 1965. Surety 66)^(^5.—Executive agencies are required by law to obtain blanket, position schedule, or other types of surety bonds covering those employees required to be bonded. Legislative and judicial branches are permitted by law to follow the same procedure. The Secretary of the Treasury issues certificates of authority, renewable each June 1, to corporate sureties that are qualified to execute bonds in favor of the United States. A total of 259 companies held such certificates as of June 30, 1965 (published annually in the Federal Register in relation to Department Circular 570, Eevised). A summary of bonding activities of Government agencies follows: Number of officers and employees covered on June 30, 1965 976, 961 Aggregate penal sums of bonds procured $3,511,234,300 Total premiums paid by Govemment in fiscal year 1965 $229, 997 Administrative expenses in fiscal year 1965 $45,932 Foreign indebtedness World War I.—^Following an agreement with the Government of Greece on May 28, 1964, legislation was introduced to authorize the acceptance of a settlement of the World W a r I indebtedness of Greece and the use of the payments to finance a mutual cultural and educational exchange program. The legislative proposal was pending in the Congress at yearend. The Government of Finland made total payments of $374,645 during fiscal 1965, which were used to finance educational exchange programs with that Government (22 U.S.C. 2455(e)). For the status of all World W a r I indebtedness see tables 103 and 104. World War II,—U.S. dollar payments of $49 million (including the U.S. dollar value of returned lend-lease silver) and the equivalent of $13 million in local currencies were received from debtor governments, under lend-lease and surplus property sales agreements. See table 106 for the status of the lend-lease and surplus property accounts administered by the Treasury. Credit to the United Kingdom.—Although there was a deferral of the principal and interest installment due December 31, 1964 (under ADMINISTRATIVE REPORTS 103 the financial aid agreement of December 6,1945, as amended March 6, 1957) the United Kingdom paid previously deferred principal and interest installments, and interest thereon, totaling $3.8 million. Cumulative payments total $1,389.6 million, of which $788.7 million is interest. The unmatured principal balance is $3,149.1 million; deferred interest installments outstanding amount to $201.8 million. Payment of claims against foreign governments Mixed Claims Commission,, U.S, and Germany,—The Federal Eepublic of Germany paid $4 million during the year under the agreement of February 27,1953, enabling a further distribution to be made to holders of awards certified by the Mixed Claims Commission on claims arising from World W a r I. Table 93 shows the status of the claims fund. Foreign Claims Settlement Commission.—The fifth installment of $2 million was received from the Polish Government under the July 16, 1960, agreement. These payments will be used to settle claims of American nationals against Poland which have been adjudicated by the Foreign Claims Settlement Commission. The Commission expects to complete adjudication of these claims by March 31, 1966. Payments up to $1,000 were made during the year on each award certified to the Treasury by the Commission. During the year the Commission began certifying to the Treasury those claims filed under the W a r Claims Act of 1948, as amended. The Treasury received $75 million for payment of these awards; additional amounts will become available through the U.S. sale of seized assets of German and Japanese nationals, including substantial sums realized from the sale of General Aniline and Film Corp. stock. The deadline for filing claims with the Commission was January 15,1965. Payments of awards made due to death and personal injury were authorized and begun in fiscal 1965. See table 94. Defense lending Effective with the close of fiscal year 1964, the Office of Defense Lending was abolished and its functions transferred to the Commissioner of Accounts, pursuant to Treasury Department Order No. 185-2, dated June 24,1964.^ Defense Production Act.—No new loans to private businesses were made during the year under section 302 of the Defense Production Act of 1950, as amended. Loans outstanding were reduced from $17.9 million to $16.7 million during fiscal 1965. Further transfers of $1.7 million were made to the account of General Services Administration, Eevolving Fund, Defense Production Act, from the net earnings ac• cumulated since inception of the program, bringing the total of these transfers to $16.5 million. Federal Oivil Defense Act.—The remaining deferred participation commitments under section 40'9 of the Federal Civil Defense Act were liquidated during fiscal 1965 and outstanding loans reduced to $509,994. Notes payable to the Treasuiy were reduced $71,091 to a total of ,909, and interest payments of $3,246 were made during the year. ^ See 1964 annual report, exhibit 54, p. 374. 104 19 65 REPORT OF THE SECRETARY OF THE TREASURY Liquidation of Reconstruction Finance Corporation assets.—The Secretary of the Treasury's responsibility in the liquidation of E F C assets relates to completing the liquidation of business loans and securities with individual balances of $250,000 or more as of June 30, 1957, securities of and loans to railroads, securities of financial institutions, and the windup of corporate affairs. Net income and proceeds of liquidation amounting to $606,134 were paid into the Treasury as miscellaneous receipts in fiscal 1965, making a cumulative total of $53.7 million since July 1, 1957. Total unliquidated assets as of June 30, 1965, had a gross book value of $5.5 million. Depositary receipts The following table shows the volume of depositary receipts for the fiscal years 1960-65. A description of the depositary receipt procedure is contained on page 141 of the 1962 annual report. Income and social security Fiscalyear 1960 1961 1962.. 1963 1964 1965 . . _ _ .-- ^ _. 9,469,057 9,908,068 10,477,119 11,161,897 11,729, 243 12, 012,386 Railroad retirement taxes Federal excise taxes 10,626 10,724 10, 262 9,937 9,911 9,869 598,881 618,971 610,026 619, 519 633,437 644,763 Total 10, 078, 563 10,537,763 11,097,407 11,791,353 12,372,691 12, 666,997 NOTE.—Comparable data, for 1944-59 will be found in the 1962 annual report, page 141. Government losses in shipment Claims totaling $44,210.04 were paid from the revolving fund established by the Government Losses in Shipment Act, as amended. De-* tails of operations under this act are shown in table 114. Other operations Withheld foreign checks.—On November 9, 1964, Department Circular 655 was completely revised to incorporate into one document the original circular dated March 19, 1941, and the 14 later supplements. Donations and contributions.—Bureau receipts deposited into the Treasury during the year as "conscience fmid" contributions amounted to $18,441.15. Other unconditional donations totaled $651,863.05; such receipts by other Government agencies amounted to. $9,479.77. Conditional gifts tp further the defense effort amounted to $150,822.19. Gifts of money and the proceeds of real or personal property donated in fiscal 1965 for the purpose of reducing the public debt amounted to $709,777.35, of which $706,707.35 was used to purchase and retire, public debt securities. BUREAU OF THE PUBLIC DEBT The Bureau of the Public Debt, in support of the management of the. public debt, has responsibility for the preparation of Treasury Department circulars offering public debt securities, the direction of the handling of subscriptions and making allotments, the formulation of instructions and regulations pertaining to each security issue, the issuance of the securities, and the conduct or direction of transactions in ADMINISTRATIVE REPORTS 105 those outstanding. The Bureau is responsible for the final audit and custody of retired securities, the maintenance of the control accounts covering all public debt issues, the keeping of individual accounts with owners of registered securities and authorizing the issue of checks iii payment of interest thereon, and the handling of claims on account of lost, stolen, destroyed, or mutilated securities. The Bureau's principal office and headquarters is in Washington, D.C. Offices also are maintained in Chibago, 111., and Parkersburg, W. Va., where most Bureau operations related to U.S. savings bonds are handled. Under Bureau supervision many transactions in public debt securities are conducted by the Federal Eeserve banks and their branches as fiscal agents of the United States. Selected post offices, private financial institutions, industrial organizations, and others (approximately 19,200 in all) cooperate in the issuance of savings bonds. Management improvement The E D P system in the Parkersburg office was expanded and up^ dated by the acquisition of two new system components, which have increased efficiency and permitted the conversion to electronics of operations previously performed either manually qr on other types of equipment. The fees due paying agents who redeem savings bonds are now being computed electronically, and check issue information is supplied to the Eegional Disbursing Office on magnetic tape. Statistical reports bf employee participation in company-operated payroll savings plans are also being developed electronically. Both of these operations were previously performed on conventional tabulating equipment in the Washington office. Accounting and statistical documents now prepared on the computer mclude the permanent receipts for shipments of stubs and bonds, advices of adjustment covering individual differences disclosed in the audit of stub and bond transmittals, certain machine utilization and personnel production reports, and cash accounting reports. An E D P programming refinement has substantially reduced tape requirements for the maintenance of the consolidated file reflecting alphabetic data and bond identification data, both of which are compacted under a new tape format. This permits more frequent inquiry searches with no increase in machine time. Additional operating economies were effected in the Parkersburg office through the installation of a revised procedure for correcting mispunched registration stubs, the replacement of manual film readers with automatic reader-printers, and a revision in the stub adjustment procedure which eliminated the typing of substitute registration stubs. Joint projects were instituted with three large Government issuing agents using computers to inscribe Series E savings bonds, with a view to having these agents furnish issue data on magnetic tape and microfilm, rather than through the submission of registration stubs. Following a successful trial period, the Navy Department, Bureau of Supplies :and Accounts will convert to this system early in fiscal 1966. The projects with the other agents are being continued. 106 1965 REPORT OF THE SEGRETARY OF THE TREASURY Authority was delegated to the Federal Eeserve banks and branches to redeem bearer Treasury bonds of eligible issues presented in payment of Federal estate taxes and to remit the proceeds to the appropriate district director of Internal Eevenue. This decentralization will result in operating economies as well as improved service to the public. The accounting records of the Division of Eetired Securities were revised to eliminate certain control accounts and reduce maintenance detail by more extensively using basic data in the public debt accounts. Changes were also made in the method of preparation and the arrangement of destruction schedules, thereby facilitating the preparation of the schedules and ^he selection of items to be destroyed. Bureau operations The extent of the change in the composition of the public debt is one measure of the Bureau's work. The debt falls into two broad cater gories: public issues and special issues. Public issues consist of marketable Treasury bills, certificates of indebtedness, notes, and bonds; and nonmarketable securities, chiefly U.S. savings bonds and Treasury bonds of the investment series. Special issues of certificates, notes, and bonds are made by the Treasury directly to various Government trust and certain other accounts and are payable only for these accounts. During the year, 24,297 individual accounts coveriag publicly held registered securities other than U.S. savings bonds and retirement plaii bonds were opened and 32,510 were closed. This reduced the number of open accounts to 215,020 covering registered securities in the principal amount of $12,559 million. There were 410,913 interest checks with a value of $409,373,018 issued during the year. Eedeemed and canceled securities other than savings bonds and retirement plan bonds received for audit included 5,517,912 bearer securities and 711,609 registered securities. Coupons totalmg 17,471,487 were received. A summary of public debt operations handled by the Bureau appears on pages 17 to 29 of this report and in tables 29-57. U,S, savings honds,—The issuance and redemption of savings bonds results in a heavy administrative burden for the Bureau of the Public Debt, involving: Maintenance of alphabetical and numerical ownership records for the 2.7 billion bonds issued since 1935; adjudication of claims for lost, stolen, and destroyed bonds (which totaled 2.0 million pieces on June 30, 1965); and the handling and recording of retired bonds. Detailed information on sales, accrued discount, and redemption of savings bonds will be found in tables 48 to 50, inclusive. There were 98.4 million stubs representing the issuance of Series E bonds received for registration, making a grand total of 2,649.6 million^ including reissues, received through June 30,1965. All registration stubs of Series E savings bonds and all retired Series E savings bonds are microfilmed, audited, aind destroyed, after re^ quired permanent record data are prepared by an EDP system in the Parkersburg office; Prior to the establishment of that office these savings bond operations were performed in several Bureau offices ADMIISnSTRATrVE 107 REPORTS manually and on tabulating equipment. The following table shows the status of processing operations in the Parkersburg office. Balance Fiscal y e a r Received Microfihned ConKeyverted p u n c h e d to m a g netic tape Audited and classified Destroyed Unfilmed N o t conN o t key- verted to punched magnetic tape Unaudited S t u b s of issued card t y p e Series E savings b o n d s [in miUions of pieces] 1968-60 1961 1962 1963 1964. 1966_ _._. _ Total 234.2 88.7 91.0 94.3 100.1 98.4 230.7 90.7 90.2 93.9 98.2 100.7 227.4 92.4 88.7 96.0 97.6 101.1 227.2 92.2 89.1 95.0 97.6 101.1 226.2 92.9 88.9 93.0 98.4 101.7 58.3 164.4 154.1 69.6 96.2 123.7 706.7 704.4 702. 2 702.2 700.1 656.3 3.6 1.6 2.3 2.7 4.6 2.3 6.8 3.1 6.4 4.7 7.2 4.5 7.0 3.6 5.4 4.7 7.2 4.6 9.0 4.8 6.9 8.2 9.9 6.6 4.6 1.9 3.2 3.8 5.0 3.6 5.4 2.3 4.4 6.8 6.8 6.2 0.1 1.1 1.4 .9 0,1 2.0 2.1 1.3 R e t i r e d card t y p e Series E savings b o n d s [in mUUons of pieces] 1958-60. 1961 1962.. 1963. 1964. 1966. Total 117.9 69.7 62.4 64.9 70.1 75.3 116.6 60.6 61.3 64.3 70.0 75.9 114.4 61.6 61.1 64.1 68.9 77.1 113.3 62.4 61.1 64.3 68.9 76.8 112.6 62.8 60.3 63.5 69.1 76.9 20.6 93.0 96.0 48.3 83.4 69.8 460.3 448.6 447.1 446.8 445.1 400.1 1.4 .5 1.6 2.2 2.3 1.7 3.6 1.7 3.0 3.8 5.0 3.2 R e t i r e d p a p e r t y p e Series E savings b o n d s [in milUons of pieces] 1962 1963 1964 1965 Total 0.8 21.8 22.4 20.4 0.8 21.2 22.4 20.6 0.7 20.8 22.1 21.0 0.7 20.8 22.1 20.9 0.7 19.9 22.3 21.2 5.1 23.4 11.0 65.4 64.9 64.6 64.6 64.1 39.6 0.1 1.1 1.4 .8 0.6 .6 .6 Of the 91.3 million Series A - E savings bonds redeemed and received by the Bureau during the year, 89.0 million (97.4 percent) were redeemed by approximately 16,200 authorized paying agents. These agents were reimbursed quarterly at the rate of 15 cents each for the first 1,000 bonds paid and 10 cents each for all over the first 1,000, for a total of $11,522,472 and an average of 12.95 cents per bond. The following table shows the number of savings bonds outstanding as of June 30,1965, by series and denomination. D e n o m i n a t i o n (in t h o u s a n d s of pieces) Series i Total $10 E H A.._ B C. D F G J. K Total - --- $60 $25 $75 $100 $200 $500 $1,000 $5,000 $10,000 $100,000 467,158 6,884 2 3 9 46 49 120 332 366 716 247,381 106,480 1,030 78,730 8,061 12,013 12,709 2,634 3,832 " 3 2 4 ' 474,969 372 i 1 3 17 21 60 (*) 1 2 9 i 1 3 13 15 59 115 (*) (*) 1 3 4 23 34 95 (*) (*) 1 4 8 36 89 204 716 247,484 106,492 1,030' 78,937 8,051 14,807 16,883 * Less than 600 pieces. J Currently only bonds of Series E and H are on sale. 2 46 95 1 2 13 32 (*) 34 195 (*) 1 3 108 19 65 REPORT OF THE SECRETARY OF THE TREASURY The following table shows the number of issuing and paying agents for Series A - E savings bonds by classes. Bmldmg and savings and loan associations June 30 Credit unions Companies operating payroll plans Al] Total others Issuing agents 24, 038 25, 060 2,476 1,093 1.061 .1, 046 1,011 977 943 1946-. 1950-. 1955I960-. 1961-. 1962-. 1963-. 1964-. 1966- 15, 232 16, 225 • 16, 692 16, 436 13, 506 13, 559 13, 644 13, 908 14, 095 3,477 1.557 1, 555 1, 851 1,617 1,670 1, ()79 1,702 1,702 2,081 522 428 320 285 281 269 252 246 2 9, 606 3,052 2,942 2,352 2,045 1,978 1,857 1.783 1,695 (2) 660 588 643 590 573 560 ,528 510 54, 433 45,966 23,681 22, 695 319,103 19,107 19, 020 19,160 19,191 • Paying agents 1945-. 1950-. 1956-. I960.. 1961.. 1962-. 19631964-. 1965-. 13,466 16, 623 16. 269 17,127 13, 670 13. 687 13, 826 14. 039 14,190 874 1,188 1,797 1, 605 1,690 1,739 1,779 1,816 137 139 169 158 160 155 158 157 13, 466 16, 691 17, 652 19,153 315, 449 16, 553 16,735 15,991 16,178 1 Estimated by the Post Office Department for 1955 and thereafter. Sale of Series E savings bonds was discontinued at post offices at the close ofbusiness on Dec. 31,1953, except in those localities where no other public facilities for their sale were avaUable. . 2 "All others" included with companies operating payroll plans. 3 Substantial reduction due to reclassification by Federal Reserve banks effective Dec. 31,1960, to include only the actual number of entities currently quahfied. Interest checks issued on current income type savings bonds (Series H and K) during the year totaled 5,217,914 with a value of $323,033,173. New accounts established for Series H bonds, the only current income type savings bond presently on sale, totaled 142,214, while accounts closed for Series H bonds totaled 131,553, an increase of 10,661 accounts. Applications received during the year for the issue of duplicates of savings bonds lost, stolen, or destroyed after receipt,by the registered owner or his agent totaled 34,439. I n 22,720 of these cases the issuance of duplicate bonds was authorized. I n addition,. 12,735 applications for relief were received in cases where the originah bonds were reported as not being received after having been mailed to the registered owner or his agent. OFFICE OF THE TREASURER OF THE UNITED STATES The Treasurer of the United States is responsible for the receipt, custody, and disbursement, upon proper order, of the public moneys and for maintaining records of the source, location, and disposition of these funds. Federal Eeserve banks as fiscal agents of the United States perform many functions for the Treasurer. These include: The verification and destruction of U.S..paper currency; the redemption of public debt securities; the keeping of cash accounts in the name ADMINISTRATIVE REPORTS 109 of the Treasurer; the acceptance of deposits made by Government officers for credit; and the custody of bonds held to secure public deposits in commercial banks. Commercial banks qualifying as depositaries provide banking facilities for the Government in the United States and in foreign countries. Data on the transactions handled for the Treasurer by Federal Eeserve. banks and commercial banks are reported daily to the Treasurer and are entered in the Treasurer's general accounts. The Treasurer maintains current summary accounts of all receipts and expenditures; pays the principal and interest on the public debt; provides checking account facilities for Government disbursing officers, corporations, and agencies; pays checks drawn on the Treasurer of the United States and reconciles the checking accounts of the disbursing officers; procures, stores, issues, and redeems U.S. currency; audits redeemed Federal Eeserve currency; examines and determines the value of mutilated currency; and acts as special agent for the payment of principal and interest on certain securities of U.S. Government corporations and on certain securities issued by Puerto Eico on or before January 1,1940. The Office of the Treasurer maintains facilities at the Treasury t o : Accept deposits of public moneys by Government officers; cash U.S. savings bonds and checks drawn on the Treasurer; receive excess and unfit currency and coins; and conduct transactions in both marketable. and nonmarketable public debt securities. The Office also prepares the Daily Statement of the United States Treasury and the monthly Circulation Statement of United States Money, Under the authority delegated by the Comptroller General of the United States, the Treasurer processes claims arising from forged endorsements and other irregularities involving checks paid by the Treasurer and passes upon claims for substitute checks to replace lost or destroyed unpaid checks. The Treasurer of the United States is Treasurer of the Board of Trustees of the Postal Savings System. She is also custodian of bonds held to secure public deposits in commercial banks, bonds held to secure postal savings on deposit in banks, and miscellaneous securities held for other agencies. Management improvement This year's management improvements were concentrated in the areas of better utilization of personnel and other resources, motivating employees to increase their proficiency and usefulness to the bureau, and more effective organizational structure. Nine incentive awards were given to keypunch operators in recognition of their noteworthy proficiency. I n other data processing operations, certain reports, records, and procedural steps were eliminated, thus freeing personnel and machines for additional services to other Treasury offices. Eeorganiz ations included a change in the check claims activity de^ signed to eliminate bottlenecks in the review process by expanding top level review capabilities, facilitating and unifying claims examiner training, and providing greater staffing flexibility. 110 19 65 REPORT OF THE SECRETARY OF THE TREASURY Assets and liabilities in the Treasurer's account A summary of the assets and liabilities in the Treasurer's account at the close of the fiscal years 1964 and 1965 is shown in table 58. The assets of the Treasurer consist of gold and silver bullion, coin and paper currency, deposits in Federal Eeserve banks, and deposits in commercial banks designated as Government depositaries. Gold,—The Treasurer's gold assets declined during fiscal 1965 for the eighth consecutive year. The net reduction of $1,527.2 million, daily Treasury statement basis, shown in table 58, includes a payment of $258.8 million on June 30,1965, for 25 percent of the increase in the quota of the United States in the International Monetary F u n d and other disbursements of $1,755.1 million, offset by receipts of $486.6 million. Silver,—The Treasurer's Office continued the policy of reducing the amount of silver certificates outstanding so that silver bullion securing such certificates could be released to the Bureau of the Mint for coinage. Commercial demands for silver were met by exchanging bullion for silver certificates at the New York and San Francisco assay offices under instructions issued by the Secretary on July 22, 1963 (28 F . E . 7530). \ The results achieved for the fiscal year are shown below on the basis of the daily Treasury statement. Silver buUion Value at $1.29-f per oz. (In miUions) Available for release at beginning of fiscal year 1966 1 Increase from reduction in sUver certificates outstanding 1 $27.2 933.8 . Total available for aU purposes during the year Disposition: Exchanged for sil ver. certificates Released for coinage, etc., at request of Bureau of the Mint 961.0 $213.5 366.9 . -679.4 Balance available at end of fiscal year 1966 ^ 381.6 1 See table 68. The following table also on the basis of the Daily Statement of the United States Treasury summarizes transactions in silver bullion of all types during fiscal 1965. SUver bulUon Held to secure sUver certificates Fiscal year 1965 Monetary value ' On hand July 1,1964 Received(-f), or disbursed(—), net Exchanged for silver certificates _. Released for comage Used in coinage On hand June 30,1965 • »Revised. Held for comage, etc. Monetary value Cost value Recoinage value (In mUlions) $1,846.8 -213.6 -366.9 1,267.4 $1.4 -3.1 $10.2 -1.4 +365.9 -364.3 9.9 '$0.1 -)-.6 —.6 8.8 ADMINISTRATIVE 111 REPORTS Balances with depositaries,—The following table shows the number of each class of depositaries and balances on June 30,1965. Number of accounts with depositaries i Class Federal Reserve banks and branches Other domestic depositaries reporting directly to the Treasurer Depositaries reporting through Federal Reserve banks: General depositaries, etc.-. . Special depositaries, Treasury tax and loan accounts Foreign depositaries 3 Total Deposits to the credit of the Treasurer of the United States June 30,1965 2 $906,499,624 38,604,737 36 47 1,946 12,186 62 224,960,022 10,688,996,287 66,118,925 14,277 11,914,179,596 ilncludes only depositaries having balances with the Treasurer of the United States on June 30, 1965. Excludes depositaries duly designated for this purpose but having no balances on that date and those designated to furnish oflacial checking account facilities or other services to Govemment oflacers, but which are not authorized to maintain accounts with the Treasurer. Banking institutions designated as general depositaries are also frequently designated as special depositaries, hence the total number of accounts exceeds the number of institutions involved. 2 Includes checks for $233,455,909 in process of coUection. 8 PrmcipaUy branches of U.S. banks and of the American Express Co., Inc. Bureau operations Receiving and disbursing public moneys,—Govemment officers deposit moneys collected to the credit of the Treasurer of the United States, either with the Treasurer at Washington, with Federal Eeserve banks, or at designated Govemment depositaries, domestic or foreign. All payments are withdrawn from the Treasurer's account. Moneys deposited and withdrawn in the fiscal years 1964 and 1965, exclusive of certain intragovernmental transactions, are shown in the following table on the daily Treasury statement basis. Deposits, withdrawals, and balances in the Treasurer's account 1964 $12,116,176,163 Balance a t beginning of fiscal yp.ar Cash deposits: Internal revenue, customs, trust fund, and other coUections 121,581,066,544 Public debt receipts i _. .____. 230,012,138,001 Less: Accrued discount on savings bonds and Treasury bUls -3,372,296,050 Purchases by Government agencies -51,118,494,823 Sales ofsecurities of Govemment agencies ia market 8,917,936,633 Total deposits Cash withdrawals: Budget and trnst accounts, etc Public debt redemptions ^ Less: Redemptions included in budget and trust accounts Redemptions by Government agencies -. _ Redemptions of securities of Government agencies in market Total withdrawals Change in clearing accounts (checks outstanding, deposits in transit, unclassified transactions, etc.), net deposits, or withdrawals (—) Balance at close of fiscal year . 1965 $11,036,731,209 125,464,340,732 239,286,169,978 -3,717,131,345 —49,395,891,396 10,676,163,749 306,020,350,306 322,313, 651,718 124,066,882,136 224,158,871,740 126,395,262,802 233,726,170,252 -2,273,223,086 -48,373,356,385 8,031,959,150 -3,467,431,831 -46,973,403,368 10,475,644,025 305, 610,134, 655 320,165,141,880 -1,490, 660,704 -583,976,412 . 11,036,731,209 12,610,264,635 1 For details see table 41. Issuing and redeeming paper currency.—By law the Treasurer is the agent for the issue and redemption of U.S. paper currency. The Treasurer's Office procures all U.S. paper currency from the Bureau of Engraving and Printing and places it in circulation as needed, 112 19 65 REPORT OF THE SECRETARY OF THE TREASURY chiefly through the facilities of the Federal Eeserve banks and their branches. The Federal Eeserve banks and branches, as agents of the Treasury, redeem and destroy the major portion of the U.S. currency as it becomes unfit for circulation. A small amount is handled directly by the Treasurer's Office. Federal Eeserve banks issue Federal Eeserve notes; they also redeem these notes, cut them in half, and forward the halves separately to Washington where the Currency Eedemption Division of the Treasurer's Office verifies the lower halves and the Office of the Comptroller of the Currency verifies the upper halves. Both halves are then destroyed under the direction of a special committee. The Currency Eedemption Division also redeems unfit paper currency all types received from local sources in Washington and from Government officers abroad; and examines and identifies for lawful redemption all burned and mutilated currency received from any source. During fiscal 1965 the Division examined such currency for 46,692 claimants and made payments totaling $12,899,447. A (Comparison of the paper currency of all classes, including Federal Eeserve notes, issued, redeemed, and outstanding during the fiscal years 1964 and 1965 follows. Fiscal year 1964 Pieces Outstanding July 1 Issues during year.. Redemptions during year Outstanding June 30 __. . 3,920,084, 726 1,866,174,623 1,669,350,864 4,116,908,485 Amount $37,484,776,160 10,239,966,528 8,165, 614,017 39, 559,128,671 Fiscal year 1965 1 Pieces Amount 4,116,908,485 1,985,469,083 1,560,382,209 4,541,995,359 $39, 559,128,671 9,826,962, 793 10,721,313,796 38,664, 777,668 Table 65 shows by class and denomination the value of. paper currency issued and redeemed during the fiscal year 1965 and the amounts outstanding at the end of the year. TalDles 60 through 64 give further details on the stock and circulation of money in the United States. • • ^ Paying grants through letters of credit,—Treasury Department Circular No. 1075 dated May 28,1964, established a procedure "to preclude withdrawals from the Treasury any sooner than necessary" in cases where Federal programs are financed by grants or other payments to State or local governments or to educational or other institutions. Under this procedure Government departments and agencies issue letters of credit which permit grantees to make withdrawals from the account of the Treasurer of the United States as they need funds to accomplish the object for which a grant has been awarded. By the close of fiscal 1965, more than 1,500 letters of credit had been issued by the nine Government departments and agencies which had put this procedure into effect for one or more of their programs. A total of 5,065 withdrawal transactions, under letters of credit, involving $1,549.2 million, had been processed by June 30,1965. Checking accounts of disbursing officers and agencies.—As of June 30,1965, the Treasurer maintained 2,145 checking accounts, compared with 2,174 the year before. The number of checks paid by categories of disbursing officers during fiscal 1964 and 1965 follows. ADMINISTRATIVE 113 REPORTS Number of checks paid Disbursing oflicers 1965 1964 Treasury. Army Navy.Air Force Other __ . Total ... . ... - 355,813,618 , 27,813,399 33,034,809 33,340,716 24,244,516 362,071, 237 28,418,544 33,303,977 34,557,707 24,269,758 474, 247,058 482,611, 223 . Settling check claims.—The Treasurer processed 393,000 requests to stop payment on Government checks, and 21,000 requests for information and for photostatic copies of paid checks during the fiscal year. Sixty-six thousand requests for removal of stop payments were processed. The Treasurer acted upon 229,000 paid check claims including those involving the forgery, alteration, counterfeiting, or fraudulent issuance and negotiation of Government checks which were referred to the U.S. Secret Service for investigation. Eeclamation was requested from those having liability to the United States on 33,459 claims, and $3,672,329 was recovered. Settlements and adjustments were made on 26,480 forgery cases totaling $3,736,798. Payments from the check forgery insurance fund, established to enable the Treasurer to expedite settlement of check claims, totaled $675,628. As recoveries are made, these moneys are restored to the fund. Settlements totaling $4,535,198 have been made from the check forgery insurance fund since its establishment in 1941. Claims by payees and others involving 114,000 outstanding checks were acted upon. Of these, 98,000 were certified for issuance of substitute checks valued at $30,370,000 to replace checks not re(ieived, i.e., lost, stolen, or destroyed. Collecting checks deposited.—Government officers during the year deposited more than 7,202,000 commercial checks, drafts, money orders, etc., with the Cash Division in Washington for collection. Custody of securities.—The face value of securities held in the custody of the Treasurer as of June 30,1964, and June 30,1965, is shown below. June 30 Purpose for which held1964 As coUateral: To secure deposits of public moneys in depositary banks To secure postal savings funds In lieu of sureties In custody for Government oflacers and others: Fpr the Secretary of the Treasury 1 __ ... For Board of Trustees, Postal Savings System For the Comptroller of the Currency For the Federal Deposit Insurance Corporation Forthe Rnral Electrification Administration For the District of Columbia For the Commissioner of Indian Affairs Foreign securities 2 ... . Others For Govemment security transactions: Unissued bearer securities Total __ 1965 $118,313,100 16,927,000 6,591,000 $75,223,100 18,917,000 4,067,500 . . 35,609,163,447 432,079,000 14, 790,000 .._ 1,142,077,900 125,639, 626 130,646, 529 35,800,800 12,056,059,132 79, 604,970 34,908,409,499 355,679,000 16,388,600 1,169,148,000 124,368,030 140,849,297 35,016,076 12,051,630,530 69,896,Oil ... 1,630,409,960 1,758,882,800 61,398,102,454 50, 728,364,342 1 Includes those securities listed in table 108 as in custody of the Treasury.. 2 Issued by foreign governments to the United States for indebtedness arising from World War I. ^Includes U.S. savings bonds in safekeeping for individuals. 782-556—6 114 19 65 REPORT OF THE SECRETARY OF THE TREASURY Servicing securities for Federal agencies and for certain other governments,—In accordance with agreements between the Secretary of the Treasury and various Government corporations and agencies and Puerto Eico, the Treasurer of the United States acts as special agent for the payment of principal of and interest on their securities. The amounts of these payments during the fiscal year 1965, on the daily Treasury statement basis, follow. Payment made for Prkicipal $1,250,860,000 Banks for cooperatives . . District of Columbia Armory Board Federal home loan banks . 3,801,345 000 Federal Housing Administration 782,312,950 2,977,095,000 Federal intermediate credit banks 666,624,600 Federal land banks ... 346,898,000 Federal National Mortgage A-ssociation. Puerto Rico__ 210,500 Others 1 23,476 Total .-- 9,726,369,625 Interest paid with principal Registered interest i $24,661 751 111,956 982 11,423 748 88,864 417 15 705 $34,832 762 $829,227 40,677,904 9,325 868 119,926,642 67,253,315 67,548 2,924 44,158,630 228,746,460 8 236,912,612 Coupon interest , 1 On the basis of checks issued. Office of Foreign Assets Control The Office of Foreign Assets Control is responsible for administering the Treasury Department's freezing controls under section 5(b) of the Trading with the Enemy Act. The controls under the Foreign Assets Control Eegulations with respect to trade and financial transactions with, and assets in the United States of Communist China, North Korea, North Vietnam and their nationals were continued during the 1965 fiscal year. The prohibitions under the regulations relating to the purchase and importation of Communist Chinese, North Korean, and North Vietnamese merchandise and the procedures for specified commodities of types principally imported from mainland China prior to the regulations also remained relatively unchanged. The enforcement! measures taken by the Control during fiscal 1965 included, in addition to $151,907 in fines and forfeitures collected, one successful criminal prosecution and one indictment. The Cuban Assets Control Eegulations were also continued. These regulations were issued under section 5(b) of the Trading with the Enemy Act and also under section 620(a) of the Foreign Assistance Act of 1961. They apply to Cuba and nationals thereof and are of the same nature as the controls applied to China, North Korea, and North Vietnam under the Foreign Assets Control Eegulations. That is, they block all Cuban assets in the United States and prohibit all unlicensed financial and commercial transactions by Americans with Cuba or nationals thereof. The Office of Foreign Assets Control also administers the Transaction Control Eegulations which supplement the export controls exercised by the Department of Commerce.over direct exports from the United States to the Soviet bloc. The Transaction Control Eegulations prohibit, unless licensed, any person within the United States from purchasing or selling or arranging the purchase or sale of internationally controlled strategic commodities located outside the United ADMINISTRATIVE REPORTS 115 States for ultimate delivery to the Soviet bloc. As in the case of both the Foreign Assets and Cuban Assets Control Eegulations, the prohibitions apply not only to domestic American companies but also to foreign firms owned or controlled by persons within the United States. I n t e r n a l Revenue Service ^ The Internal Eevenue Service administers the internal revenue laws embodied iu the Intemal Eevenue Code (Title 26 U.S.C.) and certain other statutes, including the Federal Alcohol Administration Act (27 U.S.C. 201-212), the Liquor Enforcement Act of 1936 (18 U.S.C. 1261, 1262, 3615), and the Federal Firearms Act (15 U.S.C. 901-909). I t is the mission of the Service to encourage and achieve the highest possible degree of voluntary compliance with the tax laws and regulations and to maintain the highest degree of public confidence in the integrity and efficiency of the Service. Major management improvements The Service compiled its most impressive record in improving operations and reducing costs during the fiscal year 1965. Eecurring, onetime, and incentive awards savings from cost reduction and management improvements totaled $17.1 million, an increase of .47 percent over the previous high of $11.6 million in fiscal 1963. Twentyfive individual management improvement and cost reduction actions, each of which produced, or will produce annual savings in excess oi $100,000, made a substantial contribution to the total savings. Only 11 comparable actions were completed in 1964. Major systems and procedural changes.—The following are examples of the changes made during fiscal 1965 to effect optimum utilization of resources: (1) A new system which transfers data directly from magnetic tape to microfilm has been adopted for production of final printed computer outputs such as indexes and settlement registers for use in district offices and service centers. The small volume of microfilm contrasts sharply with the great volume of paper outputs previously necessary. Savings in manpower (four manyears), space, paper, and computer printout time are estimated at $298,700 annually begimiing in 1966. (2) A computerized tape library system was devised which enabled the Service to defer additional tape purchases estimated at $303,000. (3) Simplified key punching procedures resulted in first year savings of 136 man-years and $542,800 during fiscal 1965. (4) Purchasing rather than leasing computers and certain other A D P equipment was found to be to the Government's advantage. Nonrecurring savings to be realized through this change are estimated at $1 million over the next three years. (5) Issuance by service centers of followup notices on individual income tax accounts completes the mechanization of all major collection notices to the taxpayer. This changeover will result in savings of 128 man-years and $587,000 in fiscal 1966 and ensuing years. (6) Section 6405 of the Internal Eevenue Code of 1954 requires reports to the Joint Committee on Internal Eevenue taxation of all refunds and credits of income, 1 Additional information will be found in the separate Annual Report of the Commissioner of Internal Revenue. 116 19 65 REPORT OF THE SECRETARY OF THE TREASURY war profits, excess profits, and estate and gift tax in excess of $100,000. Simplification of the processing of these cases will produce substantial benefits including savings on interest payments estimated at $2.0 inillion annually. (7) Authority has been obtained from the Joint Committee on Pi^inting to decentralize reprints of tax forms for all regions. This authority provides a means for obtaining emergency supplies of tax forms from commercial or G P O plants; other refinements in estimation of requirements were made, resulting in estimated annual savings of $350,000. Management of manpower resources.—A few examples of the many actions taken by the Service during the year to improve manpower utilization are described below: A survey to evaluate the utilization of manpower assigned to alcohol and tobacco tax enforcement was completed. I t involved a comprehensive appraisal and assessment of the enforcement organization and operations in each region to determine what steps could be taken at regional, branch, and post-of-duty levels to achieve more effective and efficient utilization of investigative manpower. Implementation of survey recommendations resulted in a net reduction of 35 man-years in enforcement manpower valued at $260,000. Extensive revision, including the development of improved training materials, of the classroom portion of revenue officer training was completed. The new shortened course will enable trainees to work independently sooner than was previously possible. Total annual estimated savings of 28 man-years and $223,000 are anticipated. Staffing of 206 selected local offices with 271 full-time personnel to assist taxpayers was undertaken to provide year-round assistance, thereby releasing higher paid revenue agents and officers for enforcement work. Estimated annual savings of $250,000 are based on the improved utilization of manpower. Several major organizational changes were made to improve operations and increase efficiency. Among other benefits, most improvements resulted in supervisory and other overhead positions being diverted to direct enforcement work, thereby reducing requirements for additional manpower to meet increasing workloads. Following are some of the most significant changes. Consolidation of New Tork and Northeast regions.—Effective January 4,1965, by authority of Treasury Department Order No. 150-65,^ the New York and Northeast regions were consolidated into a single region, the North-Atlantic Eegion, with headquarters in New York City. The purpose of this consolidation was to bring about a better balance between the various Intemal Eevenue Service regions and to reduce overhead supervisory expenses. Consolidation oj Office Collection Force {OOF) organizations.— Consolidating O C F organizations in large metropolitan areas permitted centralization of nontechnical functions and released supervisory revenue officers for direct enforcement work. Savings of 19.6 man-years and $136,000 were realized during the year. Technical Division reorganized.—The structure of the technical organization in the National Office was realigned by type of tax rather 1 See exhibit 70. ADMINISTRATIVE REPORTS 117 than by function. The new organization, fully implemented in July 1965, is designed to more effectively utilize manpower and improve service to taxpayers. Chief CoujnseVs office.—The office of the Chief Counsel was reorganized by the addition of the position of Deputy Chief Counsel and the establishment of a new division, to provide for a more efficient performance of administrative and nontax legal functions. Personnel A major step in the personnel program of the Service in fiscal 1965 was participation in the development of an improved position management and control system, to coordinate manpower cost reduction efforts of line managers at every level with those of support staff organizations. Other' highlights of the 1965 program included the first substantive collective bargaining agreement negotiated between the Service and an employee organization; attitude surveys decentralized to the regions and conducted in nine different districts; outstanding gains in the suggestions and awards program, sigTialing increased recognition of employee contributions to good management; and further progress in the recruitment and redeployment problems associated with the continuing conversion from manual processing and revenue accounting methods to A D P . Executive selection and developrnjcnt.—The executive selection and development program, established in 1955, has progressed to where it now represents the route to the Service's top level executive positions and is the means through which the Service seeks to assure itself a staff of first-rate career executives. Among the program's 120 graduates, for example, are 34 assistant district directors, 33 district directors, 7 assistant service center directors, 3 service center directors, 20 assistant regional commissioners, and 11 National Office executives. Incentive atoards program.—Outstanding progress was made in fulfilling President Johnson's expressed desire for a stronger incentive awards program throughout the Federal Government. Fiscal year 1965 set an all-time Service high for suggestion program results with an increase of more than 50 percent in suggestions received, adopted, and in estimated savings. A t the same time, there were noteworthy increases in the number of honor and performance awards presented for services of an exceptional nature. The highlight of the year's program was the Civil Service Commission's Tenth Anniversary Awards Ceremony on December 4, 1964, at which President Johnson honored 30 top cost-cutters in the Federal Service, of whom 5 were Service employees who comprised a task force which initiated savings of over $900,000 annually. Equal employment program.—The Service continued to place special emphasis upon the nondiscrimination program—the employment of minority group members, women, the physically handicapped, and the mentally retarded. Minority group members were employed in fiscal 1965 in areas and job categories which heretofore had not been open to them. The appointment of two minority group members to the 1965 Executive Selection and Development Program was an indication of the progress of this program within the Service. 118 19 65 REPORT OF THE SECRETARY OF THE TREASURY The Service continued to employ many handicapped persons ranging from those of limited mental ability through highly skilled professional employees with physical handicaps. Training I t has been demonstrated that training programs to develop better management result in improved service to the public and the maintenance of the highest standards of personal integTity, therefore the supervisory and management development program was strengthened. The number of supervisors and managers selected for training was increased, and laboratory-type sessions, I E S case study material, and other improved techniques were added to the general supervisory and managerial training courses. Management training was broadened by: early identification and training of potential first-line supervisors and managers; strengthening training of supervisors of processing operations; and separate programs focusing on problems of supervision in individual functions. Changes in tax laws, techniques for their administration, and the continuing effort of the Service to assure that its employees develop the highest possible skills in administering and interpreting the laws and in dealing with taxpayers requires that operational training programs be reexamined, modified, and broadened. Accordingly, several significant actions were taken in operational areas during the year, including, for example, the orientation courses in A D P for alcohol and tobacco tax, audit, and intelligence personnel. Interpretation and communication of tax law to taxpayers To promote voluntary compliance, the foundation of our unique self-assessment system, the Service strives to keep the public wellinformed and to accommodate administrative practices and procedures for the convenience of taxpayers. Programs directed toward the accoinplishment of these objectives include: Publication of numerous tax guides covering a wide variety of separate tax situations; dissemination of information through news media by a broad public information program; providing direct personal taxpayer assistance in local offices; and the preparation and distribution of educational materials, tax forms and instructions, regulations, and rulings. Public information program.—Major changes in the tax law and in administrative procedures led to an increase in the volume and variety of information supplied to mass communications media during 1965. The provisions of the 1964 tax reduction law were emphasized in all materials distributed to the mass media during the income tax filing season. These included news releases, magazine features, television and movie films, radio scripts and spot announcements. I n addition, exhibits, displays, and related items were prepared to augment filing season communication. The extension of the automatic data processing system required the dissemination of special information to familiarize taxpayers with the system. As an illustration, an optional filing procedure for individual income, taxpayers filing refund returns was initiated in the Southeast Eegion. Taxpayers were informed through newspaper, television, and radio publicity that they could speed up their refunds and ADMINISTRATIVE REPORTS 119 facilitate returns processing by sending their returns direct to the service center at Chamblee, Ga., instead of to their district office. The response was very substantial. Taxpayer assistance program,—The taxpayer assistance program initiated in fiscal 1964 on a year-round basis, provides the type and degree of information assistance taxpayers need to fulfill their tax obligations at a minimum of inconvenience to them through a method most efficient and economical to the Government. Nationwide, more than 25 million taxpayers received assistance during the year, about 2 million more than in fiscal 1964. Approximately 16.2 million taxpayers were assisted through telephone contacts, which is stressed as an effective as well as inexpensive method of providing assistance for both the taxpayer and the Government. For the nine million taxpayers visiting Service offices, continued emphasis was placed on the self-help method. Tax-return forms,—The enactment of the Eevenue Act of 1964 required the revision of the tax rate tables of all income tax returns, both individual and corporation. The Excise Tax Eeduction Act of 1965 will necessitate the elimination of one and revision of several other excise tax forms. Altogether, over 250 forms, instructions, and related documents were revised or reviewed during fiscal 1965. Tax rulings,—The National Office, issues rulings to answer inquiries of individuals and organizations as to their status for tax purposes and the tax effect of their acts or transactions. Eulings are written statements issued to taxpayers which interpret or apply the tax laws to a specific set of facts. During the year, 34,345 requests (31,255 froih taxpayers and 3,090 from field offices) for technical advice were proc^ essed. At the close of the year, 5,922 requests for rulings and technical advice were on hand, excluding a relatively small number relating to. alcohol and tobacco taxes. In addition, 6,892 formal and informal technical conferences were held with taxpayers and their representatives. Regulations program,—During the fiscal year 1965, 85 final regUr lations, 61 notices of proposed rulemaking, and 13 Executive orders were published in the Federal Register, Three notices and eight final regulations were in connection with alcohol and tobacco tax administration. Fifteen of the final regulations and nine notices of proposed rulemaking related to the Eevenue Act of 1964. Fourteen final regulations and six notices related to the Eevenue Act of 1962. Several final regulations resulted from other revenue acts while others were written pursuant to administrative decisions. Internal revenue collections and refunds Gross collections,—Internal revenue collections totaled $114.4 billion in fiscal 1965, an increase of $2.2 billion over 1964 collections. The decrease of nearly $1 billion from 1964 in individual income tax collections was due to the lower tax rates in effect during fiscal 1965 under the Eevenue Act of 1964. This decrease was more than offset by collections of corporation income taxes which increased $1.8 billion. Some of this increase is accounted for by the higher proportion of 120 19 65 REPORT OF THE SECRETARY OF THE TREASURY corporation income tax prepaid through estimated payments pursuant to the Eevenue Act of 1964. Employment tax collections exceeded the 1964 total by $42.8 million, reflecting the higher employment level throughout 1965. Excise tax collections increased 6.1 percent over 1964. The Excise Tax Eeduction Act of 1965 ^ enacted in June 1965 did not affect excise tax collections durmg fiscal year 1965. A comparison of gross collections in the fiscal years 1964 and 1965 by principal types of tax is shown below. Collections from 1936-65 by detailed categories are given in table 21. Source In thousands of dollars 1964 Income taxes: Corporation ._ Individual: Withheld by employers Other ^L 24,300,863 26,131,334 39,258,881 15,331,473 36, 840,394 16,820, 288 Total individual iricome taxes. 64,590,354 53, 660,683 Total income taxes 78,891,218 79, 792, 016 16, 557, 783 850,858 593,864 15,846,073 622,499 635, 734 17, 002, 504 17,104,306 Employment taxes: Old-age and disability insurance.. Unemployment insurance Railroad retirement Total employment taxes Estate and gift taxes 2,416, 303 2, 746, 532 Excise taxes: Alcohol Tobacco Other excise Total excise taxes... 3, 577,499 2, 052, 545 8,320,188 3,772,638 2,148, 594 8,871, 547 13, 960, 232 14, 792, 779 Total collections __ 112, 260,257 114, 434,634 Refunds.—-Reinnds of internal revenue, comprising both principal and interest, totaled $6.1 billion in fiscal 1965, compared with the $7.2 billion refunded in 1964. This was due primarily to the fact that the Eevenue Act of 1964 provided for a greater rate of reduction in taxes withheld than the tax rate for the calendar year 1964. Consequently, for many individual taxpayers withholding was insufficient to meet their tax liability. The second-stage decrease in tax rates,-effective for taxable years beginning after December 31, 1964, brings, the tax and withholding more in line. Receipt and processing of returns Numiber of returns fled.—A total of 102.5 million tax returns were filed in fiscal 1965, an increase of 2.4 million over 1964. Individual income tax returns rose 1.7 million to 65.9 million in 1965. Corporation income tax returns increased 53,000 to 1,420,000. Approximately 340 million information documents, including employers' copies of Forms W - 2 and copies attached to employees' returns, were filed. 1 See exhibits 30, 31, and 32. ADMINISTRATIVE REPORTS 121 Automatic data processing.—At the beginning of fiscal 1965, four service centers serving the Mid-Atlantic, Central, Southeast, and Southwest regions were processing business returns under the A D P master file concept. On January 1, 1965, as scheduled, the service centers, at Lawrence, Mass., serving the North-Atlantic Eegion, at Kansas City, Mo., serving the Midwest Eegion, and at Ogden, Utah, serving the Western Eegion began processing business returns completing installation of the system for business returns. At the end of fiscal 1965 the Business Master File, with the addition of accounts for these three regions, contained over 5.0 million taxpayer accounts. I n the first half of fiscal 1965, when only four regions were on the Business Master File, nearly 4.2 million returns and declarations of estimated tax were posted to the file. Over 8.4 million returns were posted during the second half of the year making a total of 12.6 million. During fiscal 1965, the Southeast Service Center, Chamblee, Ga., was in its fourth year of processing business returns and in its third year of processing individual returns. The Mid-Atlantic Service Center was in its third year of processing business returns, and began processing individual returns on January 1,1965. With the addition of the Mid-Atlantic Eegion, the Individual Master File now contains approximately 18 million accounts. I n fiscal 1965, about 19 million returns and estimated tax declarations were posted to these accounts. These totals for the Southeast and Mid-Atlantic Eegions represent approximately 26.4 percent of individual income tax returns and declarations filed nationwide. The other five regional service centers will begin processing individual returns in 1966 and 1967. Thereafter, data from the Federal tax returns of all of the nation's taxpayers, business and individual alike, will be recorded on the master file. Actually, all taxpayers will be under A D P beginning on January 1, 1966, since all taxpayer trarisactions after December 31, 1965, will be shown on returns filed in 1967 and subsequent processing years. From the beginning of A D P , it was apparent that the most ef&cient and economical regional operation would be dependent upon returns being filed directly with the service centers. After three years' experience in processing business returns, and two in processing individual returns, the Southeast Service Center began to test the direct filing plan on January 1, 1965. Taxpayers in that region were given the option of filing their individual income tax returns directly with the center if they were to receive a refund. About 4.3 million taxpayers in the seven State area exercised this option. This test proved that preliminary processing operations can be performed more economically at the service centers. The option will be continued in the Southeast Eegion and extended to taxpayers in the Mid-Atlantic Eegion during the 1966 filing period. The I E S Data Center, operating independently of the basic A D P system, will be located in Detroit, Mich. Beginning January 1, 1966, the Data Center will assume all data processing activities of the service centers not directly related to the A D P master file. 122 19 65 REPORT OF THE SECRETARY OF THE TREASURY Enforcement activities To preserve and strengthen the voluntary compliance system, the Service, through a comprehensive enforcement program, seeks to assure that all taxpayers pay only their just share and, where warranted, prosecutes taxpayers who ignore or seek to evade their tax responsibilities. Examination of returns,—During fiscal 1965, 3.5 million returns were examined. This decrease of 4 percent from 1964 reflects a continuation of the cutback planned in fiscal 1963 to provide a more balanced program by shifting emphasis from the examination of low income nonbusiness returns to that of higher income nonbusiness returns and small business returns. The number of returns examined during the last two fiscal years is shown in the following table. Type of return In thousands of returns 1964 Income tax: Corporation .. Individual and fiduciary. Exempt organizations.. - - 1965 163 3,236 10 164 3,092 12 __ 3,409 3,268 Estate and gift taxes _-. Excise and ehiployment taxes Grand total 31 180 3,620 35 1169 Total Income tax 1 3,472 'Includes 623 interest equalization tax returns examined. A total of $2,729 million in additional tax and penalties was recommended on returns examined in fiscal 1965. This was an increase of $179 million over the previous high of $2,550 million in fiscal 1964. Gains of $149 million and $47 million over 1964 occurred in the individual and corporation tax areas, respectively. The estate, ^ f t , excise, and employment tax areas showed a net decline of $15.9 million. The interest equalization tax, Public Law 88-563, approved September 2, 1964, imposed an excise tax on the acquisition by American citizens of certain foreign securities from a foreign person. I n the 1965 fiscal year $2.1 million in additional tax and penalties were recommended as a consequence of examining interest equalization tax returns. The Service in recent years expanded its exempt organization audit program, developed specialized training programs, and instituted studies into tax abuses in this area. Data processing techniques > are also being applied to improve compliance. One example is the establishment of a master file of exempt organizations. I n addition to the increases in taxes and penalties recommended, district audit personnel determined that some taxpayers had overstated their tax liabilities by $144.6 million exclusive of claims for refund. Mathematical verification.—During fiscal year 1965, 62.9 million individual income,tax returns were mathematically verified. There were 3.9 million taxpayer errors discovered, an increase of 49 percent ADMINISTRATIVE 123 REPORTS over fiscal 1964. This was due primarily to taxpayers' misinterpretation of the use of the minimum standard deduction incorporated into law beginning with the calendar year 1964. The. $99.9 million in net yield—the potential additional revenue accruing from the difl'erence between the taxpayer errors increasing revenue and the taxpayer errors decreasing revenue—exceeded the fiscal 1964 net yield by 7.5 percent. Delinquent returns.—The Service secured 1.2 million delinquent returns representing $281.3 million in unreported tax, interest, and penalties during fiscal 1965. About 100,000 of these returns, representing $61.1 million in unreported liabilities were secured by district audit divisions incidental to the examination of returns. The bulk, approximately 1.1 million returns representing $220.2 million, was secured through the established delinquent returns program.. Summiary of additional tax from direct enforcement,—A detailed comparison of additional tax assessments from direct enforcement during the last two fiscal years follows. Sources In thousands of dollars 1964 Additional tax, interest, and penalties resulting from examination _ Increases in individual income tax resulting from mathematical verification. National Identity File i . _ Tax, interest, and penalties on delinquent returns Total additional tax, interest, and penalties Claims disallowed 1965 2,062,008 166,501 r 2, 654 275, 480 2,161,187 194,086 3,374 2281,278 ' 2, 505, 642 2 2, 629,925 445, 556 278,795 ' Revised. 1 An interim computer procedure estabhshed in regions processing individual income tax returns to identify taxpayers fihng more than one return. When the Individual Master File is operative nationwide this procedure will no longer be necessary. 2 Includes 111 returns with additional tax and penalties of $2,030,658 (interest equahzation tax). Tax fraud investigations, indictments and convictions,—^As part of the Government's drive on organized crime, the Service continued to give top priority to the investigation of the tax affairs of major racketeers. During fiscal 1965 many racketeers were brought before the courts for tax evasion. The fact that this type of investigation requires more manpower per case than other fraud investigations, contributed to the decline in the number of full-scale investigations completed and prosecution recommendations. Full-scale investigations totaled 3,643, while prosecution was recommended in 2,382 cases. Preliminary investigations rose from 9,846 in fiscal 1964 to 10,520 in fiscal 1965. Indictments were returned against 1,919 defendants, an increase of 342 over fiscal 1964. I n cases reaching the courts, 1,251 defendants entered pleas of guilty or nolo contendere, 200 were convicted, 86 acquitted, and 195 cases were nol-prossed or dismissed. Convictions for fraud during the fiscal year 1965 totaled 1,451, well above the past ten years' average of 1,251. Alcohol and tobacco tax administration,—The illicit liquor traffic concentrated in the Southern States continues to be the major enforcement problem of alcohol and tobacco tax investigators. To cope with 124 19 65 REPORT OF THE SECRETARY OF THE TREASURY this problem with greater success, particular emphasis is being given to the perfection of cases against violators posing the greatest threat to the revenue and the development of evidence to withstand the test of trial action. The soundness of this approach was reflected in the increasingly receptive attitude of United States attorneys toward such cases, and the more severe sentences imposed by the courts. Eesults of this firmer attitude were apparent in the length of prison sentences which averaged 449 days in fiscal 1965, compared to 403 days in fiscal 1964. Even more encouraging was the result of trial actions in conspiracy and other major cases in which sentences increased from an average of 584 days in fiscal 1964 to 1,165 days (more than three years) in fiscal 1965. i Data on seizures and arrests resulting from investigative work during the last 10 fiscal years follows. Number of stills seized Fiscal year 1956.—^ 1957 1958 1959 1960 1961 1962 1963. 1964 1965 . - . . . .. L 14,499 11,820 9, 272 9, 225 8,290 6,826 6,886 6,213 6,837 7,432 Gallons of mash seized • 8,643,200 6,756,600 5,140,800 4,655, 600 4,274,400 3,669, 600 3,424, 500 3,092,600 3,123,800 3, 637,900 Number of arrests made i 11,380 11,513 11,631 10,912 10, 376 9,503 9,126 8,607 8,198 7,426 1 Includes arrests for firearms violations and tobacco tax violations, which numbered 254 and 1, respectively,, durmg 1965. A total of 30,552 on-site inspections of plants and permittees was completed in fiscal year 1965. The decrease of about 1,000 from 1964 reflected a planned reduction to offset the additional time required for more comprehensive evaluations of proprietors' operations under the audit-type approach. Firearms law enforcement,—In the fiscal year 1965 investigations of violations of the National and Federal firearms acts resulted in the perfection of 394 criminal cases, 264 arrests, and the seizure of 94 vehicles and 4,050 firearms. Comparative figures for 1964 were the perfection of 373 criminal cases, 300 arrests, and the seizure of 94 vehicles and 3,567 firearms. Collection of past-due accounts,—There were 2.4 million accounts that became past due in fiscal 1965. Although this was a decrease of 21 percent from the number of accounts established in 1964, the $1,551 million of delinquent tax involved was $88 million more, as a result of a few unusually large accounts. The decline in new accounts was largely attributable to the initiation of a new "followup notice" procedure that eliminated the need for further enforcement action on some accounts and deferred action on the remainder until early in the next fiscal year. Other factors that were responsible for the decrease of new past-due accounts compared with last year were: (1) increased activity at the service centers in Jmie 1964 which resulted in the establishment of many accounts; which would normally have been established in fiscal 1965, and (2) the salutary effects of intensified enforcement. ADMINISTRATIVE REPORTS 125 Progress continued to be made in the program emphasized in fiscal 1964 to reduce the inventory of past-due accounts. Over 2.8 million accounts were closed during fiscal 1965 resulting in an all-time low inventory of 530,000 accounts, almost 45 percent below the balance at the close of fiscal 1964. Because a few of the new past-due accounts involved unusually large amounts, total taxes due in the accounts pending at the.end of the year aggregated $1,182 million, $84 million more than last year. The Service continued to make immediate contacts with employers and excise taxpayers who failed to pay withholding and similar trust fund taxes when due. For the first time since the program began there was a decline in this activity in fiscal 1965, indicating improved taxpayer compliance. The total of 148,000 notices on trust fund and dishonored check accounts was 57,000 fewer than in 1964. Of these 104,000, or 70 percent, were closed while in notice status. The amount collected was $217 million, compared to $247 million in 1964. Appeals dnd civil litigation.—Case referrals from district audit divisions to regional appellate divisions were 22 percent higher in fiscal year 1965 than in 1964. Partially offsetting the impact of this increase in appeals was a nine percent rise in the cases disposed of by appellate divisions, resulting principally from more effective use of manpower. While the inventory on June 30, 1965, was 22 percent above a year ago, anticipated improvement in manpower utilization in areas with the heaviest workloads are expected to permit the continued timely handling of the larger caseload. Petitions filed with the Tax Court of the United States numbered 6,852. The status of civil cases in the trial courts won or partially won by the Government during fiscal 1965 was as follows: I h the Tax Court, 83 percent; in the Court of Claims, 81 percent; and in the U.S. district courts, 64 percent. Comparable percentages for the preceding year were 81 percent for the Tax Court, 58 percent for the Court of Claims, and 60 percent in the district courts. The Government won 16 and lost 6 of the 22 civil tax cases decided by the Supreme Court in fiscal 1965. Last year the Court sustained the Government in five such cases and decided against it in two. The Government also won, in whole or in part, 302 (79 percent) of the 381 civil tax cases decided by courts of appeal (exclusive of collection litigation and alcohol and tobacco tax legal matters). International activities The overseas affairs of the Service include the administration of the tax laws as they apply to U.S. citizens and businesses abroad, participation in the negotiation of tax conventions and preparation of regulations under these pacts, and the furnishing of technical assistance to developing countries. Intemational operations.—In the 1965 fiscal year 454,717 returns were filed, with the Office of International Operations, 7,279 more than in the preceding year. Added to the full range of audit and collection activity with respect to these returns are many special problems not usually encountered in domestic returns. Such problems are attributable to the complexity of the laws pertaining to international taxation and to the special treatment of income under the respec- 126 19 65 REPORT OF THE SECRETARY OF THE TREASURY tive tax treaties. As a consequence, the error rate on returns examined is greater than the rate applicable to domestic returns. A total of 22,104 returns were examined, and deficiencies and penalties recommended amounted to $57.9 million. Collections against 18,753 pastdue accounts of taxpayers totaled $6.4 million. I n conducting the annual overseas taxpayer assistance and education program, assistance was given to 45,131 U.S. taxpayers through personal and telephone contact and through correspondence. Also, 14 schools were conducted for military tax instructors assigned to assist armed forces personnel abroad in the preparation of their tax returns. Tax conventions.—Discussions took place in Washington with three countries and abroad with seven countries with a view to the conclusion of four new income tax conventions, five protocols supplementing those already in existence, and one tax convention replacing an existing one.^ Foreign tax assistance.—The Service's foreign tax assistance program meets requests for technical assistance in tax administration from developing countries of the free world. The program is administered by the Foreign Tax Assistance Staff, an integral part of the Commissioner's office. Long-range tax modernization teams were established in eight more countries in fiscal 1965: Bolivia, Brazil, Costa Eica, Dominican Eepublic, India, Panama, Paraguay, and Uruguay. Seventeen such teams now are active overseas. Previously established teams are located in Chile, Colombia, Ecuador, E l Salvador, Guatemala, South Korea, Nicaragua, Peru, and the Eepublic of the Philippines. The Service was host to 319 foreign officials and students from 54 countries including the chief tax officers from Brazil, France, Nicaragua, and Uruguay. A majority of the visitors received special orientation or training in National Office and field operations. I t has become increasingly clear that one of the most urgent needs of the developing countries is trained personnel. Two pilot programs were introduced this year—a course for audit supervisors from Spanish speaking Latin American countries, held at the Albuquerque District Office and mobile training teams. The Albuquerque course was taught entirely in Spanish by Spanish-speaking Service personnel. This innovation in AID-sponsored training permitted the selection of participants solely on the basis of their abilities in tax administration. The mobile training teams traveled in various Latin American countries and were prepared to teach courses ranging from basic accounting to advanced audit techniques depending on the capacity of host country trainees. Planning activities The planning activities of the Service embrace short and long-range estimates and forecasts, a current program of research, organizational planning, statistical reporting, and systems development. Long-range planning.—The long-range plan of the Service provides an essential management and planning tool for establishing goals, forecasting future needs, and assuring that current programs are 1 See pages 47-48. ADMINISTRATIVE REPORTS 127 designed to meet established goals. The prime objective is to maintain a low-cost Federal tax admmistration system by maintaining and extending high levels of voluntary compliance with tax law requirements. The achievement of this objective requires the continuous evaluation of every phase of Service operations in order to forecast basic growth needs and to identify opportunities for improvements in taxpayer compliance and in the utilization of resources. The needs and opportunities thus identified are carefully reviewed in terms of available alternatives, overriding priorities, and practical resource limitations. Upon passing these tests, they provide the basis for the operational goals and the program guidelines in the long-range plan. The most important workload indicator used by long-range planners is the forecast of tax returns filing. The volume of returns filed in recent years has been steadily increasing and the outlook for continued growth in the nation's population, labor force, and economy indicates further substantial gains in the number of returns. Eecently prepared projections indicate that the number of returns filed will reach 111 million by 1970. Short-range operational planning,—Planning for the current year is based on the portions of the long-range plan which can realistically be attained in a relatively short period of time. Budget requests for the coming year are based directly upon the plan. After enactment of congressional appropriations, appropriate adjustments are made and resources are allocated to the various activities of the Service through an approved financial plan. Current goals, workloads, and performance measurements in the principal activities are provided by detailed work planning and control systems and by integrated reporting requirements. Current research program,—Eesearch activities were conducted throughout fiscal 1965 relating to changes in the excise tax laws, the 1964 changes in the Internal Eevenue Code, the increased scope of data processing, the Service's emphasis on improving operations and taxpayer compliance, and inquiries by congressional committees, academic institutions, other Government agencies, and State and local governments. A substantial part of research resources was expended on studies to determine the administrative effect of proposed legislative changes. An estimate of the costs related to the administration of the various excise taxes was one of the most important studies during fiscal 1965. Another significant study involved the drawing of nationwide samples on the degree of taxpayer compliance in reporting interest from Series E and H savings bonds and the comparability of other interest inconie and dividends as shown on tax returns with the amounts given on inf ormation returns. The Taxpayer Compliance Measurement Program (TCMP) is already producing tangible results. F o r example, data obtained through TCMP's Phase I on delinquent accounts indicate that a significant portion of these accounts are closed by correspondence when referred to local offices for collection. Accordingly, a new procedure provides for the expanded use of A D P in the mailing pf followup notices and in the related processing operations on these accounts. Thus local offices are relieved of a substantial clerical operation and 128 19 65 REPORT OF THE SECRETARY OF THE TREASURY the new procedure is expected to reduce delinquent account issuances by about 500,000 annually. Expected short-run operational benefits from T C M P can be summarized as: (1) establishing the extent of potential savings from revised collection programs based on greater use of data processuig procedures and lesser use of enforcement manpower; (2) determination of the level of; adequacy of the Business Master File as a delinquent returns check; (3) disclosures of pockets of delinquent returns noncompliance for systematic follow-through by enforcement personnel, and the use of educational programs and other indicated tax administration methods; and (4) development of an effective A D P procedure for selecting the individual returns most urgently in need of examination. Over a longer period, T C M P will indicate whether current tax admmistration procedures are reducing, increasing, or maintaining the willingness and ability of taxpayers to comply with the Federal tax laws. Systems development,—Action taken in this area was directed toward achieving four broad objectives: (1) Eeducing costs and increasing efficiency of computer configurations already in place or scheduled for installation in service centers and the National Computer Center. (Eesults are reported under Management Improvement, above.) (2) Eeducing costs and increasing efficiency in input preparation in service centers. The principal achievement in this area was the development of simplified key-punching procedures (see Management Improvement, above). (3) Improving and developing information systems for program managers responsible for the coordination and control of the Service's resources. For example, a system which assists attorneys in coordinating pending cases to insure that consistent positions are being taken on similar issues is currently operating in Chief Counsel offices. (4) Developing a future A D P systems concept that will take advantage of technological advances. Major improvements in data bank storage along with developments in high-speed communications suggest that research studies are needed to determine the potential utilization of these developments in the Service's data processing and other functional areas. Development of the specific definition and scope of this project was started in fiscal 1965. Inspection activities ! Within the Service an inspection function is performed by an independent fact-finding body reporting directly to the Commissioner. This activity, headed by an Assistant Commissioner, encompasses the internal audit and internal security areas. Major investigations, such as those involving; fraud on the revenue, are subject to close interfunctional coordination. Internal audit,—The Service's internal audit program, an integral part of its management control system, provides for an annual independent review and appraisal of Service operations for the Commissioner and all other levels of management. This program covers all ADMINISTRATIVE REPORTS 129 Service field organizations and activities and includes a determination of whether the policies, practices, procedures, and controls adequately protect the revenue and are carried out effectively. Internal audit examinations disclosed certaui conditions requiring correction by management. Some of the actions taken are measurable in terms of additional revenues collected or savings effected. A conservative estimate of the results of these actions during fiscal 1965 totals more than $30 million. Included are such items as management's action on specific tax cases, interest and penalties not properly assessed, and accelerated collection actions. Intemal security,—The aid management in maintaining public confidence in the integrity and impartiality of the officers and employees of the Service, internal security investigators provide management with information on any matter that represents a potential threat to the integrity standards of the Service. During fiscal 1965 the services performed by internal security inspectors included: Background investigations of new employees; investigations of employee breaches of integrity; investigations of taxpayers' attempts to bribe employees; and assistance to other Government agencies (also performed by the Service's internal audit inspectors). Internal security investigations of all types completed during the year totaled 8,825. In addition, police checks were made on 6,510 employees considered for short-term appointments, compared with 5,075 checks made during fiscal year 1964. Office of the Assistant Secretary for International Aflfairs Treasury Department Order No. 202, effective October 14, 1964 (see exhibit 70), transferred to the Office of the Assistant Secretary for International Affairs the constituent units which had been established as the Office of International Affairs by Treasury Department Order No. 198, dated October 15,1962. By direction of the Secretary, the responsibilities of the Office of the Assistant Secretary for International Affairs include the Treasury's activities in relation to international financial and monetary problems, covering such matters as the U.S. balance of payments, the convertibility of currencies, exchange rates and restrictions, the operation of the U.S. Exchange Stabilization Fund and the extension of stabilization credits; international aspects of gold and silver policy; the Bretton Woods Agreements Act, and the operations of the International Monetary Fund, the International Bank for Eeconstruction and Development, the International Finance Corporation, the International Development Association, and the Inter-American Development Bank; foreign lending and assistance; the Organization for Economic Cooperation and Development and its committees, and the North Atlantic Treaty Organization. The responsibilities of the Office of the Assistant Secretary for International Affairs also include activities of the Treasury in relation to the National Advisory Council on International Monetary and Financial Problems. The Secretary .of the Treasury is Chairman of the Council, which was established in 1945 by the Bretton Woods Agree782-556—<66 9 130 1965 REPORT OF THE SECRETARY OF THE TREASURY ments Act (22 U.S.C. 286b) ^ in order to coordinate the policies and operations of the U.S. representatives on the International Monetary Fund, and the International Bank, and of all agencies of the Government which make or participate in making foreign loans or which engage in foreign financial, exchange, or monetary transactions. The acts authorizing U.S. membership in the International Finance Corporation, the International Development Association, and the InterAmerican Development Bank also provide for the coordination by the National Advisory Council of the policies and operations of the U.S. representatives to these institutions. The Office also acts for the Treasury on the financial aspects of international treaties, agreements, and organizations in which the United States participates, and takes part in negotiations with foreign governments with regard to matters included within its responsibilities. I t assists the Secretary on the financial aspects of international trade matters. The Office of the Assistant Secretary for International Affairs advises Treasury officials and other departments and agencies of the Government concerning exchange rates and other financial problems encountered in operations involving foreign currencies. I n particular, it advises the Department of State and the Department of Defense on financial matters related to their normal operations in foreign countries and on the special financial problems arising from defense preparation and military operations. I n conjunction with its other activities the Office studies the financial policies of foreign countries, their exchange rates, balances of payments, capital flows, and other related problems., I t assists the Secretary, in his capacity as Chairman of the Cabinet Committee on the Balance of Payments, in review for the President of the entire range of administration programs and policies for achieving a lasting equilibrium in the U.S. balance of payments and for assuring a strong international payments system, and.prepares reports to the President on the balance-of-payments situation and on administration measures in this area. The Office administers the Treasury foreign exchange reporting system. The reporting system collects through the Federal Eeserve banks statistical data on capital movements between the United States and foreign countries. Bureau of the Mint ^ The Bureau of the Mint, with headquarters in Washington, D . C , operates four mints and assay ofiices which are located hi Denver, Philadelphia, San Francisco, and New York City. Two bullion depositories, in Fort Knox, Ky., and West Point, N.Y., are maintained for the storage of values. 1 Reorganization Plan No. 4 of 1965, dated May 27, 1965, and effective July 26, 1965, abolished the National Advisory Council as a statutory body and transferred its functions to the President. By an interim Executive Order dated July 28, 1965, and effective July 27, a new National Advisory Council on International Monetary and Financial Problems was established, with f'the same membership, functions, and status" as its predecessor. It is contemplated that a further Executive Order relating to the Council will be issued before the present order terminates on Jan. 1, 1966. 2 Additional information is contained in the separate Annual Report ofthe Director ofthe Mint. ADMINISTRATIVE REPORTS 131 The Mint manufactures and distributes all coins of the United States; redeems uncurrent and mutilated coins that are withdrawn from circulation; and, as production schedules permit, manufactures foreign coins and coinage dies on a reimbursable basis for other governments. In addition to the coinage function, the Mint receives deposits of gold and silver bullion in unrefined and refined forms for which payments, either in fine bars of gold or silver, or by check, are made on the basis of mint assays. • Sources of deposits, both domestic and foreign, include those of individuals, private companies, central banks, other Government agencies, and international monetary institutions. The Mint melts and refines gold and silver, and also the platinum group metals; manufactures gold and silver bars for ^'good delivery,'^ issue, or storage; and disburses gold and silver bullion for authorized monetary and industrial purposes. Eelated activities involve the continuous safeguarding of the monetary metals and other values in custody, including coins in various processing stages until finished and released for circulation. Medallic work comprises the production of national medals authorized by special acts of Congress, and medals and other distinguishing decorations for U.S. Government agencies. The Mint conducts metallurgical investigations, performs chemical and metallurgical analyses, and other technical services. Domestic coinage Coinage legislation oj 1965.—President Johnson proposed legislation to provide for the coinage of the United States in a special message to Congress on June 3, 1965. (See exhibit 20.) Following this, public hearings were held before the Banking and Currency committees of the House of Eepresentatives ^ and the Senate. The Coinage Act of 1965, Public Law 89-81, was signed by President Johnson on July 23, 1965. (See exhibit 23.). The act authorizes the minting and issuance of a new type of three-layer composite coin for the half doUar, quarter dollar, and dime which reflect the latest developments in modern technology. No changes were made in the silver dollar, the cupronickel 5-cent piece, or the bronze 1-cent piece. The new half dollar will contain an overall silver content of 40 percent and be nearly indistinguishable in appearance from the present homogeneous alloy of 90 percent silver and 10 percent copper. The cladding alloy of the outside layers will be 80 percent silver and 20 percent copper, with an inner core of approximately 21 percent silver and 79 percent copper. Silver will be eliminated from the quarter dollar and dime. The cladding alloy of the outside layers will be 75 percent copper and 25 percent nickel; an inner core of pure copper will give the coins a distinctive feature—a copper edge. Except for the edge, the outward appearance of the quarter and dime will resemble the cupronickel 5-cent piece. See exhibit 21, statement by Secxetary Fowler before the House committee 132 19 65 REPORT OF THE SECRETARY OF THE TREASURY . The new series of subsidiary coins will have the same diameters, designs, and inscriptions as the present series. For several years before the selection of composite coins, the Mint conducted extensive metallurgical and technical experiments and investigations of materials which could be considered as possible substitutes for the existing coins of high silver fineness. Many practical requirements entered into the studies since coins serve the public in a dual capacity, as a medium of exchange and as technical merchandising instruments for use in coin-operated machines. Metals included a range of silver alloys of varying finenesses; also all other traditional coinage metals in either pure or alloyed forms; and the ''newer^' metals. Eecent scientific developments and improved methods of metal processing in the industrial field were tested and evaluated for coinability and full-scale minting operations. During the fiscal year 1965, the Mint's program was supplemented by the independent study of a private metallurgical research institute. Eesults of the complete survey were incorporated into the ^overall Treasury Staffi Study oj Silver and Coinage. Accelerated production program.—^An accelerated coinage program designed to overcome the general coin shortage was announced by the Treasury before the close of the fiscal year 1964. Accordingly, the Mint's ^'crash program'' was initiated in July 1964, and it progressed steadily inonth by month throughout fiscal 1965. The year's total production of over 7.2 billion coins was more than two-thirds greater than the 1964 output. Monthly production, ranging from 458 million pieces to over 700 million, reached a peak of 738.7 million pieces in April 1965. This unprecedented record was due in part to the following measures adopted under the crash program: 1. Purchased from private industry minor coinage metals in the form of bronze and cupronickel strip for the one and five cent denominations. 2. Purchased new coin and blanking presses, and other operative equipment; arranged for the return of Mint presses on loan to museums and converted them for current use. 3. Acquired from the Department of Defense and the General Services Administration surplus machines which could be converted to mint blanking and stamping operations. 4. Suspended proof coin production at Philadelphia after December 1964; converted suitable proof coin presses for high speed production of regular coinage; and transferred proof coin personnel to regular coinage operations^ 5. Utilized the Frankford Arsenal of the Department of Defense in Philadelphia for annealing and cleaning bronze blanks for the Philadelphia Mint. 6. Eeacquhed space in the San Francisco facility which had been occupied by other Government agencies after coinage operations were discontinued in 1955; reactivated the space, instaUing machinery for the blanking, anneahng, cleaning, and upsetting of bronze and cupronickel planchets for final stamping at the Denver Mint. By the spring of 1965, San Francisco was supplying Denver with all of their one and five cent blanks. 133 ADMINISTRATIVE REPORTS Activities of the San Francisco Assay Office will continue to expand under the Coinage Act of 1965 which authorizes the temporary use of the institution for full-scale minting operations. The act also provides for the refining of precious metals. 7. Hired additional personnel and operated on a 24-hour day, 7 days a week schedule. 8. Eenovated space in Denver and Philadelphia for expanded coinage operations. In Denver, a vacant building adjacent to the Mint was remodeled by the General Services Administration for additional coinage presses. A total of 99 presses were in operation at the two mints on June 30, 1965, compared with 60 on June 30, 1964. 9. Eetained the ^^1964" date on coins manufactured after January 1, 1965. Public Law 88-580, enacted on September 3, 1964, provided the Mint with the authority to inscribe the figure ^'1964" on all coins minted until adequate supplies are available. This measure was designed to eliminate the incentive for keeping 1964 coins out of circulation for speculative purposes. 10. The Mint accepted no foreign coinage orders during fiscal 1965, utilizing all facilities for production of domestic coins. As rapidly as the coins were finished they were shipped to the Federal Eeserve banks and branches, and the Treasury in Washington, D . C , for immediate circulation in the denominations indicated below. Production and issue of U.S. coins, fiscal year 1965 ^ Denomination Number of Face value Distribution (based on pieces 2 pieces) In miUions Metallic composition Percent 1-cent pieces 6-cent pieces . Dimes. _ __ Quarter dollars . Half dollars 3,717.2 1,578.0 1,036.2 716.8 194.6 $37.2 78.9 103.6 179.0 97.3 61.3 21.8 14.3 9.9 2.7 Total 7,241.8 496.0 100.0 95% copper, 6% zinc. 76% copper, 25% nickel. 900 parts silver, 100 parts copper. Do. 1 All coins struck during fiscal 1965 were dated 1964. The unrounded data for production and issue will vary slightly. 2 The standard gross weight totaled approximately 31,900 short tons, as foUows: 1-cent-pieces, 12,700 tons; 5-cent pieces, 8,700 tons; dimes, 2,900 tons; quarter doUars, 4,900 tons; and half doUars, 2,700 tons. A nationwide inquiry relative to the shortage of coins in circulation was made by the Legal and Monetary Affairs Subcommittee of the Committee on Government Operations, House of Eepresentatives. Public hearings were held in two sessions: the first on June 30, July 1, and 2, 1964; and the second on February 16 and 17, 1965. In response to the committee's request, information was furnished by members of Congress, Government officials, commercial bankers, representatives of business concerns dealing with large quantities of coins, trade associations, and other interested citizens. Treasury officials presented comprehensive information on coinage production and distribution. Siock.—The total face value of U.S. coins held in the Treasury, Federal Eeserve banks, commercial banks, and in the hands of the 134 t9 65 REPORT OF THE SECRETARY OF THE TREASURY public is compared below for the close of the fiscal years 1964 and 1965. F a c e v a l u e (in miUions) s t o c k of U . S . coins J u n e 30,1964 J u n e 30,1966 Minor coins S u b s i d i a r y silver coins Silver doUars '. Total _ - Increase $737.7 1,999. 5 484.7 $853.4 2, 375.3 484.7 $115.7 375.9 3, 221.9 3,713. 4 491.6 Gold activities The gold bullion activity at the mints, assay offices, and the Fort Knox Depository included receipts of $208.2 million, issues of $1,688.2 million, and transfers between Mint institutions valued at $1,524.6 million during 1965. The sources of receipts, the disposition, and the total held in custody on June 3(D, 1964, and June 30, 1965, are shown in the following table. Quantity V a l u e a t $35 per ounce Fine ounces Gold holdings a n d t r a n s a c t i o n s (excluding i n t e r m i n t transfers 0 Short t o n s Tn miUions H o l d i n g s o n J u n e 30,1964 __ R e c e i p t s i n fiscal year 1965: N e w l y m i n e d domestic gold Scrap gold from domestic sources Foreign a n d other miscellaneous deposits Totalreceipts . . L Issues i n fiscal y e a r 1965: Sales for d o m e s t i c i n d u s t r i a l , professional, a n d artistic use E x c h a n g e s for scrap gold ^ E x c h a n g e s for other t h a n scrap gold :__ O t h e r m o n e t a r y issues Totalissues H o l d i n g s o n J u n e 30,1965.__ 14,824 432.4 $15,132.9 24 19 161 0.7 .6 4.7 24.9 19.0 164.3 204 5.9 208.2 139 3 28 1,484 4.1 .1 .8 43.3 141.9 3.2 28.6 1, 614. 6 1,654 48.2 1, 688. 2 13,374 390.1 13, 652.9 1 Intermint transfers amounted to 43.6 miUion fine ounces (1,494 tons) valued at $1,524.6 million in fiscal 1965. Silver activities During fiscal 1965, deposits of 4.4 million fine ounces of unrefined silver were added to the stock of 1,378.5 million ounces held by the Mint on June 30, 1964. The principal use of silver in 1965 was the manufacture of 274.5 million ounces into U.S. coins in the half dollar, quarter dollar, aiid dime denominations. This was the largest amount of silver ever minted in a single year. In millions Number of silver coins manufactured Face value Silver content, fine ounces 1, 946. 6 $379. 9 ^ 274. 5 1 Includes 0.5 miUion ounces of recoinage bullion from the normal melting of uncurrent (worn) coins withdrawn from circulation. 135 ADMINISTRATIVE EEPORTS SUver bullion issued to other U.S. Government agencies and the public amounted to 173.3 mihion ounces. Further details are given in the table below. Silver buUion holdings and transactions (excluding intermint transfers) Holdings on June 30,1964 Receipts in fiscal year 1965: Newly mined domestic silver Recoinage buUion from uncurrent silver coins.. Deposits in exchange for fine bars Other miscellaneous receipts Total receiptsIssues in fiscal year 1966: Manufactured into U.S. subsidiary silver coins. Bars issued in exchange for deposits Bars issued in exchange for silver certificates 2__ Other misceUaneous issues Total issues Holdings on June 30,1965.. Quantity i Fine ounces (in miUions) 1,378.5 Short tons 47,263.3 0.4 3.3 .7 0.4 12.1 113.8 23.0 4.4 149.3 274.6 3.3 165.1 4.9 9,410.0 113.8 5,660.6 168.2 (*) 447.8 15,362.6 935.1 32,060.0 *Less than 50,000 ounces. 1 Excludes 64.7 miUion fine ounces (2,220 tons) of Treasury silver held by other agencies of the U.S. Government. 2 Issued pursuant to Instructions of Secretary of the Treasury, July 22,1963, as provided under section 2 of the act of June 4,1963 (31 U.S.C, 405a-l). Revenue deposited into the general fund of the Treasury The Bureau of the Mint deposited $114.3 million into the general fund of the Treasury in 1965. Seigniorage resulting from the manufacture of the domestic coins reflected a gain of 64 percent over that of 1964. Other revenue, included profit on the sale of silver bullion, handling charges on gold bullion, other bullion charges, sale of equipment, scrap, and salvage materials, and miscellaneous fees, etc. A comparison of the fiscal years 1964 and 1965 follows. Revenue deposited into the general fund of the Treasury In miUions 1964 Seigniorage on subsidiary silver coinage Seigniorage on minor coinage All other Total 1965 $21.0 47.8 $21.9 91.1 68.7 2.1 113.0 1.3 70.8 114.3 136 19 65 REPORT OF THE SECRETARY OF THE TREASURY Monetary assets and liabilities The total monetary assets and liabilities of the mints, assay offices, and bullion depositories for June 30, 1964, and June 30, 1965, are set forth in the following statement. In mUlions Item June 30,1964 June 30,1965 ASSETS Gold bullion __^ _ Silver bullion . Silver coin ___ Minorcoin.. Minor coinage metal, etc _ __ $15,132.9 1,774.8 2.7 .2 .7 $13,662.9 1,202.5 .1 ' ' ' 11.0 16,911.4 14,866.6 16,910.5 14,855.5 2.6 8.4 16,911.4 14,866.5 Total assets LIABILITIES BuUion fund -_. Minor coinage metal fund. , Allother __ Total liabUities . . — ^ •Less than $50,000. Gold and silver production and consumption in the United States Statistics on the domestic refinery production and industrial consumption of gold and silver are compiled on a calendar year basis by the Office of the Dhector of the Mint. Production data are based on the deposits of newly mined material received by U.S. mints and assay offices and privately owned refineries. The deposits are traced back through the various refining processes to determine the States where the ores were mined. In 1965, South Dakota, ranking first in gold production, accounted for 42 percent of the output among 15 producing States. Next in order were Utah, Arizona, Washington, and Nevada, whose combined output was 43 percent of the total. Among the 16 silver producing States, Idaho ranked first with 45 percent of the total output. Arizona in second place with 16 percent, was followed by Montana, 15 percent; Utah, 12 percent; and Colorado, 7 percent. Total production for 1963 and 1964 was as follows: U.S. gold production Calendar year Fine ounces Value at $35 per ounce U.S. silver production Fine ounces Value In miUions 1963 1964 :. L5 L5 $51.4 5L4 35.0 37.0 i$44.8 2 47.9 1 Valued at $1.2804, the equivalent of the annual average in New York of $1.27912 for refined bar silver 999/1000 fine. 2 Valued at $1.29429, the equivalent of $1,293 for refined bar silver 999/1000 fine. This quotation has been unchanged from Sept. 9,1963. ADMINISTRATIVE 137 REPORTS Consumption data represent the net amount of gold and silver issued for inci us trial, professional, and artistic use by Mint institutions, private refiners, and dealers. Net issues are obtained by deducting from gross issues, the amount of gold and silver contained in secondary material (scrap) received by the same concerns during the year. D a t a for 1963 and 1964, as described above, are summarized in the following table. U.S. gold consumption Item 1963 1964 U.S. silver consumption i 1963 1964 Fine ounces (in miUions) Total issues of bullion in various forms. Returns of secondary materials (scrap) 2 : Net issues 3 4.3 1.3 6.9 1.1 204.6 94.5 . 196.6 76.1 2.9 4.8 110.0 120.6 1 Does not include silver used in coinage. 2 Does not include coin or coinage scrap. * The equivalent of domestic industrial consumption. B u r e a u of Narcotics ^ The Bureau of Narcotics admiaisters Federal laws controlling narcotic drugs and marihuana and carries out the responsibilities of the Government under the international conventions and protocols relating to these drugs. Bureau responsibility for regulating the legitimate supplies of narcotic drugs for medical and scientific purposes involves supervision of U.S. imports and exports of these drugs, and control of the manufacture an.d domestic trade in them to prevent diversion into illicit channels. Enforcement duties include apprehension of interstate and international violators of narcotic laws and cooperation with State and local law enforcement agencies. At the request of foreign police authorities. Bureau agents assist in mutually beneficial investigations of intemational narcotic traffickers. The recently expanded program in cooperation with f oreigTi countries has greatly curtailed smuggling of narcotic drugs into the United States. Management improvement Several significant management actions were taken. Automatic data processing equipment was used more effectively. Statistics relating to convicted violators of the Federal narcotic and marihuana laws were converted to A D P , thus effecting an estimated saving of one-half a man-year and making current data available more promptly. A study was in process at the end of fiscal 1965 to determine the feasibility of automating registrant returns to expedite their audit and to promote overall improvement in the control of the legitimate trade in narcotic drugs. 1 For further information see the separate Bureau of Narcotics report, Traffic in Opium and Other Dangerous Drugs for the Year Ended December 31, 1964. 138 19 65 REPORT OF THE SECRETARY OF THE TREASURY Pursuant to a recommendation of the President's Advisory Com-. mission on Narcotic and Drug Abuse, a brochure dealing with the preparation of addiction reports was distributed to Federal, State, and local law enforcement agencies, as well as proprietary groups who report information on addiction to the Bureau. This has been beneficial in improving the accuracy and quality of reports on addiction received by the Bureau. The President's Commission also recommended that the Bureau substantially increase the number of agents assisting foreign law enforcement officers under the expanded foreign program. Training schools The Bureau of Narcotics Training School held nine two-week sessions during fiscal 1965 and graduated 375 students: 46 Bureau agents; 256 State and local police officers; 54 military investigative personnel; and 19 foreign la:iv enforcement officials. One of the sessions was conducted at Pasadena, Calif., for 127 law enforcement students from seven Western States in that area. On-the-job training was provided for 20 foreign police officers from 9 countries. Short seminars or conferences were arranged for 46 other visiting foreign officials. A pilot study of an on-the-job training project for Bureau agents was made during fiscal 1965; this training IS scheduled to continue as a permanent part of the Bureau program. The Bureau school, together with district offices, initiated a program of three-day seminars on narcotics, which in fiscal 1965 were held in New York City, Pittsburgh, and Oklahoma City, to assist State and local enforcement officers in conducting narcotic investigations. School staff members participated in the programs of the Office of Special Investigations, U.S. Air Force School, the F B I National Academy, and the International Police Academy. The Director of Training participated in the United Nations Seminar on Narcotics Control for Enforcement Officers held at Manila, Philippines, January 20-February 3, 1965, as well as in the following seminars: Frances Glessner Lee Seminar in Homicide Investigation, Harvard Medical School; Washington Institute of Scientific Studies for the Prevention of Alcoholism; and the Fifteenth Annual Law Enforcement Institute, of the University of Maryland. The Director of Training in April 1965, in response to the request of the Puerto Rican Government, conducted a three-day seminar on narcotics for 30 narcotic enforcement officers in San Juan, Puerto Rico. During the fiscal year 35 narcotic agents attended the five-week basic course of the Treasury Law Enforcement School. Four narcotic agents attended the three-week course of the Technical Investigative Aids School. The Bureau of Narcotics participated in interagency training facilities, especially those offered by the Civil Service Commission in supervision and group performance, interrelationships in administration and international relations, and executive leadership. The benefits derived from the Civil Service Commission program were reflected in the more effective and meaningful annual Conference of District Supervisors, held in May 1965. Most of the conference program dealt ADMINISTRATIVE REPORTS 139 with leadership and group performance with Civil Service Commission, Department, and Bureau officials addressing the group. The Bureau provides training materials for district supervisors to use in their weekly staff refresher courses. Enforcement activities The noticeable increase in the number of joint investigations and the quantities of narcotic drugs seized by foreign police officers assisted by Bureau agents reflected the success of the accelerated foreign enforcement program. Selected examples of such cooperation follow. An investigation begun in Chicago led to the seizure in Guadalajara, Mexico, of a heroin-conversion laboratory and the arrests of five defendants. Several years of investigation coordinated with the New York City Police Department, Honduran, and Mexican, authorities culminated in the seizure of more than two kilograms of heroin and the arrests of three members of a large illicit heroin and cocaine trafficking organization. Other investigations with Mexican authorities included one in Montemorelos, Mexico, where Mexican police officers engaged in a gun battle in which one trafficker was killed, five others arrested, and a half ton of marihuana seized; in another, at San Luis Potosi, Mexico, 700 kilograms of marihuana and 6 pistols were seized. The largest French heroin-conversion laboratory ever uncovered, including 105 kilograms of heroin and 68 kilograms of morphine base, was seized near Aubagne, France; its operator and several other defendants were arrested, six of whom have been convicted and sentenced. Investigation of an international conspiracy involving employees of a French international airline who had been delivering heroin in lots of 20 kilograms to 40 kilograms to Anchorage, Alaska, and Montreal, Canada, resulted in several arrests by the Royal Canadian Mounted Police at Montreal, Canada, and by the French Surete Nationale at Paris and the seizure of 62 pounds of heroin. A t La Paz, Bolivia, a physician and two associates, who were major suppliers of cocaine to New York City traffickers, were arrested and one kilogram of cocaine seized. I n the Middle East, Turkish police officers at Dursunbey, following a gun battle, seized 45 kilograms of morphine base and arrested the leader and two associates of a large Turkish intemational trafficking organization. Police officers at Damascus, Syria, and Beirut, Lebanon, simultaneously arrested five traffickers and seized 20 kilograms of morphine base. This group had obtained the narcotic in Syria and transported it through Beirut, Lebanon, to France for conversion to heroin destined primarily for distribution in the United States. Singapore authorities seized more than 1 kilogram of "999" brand morphine base and arrested three defendants. I n Bangkok, Thailand, a joint investigation of Bureau agents with the U.S. Air Force Office of Special Investigations and Thai authorities netted over 12 kilograms of "999" brand morphine base, one-half kilogram of heroin, anci more than 6 kilograms of morphine base powder. A Royal Thai Air Force captain, a master sergeant, anci three civilians were arrested. 140 1965 REPORT OF T H E SECiJRETARY OF T H E TREASURY Bureau agents working with Hong Kong Narcotics Bureau officers learned of the seizure there of 1,363 kilograms of raw opium and more than 81 kilograms of "999" brand morphine base. The joint investigation continued and led to the arrest of 3 suspects and the seizure of 818 kilograms of raw opium and more than 90 kilograms of morphine base concealed in bamboo poles which had arrived in Hong Kong aboard a British freighter from Bangkok. The source of the drugs in Bangkok had not been determined by the end of fiscal 1965. For several years a large-scale narcotic trafficking syndicate had been importing heroin in lots of 50 kilograms to 100 kilograms into New York City from France. Following the seizure of 44 kilograms of heroin from several suspects in 1962, Bureau agents and New York City police officers continued their undercover investigation and surveillance of this group. I n February 1965..they began a series of 18 arrests of Cosa Nostra members. Bureau agents also in New York City, arrested a member of the notorious Mulberry Street Mob, as he delivered about one-half pound of heroin to a well-known narcotic violator. During fiscal 1965 the Bureau seized a total of 58,321 grams of narcotics, principally heroin, in the illicit traffic, while seizures of marihuana amounted to 1,284,386 grams bulk. The number of violators of the narcotic laws reported by Federal narcotic enforcement officers is shown in the accompanying table. Number of violators of the narcotic and m a r i h u a n a laws prosecuted during the fiscal year 1965 wiih their dispositions and penalties Narcotic laws Registered persons Federal court Convicted Acquitted Totali Federal court 4,097 3 1,077 $225, 610 Yrs. Mos 4 2 Yrs. Mos. Yrs. Mos 4 5 5 ._._._ __ — Average fine per conviction: 1965 1964 $125 324 9 $277 Yrs. Mos. Yrs. Mos. 444 3 . 6 $11, 010 Yrs. Mos. $26 59 74 4 195 $,R. 515 3 4 State court 110 7 Yrs. Mos. Yrs. •Mos. Yrs. Mos Fines imposed Average sentence per conviction: 1965 1964 Federal court i,181 • 4 _ _ Nonregistered persons State court 814 34 1 4 Yrs. Mos Sentences imposed Nonregistered persons State court 3 Marihuana laws 301 . 10 $1,060 Yrs. Mos. Yrs. Mos. 4 4 3 1 .___.. $100 109 4 3 1 6 $14 61 1 1 Some cases tried in Federal courts and some cases tried in State courts are made by Federal and State officers working in cooperation. ADMINISTRATIVE REPORTS 141 Control of manufacture and medical distribution The Bureau issues permits for imports of the crude materials, for exports of finished drugs, and for the intransit movement of narcotic drugs and preparations through the United States from one foreign country to another. I t supervises the manufacture and distribution of narcotic medicines within the United States and has authority to license the grov/ing of opium poppies to meet the medicinal needs of the comitry if and when their production might become necessary in the public interest. The operational authority of the Bureau derives from the following statutes: 5 U.S.C. 258a, 282-282c; 18 U.S.C. 1401-1407; 21 U.S.C. 171184a, 188-188n, 197-199, 501-517; 26 U.S.C. 4701-4762, 4771-4774, 7237, and 7607; 49 U.S.C. 781-788; and 78 Stat. 367. During fiscal 1965, 200,920 kilograms of raw opium were imported from India and Turkey and 294,190 kilograms of coca leaves were imported from Bolivia and Peru to meet medical requirements for opium derivatives and cocame and to supply nonnarcotic coca flavoring extracts. The latter were obtained as a byproduct from the same leaves from which the cocaine was simultaneously extracted. The quantity of narcotic drugs exported during 1965 increased to 1,084 kilograms 856 grams from 836 kilograms 94 grams exported during the previous year. There were 2,194 thefts of narcotics, amounting to 115,899 grams, reported during 1965 from persons authorized to handle the drugs, compared with 1,580 thefts amounting to 74,348 grams in 1964. Approximately 367,840 persons were registered to engage in lawful narcotic and marihuana activities during fiscal 1965. International control and cooperation Opium, coca leaves, marihuana, and their more important derivatives have been internationally controlled by the terms of the Opium Conventions of 1912, 1925, and 1931. Under Article I I of the 1931 Convention and the international Protocol of November 19, 1948, 12 secondary derivatives of opium and 59 synthetic drugs have been found by the World Health Organization to have addicting qualities similar to morphine or cocaine and have been brought under the controls provided by the treaties. For further details concerning international control and cooperation, see the 1963 annual report, page 156. The Single Convention on Narcotic Drugs, 1961, came into force December 13,1964. By June 30,1965, it had been ratified by 47 countries. The U.S. Government will not ratify the Single Convention unless and until it is amended to rectify certain provisions which it believes would weaken international control of opium production. Cooperation with States, counties, and local authorities Excellent cooperation among Federal, State, and local narcotic law enforcement agencies continued in free exchange of information, in coordinating the investigation and prosecution of minor violations and routine inspections by State and local authorities. There has also been a notable improvement in the quality of addiction reports, as indicated above under Management Improvement. 142 19 65 REPORT OF THE SECRETARY OF THE TREASURY Drug addiction The Bureau recorded 55,695 active addicts, as of June 30, 1965, compiled from reports received from Federal, State, local, and private United States Coast Guard The Coast Guard is responsible for enforcing or assisting in the enforcement of Federal laws on the high seas and waters subject to the jurisdiction of the United States. These laws govern navigation, shipping and other maritime operations, and the related protection of life and property. The Service also coordinates and provides maritime search and rescue facilities for marine and air commerce and the Armed Forces. Other functions include promoting the safety of merchant vessels, conducting oceanographic research, furnishing ice breaking services, and developing, installing, maintaining, and operating aids to niaritime navigation. The Coast Guard has a further responsibility for maintaining a state of readiness to function as a specialized service of the Navy in time of war or national emergency. Management improvement During fiscal 1965 management improvement and cost reduction actions in the Coast Guard brought savings in excess of $16 million, more than double that of any previous year. I n the area of manpower utilization, significant gains resulted from the automation of previously manned light stations; the replacement of two lightships by fixed light structures; the disestablishment of one loran station and the transfer of three others for operation by the Japanese Government; and the collocation of three loran-A with three loran-C stations in the Western Pacific. To obtain billets urgently needed to extend the Automated Merchant Vessel Reporting System (AMVER) to the Pacific Ocean— scheduled to begin operation on July 1, 1965—the Coast Guard carried out studies of manpower utilization and workload distribution which resulted in the reassignment of 44 enlisted and warrant radiomen to the new program. Additional savings in manpower and equipment costs were realized by expanding the capacity of the East Coast AMVER Computer Center in New York to handle the data processing workload of the west coast system, thus eliminating the need for the acquisition of a second computer and an estimated 19 additional men to operate it. Some $6.00,000 in manufacturing costs and $78,000 in annual operating expenses were saved by building thi^ee 75-foot buoy tenders in place of three larger tenders approved previously in the construction program. The substitution of the smaller tenders was made possible by reassignment of existing vessels. The Coast Guard also eliminated an estimated expenditure of about $856,000 by deleting pulling bc)ats from vessel allowance lists. Most of these boats would have required major repairs or replacement. The Coast Guard conducted three management seminars during fiscal 1965, designed to improve the management capabilities of officers presently—or likely to be—assigned to executive positions. Several meetings and lecture-discussions were also held to improve coordi- ADMINISTRATIVE REPORTS 143 nation and teamwork between military and civilian personnel. These sessions, attended by those in the middle and higher management brackets, were intended to clarify the interrelationship and interdependency of military and civilian positions, thereby furthering management effectiveness. Coast Guard patrol boats assist Navy in Vietnam Seventeen Coast Guard 82-foot patrol boats have been deployed to South Vietnam to assist in halting communist infiltration by sea of men, weapons, and other materials into the hands of the Viet Cong guerillas. The Coast Guard squadron, specially trained and equipped will board and inspect junks and other craft for contraband cargo. Under the operational control of the Navy's 7th Fleet, these are the first Coast Guard vessels to be used in a combat situation since World War I I . Search and rescue During the last five years. Coast Guard response to calls for assistance has increased by 29 percent, an additional workload which has been met, in part, by increased operating efficiency. As part of a long-range plan to develop more effective search and rescue techniques, a new electronic D a t u m Marker Buoy is under operational evaluation. Dropped at the best position of a distress case, it drifts at the same rate as a man in the water and emits a radio signal for 48 hours that can be picked up by SAR units as far away as 70 miles. The first operational uses have been highly successful. The use of helicopters operating from the new Reliance-clsiss cutters has opened a new horizon in search operations. Helicopters refueling from these small vessels are able to search an area with far greater effectiveness than fixed-wing ahcraft alone. Two of these new cutterhelicopter teams participated in the GT-3 shot of the Gemini Space Shot series, and a helicopter from Diligence was the first aircraft to reach the downed capsule. The Automated Merchant Vessel Reporting System (AMVER) continued to coordinate the services of merchant ships in search and rescue cases, plotting the movements of some 1,000 vessels daily in the Atlantic. The system is being extended to the Pacific in fiscal 1966. Some typical examples of Coast Guard assistance rendered during fiscal 1965 are summarized below. Ship disaster.—On December 20, 1964, the United States M/V Smith Voyager, while approximately 800 miles east-southeast of Bermuda in heavy weather, broadcast a distress message after shifting cargo caused a 30-degree list and a loss of power. Three merchant vessels, three Coast Guard cutters, and Coast Guard and Air Force aircraft diverted to assist the 42 persons on board. Thirty-eight persons were rescued and four bodies recovered despite adverse weather and sea conditions. This was but one of nine major ship disasters at sea during the winter of 1964-65. Airline crash.—On February 9, 1965, a commercial D C - 7 exploded in midair off Jones Beach, Long Island, with 84 persons on board. An extensive search utilizing 7 Coast Guard cutters, 6 Coast Guard aircraft, and a Navy tug recovered 9 bodies and various pieces of debris. There were no survivors. 144 19 65 REPORT OF THE SECRETARY OF THE TREASURY Midwest jloods:—During April 1965, rain and melting snow in southern Minnesota and northern Iowa caused record floods along the Mississippi and Red Rivers. Coast Guard flood relief teams preceded the crests downriver, strengthening dikes, and evacuating persons in danger. Where the dikes did not hold, whole towns and tens of thousands of square miles were completely inundated. Coastguardsmen in small boats and helicopters evacuated over 3,000 stranded persons. Medical evacuation.—Medical assistance was rendered to the Indian M/V Kaksami Jayanti when her chief officer was severely injured. A Coast Guard helicopter and fixed-wing ahcraft, escorted by a 95-foot W P B and a 40-foot utility boat, rendezvoused with the ship 240 miles northwest of Queen Charlotte, Alaska. The patient was ahlifted to an ambulance for transfer to a hospital. A tabulation of search and rescue assistance for fiscal year 1965 follows. Response b y operations Aviation units Ships Shore units Total ASSISTANCE CALLS RESPONDED T O F O R Private vessels. _ _ Commercial fishing vessels Other commercial vessels „ _ Government vessels . _ _____ Private aircraft Commercial aircraft ____ Military aircraft Other aircraft _ _ Personnel only._ Miscellaneous _ _ Total.. . __ __ __ __ - 2,202 621 293 55 263 70 414' 9 1,224 406 2,620 1,433 599 100 59 25 87 4 437 292 18,950 2,792 1,757 258 183 39 59 10 2,112 1,214 23,772 4,846 2,649 413 505 134 560 23 3,773 1,911 6,656 6,656 27,374 38,586 1,179 30 306 264 17 685 147 937 1,308 916 255 151 2,488 898 2,220 14,471 134 273 77 575 923 947 175 1,187 297 1,998 3,664 3,970 2,332 2,401 17,265 264 326 2,146 521 3,510 5,895 5,832 5,788 5,823 28,880 40,491 616 825 13,233 346 365 17, 518 1,022 1,365 68,317 1,984 2,555 99,068 16,074 20,329 72,004 103,607 MAJOR T Y P E OF ASSISTANCE RENDERED Located Refloated Towed Aircraft escorted ._ Fueled or repaired Medical.. Personnel rescued Searches __ Attempts to assist Other assistance ^__ __ ___ -_- _ _ .__ Total PERSONS INVOLVED IN ASSISTANCE CASES Lives saved.. ___ Medical assistance rendered . Otherwise assisted _ _^ Total assisted.. VALUE O P PROPERTY INVOLVED INCLUDING CARGO Vessels Aircraft Miscellaneous . $1,197,151, 700 640,229,900 36,292,000 Total 1,873,673,600 . ADMINISTRATIVE REPORTS 145 Marine inspection and allied safety measures There were 4,432 marine casualties reported during fiscal 1965, four of which were major and requhed marine boards of investigation. Inquiries revealed that 125 lives were lost from vessel casualties, 178 from personal accidents, and 225 deaths were due to miscellaneous causes. (These figures exclude pleasure craft covered by the Federal Boating Act of 1958.) Of the four casualities investigated by mariae boards, foremost was the foundering of the wheat laden SS Smith Voyager in the Atlantic Ocean on December 20, 1964. Four crewmembers lost their lives while abandoning the vessel which later sank while under tow. Another accident involved the American tanker Santa Maria which collided with the Norwegian tanker Sirrah off Anchorage, Alaska, on October 19, 1964, causing one fatality and extensive damage to both vessels. Another inquiry concerned the collision of the American freighter Cedarville and the Norwegian freighter Topdalsjjord near the Straits of Mackinac on M a y 7, 1965. The Cedarville sank with 10 crewmen aboard. The fourth casualty investigated was the flooding of the Panamanian tanker Daniel Pierce which resulted in its cargo, sulfuric acid, contaminating the Port of Guanica, Puerto Rico, on July 13, 1964. The harbor was closed to all traffic and the town partially evacuated. There were no fatalities. The International Convention for Safety of Life at Sea, 1960 (SOLAS), became effective on May 26, 1965. Safety certificates in accord with the new standards will now be issued to passenger, cargo, and tank vessels as they come up for initial inspections or reinspections. Recreational boating.—The phenomenal growth in recreational boating is continuing, with more than 7,750,000 pleasure craft estimated to have been in use in the United States during calender 1964. To cope with this activity several innovations were made by the Coast Guard. For example, safety patrols are to be used to deter, detect, and report unsafe boating practices. Under this program, law enforcement in general should be improved through better coverage of boating areas although fewer boats than in the past will be routinely stopped and examined. A Boarding Officers' Instructor Indoctrination Course was conducted by the Coast Guard to promote uniform enforcement by States. Greater emphasis is being placed on dissemination of safety information to the boating public and to boat manufacturers and dealers. As of December 31, 1964, there were 3,763,469 pleasure craft numbered, 183,043 by the Coast Guard and the remainder by the 45 States and the. Vhgin Islands which have numbering systems approved by the Coast Guard. During calendar 1964, 5,036 vessels were involved in 3,912 boating accidents which resulted in 1,192 fatalities, 1,193 injuries, and property damage estimated at $5,171,600. Capsizing continued to be a major cause of fatalities while collisions accounted for 42 percent of all boating accidents. Fires and explosions were the cause of 44 percent of the reported property damage. Merchant marine technical activities.—In the commercial shipbuilding field, considerable interest is being shown in submarine tankers, ground effect machines, hydrofoils, exotic research vessels, chemical carriers, etc. In many cases the development of completely 782-5!56^6&—10 146 19 65 REPORT OF THE SECRETARY OF THE TREASURY new concepts or criteria for evaluating safety of design and operation is required of the Coast Guard. In conjunction with these new designs some of the special areas requiring detailed consideration include the use of high strength steel, aluminum, newly developed insulation, and the arrangement of spaces and equipment. The nuclear-powered N.S. Savannah is now in operation, and the U.S. Army MH-1A floating nuclear power plant is to be certificated by the Coast Guard during 1966. These vessels have given the Coast Guard practical experience in the construction and operation of pressurized water reactors in the marine environment. Approximately 24 passenger hydrofoils, representing three different designs, have been certificated to date by the Coast Guard, and two passenger-carryhig Ground Effect Machines (GEMs) for use in the San Francisco Bay area are being evaluated. The Coast Guard published a book entitled Chemical Data Guide jor Bulk Shipments hy Water, believed to be the fhst publication dealing with the hazards of transporting chemicals by water. I t should assist in dealing with emergencies and prove useful as a reference manual for marine iuspectors. Although not required by law, several Federal agencies are availing themselves of Coast Guard knowledge and experience to assist in the construction of safe and seaworthy vessels, ranging from oceanographic research vessels to satellite tracking ships. Tabulated below are certain of the marine inspection functions of the Coast Guard, comparing the workload for the fiscal years 1964 and 1965. Inspection activities 1964 Vessels inspected for certification i Vessels reinspected Drydock inspections _ Equipment Inspected at factory Miscellaneous vessel uispections Violations of navigation and inspection laws (administrative action completed) Inspection of foreign vessels Merchant vessel plans reviewed Structures tuspected (Outer Contmental Shelf Lands Act) Gross tonnage Number 5,644 6,134 6,882 1,251,350 27,886 64,759 36,606 1965 1964 5,343 9,604,360 5, 003 12,684,433 5,798 13,757,828 1,128,917 26,329 38,128 1,428 40,641 1966 11,765,913 9,606,985 13,868,000 13,982,117 52 I Includes initial inspections. Meetings, conjerences, and publications.—The Merchant Marine Council held four regular and two special committee meetings, one public hearing and an executive session to consider proposed amendments to regulations. The Coast Guard participated in numerous meetings and conferences held in the United States to promote maritime safety, and was actively or indirectly concerned with 27 international meetings held in London by the Intergovernmental Maritime Consultative Organization (IMCO). ADMINISTRATIVE REPORTS 147 The Coast Guard continued to distribute the publications. Pleasure Crajt, Recreational Boating Guide, and the Proceedings oj the Merchant Marine Council to promote greater safety in recreational boating and in the maritime industry. Merchant marine personnel.—Merchant mariae personnel were issued 67,818 documents during the fiscal year. Coast Guard shipping commissioners processed 7,703 sets of shipping articles involving 486,576 individual transactions relating to the shipment and discharge of seamen. Merchant marine investigating sections in major U.S. ports and merchant marine details in certain foreign ports investigated 17,310 cases involving negligence, incompetence, and misconduct. Charges were preferred and hearings held on 1,067 cases before civilian examiners. Security checks were made of 19,987 persons deshing employment on merchant vessels. Law enforcement Patrols of the Florida Straits and Bahama Islands were continued as high priority projects, since Cuban refugee action, enforcement of neutrality, and fishing vessel movements require constant surveillance. Enforcement of international fisheries conventions also assumed a role of major importance as foreign fishing fleets have set up large scale operations off U.S. shores. The Alaska Patrol required the temporary redeployment of six cutters to enforce international fishery conservation treaties during fiscal 1965. The Coast Guard's role in the enforcement of water pollution laws continued to grow because of national concern with the increased pollution by oil and other materials. Port Security.—Fifty-three captains of the port enforce Port Security and Dangerous Cargo Regulations throughout the United States. Duriug the past 10 years production and water transportation of industrial chemicals has tripled, resulting in increased Coast . Guard responsibilities under the Dangerous Cargo Act. In addition to the safety aspects of the Port Security Program, the Coast Guard is. charged with protecting U.S. ports and harbors against sabotage. This requhed special attention for certain vessels making a total of 265 port entries (1,259 days in port) during the fiscal year. The following table illustrates the workload in the major enforcement areas for fiscal year 1965. Enforcement work Number 1965 Motorboats boarded. _ Waterfront facilities inspected Reported violations of: Motorboat Act Port security regulations Oil Pollution Act Other laws Explosives: Loading permits issued Loadings supervised Other hazardous cargoes inspected _ 121,892 30,777 39,857 4,137 617 487 519 . 640 9,623 148 19 65 REPORT OP THE SECRETARY OF THE TREASURY Military readiness As part of the Coast Guard military readiness program, 30 ships participated in Navy refresher training and three ships in shakedown training during the fiscal year. The Navy-Coast Guard class improvement plan for instaUing new military readiness equipment on high endurance cutters: is approximately 20 percent complete. Coast Guard units participated in a number of joint military training exercises. As reported above, 17 Coast Guard patrol craft were sent to South Vietnam for surveiUance of the coastal sea routes. Aids to navigation During fiscal 1965 the Frying Pan Shoals, N . C , lightship and the Savannah, Ga., lightship were replaced by newly constructed fixed light structures. Nine manned light stations were converted to automatic operation to reduce costs without reduction of service. The revision of the radiobeacon system was completed in the Great Lakes as part of a coordinated program with the Canadian Department of Transport. On July 1, 1964, three loran stations in Japan were transferred to the Japanese Maritime Safety Agency, and the station in Pusan, Korea, was discontinued. Japan established another station at Tsushima in order to maintain service in the area. The volume of aids to navigation maintained by the Coast Guard as of March 31, 1965, follows. Navigational aids Number 1965 Loran transmitters Radiobeacons Fog signals (except sound buoys)., Lights (includhig lightships) Daybeacons Buoys: Lighted (including sound) Unlighted sound Unlighted River type Total 64 189 683 11,084 7,193 3,642 336 10,959 7,728 41,778 Ocean stations The Coast Guard continued its operation of four ocean stations in the North Atlantic and two in the North Pacific. These ships, spending 78,420 operating hours on patrol, provided meteorological, navigational, communications, and rescue services for air and marine commerce and collected various scientific data. Oceanography Progress continued toward full participation in the National Oceanographic Program. Twenty-nine ships have now been outfitted for oceanographic surveys, and programs of routine time-series observations on ocean stations Bravo, Charlie, and Victor were initiated. A shipboard computer on board the oceanographic ship USCGC Evergreen has improved the quality of its surveys. The USCGC Woodrush conducted extensive seismic experiments in Lake Superior in support 149 ADMINISTRATIVE REPORTS of a joint United States/Canadian Study of the North American Crustal Structure. Coast Guard intelligence During the fiscal year, 2,439 internal security and criminal investigations were made, as well as 12,052 national agency checks. In addition, 23,486 merchant mariners and 7,658 applicants for port security cards were screened to determine whether documents should be issued. Operational facilities The foUowing table shows the distribution of operating hours for the major functions of Coast Guard vessels, aviation units, and shore units (including small boats) for the fiscal year 1965. Workload distribution, fiscal 1965 Activity Law enforcement Search and rescue _,___. Aids to navigation Reserve training Ice breaking. Oceanography Military readiness Cooperation with other agencies Port security Training of cadets and officer candidates. Ocean stations Nonmission movement Proficiency training ^ Ferry 1 Tests' Administrative' Total- (operating hours) Aviation units (flight hours) 51,133 106,223 209,081 12,693 14,004 7,011 29,217 18,270 16,222 4,916 78,420 43,991 5,805 26,190 8,084 24 192 672 243 2,378 472 691,181 81,233 27, 551 1,704 1,605 6,413 Shore units (operating hours) 68,206 86,913 87, 067 2,078 531 106 3,198 4,816 39,671 91 19,328 312,005 'Applies to aircraft only. Floating units,—As part of the continuing program to replace overage and obsolete ships, the second and third 210-foot WPC-class medium endurance cutters were completed in fiscal 1965, and construction of the first of the newly-designed 378-foot WPG-class high endurance cutters neared the midpoint. Three 157-foot coastal buoy tenders and several smaller vessels were also completed, and a 221-foot reserve training vessel acquired from the Navy was commissioned. On June 30, 1965, the Service had 323 ships in active commission. Shore units,—Fourteen facilities, including light attendant stations, loran transmitting stations, and inspector offices, were disestablished, whUe 17 new facilities were established and 11 were reorganized. Aviation and aircrajt.—^The Coast Guard operated 153 aircraft, including 57 helicopters, during fiscal 1965. Seven turbine-powered amphibian helicopters replaced overage models and a new helicopter station was coramission ed at Astoria, Oreg. Additional helicopters were assigned to the Annette Air Station, Alaska, to augment service at that activity. 150 19 65 REPORT OF THE SECRETARY OF THE TREASURY Communications.:—Major Coast Guard commands have been included in the Defense Communication Agency^s Automatic Voice Network (AUTOVON) anci Automatic Digital Network (AUTODIN) expansion program. Additional communication circuits for search and rescue were added, and the SARLANT teletypewriter circuit which serves major search and rescue commands on the east coast was converted to an automatic 83B3 selective calling system. In November 1964, the President approved the inclusion of Coast Guard landline circuits with those of the National Communications System. Engineering developments Civil engineering.—A new search and rescue station was completed at Brookings, Oreg., and the construction of a new air station at Selfridge Air Base near Detroit, Mich., begun. The construction of a new replacement runway at the Elizabeth City, N . C , Air Base was near completion a t the close of the fiscal year; and work had been started on a new field house at the Coast Guard Academy. Rechargeable lead acid batteries and electric-motor flashers on minor lighted aids to navigation are being replaced with more economical and reliable single cycle air depolarized batteries and solid state electronic flashers. Standardized day marks have been designed to facilitate mass production of low cost uniform signal marks for identification of aids to navigation structures. Electronics engineering.—The Coast Guard completed a series of flight tests of the engineering model of a loran-C coordinate converter, which demonstrated the feasibility of loran-C as a highly accurate enroute and terminal air navigation system. A lightweight U H F / V H F homing device was developed for the HH-52A helicopter, enabling faster location of any distressed vessel, aircraft, or emergency beacon capable of transmitting in the U H F / V H F frequency range. Two new schools to improve the training of Coast Guard aviation electronics technicians have been opened at the Aircraft Repair and Supply Center, Elizabeth City, N.C. The MK-56 Gun Fire Control System to be used aboard large cutters is to be modified to enable its use for tracking high altitude weather balloons, thus eliminating the need for separate special purpose equipment. The new primary radio station at Miami was put into operation this year. This is another step in a modernization program, which wUl improve communications reliability through use of the most up-to-date equipment. Naval engineering.—Several large vessels and a number of smaller ones were completed during the fiscal year (See Floating units above for further details). ; Contracts were let and initial construction begun on 13 smaller vessels. Contracts were awarded for the construction of the second 378-foot high endurance cutter and five 210-foot medium endurance cutters. Multiyear contracts are now being employed, where practicable, to reduce construction costs. Standard boatbuilding construction continued during the year with the production of thirteen 44-foot motor life boats, eleven 40-foot utility boats, and ADMLNTISTRATIVE REPORTS 151 twenty-seven 25-foot motor selfbaUing surfboats. Thirteen 19-foot boats, capable of being towed on and launched from traUers, were placed in use for servicing navigational aids on intercoastal waterways. Aeronautical engineering.—Flotation equipment was developed and installed on inservice and production HH-52 helicopters to improve the waterborne stability of the aircraft with the rotors stopped. This wiU increase personnel safety and reduce the cost of crash damage repairs. The program to improve the engine reliabUity of H U - 1 6 E aircraft was also completed. Testing and development.—Advances were made in the development of equipment and techniques to accelerate the automation of manned light stations. A simple radio remote control system, designed for point-to-point control of a single small light station, has been in use for 16 months. A more sophisticated system has successfully exercised experimental control over a major light/fog signal/radiobeacon station. This complex system, capable of controlling a network of six major light stations, will be tested in the western Long Island Sound area early in fiscal 1966. Baltimore Light, the world's first nuclear-powered lighthouse, completed one year of successful operation in May 1965. The SNAP-7B generator, developed under AEC sponsorship, has proved to be a reliable power source, but isotopic power is not now economicaUy competitive with more conventional energy sources for aids to navigation. A Coast Guard 30-foot utility boat has been equipped with hydrofoUs to study the advantages and liabilities of hydrofoU craft as search and rescue vehicles. Coast Guard reserve Reserve training cruises were conducted on the east coast by the USCGC Tanager for 1,484 reservists. Active duty training courses for reservists on the West Coast were instituted at the Coast Guard Base, Alameda, Calif., during the summer months. The first group of women recruits (SPARs) since World War I I entered on active duty for one year of training, after which they will be assigned to organized reserve training units. A limited pilot enlistment program, consisting of four months instead of six months initial active duty for training, was commenced for port security personnel in certain areas. If successful, the program will be expanded, thus saving two months of active duty training time for personnel entering the port security rating. Personnel The Continuation Boards required by the interim provisions of legislation approved in September 1963 (14 U.S.C. 211 et seg.) to reduce the officer personnel hump in the grades of commander and captain were completed. A total of 12 captains and 73 commanders are being retired as they reach minimum eligibility. The personnel strength of the Coast Guard as of June 30, 1964 and 1965 is shown in the foUowing table. 152 1965 REPORT OF THE SECRETARY OF THE TREASURY Number Personnel 1964 Military personnel: Commissioned officers Commissioned warrant officers Warrant officers _. __ Cadets Enlisted men _ _ -__ Total - - - ._ - - - 3,293 867 207 385 '27,509 3,388 844 244 440 26,860 r32,261 31,776 _ 2,757 2,292 180 2,856 2,308 168 j_ 5,229 6,322 3,620 24,286 3,796 26,446 27,906 30,242 - - Civilian personnel: Salaried (General Service) Wageboard Lamplighters _ _ _ _ _ Total (exclusive of vacancies) Ready reservists: Officers Enlisted ' ___ __ Total 1966 - f Revised. The table below reflects the changes in the number of officers on active duty as of June 30, 1964 and 1965. Number Officers 1964 • Additions of commissioned officers: Coast Guard Academy graduates __ Reserve officers called to active duty Former merchant marine officers appointed Officer Candidate School graduates _ _ Total __ Losses of commissioned officers: Regular ^ _ _ _ _ _ Reserve on completion of obligated service Total Net gain __ _ _ 1965 109 24 0 221 114 66 2 244 354 416 143 103 178 145 246 323 108 92 i Through retirements, resignations, revocations, and deaths. Recruiting and training.—Fifty-nine main recruiting stations and 50 substations were manned by 257 recruiters during the fiscal year. There were 11,749 applicants for enlistment in the regular Coast Guard and 4,914 were enlisted. The Reserve received 6,711 applications and enlisted 3,565. A Coast Guard aviation cadet program was begun during the year with 10 enlisted applicants, selected. Under another new program, direct commissions as Lt.(jg.) in the U.S. Coast Guard Reserve will be offered to law school graduates, who would spend three years on active duty. The first of this group wiU be commissioned during the fiscal year 1966. 153 ADMUSriSTRATIVE REPORTS • Coast Guard education program.—The education and training programs sponsored by and participated in by the Service are summarized for the fiscal years 1964 and 1965 as follows. Education and traming programs Coast Guard Academy: Applications Applications approved Appointments accepted Cadets Graduates (Bachelor of Science degree) Officer training completed: Officer Candidate School graduates • Postgraduate Flight training Hehcopter trainmg C-130 B aircraft training Short-term specialized courses Off-duty courses at civilian schools Enlisted traiaing completed: Recruit training: Regular Reserve Coast Guard basic petty officer schools Navy basic petty officer schools Advanced schools (Navy and Coast Guard) Specialized courses (Service and civilian).. _ Off-duty education (civilian schools) Correspondence courses completed: Coast Guard Institute U.S. Armed Forces Institute U.S. Naval Correspondence Course Center. Number 301 13,210 1 Estimated. Coast Guard Auxiliary The AuxUiary, a voluntary nonmilitary organization functioning in 686 communities, conducted public instruction courses in safe boating which were attended by 137,395 persons in fiscal 1965. Courtesy examinations of the safety equipment of some 183,000 motorboats were made by speciaUy qualified Auxiliarists. The AuxUiary also cooperated with the regular Coast Guard in making 2,875 regatta patrols, and participated in 5,985 assistance missions which were instrumental in saving 161 lives. As of June 30, 1965, this organization had 23,004 members, including 5,860 instructors and 8,197 inspector-examiners. The membership operated 14,966 facilities, consisting of boats, aircraft, and radio stations. Fiscal and supply management Contracts for the construction of high endurance and medium endurance cutters awarded during fiscal 1965 contained options for the procurement of additional vessels which were programmed in the Coast Guard budget estimates for the fiscal year 1966. These multiyear procurements are expected to save $1,350,000 in total contract prices. This procurement policy wiU be utilized in the future whenever feasible. The Coast Guard cost accounting and operational data reporting systems were revised to produce the financial information and operational performance statistics required for the distribution of operating costs to Coast Guard programs. The Coast Guard budget presenta- 154 19 65 REPORT OF THE SECRETARY OF THE TREASURY tion for fiscal 1967 will be program-oriented, using actual accounting and performance data collected during fiscal year 1965. Coast Guard operating units have been provided an improved level of direct retail supply support by stores issuing activities of the Department of Defense and the General Services Administration. This has enabled a corresponding reduction in Coast Guard inventories. Funds available, obligations, and balances The following table shows the amount of funds available for the Coast Guard during fiscal 1965 and the amounts of obligations and unobligated balances. Appropriated funds: Operatingexpenses ; Reserve traiuing __ Retired pay. _: Acquisition, construction, and improvement . _ Total appropriated fnnds Reimbursements: Operatingexpenses __.. _. . Acquisition, construction, and improvements Total reimbursements . Trust fund, U.S. Coast Guard gift fund Grand total . _ _ _ Funds available i Net total obhgations $273,748,604 20,939,000 36,961,000 92,616,446 $273,691,046 20,858,889 36,968,434 78,970,471 $67,468 80,111 2,566 13,819,864 424,264,950 410,478,840 13,959,999 14,220,342 14,327,986 14,220,342 6,876,030 7,477,789 28,548,328 21,096,372 7,477,789 43,468 4,737 38,721 452,856,736 431,579,949 21,476,510 Unobhgated balance 2 1 Funds available include unobligated balances brought forward from prior year appropriation as follows: Acquisition, construction, and miprovements: Appropriated funds _..__. $7,186,446 Reimbursements 14,068,557 U.S. Coast Guard gift fund. 15,415 2 Unobhgated balance of $21,297,653 imder the acquisition, construction, and improvements appropriation remains available for obligation in fiscal year 1966. These funds are programmed for obhgation in fiscal 1966 for the following general purposes: Department Coast Guard of Defense projects projects . $4,575,000 For projects deferred in fiscal 1965 to be subsequently accomplished-, 9,244,864 For completion of projects started in fiscal 1965 $7,'477,'789 13,819,864 7,477,789 United S t a t e s Savings Bonds Division The primary responsibility of the U.S. Savings Bonds Division is to promote the sale and retention of savings bonds and the sale of savings stamps. The savings bonds program makes a vital contribution to Government financing and debt management policy as one of the most significant means through which the Treasury achieves the broadest possible ownership of the public debt. Management improvement The Savings Bonds Division is headed by a National Director and Assistant National Director and consists of two principal branches: Sales, and Advertising and Promotion. The branch chiefs, together with the National Director and Assistant National Director, make up the Division's Management Committee, whose main purpose is continuing improvement of the Division's services. ADMIOTSTRATIVE REPORTS 155 The Division has 6 regional offices and offices in the 50 States and the District of Columbia through which sales materials are disseminated. A relatively small sales and service staff recruits, trains, and services a large volunteer savings bonds sales corps. Liaison is maintained with all types of financial, business, labor, agricultural, and educational institutions, as well as with other civic organizations. Their volunteer services are enlisted to sell savings bonds at banks, savings and loan associations, credit unions, certain post offices (those in communities where there is no other sales outlet), and business establishments operating the payroll savings plan. I n October 1964 a quarterly management improvement report was initiated under which State offices reported management activities to the headquarters staff. The new system is still in an experimental stage, but has served to make the field staff more management conscious, and has increased headquarters staff information on the way in which State offices are administered. I n February 1965 a Field Communications Guide ^^'^ issued as a manual for communications between the field and headquarters offices. The guide has been well received as a reference work and as a training guide. During fiscal 1965, six States transferred their addressograph operations to the Distribution Center. Of these States, five were able to declare their addressograph equipment surplus. Indirect savings were made by the release of clerical time for more gainful activity. Newsette,) a Division publication, initiated in May 1965, is designed to keep all Division employees iniormed about the Federal Government, the Treasury Department, and the entire Savings Bonds Division. The Division plans to consolidate its administrative information in this publication, thereby substantially reducing the employees' required reading material. Programming has been completed for the conversion of payroll savings reporting to an E D P system using the facilities of the Parkersburg office of the Bureau of the Public Debt. First reports under the new system were mailed to 37,000 business firms during the week of July 5, 1965. The new equipment has been programmed to produce a number of highly useful operating reports at minor cost which had not been possible under the previous system. I n addition, steps are under way to handle the allocation of sales credits by large interstate companies based on the actual payroll savings participants in each State. Stepped-up servicing of publicity media such as providing live radio spots to local radio stations and negatives for offset service to newspapers and periodicals are further examples of the continuing effort of the Division in the area of management improvement. Promotional activities A "Red, White, and Blue" plan for all Americans set the pace for savings bond promotions in the fiscal year 1965, the program's "StarSpangled Savings Bonds Year." May, the anniversary month of the popular Series E Bond, was selected for "Star-Spangled Security Month." 156 19 65 REPORT O.F THE SECRETARY OF THE TREAStJRY To lamich the campaign within industry and outline its goals, the 1965 U.S. Industrial Payroll Savings Committee, a volunteer committee appointed by the Treasury Department, met in Washington on January 12. Twenty-seven business and industrial leaders, each representing a major metropolitan market area, comprised the Committee, headed by Elmer W. Engstrom, president. Radio Corporation of America. Secretary of the Treasury Fowler serves as the Committee's Honorary General Chairman. Members-at-large are Frank R. Milliken, president of Kennecott Copper Corporation, and Harold S. Geneen, chairman and president of International Telephone and Telegraph Corporation, chairmen of the 1964 and 1963 committees, respectively. Locally, metropolitan chairmen organize, lead, and encourage business and industrial leaders to conduct intensive payroll savings campaigns in their own companies. During J a n u a r y - J u l y 1965, more than 8,000 business firms promoted payroll savings. By July 31, 74 percent of the Committee's goal of 1,100,000 new "sign-ups" had been attained. The 809,756 new enrollments represented a gain of 14 percent over the corresponding months of 1964. I n addition to the new "sign-ups," thousands of employees already participating in the plan increased their regular bond savings. Sales of the small-denomination Series E bonds (bought chiefiy by payroll savers) registered peacetime records in fiscal 1965. Organized labor gave its full cooperation to payroll savings campaigns in industry. Through the National Labor Advisory Committee for Savings Bonds, the sales program was successfully publicized by national unions among their members. The 1965 "Star-Span^ied Savings Plan for All Americans" was also marked by highly effective campaigns within the Federal Government. Led by the Interdepartmental Savings Bond.Committee, under the Chairman of the Civil Service Coinmission, John W. Macy, Jr., this campaign raised the number of civilian and military employees enrolled in the payroll savuigs plan to 2,398,825 at the end of the year, an increase of 39,460 participants. Besides these concerted campaigns, the Division coordinated numerous individual drives to promote the sale of E and H bonds with the aid of national organizations and community institutions. To organize and direct the campaigns, under the chairmanship of Bernard B. Burford, secretaiy-treasurer of Optimist International, executives of the major national organizations, with more than 60 million members, met in Chicago in January 1965 and in Washington in February. "Community Bond Campaigns," designed to encourage American families to buy at least a bond a year, were held, in many of the Nation's cities and towns during the fiscal year. During fiscal 1965 the motion picture industry produced a new 20-minute color short, "The Land We Love," to assist the Division in promoting the sale of savings bonds. Ten motion picture companies contributed footage; Warner Brothers Studio donated its full facilities. The Department of Defense and the Treasury Department's Coast Guard cooperated by "shooting" some of the scenes. This film is a splendid example of the volunteer contributions of the American public in support of the U.S. savings bonds program. ADMINISTRATIVE REPORTS 157 The women's organizations of the Nation act as volunteer leaders in the promotion of U.S. savings stamps sales. Stamps are sold primarily in the Nation's schools. The "Junior Astronaut" program' initiated during academic year 1962-63 continued in fiscal year 1965, with more than 6,000,000 student stamp buyers receiving a certificate signed by the Nation's 7 original astronauts designating each one as a "Junior Astronaut." The sale of 115 million savings stamps in 1965 was the largest number sold in any peacetime year. The voluntary assistance provided by the Advertising Council and its task force agencies who prepare and donate advertising and promotional material are of major importance to all campaigns and promotional activities undertaken by the U.S. Savings Bonds Division. Also of immeasurable value to the sales program are the contributions and cooperation of banks and other financial institutions, as well as of industry and community volunteers, whose efforts continued at high levels throughout fiscal 1965. Donated advertising time and space alone is conservatively estimated at a value of more than $50 million annually. Because of this support, the costs to the Government of promoting the sale of Series E and H bonds are held to a minimum and average approximately one-tenth of one percent of annual sales. Sales of E and H savings bonds during fiscal 1965 totaled $4.5 billion. Details of sales, redemptions, and amount outstanding will be found in tables 48-50. United States Secret Service Principal functions of the U.S. Secret Service are the protection of the President of the United States, the members of his immediate family, the President-elect, the Vice President or other officer next in order of succession to the office of President, and the Vice-Presidentelect; the protection of a former President, at his request, for a reasonable period after he leaves office; the detection and arrest of persons committing any offenses against the laws of the United States relating to obligations and securities of the United States and of foreign governments; and the detection and arrest of persons violating certain laws relating to the Federal Deposit Insurance Corporation, Federal land banks, and Federal land bank associations. The duties of the Service are defined by section 3056, title 18, United States Code. Management improvement During the fiscal year 1965 the management improvement program of the Service gave increased attention to cost reduction, economy of operations, and increased productivity. The Inspection Staff continued to analyze procedures and methods at the time of each field office and Headquarters section inspection, and to make suggestions for improvements. An advisory committee was formed to study the application of data processing to the huge volume of letters and reports handled in connection with the protection responsibilities of the Service. Studies of new techniques and methods to expedite criminal investigations continued. During fiscal 1965 a procedural change was made in the submission of settlement reports in cases of forged Govemment 158 19 65 REPORT OF THE SECRETARY OF THE TREASURY checks, where the forger had already been identified before receipt of the check for investigation. The reports are now submitted by the Headquarters Forgery Section to the Treasurer of the United States when the case is received instead of by Secret Service field offices. This benefits the payee who receives a duplicate check earlier while reducing work in the Office of the Treasurer and in the Secret Service. The Counterfeit Note Index, a necessary operating document in each field office, was revised and computer programmed to produce a more effective index. ' ParticijDation in the incentive awards program was improved during fiscal 1965, with the number of suggestions increasing more than 55 percent. The number of quality pay increases rose 700 percent. Training Training activities of the Service were expanded during the year. Seven Secret Service Training Schools, one Treasury Guard Force School, and various types of other Service schools were conducted. I n addition, an Administration and Management Institute was organized for first line supervisors. Outside training included attendance at the F B I Foreign Language School, the F B I Academy, Brookings Institution, American University, GSA Secretarial Courses, GSA Institute Course on Small Purchases, Department of Defense Crypto Schools, and firearms instructions courses by the Colt Co. and Smith and Wesson Co. Protective and security activities The protection of the First Family and the Vice President, and the widow and minor children of the late President Kennedy continued to be the most important responsibility of the Secret Service. Investigations concerning protective activities increased from 2,020 in 1964 to 2,428 in 1965, or 20.2 percent. There were 288 cases pending at the close of the fiscal year, representing a 14.3 percent increase from the end of fiscal 1964. Enforcement activities Counterfeiting continued to be a major concern. However, the large seizures in the previous year of illicit plants for the manufacture of counterfeit money was reflected in some reduction in the number of plants and the amount in counterfeit money seized this fiscal year. During fiscal 1965, 36 plants for the manufacture of counterfeit money were seized, a decrease of 18.2 percent from 1964. There were 484 new issues of counterfeit notes seized and 723 persons arrested for counterfeiting offenses during the year. Counterfeit money received decreased 56.6 percent to $3,363,809. The loss to the public amounted to $846,213 because Secret Service agents seized $2,517,596 before it could be passed. The majority of the notes passed on the public came from large organized groups of offenders in the New York-Newark and Cleveland-Chicago areas. During April 1965 four men were arrested in San Francisco for passing counterfeit $20 notes on the Federal Reserve Bank of San Francisco. Following the arrest, $100,000 in the notes was seized from a room occupied by two of the men and another $156,000 was found in safe deposit boxes rented by the defendants in two Los Angeles banks. ADMINISTRATIVE REPORTS 159 The defendants admitted manufacturing the notes in a printing shop operated by one of them in Portland, Oreg. I n December 1964, the owner of a printing shop in Allston, Mass., and an associate printed $150,000 in counterfeit $20 Federal Reserve notes. Although they solicited underworld contacts to arrange for the sale of the notes, the buyer they found was actually an undercover Secret Service agent. The group was arrested and their equipment and counterfeits, including a quantity of counterfeit American Express checks, seized before any could be passed. During August 1964 special agents in Cleveland began investigating the purchase of certain materials which could be used for counterfeiting. By December the investigation had progressed sufficiently to secure a Federal search warrant for the home of a principal suspect who was apprehended there. Special agents found a press and other paraphernalia as well as $50,000 in new. counterfeit $20 and $100 Federal Reserve notes. The suspect escaped his guard, leaped through a glass door and fired four shots at the pursuing agents as he ran, using a gun handed to him by a woman who had concealed it in a blanket covering her baby. The agents returned the fire and wounded the suspect. The subject, a notorious hoodlum on the "Ten Most Wanted List" of the F B I , was persuaded to surrender and was hospitalized. H e escaped from the hospital, was recaptured the same day, and is now serving a life sentence. During February 1965 South African police arrested two men in Johannesburg, for possession bf a suitcase containing $495,000 in counterfeit $5 notes, drawn on the Federal Reserve Bank of San Francisco. One of the men had manufactured the notes in a printing shop in Johannesburg, where he was employed. Close and effective work by special agents assigned to the Paris office and the Italian Police resulted in the arrest of 11 persons in Italy during June 1965. The authorities seized $7,100 in counterfeit $50 and $100 U.S. Federal Reserve notes, issued on various Federal Reserve banks. These arrests halted a large criminal operation responsible for the distribution of stolen diamonds and automobiles, illegally possessed gold and arms, and many varieties of smuggled goods. During August 1964 a man was arrested in San Francisco and approximately $20,000 in counterfeit notes and negatives for four different types of notes drawn on the Federal Reserve banks of New York, Boston, and Chicago seized. As a result of that arrest, two trunks containing $716,000 in counterfeits were seized from a warehouse near Hartford, Conn. Another man was arrested and both defendants were convicted. Less than $400 in the notes was passed on the public. The alterations of U.S. coins to enhance their numismatic value increased during the fiscal year. This problem has grown rapidly in the past two years. One case involved the purchase for $25,000 by a Virginia coin dealer of a roll of silver dollars dated 1893. The mint mark on each coin had been altered so expertly that a reputable and experienced numismatic firm had judged them to be genuine. Counterfeit U.S. currency continued to be a problem in foreign countries. During fiscal 1965, $951,595 was received as compared with $157,740 in the previous fiscal year. Since a great deal of such activity does not come to the attention of the Secret Service, despite mutual 160 19 65 REPORT OF THE SECRETARY OF THE TREASURY agreements, these figures undoubtedly represent a relatively small part of the amount manufactured and/or circulated. Close liaison with Interpol as well as with police officials throughout the world has been very fruitful in improving this phase of the Service's operations. Police officials from many countries receive instructions on detection of counterfeits from the Service, both when they visit Washington and when Service employees are traveling in their countries on other assignments. Particularly effective cooperation exists with authorities in Canada and Mexico. Notices of U.S. counterfeits in circulation are regularly furnished to finance officers and employees of our Defense establishments overseas with whom the Secret Service maintains excellent liaison. Close contact is also maintained with State Department representatives throughout the world on counterfeiting and protective matters. Liaison with nations in the F a r East is handled through the office in Hawaii and with nations in Europe, the Middle East, and Africa from the Paris office. Secret Service responsibility extends to the counterfeiting in the United States of money of other countries. During fiscal 1965, the Service seized 1,897 pieces of counterfeit foreign currency in this country. The following table summarizes receipts of counterfeit money during the fiscal years 1964 and 1965. Counterfeit money received, fiscal years 1964 and 1965 Receipts of counterfeit currency and coins Counterfeit money received in the United States: Loss to the public __. Seized before circulation.- _ Total _ 1964 1966 Percentage increase, or decrease (—) $530, 434. 45 $846, 213.30 7, 222, 015. 78 2, 517, 596. 27 69.5 —65.2 7, 752, 450.23 3, 363, 809. 57 —66.6 Counterfeit U.S. currency received in foreign coun tries 157, 740 951, 695 503.3 Pieces of counterfeit currency of other nations received in the UnitedStates 246, 010 1,897 -99.0 Although there has been a slight decline in the number of forged Government checks received, this continues to be a major problem. During the past fiscal year, 39,399 cases involving a face amount of $3,967^777.04 were investigated. A total of 2,720 persons were arrested for check forgery in 1965. I n fiscal 1965, 5,586 cases involving the forgery of U.S. savings bonds with a face amount of $605,980.93 were investigated; arrests for bond forgery offenses totaled 69. The decline in the number of check and bond forgery cases may be attributable to improved investigative techniques as well as a continued healthy economic climate. I t is significant that the decrease in these cases occurred despite a continuing increase in the number of checks issued and a general rise in criminal activity. The following are representative of the cases involving large scale multiple forgers of checks and bonds. 161 ADMINISTRATIVE REPORTS I n August 1964 a man was arrested for forging about 130 U.S. Treasury checks at various places in Pennsylvania, Ohio, Virginia, New York, Connecticut, and Delaware. I n 1959 he had been released from a penitentiary where he had been incarcerated for previous counterfeiting offenses. H e estimated that he had forged and negotiated from $75,000 to $100,000 worth of various types of negotiable instruments since 1959. H e was sentenced for 15 years. Four persons who stole and forged approximately 70 U.S. Treasury checks in Florida during 1964 have been convicted. A husband and wife team stole and forged more than 60 checks during 1964 throughout the New England States. Both have been sentenced. The successful investigation and prosecution in this case was at least partially due to use of the ninhydrin identification process, now widely used in the Service. During 1965 a man was arrested in California while attempting to redeem 156 U.S. savings bonds. A t the time he was free on bond awaiting sentence for the forgery of a stolen U.S. Treasury check. During this fiscal year, two men were arrested in Florida for forging 361 savings bonds, which had been received from a "fence" in New York and Miami, Fla. When arrested one of them was administering narcotics to himself. Gold Reserve Act violations required a great deal of investigative thne, with 137 cases handled during the year. Such cases are usually complex and time consuming. Conferences were held with the Customs Agency Service and the Office of Domestic Gold and Silver Operations to effect closer coordination in the handling of gold cases. The following tables show the number of criminal and noncriminal investigations completed and arrests made by the Secret Service in fiscal years 1964 and 1965. Criminal and noncriminal cases investigated, fiscal years 1964 and 1965 Cases investigated 1964 Counterfeiting Forged Government checks. Forged Government bonds. Miscellaneous criminal Miscellaneous noncriminal. Total 1965 Percentage increase, or decrease (—) 12,166 41,236 6,795 2,217 10,601 16, 213 39,399 5,586 2,903 13,542 33.3 -4.6 -3.6 30.9 27.7 72,015 77,643 • 7.8 Number of arrests, fiscal years 1964 and 1965 1964 Offenses Counterfeiting Forged Government checks Forged or stolen bonds Miscellaneous Total782-556—ee- - 1966 Percentage increase, or decrease (—) 737 3,192 74 171 723 2,720 69 249 -1.9 —14.8 -6.8 46.6 4,174 3,761 -9.9 162 19 65 REPORT OF THE SECRETARY OP THE TREASURY Cases of all types investigated by the Service during fiscal 1965 totaled 77,643, while 3,761 persons were arrested. Offenses investigated by the Secret Service resulted in the conviction of 3,182 persons, 97.5 percent of the cases brought to trial during the year. The trends in crimes over which this Service.has jurisdiction remain generally consistent with nationwide trends in other crimes. Cooperation with State, county, local authorities, and industry The Secret Service has a fine record built up over many decades of cooperation and coordination with all local and Federal authorities. During the current fiscal year, special emphasis was given to maintaining and improving this record, with particular attention to protective activities. The Service continued the program developed over many years of fostering close cooperation with all segments of industry which are concerned with the la^vs enforced by the Service. EXHIBITS Public Debt Operations, Calls of Guaranteed Securities, Regulations, and Legislation Treasury Notes and Treasury Bonds Offered and Allotted Exhibit 1.—Treasury notes Two Treasury circulars, one containing an exchange offering and the other containing a cash offering, are reproduced in this exhibit. Circulars pertaining to the other note offerings during the fiscal year 1965 are similar in form and therefore are not reproduced in this report. However, the essential details for each offering are summarized in the first table following the circulars and the final allotments of the new notes are shown in the second table. DEPARTMENT CIRCULAR NO. 1-65. PUBLIC DEBT TREASURY DEPARTMENT, Washington, January 28,1965. I . OFFERING OF NOTES 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, as amended, offers $2,170,000,000, or thereabouts, of notes of the United States, designated 4 percent Treasury notes of Series E-1966, at 99.85 percent of their face value and accrued interest. The 2% percent Treasury bonds of 1965, maturing February 15, 1965, will be accepted at par in payment or exchange, in whole or in part, to the extent subscriptions are allotted by the Treasury. The books will be open only on February 1, 1965, for the receipt of subscriptions. I I . DESCRIPTION OF NOTES 1. The notes will be dated February 15, 1965, and will bear interest from that date at the rate of 4 percent per annum, payable on a semiannual ba,sis on May 15 and Novemher 15, 1965, and on May 15 and November 15, 1966. They will mature November 15, 1966, and will not be subject to call for redemption prior to maturity. 2. The income derived from the notes is subject to all taxes imposed under the Internal Revenue Code of 1954. The notes are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. 3. The notes will be acceptable to secure deposits of public moneys. They will not be acceptable in payment of taxes. 4. Bearer notes with interest coupons attached, and notes registered as to principal and interest, will be issued in denominations of $1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and $500,000,000. Provision wiU be made for the interchange of notes of different denominations and of coupon and registered notes, and for the transfer of registered notes, under rules and regulations prescribed by the Secretary of the Treasury. 5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes. I I I . SUBSCRIPTION AND ALLOTMENT 1. Subscriptions accepting the offer made by this circular will be received at the Federal Reserve banks and branches and at the Oflace of the Treasurer of the United States, Washington, D.C, 20220. Only the Federal Reserve 165 166 19 65 REPORT OF THE SECRETARY OF THE TREASURY banks and the Treasury Department are authorized to act as oflQcial agencies. Commercial banks, which for this purpose are defined as banks accepting demand deposits, may submit subscriptions for account of customers provided the names of the customers are set forth in such subscriptions. Others than commercial banks will not be permitted to enter subscriptions except for their own account. Subscriptions from commercial banks for their own account will be restricted in each case to an amount not exceeding 50 percent of the combined capital (not including capital notes or debentures), surplus and undivided profits of the subscribing bank. Subscriptions will be received without deposit from banking institutions for their own account, federally-insured savings and loan associations. States, political subdivisions, or instrumentalities thereof, public pension and retirement and other public funds, intemational organizations in which the United States holds membership, foreign central banks and foreign States, dealers who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon. Federal Reserve banks and Government investment accounts. Subscriptions from all others must be accompanied by payment (in cash or in Treasury bonds of 1965, maturing February 15, 1965, which will be accepted at par) of 2 percent of the amount of notes applied for, not subject to withdrawal until after allotment. Registered bonds submitted as deposits should be assigned as provided in section V hereof. Following allotment, any portion of the 2 percent payment in excess of 2 percent of the amount of notes allotted may be released upon the request of the subscribers. 2. All subscribers requesting registered notes will be required to furnish appropriate identifying numbers as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individual's social .security number or an employer identification number. 3. All subscribers are required to agree not to purchase or to sell, or to make any agreements with. respect to the purchase or sale or other disposition of any note,s of this issue at a specific rate or price, until after midnight February 1, 1965. 4. Commercial banks in submitting subscriptions will be required to certify that they have no beneficial interest in any of the subscriptions they enter for the account of their customers, and that their customers have no beneficial interest in the banks' subscriptions for their own account. 5. Under the Second Liberty Bond Act, as amended, the Secretary of the Treasury has the authority to reject or reduce any subscription, to allot less than the amount of notes applied for, and to make different percentage allotments to various classes of subscribers when he deems it to be in the public interest; and any action he may take in these respects shall be final. Subject to the exercise of that authority, subscriptions will be allotted (1) in full for any State, political subdivision or instrumentality thereof, puhlic pension and retirement and other public fund, intemational organization in which the United States holds membership, foreign central bank and foreign State, Federal Reserve bank^ or Government investment account that certifies in writing that at 4 p.m., eastern standard time, January 27, 1965, it owned or had contracted to purchase for value 2% percent Treasury bonds of 1965 in an amount equal to or greater than the amount of its subscription (if the certification is not made, none of such subscriber's subscription shall be subject to a preferred full allotment) and (2) for all others as publicly announced. Allotment notices will be sent out promptly upon allotment. IV. PAYMENT" 1. Payment at 99.85 percent of their face value and accrued interest, if any, for notes allotted hereunder must be made or completed on or before February 15, 1965, or on later allotment. Payment will not be deemed to have been completed where registered notes are requested if the appropriate identifying number, as required by paragraph 2 of section III hereof, has not been furnished; provided, however, if a subscriber has applied for but is unable to furnish the identifying number by the payment date only because it has not been issued, he may elect to receive, pending the furnishing of the identifying number, interim receipts and in this case payment will be deemed to have been completed. In every case where full payment is not completed, the payment with application up to 2 per- EXHIBITS 167 cent of the amount of notes allotted shall, upon declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United States. Payment may be made for any notes allotted hereunder in cash or by exchange of 2% percent Treasury bonds of 1965, which will be accepted at par. A cash adjustment will be made for the difference ($1.50 per $1,000) between the par value of maturing bonds accepted in exchange and the issue price of the notes. The payment will be made in the case of bearer bonds following their acceptance and in the case of registered bonds following discharge of registration. In the case of registered bonds, the payment will be made by check drawn in accordance with the assignments on the bonds surrendered or by credit in any account maintained by a banking institution with the Federal Reserve bank of its district. Where payment is made with bonds in bearer form, coupons dated February 15, 1965, should be detached and cashed when due. In the case of registered bonds, the final interest due on February 15, 1965, will be paid by issue of interest checks in regular course to holders of record on January 15, 1965, the date the transfer books closed. v . A S S I G N M E N T OF REGISTERED BONDS 1. Treasury bonds of 1965 in registered form tendered as deposits and in payment for notes allotted hereunder should be assigned by the registered payees or assignees thereof, in accordance with the general regulations of the Treasury Department, in one of the forms hereafter set forth. Bonds tendered in payment should be surrendered to a Federal Reserve bank or branch or to the Oflace of the Treasurer of the United States, Washington, D.C, 20220. The bonds must be delivered at the expense and risk of the holder. If the notes are desired registered in the same name as the bonds surrendered, the assignment should be to "The Secretary of the Treasury for 4 percent Treasury Notes of Series E-1966"; if the notes are desired registered in another name, the assignment should be to "The Secretary of the Treasury for 4 percent Treasury Notes of Series E-1966 in the name of "; if notes in coupon form are desired, the assignment should be to "The Secretary of the Treasury for 4 percent Treasury Notes of Series E-19e6 in coupon form to be delivered to " VI. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to receive subscriptions, to make such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and make delivery of notes on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive notes. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve banks. DOUGLAS DHXON, Secretary of the Treasury. DEPARTMENT CIRCULAR NO. 2-65. PUBLIC DEBT TREASURY DEPARTMENT, Washington, April 29, 1965. I . OFFERING OF NOTES 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, as amended, offers notes of the United States, designated 4 percent Treasury notes of Series A-1966, at 99.85 percent of their face value and accrued interest, in exchange for the following notes maturing May 15,1965: 4% percent Treasury notes of Series A-1965; or 3% percent Treasury notes of Series C-1965. 168 1965 REPORT OF THE SECRETARY OF THE TREASURY A cash payment will be due from subscribers as set forth in section IV hereof. The amount of this offering will be limited to the amount of eligible notes tendered in exchange. The books will be open only on May 3 through May 5, 1965, for the receipt of subscriptions. 2. In addition, holders of the notes enumerated in paragraph 1 of this section are offered the privilege of exchanging all or any part of such notes for 4 ^ percent Treasury bonds of 1974, which offering is set forth in Department Circular, Public Debt Series—No. 3-65, issued simultaneously with this circular. n. DESCRIPTION OF NOTES 1. The notes now offered will be identical in all respects with the 4 percent Treasury notes of Series A-1966 issued pursuant to Department Circulars, Public Debt Series—Nos. 3-62 and 4-64, dated February 5, 1962, and January 31, 1964, respectively, except that interest will accrue from May 15, 1965. With this exception the notes are described in the following quotation from Department Circular No. 3-62: "1. The notes will be dated February 15, 1962, and will bear interest from that date at the rate of 4 percent per annum, payable semiannually on August 15, 1962, and thereafter on February 15 and August 15 in each year until the principal amount becomes payable. They will mature August 15, 1966, and will not be subject to call for redemption prior to maturity. "2. The income derived from the notes is subject to all taxes imposed under the Internal Revenue Code of 1954. The notes are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. "3. The notes will be acceptable to secure deposits of public moneys. They will not be acceptable in payment of taxes. "4. Bearer notes with interest coupons attached, and notes registered as to principal and interest, will be issued in denominations of $1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and $500,000,000. Provision wiU be made for the interchange of notes of different denominations and of coupon and registered notes, and for the transfer of registered notes, under rules and regulations prescribed by the Secretary of the Treasury. "5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes." I I I . SUBSCRIPTION AND ALLOTMENT 1. Subscriptions accepting the offer made by this circular will be received at the Federal Reserve banks and branches and at the Office of the Treasurer of the United States, Washington, D.C, 20220. Banking institutions generally may submit subscriptions for account of customers, but only the Federal Reserve banks and the Treasury Department are authorized to act as official agencies. 2. All subscribers requesting registered notes will be required to furnish appropriate identifying numbers as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individual's social security number or an employer identification number. 3. Under the Second Liberty Bond Act, as amended, the Secretary of the Treasury has the authority to reject or reduce any subscription, and to allot less than the amount of notes applied for when he deems it to be in the public interest; and any action he may take in these respects shall be final. Subject to the exercise of that authority, all subscriptions will be aUotted in full. IV. P A Y M E N T 1. Payment for the face amount of notes allotted hereunder together with a cash payment of $8.33425 per $1,000 (the difference between $9.83425 per $1,000 payable by the subscriber for accrued interest from February 15 to May 15, 1965, and $1.50 per $1,000 payable to the subscriber on account of the issue price, of the notes allotted) must be made on or before May 17, 1965, or on later allotment. Payment for the face amount of the notes allotted may be made only in a Uke face amount of notes of the two issues enumerated in paragraph 1 of section EXHIBITS 169 I hereof, which together with the cash payment referred to in the preceding sentence should accompany the subscription. Payment will not be deemed to have been completed where registered notes are requested if the appropriate identifying number, as required by paragraph 2 of section III hereof, has not been furnished ; provided, however, if a subscriber has applied for but is unable to furnish the identifying number by the payment date only because it has not been issued, he may elect to receive, pending the furnishing of the identifying number, interim receipts and in tnis case payment will be deemed to have been completed. When payment is made with notes in bearer form, coupons dated May 15, 1965, should be detached and cashed when due. When payment is made with registered notes, the final interest due on May 15, 1965, wiU be paid by issue of interest checks in regular course to holders of record on April 15, 1965, the date the transfer books closed. V. A S S I G N M E N T OF REGISTERED NOTES 1. Treasury notes of Series A-1965 and Series C-1965 in registered form tendered in payment for notes offered hereunder should be assigned by the registered payees or assignees thereof, in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, in one of the forms hereafter set forth, and thereafter should be surrendered with the subscription to a Federal Reserve bank or branch or to the Office of the Treasurer of the United States, Washington, D.C, 20220. The maturing notes must be delivered at the expense and risk of the holder. If the new notes are desired registered in the same name as the notes surrendered, the assignment should be to "The Secretary of the Treasury for exchange for 4 percent Treasury Notes of Series A-1966" ; if the new notes are desired registered in another name, the assignment should be to "The Secretary of the Treasury for exchange tor 4 percent Treasury notes of Series A-1966 in the name of "; if new notes in coupon form are desired, the assignment should be to "The Secretary of the Treasury for exchange for 4 percent Treasury notes of Series A-1966 in coupon form to be delivered to ." VI. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to receive subscriptions, to make such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and make delivery of notes on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive notes. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve banks. HENRY H . FOWLER, Secretary of the Treasury. O Summary of information pertaining to Treasury notes issued during ihe fiscal, year 1965 Department circular Date of preliminary announcement Number Concurrent offering circular number Date 1964 1964 July 29 Oct. 28 11-64 12-64 3K percent Series C-1966 issued at par for cash 1 4 percent Series D-1966 issued at par for cash 2 _. July 30 Oct. 29 __ _ .__ _ 1-65 Date Date of subscription maturity books closed 1964 1966 1964 1964 Aug. 15 Nov. 15 Feb. 15 May 15 Aug. 3 Nov. 2 Aug. 17 Nov. 16 1965 1966 1965 1966 1965 Jan. 27 Date of issue Treasury notes issued for excliange or for cash 4 percent Series E-1966 issued at 99.85 for cash 3 Jan. 28 ___ Allotment payment date . on or before (or on later allotment) ___ Feb. 15 Nov. 15 Feb. 1 o o o Feb. 15 1962 Apr. 28 2-65 Apr. 29 3-65 1 Holders of 5 percent Treasury notes of Series B-1964 and 3 ^ percent Treasury notes of Series E-1964, which matured Aug. 15,1964, were not offered preemptive rights to exchange their holdings for the new notes. Pajnnent for cash subscriptions allotted could be made in whole or in part by exchange at par of the notes of Series B-1964 and E-1964; coupons dated Aug. 15,1964, were detached from such notes in bearer form and cashed when due. 2 Holders of iJ4 percent Treasury notes of Series C-1964 and 3 ^ percent Treasury notes of Series F-1964 which matured Nov. 6,1964, were not offered preemptive rights to exchange their holdings for the new notes. Payment for cash subscriptions allotted could be made in whole or in part by exchange at par of the notes of Series C-1964 and F-1964; coupons dated Nov. 16 1964 were detached from such notes in bearer form and cashed when due. May 5 6 May 17 o 3 Holders of 2 ^ percent Treasury bonds of 1965, which matured Feb, 15,1965, were not offered preemptive rights to exchange their holdings for the new notes. See Department Circular No. 1-65 in this exhibit for provisions for subscription and pa3mient. 4 Interest payable from May 15,1965. * See Department Circular No. 2-65 in this exhibit for provisions for subscription and payment. fel 4 percent Series A-1966 issued at 99.85 in excliange for—4H percent Series A-1965 notes * Feb. 15 Aug. 15 maturing May 15,1965; d]4 percent Series C-1965 notes maturing May 15, 1965. > Ul Allotments of Treasury notes issued during the fiscal year 1965, by Federal Reserve districts [In thousands] 4 percent Series A-1966 notes issued in exchange for—3 Federal Reserve district 3J6 percent Series C-1966 notes 1 Boston New York Philadelphia... Cleveland Richmond Atlanta Chicago St. Louis Minneapolis..Kansas City... Dallas San FranciscoTreasury $81,488 !, 850,455 44,272 124,018 55, 530 98, 560 273,940 60,570 35,977 83,884 46,479 278,440 6,305 Total note allotments Securities eligible for exchange: Exchanged in concurrent offerings.. 4,039,918 Total exchanged Not submitted for exchange.. Total securities eligible for exchange.. 1 Subscriptions from States, political subdivisions or instrumentalities thereof, pubhc pension and retirement and other public funds, international organizations in which the United States holds membership, foreign central banks and foreign States, Government investmentfaccounts, and the Federal Reserve banks were allotted in full if the subscriber certified that it owned a like or greater amount of securities that could be usedjln payment for the notes. Subscriptions from all others in amounts up to $100,000 were allottedjia full; amounts over $100,000 were allotted 15 percent, but not less than $100,000 to any one subscriber. 2^Subscriptions from States, political subdivisions or instrumentalities thereof, public 4 percent Series 4 percent Series D-1966 notes 2 E-1966 notes 1 $132,622 7,576, 837 78,274 183, 453 99,938 157,659 491,421 125,160 62, 552 121,836 90, 630 392,615 5,945 VA percent i% percent Series A-1965 Series C-1965 Treasury notes Treasury notes ' maturing maturing May 15,1965 < May 15, 1965 * Total issued $77,262 ,169, 234 54,768 103,888 56,195 90,978 327,143 61,846 42,107 55,169 35,726 179,066 439 $22,337 462,915 14, 783 36, 939 13,078 23,899 100,057 21,882 19,720 26,706 12,006 35,857 12,476 $46,195 4,435,169 23,771 68,473 37,669 56,557 180,864 65,918 39,067 32,403 34,612 66,093 14,796 $68, 532 4,898,084 38, 554 105,412 50, 747 80,456 280,921 87,800 58,787 59,109 46, 618 101,950 27,272 2, 253, 821 802,655 5,101,587 5,904,242 732,389 1,329,296 2,061,685 1,535,044 280, 666 6,430,883 189,234 7,965,927 469,900 1,815,710 6,620,117 8,435,827 pension and retirement and other public funds, international organizations in which the United States holds membership, foreign central banks and foreign States, Government investment accounts, and the Federal Reserve banks were allotted in full if the subscriber certified that it owned a like or greater amount of securities that could be used in payment for the notes. Subscriptions from all others in amounts up to $100,000 were allotted in full; araounts over $100,000 were allotted 16.6 percent, but not less than $100,000 to any one subscriber. 3 Subscriptions were allotted in full. * 4H percent Treasury bonds of 1974 were also offered in exchange for this security. W Ul 172 19 65 REPORT OF THE SECRETARY OF THE TREASURY Exhibit 2.—Treasury bonds Two Treasury circulars, one containing an exchange offering for maturing issues and the other containing an advance refunding exchange offering, are reproduced in this exhibit. Circulars pertaining to the other bond offerings during the fiscal year 1965 are similar in form and therefore are not reproduced in this report. However, the essential details for each offering are summarized in the first table following the circulars and the final allotments of the new bonds are shown in the second table. DEPARTMENT CIRCULAR NO. 10-64. PUBLIC DEBT TREASURY DEPARTMENT, Washington, July 9, 1964. 1. OFFERING OF BONDS 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, as amended, invites subscriptions from the people of the United States fdr bonds of the United States, designated 4^4 percent Treasury bonds of 198T-92: (1) at 100.10 percent of their face value in exchange for 3% percent Treasury notes of Series E-1964, dated August 1, 1961, due August 15, 1964; (2) at 99.95 percent of their face value in exchange for 5 percent Treasury notes of Series B-1964, dated October 15, 1959, due August 15, 1964; (3) at 99.95 percent of their face value in exchange for 3% percent Treasury notes of Series F-1964, dated August 15, 1963, due November 15, 1964; (4) at 99.60 percent of their face value in exchange for 4% percent Treasury notes of Series C-1964, dated February 15, 1960, due November 15, 1964; (5) at 99.90 percent of their face value in exchange for 3% percent Treasury notes of Series C-1965, dated November 15, 1963, due May 15, 1965; (6) at 100.30 percent of their face value in exchange for 3% percent Treasury notes of Series B-1966, dated May 15, 1962, due February 15, 1966; (7) at 100.15 percent of their face value in exchange for 3% percent Treasury bonds of 1966, dated November 15, 1960, due May 15, 1966; (8) at 99.75 percent of their face value in exchange for 4 percent Treasury notes of Series A-1966, dated Februa.ry 15, 1962, due August 15, 1966; or (9) at 100.70 percent of their face value in exchange for 3% percent Treasury notes of Series B-1967, dated March 15, 1963, due February 15, 1967. Interest adjustments as of July 22, 1964, and the cash payments on account of the issue prices of the new bonds will be made as set forth in section IV hereof. The amount of the offering under this circular will be limited to the amount of eligible securities tendered in exchange and accepted. Delivery of the new bonds will be made on July 24, 1964. The books will be open only on July 13 through July 16, 1964, for the receipt of subscriptions for this issue. 2. In addition to the offering under this circular, holders of securities of the issues enumerated in paragraph 1 of this section are offered the privilege of exchanging all or any part of such securities for 4 percent Treasury bonds of 1969 (Oct.), or 4% percent Treasury bonds of 1973, which offerings are set forth in Department Circulars, Public Debt Series Nos. 8-64 and 9-64, respectively, issued simultaneously with this circular. 3. Nonrecognition of gain or loss for Federal incoine 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 September 22, 1959), the Secretary of the Treasury hereby declares that no gain or loss shall be recognized for Federal income tax purposes upon the exchange with the United States of the 378 percent Treasury notes of Series C-1965, 3% percent Treasury notes of Series B-1966, 3% percent Treasury bonds of 1966, 4 percent Treasury;notes of Series A-1966, or 3% percent Treasury notes of Series B-1967, solely for the 4% percent Treasury bonds of 1987-92. Section 1031(b) of the Code, however, requires recognition of any gain realized on the exchange to the 1 Gain or loss, if any, upon t h e exchange of t h e securities of t h e first four issues listed in p a r a g r a p h 1 of this section, must be fully recognized under the Code. EXHIBITS 173 extent that money is received by the security holder in connection with the exchange. To the extent not recognized at the time of the exchange, gain or loss, if any, upon the obligations surrendered in exchange will be taken into account upon the disposition or redemption of the new obligations. . I I . DESCRIPTION OF BONDS 1. The bonds now offered will be identical in all respects with the 4% percent Treasury bonds of 1987-92 issued pursuant to Department Circular, Public Debt Series No. 14-62, dated July 30, 1962, except that interest will accrue from July 22,1964. With this exception the bonds are described in the following quotation from Department Circular No. 14-62 : "1. The bonds will be dated August 15, 1962, and will bear interest from that date at the rate of 4% percent per annum payable semiannually on February 15 and August 15 in each year until the principal amount becomes payable. They will mature August 15, 1992, but may be redeemed at the option of the United States on and after August 15, 1987, in whole or in part, at par :and accrued interest, on any interest day or days, on 4 months' notice of redemption given in such manner as the Secretary of the Treasury shall prescribe. In case of partial redemption the bonds to be redeemed will be determined by such method as may be prescribed by the Secretary of the Treasury. From the date of redemption designated in any such notice, interest on the bonds called for redemption shall cease. "2. The income derived from the bonds is subject to all taxes imposed under the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. "3. The bonds will be acceptable to secure deposits of public moneys. "4. Bearer bonds with interest coupons attached, and bonds registered as to principal and interest, wiU be issued in denominations of $500, $1,000, $5,000, $10,000, $100,000, and $1,000,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered bonds, and for the transfer of registered bonds, under rules and regulations prescribed by the Secretary of the Treasury. "5. Any bonds issued hereunder which upon the death of the owner constitute part of his estate, wiU be redeemed at the option of the duly constituted representatives of the deceased owner's estate, at par and accrued interest to date of payment,^ provided: (a) that the bonds were actually owned by the decedent at the time of his death; and (b) that the Secretary of the Treasury be authorized to apply the entire proceeds of redemption to the payment of Federal estate taxes. Registered bonds submitted for redemption hereunder must be duly assigned to 'The Secretary of the Treasury for redemption, the proceeds to be paid to the District Director of Internal Revenue at for credit on Federal estate taxes due from estate of ' Owing to the periodic closing of the transfer books and the impossibility of stopping payment of interest to the registered owner during the closed period, registered bonds received after the closing of the books for payment during such closed period will be paid only at par with a deduction of interest from the date of payment to the next interest payment date; ^ bonds received during the closed period for payment at a date after the books reopen will be paid at par plus accrued interest from the reopening of the books to the date of payment. In either case checks for the full six months' interest due on the last day of the closed period will be forwarded to the owner in due course. All bonds submitted must be accompanied by Form PD 1782,^ properly completed, signed and certified, and by proof of the representa1 An exact half-year's interest is computed for each full half-year period irrespective of the actual number of days in the half year. For a fractional p a r t of any half year, computation is on t h e basis of the actual number of days in such half year. 2 The transfer books are closed from J a n u a r y 16 through F e b r u a r y 15, and from July 16 through August 15 (both dates inclusive) in each year. 3 Copies of Form P D 1782 may be obtained from any Federal Reserve bank or from the T r e a s u r y Department, Washington, D . C , 20226. 174 19 65 REPORT OF THE SECRETARY OF THE TREASURY tives' authority in the form of a court certificate or a certified copy of the representatives' letters of appointment issued by the court. The certificate, or the certification to the letters, must be under the seal of the court, and except in the case of a corporate representative, must contain a statement that the appoiatment is in full force and be dated within six months prior to the submission of the bonds, unless the certificate or letters show that the appointment was made within one year immediately prior to such submission. Upon payment of the bonds appropriate memorandum receipt will be forwarded to the representatives, which will be followed in due course by formal receipt from the district director of Internal Revenue. "6. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds." III. SUBSCRIPTION AND ALLOTMENT 1. 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, 20220. Banking institutions generally may submit subscriptions for account of customers, but only the Federal Reserve banks and the Treasury Department are authorized to act as official agencies. 2. All subscribers requesting registered bonds will be required to furnish appropriate identifying numbers as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individual's social security number or an employer identification number. 3. The Secretary of the Treasury reserves the right to reject or reduce any subscription, and to allot less than the amount of bonds applied for; and any action he may take in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent out promptly upon allotment. rv. PAYMENT 1. Payment for the face amount of bonds allotted hereunder must be made on or before July 24,1964, or on later allotment, and may be made only in a like face amount of securities of the nine issues enumerated in paragraph 1 of section I hereof, which should accompany the subscription. Payment will not be deemed to have been completed where registered bonds are requested if the appropriate identifying number, as required by paragraph 2 of section III hereof, has not been furnished; provided, however, if a subscriber has applied for but is unable to furnish the identifying number by the payment date only because it has not been issued, he may elect to receive, pending the furnishing of the identifying number, interim receipts and in this case payment will be deemed to have been completed. Cash payments due from subscribers (paragraphs 2, 4,, 5, 6, 7, 8, and 10 below) should accompany the subscription. Cash payments due to subcribers (paragraphs 3 and 9 below) will be made in the case of bearer securities following their acceptance and in the case of registered securities following discharge of registration. In the case of registered securities, the payment will be made by check drawn in accordance with the assignments on the securities surrendered or by credit ih any account maintained, by a banking institution with the Federal Reserve bank of its district. 2. 8% percent notes of Series E-1964.—Coupons dated August 15, 1964, must be attached to the notes in bearer form when surrendered. Accrued interest from February 15 to July 22, 1964 ($16.27747 per $1,000) wiU be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued plus the payment ($1.00 per $1,000) due the United States on account of the issue price of the bonds will be charged, and the difference ($3.17033 per $1,000) must be paid by subscribers. 3. 5 percent notes of Series B-1964-—Coupons dated August 15, 1964, must be attached to the notes in bearer form when surrendered. Accrued interest from February 15 to July 22, 1964 ($21.70330 per $1,000) plus the payment ($0.50 per $1,000) due to the subscriber on account of the issue price of the bonds,will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued will be charged, and the difference ($3.75550 per $1,000) will be paid to subscribers. 3% percent notes of Series F-1964.—Coupons dated November 15, 1964, must be attached to the notes in bearer form when surrendered. Accrued EXHIBITS 175 interest from May 15 to July 22, 1964 ($6.92935 per $1,000) plus the payment ($0.50 per $1,000) due to the subscriber on account of the issue price of the bonds will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued will be charged, and the difference ($11.01845 per $1,000) must be paid by subscribers. 5. 4% percent notes of Series 0-1964-—^Coupons dated November 15, 1964, must be attached to the notes in bearer form when surrendered. Accrued interest from May 15 to July 22, 1964 ($9.00815 per $1,000) plus the payment ($4.00 per $1,000) due to the subscriber on account of the issue price of the bonds will be credited, accrued interest from February 15, to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued will be charged, and the difference ($5.43965 per $1,000) must be paid by subscribers, 6. 3% percent notes of Series G-1965.—Coupons dated November 15, 1964, and May 15, 1965, must be attached to the notes in bearer form when surrendered. Accrued interest from May 15 to July 22, 1964 ($7.16033 per $1,000) plus the payment ($1.00 per $1,000) due to the subscriber on account of the issue price of the bonds will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued wiU be charged, and the .difference ($10.28747 per $1,000) must be paid by subscribers. 7. 5% percent notes of Series B-1966.—Coupons dated August 15, 1964, and all subsequent coupons, must be attached to the notes in bearer form when surrendered. Accrued interest from February 15 to July 22, 1964 ($15.73489 per $1,000) will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued plus the payment ($3.00 per $1,000) due the United States on account of the issue price of the bonds will be charged, and the difference ($5.71291 per $1,000) must be paid by subscribers. 8. 8% percent bonds of 1966.—Coupons dated November 15, 1964, and all subsequent coupons must be attached to the bonds in bearer form when surrendered. Accrued interest from May 15 to July 22, 1964 ($6.92935 per $1,000) will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to he issued plus the payment ($1.50 per $1,000) due the United States on account of the issue price of the new bonds will be charged, and the difference ($13.01845 per $1,000) must be paid by subscribers. 9. 4 percent notes of Series A-1966.—Coupons dated August 15, 1964, and all subsequent coupons, must be attached to the notes in bearer form when surrendered. Accrued interest from February 15 to July 22, 1964 ($17.36264 per $1,0(X)) plus the payment ($2.50 per $1,000) due to the subscriber on account of the issue price of the bonds will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued wiU be charged, and the difference ($1.41484 per $1,000) will be paid to subscribers. 10. 8% percent notes of Series B-1961.—Coupons dated August 15, 1964, and all subsequent coupons, must be attached to the notes in bearer form when surrendered. Accrued interest from February 15 to July 22, 1964 ($15.73489 per $1,000) will be credited, accrued interest from February 15 to July 22, 1964 ($18.44780 per $1,000) on the bonds to be issued plus the payment ($7.00 per $1,000) due the United States on account of the issue price of the bonds will be charged, and the difference ($9.71291 per $1,000) must be paid by subscribers. V. ASSIGNMENT OF REGISTERED SECURITIES 1. Eligible Treasury securities in registered form tendered in payment for bonds offered hereunder should be assigned by the registered payees or assignees thereof, in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, in one of the forms hereafter set forth, and thereafter should be surrendered with the subscription to. a Federal Reserve bank or branch or to the Office of the Treasurer of the United States, Washington, D.C, 20220. The securities must be delivered at the expense and risk of the holder. If the new bonds are desired registered in the same name as the securities surrendered, the assignment should be to "The Secretary of the Treasury for exchange for 4i/4 percent Treasury bonds of 198792"; if the new bonds are desired registered in another name, the assignment should be to "The Secretary of the Treasury for exchange for 4% percent Treasury Bonds of 1987-92 in the name of " ; if new bonds in coupon form are desired, the assignment should be to "The Secretary of the 176 19 65 REIPORT OF THE SECRETARY OF THE TREASURY Treasury for exchange for 4^/4 percent Treasury Bonds of 1987-92 in coupon form to be delivered to " V I . GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to receive subscriptions, to make allotments on the basis and up to the amounts indicated by the Secretary of the Treasury to the Federal Reserve banks of the respective districts, to issue allotment notices, to receive payment for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive bonds. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve banks. DOUGLAS DILLON, Secretary of the Treasury. DEPARTMENT CIRCULAR NO. 3-65. PUBLIC DEBT TREASURY DEPARTMENT, Washington, April 29, 1965. I . OFFERING OF BONDS 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, as amended, offers bonds of the United States, designated 4% percent Treasury bonds of 1974, at 100.25 percent of their face value, in exchange for the following notes maturing May 15, 1965: 4% percent Treasury notes of Series A-1965; or 3% percent Treasury notes of Series C-1965. The amount of this Offering will be limited to the amount of eligible ndtes tendered in exchange. The books will be open only on May 3 through May 5, 1965, for the receipt of'subscriptions. 2. In addition, holders of the notes enumerated in paragraph 1 of this section are offered the privilege of exchanging all or any part of such notes for 4 percent Treasury notes of Series A-1966, which offering is set forth in Department Circular, Public Debt Series-No. 2-65, issued simultaneously with this circular. I I . DESCRIPTION OF BONDS 1. The bonds now offered will be identical in all respects with the 41^4 percent Treasury bonds of 1974 issued pursuant to Department Circular, Public Debt Series No. 7-64, dated April 30, 1964, except that interest will accrue from May 15, 1965. With this exception the bonds are described in the following quotation from Department Circular No. 7-64: "1. The bonds will be dated May 15, 1964, and will bear interest from that date at the rate of 4^4 percent per annum, payable semiannually on November 15, 1964, and thereafter on May 15 and November 15 in each year until the principal amount becomes payable. They will mature May 15, 1974, and will not be subject to call for redemption prior to maturity. "2. The income derived from the bonds is subject to all taxes imposed under the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift, or other excise taxes, whether Federai or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. "3. The bonds will be acceptable to secure deposits of public moneys. "4. Bearer bonds with interest coupons attached, and bonds registered as to principal and interest, will be issued in denominations of $500, $1,000, $5,000, $10,000, $100,000, and $1,000,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered bonds, and for the transfer of registered bonds, under rules and regulations prescribed by the Secretary of the Treasury. EXHIBITS 177 "5. Any bonds issued hereunder which are owned by a decedent at the time of his death and there^upon constitute a part of his estate wiil be redeemed at par and accrued interest prior to maturity, provided the Secretary of the Treasury is authorized by the representative of the estate to apply the entire proceeds of redemption to payment of the decedents Federal estate taxes. "6. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds." I I I . S U B S C R I P T I O N AND ALLOTMENT 1. Subscriptions accepting the offer made by this circular will be received at the Federal Reserve banks and branches and at the Office of the Treasurer of the United States, Washington, D.C, 20220. Banking institutions generally may submit subscriptions for account of customers, hut only the Federal Reserve banks and the Treasury Department are authorized to act as official agencies. 2. All subscribers requesting registered bonds will be required to furnish appropriate identifying numbers as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individual's social security number or an employer identification number. 3. Under the Second Liherty Bond Act, as amended, the Secretary of the Treasury has the authority to reject oi* reduce any subscription, and to allot less than the ^amount of bonds applied for when he deems it to be in the public interest; and any action he may take in these respects shall be final. SuJbject to the exercise of that authority, all subscriptions will he allotted in full. IV. P A Y M E N T 1. Payment for the face amount of bonds allotted hereunder must be. made on or before May 17, 1965, or on later allotment, and may be made only in a like face amount of notes of the two issues enumerated in paragraph 1 of section I hereof, which should accompany the subscription. A cash payment of $2.50 per $1,000 on account of the issue price of the new bonds must be paid by suJbscribers and should accompany the sutoscription. Payment will not be deemed to have been completed where registered bonds are requested if the appropriate identifying number, as required by paragraph 2 of section III hereof, has not been furnished; provided, however, if a subscriber has applied for but is unable to furnish the identifying number by the payment date only because it has not been issued, he may elect to receive, pending the furnishing of the identifying number, interim receipts and in this case payment will be deemed to have been completed. When payment is made with notes in bearer foi-m, coupons dated May 15, 1965, should be detached and cashed when due. When payment is made with registered notes, the final interest due on May 15, 1965, wili be paid by issue of interest checks in regular course to holders of record on April 15, 1965, the date the transfer books closed. V. A S S I G N M E N T OF REGISTERED NOTES 1. Treasury Notes of Series A-1965 and Series C-1965 in registered form tendered in payment for bonds offered hereunder should be assigned by the registered payees or assignees thereof, in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, in one of the forms hereafter set forth, and thereafter should be surrendered with the subscription to a Federal Reserve bank or branch or to the Office of the Treasurer of the TJnited States, Washington, D.C, 20220. The notes must be delivered at the expense and risk of the holder. If the bonds are de^ sired registered in the same name as the notes surrendered, the assignment should be to "The Secretary of the Treasury for exchange for 4 ^ percent Treasury Bonds of 1974"; if the bonds are desired registered in another name, the assignment should be to "The Secretary of the Treasury for exchange for 41^ percent Treasury Bonds of 1974 in the name of . "; if bonds in coupon form are desired, the assignment should be to "The Secretary of the Treasury for exchange for 4^/4 percent Treasury Bonds of 1974 in coupon form to he delivered to " 782-'556—66 12 178 1965 RE'PORT OF THE SECRETARY OF THE TREASURY VI. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to receive subscriptions, to make such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and make delivery of bonds on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive bonds. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve banks. HENRY H . FOWLER, Secretary of the Treasury. Summary of information pertaining to Treasury bonds issued during the fiscal year 1965 Department circular Date of preliminary announcement Number Date Concurrent Offering circular number 1964 July 8 8-64 1964 July 9 9-64,10-64 July 8 9-64 July 9 8-64,10-64 July 8 10-64 July 9 8-64, 9-64 Treasury bonds issued for exchange 4 percent of 1969 issued at prices indicated below in exchange for— 3M percent Series E-1964 notes maturing Aug. 15,1964 (99.70);« 6 percent Series B-1964 notes maturing Aug. 15,1964 (99.55);* 3M percent Series F-1964 notes maturing Nov. 15,1964 (99.55);* 4>g percent S,eries C-1964 notes maturing Nov. 15, 1964 (99.20);* Z% percent Series C-1965 notes maturing May 15, 1965 (99.50); 3 ^ percent Series B-1966 notes maturing Feb. 15,1966 (99.90); 3M percent Treasury bonds of 1966 maturuig May 15,1966 (99.75); 4 percent Series A-1966 notes maturing Aug. 15,1966 (99.35); Z% percent Series B-1967 notes maturmg Feb. 15, 1967 (100.30). 4H percent of 1973 issued at prices indicated below in exchange for— 3M percent Series E-1964 notes maturing Aug. 15, 1964 (99.25);* 5 percent Series B-1964 notes maturing Aug. 15, 1964 (99.10);* 3 ^ percent Series F-1964 notes maturmg Nov. 15, 1964 (99.10);* iVg percent Series C-1964 notes maturing Nov. 15,1964 (98.75);* 3J^ percent Series C-1965 notes maturing May 15,1965 (99.05); ZV& percent Series B-1966 notes maturing Feb. 15, 1966 (99.45); Z% percent Treasury bonds of 1966 maturing May 15, 1966 (99.30); 4 percent Series A-1966 notes maturing Aug. 15, 1966 (98.90); 3 ^ percent Series B-1967 notes maturing Feb. 15,1967 (99.85). i}4: percent of 1987-92 issued at prices indicated below in exchange for— 3M percent Series E-1964 notes maturmg Aug. 15, 1964 (100.10);* 6 percent Series B-1964 notes maturmg Aug. 15 1964 (99.95);* . 3M percent Series F-1964 notes maturmg Nov. 15, 1964 (99.95);* i^/i percent Series C-1964 notes maturing Nov. 15, 1964 (99.60);* Z}i percent Series C-1965 notes maturing May 15,1965 (99.90); ZYs percent Series B-1966 notes maturing Feb. 15,1966 (100.30); 3M percent Treasury bonds of 1966 maturmg May 15,1966 (100.15) 4 percent Series A-1966 notes maturmg Aug. 15, 1966 (99.75); Z% percent Series B-1967 notes maturing Feb. 16,1967 (100.70). Date of issue Allotment pajnnent Date Date of subscrip- date on or before tion maturity books (or on closed later aUotment) 1957 1969 1 Oct. 1 Oct. 1 1964 1964 July 16 2 3 July 24 1973 Nov. 15 July.r;6 2 8 July 24 1964 July 22 1962 1992 1 Aug. 15 Aug. 15 July 16 6 July 24 Footnotes at end of table. CO 00 Summary of information pertaining to Treasury bonds issued during the fiscal year 1965—Continued Department circular Date of preliminary announceNumber ment Date Dec. 30 Dec. 30 Dec. 30 1965 Apr. 28 13-64 14-64 15-64 3-65 Dec. 31 Dec. 31 Dec. 31 1965 Apr. 29 Concurrent offeruig circular number 14-64,15-64 13-64,15-64 13-64,14-64 2-65 Date of issue Treasury bonds issued for exchange 4 percent of 1970 issued at prices indicated below in exchange for— _._ __ 2^-g percent Treasury bonds of 1965 maturing Feb. 15, 1965 (99.40);* 3H percent Series B-1965 notes maturing Nov. 15, 1965 (99.55); 4 percent Series E-1965 notes maturing Nov. 15, 1965 (99.10); SVs percent Series B-1966 notes maturing Feb. 15, 1966 (99.60); SVs percent Series C-1966 notes maturing Feb. 15, 1966 (99.30); 3M percent Treasury bonds of 1966 maturing May 15, 1966 (99.50); . ZH percent Series A-1967 notes maturing Aug. 15, 1967 (99.95); Z ^ percent Treasury bonds of 1967 maturing Nov. 15, 1967 (100.30). 4H percent of 1974 issued at prices indicated below in exchange for— 2 ^ percent Treasury bonds of 1965 maturing Feb. 15, 1965 (99.35);* 3H percent Series B-1965 notes maturing Nov. 15, 1965 (99.50); • 4 percent Series E-1965 notes maturing Nov. 15, 1965 (99.05); zys percent Series B-1966 notes maturing Feb. 15, 1966 (99.55); ZVs percent Series C-1966 notes maturmg Feb. 15, 1966 (99.25); 3M percent Treasury bonds of 1966 maturing May 15, 1966 (99.45); 3M percent Series A-1967 notes maturing Aug. 15, 1967 (99.90); 3 ^ percent Treasury bonds of 1967 maturing Nov. 15, 1967 (100.25). Allotment payment Date Date of subscrip- date on tion or before maturity books (or on closed later allot.: ment) 1970 Feb. 15 1965 1966 Jan. 8 7 8 Jan. 19 CO 05 O O Ul _ Jan. 15 1974 Feb. 15 Jan. 8 79 Jan. 19 o > o i}4 percent of 1987-92 issued at prices indicated below tn exchange for— 25^ percent Treasury bonds of 1965 maturing Feb. 15, 1965 (100.25);* 3H percent Series B-1965 notes maturing Nov. 15, 1965 (100.40); 4 percent Series E-1965 notes maturing Nov. 15, 1965 (99.95); zfi percent Series B-1966 notes maturing Feb. 15, 1966 (100.45); ZVs percent Series C-1966 notes maturing Feb. 15,1966 (100.15); 33^ percent Treasury bonds of 1966 maturing May 15, 1966 (100.35); • 3M percent Series A-1967 notes maturing Aug. 15, 1967 (100.80); 3 ^ percent Treasury bonds of 1967 maturing Nov. 15, 1967 (101.15). i}4: percent of 1974 issued at prices indicated below in exchange for— . iVs percent Series A-1965 notes maturing May 15, 1965 (100.25); zys percent Series C-1965 notes maturing May 15, 1965 (100.25). 1965 Jan. 15 o . 1962 1992 10 Aug. 15 Aug. 15 Jan. 8 711 Jan. 19 > Ul 1974 1964 12 May 15 May 15 0 May 5 13 May 17 1 I n t e r e s t p a y a b l e from J u l y 22,1964. 2 All coupons d a t e d s u b s e q u e n t to t h e p a y m e n t d a t e were r e q u i r e d to b e a t t a c h e d to bearer securities s u b m i t t e d in exchange a n d interest w a s a d j u s t e d o n aU securities as of J u l y 22,1965. 8 A c c r u e d interest o n old security (Col. 2) a n d a m o u n t d u e subscriber o n a c c o u n t of issue price of n e w b o n d (Col. 3) were credited to subscriber, accrued interest o n n e w b o n d (Col. 4) a n d a m o u n t d u e from subscriber o n a c c o u n t of issue price of n e w b o n d (Col. 5) were charged to subscriber, a n d difference paid to subscriber (Col. 6) or collected from subscriber (Col. 7) as follows (per $1,000): Security Col. 2 Col. 4 Col. 5 Col. 6 Col. 7 Col. 3 3 M % N o t e E-1964 $16.27747 $3.00 $12.24044 $7.037034.50 4% N o t e B-1964 2L 70330 12.24044 13.92286 $0.81109 6 M % N o t e F-1964 6.92935 4.50 12. 24044 i y 8 % N o t e C-1964 9.00815 8.00 12.24044 4.76771 Zy8% N o t e C-1965 7.16033 5.00 12. 24044 0.08011 LOO 12. 24044 4.49445 35^% N o t e B-1966 15.73489 12. 24044 2.81109 3 M % B o n d 1966 6.92935 2.50 6.50 12. 24044 I L 62220 4 % N o t e A-1966 17. 36264 0.49445 . 3 ^ % N o t e B-1967 15.73489 12.24044 $3.00 * H o l d e r s of these securities were n o t offered t h e n o n t a x a b l e exchange privilege 6 Cash p a y m e n t s were m a d e to subscribers as follows (per $1,000): P a i d on account Total ofissue price of . ISecurity bond ZK% N o t e E-1964 $16.27747 $7. 50 $23. 77747 5% N o t e B-1964 2L 70330 9.00 30. 70330 15.92935 Z H % N o t e F-1964 . 6.92935 9.00 4>g% N o t e C-1964. 9.00815 12.50 21. 50815 3 % % N o t e C-1965 7.16033 9.50 16. 66033 21.23489 3 ^ % N o t e B-1966 15.73489 5.50 13.92935 3 M % B o n d 1966. 6.92935 7.00 28.30264 4% N o t e A-1966 17.36264 ILOO 17. 23489 3 ^ % N o t e B-1967 15.73489 LSO 6 See D e p a r t m e n t Circular N o . 10-64 in t h i s exhibit for provisions for s u b s c r i p t i o n and payment. 7 All coupons d a t e d s u b s e q u e n t to t h e p a y m e n t d a t e were r e q u i r e d to be a t t a c h e d to bearer securities s u b m i t t e d in exchange a n d interest was adjusted o n all securities as of J a n . 15,1965. Accrued interest on old security 8 Accrued interest on old s e c u r i t y was credited to subscriber (Col. 2) a n d a m o n n t d u e to subscriber (Col. 3) or d u e from subscriber (Col. 4) on a c c o u n t of issue price of n e w b o n d s w a s credited or charged a n d t b e n e t a m o u n t w a s p a i d to subscriber (Col. 5) as follows (per $1,000): Security Col. 2 Col. 3 Col. 4 Col. 6 2ys% B o n d 1965 $10.91372 $6.00 $16.91372 3 M % N o t e B-1965 5.89779 4.50 10.39779 4 % N o t e E-1965 6.74033 9.00 15. 74033 Zy8% N o t e B-1966 15.07133 4.00 19.07133 3>g% N o t e C-1966 1 16.11073 7.00 23.11073 3 M % B o n d 1966 6.31906 5.00 IL 31906 3 M % N o t e A-1967 15.59103 0.50 16. 09103 3 ^ % B o n d 1967 6.10843 ^ $3.00 3.10843 9 Accrued interest o n old s e c u r i t y w a s credited to subscriber (Col. 2) a n d a m o u n t d u e to subscriber (Col. 3) or d u e from subscriber (Col. 4) on a c c o u n t of issue price of n e w b o n d s w a s credited or charged a n d t h e n e t a m o u n t w a s p a i d to subscriber (Col. 5) as foUows (per $1,000): Security Col. 2 Col. 3 Col. 4 Col. 6 2 ^ % B o n d 1965 $10.91372 $6.50 $17.41372 3 H % N o t e B-1965 6.89779 5.00 10.89779 4% N o t e E-1965 6. 74033 9.50 16.24033 3 ^ % N o t e B-1966 16.07133 4.50 19.67133 Zys7o N o t e C-1966 16.11073 7.60 23.61073 3 M % B o n d 1966 6.31906 6.60 I L 81906 Z H % N o t e A-196715. 59103 LOO 16.69103 Zy8% B o n d 1967_ 6.10843 $2.60 3.60843 10 I n t e r e s t p a y a b l e from J a n . 16, 1966. 11 Accrued uiterest on old s e c u r i t y (Col. 2) a n d a m o u n t d u e subscriber on a c c o u n t of issue price of n e w b o n d (Col. 3) were credited to subscriber, a c c m e d interest o n n e w b o n d (Col. 4) a n d a m o u n t d u e from subscriber on account of issue price of n e w b o n d (Col. 5) were charged to subscriber a n d t h e difference (Col. 6) w a s coUected from s u b scriber as foUows (per $1,000): w H-l Ul Security Col. 2 Col. 3 Col. 4 Col. 5 Col. 6 2y8% B o n d 1965 $10.91372 $17.66984 $2.60 $9. 26612 33^% N o t e B-1965 5.89779 $0. 60 17. 66984 16. 77205 4 % N o t e E-1965 6.74033 17.66984 4.00 10. 42961 ZysJo N o t e B-1966. 16.07133 17.66984 4.60 7. 09861 Zy8% N o t e C-1966 16.11073 17.66984 L50 3.06911 Z%% B o n d 1966 6.31906 17.66984 3.60 14. 86078 17.66984 8.00 10.07881 3M% N o t e A-1967 15. 59103 3 ^ % B o n d 1967 6.10843 17.66984 1L60 23.06141 12 I n t e r e s t p a y a b l e from M a y 16,1966, 13 See D e p a r t m e n t Circular N o . 3-65 i n t h i s exhibit for provisions for s u b s c r i p t i o n and payment. QO (X) to Allotments of Treasury bonds issued during the fiscal year 1965, by Federal Reserve districts [In thousands] CO Oi 4 percent Treasury bonds of 1969 issued in exchange for4 percent 3 ^ percent ZYi percent ZH percent 5 percent ZH percent 4% percent Zli percent Z% percent Series E-1964 Series B-1964 Series F-1964 Series C-1964 Series C-1965 Series B-1966 Treasury Series A-1966 Series B-1967 Treasury Treasury Treasury Treasury Treasury Treasury bonds of 1966 Treasury Treasury Total issued notes notes ndtes maturing notes notes notes notes notes maturing maturing maturing maturing maturing May 15,1966 2 maturing maturing maturing Aug. 15,1966 Feb. 15,1967 Aug. 15,1964 2 Aug. 15,1964 2 Nov. 15,1964 2 Nov. 15,1964 May 15,1965 2 Feb. 15,1966 2 Federal Reserve district Boston New York PhUadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City DaUas San Francisco Treasury _ Total bond allotments Securities eUgible for exchange: Exchanged in concurrent offerings Total exchanged Not submitted for exchange: Total securities eUgible for exchange Footnotes at end of table. $19,219 265,551 21,328 50,126 15,636 22,474 125,276 27,708 18, 070 37, 669 17,150 14,131 693 $6,027 186,062 8,397 7,839 6,672 7,395 25,987 8,877 6,832 634,731 14,322 3,993 4,555 1,583 $4,726 49,830 5,182 13,539 1,478 6,295 28,044 7,687 8,622 11,028 8,290 16,323 297 $4,225 182,368 3,363 6,821 1,019 2,494 18,285 6,872 8,113 8,264 3,451 4,146 1,237 $18,338 212,151 4,307 34, 263 7,383 13,142 67, 700 19,334 6,181 9,728 4,614 11, 735 622 16,541 161,341 249,658 399,388 392,173 19,613 90,978 19,339 39,453 188,757 30,810 21, 247 33,173 45,424 31,962 $13, 566 85,003 10,142 16,887 4,765 6,587 77,082 16,157 11,227 20,248 21,940 10,957 723 $4,815 77,447 3,234 8,777 1,196 14,925 37,314 6,555 2,812 9,430 3,853 .7,936 435 $13,462 266,168 11,068 40,667 37,405 25,263 76,707 45,373 8,588 15,377 12,642 24,131 2,287 $112,657 1, 716,753 86, 634 268, 777 93,793 138,028 636,152 168,373 90,692 169,139 121,257 125,876 8,560 294,283 178,729 678,928 3,726,691 o o hrj- Ul O S3 > O • ^ 639,801 659,210 357,632 350,212 957,311 1,450,444 317,654 486,014 638,269 5, 655,547 1,174,632 845,751 618,973 599,870 1,366,699 2,392,436 611,937 663,743 1,117,197 9,281,138 2,911,622 1,199,502 6,442,250 3,267,326 6,620,117 3,260,303 2,250,086 5,156,228 2,367,648 32,465,082 4,086,164 2,045,253 6,961,223 3,867,196 7,976,816 6,652,739 2,862,023 6,819,971 3,474,846 41,746,220 W S3 fel ;> Ul d Hi Allotments of Treasury bonds issued during the fiscal year 1965, by Federal Reserve districts- -Continued [In t h o u s a n d s ] i } i p e r c e n t T r e a s u r y b o n d s of 1973 issued i n exchange for6 percent ZH p e r c e n t m percent 3 ^ percent ZH p e r c e n t 3 % percent 3H percent ZH p e r c e n t 4 percent Treasury Series A-1966 Series B-1967 Series E-1964 Series B-1964 Series F-1964 Series C-1964 Series C-1965 Series B-1966 Treasury Treasury Treasury Treasury Treasury b o n d s of 1966 Treasury Treasury T o t a l issued Treasury notes maturing notes notes notes notes notes notes notes maturing maturing maturing M a y 15,1966 3 m a t u r i n g maturing maturing maturing maturing A u g . 15,1966 F e b . 15,1967 A u g . 15,1964 8 A u g . 16,1964 3 N o v . 15,1964 3 N o v . 15,1964 3 M a y 15,1965 s F e b . 15,19663 Federal Reserve district Boston _ N e w York Philadelphia Cleveland Richmond Atlanta... _ Chicago St. Louis Minneapolis Kansas City DaUas S a n Francisco Treasury _ _. Total bond aUotments.... Securities eUgible for exchange: Exchanged in concurrent offerings T o t a l exchanged N o t s u b m i t t e d for exchange... T o t a l securities eligible for e x c h a n g e . . $8,813 151,132 4,670 4,939 3,911 11,296 68, 777 6,904 9,456 14,089 19,344 39,690 804 $52, 405 134, 691 65,376 17, 662 6,269 5,390 33,102 . 7,874 7,409 12,226 5,336 12, 409 2,155 $3, 560 96,277 16, 730 13,628 1,045 2,838 47, 772 4,521 7,467 3,761 3,405 12, 323 304 $29, 841 105, 424 3,667 6,735 2,240 7,526 24, 512 4,420 6,730 6,513 5,136 31,029 $61, 670 447, 475 4,368 21,146 4,524 5,235 61, 395 21, 428 6,984 10,000 6,891 118,165 1,023 $31, 947 664, 788 18, 269 18,273 8,460 6,968 162, 816 13,014 46,082 27, 913 47,218 265,138 1,892 $14, 392 106, 565 15, 984 39,112 6,597 6,193 62, 891 7,191 10,043 12,062 11,275 14, 758 788 $25,103 147, 991 6,004 7,817 636 9,006 84, 360 12,830 6,103 9,626 6,330 13, 420 4,829 $18, 610 233, 749 20,464 11, 967 12, 337 8,746 87, Oil 10, 877 11, 218 23, 038 10, 693 49, 846 4,785 $246, 341 2,088,092 154, 532 140,279 44, 999 63,188 622, 636 89, 059 110,482 119,228 114, 627 646, 778 16, 970 343,825 362,294 212, 621 232,162 769, 304 1, 302, 758 296,851 334,055 503, 341 4, 357,211 4,923,927 830, 707 483,457 306, 352 367, 708 687,395 1,089, 678 315,086 329, 688 613,856 1,174, 532 845, 751 518, 973 699,870 1, 356, 699 2, 392, 436 611,937 663, 743 1,117,197 9,281,138 2, 911, 622 1,199, 502 5,442,260 3,267,326 6, 620,117 3,260, 303 2,260,086 5,156,228 2, 357, 648 32,465,082 16,164 2,045,263 6, 961,223 3,867,196 7, 976,816 5, 652, 739 2,862,023 5, 819, 971 3, 474,845 41,746,220 CO F o o t n o t e s a t e n d of t a b l e . 00 OO OO Allotments of Treasury bonds issued during the fiscal yeaf 1965, by Federal Reserve districts—Continued [In thousands] CO 4H p e r c e n t T r e a s u r y b o n d s of 1987-92 issued in exchange for— i SJ 5 percent ZH p e r c e n t Series E-1964 Series B-1964 Treasury Treasury notes notes maturing maturing A u g . 15,1964 * A u g . 15,1964 * Federal Reserve district 3 % percent 4 percent i'A p e r c e n t ZH p e r c e n t ZH p e r c e n t 3 H percent Z'A p e r c e n t Series A-1966 Series B-1967 Series F-1964 Series C-1964 Series C-1965 Series B-1966 Treasury T o t a l issued Treasury Treasury " Treasury Treasury b o n d s of 1966 Treasury Treasury notes notes maturing . notes notes notes notes maturing M a y 15,1966 ^ m a t u r i n g maturing maturing maturing maturing A u g . 15,1966 * F e b . 15,1967* N o v . 15,1964* N o v . 16,1964* M a y 15,1966 * F e b . 15,1966 * O SD 1-3 O >^ Boston N e w York Philadelphia Cleveland.. H8cbTnond.._ Atlanta Chicago St. Louis Minneapolis,. Kansas City DaUas.. . . SanFrancisco Treasury $650 167,616 1,008 168 166 110 4,147 451 __. _ ,. ._ 289 1,600 19,982 _.. Total bond aUotments Securities eligible for exchange: Exchanged in concurrent offerings • T o t a l exchanged N o t s u b m i t t e d for exchange . . T o t a l securities eligible for e x c h a n g e Footnotes at end of table. 195,976 $14,353 146,113 1,275 13, 021 440 442 6,363 1,206 400 777 763 12, 635 138 $4,336 137,895 16 362 1 200 115 416 196,916 $7,307 80,510 164 1,076 134 18,581 5,186 475 2,905 68 266 1,216 163 $16,651 114,132 113 1,675 125 111 10,183 1,835 490 266 20 43,606 $1,319 88,590 30 1,024 1,079 100 8.406 1,339 26 61 110 46,607 106 $1,646 16,898 67 148 $10,917 95,979 15 193 $1,302 25,762 100 50 35 811 128 204 266 112 38,767 983 2,550 322 268 415 448 20 2,827 106 110 2 10 4,139 500 $57,279 873,496 2,788 17, 607 1,944 19, 711 75,795 6,938 6,684 2,049 3,706 128,985 1,356 146, Oil 118, 050 188, 007 147,686 20,803 160,959 34,928 1,198,336 8,082,802 18 780 874 711 978;556 648,835 373,962 . 481,820 1,168,692 2,244,760 591,134 512,784 1, 082,269 1,174,532 845,751 518,973 599,870 1,356, 699 2,392,436 611,937 663,743 1,117,197 9, 281,138 2,911, 622 1,199, 502 6, 442, 250 3, 267, 326 6, 620,117 3, 260.303 2, 250, 086 6,156, 228 2,357. 648 32,465,082 4,086,154 2,046,253 6,961,223 3,867,196 7,976,816 6, 662,739 2,862, 023 6,819,971 3,474,845 41,746,220 w Ul o SD > S3 o S3 > Ul d SD Allotments of Treasury bonds issued during ihe fiscal year 1965, by Federal Reserve districts—Continued [In thousands] 4 percent Treasury bonds of 1970 issued in exchange for- Federal Reserve district Boston New York PhUadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Treasury Total bond allotments Securities eligible for exchange: Exchanged in concurrent offerings Total exchanged. Not submitted for exchange. Total securities eligible for exchange. 2H percent Treasury bonds of 1965 maturing Feb. 15,1966« ZH percent 31^^ percent 4 percent ZH percent ZH percent ZH percent Z'A percent Treasury Series A-1967 Treasury Series B-1965 Series E-1965 Series B-1966 Series C-1966 Treasury bonds of 1967 Total issued Treasury Treasury Treasury Treasury bonds of 1966 notes maturmaturing maturing notes matm-- notes matur- notes matur- notes maturing Nov. 15, ing Nov. 15, ing Feb. 16, ing Feb. 15, May 15,1966 6 ing Aug. 15, Nov. 15,1967 5 1967 5 1966 6 1966« 1965 4 1965 5 $8,594 266, 311 9,522 39,992 11,807 29,779 129,360 30, 612 21,831 42, 275 16, 760 66, 666 1,122 $13, 684 189,837 36, 717 62,186 20, 693 32,658 140,170 25,956 24,349 23, 850 22,914 43,002 3,686 $21,416 51, 581 3,922 15,142 3,376 6,267 30,133 11, 640 9,376 9,012 8,733 3,035 2,141 $12,134 323, 310 27, 291 40, 222 13, 323 20, 542 80, 671 16, 683 ' 8,662 17, 280 9,506 13, 696 4,534 $13, 850 221, 556 8,057 65, 029 6,390 3,098 37, 742 7,346 2,947 3,632 6,079 3,941 144 $5,233 148, 591 7,900 14,063 5,697 6,747 52,882 11,303 14,366 13, 658 8,959 9,767 383 $18,199 434, 633 16,048 69,953 25, 460 29,824 168,948 26, 274 15, 269 23,824 39, 939 30, 948 3,518 $26,126 208, 643 17, 711 36,196 24, 853 23,112 134, 751 27, 795 17, 575 29, 743 25, 738 124, 910 27, 733 $118,136 1,844, 461 127,168 342, 782 110, 688 151, 927 774, 567 157, 409 114, 264 163, 274 137, 628 296, 966 43, 261 673,631 639, 501 175, 672 687, 644 378,810 299, 549 902,827 723,886 4, 381, 420 1,134, 690 697, 699 285, 041 477, 692 1, 064, 513 262, 990 601, 027 861,118 5,384, 770 1,808, 321 2,167, 447 1, 337, 200 1, 616, 604 460, 713 1, 099, 286 1, 065, 236 2,195, 067 1, 443, 323 2, 596, 595 562, 639 1, 687, 648 1. 503, 854 2, 929,360 1, 585, 004 2, 018, 540 9, 766,190 23,310, 447 3,975, 768 2,953,804 8, 559, 999 3, 260,303 4, 039, 918 2, 250, 087 3, 603, 644 33, 076,637 fel X Ul Footnotes at end of table. CX) 00 Allotments of Treasury bonds issued during ihe fiscal year 1965, by Federal Reserve districts—Continued [In thousands] , SD i H percent T r e a s u r y b o n d s of 1974 issued in exchange for— i Z)ri p e r c e n t ZH p e r c e n t ZH percent 4 percent 3H^.percent 2H percent ZH p e r c e n t 3H percent Treasury Series A-1967 Treasm-y Treasury Series B-1965 Series E-1965 Series B-1966 Series C-1966 b o n d s of 1967 Treasury Treasury b o n d s of 1966 Treasm-y b o n d s of 1966 Treasury Treasury maturing maturing notes T o t a l issued notes maturing notes notes notes maturing maturing N o v . 15, maturing maturing M a y 15, F e b . 15, maturing 1967 6 1966 6 A u g . 15, F e b . 15, N o v . 15, 1965 6 N o v . 15, F e b . 16, 1966 6 1967 6 1966 6 1966 6 1965 6 F e d e r a l Reserve district Boston NewYork PhUadelpMa Cleveland Richmond Atlanta Chicago. _ St. Louis Minneapolis Kansas City Dallas San F r a n c i s c o . . _ Treasury __ _ _ Total b o n d aUotments Securities eligible for exchange: E x c h a n g e d in c o n c u r r e n t offerings T o t a l exchanged . N o t s u b m i t t e d for exchange T o t a l securities eUgible for exchange Footnotes at end of table. $2, 070 271, 972 7,620 15,628 3,343 6,344 97,364 5,647 4,678 9,974 5,828 62, 752 242 $10, 225 165, 551 7,300 6,071 6,658 12, 470 128,411 2,960 16, 845 2,586 4,165 62, 300 200 $4,496 81, 211 4,161 3,989 1,988 1,562 20, 563 3,951 3,631 8,927 2,417 3,260 270 . $18, 483 236, 579 3,280 5,656 11,848 1,531 25, 727 3,447 4,391 6,749 5,607 11,444 18 $4,008 318,328 4,528 24, 066 1,727 2,207 11,161 2,268 5,085 6,045 1,643 12,843 6,050 $1,608 79,915 3,983 3,844 1,628 2,284 33,128 3,363 4,499 4,411 4,074 4,149 31 $18,374 152,894 16, 680 15,862 6,668 8,915 64, 228 7,845 10,952 9,904 22,105 126, 286 676 $22, 021 233, 252 24, 054 40, 757 21,874 24,911 114, 797 21, 317 28, 620 17, 999 21, 892 46, 397 121, 028 $81, 285 1, 539, 702 71, 606 115,873 55, 734 60, 224 495, 379 50, 798 78, 601 65, 596 67, 731 319, 431 128, 415 493, 462 415, 742 140,326 333, 760 399,959 146,917 461, 289 738, 919 3,130,374 1, 314, 859 921, 458 320,387 731,476 1, 043,364 415,622 • 1,042,565 846, 085 6, 635,816 1, 808, 321 2,167, 447 1,337, 200 1, 616, 604 460, 713 8, 099, 286 1, 065, 236 2,195, 067 . 1,443,323 2, 696, 595 562,539 1, 687,548 1, 503,854 2,929,360 1, 585, 004 2, 018, 540 9, 766,190 23,310,447 3, 976, 768 2,953, 804 8, 669,999 3, 260,303 4, 039,918 2, 250, 087 4,433, 214 3, 603, 644 33, 076, 637 o S3 O Ul \^ a SD teJ > S3 O »-3 S3 tei > Ul d SD Kl Allotments of Treasury bonds issued during the fiscal year 1965, by Federal Reserve districts—Continued [In thousands] 4 K p e r c e n t T r e a s u r y b o n d s of 1987-92 issued in exchange for—i 3^^ p e r c e n t 4 percent Zyi p e r c e n t ZH p e r c e n t ZH p e r c e n t ZH p e r c e n t ZH p e r c e n t 2 H percent Series B-1965 Series E-196o Series B-1966 Series C-1966 Treasury •Series A-1967 Treasury Treasury Treasury Treasm-y Treasury b o n d s of 1965 Treasury b o n d s of 1967 b o n d s of 1966 Treasm-y notes r n a t u r notes m a t u r - n o t e s m a t u r - notes m a t u r - notes m a t u r maturing maturing maturing ing A u g . 15, ing F e b . 15, ing N o v . 15,- ing N o v . 15, ing F e b . 15, N o v . 15, F e b . 15, M a y 15, 1967 7 1966 7 1965 7 1965 7 1967 7 1966 7 1965 7 1966 7 F e d e r a l R e s e r v e district Boston N e w York . Philadelphia... C l e v e l a n d . . . --_ Richmond Atlanta .__ Chicago _. St. Louis Minneapoli.s Kansas City DaUas S a n Francisco Treasury _ . _- - __. . _ .. .. __ ._ .^ - ... _ _-. . .- _ _ _^_ -___ ._ . _ . $4. 859 494, 999 6 2,568 10, 241 134 45, 846 1,779 340 589 170 79, 697 ._ $2,316 245, 706 70 376 545 4,755 148 2,390 208 306 25,117 20 $2, 305 130, 412 204 158 5,300 340 2,231 38 890 60 1,630 1,139 18 $954 112,148 27 143 2,020 50 13, 295 268 50 121 3,445 9,511 1,900 $12, 783 568,726 102 185 $1,458 72, 663 46 29, 731 $16,106 53, 700 84 50, 799 287 39, 058 3,137 100 2,185 318 37,167 506 1,723 38 668 160 9,327 258 1 84 9,090 330 131 55 429 8,822 108 T o t a l issued $11,459 62, 499 3,011 2,609 108 535 18, 819 2,119 1,113 1.233 9,497 8,657 540 $52, 240 1, 740, 853 3,550 86, 569 17, 669 1,975 134, 817 7,857 5,682 4,601 25,122 170, 368 3,093 641, 228 281, 957 144, 715 143, 932 664, 654 116, 073 139, 738 122,199 2, 254,396 1,167, 093 1, 055, 243 315, 998 921, 304 778,769 446, 466 1,364,116 1,462, 805 7, 511, 794 .. 1, 808, 321 2,167, 447 1,337, 200 1, 616, 604 ' 460,713 8, 099, 286 1, 065, 236 2,195, 067 1,443,323 2, 696, 595 562, 539 1, 687, 548 1, 503', 854 2, 929,360 1, 585, 004 2, 018, 540 9, 766,190 23,310,447 T o t a l securities eUgible for e x c h a n g e . . . 3, 975, 768 2, 953, 804 8, 559, 999 3, 260, 303 4, 039, 918 2, 250,087 4,433, 214 3, 603, 544 33, 076, 637 Total bond allotments Securities eUgible for exchange: E x c h a n g e d i n concm-rent offerings T o t a l exchanged N o t s u b m i t t e d for exchange . teJ Ul Footnotes a t end of table. 00 C»' 00- Allotments of Treasury bonds'issued during thefiscal year 1965, by Federal Reserve districts—Continued [In thousands] 414 percent Treasury bonds of 1974 issued in exchange for—s i H percent ZH percent Series A-1965 Series C-1965 Treasury Treasury notes matur- notes maturing May 15, ing May 15, 1965 9 1965 9 Federal Reserve district Boston NewYork Philadelphia Cleveland Richmond...! Atlanta Chicago St. Louis. Mirmeapolis Kansas City DaUas... San Francisco. Treasury . . . . . ._ . . . .... . - .. .. ... Total bond allotments Securities eligible for exchange: Exchanged in concurrent offerings Total exchanged ._ Not submitted for exchange . . ... _ _ . . . ... ._ _ ._ . . . . ._ .. . . . . .. ._ . . . . . . . .. _ ... : ... ... .. .... ... ... . . . . Total securities eligible for exchange... 1 Advance refunding; all subscriptions were allotted in full. 2 41^ percent Treasury bonds of 1973 and 434 percent Treasury bonds of 1987-92 were also offered in exchange for this security. 3 4 percent Treasury bonds of 1969 and 4K percent Treasury bonds of 1987-92 were also offered in exchange for this security. * 4 percent Treasury bonds of 1969 and i H percent Treasury bonds of 1973 were also offered in exchange for this security. 5 i H percent Treasury bonds of 1974 and 4K percent Treasury bonds of 1987-92 were also offered in exchange or this security. ._ . ... .. . . . .._ ... . . . . -. -. SD: Total issued n o S3' $52, 798 375,311 7,766 26,980 8,637 19,907 88,461 14,706 13,485 22,420 11,722 88,389 1,807 $31,378 827, 761 15,493 62,127 7,177 21,833 154,315 24,770 20,352 12,313 14,978 113,112 23,687 $84,176 1, 203,072 23, 259 89,107 16, 814 41, 740 242, 776 39,476 33,837 34,733 26,700 201,601 25,494 O 732,389 1,329, 296 2,061,685 O 802,655 5,101, 587 5,904,242 1, 535,044 280,666 6,430,883 189, 234 7,965,927 469,900 1, 815, 710 6,620,117 8,435,827 6 4 percent Treasury bonds of 1970 and 4H percent Treasury bonds of 1987-92 were also offered tn exchange for this security. 7 4 percent Treasury bonds of 1970 and i H percent Treasury bonds of 1974 were also offered in exchange for this security. 8 All subscriptions were allotted in full. 9 4 percent Treasury notes of Series .AL-1966 were also offered in exchange for this security. te! Ul tei o S3 tei ^ S3 K! S3 tei > Ul d S3 K| 189 EXHIBITS Treasury Bills Offered and Tenders Accepted Exhibit 3.—Treasury bills During the fiscal year 1965 there were 52 weelily issues each of 13-week and 26-week Treasury bills (the 13-week bills represent additional issues of biUs with an original maturity of 26 weeks), 13 one-year issues, 4 issues of tax anticipation series and one issue of a strip of weekly bills consisting of additional amounts of 10 series of outstanding bills. Four press releases inviting tenders, which are representative of the four types of bill issues, are reproduced in this exhibit as follows: strip of issues, July 20, 1964; tax anticipation series, November 10, 1964; weekly issues, April 14, 1965;, and one-year issues, April 19, 1965. Also reproduced is the press release of April 19, 1965, which is representative of the releases announcing the acceptance of tenders for all types of issues. Following the press releases is a summary table of data for each issue. PRESS RELEASE OF JULY 20, 1964 The Treasury Department, by this public notice, invites tenders for additional amounts of ten series of Treasury bills to an aggregate amount of $1,000,000,000, or thereabouts, for cash. The additional bills will be issued July 29, 1964, will be in the amounts, and will be in addition to the bills originally issued and maturing, as follows: Amount of additional issue $100,000,000 100,000,000 100,000,000 100 000 000 100,000,000 100, 000,000 100,000,000 100, 000,000 100,000,000 100,000,000 Original issue dates 1964 AprU 16 AprU 23 April 30 May 7 May 14 May 21 May 28 June 4 June 11 June 18 ._ . Maturity dates 1964 October 16 _— October 22 October 29 November 5 November 12 . . November 19 November 27 . . December 3 December 10 December 17 Days from July 29,1964, to maturity 78 86 92 99 106 113 121 127 134 . 141 Amount currently outstanding (in mUlions) $2,102 901 900 900 900 900 900 905 901 901 1,000,000,000 The additional and original bills will be freely interchangeable. Each tender submitted must be in the amount of $10,000, or an even multiple thereof, and the amount tendered will be applied to each of the above series of bills on the basis of the ratio of each series to the total of all series. (For example, an accepted tender for $50,000 will be applied $5,000 to the issue with original date of April 16, 1964, and $5,000 to each of the additional weekly issues through the issue with original date of June 18, 1964.) The bills offered hereunder will be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided, and at maturity their face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve banks and branches up to the closing hour, one-thirty p.m., eastern daylight saving time, Friday, July 24, 1964. Tenders will not be received at the Treasury Department, Washington, In the case of competitive tenders the price offered must be expressed on the basis of 100, vrith not more than three decimals, e.g., 99.925. Fractions may not be used. A single price must be submitted for each unit of $10,000, or even multiple thereof. A unit represents $1,000 face amount of each issue of bills offered hereunder, as previously described. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve banks and branches on application therefor. Banking institutions generally may submit tenders for account of customers provided the names of the customers are set forth in such tenders. Others than banking institutions will not be permitted to submit tenders except for their own account. Tenders will be received without deposit from incorporated 190 19 65 REPORT OF THE SECRETARY OF THE TREASURY banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve banks and branches, following which public announcement will be made by the Treasury Department of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Noncompetitive tenders for $100,000 or less (in even multiples of $10,000) without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids, provided, however, that if the total of noncompetitive tenders exceeds $200,000,000, the Secretary of the Treasury reserves the right to allot less than the amount applied for on a straight percentage basis with adjustments where necessary to the next higher multiple of $10,000. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve bank or branch in cash or other immediately available funds on July 29, 1964. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, does not have any exemption, as such, and loss from the sale or other disposition of Treasury Ibills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered to be interest. Under sections 454(b) and 1221(5) of.the Internal Revenue Code of 1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills are excluded from consideration as capital assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent purchase, and the amount actually received either upon sale.or redemption at maturity during the taxable year for which the return is made, as ordinary gain or loss. Purchasers of a strip of the bills offered hereunder should, for tax purposes, take such bills on to their books on the basis of their purchase price prorated to each of the ten outstanding issues using as a basis for proration the closing market prices for each of the issues on July 29, 1964. (Federal Reserve banks will have available a list of these market prices, based on the mean between the bid and asked quotations furnished by the Federal Reserve Bank of New York.) Treasury Department Circular No. 418, Revised, and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve bank or branch. PRESS RELEASE OF NOVEMBER 10, 1964 The Treasury Department, by this public notice, invites tenders for $1,500,000,000, or thereabouts, of 210-day Treasury bills, to be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided. The bills of this series will be designated tax anticipation series, they will be dated November 24, 1964, and they will mature June 22, 1965. They will be accepted at face value in payment of income taxes due on June 15, 1965, and to the extent they are not presented for this purpose the face amount of these bills will be payable without interest at maturity. Taxpayers desiring to apply these bills in payment of June 15, 1965, income taxes have the privilege of surrendering them to any Federal Reserve bank or branch or to the Oflace of the Treasurer of the United States, Washington, not. more than 15 days before June 15, 1965, and receiving receipts therefor showing the face amount of the EXHIBITS 191 bills so surrendered. These receipts may be submitted in lieu of the bills on or before June 15, 1965, to the District Director of Internal Revenue for the District in which such taxes are payable. The bills will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve banks and branches up to the closing hour, one-thirty p.m., eastern standard time, Tuesday, November 17, 1964. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of competitive tenders the price offered must be expressed on the basis of 100, with not more than three decimals, e.g., 99.925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which wiU be supplied by Federal Reserve banks or branches on application therefor. Banking institutions generally may submit tenders for account of customers provided the names of the customers are set forth in such tenders. Others than banking institutions will not be permitted to submit tenders except for their own account. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an- incorporated bank or trust company. All bidders are required to agree not to purchase or to sell, or to make any agreements with respect to the purchase or sale or other disposition of any bills of this issue at a specific rate or price, until after one-thirty p.m., eastern standard time, Tuesday, November 17, 1964. Immediately after the closing hour, tenders will be opened at the Federal Reserve banks and branches, following which public announcement will be made by the Treasury Department of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, noncompetitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids. Payment of accepted tenders at the prices offered must be made or completed at the Federal Reserve bank in cash or other immediately available funds on November 24, 1964, provided, however, any qualified depositary will be permitted to make payment by credit in its Treasury tax and loan account for not more than 50 percent of the amount of Treasury bills allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits when so notified by the Federal Reserve bank of its district. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, does not have any exemption, as such, and loss from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered to be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills are excluded from consideration as capital assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent purchase, and the amount actually received either upon sale or redemption at maturity during the taxable year for which the return is made, as ordinary gain or loss. Treasury Department Circular No. 418 (current revision) and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve bank or branch. 192 19 65 REPORT OF THE SECRETARY OF THE TREASURY PRESS RELEASE OF APRIL 14, 1965 The Treasury Department, by this public notice, invites tenders for two series of Treasury bills to the aggregate amount of $2,200,000,000, or thereabouts, for cash and in exchange for Treasury bills maturing April 22,1965, in the amount of $2,201,051,000, as follows: 91-day bills (to maturity date) to be issued April 22, 1965, in the amount of $1,200,000,000, or thereabouts, representing an additional amount of bills dated January 21, 1965, and to mature July 22,1965, originally issued in the amount of $1,001,051,000, the additional and original bills to be freely interchangeable. 182-day bills, for $1,000,000,000, or thereabouts, to be dated April 22, 1965, and to mature October 21, 1965. The bills of both series will be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided, and at maturity their face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve banks and branches up to the closing hour, one-thirty p.m., eastern standard time, IMonday, April 19, 1965. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of competitive tenders the price offered must be expressed on the basis of 100, with not more than three decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve banks or branches on application therefor. Banking institutions generally may submit tenders for account of customers provided the names of the customers are set forth in such tenders. Others than banking institutions will not be permitted to submit tenders except for their own account. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve banks and branches, following which public announcement will be made by the Treasury Department of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or ih part, and his action in any such respect shall be final. Subject to these reservations noncompetitive tenders for each issue for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids for the respective issues. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve banks on April 22, 1965, in cash or other immediately available funds or in a like face amount of Treasury bills maturing April 22, 1965. Cash and exchange tenders will receive equal treatment. Cash adjustments will be made for differences between the par value of maturing bills accepted in exchange and the issue price of the new bills. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, does not have any exemption, as such, and loss from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered to be interest. Under sections 454(b) and 1221(5) of the Intemal Revenue Code of 1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherVTise disposed of, and such bills are excluded from consideration as capital assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent EXHIBITS 193 purchase, and the amount actually received either upon sale or redemption at maturity during the taxable year for which the return is made, as ordinary gain or loss. Treasury Department Circular No. 418 (current revision) and this notice prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve bank or branch. PRESS RELEASE OF APRIL 19, 1965 The Treasury Department, by this public notice, invites tenders for $1,000,000,000, or thereabouts, of 365-day Treasury bills, for cash and in exchange for Treasury bill's maturing April 30, 1965, in the amount of $1,001,439,000, to be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided. The bills of this series will be dated April 30, 1965, and will mature April 30, 1966, when the face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve banks and branches up to the closing hour, one-thirty p.m., eastern standard time, Friday, April 23, 1965. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of competitive tenders the price offered must be expressed on the basis of 100, with not more than three decimals, e. g., 99.925. Fraction's may not be used. (Notwithstanding the fact that these iDills will run for 365 days, the discount rate will be computed on a bank discount basis of 360 days, as is currentiy the practice on all issues of Treasury bills.) It iS' urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve banks or branches on application therefor. Banking institutions generally may submit tenders for account of customers provided the names of the customers are set forth in such tenders. Others than banl?:ing institutions will not be permitted to submit tenders except for their own account.' Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve banks and branches, following which public announcement will be made by the Treasury Department of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, noncompetitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve bank on April 30', 1965, in cash or other immediately available funds or in a like face amount of Treasury bills maturing April 30, 1965. Cash and exchange tenders will receive equal treatment. Cash adjustments will be made for differences between the par value of maturing bills accepted in exchange and the issue price of the new bills. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, does not have any exemption, as such, and loss from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise .taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered to be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the amount of discount at which bills issued hereunder 782-556-^66 13 194 19 65 REPORT OF THE SECRETARY OF THE TREASURY are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills are excluded from consideration as capital assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent purchase, and the amount actually received either upon sale or redemption at maturity during the taxable year for which the return is made, as ordinary gain or loss. Treasury Department Circular No. 418 (current revision) and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve bank or branch. PRESS RELEASE OF APRIL 19, 1965 The Treasury Department announced last evening that the tenders for two :series of Treasury bills, one series to be an additional issue of the bills dated January 21, 1965, and the other series to be dated April 22, 1965, which were offered on April 14, were opened at the Federal Reserve banks on April 19. Tenders were invited for $1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day bills. The details of the two series are as follows: 91-day Treasury bills maturing 182-day Treasury bills maturing Oct. 21, 1966 July 22, 1965. Range of accepted competitive bids Price High.... Low Average. 99. 006 99.001 99. 003 Approximate equivalent annual rate 3.93: 3.952% I 2 3.946% Price 1 97.978 97.971 97.974 Approximate equivalent annual rate 4. 000% 4. 013% 2 4. 008% 1 Excepting 3 tenders totaling $1,534,000. ^ 2 On a coupon issue of the same length and for the same amount invested, the return on these biUs would provide yields of 4.04%, for the 91-day bills, and 4.15%, for the 182-day bills. Interest rates on biUs are quoted in terms of bank discount with the return related to the face amount of the biUs payable at maturity rather than the amount invested and their length in actual number of days related to a 360-day year. In contrast, yields on certificates, notes, and bonds are computed in terms of interest on the amount invested, and relate the number of days remaining in an interest payment period to the actual number of days in the period, with semiannual compounding if more than one coupon period is involved. NOTE.—62 percent of the amount of 91'^day biUs bid for at the low price was accepted. 5 percent of the amount of 182-day bills bid for at the low price was accepted. Total tenders applied for and accepted by Federal Reserve districts District Boston New York Philadelphia.. Cleveland Richmond Atlanta Chicago St. Louis MinneapolisKansas City.. DaUas _.. San Francisco. Total AppUed for Accepted Applied for $15,923,000 1,490,917,000 28, 232, 000 26,137,000 14,867, 000 41, 704, 000 291, 551, 000 63, 705,000 26, 667, 000 27, 707, 000 28,348,000 203,307,000 $16, 923, 000 739, 697, 000 15, 232, 000 26, 137, 000 14, 567, 000 32, 614, 000 136, 431, 000 44, 679, 000 19, 527, 000 26, 567,000 20, 968, 000 110, 071, 000 $25, 935, 000 1, 337,392, 000 16,436, 000 37,899, 000 4,056, 000 29,116, 000 267,813, 000 13, 446, 000 11, 474, 000 19,374, 000 23, 394, 000 135,009, 000 2, 248, 065, 000 1 1,201,413,000 1,921,344, 000 1 Includes $260,097,000 noncompetitive tenders accepted at the average price of 99.003. 2 Includes $108,127,000 noncompetitive tenders accepted at the average price of 97.974. Accepted $25, 935, 000 681, 792, 000 6,916, 000 23,149, 000 4, 066, 000 24,166, 000 112, 513, 000 11, 946, 000 9, 024, 000 16, 574,000 7,969, 000 77, 272, 000 21, 001,312,000 Summary of information perioAning to Treasury bills issued during the fiscal year 1965 [DoUar amounts tn thousands] Maturity value Prices and rates Total bids accepted Tenders accepted Date of issue Date of maturity Days to maturity 1 Total applied for Total On competitive basis On noncompetitive basis For cash Average price per In exchange hundred Competitive bids accepted High EquivaLow lent average Price per Equiva- Price per Equivarate (percent) hundred lent rate hundred lent rate (percent) (percent) Amount maturing on issue date of new offering Regular Weekly 1964 July 2 2 9 9 16 16 23 23 3 29 Aug. 30 30 6 6 13 13 20 20 27 27 Oct. Dec. Oct. Jan. Oct. Jan. Oct. Jan. Oct. Oct. Oct. Nov. Nov. Nov. Nov. Dec. Dec. Dec. Oct. Jan. Nov. Feb. Nov. Feb. Nov. Feb. Nov. Feb. 1,1964 91 31, 1964 182 8, 1964 91 7, 1965 182 15,1964 91 14,1965 182 22, 1964 91 182 21. 1965 15,1964 78 22,1964 85 29,1964 92 5,1964 99 12, 1964 106 113 19,1964 121 27,1964 3,1964 127 10, 1964 134 17, 1964 141 29,1964 91 28,1965 182 5,1964 91 4,1965 182 12.1964 91 11,1965 182 19,1964 ' 91 18,1965 182 27,1964 92 25,1965 182 Footnotes at end of table. $1, 913, 700 $1, 200,167 $993, 055 1, 580, 620 900, 402 849, 295 2,178, 912 1, 201, 238 965, 167 1, 414, 326 900, 046 839, 956 2,122, 719 1, 201, 549. 878, 501 1, 409, 225 902, 495 810, 219 2, 069, 809 1, 200, 735 963, 315 1, 332, 877 899, 827 839, 486 $207,112 $1, 036,198 $163, 969 807, 994 92, 408 51,107 236, 071 1, 029, 092 172,146 51, 455 60, 090 848, 591 323, 048 1,185, 099 16, 460 898, 097 92, 276 4,398 237, 420 928, 745 271, 990 787, 923 111, 904 60, 341 )2,147, 330 1,000, 860 996, 830 4,030 1, 000, 860 2, 203, 740 1, 889, 232 2, 081, 381 1, 750,962 2, 092. 365 1,597,308 2, 070, 777 2, 040, 991 2, 049,191 1,962,121 1, 200, 736 901, 969 1, 200, 441 900, 616 1,196, 793 901.846 1, 200,177 901, 346 1, 201, 538 902, 006 987, 032 844, 449 966, 679 842, 322 937, 860 838,173 954, 040 838, 613 .980, 095 845, 876 213, 704 57, 520 233, 762 58, 294 267. 933 63,673 246,137 62,733 221, 443 56,130 993, 487 790, 410 1, 010, 563 788, 675 1,128, 930 848,664 931, 492 779, 063 967,300 789,900 207, 249 111, 569 189, 878 111, 941 66, 863 53,182 268, 685 122, 293 234, 238 112,106 99.121 98. 217 99.117 98. 208 99.128 98. 206 99.115 98.170 3.479 3.528 3.492 3.544 3.448 3.549 3.502 3.619 99.124 2 98. 220 3 99.121 2 98. 217 99.134 98. 216 99.128 2 98.182 3. 465 3.621 3.477 3.527 3.426 3.529 3.450 3.696 99.118 98. 214 99.115 98. 200 99.126 98.198 99.112 98.159 98.933 3.605 98.941 3.478 98.929 3.618 99.122 98.184 99.118 98.186 99.113 98.174 99.112 98.163 99.102 98.160 3.476 3.691 3.489 3.688 3.510 3.111 3.512 3.634 3.513 3.639 99.124 98.188 2 99.122 98.192 2 99.118 2 98.186 99.115 98.171 2 99.106 98.166 3. 466 3.584 3.473 3.676 3.489 3.588 3.601 3.618 3.498 3.628 99.119 98.182 99.116 98.184 99.111 98.170 99. Ill 98.161 99.100 98.168 3.485 3.696 3.497 3.692 3.617 3.620 3.617 3.638 3. 622 3.644 3.489 $1, 300, 660 800, 466 . 3. 533 3.501 1, 300, 692 800, 403 3.560 3.458 1, 200, 606 800, 444 3.564 3.613 1, 200, 078 800, 616 3.642 1, 201, 283 800, 267 1, 200, 271 900, 431 1, 200, 553 900, 881 1, 202, 081 900, 955 1,199, 984 901, 802 Summary of information pertaining to Treasury bills issued during the fiscal year 1965—Continued Prices a n d r a t e s M a t u r i t y value T o t a l b i d s accepted Tenders accepted D a t e of issue D a t e of maturity D a y s to maturity 1 Total applied for . Total accepted On competitive basis CD On noncompetit i v e basis F o r cash In exchange Average price p e r hundred Equivalent average rate (percent) C o m p e t i t i v e b i d s accepted Low High -:- Amount maturing on issue d a t e of new offering Price per E q u i v a - P r i c e per E q u i v a h u n d r e d lent r a t e h u n d r e d l e n t r a t e (percent) (percent) CO o> Oi &3 O SI O >^ Regular Weekly-- C o n t i n u e d 1964 Sept. 3 3 10 10 17 17 24 24 Oct. 1 1 Dec. Mar. Dec. Mar. Dec. Mar. Dec. Mar. Dec. Apr. 3,1964 4,1965 10,1964 11, 1965 17.1964 18,1965 24,1964 25, 1965 31,1964 1,1965 91 $2,129, 431 $1, 200, 678 182 1,522,489 900, 287 91 2, 169. 481 1, 301, 783 182 1, 463, 946 900, 822 91 2; 082, 514 1, 301, 621 182 1, 474, 395 900, 020 91 2, 200, 319 1, 301, 980 182 1, 623. 973 900. 644 91 2, 085. 860 1, 300, 880 182 1. 450, 772 900, 333 $963, 450 836, 825 1, 064, 472 839, 589 1, 021, 542 825, 345 1, 055, 764 834, 934 1, 065, 802 828, 957 91 182 91 182 91 182 91 182 91 182 91 182 91 182 90 181 91 182 959, 909 822 994 937, 455 914, 536 949,134 917, 284 966, 494 931, 307 955. 661 928, 425 944, 803 912. 712 938', 565 923, 983 930, 350 • 931,676 962, 662 932, 635 228 462 311 233 079 675 216 710 078 376 $978, 370 784, 862 1, 220, 814 868, 644 1,162, 969 836, 192 1,139, 536 816, 010 1,140, 477 827,168 $222, 308 115, 425 80, 969 32,178 138, 652 63, 828 162, 444 84, 634 160, 403 73,165 99.112 98.165 99.112 98.155 99.105 98.133 99.105 98.133 99.101 98.124 3.512 3.629 3.514 3.649 3.541 3.693 3.542 3.692 3.555 3.711 99.115 98 171 99 117 2 98 162 99 114 98 140 99 108 98 136 99 106 98.134 3.501 3.618 3.493 3.636 3.505 3.679 3.529 3.687 3. 537 3.691 99.110 98.161 99.109 98. 149 99.103 98.129 99.103 98.131 99.100 98.120 3.521 $1, 201, 964 902, 448 3.638 1, 201,130 3.525 900, 265 3.661 1, 200, 661 3.549 898, 804 3.701 1, 201, 309 3.549 900, 302 3.697 1, 200,167 3.560 901, 457 3.719 240, 383 78, 182 274,110 89, 947 253, 783 83, 485 233, 681 71, 447 244, 916 71. 535 255. 138 87, 605 262, 476 76, 840 219, 846 68, 426 237, 562 67, 416 1, 041, 049 828, 046 1,197, 760 998, 864 1, 009, 532 886. 597 985, 055 900, 052 995, 324 886: 613 1, 050, 278 926, 016 970, 821 867, 498 982, 364 877. 363 1, 007; 569 867, 826 159, 243 73,130 13, 805 5, 619 193. 385 114,172 215,120 102, 702 205, 253 113, 347 149, 653 74, 301 230, 220 133, 325 217, 832 122, 739 192, 655 132, 225 99. 094 98.107 99. 095 98.116 99. 092 98.110 99. 098 98.117 99.100 98.120 99. 097 98.108 99. 090 98. 093 99. 061 98. 018 99. 022 97.962 3.583 3.744 3.580 3.726 3.592 3. 738 3.568 3.724 3.561 3.718 3.574 3.742 3.600 3.772 3.757 3.942 3.868 4.030 2 99. 098 2 98. 110 2 99. 098 2 98.118 99. 094 98.118 99.101 98.121 2 99.105 98. 124 2 99. 100 2 98.115 2 99. 093 2 98. 098 2 99. 068 2 98. 040 2 99. 030 2 97. 973 3.568 3.738 3.568 3.723 3.584 3. 723 3.556 3.717 3.541 3.711 3.560 3.729 3.588 3.762 3.728 3.898 3.837 4.009 99. 091 98.105 99. 093 98.115 99. 091 98.106 99. 097 98.116 99. 098 98.116 99. 095 98. 106 99. 089 98.090 99. 054 98. 000 99. 016 97. 957 3. 596 3.748 3.588 3. 729 3.596 3.746 3.572 3.727 3.568 3.727 3.580 3.746 3. 604 3.778 3.784 3.978 3.893 4.041 $237, 63, 237, 61, 280, 74, 246, 65, 235, 71, W Ul o > Pi 8 8 15 15 22 22 29 29 Nov. 5 5 12 12 19 19 27 27 Dec. 3 FRASER 3 1965 Jan. 7 Apr. 8 J a n . 14 A p r . 15 J a n . 21 A p r . 22 J a n . 28 A p r . 29 Feb. 4 May 6 F e b . 11 M a y 13 F e b . 18 M a y 20 F e b . 25 M a y 27 Mar. 4 June 3 Digitized for 1, 912, 812 1, 634, 687 2, 163, 822 2, 095, 533 2,170, 090 1, 725. 361 2, 204, 764 1, 902, 159 2,106, 301 1, 650,175 2, 029,151 1, 742, 422 2, 158. 178 1, 812; 350 2, 638. 731 1. 937, 757 2, 042. 564 1, 835, 321 1, 200, 292 901,176 1,211,565 1, 004, 483 1, 202, 917 1, 000, 769 1, 200,175 1, 002, 754 1, 200, 577 999, 960 1, 199, 941 1, 000, 317 1, 201, 041 1, 000, 823 1, 200, 196 1, 000, 102 1, 200, 224 1, 000, 051 1, 201, 238 900, 029 1, 201, 549 4 900, 050 1, 200, 735 4 900, 793 1, 20.0, 736 4 900, 482 1, 200, 441 4 900, 393 1, 195, 793 4 900, 452 1, 200, 177 4 900, 490 1, 201, 538 4 900, 091 1, 200, 678 4 904, 729 o W s) > ZP d 10 10 17 17 24 24 31 31 11 10 18 17 25 24 1 1 91 182 91 182 91 182 91 182 1, 829, 067 1, 672, 878 2, 324, 666 2, 097, 454 2, 109, 531 2,189, Oil 2, 264, 222 2, 038, 711 Apr. 8 July 8 Apr. 15 July 15 Apr. 22 July 22 Apr. 29 July 29 May 6 Aug.. 5 M a y 13 Aug. 12 M a y 20 Aug. 19 M a y 27 Aug. 26 June 3 Sept. 2 June 10 Sept. 9 June 17 Sept. 16 June 24 Sept. 23 July 1 Sept. 30 July 8 Oct. 7 July 15 Oct. 14 July 22 Oct. 21 July 29 Oct. 28 91 182 91 182 91 182 91 182 91 182 .91 182 91 182 91 182 91 182 91 182 1, 986, 695 2, 020, 324 2, 171, 205 '1,811,184 2, 099, 469 2, 475, 013 2,184, 985 2, 465, 324 2, 226,134 2, 469, 650 2, 241, 693 2, 448, 440 2, 073, 818 2, 161, 767 2, 327, 347 2, 503, 559 2,358,807 2, 303, 530 2,151,455 1,880,194 2, 248,707 2,331,424 2, 367,953 2, 023,932 2, 061,246 1,937, 578 2, 280, 698 2,188, 024 2,335,947 1,832,482 2,248,216 1, 921,554 2, 267,394 2,210,644 Mar. June Mar. June Mar. June Apr. July 1965 Jan. 7 7 14 14 21 21 28 • 28 Feb. 4 4 11 11 18 18 25 25 Mar. 4 4 11 11 18 18 25 25 ' 91 182 91 182 Apr. 1 91 182 1 91 8 182 8 91 15 182 15 91 22 182 22 91 29 182 29 Footnotes at end of table. 1, 301, 017 1, 042, 542 909, 089 1, 000, 578 1, 300, 840 1, 024, 449 886, 983 1, 000, 604 993, 064 1, 208, 096 904, 322 1, 004, 907 1,199, 854 967,158 904, 385 1, 001, 977 258, 475 91, 489 276, 391 113, 621 215, 032 100, 585 232, 696 97, 592 1, 285, 897 995, 581 1, 282, 866 993, 151 1, 015, 884 870,107 998,184 878, 464 15,120 4,997 17, 974 7,453 192, 212 134, 800 201, 670 123, 513 99. 036 98. 006 99. 023 97. 996 99.022 97.998 99. 023 97. 999 3.815 3.944 3.864 3.965 3.868 3.960 3.866 3.957 99. 052 98. 020 2 99. 029 98. 004 2 99. 025 98. 002 99. 026 98. 004 3.750 3.916 3.841 3.948 3.857 3.952 3.853 3.948 99. 021 97.992 99.019 97.991 99. 020 97. 996 99. 021 97. 998 3.873 3.972 3.881 3.974 3.877 3.964 3.873 3.960 1, 301, 783 4 900, 518 1, 301, 621 4 901, 049 1, 301, 980 900, 065 1, 300, 880 900, 402 1,101, 840 1, 003, 362 1, 099, 634 1. 001, 067 i; 200, 282 1, 001, 051 1, 202, 865 1, 003, 233 1, 202, 517 1, 003, 580 1, 200, 357 1, 001, 236 1, 200, 071 1, 000, 358 1, 200, 917 1, 003, 386 1, 200,197 1, 000, 299 1, 200, 754 1, 000,355 1, 200, 993 1, 002, 526 1,202,754 1, 000,457 1, 200,166 1, 002, 063 1, 201,819 1, 001, 261 1,200, 668 1, 000, 699 1, 201, 564 1, 001, 522 1, 201, 098 1, 003,275 239, 993 86, 651 312, 380 126, 213 260, 272 98, 055 225, 368 98, 228 230, 452 89, 663 252, 352 92, 424 253, 685 93. 158 206; 803 76,140 238,204 94,770 255,859 99, 541 276, 661 102, 656 238,690 91, 607 230,712 102,810 242,938 96,857 298, 320 124,443 260, 248 108, 337 234, 626 92, 606 888, 465 917,910 917, 948 905, 987 1, 000, 459 877,931 989, 713 871,198 960, 445 869, 929 1, 020, 728 868, 314 1,187, 733 998, 511 966, 571 860. 395 971,663 864,834 1, 016,370 924,479 1,012,872 948,352 1, 036, 334 859, 616 1, 001,390 857, 619 1,010,487 908,731 1, 029, 246 914,277 982,331 846, 264 995, 602 850, 075 213. 375 85, 452 181, 686 95. 080 199; 823 123,120 213,152 132, 035 242, 072 133, 651 179, 629 132,922 12, 338 1,847 234. 346 142, 991 228,534 135,465 184,384 75,876 188,121 54,174 166,420 140,841 198,776 144,444 191, 332 92, 530 171,422 86,422 219,233 155, 258 205, 496 163,200 99. 032 98. 015 99. 036 98. 007 99. 034 97. 998 99. 027 98.005 99.017 97. 994 99.013 97.984 99.005 97. 970 98. 992 97. 956 98.993 97.959 99. 002 97.977 99. 010 97.983 99. 009 97.986 99.009 97.981 99.004 97.981 99. 005 97.983 99.003 97.974 99. 010 97.989 3.829 3.927 3.814 3.942 3.821 3.960 3.848 3.946 3.888 3.968 3.903 3.987 3.936 4.015 3.989 4.043 3.982 4.037 3.948 4.001 3.917 3.990 3.922 3.984 3.921 3.993 3.942 3.993 3.937 3.991 3.946 4.008 3.916 3.978 99. 036 98. 020 99. 042 98. 015 99. 038 98. 000 99. 031 98. 010 2 99. 023 97. 998 2 99. 016 97. 990 99. 010 97. 981 98. 995 2 97.961 2 98.995 97.961 99. 006 97.984 99. 014 97. 985 99. 010 2 97.989 99. 014 97.988 99. 007 97.984 99.007 97.989 99. 006 2 97.978 99.014 97.993 3.814 3.916 3.790 3.926 3.806 3.956 3.833 3.936 3.866 3.960 3. 893 3.976 3.916 3.994 3.976 4.033 3.976 4.033 3.932 3.988 3.901 3.986 3.916 3.978 3.901 3.980 3.928 3.988 3.928 3.978 3.932 4.000 3.901 3.970 99. 031 98. 014 99.034 98. 002 99. 031 97. 997 99. 025 98. 004 99. 016 97.992 99. Oil 97.983 99. 001 97. 968 98.990 97. 955 98.992 97.958 99. 000 97.973 99.007 97.982 99. 007 97. 983 99. 006 97.978 99.002 97. 980 99. 003 97.979 99. 001 • 97.971 99. 009 97.988 3.833 3.928 3. 822 3.952 3.833 3.962 3. 857 3.948 3.893 3.972 3.913 3.990 3.952 4.019 3.996 4.045 3.988 4.039 3.956 4.009 3.928 3.992 3.928 3.990 3.932 4.000 3.948 3.996 3.944 3.998 3.952 4.013 3.920 3.980 1, 200, 292 900, 046 1, 211, 565 902, 495 1; 202, 917 899, 827 1, 200,175 901, 969 1, 200, 577 900, 616 1, 199, 941 901, 846 1, 201, 041 901, 346 1, 200,196 902, 006 1, 200, 224 900, 287 1,301, 017 900,822 1,300,840 900, 020 1, 208, 096 900, 644 1,199,854 900,333 1,101,840 901,176 1, 099, 634 1,004,483 1,200,282 1, 000,769 1,202,865 1, 002,. 754 861, 847 916, 711 787,254 874, 854 940, 010 902, 996 977, 497 905, 005 972, 065 913, 917 948, 005 908, 812 946, 386 907, 200 994,114 927, 246 961,993 905, 529 944,895 900,814 924,332 899,870 964, 064 908,850 969,454 899, 253 958,881 904,404 902,348 876, 256 941,316 893,185 966,472 910, 669 CD Summary of information pertaining to Treasury bills issued during the fiscal year 1965—Continued D a t e of issue D a t e of maturity D a y s to maturity 1 Total appUed for Total accepted CD 00 Prices a n d r a t e s M a t u r i t y value T e n d e r s accepted- Total bids accepted C o m p e t i t i v e b i d s accepted High Low O n noncompetit i v e basis EquivaAverage lent price pe?- average hundred rate (percent) Price per E q u i v a hundred lent rate (percent) Price per E q u i v a hundred lent rate (percent) O n competitive basis For cash In exchange Amount maturing o n issue d a t e of new offering 1965 6 6 13 13 20 20 27 27 June 3 3 10 10 17 17 24 24 o W 1965 Aug. 6 Nov. 4 Aug. 12 Nov. 12 Aug. 19 Nov. 18 Aug. 26 Nov. 26 Sept. 2 Dec. 2 Sept. 9 Dec. 9 Sept. 16 Dec. 16 Sept. 23 Dec. 23 P? o Regular Weekly—Continued May CO 91 182 91 183 91 182 91 183 91 182 91 182 91 182 91 182 073,412 $1,200, 536 958,383 1, 000,414 246,167 1,200,969 871,725 1, 000,857 952,704 1,200,891 041,003 1, 001,778 090,782 1,199, 660 001,200 1, 000,785 206,827 1,202,352 992,142 1, 001,177 932,400 1,200,254 846,257 1, 000,294 039,887 1,200,670 302,842 1,001,469 221,341 1,205,281 340,802 1, 001, 519 $973, 517 909, 037 962,949 902,358 963,164 898,860 984,208 916, 036 991,672 917, 560 954,506 896,138 954,906 899,027 970,213 891,448 $227, 019 91,377 238, 0^0 98,499 237,727 102,918 215,452 84,749 210, 680 83,617 245,748 104,156 245,764 102,442 235, 068 110,071 $971,271 838,522 977,871 866,647 1,013,276 896,771 983,121 857, 411 975, 008 884,850 1, 024, 630 896,155 1, 015, 367 886, 590 1, 001,183 914,899 $229,265 161,892 223,098 134, 210 187,616 105, 007 216, 539 143, 374 227,344 116,327 175, 624 104,139 185,303 114,879 204,098 86,620 99. 014 98.003 99. 016 97.992 99. 015 98.000 99. 017 97.995 99. 022 98. 016 99.044 98.047 99.040 98.042 99.042 98.063 3.901 3.950 3.893 3.950 3.897 3.955 3.889 3.944 3.870 3.924 3.781 3.863 3.799 3.873 3.789 3.831 99. 016 98.004 99. 020 2 97.998 99. 018 98.003 99. 020 2 97.998. 99. 026 98.023 99; 049 98. 054 99.043 98.045 99.047 98.068 3.893 3.948 3.877 3.938 3.885 3.950 3.877 3.938 3.853 3.911 3.762 3.849 3.786 3.867 3.770 3.822 99. 012 98.001 99. 015 97. 990 99. 012 97.998 99. 015 97.994 99. 020 98. 013 99.038 98.044 99.038 98.041 99. 042 98.062 3.909 $1, 202,517 999,960 3.954 3.897 1, 200,357 3.954 1, 000, 317 3.909 1, 200, 071 3.960 1, 000,823 3.897 1, 200, 917 3.946 1, 000,102 3.877 1, 200,197 3.930 1, 000, 051 3.806 1, 200,764 3.869 1, 000, 678 3.806 1, 200,993 3.875 1, 000, 604 3.790 1,202,764 3.833 1,004,907 Ul o ;> Kl o >^ W • Tax Anticipation 1964 Sept. 2 O c t . 26 N o v . 24 > 1965 M a r . 22 M a r . 22 J u n e 22 Ul 201 $2,234,994 $1, 000,965 147 3,188,232 1, 503,195 210 3,703,119 1, 504,489 $971,771 1,299,263. 1,298,870 $29,194 $1,000, 965 203,932 1, 503,195 205, 619 1,504,489 98.001 98. 564 97.877 3.580 3. 518 3.639 2 98.012 98.575 2 97.895 3.561 3.490 3.609 97.998 98.559 97.874 3.586 3.529 3.645 155 1, 617,200 241,147 98.402 3.711 2 98.411 3.691 98.399 3.718 1965 J a n . 18 J u n e 22 4,044,947 1,758,347 1,758,347 One-Year 1964 July 7 Aug. 4 Aug. 31 Sept. 30 Oct. 31 Nov. 30 Dec. 31 1965 Jan. Feb. Mar. Apr. May June 31 28 31 30 31 30 1965 June 30 July 31 Aug. 31 Sept. 30 Oct. 31 Nov. 30 Dec. 31 358 $2,393,266 $1, 001, 222 361 2, 080, 052 1, 000,462 365 1,940, 279 1, 000,439 365 1,849, 028 1, 000, 539 365 2,349,793 999,950 365 2,496,632 1, 000, 542 365 2,310,836 1, 002,951 $979,820 979,275 960, 205 947, 691 954,691 948,419 957,341 $21,402 $1, 001,222 21,187 1, 000,462 973,989 40, 234 982,146 52,848 896,159 45, 259 937,414 52,123 976, 694 45, 610 $26,450 18,393 103,791 63,128 26, 257 96. 329 96.346 96. 260 96.174 96.158 95.876 95.972 3.691 3.644 3. 688 3.773 3.790 4.068 3.972 96. 336 96. 362 96. 270 96.189 96.168 2 95.944 2 95.987 3.684 3.628 3.679 3.759 3.780 4.000 3.958 96. 327 96.339 96. 252 96.169 96.154 95.855 95.965 3.694 3.651 3.697 $1, 001,143 3.779 1, 001,960 3.793 1, 000,273 4.088 1, 004,801 3.980 1, 000,309 102,754 36, 599 49,318 120,884 100,282 62,101 96. 000 95.882 95. 957 95.949 95.991 96.140 3.945 4.062 3.987 3.996 3.954 3.807 2 96.007 2 95.904 2 95.973 95.951 2 95.994 2 96.157 . 3.938 4.040 3.972 3.994 3.951 3.790 95.998 95.873 95. 950 95.945 95.991 96.126 3.947 4.070 3.995 3.999 3.954 3.821 1966 Jan. Feb. Mar. Apr. May June 31 28 31 30 31 30 365 365 365 365 365 365 2,907,878 2, 023,196 2, 241,262 2, 573,194 2,761,993 2,190,847 1, 000,387 1, 000,705 1, 000,304 1, 001,162 1, 000,886 1, 000, 647 947,866 965, 677 946, 618 964,100 969,510 953, 065 52, 521 35, 028 53, 686 37,062 31,376 47,582 897,633 964,106 950,986 880,278 900, 604 938,546 1 The 13-week bills represent additional issues of bills with an original maturity of 26 weeks, except that the issue of October 1 was an additional issue of biUs with an original maturity of one year. 2 Relatively smaU amounts of bids were accepted at a price somewhat above the high shown. However, the higher price is not shown in order to prevent an appreciable discontinuity in the range (covered by the high to the low prices shown) which would make it misrepresentatlve. 3 An additional $100 miUion each of 10 series of weekly bills issued in a strip for cash (see press release dated July 20, 1964, in this exhibit). 4 In addition, $100,086,000 of the strip of biUs issued July 29,1964, matured. NOTE.—The usual timing with respect to weekly issues of Treasury bills is: Press release inviting tenders, 8 days before date of issue; closing date on which tenders are accepted, 3 days before date of issue; and press release announcing acceptance of tenders, 2 days before date of issue. 1, 000,393 1, 000, 520 1,001,464 1, 001,439 1, 000,141 1, 001,222 Figures are fiunal and may differ from those shown in the press release announcing prehminary results. Noncompetitive tenders (without stated price) from any one bidder were accepted in full at the average price of accepted competitive bids for each issue up to the foUowing amounts: $100,000 for the 26-week issues of July 2 through Dec. 10,1964, and the strip of bills; $200,000 for the 13-week issues, 1-year issues, 26-week issues of Dec. 17, 1964, through June 24,1965, and tax anticipation series of Sept. 2, Oct. 26, and Nov. 24,1964; and $300,000 for the tax anticipation series of Jan. 18,1965. AU equivalerit rates of discount are on a bank-discount basis. QuaUfled depositaries were permitted to make payment by credit in Treasury tax and loan accounts for not more than 50 percent of the amount of the tax anticipation series of Oct. 26, Nov. 24,1964, and Jan. 18,1965, allotted to them for themselves and their customers up to any amount for which they were qualified in excess of existing deposits when so notified by the Federal Reserve bank of their district. I—l w Ul ID . CD 200 19 65 REPORT OF THE SECRETARY OF THE TREASURY G u a r a n t e e d D e b e n t u r e s Called Exhibit 4.—Calls for p a r t i a l redemption, before m a t u r i t y , of i n s u r a n c e fund and home improvement account d e b e n t u r e s During the fiscal year 1965, there were 32 calls for p a r t i a l redemption, before m a t u r i t y , of insurance fund debentures, and one call of home improvement account debentures, 22 dated September 23, 1964, and 11 dated March 25, 1965. The notices of call were published in t h e F e d e r a l Register of September 29, 1964, and March 31, 1965. The notice covering t h e call of t h e 3 % percent servicemen's mortgage insurance fund debentures Series EE, is shown in this exhibit. Since t h e other notices of call a r e similar to this notice, they have been omitted, but the essential details are summarized in the table following the notice of call. NOTICE O F CALL. F E D E R A L R E G I S T E R O F MARCH 31, 1965 To Holders of 3 % Percent Servicemen's Mortgage I n s u r a n c e F u n d Debentures, Series E E : NOTICE OF CALL FOR P A R T I A L REDEMPTION. B E F O R E MATURITY, OF 3 % PERCENT SERVICEMEN'S MORTGAGE INSURANCE FUND DEBEiNTURES, SERIES EE P u r s u a n t to t h e authority conferred by the National Housing Act (48 Stat. 1246; U.S.C, title 12, sec. 1701 et seq.) as amended, public notice is hereby given t h a t Servicemen's Mortgage Insurance F u n d Debentures, Series E E , bearing interest a t 3 % percent as designated below a r e hereby called for redemption, a t p a r and accrued interest, on J u l y 1, 1965, on which date interest on such debentures shall c e a s e : 3 % Percent Servicemen's Mortgage I n s u r a n c e F u n d Debentures, Series E E Denomination $50 100 - 500 1,000 5,000 10,000 -. Range of inclusive serial n u m b e r s w i t h i n which called debentures fall 3, 397 to 3, 912 / 25,344 to 25,347 and I 25, 937 t o 30, 201 6, 247 to 7, 228 / 19, 918 t o 22, 822 a n d 1 22 918 3' 442 to 3, 911 _— 3, 839 to 4, 288 Although t h e above inclusive serial numbers include Series E E debentures bearing other rates, only those bearing interest a t the r a t e of 3 % percent, listed above, a r e included in t h i s call, together with certain other debentures bearing t h e same r a t e and registered in t h e n a m e of t h e F e d e r a l National Mortgage Association. No t r a n s f e r s or denominational exchanges in debentures covered by t h e foregoing call will be made on the books maintained by t h e T r e a s u r y D e p a r t m e n t on or after April 1,1965: This does not affect the r i g h t of the holder of a debenture to sell and assign t h e debenture on or after April 1, 1965, and provision will be made for t h e payment of final interest due on July 1, 1965, with t h e principal thereof to t h e a c t u a l owner, as shown by t h e assignments thereon. T h e Commissioner of t h e F e d e r a l Housing Administration hereby offers to purchase any debentures included in this call a t any time from April 1, 1965, to J u n e 30, 1965, inclusive, a t p a r and accrued in'terest, to date of purchase. Instructions for t h e presentation and surrender of debentures for redemption on or after J u l y 1, 1965, or for purchase prior t o t h a t date will be given by t h e Secretary of t h e Treasury. P. N. BROWNSTEIN, i A P P R O V E D : Ma/txh 26, 1965. J O H N K . CARLOCK, Fiscal Assistant Secretary of the Treasury. F e d e r a l Housing Commissioner. Summary of information contained in the notices of call for partial redemption of insurance fund debentures during the fiscal year 1965 Notice of call.. Redemption date Serial numbers called by denominations: $50 '.. ZH percent mutual mortgage insurance fund debentures, Series AA ZH percent mutual mortgage insurance fmid debentures, Series AA 4 percent mutual mortgage insurance fund debentures, Series AA i H percent mutual mortgage insurance fund debentures, Series AA i'A percent mutual mortgage insurance fund debentures, Series AA Mar. 25, 1965. July 1, 1965.. M a r . 25, 1965.. July 1, 1 9 6 5 — Mar.25, 1965 July 1,1965 Sept. 23, 1964.. Jan. 1, 1965..-. M a r . 25, 1965. July 1, 1965. 13941-21185.-. 15324,16389-70643, 7065270653. 65349-500571, 500760- . 500768, 500791-500794,501606, 502033-502034, 502040-502044. 24779, 26055-70641 — 55461-70640, 70852, 70934, 70988. 379512-500581, 501034501038, 501904-501906, 502032, 503040-503041. 17238", 17382-124962,125020, 125023, 125145-125146, 125328 54075-380819, 380970380973, 380978-380981, 381008, 381396-381399. 26256, 27764, 30786, 32494, 33372-124967. 25399-55457, 55534, 5571855721. 148308-148571, 148603379511, 379752, 379966379976, 380392, 380418, 380805-380807, 380843780846, 380881-380883. 38876-95096, 95242, 95329, 95337, 95430. 100 63646-115199.. 500—. 16912-30601.. 1,000.. 52497-99946.. 5,000... 10,000. Final date for transfers or denominational exchanges (but not for sale or assignment). Redemption on call date, amount of interest per $1,000 paid in full with principal. Presentation for purchase prior to call date: Period Amount of accrued interest per $1,000 per day paid with principal. 104019-500566, 501605 90524, 101112, 110300380817, 381011. 95098-1249070,125081,125219. 293380-380815, 381009381010, 381617-381621381766, 381768, 382389, 382570-382571. 15064-22960, 23325, 23328, 23337 9977, 10023-14822 15534-74225, 74257, 74259, 74421. 10032-62739 25196, 25545, 26325-74224, 74362. 13363, 13962, 15183-62721.. 127550-293376, 293547, 293835-293841, 293909, 294468-294469, 294484, 294791-294792, 294840294842. 27589-58387, 58483, 5850658507, 58569. 18486-46958 A p r . l , 1965 Apr. 1, 1965 Apr. 1, 1965. Oct. 1, 1964 46962-62741, 62873, 62927, 63043, 63232. . Apr. 1, 1965. $19.375 $20.00 $20.625 $20,625. Apr. 1-July 1, 1965 $0.107044199 from Jan. 1, 1965, to date of pur-' chase. Apr. 1-July 1, 1965 $0.110497238 from Jan. 1, 1965, to date of purchase. Oct. 1-Dec. 31, 1964 $0.112092 from July 1,1964, to.date of purchase.' Apr. l-.Julv 1, 1965. $0.113950276 from Jan. 1, 1965, to date of purchase. $18.75 .. Apr. 1-July 1, 1965 $0.103591160 from Jan. 1, 1965, to date of purchase. ---.. Ul 58398-74222, 74268. O Summary of information contained in ihe notices of call for partial redemption of insurance fund debentures during thefiscal year 1965—Con. Notice of call Redemption date Serial numbers called by denominations: $50. 100 ..-. 500...............--.:--....:..:. 1,000 : 5,000 10,000 Final date for transfers or denominational exchanges (but not for sale or assignment). Redemption on call date, amount of interest per $1,000 paid in full with principal. Presentation for purchase prior to caU date: Period _• Amount of accrued interest per $1,000 per day paid with principal. 3J^, 4, and i}i percent housing insurance fund debentures. Series BB Z]/i percent housing insurance fund debentures, Series BB Sept. 23, 1964 Jan. 1, 1966 480-1580 1968-12853 639-3393 2317-11837 647-1586 5498-22170 Oct. 1, 1964.. Mar. 25, 1965.. July 1, 1965 1591-1659, 1667... 12932-13719-........... 3475-3644, 3646 11881-12559 1589-1729 . 4 percent housing insurance fund debentures, Series BB bO o to i}/8 percent housing insurance fund debentures, Series BB CO Oi Mar. 26, 1965. July 1, 1965. Mar. 25, 1965 July 1, 1965 1581-1657 ..--:.-..-. 1582-1663. 12865-13718. 3396-3645, 3659. 11839-12558. 1604-1744. 22394-28190 12868-13681. 3395-3638,: 11840-12535 1603-1743 22171-28630 Apr. 1, 1965. Apr. 1, 1965- $19,375 for 3 ^ % , $20.00 for 4%, .$20,625 for 4)^%. $19.375 $20.00 Oct. 1, 1964-Jan. 1, 1965 $0.105299 for 3 ^ % , $0.108696 for 4%, $0.112092 for 43^%, from July 1, 1964, to date of purchase. Apr. 1-July 1, 1965... $0.107044199 from Jan. 1, 1965, to date of purchase. Apr. 1-July 1, 1965... $0.110497238 from Jan. 1, 1965, to date of purchase. Z% p e r c e n t section 220 housing i n s u r a n c e fund d e b e n t u r e s . Series C C 3J^ percent section 220 h o u s i n g insurance fund d e b e n t u r e s , Series C C i}/i p e r c e n t section 220 housing i n s u r a n c e fmid d e b e n t u r e s , Series C C 43/g p e r c e n t sectioii 220 housing insurance fund d e b e n t u r e s , Series C C Mar. 25, 1965 J u l y 1, 1965 Mar. 25, 1965 J u l y 1, 1965. Sept. 23, 1964.. J a n . 1, 1965 Mar. 25, 1965. J u l y 1, 1965. 217-228. 67 186-192 51. 233-237. 71. 196-197. 6751. A p r . 1, 1965. - -.. pi •T) O Pi 22377-28619. Apr. 1, 1965. O $20,625. W Apr. 1-July 1, 1965. $0.113950276 from Jan. 1, 1965, to date of purchase. Ul Q Pi > Notice of call Redemption date -.Serial n u m b e r s caUed b y d e n o m i n a t i o n s : $50 100 500 1,000 10,000 — ..... F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t n o t for sale or a s s i g n m e n t ) . R e d e m p t i o n on call d a t e , a m o u n t of interest per $1,000 p a i d in fuU w i t h principal. P r e s e n t a t i o n for p u r c h a s e prior to call d a t e : Period A m o u n t of accrued interest p e r $1,000 per d a y p a i d w i t h principal. . 41, 43 184-193 56. 157, 158 5680-6062 A p r . 1, 1 9 6 5 . - . . . • 232 70.. 193-195 : A p r . 1, 1965 - . Oct. 1, 1964 $18.76. $19.375 $29,625 $20,625. A p r . 1-July 1, 1965 $0.103591160 from J a n . 1, 1965, to d a t e of p u r c h a s e . A p r . 1-July 1, 1965 $0.107044199 from J a n . 1, 1965, to d a t e of p u r c h a s e . O c t . 1-Dec. 31, 1964 $0.112092 from J u l y 1, 1964, to d a t e of p u r c h a s e . A p r . 1-Julv 1, 1966. $0.113950276 from J a n . 1,1965, to d a t e of p u r c h a s e . Pi O W pi > Ul d pi N o t i c e of caU.._ . . .. . Redemption date _ . Serial n u m b e r s caUed b y d e n o m i n a t i o n s : $50 . 100 500 1,000 6,000 10,000... F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t not for sale or a s s i g n m e n t ) . R e d e m p t i o n on call d a t e , a m o u n t of interest per $1,000 p a i d i n full w i t h p r i n c i p a l . P r e s e n t a t i o n for p u r c h a s e prior to caU d a t e : Period _. ... . A m o u n t of accrued i n t e r e s t per $1,000 per d a y p a i d with principal. N o t i c e of call Redeinption date . . _ _. Serial n u m b e r s caUed b y d e n o m i n a t i o n s : $50 100 500 . 1,000... 6,000 10,000 . F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t n o t for sale or a s s i g n m e n t ) . R e d e m p t i o n o n caU d a t e , a m o u n t of interest per $1,000 p a i d i n fuU w i t h p r i n c i p a l . P r e s e n t a t i o n for p u r c h a s e prior t o call d a t e : Period A m o u n t of accrued interest p e r $1,000 per d a y paid with pruicipal. Z% p e r c e n t section 221 housing insurance fund d e b e n t u r e s , Series D D Z}i p e r c e n t section 221 housing insurance fund d e b e n t u r e s , Series D D 4 a n d i ^ i p e r c e n t section 221 housing i n s u r a n c e fund d e b e n t u r e s , Series D D M a r . 25, 1965. J u l y 1, 1965 M a r . 26, 1965 J u l y 1, 1965 Sept. 23, 1964. J a n . 1, 1965. 1005-2847 1856-1980i . . . 1646-5146 2154-18145 1412-5397 2037-6715 A p r . 1, 19'65 465-2885 2280-21186 -_ 768-5463 2584-19126 1048-5970,5975 1403-7482 A p r . 1, 1965 -. .. .. - 1336-2752. 5966-20232. 2657-5248. 6026-18499. 2018-5820. 1893-7404. Oct. 1, 1964. $20. 00 for 4 % , $20. 625 for 4 ^ % . $18.75 $19,375 A p r . 1-July 1, 1965 $0.103591160 from J a n . 1, 1965, t o d a t e of p u r c h a s e . A p r . 1-July 1, 1965 $0.107044199 from J a n . 1, 1965, to d a t e of p u r c h a s e . Oct. 1, 1964-Jan. 1, 1965. $0.108696 for 4%, $0.112092 for 4 3 ^ % , from J u l y 1,1964, to d a t e of p u r c h a s e . 4 p e r c e n t section 221 housing insurance fund d e b e n t u r e s , Series D D i}4 percent section 221 housing insurance fund d e b e n t u r e s , Series D D 3M, ZJ4,4, a n d 43^ percent servicemen's m o r t g a g e m s u r a n c e fund d e b e n t u r e s , Series E E . . Sept. 23, 1964. J a n . 1, 1965. M a r . 25, 1965 J u l y 1, 1965 M a r . 25, 1965 J u l y 1, 1965 - 2754-2888, 2894 20234-21189,21215 5249-5465 18502-19127 _ 5822-6962 7407-7479 A p r . 1, 1965 2776-2887.. . 20331-21181 5265-5460 18512-19118 5826-5965, 5976 7466-7476. A p r . 1, 1965 $20.00 $20,625 $18.75 for ZK%, $19,375 for 3>|%, $20.00 for 4%, $20,625 for 4 3 ^ % . A p r . 1-July 1, 1966 :.. $0.113950276 from J a n . 1, 1965, to d a t e of p u r c h a s e . Oct. 1, 1964-Jan. 1, 1965. $0.101902 for Z H % . $0.106299 for 3 ^ % , $0.108696 for 4%, $0.112092 for 4 ^ % , from J u l y 1,1964, to d a t e of p u r c h a s e . ... A p r . 1-July 1, 1965 $0.110497238 from J a n . 1, 1965, t o d a t e of p u r c h a s e . Ul . . 584-3394. 4098-25913. 1078-6243. 3855-19906. 880-3439. 698-3833. Oct. 1, 1964. bO o 00 Summary of information contained in the notices of call for partial redemption of insurance fund debentures during thefiscal year 1965—Con. N o t i c e of caU . Redemption date. . . . . ..... Serial n u m b e r s caUed b y d e n o m i n a t i o n s : $50 - . 100 500 : 1,000 5,000 10,000 ... F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t n o t for sale or a s s i g n m e n t ) . R e d e m p t i o n on call d a t e , a m o u n t of interest per $1,000 p a i d in • full w i t h principal. P r e s e n t a t i o n for p u r c h a s e prior to caU d a t e : Period A m o u n t of accrued interest per $1,000 per d a y p a i d w i t h principal. ZH percent servicemen's m o r t g a g e insurance fund d e b e n t u r e s , Series E E Z ^ p e r c e n t servicemen's m o r t g a g e insurance fund d e b e n t u r e s , Series E E 4 p e r c e n t servicemen's m o r t ' gage uisurance fund debent u r e s . Series E E Mar. 25, 1965. J u l y 1, 1965 Mar. 25, 1965 J u l y 1, 1965 Mar. 25, 1965. J u l y 1, 1965. . . .- -. 3397-3912 25344-25347,25937-30201 6247-7228 19918-22822,22918 3442-3911 3839-4288 A p r . 1, 1965 3396-3905 25914-30175 6255-7222,7269 19907-22802, 22889 3440-3907 3835-4281 A p r . 1, 1965 $18.75 $19,375- A p r . 1-July 1, 1965 $0.103591160 from J a n . 1, 1965, to d a t e of p u r c h a s e . A p r . 1-July 1, 1965 $0.107044199 from J a n . 1, 1965, to d a t e of purchase. A p r . 1-July 1, 1965. $0.110497238 from J a n . 1, 1965, to d a t e of purchase. i y s p e r c e n t servicemen's m o r t g a g e insurance fund d e b e n t u r e s . Series E E 3M, Z}i, 4, a n d i ^ percent a r m e d services housing m o r t g a g e u i s u r a n c e fund d e b e n t u r e s . Series F F 3M p e r c e n t a r m e d services housing m o r t g a g e insurance fund d e b e n t u r e s . Series F F Mar. 25, 1965 J u l y 1, 1965 Sept. 23, 1964 J a n . 1, 1965 Mar. 25, 1965, J u l y 1, 1965, 3400-3914. 25925-30217. 6245-7231. 19942-22829, 22887. 3451-3912. 3836-4282. A p r . 1, 1965. -.. o o t ^ o $20.00. Ul o pi N o t i c e of caU . _.-- _ . . . . ... Redemption date Serial n u m b e r s called b y d e n o m i n a t i o n s : $50 100 500 1,000 5,000 . 10,000 F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t n o t for sale or a s s i g n m e n t ) . R e d e m p t i o n on call date, a m o u n t of interest per $1,000 paid in full w i t h principal. P r e s e n t a t i o n for p u r c h a s e prior to call d a t e : Period . ... A m o u n t of accrued interest per $1,000 per d a y p a i d w i t h principal. .__ _- 3395-3911 25919-30213, 30308-30313 6244-7230,7254 19912-22826 3444-3910 3837-4298 A p r ; 1, 1965 - 115-214 1430-2471 319-538 1787-2567 358-524 9408-9859 Oct. 1, 1964 . - . .- --. • 2483-2590, 564. 2637-2661. 550. 9861. A p r . 1, 1965. $20.625 $18.75 for 33^%, $19,375 for 3J^%, $20.00 for 4%, $20,625 for 43/g%. $18.75. A p r . 1-July 1, 1965 $0.113950276 from J a n . 1, 1965, to d a t e of p u r c h a s e . Oct. 1,1964-Jan. 1,1965 . -- A p r . 1-July 1, 1965. $0.101902 for ZH%, $0.105299 for 33^%, $0.103591160 from J a n . 1, 1965, to d a t e of purchase. $0.108696 for 4%, $0.112092 for 43^^%, from J u l y 1,1964, to d a t e of p u r c h a s e . > pi o • ^ > d Pi Notice of call Redemption date Serial numbers called by denominations: $50 100 500 1,000 5,000 10,000 Final date for transfers or denominational exchanges (but not for sale or assignment). Redemption on call date, amount of interest per $1,000 paid in full with principal. Presentation for purchase prior to caU date: Period Amomit of accrued interest per $1,000 per day paid with principal. N o t i c e of call R e d e m p t i o n d a t e . . - _. . .. Serial n u m b e r s called b y d e n o m i n a t i o n s : $50 100 . . . ... 500 1,000 -. .5,000 . . . F i n a l d a t e for transfers or d e n o m i n a t i o n a l exchanges ( b u t n o t for sale or a s s i g n m e n t ) . R e d e m p t i o n on caU d a t e , a m o m i t of i n t e r e s t p e r $1,000 p a i d in fuU w i t h p r i n c i p a l . P r e s e n t a t i o n for p u r c h a s e prior to caU d a t e : Period.. ._- . . .A m o u n t of accrued i n t e r e s t per $1,000 per d a y paid with principal. ZH percent armed services housing mortgage insurance fund debentures. Series F F 4 percent armed services housing mortgage insurance fund debentures, Series F F i A percent armed services housing mortgage insurance fund debentures. Series F F 23'^ percent war housing insurance fund debentures, Series H Mar. 25, 1965.. July 1,1965..- Mar. 25, 1965.. July 1,1965..- Sept, 23, 1964. Jan, 1, 1965. 225,227.... 2515-2607-. 553-554--.. 2573-2673-. 226 2527-2605-. 548-566---. 2615-2671 9864-9920---Apr, 1, 1965- 9866-9923- — Apr. 1, 1965. Mar. 25, 1965 J u l y l , 1965 215-216 2479-2586 549-559 2575-2656 545 9862-9863 Apr, 1, 1965 4996-5017. 19224-19225, 19231-19389. 5531-5565. 22856, 22861-22993. 5237, 5243-5262. 53129-53623. Oct. 1, 1964. $19,375 $20.00-. $20,625 $12. 50. Apr. 1-July 1, 1965 $0.107044199 from Jan. 1, to date of purchase. Apr. 1-July 1, 1965 $0.110497238 from Jan. 1, 1965, to date of purchase. Apr, 1-July 1, 1965 $0.113950276 from Jan. 1, 1965, to date of purchase. Oct. 1-Dec. 31, 1964. $0.067935 from July 1, 1964, to date of purchase. 4 p e r c e n t section 203 h o m e i m p r o v e m e n t a c c o u n t deb e n t u r e s . Series H H 23'i p e r c e n t T i t l e I housing insurance fund d e b e n t u r e s . Series L 2H p e r c e n t T i t l e I h o u s i n g i n s u r a n c e fund d e b e n t u r e s Series R 3 p e r c e n t T i t l e I h o u s i n g insurance fund debentures, Series T Sept. 23, 1964 J a n , 1, 1965.. . . - Sept, 23, 1964 J a n , 1, 1965-. Sept, 23, 1964 J a n , 1, 1965 Sept, 23, 1964. J a n 1, 1965. 694-643 2533-2686 773-819 1904-2031, --- . 212-215, 261 564-596 204-209 693-710.Oct, I, 1964 Oct, 1, 1964 559-565 1564-1634- _ 384-396 858-925 260-261 Oct. 1, 1964 $20,00 $12,50 $13,75 $15 00 Oct, 1-Dec, 31, 1964 $0.074728 from J u l y 1, 1964, to d a t e of p u r c h a s e . Oct. 1-Dec, 31, 1964. $0.081522 from J u l y 1, 1964, to d a t e of p u r c h a s e . Oct, 1-Dec, 31, 1964 Oct, 1-Dec. 31, 1964 $0.108696 from J u l y 1, 1964, . $0.067935 from J u l y 1, 1964, to d a t e of p u r c h a s e . to d a t e of p u r c h a s e . Ul Oct. 1, 1964. ts3 O C7« 206 19 65 REPORT OF THE SECRETARY OF THE TREASURY Regulations Exhibit 5.—Revision, December 4, 1964, of Department Circular No. 853, regulations governing restrictive endorsements of United States bearer securities TREASURY DEPARTMENT, Washington, Deceniber 4, 1964Department Circular No. 853, dated October 5, 1949, is hereby amended and issued as Department Circular No. 853, Revised. AUTHORITY: Sees. 328.1 to 328.9 issued under R.S. 161, as amended (5 U.S.C. 22) ; Second Liberty Bond Act, as amended (31 U.S.C. 752, 753, 754, 754b). 'Sec. 328.1. Scope of regulations.—These regulations are applicable only to United States bearer securities ^ presented (a) by or through banks for payment at or after their maturity or call date, or in exchange for any securities under any exchange offering, (b) by or through banks at any time prior to their maturity or call date for redemption at par and application of the proceeds in payment of Federal estate taxes, provided said securities by the terms of their issue are eligible for such redemption, and (c) by district directors, Internal Revenue Service, for redemption, with the proceeds to be applied to payment of taxes (other'than securities presented under (b) above). These regulaitioms do not apply to bearer securities presented for any other transaction, or to registered securities assigned in blank, or to bearer, or so assigned as to become, in effect, payable to bearer. Sec. 328.2. Definitions.—Certain words and terms, as used in these regulations, are defined a® follows: (a) ''Banks" refer to, and include, incorporated banks (i.e., banks doing a general commercial banking business), incorporated trust companies (i.e., trust companies doing either a general banking business or general trust husinelss), and savings banks (whether or not mutual). (b) "Bearer securities" or ''securities" are those Which are payable on their face to "bearer," the ownership of which is not recorded. They include "Treasury bonds," "Treasury note's," "Treasury certificates of indebtedness," and "Treasury bills." Sec. 328.3. Authorizationfor restrictive endorsements.— (a) By banhs. Banks are authorized, under the conditions and in the form hereinafter provided, to place restrictive endorsements upon the face of bearer securities owned by themselves or their customers for the purpose of presentation to Federal Reserve banks or branches, or to the Treasurer of the United States, as follows: (1) For payment or redemption—at any time within one calendar month prior to their maturity date, or the date on which they become payable pursuant to a call for redemption, or at any time after their maturity or call date; \ 2 ) For ex Chang e-^duTing any period for their presentation pursuant to an exchange offering; and (3) For redemption at par in payment of Federal estate taxes {only eUgible securities)—at any time prior to their maturity or call redemption date. (b) By district directors, Internal Revenue Service. District directors. Internal Revenue Service, are authorized, under the conditions and in the foonm hereinafter provided, to place restrictive endorsements upon the face of bearer securities for the purpose of presentation to Federal Reserve banks or branches, or to the Treasurer of the United States, for redemption and application Of the proceeds in payment of taxes (other than securities presented for redemption at par and application of the proceeds in payment of Federal estate taxes). (c) Instructions from Federal Reserve banks. Federal Reserve banks will inform eligible banks and district directors of the Internal Revenue Service in their respective districts as to the procedure to be followed under the authority granted by these regulations. No bank or district director should imprint restrictive endorsements on securities until such information is received from the Federal Reserve bank. Sec. 328.4. Effect of restrictive endorsements.—Bearer securities bearing restrictive endorsements as herein provided will thereafter be nonnegotiable and 1 These regulations may also apply to securities issued by certain agencies of the United States and the former Government of Puerto Rico for which the Treasury Department of the United States acts as transfer agency, provided the issuing authorities for such securities have adopted by appropriate regulations the provisions of this circular. EXHIBITS 207 payment, redemption, or exchange will ibe made only as provided in such endorsements. Sec. 328.5. Forms of endorsement.— (a) When presented by banks— (1) For payment or exchange. The endorsement placed on a bearer security presented for payment or exchange by a bank should be in the following form : For presentation to the Federal Reserve Bank of , Fiscal Agent of the United States, for redemption or in exchange for securities of a new issue, in accordance with written instructions submitted by (Insert name of presenting bank) ABA No. (2) For redemption at par. The endorsement placed on a bearer security presented for redemption at par in payment of Federal estate taxe's should be in the following form: For presentation to the Federal Reserve Bank of , Fiscal Agent of the United States, for redemption at par in payment of Federal estate taxes, in accordance with written instructions submitted by (Insert name of presenting bank) ABA No. -_(b) When presented by district directors, Internal Revenue Service. The endorsement placed on a bearer security by a district director, Intemal Revenue Service, should be in the following form: For presentation to the Federal Reserve Bank of , Fiscal Agent of the United States, for redemption, the proceeds to,, be credited to the account of the district director. Internal Revenue Service at , for credit on the Federal taxes due from Income, gift, or other (Name and address) Sec. 328.6. Requirements for endorsements.— (a) On bearer securities. The endorsement must be imprinted in the left-hand portion of the face of each security with the first line thereof parallel to tlie left edge of the security and in such manner as to be clearly legible and in such position that it will not obscure the serial number, series designation or other identifying data, and cover the smallest poS'sible portion of the text on the face of the security. The dimensions of the endorsement should be approximately four inches in width and one and one-half inches in height, and must be imprinted by stamp or plate of such character, with a carbon pigment ink, and by such means, as will render the endorsement substantially ineradicable. In cases where the endorsement is being made by a bank, immediately below and as part of the endorsement the ABA code number of the pre^senting bank must be perforated in figures approximately one-fourth to one-half inch in height. The perforations should be placed as nearly as possible beneath the endorsement without obliterating any of the identifying data. The name of the Federal Reserve bank of the district must appear on the plate or stamp used for the imprinting of the endorsement, and presentation to the appropriate branch of the Federal Reserve bank named will be considered as presentation to the bank. When securities are to be presented to the Treasurer pf the United States, the words "Treasurer of the United States" should be used in lieu of the words "Federal Reserve Bank of .—, Fiscal Agent of the United States." No 'subsequent endorsement will be permitted and no other form of endorsement may be made. (b) On coupons. Unmatured coupons attached to restrictively endorsed securities should be cancelled by imprinting the prescribed endorsement in such manner that a substantial portion of the endorsement will appear on each such coupon. Where such endorsements are made by a bank, its ABA code number should not be perforated on the coupons. If any such coupons are missing, deduction of their face amount will be made in cases of redemption, and in cases of exchange, remittance equal to the face amount of the missing coupons must accompany the securities. All matured coupons, including coupons which will mature on or before the date of redemption or exchange (except as otherwise specifically provided in an announcement of an exchange offering), should be detached from securities upon which restrictive endorsements are to be imprinted. Sec. 328.7. Shipment of securities.—Securities bearing restrictive endorsements may be shipped, at the risk and expense of the shipper, by registered mail, messenger, armored car service, or express to the Federal Reserve bank of the district in which the presenting bank or district director. Internal Revenue Service, is located, or to the appropriate branch of such Federal Reserve bank. 208 1965 REPORT OF THE SECRETARY OF THE TREASURY Shipments to the T r e a s u r e r of the United States, Washington, D . C , should be made by messenger or armored car. Sec. 328.8. Loss, theft, or destruction of securities bearing restrictive endorsements.— (a) General. Relief will be provided on account of securities bearing restrictive endorsements proved to have been lost, stolen or destroyed, upon the owner's application, in the same m a n n e r as registered securities which have not been assigned. (See Subpart N of the current revision of Department Circular No. 300,^ the general regulations with respect to United States securities.) Except for bearer securities submitted for redemption a t p a r in payment of F e d e r a l estate taxes, a bank will be considered the owner of securities handled on behalf of customers unless it otherwise requests. The application for relief ( F o r m P D 2211) and instructions will be furnished by the F e d e r a l Reserve banks. (b) Bond of indemnity. W h e r e securities bearing restrictive endorsements shipped by a bank have been lost, stolen, or destroyed, a bond of indemnity with surety satisfactory to t h e Secretary of the T r e a s u r y will be required from the owner. If such bond is executed by a bank or other corporation, the execution must be authorized by general or special resolution of the board of directors, or other body exercising similar functions under its bylaws. Ordinarily, no surety will be required on a bond executed by a presenting bank. The Secretary of the T r e a s u r y reserves the right, however, to require a surety in any case in which he considers s u c h ' a c t i o n necessary for t h e protection of the United States. Sec. 328.9. Miscellaneous.—The provisions of this circular a r e subject to the current revision of D e p a r t m e n t Circular No. 300. The Secretary of the T r e a s u r y reserves the right a t any time to amend, supplement, or w i t h d r a w any or all of the provisions of these regulations. J O H N K . CARLOCK, Fiscal Assistant Secretary. Exhibit 6.—Third revision, December 23, 1964, of D e p a r t m e n t Circular No. 300, general regulations with respect to United S t a t e s securities TREASURY . DEPARTMENT, • Washington, December 23, 1964D e p a r t m e n t Circular No. 300, Second Revision, dated April 19, 1963 (31 CFR 306), is hereby amended and issued as the Third Revision. AUTHORITY: Sees. 306.0 to 306.118 issued under R.S. 3706, 40 Stat. 288, 290, 1309, 48 Stat. 343, and 50 Stat. 4 8 1 ; 31 U.S.C. 73Sa, 739, 752, 752a, 753, 754, 754a, and 754b. ' S U B P A R T A—GENERAL INFORMATION Sec. 306.0. Applicability of regulations.—These regulations apply to all United States transferable and nontransferable securities,^ other t h a n United States savings bonds, to the extent specified in these regulations, the offering circulars or special regulations governing such securities. Sec. 306.1. Official agencies. (a) Subscriptions-tenders-bids.—Securities subject to these regulations a r e issued from time to time p u r s u a n t to public offerings by the Secretary of the Treasury, through the F e d e r a l Reserve banks, fiscal agents of the United States, and the T r e a s u r e r of the United States. Only the F e d e r a l Reserve b a n k s and branches and t h e T r e a s u r y D e p a r t m e n t are authorized to act as official agencies, and subscriptions for securities, tenders for T r e a s u r y bills, and bids, to the extent provided in the regulations governing the sale of T r e a s u r y bonds through competitive bidding, may be made direct to t h e m ; however, banking institutions may assist customers with their subscriptions, tenders or bids. 1 See exhibit 6, 2 Bonds and other securities issued by certain agencies of the United States and the former government of P u e r t o Rico are subject to these regulations, so far as applicable, under special a r r a n g e m e n t s with t h e issuing authorities. Information as to their application to any particular transaction in any designated security will be furnished by the Bureau of the Public Debt, Division of Loans and Currency, Washington, D . C , 20226, upon request. EXHIBITS 209 (b) Transactions after issue.—The B u r e a u of the Public Debt, T r e a s u r y Department, is charged with m a t t e r s relating to transactions in securities after original issue. Correspondence concerning such transactions and requests for appropriate forms may be addressed to (1) t h e Federal Reserve bank or branch of t h e district in which t h e correspondent is located, or (2) the B u r e a u of t h e Public Debt; Division of Loans and Currency, Washington, D . C , 20226, or (3) t h e Office of t h e T r e a s u r e r of t h e United States, Securities DiAdsion, Washington, D . C , 20220, except where specific instructions a r e otherwise given in these regulations. T h e addresses of t h e F e d e r a l Reserve banks a n d branches a r e : F e d e r a l Reserve Bank of Boston, Boston, Mass. 02106. F e d e r a l Reserve B a n k of New York, New York, N.Y. 10045. Buffalo Branch, Buffalo, N.Y. 14240. F e d e r a l Reserve B a n k of Philadelphia, Philadelphia, Pa. 19101. F e d e r a l Reserve Bank of Cleveland, Cleveland, Ohio 44101. Cincinnati Branch, Cincinnati, Ohio 45201. P i t t s b u r g h Branch, Pittsburgh, P a . 15230. F e d e r a l Reserve Bank of Richmond, Richmond, Va. 23213. Baltimore Branch, Baltimore, Md. 21203. Charlotte Branch, Charlotte, N . C 28201. F e d e r a l Reserve B a n k of Atlanta, Atlanta, Ga. 30303. Birmingham Branch, Birmingham, Ala. 35202. Jacksonville Branch, Jacksonville, Fla. 32201. Nashville B r a n c h , . Nashville, Tenn. 37203. New Orleans Branch, New Orleans, La. 70160. F e d e r a l Reserve B a n k of Chicago, P.O. Box 834, Chicago, 111. 60690. Detroit Branch, P.O. Box 1059, Detroit, Mich. 48231. F e d e r a l Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Mo. 63166. Little Rock Branch, P.O. Box 1261, Little Rock, Ark. 72203. Louisville Branch, P.O. Box 899, Louisville, Ky. 40201. Memphis Branch, P.O. Box 407, Memphis, Tenn. 38101. F e d e r a l Reserve Bank of Minneapolis, Minneapolis, Minn. 55440. Helena Branch, Helena, Mont. 59601. F e d e r a l Reserve B a n k of K a n s a s City, K a n s a s City, Mo. 64106. Denver Branch, Denver, Colo. 80217. Oklahoma City Branch, Oklahoma City, Okla. 73101. Omaha Branch, Omaha, Nebr. 68102. Federal Reserve B a n k of Dallas, Station K, Dallas, Tex. 75222. El Paso Branch, P.O. Box 100, El Paso, Tex. 79999. Houston Branch, P.O. Box 2578, Houston, Tex. 77001. San Antonio Branch, P.O. Box 1471, San Antonio, Tex. 78206. F e d e r a l Reserve B a n k of San F r a n cisco, San Francisco, Calif. 94120. Los Angeles Branch, P.O. Box 2077, Los Angeles, Calif. 90054. Portland Branch, P.O. Box 3456, Portland, Oreg. 97208. Salt Lake City Branch, P.O. Box 780, Salt Lake City, Utah 84110. Seattle Branch, P.O. Box 3567, Seattle, Wash. 98124. Sec. 306.2. Deflnitions of %oords and terms as used in these regulations. (a) "Advance refunding offer" is an offer to a holder of a security, in advance of its call or maturity, to exchange it for another security. (b) "Bearer securities" a r e those which a r e payable on their face at m a t u r i t y or call for redemption before m a t u r i t y in accordance with their terms to "bearer," t h e ownership of which is not recorded. Title to such securities may pass by delivery without endorsement a n d without notice. "Coupon securities" a r e bearer securities which are issued with interest coupons attached. (c) " B u r e a u " refers to t h e B u r e a u of the Public Debt, Division of Loans and Currency, Washington, D . C , 20226. (d) "Call d a t e " or "date of call" is t h e date fixed in the official notice of call published in the F e d e r a l Register as the date on which t h e obligor will make payment of the security before m a t u r i t y in accordance with its terms. (e) "Court" means one which h a s jurisdiction over the parties and the subject m a t t e r . 782-556^6-6 14 210 19 65 REPORT OF THE SECRETARY OF THE TREASURY (f) "Department" refers to the Treasury Department. (g) "Face maturity date" is the payment date specified in the text of a security, (h) "Incompetent" refers to a person under any legal disability except minority. (i) "Joint owner" and "joint ownership" refer to any permitted form of ownership by two or more persons. (j) "Nontransferable securities" are those issued only in registered form which according to their terms are payable only to the registered owners or recognized successors in title to the extent and in the manner provided in the offering circulars or special applicable regulations. (k) "Payment" and "redemption," unless otherwise indicated by the context, are used interchangeably for payment at maturity or payment before maturity pursuant to a call for redemption in accordance with the terms of the securities. (1) "Redemption-exchange" is any authorized redemption of securities for the purpose of applying the proceeds in payment for other securities offered in exchange. (m) "Registered securities" refers to securities payable on their face at maturity or call for redemption before maturity in accordance with their terms to the persons whose names are inscribed thereon. (n) "Securities assigned in blank" or "securities so assigned as to become, in effect, payable to bearer" refers to registered securities which are assigned' by the owner or his authorized representative without designating the assignee. Registered securities assigned simply to "The Secretary of the Treasury" or in the. case of Treasury Bonds, Investment Series B-1975-80, to "The Secretary of the Treasury for exchange for the current Series EA or EO Treasury notes" are considered to be so assigned as to become, in effect, payable to bearer. (o) "Taxpayer identifying number" means the appropriate identifying number as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individual's social security account number or an employer identification number. A social security account number is composed of nine digits separated by two hyphens, for example, 123-45-6789; an employer identification number is composed of nine digits separated by one hyphen, for example, 123456789. The hyphens are an essential part of the numbers and must be included. (p) "Transferable securities,'* which may be in either registered or bearer form, refers to securities which may be sold on the market and transfer of title accomplished by assignment and delivery if in registered form, or by delivery only if in bearer form. (q) "Treasurer's Office" refers to the Office of the Treasurer of the United States, Securities Division, Washington, D.C, 20220. (r) "Treasury securities," "Treasury bonds," "Treasury notes," "Treasury certificates of indebtedness," and "Treasury bills," or simply "securities," "bonds, "notes," "certificates," and "bills," unless otherwise indicated by the context, refer only to transferable securities. Sec. 306.3. Transportation charges and risks in the shipment of secu^rities.— The following rules will govern transportation to, from and between the Treasury Department and the Federal Reserve banks and branches of securities issued on or presented for authorized transactions: (a) The securities may be presented or received by the owners or their agents in person. (b) Securities issued on original issue, unless delivered in person, will be delivered by registered mail or by other means at the risk and expense of the United States. (c) The United States will assume the risk and expense of any transportation of securities which may be necessary between the Federal Reserve banks and branches and the Treasury. (d) Securities submitted for any transaction after original issue, if not presented in person, must be forwarded at the owner's risk and expense. (e) Bearer securities issued on transactions other than original issue m i l be delivered by registered mail, covered by insurance, at the owner's risk and expense, unless called for in person by the owner or his agent. Registered securities issued on such transactions will be delivered by registered mail at the risk of, but without expense to, the registered owner. Should delivery by other means be desired, advance arrangements should be niade with the official agency to which the original securities were presented. EXHIBITS SUBPAUT 211 B—REGISTRATION Sec. 306.10. General.—The registration used must express the actual ownership of a security, and may not include any restriction on the authority of the owner to dispose of it in any manner, except as otherwise specifically provided in these regulations. The Treasury Department reserves the right to treat the registration as conclusive of ownership. Requests for registration should be clear, accurate, and complete, conform with one of the forms set forth in this subpart, and include appropriate taxpayer identifjdng numbers.^ The registration of all bonds owned by the same person, organization, or fiduciary should be uniform with respect to the name of the owner and, in the case of a fiduciary, the description of the fiduciary capacity. Individual owners should be designated by the names by which they are ordinarily known or under which they do business, preferably including at least one full given name. The name of an individual may be preceded by any applicable titie, such as "Dr." or "Rev.," or followed by "M.D.," "D.D." or other similar designation. "Sr." or "Jr." or any other similar suffix should be included when ordinarily used or when necessary to distinguish the owner from a member of his family. The name of a woman must be preceded by "Miss" or "Mrs.," unless some other applicable title or designation is used. A married woman's own given name, not that of her husband, must be used, for example, "Mrs. Mary A. Jones," NOT "Mrs. Frank B. Jones." The address should include, where appropriate, the number and street, route, or any other local feature and the ZIP Code. Sec. 306.11. Forms of registration for transferable securities.—The forms of registration described below are authorized for transferable securities: (a) Natural persons in their own right.—In the names of natural persons who are not under any legal disability, in their own right, substantially as follows: (1) One person.—In the name of one individual. Examples: John A. Doe (123^5-6789) Mrs. Mary C Doe (123-45^6789) Miss Elizabeth Jane Doe (123-45-6789) An individual who is sole proprietor of a business conducted under a trade name may include a reference to the trade name. Examples: John A. Doe, doing business as Doe's Home Appliance Store (12-3456789) John A. Doe (123-^5-6789), d/b/a Doe's Home Appliance Store (2) Two or more persons—general.—Securities will not be registered in the name of one person payable on death to another, or in any form which purports to authorize transfer by less than all the persons named in the registration (or all the survivors).^ Securities will not be registered in the forms "John A. Doe and Mrs. Mary C Doe, or either of them" or "William C Doe or Henry J. Doe, or either of them" and securities so assigned will be treated as though the words "or either of them" do not appear in the assignments. The taxpayer identifying number of any of the joint owners may be shown on securities registered in joint ownership form. However, if such owners are husband and wife, the husband's number should be shown. If the joint owners are a minor and an adult, the adult's number should be shown. (i) With right of survivorship.—In the names of two or more individuals with right of survivorship. Examples: John A. Doe (123-45-6789) or Mrs. Mary C Doe or the survivor Mrs. Mary C Doe and John A. Doe (123-45-6789) or the survivor 1 Taxpayer identifying numbers are not required for foreign governments, nonresident aliens not engaged in t r a d e or business within the United States, international organizations and foreign corporations not engaged in t r a d e or business and not having an office or place of business or a financial or paying agent within the United States, and other persons or organizations a s may be.exempted from furnishing such numbers under regulations of the I n t e r n a l Revenue Service. 2 WARNING : D I F F E R E N C E B E T W E E N T R A N S F E R A B L E TREASURY S E C U R I T I E S R E G I S T E R E D IN T H E NAMES OF TWO OR MORE PERSONS AND U N I T E D STATES SAVINGS BONDS IN COOWNERSHIP FORM. The effect of registering Treasury securities to which these regulations apply in the names of two or more persons differs decidedly from registration of savings bonds in coownership form. Savings bonds are virtually redeemable on demand a t the option df either coowner on his signature alone. Transferable Treasury securities a r e redeemable only at m a t u r i t y or upon prior call by the Secretary of the Treasury. Accordingly, if cash is needed before such time, i t can be realized only by sale on the market. This involves a transfer of ownership which can be accomplished only upon proper assignment by or in behalf of all owners. 212 1965 REPORT OF THE SECRETARY OF THE TREASURY John A. Doe (123-45-6789) or Mrs. Mary C Doe or Miss Mary Ann Doe or the survivors or survivor John A. Doe (123-45-6789) or Mrs. Mary C Doe John A. Doe (123-45-6789) and Mrs. Mary C Doe (ii) Without right of survivorship.—In the names of two or more individuals in such manner as to preclude the right of survivorship. Examples: John A. Doe (123-45-6789) and William A Doe as tenants in common John A. Jones as natural guardian of Henry B. Jones, a minor, or Robert C Jones (123-45-6789), without right of survivorship (b) Minors and incompetents.— (1) Natural guardians of minors.—A security may be registered in the name of a natural guardian of a minor for whose estate no legal guardian or similar representative has legally qualified. Example: John R. Jones as natural guardian of Henry M. Jones, a minor (123-45-6789) Either parent with whom the minor resides, or if he does not reside with either parent, the person who furnishes his chief support, will be recognized as his natural guardian and will be considered a fiduciary. Registration in the name of a minor in his own right as owner or as joint owner is not authorized. Securities so registered, upon qualification of the natural guardian, will be treated as though registered in the name of the natural guardian in that capacity. (2) Custodian under statute authorizing gifts to minors.—A security may be purchased as a gift to a minor under a gifts to minor statute in effect in a State in which either the donor or the minor resides, in which case the security should be registered as provided in the statute, with the addition of a parenthetical reference identifying the statute if the registration does not clearly identify it. Examples: William C Jones, as custodian for John A. Smith, a minor (123-45-6789), under the California Uniform Gifts to Minors Act Robert C Smith, as custodian for Henry L. Brown, a minor (123-45-6789), under the laws of Georgia (Ch. 48-3, Code of Ga. Anno.) (3) Incompetents not under guardianship.—Registration in the form "John A. Brown, an incompetent (123^5-6789), under voluntary guardianship," is permitted only on reissue after a voluntary guardian has qualified for the purpose of collecting interest. (See sees. 306.37(c) (2) and 306.57(c) (2).) Otherwise, registration in the name of an incompetent not under legal guardianship is not authorized. (c) Executors, administrators,; guardians, and similar representatives or fiduciaries.—A security may be registered in the names of legally qualified executors, administrators, guardians, conservators, or similar representatives or fiduciaries of a single estate. The names and capacities of all the representatives or fiduciaries, as shown in their letters of appointment, must be included in the registration and must be followed by an adequate identifying reference to the estate. Examples: John Smith, executor of the will (or administrator of the estate) of Henry J. Jones, deceased (123-45-6789) William C Jones, guardian (or conservator, etc.) of the estate of James D. Brown, a minor (or an incompetent) (123-45-6789) (d) Private trust estates.—A security may be registered in the name and title of the trustee or trustees of a single duly constituted private trust, followed by an adequate identifying reference to the authority governing the trust. Examples:. John Jones and Blank Trust Company, Albany, N.Y., trustees under the will of Sarah Jones, deceased (12-3456789) John Doe and Richard Roe, trustees under agreement with Henry Jones dared 2/9/50 (12-3456789) EXHIBITS 213 The names of all trustees, in the form used in the trust instrument, must be included in the registration, except as follows : (1) If there are several trustees designated as a board or authorized to act as a unit, their names should be omitted and the words "Board of Trustees" should be substituted for the word "trustees." Example: Board of Trustees of Blank Company Retirement Fund under collective bargaining agreement dated 6/30/50 (12-3456789) (2) If the trustees do not constitute a board or otherwise act as a unit, and are either too numerous to be designated in the inscription by names and title, or serve for limited terms, some or all of the names may be omitted. Examples : John Smith, Henry Jones, et al., trustees under the will of Henry J. Smith, deceased (12-3456789) Trustees under the will of Henry J. Smith, deceased (12-3456789) Trustees of Retirement Fund of Industrial Manufacturing Co., under directors' resolution of 6/30/50 (12-3456789) (e) Private organizations {corporations, unincorporated associations, and partnerships).—A security may'be registered in the name of any private corporation, unincorporated association, or partnership. The full legal name of the organization, as set forth in its charter, articles of incorporation, constitution, partnership agreement, or other authority from which its powers are derived, must be included in the registration, and may be followed, if desired, by a parenthetical reference to a particular account or fund other than a trust fund, in accordance with the rules and examples given below: (1) A corporation.—The name of a business, fraternal, religious, or other private corporation must be followed by descriptive words indicating the corporate status unless the term "corporation" or the abbreviation "Inc." is part of the name or the name is that of a corporation or association organized under Federal law, such as a national bank or Federal savings and loan association. Examples: Smith Manufacturing Company, a corp. (12^3456789) The Standard Manufacturing Corp. (12^3456789) Jones & Brown, Inc. (12-3456789) (Depreciation Acct.) First National Bank of (12-3456789) (2) An unincorporated association.—The name of a lodge, club, labO;r union, veterans' organization, religious society, or similar self-governing organization which is not incorporated (whether or not it is chartered by or affiliated with a parent organization which is incorporated) must be followed by the words "an unincorporated association." Examples: American Legion Post No. __, Department of the D.C, an unincorporated assn. (12-3456789) Local Union No. 100, Brotherhood of Locomotive Engineers, an unincorporated association (12-3456789) Securities should not be registered in the name of an unincorporated association if the legal title to its property in general, or the legal title to the funds with which the securities are to be purchased, is held by trustees. In such a case the securities should be registered in the title of the trustees in accordance with (d) of this section. The term "unincorporated association " should not be used to describe a trust fund, a partnership, or a business conducted under a trade name. (3) A partnership.—The name of a partnership must be followed by the words "a partnership." Examples: Smith & Brown, a partnership (12-3456789) Acme Novelty Co., a limited partnership (12-3456789) (f) States, public bodies and corporations, and public officers.—A security may be registered in the name of a State or county, city, town, village, school district, or other political entity, public body or corporation established by law (including a board, commission, administration, authority, or agency) which is the 214 19 65 REPORT OF THE SECRETARY OF THE TREASURY owner or official custodian of public funds, other than trust funds, or in the full legal title of the public officer having custody. Examples: State of Maine Town of Rye, N.Y. Maryland State Highway Commission Treasurer, City of Springfield, 111. Treasurer of Rhode Island (State Forestry Fund) (g) States, public officers, corporations, or bodies as trustees.—A security may be registered in the title of a public officer or in the name of a State or county, a public corporation or public body acting as trustee under express authority of law, followed by appropriate reference to the statute creating the trust. Examples: Insurance Comraissioner of Pennsylvania, trustee for the benefit of the policyholders of the Blank Insurance Co. (12-3456789), under Sec. , Penna. Stats. Rhode Island Sinking Fund Commission, trustee of the General Sinking Fund under Ch. 35, Gen. Laws of R.I. Sec. 306.12. Errors in registration.—If an erroneously inscribed security is received it should not be altered in any respect, but the Bureau, a Federal Reserve bank or branch, or the Treasurer's Office should be furnished full particulars concerning the error and asked to furnish instructions. Sec. 306.13. Nontransferable securities.—Vvon authorized reissue. Treasury Bonds, Investment Series B-1975-80, may be registered in the forms set forth in sec. 306.11. SUBPART C — T R A N S F E R S , E X C H A N O E S , AND REISSUES Sec. 306.15. Transfers and exchanges of securities—closed periods. (a) General.—The transfer of registered securities should be made by assignment in accordance with Subpart F. Transferable registered securities are eligible for denominational exchange and exchange for bearer securities. Bearer securities are eligible for denominational exchange, and when so provided in the offering circular, are eligible for exchange for registered securities. Specific instructions for issuance and delivery of the new securities, signed by the owner or his authorized representative must accompany the securities presented. (Form PD 1642, 1643, 1644, or 1827, as appropriate, may be used.) Denominational exchanges, exchanges of Treasury Bonds, Investment Series B-1975-80, for the current series of EA or EO 1% percent 5-year Treasury notes, and optional redemption of bonds at par as provided in sec. 306.28 may be made at any time. Securities presented for transfer or for exchange for bearer securities of the same issue must be received by the Bureau not less than one full month before the date on which the securities mature or become redeemable pursuant to a call for redemption before maturity, and any security so presented which is received tob late to comply with this provision will be accepted for payment only. (b) Closing of transfer books.—The transfer books are closed for one full month preceding interest payment dates and call or maturity dates. If the date set for closing of the transfer books falls on Saturday, Sunday, or a. legal holiday, the books will be closed as of the close of business on the last business day preceding that date. If registered securities which have not matured or been called are received by the Bureau for transfer, reissue, or exchange for coupon securities, or coupon securities which have not matured or been called are received for exchange for registered securities during the time the books for that loan are closed, the transaction will not be completed until the first business day following the date on which interest falls due, when such books are reopened. If registered securities are received for transfer or exchange for bearer securities, or coupon securities are received for exchange for registered securities, during the time the books are closed for payment of final interest at maturity or call, unless otherwise provided in the offering circular or notice of call, the following action will be taken: (1) Payment of final interest will be made to the registered o^mer of record on the date the books were closed. (2) Payment of principal will be made to (i) the assignee under a proper assignment of the securities, or (ii) if the securities have been assigned for EXHIBITS 215 exchange for bearer securities, to the registered owner of record on the date the books were closed. Sec. 306.16. Denominational exchanges of registered securities.—No assignment will be required for the authorized exchange of registered securities for like securities in the same names in other authorized denominations. Sec. 306.17. Exchanges of registered securities for coupon securities.—Registered securities submitted for exchange for coupon securities should be assigned to "The Secretary of the Treasury for exchange for coupon securities to be delivered to (inserting the name and address of the person to whom delivery of the coupon securities is to be made)." Assignments to "The Secretary of the Treasury for exchange for coupon securities," or assignments in blank will also be accepted. The coupon securities issued upon exchange will have all unmatured coupons attached. Sec. 306.18. Exchange of coupon securities for registered securities.—Coupon securities presented for exchange for registered securities should have all matured interest coupons detached. All unmatured coupons should be attached, except that if presented when the transfer books are closed (in which case the exchange will be effected on or after the date on which the books are reopened), the next maturing coupons should be detached and held for collection in ordinary course when due. If any coupons which should be attached are missing, the securities must be accompanied by a remittance in an amount equal to the face amount of the missing coupons. The new registered securities will bear interest from the interest payment date next preceding the date on which the exchange is made. Sec. 30(3.19. Denominational exchanges of coupon securities.—All matured interest coupons and all unmatured coupons likely to mature before an exchange can be completed, should be detached from securities presented for denominational exchange. All unmatured coupons should be attached. If any are missing, the securities must be accompanied by a remittance in an amount equal to the face amount of the missing coupons. The new coupon securities will have all unmatured coupons attached. Sec. 306.20. Reissue of registered transferable securities.—Assignments are not required for reissue of registered transferable securities in the name(s) of (a) the surviving joint owner(s) of securities registered in the names of or assigned to two or more persons, unless the registration or assignment includes words which preclude the right of survivorship, (b) a succeeding fiduciary or other lawful successor, (c) an individual, corporation or unincorporated association whose name has been legally changed, (d) a corporation or unincorporated association, which is the lawful successor to another corporation or unincorporated association, and (e) a successor in title to a public officer or body. Evidence of survivorship, succession, or change of name, as appropriate, must be furnished. The appropriate taxpayer identifying number also must be furnished if the registration of the securities submitted does not include such number for the person(s) or organization to be named on the reissued securities'. Sec. 306.21. Reissue of nontransferable securities. (a) Treasury Bonds, Investment Series A-1965.—Bonds of this series may be reissued only when (1) the name of an owner has been changed, (2) the trustees in whose names the bonds are registered have been succeeded by other trustees, and (3) the corporation, unincorporated association, or fund in whose name the bonds are registered has been succeeded by another corporation or unincorporated association or fund, by operation of law or otherwise, whereby the business or activities of the original organization or fund are continued without substantial change in the successor. Bonds presented for reissue must be accompanied by pertinent evidence and an appropriate request for reissue. (Form PD 2168 should be used.) (b) Treasury Bonds, Investment Series B-1975-80.—Bonds of this series may be reissued only in the names of (1) lawful successors in title, (2) the legal representatives or distributees of a deceased owner's estate, or the distributees of a trust estate, and (3) State supervisory authorities in pursuance of any pledge required of the owner under State law, or upon termination of the pledge in the .names of the pledgors or their successors. Bonds presented for reissue must be accompanied by evidence of entitlement. Sec. 306.22. Exchange of Treasury Bonds, Investment Series B-1975-80.— Bonds of this series presented for exchange for li/^ percent 5-year Treasury notes must bear duly executed assignments to "The Secretary of the Treasury for 216 19 65 REPORT OF THE SECRETARY OF THE TREASURY exchange for the current series of EA or EO Treasury notes to be delivered to (inserting the name and address of the person to whom the notes are to be delivered)." The notes will bear the April 1 or October 1 date next preceding the date the bonds, duly assigned with supporting evidence, if necessary, are received by the Bureau or a Federal Reserve bank or branch. Interest accrued at the rate of 2% percent on the bonds surrendered from the next preceding interest payment date to the date of exchange will be credited, and interest at the rate of 1% percent on the notes for the same period will be charged and the difference will be paid to the owner. SUBPART D REDEMPTION OR PAYMENT Sec. 306.25. Presentation and surrender. (a) General.—Securities, whether in registered or bearer form, are payable in regular course of business at maturity unless called for redemption before maturity in accordance with their terms, in which case they will be payable in regular course of business on the date of call. The Secretary of the Treasury may provide for the exchange of maturing or called securities, or in advance of call or maturity, may aff'ord owners the opportunity of exchanging a security for another security pursuant to an advance refunding offer. Registered securities should be presented and surrendered for redemption to the Bureau, a Federal Reserve bank or branch, or the Treasurer's Office, and bearer securities to a Federal Reserve bank or branch or the Treasurer's Office.^ If securities are registered in the name of, or assigned to (1) a State or other political entity, (2) a corporation, or (3) a board, committee or other body authorized to act as a unit and which is the fiduciary of a public or private trust estate, no evidence will be required in support of an assignment by an officer of the registered owner or assignee for redemption for its account. Under the same circumstances, no evidence will be required for an assignment for redemption-exchange, or exchange pursuant to an advance refunding offer, if the new securities are to be registered exactly the same as the registration or assignment of the securities surrendered. To the extent appropriate, these rules also apply to securities registered in the title of a public officer who is the official custodian of public funds. (b) ''Overdue'' securities.—If a bearer security or a registered security assigned in blank, or to bearer or so assigned as to become, in effect, payable to bearer, is presented and surrendered for redemption after it has become overdue, the Secretary of the Treasury may require satisfactory proof of ownership. (Form PD 1071 may be used.) A security shall be considered to be overdue after the lapse of the following periods of time from its face maturity: (1) One year for Treasury bonds. (2) Six months for Treasury notes and certificates of indebtedness. (3) Three months for Treasury bills. (4) Other securities: (i) One year for securities issued for a term of five years or longer, (ii) Six months for securities issued for a term of one year or more but less than five years. (iii) Three months for securities issued for a term of less than one year. Sec. 306.26. Redemption of registered securities at maturity, upon prior call, or for advance refunding.—Registered securities presented and surrendered for redemption at maturity or pursuant to a call for redemption before maturity should be assigned to "The Secretary of the Treasury for redemption," unless the assignor desires that payment be made to some other person, in which case the assignments should be made to "The Secretary of the Treasury for redemption for the account of (inserting name and address of person to whom payment is to be made)." Assignments in blank or other assignments having a similar effect will be accepted but specific instructions for the issuance and delivery of the redemption check, sign(jd by the owner or his authorized representative, must accompany the securities, unless included in the assignment. (Form PD 1705 may be used.) Payment of the principal will be made either (a) by check drawn on the Treasurer of the United States to the order of the person 1 See sec, 306.28 for presentation and surrender of securities eligible for use in payment of Federal e s t a t e taxes. EXHIBITS 217 entitled and mailed in accordance with the instructions received, or (b) upon appropriate request, by crediting the amount in a member bank's account with the Federal Reserve bank of its district. Securities presented for advance refunding should be assigned as provided in the advance refunding offer. Sec, 306.27. Redemption of bearer securities at maturity, upon prior call, or for advance refimding.—All interest coupons due and payable on or before the date of maturity or date fixed in the call for redemption before maturity should be detached from coupon securities presented for redemption and should be collected separately in regular course. All coupons bearing dates subsequent to a date fixed in a call for redemption, or an offer of advance refunding, should be left attached to the securities. If any such coupons are missing the full face amount thereof will be deducted from the payment to be made upon redemption or the advance refunding adjustment unless satisfactory evidence of their destruction is submitted. Any amounts so deducted will be held in the Department to provide for adjustments or refunds in the event that the missing coupons should be subsequently presented or their destruction is later satisfactorily established. In the absence of other instructions, payment of bearer securities will be made by check drawn to the order of the person presenting and surrendering the securities and mailed to him at his address, as given in the advice which should accompany the securities. (Form PD 1704 may be used.) A Federal Reserve bank, upon appropriate request, may make payment to a member bank from which bearer securities are received by crediting the amount in the member bank's account. Sec. 306,28. Optional redemption of Treasury bonds at par {before maturity or call redemption date) and application of the proceeds in payment of Federal estate taxes. (a) General.—All Treasury bonds to be redeemed at par for the purpose of applying the proceeds to payment of Federal estate taxes on a decedent's estate ^ must be presented and surrendered to a Federal Reserve bank or branch or the Bureau. They should be accompanied by Form PD 1782, fully completed and duly executed in accordance with the instructions on the form, and evidence as described therein. Redemption will be made at par plus accrued interest from the last preceding interest payment date to the date of redemption, except that if registered honds are received by a Federal Reserve bank or branch or the Bureau within one month preceding an interest payment date for redemption before that date a deduction will be made for interest from the date of redemption to the interest payment date, and a check for the full six months' interest will be paid in due course. ' The proceeds of redemption will be deposited to the credit of the district director, Internal Revenue Service, designated in Form PD 1782, the representative of the estate will be notified of the deposit, and the district director will forward a formal receipt. (b) Conditions.—The bonds presented for redemption under this section, must have (1) been owned by the decedent at the time of his death and (2) thereupon constituted part of his estate, as determined by the following rules in the case of joint ownership, partnership, and trust holdings: (i) Joint ownerships.—Bonds held by the decedent at the time of his death in joint ownership with another person or persons will be deemed to have met the above conditions either (a.) to the extent to which the bonds actually became the property of the decedent's estate, or (b) in an amount not to exceed the amount of the Federal estate taxes which the surviving joint owner or owners are required to pay on account of such bonds and other jointly-held property.^ • (ii) Partnerships.—Bonds held at the time of the decedent's death by a partnership in which he had an interest will be deemed to have met the above conditions to the extent of his fractional share of the bonds so held proportionate to his interest in the assets of the partnership. ^ Certain issues of T r e a s u r y bonds are redeemable a t p a r and accrued interest upon the death of the owner, a t t h e option of the representative of, or if none, the persons entitled to, h i s estate, for t h e purpose of having t h e entire proceeds applied in payment of the Federal estate taxes on the decedent's estate, in accordance with the terms of t h e offering circulars cited on the face of the bonds, A c u r r e n t list of eligible issues may be obtained from any Federal Reserve bank or branch, the Bureau of the Public Debt, or t h e Treasurer's Office. 2 Substantially the same rule ap.plies to community property except t h a t upon the death of either spouse bonds which constitute p a r t of t h e community estate are deemed to meet the required conditions to the extent of one-half of each loan and issue of tonds. 218 19 65 RE'PORT OF THE SECRETARY OF THE TREASURY (iii) Trusts.—Bonds held in trust at the time of the decedent's death will be deemed to have met the above conditions in an amount not to exceed the amount of the Federal estate taxes if (a) the trust actually terminated in favor of the decedent's estate, or (b) the trustee as such is required to pay the decedent's Federal estate taxes uiader the terms of the trust instrument or otherwise, or (c) the debts of the decedent's estate, including costs of administration. State inheritance and Federal estate taxes, exceed the assets of his estate without regard to the trust estate. (c) Transactions after owner's death.—No transactions involving changes bf ownership may be conducted after an owner's death without affecting the eligibility of the bonds for redemption at par for application of the proceeds to payment of Federal estate taxes. Transactions, involving no changes of ownership, which may be conducted without affecting eligibility are (1) exchange of bonds for those of lower denominations where the bonds exceed the amount of the taxes and are not in the lowest authorized denominations, (2) exchange of registered bonds for coupon bonds, (3) exchange of coupon, bonds for bonds registered in the names of the representatives of the estate, and (4) transfer to the names of the representatives of the owner's estate. However, any such transactions must be explained on Form PD 1782 or in a supplemental statement. SUBPART E^—INTEREST Sec. 306.35. Computation of interest.—The interest on Treasury securities accrues and is payable on a semiannual basis unless otherwise provided in the circular offering them for sale or exchange. If the period of accrual is an exact six months, the interest accrual is an exact one-half year's interest, without regard to the number of days in the period. If the period of accrual is less than an exact six months, the accrued interest is computed by determining the daily rate of accrual on the basis of the exact number of days in the full interest period and multiplying the daily rate by the exact number of days in the fractional period for which interest has actually accrued. A full interest period does not include the day as of which the securities were issued or the day on which the last preceding interest became due, but does include the day on which the next succeeding interest payment is due. A fractional part of an interest period does not include the day as of which the securities were issued or the day on which the last preceding interest payment became due, but does include the day as of which the transaction terminating the accrual of interest is effected. The 29th of February in a leap year is included whenever it falls within either a full interest period or a fractional part thereof.^ Sec. 306.36. Terniination of interest.—Securities will cease to bear interest on the date of their maturity unless they have been called for redemption before maturity in accordance with their terms, in which case they will cease to bear interest on the date of call. Sec. 306.37. Interest, on registered securities. (a) Method of payment.—The interest on registered securities is payable by checks drawn on the Treasurer of the United States to the order of the registered owners, except as otherwise provided herein. Interest checks are prepared by the Department in advance of the interest payment date and are ordinarily mailed in time to reach the addressees on that date. Interest on a registered security which has not matured or been called and which is presented for any transaction during the period the books for that loan are closed will be paid by check drawn to the order of the registered owner of record. Upon receipt of notice of the death or incompetency of an individual named as registered owner, a change in the name or in the status of a partnership, corporation, or unincorporated association, the removal, resignation, succession, or death of a fiduciary or trustee, delivery of .interest checks will be withheld pending receipt and approval of evidence showing who is entitled to receive the interest checks. If the inscriptions on securities do not clearly identify the owners, delivery of interest checks will be withheld pending reissue of the securities in the correct registration. The final installment of interest, unless otherwise provided in the offering 1 The Appendix to these regulations contains a complete explanation of the method of computing interest on a semiannual basis on Treasury bonds, notes, and certificates of indebtedness, and an outline of t h e method of computing the discount r a t e s on Treasury bills. Also included are tables of computation of interest on quarterly and a n n u a l bases. EXHIBITS 219 circular or notice of call, will be paid by check drawn to the order of the registered owner of record and mailed in advance of the interest payment date in time to reach the addressee on or about that date."^ Interest on securities presented for aavance refunding will be adjusted as provided in the advance refunding off'er. (b) Change of address.—To assure timely delivery of interest checks, owners should promptly notify the Bureau of any change of address. (Form PD 345 may be used.) The notification must be signed by the registered owner or a joint owner or an authorized representative, and should show the old and new addresses, the serial number and denomination of each security, the titles of the securities (for example 3^/4 percent Treasury Bonds of 1978-83, dated May 1, 1953), and the registration of each security. Notifications by attorneys in fact, trustees, or by the legal representatives of the estates of deceased, incompetent, or minor owners should be supported by proof of their authority, unless in the case of trustees or legal representatives, they are named in the registration. (c) Collection of interest checks. (1) Genera/^.—Interest checks may be collected in accordance with the regulations governing the endorsement and paj^ment of Government warrants and checks, which are contained in Department Circular No. 21, Revised, as amended (31 CFR 360). (2) By voluntary guardians of incompetents.—Interest checks drawn to the order of a person who has become incompetent and for whose estate no legal guardian or similar representative has been appointed should be returned to the Bureau with a full explanation of the circumstances. For collection of interest, the Department will recognize the relative responsible for the incompetent's care and support or some other person as voluntary guardian for the incompetent. (Application may be made on Form PD 1461.) (d) Nonreceipt, loss, theft, or destruction of interest checks.—If an interest check is not received within a reasonable period after an interest payment date the Bureau should be notified. Should a check be lost, stolen, or destroyed after receipt, the Office of the Treasurer of the United States, Check Claims Division, Washington, D.C, 20226, should be notified. Notification should include the name and address of the owner, the serial number, denomination, and title of the security upon which the interest was payable. If the check is subsequently received or recovered the latter office should also be advised. Sec. 306.38. Interest on bearer securities.—Unless the offering circular and notice of call provide otherwise, interest on coupon securities is payable in regular course of business upon presentation and surrender of the interest coupons as they mature. Such coupons are payable at any Federal Reserve bank or branch, or the Treasurer's Office." Interest on Treasury bills, and any other bearer securities which may be sold and issued on a discount basis and which are payable at par at maturity, is represented by the difference between the purchase price and the par value, and no coupons are attached. SUBPART F ASSIGNMENTS OF REGISTERED SECURITIES GENERAL Sec. 306.40. Execution of assignments or special endorsements. (a) Execution of assignrhents.—The assignment of a registered security should be executed by the owner or his authorized representative in the presence of an officer authorized to certify assignments. All assignments must be made on the backs of the securities, unless otherwise authorized by the Bureau, a Federal Reserve bank or branch, or the Treasurer of the United States. An assignment by mark (X) must be witnessed not only toy a certifying officer but also by at least one other person, who should add 'an endorsement substantially as follows: "Witness to signature by mark," followed by his signature and address. (b) Special endorsements in lieu of assignmvents.—A -security may be presented without assignment for any authorized transaction by a financial institution which is (1) a member of the Federal Reserve System, (2) a member of the Federal Home Loan Bank System, or (3) insured by the Federal Deposit 1 The final installment of interest on securities which m a t u r e d or were called before t h e effective date of these regulations will be paid with t h e principal upon presentation of the securities unless otherwise provided in the offering circular or notice of call. See sec. 306.15(b) for presentation of securities during periods transfer books are closed. 2 Banking institutions will usually cash t h e coupons w i t h o u t charge as an accommodation to their customers. 220 19 65 REPORT OF THE SECRETARY OF THE TREASURY Insurance Corporation, provided full instructions are furnished as to the transaction desired and the security bears the endorsement, tmder the official seal of . the institution, as follows: Presented in accordance with instructions of the owner (s). Absence of assignment guaranteed. (Name of financial institution) By (Signature and title of officer) This form of endorsement will be an unconditional guarantee to the Treasury Department that the institution is acting as attorney in fact for the owner(s) of the security under proper authorization and that the officer is duly authorized to act. Sec. 306.41. Form of assignment.—Registered securities may be assigned in blank, to 'bearer, to a specified transferee, to the Secretary of the Treasury for exchange for coupon securities, or to the Secretary of the Treasury for redemption or for exchange for other securities offered at maturity, upon call or pursuant to an ladvance refunding offer. Assignments to "The Secretary of the Treasury," "The Secretary of the Treasury for transfer," or "The Secretary of the Treasury for exchange" will not be accepted, unless supplemented by specific instructions by or in behalf of the owner. Sec. 306.42. Alterations and erasures.—^If an alteration or erasure has been made in an assignment, the assignor should appear before an authorized certifying officer and execute a new assignment to the same assignee. If the new assignment is to other than the 'assignee whose name has been altered or erased, a disclaimer from the first-named assignee should be obtained. Otherwise, an ' affidavit of explanation by the person responsible for the alteration or erasure should be submitted for consideration. Sec. 306.43. Voidance of assignments.—An assignment of a. security to or for the account of another person, not completed by delivery, may be voided by a disclaimer of interest from that person. The disclaimer should be executed in the presence of an officer authorized to certify assignments of securities. Unless otherwise authorized by the Bureau, a Federal Reserve biank or branch, or the Treasurer of the United States, the disclaimer must be written, typed, or stamped on the back of the security in substantially the following form: The undersigned as assignee of this security hereby disclaims any interest herein. (Signature) I certify that the above-named person as described, whose identity is well known or proved to me, personally appeared before me the day of at and signed the above (Month and year) disclaimer of interest. (Place) (SEAL) (Signature and official designation of certifying officer) In the absence of a disclaimer, an affidavit or affidavits should be submitted for consideration explaining why a. disclaimer cannot be obtained, reciting all other -material facts and circumstances relating to the transaction, including Whether or not the security was delivered to the person named as assignee and whether or not the affiants know of any basis for the assignee claiming any right, title or interest in the security. After >an assignment has been voided, in order to dispose of the security, an assignment by or on behalf of the owner will be required. Sec. 306.44. Discrepancies in names.—^The Department will ordinarily require an explanation of discrepancies in the names which lappear in inscriptions, assignments, supporting evidence, or in the signatures to any assignments. (Form PD 385 may be used for this purpose.) Plowever, where the variations in the name of the registered owner, as inscribed on secnrities of the same or different issues, are such that both may 'properly represent the same person, for example, "J. T. Smith" and "John T. Smith," no proof of identity will be required if the assignments are signed exactly as the securities are inscribed and are duly certified by the same certifying officer. EXHIBITS 221 Sec. 306.45. Officers authorized to certify assignments. (a) Officers authorized generally.—Officers authorized to certify assignments include: (1) Officers and employees of banks and trust companies chartered by or incorporated under the laws of the United ^States or those of any State, commonwealth or territory of the United States, and Federal savings and loan associations, or other organizations which are members of the Federal Home Loan Bank System, who have been authorized to (i) generally bind their respective institutions by their acts, (ii) unqualifiedly guarantee signatures to assignments of securities, or (iii) expressly certify assignments of securities. (2) Officers of Federal Reserve banks and branches. (3) Officers of Federal land banks. Federal intermediate credit banks and banks for cooperatives, the central bank for cooperatives, and Federal home loan banks. (4) United States attorneys, collectors of customs, and regional commissioners and district directors, Internal Revenue Service. (5) Judges and clerks of United States courts. (b) Authorized officers in foreign countries.—The following officers are authorized to certify assignments in foreign countries : (1) United States diplomatic or consular representatives. (2) Managers, assistant managers, and other officers of foreign branches of blanks or trust companies chartered by or incorporated under the laws of the United States or any State, commonwealth or territory of the United States. (3) Notaries public and other officers authorized to administer oaths. The official position and authority of any such officer must be certified 'by a United States diplomatic or consular representative under seal of his office. (c) Officers having limited authority.—^The following officers are authorized to certify assignments to the extent set forth in connection with each class of officers: (1) Postmasters, acting postmasters, assistant postmasters, inspectors-incharge, chief and assistant chief accountants, and superintendents of stations of any post office, notaries public, and justices of the peace in the United States, its territories and possessions, the Commonwealth of Puerto Rico and the Canal Zone, but only for assignment of securities for redemption for the account of the assignor, or for redemption-exchange, or pursuant to an -advance refunding offer for other securities to be registered in his name, or in his name v^ith a joint owner. The signature.of any post office official, other than a postmaster, must be in the following form: "John A. Doe, Postmaster, by Richard B. Roe, Superintendent of Station." (2) Oommissioned officers and warrant officers of the Armed Forces of the United States for assignments of securities of any class for any authorized transaction, but only with respect to assignments executed by (i) Armed Forces per sonnet and civilian field employees, and (ii) members of the families of such personnel or civilian employees. (d) Special provisions for certifying assignments.—The Commissioner of the Public Debt, the Chief of the Division of Loans and Currency, any Federal Reserve bank or branch, or the Treasurer of the United States, is authorized to make special provisions for any case or class of cases. Sec. 306.46. Duties and responsibilities of certifying officer.—A certifying officer must require execution of an assignment, or a form with respect to securities, in his presence after he has; established the identity of the 'assignor and before he certifies the signature. He must then complete the certification. An employee who is not an officer should insert "Authorized signature" in the space provided for the title. However, an assignment of a security need not be executed in the presence of 'the certifying officer if he unqualifiedly guarantees the signature thereto, in which case he must place his endorsement on the security, following the signature, in the form "Signature guaranteed, First National Bank of JonesviHe, N.H., by A. B. Doe, President." The certifying officer and, if he is an officer or employee of an organization, the organization will be held responsible for any loss the United States may suff'er as the result. of his fault or negligence. Sec. 306.47. Evidence of certifying officer's authority.—The authority of an individual to act as a certifying officer is established by -affixing to a certification of an assignment, or a form with respect to securities, or an unqualified guarantee of a signature to an assignment, either (a) the official seal of the organi- 222 19 65 REPORT OF THE SECRETARY OF THE TREASURY zation, or (b) a legible imprint of the issuing agent's dating stamp, if the organization is an authorized issuing agent for United States savings bonds of Series E.- Use of such stamp shall result in the same responsibility on the part of the organization as if its official seal were used. If the certifying officer does not have access to the seal or issuing agent's dating stamp, his authority to act as a certifying officer must be certified, under official seal or stamp, to the Bureau by an officer having access to the organization's records and will be recognized until evidence is received that his authority has been terminated. (Form P p 835 may be used.) Any post office official must use the official stamp of his office. A commissioned or warrant officer of any of the armed forces of the United States should indicate his rank and state that the person executing the assignment is one of the class whose signature he is authorized to certify. A judge or clerk of court must use the seal of the court. Any other certifying officer must use his official seal or stamp, if any, 'but, if he has neither, his official position 'and a specimen of his signature must be certified by some other authorized officer under official seal or stamp or otherwise proved to the satisfaction of the Department. Sec. 306.48. Interested persons not to act as certifying officer or witness.—• Neither the assignor, the assignee, nor any person having an interest in a security may act as a certifying officer, or as a witness to an assignment by mark. However, a bank officer may certify an assignment to the bank, or an assignment executed by another officer in its behalf. Sec. 306.49. Nontransferable securities.—The provisions of this subpart, so far as applicable, govern transactions in Treasury Bonds, Investment Series B— 1975-80. SUBPART G A S S I G N M E N T S BY OR I N B E H A L F OF I N D I V I D U A L S Sec. 306.55. Signatures, minor errors, and change of name.—The owner's signature to an assignment should be in the form in which the security is inscribed or assigned, unless such inscription or assignment is incorrect or the name has since been changed. In case of a change of name, the signature to the assignment should show both names and the manner in which the change was made, for example, "John Young, changed by order of court from Hans Jung." Evidence of the change will, be required. However, no evidence is required to support an assignment if the change resulted from marriage and the signature, which must be duly certified by an authorized officer, is written to show that fact, for example, "Mrs. Mary .J. Brown, changed by marriage from Miss Mary Jones." Sec. 306.56. Assignment of securities registered in the names of or assigned to two or more persons. (a) For transfer or exchange.—Securities registered in the names of or assigned to two or more persons may be transferred or exchanged during the lives of all the joint owners only upon assignments by all' or on their behalf by authorized representatives. Upon proof of the death of one, the Department will accept an assignment by or in behalf of the survivor or survivors, unless the registration or assignment includes words which preclude the right of survivorship. In the latter case, in addition to assignment by or in behalf of the survivor or survivors, an assignment in behalf of the decedent's estate will be required. (b) For advance refunding exchanges.—Securities registered in the names of or assigned to two or more persons, whether jointly or in the alternative, may be assigned by one where the securities to be received in exchange are to be registered in the same names and form. If bearer securities or securities in a different form are to be issued, all persons named must assign, except that in case of death paragraph (a) of this section shall apply. (c) For redemption or redemption-exchange. (1) Alternative registration or assignment.—Securities registered in the names of or assigned to twO' or more persons in the oMernative, for example, "John B. Smith or Mrs. Mary J. Smith" or "John B. Smith or Mrs. Mary J. Smith or the survivor," may be assigned by one of them at maturity or upon call, for redemption or redemption-exchange, for his own account or otherwise, whether or not the other joint owner or owners are deceased. (2) Joint registration or assignment.—Securities registered in the names of or assigned to two or more persons jointly, for example, "John B. Smith and Mrs. Mary J. Smith," "John B. Smith and Mrs. Mary J. Smith or the survivor," or "John B. Smith and Mrs. Mary J. Smith as tenants in common," may be as- EXHIBITS 223 signed by one of them during the lives of all only for (i) redemption at maturity or upon call, and then only for redemption for the account of all, or (ii) redemption-exchange for securities to be registered in their names in the same form as appears in the registration or assignment of the securities surrendered. Upon proof of the death of one of the joint owners, the survivor or survivors may assign securities so registered or assigned for redemption or redemption-exchange for any account, except that, if the words "as tenants in common" or other words which preclude the right of survivorship appear in the registration or assignment, assignment in behalf of the decedent's estate also will be required. Sec. 306,57. Minors and incompetents. (a) Assignments of securities registered in name of minor. (1) By minor.—Securities registered in the name of a minor for whose estate no guardian or similar representative is legally qualified may be assigned by the minor at maturity or call for redemption if the total face amount of the matured or called securities so registered does not exceed $500, and if the minor, in the opinion of the certifying officer, is of sufficient competency to execute the assignments and understand the nature of the transaction. (2) By natural guardian.—Securities registered in the name of a minor for whose estate no legal guardian or similar representative has qualified may be assigned by the natural guardian upon qualification. (Form PD 2481 may be used for this purpose.) (b) Assignments of securities registered in name of natural guardian of minor.—Securities registered in the name of a natural guardian of a minor may be assigned by the natural guardian for any authorized transaction except one for the apparent benefit of the natural guardian. If the natural guardian in whose name the securities are registered is deceased or is no longer qualified to act as natural guardian, the securities may be assigned by the person then acting as natural guardian. The assignment by the new natural guardian should be supported by proof of the death or disqualification of the former natural guardian and by evidence of his own status as natural guardian. (Form PD 2481 may be used for this purpose.) No assignment by a natural guardian will be accepted after receipt of notice of the minor's attainment of majority, removal of his disability of minority, disqualification of the natural guardian to act as such, qualification of a legal guardian or similar representative, or the death of the minor. (c) Assignments by voluntary guardians of incoinpetents.—Registered securities belonging to an incompetent for whose estate no legal guardian or similar representative is legally qualified may be assigned by the relative responsible for his care and support or some other person as voluntary guardian: (1) For redemption or exchange for bearer securities, if the proceeds of the securities are needed to pay expenses already incurred, or to be incurred during any 90-day period, for the care and support of the incompetent or his legal dependents and the total face amount of such securities for which redemption or exchange is requested does not exceed $1,000. (2) For redemption-exchange, if the securities are matured or have been called, or pursuant to an advance refunding offer, for reinvestment in other securities to be registered in the form "A, an incompetent (123^5-6789) under voluntary guardianship." An application on Form PD 1461 by the person seeking authority to act as voluntary guardian will be required. (d) Assignments by legal guardians of minors or incompetents.—Securities registered in the name and title of the legal guardian or similar representative of the estate of a minor or incompetent may be assigned by the representative for any authorized transaction without proof of his qualification. Assignments by a representative of any other securities belonging to a minor or incompetent must be supported by properly certified evidence of qualification. The evidence must be dated not more than one year before the date of the assignments and must contain a statement showing the appointment is in full force unless it shows the appointment was made not more than one year before the date of the assignment or the representative or a corepresentative is a corporation. An assignment by the representative will not be accepted after receipt of notice of termination of the guardianship, except for transfer to the former ward. Sec. 306.58. Nontransferable securities.—^The provisions of this subpart, so far as applicable, govern transactions in Treasury Bonds, Investments Series B-1975-80. 224 19 65 REPORT OF THE SECRETARY OF THE TREASURY SUBPART H — A S S I G N M E N T S I N B E H A L F OF E S T A T E S OF DECEASED OWNERS Sec. 306.65. Special provisions applicable to small amounts of securities, interest checks, or redemption checks.—Entitlement to, or the a u t h o r i t y to dispose of, a small amount of securities and checks issued in payment thereof or in payment of interest thereon, belonging to the estate of a decedent, may be established through the use of certain short forms, according to t h e aggregate a m o u n t of securities and checks involved (excluding checks representing interest on the securities), as indicated by the following t a b l e : Amount C ircumstances $100 500 500 No administration Estate being administered Estate settled - Form PD 2216 PD 2488 PD 2458-1 To'the executed b y Person who paid burial expenses. Executor or adniinistrator. Former executor or administrator, attorney, or other qualified person. Sec. 306.66. Estates—administration. ( a ) Temporary or special administrators.—Temporary or special administrators may assign securities for any authorized transaction within t h e scope of their authority. The assignments m u s t be supported b y : (1) Temporary administrators.—A certificate, u n d e r court seal, showing t h e appointment in full force within thirty days preceding t h e d a t e of receipt of t h e securities. (2) Special administrators.—A certificate, u n d e r court 'Seal, showing the appointment in full force within 6 months preceding the date of receipt of the securities. Authority for assignments for t r a n s a c t i o n s not within the scope of appointment m u s t be established by a duly certified copy of a special order of court. (b) I n course of administration.—A security belonging to t h e estate of a decedent which is being administered by a duly qualified executor or general a d m i n i s t r a t o r ' will be accepted for any authorized transaction upon assignment by isuch representative. (See sec. 306.77.) Unless the security is registered in t h e name of and shows the capacity of t h e representative, the assignment m u s t be supported by a certificate or a copy of t h e letters of appointment, certified under court seal. T h e certificate or certification, if required, must be dated not more t h a n six months before t h e d a t e of t h e assignment and must contain a statement t h a t the appointment is in full force, unless (1) it shows the appointment w a s m a d e not more t h a n . one year before the d a t e of the assignment, or (2) t h e representative or a corepresentative is a corporation, or (3) redemption is being m a d e for application of t h e proceeds in payment of F e d e r a l estate taxes as provided by sec. 306.28. (c) After settlement through court proceedings.—Securities belonging to the estate of a decedent which h a s been settled in court will be accepted for any authorized transaction upon assignments by t h e person or persons entitled, as determined by t h e court. The assignments should be supported by a copy, certified u n d e r court seal, of t h e decree of distribution, t h e representative's final account a s approved by t h e court, or other pertinent court records. Sec. 306.67. E s t a t e s not administered. (a) Special provisions under S t a t e laws.—If, under State law, a person h a s been recognized or appointed to receive or distribute t h e assets of a decedent's estate without regular administration, h i s assignment 'of securities belonging to t h e estate will be accepted provided h e submits a p p r o p r i a t e evidence of his authority. (b) Agreement of persons entitled.—When it appears t h a t no legal representative of a decedent's estate h a s been or is to be appointed, securities belonging to t h e estate may be duly disposed of p u r s u a n t to an agreement and assignment by all persons entitled to s h a r e in t h e decedent's personal estate. ( F o r m P D 1646 may be used.) Plowever, all debts of t h e decedent and his estate m u s t be paid or provided for and t h e interests of any minors or incompetents must be protected. Sec. 306.68. Nontransferable securities.—The provisions of this subpart, so far a s applicable, govern transactions in T r e a s u r y Bonds, Investment Series B-1975-80. EXHIBITS SUBPART I 225 A S S I G N M E N T S BY OR I N B E H A L F OF T R U S T E E S AND S I M I L A R F I D U C I A R I E S Sec. 306.75. Individual fiduciaries.—Securities registered in, or assigned to, the names and-titles of individual fiduciaries will be accepted for any authorized transaction upon assignment by the designated fiduciaries without proof of their qualification. If the fiduciaries in whose names the securities are registered, or to whom they have been assigned, have been succeeded by other fiduciaries, evidence of successorship must be furnished. If the appointment of a successor is not required under the terms of the trust instrument or otherwise and is not contemplated, assignments by the surviving or remaining fiduciary or fiduciaries must be supported by appropriate proof. This requires (a) proof of the death, resignation, removal, or disqualification of the former fiduciary and (b) evidence that the surviving pr remaining fiduciary or fiduciaries are fully qualified to administer the fiduciary estate, which may be in the form of a certificate by them showing the appointment of a successor has not been applied for, is not contemplated, and is not necessary under the terms of the trust instrument or otherwise. Assignments of securities registered in the titles, without the names of the fiduciaries, for example, "Trustees of the George E. White Memorial Scholarship Fund under deed of trust dated 11/10/40, executed by John W. White," must be supported by proof that the assignors are the qualified and acting trustees of the designated trust estate, unless they are empowered to act as a unit in which case the provisions of sec. 306.76 shall apply. (Form PD 2446 may be used to furnish proof of incumbency of fiduciaries.) Assignments by fiduciaries of securities not registered or assigned in such manner as to show that they belong to the estate for which the assignors are acting must also be supported by evidence that the estate is entitled to the securities. Sec. 306.76. Fiduciaries acting as a unit.—Securities registered in the name of or assigned to a board, committee, or other body authorized to act as a unit for any public or private trust estate may be assigned for any authorized transaction by anyone authorized to act in behalf of such body. Except as otherwise provided in this section, the assignments must be supported by a copy of a resolution adopted by the body, properly certified under its seal, or, if none, sworn to by a member of the body having access to its records. (Form PD 2495 may be used.) If the person assigning is designated in the resolution by title only, his incumbency must be duly certified by another member of the body. (Form PD 2446 may be used.) If the fiduciaries of any trust estate are empowered to act as a unit, although not designated as a board, committee, or other body, securities registered in their names or assigned to them as such, or in their titles without their names, may be assigned by anyone authorized by the group to act in its behalf. Such assignments may be supported by a sworn copy of a resolution adopted by the group in accordance with the terms of the trust instrument, and proof of their authority to act as a unit may be required. As an alternative, assignments by all the fiduciaries, supported by proof of their incumbency if not named on the securities, will be accepted. Sec. 306.77. Corepresentatives and fiduciaries.—If there are two or more executors, administrators, guardians, or similar representatives, or trustees of an estate, all must unite in the assignment of any. securities belonging to the estate. However, when a statute, a decree of court, or the instrument under which the representatives or fiduciaries are acting provides otherwise, assignments in accordance with their authority will be accepted. If the securities have matured or been called and are submitted for redemption for the account of all, or for redemption-exchange or pursuant to an advance refunding offer and the securities offered in exchange are to be registered in the names of all, only one representative or fiduciary need execute the assignment. Sec. 306.78. Nontransferable securities.—The provisions of this subpart, so far as applicable, govern assignments of Treasury Bonds, Investment Series B-1975-80. SUBPART J A S S I G N M E N T S I N B E H A L F OF PRIVATE OR P U B L I C ORGANIZATIONS Sec. 306.85. Private corporations and unincorporated associations.—Securities registered in the name of, or assigned to, an unincorporated association, or a private corporation in its own right or in a representative or fiduciary capacity, may be assigned in its behalf for any authorized transaction by any duly authorized officer or officers. Evidence, in the form of a resolution of the governing 782-556—^66> 15 226 19 65 REPORT OF THE SECRETARY OF THE TREASURY body, authorizing the assigning officer to assign, or to sell, or to otherwise dispose of the securities will ordinarily be required to support assignments. Resolutions may relate to any or all registered securities owned by the organization or held by it in a representative or fiduciary capacity. (Form PD 1010, or any substantially similar form, may be used when the authority relates to specific securities; Form PD 1011, or any substantially similar form, may be used for securities generally.) If the officer or officers derive their authority from the charter, constitution or bylaws, a copy or a pertinent extract therefrom, properly certified, will be required in lieu of a resolution. If the resolution or other supporting document shows the title of an authorized officer, without his name, it must be supplemented by a certificate of incumbency. (Form PD 1014 may be used.) Sec. 306.86. Change of name and succession of private organizations.—If a private corporation or unincorporated association changes its name or is lawfully succeeded by another corporation or unincorporated association, its securities may be assigned in behalf of the organization in its new name or that of its successor by an authorized officer in accordance with sec. 306.85. The assignment must be supported by evidence of the change of name or successorship. Sec. 306.87. Partnerships.—An assignment of a security registered in the name of or assigned to a partnership must be executed by a general partner. Upon dissolution of a partnership, assignment by all living partners and by the persons entitled tb assign in behalf of any deceased partner's estate will be required unless the laws of the jurisdiction authorize a general partner to bind the partnership by any act appropriate for winding up partnership affairs. In those cases where assignments by or in behalf of all partners are required this fact must be shown in the assignment; otherwise, an affidavit by a former general partner must be furnished identifying all the persons who had been partners immediately prior to dissolution. Upon voluntary dissolution, for any jurisdiction where a general partner may not act in winding up partnership affairs, an assignment by a liquidating partner, as such, must be supported by a duly executed agreement among the partners appointing the liquidating partner. Sec. 306.88. Political entities and public corporations.—Securities registered in the name of, or assigned to, a State, county, city, town, village, school district, or other political eiitity, public body or corporation, may be assigned by a duly authorized officer, supported by evidence of his authority. Sec. 306.89. Public officers.—Securities registered in the name of, or assigned to, a public officer designated by title may be assigned by such officer, supported by evidence of incumbency. Assignments for the officer's own apparent individual benefit will not be recognized. Sec. 306.90. Nontransferable securities.—The provisions of this subpart apply to Treasury Bonds, Investment Series B-1975^80. SUBPART K ATTORNEYS IN FACT Sec. 306.91. Attorneys vn fact. (a) General.—Assignments by an attorney in fact will be recognized if supported by an adequate power of attorney. Every power must be executed in the presence of an authorized certifying officer under the conditions set out in sec. 306.45 for certification of as'signments. . Powers need not be submitted in support of assignments for redemption-exchange or exchanges pursuant to advance refunding off"ers where the securities to be issued are to be registered in the same names and forms as appear in the inscriptions or assignments of the securities surrendered, and such securities are registered in the names of or assigned to (1) corporations, unincorporated associations, lodges, 'societies, or similar organizations, or their legal successors, or (2) individuals, and the assignments are executed on their behalf by corporate attorneys in fact. In all other cases, the original power, or a photocopy showing the grantor's autograph signature, properly certified, must be submitted, together with the security assigned on the owner's behalf by the attorney in fact. An assignment by a substitute attorney in fact must be supported by an authorizing power of attorney and power of substitution. An assignment by an attorney in fact or a substitute attorney in fact for the apparent benefit of either will not be accepted unless expressly authorized. (Form PD 1001, 1002, 1003, or 1004, as appropriate, may be used to appoint an attorney in fact. An attorney in fact may use Form PD 1006 or 1008 to appoint a .substitute. However, any form sufficient in substance may be used.) EXHIBITS 227 If there are two or more joint attorneys in fact or substitutes, all must unite in an assignment. However, less than all may assign if the power authorizes less than all to act, or the assignment is for redemption for the account of the owner, or for redemption-exchange or pursuant to an advance refunding offer and the new securities are to be registered in the owner''s name. A power of attorney or of substitution not coupled with an interest will be recognized until " the Bureau receives proof of revocation or proof of the grantor's death or incompetency. (b) For legal representatives and fiduciaries.—Assignments by an attorney in fact or substitute attorney in fact for a legal representative or fiduciary, in addition to the power of attorney and of substitution, must be supported by evidence, if any, as required by sees. 306,57(d), 306.66(b), 306.75, and 306.76. Powers must specifically designate the securities to be assigned. (c) For corporations or unincorporated associations.—Assignments by an attorney in fact or a substitute attorney in fact in behalf of a corporation or unincorporated association, in addition to the power of attorney and power of substitution, must be supported by one of the following documents certified under seal of the organization, or, if it has no seal, sworn to by an officer who has access to the records: (1) A copy of the resolution of the governing body authorizing an officer to appoint an attorney in fact, with power of substitution if pertinent, to assign, or to sell, or to otherwise dispose of, the securities, or (2) A copy of the charter, constitution, or bylaws, or a pertinent extract therefrom, showing the authority of an officer to appoint an attorney in fact, or (3) A copy of the resolution of the governing body directly appointing an attorney in fact. If the resolution or other isupporting document shows only the title of the authorized officer, without his name, a certificate of incumbency must also be furnished. (Form PD 1014 may be used.) The power may not be broader than the resolution or other authority. (d) For public corporations.—A general power of attorney in behalf of a public corporation will be recognized only if it is authorized by statute. Sec. 306.92. Nontransferable securities.—The provisions of this subpart shall apply to nontransferable securities, subject only to the limitations imposed by the terms of the particular issues. SUBPART L TRANSFER T H R O U G H J U D I C I A L PROCEEDINGS Sec. 306.95. Transferable securities.—The Department will recognize valid judicial proceedings affecting the ownership of or interest in transferable securities, upon presentation of the securities together with evidence of the proceedings. In the case of securities registered in the names of twO' or more persons, the extent of their respective interests in the securities must be determined by the court in proceedings to which they are parties or must otherwise be validly established.^ Sec. 306.96. Evidence required.—Oopies of a final judgment, decree, or order of court and of any necessary supplementary proceedings must be sulbmitted. Assignments by a trustee in bankruptcy or a receiver of an insolvent's estate must be supported by evidence of his qualification. Assignments by a receiver in equity or a similar court officer must be supported by a copy of an order authorizing him to assign, or to sell, or to otherwise dispose of, the securities. Where the documents are dated more than six months prior to presentation of the securities, there must also be submitted a certiflcate dated within six months of presentation of the securities, showing the judgment, decree or order, or evidence of qualification, is in full force. Any such evidence must be certified under court seal. Sec. 306.97. Nontransferable securities. (a) Treasury Bonds, Investment Series A-1965.—The provisions of this subpart shall apply to bonds of this series, except that reference to assignments shall be deemed only to refer to requests for payment. With the exception of a trustee in bankruptcy or a receiver of an insolvent's estate, payment will ^ A finder claiming the ownership of a bearer security or a registered security assigned in blank or so assigned as to become, in effect, payable to bearer, m u s t perfect his title in accordance with the provisions of State law. If there are no such provisions, the D e p a r t m e n t will not recognize his title to the security. 228 19 65 REPORT OF THE SECRETARY OF THE TREASURY be limited to the redemption value current thirty days after termination of the judicial proceedings or current at the time the bonds are surrendered for redemption, which ever is less. No judicial proceedings will be recognized if they would give effect to an attempted voluntary transfer inter vivos of the bonds. (b) Treasury Bonds, Investment Series B-1975-80.—The provisions of this subpart shall apply to bonds of this series, except that prior to maturity any • reference to assignments shall be deemed to refer to assignments of the bonds for exchange for the current series of l^^ percent 5-year EA or EO Treasury notes. SUBPART M—REQUESTS FOR SUSPENSION OF TRANSACTIONS Sec. 306.100. Requests for suspension of transactions in securities. (a) Registered securities. (1) Reports of loss, theft, or destruction- of registered securities.—Reports of lost, stolen, or destroyed registered securities not so assigned as to become, in effect, payable to bearer, will be accepted from the owner or his authorized agent at any time and records will be maintained of the reports. If such a registered security is presented to the Department, the owner will be duly advised and given all available information. (2) Reports of assignments affected by fraud.—The Department reserves the right to suspend any transaction in a registered security bearing an apparently valid assignment, if prior to the time it is received in the Department a report is received from and a claim is filed by an assignor that his assignment was affected by fraud. The interested parties will be notified of the susi^ension and given a reasonable period of time within which to effect settlement by agreement or institute judicial proceedings. If subsequent to the time the Department has transferred, exchanged, or redeemed a registered security in reliance on an apparently valid assignment, a report or claim is received that the assignment was affected by fraud, the Department will undertake only to furnish all available information. (3) Reports of forged assignments.—If it is claimed that the assignment of a registered security is a forgery, the Department will investigate the matter and if it is established that the assignment was forged and the owner did not authorize or ratify the assignment, or receive any benefits therefrom, the Department will recognize his ownership and grant appropriate relief. (b) Bearer securities or registered securities so assigned as to become, in effect, payable to bearer. (1) Securities not overdue.—Neither the Department nor any of its agents will accept notice of any claim or of pending judicial proceedings by any person for the purpose of suspending transactions in bearer securities, or registered securities so assigned as to become, in effect, payable to bearer which are not overdue as defined in sec. 306.25.^ However, if the securities are received and retired, the Department will undertake to notify persons who appear to be entitled to any available information concerning the source from which the securities were received. (2) Overdue securities.—;-'Reports that bearer securities, or registered securities so assigned as to become, in effect, payable to bearer, were lost, stolen or possibly destroyed after they became overdue as defined in sec. 306.25 will be accepted by the Bureau for the purpose of suspending redemption of the securities if the claimant establishes his interest. If the securities are presented, their redemption will be suspended and the presenter and the claimant will each be given an opportunity to establish ownership. 1 I t h a s been the lon.gstanding policy of the D e p a r t m e n t to assume no responsibility for the protection of bearer securities not in the possession of persons claiming rights therein and to give no eflect to any notice of such claims. This policy was formalized on Apr. 27, 1867, when t h e Secretary of the Treasury issued the following s t a t e m e n t : " I n consequence of the increasing trouble, wholly w i t h o u t practical benefit, arising from notices which a r e constantly received a t the D e p a r t m e n t respecting the loss of coupon bonds, which are payable to bearer, and of Treasury notes issued and remaining in blank a t t h e time of loss, it becomes necessary to give this public notice, t h a t the Government cannot protect and will not undertake to protect the owners of such bonds and notes against the consequences of their own fault or misfortune, "Hereafter all bonds, notes, and coupons, payable to bearer, and Treasury notes issued and remaining in blank, will be pnid to the p a r t y presenting them in pursuance of the regulations of the Department, in the course of regular business ; and no a t t e n t i o n will be paid to caveats which may be filed for the purpose of preventing such payment." EXHIBITS SUBPART N — C L A I M S ON ACCOUNT OF LOSS, T H E F T , DESTRUCTION, DEFACEMENT OF S E C U R I T I E S 229 MUTILATION, OR Sec. 306.105. Statutory authority and requirements.—Section 8 of the Act of July 8, 1937 (50 Stat. 481), as amended (31 U.S.C. 738a), provides for relief, under certain conditions, on account of the loss, theft, destruction, multilation, or defacement of United States interest-bearing securities. To obtain relief the security must be fully identified and the pertinent facts proved to the satisfaction of the Secretary of the Treasury, and generally, a bond of indemnity in such form and with such surety, sureties or security as may be required to protect the interest of the United States, must be filed. Sec. 306.106. Reports of loss, theft, destruction, multilation, or defacement of securities. (a) Loss or theft.—Report of the loss or theft of a security should be made promptly to the Bureau. The report should include: (1) The name and present address of the owner, and his address at the time the security was issued, and, if the report is made by any other person, the capacity in which he represents the owner ; (2) The identification of the security by title of loan, issue date, interest rate, serial number, and denomination, and in the case of a registered security, the exact form of inscription and a full description of any assignment, endorsement or other writing thereon; and (3) A statement of the circumstances. (b) Destruction, mutilation, or defacement.—If a security is destroyed, or becomes so mutilated or defaced as to impair its value to the owner, a report of the circumstances, as outlined in paragraph (a), must be made to the Bureau. All available portions of the multilated or defaced security must also be submitted. In any appropriate case, a form for use in applying for relief will be furnished. Sec. 306.107. Relief authorized for lost, stolen^, destroyed, multilated, or defaced securities. (a) Registered securities.—Relief is authorized for a registered security not assigned in blank or not so assigned as to become, in effect, payable to bearer, when it has been established that the security has been lost, stolen, destroyed, multilated, or defaced. Relief is available in the same manner for bearer securities restrictively endorsed in accordance with the provisions of Department Circular No. 853, current revision (31 CFR 328). (b) Bearer securities or registered securities so assigned as to become, in effect, payable to bearer.—Relief is authorized for bearer securities and registered securities so assigned as to become, in effect, payable to bearer, proved to have been destroyed, multilated, or defaced. Relief will also be granted for such securities if they were lost or stolen under such circumstances and have been missing for such period of time after they have matured or become redeemable pursuant to a call for redemption as in the judgment of the Secretary of the Treasury establishes that they (1) have been destroyed or have become irretrievably lost (2) are not held by any person as his own property and (3) will never become the basis of a valid claim against the United States. (c) Interest coupons.—Relief is authorized for interest coupons if it is established they were attached to a security at the time they were destroyed, mutilated, or defaced. Sec. 306.108. Type of relief granted.—When relief is granted for a lost, stolen, destroyed, mutilated, or defaced security, it will be in the form of either (a) a substitute security marked "Duplicate," bearing the same issue date and showing the serial number of the original security, if the security for which relief is being granted has not matured or become redeemable pursuant to a call for redemption before maturity in accordance with its terms, or (b) payment, if the security hais matured or become redeemable pursuant to a call. When a substitute is issued to replace a destroyed, mutilated, or defaced coupon 'security it will have attached all coupons corresponding to those proved to have been attached thereto at the time of the mishap, except that any matured coupons will not be attached but will be paid by check. Relief will not be granted in any case before the expiration of six months from date of loss or theft. Sec. 306.109. Nontransferable securities.—The provisions of this subpart shall apply to all nontransferable securities, other than United States savings bonds, subject only to the limitations imposed by the terms of the particular issues. 230 19 65 REPORT OF THE SECRETARY OF THE TREASURY SUBPART O—MISCELLANEOUS PROVISIONS Sec. 306.115. Additional requirements.—In 'any case or any class of cases arising under these regulations the Secretary of the Treasury may require such additional evidence and a bond of indemnity with or without surety, as may in his judgment be necessary for the protection of the interests of the United States. Sec. 306.116. Waiver of regulations.—The Secretary of the Treasury reserves the right, in his discretion, to waive or modify any provision or provisions of these regulatioiis in any particular case or class of cases for the convenience of the United States or in order to 'relieve any person or 'persons of unnecessary hards'hip, if such action is not inconsistent with law, does not impair any existing rights, and he is satisfied that such action would not subject the United States to any substantial, expense or liability. •Sec. 306.117. Preservation of existing rights.—Nothing contained in these regulations shall limit or restrict existing rights which holders of securities heretofore issued may have acquired under the circulars offering such securities for sale or under the regulations in force at the time of acquisition. •Sec. 306.118. Supplements, amendments, or revisions.—The Secretary of the Treasury may at any time, or from time to time, prescribe additional, supplemental, amendatory or revised regulations with respect to United States securities. JOHN K.. CARLOCK, Fiscal Assistant Secretary of the Treasury. Appendix.—Computation of Interest on Treasury Bonds, Treasury Notes, and Treasury Certificates of Indebtedness^ and Computation of Discount on Treasury Bills TREASURY BONDS, TREASURY NOTES, AND TREASURY CERTIFICATES OF INDEBTEDNESS COMPUTATION OF INTEREST ON AN ANNUAL BASIS ONE DAY'S INTEREST I S 1/365 1/366 OF 1 YEAR'S INTEREST OR Computation of interest will be made on an annual basis in all cases where interest is payable in one amount for the full term of the security, unless such term is an iexact quarter-year (3 months) or an exact half-year (6 months), when it is provided that interest shall be computed on a quarterly or semiannual basis, respectively. If the term of the securities is exactly one year, the Interest is computed for the full period at the specified rate, regardless of the number of days in such period. If the termi of the isecurities is less than one full year, the annual interest period for purposes of computation is considered to be the full year from but not including the date of issue to and including the anniversary of such date. If the term of the securities is more than one full year, computation is made on the basis of one full annual interest period', ending with the maturity date, and a fractional part of the preceding full aimual interest period. The computation of interest for any fractional part of an annual interest period is made on the basis of 365 actual daj^s in any such period, or 366 days if February 29 falls within such annual period. COMPUTATION OF INTEREST ON A SEMIANNUAL BASIS ONE D A Y ' S INTEREST IS l / l 8 1 , 1/182, 1 / 1 8 3 , OR 1/184 OF l / 2 YEAR'S INTEREST Computation of interest will be made on a semiannual basis in all eases where interest is payable for one or more full half-year (6 months) periods, or for one or more full half-year periods and a fractional part of a half-year period. A semiannual interest period is an exact half-year or 6 months, for computation purposes, and may comprise 181,182,183, or 184 actual days. An exact half-year's interest at the specified rate is computed for each full period of exactly 6 months, irrespective of the actual number of days in the half-year. •If the initial interest covers a fractional part of a half-year, computation is made on the basis of the actual number of days in the half-year (exactly 6 months) ending on the day such initial interest becomes due. If the initial interest covers a period in excess of 6 months, computation is made on the basis 231 EXHIBITS of one full half-year period, ending with the interest due date, and a fractional part of the preceding full half-year period. Interest for any fractional part of a full half-year period is computed on the basis of the exact number of days in the full period, including February 29 whenever it falls within such a period. The number of days in any half-year period is shown in the following table: For the half-3^ear Beguming from the 1st or 15th day of— January February. _. March April May June July. August September.. October November_. December-. Ending on the 1st or 15th day of— July August September. October November. December.^ January February. _ March April May June One year (any 2 consecutive half-years).. Number of days Regular year Leap year 181 181 184 183 184 183 184 184 181 182 181 182 365 366 COMPUTATION OF INTEREST ON A QUARTERLY BASIS ONE D A Y ' S INTEREST IS 1/89, 1/90, 1 / 9 1 , OR 1/92 OF l / 4 YEAR'S INTEREST Computation of interest will be made on a quarterly basis in all cases where interest is payable for one or more full quarter-year periods, or for one or more full quarter-year periods and a fractional part of a quarter-year period. A quarter-year interest period is an exact quarter-year of three months, and may comprise 89, 90, 91, or 92 days. An exact quarter-year's interest is computed for each full quarter-year period irrespective of the actual number of days in the quarter-year. Por a fractional part of any quarter-year computation is on the basis of the actual number.of days in such quarter-year (February 29 being included if it falls within any such quarter-year). If the initial interest covers a fractional part of a quarter-year (preceding a full quarter-year period), computation is on the basis of the actual number of days in the quarter-year (exactly 3 months) ending on the day such initial interest becomes due; if the final interest covers a fractional part of a quarter-year (following a full quarteryear period), computation is on the basis of the actual number of days in the quarter-year beginning on the day such final interest begins to accrue and ending exactly three months thereafter. The number of days in any quarteryear period is shown in the following table: For the quarter-year Beginning from the 1st or 15th day of— January February. _. March April May June July August September_. October November_. December.. One year (any 4 consecutive quarters). Ending on the 1st or 15th da3^ of- April May June July August September. October—-_ November. December.. January February. _ March Number of days Regular year Leap year 91 90 92 91 92 92 92 92 91 92 92 91 366 232 19 65 REPORT OF THE SECRETARY OF THE TREASURY Use of Interest Tables In the appended tables decimals are set forth for use in computing interest for fractional parts of interest periods. The decimals cover interest on $1,000 for one day in each possible quarterly (table I ) , semiannual (table I I ) , and annual (table III) interest period, at all rates of interest, in steps of % percent, from Ys to 6 percent. The amount of interest accruing on any date (for a fractional part of an interest period) on $1,000 face amount of any issue of Treasury bonds. Treasury notes, or Treasury certificates of indebtedness may be ascertained in the following way: (1) The date of issue, the dates for the payment of interest, the basis (quarterly, semiannual, or annual) upon which interest is computed, and the rate of interest (percent per annum) may be determined from the text of the security, or from the oflicial circular governing the issue. (2) Determine the interest period of which the fraction is a part, and calculate the number of days in the full period to determine the proper column to be used in selecting the decimal for one day's interest. (3) Calculate the actual number of days in the fractional period from but not including the date of issue or the day on which the last preceding interest payment was made, to and including the day on which the next succeeding interest payment is due or the day as of which the transaction which terminates the accrual of additional interest is effected. (4) Multiply the appropriate decimal (one day's interest on $1,000) by the number of days in the fractional part of the interest period. The appropriate decimal will be found in the appended table for interest payable quarterly, semiannually, or annually, as the case may be, opposite the rate borne by the security, and in the column showing the full interest period of which the fractional period is a part. (For interest on any other amount, multiply the amount of interest oh $1,000 by the other amount expressed as a decimal of $1,000.) TREASURY BILLS The methods of computing discount rates on U.S. Treasury bills are given below: Computation will be made on an annual basis in all cases. The annual period for bank discount is a year of 360 days, and all computations of such discount for a fractional part of the year will be made on that basis. The annual period for true discount is one full year from but not including the date of issue to and including the anniversary of such date. Computation of true discount for a fractional part of a year will be made on the basis of 365 days in the year, or 366 days if February 29 falls within the year. BANK DISCOUNT The bank discount rate on a Treasury bill may be ascertained by (1) subtracting the sale price of the bill from its face value to obtain the amount of discount; (2) dividing the amount of discount by the number of days the bill is to run to obtain the amount of discount per day; (3) multiplying the amount of discount per day by 360 (the number of days in a commercial year of 12 months of 30 days each) to obtain the amount of discount per year; and (4) dividing the amount of discount per year by the face value of the bill to obtain the bank discount rate. For example: 91-day bill—dated April 1, 1954—due J u l y 1, 1954 : Principal a m o u n t — m a t u r i t y value Price a t issue—amount received Amount of discount $0.50-^91 X 3 6 0 - ^ ' $ 1 0 a = 1.978 p e r c e n t .- $100. 00 99, 50 . 50 TRUE DISCOUNT The true discount rate on a Treasury bill of not more than one-half year in length may be ascertained by (1 and 2) obtaining the amount of discount per day by following the first two steps described under "Bank Discount;" (3) multiplying the amount of discount per day by the actual number of days in the year from the date of issue (365 ordinarily, but 366 if February 29 falls within 233 EXHIBITS t h e y e a r from d a t e of issue) t o obtain t h e a m o u n t of discount p e r y e a r ; a n d (4) d i v i d i n g t h e a m o u n t of discount p e r y e a r by t h e sale price of t h e bill to obtain t h e t r u e discount rate. For example: 91-day bill—<Iated April 1. 1954—due J u l y 1, 1954 : P r i n c i p a l a m o u n t — m a t u r i t y value^ Price a t i s s u e — a m o u n t received $100, 00 99. 50 A m o u n t of discount $ 0 . 5 0 - h 9 1 X 3 6 5 - ^ $ 9 9 . 5 0 = 2 . 0 1 6 percent. . 50 T A B L E I.—Decimal for one day's interest on $1,000 at various rates of interest, payable quarterly, or on a quarterly basis, i n regular years of 365 days and i n leap years of 366 days Interest period ending on the 1st or 15th of Quarter-year of 92 days Regular year: January, February, June, August, September, October, November Rate per annum Quarter-year of 91 days Regular year: July, December Leap year: March, April Quarter-year of 90 days Regular year: March, April Leap year: M a y Quarter-year of 89 days Regular year: May Percent •L/ •i/ }A RZ 3/ ]4 V/a Ijy IM 1]4 15^ IS/ IJ1: 2 2H 2}4 2M 2H 2ys. 2H 2J4 3.! -- — . _ .:_. zys zU. - 33^.._ zyz 3M Z}i 4 i}4 4^4H i%. 4M - - __ - - - iPs. 5„:::::_::::"::::::::-: 5^8 5}4 5}4 .._ . ga/ sys 6 _ _ $0, 003 396 739 . 006 793 478 . 010 190 217 . 013 586 957 . 016 983 696 . 020 380 435 . 023 777 174 . 027 173 913 . 030 570 652 . 033 967 391 . 037 364 130 . 040 760 870 . 044 157 609 . 047 554 348 . 050 951 087 . 054 347 826 . 057 744 565 . 061 141 304 . 064 538 043 . 067 934 783 . 071 331 522 . 074 728 261 . 078 125 000 . 081 521 739 . 084 918 478 . 088 315 217 . 091 711 957 .095 108 696 . 098 505 435 . 101 902 174 .105 298 913 . 108 695 652 .112 092 391 . 115 489 130 . 118 885 870 . 122 282 609 . 125 679 348 . 129 076 087 .132 472 826 . 135 869 565 . 139 266 304 . 142 663 043 . 146 059 783 . 149 456 522 . 152 853 261 .156 250 000 . 159 646 739 . 163 043 478 $0. 003 434 066 .006 868 132 .010 302 198 . 013 736 264 . 017 170 330 . 020 604 396 . 024 038 462 . 027 472 527 . 030 906 593 . 034 340 659 . 037 774 725 . 041 208 791 . 044 642 857 . 048 076 923 . 051 510 989 .054 945 055 . 058 379 121 .061 813 187 . 065 247 253 . 068 681 319 . 072 115 -385 . 075 549 451 . 078 983 516 . 082 417 582 .085 851 648 . 089 285 714 . 092 719 780 . 096 153 846 . 099 587 912 . 103 021 978 . 106 456 044 .109 890 110 .113 324 176 . 116 758 242 . 120 192 308 .123 626 374 .127 060 440 . 130 494 505 . 133 928 571 . 137 362 637 . 140 796 703 . 144 230 769 . 147 664 835 . 151 098 901 . 154 532 967 . 157 967 033 . 161 401 099 . 164 835 165 $0. 003 472 222 . 006 944 444 . 010 416 667 . 013 888 889 .017 361 111 . 020 833 333 . 024 305 556 . 027 777 778 . 031 250 000 . 034 722 222 . 038 194 444 . 041 666 667 . 045 138 889 . 048 611 111 . 052 083 333 . 055 555 556 . 059 027 778 . 062 500 000 . 065 972 222 . 069 444 444 . 072 916 667 . 076 388 889 . 079 861 111 . 083 333 333 . 086 805 556 . 090 277 778 . 093 750 000 . 097 222 222 . 100 694 444 .104 166 667 . 107 638 889 .111 111 111 .114 583 333 . 118 055 556 . 121 527 778 . 125 000 000 . 128 472 222 . 131 944 444 . 135 416 667 . 138 888 889 . 142 361 111 . 145 833 333 .149 305 556 . 152 777 778 . 156 250 000 . 159 722 222 . 163 194 444 . 166 666 667 $0.003 511 236 .007 022 472 . 010 533 708 .014 044 944 . 017 556 180 .021 067 416 .024 578 652 .028 089 888 .031 601 124 .035 112 360 .038 623 596 . 042 134 831 .045 646 067 .049 157 303 .052 668 539 . 056 179 775 . 059 691 Oil . 063 202 247 . 066 713 483 . 070 224 719 .073 735 955 .077 247 191 .080 758 427 . 084 269 663 . 087 780 899 . 091 292 135 .094 803 871 .098 314 607 . 101 825 843 . 105 337 079 .108 848 315 . 112 359 551 . 115 870 787 . 119 382 022 . 122 893 258 .126 404 494 . 129 915 730 . 133 426 966 . 136 938 202 . 140 449 438 . 143 930 674 . 147 471 910 . 150 983 146 . 154 494 382 .158 005 618 .161 516 854 .165 028 090 . 168 539 326 234 19 65 REPORT OF THE SECRETARY OF THE TREASURY T A B L E II.—Decimal for one day's interest on $1,000 at various rates of interest, payable semiannually or on a semiannual basis, in regular years of 365 days and in leap years of 366 days Interest period ending on t h e 1st or 15th ofHalf-year of 183 d a y s Half-year of 182 d a y s | Half-year of 184 d a y s | R a t e per a n n u m Regular year: January, February, September, November Regular year: October, D e cember L e a p year: April, J u n e Regular year: April, J m i e L e a p year: March, May, July, August Half-year of 181 d a y s Regular year: March, May, July, August Percent ys y^ M 3^ %—r- — M ys 1 iKs l>^ 1^8 \y2 .m IM lys 2 2ys 2>i 2^8 2^ 2ys 2M 2ys 3 ._ -__-_ 33/8— — - 3M 3/8 3K2 3^8 3M 3j^ 4._ •_ 4K8 4K m 43^ 45/8 WA iys 6 — ._-_— 5H 5^ _ m 53^ •- 55/8 5:^ 5^8 I. 003 396 739 . 006 793 478 . 010 190 217 . 013 586 957 . 016 983 696 . 020 380 435 . 023 777 174 . 027 173 913 . 030 570 652 . 033 967 391 . 037 364 130 . 040 760 870 .044 167 609 . 047 564 348 .050 951 087 . 064 347 826 . 057 744 565 . 061 141 304 . 064 538 043 . 067 934 783 . 071 331 522 . 074 728 261 . 078 125 000 .081 521 739 . 084 918 478 . 088 315 217 . 091 711 957 . 095 108 696 . 098 505 435 . 101 902 174 . 105 298 913 . 108 695 652 . 112 092 391 . 115 489 130 . 118 885 870 . 122 282 609 . 125 679 348 . 129 076 087 . 132 472 826 . 135 869 565 . 139 266 304 . 142 663 043 . 146 069 783 . 149 456 522 •. 152 853 261 . 166 250 000 . 159 646 739 . 163 043 478 ). 003 415 301 . 006 830 601 . 010 245 902 . 013 661 202 .017 076 603 . 020 491 803 . 023 907 104 , 027 322 404 . 030 737 705 . 034 153 005 .037 568 306 . 040 983 607 . 044 398 907 . 047 814 208 . 051 229 608 . 054 644 809 . 058 060 109 . 061 475 410 . 064 890 710 .068 306 Oil . 071 721 311 . 075 136 612 .078 551 913 . 081 967 213 . 085 382 514 .088 797 814 . 092 213 116 .096 628 415 . 099 043 716 . 102 459 016 . 105 874 317 . 109 289 617 . 112 704 918 . 116 120 219 .119 535 619 •. 122 960 820 . 126 366 120 . 129 781 421 . 133 196 721 . 136 612 022 . 140 027 322 . 143 442 623 . 146 867 923 . 160 273 224 •. 153 688 525 .157 103 826 . 160 519 126 . 163 934 426 10, 003 434 066 . 006 868 132 . 010 302 198 .013 736 264 . 017 170 330 .020 604 396. 024 038 462 . 027 472 527 . 030 906 593 . 034 340 669 . 037 774 725 . 041 208 791 . 044 642 867 . 048 076 923 .061 610 989 . 064 945 065 . 058 379 121 . 061 813 187 . 065 247 263 . 068 681 319 . 072 116 386 . 075 649 451 . 078 983 516 . 082 417 582 . 085 851 648 . 089 285 714 . 092 719 780 . 096 153 846 . 099 687 912 . 103 021 978 . 106 456 044 . 109 890 110 .113 324 176 . 116 758 242 . 120 192 308 . 123 626 374 . 127 060 440 . 130 494 505 . 133 928 671 .. 137 362 637 . 140 796 703 . 144 230 769 . 147 664 836 . 151 098 901 . 164 543 967 .157 967 033 . 161 401 099 . 164 835 165 ;0, 003 .006 . 010 . 013 . 017 . 020 . 024 .027 . 031 . 034 .037 . 041 . 044 . 048 . 051 . 066 . 058 , 062 . 066 . 069 . 072 . 075 . 079 . 082 .086 . 089 . 093 . 096 . 100 . 103 . 107 . 110 . 113 . 117 . 120 . 124 . 127 .131 . 134 . 138 . 141 . 145 . 148 . 161 .155 . 158 . 162 .166 463 039 906 077 359 116 812 155 266 193 718 232 171 271 624 309 077 348 630 387 983 425 436 464 889 503 342 541 795 580 248 619 701 667 154 696 607 735 060 773 513 812 966 851 419 890 872 928 325 967 779 006 232 044 685 083 138 122 591 160 044 199 497 238 960 276 403 315 856 354 309 392 762 431 215 470 668 608 121 547 674 686 027 624 480 663 933 702 386 740 839 .779 • 292 818 745 856 235 EXHIBITS T A B L E III.—Decimal for one day^s interest on $1,000 at various rates of interest, payable annually or on an annual basis, in regular years of 365 days and in leap years of 366 days. Rate per annum Regular year, 365 Leap year, 366 days days Percent H. - - ^--^—— - - -. ys H — YB J^ ys 1 IH- — IK 1H-IH m iM m 2 —- - — - - — 2H2K — 2^-23^ 2ys ZH 3K -. —-. 2M-- 2y8 3 ——- -—- ...-, —- m 3>^_ - - zys 33^ 3^ 4 iH4M 4H 43^ 4H 4M iys 5 bH bK bys 53^ bYs - - -— - —_— 5M bys — - $0.003 424 658 ,006 849 315 , 010. 273 973 ,013 698 630 ,017 123 288 .020 647 946 ,023 972 603 .027 397 200 , 030 821 918 , 034 246 575 .037 671 233 ,041 095 890 .044 520 548 ,047 946 205 .061 369 863 . 054 794 521 .058 219 178 ,061 643 836 .065 068 493 ,068 493 151 .071 917 808 .075 342 466 .078 767 123 .082 191 781 , 085 616 438 , 089 041 096 .092 465 753 , 095 890 411 .099 315 068 .102 739 762 .106 164 384 , 109 589 041 . 113 013 699 , 116 438 356 . 119 863 014 . 123 287 671 ,126 712 329 . 130 136 986 , 133 561 644 ,136 986 301 . 140 410 959 ,143 835 616 ,147 260 274 ,150 684 932 , 154 109 589 .167 534 247 .160 958 904 ,164 383 562 $0,003 415 301 .006 830 601 ,010 254 902 , 013 661 202 , 017 076 503 .020 491 803 .023 907 104 ,027 322 404 .030 737 705 .034 153 005 ,037 568 306 ,040 983 607 .044, 398 907 .047 814 208 ,051 229 508 , 064 644 809 , 058 060 109 , 061 475 410 , 064 890 710 .068 306 Oil .071 721 311 .075 136 612 .078 551 913 .081 967 213 .085 382 514 . 088 797 814 , 092 213 115 . 095 628 415 .099 043 716. . 102 459 016 . 105 874 317 .109 289 617 . 112 704 918 , 116 120 219 . 119 635 519 . 122 950 820 , 126 366 120 . 129 781 421 .. 133 196 721 , 136 612 022 . 140 027 322 .143 442 623 . .146 857 923 .150 273 224 .153 688 525 .167 103 825 .160 519 126 .163 934 426 236 19 65 REPORT OF THE SECRETARY OF THE TREASURY Exhibit 7.—Ninth revision, December 23, 1964, of D e p a r t m e n t Circular No. 530, regulations governing United S t a t e s savings bonds TREASURY DEPARTMENT, Washington, December 23, 1964. D e p a r t m e n t Circular No. 530, Eighth Revision, dated December 26, 1957, as amended (31 C F R 315), is hereby further amended a n d issued as the Ninth Revision. AUTHORITY : Sees. 315.0 to 315.93 issued under authority of sections 22 a n d 25 of t h e Second Liberty Bond Act, a s amended, 49 Stat. 21, a s amended, 73 Stat; 621 (31 U.S.C. 757c, 757C-1). SUBPART A — G E N E R A L INFORMATION Sec. 315. Applicability of regulations.—These regulations apply to all United States savings bonds of whatever series designation (hereinafter referred to as "savings bonds" or " b o n d s " ) bearing any issue dates whatever, t o the extent specified herein and in t h e offering circulars governing such bonds. The provisions of these regulations with respect to bonds registered in t h e names of certain classes of individuals, fiduciaries, a n d organizations a r e equally applicable to bonds to which such individuals, fiduciaries, and organizations a r e otherwise shown to be entitled under these regulations. The provisions of D e p a r t m e n t Circular No. 300, current revision (31 C F R 306), have no application to savings bonds. Sec. 315.1 Official agencies.—The B u r e a u of t h e Public Debt of the T r e a s u r y D e p a r t m e n t is charged w i t h m a t t e r s relating to savings bonds. Correspondence concerning transactions after original issue and requests for appropriate forms should be addressed to (1) t h e Federal Reserve bank or branch of t h e district in which t h e correspondent is located, or (2) t h e B u r e a u of t h e Public Debt, Division of Loans a h d Currency Branch, 536 South Clark Street, Chicago, 111. 60605, or (3) the Ofiice of the T r e a s u r e r of t h e United States, Securities Division, Washington, D;C. 20220, except where specific instructions are otherwise given in these regulations. Notices or documents not filed in accordance with instructions in these regulations will not be recognized. T h e addresses of t h e F e d e r a l Reserve banks and branches a r e : F e d e r a l Reserve B a n k of Boston, Boston, Mass. 02106. F e d e r a l Reserve B a n k of New York, New York, N.Y. 10045. Buffalo Branch, Buffalo, N.Y. 14240. F e d e r a l Reserve B a n k of Philadelphia, Philadelphia, P a . 19101. Federal Reserve B a n k of Cleveland, Cleveland, Ohio 44101. Cincinnati Branch, Cincinnati, Ohio 45201. P i t t s b u r g h Branch, Pittsburgh, P a . 15230. Federal Reserve B a n k of Richmond, Richmond, Va. 23213. Baltimore Branch, Baltimore, Md. 21203. Charlotte Branch, Charlotte, N.C. 28201. Federal Reserve B a n k of Atlanta, Atlanta, Ga. 30303. Birmingham Branch, Birmingham, Ala. 35202. Jacksonville Branch, Jacksonville, Fla. 32201. Nashville B r a n c h , Nashville, Tenn. 37203. Federal Reserve B a n k of Atlanta, Atlanta, Ga. 30303—Continued New Orleans Branch, New Orleans, La. 70160. F e d e r a l Reserve B a n k of Chicago, P.O. Box 834, Chicago, 111. 60690. Detroit Branch, P.O. Box 1059, Detroit, Mich. 48231. F e d e r a l Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Mo. 63166. Little Rock Branch, P.O. Box 1261, Little Rock, Ark. 72203. Louisville Branch, P.O. Box 899, Louisville, Ky. 40201. Memphis Branch, P.O. Box 407, Memphis, Tenn. 38101. F e d e r a l Reserve Bank of Minneapolis, Minneapolis, Minn. 55440. Helena Branch, Helena, Mont. 59601. F e d e r a l Reserve Bank of K a n s a s City, K a n s a s City, Mo. 64106. Denver Branch, Denver, Colo. 80217. Oklahoma City Branch, Oklahoma City, Okla. 73101. Omaha Branch, Omaha, Nebr. 68102. EXHIBITS Federal Reserve Bank of Dallas, Station K, Dallas, Tex. 75222. El Paso Branch, P.O. Box 100, El Paso, Tex. 79999. Houston Branch, P.O. Box 2578, Houston, Tex. 77001. San Antonio Branch, P.O. Box 1471, San Antonio, Tex. 78206. 237 Federal Reserve Bank of San Francisco, San Francisco, Calif. 94120. Los Angeles Branch, P.O. Box 2077, Los Angeles, Calif. 90054. Portland Branch, P.O. Box 3456, Portland, Oreg. 97208., Salt Lake City Branch, P.O. Box 780, Salt Lake City, Utah 84110. Seattle Branch, P.O. Box 3567, Seattle, Wash. 98124. Sec. 315.2. Definition of words and terms as used in these regulations. (a) "Authorized issuing agent" means an incorporated bank, trust company, savings bank, savings and loan association, other organization, or instrumentality of the United States, qualified as an issuing agent under the provisions of Department Circular No. 657, current revision (31 CFR 317). (b) "Authorized paying agent" means an incorporated bank, trust company, savings bank, savings and loan association, or other organization qualified as a paying agent under the provisions of Department Circular No. 750, current revision (31 CFR 321). (c) "Court" means one which has jurisdiction over the parties and subject matter. . (d) "Extended maturity date" is the date on which a bond will mature and cease to bear interest under applicable optional extension provisions. (e) "Extended maturity value" is the value of a bond at maturity under applicable optional extension provisions. (f) "Face value" of a bond refers to the value of the bond as shown on the face thereof. (g) "Incompetent" refers to a person under any legal disability except minority. (h) "Maturity date" means the date on which the bond will mature by the terms of the circular offering it ior sale without regard to any optional extension period. (i) "Optional extension period" ^ means any period after maturity date which the owner may retain the bonds and continue to earn interest on the maturity value in accordance with the terms of the circular offering such bonds for sale. (j) "Payment" and "redemption" are used interchangeably, unless otherwise indicated. They refer to payment of a bond in accordance with these regulations. (k) "Personal trust estate" means a trust estate established by natural persons in their own right for the benefit of themselves or other natural persons in whole or in part, and common trust funds comprised in whole or in part of such trust estates. (1) "Presented and surrendered" and "presentation and surrender" mean the actual receipt of a bond, with an appropriate request for the particular transaction, by the Bureau of the Public Debt, Chicago or Washington office, the Office of the Treasurer of the United States, Securities Division, or a Federal Reserve bank or branch, or, if the transaction is one which an authorized paying agent may handle, receipt by such authorized paying agent. (m) "Representative of the estate of a minor, incompetent, aged person, absentee, etc.," means a guardian, conservator, or similar representative appointed by a court or otherwise legally qualified, regardless of the title by which designated. These terms do not refer to a voluntary guardian recognized under sec. 315.53, to a natural guardian, such as a parent, including a parent to whom custody of a child has been awarded through divorce proceedings or a parent by adoption, or to the executor or administrator of the estate of a decedent. (n) "Reissue" means the cancellation and retirement of a bond and issue of a new bond or bonds of the same series, amount (face value) (or the remainder thereof in case of partial redemption), and issue date. (o) "Taxpayer identifying number" means the appropriate identifying number as required on tax returns and other documents submitted to the Internal 1 All Series E bonds have a 10-year optional extension period. Those bearing issue dates of May 1, 1941, through May 1, 1949, have a second 10-year optional extension period. Series H bonds bearing issue dates of J u n e 1, 1952, through J a n . 1, 1957, have a 10-year optional extension period. Other bonds do n o t have t h i s feature. 238 19 65 REPORT OF THE SECRETARY OF THE TREASURY Revenue Service, i.e., an individual's social security account number or an employer identification number. The social security account number is comiposed of nine digits separated by two hyphens, for example, 123-45-6789; the employer identification number is composed of nine digits separated by one hyphen, for example, 12-3456789. The hyphens are an essential part of the numbers and must be included. 1 SUBPART B—REGISTRATION Sec. 315.5 General.—Savings bonds are issued only in registered form. The registration used on issue or reissue must express the actual ownership of and interest in the bond and, except as otherwise specifically provided in Subpart E and section 315.48 of Subpart J of these regulations, will be considered as conclusive of such , ownership and interest. No designation of. an attorney, agent, or other representative to request or receive payment on behalf of the owner or a coowner, nor any restriction on the right of the owner or a coowner to receive payment of the bond or interest, except as provided in the regulations, may be made in the registration or otherwise. Registrations requested in applications for purchase or requests for reissue should be clear, accurate, and complete, conform with one of the forms set forth in this subpart, and include the appropriate taxpayer identifying number.^ The registration of all bonds owned by the same person, organization, or fiduciary should be uniform with respect to the name of the owner and, in the case of a fiduciary, the description of the fiduciary capacity. The owner, coowner, or beneficiary should be designated by the name by which he is ordinarily known or the one under which he does business, including preferably at least one full given name. The name may be preceded by any applicable title, such as "Dr." or "Rev.," or followed by "M.D.," "D.D.," or other similar designation. "Sr." or "Jr." or a similar suffix should be included, when ordinarily used or when necessary to distinguish the owner from a member of his family. The name of a woman must be preceded by "Miss" or "Mrs.," unless some other applicable title or designation is used. A married woman's own given name, not that of her husband, must be used, for example, "Mrs. Mary A. Jones," NOT "Mrs. Frank B. Jones." The post office address should include where appropriate, the number and street, route, or any other local feature, and the ZIP Code. Sec. 315.6 Restrictions on registration. (a) Residence.—Registration of bonds is restricted on original issue, but not on authorized reissue, to persons (whether natural persons or others) who are: (1) residents of the United States, its territories and possessions, the Commonwealth of Puerto Rico, and the Canal Zone; (2) citizens of the United States temporarily residing abroad; and (3) civilian employees of the United States or members of its Armed Forces, regardless of their residence or citizenship. However, other natural persons may be designated as coowners or beneficiaries with natural persons of the above classes, whether on original issue or reissue, except that registration is not permitted in any form which includes the name of any alien who is resident of any area with respect to which the Treasury Department restricts or regulates the delivery of checks drawn against funds of the United States or any agency or instrumentality thereof.^ (b) Minority.—Bonds purchased by another person with funds belonging to a minor should be registered in the name of the minor without a coowner or 1 I t is not m a n d a t o r y t o include taxpayer identifying numbers in registrations of Series E bonds. Issuing agents for Series E bonds issued under payroll savings plans who desire to place such numbers on the bonds should obtain i n s t r u c t i o n s from the Bureau of the Public Debt, Washington, D,C. 20220. As the numbers must be included in Series H bond registrations, except with respect t o such persons and organizations a s may be exempt from furnishing such numbers under t h e regulations of the I n t e r n a l Revenue Service, they are shown in the examples in sec, 315.7 for guidance. Series H bonds inscribed in the name of an individual, with or w i t h o u t a beneficiary, must show the individual's social security account number. The social security account number of either coowner may be shown on bonds registered in coownership form, except t h a t if t h e coowners are husband and wife, the husband's number should be shown. If the coowners are a minor and an adult, t h e a d u l t ' s number should be shown. Questions concerning t a x p a y e r identifying numbers and correct forms of registration should be submitted to t h e Federal Reserve bank or branch of the a p p r o p r i a t e district, or to t h e Bureau of t h e P.ublic Debt, Division of Loans and Currency Branch, 536 South Clark Street, Chicago, 111. 60605, or to t h e Office of t h e Treasurer of the United States, Securities Division, Washington, D.C. 20220. 2 See D e p a r t m e n t Circular No. 655, current revision (31 CPR 2 1 1 ) . EXHIBITS 239 beneficiary. A minor may name a coowner or beneficiary on bonds he purchases with his wages, earnings, or other funds belonging to him and under his control. A minor, whether or not under legal guardianship, may be named as owner, coowner, or beneficiary on bonds purchased by another individual with funds other than those belonging to the minor. If there is a representative of a minor's estate, bonds should be registered in the name of the minor, or in the name of the representative, followed in either case by an appropriate reference to the guardianship. Bonds purchased by a representative of two or more minors, even though appointed in a single proceeding, .should be registered separately in a form to show each guardianship estate. A bond, may be purchased as a gift to a minor under a gifts to minors statute in effect in a State in which either the donor or the minor resides, in which case the bond should be registered as provided in the statute, with the addition of a parenthetical reference identifying the statute if the registration does not clearly identify it. Registration in the name of a natural guardian is not authorized. See examples of forms of registration under sec. 315.7(&). (c) Incompetency.—Bonds should not be registered in the name of an incompetent unless there is a legal representative of his estate, except under the provisions of sec. 315.53. If there is a legal representative, the provisions of paragraph {b) of this section apply as tO' registration in the name of the legal representative or in the name of the incompetent followed by reference to the guardianship. Sec. 315.7. Authorized forms of registration.—Subject to any limitations or restrictions contained in these regulations on the right of any person to be named as owner, coowner, or beneficiary, bonds may be registered in the following forms: ^ (a) Natural persons.—In the names of natural persons in their own right. (1) Single owner. Example: John A. Jones 123-45-6789. (2) Coownership form—two persons {only). In the alternative as coowners. Examples: John A. Jones 123-45-6789 or Mrs. Ella S. Jones. Mrs. Ella S. Jones or John A. Jones 123-45-9876. No other form of registration establishing coownership is authorized. (3) Beneficiary form—two persons {only). Examples: John A. Jones 123-45-6789 payable on death to Mrs. Ella S. Jones. John A. Jones 123-45-6789 P.O.D. Mrs. Ella S. Jones. "Payable on death" may be abbreviated to "P.O.D." as indicated in the last example. The first person named is hereinafter referred to as the owner and the second named person as the beneficiary. (b) Fiduciaries and private or public organizations.—Only the single owner form of registration is available for bonds owned by other than natural persons, and the registration must conform to the forms authorized in this subsection. (1) Fiduciaries.—In the names of auy persons or organizations, public or private, as fiduciaries, but not where the fiduciary would hold the bonds merely or principally as security for the performance of a duty, obligation, or service, (i) Guardians, custodians, conservators, etc.—In the name and title or capacity of the legally appointed, designated, or authorized representative or representatives of the estate of a minor, incompetent, aged person, absentee, etc., or in the name of such individual, followed by an appropriate reference to the estate and showing tlie nature of the legal disability or referring to the applicable statute. Examples: William C. Jones, guardian (or conservator, trustee, etc.) of the estate of James F. Brown 123-45-6789, a minor (or an incompetent, aged person, infirm person, or absentee). John Smith 123-45-6789, a minor (or an incompetent, aged person, infirm person, or absentee) under legal guardianship (or conservatorship or trusteeship, etc.) of Henry C. Smith. John Smith 123-45-6789, an adult under conservatorship of Henry Smith pursuant to sec. 572,1963 Iowa Probate Code. John Smith 123-45-6789, a minor (or incompetent) under custodianship by designation of the Veterans Administration. 1 See Department Circular No. 655, current revision (31 CPR 211). 240 19 65 REPORT OF THE SECRETARY OF THE TREASURY John Smith 123-45-6789, an incompetent for whom Henry C. Smith has been designated trustee by the Department of the Army pursuant to 37 U.S.C. 351-354. William C. Jones, as custodian for John Smith 123-45-6789, under the California Uniform Gifts of Securities to Minors Act. William C. Jones, as custodian for John Smith 123-45-6789, a minor, under the laws of Georgia (Chapter 48-3, Code of Ga. Ann.). Richard Roe 123-45-6789, a minor (or an incapacitated adult) beneficiary for whom Reva Roe has been designated representative payee by the Secretary of Health, Education, and Welfare, pursuant to 42 U.S.C. 405(j). (ii) Executors, administrators, etc. (a) In the name of the representative or representatives of the estate of a decedent appointed by a court or otherwise legally qualified. The registration should include the name of the decedent and the name or names of all representatives. The name and title of the representative must be followed by. adequate identifying reference to the estate. Example: John Smith, executor of the will, (or administrator of the estate) of Henry J. Smith, deceased 12-3456789. (b) In the name of an executor authorized to administer a trust under the terms of a will although he is not named as trustee. Example: John Smith, executor of the will of Henry J. Smith, deceased, in trust for Mrs. Jane Smith, with remainder over 12-3456789. (iii) Trustees.—In the name and title or capacity (or title or capacity alone where hereinafter provided) of the trustee or trustees of a single duly constituted trust estate (which will be considered as an entity), substantially in accordance with the examples set forth in this paragrai3h. Unless otherwise indicated, an adequate identifying reference should be made to the trust instrument or other authority creating the trust. A common trust fund established and maintained according to law by a financial institution duly authorized to act as a fiduciary will be considered as a single duly constituted trust estate within the meaning of these regulations. (a) Will, deed of trust, agreement, or similar instrument.—;'ExB.m^\eSi: John Smith and the First National Bank, trustees under the will of Henry J. Smith deceased 12-3456789. The Second Natiohal Bank, trustee under an agreement with George E. White, dated February 1, 1935, 12-3456789. If the authority creating the trust designates by title only an officer of a board or an organization as trustee, only the title of the officer should be used in the registration. Example: Chairman, Board of Trustees, First Church of Christ, Scientist, of Chicago, 111., in trust under the will of Henry J. Smith, deceased 12-3456789. If the trustees are too numerous to be designated in the inscription by names and capacity, the names or some of the names may be omitted. Examples: John Smith, Henry Jones, et al., trustees under the will of Henry J. Smith, deceased 12-3456789. Trustees under the will of Henry J. Smith, deceased 12-3456789. (b) Pension, retirement, or similar fund, or employees' savings plans.—In the name and title (or title alone) of the trustee or trustees of a pension, retirement, or similar fund, or an employees' savings plan. If the instrument creating the trust provides that the trustees shall serve for a limited term, the names of the trustees may be omitted. Examples: First National Bank and Trust Company, trustee of the Employees' Savings Plan of Jones Company, Inc., U/A dated Jan. 17, 1959, 12-3456789. Trustees of the Employees' Savings Plan of Johnson Company, Inc., U/A dated Jan. 20, 1964, 12-3456789. First National Bank, trustee of pension fund of Industrial Manufacturing Company, under agreement with said company dated Mar. 31, 1949, 123456789. Trustees of Retirement Fund of Industrial Manufacturing Company, under resolution adopted by its board of directors on Mar. 31, 1949, 12-3456789. (c) Funds of a lodge, church, society, or similar organization.—If the funds of a lodge, church, society, or similar organization, whether incorporated or not, EXHIBITS 241 are held in trust by a trustee or trustees or a board of trustees, only the capacity should be used in the registration. Examples: Trustees of the First Baptist Church, Akron, Ohio, acting as a Board under section 15 of its by-laws, 12-3456789. Trustees of Jamestown Lodge No. 1,000, Benevolent and Protective Order pf Elks, undej- section 10 of its by-laws, 12-3456789. Board of Trustees of the Lotus Club, Washington, Ind., under Article X of its constitution, 12-3456789. (d) Public officers, corporations, or bodies.—If a public officer, public corporation, or public body acts as trustee under express authority of law, only the title should be used in the registration. Examples: Rhode Island Sinking Fund Commission, trustee of the General Sinking Fund, under Ch. 35, Gen. Laws of R.I. Superintendent of the Confederate Home for Men, in trust for the Benefit Fund, under ,sec. 3183c, Vernon's Civil Stats, of Texas Ann. (e) School, class, or activity fund.—If the principal or other officer of a public, private, or parochial school acts as trustee for the benefit of the student body or a class, group, or activity thereof, only the title should be used in the registration, and if the amount purchased for any one fund does not exceed $500 (face value), no reference need be made to a trust instrument. Examples: Principal, Western High School, in trust for Class of 1955 Library Fund 12-3456789. Director of Athletics, Western High School, in trust for Student Activities Association under resolution adopted May 12, 1955, 12-3456789. (iv) Life tenants.—In the name of a life tenant, followed by adequate identifying reference to the instrument creating the life tenancy. Example: Mrs. Jane Smith, life tenant under the will of Henry J. Smith, deceased 12-3456789. (v) Investment agents.—In the name of a bank, trust company, or other financial institution, or individual, holding funds of a religious, educational, charitable, or nonprofit organization, whether or not incorporated, as agent under an agreement with the organization for the sole purpose of investing and reinvesting the funds and paying the income to the organization. The name and designation of the agent should be followed by an adequate identifying reference to the agreement. Examples : Black County National Bank, fiscal agent 12-3456789, under agreement with the Evangelical Lutheran Church of The Holy Trinity, dated Dec. 28,1949. First National Bank and Trust Company, investment agent. 12-3456789, under agreement dated Sept. 16, 1964, with Central City Post No. 1000, Department of Illinois, American Legion. (2) Private organizations {corporations, associations, and partnerships, etc.).-^In the name of any private organization, but not in the names of commercial banks, which are defined for this purpose as those accepting demand deposits. The full legal name of the organization, without mention of any officer or member by name or title, should be used as follows: (1) A corporation.—A business, fraternal, religious, or other private corporation, followed preferably by the words "a corporation" (unless the fact of incorporation is shown in the name). Examples : Smith Manufacturing Company, a corporation, 12-3456789. Jones and Brown ,Inc. 12-3456789. (ii) An unincorporated association.—An unincorporated lodge, society, or similar self-governing association, followed preferably by the words "an unincorporated association." The term "an unincorporated association" should not be used to describe a trust fund, a board of trustees, a partnership, or a business conducted under a trade name or as a sole proprietorship. If the association is chartered by or affiliated with a parent organization, the name or designation of the subordinate or local organization should be given first, followed by the name of the parent organization. The name of the parent or national organization may be placed in parentheses and, if it is well known, may be abbreviated. Examples: The Lotus Club, an unincorporated association, 12-3456789. Local 447, Brotherhood of Railroad Trainmen, an unincorporated association, 12-3456789. 782-55'6—66^ 16 242 19 65 REPORT OF THE SECRETARY OF THE TREASURY Eureka Lodge No. 317 (A.F. & A.M.), an unincorporated association, 12-3456789. (iii) A partnership.—A partnership (which will be considered as an entity), followed by the words "a partnership." Examples: Smith and Brown, a partnership 12-3456789. Acme Novelty Company, a partnership 12-3456789. (iv) Institutions {churches, hospitals, homes, schools, etc.).—In the name of a church, hospital, home, school, or similar institution conducted by a private organization or by private trustees, regardless of the manner in which it is organized or governed or title to its property is iheld. Examples: Shriners' Hospital for Crippled Children, St. Louis, Mo. 12-3456789. St. Mary's Roman Catholic Church, Albany, N.Y. 12-3456789. Rodeph Shalom Sunday School, Philadelphia, Pa. 12-3456789. (3) Government units, agencies, and ofiicers.—In the full legal name pr title of the owner or official custodian of public funds, other than trust funds, as follows: (i) Any governmental unit, as a State, county, city, town, village, or school district. Examples: State of Maine. Town of Rye, New York (Street Improvement Fund). (ii) Any board, commission, government owned corporation, or other public body duly constituted by law. Example: Maryland State Highway Commission, (iii) Any public officer designated by title only. Example: Treasurer, City of Chicago, (c) Treasurer of the United States as coowner or beneficiary.—-Those who desire to do so may make gifts to the United States by designating the Treasurer of the United States as coowner or beneficiary. Bonds so registered may not be reissued to change the designation. Examples: John A. Jones 123-45-6789 or the Treasurer of the United States of America. John A. Jones 123-45-6789 P.O.D. the Treasurer of the United States of America. Sec. 315.8. Unauthorized registration.—A savings bond inscribed in a form not substantially in agreement with one of those authorized by this subpart will not be considered as validly issued, except that once it is established that the bond can be reissued in a form of registration which is valid under these regulations it will be considered as having been validly issued from the date of original issue. SUBPART C L I M I T A T I O N S ON HOLDINGS Sec. 315.10. Amount which ma/y be held.—The amounts of savings bonds of each series, issued in any one calendar year, which may be held by any one person at any one time, computed in accordance with the provisions of sec. 315.11, are limited as follows: ^ (a) Series E.—$5,000 (face value) for each calendar year up to and including the calendar year 1947; $10,000 (face value) for the calendar years 1948 to 1951, inclusive; $20,000 (face value) for the calendar years 1952 to 1956, inclusive; $10,000 (face value) for the calendar year 1957^ and each calendar year thereafter; except that trustees of an employees' saving plan (as defined in Department Circular No. 653, current revision) may purchase $2,000 (face value) multiplied by the highest number of employees participating in the plan at any time during the calendar year in which the bonds are issued. (b) Series H.—$20,000 (face value) for each calendar year up to and including the calendar year 1956; $10,000 (face value) for the calendar years 1957' 1 Bonds of Series F, G, J, and K, no longer available for purchase, are subject to the limitations on holdinjrs and rules for computation of holdings set forth in sees. 315,8 and 315.9 of Department Circular No. 530, Seventh Revision. 2 Effective May 1, 1957, Accordingly, investors who purchased $20,000 (face value) of bonds of Series E bearing issue dates of J a n u a r y 1 through April 1 were not entitled to purchase additional bonds of t h a t series during 1957, The same liraitation applies to bonds of Series H bearing those issue dates. Investors who purchased less t h a n $10,000 (face value) of bonds of either series prior to May 1 were entitled only to purchase enough of either series to bring their total for t h a t series for 1957 to $10,000 (face v a l u e ) . EXHIBITS 243 to 1961, inclusive; $20,000 (face value) for the calendar year 1962 and each calendar year thereafter. Sec. 315.11. Computation of amount. (a) Definition of ''person."—The term "pei'son" for purposes of this section shall mean any legal entity and shall include but not be limited to natural persons, corporations (public or private), partnerships, unincorporated associations, and trust estates.^ The holdings of each person individually and his holdings in any fiduciary capacity authorized by these regulations, such as, for example, his holdings as a guardian of the estate of a minor, ^s a life tenant, or as trustee under a will or deed of trust, shall be computed separately. A pension or retirement fund or an investment, insurance, annuity, or similar fund or trust will be regarded as an entity regardless of the number of beneficiaries or the manner in which their respective interests are established or determined. Segregation of individual shares as a matter of bookkeeping or as a result of individual agreements with beneficiaries or the express designation of individual shares as separate trusts will not operate to constitute separate trusts under these regulations. (b) Bonds that must be included in computation.—Except as provided in paragraph (c) of tliis section, there must be taken into account in computing the holdings of each person: (1) All bonds registered in the name of that person alone; (2) All bonds registered in the name of the representative of the estate of that person; (3) All bonds originally registered in the name of that person as coowner or reissued at the request of the original owner to add the name of that person as coowner or to designate him as coowner instead of as beneficiary. However, the amount of bonds of Series E and H held in coownership form may be applied to the holdings of either of the coowners but will not be applied to both, or the amount may be apportioned between them. (c) Bonds that may be excluded from computation.—There need not be taken into account: (1) Bonds on which that person is named beneficiary; (2) Bonds in which his interest is only that of a beneficiary under a trust; (3) Bonds to which he has become entitled under sec. 315.66 as surviving beneficiary upon the death of the registered owner as an heir or legatee of the deceased owner, or by virtue of the termination of a trust or the happening of any other event; (4) Bonds of Series E purchased with the proceeds of matured bonds of Series A, 0^1938, and D, where such matured bonds were presented for that purpose; (.5) Bonds of Series E bearing issue dates from May 1, 1941, to Dec. 1, 1945, inclusive, held by individuals in their own, right which are not more than $5,000 (face value) in excess of the prescribed limit; . (6) Bonds of Series E or H reissued under sec. 315.61(a) (1) ; (7) Bonds of Series E or H reissued in the name of a trustee of a per,sonal trust estate which did not represent excess holdings prior to such reissue; (8) Bonds of Series E or H purchased with the proceeds of bonds of Series F, G, J, or K,, at or after maturity, where such matured bonds are presented for that purpose in accordance with the provisions of Department Circulars Nos. 653, current revision (31 CFR 316), off'ering bonds of Series E, and 905, current revision (31 CFR 332), offering bonds of Series H ; (9) Bonds of Series PI issued in exchange for bonds of Series E, F, or J under the provisions of Department Circular No. 1036, as amended. Sec. 315.12. Disposition of excess.—If any person at any time acquires savings bonds issued during any one calendar year in excess of the prescribed amount, the excess must be immediately surrendered for refund of the purchase price, less (in the case of current income bonds) any interest which may have been paid thereon, or for such other adjustment as may be possible. For good cause found the Secretary of the Treasury may permit excess holdings to stand in any particular case or class of cases. SUBPART D ' — L I M I T A T I O N ON T R A N S F E R OR PLEDGE Sec. 315.15. Limitation on transfer or pledge.—Savings bonds are not transferable and are payable only to the owners named thereon, except as specifically 244 19 65 REPORT OF THE SECRETARY OF THE TREASURY provided in these regulations, and then only in the manner and to the extent so provided. A savings bond may not be hypothecated, pledged as collateral, or used as security for the performance of an obligation,, except as provided in sec. 315.16. Sec. 315.16 Pledge under Department Circulars Nos. 154 ^'^d 657.—A bond may be pledged by the registered owner in lieu of surety under the provisions of Department Circular No. 154, current revision (31 CFR 225), if the bond approving officer is the Secretary of the Treasury, in which case an irrevocable power of attorney shall be executed authorizing the Secretary of the Treasury to request payment. A bond may also be deposited as security with a Federal Reserve bank under the provisions of Department Circular No. 657, current revision (31 CFR 317), by an institution certified under that circular as an issuing agent for Series E bonds. SUBPART E—LIMITATION ON JUDICIAL PROCEEDINGS—NO PERMITTED STOPPAGE OR CAVEATS Sec. 315.20. General.—No judicial determination will be recognized which would give effect to an attempted voluntary transfer inter vivos of a bond or would defeat or impair the rights of survivorship conferred by these regulations upon a surviving coowner or beneficiary, and all other provisions of this subpart are subject to this restriction. Otherwise, a claim against an owner or coowner of a savings bond and confiicting claims as to ownership of, or interest in, such bond as between coowners or between the registered owner and beneficiary will be recognized, when established by valid judicial proceedings, upon presentation and surrender of the bond, but only as specifically provided in this subpart. Neither the Treasury Department nor any agency for the issue, reissue, or redemption of savings bonds will accept notices of adverse claims of or pending judicial proceedings or undertake to protect the interests of litigants who do not have possession of a bond. Sec. 315.21. Payment to judgment creditors. (a) Creditors.—Payment (but not reissue) of a savings bond registered in single ownership, coownership, or beneficiary form will be made to the purchaser at a sale under a levy or to the officer authorized to levy upon the property of the registered owner or coowner under appropriate process to satisfy a money judgment. Payment will be made to such purchaser or. officer only to the extent necessary to satisfy the judgment and will be limited to the redemption value current sixty days after the termination of judicial proceedings. Payment of a bond registered in coownership form pursuant to a judgment or levy against only one of the coowners will be limited to the extent of that coowner's interest in the bond ; this interest may be established by an agreement between the coowners or by a judgment, decree, or order of court entered in a proceeding to which both coowners are parties. (b) Trustees in bankruptcy and receivers.—Psijm.ent of a savings bond will be made to a trustee in bankruptcy, a receiver of an insolvent's estate, a receiver in equity or a similar officer of the court, under the applicable provisions of subsection {a) of this section, except that payment will be made at the redemption value current on the date of payment. Sec. 315.22. Payment or reissue pursuant to judgment. (a) Divorce.—A decree of divorce ratifying or confirming a property settlement agreement or otherwise settling the respective interests of the parties in a bond will not be regarded as a proceeding giving effect to an attempted voluntary transfer under the provisions of sec. 315.20. Consequently, reissue of a savings bond may be made to eliminate the name of one spouse as owner, coowner, or beneficiary, or to substitute the name of one spouse for that of the other as owner, coowner, or beneficiary pursuant to such a decree. The evidence required under sec. 315.23 must be submitted in any case. Where the decree does not set out the terms of the property settlement agreement a certified copy of the agreement must also be submitted. If bonds are registered with a person other than one of the spouses as owner or coowner there must be submitted either a request for reissue by such person or a certified copy of a judgment, decree, or order of court entered in a proceeding to which he was a party, determining the extent of the interest in the bond held by the spouse whose name is to be eliminated, and reissue will be permitted only to the extent of the spouse's interest in the bonds. Payment rather than reissue will be made if requested. EXHIBITS 245 (b) Gifts causa mortis.—A bond belonging solely to one person will be paid or reissued on the request of the person found by a court to be entitled thereto by reason of a gift causa mortis by the sole owner. (c) Date for determining rights.—For the purpose of determining whether or not reissue shall be made under this section pursuant to judicial proceedings, the rights of all parties involved shall be those existing under these regulations at the time of the entry of the final judgment, decree, or order. Sec. 315.23. Evidence necessary.— To establish the validity of judicial proceedings, there must be submitted certified copies of a final judgment, decree, or order of court and of any necessary supplementary proceedings. If the judgment, decree, or order of court was rendered more than six months prior to the presentation of the bond, there must also be submitted a certificate from the clerk of the court, under its seal, dated within six months of the presentation of the bond showing that the judgment, decree, or order of court is in full force. A request for payment by a trustee in bankruptcy must be supported by duly certified evidence of his appointment and qualification. A request for payment by a receiver of an insolvent's estate must be supported by a copy of the order appointing him, certified by the clerk of the court, under its seal, as being in full force on a date not more than six months prior to the date of the presentation of the bond. A request for payment by a receiver in equity or a similar officer of the court, other than a receiver of an insolvent's estate, must be supported by a copy of an order authorizing him to present the bond for redemption, certified by the clerk of the court, under its seal, as being in full force on a date not more than six months prior to the presentation of the bond. ^ SUBPART F. RELIEF FOR LOSS, T H E F T , DESTRUCTION, OR N O N R E C E I P T OF BONDS MUTILATION, DEFACEMENT, Sec. 315.25. After receipt by owner or his representative.—Relief, either by the issue of a substitute bond marked "DUPLICATE" or by payment, may be given under section 8 of the Act of July 8, 1937, as amended (50 Stat. 481, as ,amended; 31 U.S.C. 738a) for the loss, theft, destruction, mutilation, or defacement of a bond after receipt by the owner or his representative. In granting relief under the act, the Secretary of the Treasury may require a bond of in'demnity in such form and with such surety as may be deemed necessary for the protection of the United States of America. In all cases the bond must be identified and the applicant must submit satisfactory evidence of loss, theft, or destruction, or a satisfactory explanation of the mutilation or defacement. Relief on account of loss or theft ordinarily will not be granted until six months after the date of receipt by the Bureau of the Public Debt of the notice of such loss or theft. Sec. 315.26. Procedure to be foUowed.—Immediate notice of the facts concerning the loss, theft, destruction, mutilation, or defacement of a bond, together with its complete description (series, year and month of issue, serial number, name and address of the registered owner or coowners), should be given to the Bureau of the Public Debt, Division of Loans and Currency Branch. Defaced bonds and all available fragments of mutilated bonds in any form whatsoever should be submitted. That office will furnish the proper application form and instructions. The application must be made by the person or persons (including both coowners, if living), authorized under these regulations to request payment of the bond, except as follows: (1) If the bond is in beneficiary form and the owner and beneficiary are both living, both ordinarily will be required to join in the application. (2) If a minor named on a bond as owner, coowner, or beneficiary is not of sufficient competency and understanding to request payment, both parents ordinarily will be required to join in the application. Sec. 315.27. Nonreceipt of bond.—If a bond, on original issue or on reissue, is not received from the issuing agent by the registered owner or other person to whom delivery of the bond was directed, the issuing agent should be notified as promptly as possible and given all information available about the transaction. The agent will then obtain appropriate instructions and forms. After approval of the application for relief, relief will be granted by the issuance of a bond, bearing the same issue date as the bond which was not received. Sec. S15.28. Recovery or receipt of bonds reported lost, stolen, destroyed or not received.—If a bond reported lost, stolen, destroyed, or not received, is recovered 246 19 65 REPORT OF THE SECRETARY OF THE TREASURY or received before relief is granted, the Bureau of the Public Debt, Division of Loans and Currency Branch, should be notified promptly. If recovered or received after relief is granted, the bond should be surrendered promptly to the same office for cancellation. SUBPART G. INTEREST Sec. 315.30. General.—Savings bonds are issued in two forms: (1) appreciation bonds, issued on a discount basis and redeemable before final maturity at increasing fixed redemption values; and (2) current income bonds, issued at par, bearing interest payable semiannually ^ and redeemable before final maturity at par or at fixed redemption values less than par. Sec. 315.31. Appreciation bonds.—Bonds issued on a discount basis increase in redemption value at the end of the first half-year from issue date and at the end of each successive half-year period thereafter until their maturity date, when the full face amount becomes payable.^ Bonds of Series E bearing issue dates of May 1, 1941, through May 1,1949, vnll continue to increase in redemption value after the maturity date for twenty years and those bearing issue dates beginning with June 1, 1949, for ten years after the maturity date, in accordance with the provisions of Department Circular No. 653, current revision.^ The increment in value (interest) on appreciation bonds is payable only on redemption of the bonds. 'Sec. 315.32. Current income bonds. (a) Interest rates.—The interest payable on a current income bond is fixed by the provisions of the bepartment circular offering the particular series of bonds to the public.^ (b) Method of interest payments.—Interest due on a current income bond is payable semiannually beginning six months from its issue date and will be paid on each interest payment date by check drawn to the order of the person or persons in whose names the bond is inscribed, in the same form as their names appear in the inscription on the bond, and mailed to the address of record (that given for the delivery of interest checks in the application for purchase or the request for reissue or, if no, instruction is given as to the delivery of interest checks, the address given for the owner or the first-named coowner), except that: (1) In the case of a bond registered in the form "A payable on death to B" the check will be drawn to the order of "A" alone until the Bureau of the Public Debt, Division of Loans and Currency Branch, receives notice of A's death, from which time the payment of interest will be suspended, until the bond is presented for payment or reissue. Interest so withheld will be paid to the person found to be entitled to the bond. (2) Upon receipt of notice of the death of the coowner to whom interest is being mailed, payment of interest will be suspended until a request for chan.ge of address is received from the other coowner, if living, or, if not, until satisfactory evidence is submitted as to who is authorized to endorse and collect such checks on behalf of the estate of the last deceased coowner, in accordance with the provisions of Subpart O. (3) Upon receipt of notice of the death of the owner of a bond, payment of interest on the bond will be suspended until satisfactory evidence is submitted as to who is authorized to endorse and collect such checks on behalf of the estate of the decedent, in accordance with the provisions of Subpart O. 1 The final interest on bonds of Series H bearing issue dates of J u n e 1, 1952, through .Tan, 1, 1957. covers a period of two months, from 9 % years to 9 years, 8 months. Bonds so dated will continue to earn interest for a lO-year optional extension period, during which time interest will accrue and be ipaid beginning six m o n t h s from t h e original m a t u r i t y date, in accordance with the provisions of D e p a r t m e n t Circular No. 905, current revision. Since May 1. 1957, the only current income bonds on sale are those of Series H. See D e p a r t m e n t Circulars Nos. 654, Third Revision, as amended, for Series G, and 906, aa amended, for Series K. 2 Series E bonds issued on or before Apr. 30, 1952, and Series P bonds, the sale of which was terminated Apr. 30, 1952, increased in redemption value a t t h e end of the first year from issue date ; Series B bonds issued on and after May 1, 1952, and Series J bonds, t h e sale of which began on May 1, 1952, increased in redemption value a t the end of t h e first half-year frora issue date. T h e last increase in redemption value of Series E bonds issued on or after May 1,-1952, prior to the s t a r t of t h e 10-year optional extension period covers these p e r i o d s : two months, from 9^/^ years t h r o u g h ' 9 years, 8 months, for bonds issued before Feb. 1, 1 9 5 7 ; five raonths, frora Sy.. years through 8 years. 11 raonths. for bonds issued oh or after Feb. 1, 1957. but before J u n e 1, 1959 ; and three months, from 7 % years -through 7-years 9 months, for bonds issued on or after J u n e 1, 1959, 3 See Tables of Redemption Values of t h a t circular for extended m a t u r i t y values. EXHIBITS 247 (4) Whenever practicable the accounts for all current income bonds of the same series, with the same inscription, on which interest is payable on the same dates, will be consolidated and a single check will be issued on each interest payment date for interest on all such bonds. The check inscription may vary from the inscriptions on the bonds in cases of very long inscriptions or where there is lack of uniformity in the inscriptions on the bonds. (5) The interest due at maturity in the case of bonds for which an optional extension privilege has not been granted and at the extended maturity date for all bonds for which an optional extension privilege has been granted will be paid with the principal and in the same manner. However, if the registered owner of a bona in beneficiary form dies on or after the due date without having presented and surrendered the bond for payment or authorized reissue, and is survived by the beneficiary, the interest may be paid to the legal representative of or the person entitled to the registered owner's estate. To obtain such payment, the bond with a request therefor by the beneficiary should be submitted together with evidence as required in Subpart 0. (c) Notices affecting delivery of interest checks.—Notices aff'ecting the delivery of interest checks, including changes in addresses, should be sent to the Bureau of the Public Debt, Division of Loans and Currency Branch, 536 South Clark Street, Chicago, 111. 60605. Each bond should be described in the notice by issue date, serial number, series (including year of issue), and inscription appearing on the face of the bond. The bonds should not be submitted. The notice must be signed by the owner or a coowner, or in the case of a minor or incompetent as provided in (d) or (e) of this section. A notice which would affect delivery of an interest check will be acted upon as rapidly as possible, but if the notice is not received at least one month before an interest payment date, no assurance can be given that action can be taken in time to make the change, or suspend the mailing of the interest due on that date. (d) Representative appointed for the estate of a minor, incompetent, absentee, etc.—Interest on current income bonds will be paid to the representative appointed for the estate of the owner of such bonds who is a minor, incompetent, absentee, etc., in accordance with the provisions of sec. 315.50 relating to payment of the bonds. However, if the registration of the bonds does not include reference to the owner's status, the bonds should be submitted to the Bureau of the Public Debt, Division of Loans and Ourrency Branch, at the address shown in (c) of this section, or to a Federal Reserve bank for appropriate reissue so that interest checks may be, properly drawn and delivered. TTiey must be accompanied by the proof of appointment required by sec. 315.50. (e) Adult incompetent's estate having no representative.—If an adult owner of a current income bond is incompetent to endorse and collect the interest checks and no legal guardian or similar representative is legally qualified to do so, the relative responsible for his care and support, or some other appropriate person, may apply to the Bureau of the Public Debt, Division of Loans and Currency Branch, for recognition as voluntary guardian for the purpose of receiving, endorsing, and collecting the checks. Form PD 2513 should be used in making application for this purpose. (f) Reissue during interest period.—Physical reissue of a bond will be made as soon as practicable without regard to interest payment dates. If a current income bond is reissued between interest x>ayment dates, interest for the entire period will ordinarily be paid on the next interest payment date, by check drawn to the order of the person in whose name the bond is reissued. However, if reissue is made during the month preceding an interest payment date, the interest due on the first day of the next month may in some cases be paid to the former owner or the representative of his estate. (g) Termination of interest.—Interest on current income bonds will cease at maturity, or extended maturity in the case of bonds for which an optional extension period has been granted, or in case of redemption prior to maturity, on the last day of the interest period immediately preceding the date of redemption, except that, if the date of redemption falls on an interest payment date, interest will cease on that date. For example, if a bond on which interest is payable on January 1 and July 1 is redeemed on September 1, interest will cease on the preceding July 1, and no adjustment of interest will be made for the period from July 1 to September 1. The same rules apply in case of partial redemption with respect to the amount redeemed. 248 19 65 REPORT OF THE SECRETARY OF THE TREASURY (h) Endorsement of checks.—Interest checks may be collected upon the endorsement of the payee or his authorized representative in accordance with the regulations governing the endorsement and payment of Government warrants and checks, which are contained in Department Circular No. 21, current revision (31 CFR 360). A form for the appointment of an attorney in fact for this purpose may be obtained from the Office of the Treasurer of the United States or from any Federal Reserve bank. If the owner is incompetent or deceased and no legal representative of his estate has been or will be appointed, the Bureau of the Public Debt, Division of Loans and Currency Branch (address given in (c) of this section), or a Federal Reserve bank will furnish instructions upon request. (i) Nonreceipt or loss of check.—If an interest check is not received or is lost after receipt, the Bureau of the Public Debt, Division of Loans and Currency Branch, should be notified of the facts and given information concerning the amount, number, and inscription of the bonds, as well as a description of the check, if possible. SUBPART H GENERAL PROVISIONS FOR P A Y M E N T AND REDEMPTION Sec. 315.35. Provisions applicable both before and after maturity.^—Payment of a savings bond will be made to the person or persons entitled thereto under the provisions of these regulations upon presentation and surrender of the bond with an appropriate request for payment, except that checks in payment will not be delivered to addressees in areas with respect to which the Treasury Department restricts or regulates the delivery of checks drawn against funds of the United States or any agency or instrumentality thereof.^ Payment will be made without regard to any notice of adverse claims to a bond and no stoppage or caveat against payment in accordance with the registration will be entered. Sec. 315.36. Before maturity. (a) At option of owner.—Pursuant to its terms, a savings bond may not be called for redemption by the Secretary of the Treasury prior to maturity date, or extended maturity date in case of bonds for which an optional extension period has been granted, but may be redeemed in whole or in part at the option of the owner prior to maturity, or extended maturity, under the terms and conditions set forth in the offering circular for each series and in accordance with the provisions of these regulations, following presentation and surrender as provided in this subpart. (b) Series E.—A bond of Series E will be redeemed at any time after two months from issue date without advance notice, at the appropriate redemption value as shown in the revision of Department Circular No. 653 current at the time of redemption. (c) Series H, J, and K.—A bond of Series J or K will be redeemed on one calendar month's notice and a bond of Series H will be redeemed after six months from issue date on one calendar month's notice to a Federal Reserve bank or branch, or the Bureau of the Public Debt, Division of Loans and Currency Branch, or the Office of the Treasurer of the United States, Securities Division. Such notice may be given separately in writing or by presenting and surrendering the bond with a duly executed request for payment.. Payment will be made as of the first day of the first month following by at, least one full calendar month the date of receipt of notice. For example, if notice is received on June 1, payment will be made as of July 1, but if notice is received between June 2 and July 1, inclusive, payment ordinarily will be made as of August 1. If notice is given separately, the bond must be presented and surrendered with a duly executed request for payment to the same agency to which notice is given, not less than 20 days before the date on which payment is to be made. For example, if notice is received on June 15, the bond should be received not later than July 12. (See sec. 315.32(g) for provisions as to interest on current income bonds redeemed prior to maturity.) A bond of Series H will be redeemed at PAR. A bond of Series J or K will be redeemed at the appropriate redemption value as shown in the table printed on the bond, except as provided 1 Bonds of Series A through D and Series P and G have all now matured. They earn no interest after maturity. Any such bonds which have not been redeemed should be presented for payment. 2 See Department Circular No. 655, current revision (31 CPR 211). EXHIBITS 249 in (d), below. (See sec. 315.37 for provisions as to notice to redeem current income bonds for which an optional extension period has been granted.) (d) Series K: Redemption at par. (1) A bond of Series K issued in exchange for matured bonds of Series E under the provisions of Department Circular No. 906 is payable at par. (2) A bond of Series K registered in the name of a natural person or persons in their own right will be paid at par upon the request of the person entitled to the bond upon the death of the owner or either coowner. (3) A bond of Series K held by a trustee, life tenant, or other fiduciary (exclusive of trustees of a pension, retirement, investment, insurance, annuity or similar fund, or employees' savings plan)* will be paid at par upon appropriate request upon the termination, in whole or in part, of a trust, life tenancy, or other fiduciary estate by reason of the death of a natural person, but in the case of partial termination, redemption at par will be made to the extent of not more than the pro rata portion of the trust or fiduciary estate so terminated. Bonds of Series K held by a financial institution in its name as trustee of its common trust fund will be paid at par upon the request of the fiduciary upon the termination, in whole or in part, of a participating trust by reason of the death of a natural person, to the extent of not more than the pro rata portion of the common trust fund so terminated. The option to receive payment at par under subparagraph (d) (2) and (3) of this section may be exercised by a signed request for payment or by express written notice, in either case specifying that redemption at par is desired. Payment may be postponed to the second interest payment date following the date of death, if so requested; otherwise, payment will be made in regular course. A death certificate or other acceptable evidence of death must be submitted. In no case of redemption at par before maturity under subparagraph {d) {2) and {3) will interest be payable beyond the second interest payment date following the date of death. (e) Withdrawal of request for redemption.—An owner who has presented and surrendered a savings ^bond to the Treasury Department or a Federal Reserve bank or branch, or an authorized paying agent, fpr payment, with an appropriate request for payment, may withdraw such request if notice of intent to withdraw is given to and received by the same agency to which the bond was presented prior to the issuance of a check in payment by the Treasury Department or a Federal Reserve bank, or payment by the authorized paying agent. Such request may be withdrawn under the same conditions by the executor or administrator of the estate of a deceased owner, or by the person or persons entitled to the bond under Subpart O, or by the representative of the estate of a person under legal disability, unless presentation and surrender of the bond have cut off rights of survivorship under the provisions of Subpart M or Subpart N. Sec. 315.37. At or after maturity.—Pursuant to its terms, a savings bond of any series will be paid at or after maturity at the maturity value fixed by the terms of the Department Circular offering the particular series of bonds to the public, current at the time of redemption, and in no greater amount. No advance notice will be required foir the redemption of matured savings bonds except that any current income bond for which an optional extension period has been provided will, beginning with the first day of the third calendar month following the calendar month in which the bond originally matured, be regarded as unmatured until it reaches its extended maturity date, and the same notice prior, to redemption will be required for it as required for bonds of the same series which have not reached original maturity. Sec. 315.38. Requests for payment. (a) Form and execution of requests.—A request for payment of a bond must be executed on the form appearing on the back of the bond unless (1) the bond is accepted by an authorized paying agent for payment or for presentation to a Federal Reserve bank for payment without the owner's signature to the request for payment under the provisions of Department Circular No. 888, current revision (31 CFR 330), or (2) authority is given for the execution of a separate or detached request. (b) Date of request.—Ordinarily, requests executed more than six months before the date of receipt of a bond for payment will not be accepted; nor will a bond ordinarily be accepted for redemption more than three calendar months prior to the date redemption is requested under these regulations. 250 19 65 REPORT OF THE SECRETARY OF THE TREASURY (c) Identification and signature of owner.—^Unless the bond is presented under the provisions of paragraph (a) of this section or sec. 315.39(b), an owner in whose name the bond is inscribed or other person entitled to payment under the provisions of these regulations must appear before and establish his identity to an officer authorized to certify requests for payment (see Subpart I ) , and in the presence of such officer sign the request for payment in ink, adding in the space provided the address to which the check issued in payment is to be miailed. A signature made by mark (X) must be witnessed by at least one disinterested person in addition to the certifying officer and must be attested by endorsement in the blank space, substantially as follows: "Witness to the above signature by mark," followed by the signature and address of the witness. If the name of the owner or other person entitled to payment as it appears in the registration or in evidence on file in the Bureau of the Public Debt, Division of Loans and Currency Branch, has been changed by marriage or in any other legal manner, the signature to the request for payment should show both names and the manner in which the change was made, for example, "Mrs. Mary T. Jones Smith (Mrs. Mary T. J. Smith or Mrs. Mary T. Smith), changed by marriage from Miss Mary T. Jones," or "John R. Young, changed by order of court from Hans R. Jung." (See sec. 315.49.) No request signed in behalf of the owner or person entitled to payment by an agent or a person acting under a power of attorney will be recognized by the Treasury Department, except when the bond has been pledged in lieu of surety under Department Circular No. 154, current revision (31 CFR 225), as provided in sec. 315.16. (d) Certification of request.—After the request for payment has been signed by the owner, the certifying officer should complete and sign the certificate following the request for payment and the bond should then be presented and surrendered as provided in Sec. 315.39(a). Sec. 315.39. Presentation and surrender. (a) All series.—Except for cases coming within the provisions of paragraph (b) of this section, after the request for payment has been duly signed by the owner and. certified as provided in Subpart I, the bond should be presented and surrendered to (1) a Federal Reserve bank or branch, (2) the Bureau of the Public Debt, Division of Loans and Currency Branch, or (3) the Office of the Treasurer of the United States, Securities Division. Usually payment will be expedited by surrender to a Federal Reserve bank or branch. In all cases presentation will be ;at the expense and risk of the owner. Payment will be made by check drawn to the order of the registered owner or other person entitled and mailed to the address given in the request for payment or, if no address is given, to the address shown in instructions accompanying the bond. (b) Optional procedure Umited to bonds of Series A to E, inclusive, in the names of individual owners or coowners only.—^A natural person whose name is inscribed on the face of a bond of Series A, B, C, D, or E, either as owner or coowner in his own right, may present such bond for redemption to an authorized paying agent. If such a person is not known to the paying agent, he must estaJblish his identity to the agent. (See sec. 315.43.) Such owner or coowner must sign the request for payment, and add his home or business address. Even though the request for payment may have been signed, or signed and certified, before presentation of the bond, the representative of the paying agent must be satisfied that the person presenting the bond for payment is the owner or coowner and may require him to sign the request for payment again. If the bond is in order for payment, the paying agent will make immediate payment at the appropriate redemption value without charge to the owner or coowner. This procedure is not applicable to partial redemption cases, or deceased owner cases, or other cases in which documentary evidence is required. Sec. 315.40. Partial: redemption.—A bond of any 'series may be redeemed in part at current redemption value, but only in amounts corresponding to authorized denominations, upon presentation and surrender of the hond in accordance with sec. 315.39(a). In any case in which partial redemption is authorized before the request fbr payment is signed the phrase "to the extent of $_ (face value) and reissue of the remainder" should be added to the first sentence of the request. Upon partial redemption of the bond, the remainder will be reissued as of the original issue date, as provided in Subpart J. For payment of interest on current income bonds in case of partial redemption, see Subpart G. EXHIBITS 251 Sec. 315.41. Nonreceipt or loss of checks issued in payment.—In case a che'ck in payment of a bond surrendered for Tedemption is not received within a reasonable time or in case such check is lost after receipt, notice should be given to the same agency to which the bond was surrendered for payment, accompanied by a description of the bond by series, denomination, serial number, and registration. The notice should state whether or not the check was received and should give the date upon which the bond was surrendered for payment. SUBPART I-T-CERTIFYING OFFICERS Sec. 315.42. Persons who may certify.—The following persons are authorized to act as certifying officers for the purpose of certifying requests for payment and forms with respect to bonds : (a) At United States post offices.—Any postmaster, acting postmaster, or inspector in charge or other post office official or clerk designated for that pur^ pose. One or more of these officials will be found at every United States post office, classified branch, or station. A post office official or clerk other than a postmaster, acting postmaster, or inspector in charge should certify in the name of the postmaster or acting postmaster, followed by his own signature and official title, for example, "John Doe, postmaster, by Richard Roe, postal cashier." Signatures of these officers should be authenticated h j a legible imprint of the post office dating stamp. (b) At banks, trust companies, and branches.—^Any officer of any bank or trust company incorporated in the United States (including for this purpose its territories and possessions and the Commonwealth of Puerto Rico) or domestic or foreign branch of such bank or trust company; any officer of a Federal Reserve bank. Federal land bank, and Federal home loan bank; any employee of any such bank or trust company expressly authorized by the corporation for that purpose, who should sign over the title "Designated Employee"; and Federal Reserve agents and assistant Federal Reserve agents located at the several Federal Reserve banks. Certifications by any of these officers or designated employees should be authenticated by either a legible impression of the corporate seal of the bank or trust company or, in the case of banks or trust companies and their branches which are authorized issuing agents for bonds of Series E, by a legible imprint of the issuing agent's dating stamp. (c) Issuing agents not banks or trust companies.—Any officer of a corporation not a bank or trust company and of any other organization which is an authorized issuing agent for bonds of Series E. All certifications by such officers must be authenticated by a legible imprint of the issuing agent's dating stamp. (d) Commissioned and warrant officers of Arnied Forces.—^Commissioned and warrant officers of any of the Armed Forces of the United Sitates, but only for members and the families of members of their respective services and civilian employees at posts or bases or stations. Such certifying officer should indicate his rank and state that the person signing the request is one of the class whose request he is authorized to certify. (e) United States officials.—Judges, clerks, and deputy clerks of United States courts, including United States courts for the territories, possessions, the Commonwealth of Puerto Rico, and the Canal Zone; United States commissioners ; United States attorneys; United States collectors of customs and their deputies; Regional commissioners and district directors of Internal Revenue and Internal Revenue agents; the officer in charge of any home, hospital, or other facility of the Veterans Administration, but only for patients and employees of such facilities; certain officers of Federal penal institutions designated for tha-t purpose by the Secretary of the Treasury; certain officers of the United States Public Health Service Hospitals at Lexington, Ky., and Fort Worth, Tex., and of United States Marine Hospitals at Fort Stanton, N. Mex., and Carville, La., designated for that purpose by the Secretary of the Treasury (in each case, however, only fqr inmates or employees of the institution involved). (f) Officers authorized in particular localities.—Certain designated officers in the Treasury Department; the Governor and Treasurer of Puerto Rico; the Governor and Commissioner of Finance of the Virgin Islands; the Governor and Director of Finance of Guam; the Governor and Director of Administrative Services of American Samoa; the Governor, paymaster, or acting paymaster and collector or acting collector of the Panama Canal; and postmasters and acting postmasters of the Bureau of Posts of the Canal Zone. 252 19 65 REPORT OF THE SECRETARY OF THE TREASURY (g) In foreign countries.—In a foreign country requests for payment may be signed in the presence of and be certified by any United States diplomatic or consular representative, or the maiiager or other officer of a foreign branch of a bank or trust company incorporated in the United States whose signature is attested by an impression of the corporate seal or is certified to the Treasury Department. If such an officer is not available, requests for payment may be signed in the presence of and be certified by a notary or other officer authorized to administer oaths, but his official character and jurisdiction should be certified by a United States dii^lomatic or consular officer under seal of his office. (h) Special provisions.—In the event none of the officers authorized to certify requests for payment of bonds is readily accessible, the Commissioner of the Public Debt, the Deputy Commissioner of the Public Debt in Charge of the Chicago Office, the Treasurer of the United States, or any Federal Reserve bank or branch is authorized to make special provision for any particular case. Sec. 315.43. General instructions to certifying officers.—A certifying officer should require that a person presenting bonds, or forms with respect thereto, establish his identity by positive and reliable evidence before the bonds or forms are signed, unless the presenter is personally well known to the officer. Such officer and, if he is an officer or employee of an organization, the organization will be held fully responsible for the adequacy of the identification. The certifying officer should place an adequate notation on the back of the bond or form, or on a separate record, showing exactly how identification was established. The certifying officer must affix to the certification his official signature, title, seal or dating stamp, address (if hot shown in the seal or stamp), and the date of execution. Officers of Veterans Administration facilities. Public Health Service hospitals. Marine hospitals, and Federal penal institutions should use the seal of the particular institution or service, where such seal is available. A certifying officer other than a post office official, officer of a bank or trust company, or officer of an issuing agent who does not possess an official seal should add a statement to that effect to his certification. 'Sec. 315.44. Interested person not to certify.—A certifying officer may not certify a request for payment of a bond, or a form with respect to a bond, in which he has or is acquiring an interest, either in his own right or in a representative capacity. SUBPART J — ^ R E I S S U E AND D E N O M I N A T I O N A L EXCHANGE Sec. 315.45. General.—Reissue of a bond may be made only under the conditions specified in' these regulations. Reissue is not authorized solely for the purpose of effecting an exchange as between authorized denominations, but in case of authorized reissue the new bond or bonds may be issued in any authorized denomination or denominations. Reissue will not be made if the request therefor is received less than one full calendar month before the maturity date, except for bonds of Series E and H for which optional extension periods have been provided in Department Circulars Nos. 653 and 905, current revisions (31 CFR 316 and 332). In the case of such bonds, reissue will not be made if the request is received less than one full month before the extended maturity date. However, a request for reissue of a bond received prior to its maturity, or its extended maturity date, will be effective to establish ownership as though the requested reissue had been made. A request for reissue of a bond received on or after its maturity, or its extended maturity date, will not be effective to name a coowner or beneficiary or to promote a beneficiary to a coowner, but requests for reissue in the names of persons who have become entitled by operation of law will be recognized as establishing the right of those persons to receive payment. Reissues under the provisions of this subpart may be made only at (1) a Federal Reserve bank or branch, (2) the Bureau of the Public Debt, Division of Loans and Currency Branch, or (3) the Office of the Treasurer of the United States, Securities Division. Sec. 315.46. Requests for reissue.—A request for reissue should be made on the prescribed form by the person authorized under these regulations to make such request. Appropriate forms may be obtained from any Federal Reserve bank, the Office of the Treasurer of the United States, or the Bureau of the Public Debt, Division of Loans and Currency Branch. EXHIBITS 253 Sec. 315.47. Effective date.—In any case of authorized reissue, the Treasury Department will treat the receipt by (1) a Federal Reserve bank or branch, or (2) the Bureau of the Public Debt, Division of Loans and Currency Branch, or (3) the Office of the Treasurer of the United States, Securities Division, of a bond and an appropriate request for reissue thereof as determining the date upon which the reissue is effective. If the owner or either coowner of a bond dies after he has presented and surrendered the bond for authorized reissue, the bond will be regarded as though reissued in the decedent's lifetime. Sec. 315.48. Correction of errors.—Reissue of a bond may be made to correct an error in the original issue, upon appropriate request supported by satisfactory proof of the error. Sec. 315.49. Change of name.—An owner, coowner, or beneficiary whose name is changed by marriage, divorce, annulment, order of court, or in any other legal manner after the issue of a bond should submit the bond with a request on Form PD 1474 for reissue to substitute the new name for the name inscribed on the bond. The signature to the request for reissue should show the new name, the manner in which the change was made and the former name. If the change of name was made other than by marriage, the request must be supported by satisfactory proof of the change. SUBPART K M I N O R S , I N C O M P E T E N T S , AGED P E R S O N S , A B S E N T E E S , ETC. Sec. 315.50. Paynient to representative of estate.—If the form of registration of a savings bond indicates that the owner is a minor, an incompetent, aged person, absentee, etc., and that there is a representative of his estate, payment will be made to such representative. During the lifetime of such owner, the representative of his estate will be recognized as entitled to obtain payment of a bond registered in the name of the ward as owner or coowner, or of a bond to which the ward has become entitled. After the death of such owner, his representative, so long as he is authorized to act for the estate, will be entitled to obtain payment of a bond to which the ward was solely entitled. If the form of registration does not indicate there is a representative of the estate of a minor owner or coowner, a notice that there is such a representative will not be accepted for the purpose of preventing payment to the minor or to a parent or other person on behalf of the minor, as provided in sees. 315.51 and 315.52. The request for payment appearing on the back of a bond should be signed by the representative as such, for example, "John A. Jones, guardian (committee) of the estate of Henry W. Smith, a minor (an incompetent)." Unless the form of registration gives the name of the representative requesting payment, a certificate, or a certified copy of the letters of appointment, from the court making the appointment, under court seal, or other proof of qualification if not appointed by a court, should be submitted with the bond. Sec. 315.51. Payment to minors.—If the owner of a savings bond is a minor and the form of registration does not indicate that there is a representative of his estate, payment will be made to him upon his request, provided he is of sufficient competency to sign his name to the request for payment and to understand the nature of the transaction. In general, the fact that the request for payment has been signed by a minor and duly certified will be accepted as sufficient proof of competency and understanding. Sec. 315.52. Payment to a parent or other person on "behalf of a minor.—If the owner of a savings bond is a minor and the form of registration does not indicate that there is a representative of his estate, and if such minor owner is not of sufficient competency to sign his name to the request for payment and to under; stand the nature of the transaction, payment will be made to either parent of the minor with whom he resides or, if the minor does not reside with either parent, then to the person who furnishes his chief support. His parent or the person furnishing his chief support should execute the request for payment and furnish a certificate, which may be typed or written on the back of the bond, as to his right to act for the minor. If a parent isigns the request, the certificate and signature thereto should be in substantially the following form: "I certify that I am the mother (or father) of John C. Jones and the person with whom he resides. He is years of age and is not of sufficient competency and understanding to make this request. "Mrs. Mary Jones on behalf of John C. Jones." 254 19 65 REPORT OF THE SECRETARY OF THE TREASURY If a person other than a parent signs the request, the certificate and signature thereto, including a reference to the person's relationship, if any, to the minor, should be in substantially the following form : "I certify that John C. Jones does not reside with either parent and that I furnish his chief support. Pie is years of age and is not of sufficiemt competency and understanding to make this request. "Mrs Alice Brown, grandmother, on behalf of John C. Jones." 'Sec. 315.53. Payment or reinvestment upon request of voluntary guardian of incompetent.—If the adult owner of bonds is incompetent to request and receive payment thereof and no other person is legally qualified to do so, the relative responsible for his care and support or some other person may submit an application as voluntary guardian for redemption of the bonds in the following cases: (a) Where the proceeds of the bonds are needed to pay expenses already incurred, or to be incurred during any 90-day period, for the support of the incompetent or his legal dependents, bonds belonging to the incompetent, not exceeding $1,000 (face value), may be submitted for redemption; (b) Where the bond has matured and it is desired to redeem it and reinvest the proceeds in savings bonds. The proceeds of any matured appreciation type bonds 'Ordinarily will be required to be reinvested in Serie's E bonds. The proceeds of matured current income bonds may be invested in Series H or Serie's E bonds. The new 'bonds must be registered in the name of the incompetent followed by the words "an incompetent." A living coowner or beneficiary named on the matured bond must be designated on the new bonds unless he is a competent adult and, furnishes a certified statement consenting to omission of his name. If an amount insufficient to purchase an additional bond of any authorized denomination of any series remains after the reinve'stment, the voluntary guardian may, if | he so desires, furnish additional funds sufficient to purchase another bond of either series in the lowest available denomination. If additional funds are not furnished, the remaining amount will be paid to the voluntary guardian for the use and benefit of the incompetent. Sec. 315.54. Reissue.-—A bond of which a minor or other person under legal disability is the owner or in which he has an interest may be reissued upon an authorized reissue transaction under the following conditions: (a) A minor of sufficienit c'ompetency to sign his name to the request and to understand the nature of the transaction may request reissue to add a coowner or beneficiary to a bond registered in his name alone or to which he is entitled in Ihis own right. (b) A bond on which a minor is named as beneficiary or coowner may be reissued in the name of a custodian for the minor under a statute authorizing gifts to minors upon the request of the adult whose name appears on the bond as owner or coowner. (c) Except to the extent provided in (a) and (b) of this section, reissue will be restricted to a forni of registration which does not adversely affect the existing ownership or interest of the minor or such other person. Requests for reissue should be executed by the person authorized to request payment under sees. 315.50 and 315.52, or who may request recognition as a voluntary guardian under sec. 315.53 and in the same manner. SUBPART L — N A T U R A L PERSON AS SOLE OWNER Sec. 315.55. Payment.—A savings bond registered in the name of a natural person in his own right, without a coowner or beneficiary, will be paid to him during his lifetime under Subpart H. Upon the death of the owner such bond will be considered as belonging to his estate and will be paid under Subpart O, except as otherwise provided in 'these regulations. Sec. 315.56. Reissue for certain purposes.—A savings bond registered in the name of a natural person in his own right may be reissued upon appropriate request by him (subject to the provisions of sec. 315.54), upon presentation and surrender during his lifetime, for the following purposes : (a) Addition of a coowner or beneficiary.—^To name another natural person as coowner or as beneficiary. Form PD 1787 should be used. (b) Divorce or annulment.—To name as registered owner the other party to a divorce or annulment occurring after issue of the bond. Form PD 3360 should be used. EXHIBITS 255 (c) Certain degrees of relationship.—To name as registered owner a person related to the owner as provided in sec. 315.61(a) (1) (i), with a beneficiary or coowner, if so desired. Form PD 3360 should be used.. (d) Trustees.—To name the trustee of (1) a. personal trust estate created by the owner, or (2) a personal trust estate created by other than the owner if a beneficiary of the trust and the owner are related as provided in sec. 315.61(a) (1) (i). Form PD 1851 should be used. SUBPART M — T W O NATURAL PERSONS AS COOWNERS Sec. 315.60. Payment during the lives of both coowners.—A savings bond registered in coownership form, for example, "John A. Jones or Mrs. Mary O. Jones," will be paid to either upon his separate request, and upon payment to him the other shall cease to have any interest in the bond. If both request payment jointly, payment will be made by check drawn to their order jointly, for example, "John A. Jones AND Mrs. Mary C. Jones." Sec. 315.61. Reissue during the lives of both coowners. (a) General.—A bond registered in coownership form may be reissued upon its presentation and surrender during the lifetime and competency of both coowners, upon the request of both, as follows: (1) In the name of either coowner, alone or with a new coowner or beneficiary— (i) If the coowner whose name is to remain on the bond is related to the coowner whose name is to be eliminated a s : husband, wife; parent, child (including stepchild) ; brother, sister (including the half blood, stepbrother, stepsister, or brother or sister through adoption) ; grandparent, grandchild; great grandparent, great grandchild; uncle, aunt, nephew, niece (including a child of a brother or sister of the present spouse) ; granduncle, grandaunt, grandnephew, grandniece; father-in-law, mother-in-law, son-in-law, daughter-in-law, brotherin-law, sister-in-law. (ii) If one of them marries after issue of the bond. (iii) If they are divorced or legally separated from each other, or their marriage is annulled, after issue of the bond. (2) In the name of a third person related to either coowner, as provided in (a) (1) (i) of this section, witli a coowner or beneficiary, if so desired. (Form PD 1938 should be u,sed for any of the above classes.) (3) In the name of a trustee of (i) a personal trust estate created by either coowner, or (ii) a personal trust estate created by other than a coowner if a beneficiary of the trust is related to either coowner as provided in (a) (1) (i) of this section. Form PD 1851 should be used. (b) Minor coowners.—A request for reissue signed by a minor coowner of sufficient competency to sign his name to the request and understand the nature of the transaction, and for whose estate no representative has been appointed, will be recognized if the bond is to be reissued in his name alone, or in his name with a new coowner or beneficiary. A request for reissue to eliminate the other coowner, signed in behalf of a minor coowner by the representative of his estate will be recognized; however, a request to eliminate the name of the minor will be recognized only if supported by evidence that a court has ordered the representative to request such reissue (see sec. 315.23). A minor coowner for whose estate no representative has been appointed may be promoted to ,sole owner upon the request of the competent coowner. A competent coowner may, upon his own request, have the bond reissued to remove his name and name a custodian for the minor under a statute authorizing gifts to minors. (c) Incompetent coowners.—Reissue will not be made if one coowner is incompetent and a representative of the incompetent's estate has not been appointed, except to add "an incompetent" after his name or to eliminate the other coowner from the registration. If there is a representative, the provisions of paragraph (b) of this section apply as to his execution of a request for reissue. Sec. 315.62. After the death of one or both coowners.—If either coowner dies without the bond having been presented and surrendered for payment or authorized reissue, the survivor will be recognized as the sole and absolute owner. Thereafter, payment or reissue will be made as though the bond Were registered in the name of the survivor alone (see Subpart L), except that a request for 256 19 65 REPORT OF THE SECRETARY OF THE TREASURY reissue by him must be supported by proof of death of the other coowner, and except further that after the death of the survivor proof of death of both coowners and of the order in which they died will be required. The presentation and surrender of a bond by one coowner for payment establishes his right to receive the proceeds of the bond, and if he should die before the transaction is completed, payment will be made to the legal representative of, or persons entitled to, his estate in accordance with the provisions of Subpart O. If either coowner dies after the bond has been presented and surrendered for authorized reissue (see sec 315.47), the bond will be regarded as though reissued during his lifetime. Sec. 315.63. Upon death of both coowners in a common disaster, etc.—If both coowners die under such conditions that it cannot 'be established either by presumption of law or otherwise which died first, the bond will be considered as belonging to the estates of both equally, and payment or reissue will be made accordingly. (See Subpart O.) SUBPART N—TWO NATURAL PERSONS AS OWNER AND BENEFICIARY Sec. 315.65. During the lifetime of the registered owner.—A savings bond registered in beneficiary form, for example, "John A. Jones payable on death to Mrs. Mary C. Jones," will be paid or reissued upon presentation and surrender during the lifetime of the registered owner, as follows: (a) Payment.—The bond will be paid to the registered owner during his lifetime upon his properly executed request as though no beneficiary had been named in the registration. The presentation and surrender of the bond by the registered owner for payment establishes his exclusive right to the proceeds of the bond, and if he should die before the transaction is completed, payment will be made to the legal representative of, or the persons entitled to, his estate upon receipt of proof of the appointment and qualification of the representative or the identity of the persons entitled, in accordance with the provisions of Subpart O. (b) Reissue. (1) The bond will be reissued on a duly certified request of the owner: (i) To name the beneficiary designated on the bond as coowner. Form PD 1787 should be used. (ii) To eliminate his name as owner and to name as owner a custodian for the beneficiary, if a minor, under a statute authorizing gifts to minors. Form PD 3360 should be used. (iii) To eliminate the beneficiary, to substitute another person as beneficiary, or to name another person as coowner, if the request of the owner is supported by the beneficiary's duly certified consent to elimination of his name or by proof of his death.^ Form PD 1787 should be used. (iv) In the name of a trustee of (1) a personal trust estate created by the owner, or (2) a personal trust estate created by other than the owner if the owner and a beneficiary of the trust are related as provided in sec. 315.61(a) (1) (i), and the request of the owner is supported by the duly certified consent of the beneficiary, or by proof of his death.^ Form PD 1851 should be used by the owner and the beneficiary. Sec. 315.66. After the death of the registered owner.—If the registered owner dies without the bond having been presented and surrendered for payment or authorized reissue and is survived by the beneficiary, upon proof of death of the owner the beneficiary will be recognized as the sole and absolute owner, and payment or reissue will be made as though the bond were registered in his name alone (see Subpart L). SUBPART 0 DECEASED OWNERS Sec. 315.70. General.—Upon the death of the owner of a savings bond who is not survived by a coowner or designated beneficiary and who had not during his lifetime presented and surrendered the bond for payment or an authorized reissue, the bond will be considered as belonging to his estate and will be paid or reissued accordingly as hereinafter provided, except that reissue under this subpart will not be permitted if otherwise in confiict with these regulations. If 1 The provisions of t h i s section do not apply t o bonds on which the T r e a s u r e r of the United S t a t e s of America is named as beneficiary. 257 EXHIBITS the person entitled is an alien who is a resident of an area with respect to which the Treasury Department restricts or regulates the delivery of checks drawn against fimds of the United States of America, or any agency or instrumentality thereof, payment of, and interest on, a bond will not be made so long as the restriction applies.^ A creditor is entitled only to payment of a bond to the extent of not mere than his claim. Sec. 315.71. Special provisions applicable to small am^ounts of savirigs bonds, interest checks or redemption checks.—Entitlement to, or the authority to dispo'se of, a small amount of bonds and checks issued in payment thereof or in payment of interest thereon, belonging to the estate of a decedent, may be established through the use of certain short forms, according to the aggregate face amount of bonds and checks involved, (excluding checks representing interest on the bonds), as indicated by the following table: Amount $100 600 500 _. Circumstances No admiaistration Estate being administered Estate settled-, _. _. Form PD 2216 __ PD 2488-1 PD 2458 To be executed b y Person who paid burial expenses. Executor or administrator. Former executor or administrator, attorney, or other quahfied person. Sec. 315.72. Estates administered. (a) In course of administration.—If the estate of a decedent is being administered in court, the bond will be paid to the duly qualified representative of the estate or will be reissued in the names of the persons entitled to share in the estate, upon the request of the representative and compliance with the following requirements: (1) Where there are two or more legal representatives, all must join in the request for payment or reissue, except as provided in sees. 315.77 and 315.78. (2) The request for payment or reissue should be signed in the form, for example, "John A. Jones, administrator of the estate (or executor of the will) of Henry W. Jones, deceased," and must be supported by proof of the representative's authority in the form of a court certificate or a certified copy of the representative's letters of appointment. The certificate or the certification to the letters must be under seal of the court and, except in the case of a corporate representative, must contain a statement that the appointment is in full force and should be dated within six months of the date of presentation of the bond, unless the certificate or letters show that the appointment was made within one year immediately prior to such presentation. (3) In case of reissue the legal representative of the estate should certify that each person in whose name reissue is requested is entitled to the extent specified for each and has consented to such reissue. A request for reissue by the legal representative should be made on Form PD 1455. If a person in whose name reissue is requested desires to name a coowner or beneficiary, such person should execute an additional request for that purpose, using Form PD 1787. (b) After settlement through court proceedings.—If the estate of the decedent has been settled in court, the bond will be paid to, or reissued in the name of, the person entitled thereto as determined by the court. The request for payment or reissue should be made by the person shown to be entitled, supported by a duly certified copy of the representative's final account as approved by the court, decree of distribution, or other pertinent court records, supplemented, if there are two or more persons having an apparent interest in the bond, by an agreement executed by them concerning the disposition of the bond. Form PD 1787 should be used 'by the person entitled if he wishes to name a coowner or beneficiary. Sec. 315.73. Estates not administered. (a) Special provisions under State laws.—If, under State law, a person has been recognized or appointed to receive or distribute the assets of a decedent's estate without regular administration, his request for payment or reissue of a bond to the person or persons entitled will be accepted provided he submits appropriate evidence of his authority. 1 See D e p a r t m e n t Circular No. 655, c u r r e n t revision (31 CFR 2 1 1 ) . 782-556—66^ 17 258 19 65 REPORT OF THE SECRETARY OF THE TREASURY (b) Agreement of persons entitled.—When it appears that no legal representative of a decedent's estate has been or will be appointed, the bond will be paid to, or reissued in the name of, the person or persons entitled, including those entitled as donees of a gift causa mortis, pursuant to an agreement and request by all persons entitled to share in the decedent's personal estate. A form of agreement for settlement without administration. Form PD 1946-1, should be used for cases in which the total face amount of bonds and redemption and interest checks belonging to the decedent's estate is in excess of $500. Where the total face amount does not exceed $500, Form PD 1946 may be used. If the persons entitled to share in the personal estate include minors or incompetents, payment or reissue of the bond will not be permitted without administration except to them or in their names unless their interests are otherwise protected to the satisfaction of the Treasury Department. SUBPART P—FIDUCIARIES Sec. 315.75. Payment.—A savings bond registered, in the name of a fiduciary or otherwise belonging to a fiduciary estate will be paid to the fiduciary or fiduciaries in accordance with the provisions of sees. 315.77 and 315.78. Sec. 315.76. Reissue. (a) In the name of person entitled. (1) Distribution of trust estate in kind.—A bond to which a beneficiary of a trust estate has become lawfully entitled in his own right or in a fiduciary capacity, in whole or in part, under the terms of a trust instrument, will be reissued in his name to the extent of his interest, upon the request of the trustee or trustees and their certification that such person is entitled and has agreed to reissue in his name. (2) After termination of trust estate.—If the person who would be lawfully entitled to a bond upon the termination of a trust does not desire to have distribution made to him in kind, as provided in paragraph (1) above, the trustee or trustees should present the bond for payment before the estate is terminated. If, however, the estate is terminated without such payment or reissue having been made, the bond will thereafter be paid to or reissued in the name of the person lawfully entitled upon his request and satisfactory proof of ownership, supplemented, if there are two or more persons having any apparent interest in the bond, by an agreement executed by all such persons concerning the disposition of the bond. (3) Upon termination of guardianship estate.—If the estate of a minor or incompetent or of an absentee is terminated, during the ward's lifetime, a bond registered to show that there is a representative of the estate will be reissued in the name of the former ward upon the representative's request and certification that the former ward is entitled and has agreed to reissue in his name (Form PD 1455 should be used), or will be paid to or reissued in the name of the former ward upon his own request, supported in either case by satisfactory evidence that his disability has been removed or that an absentee has returned to claim his property. Certification by the representative that a former minor has attained his majority, that a former incompetent has been legally restored to competency, that a legal disability of a female ward has been removed by marriage, if the State law so provides, or that an absentee has appeared to claim his property, will ordinarily be accepted as sufficient (see sec. 315.77 if the representative's name is not shown in the registration). Upon the termination of the estate as the result of the death of the ward, a bond registered to show that there is a representative of his estate will be reissued in accordance with the provisions of Subpart O. (4) U%ion termination of life estate.—Upon the death of a life tenant, a bond registered in his name as life tenant may be reissued in the name of the person or persons entitled pursuant to an agreement and request of all of the persons having an interest in the remainder. (b) In the name of a succeeding fiduciary.—If a fiduciary in whose name a bond is registered has been succeeded by another, the bond will re reissued in the name of the succeeding fiduciary upon appropriate request and satisfactory evidence of successorship. Form PD 1455 should be used. (c) In the name of financial institution as trustee of common trust fim,d.—A bond held by a bank, trust company, or other financial institution as a trustee, guardian or similar representative, executor or administrator may be reissued EXHIBITS 259 in its name as trustee of its common trust fund to the extent that participation therein by the institution in such capacity is authorized by law or applicable regulations. A request for reissue to the institution as trustee of its common trust fund should be executed on its behalf in the capacity in which the bond is held and by the cofiduciary, if any. Form PD 1455 should be used. Sec. 315.77. Requests for reissue or payment prior to maturity or extended maturity.—The following rules apply to both requests for reissue and payment by fiduciaries: A request for reissue or payment prior to maturity, or extended maturity for bonds for which an optional extension period has been provided, must be signed by all acting fiduciaries unless by express statute, decree of court, or the terms of the instrument under which the fiduciaries are acting, some one or more of them may properly execute the request. If the fiduciaries named in the registration are still acting, no further evidence of authority will be required. Otherwise, a request must be supported by evidence as specified below: (a) Fiduciaries by title only.—If the bond is registered in the titles, without the names, of fiduciaries not acting as a board, satisfactory evidence of their incumbency must be furnished, except in the case of bonds registered in the title of public officers as trustees. (b) Succeeding fiduciaries.—If the fiduciaries in whose names the bond is registered have been succeeded by other fiduciaries, satisfactory evidence of successorship must be furnished. (c) Boards, committees, etc.—A savings bond registered in the name of a board, committee, commission, or other body, empowered to act as a unit and to hold title to the property of a religious, educational, charitable, or nonprofit organization or public corporation will be paid upon a request for payment signed in the name of the board or other body by an authorized officer thereof. A request so signed and duly certified will ordinarily be accepted without further evidence of the officer's authority. The check in payment of the bond will be drawn in the name of the board or other body as fiduciary for the organization named in the registration or shown by satisfactory evidence to be entitled as successor thereto. (d) Corporate fiduciaries.—If a public or private corporation or a political body, such as a State or county, is acting as a fiduciary, a request must be signed in the name of the corporation or other body in the fiduciary capacity in which it is acting, by an authorized officer thereof. A request so signed and duly certified will ordinarily be accepted without further evidence of the officer's authority. (e) Registration not disclosing trust or other fiduciary estate.—If the registration of the bond does not show that it belongs to a trust or other fiduciary estate or does not identify the estate to which it belongs, satisfactory evidence of ownership must be furnished in addition to any other evidence required by this section. Sec. 315.78. Requests for payment at or after maturity.—A request for payment at or after the maturity date, or extended maturity date for bonds for which an optional extension period has been provided, signed by any one or. more acting fiduciaries, will be accepted. Payment ordinarily will be made by check drawn as the bond is inscribed. SUBPART Q — P R I V A T E ORGANIZATIONS (CORPORATIONS, A S S O C I A T I O N S , P A R T N E R S H I P S , ETC.) AND GOVERNMENTAL A G E N C I E S , U N I T S , AND OFFICERS Sec. 315.80. Payment to corporations or unincorporated associations.—A savings bond registered in the name of a private corporation or an unincorporated association will be paid to the corporation or unincorporated association upon request for payment on its behalf by a duly authorized officer thereof. The signature to the request should be in the form, for example, "The Jones Coal Company, a corporation, by John'Jones, President," or "The Lotus Club, an unincorporated association, by William A. Smith, Treasurer." A request for payment so signed and duly certified will ordinarily be accepted without further evidence of the officer's authority. Sec. 315.81. Payment to partnerships.-—A savings bond registered in the name of an existing partnership will be paid upon a request for payment signed by a general partner. The signature to the request should be in the form, for example, "Smith and Jones, a partnership, by John Jones, a general partner." A request for payment so signed and duly certified will ordinarily be accepted 260 1965 REPORT OF THE SECRETARY OF THE TREASURY as sufficient evidence that the partnership is sti.ll in existence and that the person signing the request is duly authorized. Sec. 315.82. Reissue or payment to successors of corporations, unincorporated associations, or partnerships.—A savings bond registered in the name of a private corporation, an unincorporated association, or a partnership which has been succeeded by another corporation, unincorporated association, or partnership by operation of law or otherwise, as the result of merger, consolidation, incorporation, reincorporation, conversion, or reorganization, or which has been lawfully succeeded in any manner whereby the business or activities of the original organization are continued without substantial change, will be paid to or reissued in the name of the succeeding organization upon appropriate request on its behalf, supported by satisfactory evidence of successorship. Form PD 1540 should be used. Sec. 315.83. Reissue or payment on dissolution of corporation or partnership. (a) Corporations.—K savings bond registered in the name of a private corporation which is in the process of dissolution will be paid to the authorized representative of the corporation upon a duly executed request for payment, supported by satisfactory eyidence of the representative's authority. Upon the termination of dissolution proceedings, the bond may be reissued in the names of those persons, other than creditors, entitled to the assets of the corporation, to the extent of their respective interests. Reissue under this subsection will be made .upon the duly executed request of the authorized representative of the corporation and upon proof that all statutory provisions governing the dissolution of the corporation have been complied with and that the persons in whose names reissue is requested are entitled and have agreed to the reissue. If the dissolution proceedings are under the direction of a court, a certified copy of an order of the court, showing the authority of the representative to make the distribution requested, must be furnished. (b) Partnerships.—A. savings bond registered in the name of a partnership which has been dissolved by death or withdrawal of a partner, or in any other manner, will be paid upon a request for payment by any partner or partners authorized by law to act on behalf of the dissolved partnership, or will be paid to or reissued in the names of the persons, other than creditors, entitled thereto as the result of such dissolution to the extent of their respective interests, upon their request supported by satisfactory evidence of their title, including proof that the debts of the partnership have been paid or properly provided for. Form PD 2514 should be used. Sec. 315.84. Payment to institutions {churches, hospitals, homes, schools, etc.).—A savings bond registered in the name of a church, hospital, home, school, or similar institution without reference in the registration to the manner in which it is organized or governed or to the manner in which title to its property is held will be paid upon a request for payment signed on behalf of such institution by an authorized representative. For the purpose of this section, a request for payment signed by a pastor of a church, superintendent of a hospital, president of a college, or by any official generally recognized as having authority to conduct the financial affairs of the particular institution will ordinarily be accepted without further proof of his authority. The signature to the request should be in the form, for example, "Shriners' Hospital for Crippled Children, St. Louis, Mo., by William A. Smith, superintendent," or "St. Mary's Roman Catholic Church, Albany, N.Y., by John Jones, pastor." Sec. 315.85. Reissue in name of trustee or agent for investment purposes.— A savings bond registered in the name of a religious, educational, charitable, or nonprofit organization^ whether or not incorporated, may be reissued in the name of a bank, trust company, or other financial institution, or an individual, as trustee or agent under an agreement with the organization under which the trustee or agent holds funds of the organization, in whole or in part, for the purpose of investing and reinvesting the principal and paying the income to the organization. Form PD 2177 should be used and should be signed on behalf of the organization by an authorized officer. Sec. 315.86. Reissue upon termination of investment agency.—A savings bond registered in the name of a bank, trust company, or other financial institution, or individual, as agent for investment purposes only, under an agreement with a religious, educational, charitable, or nonprofit organization, may be reissued in the name of the organization upon termination of the agency. The former agent should request such reissue and should certify that the organization is EXHIBITS 261 entitled by reason of the termination of the agency, using Form PD 1455. If such request and certification are not obtainable, the bond will be reissued in. the name of the organization upon its own request, supported by satisfactory evidence of the termination of the agency. Sec. 315.87. Payment to governmental agencies and units.—A savings bond registered in the name of a State, county, city, town, or village, or in the name of a Federal, State, or local governmental agency such as a board, commission, or corporation, will be paid upon a request signed in the name of the governmental agency or unit by a duly authorized officer thereof. A request for payment so signed and duly certified will ordinarily be accepted without further proof of the officer's authority. Sec. 315.88. Payment to Government officers.—^A savings bond registered in the official 'title of an officer of a Government agency or unit will be paid upon a request for payment signed by the designated officer. The fact that the request for payment is so signed and duly certified will ordinarily be accepted as proof that the person signing is the incumbent of the designated office. SUBPART R — M I S C E L L A N E O U S PROVISIONS Sec. 315.90. Waiver of regulations.—The Secretary of the Treasury reserves the right, in his discretion, to waive or modify any provision or provisions of these regulations in any particular case or class of cases for the convenience of the United States of America or in order to relieve any person or persons of unnecessary hardship, if such action would not be inconsistent with law and would not impair any existing rights, and if he is satisfied that such action would hot subject the United States of America to any substantial expense or liability. Sec. 315.91. Additional requirements; bond of indemnity; taxpayer identifying numbers.—The Secretary of the Treasury may require (a) such additional evidence as he may consider necessary or advisable, (b) a bond of indemnity, with or without surety, in any case where he may consider such a bond necessary for the protection of the interests of the United States of America, and (c) without prior notice, that appropriate taxpayer identifying numbers be furnished for issue, reissue, or payment of any savings bond. Sec. 315.92 Preservation of rights.—Nothing contained in these regulations shall be construed to limit or restrict existing rights which holders of savings bonds heretofore issued may have acquired under the circulars offering the bonds for sale or under the regulations in force at the time of purchase. Sec. 315.93. Supplements, amendments, or revisions.—The Secretary of the Treasury may at any time, or from time to time, prescribe additional, supplemental, amendatory, or revised rules and regulations governing United States savings bonds. JOHN K . CARLOCK, Fiscal Assistant Sew^etary of the Treasury. Exhibit 8.—Sixth revision, December 23, 1964, of Department Circular No. 653, offering of United States savings bonds, Series E TREASURY DEPARTMENT, Washington, December 23,1964. Department Circular No. 653, Fifth Revision, dated September 23, 1959, as amended (31 CFR 316), is hereby further amended and issued as the Sixth Revision.^ AUTHORITY: Sees. 316.1 to 316.14 issued under authority of sections 22 and 25 of the Second Liberty Bond Act, as amended, 49 Stat. 21, as amended, and 73 Stat. 621 (31 U.S.C. 757c, 757c-l). Sec. 316.1 Offering of bonds.—The Secretary of the Treasury offers for sale to the people of the United States, United States savings bonds of Series E, hereinafter generally referred to as Series E bonds. These bonds are substantially 1 The basic terms of the bonds offered under the Fifth Revision have not been changed. The material in the Fifth Revision and its three amendments has been reorganized and edited in connection with the publication of the 1965 edition of Title 31 of the Code of Federal Regulations. 262 19 65 REPORT OF THE SECRETARY OF THE TREASURY a continuation of the Series E bonds heretofore available. This offering of bonds will continue until terminated by t h e Secretary of the Treasury. Sec. ,316.2. Description of bonds currently offered.— ( a ) General.—Series E bonds bear a facsimile of the signature of t h e Secretary of the T r e a s u r y a n d of t h e Seal of the T r e a s u r y Department. The bonds a r e issued only in registered form and a r e nontransferable. (b) Denominations and prices.—Series E bonds a r e issued on a discount basis a t 75 percent of their face values. The denominations and issue prices are: Issue {purchase) Denomination {face value) price $25 $18.75 50 — 37.50 75 56.25 100 75.00 200 150.00 - 500. 375. 00 1,000 750.00 10,000 7, 500. 00 100,000 ' 75, 000. 00 (c) Inscription a n d issue.—At the time-of issue t h e issuing agent will (1) inscribe on the face of each Series E bond the n a m e and address of t h e owner, a n d the n a m e of t h e beneficiary, if any, or t h e name a n d address of one coowner, a n d the name of the other coowner, (2) enter in t h e upper right-hand portion of the bond the issue date, and (3) imprint the agent's dating stamp in the lower righth a n d portion to show t h e date t h e bond is actually inscribed. A Series E bond shall be valid only if an authorized issuing agent receives payment therefor and duly inscribes, dates, stamps, a n d makes delivery of the bond in accordance with t h e purchaser's instructions. The T r e a s u r y D e p a r t m e n t may require, without prior notice, t h a t the appropriate identifying number as required on t a x r e t u r n s and other documents submitted to the I n t e r n a l Revenue Service be furnished for inclusion in the inscription. (d) Term.—A Series E bond shall be dated as of the first day of the month in which payment of the issue price is received by a n agent authorized to issue such bonds. This date is t h e issue date and t h e bond will m a t u r e a n d be payable a t face value 7 years a n d 9 months from such issue date. The bond may not be called for redemption by t h e Secretary of the T r e a s u r y prior to m a t u r i t y or the end of the extended m a t u r i t y period (see sec. 316.8(a) ( 1 ) ) . The bond may be redeemed a t t h e owner's option a t any time after two months from issue date a t fixed redemption v a l u e s ; however, the T r e a s u r y D e p a r t m e n t may require reasonable notice of presentation of a bond for redemption prior to maturity. The owner h a s the option of continuing to hold the bond for an extended m a t u r i t y period a t a r a t e of interest to be determined prior to the original m a t u r i t y of such bond. (e) Investment yield {interest).—The investment yield (interest) o n a Series E bond will be approximately 3.75 percent per a n n u m compounded semiannually if t h e bond is held to m a t u r i t y ; ^ but the yield will be less if t h e bond is redeemed prior to m a t u r i t y . The interest will be paid as a p a r t of the redemption value. During the first six months from issue date the bonds will be redeemable only a t issue price. The redemption value will increase a t the end of the first halfyear period from issue d a t e and successive periods thereafter (see Table I ) . Sec. 316.3. Governing regulations.—Series E bonds are subject to the regulations of the T r e a s u r y Department, now o r hereafter prescribed, governing United States savings bonds, contained in D e p a r t m e n t Circular No. 530, current revision (31 C F R 315).' 1 The $100,000 denomination is available only for purchase by trustees of employees' savings plans as described in section 316,5(c). s u n d e r a u t h o r i t y of section 25, 73 S t a t 621 (31 U,S.C, 7 5 7 c - l ) . the President of the United S t a t e s on Sept. 22, 1959, concluded t h a t with respect to Series E bonds it was necessary in the national interest to exceed the raaximum interest r a t e and investment yield prescribed by section 22 of t h e Second Liberty Bond Act, as amended (31 U.S.C. 757c). 3 Copies may be obtained from any Federal Reserve bank or branch, or the Bureau of the Public Debt, Washington, D.C. 20220, or its Chicago Office, 536 South Clark Street, Chicago, 111. 60605. (See exhibit 7.) EXHIBITS 263 Sec. 316.4 Registration.— {a) Oeneral.—Generally, only residents of the United States, its territories and possessions, the Commonwealth of Puerto Rico, the Canal Zone and citizens of the United States temporarily residing abroad are eligible to be named as owners of Series E bonds. The bonds may be registered in the names of natural persons in their own right as provided in (b) of this section, and in the names and titles or capacities of fiduciaries and organizations as provided in (c) of this section. Full information regarding authorized forms of registration and restrictions with respect thereto will be found in the governing regulations. (b) Natural persons in their own right.—The bonds may be registered in the names of natural persons (whether adults or minors) in their own right, in single ownership, coownership, and beneficiary forms. (c) Others.—The bonds may be registered in single ownership form in the names of fiduciaries and private and public organizations, as follows: (1) Fiduciaries.—In the names of and showing the titles or capacities of any persons or organizations, public or private, as fiduciaries (including trustees, legal guardians or similar representatives, and certain custodians), but not where the fiduciary would hold the bonds merely or principally as security for the performance of a duty, obligation, or service. (2) Private and public organizations.—In the names of private or public organizations (including private corporations, partnerships, and unincorporated associations, and States, counties, public corporations, and other public bodies) in their own right, but not in the names of commercial banks.^ Sec. 316.5. Limitations on holdings.—The amount of Series E bonds originally issued during any one calendar year that may be held by any one person, at any one time, computed in accordance with the governing regulations, is limited, as follows: (a) General limitation.—$10,000 (face value) for the calendar year 1959 and each calendar year thereafter. (b) Special limitation for owners of savings bonds of Series F, G, J, and K.— Owners, except commercial banks ^ in their own right (as distinguished from a representative or fiduciary capacity), of outstanding bonds of Series F and G, all of which are now matured, and bonds of Series J and K, at or after maturity, may purchase Series E bonds with the proceeds of redemption without regard to the general limitation on holdings, under the following restrictions and conditions: (1) The bonds must be presented to a Federal Reserve bank or branch, the Office of the Treasurer of the United States, Securities Division, or the Bureau of the Public Debt, Division of Loans and Currency Branch, for the specific purpose of taking advantage of this privilege. The Series E bonds will be dated as of the first day of the month in which the bonds presented are received by the agency. (2) Series E bonds may be purchased with the proceeds of the bonds presented only up to the denominational amounts that the proceeds thereof will fully cover. Any difference between such proceeds and the purchase price of the Series E bonds will be paid to the owner. (3) The Series E bonds will be registered in the name of the owner in any authorized form of registration, subject to the restrictions prescribed by the governing regulations. (4) This privilege will continue until terminated by the Secretary of the Treasury. (c) Special limitation for employees' savings plans.—$2,000 (face value) multiplied by the highest number of participants in an employees' savings plan, as defined in (1) of this paragraph, at any time during the year in which the bonds are issued.^ (1) Definition of plan and conditions of eligibility.— (i) The employees' savings plan must have been established by the employer for the exclusive and irrevocable benefit of his employees or their beneficiaries, 1 Commercial banks, as defined in section 315.7(d)(2) of Department Circular No. 530, current revision, the governing regulations, for this purpose are those accepting demand deposits. ^ Savings and vacation plans may be eligible for this special limitation. Questions concerning eligibility of such plans should be addressed to the Bureau of the Public Debt, Division of Loans and Currency Branch, 536 South Clark Street, Chicago, 111. 60605. 264 19 65 REPORT OF THE SECRETARY OF THE TREASURY afford employees the means of making regular savings from their wages through payroll deductions, and provide for employer contributions to be added to such savings. (ii) The entire assets thereof must be credited to the individual accounts of participating employees and assets credited to the account of an employee may be distributed only to him or his beneficiary, except as otherwise provided herein. (iii) Series E bonds may be purchased only with assets credited to the accounts of participating employees and only if the amount taken from any account at any time for that purpose is equal to the purchase price of a bond or bonds in an authorized denomination or denominations, and shares therein are credited to the accounts of the individuals from which the purchase price thereof was derived, in amounts corresponding with their shares. For example, if $37.50 credited to the account of John Jones is commingled with funds credited to the accounts of other employees to make a total of $7,500, with which a Series E bond in denomination of $10,000 (face value) is purchased in January 1965 and registered in the name and title of the trustee or trustees', the plan must provide, in effect, that John Jones' account shall be credited to show that he is the owner of a Series E bond in the denomination of $50 (face value) bearing the issue date of January 1,1965. (iv) Each participating employee shall have an irrevocable right at any time to demand and receive from the trustee or trustees all assets credited tO' his account or the value thereof, if he so prefers, without regard to any condition other than the loss or suspension of the privilege of participating further in the plan, except that a plan will not be deemed to be inconsistent herewith if it limits or modifies the exercise of any such right by providing that the employer's contribution does not vest absolutely until the employee shall have made contributions under the plan in each of not more than 60 calendar months succeeding the month for which the employer's contribution is made. (v) Upon the death of an employee, his beneficiary shall have the absolute and unconditional right to demand and receive from the trustee or trustees all the assets credited to the account of the employee, or the value thereof, if he so prefers. (vi) When settlement is made with an employee or his beneficiary with respect to any Series E bond registered in the name and title of the trustiee or trustees in which the employee has a share (see (ii) hereof), the bond must be submitted for redemption or reissue to the extent of such share; if an employee or his beneficiary is to receive distribution in kind, bonds bearing the same issue dates as those credited to the employee's account will be reissued in the name of the distributee to the extent to which he is entitled, in authorized denominations, in. any authorized form of registration, upon the request and certification of the trustee or trustees in accordance with the regulations governing United States savings bonds. (2) Definitions of terms used in this section and related provisions.— (1) The term "savings plan" includes any regulations issued under the plan with regard to 'Series E bonds; a copy of the plan and any such regulations, together with a copy of the trust agreement certified by a trustee to be true copies, must be submitted to the Federal Reserve bank of the district in order to establish the eligibility of the trustee or trustees to purchase bonds in excess of the general limitation in any calendar year. (ii) The term "assets" means all funds, including the .employees' contributions and employer's contributions and assets purchased therewith as well as accretions thereto, such as dividends on stock, the increment in value on bonds and all other income; but, notwithstanding any other provision of this section, the right to demand and receive "all assets" credited to the account of an employee shall not be construed to require the distribution of assets in kind when it would not be possible or practicable to make such distribution; for example, Series E bonds may not be reissued in unauthorized denominations, and fractional shares of stock are not readily distributable in kind.. (iii) The term "beneficiary".means the person or persons, if any, designated by the employee in accordance with the terms of the plan to receive the benefits of the trust upon his death or the estate of the employee, and the term "distributee" means the employee or his beneficiary. EXHIBITS 265 Sec. 316.6 Purchase of bonds.—Series E bonds may be purchased, as follows: (a) Over-the-counter for cash. (1) Bonds registered in names of natural persons in their own right only.— At such incorporated banks, trust companies, and other agencies as have been duly qualified as issuing agents and at selected United States post offices. (2) Bonds registered in all authorized forms.—At Federal Reserve banks and branches and at the Office of the Treasurer of the United States, Securities Division, Washington, D.C. 20220. (b) On mail order.—By mail upon application to 'any Federal Reserve bank or branch or to the Office of the Treasurer of the United States, Securities Division, W^ashington, D.C. 20220, accompanied by a remittance to cover the issue price. Ajoy form of exchange, including personal checks, will be accepted suhject to collection. Checks or other forms of exchange should be drawn to the order of the Federal Reserve bank or the Treasurer of the United States, as the case may be. Checks payable by endorsement are not acceptable. Any depositary qualified pursuant to the provisions of Treasury Department Circular No. 92, current revision (31 CFR 203), will be permitted to make payment by credit for bonds applied for on behalf of its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve bank of its district. (c) Savings stamps.—Savings stamps, in authorized denominations may be purchased at most post offices and at such other agencies as may be designated from time to time. The stamps may be used to accumulate credits for the purchase of Series E bonds. Albums for affixing the stamps will be available without charge, and such albums vnll be receivable h j any authorized issuing agent in the amount of the affixed stamps on -the purchase price of the bonds. 'Sec. 316.7. Delivery of bonds by mail.—Issuing agents are authorized to deliver Series E bonds by mail at the risk and expense of the United States, at the address given by the purchaser, but only within the United States, its territories and possessions, the Commonwealth of Puerto Rico, and the Canal Zone. No mail deliveries elsewhere will be made. If purchased by citizens of the United States temporarily residing abroad, the bonds will be delivered at such address in the United 'States as the purchaser directs. Sec. 316.8. Extended terms and improved yields for outstanding bonds.— (a) Optional extension privileges. (1) General.—The term "optional extension privilege," when used herein, means the privilege of retaining Series E bonds after maturity for a period, known as the "extended maturity period," or as the "second extended maturity period," and of earning interest upon the maturity values or extended maturity values thereof, as the case may be.^ The tables at the end of this circular, whicli are incorporated herein, show current redemption values and investment yields. No special action is required of owners desiring to take advantage of any optional extension privilege. Merely by continuing to hold their bonds after maturity, they will continue to earn further interest. Interest will accrue at the end of the first half-year period following maturity or extended maturity and at the end of each successive half-year period thereafter until final maturity. (2) For bonds loith issue dates of May 1, 1941, through May 1, 1949.— Owners of Series E bonds with issue dates of May 1, 1941, through May 1, 1949, have the option of retaining their bonds for a second extended maturity period of ten years. (3) For bonds with issue dates of June 1, 1949, through April 1, 1957.— Owmers of Series E bonds with issue dates of June 1, 1949, through April 1, 1957, have the option of continuing to hold their bonds for an extended maturity period of ten years. (4) For bonds ivith issue date of May 1, 1957, or thereafter.—^Owners of Series E bonds with issue date of May 1, 1957, or thereafter have the option of continuing to hold such bonds for an extended maturity period of ten years at rates of interest to be determined prior to the original maturity of such bonds. (b) Improved yields. (1) For bonds with issue dates of MOAJ 1, 1941, through May 1, 1949.—The investment yields on outstanding Series E bonds with issue dates of May 1, 1 The rederaption value of any bond at original m a t u r i t y is t h e base upon which interest will accrue during t h e extended m a t u r i t y period. The redemption value of auy bond a t t h e end of the extended m a t u r i t y period is the base upon which interest accrues during t h e second extended m a t u r i t y period. 266 19 65 REPORT OF THE SECRETARY OF THE TREASURY 1941, through May 1, 1949, were increased for the remaining period of their extended maturity: (i) by not less than six-tenths of one percent per annum on bonds with issue dates of May 1, 1941, through April 1, 1942; and (ii) fivetenths of one percent per annum on bonds with issue dates of May 1, 1942, through May 1, 1949, if held to the end of the extended m'aturity period, and by lesser amounts if redeemed earlier.^ The improvement in investment yields started on June 1, 1959, for bonds with the issue months of June or December and on the date of the first increase in redemption value after June 1, 1959, for a bond with any other issue month. The resulting yields are in terms of rate percent per annum, compounded semiannually. See tables 2 through 19" for current redemption values and investment yields. (2) For bonds with issue dates of June 1, 1949, through April 1, 1957.^— The investment yields on outstanding Series E bonds with issue dates of June 1, 1949, through April 1, 1957, were increased for the extended maturity period by approximately three-fourths of one percent per annum, compounded semiannually for bonds held at the end of that period and by lesser amounts if redeemed earlier. See tables 20 through 37 ^ for current redemption values and investment yields. (3) For bonds with issue dates of May 1, 1957, through May 1, 1959^—The investment yields on outstanding Series E bonds with issue dates of May 1, 1957, through May 1, 1959, were increased beginning June 1, 1959, by five-tenths of ohe percent per annum if held to original maturity and by lesser amounts if redeemed earlier. The improvement in investment yields started on June 1, 1959, for bonds with the issue months of June or December and on the date of the first increase in redemption value after June 1, 1959, for a bond with any other issue month. The resulting yields are in terms of rate percent per annum, compounded semiannually. See tables 38 through 42^ for current redemption values and investment yields. Sec. 316.9. Taxation.— (a) General.—^For the purpose of determining taxes and tax exemptions, the increment in value represented by the difference between the price paid for Series E bonds (which are issued on a discount basis) and the redemption value received therefor shall be considered as interest. Such interest is subject to all taxes imposed under the Internal Revenue Code of 1954. The bonds are subject to estate", inheritance, gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. (b) Federal income tax on Series E bonds.—An owner of Series E bonds who is a cash basis taxpayer and accordingly not required to report the increase in redemption value bf his bonds each year as it accrues is required to include such amount in gross income for Federal income tax purposes for the taxable year of final maturity, actual redemption, or other disposition, whichever is earlier. An owner not reporting the increase in redemption value of such bonds currently for income tax purposes may elect in any year prior to final maturity, subject to the provisions of section 454 of the Internal Revenue Code of 1954 and the regulations prescribed thereunder, for such year and subsequent years to report such income annually. An owner who is required, or chooses, to report the increase in redemption value of his bonds each year as it accrues must continue to do so so long as he retains the bonds, unless in accordance with the income tax regulations he obtains permission from the Internal Revenue Service to change to a different method of reporting income from such obligations. In1 The investment yields for the full extended m a t u r i t y period of the bonds referred to in section 316.8(a) (2) a n d ( b ) ( 1 ) were, according to issue dates, a s follows : May 1, 1941, t h r o u g h Apr. 1, 1942 2. 90 May 1, 1942, through May 1, 1949 3. 00 percent per annum, compounded semiannually. 2 See " N o t e " a t end of this exhibit. 3 The investment yields for the full original maturity/ period of bonds referred to in section 3 1 6 . 8 ( b ) ( 2 ) and ( 3 ) , were, according to issue dates, as follows: Dec. 1, 1949, t h r o u g h Apr. 1, 1952 2. 90 May 1, 1952, through J a n . 1, 1957 3. 00 Feb. 1, 1957, through May 1, 1959 3. 25 These yields were increased, effective one-half year from the next date after J u n e 1, 1959, on which t h e redemption value increased, by not less t h a n six-tenths of one percent for bonds w i t h issue dates of Dec. 1, 1949, through Apr. 1, 1952, and by five-tenths of one percent for bonds w i t h issue dates of May 1, 1952, through May 1, 1959. All of these yields a r e in t e r m s of r a t e percent per annum, compounded semiannually. EXHIBITS 267 quiry concerning further information on Federal taxes should be addressed to the district director, Internal Revenue Service, of the taxpayer's district, or the Internal Revenue Service, Washington, D.C, 20224. Sec. 316.10. Payment or redemption.— (a) General.—A Series E bond may be redeemed in accordance with its terms at the appropriate redemption value as shown in the applicable tables hereof for bonds bearing various issue dates back to May 1, 1941. The redemption values of bonds in the denomination of $100,000^ (which was authorized as of January 1, 1954) are not shown in the tables. However, the redemption values of bonds in that denomination will be equal to the total redemption values of ten $10,000 bonds bearing the same issue dates. A Series E bond in a denomination higher than $25 (face value) may be redeemed in part but only in the amount of an authorized denomination or multiple thereof. (to) Federal Reserve banks and branches and Treasurer of the United States.—Owners of Series E bonds may obtain payment upon presentation and surrender of the bonds to a Federal Reserve bank or branch or to the Office of the Treasurer of the United 'States, Securities Division, Washington, D.C, 20220, with the requests for payment on the bonds duly executed and certified in accordance with the governing regulations. (c) Incorporated banks, trust companies, and other financial institutions.— An individual (natural person) whose name is inscribed on a Series E bond either as OAvner or coowner in his own right may also present such bond to any incorporated bank or trust company or other financial institution which is qualified as a paying agent under Department Circular No. 750, current revision (31 CFR 321). If such bond is in order for payment by the paying agent, the owner or coowner, upon estaiblishing his identity to the satisfaction of the agent and upon signing the request for payment and adding his home or business address, may receive immediate payment of the current redemption value. Sec. 316.11. Reservation as to issue of bonds.—The Secretary of the Treasury reserves the right to reject any application for Series E bonds, in whole or in part, and to refuse to issue or permit to be issued hereunder any such bonds in any case or any class or classes of cases if he deems such action to be in the public interest, and his action in any such respect shall he final. Sec. 316.12. Preservation of rights.—Nothing contained herein shall limit or restrict rights which owners of Series E bonds heretofore issued have acquired under offers previously in force. Sec. 316.13. Fiscal agents.—Federal Reserve banks and branches, as fiscal agents of the United States, are authorized to perform such services as may be requested of them by the Secretary of the Treasury in connection with the issue, delivery, redemption, and payment of Series E bonds. Sec. 316.14. Reservations as to terms of offer.—^The Secretary of the Treasury may at any time or from time to time supplement or amend the terms of this offering of bonds (31 OFR 316), or of any amendments or supplements thereto. JOHN K . CARLOCK, Fiscal Assistant Secretary of the Treasury. 1 The $100,000 denomination is only available for purchase by trustees of employees* savings plans as described in section 316.5(c). TABLES OF REDEMPTION VALUES AND INVESTMENT YIELDS FOR U N I T E D STATES SAVINGS BONDS OF SERIES E Each table shows: (1) How bonds of Series E bearing the issue dates covered by the table, by denominations, iacrease tn redemption value for each successive half-year period (a) following the date of issue for bonds bearing issue dates begimiing Dec, 1,1954; (b) following original maturity for bonds bearing issue dates of Dec. 1, 1944, through Nov. 1, 1954 (c) following first extended matmity for bonds bearing issue dates of May 1, 1941, through Nov. 1, 1944 (for the latest revised redemption values and investment yields duriag original maturity and first extended maturity periods not shown in these tables seeDepartment Circular 653, Fifth Revision, dated Sept. 23, 1959); (2) the approximate investraent yield on the purchase price from issue date to the beginning of each half-year period shown on the table; and (3) the approximate investment yield on the current redemption value from the beginniag of each half-year period sho\vn on the table to maturity. Yields are expressed tn terms of rate percent per annum, compounded semiannually. to 00 TABLE I.—Bonds bearing issue dates beginning June 1, 1959 Issueprice Maturity value. Period after issue date First ^2 year ., 3^ to 1 year 1 to IH years : 13^ to 2 years 2 to 2H years 2H to 3 years 3 to Z}4 years 3H to 4 years 4 to 41^ years 4K to 5 years 6 to 5H years 5H to 6 years 6 to 6H years 6H to 7 years 7 to 7H years ^H years to 7 years and 9 months MATURITY VALUE (7 years and 9 months from issue date) • $18. 75 25.00 $37,50 50.00 $56, 25 75,00 $75. 00 100,00 $150.00 200,00 $375.00 500.00 $750,00 1,000,00 $7, 600 10,000 Approxunate investment yield 1 (2) On pur(3) On current chase price redemption from issue date value from be(1) Redemption values duriag each half-year period 2 (values increase on first day of period shown) to beginning of ginning of each each half-year half-year perperiod 1 iod 2 to maturity $18. 75 18,91 19,19 19,51 19.90 20, 28 20.66 21.07 21,50 21. 95 22.40 22.86 23.32 23.79 24,27 24,75 $37, 50 37.82 38.38 39.02 39.80 40,56 41.32 42.14 43.00 43.90 44.80 45.72 46.64 47.58 48,54 49,50 25,00 50,00 $56. 25 56,73 57,57 58,53 59,70 60.84 61.98 63,21 64,50 65,85 67. 20 68.58 69.96 71.37 72.81 74.25 $75. 00 75.64 76,76 78,04 79.60 81.12 82,64 84,28 86.00 87.80 89.60 91.44 93.28 95.16 97.08 99.00 $150,00 151.28 153, 52 156. 08 159. 20 162, 24 165, 28 168. 56 172.00 175. 60 179. 20 182.88 186, 56 190,32 194,16 198, 00 $375,00 378, 20 383, 80 390.20 398,00 405, 60 413,20 421.40 430,00 439.00 448, 00 457, 20 466, 40 475,80 485.40 495. 00 100. 00 200.00 500.00 $750.00 756, 40 767, 60 780, 40 796.00 811. 20 826, 40 842,80 860, 00 878, 00 896.00 914, 40 932,80 951, 60 970,80 990,00 $7, 500 7,564 7.676 7,804 7,960 8,112 8,264 8,428 8,600 8,780 8,960 9,144 9,328 9,516 9,708 9,900 Percent 0.00 1.71 2.33 2.67 3.00 3.16 3.26 3,36 3,45 3,53 3,59 3,64 3,67 3,70 3.72 3.74 10,000 3.75 Percent 53.75 3,89 3,96 4,01 4.01 •4.03 4.05 4.06 4,06 4,04 4.03 4,02 '4, 01 4,01 3.99 4,06 o w Ul o pi > Pi o W H9 1,000.00 1 Calculated on basis of $1,000 bond (face value), 2 3-month period in the case of the 7^^ year to 7 year and 9 nionth period. 3 Approximate investment yield for entire period from issuance to maturity. NOTE.—The other tables are not reproduced in this exhibit as the redemption values and approximate investment yields shown in those tables are the same as those published in previous annual reports as follows: tables 2-19 cover bonds bearing issue dates from May 1, 1941, through May 1, 1949, and appear as tables I-XVIII, respectively, on pages 275-292 of the 1961 annual report; and tables 20-42 cover bonds bearing issue dates from June 1, 1949, through May 1,1959, which appear on pages 232-254 of the 1960 annual report. O Pi > Ul Pi EXHIBITS 269 Exhibit 9.—Fifth amendment, December 23, 1964, of Department Circular No. 750, regulations governing payments by banks and other financial institutions in connection with the redemption of United States savings bonds TREASURY DEPARTMENT, Washington, December 23,1964. Subsection (a) of section 321.4 Department Circular No. 750, Revised, dated June 30, 1945, as amended and supplemented (31 CFR, Part 321), is hereby further amended as follows: Sec. 321.4. Meariing of terms in this circular * * * (a) 'Taying agent(s)" or "agent(s)" shall mean (1) any eligible financial institution duly qualified pursuant to the provisions of this circular (31 CFR 321) to make payments in connection with the redemption and redemptionexchange of the United States savings bonds hereinafter specified, including branches of such institutions located within the United States, its territories and possessions, the Commonwealth of Puerto Rico and the Canal Zone, and (2) banking facilities of such institutions established at Armed Forces installations and other places with the specific approval of the Treasury Department. JOHN K . CARLOCK, Fiscal Assistant Secretary of the Treasury. Exhibit 10.—-Third revision, December 23, 1964, of Department Circular No. 905, offering of United States savings bonds, Series H TREASURY DEPARTMENT, Washington, December 23,1964Department Circular No. 905, Second Revision, dated September 23, 1959, as amended (31 CFR 332), is hereby further amended and issued as the Third Revision.^ AUTHORITY: Sees. 332.1 to 332.14 issued under authority of sections 22 and 25 of the Second Liberty Bond Act, as amended, 49 Stat. 21, as amended, and 73 Stat. 621 (31 U.S.C. 757c, 757c-l). Sec. 332.1. Offering of bonds.—The Secretary of the Treasury offers for sale to the people of the United States, United States savings bond of Series H, hereinafter generally referred to as Series H bonds. These bonds are substantially a continuation of the Series H bonds heretofore available. This offering of bonds will continue until terminated by the Secretary of the Treasury. Sec. 332.2. Description of bonds currently offered.— (a) General.—Series H bonds bear a facsimile of the signature of the Secretary of the Treasury and of the Seal of the Treasury Department. The bonds are issued only in registered form and are nontransferable. (b) Denominations and prices.—Series H bonds are issued at par and are available in denominations of $500, $1,000, $5,000, and $10,000. (c) Inscription and issue.—At the time of issue the issuing agent will (1) inscribe on the face of each Series H bond the name, taxpayer identifying number,^ and address of the owner, and the name of the beneficiary, if any, or the names of the coowners, the taxpayer identifying number of one coowner,^ and the address of one coowner, (2) enter in the upper right-hand portion of the bond the issue date, and (3) imprint the agent's dating stamp in the lower right-hand portion to show the date the bond is actually inscribed. A Series H bond shall be valid only if an authorized issuing agent receives payment therefor and duly inscribes, dates, stamps, and makes delivery of the bond in accordance with the purchaser's instructions. 1 The basic terms of the bonds offered under the Second Revision have not been changed. The raaterial in the Second Revision and its four amendments has been reorganized and edited in connection with the publication of the 1965 edition of Title 31 of the Code of Federal Regulations. 2 The number required to be used on tax returns and other documents submitted to the Internal Revenue Service (an individual's social security account number or employer identification number). If the coowners are husband and wife, the husband's number should be furnished. If the coowners are a minor and an adult, the adult's number should be furnished. 270 19 65 REiPORT OF THE SECRETARY OF THE TREASURY (d) Terms.—A Series H bond will be dated as of the first day of the month in which payment therefor is received by an agent authorized to issue such bonds. This date is the issue date and the bond will mature and be payable ten years from such issue date. The bond may not be called for redemption by the Secretary of the Treasury prior to maturity, but may be redeemed, AT PAR after six months from issue date, at the owner's option, but only upon one calendar month's notice as provided in sec. 332.10. (e) Interest {investment yield).—The interest on a Series H bond will be paid semiannually by check drawn to the order of the registered owner or coowners, beginning six months from issue date. Interest payments will be on a. graduated scale, fixed to afford an investment yield of approximately 3.75 percent per annum, compounded semiannually if the bond is held to maturity;' but the yield will be less if the. bond is redeemed prior to maturity. (See table I of the tables at the end of this circular, which are incorporated herein.) Interest will cease at maturity, or in the case of redemption before maturity, at the end of the interest period next preceding the date of redemption, except that if the date of redemption falls on an interest payment date, interest will cease on that date. Sec. 332.3. Governing regulations.—Series H bonds are subject to the regulations of the Treasury Department, now or hereafter prescribed, governing United States savings bonds, contained in Department Circular No. 530, current revision (31 CFR 315).' Sec. 332.4. Registration.— (a) General.—Generally, only residents of the United States, its territories and possessions, the Commonwealth of Puerto Rico, the Canal Zone and citizens of the United States temporarily residing abroad are eligible to be named as owners of Series I-I bonds. The bonds may be registered in the names of natural persons in their own right as provided in (b) of this section, and in the names and titles or capacities of fiduciaries and organizations as provided in (c) of this section. Full information regarding authorized forms of registration and restrictions with respect thereto will be found in the governing regulations. (b) Natural persons in their own right.—The bonds may be registered in the names of natural persons (whether adults or minors) in their own right, in single ownership, coownership, and beneficiary forms. (c) Others.—The bonds may be registered in single ownership form in the names of fiduciaries and private and public organizations, as follows: (1) Fiduciaries.—In the names of and showing the titles or capacities of any persons or organizations, public or private, as fiduciaries (including trustees, legal guardians or similar representatives, and certain custodians) but not where the fiduciary would hold the bonds merely or principally. as security for the performance of a duty, obligation, or service. (2) Private and public organizations.—In the names of private or public organizations (including priva.te corporations, partnerships, and unincorporated associations, and States, counties, public corporations, and other public bodies), in their own right, but not in the names of commercial banks.^ Sec. 3'32.5. Limitations on holdings.—The amount of Series H bonds originally issued during any one calendar year that may be held by any one person at any one time, computed in accordance with the governing regulations, is limited, as follows: (a) General Umitation.—$20,000 (face value) for the calendar year 1962 and each calendar year thereafter. (b) Special limitation for owners of savings bonds of Series F, G, J, and K.— Owners, except commercial banks'^ in their own right (as distinguished from a representative or fiduciary capacity), of outstanding bonds of Series F and G,' 1 Under a u t h o r i t y of section 25, 73 S t a t . 621 (31 U.S.C. 7 5 7 c - l ) , the President of the United States on Sept. 22, 1959, concluded t h a t with respect to Series H bonds it was necessary in the n a t i o n a l interest to exceed the maxiraura interest r a t e and investraent yield prescribed by section 22 of the Second Liberty Bond Act, as amended (31 U.S.C. 757c). : 2 Copies may be obtained on application to any Federal Reserve bank or branch or the Bureau of t h e Public Debt, Washington, D . C , 20220. or its Chicago Office, 536 South Clark Street, Chicago, 111., 60605. (See exhibit 7.) 3 Comraercial banks as defined in section 3 1 5 . 7 ( d ) ( 2 ) of Departraent Circular No. 530, c u r r e n t revision, the governing regulations, for t h i s purpose are those accepting demand deposits. EXHIBITS 271 all of which are now matured, and bonds of Series J and K, at or after maturity may apply the proceeds of such bonds to the purchase of Series H bonds without regard to the general limitation on holdings, under the following restrictions and conditions: (1) The bonds must be presented to a Federal Reserve bank or branch, the Office of the Treasurer of the United States, Securities Division, or the Bureau of the Public Debt, Division of Loans and Currency Branch, for the specific purpose of taking advantage of this privilege. The Series H bonds will be dated as of the first day of the month in which the bonds presented are received by the issuing agent. (2) Series H bonds may be purchased with the proceeds of the bonds presented only up to the denominational amounts that the proceeds thereof will fully cover. Any difference between such proceeds and the purchase price of the Series H bonds will be paid to the owner. (3) The Series H bonds will be registered in the name of the owner in any authorized form of registration subject to the restrictions prescribed by the governing regulations. (4) This privilege will continue until terminated by the Secretary of the Treasury. (c) Exchanges pursuant to Department Circular No. 1036, as amended.—Series H bonds issued in exchange for bonds of Series E, Series F, or Series J under the provisions of Department Circular No. 1036, as amended (31 CFR 339), are exempt from the annual limitation. Sec. 332.6 Purchase of bonds.—(a) Agents.—Only the Federal Reserve banks and branches and the Treasury Department are authorized to act as official issuing agents for the sale of Series H bonds. However, commercial banks and trust companies may forward applications for purchase of the bonds. The date of receipt of the application and payment to an issuing agent will govern the issue date of the bonds purchased. (b) Application for purchase and remittance.—The applicant for purchase of Series H bonds should furnish (1) instructions for registration of the bonds to be issued, which must be in an authorized form, (2) the appropriate taxpayer identifying number or numbers,^ (3) the post office address of the owner or a coowner (preferably the first-named), (4) the address for delivery of the bonds, and (5) the address for mailing checks in payment of interest. The application should be forwarded to a Federal Reserve bank or branch or the Office of the Treasurer of the United States, Securities Division, Washington, D.C, 20220, accompanied by a remittance to cover the purchase price. Any form of exchange including personal checks will be accepted subject to collection. Checks or other forms of exchange should be drawn to the order of the Federal Reserve bank or Treasurer of the United States, as the case may be. Checks payable by endorsement are not acceptable. Any depositary qualified pursuant to Treasury Department Circular No. 92, current revision (31 CFR 203), will be permitted to make payment by credit for bonds applied for on behalf of its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve bank of its district. Sec. 332.7. Delivery of SoncZs.—Authorized issuing agents will deliver the Series H bonds either in person, or by mail at the risk and expense of the United States at the address given by the purchaser, but only within the United States, its territories and possessions, the Commonwealth of Puerto Rico, and the Canal Zone. No mail deliveries elsewhere will be made. If purchased by citizens of the United States temporarily residing abroad, the bonds will be delivered at such address in the United States as the purchaser directs. Sec. 332.8. Improved yield and extension of term for outstanding bonds.— (a) Improved yield to maturity for outstanding bonds with issue dates of June 1, 1952, through May 1, 1959.—The investment yields on all outstanding Series H bonds with issue dates prior to June 1, 1959, were increased, beginning on and after June 1, 1959, as described below, for the remaining period to maturity, iThe number required to be used on tax returns and other documents submitted to the Internal Revenue Service (an individual's social security account number or employer identification number). If the coowners are husband and wife, the husband's number should be furnished. If the coowners are a minor and an adult, the adult's number should be furnished. 272 19 65 REiPORT OF THE SECRETARY OF THE TREASURY by not less than one-half of one percent, and by les'ser amounts if redeemed earlier.^ The resulting yields are in terms of rate percent per annum, compounded semiannually. See Tables 2 through 16 ^ for current schedules of interest payments and investment yields. This increase became effective beginning with interest payments due December 1, 1959, for bonds with the issue month of June or December of any year prior to 1950, and for all other bonds on the next interest payment date after December 1, 1959. (b) Extended maturity period for bonds with issue dates of June 1, 1952, through January 1, 1957.—Owners of Series H bonds with these issue dates have the option of continuing to hold such bonds for an extended maturity period of ten years with an investment yield of approximately 3.75 percent payable semiannually. Bonds held after maturity will earn further interest which will accrue and be paid semiannually by check drawn to the order of the owner or coowners beginning; six months from the original maturity dates. Interest payments will be made in the amounts shown in Tables 2 through 11.^ Sec. 332.9 Taxation.—The income derived from Series H bonds is subject to all taxes imposed under the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift, or other excise taxes, whether Federal or ^State, but are exempt from all taxation now or hereafter imposed on the principal or intere'st thereof by any State, by any of the possessions of the United; States or by any local taxing authority. Sec. 332.10. Payment or redemption.— (a) Prior to maturity.—^Pl^ior to maturity a Series H bond will be redeemed AT PAR, in whole or in part, in the amount of an authorized denomination or multiple thereof, at the option of the owner, after six months from the issue date upon one calendar month's notice to (1) a Federal Reserve bank or branch, (2) the Office of the Treasurer of the United States, Securities Division, Washington, D.C, 20220, or (3) the Bureau of the Public Debt, Division of Loans and Currency Branch, 5'36 South Clark Street, Chicago, 111., 60605. Such notice may be given separately, in writing, or by presenting and surrendering the bond with a duly executed request for payment. If notice is given separately, the bond must be presented with a duly executed request for payment to the same agent not less than twenty days before the redemption date fixed by the notice. Payment will be made as of the first day of the first month following by at least one full calendar month the date of the receipt of notice. (b) At maturity.—IJpon maturity a Series H bond will be redeemed at par upon presentation of the bond with a duly executed request for payment to one of the agents designated in (a) of this section. Any Series H bond having an extended maturity period will be redeemed at par upon original maturity and for two calendar months following the month in which the bond originally matures without advance notice.^ (c) During extended m-aturity period.—A Series H bond having an extended maturity period will, beginning with the first day of the third calendar month followiag the calendar month in which the bond originally matures, be regarded as unmatured until it reaches its final maturity date and may be redeemed in the same manner and subject to the isame notice for redemption as provided in (a) of this section. 'Sec. 332.11. Reservation as to issue of bonds.—The Secretary of the Treasury reserves the right to reject any application for Series H bonds, in whole or in part, and to refuse to issue or permit to be issued hereunder any such bonds in any case or any clas's or classes of cases if he deems isuch action to be in the public interest, and his action in any such respect shall be final. Sec. 332.12. Preservation of rights.—Nothing contained herein shall limit or restrict rights Which owners of Series H bonds heretofore issued have acquired under offers previously in force. 1 The investment yield to m a t u r i t y heretofore prescribed for the bonds referred to in section 332.8(a) were (according to issue d a t e s ) , as follows: J u n e 1, 1952, t h r o u g h J a n . 1, 1957 3, 00 Feb. 1, 1957, through May 1, 1959 3. 25 percent per a n n u m corapounded seraiannually. 2 See "Note" at end of this exhibit. 3 For example, if a bond is dated J u n e 1, 1955, t h e date of original m a t u r i t y is Feb. 1, 1965. The date on which t h e r i g h t to payment w i t h o u t advance notice will be suspended is May 1, 1965. 273 EXHIBITS Sec. 332.13. F i s c a l a g e n t s . — F e d e r a l Reserve b a n k s a n d branches, a s fiscal agents of t h e United States, a r e a u t h o r i z e d t o perform such services a s m a y be requested 'of them by t h e S e c r e t a r y of t h e T r e a s u r y in connection w i t h t h e issue, delivery, redemption a n d p a y m e n t of Series H bonds. Sec. 332.14. R e s e r v a t i o n a s to t e r m s of offer.—The Secretary of t h e T r e a s u r y m a y a t a n y time or from t i m e to time supplement or a m e n d t h e t e r m s of this offering of bonds (31 C F R 332), or of any a m e n d m e n t s or supplements t h e r e t o . JOHN K . CARLOCK, F i s c a l A s s i s t a n t S e c r e t a r y of the T r e a s u r y . TABLES OF CHECKS ISSUED AND INVESTMENT YIELDS F O R UNITED STATES SAVINGS BONDS OF SERIES H Each table shows: (1) Amounts of interest checks paid on United States savings bonds of Series H bearing issue dates covered by the table, by denominations, on each interest payment date (a) following the date of issue for bonds bearing issue dates beginning Dec. 1, 1954; (b) following original maturity date for bonds bearing issue dates of June 1,1952, through Nov, 1,1954 (for the latest revised amounts of interest checks and investment yields duriug the original raaturity period not shown in these tables, see Department Circular 905, Second Revision, dated Sept. 23,1959); (2) the approximate investment yield on the face value from issue date to each interest payment date; and (3) the approximate investment yield on the face value from each interest payment date to maturity. Yields are expressed in terms of rate percent per annum, compounded semiannually. T A B L E I.—Bonds bearing issue dates, beginning J u n e 1, 1959 Issue price Redemption i and raaturity value { Period of time bond is held after issue date 34 year 1 year IH years 2 years..2H years. Syears 3H years — 4 years..— 4H years 5 years -__ 5H years.— 6 years 6H years 7 years -— 7H years — Syears... 8H years 9 years 9H years 10 years (maturity) $500 $1,000 $5,000 500 1,000 5,000 Approximate invest$10,000 ment yield on face value 2 10,000 (1) Amounts of interest checks for each denomiaation $4,00 7,25 8,00 10,00 10.00 10,00 10,00 10,00 10.00 10,00 10.00 10.00 10,00 10.00 10,00 10.00 10.00 10.00 10,00 10.00 $8.00 14.50 16.00 20,00 20.00 20,00 20.00 20.00 20,00 20.00 20,00 20.00 20,00 20.00 20.00 20,00 20,00 20,00 20.00 20.00 $40, 00 72.50 80,00 100. 00 100, 00 100, 00 100, 00 100. 00 100. 00 100, 00 100. 00 100, 00 100, 00 100. 00 100, 00 100, 00 100, 00 100, 00 100. 00 100. 00 145. 160, 200. 200, 200. 200, 200. 200. 200. 200, 200, 200. 200, 200. 200. 200. 200. 200. 200. (2) From issue date to each interest payment date Percent L60 2,25 2.56 2,91 3,12 3,26 3,36 3.44 3.49 3.54 3.58 3.61 3,64 3,66 3.68 3.70 3.71 3,72 3.74 3.75 (3) From each interest payment date to maturity 3 Percent 3.88 3.95 4,00 4,00 4,00 4,00 4,00 4.00 4.00 4,00 4,00 4,00 • 4,00 4,00 4.00 4.00 4.00 4,00 4.00 1 At aU times, except that bond is not redeemable during first 6 months. 2 Calculated on the basis of $1,000 bond. 3 Approximate investment yield for entire period from issuance to maturity is 3,75 percent per annum. NOTE.—^The o t h e r tables a r e not reproduced in t h i s exhibit a s t h e a m o u n t s of i n t e r e s t checks a n d a p p r o x i m a t e investment yields shown in those tables a r e t h e s a m e a s those published in previous a n n u a l r e p o r t s a s f o l l o w s : tables 2-11 cover bonds b e a r i n g issue d a t e s from J u n e 1, 1952, t h r o u g h J a n u a r y 1, 1957, a n d a p p e a r a s tables I - X , respectively, on pages 260-269 of t h e 1962 a n n u a l r e p o r t ; a n d tables 12-16 cover bonds b e a r i n g issue d a t e s from F e b r u a r y 1, 1957, t h r o u g h May 1, 1959, w h i c h a p p e a r on pages 270-274 of t h e 1960 a n n u a l r e p o r t . 782^556—^6'6t- -18 274 19 65 REPORT OF THE SECRETARY OF THE TREASURY Legislation Exhibit 11.—An act to provide for a temporary increase in the public debt limit set forth in section 21 of the Second Liberty Bond Act [Public Law 89-49, 89th Congress, H.R. 8464, June 24, 1965] Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That, during the period beginning on July 1,1965, and ending on June 30, 1966, the public debt limit set forth in the first sentence of section 21 of the Second Liberty Bond Act, as amended (31 U.S.C. 757b), shall be temporarily increased to $328,000,000,000. Approved June 24,1965. Public debt Temborary increase. 78 Stat. 225. Financial Policy Exhibit 12.—Statement by Secretary of the Treasury Dillon, February 22, 1965, before the Joint Economic Committee We meet after a year of substantial progress and accomplishment. But we have no cause for complacency. At home too many pf our workers—particularly younger people just entering their productive years and those who suffer from inexperience, lack of education, and racial prejudice-^are without jobs. As we enter the fifth consecutive year of economic advance, we must be alert both to the dangers of price pressures and of any flagging in the forces of expansion. At the same time, our balance of payments has not shown the improvement we must have. Further action, as outlined by President Johnson in his Message on the Balance of Payments, is essential to the continued strength of the dollar. And, on that solid foundation, we must press forward, in cooperation with our friends and trading partners, with our effort to assure the capacity of the international monetary system over the years ahead to provide the reserves and credit facilities needed to support the vigorous and balanced growth of the free world economy. Fiscal policy and a progressive economy Maintenance of a healthy rate of domestic economic expansion, free from inflation, will continue to require the coordinated use of the tools of fiscal, monetary, and debt management policy. But, within that framework, fiscal policy, and particularly tax policy, has unquestionably come to assume a more crucial role than ever before in sustaining our forward momentum and carrying out the mandate of the Employment Act of 1946. The first important steps to spur more rapid growth through tax policy were taken in 1962. The Revenue Act of 1962, you will recall, provided for a tax credit of 7 percent on new investment in machinery and equipment, and in the same year the Treasury reformed and liberalized the tax treatment of depreciation, bringing up to date badly outmoded procedures that served as a drag on new investment. Coupled with the two-stage reduction in the corporate tax rate contained in the Revenue Act of 1964, these measures provided a powerful stimulus to business investment in plant and equipment, increasing the profitability of a typical investment in new equipment by more than 30 percent. Just last week we improved and liberalized the reserve ratio test procedures that accompanied the 1962 liberalization of depreciation. This action was taken after extensive studies. It will make certain that businesses which truly wish to adapt their replacement practices to the new shorter lives announced in 1962 can obtain the full tax benefits of the 1962 guidelines. For 1965 it will mean that additional taxes will amount to a maximum of $100 million rather than the $800 million that would have been the case under the original 1962 reserve ratio test procedures. The response of private investment to tax incentives and to expanding sales and profits has been remarkable indeed. Producers' outlays on durable equipment, after correction for price change, amounted to $26 billion in 1961, as compared to $26.6 billion in 1952. But in the three years since 1961, those same outlays, again corrected for price change, have risen to $35.1 billion, an increase EXHIBITS 275 of over one-third in the space of only three years. Yet, the expansion of investment has been closely geared to requirements for new productive capacity and no unsustainable capital goods boom on the 1956-57 model has been allowed to develop. Along with the invigoration of private investment that is so basic for long-run growth, the individual tax reduction of 1964, as it becomes fully effective, is ' releasing $11 billion of consumer purchasing power at 1965 levels of income. The size, composition, and timing of last year's tax cut were carefully planned, and the results were almost exactly as predicted in the 1964 Economic Report of the President. A year ago that report projected a gross national product of $623 billion as the midpoint within a $10 billion range. The actual result is now estimated at $622.6 billion. A year ago the report estimated that with tax reduction the unemployment rate could be expected to fall to approximately 5 percent at the end of the year, as it actually did, before falling even further to 4.8 percent in January. The behavior of personal income, corporate profits, and other measures was also in line with our expectations. The tax reduction enacted last year continues to spur consumer and business spending, although the large initial thrust is now behind us. Later this year we will further improve the tax system, iencourage price declines, and give the economy another measured and timely stimulus through the reduction and elimination of some of our excise taxes. The President's budget provides for excise tax reductions effective on July 1 that will total $1.75 billion a year when fully effective. The President will spell out the details of this program in ample time to permit consideration by the Congress before midyear. Over the past four years, as this record suggests, we have come to a far greater appreciation of how fiscal and tax policy can help achieve our economic goals. But much remains to be done before we can be satisfied that this policy tool can be used with the fiexibility that is essential should recessionary tendencies gather force. To meet that need, the President has urged that the Congress review its own procedures to assure prompt action on temporary tax cuts, if and when required. The lengthy and painstaking deliberations by the Congress, which are entirely necessary and appropriate before undertaking a lasting structural change in the tax structure, are not relevant to purely temporary, across-the-board, antirecessionary cuts. We simply must be able to count on procedures that insure an early decision in response to a Presidential proposal, or else we must give up the strongest antirecessionary weapon in our arsenal. At the same time, we must, of course, develop programs that will attack structural problems of unemployment and depressed areas at their roots and solve them within a framework of overall price stability. These deep-seated problems will only yield to a concerted attack aimed directly at their causes. We are mounting just such an attack. In a modern industrial society, those without skills, or with skills no longer in demand, suff'er a heavy disadvantage. Training programs such as those now being conducted under both the Manpower Development and Training Act and the Economic Opportunity Act can make a key contribution to individual and national welfare. The Appalachia program, now under congressional consideration, is an ambitious effort to deal in a coordinated way with a particular depressed area problem. Ah improved Area Redevelopment Act would be helpful in spurring growth. Carefully designed programs such as these will play a steadily increasing role in reducing unemployment and widening job opportunities. Monetary and debt management policies The timely use of fiscal policy enables us to make far more effective use of the tools of monetary and debt management policies in meeting our internal and external economic goals. For instance, the stimulus from tax reduction, by lifting some of the burden for promoting economic expansion from monetary policy, has made extremely easy money policies at home unnecessary, policies that would have been totally out of keeping with our balance-of-payments problem. The fact is that, in a world of increasingly free trade and payments, we cannot expect to insulate our domestic money and capital markets entirely from those of other countries, nor would that be consistent with our longer-range goals of a 276 1965 REOPORT OF THE SECRETARY OF THE TREASURY liberal world economic order. As the President emphasized in his Economic Report, monetary policy must and will remain free to respond if the stability of the dollar is threatened, either from domestic inflation as a result of excessive demand, or from outflows of money and capital that undermine our balance of payments. But, if monetary policy is to play that role effectively, and without potential damage to the internal economy, we must also recognize the corollary need for dynamic, flexible fiscal policies in promoting domestic prosperity. So long as we are willing in the future, as during the past few years, to use all the varied tools of financial policy flexibly, and in complementary ways, intolerable conflicts need not arise between our commitment to defend the dollar and our commitment to. sustained domestic growth and prosperity. Effective economic policy does not require that every tool be pushed hard in the same direction and at the same time. What is required is that, ih seeking our varied goals, we achieve a blend and a balance among our policy tools^—taking advantage of the strong points of each—that will permit progress in several directions simultaneously. The debt management record The use of our policy instruments in the pursuit of multiple objectives is well illustrated in an area for which I have had direct responsibility and which affects the economy almost daily: the management of the public debt. Debt management has in recent years helped keep our market interest rates in the short-term area reasonably competitive with rates in major foreign money centers, thus minimizing interest rate incentives to the transfer of short-term funds abroad. Thus, we increased the volume of Treasury bills $5.0 billion further during 1964, helping to raise the three-month bill rate from about 3i/^ percent at the close Of 1963 to just under 4 percent today. At the same time, however, it has been important to insure that this action, undertaken for balance-of-payments reasons, did not clash with other objectives. With persistent unemployment and unused industrial capacity, we have wanted to avoid upward pressures on the structure of long-term interest rates, and to assure the availability of investment funds adequate to support the steady rise in domestic investment and economic activity. In addition, the Treasury also has continuously before it the need to maintain a well-balanced maturity structure in the national debt, a prerequisite for flexibility in its financing decisions. This requires sizeable placements of new intermediate and longer-term securities in the market in order to offset the shortening effect of the passage of time on the term to maturity of outstanding issues. Otherwise, debt would soon pile up in the short-term area, not only risking an infiationary potential but also straining that sector of the market and using up some or all of the short-term borrowing capacity which it is prudent to hold in reserve for emergencies. To achieve this balanced debt structure and avoid any excessive buildup of liquidity, the Treasury last year reduced outstanding short-term debt other than Treasury bills by an even larger amount than the rise in the volume of bills. As a result, the total marketable debt due within one year actually declined by $1.0 billion. And, as in the preceding year, the Treasury's borrowing was done, on balance, without recourse to the commercial banking system, making it the third successive year in which bank holdings of Treasury securities showed no increase. Actually, commercial bank holdings of Government debt as shown in the attached table were slightly lower at the end of January than they were four years earlier. Thus, all of the large increase in bank credit over the past four years has been used to finance private borrowers and State and local governments. The great bulk of the Treasury's debt extension has continued to be achieved through advance refundings, a technique initiated during the preceding Administration and further developed and extensively utilized during the past four years. One important advantage of this technique is that it minimizes the impact on the market and on interest rates of our debt extension operations. Investors responded to 3 advance refunding offers, in January and July 1964 and January 1965, by exchanging existing shOrt-term holdings for $4.2 billion of bonds maturing in 20 years or more, for $7.5 billion of bonds maturing in about 9 years, and for $10.3 billion of bonds maturing in 5 to 7 years. An additional $1.5 billion of 10-year bonds was issued in the regular refunding in May 1964. EXHIBITS 277 Reflecting these operations, the marketable debt due in 5 years or more rose $7.1 billion in the 12 months that ended on January 31, exceeding the $5.8 billion increase in the entire marketable debt over this period. As the attached table indicates, an amount larger than the entire $25.1 billion increase in the marketable debt since January 1961 has been financed over that period in longer-term issues; marketable debt due in 5 years or more is 'Up $26.9 billion. Accordingly, the average maturity of the marketable debt as of January 31,1965, was 5 years 5 months, 4 months longer than its year-ago level and 11 months longer than in January 1961. Moreover, if we add the $2.6 billion increase in the outstanding volume of savings bonds since January 1961 to the $26.9 billion increase in the portion of the marketable debt due in 5 years or more, we get a total of $29.5 billion, well beyond the $28.4 billion rise in the entire public debt over these 4 years. This is a clear record of noninfiationary finance not often recognized by those who like to talk of loose fiscal policies in Washington. It is noteworthy that these efforts to finance the Govemment at long-term have been achieved without any noticeable upward pressure on long-term, yields. Most long-term interest rates important to private economic activity are now well below the levels touched in 1961: Average conventional mortgage rates are currently 5.8 percent, down nearly % percent; offering yields on new highgrade corporate bonds have recently been under 4% percent, % percent or more below levels of the spring of 1961; and a widely-used municipal bond' yield average which was as high as 3.55 percent in 1961 is currently 3.10 percent. This is an impressive record when one considers the increase of about 1% percent in short-term yields that has taken place since the lows of early 1961, as well as the record demand for funds. The volume of funds raised during the past 4 years totals about $240 billion, nearly 50 percent higher than the total of the preceding 4 years. A major part of the explanation lies, of course, in the high and rising flow of savings for longer-term investment generated out of the steadily rising incomes that have accompanied our prosperity. The smooth flow of these savings into investment has been greatly assisted and encouraged by confidence in continuing price stability and by the increases in interest rates paid by savings institutions and commercial banks. Clearly, the Treasury's program of noninfiationary debt management has been entirely consistent m t h full availability of credit to private borrowers at stable or declining long-term interest rates. Importance of cost-price stability Fiscal incentives and isound financing of the national debt have helped account for the remarkable degree of price stability that has accompanied our vigorous expansion. In contrast, earlier postwar expansions have typically been marred, after the initial recovery period, by rapid increases in costs and narrowing profit margins. The bidding up of prices and costs dissipated the forces for expansion; maladjustments and distortions isoon developed, and recessionary forces gathered strength. We have avoided that pattern during the present expansion. The rise in productivity associated with more rapid growth and an expanded scale of investment, along with moderation in wage demands, has caused manufacturing labor costs per unit of output to decline more or less steadily throughout the current expansion. As a result, there has been no squeeze on profit margins and little upward pressure on prices. With costs and prices stable, and productivity rising steadily, we have maintained a good balance throughout the economy and no drastic tightening of money has been necessary to curb overexuberance. We must not allow the dismal cycle of inflation and recession of the earlier postwar period to reappear. The challenge is clear, for experience shows that the task of maintaining cost-price stability becomes more diflicult as expansion whittles away margins of unused plant capacity and selective labor shortages begin to appear. Moreover, some signs of price pressures—fortunately confined to limited sectors of the economy and in some cases reflecting temporary interruptions in the flow of raw materials from abroad—were apparent in the closing months of 1964. These pressures by no means signify that our long period of price stability is ending. They do, however, reemphasize the need for vigilance. 278 19 65 REPORT OF THE SECRETARY OF THE TREASURY Our flnancial policies afford assurance that total demand will remain well within our growing capacity to produce, and we do not face excess demand inflation. But, in addition, we must recognize that, even at a time when overall demand is not excessive, costs and prices may be pushed up by pressures. of wage bargaining and the pricing policies of large firms. The record of labor and industry in recent years in this respect has been good, although we are all aware, I think, that it has not been in every instance as good as it could have been. The price-wage guideposts, endorsed by both President Kennedy and President Johnson, point unambiguously to the responsibilities of both labor and management if key wage settlements and pricing decisions are to serve the public interest. The acceptance by all sectors of our economy of their continuing responsibility for noninflationary policies is the key to steady expansion at home and a stronger competitive position abroad. Balance of payments Cost-price stability has contributed to a marked improvement in our already favorable balance of trade. Commercial exports, excluding those flnanced by the Government, rose to $22.4 billion in 1964, an increase of 16 percent over 1963, and fully 28 percent over 1960 levels. As a result, our commercial trade surplus widened from 1963's $2.3 billion to an estimated $3.7 billion in 1964, despite the larger demand for imports generated by our rising levels of economic activity. The 1964 results were, of course, aided by the special grain sales to both Eastern and Western Europe early in the year, and we cannot count on equally favorable overall trends in 1965. But, there can be little doubt that the relative stability of our own costs and prices since 1958, while most foreign costs and prices have been rising more or less steadily, is at last beginning to count in our favor. Our improved trade balance has been paralleled by further savings in net Government spending overseas, and by an unprecedented increase in income from our rising volume of foreign investments. These factors combined to reduce our deficit on regular transactions to an annual rate of about $2 billion over the first three quarters of 1964, about in line with earlier expectations despite rising levels of capital outfiows. However, as you know, progress in reducing our deficit for the year as a whole was disappointing. A sharp deterioration during the fourth quarter pushed our deficit on regular transactions up to $3.0 billion for the year as a whole. While some of the fourth quarter results can be traced to temporary factors, analysis of the results for the year made it perfectly clear that new measures needed to be taken to achieve a more rapid reduction in the underlying deficit and to maintain the international strength and stability of the dollar unquestioned. As a consequence, President Johnson has announced a 10-point program to intensify our effort to reach an early balance. Export promotion will be pressed even harder and the oyerseas dollar cost of Government programs will be reduced even further. In addition, legislation will be sought to narrow the gap on tourist expenditures by reducing the duty-free exemption on our returning tourists and our "See the U.S.A." program will be greatly intensified. But, the major thrust of the President's program is in the area of capital movements. The reason is simple. The bulk of our diflSculty can be traced to accelerating outflows of American investment and loan funds to a rapidly growing outside world that desires capital and that apparently is still incapable of mobilizing its own savings with full effectiveness. Since 1960, gains in our trade balance, net savings in our aid and military programs overseas, and rising investment income have benefited our balance of payments by about $3.9 billion. But over that same period, private capital fiows abroad increased by about $2i/^ billion to a record $6.3 billion, washing away most of the gains in other sectors of our accounts. This hu.ge capital outfiow is in one sense a reflection of our basic strength as a nation, the huge savings we are capable of generating, the steady increase in our holdings of productive and profitable assets abroad, and the worldwide usefulness of the dollar. But, at this point in time, it is also evident that our balanceof-payments position cannot afford accelerating outfiows of capital at the expense of our international liquidity. Nor can we afford a heavy outflow of the gold that stands behind our pledge to maintain the value of the dollar at $35 an oimce. EXHIBITS 279 And just such an outflow is inevitable unless we take the steps that will hold the outflows of capital within our capacity as a nation to flnance them. The success of this program rests on the cooperation of the business and financial communities in a voluntary program to limit the flow, of dollars abroad arising from their own operations. Such a voluntary program, designed in the public interest, can be an enormously effective instrument in assisting the early balance in our payments that is so urgently needed. Only last Thursday, the President, together with Secretary Connor, Chairman Martin, and I, outlined to a group of distinguished business and financial leaders the nature of this voluntary program. I am sure they will respond to the challenge quickly and effectively. International financial cooperation Early and decisive reductions in our balance-of-payments deficit are essential not only to protect the dollar, but also to permit calm and orderly study and appraisal of the most effective approaches toward assuring the adequacy of the international financial system to meet the needs of a growing world. The capacity of the present system to meet short-run strains has been impressively demonstrated, most recently when sterling came under heavy pressure. The massive credits extended to the British amounted to a collective endorsement— backed by $3 billion of hard cash—of existing exchange parities by the major industrial countries. The speed and effectiveness with which these credits could be assembled was a product of the close international financial cooperation built up over recent years. Meanwhile, we are exploring with other leading nations how best to meet the longer-range needs of the world for international liquidity and for more effective processes of international balance-of-payments adjustment. These studies are complex and difficult, and it is not surprising that some differences of approach among the major countries are evident at this stage. Certainly, we cannot afford to look back nostalgically and seek a solution in the rigid mechanism of a pure gold standard, a mechanism that even in an earlier and simpler day was prone to breakdown and deflation. Instead, the challenge is to build upon the system that has served the world so well over the postwar years, with full awareness of its problems and shortcomings, to be sure, but also with healthy respect for its resiliency and flexibility in responding to varied and never fully predictable needs. While this longrun effort is being pressed to a satisfactory conclusion, the planned expansion of IMF resources provides tangible assurance that the financial support needed to facilitate expansion in world trade and payments will be available. The Executive Directors of the International Monetary Fund have agreed in principle to submit to member governments, proposals for a general increase of all quotas by 25 percent, ^plus special increases for a relatively small number of countries whose quotas are out of line with their economic importance. Together, these increases, if accepted by the member countries, would total $4.8 billion, and when completed would bring the total quotas of the Fund up to $20.9 billion, ah overall rise of approximately 30 percent. The U.S. quota, which would be subject only to the 25-percent general increase, would rise from the present $4,125 million to $5,160 million. It is expected that legislation providing for this increase will be introduced next month; full provision for it has already been made in the President's budget. The Fund proposals will provide that 25 percent of each country's quota increase must be paid in gold. The United States has been prepared at all times to pay this 25 percent from its own gold holdings, but we had been concerned that such payments by others would lead to large purchases of U.S. gold. I am glad to say that this possibility will be forestalled by measures agreed upon in the Fund. I believe that the understandings that have been reached will fully protect the interests of the United States, the payments system as a whole, the Fund, and its other members. Conclusion I have touched upon several key challenges for economic policy in 1965: Maintaining price stability while reducing unemployment; achieving a decisive reduction in our balance-of-payments deficit; and progress toward a stronger inter- 280 1965 REPORT OF THE SECRETARY OF THE TREASURY national payments system. Each of these problems we approach from a position of great strength. Business is moving ahead with good momentum, but without infiationary pressures on supplies or speculative excesses. Our international competitive position is slowly but surely improving, and standing behind the dollar is the world's largest gold stock and a huge volume of foreign assets. The international financial system has withstood a series of shocks and strains, while demonstrating its ability to finance a further large increase in world trade. Given a continued willingness to use all our tools of economic policy in fiexible and imaginative ways—and with the vital support of industry, labor, and finance—I am confident that the challenges of today will become the successes of tomorrow. The structure and ownership of ihe public debi January 1961 and January 1965 (In bilhons of dollars) January 1961 January 1965 Debt structure: Marketable public debt: Due within 5 years.. . . Due after 5 years Nonmarketable public debt: Savings bonds _ ._ Special issues and other __. . __ __ . __ _. __ .. Total public debt Ownership: Commercial banks . Other publicly-held debt 1 Total publicly-held debt... Government investment accounts. . FederalReserve banks.—. . .. Total public debt I ___ --. __- _ Change $146.4 42.9 $144.7 69.7 ^$1.8 -f26.9 47.2 53.6 49.8 54,4 4-2.6 -1-0.8 290.2 318,6 -f28.4 62,7 146.4 P62.3 p 160.5 -0.4 -1-14.1 209.1 54.6 26.6 222.8 59.1 36.7 -M3.7 -1-4.5 -flO.2 290.2 318.6 -1-28.4 V Preliminary. 1 Includes State and local governments, individuals, private investment institutions, corporations, all other private holders. Exhibit 13.—Remarks by Secretary of the Treasury Dillon, October 27, 1964, before the 90th annual convention of the American Bankers Association, on fiscal and economic policies This is the third time in the past four years that I have had the privilege of appearing before you to discuss national economic policies. During those years the United States ha!s faced serious economic challenges both, at home and abroad. At home the central challenge, after years of recurring recession and slow growth, was to bring our economic performance closer to our unmatched potential. There is no better measure of our success than the 44 months of unbroken business advance that the nation has thus far achieved, a record of recovery unexcelled in our peacetime history. That advance has added more than $100 billion in real terms, or roughly 20 percent, to our annual output. In the space of less than four years, the increase in our annual production alone has exceeded the total gross national product of any other nation of the free world. In more personal terms, disposable income of the average American household, when measured in constant dollars, has risen by well over $700 duj:ing the last four years, an increase greater than that during the preceding eight years. At the same time, company after company is reporting record profits and enlarged capital spending programs. It is clear that sharply higher returns on invested capital are furnishing new and stronger incentives for investment in modern plant and equipment—investment which will provide new jobs, increase productivity, and spur future growth. EXHIBITS 281 Abroad, we have made progress in closing the deficit in our balance of payments, assuring a stable dollar and, on that solid base, building a stronger payments system. Our payments deficit during the last fiscal year was cut to $1.7 billion, well under half of the 1958-60 average. Confidence in the dollar has reduced the pressure on our gold stock. As a result, in each of the past two months our total gold stock has actually shown a slight increase over the level of the preceding year, the first time that we have seen a year to year increase in our gold stock since the Suez crisis in 1957. These gains, together with the economic gains we have achieved at home, make an impressive record. But continued prosperity at home and further progress abroad are not, and never can be, automatic. So today our concern must focus on the challenges that still lie ahead. We cannot, of course, now anticipate every possible threat to stable and orderly economic growth that may arise over the coming years. The complexity of our own economy, and the impact of events in other parts of this swiftly changing world, will continue to place the highest premium on flexibility in the use of all our economic policy tools. We long ago learned that timely shifts in monetary policy are essential both to sustain growth and to combat inflationary excesses as they emerge. But experience has also shown that monetary policy, no matter how flexibly and intelligently implemented, cannot, by itself, achieve our multiple goals. We cannot insist that large changes in interest rates and credit availability must carry the full burden of stabilizing the domestic economy, and at the same time rely on monetary policy as the primary means of bringing balance to our international accounts. Nor can we expect monetary policy to do either of those jobs effectively if, by neglect or misdirection, we allow other policy tools to operate at cross purposes. Our needs require, and have received, a coordinated blend of financial and economic policies that can be adapted to both our internal and external circumstances. This blend, as you know, has meant a new and indispensable role for fiscal policy, complementing and reinforcing more traditional monetary policies. Building on this recent experience is the best way to cope promptly and effectively with new challenges no matter from what direction they come. Let me, however, make one point crystal clear. An active, fiexible fiscal policy should not, and does not, require any sacrifice of the basic principles of fiscal responsibility. I believe that the record of these recent years amply demonstrates that point. President Johnson has given, and continues to give, his personal attention to making certain that tax reduction is coupled with the strictest vigilance in assuring a full dollar of value for every dollar spent. It is true that our budget has increased appreciably during the past four years; expenditures for 1965 are expected to be between $15 billion and $16 billion higher than in 1961. But $5 billion of the rise from the fiscal 1961 to the fiscal 1965 budget is accounted for by the urgent national need to maintain defenses second to none. Our space program has also seen an increase of more than $4 billion, as it had to if we were not to abandon that new frontier to the Soviets. And more than $2 billion is accounted for by larger interest payments on the Federal debt. The true test of our record in expenditure control lies not in these items but in what has happened to all other governmental expenditures, including welfare programs, domestic housekeeping, ordinary civilian services, agricultural payments, and all the rest. Annual expenditures on all of these programs combined have grown, over the four years, fiscal 1961-65, by something less than $4^/^ billion. That figure is more than 25 percent less than the increase in these same programs during the 1957-61 period when the previous Administration was doing its level best to hold down unnecessary expenditures. This 25-percent improvement is the fair measure of the effectiveness of the current Administration's cost control effort over the past four years. During the current fiscal year we will achieve a year-to-year decline in total expenditures for only the second time since the end of the Korean War permitted a substantial, but nonrecurring, cut in defense spending. And this year's reduction is being accomplished despite the half billion dollar cost of the long overdue adjustment in Federal salaries, the new antipoverty program, higher interest costs, and other built-in increases. 282 19 65 REPORT OF THE SECRETARY OF THE TREASURY This accomplishment is possible only because of a sustained drive for budgetary economies that, for sheer intensity and effectiveness, exceeds anything within my experience in Government. One result is that Federal employment has been cut below the level at the end of fiscal 1962, two and a quarter years ago. In fact. Federal civilian employment, as a proportion of the total national work force, has dropped to its lowest point since 1941. Fiscal responsibility does not imply that urgent national need^ must go unsatisfied. But it does require, in the face of almost limitless pressures for new and expanded programs, a zealous and never-ending search for economies in less urgent areas. The Government sector of the economy must be held to a size where the burden of taxes and debt can be carried by a growing economy, without infiationary pressures. By this test, too, the record is clear. During the current fiscal year, despite the requirements of defense and space, budget expenditures will be lower relative to our gross national product than at any time in the past 13 years. The share of total personal income preempted by the Federal individual income tax will decline to 9 percent, smaller than in any fiscal year since 1951. And the Federal debt as a proportion of GNP, a realistic measure of its burden, will, by the end of this fiscal year, have dropped back to the levels prevailing at the very beginning of World War II. These figures also underscore the fact that the basic economic strategy of this Administration has been to look to the private sector of the economy as the main engine for expansion. Government has had an essential role to play in thi^ process, but this role was not simply to seek increases in its own spending. Rather, it was to provide, through its economic and financial policies, a favorable climate for business investment and private spending. It was to promote continued increases in efficiency and productivity, so essential both to sustained domestic growth and to our export effort. And all of this had to be done within a framework of price stability. Monetary and debt management policies could do part of the job. We ruled out the extremes of easy money, even had they been otherwise desirable, because it was vital to our payments effort that we keep our money market rates roughly in equilibrium with those abroad'. But consistent with that constraint, we developed techniques to as.sure an ample fiow of credit to long-term borrowers. That was, of course, a process in which the banking community played an essential role by aggressively seeking out and mobilizing funds that could, in turn, be made available to businesses, homebuyers, and State and local governments. We .could not, however, meet our objectives with monetary policy alone. There was also a compelling need to cut through the inhibitions, lethargy, and maze of detail that for much too long had blocked sorely needed tax reduction and reform. Because of tax reduction, we have had temporarily to accept somewhat larger budgetary deficits than we would otherwise have had. We have not sought those deficits. They are the price we had to pay for timely, effective tax and fiscal policy. The price is acceptable only because, under existing conditions and with prudent management of the debt, those deficits do not pose an inflationary problem. They are, instead, a transitional step toward our basic goal of a balanced budget in a healthy, full employment economy. The choice we faced was not one between balanced budgets and tax reduction. An economy prone to recession and slow growth is also prone to deficits, for we cannot meet our essential spending needs from a shrunken tax base. We learned that lesson the hard way during the latter part of the 1950's, a lesson highlighted by the record $12 billion deficit that followed the 1958 recession. The ironic, but plain, fact was that our excessively high tax rates were themselves contributing to the sluggishness of the economy. Carefully designed tax reduction offered the most promising way out of that impasse. By expanding incomes and profits, it promised to greatly widen the tax base, with the result that our revenues would rise despite the reduced rates. That is not simply theory. It is now being confirmed every day by actual experience. With continued expenditure control, and an expanded tax base, we can look forward to the steady reduction and eventual elimination of our budgetary deficit in a vigorously expanding economy. This bold and successful use of fiscal policy has important implications for the future. There is now a growing national consensus that the more active use of fiscal policy, together with responsible debt management and monetary policies, EXHIBITS 283 has a key role to play in achieving our economic objectives. There is also a growing understanding that a more fiexible fiscal policy need not be associated with loose spending practices, and that the added revenues yielded by economic growth can offer further opportunities for tax reduction. During the coming session of Congress, we should undertake the next priority item on our agenda: an overhauling of the crazy quilt of excise taxes that we have inherited in good part from past emergencies. The extensive studies that are needed to lay a responsible groundwork for such action have been underway for some time. We must guard, however, against allowing the first glow of success to distort the developing consensus on the responsible use of fiscal policy into something quite different. In this uncertain world, we simply cannot responsibly schedule fixed tax reduction for years ahead in blithe ignorance of, or unconcern for, expenditure needs and the state of the economy. Changes in our tax system must be recognized for what they are: strong medicine, to be prescribed only after the most painstaking and careful diagnosis. A budget deficit acceptable under conditions of excessive unemployment would be dangerously infiationary when production is straining at capacity. A willingness to use fiscal stimulus under one set of conditions must be matched by a willingness to accept restraint when needed. I need not emphasize to this audience, which is so well schooled in the principle and practice of flexible monetary policies, the dangers of a rigid commitment to particular policies for years ahead, no matter how enticing the prospect may appear today. One factor that must always receive great weight in our policy decisions is the imperative need to maintain price stability. With industrial prices today averaging almost precisely the same as in 1958, we can look back on the longest period of sustained stability in many decades. Manufacturing labor costs per unit of output have actually declined during the current expansion, a refl^ection of our rapid gains in productivity and responsible wage bargaining. In both respects, our performance has been unmatched by any other.major industrialized nation. There has been no persuasive evidence of a prolonged buildup of excessive liquidity in our domestic economy. Increases in the money supply since 1960 have been relatively modest, at a rate well below the increase in production. Corporate cash flow has been expanding rapidly, but we have large investment and working capital needs. As a result, aggregate corporate balance sheets do not reflect an accumulation of liquid assets that might fuel an uncontrollable burst of spending. And slowly, but noticeably, bank liquidity has been reduced. One important factor in maintaining this balance, and thereby easing the task of the monetary authorities, has been the steady progress in restructuring the national debt. Since early 1961 outstanding marketable Treasury securities maturing in more than 5 years have increased by more than $26 billion, an amount exceeding the entire growth in the public debt. In effect, our entire cumulative budget deflcit has been financed at long-term, drawing upon the savings generated by a growing economy in ways that will not contribute to inflationary pressures. This has meant an increase in the average life of the national debt from 4 years 6 months in January 1961, to 5 years 3 months as of the end of last month. And, instead of the creation of bank credit to finance the Government, commercial bank holdings of Federal debt have declined. Taking a broad look at the past four years, I am persuaded that monetary policy has made as great a contribution to the solution of our balance-of-payments problem as it appropriately could have done. A severe tightening of credit might, it is true, have reduced the outfiow of short-term funds, and attracted some money from abroad. That approach would have had merit if our deficit had resulted from the classic problem of internal inflation with shortages of labor and industrial capacity. But that was clearly not the case. The basic solution to our balance-of-payments problem lay elsewhere: in spurring gains in efficiency of operation and in improving the investment climate so that our industry could better its position in world markets. In these circumstances tight money, while perhaps permitting us briefly to balance our external accounts, would have provided only a fleeting illusion of progress. By working at cross purposes to our fundamental needs to stimulate investment and productivity, it would surely have been self-defeating. The^e judgments do not in any way imply that monetary policy should not be sensitive both to inflationary pressures at home and to any new difficulties in the 284 19 65 REiPORT OF THE SECRETARY OF THE TREASURY balance of payments that may require a prompt and effective response. To the contrary, the importance of the tax reduction program lies in part in the fact that it has placed the monetary authorities in a stronger position to deal appropriately with such contingencies should they arise. As our economy moves ahead over the coming weeks and months, the monetary authorities will certainly be watching closely for evidence, either in financial flows or elsewhere, of forces that could develop into a threat to either price stability or orderly expansion. But we must not assume that the maintenance of price stability is the responsibility of the monetary authorities alone. For the most difficult problem—and one with which the monetary authorities are ill-equipped to deal—would be spreading wage and cost pressures that industry could not absorb from rising productivity. Here the heaviest responsibility rests on both industry and labor to maintain a relationship between wages, productivity, and prices that can permit us to prolong our excellent record of cost and price stability. For price stability today is imperative, not only to our domestic economy, but to our balance-of-paynients position. In the past year, we have begun to see clear evidence that price stability is gradually improving our international competitive position. During fiscal year 1964 our commercial exports rose by 16 percent, far exceeding the 9-percent rise in imports that has been a natural consequence of our rising levels of business activity. As a result, our commercial trade balance increased by $1.4 billion, helping to cut our balance-of-payments deficit over the same period more than in half. And during the recent summer months our exports reached a nevf peak, despite expected declines in grain shipments from the exceptionally high levels of last winter. Important savings have developed in other sectors of our international accounts. By midyear, the annual balance-of-payments costs of our aid and defense programs had been trimmed back by roughly $500 million from their 1962 levels. Further reductions already scheduled will next year bring those savings to approximately $1 billion. The dangerous threat to the dollar arising from last year's accelerating outflow of portfolio capital has been successfully braked through the interest equalization tax. As anticipated, that necessary, but temporary, measure is providing the breathing time we need until European capital markets are more fully developed and our other measures have had time to become fully effective. The favorable influence of these factors on our balance of payments is frequemtly obscured by erratic fluctuations from month to month and quarter to quarter. For example, our payments deficit dropped abruptly during the first quarter of this year in response to an unusual combination of temporary factors, only to give way to a considerably larger deficit in the second quarter. The latest figures for the third quarter, while still fragmentary, indicate that the deficit will fall between those extremes, and confirm the prospects of substantial improvement for 1964 as a whole. Looked at in the longer view we are justified in taking real satisfaction from the substantial improvement in our international payments that has characterized the past 15 months. I am not suggesting that our balance-of-payments problem is over. It clearly is not. In some ways, the hardest part of the job remains ahead. Moreover, in a world of convertible currencies, with trade and capital free to flow across national boundaries, it will never again be possible to take the relaxed attitude toward our international payments that characterized much of the period since World War II. What I am saying is that I am confident that ithis challenge cajn be met, and that it can be met while reaching new peaks of prosperity at home. That confidence does not arise out of any false hope that we can simply ride on the momentum of the past into a new era of ''painless prosperity." Rather, it arises from the fact that we have learned much in recent years about how to use and blend our varied tools of Government policy in new ways, always within a framework of free markets and fiscal responsibility. It arises because once again our system of free private enterprise has demonstrated its enormous capacity for growth and innovation in a climate of price stability and renewed incentives. These are the solid building blocks of which we can and will fashion a better future for all America. EXHIBITS 285 Exhibit 14-—Remarks by Secretary of the Treasury Dillon, March 19, 1965, before the 13th annual monetary conference of the American Bankers Association, Princeton, New Jersey, on capital markets, interest rates, and balance of payments This is the fourth year in which I have had the special privilege of addressing this Conference of distinguished leaders in the world of finance. These have been years of remarkable innovation vn financial practices and policies, public and private, both within the United States and abroad. Internationally, we have fashioned a framework for mutual consultation and cooperation that— measured against our common objectives of steady growth and flourishing world trade, coupled with substantial price stability—has proved both durable and viable. But, despite much excellent progress, our international financial system still suffers from a disturbing disequilibrium, one I have discussed with you on previous occasions. This is the seemingly chronic tendency for capital to fiow between countries in directions and in amounts that impede the entire process of restoring balance in the payments of deficit and surplus countries alike. The Group of Ten, in their recent study ^ of the international monetary system, concluded unanimously that ways must be found to improve the process of balance-of-payments adjustment. The United States' wholeheartedly joined in that conclusion and welcomes the systematic studies of this matter now underway in Working Party I I I of the OECD. However, if these studies are to have truly useful results they must face up to the stubborn and extremely difficult problem posed by the deep structural imbaiajnces in the world's capital markets that have enormously complicated the smooth functioning of the adjustment mechanism. The nature of the problem is clearly illustrated by developments in our balance of payments last year. By 1964, the measure we had undertaken to improve our trade position and to reduce 'the balance-of-payments impact of our aid and defense programs had achieved visible and gratifying results. Yet, as you know, our deficit last year was once again disappointingly large, primarily because capital had poured out of the United States in unprecedented amounts— in significant part to the strong surplus countries of Western Europe. The recent Annual Report of the Monetary Commission of the European Economic Community highlighted this point, noting that an improvement of about $3 billion in U.S. transactions for goods and services and Government accounts had been largely offset by a $2 billion increase in private capital outfiows. Within the basic limitations set by the needs of an underemployed domestic economy, the United States throughout the last four years had been alert to the fact that excessively easy money at home could only aggravate the problem of capital outflows. By shifting much of the burden for promoting domestic expansion to fiscal policy and tax reduction, we have enabled our monetary authorities to move gradually, but steadily, to an essentially neutral monetary policy. Our short-term market interest rates have climbed significantly since the 1960-61 recession, responding largely to two half point increases in the discount rate. With the discount rate now at 4 percent. Treasury bill yields are within one-half percent or so of their postwar high, a high reached only briefly during the period of very tight money in 1959. Loan/deposit ratios of banks have gradually climbed to a postwar peak, and other traditional measures of bank liquidity have confirmed a gradual tightening in their position. The Federal Reserve has rather steadily reduced the free reserves of the banking system, and, for the past month, the banks have actually operated with a small net borrowed reserve position. While corporate cash fiow has remained high, liquidity ratios have reached the lowest levels in a quarter of a century. Clearly, credit has remained readily available in the United States throughout this period, and our bank lending and long-term interest rates are still low relative to most other countries. But it is also a palpable fact that rising investment opportunities and credit demands at home, combined with increases in the Federal Reserve discount rate and greater restraint in the provision of bank reserves, have noticeably reduced the ease of our market. Yet, instead of declining in response to these developments, the capital outflow has accelerated. ^ See 1964 annual report, exhibit 49. 286 19 65 REPORT OF THE SECRETARY OF THE TREASURY This fact alone casts into doubt the thesis of" those who view the problem almost entirely in terms of "excessive" domestic liquidity, with tighter monetary policy the simple, effective, and unique remedy. Naturally, if one defines an excess of liquidity as synonymous with an excessive capital outfiow, I sup^ pose that position would be miassailable. But that kind of analysis bears no realistic relationship to the difficulty we face today. All it does is to define away the substance of a very real and tough problem. In my judgment, it is much more enlightening, although still not the entire answer, to analyze the problem in terms of diff'erences in investment profitability, rather than in ternis of liquidity. .Consider, for example, the outfiow of funds for direct investment abroad, which has continued to rise, reaching $2.3 billion in 1964. At the present time, many American firms clearly believe that a portion of their available resources can be most profitably invested in subsidiaries abroad. That calculation rests on a variety of familiar considerations: The more rapid growth of certain foreign markets ; a desire to operate inside a wall of extemal tariffs; proximity to readily available raw materials; and lower production costs, to name some of the most obvious factors. But perhaps most important of all is the fact that U.S. industrial development so far exceeds that of any other country. This has brought with it a degree of competition that is unknown anywhere else in the world. Add to this our enormous flow of savings, and it is not surprising to flnd a general acceptance of lower rates of return on capital in this country than prevail elsewhere, rates that only partially reflect differences in risks between investments here and abroad. At the same time, our businessmen and investors tend to place higher capital values on prospective earnings than is the case elsewhere, and our corporations at tiines find it attractive to pay higher prices in the acquisition of going concerns abroad than would seem reasonable to local investors. Whatever the specific reason that particular direct investments abroad appear to a given company to be a more profitable use for its funds, the fact is that we cannot eff'ectively influence this judgment by simply reducing liquidity and tightening credit at homj So long as the basic difference in profitability remains, any gain in terms of reduced foreign investment will entail a substantially larger cost in terms of dampening domestic investment as well. There seems, therefore, little warrant either in theory or in practice for basing economic policy on a presumption that corporate managers will permit considerations of the rate and availability of bank credit to affect their decisions on foreign investment, while leaving the domestic economy untouched. In the broadest sense, international differences in the rate of return on investment—as these differences are reflected in interest rates and the intensity of demands for credit—also lie behind the accelerating outflow of bank loans and other .credits abroad. This structural imbalance forced us to propose the interest equalization tax during the summer of 1963. It effectively increased the cost of long-term portfolio credit to foreigners in developed countries. As a result the outflow of long-term portfolio capital in 1964 dropped back to the 1000 level. Tlie plain fact is that foreign borrowers are willing and able to pay higher rntes than domestic borrowers of similar credit standing with free access to the vast resources of the American credit market, and foreign loans are thus in many instances more profitable to the lending banks. The same is true for the placement of liquid funds by our corporations. But the massive outflow of tbese types of credit is also related to other deepseated structural characteristics of American and foreign capital markets. As you know, with rare exceptions, foreign financial markets, even in countries with the most highly developed economies, lack a large and fiuid shortterm money market. Long-term bond markets are usually even more constricted. xAs a result, in most other countries there is simply no effective mechanism by wbich private borrowers and lenders, and to a very considerable extent governments, can readily raise or dispose of large sums in short periods of time in the open market. Instead, the available funds within each country are channeled almost entirely through a relatively few big institutions dealing with individual customers on a personalized basis. These institutional markets are fairly well insulated from the short-term money market, and frequently respond only sluggishly if at all to the actions of the monetary authorities. The fiuidity and size of the niarket available to most private borrowers abroad is further impaired by the fact that many foreign governments preempt EXHIBITS 287 a very large fraction of the savings available for investment, or direct it into officially sanctioned uses, frequently with a sizeable subsidy for preferred borrowers added along the way. This is partly a natural result of basic social decisions to provide, through Government social insurance programs, the protection for citizens that we in the United States furnish to a much larger extent through private insurance and private industry. But, it is also a refiection, in many instances, of a conscious desire to provide special preferences to one major group of borrowers or another, and to maintain a high degree of Government control of national economic development. In either case, the natural result is to leave those businesses and other borrowers that must look to the remainder of the market more or less perpetually starved for funds, and with an impelling desire to seek needed capital from abroad. All of these factors have contributed to a structure of long-term interest rates in Europe that, with only one or two exceptions, has remained throughout the postwar period at levels that, in the light of past history, are usually high. Official discount rates, and the money market rates more immediately influenced by the official rates, often bear little relationship to the loan charges payable by local borrowers. And, faced with constricted internal markets, and thus denied a full range of flscal and monetary tools, the authorities themselves often flnd it essential to pursue essentially domestic credit objectives—and in some instances even to flnance internal budgetary needs—through adjustments in external flows of funds. Sometimes this is done by borrowing directly from abroad and sometimes by seeking to influence the external borrowing or placement of funds by their commercial banks. The sheer size of the U.S. economy and the tremendous volume of funds raised in our credit markets, estimated last year at over $70 billion, help account for the much greater fluidity of our markets and their ability to adjust to, and absorb, large domestic or foreign demands with relative ease. But it is not a question of size alone. The relative freedom of the market mechanism, and the intensity of competitive pressures among institutions with a wide variety of investment options, permit funds to flow promptly from one sector of our economy to another in response to changing demands. And, a long history of confidence in our currency, further fortified by the stability of our prices in recent years, has encouraged individuals and investment institutions to commit funds freely at long term. As a result of the pressure of the huge volume of private savings seeking investment in our market, our long-term interest rate structure has remained essentially stable during the past four years, even though money market rates have risen by 1% percent or more to a range of 4 to 4i/^ percent. As a result, the differential between short- and long-term rates has almost disappeared. Nevertheless, the bond market has^ continued to absorb a record volume of longterm financing at stable rate levels. Another indication of the strength of our longer-term markets is that, over the past four years, they have not merely provided the vast amount of funds necessary to support high levels of homebuilding, a remarkable expansion in business investment, and the rapidly growing needs of our States and localities. They have also provided funds to the Government, equal to the entire $28.8 billion Federal deficit during the first four years of this Administration. During that period more than that amount was placed in savings bonds and marketable debt maturing in over five years. This achievement is refiected in the increase of almost one year or 20 percent in the average length of the marketable debt to a level last seen in mid-1956. In this setting we could not expect moderately tighter monetary policies to bring the needed reduction in the outfiow of long-term funds abroad. The disparities in the structure of the capital markets of our different countries are simply too great to permit us to rely heavily on that approach toward adjustment. Much more is needed to bring interest rates here and in other industrialized countries into the rough alignment that is surely necessary if we are to put a permanent end to the destabilizing capital fiows that have characterized the past two years. It might, of course, be argued that extremely tight money would be able to do the job if continued over a long enough period. Such a policy rests on the highly doubtful assumption that in spite of our huge volume of savings it would be technically feasible—perhaps by drastically reducing the money supply— 288 19 65 REPORT OF THE SECRETARY OF THE TREASURY to raise the general level of our bank and long-term interest rates by the li/^ to 2 percent that would be needed to achieve interest rate parity with Europe. But even granting that assumption, such a policy would surely be selfdefeating. Before it could achieve the interest rate objective, the extreme restriction of credit would surely move us tO'ward domestic recession, and at a time when our economy is already failing to use its resources to the full. A recession would, in turn, delay our fundamental aim of creating a more favorable climate for investment in the United States. At the same time, it would rapidly create forces for easy money that would be likely to prove irresistible. Thus the end result would not be an improvement but rather an aggravation of our balance-of-payments problem. To cite these limitations and difficulties in the use of monetary policy is not, of course, to say that monetary policy does not have a useful and indeed essential role to play in helping the adjustment process in the United States, as in other countries. It has played such a role, is playing such a role now, and will continue to do so in the future. In fact, as I suggested earlier, one of our chief reasons for relying primarily upon fiscal policy to stimulate the domestic economy was to give monetary policy additional freedom in coping with our balance-of-payments problem. And I can assure you that monetary policy remains fully available for further use should the need arise. But I see no realistic prospect that the full burden for achieving a permanent international adjustment in capital fiows can reasonably be thrust on American monetary policy alone either now or in the foreseeable future. Instead, as I have suggested before to this group, the only really satisfactory long-range solution to our present problem of excessive capital outfiows lies in achieving a more attractive environment for investment within the United States through tax reduction and sustained growth, together with the development of far larger, far more efficient, and far more fiexible capital' markets abroad. W'hile there has been some encouraging progress in both of these directions, much morei remains to be done. These are, of course, longrun measures, and their infiuence on capital fiows must be expected to emerge only slowly. For the time being, the existing disequilibrium, and the urgency of reducing our deficit, has required that we seek the cooperation of our banks and other financial institutions, as well as of our industrial firms, in voluntarily reducing the fiow of capital abroad. The response of those asked to participate in this voluntary program has been most gratifying. The effects are already clearly visible both in the foreign exchange markets and in our preliminary payments statistics which point to a sharp and favorable change since mid-February. But two swallows don't make a summer. We need a considerable period of balance to offset the deficits of the past. We know we can count on your cooperation in achieving this vitally needed result. But the success of our present program does not, of course, meet the basic problem. The nations of the free world, working together, must develop better means for infiuencing capital fiows within a basic framework of free markets and national objectives, and without placing intolerable burdens either upon monetary policy or upon the resources of the international monetary system. We must be under no illusion that a different or improved intemational monetary system could in any way eliminate the need for adjusting these flows. But these two questions 'are nonetheless related, for one of the basic functions of the international monetary system is to provide sufficient means for financing deficits and surpluses to permit the working out of an orderly process of adjustment. This linkage between the process of adjustment and the international monetary system seems to me to be at the source of much of the confusion and difficulty evident in recent international efforts to develop a common approach toward the further evolution of the international payments system. Ail the major countries are fully agreed, I believe, on the need for developing an assured method of generating international liquidity in adequate, but not excessive, amounts as world trade and production increases over the years ahead. This much clearly emerged from the studies of the Group of Ten and the International Monetary Fund last year. But in recent months, there has been little progress toward more concrete agreement on methods and approaches. The pronounced divergences in view that have been evident can, I believe, be traced in good part to quite different EXHIBITS 289 assumptions about the relationship of international monetary reform to the current U.S. payments deficit. The overriding need, in one European view, is to develop a mechanism which would force a prompt end to our payments deficits. We fully agree with these European friends on the necessity for achieving early balance in our international accounts. And we intend to achieve this igoal by our own actions, which now for the first time cover all aspects of our payments problem. But, in assessing the problems of the international monetary system, our concern and that of a number of other countries has been to look toward the future, when there will no longer be an American payments deficit pumping dollars into the reserves of other countries. So the thrust of our thinking has been to find the best way of developing supplementary imeans of providing the liquidity that is likely to be needed. We feel that this can only be done gradually and \yy building on what we now have. And we emphatically disagree with the thesis recently propounded in some quarters which 'Would 'turn back the clock and embrace an outmoded and highly restrictive system, a system that would surely cripple the growth of international trade and commerce as our deficit was ended. Under the circumstances, with these broad differences of approach, any final resolution of the variety of issues that have been raised seems to me highly Unlikely until the United States has brought its international payments into balance. As that is done it will become less and less easy to ignore the potential need for supplementary sources of reserve assets and international credit facilities. Meanwhile, difficult and time consuming technical studies are well underway under the 'auspices of the Group of Ten, helpinig to clarify the issues and to evaluate alternative techniques. These studies will, I believe, provide the basis for timely agreements on ways and means for improving the present monetary system well in advance of any urgent need. I n looking back on the past four years, and on the postwar period as a whole, there can be no question that the present system—anchored on gold and the dollar, and effectively supplemented by the International Monetary Fund—has served the world welL The extremes of inflation and deflation characteristic of other postwar periods have been avoided. Barriers to trade have been lowered or removed. And, in this environment, the vast productive capabilities of the free world have been released to the benefit of us all. The challenge for the future is to build further on this system, recognizing its potential weaknesses and shortcomings, but preserving the elements of strength and flexibility that have contributed so much to our progress. In this area, as in the area of adjustin;g capital flows, I have no fixed blueprint to offer to those who will share the responsibility for developing solutions. I remain confident, however, that solutions can and will 'be found, provided only that the United States discharges its own immediate responsibility to maintain the full strength of the dollar as the world's primary reserve currency by achieving an early balance in its international accounts. And with the help of you gentlemen that is exactly what we are going to do. Exhibit 15.—Remarks by Secretary of the Treasury Dillon, March 26, 1965, before the American Bankers Association Symposium on Federal Taxation, on fiscal and tax policy I 'am particularly pleased to make this, my. last public speech as Secretary of the Treasury, before a group which has contributed so much to the better understanding of economic issues over the past four years. In the light of our experience during those years, I would like to consider a, few of the problems and prospects that may lie ahead. Budgetary policy I have no doubt that, despite our better understanding of economic realities, a great deal of discussion over the next few years will continue to center around the question of budget deficits and balanced budgets. There are still many who hold that the budget should be balanced every year or at least over some very short period of years, no matter what the circumstances. This view usually assumes that a balanced budget is entirely neutral in its economic impact, neither 782--556—66 19 290 19 65 REPORT OF THE SECRETARY OF THE TREASURY inflationary nor deflationary, and thus has no effect at all upon the private economy. But when we examine the facts a little more carefully, we discover that some taxes are more deflationary than others and that some expenditures are less inflationary than others—that our economic performance is affected by the struc- • ture of taxes and expenditures as well as by their level. When we scrutinize the administrative .budget, which is the budget that most people want to balance, we find a whole host of disparate items. In that budget, a loan is treated as an expenditure in exactly the same manner as wages paid, and the repayment of a debt to the Federal Government is treated as a revenue receipt just as if it were a tax collection. It would certainly be surprising if the achievement of balance between the so-called expenditures and the so-called revenues of such a budget turned out to have a neutral effect upon the private economy. A far more realistic approach to budget making is to consider first the essential needs that must be met by Federal expenditures. We can then estimate the impact of these expenditures on the economy in the light of foreseeable revenues. Finally, after considering the economic outlook, we can make whatever adjustments appear necessary and so put together a budget that both meets essential national needs and produces an economic impact appropriate to existing conditions. In 1963, for example, when we first proposed the tax cut, and again in early 1964, when it was about to go into eff'ect, our budgets refiected the imperative need for restraint in public expenditures at a time when we were giving expenditures in the private sector of our economy so large a stimulus through tax reduction. And in his Budget Message of this year. President Johnson recognized that, if we are to continue our steady progress toward the twin goals of full employment and balanced budgets, we must move carefully. Thus, while the projected deficit of $5.3 billion for fiscal 1966 was $1 billion less than that projected for fiscal 1965, the President found room to include a prudent amount of excise tax reduction designed not only to remove inequities but also to insure the continued expansion of our economy. This approach means, as President Johnson has amply demonstrated, that, while on the one hand, we must provide for essential national needs, whether they be economic, social, or defense, we must also rigorously, even ruthlessly, seek out and eliminate waste and inefficiency wherever we find them. We see the success of this approach in the fact that, over the past four years we have achieved a substantial improvement in our employment situation at the same time that we have compiled an outstanding record of price stabiUty: a record which stands in striking contrast to the pattern of steadily rising prices in other leading industrial nations. A proper concern for the level of employment and for the requirements of the economy need not lead to continuing deficits. If we can keep our economy moving steadily ahead, it is perfectly feasible, even after allowing for increases in budget expenditures of about $3 billion a year to foresee a balanced budget in fiscal 1968, just three years from now. In evaluating budget policy, past, present, and future we must always bear in mind that our stubborn balance-of-payments problems force us to rely less on monetary policy and more on fiscal policy in fostering economic growth. As you know, we are now well launched upon a program to 'bring our balanceof-payments deficits to a swift and sure end. But there is little likelihood that the success of that program will permit us to shift more of the burden of sustaining domestic economic: advance to monetary policy. High interest rates abroad and other structural imbalances in the world's capital markets will force us to continue, for the foreseeable future, to place our chief reliance on fiscal policy to keep our economy healthy and strong. Flexibility of tax rates But fiscal policy will not fulfill, as it must, its potential as a force for strong and stable economic growth, until we can employ it as a weapon to forestall— and not merely react to—recession. Thus, the President recommended in his Economic Message that the Congress take steps to ensure "that its procedures will permit rapid action on temporary income tax cuts if recession threatens." . This is a reasonable alternative to the recommendation made by the Commission on EXHIBITS 291 Money and Credit that the President be given discretionary authority to reduce tax rates when recession threatens. For, it allows us to deal with the problem of rapid and temporary fiscal adjustment