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F E D E R A L R E S E R V E BA N K O F N EW YORK Fiscal A g en t o f the U nited States r Circular No. 4 8 0 9 1 U November 19, 1959 J TREASURY FINANCING To A ll Banking In stitution s, and Others Concerned, in the Second Federal R eserve D istrict: The following statement was made public today: The Treasury Department announced today the follow in g offerings o f public debt obligations: $2,000 million, or thereabouts, fo r cash, o f 320-day Treasury bills to be dated December 2, 1959, and to mature October 17, 1960. Series F and G savings bonds issued in 1948, and m aturing in 1960 ($1,600 m illion outstanding), may be exchanged during the period from November 23 to November 30, at face value, with certain interest and other adjustments to December 15, 1959, fo r 4 % percent Treasury notes, dated J u ly 20, 1959, maturing M ay 15, 1964, to be issued at 9 9% percent and accrued interest to December 15, 1959. The Treasury also made a prelim inary announcement concerning a proposal to permit holders of Series E savings bonds, and unmatured Series F and J savings bonds to exchange them, effective January 1, 1960 and thereafter, fo r Series H savings bonds, subject to deferral o f gain on the exchange fo r Federal income tax purposes. Treasury bills The $2,000 m illion o f 320-day Treasury bills will be offered fo r cash on an auction basis to cover the current requirements o f the Treasury. This is the fourth and final step in the Treasury’s program fo r the establishment o f a pattern o f one-year maturities on quarterly dates in January, A pril, July and October, which was initiated on A p ril 1, 1959. Tenders fo r the Treasury bills will be received at the Federal Reserve Banks and Branches up to the closing hour at 1:30 o ’clock p.m., Eastern Standard time, on Tuesday, November 24, 1959. The bills will be dated December 2, 1959, and w ill mature October 17, 1960. A ll subscribers to this issue o f Treasury bills 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 o f the Treasury bills for which tenders are submitted under this offering, until after the closing hour fo r tenders on November 24. The bills may be paid fo r by credit in Treasury T ax and Loan Accounts. F u ll details regarding the offering o f these 320-day Treasury bills are being released at this time. Exchange offering to holders of Series F and G savings bonds issued in 1948 and maturing in 1960 The Treasury also announced that it is offering to the holders o f approxim ately $1,600 million of Series F and G savings bonds issued in 1948, which mature in 1960, an opportunity to exchange them at their face amount, with certain interest and other adjustments as o f December 15, 1959, fo r 4 % percent Treasury notes, dated J u ly 20, 1959, m aturing M ay 15, 1964, to be issued at a price o f 9 9% percent. These 4 % percent Treasury notes w ill constitute an additional amount to the $4,184 million o f such notes now outstanding (including $2,666 million held by the Federal Reserve Banks and Treasury Investment A ccou nts), and which were issued on J u ly 20, 1959. Interest is payable on the notes on May 15 and November 15. The subscription books fo r exchanges o f the Series F and G savings bonds m aturing in 1960 will be open only during the period from November 23 to November 30, 1959, inclusive. A n y subscription addressed to a Federal Reserve Bank or Branch, or to the Treasurer o f the United States, and placed in the mail before m idnight Monday, November 30, 1959, will be considered timely. The delivery date fo r the 4 % percent Treasury notes will be December 15, 1959. The notes will be made available in registered form , as well as bearer form . Notes in registered form , however, may not be available fo r immediate delivery on December 15, as special printing arrangements have to be made fo r registered notes. In the interim, notes in conventional bearer form will be available to subscribers. Exchange o f Series F and G savings bonds m aturing in 1960 will be made on the basis o f equal face amounts, and allotments w ill be made in fu ll. Since holders o f the Series F and G bonds will receive interest on the new notes at the rate o f 4 % percent from November 15, 1959, interest adjust ments will be made as follow s: A ll subscribers will be charged accrued interest on the 4 % percent notes from November 15, 1959, to December 15, 1959 ($4.00 per $1,000), and w ill be credited with the discount on the issue price o f the notes ($2.50 per $1,000). ( over) The Series F and G bonds will be accepted in the exchange at amounts set forth in the offering circular. These exchange values have been fixed to provide the holders o f such bonds an investment yield approxim ately 1 percent more than otherwise would accrue from December 15, 1959, until their respective m aturity dates, less an amount equal to the interest which will accrue on the 4 % percent Treasury notes during the corresponding period. The effect o f these adjustments will also provide fo r the 4 % percent Treasury notes an investment yield o f approxim ately 4.81 percent per annum from the respective m aturity dates o f the Series F and G bonds to M ay 15, 1964, the m aturity date o f such notes. The lowest denomination o f the 4 % percent Treasury note is $1,000. H olders o f smaller denomi nation Series F and G bonds may exchange them fo r the next higher m ultiple o f $1,000 upon paym ent o f any cash difference. F u ll details o f this offering to holders o f Series F and G bonds appear in the official circular being released at this time and which w ill be available at banking institutions on Monday, November 23. H olders may consult their local banks fo r fu rth er inform ation after that time. Exchange of Series E, F, and J for Series H savings bonds The Treasury furth er announced that regulations will be issued in December, under which holders o f outstanding Series E savings bonds, and unm atured Series F and J savings bonds, effective on January 1, 1960, and thereafter, may exchange them at current redemption values fo r Series H bonds, and have the privilege o f treating the increase in redem ption value (to the extent not previously included in gross incom e) in excess o f the amount paid fo r such Series E and unmatured Series F or J bonds includable in gross income in the taxable year in which the Series H bonds are finally redeemed or disposed of, or in the taxable year o f final maturity, whichever is earlier. Exchanges of Series E and unmatured Series F and J savings bonds under these conditions are authorized in the law requested by the Treasury, and enacted by the Congress during its last session, approved September 22, 1959. The offering circular will contain a provision with respect to this exchange, reading as fo llo w s : Pursuant to the provisions o f Section 1 03 7(a) o f the Internal Revenue Code o f 1954 as added b y P ublic Law 86-346 (approved September 22, 1959), the Secretary o f the Treasury hereby declares that no gain or loss shall be recognized fo r Federal income tax purposes upon the exchange with the United States o f the Series E , F , and J savings bonds solely fo r the Series H savings bonds. Gain or loss, i f any, upon the obligations surrendered in exchange will be taken into account upon the disposition or redem ption o f the new obligations. The effect o f this proposed action by the Treasury w ill permit many persons who hold amounts o f Series E and unmatured Series F and J bonds on which the interest earnings are reflected in the increase in redemption value from date o f issue until maturity, o r earlier redemption p rior to maturity, to exchange them fo r Series H current income bonds on which interest is payable each six months b y check issued to the bondowner. Presently, persons redeeming their Series E , F , and J savings bonds to purchase Series H bonds are required to include the increase in value (difference between cost and redemption value) in their income tax returns in the years in which the transactions occurred, unless such increment has been included previously in their gross income. U nder the proposed exchanges effective after January 1, 1960, payment o f income taxes on the increase in value may be deferred until the Series H bonds are finally redeemed or disposed of, or until the taxable year o f final maturity, whichever is earlier. Exchanges o f the Series E and unmatured Series F and J bonds fo r Series H bonds w ill be authorized without regard to the annual lim itation o f $10,000 o f Series H bonds which may be purchased under current regulations. Series H savings bonds are issued at par. They are dated the first day o f the month in which paym ent is received and mature ten years thereafter. Interest is payable on a graduated basis and is equivalent to a rate o f 3 % percent if the bonds are held until maturity. The bonds are issued in denominations o f $500, $1,000, $5,000, and $10,000. F o r each $100 o f investment, interest is paid amounting to $2.25 fo r the first year, $3.60 fo r the second year, and $4.00 fo r each year thereafter until maturity. F urther details governing the exchange and instructions to bondowners are now being prepared, and w ill be released near the middle o f December 1959, at which time additional inform a tion may be obtained from local banking institutions. Series H savings bonds are issued only at Federal Reserve Banks and Branches, and at the Treasury Departm ent in W ashington. The circular and tender form for the Treasury bill offering are enclosed with this circular to those on our mailing lists to receive notices of Treasury bill offerings. The circular and subscription form for the exchange offering will be mailed to reach those on our mailing lists to receive notices of Treasury offerings other than bills by Monday, November 23. A lfred H ayes, President.
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