Full text of Press Releases of the United States Department of the Treasury : Volume 393

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Treas.
HJ

10
.A13
P4

v.393

Department of the Treasury

PRESS RELEASES

The following numbers were not used:

3235,3267,3280,3306,3310,3323
The following numbers are not available:

3325,3384
These releases are in numerical order even though
some releases are not in order by date.

D EPA R T MEN T

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'NEWS

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

Embargoed Until 10:00 a.m. EDT
Monday, July 1,2002

Contact: Michele Davis
(202) 622-2920

Treasury Secretary Paul H. O'Neill
Remarks to the Economic and Social Council of the United Nations
New York, New York
July 1, 2002

Mr. President, Mr. Secretary General, your Excellencies, and distinguished guests
of the Council, it is an honor to join you today as the Special Guest of the high-level
segment of this year's Economic and Social Council session.
As you begin your annual session on human development, I feel great cause for
optimism. In the year 2002, I believe we are seeing a breakthrough for human
development around the world. From the U.N. conference in Monterrey this March,
through the G-8 summit in Kananaskis last week, a consensus has been forming among
the world's economic and political leaders. For fifty years we have accepted, and
expected, too little from development aid.
. .;Now, at last, we are ready to make changes, and make a difference.
It was in this spirit of impatience and hope that I went to Africa last month, to ask
one pivotal question: how can the people of the United States and the developed world
best support Africans in their efforts to achieve prosperity? I felt that the answers could
serve not just that continent, but the entire developing world.

Those twelve days were intense. I met people like Sister Benedicta, who cares for
mothers and children with AIDS in her Ethiopian hospital and orphanage. Her strength
of spirit and commitment to service affected me profoundly. I met Rejoyce, a new
mother in an AIDS clinic in South Africa. Rejoyce confronted her disease, and spared
her newborn son from HIV. She was truly joyful that her boy would live a longer,
happier life. And in Uganda, I met Lukia, a widow who opened a restaurant with microloan funding and a lot of hard work. This woman lost her husband a dozen years ago,
and had to feed four children without income. Now she employs a dozen of her
neighbors, supports her family, owns a home, and has become a leader in the community.
PO-3221

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As I met these amazing women and so many others on my trip, I saw that in the
right environment - where there is leadership - aid works.
Knowing that aid can work, we have a moral duty to demand as much.
Assistance should make a real difference in people's lives.
In the past, too much aid has scattered into the winds oflawlessness, corruption,
and unaccountability, and too little has targeted results that build a foundation for
economic growth. Too often, aid has been sustenance for bureaucracy, rather than
investment in people.
And sometimes it is we the donors who are at fault. We prescribe western
solutions for problems that only local leaders can solve.
Moreover, we have often given aid without setting standards for accountability,
and defining clear measures for success. In my experience, that is a recipe for failure.
How can we know that primary education aid is working unless we know how many
children have the full functional ability to read, write and compute by the time they are
ten years old?
We donors become too absorbed in our long-term plans when we could be
making a difference for people right now. Yes, development is complicated. But
complexity cannot be an excuse for delay.
In Africa, I saw three investments that are vital to realizing human potential,
where we could make a difference today: clean water, primary education, and fighting
HIV/AIDS. Under the leadershIp of President Bush, the United States is already stepping
up its commitments in these areas, concomitant with a new pledge for good governance
and pro-growth policies from key African leaders.

First, clean water. Water fit for drinking is, surely, one of the most essential
elements of a dignified, civilized life. Yet 300 million people in sub-Saharan Africa lack
access to clean, safe water - more than the total population of the United States.
One insight from my Africa tour is that we can help local and national efforts to
bring clean water to many towns and villages fairly quickly. In West Africa, for
example, one organization estimates that clean water and basic sanitation can be provided
at a cost of about $17 per person, per year, over five years. That is one well for 400
people, and includes the additional costs of training, maintenance, sanitation, and hygiene
education for sustained, positive outcomes. And we must not forget the urban poor.
Low-cost options such as the extension of existing services from cities to outlying areas
are available and can be implemented quickly.
Clearly, working together we can make an enormous difference in a very short
time, at a reasonable, achievable cost.

2

Every new well liberates hundreds of people, especially women and children,
from preventable, debilitating illness and meaningless, wearisome work. They are freed
to pursue dreams for a better life.
The second important investment I saw was in primary education. A prosperous
future requires that children enter school at an early age, and stay in school, with welltrained teachers and adequate materials.
In parts of Africa such as Uganda, they've had success in increasing primary
school enrollment. Education quality is improving as well. I visited schools where they
have gone from a ratio of 16 students per book down to six per book.
But surely we can get every student his or her own book. It would cost only an
estimated $18 million per year to buy one textbook for each of four core subjects for
every primary student in Uganda, for example. That is a small step, but a manageable
one, and it would make a big difference in the learning environment for those students.
No, books alone do not make an education - but we need to start somewhere. The
perfect tomorrow should not be the enemy of a better today.
President Bush is stepping up to support primary education in Africa. He has
committed to doubling funds for his African Education Initiative. The $200 million
Initiative will train 420,000 teachers, provide 250,000 scholarships for girls, and supply
4.5 million more textbooks to African children. It will also promote accountability and
transparency in the school systems. But we should not be confused. The goal is not
more teachers or more scholarships or more books. The goal is children with full
functionai ability to read, write and compute by age ten.
We cannot underestimate the importance of transparency and accountability for
social programs such as education. In Uganda, one study found that in the early 90s, only
13% of non-wage spending for education was actually reaching schools. The rest was
lost to corruption and bureaucracy. After an extensive, decade-long anti-corruption
campaign, posting school budgets on school doors or reading them on the radio, over
90% of school spending now gets to the schools in Uganda.
The third crucial area for investment is health care. Nowhere is this more urgent,
and more heartbreaking, than in the struggle against AIDS. Prevention of further HIV
contagion is the utmost priority, especially to keep the next generation of newborns free
from disease.
President Bush is putting our resources into projects that are proven to achieve
results. He has announced $500 million for the International Mother and Child HIV
Prevention Initiative. We will start work with the hardest-hit countries in Africa and the
Caribbean, and expand as it shows progress.

3

In the ten initiative countries over the first five years, we will reach 12.6 million
pregnant women and provide them with voluntary counseling, testing, HIV
prevention education, and obstetric care. Of those, we expect that 1.2 million HIV
positive mothers will also receive short course anti-retroviral treatment, which will save
over 178,000 infants from HIV. Once the program is fully up and running, we estimate
that we will save 51,000 infants each year in these countries.
If the rest of the world joins our effort, we can do even more. Each year there are
some 360,000 preventable cases of HI V in newborns.
President Bush has also pledged $500 million to the Global Fund to Fight AIDS,
Tuberculosis, and Malaria, and committed to increase our contribution as the Fund shows
results. Taking into account the new mother-child initiative, President Bush has doubled
U.S. international AIDS funding to $1.1 billion, devoting far more to fighting AIDS than
any other nation.
Weare determined to focus our assistance where it will make a difference, and
where it can, we have committed to do more. To that end, President Bush announced in
March that the United States will increase its core assistance to developing countries by
50% over the next 3 years, resulting in a $5 billion annual increase by 2006. This new
"Millennium Challenge Account" will fund initiatives that support economic growth in
countries that govern justly, invest in people, and encourage economic freedom. We are
now developing measures for: each of these.
For "governing justly," we are considering a variety of indices that measure civil
liberties, political rights, enforceability of contracts, judicial independence, corruption,
tranSpaI(;llcy and government effectiveness.
For "investing in people," we are considering measures such as primary school
completion rates and public expenditures on health care.
And for "encouraging economic freedom," we are examining indicators such as
country credit ratings, inflation, openness to trade, and the quality of regulatory policies.
These measures are still in development, and we are reaching out to the world
community for help in finalizing the criteria. We will keep the criteria few, identifying
indicators that gauge the leadership and commitment of each nation. Because it takes
leadership on the ground to move any nation toward prosperity. As countries seek to
meet the criteria for Millennium Challenge grants, the policy changes they make will also
make other official aid more effective.
Another way to make aid more effective will be to better harmonize the goals of
bilateral, multilateral, and NGO agencies. For example, a recent release from the Human
Sciences Resource Council in South Africa lists more than 5,600 development-related
organizations operating in the 14-nation Southern African Development Community.

4

These organizations mean well, but poor countries end up consuming a substantial part of
their aid allocations just trying to qualify for additional funds.
Finally, we must avoid creating the next generation of highly indebted poor
countries. The reality is that essential investments in sectors such as education and
healthcare cannot directly generate the revenue to service new debt. These projects
should be funded by grants, not loans. President Bush recognized this, and proposed that
a much greater share of development funds to the poorest countries go as grants instead
ofloans. We have reached out to our development partners with this idea, and today,
donors to the thirteenth replenishment of the International Development Association
(IDA-13) have agreed to the principle of substantial grant financing for the poorest
countries. African nations will be the largest beneficiaries of this initiative, under which
all financing to the poorest countries for HIV / AIDS, and nearly all for other key social
sectors, will be provided with grants.
Local leaders that create conditions for self-sustaining prosperity, not further
dependency, deserve our support. The purpose of aid is to speed the transition to
economic independence.
I believe this: with the right combination of aid and accountability - from both
rich nations and poor ones - we can accelerate the spread of clean water, education, and
healthcare throughout Africa and the developing world. We can help create vibrant, selfsustaining economies founded on private enterprise, which will generate a rising standard
of living.
Working together, the member states of the United Nations can go beyond
eradicating poverty in th~ developing v.'orld, to 8chieving prosperity at last. Not in the
next generation, bui right now. President Bush said it best - there are no second class
citizens in the human race. We must make his vision into a worldwide reality.
Thank you.

5

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TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

EMBARGOED UNTIL 11:30 A.M
July 1, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $18,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
July 5, 2002.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $12,768 million of the Treasury bills maturing
on July 5, 2002, in the System Open Market Account (SOMA).
This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week Treasury bill
auctions.
Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.

W~.L.L

The allocation percentage applied to bids awarded at the highest discount rate
rounded. up 1:0 the neX1: nundred1:h o£ a whole percentage po~nt, e.q., 1.-!.13!t.

De

This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3222

For press releases, speeches, public schedules and official biographies, cull our 24-juJUr fax fine at f2(2) 622-2040

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 01, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

90-Day Bill
July 05, 2002
October 03, 2002
912795LDI

High Rate:

1.690%

Investment Rate 1/:

1.719%

Price:

99.578

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 83.70%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

28,872,997
1,404,049
145,000

$

17,000,096 2/

30,422,046

SUBTOTAL

TOTAL

6,238,716

6,238,716

Federal Reserve
$

36,660,762

15,451,047
1,404,049
145,000

$

23,238,812

Median rate
1.675%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.645%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

=

30,422,046 / 17,000,096

=

1.79

1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,111,705,000

http://www.publicdebt.treas.gov

PO-3223

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
July 01, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

181-Day Bill
July OS, 2002
January 02, 2003
912795LS8

High Rate:

1.730%

Investment Rate 1/:

1.770%

Price:

99.130

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 66.87%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

Accepted

31,781,985
1,195,598

$

o

°
15,000,208 2/

32,977,583

SUBTOTAL

5,635,252

5,635,252

Federal Reserve
TOTAL

13,804,610
1,195,598

$

38,612,835

$

20,635,460

Median rate
1.710%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.680%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

~

32,977,583 / 15,000,208

~

2.20

1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT ~ $932,875,000

http://www.publicdebt.treas.gov

PO-3224

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OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

For immediate release -July 2,2002

Contact: Michele Davis
(202) 622-2920

IDA REFORMS WILL MAKE ASSISTANCE
TO THE POOREST COUNTRIES MORE EFFECTIVE
International agreement achieves landmark reforms with Bush Administration Leadership

Economic assistance to poor countries will be more effective in coming months as a
result of Bush Administration reforms achieved today with an agreement to replenish a key
international development organization.
The agreement among international donors to replenish the International Development
Association (IDA) will require measurable results for the first time since IDA was established
np:lrly forty ye::1TS a: 0
Treasury Secretary Paul O'Neill praised the agreement as a significant change in how
donor nations help poor countries succeed.
"This agreement reflects President Bush's determination that our development assistance
must achieve results if we really want to help poor people succeed," said O'Neill. "These reforms
are taking us in the right direction. They will make a difference in the lives of real people. We
insist on measuring results, we deliver grants where grants are most appropriate, and we're
putting more emphasis on productivity growth in the private sector. More funding is important and we're providing more funding."
th

The agreement, reached earlier today in London, concludes negotiations for the 13
replenishment of IDA, and provides an additional $23 billion to the organization over the next
three years. IDA is the arm of the World Bank that provides development assistance to the
poorest countries.
With Bush Administration leadership, donors agreed to the following sweeping reforms:
First, IDA will establish a measurement and evaluation system that measures recipient countries'
progress. This will enable donors to link a portion of their contributions to the achievement of
PO-322S
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

.

·U.S. Government Printing Office 1998 - 619-559

results on the ground. In fact President Bush's FY2003 budget request will condition $300
million of its proposed $2.85 billion contribution on achieving results in health, education, and
private sector development.
Second, a significant increase in grant funding will now be available for the poorest
countries for education, HIV / AIDS, health, nutrition, water, sanitation and other human needs.
Secretary O'Neill said, "This agreement fulfills an initiative of President Bush to ensure that
more funding is available for investment in poor countries - without adding to crippling debt
burdens."
Third, IDA will devote significant resources over the next three years to private sector
development in the poorest countries. I will do this by working with the International Finance
Corporation. The IFC is the arm of the World Bank Group that provides financial sector products
to private sector projects in developing countries.
These hallmark reforms are a significant achievement for the poorest countries and fulfill
a pledge by President Bush that the U.S. stand shoulder-to-shoulder with people and countries
that are trying to succeed.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
July 02, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
27-Day Bill
July 05, 2002
August 01, 2002
912795KU4

Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:

1.690%

Investment Rate 1/:

1.719%

Price:

99.873

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted
1.48%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL

43,635,187
33,125

$

17,967,327
33,125

o

o

43,668,312

18,000,452

894,505

894,505

Federal Reserve
TOTAL

$

44,562,817

$

18,894,957

Median rate
1.675%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.650%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

=

43,668,312 / 18,000,452

=

2.43

1/ Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov

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TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622.2960

For Immediate Release
July 3,2002

Contact: Tara Bradshaw
202.622.2014

GREG JENNER JOINS TREASURY AS
SENIOR ADVISOR AND ACTING DEPUTY ASSISTANT SECRETARY
FOR TAX POLICY

Treasury Secretary Paul O'Neill today announced that Greg Jenner will join the Department of
the Treasury as Senior Advisor and Acting Deputy Assistant Secretary for Tax Policy on July 8,
2002.
"Greg brings an extensive background in tax policy to the Treasury Department," stated Pam
Olson, Acting Assistant Secretary for Tax Policy. "His previous Treasury and Senate Finance
Committee experience combined with his tenure in private practice make him an invaluable asset
to the Office of Tax Policy."
Most recently, Jenner served as Partner in the Tax and Legislative Groups at Venable, Baetjer,
Howard & Civiletti LLP, where he focused on;) wide variety of tax issues. Prior to joining
Venable, he was a partner with PricewaterhouseCoopers LLP Washington National Tax Services
office. He served from 1989 to 1992 as the Special Assistant to the Assistant Secretary for Tax
Policy. Jenner served as Tax Counsel for the U.S. Senate Committee on Finance from 1985 to
1989, playing a key role in the Finance Committee's development oflegislation that became the
Tax Reform Act of 1986.
Jenner was recently named a Fellow of the American College of Tax counsel. He is a member of
the District of Columbia Bar and the American Bar Association. He is a member of the Council
of the ABA's Section of Taxation, and chaired the Tax Section's Corporate Tax Shelter Task
Force.

-30PO-3227

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·U.S. Government Printing Office 1998 - 619-559

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TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

EMBARGOED UNTIL 11:30 A.M.
July 3, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $23,408 million of publicly held 13-week and 26-week
Treasury bills maturing July 11, 2002, and to raise new cash of approximately $8,592
million.
Also maturing is an estimated $18,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced July 8, 2002.
The Federal Reserve System holds $11,024 million of the Treasury bills maturing
on July 11, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded-at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held July 9, 2002. Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal ,~serve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million .
....T.,1;"':£'~~sur}TDirect c:u.stomers have requested that ~ve reinvest their llidt.uring lloldings

of app=ximately-$1,060 million into the 13-week blll and $730 mill.l.on into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

PO-3228

For press releases, speeches, public schedules and official biographies, call our 24-llOur fax fine at (202) 622-2040

HIGHLIGHTS OF T:.li:ASURY OFFERINGS OF BILLS
TO BE ISSUED JULY 11, 2002
July 3, 2002
Offer1.ng Amount .... .
Public Offering .... .
NLP Exclusion Amount.

· $17,000 million
~17,000 m1.11ion
· $ 3,500 m~llion

$15,000 million
$15,000 million
None

Descriptlon of Offering:
Term and type of security.
CUSIP number.
Auctlon date ..
Issue date ....
Ma tur1. ty date.
Original lSsue date ....
Currently outstand1.ng . . . . . . . . . . .
Minimum bid amount and multiples

· 91-day bi 1.1
· 912795 LE 9
· July 8, 2002
· July 11, 2002
. October 10, 2002
· April 11, 2002
$13,824 million
· $1,000

182-day bill
912795 LT 6
July 8, 2002
July 11, 2002
January 9, 2003
July 11, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 rnilli~l at the highest discount rate of accepted competitive bids.
Fore1.gn and International Monetary Authori ty (FlMA) bids:
Noncompetitive bids submitted through the Federal Reser\·~
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
milllon awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for F~MA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
However
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long positio;. is $1 billion or greater.
(3) Net long position must be determined as ~~ one half-hour prior to the closing time for receipt of
competitive tenders.
~ximum Recognized Bid at a Single Rate.
35% ot public offering
35% of public offering
to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
P~ent Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
w~th tender.
TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
r~cord at their financial institution on issue date.

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NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622.2960

FOR IlVIMEDIATE RELEASE
July 3, 2002

Contact: Rob Nichols
(202) 622-2910

Fourth of July lVlessage From Secretary O'Neill

Over 215 years ago, the founders of our nation gathered on July 4, boldly declaring
independence from oppression. These great leaders envisioned a unified nation, which upheld
equality and liberty for everyone of its members. The founders envisioned a powerful nation,
with powerful ideas to lead the world. During the past nine months since September 11 th, I have
watched our leaders and our people come together to show this same courage.
As the American people gather with family, friends and neighbors, this courage and unity has a
refreshed value. We remember the words of President George W. Bush, who said on September
11 th, "This is a day when all Americans from every walk of life unite in our resolve for justice
and peace ... None of us will ever forget this day. Yet, we go forward to defend freedom and all
that is good and just in our world."
This Fourth of July, I urge everyone to celebrate not only the power of our nation, but the power
of the human spirit which created and defended the values of democracy. Have a safe and happy
holiday.
-30PO-3229

Far press re~eases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

PO-3231): Treasury and IRS Propose Split - Dollar Regulations

Page 1 of

FROM THE OFFICE OF PUBLIC AFFAIRS
July 3, 2002
P0-3230
TREASURY AND IRS PROPOSE REGULATIONS FOR
SPLIT - DOLLAR LIFE INSURANCE ARRANGEMENTS
Today, the Treasury Department and the IRS issued proposed regulations on the
tax treatment of split-dollar life insurance arrangements. These regulations provide
comprehensive rules on split-dollar life insurance, resolving many questions about
how these arrangements are taxed.

A split-dollar life insurance arrangement involves two parties agreeing to split the
premiums and/or benefits of a life insurance policy. These arrangements are often
used as a type of employee compensation or for making gifts among family
members. The tax treatment of split-dollar life insurance has been unclear for many
years.
The proposed regulations require a split-dollar life insurance arrangement to be
taxed under one of two sets of rules-depending on who the owner of the policy is.
If the employee is the owner of the policy, then the employer's payments of
premiums are treated as loans to the employee. Consequently, unless the
employee is required to pay the employer market-rate interest on the loan, the
employee will be taxed on the difference between the market-rate interest and the
actual interest

If the employer is the owner, the employer's payments of premiums are treated as
the employer providing "economic benefits" to the employee. The economic
benefits would include the value of the life insurance protection provided together
with any other benefits provided the employee under the arrangement

As indicated in Notice 2002-8, the proposed regulations will apply only to split-dollar
life insurance arrangements that are entered into after the date the regulations are
published in final form. Until then, taxpayers may rely on the proposed regulations.
The text of the proposed regulations is attached.

http://W\~~w.treas.gov/press/releaseYpo3230.htm

07110/2002

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 31
[REG-164754-01]
RIN 1545-BA44
Split-Dollar Life Insurance Arrangements
AGENCY: Internal Revenue Service (IRS). Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This document contains proposed regulations relating to the income.
employment, and gift taxation of sprrt-dollar life insurance arrangements. The proposed
regulations will provide needed guidance to persons who enter into split-dollar life
insurance arrangements. This document also provides notice of a public hearing on the
proposed regulations.
DATES: Written or electronic comments must be received by October 7. 2002.
Requests to speak and ouUines of topics to be discussed at the public hearing
scheduled for October 23. 2002, must be received by October 9. 2002.
ADDRESSES: Send submissions to CC:ITA:RU (REG-164754-01). room 5226. Intemal
Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Monday through Friday between the hours of 8
a.m. and 5 p.m. to: CC:ITA:RU (REG-164754-01), Courier's Desk,lnternal Revenue
Service, 1111 Constitution Avenue, NW., Washington, DC or sent electronically. via the
IRS Internet site at www.irs.gov/regs. The public hearing will be held in room 4718.
Internal Revenue Building, 1111 Constitution Avenue. NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the section 61 regulations.
please contact Elizabeth Kaye at (202) 622-4920; concerning the section 83

regulations, please contact Erinn Madden at (202) 622-6030; concerning the section
301 regulations, please contad Krishna Vallabhaneni at (202) 622-7550; concerning thE

section 7872 regulations, please contact Rebecca Asia at (202) 622-3940; and
conceming the application of these regulations to the Federal gift tax, please contact
Lane Oamazo at (202) 622-3090. To be placed on the attendance list for the hearing.
please contact LaNita M. Vandyke at (202) 622-7180.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act

The collection of infonnation contained in this notice of proposed rulemaking has
been submitted to the Office of Management and Budget for review in accordance with
the Paperwork Reduction Ad. of 1995 (44 U.S.C. 3507(d». Comments on the collection

of information should be sent to the OffIce of Management and Budget. Attn: Desk
Officer for the Department of the Treasury, Office of Infonnation and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer. W:CAR:MP:FP:S Washington. DC 20224. Comments on
the collection of information should be received by September 7, 2002. Comments are
specifically requested concerning:
Whether the proposed collection of information is necessary for the proper
performance of the functions of the IRS, including whether the Information will have
practical utility;

The aCQJracy of the estimated burden associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of the information to be collected may be
enhanced;
How the burden of complying with the proposed collection of infonnation may be
minimized, including through the application of automated collection techniques or other
forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and
purchase of services to provide information.

The collections of infonnation in this proposed regulation are in
§1.7872-15(d)(2)Oi) and 0)(3)(li). These collections of information are required by the
IRS to verify consistent treatment by the borrower and lender of split-dollar loans with
nonrecourse or contingent payments. In addition, in the case of a split-dollar loan that
provides for nonrecourse payments, the collections of infonnation are required to obtain
a benefit The likely respondents are parties entering into split-dollar loans with
nonrecourse or contingent payments.
Estimated total annual reporting anellor recordkeeping burden: 32,500 hours.
Estimated average annual burden hours per respondent anellor recordkeeper. 17
minutes.
Estimated number d respondents anellor recordkeepers: 115,000.
Estimated annual frequency of responses: on occasion.

An agency may not conduct or sponsor, and a person is not required to respond

to, a collection of information unless it displays a valid control number assigned by the
Office of Management and Budget
Books or records relating to a collection of infonnation must be retained as long
as their contents may become material In the administration of any Internal revenue law.
Generally, tax returns and tax return infonnation are confidential, as required by 26
U.S.C.6103.
BACKGROUND AND EXPLANAnON OF PROVISIONS
1. Current Law
_____Section 61 provides that gross income includes all income from whatever source
derived. Section 1.61-2(d) desaibes the taxation of premiums paid by an employer or
service recipient for life insurance on the life of an employee or independent contractor
if the proceeds of the life insurance are payable to the beneficiary of the employee.

Section 83 provides rules for taxing a transfer of property In connection with the
performance of services. Generally, if property is transferred to any person other than
the service recipient in connection with the perfonnance of services, the excess of the
fair market value of such property (detennined without regard to lapse restrictions) over

the amount paid for such property is induded in the gross income of the service
provider in the first taxable year in which the service provider's rights in such property
are either transferable or not subject to a substantial risk of forfeiture, whichever is
applicable. Under §1.83-1(a)(2), the cost of life insurance protection under a life
insurance contract, retirement income contract, endowment contract, or other contract
providing life insurance protection generally is taxable under section 61 and the
regulations thereunder during the period such contract is substantially nonvested (that

is. prior to the time when rights to the contract are either transferable or not subject to a
substantial risk of forfeibJre). The

cost of such rife insurance protection is the

reasonable net premium cost, as determined by the Commissioner, of the current life
insurance protection (as defined in §1.72-16(b)(3» provided by such contract. Under
§1.83-3(e), in the case of a transfer of a life insurance contract, retirement Income
contract, endowment contract, or other contract providing life insurance protection, only
the cash surrender value of the contract is considered property.
Section 163(h) disallows a deduction for personal Interest paid or accrued during
the taxable year for taxpayers other than corporations. For purposes of section 163(h),
personal Interest is any interest other than the following: interest paid or accrued on
indebtedness properly allocable to a trade or business; any investment interest within
the meaning of section 163(d); any interest which is taken into account under section
469 in computing paSSive income or loss; any qualified residence interest; any Interest
payable under section 6601 on any unpaid portion of the tax Imposed by section 2001

for the period during which an extension of time for payment is in effect; and any
interest allowable for deduction under section 221 (relating to interest on education
loans).
Section 264(a)(1) provides that no deduction is allowed for premiums on any life
insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy.
Section 264(a)(2) provides that no deduction is allowed, except as provided in section
264(e). for any interest paid or accrued on indebtedness with respect to a life Insurance
policy owned by the taxpayer and covering the life of any individual.

Section 301 provides that distributions of property made by a corporation to a
shareholder with respect to its stock may constitute a dividend indudible in the gross
income of the shareholder.
Sections 163(e) and 1271 through 1275 provide rules for the treatment of original
issue discount (010) on debt instruments. In general, the holder and the issuer of a
debt instrument take the 010 into account as it accrues on the basis of the debt
instrumenfs yield to maturity.
Section 7872 provides rules for certain direct and indirect below-market loans
enumerated in section 7872(c)(1). The legislative history of section 7872 states that the
tenn loan is to be interpreted broadly for purposes of section 7872. potentially
encompassing -any transfer of money that provides the transferor with a right to
repayment- H.R. Rep. 98-861. 98th Cong., 2d Sess. 1018 (1984). In general. section
7872 recharacterizes a below-market loan (a loan in which the interest rate charged is
less than the applicable Federal rate (AFR» as an ann's-length transaction in which the
lender makes a loan to the borrower at the AFR, coupled with a payment or payments
to the borrower sufficient to fund all or part of the interest that the borrower is treated as
paying on that loan. The amount. timing, and characterization of the imputed payments
to the borrower under a below-market loan depend on the relationship between the
borrower and the lender and whether the loan is characterized as a demand loan or a
tenn loan. For example, in the case of a compensation-related below-market loan
within the meaning of section 7872(c)(1 )(8), the imputed payments are treated as
payments of compensation.
Section 7872 generally provides that, in the case of any below-market loan that is
a gift or demand loan subject to section 7872, forgone interest is treated as transferred

from the lender to the borrower and retransferred from the borrower to the lender as
interest on the last day of the calendar year for each year the loan is outstanding.
Section 7872 generally provides that, in the case of any below-market loan that Is
a tenn loan subject to section 7872, the lender is treated as having transferred, on the
day the loan is made, an amount equal to the excess of the amount loaned over the

present value of all payments which are required to be made under the tenns of the
loan. This amount is treated as retransferred by the borrower to the lender as 010 over
the tenn of the loan.
Rev. Rul. 64-328 (1964-2 C.B. 11) and Rev. Rul. 66-110 (1966-1 C.B. 12)
address the Federal income tax treatment of a split-dollar life insurance arrangement
under which an employer and an employee join in the purchase of a life insurance
contract on the life of the employee and provide for the allocation of policy benefits. The
rulings conclude that all economic benefits provided by the employer to the employee
under such an arrangement are taxed to the employee. Thus. under the rulings. the
employee generally must include in compensation income for each taxable year during
which the arrangement remains In effect (i) the annual cost of the ute insurance

protection provided to the employee. reduced by any payments made by the employee
for such life insurance protection. (ii) any policy owner dividends or similar distributions

provided to the employee under the life insurance contract (including any dividends. as
described in Rev. Rul. 66-110. used to provide additional policy benefits). and (in) any
other economic benefits provided to the employee under the arrangement Neither
ruling distinguishes. for tax purposes. between an arrangement In which the employer
owns the life insurance contract (as in a so-called endorsement arrangement) and an
arrangement in which the employee owns the contract (as in a SCH:8lled collateral
assignment arrangement).
Rev. Rul. 79-50 (1979-1 C.B. 138) provides that, in a split-dollar life Insurance
arrangement simUar to the one desaibed in Rev. Rul. 64-328 between a corporation
and a shareholder. the shareholder must include in income the value of the Insurance
protection in excess of the premiums paid by the shareholder. and must treat such
amounts as provided In section 301 (c).
Notice 2001-10 (2001-1 C.B. 459) set forth rules for the taxation of split-dollar life
insurance arrangements in which the employee has an interest in the cash surrender
value of the life insurance contract (so-called equity split-dollar life insurance
arrangements). Notice 2001-10 generally provided. under specified conditions. forlle

taxation of equity split-dollar life insurance arrangements under either the rules of
sections 61 and 83 or the rules of section 7872.
Notice 2002-8 (2002-4I.RB. 398), which revoked Notice 2001-10, provides
guidance with rasped to split-dollar life insurance arrangements entered into before the
date final regulations concerning such arrangements are published in the Federal
Register. The notice indicates that taxpayers may treat current life insurance protection

provided under such an arrangement as an economic benefit and that the IRS will not
treat the arrangement as having been terminated if the parties continue to treat and
report the value of the current rife insurance protection in thilt manner. Notice 2002-8
provides that. alternatively, the parties may treat the premiums or other payments as
loans from the sponsor of the arrangement (typically, the employer) to the other party.
In these cases. the IRS wiD not challenge a taxpayer's reasonable efforts to comply with
the requirements of sections 1271 through 1275 and section 7872. In addition. all
payments by the sponsor from the inception of the arrangement (reduced by any
repayments to the sponsor) before the first taxable year in which the payments are
treated as loans must be treated as loans entered into at the beginning of such first
taxable year. 1
Notice 2002-8 also desaibes the anticipated proposed regulations on split-dollar
life insurance arrangements. The notice states that the rules would require taxation of a
split-dollar life insurance arrangement under one of two mutually exclusive regimes: an
economic benefit regime and a loan regime.
2. Overyiew of the Proposed Regulations

1 Notice 2002-8 also provides that an employer and employee may continue to use the
P.S. 58 rates set forth in Rev. Rul. 55-747 (1955-2 C.B. 228), which was revoked by Notice
2001-10, only with respect to split-dollar life insurance arrangements entered into before January
28, 2002, in which a contractual arrangement between the employer and employee provides that
the P.S. 58 rates will be used to dctennine the value of the current life insurance protection
provided to the employee (or to the employee and one or more additional persons). Taxpayers
may not use the P.S. 58 rates for -reverse- split-dollar life insurance arrangements or for
split-dollar life insurance arrangements outside of the compensatory context.

- -These proposed regulations provide guidance on the taxation of split~ollar life

insurance arrangements, including equity split-dollar life insurance arrangements. The
proposed regulations apply for purposes of Federal income. employment, and gift taxes.
For example, the proposed regulations apply to a split-dollar life insurance arrangement
between an employer and an employee, between a corporation and a shareholder, and
between a donor and a donee.
Definition of split-dollar life insurance arrangement

_ _The proposed regulations generally define a spUt~1ar life insurance
arrangement as any arrangement (that is not part of a group tenn rife insurance plan
desaibed in section 79) between an owner of a life insurance contrad and a non-owner
of the contract under which either party to the arrangement pays aU or part of the

premiums, and one of the parties paying the premiums Is entitled to recover (either
conditionally or uncondltionaUy) aD or any portion of those premiums and such recovery
is to be made from. or is secured by. the proceeds of the contract. This definition is

intended to apply broadly and will cover an arrangement, for example. under which the
nOrH>Wner of a contract provides funds direcUy to the owner of the contract with which
the owner pays premiums, as long as the non-owner is entiUed to recover (either
conditionally or unconditionally) all or a portion of the funds from the contract proceeds
(for example, death benefits) or has an interest in the contract to secure the right of

recovery. In addition, the amount to be recovered by the party paying the premiums
need not be determined by reference to the amount of those premiums. The definition
is not intended to cover the purchase of an insurance contract in which the only parties
to the arrangement are the policy owner and the life insurance company acting only In

its capacity as issuer of the contract.

A special rule appnes in the case of an arrangement entered into in connection
with the perfonnance of services. Under this special rule, a split-dollar life insurance
arrangement is any arrangement (whether or not desaibed in the general rule) between
an owner and a non-owner of a life insurance contract under which the employer or
service recipient pays, directly or indirectly, all or any portion of the premiums and the

beneficiary of all or any portion of the death benefit is designated by the employee or
service provider or is any person whom the employee or service provider would
reasonably be expected to name as beneficiary. (Uke the general rule, this special rule
does not apply to any arrangement covered by section 79.) This special rule also
applies to arrangements between a corporation and another person in that person's
capacity as a shareholder in the corporation under which the corporation pays, directly

or indirectly, all or any portion of the premiums and the beneficiary of all or a portion of
the death benefit is a person designated by, or would be reasonably expected to be

designated by, the shareholder. As in the case of the general definition, the special rule
is not intended to cover the purchase of an insurance contrad in which the only parties
to the arrangement are the policy owner and the life insurance company acting only In

its capacity as issuer of the contract.

Mutually exclusive regimes

_--:As indicated in Notice 2002-8, the proposed regulations provide two mutually
exclusive regimes for taxing split-dollar life insurance arrangements. A split-dollar life
insurance arrangement (as defined in the proposed regulations) is taxed under either
the economic benefit regime or the loan regime. The proposed regulations provide
rules that detennine which tax regime applies to a split-dollar life insurance
arrangement
Under the economic benefit regime (generally set forth in §1.61-22 of the
proposed regulations), the owner of the life insurance contrad is treated as providing
economic benefits to the non-owner of the contract. The economic benefit regime
generally will govern the taxation of endorsement arrangements. In addition, a special
rule requires the economic benefit regime to apply (and the loan regime not to apply) to
any split-dollar life insurance arrangement If (I) the arrangement is entered into In
connection with the performance of services, and the employee or service provider is
not the owner of the life Insurance contract, or (ii) the arrangement is entered Into
between a donor and a donee (for example, a life insurance trust) and the donee is not
the owner of the life insurance contract.

Under the loan regime (generally set forth in § 1.7872-15 of the proposed
regulations), the non-owner of the life insurance contract is treated as loaning premium
payments to the owner of the contract. Except for specified arrangements, the loan
regime applies to any split-dollar loan (as defined in the proposed regulations). The
loan regime generally will govern the taxation of collateral assignment arrangements.
Thus, in contrast to Rev. Rul. 64-328 and Rev. Rut. E;6.110, the proposed
regulations generally provide substantially different tax consequences to the parties
depending on which party owns the life insurance contract.
The proposed regulations also require both the owner and the norHMner of a life
insurance contract that is part of a split-doUar Bfe insurance arrangement (as defined
either in the general rule or the special rule) to fully and consistently account for aU
amounts under the arrangement under the rules of either§1.61-22 or§1.7872-15.
For purposes of both the general rule and the special rule. unless the
non-owner's payments are certain payments made in consideration for economic
benefits, general Federal income, employment, and gift tax principles apply to the
arrangement For example, if an employer pays premiums on a contract owned by an
empJoyee and the payments are not spiit-doUar loans under §1.7872-15. the employee
must include the fuD amount of the payments in gross income at the time they are paid
by the employer to the extent that the employee's rights to the life insurance contract
are substantially vested. Also, to the extent an owner's repayment obligation is waived,
cancelled, or forgiven at any time under an arrangement that prior to the cancellation of
indebtedness was treated as a split-dollar loan, the owner and nOrHMner must account
for the amount waived, cancelled, or forgiven in accordance with the relationship
between the parties. Thus, if the arrangement were in a compensatory context. the

owner of the contract (the employee) and the non-owner (the employer) would account
for the amount as compensation. See OKC Corp. and Subsidiaries v. Commissioner.

82 T.C. 638 (1984) (whether the cancellation of a debt is ordinary income to the debtor
depends upon the nature of the payment); Newmark v. Commissioner. 311 F.2d 913

(2d Cir. 1962) (discharge of indebtedness mnstituted a payment for services in an
employment situation).
Owners and non-owners
_ _The proposed regulations provide rules for detennining the owner and the
non-owner of the life insurance mntrael The owner is the person named as the policy
owner. Htwo or more persons are designated as the policy owners. the first-named
person generally is treated as the owner of the entire mntrael However. if two or more
persons are named as the policy owners and each such person has an undivided
interest in every right and benefit of the oontract, those persons are treated as owners
of separate contracts. For example, if an employer and an employee jointly own a life
insurance mntract and share equally in aU rights and benefits under the contract, they
are treated as owning two separate contracts (and. ordinarDy. neither contract would be
treated as part of a split-dollar life insurance arrangement).

The general rule that the person named as the policy owner is treated as the
owner of the life insurance mntract is subject to two exceptions invoMng situations in
which the only benefits available under the split-dollar life insurance arrangement would
be the value of current life insurance protection (that is, so-called non-equlty
arrangements). Under the first exception, an employer or service recipient is treated as
the owner of the contract under a split-dollar life insurance arrangement that is entered
into in mnnection with the performance of services if. at all times. the only economic
benefits available to the employee or service provider under the arrangement would be
the value of current life insurance protection. Similarfy, a donor is treated as the owner

of a fife insurance mntract under a split-dollar life insurance arrangement that is entered
into between a donor and a donee (for example. a life insurance trust) if. at all times, the
only economic benefits available to the donee under the arrangement would be the
value of current life insurance protection. The proposed regulations reserve on the
issue of the mnsequences of a modification to these arrangements (for example. such
as subsequenUy providing the employee or donee with an interest in the cash value of
the life insurance mntract). The IRS and the Treasury Department request comments

on the rule the final regulations should adopt regarding the consequences of modifying
these arrangements.
The non-owner is any person other than the owner of the life insurance contrad
having any dired or indired interest in such contract (other than a life insurance
company ading solely in its capacity as issuer of a fife insurance contract). For
example, an employee whose spouse is designated by the employer as the beneficiary

of a life insurance contract that is owned by the employer would have an indirect
interest in the contract and, therefore, would be treated as a non-owner.
3. Taxation Under the Economic Benefit Regime
a. In general
_ _Section 1.61-22(d) provides that. as a general rule for spIit~ life insurance
arrangements that are taxed under the economic benefit regime. the owner d the life
insurance contract is treated as providing economic benefits to the non-owner of the
contract, and those economic benefits must be accounted for fully and consistently by
both the owner and the non-ownef. The value of the economic benefits. reduced by any
consideration paid by the noo-owner to the owner, is treated as transferred from the
owner to the non-owner. The tax consequences of that transfer will depend on the
relationship between the owner and the non-owner. Thus, the transfer may constitute a
payment of compensation, a distribution under section 301. a gift. or a transfer having a
different tax character.
Non-Equity Split-Dollar Life Insurance Arrangements
Under a non-equity spfrt-dolJar life insurance arrangement, the owner is treated
as providing current Bfe insurance protedion Oncluding paid-up additions) to the

non-owner. The amount of the current life insurance protection provided to the
non-owner for a taxable year equals the excess of the average death benefit of the life
insurance contract over the total amount payable to the owner under the spilt-doDar life
insurance arrangement The total amount payable to the owner is increased by the
amount of any outstanding policy loan. The cost of the current life insurance protection
provided to the non-owner in any year equals the amount of the current life Insurance

protection provided to the non-owner multiplied by the life insurance premium factor
designated or pennitted in guidance published in the Internal Revenue Bulletin. For
example, assume that employer R is the owner of a $1,000,000 life insurance contrad
that is part of a split-dollar life insurance arrangement between R and employee E.
Under the arrangement, R pays all of the $10,000 annual premiums and is entitled to
receive the greater of its premiums or the cash surrender value of the contract when the
arrangement tenninates or E dies. Assume that through year 10 of the arrangement R
has paid $100,000 of premiums and that in year 10 the oost of term insurance for E is
$1.00 for $1,000 of insurance and the cash sunendervalue of the contract is $200.000.
Under §1.61-22. in year 10, E must indude in compensation income $800 ($1.000,000$200,000, or $800,000 payable to R. multiplied by .001 (E's premium rate factor». If,
however, E paid $300 of the premium, E would include $500 in compensation income.

The Treasury Department and the IRS request comments on whether there is a
need for more specific guidance in computing the cost of a death benefit that varies
during the course of a taxable year. Comments are requested concerning, for example,
whether a convention requiring the amount of the death benefit to be recomputed on a
quarterty or semi-annual basis would properly balance the accurate computation of the
death benefit against compliance and administrative burdens.
Equity Split-Dollar Life Insurance Arrangements
Under §1.61-22(d)(3), the owner and the non-owner also must account fully and
consistenUy for any right in, or benefit of, a life insurance contract provided to the
non-owner under an equity split-dollar life insurance arrangement For example, In a
compensatory context in which the contract is owned by the employer, the employee
must indude in gross income the value of any interest in the cash sunender value of the
contract provided to the employee during a taxable year.
This result is consistent with the conclusion in Rev. Rul. 66-110 that an employee
must include in gross income the value of all economic benefits provided under a
split-dollar life insurance arrangement More broadly. this result is consistent with the
fact that a non-owner who has an interest in the cash sunender value of a life Insurance

contrad under an equity split-dollar life insurance arrangement is in a better economic
position than a non-owner who has no such interest under a n~uity arrangement
In general, a mere unfunded, unsecured promise to pay money in the future - as
in a standard nonqualified deferred compensation plan covering an employee - does
not result in current income. However, a nOrHMl'ler's interest in a life insurance
contrad under an equity split-dollar life insurance arrangement is less like that of an
employee covered under a standard nonqualified deferred compensation arrangement
and more like that of an employee who obtains an interest in a specific asset of the
employer (such as where the employer makes an outright purchase of a life insurance
contrad for the benefit of the employee). The employer's right to a return of its
premiwns, which characterizes most equity split-dollar life Insurance arrangements,
affects only the valuation eX the employee's interest under the arrangement and,

therefore, the amount of the employee's current Income.
Specific guidance regarding valuation of economic benefits under an equity
split-dollar life insurance arrangement is reserved in §1.61-22, pending comments from
interested parties concerning an appropriate valuation methodology and views on
whether such a methodology should be adopted as a substantive rule or as a safe
harbor. Any proposal for a specific methodology should be objective and administrable.
One potential approach for valuation might involve subtracting from current premium

payments made by the contrad owner the net present value of the amount to be repaid

to the owner in the future.
Other Tax Consequences
Because §1.61-22(c) treats one party to the split-dollar life insurance
arrangement as the owner of the entire contrad, the non-owner has no investment In
the contrad under section 12(e). Thus, no amount paid by the non-owner under a
split-dollar rrfe Insurance arrangement, whether or not designated as a premium. and no
amount induded In the non-owner's gross income as an economic benefit, Is treated as
in~tment

in the oontrad under section 12(e)(6) for the noo-owner. However. as

desaibed below, special rules apply in the case of a transfer of the contrad from the
owner to the non-owner.
Any premium paid by the owner is included in the owner's investment in the
contrad under section 72(e)(6). However, no premium payment and no economic
benefit includible in the non-owner's gross income is deductible by the owner (except as
otherwise provided under section 83 when the contrad is transfened to the non-owner
and the transfer is taxable in accordance with the rules of that section). Any amount
paid by the non-owner to the owner for any economic benefit is included in the owner's
gross income. Such amount is also included in the

owner's investment In the contrad

(but only to the extent not otherwise so included by reason of having been paid by the

owner as a premium or other consideration for the contrad).
b. Taxation of amounts received under the rife insurance contrad
_---:Any amount received under the life insurance contrad (other than an amount
received by reason of death) and provided, diredly or indirectly, to the non-owner Is
treated as though paid by the insurance company to the owner and then by the owner to
the non-owner. This rule applies to a policy owner dividend, the proceeds of a specified
policy loan (as defined in §1.61-22(e», a withdrawal, or the proceeds of a partial
surrender. The owner is taxed on the amount in accordance with the rules of section
72. The nOrHMner (and the owner for gift tax and employment tax purposes) must take
the amount into account as a payment of compensation, a distribution under section
301, a gift. or other transfer depending on the non-owner's relationship to the owner.
However, the amount that must be taken into account is reduced by the sum of (I) the
value of aU economic benefits actually taken into account by the non-owner (and the
owner for gift tax and employment tax purposeS) reduced (but not below zero) by the
amounts that would have been taken into account were the arrangement a non-equlty
split-dollar life insurance arrangement and (ii) any consideration paid by the non-owner
for all economic benefits reduced (but not below zero) by any consideration paid by the
non-owner that would have been allocable to economic benefits provided to the
non-owner were the arrangement a non-equity split-dollar life insurance arrangement

However, the preceding sentence appHes only to the extent such economic benefits
were not previously used

to reduce an earlier amount received under the contract.

The same result applies in the case of a specified policy loan. A policy loan is a
specified policy loan

to the extent (i) the proceeds of the loan are distributed directly

from the insurance company to the non-owner; (ii) a reasonable person would not

expect that the loan will be repaid by the norH)W08r;

or ("Iii) the non-owner's obligation tc

repay the loan to the owner is satisfied, or is capable of being satisfied, upon repaymenl
by either party to the insurance company. Because the employee is not the owner of
the contract, the specified policy loan wiD not be treated as a loan to the employee but
as a loan to the employer (the owner of the contrad). followed by a payment of cash
compensation from the employer to the employee.
Amounts received by reason of death are treated differently. Under §1.61-22(f).
any amount paid

to a beneficiary (other than the owner) by reason of the death of the

insured is excludable from the beneficiary's gross income under section 101(a) as an
amount received under a life insurance contract. This result applies only to the extent
that such amount is allocable to current life insurance protection provided to the
non-owner pursuant to the split-dollar life insurance arrangement. the cost of which was
paid by the non-owner. or the value of which the non-owner adually took into account
under the rules set forth in §1.61-22. Amounts received by a non-owner In its capacity
as a lender are generally not amounts received by reason of the death of the insured
under section 101(a). Ct. Rev. Rul. 70-254 (1970-1 C.B.31).

c. Transfer of life insurance contract to the non-owner
_ _Section 1.61-22(g) provides rules for the transfer of a life insurance contrad (or
an undivided interest therein) from the owner to the non-owner. Consistent with the
generaJ rule for detennlning ownership, §1.61-22(g) provides that a transfer of a Bfe
insurance contract (or an undivided interest therein) underlying a split-dollar life
insurance arrangement ocaJrS on the date that the non-owner becomes the owner of
the entire contract (or the undivided interest therein). Thus. a transfer of the contrad
does not occur merely because the cash surrender value of the contract exceeds the

premiums paid by the owner or the amount ultimately repayable to the owner on
tennination of the arrangement or the death of the insured. In addition. there is no
transfer of the contract if the owner merely endorses a percentage of the cash surrender
value of the contract (or similar rights in the contract) to the non-owner. Unless and
until ownership of the contract is fonnally changed. the owner will continue to be treated
as the owner for all Federal income. employment, and gift tax purposes.
At the time of a transfer. there generally must be taken into account for Federal

income. employment. and gift tax purposes the excess of the fair market value of the life
insurance contract (or the undivided interest therein) transferred to the non-owner
(transferee) over the sum of (I) the amount the transferee pays to the owner (transferor)
to obtain the contract (or the undMded interest therein), (Ii) the value of aU economic
benefits actually taken into account by the non-owner (and the owner for gift tax and
employment tax purposes) reduced (but not below zero) by the amounts that would
have been taken into account were the arrangement a non-equity split-dollar life
insurance arrangement, and (iii) any consideration paid by the non-owner for all
economic benefits reduced (but not below zero) by any consideration paid by the
non-owner that would have been allocable to economic benefits provided to the
non-owner were the arrangement a non-equity split-dollar life insurance arrangement.
However, clauses (ii) and (iii) of the preceding sentence apply only to the extent those
economic benefits were not previously used to reduce an earlier amount received under
the contract. For this purpose. the fair market value of the life insurance contract Is the
cash surrender value and the value of all other rights under the contract (including any
supplemental agreements, whether or not guaranteed). other than the value of the
current rife insurance protection. For example. the fair market value of the contract
includes the value d a guaranteed right to an above-market rate of retum (to the extent
not already reflected in the cash surrender value).
In a transfer subject to section 83. fair market value is determined disregarding
any lapse restrictions. In addition, the timing of the transferee's inclusion is detennined
under the rules of section 83. Therefore, a transfer will not give rise to gross income

until the transferee's rights

to the contrad (or undivided interest in the contract) are

substantially vested (unless the transferee makes a section 83(b) election). Section
1.83-6(a)(5) of the proposed regulations allows the service recipienfs deduction at that
time.
Under the general rule, the amount treated as consideration paid to acquire the
contract under section 72(g)(1) equals the greater of the fair market value of the
contract or the sum of the amount the transferee pays to obtain the contract plus the
amount of unrecovered economic benefits previously taken into account or paid for by
the transferee. Thus, these amounts become the transferee's invesbnent In the
contract under section 72(e) immediately after the transfer.
In the case of a transfer between a donor and a donee, the amount treated as
consideration paid by the transferee to acquire the contract under section 72(g)(1) to
determine the transferee's invesbnent in the contrad under section 72(e) immediately
after the transfer is the sum of (I) the amount the transferee pays to obtain the contract,

(ii) the aggregate of premiums or other consideration paid or deemed to have been paid
by the transferor, and (iii) the amount of unrecovered economic benefits previously
either taken into account by the transferee (exduding the amount of those benefits that
was exdudable from the transferee's gross income at the time of receipt) or paid for by
the transferee.
After a transfer of an entire life insurance contract, the transferee becomes the
owner for Federal income, employment, and gift tax purposes, Induding for purposes of
the split-dollar life insurance rules. Thus, if the transferor pays premiums after the
transfer, the payment of those premiums may be indudible In the transferee's gross
income if the payments are

not split-dollar loans under § 1.7872-15. After the transfer of

an undMded interest in a life insurance contract, the transferee is treated as the new
owner of a separate contract for all purposes. However, if a transfer of a life Insurance
contract or an undMded interest In the contract is made in connection with the
performance of services and the transfer is not yet taxable under section 83 (because
rights

to the contract or the undivided interest are substantially nonvested and no

section 83(b) election is made), the transferor continues to be treated as the owner of
the contract.
4. Taxation Under the Loan Regime
a. In general
_ _Under §1. 7872-15, a payment made pursuant to a split-dollar life insurance
arrangement is a split-dollar loan and the owner and non-owner are treated,
respectively, as bonower and lender if (i) the payment is made either directly or
indirecUy by the non-owner to the owner; (ii) the payment is a loan under general
principles of Federal tax law or, if not a loan under general principles of Federal tax law,
a reasonable person would expect the payment to be repaid in fuo to the non-owner
(whether with or without interest): and (iii) the repayment is to be made from, or is

secured by, either the parleY's death benefit proceeds or its cash surrender value. The
Treasury Department and the IRS recognize that. in the earlier years during which a
split-dollar life insurance anangement is in effect. parlCY surrender and load charges
may significantly reduce the policy's cash surrender value, resulting in
under-collateralization of a non-owners right to be repaid its premium payments.
Nevertheless, so long as a reasonable person would exped the payment to be repaid in
full, the payment is a split-dollar loan under §1.7872-15. The Treasury Department and
the IRS believe that Congress generally intended that section 7872 would govern the

treatment of an arrangement the substance of which is a loan from one party to another
and that there was no congressional intent to make section 7872 inapplicable to
split-dollar life insurance anangements if the anangernents are, in substance, loans.
If a payment on a split-dollar loan is nonrecourse to the borrower and the loan

does not otherwise provide for contingent payments, §1.7872-15 treats the loan as a
split-doUar loan that provides for contingent payments unless the parties to the
split-dollar life Insurance anangement provide a written representation with raspect to
the loan to which the payment relates. In general, unless the parties represent that a
reasonable person would exped that all payments under the loan will be made, the loan
will be treated as a loan that provides for contingent payments. This written

representation requirement is intended to help ensure that the parties to the
arrangement treat the payments consistently.
If a spltt~oUar loan does not provide for sufficient interest, the loan is a

below-market spltt~ollar loan subject to section 7872 and §1.7872-15. If the split~lIar
loan provides for sufficient interest, then, except as provided in §1.7872-15, the loan is
subject to the general rules for debt instruments Oncluding the rules for 010). In
general, interest on a split~oIlar loan is not deductible by the borrower under sections
264 and 163(h). Section 1.7872-15 provides special rules for split-dollar loans that
provide for certain variable rates of interest. contingent interest payments, and lender or
borrower options. Section 1.7872-15 also provides rules for split-dollar loans on which
stated interest is subsequently waived, cancelled, or forgiven by the lender, and for
below-market split-dollar loans with indirect participants.
b. Treabnent of below-market soltt-dollar loans
_ _,If a spltt-dollar loan is a below-market loan, then, in general, the loan is

recharacterized as a loan with interest at the AFR, coupled with an imputed transfer by
the lender to the borrower. The timing, amount, and charaderization of the imputed
transfers between the lender and borrower of the loan will depend upon the relationship
between the lender and the borrower (for example, the imputed transfer is generally
characterized as a compensation payment if the lender is the borrower's employer). and
whether the loan is a demand loan or a teon loan.
For purposes of §1.7872-15, a below-market spltt-dollar loan made from a lender

to a bonower with a relationship not enumerated in section 7872(c)(1)(A). (B). or (e) Is
treated as a signJficant-effect loan under section 7872(c)(1)(E). However. tfthe effect of
a spOt-doUar loan is attributable to the relationship between the lender or borrower and
an irldired participant (for example, when a spltt-dollar loan is made from an employer

to the child of an employee), the below-market split-dollar loan is restructured as two or
more successive below-market loans. Any deduction allowable to the indirect
participant under section 163(d) for investment interest deemed paid Is limited to the
amount of investment interest deemed received by the indirect participant.

Split-Dollar Demand Loans
A split-dollar demand loan is any split-dollar loan that is payable in full at any time
on the demand of the lender (or within a reasonable time after the lender's demand).
Each calendar year that a split-dollar demand loan is outstanding, the loan is tested to
determine if the loan provides for sufficient interest A split-dollar demand loan provides
for sufficient interest for the calendar year if the rate (based on annual compounding) at
which interest acaues on the loan's adjusted issue price during the year is no lower
than the blended annual rate for the year. The use of an annual rate, rather than a
semiannual rate, provides a simplified method to determine whether a split-dollar loan
provides for sufficient interest and, if the spIit-doilar loan is beIow-market, to compute
the loan's forgone interest

In the case of a beIow-rnarket split-dollar demand loan, the amount of forgone
Interest for a calendar year is the excess of (I) the amount of interest that would have
been payable on the loan for the calendar year if interest acaued on the loan's adjusted
issue price at the appropriate AFR and were payable annually over (ii) any interest that
acaues on the loan during the year. In general, this excess amount is treated as
transferred by the lender to the borrower and retransferred as interest by the borrower

to the lender at the end of each calendar year that the loan remains outstanding.
Split-Dollar Tenn Loans
A split-dollar term loan is any loan that is not a split-dollar demand loan. A
split-dollar term loan does not provide for sufficient interest if the amount loaned
exceeds the Imputed loan amount. which is the present value of all payments due under
the loan, determined as of the date the loan is made, using a discount rate equal to the
AFR in effect on that date. The AFR used for purposes of the preceding sentence must

be appropriate for the loan's term (short-term, mid-term, or long-term) and the
compounding period used In computing the present value.
With respect to a below-market split-dollar term loan, the amount of the imputed
transfer by the lender to the borrower is the excess of the amount loaned over the
imputed loan amount In general, a split-dollar term loan is treated as having 010 equal

to the amount of the imputed transfer, in addition to any other 010 on the loan
(determined without regard to §1.7872-15).
The term of a split-dollar term loan generally is the term stated in the split-dollar

life insurance arrangement However, special rules apply If the loan is subject to certain
borrower or lender options. For purposes of determining a loan's term, the borrower or

the lender is projected to exercise or not exercise an option or combination of options in
a manner that minimizes the loan's overall yield.
Special rules also are provided for spIit-doilar term loans payable upon the death
of an IndMdual, certain split-dollar term loans that are conditioned on the future

perfonnance of substantial services by an individual. and gift split-dollar term loans.
Under §1.7872-15. these split-dollar loans are spiit-doDar term loans for purposes of
detennining whether the loan provides for sufficient interest However. if the loan does
not provide for sufficient interest when the loan is made. forgone interest is detennined
on the loan annually similar to a spUt-doilar demand loan. The rate used to determine
the amount of forgone interest each year is the AFR based on the term of the loan
rather than the blended annual rate. A beiow-market gift split-dollar term loan is treated
as a term loan for gift tax purposes.
c. loans that provide for contingent payments
_ _A split-dollar loan that provides for one or more contingent payments is
accounted for by the parties under the contingent split-dollar method. a method similar
to the noncontingent bond method described in § 1.1275-4(b). Under this method. the

lender prepares a projected payment schedule that includes all of the noncontingent
payments and a projected payment for each contingent payment Any contingent
payment provided for under the tenns of a split-dollar loan is projected to resolve to its
lowest possible value. However, the projected payment schedule must produce a yield

that is not less than zero. The projected payment schedule is used to determine the
yield of the split-dollar loan. This yield is then used to determine the accruais of interest
(010) on the loan and to detennine whether the loan Is a below-rnarket loan for
purposes of section 7872 and §1.7872-15. For example, a split-clollar loan providing for

contingent payments is treated as a below-market split-dollar loan if the yield based on
the projected payment schedule is less than the appropriate AFR.

If, when a contingency resolves, the actual amount of a contingent payment is
different than the projected payment, appropriate adjustments are made by the parties
to reflect the difference when the contingency resolves. For example, if a contingent
split-dollar loan was treated as a below-market split-dollar loan based on the projected
payment schedule and the actual yield on the loan tums out to be greater than the
appropriate AFR when the contingency resolves, the parties will take appropriate
adjusbnents into account for any prior imputed transfers under section 7872 and

§1.7872-15 at that time.
d. Split-dollar loans with stated interest that is subsequently waived, cancelled or
forgiven

_ _If. a spflt-dollar loan provides for stated interest that is subsequently waived,
cancelled or forgiven, appropriate adjusbnents are made by the parties to reflect the
difference between the interest payable at the stated rate and the interest actually paid
by the borrower at that time. An adjustment (for example, an imputed transfer of
compensation) may have consequences for the Federal Insurance Contributions Act
(FICA) and the Federal Unemployment Tax Ad (FUTA) if the adjustment represents
wages to the borrower.
e. Payment ordering rules
_ _Payments made by a borrower to a lender pursuant to a split-dollar life Insurance
arrangement are applied in the following order: to accrued but unpaid Interest (including
any 010) on all outstanding split-dollar loans in the order the interest accrued; to
principal on the outstanding split-dollar loans in the order in which the loans were made;

to payments of amounts previously paid by the lender pursuant to the split-dollar life
insurance arrangement that were not reasonably expected to be repaid; and to any
other payment with respect to a split-dollar life insurance arrangement Comments are

requested on this rule and other alternative rules, which include applying payments to
both the acaued but unpaid interest and principal on each split-dollar loan in the order
in which the loans were made, and applying payments pro-rata on all existing split-dollar
loan balances.
5. Transfer Tax Treatment of Split-Dollar Life Insurance Arrangements

_ _The proposed regulations will apply for gift tax purposes in situations invoMng
private split-dollar life insurance arrangements. Thus, if, under the proposed
regulations, an irrevocable insurance trust is the owner of the Dfe Insurance contrad
undertying the split-dollar life insurance arrangement. and a reasonable person would
expect that the donor, or the donor's estate, will recover an amount equal to the donor's
premium payments, those premium payments are treated as loans made by the donor
to the trust and are subject to § 1. 7872-15. In such a case, payment of a premium by

the donor is treated as a split-dollar loan to the trust in the amount of the premium
payment If the loan is repayable upon the death of the donor, the term of the loan is
the donor's life expectancy determined under the appropriate table under § 1.72-9 as of
the date of the payment and the value of the gift is the amount of the premium payment
less the present value (determined under section 7872 and § 1.7872-15) of the donor's
right to receive repayment. If, however, the donor makes premium payments that are
not split-dollar loans, then the premium payments are governed by general gift tax
principles. In such a case, with each premium payment, the donor is treated as making
a gift to the trust equal to the amount of that payment
Different rules apply, however, if the donor is treated under §1.61-22(c) as the
owner of the life insurance contrad undertying the split-dollar life insurance
arrangement and the donor is entiUed to recover (either conditionally or unconditionally)
all or any portion of the premium payments and such recovery is to be made from, or is
secured by. the proceeds of the life insurance contract Under these circumstances. the
donor is treated as making a gift of economic benefits to the irrevocable insurance trust
when the donor makes any premium payment on the life insurance contrad. For
example, assume that under the terms of the split-dollar life insurance arrangement, on

tennination of the arrangement or the donors death, the donor or donor's estate is
entitled'to receive an amount equal to the greater of the aggregate premiums paid by
the donor or the cash surrender value of the contract. In this case, each time the donor
pays a premium, the donor makes a gift to the trust equal to the cost of the current rife
insurance protection provided to the trust less any premium amount paid by the trustee.
On the other hand, if the donor or the donors estate is entitled to receive an amount
equal to the lesser of the aggregate premiums paid by the donor, 91' the cash surrender
value of the contract. the amount of the donor's gift to the trust upon the payment of a
premium equals the value of the economic benefits attributable to the trusfs entire
interest In the contract (reduced by any consideration the trustee paid for 1he interest).
As cfascussed earlier, §1.61-22(c) treats the donor as the owner of a life

insurance contract even if the donee Is named as the policy owner if, under the .
split-dollar life Insurance arrangement. the only amount that would be treated as a
transfer by gift by the donor under the arrangement would be the value of current life
insurance protection. However, any amount paid by a donee, directly or indirectly, to
the donor for such current life insurance protection would generally be included in the
donors gross income.
Similarly, if the donor is the owner of the life insurance contract that Is part of the
split-dollar life insurance arrangement, amounts received by the irrevocable insurance
trust (either directly or indirectly) under the contract (for example, as a policy owner
dividend or proceeds of a specified policy loan) are treated as gifts by the donor to the
Irrevocable insurance trust as provided in §1.61-22(e). The donor must also treat as a
gift to the bust the amount set forth in §1.61-22(g) upon the transfer of the life Insurance
contract (or undivided interest therein) from the donor to the trust
The gift tax consequences of the transfer of an interest in a life Insurance

contract to a third party will continue to be detennined under established gift tax
principles notwithstanding who is treated as the owner of the life insurance contract
under the proposed regulations. See, for example, Rev. Rul. 81-198 (1981-2 C.B. 188).
Similarly, for estate tax purposes, regardless of who is treated as the owner of a life

insurance contract under these proposed regulations, the indusian of the policy
proceeds in a decedenfs gross estate will continue to be detennined under section
2042. Thus. the policy proceeds will be included in the decedenfs gross estate under
section 2042(1} if receivable by the decedenfs executor, or under section 2042(2} if the
policy proceeds are receivable by a beneficiary other than the decedenfs estate and the
decedent possessed any incidents of ownership with respect to the policy.
6. Other APPlications of These Regulations
_ _The proposed regulations provide for confonning changes to the definition of

wages under sections 3121 (a). 3231(e}, 3306(b), and 3401(a) and self-employment
Income under section 1402(a). The rules also apply for purposes of characterizing

a corporation to a shareholder under section 301.
7. Revenue Rulings to Become Obsolete
distributions from

_ _Concurrent with the publication of final regulations relating to split-dollar life
insurance arrangements in the Federal Register, the IRS will obsolete the following
revenue rulings with respect to split-dollar life insurance arrangements entered Into If1m:
the date the final regulations are published in the Federal Register: Rev. Rul. 64-328
(1964-2 C.B. 11); Rev. Rul. 66-110 (1966-1 C.B. 12); Rev. Rul. 78-420 (1978-2 C.B. 68)
(with resped to income tax consequences); Rev. Rul. 79-50 (1979-1 C.B. 138); and

Rev. Rul. 81-198 (1981-2 C.B. 188) (with respect to Income tax consequences).
Taxpayers entering into split-dollar life insurance arrangements on or before the date of
publication of the final regulations may continue to rely on these revenue rulings to the
extent described in Notice 2002-8.
The Treasury Department and the IRS request comments concerning whether
any other revenue rulings or guidance published in the Internal Revenue Bulletin should

be reconsidered in connection with the publication of final regulations relating to
split-dollar life insurance arrangements in the Federal Register.
PROPOSED EFFECTIVE DATE

These proposed regulations are PropoSed to apply to any spllt-dolJar life
insurance arrangement entered into after the date these regulations are published as

final regulations in the Federal Register. In addition, under the proposed regulations,
an arrangement entered into on or before the date final regulations are published in the
Federal Register and that is materially modified after that date is treated as a new
arrangement entered into on the date of the modification. Comments are requested
regarding whether certain material modifications should be disregarded in determining
whether an arrangement is treated as a new arrangement for purposes of the effective
date rule. For example, comments are requested whether an arrangement entered into
on or before the effective date should be subject to these rules If the only material
modification to the arrangement after that date is an exchange of an insurance policy
qualifying for nonrecognition treatment under section 1035.

Taxpayers are reminded that Notice 2002-8 provides guidance with rasped to
arrangements entered into before the effective date of these regulations.
In addition, taxpayers may rely on these proposed regulations for the treatment
of any split-dollar life insurance arrangement entered into on or before the date final

regulations are published in the Federal Register provided that aU parties to the
split-<follar life insurance arrangement treat the arrangement consistently. Thus, for
example, an owner and a non-owner of a life insurance contrad that is part of a
split-dollar life insurance arrangement may not rely on these proposed regulations If one
party treats the arrangement as subject to the economic benefit rules of §1.61-22 and

the other party treats the arrangement as subject to the loan rules of §1.7872-15.
Moreover, parties to an equity split-dollar life insurance arrangement subject to the.
economic benefit regime may rely on these proposed regulations only If the value of all
economic benefits taken into account by the parties exceeds the value of the economic
benefits the parties would have taken into account If the arrangement were a non-equlty
spllt-dollar life insurance arrangement (determined using the Table 2001 rates In Notice
2002-8). thereby reflecting the fad that such an arrangement provides the non-owner
with economic benefits that are more valuable than current life insurance protection.
Special Analyses

It has been detennined that this notice of proposed rulemaking is not a significant

regulatory action as defined In Executive Order 12866. Therefore, a regulatory flexibility
assessment is not required. It is hereby certified that the collection of Infonnation
requirements in these regulations will not have a Significant economic impact on a
substantial number of small entities. This certification is based on the fact that the
regulations merely require a taxpayer to prepare a written representation that contains
minimal infonnation (if the loan provides for nonrecourse payments) or a projected
payment schedule (if the loan provides for contingent payments). In addition, the
preparation of these documents should take no more than .28 hours per taxpayer.
Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Ad (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Intemal Revenue
Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on its impact on small
business.
Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written or electronic comments (a signed original and
eight (8) copies) that are submitted timely to the IRS. The Treasury Department and
IRS specifically request comments on the darity of the proposed rules and how they
may be made easier to understand. All comments will be available for public inspection
and copying.
A public hearing has been scheduled for October 23,2002, beginning at 10 a.m.
in room 4718 of the Internal Revenue Building, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building security procedures, visitors must enter at the
Constitution Avenue entrance. All visitors must present photo identification to enter the
building. Because of access restrictions. visitors will not be admitted beyond the
immediate entrance area more than 30 minutes before the hearing starts. For
infonnation about having your name placed on the building access list to attend the
hearing. see the -FOR FURTHER INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601 (a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must submit written comments and an outline of
the topics to be discussed and the time to be devoted to each topic (signed original and
eight (8) copies) by October 9, 2002. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the schedule of speakers will be
prepared after the deadline for receiving outlines has passed. Copies of the agenda will

be available free of charge at the hearing.
Drafting Infonnatlon

The principal authors of these proposed regulations are Rebecca Asta of the
Office of Associate Chief Counsel (Financial Institutions and Products). Lane Darnazo of

the Office of Associate Chief Counsel (passthroughs and Special Industries). EflZ8beth
Kaye of the Office of Associate Chief Counsel (Income Tax and Accounting). Erinn
Madden of the Office of Associate Chief Counsel (Tax-Exempt and Governmental
Entities), and Krishna Vallabhanenl of the Office of Associate Chief Counsel
(Corporate). However. other personnel from the IRS and Treasury Department
participated in their development

List of Subjects
26 CFR Part 1
_ _,Income taxes. Reporting and record keeping requirements.
26 CFR Part 31
_ _,Employment taxes. Income taxes, Penalties, Pensions, Railroad retirement.
Reporting and recordkeeping requirements, Social security. Unemployment
compensation.
Proposed Amendments to the Regulations
Accordingly. 26 CFR parts 1 and 31 are proposed to be amended as follows:
PART 1-INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended to read In part as
follows:
Authority: 26 U.S.C. 7805···

Section 1.7872-15 also issued under 26 U.S.C. 1275 and 7872. --Par. 2. Section 1.61-2 is amended by:
1. Redesignating paragraphs (d)(2)Oi)(!) and (Q) as paragraphs (d)(2)(ii)(A) and
(B). respectively.

2. Adding two sentences immediately following the second sentence in newly
designated paragraph (d)(2)(ii)(A).
The additions read as follows:

§ 1.61-2 Comoensation for services. including fees. commiSSions. and similar items·

. . . --

(d) - • •
(2)· • -

(U)(A) Cost of life insurance on the life of the employee. • - • For example, if an
employee or independent contractor is the owner (as defined In §1.61-22(c)(1» of a life
insurance contract and the payments under such contract are not split-dollar loans
under §1.7872-15(b)(1), the employee or independent contractor must include in
income the amount of any such payments by the employer or service recipient with
respect to such contract during any year to the extent that the employee's or
independent contractor's rights to the life insurance contract are substantially vested
(within the meaning of §1.83-3(b». This result is the same regardless of whether the
employee or independent contractor had at all times been the owner of the life
insurance contract or the contract previously had been owned by the employer or
service recipient as part of a split-dollar life insurance arrangement (as defined In
§1.61-22(b)(1) or (2» and had been transferred by the employer or service recipient to

. --..

the employee or Independent contractor under §1.61-22(g). - --

Par. 3. Section 1.61-22 is added to read as follows:
§1.61-22 Taxation of solit-dollar life insurance arrangements.
(a) Scooe-(1) In general. This section provides rules for the taxation of a
split-dollar life insurance arrangement for purposes of the Income tax, the gift tax. the

Federal Insurance Contributions Act (FICA). the Federal Unemployment Tax Act
(FUTA). the Railroad Retirement Tax Act (RRTA). and the Self-Employment
Contributions Act of 1954 (SECA). For the Collection of Income Tax at Source on
Wages. this section also provides rules for the taxation of a split-dollar life insurance
arrangement. other than a payment under a split-dollar life insurance arrangement that
is a spllt-dollar loan under §1.7872-15(b)(1). In general. a split-dollar fife insurance
arrangement (as defined in paragraph (b) of this section) is subject to the rules of either
paragraphs (d) through (g) of this section or §1.7872-15. For rules to determine which
rules apply to a spfrt-dollar life insurance arrangement, see paragraph (b)(3) of this
section.
(2) Overview. Paragraph (b) of this section defines a split-dollar life insurance
arrangement and provides rules to detennine whether an arrangement is subject to the
rules of paragraphs (d) through (g) of this section. §1.7872-15. or general tax rules.
Paragraph (c) of this section defines certain other terms. Paragraph (d) of this section
sets forth rules for the taxation of economic benefits provided under a split-dollar life
insurance arrangement Paragraph (e) of this secUon sets forth rules for the taxation of
amounts received under a life insurance contract that is part of a split-dollar life
insurance arrangement Paragraph (f) of this section provides rules for additional tax
consequences of a split-dollar life insurance arrangement. including the treatment of
death benefits. Paragraph (g) of this section provides rules for the transfer of a life
insurance contract (or an undivided interest in the contract) that is part of a split-dollar
life insurance arrangement Paragraph (h) of this section provides examples Ulustrating
the application of this section. Paragraph

0> of this section provides the effective date of

this section.
(b) Split-dollar life inSUrance arrangement=<1) In general. A split-dollar life
insurance arrangement is any arrangement between an owner and a non-owner of a life
insurance contract that satisfies the following criteria-

(I) Either party to the arrangement pays, direcUy or indirectly, all or any portion of
the premiums on the life insurance contract, induding a payment by means of a loan to
the other party that is secured by the life insurance contract;
(Ii) At least one of the parties to the arrangement paying premiums under

paragraph (b)(1)(i) of this section is entitled to recover (either conditionally or
unconditionally) all or any portion of those premiums and such recovery is to be made
from, or is secured by, the proceeds of the life insurance contract; and

(iii) The arrangement is not part of a group-term life insurance plan desaibed in
section 79.
(2) Special rul~ In general. Any arrangement between an owner and a

non-owner of a life insurance contrad is treated

as a split-dollar life insurance

arrangement (regardless of whether the aiteria of paragraph (b)(1) of this section are
satisfied) if the arrangement is desaibed in paragraph (b)(2)f1i) or (iii) of this section.

(i) Compensatory arrangements. An arrangement is desaibed in this paragraph
(b)(2)(ii) if the following aiteria are satisfied-

(A) The arrangement is entered into in connection with the performance of
services and is not part of a group-term life insurance plan desaibed in section 79;
(8) The employer or service recipient pays, directly or indirectly, all or any portion
of the premiums; and
(C) The beneficiary of all or any portion of the death benefit is designated by the

employee or service provider or is any person whom the employee or service provider
would reasonably be expected to deSignate as the beneficiary.

(iD) Shareholder arrangements. An arrangement is described In this paragraph
(b)(2)(iii) if the foIJowing aiteria are satisfied-

(A) The arrangement is entered into between a corporation and another person
in that person's capacity as a shareholder in the corporation;
(8) The corporation pays, directly or indirectly, aI/ or any portion of the premiums;
and

(C) The beneficiary of all or any portion of the death benefit is designated by the
shareholder or is any person whom the shareholder would reasonably be expected to
designate as the beneficiary.
(3) Oetennination of whether this section or § 1.7872-15 applies to a split-dollar
life insurance arrangement::(i) Split-dollar life insurance arrangements invoMng
split-dollar loans under §1 .7872-15. Except as provided in paragraph (b)(3)(ii) of this
section. paragraphs (d) through (g) of this section do not apply to any split-dollar loan as
defined in §1.7872-15(b)(1). Section 1.7872-15 applies to any such loan. See
paragraph (b)(5) of this section for the treabnent of payments made by a non-owner
under a split-dollar life insurance arrangement that are not split-dollar loans.
(U) Exceptions. Paragraphs (d) through (g) of this section apply (and §1.7872-15

does not apply) to any spflt-dollar life insurance arrangement 11(A) The arrangement is entered into in connection with the perfonnance of
services. and the employee or service provider is not the owner of the life insurance
contract (or is not treated as the owner of the contract under paragraph (c)(1)(ii)(A)W of
this section); or
(8) The arrangement is entered into between a donor and a donee (for example.
a life insurance trust) and the donee is not the owner of the life insurance contract (or is
not treated as the owner of the contract under paragraph (c)(1 )(ii)(A)(2) of this section).
(4) Consistency requirement Both the owner and the noo-owner of a life
insurance contract that is part of a split-dollar life insurance arrangement described In
paragraph (b)(1) or (2) of this section must fully and consistently account for all amounts
under the arrangement under paragraph (b)(5) of this section. paragraphs (d) through
(g) of this section. or under §1.7872-15.
(5) Non-owoer payments that are not sDiit-doilar loans. If a non-owner of a life
insurance contract makes premium payments (directly or indirectly) under a split-dollar
life insurance arrangement. and the payments are neither split-dollar loans nor
consideration for economic benefits described in paragraph (d) of this section. then
neither the rules of paragraphs (d) through (g) of this section nor the rules in §1.7872-15

apply to such payments. Instead, general income tax, employment tax. and gift tax
principles apply to the premium payments. See, for example, §1.61-2(d)(2)(ii)(A).
(6) Waiver. cancellation. orforgiveness. If a repayment obligation desaibed in

§ 1.7872-15(a)(2) is waived, cancelled, or forgiven at any time. then the parties must
take the amount waived, cancelled, or forgiven into account in accordance with the
relationships between the parties (for example. as compensation in the case of an
employee-employer relationship).
(e) Definitions. The following definitions apply for purposes of this section:
(1) Owner::(l} In general. With respect to a life Insurance contract. the person

named as the policy owner of such contrad generally Is the owner of such contract. If
two or more persons are named as policy owners of a fife insurance contract and each

person has all the incidents of ownership with resped to an undivided Interest In the
contract. each person is treated as the owner of a separate contract to the extent of
such person's undivided interest If two or more persons are named as policy owners of
a life insurance contrad but each person does not have all the incidents of ownership
with resped to an undivided interest in the contract. the person who is the first-named
policy owner is treated

as the owner of the entire contrad.

(ii) Special rule for certain arrangemenm::cA) In general. Notwithstanding
paragraph (e) (1lei) of this section-(!) An employer or service recipient Is treated as the owner of a life insurance

contrad under a split-dollar life insurance arrangement that Is entered Into in connection
with the performance of services if, at all times, the arrangement Is described in

paragraph (d)(2) of this section; and
(2) A donor is treated as the owner of a Ufe insurance contract under a spUtedoilar

rrfe insurance arrangement that Is entered into between a donor and a donee (for
example, a life insurance trust) If, at all times, the arrangement Is described In
paragraph (d)(2) of this section.
(8) Modifications. [Reserved]

Clii) Attribution rules. [ReservedJ

(2) Non-owner. With respect to a life insurance contract. a non-owner is any
person (other than the owner of such contract) that has any direct or indirect interest in
such contract (but not including a life insurance company acting only in its capacity as
the issuer of a life insurance contract).
(3) Transfer of entire contract or undivided interest therein. A transfer of the
ownership of a life insurance contract (or an undivided interest in such contract) that is
part of a split-dollar life insurance arrangement occurs on the date that a non-owner
becomes the owner (within the meaning of paragraph (c)(1)-ofthis section) of the entire
contract or of an undivided interest in the contract.
(4) Undivided interest An undivided interest in a rife insurance contract consists
of an identical fractional or percentage interest in each right and benefit under the
contract.
(5) EmPloyment tax. The tenn employment 1ax means the Federal Insurance
Contributions Act (FICA). the Federal Unemployment Tax Act (FUTA). the RaUroad
Retirement Tax Act (RRTA). the Self-Employment Contributions Ad: of 1954 (SECA).
and the Collection of Income Tax at Source on Wages.
(d) Economic benefits provided under a split-dollar life insurance
arrangement::(1) In general. Under a split-dollar life insurance arrangement subject to
the rules of paragraphs (d) through (g) of this section, the owner of the life insurance
contract is treated as providing economic benefits to the non-owner of the life insurance
contract. Those economic benefits must be accounted for fully and consistently by both
the owner and the non-owner pursuant to the rules of this paragraph (d). The value of
the economic benefits. reduced by any consideration paid by the non-owner to the

owner. is treated as transferred from the owner to the non-owner. Depending on the
relationship between the owner and the non-owner. the economic benefits may
constitute a payment of compensation. a distribution under section 301. a gift, or a
transfer having a different tax character. Further. depending on the relationship
between or among a non-owner and one or more other persons, the economic benefits
may be treated as provided from the owner to the non-owner and as separately

provided from the non-owner to such other person or persons (for example, as a
payment of compensation from an employer to an employee and as a gift from the
employee to the employee's children).
(2) Non-eguity split-doflar life insurance arrangements. In the case of a
split-dollar life insurance arrangement subject to the rules of paragraphs (d) through (g)
of this section under which the only economic benefit provided to the non-owner is
current life insurance protection (including paid-up additions thereto), the amount of the
current life insurance protection provided to the non-owner for a taxable year equals the
excess of the average death benefit of the life Insurance contract over the total amount
payable to the owner under the split-dollar life insurance arrangement The total
amount payable to the owner is increased by the amount fA any outstanding policy loan.

The cost of the current life Insurance protection provided to the non-owner In any year
equals the amount of the current life Insurance protection provided to the non-owner
multiplied by the ute insurance premium factor designated or pennitted in guidance
published In the Internal Revenue BuUetin (see §601.601(d)(2){i1) of this chapter).
(3) Equity split-dollar life insurance arrangements::O) In general. In the case of a
split-dollar life insurance arrangement subject to the rules of paragraphs (d) through (g)
of this section other than an arrangement desaibed in paragraph (d){2) of this section,
any right in. or benefit of, a life insurance contract (Including, but not limited to, an
interest in the cash surrender value) provided during a taxable year to a non-owner
under a split-dollar life insurance arrangement is an economic benefit for purposes of
this paragraph (d).

(D) Valuation of economic benefits. [Reserved]
(e) Amounts received under the contract-::(1) In general. Except as otherwise
provided in paragraph (f){2)(II) of this section, any amount received under a Bfe
insurance contract that is part of a split-dollar life insurance arrangement subject to the
rules of paragraphs (d) through (g) of this section {including, but not limited to, a policy
owner dividend, proceeds of a specified policy loan described In paragraph (e)(2) of this
section, or the proceeds of a withdrawal from or partial surrender of the Bfe Insurance

contract) is treated, to the extent provided directly or indirectly to a non-owner of the life
insurance contract, as though such amount had been paid to the owner of the life
insurance contract and then paid by the owner to the non-owner who is a party to the
sprtt-clollar life insurance arrangement. The amount received is taxable to the owner in
accordance with the rules of section 72. The non-owner (and the owner for gift tax and
employment tax purposes) must take the amount described in paragraph (e)(3) of this
section into account as a payment of compensation, a distribution under section 301, a
gift, or other transfer depending on the relationship between the owner and the
non-owner.
(2) Specified POliCY loan. A policy loan is a specified policy loan to the extent(i) The proceeds of the loan are cflStributed directly from the insurance company

tothenon-owner;
(Ii) A reasonable person would not expect that the loan wiD be repaid by the

non-owner; or
(iii) The non-owner's obligation to repay the loan to the owner is satisfied or is
capable of being satisfied upon repayment by either party to the insurance company.
(3) Amount required to be taken into account With respect to a non-owner (and
the owner for gift tax and employment tax purposes), the amount desaibed in this
paragraph (e)(3) is equal to the excess of(i) The amount treated as received by the owner under paragraph (e)(1) of this
section; over

(if) The amount of all economic benefits desaibed in paragraph (d)(3) of this
section actually taken into account under paragraph (d)(1) of this section by the

transferee (and the transferor for gift tax and employment tax purposes) reduced (but
not below zero) by any amounts that would have been taken into account under
paragraph (d)(1) of this section if paragraph (d)(2) of this section were applicable to the
arrangement plus any consideration paid by the noo-owner for all economic benefits
described in paragraph (d){3) of this section reduced (but not below zero) by any
consideration paid by the noo-owner that would have been allocable to amounts

desaibed in paragraph (d)(2) of this section if paragraph (d)(2) of this section were
applicable to the arrangement The amount determined under the preceding sentence
applies only to the extent that neither this paragraph (e)(3)(ii) nor paragraph (g)(1)(ii) of
this section previously has appned to such economic benefits.
(f) Other tax conseauence§::(1) Introduction. In the case of a split-dollar life
Insurance arrangement subject to the rules of paragraphs (d) through (g) of this section,
this paragraph (f) sets forth other tax consequences to the owner and non-owner of a
life insurance contract that Is part of the arrangement for the period prior to the transfer
(as defined in paragraph (c)(3) of this section) of the contract (or an und'lVided interest
therein) from the owner to the non-owner. See paragraph (g) of this section and

§1.83-6(a)(5) for tax consequences upon the transfer of the contract (or an und'lVided
interest therein).
(2) To non=owner::(l) In general. A non-owner does not receive any investment
in the contract under section 72(e)(6) with respect to a life insurance contrad that is part

of a split-dollar life Insurance arrangement subject to the rules of paragraphs (d) through
(9) of this section.
Oil Death proceeds to beneficiary (other than the owner>. Any amount paid to a
beneficiary (other than the owner) by reason of the death of the insured Is excluded
from gross income by such beneficiary under section 101 (a) as an amount received

under a life insurance contract to the extent such amount is allocable to current life
insurance protection provided to the nOfH)Wrler pursuant to the spllt-dollar life Insurance
arrangement. the cost of which was paid by the non-owner, or the value of which the
non-owner actually took into account pursuant to paragraph (d) of this section.
(3) To owner. Any premium paid by an owner under a spllt-dollar life insurance
arrangement subject to the rules of paragraphs (d) through (g) of this section Is Included
in the owner's Investment in the contract under section 72(e)(6). No premium or
amount desaibed in paragraph (d) of this section is deductible by the owner (except as
otherwise provided in §1.83-6(a)(5». Any amount paid by a non-owner. directly or
indirectly. to the owner of the life insurance contract for current life insurance protection

or for any other economic benefit under the life insurance contract is included in the
owner's gross income and is included in the owner's investment in the life insurance
contract for purposes of section 72(e)(6) (but only to the extent not otherwise so
included by reason of having been paid by the owner as a premium or other
consideration for the contract).
(g) Transfer of entire contract or undivided interest therein-(1) In general. Upon
a transfer within the meaning of paragraph (c)(3) of this section of a life insurance
contract (or an undivided interest therein) to a non-owner (transferee), the transferee
(and the owner (transferor) for gift tax and employment tax purposes) takes into account
the excess of the fair market value of the life insurance contract (or the undivided
interest therein) transferred to the transferee at that time over the sum of-

(i) The amount the transferee pays to the transferor to obtain the contract (or the
undivided interest therein); and
(ii) The amount of aD economic benefits d8saibed in paragraph (d)(3) of this

section actually taken into account under paragraph (d)(1) of this section by the
transferee (and the transferor for gift tax and employment tax purposes) reduced (but
not below zero) by any amounts that would have been taken into account under
paragraph (d)(1) of this section if paragraph (d)(2) of this section were applicable to the
arrangement plus any consideration paid by the non-owner for all economic benefits
desaibed in paragraph (d)(3) of this section reduced (but not below zero) by any
consideration paid by the non-owner that would have been allocable to amounts
desaibed in paragraph (d)(2) of this section if paragraph (d)(2) of this section were
applicable to the arrangement The amount determined under the preceding sentence
applies only to the extent that neither paragraph (e)(3)(l1) of this section nor this
paragraph (g)(1)(l1) previously has applied to such economic benefits.
(2) Determination of fair market value. For purposes of paragraph (g)(1) of this
section, the fair market value of a life insurance contract is the cash surrender value and
the value of all other rights under such contract (including any supplemental

agreements thereto and whether or not guaranteed), other than the value of amant life
insurance protection.
(3) Exception for certain transfers in connection with the perfonnance of services.
To the extent the ownership of a life insurance contract (or undivided interest in such
contract) is transferred in connection with the perfonnance of services, paragraph (g)(1)
of this section does not apply until such contract (or undivided interest in such contract)

is taxable under section 83. For purposes of paragraph (g)(1) of this section, fair market
value is determined disregarding any lapse restrictions and at the time the transfer of
such contract (or undivided interest in such contract) Is taxable under section 83.
(4) Treatment of non-owner after transfer::Cl) In general. After a transfer of an

entire life insurance contract (except when such transfer Is in connection with the
performance of services and the transfer is not yet taxable under section 83), the
person who previously had been the non-owner is treated as the owner of such contract
for aU purposes, including for purposes of paragraph (b) of this section and for purposes
of §1.61-2(d)(2)(ii)(A). After the transfer of an undivided interest in a life insurance
contract (or, if later, at the time such transfer is taxable under section 83), the person
who previously had been the non-owner is treated as the owner of a separate contract
consisting of that interest for aU purposes, including for purposes of paragraph (b) of this
section and for purposes of §1.61-2(d)(2)(ii)(A). However, such person will continue to

be treated as a non-owner with respect to any undivided interest in the contract not 80
transferred (or not yet taxable under section 83).
(Ii) Investment In

the contract after transfer:=(A) In aeneral.

The amount treated

as consideration paid to acquire the contract under section 72(g)(1) to detennine the
aggregate premiums paid by the transferee for purposes of detennining the transferee's
investment in the contract under section 72(e) after the transfer (or, If later, at the time
such transfer is taxable under section 83) equals the greater of the fair market value of

the contract or the sum of the amounts determined under paragraphs (g)(1)(I) and (Ii) of
this section.

(8) Transfers between a donor and a donee. In the case of a transfer of a
contract between a donor and a donee, the amount treated as consideration paid by the
transferee to acquire the contract under section 72(g)(1) to detennine the aggregate
premiums paid by the transferee for purposes of detennining the transferee's
investment in the contract under section 72(e) after the transfer equals the sum of the
amounts detennined under paragraphs (g)( 1)0) and (Ii) of this section except that-

W The amount detennined under paragraph (g)(1)(I) of this section includes the
aggregate of premiums or other consideration paid or deemed to have been paid by the
transferor; and
~

The amount of an economic benefits detennined under paragraph (g)(1)(l1) of

this section actually taken into account by the transferee does not include such benefits

to the extent such benefits were excludable from the transferee's gross income at the
time of receipl
(e) Transfers of an undivided interest in a contract. If a portion of a contract is

transferred to the transferee, then the amount to be included as consideration paid to
acquire the contract is detennined by multiplying the amount detennined under
paragraph (g)(4)(ii)(A) of this section (as modified by paragraph (g)(4)(1I)(8) of this
section, if the transfer is between a donor and a donee) by a fraction, the numerator of
which is the fair market value of the portion transferred and the denominator of which Is
the fair market value of the entire contract.
(D) Example. The following example illustrates the rules of this paragraph
(g)(4)01):
Example. (I) In year 1, donor 0 and donee E enter into a split-dollar life
insurance arrangement as defined in paragraph (b)(1) of this section. 0 Is the owner of
the life insurance contract under paragraph (c)(1) of this section. The life insurance
contract Is not a modified endowment contract as defined in section 7702A. In year 5, 0
gratuitously transfers the contract. within the meaning of paragraph (c)(3) of this section.
to E. At the time of the transfer, the fair market value of the contract Is $200,000 and 0
had paid $50,000 in premiums under the arrangement In addition, at the time of the
transfer. E had previously received $80,000 of benefits desaibed in paragraph (d)(3) of
this section. which were excludable from E's gross income under section 102.

(il) E's investment in the contrad is $50,000, consisting of the $50,000 of
premiums paid by D. The $80,000 of benefits desaibed in paragraph (d)(3) of this
section that E received is not included in E's investment in the contrad because such
amounts were excludable from E's gross income at the time of receipt
(Iii) No investment in the contrad for current life inSUrance protection. No amount

allocable to current life insurance protection provided to the transferee (the cost of
which was paid by the transferee or the value of which was provided to the transferee)

is treated as consideration paid to acquire the contrad under section 72(g)(1) to
determine the aggregate premiums paid by the transferee for purposes of detennining

the transferee's Investment in the contrad under section 72(e) after the transfer.
(h) Examples. The following examples WustrBte the rules of this section. Except

as otherwise provided, each ct the examples assumes that the employer (R) Is the
owner (as defined in paragraph (c)(1) of this section) of a life Insurance contrad that Is
part of a split-dollar life insurance arrangement subjed to the rules of paragraphs (d)
through (g) of this section, that the life insurance centrad is not a modified endowment
contract under section n02A, that the compensation paid to the employee (El Is
reasonable, and that E makes no premium payments. The examples are as follows:
Example 1. (I) In year 1, R purchases a life insurance contrad on the life of E. R
is named as the policy owner of the contract. Rand E enter into an arrangement under
which R will pay all the premiums on the life insurance contrad until the termination of
the arrangement or E's death. Upon tennination of the arrangement or E' s death, R is
entitfed to receive the greater of the aggregate premiums or the cash surrender value of
the contract. The balance of the death benefit will be paid to a beneficiary designated
byE.

(Ii) Because R is designated as the poficy owner, R is the owner of the contrad
under paragraph (c)(1) of this section. E Is a non-owner of the contrad. Under the
arrangement between R and E, a portion of the death benefit Is payable to a beneficiary
designated by E. The arrangement is a split-dollar life insurance arrangement under
paragraph (b)(1) or (2) of this section. For each year that the spilt-doDar life Insurance
arrangement is In effect, the arrangement is desaibed in paragraph (d)(2) of this section
and E must include in income the value of current life insurance protection, as required
by paragraph (d)(2) of this sedion.
Example 2. (i) The facts are the same as in Example 1 except that, upon
tennination of the arrangement or E's death, R is entitled to receive the lesser of the
aggregate premiums or the cash surrender value of the contrad.

(ii) For each year that the split-dollar life insurance arrangement is in effect, the
arrangement is desaibed in paragraph (d)(3) of this section and E must include in gross
income the value of the economic benefit attributable to E's interest in the life insurance
contract. as required by paragraph (d)(3) of this section.

Example 3. (i) The facts are the same as in Example 1 except that in year 5, R
and E modify the split-dollar life insurance arrangement to provide that. upon
termination of the arrangement or E's death, R is entitled to receive the greater of the
aggregate premiums or one-half the cash surrender value of the contract.
(Ii) In year 5 (and subsequent years), the arrangement is described in paragraph
(d)(3) of this section and E must include in gross income the value of the economic
benefit attributable to E's interest In the life insurance contract. as required by
paragraph (d)(3) of this section. Because the modification made by R and E in year 5
does not involve the transfer (within the meaning of paragraph (c)(3) of this section) of
an undivided Interest in the life insurance contract from R to E, the modification is not a
transfer for purposes of paragraph (g) of this section.

Example 4. (i) The facts are the same as in Example 2 except that in year 7, R
and E modify the sprlt-dollar life insurance arrangement to provide that. upon
termination of the arrangement or E's death, R will be paid the lesser of 80 percent of
the aggregate premiums or the cash surrender value of the contract.
(ii) The arrangement is desaibed in paragraph (d)(3) of this section. In year 7
(and in subsequent years), E must include in gross income the value of the inaeased
economic benefits described in paragraph (d)(3) of this section resulting from the
contract modification under which E obtains rights to a larger amount of the cash value
of the contract (attributable to the fact that R will forgo the right to recover 20 percent of

the premiums R pays).
Example 5. (i) The facts are the same as in Example 3 except that in year 7, E is
designated as the policy owner. At that time, E's rights to the contract are substantially
vested as defined in §1.83-3(b).
(Ii) In year 7, R is treated as having made a transfer (within the meaning of
paragraph (c)(3) of this section) of the life insurance contract to E. E must include in
gross income the amount determined under paragraph (g)(1) of this section.
(Iii) After the transfer of the contract to E, E is the owner of the contract and any
premium payments by R will be included in Ets income under paragraph (b)(5) of this
section and §1.61-2(d)(2)(li)(A) (unless R's payments are split-dollar loans as defined in
§1.7872-15(b)(1».

Example 6. (I) In year " E and R enter into a split-dollar life insurance
arrangement as defined in paragraph (b)(2) of this section. Under the arrangement, R

is required to make annual premium payments of $10,000 and E is required to make
annual premium payments of $500. In year 5, a $500 policy owner dividend payable to
E Is declared by the Insurance company. E directs the insurance company to use the
$500 as E's premium payment for year 5.
(iI) For each year the arrangement is in effect, the arrangement is desaibed in
paragraph (d){3) of this section and E must include in gross income the value of the
economic benefits granted during the year, as required by paragraph (d){3) of this
section over the $500 premium payments paid by E. In year 5, E must also include in
gross income as compensation the excess, If any, of the $500 distributed to E from the
proceeds of the poUcy owner dMdend over the amount determined under paragraph
(eX3){lI) of this section.
(fii) R must Indude In Income the premiums paid by E during the years the
spUt-dollar Bfe insurance anangement is in effect. Including the $500 of the premium E
paid in year 5 with proceeds of the policy owner dividend. R's Investment In the
contrad is lnaeased In an amount equal to the premiums paid by E. including the $500
of the premium paid by E in year 5 from the proceeds of the policy owner dividend. In
year 5, R is treated as raceMng a $500 distribution under the contract. which is taxed
pursuant to section 72.

Example 7. (i) The fads are the same as In Example 2 except that in year 10 E
withdraws $100,000 from the cash value of the contract.
'
(II) In year 10, R Is treated as receMng a $100,000 distribution from the
insurance company. This amount is treated as an amount received by R under the
contrad and taxed pursuant to section 72. This amount reduces R's investment in the
contract under section 72(e). R is treated as paying the $100,000 to E as cash
compensation, and E must indude that amount in gross income less any amounts
detennined under paragraph (e)(3){lI) of this section.

Example 8. (i) The fads are the same as in Example 7 except E receives the
proceeds of a $100,000 specified policy loan directly from the insurance company.
(Ii) The transfer of the proceeds of the specified policy loan to E Is treated as a
loan by the Insurance company to R. Under the rules of section 72(e), the $100,000
loan is not Included In R's income and does not reduce R's investment in the contract.
R is treated as paying the $100,000 of loan proceeds to E as cash compensation. E
must indude that amount In gross income less any amounts determined under
paragraph (e)(3)OO of this section.

(I) [Reserved]

0) Effective dat!=(1) General rule. This section applies to any split-dollar life
insurance arrangement (as defined in paragraph (b)(1) or (2) of this section) entered
into after the date the final regulations are published in the Federal Register.
(2) Early relianSt:(i) General rule. Taxpayers may rely on this section for the
treatment of any split-dollar life insurance arrangement (as defined in paragraph (b)(1)
or (2) of this section) entered into on or before the date desaibed In paragraph 0)(1) of
this section. provided that all taxpayers who are parties to the arrangement treat the
arrangement consistenUy under this section and. in the case of an arrangement
desaibed in paragraph (d)(3) of this section. also satisfy the requirements in paragraph
0)(2)(11) of this section.
(Ii) Equity sDlit-doDar life insurance arrangements. Parties to an arrangement
described in paragraph (d)(3) of this section may rely on this ~ only if the value of
all economic benefits taken into account by the parties exceeds the value of the
economic benefits the parties would have taken into account If paragraph (d)(2) of this
section were applicable to the arrangement (detennined using the life insurance
premium factor designated in guidance published in the Internal Revenue Bulletin (see
§601.601(d)(2)(lI) of this chapter». thereby reflecting the fad that such an arrangement
provides the non-owner with economic benefits that are more valuable than current life
insurance protection.
(3) Modified arrangements treated as new arrangements. An arrangement
entered into on or before the date set forth in paragraph (j)(1) of this section that is
materially modified after the date set forth in paragraph 0)(1) of this section is treated as
a new arrangement entered into on the date of the modification.
Par. 4. Section 1.83-1 is amended by:
1. Removing the second sentence of paragraph (a)(2).
2. Adding a sentence at the end of paragraph (a)(2).
The addition reads as follows:

§ 1.83-1 Property transferred in connection with the perfonnance of services.

(a) • • •
(2) Life insurance. ••• For the taxation of life insurance protection under a

split-dollar life insurance arrangement (as defined in §1.61-22(b)(1) or (2», see
§1.61-22 .

•••••
Par. 5. Section 1.83-3 Is amended by.
1. Adding a sentence at the end of paragraph (a)(1).

2. Revising the penultimate sentence in paragraph (e).
The addition and revision read as follows:
§ 1.83-3 Meaning and use of certain

terms.

(a) ••• (1)··· For special rules applying to the transfer of a life insurance
contract (or an undivided interest therein) that is part of a spflt-dollar life insurance
arrangement (as defined in §1.61-22(b)(1) or (2», see §1.61-22(g) .

•••••
(e) ••• In the case of a transfer of a contract, or any undMded interest therein,
providing death benefit protection (including a life insurance contract, retirement
contract. or endowment contract) after the date the final regulations are published in the
Federal Register, the cash surrender value and all other rights under such contract
(including any supplemental agreements thereto and whether or not guaranteed). other
than current life insurance protection, are treated as property for purposes of this
section . •• *

•••••
Par. 6. Section 1.83-6 is amended as follows:

1. RedeSignating paragraph (a)(5) as paragraph (a)(6).

2. Adding a new paragraph (a)(5).
The addition reads as follows:

§1.83-6 Deduction by employer.

(a)·· •
(5) Transfer of life inSUrance contrad (or an undivided interest thereinHi)
General rule. In the case of a transfer of a life insurance contrad (or an undivided
interest therein) described in §1.61-22(c)(3) in connection with the perfonnance of
services, a deduction is allowable under paragraph (a)(1) of this section to the person
for whom the services were perfonned. The amount of the deduction. if allowable, is
equal to the sum of the amount included as compensation in the gross income of the
service provider under §1.61-22(g)(1) and the amount detennined under
§1.61-22(g)(1)(lQ.

(0) Effective ~A) General rule. Paragraph (a)(5)(I) of this section applies to
any split-dollar life insurance arrangement (as defined in §1.61-22(b)(1) or (2» entered
into after the date the final regulations are published in the Federal Register.
(B) Early reliance-(1) General rule. Taxpayers may rely on this paragraph (a)(5)
for the treatment of any split-dollar life insurance arrangement (as defined in §1.6122(b)(1) or (2» entered into on or before the date described in paragraph (a)(5)(lI)(A) of
this section, provided that all taxpayers who are parties to the arrangement treat the
arrangement consistently under §1.61-22(d) through (g) and. In the case of an
arrangement desaibed in §1.61-22(d)(3), also satisfy the requirements in paragraph
(a)(5)(li)(B)(2) of this section.
(2) EQUity spfrt-dollar life insurance arrangements. Parties to an arrangement

desaibed in §1.61-22(d)(3) may rely on this paragraph (a)(5) only if the value of all
economic benefits taken into account by the parties exceeds the value of the economic
benefits the parties would have taken into account if §1.61-22(d)(2) were applicable to
the arrangement (detennined using the life insurance premium factor deSignated in
guidance published in the Internal Revenue Bulletin (see §601.601 (d)(2)(lI) of this

chapter)). thereby reflecting the fact that such an arrangement provides the non-owner
with economic benefits that are more valuable than aJrrent life insurance protection.
(e) Modified arrangements treated as new arrangements.

An arrangement

entered into on or before the date set forth in paragraph (a)(5)(ii)(A) of this section that
is materially modified after the date set forth in paragraph (a)(5)(ii)(A) of this section is

treated as a new arrangement entered into on the date of the modification.

•••••
Par. 7. In §1.301-1, paragraph (q) is added to read as follows:
§1,301-1 Rules apPlicable with respect to distributions of money and other Property•

•••••
(q) Sprrt-dollar and other life insurance arrangemeDm::(1) Split-dollar Dfe
insurance arrangemen§::(i) pistribution of economic benefits. The provision by a
corporation to Its shareholder pursuant to a split-dollar life insurance arrangement. as
defined in §1.61-22(b)(1) or (2), of economic benefits described in §1.61-22(d) or of
amounts desaibed in §1.61-22(e) is treated as a distribution of property. the amount of
which is detennined under §1.61-22(d) and (e), respectively.

(n) Distribution of entire contract or undivided interest therein. A transfer (within
the meaning of §1.61-22(c)(3» of the ownership of a life insurance contrad (or an
undivided interest therein) that is part of a split-dollar life insurance arrangement is a
distribution of property, the amount of which is detennined pursuant to §1.61-22(g)(1)
and (2).
(2) Other life insurance arrangements. A payment by a corporation on behalf d
a shareholder of premiums On a life insurance centrad or an undivided Interest therein
that is owned by the shareholder constitutes a distribution of property. even If such
payment is not part of a split-dollar life insurance arrangement under §1.61-22(b).
(3) When distribution is mad~) In general. Except as provided In paragraph
(q)(3)(ii) of this section, paragraph (b) of this section shall apply to determine when a

distribution desaibed in paragraph (q)(1) or (2) of this section is taken into account by a
shareholder.
(ii) Exception. Notwithstanding paragraph (b) of this section, a distribution

desaibed in paragraph (q)( 1)(ii) of this section shall be treated as made by a
corporation to its shareholder at the time that the life insurance contract, or an undivided
interest therein, is transferred (within the meaning of §1.61-22(c)(3» to the shareholder.
(4) Effective dat!!::(i) General rule. This paragraph (q) applies to split-dollar and
other life insurance arrangements entered into after the date the final regulations are
published in the Federal Register.
(0) Eartv reliance-(A) General rule. Taxpayers may rely on this paragraph (q) for

the treatment of any split-dollar life insurance arrangement (as defined in §1.61-22(b)(1)
or (2» entered into on or before the date described in paragraph (q)(4)(I) of this section.
provided that all taxpayers who are parties to the arrangement treat the arrangement
conSistently under §1.61-22(d) through (g) and. in the case of an arrangement
described in §1.61-22(d)(3), also satisfy the requirements in paragraph (q)(4)(ii)(B) of
this section.
(B) Equity split-dollar life insurance arrangements. Parties to an arrangement
desaibed in §1.61-22(d)(3) may rely on this paragraph (q) only if the value of all
economic benefits taken into account by the parties exceeds the value of the economic
benefits the parties would have taken into account if §1.61-22(d)(2) were applicable to
the arrangement (determined using the life insurance premium factor designated In
guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(li) of this
chapter». thereby reflecting the fad that such an arrangement provides the non-owner
with economic benefits that are more valuable than current life insurance protection.
(iii) Modified arrangements treated as new arrangements. An arrangement

entered into on or before the date set forth in paragraph (q)(4)(i) of this section that is

materially modified after the date set forth in paragraph (q)(4)(i) of this section is treated
as a new arrangement entered into on the date of the modification.
Par. 8. Section 1.1402{a)-18 is added to read as follows:
§1.1402(a)-18 Split-dollar life insurance arrangements.
See §1.61-22 for rules relating to the treatment of split-dollar life insurance
arrangements.
Par. 9. Section 1.7872-15 is added to read as follows:
§1.7872-15 Solit-dollar loans.
(a) General rules-(1) Introduction. This section appfles to split-dollar loans as
defined in paragraph (b)(1) of this section. If a split-dollar loan is not a below-market
loan, then, except as provided in this section, the loan is governed by the general rules
for debt instruments (induding the rules for original issue discount (010) under sections
1271 through 1275 and the regulations thereunder). If a split-dollar loan Is a
below-mart<et loan, then, except as provided in this section, the loan is governed by
section 7872 and the regulations thereunder. The timing, amount, and characterization
of the imputed transfers between the lender and borrower of a below-market split-dollar
loan depend upon the relationship between the parties and upon whether the loan is a
demand loan or a term loan. For additional rules relating to the treatment of split-dollar
life insurance arrangements, see §1.61-22.
(2) Loan treatment~i) General rule. A payment made pursuant to a split-doUar
life insurance arrangement is treated as a loan for Federal tax purposes, and the owner
and noo-owner are treated, respectively, as the borrower and the lender, if(A) The payment is made either directly or indirectly by the non-owner to the
owner (induding a premium payment made by the noo-owner directly to the insurance
company with respect to the policy held by the owner);
(8) The payment is a loan under general principles of Federal tax law or, If it is
not a loan under general principles of Federal tax law, a reasonable person would

expect the payment to be repaid in full to the non-owner (whether with or without
interest): and
(C) The repayment is to be made from, or is secured by, either the policy's death
benefit proceeds or its cash surrender value.
(ii) Payments that are only partially reoavable. For purposes of §1.61-22 and this
section, if a non-owner makes a payment pursuant to a split-dollar life insurance
arrangement and the noo-owner is entitled to repayment of some but not all of the
payment, the payment is treated as two payments: one that Is repayable and one that
is not. Thus, paragraph (a)(2)(I) of this section refers to the repayable payment.
(in) Treatment of oayments that are not sDiit-doilar loans. See §1.61-22(b)(5) for
the treabnent of payments by a non-owner that are not split-dollar loans.
(iv) Examples. The provisions of this paragraph (a)(2) are lUustrated by the

following examples:
Example 1. Assume an employee owns a life insurance policy under a
split-dollar life insurance arrangement, the employer makes premium payments on this
policy, there is a reasonable expectation that the payments will be repaid, and the
repayments are secured by the policy. Under paragraph (a)(2)(i) of this section, each
premium payment is a loan for Federal tax purposes.
Example 2. (i) Assume an employee owns a life insurance policy under a
split-dollar life insurance arrangement and the employer makes premium payments on
this policy. The employer is entitled to be repaid 80 percent of each premium payment,
and the repayments are secured by the policy. Under paragraph (a)(2)(ii) Of this
section. the taxation of 20 percent of each premium payment is governed by §1.6122(b)(5). If there is a reasonable expectation that the remaining 80 percent of a
payment will be repaid in full, then, under paragraph (a)(2)(i) of this section. the 80
percent Is a loan for Federal tax purposes.
(ii) If less than 80 percent of a premium payment is reasonably expected to be
repaid, then this paragraph (a)(2) does not cause any of the payment to be a loan for
Federal tax purposes. If the payment is not a loan under general principles of Federal
tax law, the entire premium payment is governed by §1.61-22(b)(5).

(3) No de minimis exceptions. For purposes of this section, section 7872 is
applied to a split~ollar loan without regard to the de minimis exceptions in
section 7872(e)(2) and (3).
(b) Definitions. For purposes of this section, the tenns sDlit~ollar life insurance
arrangement. owner, and nOrH>wner have the same meanings as provided in §1.6122(b) and (e). In addition, the following definitions apply for purposes of this section:
(1) A split~oIlar loan is a loan desaibed in paragraph (a)(2)(i) of this section.
(2) A sDlit~ollar demand loan Is any spiit-doOar loan that is payable in full at any
time on the demand of the lender (or within a reasonable time after the lender's
demand).
(3) A split~ollar term loan Is any split~Uar loan other than a split-dollar demand
loan. See paragraph (e)(5) of this section for special rules regarding certain split-dollar
term loans payable on the death of an individual, certain split-dollar tenn loans
conditioned on the future performance of substantial services by an individual, and gift
split-dollar tenn loans.
(e) Interest deductions for split-dollar loans. The borrower may not deduct any
qualified stated interest, 010. or imputed interest on a split-dollar loan. See
sections 163(h) and 264(a). In certain circumstances, an indirect participant may be
allowed to deduct qualified stated interest, OlD, or imputed interest on a deemed loan.
See paragraph (e)(2)Oii) of this section (relating to indirect loans).
(d) Treatment of som-dollar loans providing for nonrecourse payments-(1) In
general. Except as provided in paragraph (d)(2) of this section, if a payment on a
split-dollar loan is nonrecourse to the borrower. the payment is a contingent payment for
purposes of this section. See paragraph

0> of this section for the treabnent of a

spJit-dolJar loan that provides for one or more contingent payments.
(2) Exception for certain loans with respect to which the parties to the split-dollar
life insurance arrangement make a representation~i) Requirements. An otherwise

noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a
contingent payment under this section if the following requirements are satisfied(A) The split-dollar loan provides for interest payable at a stated rate that is either
a fixed rate or a variable rate desaibed in paragraph (g) of this section; and
(B) The parties to the split-dollar life insurance arrangement represent in writing
that a reasonable person would expect that all payments under the loan will be made.
(ii) Time and manner for providing written representation. The Commissioner
may prescribe the time and manner for providing the written representation required by
paragraph (d)(2)(i)(B) of this section. Until the Commissioner prescribes otherwise, the
written representation that is required by paragraph (d)(2)(i)(8) of this section must meet
the requirements of this paragraph (d)(2)(ii). Both the bonower and the lender must
sign the representation not later than the last day (including extensions) for filing the
Federal income tax return of the borrower or lender. whichever is earfler, for the taxable
year in which the lender makes the first split-doUar loan under the split-dollar life
insurance arrangement This representation must include the names, addresses, and
taxpayer identification numbers of the borrower. lender. and any indirect participants.
Unless otherwise stated therein. this representation applies to all subsequent split-dollar
loans made pursuant to the split-dollar life insurance arrangement Each party should
retain an original of the representation as part of its books and records and should
attach a copy of this representation to its Federal income tax return for any taxable year
in which the lender makes a loan to which the representation applies.
(e) Below-rnarket split-dollar loan5--(1) Scope-(i) In geneml. This paragraph (e)
applies to below-market split-dollar loans enumerated under section 7872(c)(1), which
include gift loans, compensation-related loans, and corporation-shareholder loans. The
charaderization of a split-dollar loan under section 7872(c)(1) and of the imputed
transfers under section 7872(a)(1) and (b)(1) depends upon the relationship between
the lender and the borrower or the lender, borrower. and any indirect participant For

example,

tt the lender is the borrower's employer, the split-dollar loan is generally a

compensation-related loan, and any imputed transfer from the lender to the borrower is
generally a payment of compensation. The loans covered by this paragraph (e) include
indirect loans between the parties. See paragraph (e)(2) of this section for the
treatment of certain Indirect split-dollar loans. See paragraph (1) of this section for the
treatment of any stated interest or 010 on split-dollar loans. See paragraph a> of this
section for additional rules that apply to a split-dollar loan that provides for one or more
contingentpa~enm.

(U) Siantficant-effect solit-dollar loans. If a direct or indirect below-market
spfit-dollar loan is not enumerated in section 7872(c)(1)(A). (8). or (C). the loan Is a
significant~ffect

loan under section 7872(c)(1 )(E).

(2) Indirect spltt-dollar Ioans--{i) In general. If, based on all the facts and
circumstances, including the relationship between the borrower or lender and some
third person (the Indirect participant). the effect of a below-market split-dollar loan is to
transfer value from the lender to the indirect participant and from the indirect participant
to the bonower, then the below-market split-dollar loan is restructured as two or more

successive below-market loans (the deemed loans) as provided in this paragraph (e)(2).

The transfers of value desaibed in the preceding sentence include (but are not limited
to) a gift, compensation. a capital contribution. and a distribution under section 301 (or.

in the case of an S corporation. under section 1368). The deemed loans are(A) A deemed below-market split-dollar loan made by the lender to the indirect
participant and

(8) A deemed below-market split-dollar loan made by the indirect participant to
the borrower.
~i) Application. Each deemed loan is treated as having the same provisions as

the Original loan between the lender and borrower, and section 7872 is applied to each
deemed loan. Thus, for example.

tt. under a split-dollar life insurance arrangement, an

employer (lender) makes an interest-free split-dollar loan to an employee's child
(borrower), the loan is generally restructured as a deemed compensation-related
below-market spllt-doUar loan from the lender to the employee (the indirect participant)
and a second deemed gift below-market split-dollar loan from the employee to the
employee's child. In appropriate circumstances, section 7872(d)(1) may limit the
interest that acaues on a deemed loan for Federal income tax purposes. For loan
arrangements between husband and wife, see section 7872(f)(7).
(iii) Umitations on Investment interest for DurDOSeS of section 163(dl. For
purposes of section 163(d), the imputed interest from the indirect participant to the
lender that Is taken into account by the indirect participant under this paragraph (e)(2) is
not investment interest to the extent of the excess, If any, of-

(A) The imputed interest from the indirect participant to the lender that is taken
into account by the indirect participant; over
(8) The imputed interest to the indirect participant from the borrower that Is
recognized by the indirect participant
flV) Example. The provisions of this paragraph (e)(2) are illustrated by the

following example:
Example. (I) On January 1, 2009, Employer X and IndMdual Aenter into a
split-clollar life insurance arrangement under which A is named as the policy owner. .A
is the child of B, an employee of X. On January 1, 2009, ~ makes a $30,000 premium
payment, repayable upon demand without interest Repayment of the premium
payment is fully recourse to A- The payment is a below-market split-dollar demand
loan. A's net investment income for 2009 is $1,100, and there are no other outstanding
loans between A and 8. Assume that the blended annual rate for 2009 Is 5 percent,
compounded annually.
(Ii) Based on the relationships among the parties, the effect of the below-market
split-dollar loan from Xto A is to transfer value from ~ to 8 and then to transfer value
from 8 to A. Under paragraph (e)(2) of this section, the below-market spllt-dollar loan
from X to A Is restructured as two deemed below-market split-dollar demand loans: a
compensation-related below-market split-dollar loan between ~ and 8 and a gift
below-market spllt-dollar loan between 8 and A. Each of the deemed loans has the
same terms and conditions as the original loan.

~Ii) Under paragraph (e)(3) of this section, the amount of forgone interest

deemed paid to Ii by A in 2009 is $1,500 ([$30,000 x 0.05] - 0). Under
section 7872(d)(1), however, the amount of forgone interest deemed paid to Ii by A is
limited to $1,100 (A's net invesbnent income for the year). Under paragraph (e)(2)(iii) of
this section, B's deduction under section 163(d) in 2009 for interest deemed paid on B's
deemed loan from X is limited to $1,100 (the interest deemed received from A).
(3) Split-dollar demand loanHi) In general. This paragraph (e)(3) provides rules
for testing split-dollar demand loans for sufficient interest. and. if the loans do not

provide for sufficient interest. rules for the calculation and treatment of forgone interest
on these loans. See paragraph (g) of this section for additional rules that apply to a
sprrt-dollar loan providing for certain variable rates of interest.
(0) T!Sting for suffident interest. Each calendar year that a split-dollar demand
loan is outstanding, the loan is tested to determine if the loan provides for sufficient
interest A split-dollar demand loan provides for sufficient interest for the calendar year
if the rate (based on annual compounding) at which interest acaues on the loan's

adjusted issue price during the year is no lower than the blended annual rate for the
year. (The Internal Revenue Service publishes the blended annual rate in the Internal
Revenue Bulletin in July of each year (see §601.601 (d)(2)(ii) of this chapter).) If the
loan does not provide for sufficient interest, the loan is a below-market split-dollar
demand loan for that calendar year. See paragraph (e)(3)~ii) of this section to
determine the amount and treatment of forgone interest for each calendar year the loan
is below-market

(DO Imputations-(A) Amount of forgone Interest For each calendar year. the

amount of forgone interest on a split-dollar demand loan is treated as transferred by the
lender to the borrower and as retransferred as interest by the borrower to the lender.
This amount is the excess of-

(1) The amount of interestlhat would have been payable on the loan for the

calendar year if interest accrued on the loan's adjusted issue price at the AFR
(determined in paragraph (e)(3)(0) of this section) and were payable annually on the day
referred to in paragraph (e)(3)(iii)(B) of this section; over
(2) Any interest that acaues on the loan during the year.
(B) Timing of transfers of forgone interest::U) In general. Except as provided in
paragraphs (e)(3)(iii)(B)(2) and Q) of this section, the forgone interest (as determined
under paragraph (e)(3)(lii)(A) of this section) that is atbibutable to a calendar year is
treated as transferred by the lender to the borrower (and retransferred as interest by the
borrower to the lender) on the last day of the calendar year and is accounted for by

each party to the split-dollar loan in a manner consistent with that party's method of
accounting.
(2) Exception for death. liquidation. or termination of the borrower. In the taxable
year in which the borrower dies (in the case of borrower who is a natural person) or is
liquidated or otherwise terminated (in the case of a borrower other than a natural
person). any forgone interest is treated. for both the lender and the borrower. as
transferred and retransferred on the last day of the borrower's final taxable year.
@) Exception for repayment of below-market split-dollar loan. Any forgone

interest is treated, for both the lender and the borrower. as transferred and retransferred
on the day the splil-dollar loan is repaid in full.
(4) Split1#oIlar tenD IoanS-(O In general. Except as provided In paragraph (e)(5)
of this section. this paragraph (e)(4) provides rules for testing splil-dollar term loans for

sufficient interest and. if the loans do not provide for sufficient interest. rules for imputing
payments on these loans. See paragraph (g) of this section for additional rules that
apply to a splil-dollar loan providing for certain variable rates of interest
(ii) Testing a split-dollar term loan for sufficient interest A split-dollar term loan is

tested on the day the loan is made to determine if the loan provides for sufficient

interest A split-dollar tenn Joan provides for sufficient interest tf the imputed loan
amount equals or exceeds the amount loaned. The imputed loan amount is the present
value of all payments due under the loan, detennined as of the date the loan is made,
using a discount rate equal to the AFR in effect on that date. The AFR used for
purposes of the preceding sentence must be appropriate for the loan's tenn (short-tenn,
mid-tenn, or Iong-tenn) and for the compounding period used in computing the present
value. See section 1274(d)(1). If the split-dollar loan does not provide for sufficient
interest, the loan is a below-mar1<et splH-doDar term loan subject to paragraph (e)(4)f1V)
of this section.
(Hi) Detenninina loan tenD. This paragraph (e)(4)(iii) provides rules to detennine
the tenn of a spIH-doUar tenn loan for purposes of paragraph (e)(4)OO of this section.
The term of the loan determined under this paragraph (e)(4)(iii) (other than

paragraph (e)(4)(Ui)(C) of this section) applies to detennine the split-dollar loan's term,
payment schedule, and yield for all purposes of this section.
(A) In general. Except as provided in paragraph (e)(4)(iiJ)(8), (C), (0) or (E) of

this section, the tenn of a split-dollar term loan is based on the period from the date the
loan is made until the loan's stated maturity date.
(B) Special rules for certain option§::{!) Payment schedule that minimizes yield.
If a split-dollar term loan is subject to unconditional options that are exercisable at one

or more times during the term of the loan and that, tf exercised, would require fuU
payment of the loan on a date other than the stated maturity date, then the rules of this
paragraph (e)(4)(iii)(B)(1) detennine the term of the loan. For purposes of detennlnlng a
split-dollar loan's term, the borrower is projected to exercise or not exercise an option Or
combination of options in 8 manner that minimizes the loan's overall yield. Similarly, the
lender is projeded to exercise or not exercise an option or combination of options In a
manner that minimizes the loan's overall yield. If different projected pattems of exercise
or non-exercise produce the same minimum yield, the parties are projected to exercise

or not exercise an option or combination of options in a manner that produces the
longest term.
(2) Change in circumstances. If the borrower (or lender) does or does not
exercise the option as projected under paragraph (e)(4)(iii){8){1) of this section, the
split-dollar loan is treated as retired and reissued on the date the option is or is not
exercised. The amount for which the loan is deemed to be retired and reissued is the
loan's adjusted issue price on that date. The reissued loan must be retested using the
appropriate AFR in effect on the date of reissuance to determine whether it is a
below-market loan.

Q) Examples. The following examples illustrate the rules of this
paragraph (e)(4)(iD)(8):
Example 1. Employee ~ issues a 10-year sprrt-dollar term loan to Employer~.
8 has the right to prepay the loan at the end of year 5. Interest is payable on the
split-dollar loan at 1 percent for the first 5 years and at 10 percent for the remaining 5
years. Under paragraph (e)(4)(iii)(8){1) of this section, this arrangement is treated as a
5-year split-dollar term loan from ~ to It with interest payable at 1 percent
Example 2. The facts are the same as the facts in Example 1, except that ~
does not in fad prepay the split-dollar loan at the end of year 5. Under
paragraph (e)(4)(iii)(B)(2) of this section, the first loan is treated as retired at the end of
year 5 and a new 5-year split-dollar term loan is issued at that time. with interest
payable at 10 percent.
Example 3. Employee A issues a 10-year split-dollar term loan on which the
lender. Employer ~ has the right to demand payment at the end of year 2. Interest is
payable on the sprrt-dollar loan at 7 percent each year that the loan is outstanding.
Under paragraph (e)(4)(iii)(B)W of this section. this arrangement is treated as a 10-year
split-dollar term loan because the exercise of OS put option would not reduce the yield

of the loan (the yield of the loan is 7 percent, compounded annually, whether or not X
demands payment).
(C) Split-dollar term loans providing for certain variable rates of interest. If a
split-dollar term loan is subjed to paragraph (g) of this section (a spllt-dollar loan that

provides for certain variable rates of interest), the tenn of the loan for purposes of
paragraph (e)(4)(ii) of this section is detennined under paragraph (g)(3){ii) of this
section.
(D) Split-dollar loans payable upon the death of an individual. If a spnt-dollar
tenn loan is desaibed in paragraph (e)(5){ii)(A) or (v)(A) of this section, the term of the
loan for purposes of paragraph (e)(4){ii) of this section is detennined under
paragraph (e)(5)(ii)(C) or (v)(B~ of this section, whichever is applicable.
(E) Split-dollar loans conditioned on the future perfonnance of substantial
services by an individual. If a split-dollar term loan is desaibed in
paragraph (e)(5)(iiI)(A)W or (v)(A) of this section, the term of the loan for purposes of
paragraph (e)(4)(l1) of this section is determined under paragraph (e)(5)(iii)(C) or
(v)(B)~ of this section, whichever is applicable.

(iv) Timing and amount of imputed transfer in connection with below-rnarket
split-dollar tenn loans. If a spllt-dollar term loan is a below-market loan, then the rules
applicable to below-market term loans under section 7872 apply. In general, the loan is
recharacterized as consisting of two portions: an imputed loan amount (as defined in
paragraph (e)(4)(l1) of this section) and an imputed transfer from the lender to the
borrower. The imputed transfer occurs at the time the loan is made (for example, when
the lender makes a premium payment on a life insurance policy) and is equal

to the

excess desaibed in paragraph (e)(4){ii) of this section.
(v) Amount treated as OlD. In the case of any below-market spllt-dollar term loan
desaibed in this paragraph (e)(4), for purposes of applying sections 1271 through 1275
and the regulations thereunder, the issue price of the loan is the amount determined
under § 1.1273-2, reduced by the amount of the imputed transfer described in
paragraph (e)(4)[1V) of this section. Thus, the loan is generally treated as having 010 In
an amount equal to the amount of the imputed transfer described In paragraph (e)(4)f1V)

of this section, in addition to any other 010 on the loan (detennlned without regard to
section 7872(b)(2)(A) or this paragraph (e)(4».
(vi) Example. The provisions of this paragraph (e)(4) are iUustrated by the
following example:
Example. (i) On July 1, 2009, Corporation Z and Shareholder A enter into a
split-dollar life insurance arrangement under which A is named as the policy owner. On
July 1, 2009, Z makes a $100,000 premium payment, repayable without interest in 15
years. Repayment of the premium payment is fully recourse to A. The premium
payment is a split-doUar tenn loan. Assume the Iong-tenn AFR (based on annual
compounding) at the time the loan is made is 7 percent

01) Based on a 15-year term and a discount rate of 7 percent, compounded
annually (the long-term AFR). the present value of the payments under the loan is
$36.244.60. detennined as follows: $100,0001[1+(0.07/1)]15. This loan is a
below-martet split-dollar tenn loan because the imputed loan amount of $36,244.60
(the present value of the amount required to be repaid to Z) Is less than the amount
loaned ($100.000).

Oil) In accordance with section 7872(b)(1) and paragraph (e)(4)(iv) of this section,
on the date that the loan is made, ~ is treated as transferring to A $63,755.40 (the
excess, of $100,000 (amount loaned) over $36,244.60 (imputed loan amount». Under
section 7872 and paragraph (e)(1)0) of this section. ~ is treated as making a
section 301 distribution to A on July 1, 2009. of $63.755.40.

~ must take

Into account

as 010 an amount equal to the imputed transfer. See §1.1272-1 for the treatment of
010.

(5) Special rules for certain split-dollar term 10anNi) In general. This paragraph
(e)(5) provides rules for split-dollar loans payable on the death of an individual.
split-dollar loans conditioned on the Mure performance of substantial services by an
individual, and gift term loans. These split-dollar loans are split-dollar tenn loans for
purposes of detennining whether the loan provides for sufficient interest If. however,
the loan is a below-martet split-dollar loan, then. except as provided in paragraph
(e)(5)(v) of this section. forgone interest is determined annually. simHar to a demand

loan, but using an AFR that is appropriate for the loan's term and that is detennined
when the loan is issued.
(lij Split-dollar loans payable not later than the death of an individuaHA)
Applicability. This paragraph (e)(5)(ii) applies to a split-dollar tenn loan payable not
later than the death of an indMdual.
(8) Treatment of loan. A split-dollar loan desaibed in paragraph (e)(5)(ii)(A) of
this section is tested under paragraph (e)(4)OO of this section to determine If the loan
provides for sufficient interest If the loan provides for sufficient interest, then section
7872 does not apply to the loan, and the interest on the loan is taken into account under
paragraph (f) of this section. If the loan does not provide for sufficient Interest. then
section 7872 applies to the loan, and the loan is treated as a below-market demand
loan subject to paragraph (e)(3)(iiij of this section. For each year that the loan Is
outstanding, however, the AFR used in the detennination of forgone interest under
paragraph (e)(3)(lii) of this section is not the blended annual rate but rather is the AFR
(based on annual compounding) appropriate for the loan's term for the month in which
the loan is made. See paragraph (e)(5)(ii)(e) of this section to determine the loan's
tenn.
(e) Tenn of loan. For purposes of paragraph (e)(5)(ii)(8) of this section, the term

of a split-dollar loan payable on the death of an indMdual (including the death of the last
survivor of a group of individuals) is the life expectancy as detennined under the
appropriate table in §1.72-9 on the day the loan is made. If a split-dollar loan Is payable
on the eartier of the individuars death or another term determined under
paragraph (e)(4)(iiij of this section, the term of the loan is whichever term is shorter.
(D) Retirement and reissuance of loan. If a split-dollar loan desaibed in
paragraph (e)(5)(ii)(A) of this section remains outstanding longer than the term
detennined under paragraph (e)(5)(ii)(e) of this section because the individual outlived
his or her life expectancy, the split-dollar loan is treated as retired and reissued as a

split-dollar demand loan at that time for the loan's adjusted issue price on that date.
However, the loan is not retested at that time to determine whether the loan provides for
sufficient interest For purposes of determining forgone interest under paragraph
(e)(5)(ii)(8) of this section, the appropriate AFR for the reissued loan is the AFR
determined under (e)(5)(ii)(8) of this section on the day the loan was originally made.
(iii) SDiit-doliar loans conditioned on the future performance of substantial

services bv an individual:(A) Applicability-(!) In general. This paragraph (e)(5)(iii)
applies to a split-dollar term loan if the benefits of the interest arrangements of the loan
are not transferable and are conditioned on the future performance of substantial
services (within the meaning of section 83) by an individual.
(2) Exception. Notwithstanding paragraph (e)(5)(iii)(A)U) of this section, this

paragraph (e)(5)(iii) does not apply to a split-dollar loan desaibed In paragraph
(e)(5)(v)(A) of this section (regarding a split-dollar loan that is payable on the later of a
term certain and the date on which the condition to perform substantial future services
by an individual ends).
(8) Treatment of loan. A split-dollar loan desaibed in paragraph (e)(5)(iil)(A)(1)
of this section is tested under paragraph (e)(4)(il) of this section to determine if the loan
provides for sufficient interest. Except as provided in paragraph (e)(5)(III)(0) of this
section, if the loan provides for sufficient interest. then section 7872 does not apply to
the loan and the interest on the loan is taken into account under paragraph (f) of this
section. If the loan does not provide for sufficient interest, then section 7872 applies to
the loan and the loan is treated as a below-market demand loan subject to paragraph
(e)(3)(iii) of this section. For each year that the loan is outstanding, however, the AFR
used in the determination of forgone interest under paragraph (e)(3)(III) of this section is
not the blended annual rate but rather is the AFR (based on annual compounding)
appropriate for the loan's term for the month in which the loan is made. See
paragraph (e)(5)(iii)(C) of this section to determine the loan's term.

(e) Term of loan. The term of a split~ollar loan described in paragraph
(e){S){iii)(A)(1) of this section is based on the period from the date the loan is made until
the loan's stated maturity date. However, if a split~oIlar loan described in paragraph
(e)(S)(iii)(A)(1) of this section does not have a stated maturity date, the term of the loan
is presumed to be seven years.
(D) Retirement and reissuance of loan. If a spJit~oIlar loan described in
paragraph (e)(5){iii)(A)(1) of this section remains outstanding longer than the term
determined under paragraph (e){5){iii)(e) of this section because of the continued
performance of substantial services, the split-dollar loan is treated as retired and
reissued as a split~lar demand loan at that time for the loan's adjusted issue price on
that date. The loan is retested at that time to determine whether the loan provides for
sufficient interest.
(IV) Gift split-dollar term loan!::(A) ApplicabHity. this paragraph (e)(5)(IV) applies
to gift split-dollar term loans.

(e) Treatment of loan. A split-dollar loan desaibed in paragraph (e)(5)(iv)(A) of

this section is tested under paragraph (e){4 )(ii) of this section to determine if the loan
provides for sufficient interest. If the loan provides for sufficient interest. then section
7872 does not apply to the loan and the interest on the loan Is taken into account under

paragraph (f) of this section. If the loan does not provide for sufficient interest. then
section 7872 applies to the loan and the loan is treated as a below-market demand loan
subject to paragraph (e){3){iii) of this section. For each year that the loan is
outstanding, however, the AFR used in the determination of forgone interest under
paragraph (e){3)(Iii) of this section is not the blended annual rate but rather is the AFR
(based on annual compounding) appropriate for the loan's term for the month in which
the loan is made. See paragraph (e){S)(IV)(e) of this section to determine the loan's
term.

(C) Term of loan. For purposes of paragraph (e)(5)(iv)(B) of this section, the
term of a gift split-dollar term loan is the term determined under paragraph (e)(4)(iii) of
this section.
(D) Limited application for gift split-dollar term loans. The rules of paragraph
(e)(5)(iv)(B) of this section apply to a gift split-dollar term loan only for Federal income

tax purposes. For purposes of Chapter 12 of the Internal Revenue Code (relating to the
gift tax). gift beIow-market split-dollar term loans are treated as tenn loans under
section 7872(b) and paragraph (e)(4) of this section. See section 7872(d)(2).
(v) SDlit-dollar loans payable on the later of a tenn certain and another specified
date-(A) APplicability. This paragraph (e)(5)(v) applies to any split-dollar term loan
payable upon the later of a term certain 01'(1) The death of an indMdual; or

<ID For a loan desaibed in paragraph (e)(5)(iii)(A)(1) of this section, the date on
which the condition to perfonn substantial future services by an indMdual ends.
(B) Treatment of 10a!l::U) In generat A split-dollar loan desaibed in paragraph
(e)(5)(v)(A) of this section is a split-dollar term loan, subjed to paragraph (e)(4) of this
section.

<ID Term of the loan.

The tenn of a split-dollar loan desaibed in paragraph

(e)(5)(v)(A) of this section is the term certain.

<ID APpropriate AFR.

The appropriate AFR for a split-dollar loan described in

paragraph (e)(5)(v)(A) of this section is based on a term of the longer of the tenn certain
or the loan's expected term as determined under either paragraph (e)(5)(il) or (iii) of this
section, whichever is applicable.
(C) Retirement and reissuance. If a split-dollar loan desaibed in paragraph
(e)(5)(v)(A) of this section remains outstanding longer than the term certain, the
split-dollar loan is treated as retired and reissued at the end of the term certain for the
loan's adjusted issue price on that date. The reissued loan is subjed to paragraph

(e)(5)(iO or (iii) of this section, whichever is applicable. However, the loan is not
retested at that time to determine whether the loan provides for sufficient interest For
purposes of paragraph (e)(3){iii) of this section, the appropriate AFR for the reissued
loan is the AFR determined under paragraph (e)(5)(v)(8)(ID of this section on the day
the loan was originally made.
(vi) example. The provisions of this paragraph (e)(5) are illustrated by the
following example:
examPle. (i) On January 1, 2009, Corporation and Shareholder Il. a 65
year-old male, enter Into a split-dollar life insurance arrangement under which Il is
named as the policy owner. On January 1, 2009, makes a $100,000 premium
payment, repayable, without Interest. from the death benefits of the undertying contract
upon ~'s death. The premium payment is a split-<lollar tenn loan. Repayment of the
premium payment is fully recourse to A. Assume the long-term AFR (based on annual
compounding) at the time of the loan is 7 percent Both y and Il use the calendar year
as their taxable years.

r

r

(ii) Based on Table 1 in §1.72-9, the expected term of the loan is 15 years.
Under paragraph (e)(5)(ii)(C) of this section, the long-term AFR (based on annual
compounding) is the appropriate test rate. 8ased on a 15-year term and a discount rate
of 7 percent, compounded annually (the long-tenn AFR), the present value of the
payments under the loan is $36,244.60, detennined as follows:
$1oo,0001[1+(0.07/1)J15. Under paragraph (e)(5)(ii)(8) of this section, this loan is a
below-market split-dollar term loan because the imputed loan amount of $36,244.60
(the present value of the amount required to be repaid to Y> is less than the amount
loaned ($100,000).
(Hi) Under paragraph (e)(5)(ii)(8) of this section, the amount of forgone interest
for 2009 (and each subsequent full calendar year that the loan remains outstanding) is
$7,000, which is the amount of interest that would have been payable on the loan for
the calendar year if Interest accrued on the loan's adjusted issue price ($100.000) at the
long-term AFR (7 percent, compounded annually). Under section 7872 and
pa~graph (e).(1)(I) o.f this section, on December 31,2009, Yis treated as making a
~n 301 distribution to ~ of $7,000. In addition, Y has $7,000 of Imputed Interest
Income for 2009.

(f) Treatment of stated interest and OlD for split~o"ar loans-(1) In general. Ha
split-dollar loan provides for stated interest or OlD, the loan is subject to this
paragraph (f), regardless of whether the split~ollar loan has sufficient interest Except

as provided in paragraphs (f)(2), (g), and 0) of this section, split-dollar loans are subject
to the same Internal Revenue Code and regulatory provisions for stated interest and
010 as other loans. For example, the lender of a split-dollar loan that provides for

stated interest must account for any qualified stated interest (as defined in §1.1273-1 (c»
under its regular method of acoounting (for example, an aeaual method or the cash
receipts and disbursements method). See §1.446-2 to determine the amount of
qualified stated interest that accrues during an accrual period. In addition, the lender
must account under §1.1272

1 for any 010 on a split-dollar loan. See

paragraph (h) of this section for a subsequent waiver, cancellation, or forgiveness of
stated interest on a split-dollar loan.
(2) Tenn. payment schedule. and yield. The teRn of a split-dollar term loan
determined under paragraph (e)(4)(iii) of this section (other than paragraph (e)(4)(iii)(C)
of this section) applies to determine the split-dollar loan's term, payment schedule, and
yield for all purposes of this section.
(g) Certain variable rates of interest-(1) In general. This paragraph (g) provides
rules for a split-dollar loan that provides for certain variable rates of interest. If this
paragraph (g) does not apply to a variable rate split-dollar loan, the loan is subject to the
rules for split-dollar loans providing for one or more contingent payments in
paragraph 0) of this section.
(2) ADDlicability-(i) In general. Except as proyided in paragraph (g)(2)(II) of this
section, this paragraph (g) applies to a split-dollar loan that is a variable rate debt
instrument (within the meaning of §1.1275-5) and that provides for stated interest at a
qualified floating rate (or rates).
(il) Interest rate restrictions. This paragraph (g) does not apply to a split-dollar
loan tt, as a result of interest rate restrictions (such as an interest rate cap), the
expected yield of the loan taking the restrictions into account is Significantly less than
the expected yield of the loan without regard to the restrictions. Conversely,

tt

reasonably symmetric interest rate caps and floors or reasonably symmetric governors
are fixed throughout the teon of the loan. these restrictions generally do not prevent this
paragraph (g) from applying to the loan.
(3) Testing for sufficient interest=<i) Demand loan. For purposes of
paragraph (e)(3)01) of this section (regarding testing a split-dollar demand loan for
sufficient Interest). a split~lar demand loan is treated as if it provided for a fixed rate
of interest for each accrual period

to which a quarlfied floating rate applies. The

projected fixed rate for each accrual period is the value of the quarlfied floating rate as
of the beginning c:I the calendar year that contains the last day of the accrual period.

(Ii) Teon toan. For purposes of paragraph (e)(4)(II) of this section (regarding
testing a split-dollar tenn loan for sufficient interest). a split-dollar tenn loan subject to
this paragraph (g) is treated as if It provided for a fixed rate of interest for each accrual
period

to which a quaJified floating rate applies. The projected fixed rate for each

accrual period is the value of the qualified floating rate on the date the split-doUar teon
loan is made. The term of a split-dollar loan that is subjed to this paragraph (g)(3)(ii) is
determined using the rules in §1.1274-4(c)(2). For example. If the loan provides for
interest at a qualified floating rate that adjusts at varying intervals. the tenn of the loan is
determined by reference to the longest interval between interest adjustment dates. See
paragraph (e)(5) of this section for special rules relating to certain split-dollar tenn loans.
such as a split-dollar term loan payable not later than the death of an individual
(4) Interest accruals and imputed transfers. For purposes of paragraphs (e) and

(f) of this section, the projected fixed rate or rates determined under paragraph (g)(3) of
this section are used for purposes of deteonining the accrual of interest each period and

the amount of any imputed transfers. Appropriate adjustments are made to the Interest
accruals and any imputed transfers to take into account any difference between the
projected fixed rate and the actual rate.

(5) Example. The provisions of this paragraph (g) are illustrated by the following
example:
Example. 0) On January 1, 2010, Employer y and Employee F enter into a
split-dollar life insurance arrangement under which Eis named as the policy owner. On
January 1, 2010, Ymakes a $100,000 premium payment, repayable in 15 years. The
premium payment is a split-dollar term loan. Under the arrangement between the
parties, interest is payable on the split-dollar loan each year on January 1, starting
January 1, 2011, at a rate equal to the value of 1-year UBOR as of the payment date.
The short-term AFR (based on annual compounding) at the time of the loan is 7
percent Repayment of both the premium payment and the interest due thereon is
nonrecourse to E. However, the parties made a representation under paragraph (d)(2)
of this section. Assume that the value of i-year UBOR on January 1, 2010, is 8
percent, compounded annually.
(d) The loan is subject to this paragraph (g) because the loan is a variable rate
debt instrument that bears interest at a qualified floating rate. Because the interest rate

is reset each year, under paragraph (g)(3)(ii) of this section, the short-term AFR (based
on annual compounding) is the appropriate test rate used to determine whether the loan
provides for sufficient interest Moreover, under paragraph (g)(3)(ii) of this section, to
determine whether the loan provides for sufficient interest, the loan is treated as if it
provided for a fixed rate of interest equal to 8 percent, compounded annually. Based on
a discount rate of 7 percent, compounded annually (the short-term AFR), the present
value of the payments under the loan is $109,107.91. The loan provides for sufficient
interest because the loan's imputed loan amount of $109,107.91 (the present value of
the payments) is more than the amount loaned of $100,000. Therefore. the loan is not
a below-market split-dollar term loan, and interest on the loan is taken into account
under paragraph (f) of this section.
(h) Adjustments for interest paid at less than the stated rate-(1) In general. To
the extent required by this paragraph (h), if accrued but unpaid interest on a split-dollar
loan is subsequently waived, cancelled, or forgiven by the lender, the waiver,
cancellation, or forgiveness is treated as if, on that date, the interest had in fact been
paid to the lender and then retransferred by the lender to the borrower. To determine

the characterization of any retransferred amount, see paragraph (e)(1 )(i) of this section.
For purposes of this paragraph (h), the amount of interest deemed transferred and
retransferred pursuant to this paragraph (h) is detennined under paragraph (h)(2) or (3)
of this section. See § 1.61-22(b)(6) for the treatment of amounts other than interest on a
split-dollar loan that are waived, cancelled,

or forgiven by the lender. For purposes of

this paragraph (h), a split-dollar term loan described in paragraph (e)(5) of this section
(for example, a split-dollar term loan payable not later than the death of an individual) is
subject to the rules of paragraph (h)(3) of this section.
(2) SDIit-doliar term loans. In the case of a split-dolJar term loan, the amount of

interest deemed transferred and retransferred for purposes rA paragraph (h)(1) of this
section Is determined as follows:
(l) If the loan's stated rate is less than or equal to the appropriate AFR (the AFR

used to test the loan for sufficient interest under paragraph (e) of this section), the
amount of Interest deemed transferred and retransferred pursuant to this paragraph (h)
is the excess of the amount of interest payable at the stated rate over the interest
actually paid.
(ii) If the loan's stated rate is greater than the appropriate AFR (the AFR used to
test the loan for sufficient interest under paragraph (e) of this section), the amount of
interest deemed transferred and retransferred pursuant to this paragraph (h) Is the
excess, If any, of the amount of interest payable at the AFR over the interest actually
paid.
(3) Split-dollar demand loans. In the case of a split-dollar demand loan, the
amount of interest deemed transferred and retransferred for purposes of paragraph
(h)(1) of this section Is equal to the aggregate of(i) For each year that the split-dollar demand loan was outstanding in which the

loan was a below-market split-dollar demand loan, the excess of the amount of interest
payable at the stated rate over the interest actually paid allocable to that year; plus

(it) For each year that the split-dollar demand loan was outstanding in which the
loan was not a below-market split-dollar demand loan, the excess, if any, of the amount
of interest payable at the appropriate AFR used for purposes of imputation for that year
over the interest actually paid allocable to that year.
(4) Examples. The provisions of this paragraph (h) are Ulustrated by the following
examples:
Example 1. (I) On January 1, 2009, Employer y. and Employee ~ entered into a
split-dollar life insurance anangement under which ~ is named as the poncy owner. On
January 1, 2009, Y made a $100,000 premium payment. repayable on December 31,
2011, with interest of 5 percent. compounded annually. The premium payment is a
split-dollar tenn loan. Assume the short-tenn AFR (based on annual compounding) at
the time the loan was made was 5 percent. Repayment of both the premium payment
and the interest due thereon was fully recourse to Ii. On December 31. 2011. ~ is
repaid $100.000 but y. waives the remainder due on the loan ($15.762.50). Both Y and
B use the calendar year as their taxable years.
(ii) When the split-dollar loan was made. the loan was not a below-market loan
under paragraph (e)(4)(ii) of this section. Under paragraph (f) of this section • .y. was

required to accrue compound interest of 5 percent each year the loan remained
outstanding. B. however. was not entitled to any deduction for this interest under
paragraph (e) of this section.
(iii) Under paragraph (h)(2) of this section, the waived amount is treated as if. on

December 31. 2011. it had in fact been paid to ): and was then retransferred by y. to ft.

The amount deemed transferred to y. and retransferred to ~ equals the excess of the
amount of interest payable at the stated rate ($15.762.50) over the interest actually paid

(SO). or $15,762.50. Because of the employment relationship between

r and ~ this

retransferred amount is treated as compensation paid by Y. to ft.
Example 2. (I) On January 1, 2009, Employer y. and Employee Il entered into a
split-dollar life insurance anangement under which Ii is named as the policy owner. On
January 1. 2009, Y. made a $100.000 premium payment. repayable on the demand ofY,
with interest of 7 percent, compounded annually. The premium payment is a split-dollar
demand loan. Assume the blended annual rate (based on annual compounding) in
2009 was 5 percent and In 2010 was 6 percent Repayment of both the premium
payment and the interest due thereon was fully recourse to~. On December 31, 2010.
y'demands repayment and is repaid its $100,000 premium payment in full; however. y.
waives all interest due on the loan. Both y. and Ii use the calendar year as their taxable
years.

(Ii) For each year that the split-dollar demand loan was outstanding, the loan was
not a below-market loan under paragraph (e)(3)01) of this section. Under paragraph (f)
of this section, Y was required to accrue compound interest of 7 percent each year the
loan remained outstanding.
however, was not entitled to any deduction for this
interest under paragraph (e) of this section.

a..

(iii) Under paragraph (h)(1)0) of this section, a portion of the waived interest may
be treated as If, on December 31, 2010, It had in fad been paid to Y and was then
retransferred by Y to~. The amount of interest deemed transferred to y and
retransferred to Ii equals the excess, if any, of the amount of interest payable at the
blended annual rate for each year the loan is outstanding over the interest actually paid
with respect to that year. For 2009. the interest payable at the blended aMual rate is
$5,000 ($100,000 x 0.05). For 2010, the interest payable at the blended annual rate is
$6,000 ($100,000 x 0.06). Therefore, the amount of interest deemed transferred to y
and retransferred to 8 equals $11,000. Because of the employment relationship
between y and this retransferred amount is treated as compensation paid by Yto Ii.

.a.

(i) [Reserved]

mSplit-dollar loans that provide for contingent paymen!i-(1) In general.
as provided in paragraph 0)(2) of this section. this paragraph

Except

0> provides rules for a

split-dollar loan that provides for one or more contingent payments. This paragraph 0),
rather than §1.1275-4, applies to split-dollar loans that provide for one or more
contingentpa~n~.

(2) Exceptions-(i) Certain contingencies. For purposes of this section, a
split-dollar loan does not provide for contingent payments merely because(A) The loan provides for options described In paragraph (e)(4)011)(8) of this
section (for example, certain call options, put options, and options to extend); or
(8) The loan Is desa1bed in paragraph (e)(5) of this section (relating to certain
split-dollar term loans, such as a split-dollar term loan payable not later than the death
of an individuaQ.
01) Insolvency and default. For purposes of this section, a payment is not

contingent merely because of the possibility of impairment by insolvency, default, or
similar circumstances. However, if any pa~nt on a split-dollar loan is nonrecourse to

the borrower. the payment is a contingent payment for purposes of this paragraph

0>

unless the parties to the arrangement make the written representation provided for in
paragraph (d)(2) of this section.
(iii) Remote and incidental continaencies. For purposes of this section. a

payment is not a contingent payment merely because of a contingency that, as of the
date the split-dollar loan is made. is either remote or incidental (within the meaning of
§1.1275-2(h».
flV) excePtions for certain split-dolfar loans. This paragraph

ID does not apply to

a split-dollar loan desaibed in §1.1272-1(d) (certain debt instruments that provide for a
fixed yield) or a split-dollar loan desaibed in paragraph (g) of this section (relating to
spfrt-dollar loans providing for certain variable rates of interest).
(3) Contingent sorrt-dollar method-(i) In general. If a split-dolfar loan provides for
one or more contingent payments. then the parties account for the loan under the
contingent split-dollar method. In general. except as provided in this paragraph

0>. this

method is the same as the noncontingent bond method desaibed in §1.12754(b).
(ii) Projected payment schedul§-{A) Determination of schedule. No comparable

yield is required to be determined. The projected payment schedule for the loan
indudes all noncontingent payments and a projected payment for each contingent
payment The projected payment for a contingent payment is the lowest possible value
of the payment The projeded payment schedule. however. must produce a yield that

is not less than zero. If the projected payment schedule produces a negative yield. the

schedule must be reasonably adjusted to produce a yield of zero.
(B) Solit-dollar term loans payable upon the death of an individual. If a
split-dollar term loan desaibed in paragraph (e)(5)(ii)(A) or (v)(A)W of this section
provides for one or more contingent payments. the projected payment schedule is
determined based on the term of the loan as de~ermined under paragraph (e)(5)(iij(C) or
[v)(B)~

of this section. whichever is applicable.

(C) Certain split.{jollar term loans conditioned on the future performance of
substantial services by an individual. If a spfit-dollar term foan desaibed in
paragraph (e)(5)Oii)(A)(1) or (v)(A)<'-) of this section provides for one or more contingent
payments, the projected payment schedule is determined based on the term of the loan
as determined under paragraph (e)(5)(iii)(C) or (v)(B)~ of this section, whichever is
applicable.
(D) Demand loans. If a split-dollar demand loan provides for one or more

contingent payments, the projected payment schedule is determined based on a
reasonable assumption as to when the lender wiD demand repayment
(E) BoaowerOender consistency. Contrary to §1.1275-4(b)(4)(Iv). the lender
rather than the borrower is required to detennine the projected payment schedule and

to provide the schedule to the borrower and to any Indirect participant as described in
paragraph (e)(2) of this section. The lenders projected payment schedule is used by
the lender, the borrower, and any indirect participant to compute interest aeauals and
adjustments.
(iii) Negative adjustments. If the issuer of a split-dollar loan is not allowed to

deduct interest or OlD (for example, because of section 163(h) or 264). then the issuer
is not required to include in income any negative adjustment carryforward determined
under §1.1275-4(b)(6)(iii)(C) on the loan, except to the extent that at maturity the total
payments made over the life of the loan are less than the issue price of the loan.
(4) APPlication of section 7872-{J) Determination of below-market status. The
yield based on the projected payment schedule determined under paragraph 0)(3) of
this section is used to determine whether the loan is a below-market split-doDar loan
under paragraph (e) of this section.
(ii) Adjustment upon the resolution of a contingent payment. To the extent that
interest has accrued under section 7872 on a split-dollar loan and the interest would not
have accrued under this paragraph 0) in the absence of section 7872, the lender is not

required to recognize income under §1.1275-4(b) for a positive adjustment and the
borrower is not treated as having interest expense for a positive adjustment To the
same extent, there is a reversal of the tax consequences imposed under paragraph (e)
of this section for the prior imputed transfer from the lender to the borrower. This
reversal is taken into account in detennining adjusted gross income.
(5) Examples. The following examples illustrate the rules of this paragraph 0).
For purposes of this paragraph (1)(5), assume that the contingent payments are neither
remote nor incidental. The examples are as follows:
Example 1. 0) On January 1, 2010, Employer I and Employee § enter into a
split-dollar life insurance arrangement under which ~ is named as the policy owner. On
January 1, 2010, I makes a $100,000 premium payment On December 31. 2013. I
will be repaid an amount equal to the premium payment plus an amount based on the
increase. If any. in the price of a specified commodity for the period the loan is
outstanding. The premium payment is a split-dollar term loan. Repayment of both the
premium payment and the interest due thereon is recourse to~. Assume that the
appropriate AFR for this loan, based on annual compounding. is 7 percent Both I and
G use the calendar year as their taxable years.
(ii) Under this paragraph 0), the split-dollar loan between T and G provides for a
contingent payment Therefore. the loan is subject to the contingent split-dollar method.
Under this method. the projected payment schedule for the loan provides for a
noncontingent payment of $100.000 and a projected payment of $0 for the contingent
payment (because it is the lowest possible value of the payment) on December 31.
2013.

(iii) Based on the projected payment schedule and a discount rate of 7 percent,
compounded annually (the appropriate AFR). the present value of the payments under
the loan is $76,289.52. Under paragraphs (e)(4) and 0)(4)0) of this section. the loan
does not provide for sufficient interest because the loan's imputed loan amount of
$76,289.52 (the present value of the payments) is less than the amount loaned of
$100,000. Therefore, the loan is a below-market split~ollar loan and the loan is
recharacterized as consisting of two portions: an imputed loan amount of $76,289.52
and an imputed transfer of $23,710.48 (amount loaned of $100,000 minus the imputed
loan amount of $76,289.52).
flV) In accordance with section 7872(b)(1) and paragraph (e)(4)(iv) of this section.
on the date the loan is made, I is treated as transferring to ~ $23,710.48 (the imputed
transfer) as compensation. In addition, I must take into account as 010 an amount
aqual to the imputed transfer. See §1.1272-1 for the treatment of 010.

Example 2. (I) Assume, in addition to the facts in Example 1. that on December
31,2013, T receives $115,000 [rts premium payment of $100,000 plus $15,000).
(Ii) Under the contingent spJit~ollar method, when the loan is repaid, there is a
$15,000 positive adjustment ($15,000 actual payment minus $0 projected payment).
Under paragraph 0)(4) of this section, because T acaued imputed interest under
section 7872 on this split~oIlar Joan to ~ and this interest would not have acaued in the
absence of section 7872, T is not required to Include the positive adjustment in income,
and ~ is not treated as having interest expense for the positive adjustment To the
same extent, T must include in income, and g is entiUed to deduct, $15,000 to reverse
their respective prior tax consequences imposed under paragraph (e) of this section (I's
prior deduction for imputed compensation deemed paid to J;i and 2'S prior inclusion of
this amount). ~ takes the reversal into account In determining adjusted gross income.
That is, the $15,000 is an -above-the-line- deduction, whether or notg itemizes
deductions.

Example 3. (I) Assume the same facts as in Example 2. except that on
December 31, 2013, ! receives $127,000 (its premium payment of $100,000 plus
$27,000).

(Ii) Under the contingent split.(jollar method, when the loan Is repaid, there Is a
$27,000 positive adjustment ($27,000 actual payment minus $0 projected payment).
Under paragraph 0)(4) of this section, because I acaued imputed Interest of
$23,710.48 under section 7872 on this split.(jollar loan to g and this interest would not
have accrued in the absence of section 7872, I is not required to include $23,710.48 of
the positive adjustment in income, and G is not treated as having Interest expense for
the positive adjustment To the same extent, in 2013, I must include in Income, and ~
is entitled to deduct. $23,710.48 to reverse their respective prior tax consequences
imposed under paragraph (e) of this section (fs prior deduction for imputed
compensation deemed paid to G and G's prior inclusion of this amount). G and I take
these reversals into account in determining adjusted gross income. Under the
contingent sprrt-dollar method, T must include in income $3,289.52 upon resolution of
the contingency ($27,000 positive adjustment minus $23,710.48).
(k) Payment ordering rule. For purposes of this section, a payment made by the

borrower pursuant to a split-dollar life insurance arrangement Is applied to all direct and
indirect spnt-doUar loans in the following order-

(1) A payment of interest to the extent of acaued but unpaid Interest (Including
any 010) on an outstanding split-dollar loans in the order the interest acaued;
(2) A payment of principal on the outstanding split~oIlar loans in the order in
which the loans were made;

(3) A payment of amounts previously paid by a non-owner pursuant to a
split-dollar life insurance arrangement that were not reasonably expected to be repaid
by the owner; and
(4) Any other payment with respect to a split-dollar life insurance arrangement.
other than a payment taken into account under paragraphs (k)(1). (2). and (3) of this
section.
(I) [Reserved]
(m) Repayments received by a lender. Any amount received by a lender under a
life insurance contract that is part of a split-dollar life insurance arrangement is treated
as though the amount had been paid to the borrower and then paid by the borrower to
the lender. Any amount treated as received by the borrower under this paragraph (m) is
subject to other provisions of the Internal Revenue Code as applicable (for example.
sections 72 and 101(a». The lender must take the amount into account as a payment
received with respect to a split-dollar loan, in accordance with paragraph (k) of this
section. No amount received by a lender with respect to a split-dollar loan is treated as
an amount received by reason of the death of the insured.
(n) Effective dat~1) General rule. This section applies to any split-dollar life
insurance arrangement entered into after the date the final regulations are published in
the Federal Register.
(2) Early reliance. Taxpayers may rely on this section for the treatment of any
split-dollar life insurance arrangement entered into on or before the date desaibed in
paragraph (n)(1) of this section. provided that all taxpayers who are parties to a
split-dollar loan desaibed in paragraph (b)(1) of this section treat the arrangement
conSistently under this section.
(3) Modified arrangements treated as new arrangements. An arrangement
entered into on or before the date set forth in paragraph (n)(1) of this section that is

materially modified after the date set forth in paragraph (n)(1) of this section is treated
as a new arrangement entered into on the date of the modification.
PART 31-EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 10. The authority citation for part 31 continues to read in part as follows:
Authority: 26 U.S.C. 7805.•••
Par. 11. In §31.3121(a)-1, paragraph (k) is added to read as follows:

§31.3121Ca}-1 Wages.

•••••
(k) SDin-doliar IKe insurance arrangements. Except as otherwise provided under
section 3121 (v), see §1.61-22 of this chapter for rules relating to the treatment of
spln-dollar life insurance arrangemen1s.

Par. 12. In §31.3231(e)-1. paragraph (a)(6) is added to read as follows:
§31.3231 (e}-1 Compensation.
(a) * * *

(6) Spln-dollar life insurance arrangements. See §1.61-22 of this chapter for
rules relating to the treatment of spln-dollar life insurance arrangements.
*****

Par. 13. In §31.3306(b)-1. paragraph (I) is added to read as follows:
§31.3306(b}-1 Wages.
*****

(I) Spfrt-dollar life InSUrance arrangements. Except as otherwise provided under

section 3306(r). see §1.61-22 of this chapter for rules relating to the treatment of
spln-dollar life insurance arrangements.

Par. 14. In §31.3401(a)-1, paragraph (b)(15) is added to read as follows:
§31.3401(a}-1 Wages.

*****

(b) * * *

(15) Split-dollar life insurance arrangements. See §1.61-22 of this chapter for
rules relating to the treatment of split-dollar life insurance arrangements.
*****

David A. Mader,
Acting Deputy Commissioner oflntcmal Revenue.

» EPA

R T MEN T

0 F

THE

T REA S U Rl'

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENCE, N.W. - WASHINGTON, D.C.- 20220 - (202) 622·2960

EMBARGOED UNTIL 11:30 A.M.
July 8, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $20,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
July 11, 2002, and to raise new cash of approximately $2,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $11,024 million of the Treasury bills maturing
on July 11, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions.
Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Mcnetary Authority (FIMA) accoupts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have .:i . limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
T'h.e alJ ocatioTi. :peTC'entage aIJplied te· l·,id~ c=-!':-7a:::-ried ?t. t.:-:,? 1-!i9·'!:-~E?:s~~ di SCOU11t ra-te
i·:i·ll be round8d up to the next .bj~ndredth or a ;;hole pC:Lcen:t.age poir. . t., e.g., 17.13~.

This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3231

For press releases, 5peeclzes, public schedules and official biographies, call our 24-iwUT fax line at (202) 622-2(J40

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JULY 11, 2002
July 8, 2002
Offering Amount . . . . . . . . . . . . . . ······ .$20,000 million
Public Offering .............. · .. ·.· .$20,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . ·$ 9,600 million
Description of Offering:
Term and type of security ........... 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . · .912795 KV 2
Auction date . . . . . . . . . . . . . . . . . . . . . . . . July 9, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . July 11, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . August 8, 2002
Original issue date . . . . . . . . . . . . . . . . . February 7,2002
Currently outstanding . . . . . . . . . . . . . . . $39,187 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts.
Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. ,However,-if thereare·=tW.Q_or mo~e b-ids':Of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Compe·ti ti ve bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
~et long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
MaximmTI Reccg~ized Bid at a Single Rate ... 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
~eceipt of Tenders:
Noncompetitive tenders:
Pr~or to 12:00 noon eastern daylight saving time on auction day
eornpet.:. ti ve "::enders:
?~~0r to 1:00 p.m. eastern daylight saving time on auction day

.?a.jll1ent Ter::ns:

By charge to a fu~ds account at a Federal Reserve Bank

D EPA R T MEN T

0 F

T H E- T REA SUR Y

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS _1500 PENNSYLVA:\fIA AVENlJl<:, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

EMBARGOED UNTIL 11:30 A.M.
July B, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 10-YEAR INFLATION-INDEXED NOTES
The Treasury will auction $9,000 million of 10-year inflation-indexed
notes to refund the outstanding adjusted amount of $17,870 million of publicly
held notes maturing July 15, 2002, and to pay down about $8,870 million.
In addition to the public holdings, Federal Reserve Banks hold the
outstanding adjusted amount of $1,010 million of the maturing notes for their
own accounts, which may be refunded by issuing an additional amount of the new
security.
Up to $1,000 million in noncompetitive bid~ from Fo~eign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of the auction.
These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit of
$1,000 mi}lion.
The auction will be conducted in the single-price auction format.
All
(;Gmp8titive and--noncorupe,tit:'-v-eavloTds will be: at the highesL yi",ld of ciCC8pLE:u'competi ti ve tenders.
The allocation perc en tage applied to bids-awarded at the
highest yield will be rounded up to the next hundredth of a whole percentage
point, e.g., 17.13%.
The notes being offered today are eligible for the STRIPS program.
This offering of Treasury securities is governed by the terms and
conditions set forth in the Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) .
Details about the security are given in the attached offering highlights.
000

Attachment

PO-3232

For press releases, speeches, public schedules and official biographies, call our
24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF
10-YEAR INFLATION-INDEXED NOTES TO BE ISSUED JULY 15, 2002
July 8, 2002
$9,000 million
$9,000 million

Offerlng Amount ......... .
Publlc Offerlng ......... .
Descrlptlon of Offerlng:
· ....
Term and type of security
· ....
Serles ..... .
· ....
......
CUSIP number
..... .
..........
. ....
Auctlon date
.............................
Issue date ....... .
. ............................
Dated date .. .
. ..........
Maturlty date
..........................
Interest rate

10-year inflation-indexed notes
C-2012
912828 AF 7
July 10 I 2002
July 15, 2002
July 15, 2002
July 15, 2012
Determined based on the highest
accepted competitive bid
Real yield. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .... Determined at auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 15 and July 15
~nlmum bld amount and multiples . . . . . . . . . . . . . . . . . . . $1,000
Accrued lnterest............
.......
. ...... None
Premlum or dlscount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . · . Determined at auction
STRIPS Informatlon:
amount requlred ., . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000
Corpus CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912820 HC 4
Due date(s) and CUSIP number(s)
for additional TIIN(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . July 15, 2012 - -

~nimum

912833 YW 4

S~mlssion of Bids:
Noncompetltive bids:
Accepted in full up to $5 million at the highest accepted yield.
Forelgn and Internatlonal Monetary Authority (FIMA) bids:
Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FlMA accounts.
Accepted in order of Slze from smallest to largest with no more than $100
mllllon awarded per account.
The total noncompetitlve amount awarded to Federal
n~serv<? Banks as agEmts -for FIMA accoun.t-s-. wi.ll- FWt: -ex-ae-e4·41 ,{lOO -mill. ion _
A
single bid that would cause the limi~-to be exceeded will be partially accepted
In the amount that brings the aggregate award total to the $1,000 million limit.
However, if there are two or more bi.ds of equal amounts that would cause the
llmlt to be exceeded, each will be prorated to avoid exceeding the limit.
Competitlve blds:
(1) Must be expressed as a real yield with three decimals, e.g., 3.123%.
(2) Net long position for each bldder must be reported when the sum of the total bid
amount, at all yields, and the net long position is $2 billion or greater.
(3) Net long positlon must be determined as of one half-hour prior to the closing time for
recelpt of competitive tenders.

Maxlmum Recognlzed Bld at a Single Yield
Maxlmum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35% of public offering
35% of public offering

Recelpt of Tenders:
Noncompetltlve tenders: Prlor to 12:00 noon eastern dayligh·t saving time on auction day.
C:ompetltlve tenders: Prior to 1:00 p.m. eastern daylight saving time on auction day.
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or
of full par amount with tender.
TreasuryDirect customers can use the Pay Direct
feature whlch authorlzes a charge to their account of record at their financial
lnstltutlon on lssue date.

~ayment

=~dexlno

!nformatlon:

CPI Base Reference Perlod.
Ref CPI 07/15/2002
Index Ratio 07/15/2002 .....

1982-1984
179.80000
1.00000

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washinatoll
20239
b
, DC

FOR RELEASE AT 3 :00 PM
July 5,2002

Contact: Peter Hollenbach
(202) 691-3502

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JUNE 2002

The Bureau of the Public Debt announced activity for the month of June 2002, of securities within the Separate
Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$2,094,259,664

Held in Unstripped Fonn

$1,925,154,338

Held in Stripped FOll1

$169,105,326

Reconstituted in June

$14,487,009

The accompanying table gives a breakdown of STRIPS activity by individual loan description. The balances in
this table are subject to audit and subsequent revision. These monthly figures are included in Table V of the
Monthly Statement of The Public Debt, entitled "Holdings of Treasury Securities in Stripped Fonn."
The Strips Table along with the new Monthly Statement of The Public Debt is available on Public Debt's
Internet site at: yvww.publicdebt.treas.gov. A wide range of infonnation about the public debt and Treasury
securities is also available at the site.
000

Ww\..... publicdebt.treas.goy

PO-3233

'rJI<eLE

or- fIUIIlINGS OF TREASURY SECURITIES IN STRIPPED FORM, JUNE ~O, 2002 -

Treasury Notes:
CUSIP:
912827 3C4
6HO
G55
3G5
6K3
3J9
6L1
3L4
303
6P2
3S9
600
3V2
6S6
J78
3Z3
6Ul
4B5
6V9
401
6W7
4H2
6Y3
4K5
6Z0
7A4
lB3
4N9
7CO
708
7E6
4U3
7Gl
7H9
7K2
N81
5A6
7M8
912828 M8
AB6
912827 P89
5F5
912828 A02
912827 088
5MO
R87
5S7
S86
T85
609
U83
V82
6N7
WBl
X80
6X5
Y55
Z62
7F3
2JO
2U5
912828 AC4
912827 3EO
3X8
4F6
4Vl
5G3
5N8
5Z1
6J6
6T4
762
?LO

Series:

Interest Rate:
6
6-1/4
6-3/8
6-1/4
6-1/8
5-7/8
6
5-3/4
5-3/4

'K
X

B
L
Y
M
Z
N
P
AC

5-5/~

0

5-5/iJ
5-1/8
5-1/2
4-3/4
6-1/4
5-1/2
4-518
5-1/2
4-1/4
5-3/4
4
5-112
4-1/4
5-3/8
3-7/8
3-7/8
5-3/4
5-1/4
3-5/8
2-3/4
2-3/4
4-1/4
3
3-1/4
3
5-7/8
4-3/4
3
3-51B
3-318
7-1/4
5-1/4
3-1/4
7-114

AD
C
L
A
D
M
E
N
F
P
G

0
H
R

S
B
J
T
U
V
K
W
X
J
A
E
K
L
M
B
F
N
C
G
0
H
A
B

6
7-7m
5-7/8
7-1/2
6-1/2
6-3/4
6-1/2
5-7/8
5-3/4
5-5/8
6-7/8
4-5/8
7
6-1/2
3-1/2
6-1/4
6-5/8
4-3/8
6-1/8
5-1/2
5-5/8
4-3/4
5-1/2
6
6-112
5-3/4

E
C
0
F
A

B
E
C
0
F
6
C

E
0
B
C
0
6
C
6
C

5
5

B
C
B

4-7/8

Maturity Date
Total
Outstandinq

912820 FR3
EU7
BE6
FS1
FU6
eC9
FV4
CE5
CH8
FY8
CKl
FZ5
CN5
GB7
BF3
CS4
G03
CU9
GEl
CW5
GF8
DA2
GH4
DC8
GJO
GK7
BGl
OE4
GM3
GNl
GP6
DJ3
GR2
GSO
GU5
BH9
007
GWl
GX9
GY7
BJ5
DU8
HAS
BK2
DZ7
BlO
EE3
BM8
BN6
ER4
BPl
B09
FXO
BR7
BS5
GG6
BT3
BUO
G04
BW6
BX4
GZ4
CA3
C08
CYl

OKO
DV6
EAl
EMS
FT9
GC5
Gl5
GV3

07/31/02
07131/02
08115/02
08131/02
08131102
09130102
09/30/02
10131/02
11130/02
11/30102
12131/02
12131/02
01131103
01131/03
02115/03
02128103
02128/03
03131/03
03131/03
04130/03
04/30103
05131/03
05131/03
06130/03
06130103
07131/03
OB/15/03
08115103
08131103
09130103
10131/03
11115103
11/30/03
12131103
01131104
02115/04
02115104
02/29/04
03/31/04
04130104
05115/04
05115/04
05131/04
08/15104
08/15/04
11'/15104
11115/04
02115105
05115105
05115/05
08115/05
11115/05
11115/05
02115/06
05115/06
05115/06
07/15/06
10115/06
11115/06
02115107
05115/07
05115107
OB/15/07
02115/08
05115108
11115/08
05115109
08/15/09
02115/10
08115110
02115/11
08115111
02115/12

i

Total Treasury Notes,
Grand TotaL ..

......

.......

11

!>,mount Outstanding in Tt,o,Jsands

Corpus
STRIP
CUSIP

Loan Description

Continued

· .. ··1

Portion Held in
Unstripped Form

Portion Held in
Stripped Form

Reconstituted
This Month

12,231,057
15,057,900
23,859,015
12,731,742
15,072,214
12,806,814
15,144,335
26,593,892
12,120,580
15,058,528
12,052,433
14,822,027
13,100,640
15,452,604
23,562,691
13,670,354
14,685,095
14,172,892
14,674,853
12,573,248
13,338,528
13,132,243
13,331,937
13,126,779
14,671,070
16,003,270
28,011,028
19,852,263
18,665,038
22,675,482
25,147,960
18,625,785
26,170,526
29,666,988
30,775,555
12,955,077
17,823,228
31,746,077
32,873,50B
32,654,946
14,440,372
18,925,383
33,297,395
.13,346,45.7
18,089,806
14,373,760
32,658,145
13,834,754
14,739,504
28,562,370
15,002,580
15,209,920
28,062,797
15,513,587
16,015,475
27,797,852
22,740,446
22,459,675
35,380,129
13,103,678
13,958,186
24,351,431
25,636,803
13,583,412
27,190,961
25,083,125
14,794,790
27,399,894
23,355,709
22,437,594
23,436,329
26,635,316
24,779,838

12,231,057
15,055,500
19,137,958
12,731,742
15,072,214
12,731,614
15,144,335
26,497,892
11,736,380
14,990,688
11,640,593
14,822,027
13,090,240
15,427,004
21,770,735
13,623,154
14,278,695
14,139,292
14,674,853
12,537,248
13,338,528
13,068,643
13,331,937
13,086,779
14,671,070
16,001,670
25,564,188
19,783,263
18,665,038
22,675,482
25,146,360
17,330,265
26,170,526
29,666,988
30,775,555
12,138,717
17,805,628
31,746,077
32,873,508
32,654,946
13,446,170
18,925,383
33,297,395
11,287,067
18,089,806
14,365,160
32,658,145
13,206,339
14,739,104
28,417,770
15,002,180
14,816,720
27,702,797
15,508,107
14,985,235
27,797,852
22,634,446
22,399,675
34,796,973
12,393,046
12,677,310
24,351,431
24,060,803
13,557,112
27,123,441
24,972,525
14,737,190
26,891,194
23,351,109
22,434,594
23,429,569
26,631,316
24,778,838

0
2,400
4,721,057
0
0
75,200
0
96,000
384,200
67,840
411,840
0
10,400
25,600
1,791,956
47,200
406,400
33,600
0
36,000
0
63,600
0
40,000
0
1,600
2,446,B40
69,000
0
0
1,600
1,295,520
0
0
0
816,360
17,600
0
0
0
994,202
0
0
2,059,400
0
8,600
0
628,415
400
144,600
400
393,200
360,000
5,480
1,030,240
0
106,000
60,000
583,156
710,632
1,280,876
0
1,576,000
26,300
67,520
110,600
57,600
508,700
4,600
3,000
6,760
4,000
1,000

0
0
28,800
0
0
0
0
0
8,800
0
1,600
0
0
0
237,824
0
0
0
0
0
0
0
0
0
0
0
5,200
0
0
0
0
103,200
0
0
0
5,400
0
0
0
0
32,100
0
0
22,200
0
0
0
13,860
0
0
0
16,BOO
0
0
13,200
0

1,446,887,685

1,423,294,191

23,593,494

1,249,800

2,094,259,664 ,

1,925,154,338

169,105,326

14,487,009

0
0
66,000
2,016
658,800
0
7,600
400
0
0
0
26,000
0
0
0
0
0

TAG L E V
--~

Ccrpus
STRIP

CUSIP

-

l

HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM

-=----= ...;::...:.::....~'"'"==--=-

~~~f ...

-.=:-:.-==-=",---='-~-

Amount Outstanding ,n Thous.:mds

"",0"" 0."

Total
Outstandinq

Portion Held in
Unstripped Form

Portion Held in
Stripped Form

I

f(cconslltuted
This Month

Ir~~,)~~:,\" LC:!~,::,

[n~,;:'es:

C,::'

Rate

11-5/8
12

912803 AB9
AD5

10·3;~

AG8
AJ2
912800 AA7
9~2803 AAl
AC7
AE3
AFO

9·3.'8

11<'·\
11·1;'\

'10-5'3
9·7/3

11/15!0.\
05/)5;05
08115:05

A"'o
AK9
All

8·718

A~·15

9·1'8

AN3

9

{,P8

8-7/E;

AQ6
AR4

8-1/8
8-112

8-3:.\

c:

3.;
7·7:6

1\·1/5
{\ 1:8

g

BAO

7·1/:;

B88

(.·1;~

I3C6

U!

6-:./3

f,\ 1
HI')

b·3.'3

G-i/0

BM4

Ff3

~)-1

,'/

BPl

ci ()
fGS

,,-1/.\
5-1:,;

F.li

6-1;3

r~,L;

61M
5·3:8

eV4
BW2
CG6
Cf!4
CK7

LV,

6-7/3

[\':.1
l~l

b
( .. :1!·\

f 1 1,1

G-1/2

froS

A

3·5/8
3·3,8
3-5:E
3·7,8
4-1:--!
3·1!2

A

3-3,(,

3,\8
2,\~3

317
4YS
5't\'S
5R"::
7 J:i

A
A
A
A

912320 Bl9
BV8 1
CL9
DN4
EK9 1
GAg

j

GTe

07115:02
01/15107
01/15;08
01115109
01/15:10
01/151,1
01115112

Inr~\'on ·In~l''\ed tJotcs

1-~2S;':;"

4,023.916
5,584,859
5.431,754
18,823.551
18,787,448
15,559,169

4.531.807
1,891.305

3,769,999
2,369,453

6,093,213
4,324,629
1,916,100
9,250.970

3.176,500
431.287
3,099,184
1.269,329
618,705

3,405.210
3,432,163
5.274.648
18,647,518
17,500,428
7,683.653

235,200
0
130,600
6,592
95,800
525,920

2,152.696
157.105

523.520
21·1,400
13,600

176,033
1,187,020
7,875,516

555,880
981.160

16i,200

1,128.558
640,600
248.800
785.200
305,500
150,400
197,280
473,780
569,200
336,160
359,160
1,568,625
122,400
192,000
459,488
207,744
446,840
190.800
115,200
71.700
150,200
111,138
188,200
158,400
204.600
50,800
162,600
100.000
53,600
38,264

16.318.84b

3.062,245
3,829,000
4,412,123
5.912,627
971,041
2,388,960
4.602.305
10,320.350
1,127,280
5,977 ,943
2,580.836
15,257,156
1.156,799
4,456,195
5,359,112
3.275,840
5,747.840
5.348,601
3329,802
1,713,059
2.574,618
5,824,012
3.088,255
2,150,800
10,670,500
790,600
777,400
457,896
827,000
871,488
108,800

499.889,485

354.631,173

145,258,312

13,237,209

18,876.809
17,879,624
18,706,716
17,431,253
12,096,223
11,362.640
6.078,736

18,876.809
17,879,624
18,595,443
17,431,253
12,096,223
11,362,640
6,078,736

0

0

0

0

111,273
0
0

0

0

0
0
0

102.432.002

102.320,729

111,273

0

18.653,997
21.320,25-1
5.076.241

18,648.439
21.183,564
5,076.241

5,557
136,690

0

0

0

45.050,492

44.908,245

142.247

0

10.968.358
6.117.439
7,174,470
13,090.498
18,940,932
9,476,268
7,582,183
11.059,306
10.075,573
10.066.788
9.506,382
30.G32,19~

10,127,790

l.423,626
15,782,061
22,659,044
9,604,162
9,509.170
11.187,207

12.33l,916
8,810,418
10.860,177
9.521,971
9.196,756
22.021.339
11,776.201
10,947,052
11,350,341
11,178,580
17,043.162
16.427 .648

7,906.113
2.888.439
2.162,347
7,177,871
17,969,891
7,087.308
2.979,878
6.738,956
8,948,293
4.088.845
6,925.546
15,375,038
8,970,991
2.967,431
10,422,949
19,383,204
3,856,322
4,160.569
7,857,405
11,119,857
6,235,800
5,036.165
6,433,716
7,045.956
11,350,839
10.985.601
10.169,652
10,892,445
10,351,580
15,171,674

0

In,r"\J:lon,[ndexcd Notes
Sent's
lntcrrsl Ra te

912~2'

1 C::., '

BD4
BC2
BF9
BG7
8H5
BJl
BK8
BL6

fl1

CUSIP

A2G

7 -1/.;
7·,,!(:

i -1!2

T{cJSl~(\

AS21
ATO
AU7
AV5
AW3
Ml
AY9

02/15:06
11115114
02115(15
08115/15
11/15!15
02115/16
05.'15/16
11/15:15
05115/17
03115117
05/15118
11115!18
02115119
08/15119
02115120
05115/20
08115/20
02/15121
05/15121
08/15121
11/15/21
05.'15/22
11/15122
0211 ~123
08115123
1111512·'
02/1Si25
0811 ~,/25
02115126
08/15f26
11/15/26
02115/27
08:15:27
11115127
08115/26
11/15/28
02115'29
08/15!29
05115130
02/15131

8.301.806
4.260,753
9,269,713
4,755,916
5,015,284
10.520,299

0

0

Inf..lt.')o,lndexed B0nds

CL·SI.:)

S:23iO r:>5

In:eres~

Ra Ie

3-58
3-7.8

912803 B~,2
CF8

0~!15;29

CL5

O~ '15'32

04115'28

0

·, Li' I~ C
PUB
,

\'

' .

~

':

D··~
~

Department of the Treasury· Bureau

Er

. ' "

or the

NEW- S~''''

B·,' T··
~..

.~

'~.

d

••

Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
Offic~

of Financing
202-69l-3550

CONT.l\CT:

FOR IMMEDIATE RELEASE
July 08, 2002

RESULTS OF TREASURY'S AGCTION OF 26-WEEK BILLS
182 -Day Bill
July 11, 2002
January 09, 2003
912795LT6

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.735%

High Rate:

Investment Rate 1/:

Price:

1.774%

99.123

All noncompetitive and successful competltlve bidders were awarded
securities at the high rate.
Tenders at the hlgh discount rate were
allotted 62.51%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

ComDetitive
~T:,,,:,r:0mp,::::.t 1

$

29,844,555
c.

t- 1. ve

$

7 ()

E.

FIMA (noncompetitive)

15,000,335 2/
5,324,181

5,324,181

Federal Reserve
$

36,350,415

13,818,656
1,031,679
l..~U I 1) III)

31,026,234

SUBTOTAL

TOTAL

Accepted

Tendered

Tender Type

$

20,324,516

Medlan rate
1.730%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.670%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 31,026,234 / 15,000,335 = 2.07
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $798,325,000

http://www.publicdebt.treas.gov

PO-3234

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE rUBLIC DEBT - WASHINGTON DC
Office of Financing
202-691-3550

CONTACT:

FOR IMMEDIATE RELEASE
July 08, 2002

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
July 11, 2002
October 10, 2002
912795LE9

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.695%

High Rate:

Price:

1.724%

Investment Rate 1/:

99.572

All noncompetitive and successful competitive bidders were awarded
;ecurities at the high rate
Tenders at the high discount rate were
Illotted 72.65%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competltl',e

Accepted

Tendered

Tender Type
$

30,857,693
..l..,""%..1..::.,L...:...-,

1.:'U,UOU

. 0, vuu

IS

5,603,220

5,603,220

Federal Reserve
TOTl~.L

17,000,107 2/

32,419,921

SUBTOTAL

$

38,023,141

$

22,603,327

Median rate
1.675%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1. 655%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.

d-to-Cover Ratlo = 32,419,921 / 17,000,107 = 1.91
Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,158,817,000

http://"www.publicdebt.treas.gov

-3235

D K p. ART MEN '11

TREASURY
omCE OF PUBUC AFFAIRS

II

~ F

l' H E

T REA" S, U R Y

NEWS

1500 PENNSYLVANIA AVENUE, N.W." WASHINGTON, D.C.

FOR IMMEDIATE RELEASE
July 8, 2002

<II

20220

<II

(202) 622-2960

Contact: Tasia Scolinos
(202) 622-1996

U.S. Lifts Financial Advisories on Israel, Lebanon and St. Kitts & Nevis
In June of 2000 the Financial Action Task Force (FATF) included Israel,
Lebanon, and st. Kitts & Nevis on its list of Non-Cooperative Countries and
Territories (NCCT list). (A complete list of NCCT countries can be found at
www.fatf-gafi.org) The U.S. responded to FATF's action by issuing FinCEN
Advisories in July 2000 recommending that U.S. financial institutions give
enhanced scrutiny to transactions involving these jurisdictions. Since that time
these jurisdictions have made impressive progress in enacting comprehensive
anti-money laundering legislation and have taken significant steps to implement
their new anti-money laundering regimes. In response to this progress, FATF
removed these three countries from the NCCT list last month. Today, FinCEN
notified U.S. financial institutions that, based on the improvements in their antimoney laundering regimes and on the FATF action, the U.S. is withdrawing the
FinCEN Advisories on Israel, Lebanon, and St. Kitts & Nevis.

PO-3236

Fur press releases, speeches, public schedules and official biographies, call (Jur 24-hour fax line at (202) 622-2040

NEWS

TREASURY
OFFICE OF PUBUC AFFAIRS .. 1500 PENNSYLVANIA AVENUE, N.W.

OJ

WASIDNGTON, D.C.

<II

20220

<II

(202) 622-2960

Contact: Tony Fratto
(202) 622-2960

For Immediate Release
Tuesday, June 27, 2002

Treasury Official to Visit Central American Nations to Discuss
Economic Growth and Development

John B. Taylor, Treasury Under Secretary for International Affairs, will travel to
Honduras, EI Salvador and Nicaragua to discuss economic growth and development in
these Central American nations. Taylor will depart Washington on Sunday, June 30 and
return on Thursday, July 4.
The trip presents an opportunity to observe the unique challenges these nations
face as they try to improve standards of living, raise productivity and create economic
growth. The visit is well timed as the the Administration is working to develop standards
for President Bush's Millennium Challenge Account program.
Taylor will visit private businesses, schooL, export proce~"i'1g and freG trade
zones and other development projects. He will also meet with government officials and
representatives of non-governmental organizations.

-30-

PO-3237

For press release~eches, public schedules and official biographies, call our 24-rwur fax line at (202) 622-2{)4()

.

D K p: A R 'F MEN '11

~

F

'F II E

T R E, A S, IT R Y:

NEWS

TREASURY

OFFICE OF PUBUC AFFAIRS 111500 PENNSYLVANIA AVENUE, N.W. OJ WASHINGTON, D.C.

Contact:

For Immediate Release
July 9,2002

<II

20220

II

(202) 622-2960

Rob Nichols
202-622-2910

TREASURY SECRETARY ANNOUNCES TRIP TO
UKRAINE, KYRGYZSTAN, UZBEKISTAN, AND GEORGIA
Treasury Secretary Paul O'Neill will travel to Ukraine, Kyrgyzstan, Uzbekistan, and Georgia,
July 10-18, 2002.
During high-level discussions with a wide array of senior government officials and private
sector political, financial and economic experts, Secretary O'Neill will focus on how to
accelerate private sector investment, growth, and job creation to raise living standards in this
region. He will examine, first-hand, bilateral and multilateral assistance efforts, and will
emphasize the importance of measuring results to ensure that we direct assistance where it is
most effective. He will pay particular emphasis on efforts to provide financing to new small and
medium-sized businesses. He will highlight the role of regional integration and trade in spurring
growth, both within the region as well as with large markets to the East and West.
Following on the heels of his trip to Africa, Secretary O'Neill will continue to share his
views on and learn more about development and Millennium Challenge Account issues leadci6hifJ diiJ gOV\;;!ii<iliCC, lHalk.;~-it;[orffi2), d'1J health and cducati0il" and howthcy upply,to ~­
governments, businesses, and people in these four nations.
Further, Secretary O'Neill will continue to build and deepen our relations with our allies in
this region in the economic front on the war against terrorism. Economic development and
strong democratic institutions are strong safeguards to prevent extremism from taking root.
This is Secretary O'Neill's first visit to the region.
Undersecretary for International Affairs John Taylor will accompany Secretary O'Neill.
-30-

PO-3238

For press releases. speeches, ;bublic schedules and o'/ficial biographies, caU our 24-lwur fax linz at (202) 622-2040

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
Ju 1Y 09, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28 -Day Bill
July 11, 2002
August 08, 2002
912795KV2

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.695%

High Rate:

Price:

1.723%

Investment Rate 1/:

99.868

All noncompetitive and successful competitive bidders were awarded
securities at the high rate
Tenders at the high discount rate were
~llotted
45.67%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL
Federal Reserve
TOTAL

Accepted

Tendered

Tender Type

$

49,036,050
36,720

$

19,964,640
36,720

o

o

49,072,770

20,001,360

96,570

96,570

49,169,340

$

20,097,930

Median rate
1.690%: 50% of the amount of accepted competitive tenders
as tendered at or below that rate.
Low rate
1. 670%:
5% of the amount
f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio = 49,072,770 / 20,001,360 = 2.45
I

Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov

-3239

D EPA R T :\. E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

For Immediate Release
July 10, 2002

Contact: Tara Bradshaw
(202) 622-2014

TREASURY, IRS RELEASE 2002-2003 PRIORITY GUIDANCE PLAN
The Treasury Department and the Internal Revenue Service today released the 2002-2003
Priorities for Tax Regulations and Other Administrative Guidance. The Priority Guidance Plan
identifies the tax issues that Treasury and IRS will address through regulations, rulings, notices
and other forms of guidance during the year ending June 30, 2003. This plan reflects the
combined input of taxpayers, practitioners and industry groups.
Attached is a joint statement from Pam Olson, the Treasury Department's Acting Assistant
Secretary for Tax Policy, Charles O. Rossotti, Commissioner of the Internal Revenue Service,
and B. John Williams, Jr., Chief Counsel of the Internal Revenue Service, regarding the 20022003 Priority Guidance Plan.
The 2002-2003 Priority Guidance Plan is attached.
-30PO-3240

For press releases, speeches, public schedules and official biographies,

-

can uur 24-huurfax line at (202) 622-2040
·u.s. Government Prrnttng Offoce·

1998· 6t9-559

DEPARTMENT OF THE TREASURY
Washington, DC 20220

July 10,2002

Department of the Treasury
2002-2003 Priorities for
Tax Regulations and Other
Administrative Guidance
Joint Statement by:
Pamela F. Olson
Acting Assistant Secretary (Tax Policy)
U.S. Department of the Treasury
Charles O. Rossotti
Commissioner
Internal Revenue Service
B. John Williams, Jr.
Chief Counsel
Internal Revenue Service

We are pleased to announce the release of the 2002 - 2003 Priority
Guidance Plan. This plan reflects our continuing commitment to serve the public
through the published guidance process.
The development of the 2002 - 2003 Priority Guidance Plan was a
cooperative effort. In Notice 2002-22, we solicited suggestions from all
interested parties, including taxpayers, tax practitioners, and industry groups.
We believe that the cornerstone of the effort to provide appropriate and
meaningful guidance is direct and continuous communication between the
government and taxpayers. This process results in a more comprehensive plan
that is more responsive to taxpayer needs.
We are committed to increased and more timely published guidance. The
2002 - 2003 Priority Guidance Plan contains 250 projects to be completed over a
twelve-month period, from July 2002 through June 2003. In addition to the items
on this year's plan, the Appendix lists the more routine guidance that is published
each year.
This year's plan also includes seven items under the Industry Issue
Resolution Program. These items are described in a separate IRS News
Release (IR-2002-89). The Industry Issue Resolution Program was introduced

2
as a pilot program in December 2000 (see Notice 2000-65). The success of the
program prompted the IRS to make it permanent in Notice 2002-20. The
Industry Issue Resolution Program demonstrates our continuing efforts to work
with taxpayers on a cooperative basis to resolve frequently disputed tax issues.
The plan should not be viewed as an exclusive list of guidance that may
be published in this plan year or of matters that may ultimately result in the
publication of guidance. As in previous years, other areas currently under study
ultimately may result in published guidance. Moreover, the Internal Revenue
Service and Treasury's Office of Tax Policy will respond to developments that
may arise throughout the plan year.
Unlike previous years, we intend to update and republish the Priority
Guidance Plan quarterly to reflect additional guidance that we intend to publish in
this plan year. For example, we intend to publish a number of revenue rulings
and revenue procedures that currently are not reflected in this year's plan, but
subsequently will be added. This allows us additional flexibility throughout the
plan year to take comments from taxpayers and tax practitioners relating to
additional projects, and to respond to developments that may arise during the
plan year.
The published guidance process can be fully successful only if we have
the benefit of the insight and experience of the taxpayers and practitioners who
must apply the rules. Consequently, we invite the public to continue to provide
us with their comments and suggestions as we write guidance throughout the
plan year.
Additional copies of the 2002 - 2003 Priority Guidance Plan can be
obtained from the IRS website on the Internet (www.irs.gov) under Tax
Professionals, IRS Resources, Administrative Information and Resources, 2002 2003 Priority Guidance Plan, or by calling Treasury's Office of Public Affairs at
(202) 622-2960.

OFFICE OF TAX POLICY
AND
INTERNAL REVENUE SERVICE
2002 - 2003 PRIORITY GUIDANCE PLAN

CONSOLIDATED RETURNS
1. Final regulations containing conforming amendments to section 446
regulations to reflect changes in the consolidated return regulations.
2. Guidance under section 1502 regarding transactions involving obligations of
consolidated group members.
3. Guidance under section 1502 and 337(d) regarding losses on member stock.
4. Guidance regarding continuation of a consolidated group in certain
transactions.
CORPORATIONS AND THEIR SHAREHOLDERS
1. Guidance regarding redemptions of corporate stock.
2. Final regulations regarding conversions of C corporations to RIC or REIT
status.
3. Final regulations regarding taxable asset acquisitions and dispositions of
insurance companies.
4. Guidance regarding the acquisition of businesses having certain nonqualified
settlement funds.
5. Guidance regarding the availability of a section 338(h)(10) election in multistep transactions.
6. Guidance regarding requests for rulings under section 355.
7. Guidance regarding the active trade or business requirement under section
355(b).
8. Guidance under section 355(e).
9. Guidance regarding the assumption of liabilities in certain transfers of
property.
10. Guidance regarding mergers with disregarded entities.

2
11. Guidance under section 368 regarding mergers with or into a foreign
corporation.
12. Guidance under section 368 regarding reorganizations involving non-stock
entities.
13. Guidance regarding restricted stock in reorganizations.
14. Guidance regarding the application of section 368(a)(1)(0) when assets are
transferred by the transferee to a subsidiary.
15. Guidance under section 368(a)(1)(F).
16. Guidance regarding attribute reduction for cancellation of indebtedness.
17. Guidance under section 1374 regarding liquidations of C corporations.
18. Guidance regarding mergers of insolvent corporations.
EMPLOYEE BENEFITS

A. Retirement Benefits
1. Guidance under section 72(t) regarding substantially equal periodic payments.
2. Final regulations relating to plan loans under section 72(p).
3. Final regulations under section 401 (a)(9) on required minimum distributions.
4. Guidance under section 401 (a)(17) regarding whether the increase in the
allowable compensation limit enacted by EGTRRA may be applied to former
employees.
5. Guidance under section 401 (a)(28) regarding valuation timeliness and
procedural requirements.
6. Guidance relating to cash or deferred arrangements under section 401 (k) and
relating to section 401 (m).
7. Guidance relating to annuity plans under section 403(b).
8. Final regulations relating to the calculation of net income attributable to
returned or recharacterized IRA contributions.
9. Guidance under section 408(d) regarding how to request the discretionary 60
day rollover period related to disasters.

3
10. Guidance under section 408(q).
11. Guidance relating to cash balance pension plans.
12. Guidance relating to the application of section 411(d)(6).
13. Guidance on the use of aggregate entry age normal funding method under
section 412.
14. Guidance under section 412(c)(9).
15. Guidance relating to the definition of highly compensated employee.
16. Final regulations under section 414(v) on catch up contributions for
individuals age 50 or over.
17. Guidance on disclosure to participants regarding their distributions from
pension plans.
18. Final regulations relating to the application of the retroactive annuity starting
date provisions under section 417(a)(7).
19. Final regulations relating to section 457 plans.
20. Guidance on reporting and withholding for section 457 plans.
21. Guidance under section 1042 regarding statements of purchase of
replacement property.
22. Final regulations relating to section 4980F on notice of significant reduction
in the rate of future benefit accrual.
23. Revenue procedure amending and restating employee plans compliance
resolution system (EPCRS).

B. Executive Compensation, Health Care and Other Benefits, and
Employment Taxes
1. Guidance under section 83 and 162 on compensation expense deductions
relating to stock options outstanding at the time of a corporate buy-out.
2. Guidance under sections 83 and 451 regarding non-statutory stock option
converted to non qualified deferred compensation.
3. Guidance under sections 83, 451 and 1032 regarding a rabbi trust established
by a parent corporation to satiSfy the nonqualified deferred compensation
obligations of the parent and its subsidiary.

4

4. Guidance on whether accident and health plan reimbursements for medical
expenses incurred before the inception of the plan are excludable from the
recipient's gross income under section 105(b).
5. Guidance under section 105(b) on self-insured medical flexible spending
arrangements that pay the full amount of the maximum benefit at the
beginning of the plan year.
6. Guidance under sections 105(b) and 125 on use of debit cards for flexible
spending arrangements.
7. Final regulations on golden parachute rules under section 280G.
8. Final regulations under section 419A(t)(6).
9. Guidance on incentive stock options under section 422.
10. Revision of standards set forth in Rev. Proc. 71-19 regarding non qualified
deferred compensation.
11. Guidance under section 3121 regarding the definition of "salary reduction
arrangemenr.
12. Guidance on the employment tax treatment of bonuses paid to employees
on the signing of a collectively bargained agreement.
13. Guidance on FICA and FUTA tax with respect to incentive stock options
under section 422 and employee stock purchase plans under section 423.
14. Guidance on the employment taxation and reporting requirements
applicable to interests in nonstatutory stock options and deferred
compensation transferred to a former spouse incident to a divorce.
15. Guidance regarding application of the Hospital Insurance
covered under section 3121(b)(7)(F).

tax to employees

16. Guidance under section 3504.
17. Final regulations under section 9801 relating to HIPAA.
EXCISE TAXES
1. Guidance under sections 4041 and 4081 regarding biodiesel.
2. Final regulations under section 4051 regarding the definition of highway
vehicle in regulation sections 145.4051 and 48.4061(a)-1.

5
3. Proposed regulations regarding the definition of highway tractors subject to
the heavy truck tax under section 4051 .
4. Final regulations under section 4081 relating to the revision of the definition of
diesel fuel.
5. Guidance under section 4221 regarding fuel used in foreign trade.
6. Guidance under section 4261 (e)(3) regarding the purchase of the right to
provide mileage awards.
7. Proposed regulations under section 6416(a)(4) regarding claims for gasoline

tax.
EXEMPT ORGANIZATIONS

1. Guidance on joint ventures between exempt organizations and for-profit
companies.
2. Guidance on section 501 (c)(4) organizations.
3. Guidance under section 501(c)(12).
4. Guidance on private foundation terminations.
5. Guidance on the application of existing UBIT rules to the Internet activities of
exempt organizations.
6. Regulations under section 529 regarding qualified tuition programs.
7. Guidance on split interest trusts.
FINANCIAL INSTITUTIONS AND PRODUCTS

1. Guidance regarding accruals on sales of REMIC regular interests between
payment dates.
2. Regulations under section 263(g).
3. Guidance under section 265(a)(2).
4. Guidance on derivative contracts.
5. Final regulations under section 475.
6. Guidance addressing valuation under section 475.

6

7. Guidance on the treatment of certain obligations backed by Treasury
securities for RIC diversification purposes.
8. Guidance on the treatment under section 856(c)(4)(A) of certain loans
secured by interests in real estate partnerships.
9. Guidance on customary services performed by REITs.
10. Guidance addreSSing the treatment of inducement fees for REMIC residual
interests.
11. Guidance under section 7872.

GENERAL TAX ISSUES
1. Proposed regulations under section 21 regarding the credit for household and
dependent care expenses.
2. Guidance under section 23 regarding the credit for adoption expenses.
3. Final regulations under section 25A regarding the Hope Scholarship and
Lifetime Learning credits.
4. Guidance under section 32 regarding temporary absences and the abode
requirement.
5. Other guidance under section 32.
6. Guidance under section 41 regarding the research credit.
7. Regulations under section 41 regarding the computation of the research tax
credit in a controlled group.
8. Proposed regulations under sections 1.42-6 and 1.42-14 to conform to
statutory changes.
9. Guidance under section 42 regarding the Rent Supplemental Payment
Program/Rental Assistance Payment Program.
10. Guidance under section 43 regarding enhanced oil recovery.
11. Guidance under section 450 regarding the new markets tax credit.
12. Proposed regulations under sections 46 and 167 relating to normalization.
13. Guidance under section 61 regarding trusts for minors.

7
14. Final regulations under section 121 regarding the exclusion of gain on the
sale of a principal residence.
15. Guidance under section 126 regarding the Soil and Water Conservation
Program.
16. Guidance under section 126 regarding the Agricultural Management
Assistance Program.
17. Guidance under section 126 regarding the Conservation Reserve Program.
18. Guidance under section 162 regarding substantiation of the amount of
expenses for meals furnished by child care providers.
19. Guidance under sections 162 and 274 regarding the deduction for travel
expenses while away from home.
20. Guidance under section 165 regarding the deduction for worthless stock of
subsidiaries for which an election under the check-the-box regulations has
been made.
21. Final regulations under section 167 regarding the income forecast method.
22. Proposed regulations under section 168 relating to like-kind exchanges.
23. Guidance under section 168 regarding depreciation of property for which the
use changes.
24. Guidance under sections 168 and 1400L regarding special depreciation
allowance.
25. Guidance under section 168 regarding the depreciation of cable television
systems.
26. Guidance under section 168 regarding the recovery period on depreciation
of gasoline pump canopies.
27. Guidance under section 170 regarding the deduction for vehicles donated to
charities.
28. Final regulations under section 221 regarding interest on education loans.
29. Guidance under section 280F regarding vans and light trucks.
30. Proposed regulations under section 465 regarding interest other than as a
creditor.

8
31. Final regulations under section 469 regarding self-charged interest.
32. Guidance under section 1031 regarding ongoing multiple exchanges of
property.
33. Final regulations under section 1041 regarding when transfers of property to
third parties are made "on behalf of' the nontransferring spouse.
34. Guidance on corporations chartered under Indian tribal law.

GIFTS, ESTATES AND TRUSTS
1. Final regulations under section 643 regarding state law definition of income
for trust purposes.
2. Final regulations under section 645 regarding an election by certain revocable
trusts to be treated as part of the associated estate.
3. Update revenue procedures under section 664 containing sample charitable
remainder annuity trust provisions.
4. Update revenue procedures under section 664 containing sample charitable
remainder unitrust prOVisions.
5. Guidance under section 664 regarding capital gains for charitable remainder
trusts.
6. Final regulations under section 671 regarding reporting requirements for
widely held fixed investment trusts.
7. Guidance under sections 671 and 2036 regarding tax reimbursement
provisions in grantor trusts.
8. Guidance under sections 2033 and 2039 regarding New York City and New
York State Accidental Death Benefits
9. Final regulations under sections 2055 and 2522 based on the Boeshore
decision.
10. Regulations under section 2519 regarding net gifts.
11. Guidance under section 2642 regarding issues relating to the generationskipping transfer tax exemption.
12. Guidance under section 2702 providing model qualified personal residence
trust provisions.

9
INSURANCE COMPANIES AND PRODUCTS
1. Guidance on the treatment of certain captive insurance companies.
2. Final regulations under section 817A.
3. Guidance regarding basis when annuity contracts are divided and exchanged
under section 1035.
4. Guidance regarding split-dollar life insurance.

INTERNATIONAL ISSUES
A. Subpart F/Deferral
1. Guidance on previously taxed earnings and profits under section 959.
2. Guidance on PFIC provisions.
3. Final regulations relating to commodities hedging/foreign currency gain or loss
under section 954.

B. Inbound Transactions
1. Final regulations under sections 874(a) and 882(c).
2. Guidance under section 1441.
3. Guidance on securities lending.
4. Final regulations relating to ITINs on expedited basis.
5. Regulations relating to TINs under section 1445.
6. Guidance under section 1503(d).
7. Regulations relating to the reporting of bank deposit interest.

C. Outbound Transactions
1. Guidance on international restructurings.
2. Guidance on "extraordinary transactions".

10

D. Foreign Tax Credits
1. Final regulations under sections 902 and 904.
2. Guidance on change of taxable year and foreign tax credits.
3. Guidance on 10/50 company look-through.

E. Transfer Pricing
1. Regulations relating to stock option compensation under section 482.
2. Guidance on treatment of cross-border services.
3. Guidance on cost sharing under section 482.
4. Guidance on APA process (see Rev. Proc. 96-53).
5. Guidance on global dealing.

F. Sourcing and Expense Allocation
1. Guidance on interest expense apportionment.
2. Guidance relating to the treatment of fringe benefits.
3. Regulations under section 883.
4. Guidance under section 863(d) and (e).

G. Other
1. Guidance on the taxation of foreign insurance companies.
2. Guidance on taxation of individuals in the possessions.
3. Guidance concerning the treatment of currency gain or loss.
4. Proposed regulations under section 1446.
PARTNERSHIPS
1. Proposed regulations under section 460 regarding partnership transactions for
long-term contracts.
2. Guidance under section 704(b) regarding capital account book-up.

11
3. Guidance under section 704(b) regarding the allocation of foreign tax credits.
4. Final regulations under section 705 regarding the determination of basis of
partner's interest.
5. Guidance on synthetic tax-exempt bonds.
6. Guidance regarding partnerships options and convertible instruments.
7. Proposed regulations under section 752 regarding the assumption of
partnership liabilities.
8. Guidance regarding disregarded entities and collection issues.
9. Final regulations regarding the coordination of sections 755 and 1060.
10. Guidance regarding entity classification and community property owners.
11. Guidance under section 7701 regarding late check-the-box elections.
SUBCHAPTER S
1. Final regulations under section 1361 regarding the time for beneficiary to
make a aSST election.
2. Guidance under section 1362 regarding ESOP rollover to IRA.
3. Guidance under section 1362 regarding late S corporation elections.
4. Guidance under section 1367 regarding the basis of S corporation stock held
by ESOP.
TAX ACCOUNTING
1. Guidance regarding the treatment of costs incurred for railroad track
maintenance.
2. Guidance on deduction and capitalization of costs incurred by utilities to
maintain assets used to generate power.
3. Proposed regulations under sections 162 and 263 regarding deduction and
capitalization of expenditures.
4. Guidance under sections 162, 165, and 263 on the treatment of preproduction
costs of creative property.

12
5. Revenue ruling under sections 164 and 461 on the accrual of the deduction
for franchise tax payments under California law.
6. Revenue procedure under section 442 regarding automatic annual accounting
period change procedures for individuals.
7. Revenue procedure under section 446 to clarify procedures applicable to
voluntary changes in methods of accounting.
8. Proposed regulations under section 448 regarding the nonaccrual experience
method.
9. Guidance under section 451 regarding the treatment of advance payments.
10. Guidance under section 451 regarding the accrual oftax refunds.
11. Guidance under section 451 regarding the accrual of amounts in dispute by
vendors and retailers.
12. Guidance under section 461 on the proper treatment of Medicaid rebates
paid by pharmaceutical companies.
13. Final regulations under section 4688 regarding certain escrow funds.
14. Final regulations under section 471 regarding the unit livestock price
method of accounting.
15. Guidance under section 471 regarding the valuation of core inventory under
the lower of cost or market method.
16. Guidance under section 1341 regarding claim of right.
TAX ADMINISTRATION
1. Final regulations implementing section 66(c) regarding innocent spouse relief
in community property jurisdictions.
2. Final regulations under section 3406 clarifying the counting of notices to
payors when multiple notices are received.
3. Modification of Rev. Proc. 97-31 regarding the TIN matching program for
federal agencies to expand the scope of reporting agents included.
4. Proposed regulations under section 5891 on structured settlement factoring
transactions.
5. Final regulations regarding electronic payee statements.

13
6. Proposed regulations under section 6011 to remove impediments to electronic
filing of certain business returns.
7. Update Rev. Proc. 96-17 to provide the current requirements for completing
and submitting Form 8655, Reporting Agent Authorization for Magnetic Tape I
Electronic Filers.
8. Guidance under section 6011 regarding the disclosure of certain large
transactions.
9. Annual compilation of Tax Shelter Listed Transactions under section 6011.
10. Guidance under section 6111 regarding corporate tax shelter registration.
11. Guidance under section 6112 regarding list of tax shelter investors.
12. Update Rev. Proc. 2000-15 regarding equitable relief under sections 6015(f)
and 66(c).
13. Revenue procedure allowing a nonrequesting spouse to file a protest with
Appeals regarding an innocent spouse claim under section 6015.
14. Guidance regarding information reporting and backup withholding for
purchasing card transactions.
15. Proposed regulations under section 6045 regarding information reporting
relating to taxable stock transactions.
16. Final regulations under section 60505 regarding information reporting for
qualified tuition and related expenses.
17. Proposed regulations under section 6081 to remove the signature
requirement for filing Form 8809.
18. Final regulations under section 6103 regarding nonwritten (oral) consents.
19. Proposed regulations under section 6103 regarding the disclosure of
unrelated third party tax information in tax proceedings.
20. Proposed regulations under section 6103 regarding disclosures for
investigative purposes.
21. Proposed regulations regarding the ability of a return preparer to furnish a
completed copy of an income tax return to the taxpayer using a medium
other than paper.
22. Proposed regulations under section 6159 regarding installment agreements.

14
23. Guidance regarding the use of summary assessment procedures with
respect to claimed Black Reparations and similar credits.
24. Regulations under section 6213 regarding math error assessments based
on a Form W-2.
25. Proposed regulations under section 6334 regarding seizures of principal
residences and certain business assets.
26. Proposed regulations regarding the suspension of the statute of limitations
for noncompliance with a designated summons.
27. Proposed regulations under section 6655 regarding estimated tax payments
by corporations.
28. Reconsideration of Rev. Rul. 75-191 regarding the failure-to-deposit penalty
where employment taxes should have been withheld but were not.
29. Proposed regulations regarding a waiver of information reporting penalties
when errors are rectified promptly.
30. Final regulations regarding offers-in-compromise.
31. Proposed regulations imposing a user fee for offers-in-compromise.
32. Revenue Procedure regarding the LMSB Fast Track Program.
33. Guidance necessary to facilitate electronic tax administration.
34. Final regulations under section 7430 regarding qualified offers.
35. Proposed regulations under section 7430 regarding miscellaneous changes
made by TRA 97 and RRA 98.
36. Revenue ruling regarding the application of section 7503 with respect to the
filing of returns as well as claims for credit or refund.
37. Final regulations under section 7602(c) regarding third party contacts.
38. Proposed regulations regarding third party and John Doe summonses.
39. Final regulations excluding certain low-income taxpayer clinics from the
definition of income tax return preparers.
40. Revisions to Circular 230 regarding practice before the IRS.
41. Update Rev. Proc. 87-24 regarding docketed Tax Court cases.

15
42. Proposed regulations regarding testimony authorizations and requests for
IRS information.
43. Guidance under section 301.9100-1 on the extension of time to make
elections.
44. Update Statement of Procedural Regulations regarding the Freedom of
Information Act.

TAX EXEMPT BONDS
1. Regulations under section 141 regarding allocation and accounting
provisions.
2. Regulations under section 141 regarding refundings.
3. Final regulations under section 141 regarding output facilities.
4. Notice under section 141 regarding allocation and accounting rules for output
facilities.
5. Final regulations under sections 141 and 148 regarding prepayments.
6. Regulations under section 142 regarding solid waste disposal facilities.
7. Regulations under section 148 regarding brokers' commissions and similar
fees.
8. Guidance on procedures for requesting an extension of time to file information
returns required by section 149(e).
9. Guidance under section 150 regarding change in use provisions.
10. Guidance on correction alternatives and voluntary compliance for taxexempt bond provisions.

APPENDIX - Regularly Scheduled Publications
JULY 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42.382,1274,1288, and 7520.

16
2. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in July 2002.
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
AUGUST 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382.1274.1288. and 7520.
2. Revenue procedure providing the amounts of unused housing credit carryover
allocated to qualified states under section 42(h)(3)(O) for the calendar year.
3. Notice providing the inflation adjustment factor to be used in determining the
enhanced oil recovery credit under section 43 for tax years beginning in the
calendar year.
4. Notice providing the applicable percentage to be used in determining
percentage depleting for marginal properties under section 613A for the
calendar year.
5. Revenue ruling setting forth the terminal charge and the standard industry
fare level (SIFL) cents-per-mile rates for the second half of 2002 for use in
valuing personal flights on employer-provided aircraft.
6. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in August 2002.
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
8. Update Notice 2001-62 to add approved applicants for designated private
delivery service status under section 7502(f). Will be published only if any
new applicants are approved.
SEPTEMBER 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382, 1274, 1288. and 7520.

17
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein
during the period July through September. 2002.
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period October through
December. 2002.
4. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in September 2002.
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
6. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal standard mileage amounts.
7. Announcement on whether the number of Archer MSAs has exceeded the
applicable statutory limits.
8. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal travel per diem amounts.
OCTOBER 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42.382. 1274. 1288. and 7520.
2. News release setting forth cost-of-Iiving adjustments effective January 1.
2003. applicable to the dollar limits on benefits under qualified defined benefit
pension plans and other provisions affecting certain plans of deferred
compensation.
3. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412( c)(7) for plan years
beginning in October 2002.
4. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
5. Revenue procedure under section 1 and other sections of the Code regarding
the inflation adjusted items for 2003.

18
6. Revenue procedure providing the loss payment patterns and discount factors
for the 2002 accident year to be used for computing unpaid losses under
section 846.
7. Revenue procedure providing the salvage discount factors for the 2002
accident year to be used for computing discounted estimated salvage
recoverable under section 832.
8. Update of Rev. Proc. 2001-53 listing the tax deadlines that may be extended
by the Commissioner under section 7508A in the event of a Presidentiallydeclared disaster or terrorist attack.
NOVEMBER 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382,1274,1288, and 7520.
2. Revenue ruling providing the "base period T-Bill rate" as required by section
995(f)(4).
3. Revenue ruling setting forth covered compensation tables for the 2003
calendar year for determining contributions to defined benefit plans and
permitted disparity.
4. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in November 2002.
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
6. Update of Rev. Proc. 2001-52 regarding adequate disclosure for purposes of
the section 6662 substantial understatement penalty and the section 6694
preparer penalty.
DECEMBER 2002
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382,1274,1288, and 7520.
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein
during the period October through December, 2002.

19
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period January through
March,2003.
4. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412( c)(7) for plan years
beginning in December 2002.
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
6. Revenue procedure setting forth, pursuant to section 1397E, the maximum
face amount of Qualified Zone Academy Bonds that may be issued for each
state during 2003.
JANUARY 2003
1. Revenue procedure updating the procedures for issuing private letter rulings,
determination letters, and information letters on specific issues under the
jurisdiction of the Chief Counsel.
2. Revenue procedure updating the procedures for furnishing technical advice to
certain IRS offices, in the areas under the jurisdiction of the Chief Counsel.
3. Revenue procedure updating the previously published list of "no-rule" issues
under the jurisdiction of certain Associates Chief Counsel other than the
Associate Chief Counsel (International) on which advance letter rulings or
determination letters will not be issued.
4. Revenue procedure updating the previously published list of "no-rule" issues
under the jurisdiction of the Associate Chief Counsel (International) on which
advance letter rulings or determination letters will not be issued.
5. Revenue procedure updating procedures for furnishing letter rulings, general
information letters, etc. in employee plans and exempt organization matters
relating to sections of the Code under the jurisdiction of the Office of the
Commissioner, Tax Exempt and Government Entities Division.
6. Revenue procedure updating procedures for furnishing technical advice in
employee plans and exempt organization matters under the jurisdiction of the
Commissioner, Tax Exempt and Government Entities Division.
7. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382,1274,1288, and 7520.

20
8. Revenue ruling setting forth the prevailing state assumed interest rates
provided for the determination of reserves under section 807 for contracts
issued in 2002 and 2003.
9. Revenue ruling providing the dollar amounts, increased by the 2002 inflation
adjustment for section 1274A.
10. Revenue ruling setting forth the amount that section 7872 permits a
taxpayer to lend to a qualified continuing care facility without incurring
imputed interest, adjusted for inflation.
11. Revenue procedure providing procedures for limitations on depreciation
deductions for owners of passenger automobiles first placed in service
during the calendar year; amounts to be included in income by lessees of
passenger automobiles first leased during the calendar year; and the
maximum allowable value of employer-provided automobiles first made
available to employees for personal use in the calendar year.
12. Revenue procedure providing the domestic assetlliability percentages and
the domestic investment yield percentages for taxable years beginning after
December 31, 2001, for foreign companies conducting insurance business
in the U.S.
13. Revenue procedure updating procedures for issuing determination letters on
the qualified status of employee plans under sections 401(a), 403(a), 409,
and 4975.
14. Revenue procedure updating the user fee program as it pertains to requests
for letter rulings, determination letters, etc. in employee plans and exempt
organizations matters under the jurisdiction of the Office of the
Commissioner, Tax Exempt and Government Entities Division.
15. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412( c)(7) for plan years
beginning in January 2003.
16. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
FEBRUARY 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382, 1274, 1288, and 7520.
2. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.

21
3. Revenue ruling under section 165 listing the Presidentially declared major
disaster areas for the preceding calendar year.
4. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in February 2003.
MARCH 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42.382.1274.1288. and 7520.
2. Notice providing resident population of the states for determining the calendar
year state housing credit ceiling under section 42(h), the private activity bond
volume cap under section 146. and the qualified public educational facility
bond volume cap under section 142(k).
3. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein
during the period January through March, 2003.
4. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period April through June,
2003.
5. Revenue ruling setting forth the terminal charge and the standard industry
fare level (SIFL) cents-per-mile rates for the first half of 2003 for use in
valuing personal flights on employer-provided aircraft.
6. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412(c)(7) for plan years
beginning in March 2003.
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
APRIL 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42,382, 1274,1288, and 7520.
2. Revenue ruling providing the average annual effective interest rates charged
by each Farm Credit Bank District.

22
3. Notice providing the inflation adjustment factor. nonconventional fuel source
credit. and reference price for the calendar year that determines the
availability of the credit for producing fuel from a nonconventional source
under section 29.
4. Revenue procedure providing a current list of countries and the dates those
countries are subject to the section 911(d)(4) waiver and guidance to
individuals who fail to meet the eligibility requirements of section 911 (d)( 1)
because of adverse conditions in a foreign country.
5. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the fuJI funding limitation of section 412(c)(7) for plan years
beginning in April 2003.
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
MAY 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42.382.1274. 1288. and 7520.
2. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412( c)(7) for plan years
beginning in May 2003.
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.
4. Revenue procedure providing guidance for use of the national and area
median gross income figures by issuers of qualified mortgage bonds and
mortgage credit certificates in determining the housing cost/income ratio
under section 145.
JUNE 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for
the current month for purposes of sections 42.382.1274.1288. and 7520.
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein
during the period April through June. 2003.

23
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period July through
September 2003.
4. Notice providing the calendar year inflation adjustment factor and reference
prices for the renewable electricity production credit under section 45.
5. Notice setting forth the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current liability for the
purpose of the full funding limitation of section 412( c)(7) for plan years
beginning in June 2003.
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics
price indexes that department stores may use in valuing inventories.

D E P :\ R T \1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAVENUF., N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960

Embargoed Until 12:20 PM
July 10, 2002

Contact: Michele Davis
(202) 622-2920

Treasury Secretary Paul H. O'Neill
Remarks to the U.S. Chamber of Commerce
"Rebuilding Trust in Corporate America"
Washington, DC

Good afternoon. Thank you for your kind introduction, Tom (Donahue, CEO of
U.S. Chamber of Commerce).
The United States economy today is the strongest and most resilient in the world,
and the strongest and most resilient of any economy in history.
Our economy surged at a 6.1 percent annual rate in the first quarter, the fastest
pace in more than two years, and a phenomenal performance compared to forecasters'
expectations. Although the second quarter is not likely to match the first, there are
continuing signs of strength in this recovery. New home sales set a record level in May,
consumer spending remains high, and there is evidence that non-defense capital goods
investment rose in the second quarter, ending nearly a year and a half of declines.
The fundamentals are sound, with inflation low and productivity booming.
Business profits are up, real wages are growing, and industrial production is increasing.
In June, the number of new jobs went up for the second month in a row. Thanks in part
to low interest rates and President Bush's tax cuts, this recovery is well underway. I
continue to believe that by the end of this year we will see 3 to 3-112 percent growth.
Sometimes we forget, especially in Washington, that the foundation beneath our
economic strength is the everyday hard work of business owners and employees
throughout this country, many of whom are represented in this Chamber of Commerce.
I'm talking about the kind of people who get up at the crack of dawn, unlock the store,
and spend their days smiling at customers, (even when they'd rather throttle them).
People who spend their nights and weekends minding the books, so they can pay their
bills, make their payroll, and get their kids through school. People who have built this
country, one product, one sale, and one job at a time.

PO-3241

-.!or press releases, speeches, public schedules and official Ifographies, caU our 24-hour fax line at (202) 67:'·2{)L'

These Americans, whether they work in a store, a factory, a fann, or an office
tower, are investing their time in an honest day's work, building a future for themselves,
their families and this country. And when they choose to put their hard-earned wages
into shares of public companies, they are investing in this country again.
They are entrusting their savings - the down payment for a first home, the money
for an engagement ring and a wedding, college tuition, funds for a family vacation, their
retirement, in short, their financial freedom and independence - to corporate managers,
whom they expect to be just as honest and straightforward. Our citizens trust that public
companies will respect the savings in their care, working to maximize their return by
creating real value.
Through much of the past decade. that trust paid well. New technologies boosted
productivity, profits grew and the stock market soared. But amidst that exuberance, some
people seem to have started believing that anything goes.
We've learned recently that certain corporate leaders, abetted by their auditors,
violated the public's trust. In their greed and their gluttony, these crooks sacrificed the
retirement years of teachers, truck drivers, nurses and fanners to enrich themselves.
Just as bad, they have disgraced the institutions that have allowed our nation to
prosper, and brought shame on freedom itself.
I am furious. President Bush is furious. And we are going to make sure these
thieves face consequences. These guys are not going to spend those stolen retirement
years on balmy islands, swatting golf balls. The President has said that CEOs who cook
the books will forfeit their ill-gotten gains, and they will go to jail.
Since the earliest days of these corporate scandals, President Bush has been
advancing a reform agenda to find and punish corruption; hold corporate officers
accountable; protect small investors; clean up accounting practices; strengthen the
corporate audit system; and provide honest and accurate information to investors. The
President's ten-point plan to improve corporate governance and disclosure, which he
proposed on March 7, is now coming into place, thanks to aggressive leadership by
Harvey Pitt and the SEC.
The plan requires that chief executives and chief financial officers personally
certify the accuracy, timeliness and completeness of their companies' public disclosures
and financial statements. In fact, Harvey Pitt has already written letters to the top 1,000
CEOs, requesting that they do just that - personally review and recertify their recent
financial statements.
With the highest position in a company comes the highest responsibility, both to
know what is going on in the firm, and to give investors an honest and accurate picture of
the company's situation. Outside auditors should have to make the same independent
certifications.

2

The SEC has also issued new rules to keep investors better informed. Companies
will have to illustrate the impact of their accounting choices on their financial statements,
and they will inform investors more quickly and clearly about significant events. The
SEC has already put teeth in its policy that technical GAAP compliance is not the same
as sufficient disclosure.
And for those who don't live up to the standards of honesty and accuracy, the
President is insisting on stiff punishment, doubling the penalties for financial fraud.
Under today's laws, a kid caught with a half a gram of marijuana gets a stiffer sentence
than a corporate chief who steals millions from investors. That's not right.
The President requested months ago that Congress provide major increases in
budget and personnel for the SEC, so our law enforcement officers can get the job done.
Already, the SEC has doubled the rate of executive disgorgement cases this year over the
rate in 2001. Working through the courts, the SEC has also stepped up bans of corrupt
directors and officers, preventing them from serving in other companies.
Finally, the President made strong recommendations to align compensation plans,
including stock options, with the long-term interest of stockholders. On television these
days we see executives at scandal-ridden companies who pumped up share prices and
cashed out their options before the axe fell. And then we see faithful employees and
duped shareholders and pension funds left behind to gape at their losses. That's wrong,
and it must not continue.
When I was at Alcoa I never sold a single share of Alcoa stock. I wanted my
financial success and the company's success inextricably linked. Other executives should
do the same. Stock options are not a short-term reward, they are a long-term incentive to
do the right thing.
The President has called on the nation's stock markets to require that listed
companies receive shareholder approval of all stock option plans. And he called on
CEOs to explain how their compensation packages are in the best interest of
shareholders. Well-informed shareholders, not the government, are in the right position
to decide what compensation plan will best align management interests with the longterm interest of the shareholders.
We are improving the system on every front. The SEC's proposals are moving
forward. The stock markets are beefing up corporate governance requirements for listed
companies. And Congress is developing legislation to ensure corporations and their
auditors meet standards for accuracy, honesty and timeliness. The House has already
acted, and the Senate is working at this very moment.

3

We support the intentions of the Senate bill, but we have reservations as well. In
particular, contrary to the President's request, the Senate bill does not provide the SEC
with the authority to bar individuals who engage in serious misconduct from serving as
officers and directors of any public company. The SEC needs this new authority to
punish those that have proven themselves unworthy to serve shareholders.
We are also concerned that the Senate proposal gives the power to enforce
securities laws to an unaccountable private body, which is not consistent with our sense
of responsible law enforcement. Moreover, this new "accounting oversight board" would
be redundant and competitive with the SEC. We do not need that kind of bureaucratic
confusion undercutting enforcement efforts, and letting villains off the hook.
Instead, the Administration believes that a two-tiered regulatory framework will
best protect investors. The SEC recently suggested an independent accounting oversight
board to set, oversee, and enforce professional audit and ethics standards. The SEC itself
would continue to investigate and enforce violations of the securities laws. These clear
lines of authority will ensure that the Accounting Board and SEC are both fully
accountable.
I'm eager to work with the Congress to get legislation to the President before the
August recess to restore accountability and integrity to our corporate governance and
disclosure system. But new laws alone cannot make a perfect world. We have laws
against bank robbery, but we still have bank robbers. We need the other institutions of
our free market system to reinforce the call for higher standards. That is why I applaud
actions by private organizations, such as the New York Stock Exchange and the National
Association of Securities Dealers, to create better rules for their membership,
independent of our work in Washington.
Most of all, I calion true corporate leaders, those who cherish their freedom and
the success our system has allowed them, to stand up and defend the values of honesty,
integrity, and accountability. I believe that most executives accept and live up to the
principle that with the big job comes big responsibilities. Leadership means more than
keeping your head down and following the rules. It means instilling a value system that
runs throughout your company.
Most of the things being proposed for regulation and legislation are things that
you and I and most of the CEOs we know have practiced for years, because they are
common sense and they are the right things to do.
No government can compensate for a lack of an articulated value structure from
the top. Face it: the 90s are over. Now is the time for sober virtue. Investors are
demanding information, and because our system works, they are going to get it.
Companies that take steps now to examine their practices - from disclosure, to
accounting, to compensation - will ensure that they meet shareholder expectations.

4

By getting accurate, timely, plain-English infonnation to investors and employees
they will earn the public's trust anew. People across this nation will again feel confident
that they can safely invest their life-savings in American business. And acting
individually to do what's right, corporate leaders will collectively strengthen the U.S.
economic system.
Our economic system remains the envy of the world. Together the President's
proposed refonns and leadership in the corporate world will make that system even
better.
Thank you.

5

PUBLIC DEBT NEWS
Department of the Treasury. Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
July 10, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 10-YEAR INFLATION-INDEXED NOTES
Interest Rate:
Series:
COSH No:
TIIN Conversion

Issue Date:
Dated Date:
Maturity Date:
8.342602892 1/

3%
C-2012
912828AF7
Factor per $1,000
High Yield:

3.099%

Price:

July 15, 2002
July 15, 2002
July 15, 2012

99.154

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 81.62\. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type

Tendered

Competitive
Noncompetitive
FIMA (noncompetitive)

$

Accepted

21,574,406
285,905

$

8,714,096
285,905

°

SUBTOTAL

°

21.860,311

Federal Reserve

9,000,001 2/

1,010,394

TOTAL

$

22,870,705

1,010,394
$

10,010,395

Median yield
3.049%:
50\ of the amount of accepted competitive tenders
was tendered at or below that rate. Low yield
3.000\:
5\ of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

= 21,860,311

/ 9,000,001

= 2.43

1/ This factor is used to calculate the Adjusted Values for any TIIN face
amount and will be maintained to 2-decimals on Book-entry systems.
2/ Awards to TREASURY DIRECT
$90,782,000
%

http://www.publicdebltre3:s.gov
'0-3242

DEPARTMENT

OF

THE

TREASURY ~
~

TREASURY

NEWS

OFFICE 01<' PllBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 2()22() - (202) 622-2960

u.s. International Reserve Position

07/10/02

The Treasury Department today released u.s. reserve assets dJ.ta for the btest week. As indicJ.ted in this table, U.S.
reserve assets totJ.led $74,233 million at the end of the btest week, compared to $74,846 million at the end of the prior
week.

(in US millions)

I. Official U.S. Reserve Assets

June 28, 2002
74,846

TOTAL
1. Foreign Currency Reserves
a. Securities

l

1

Euro
6,201

Yen
11,790

Of which, issuer headquartered in the U.S.

July 5, 2002
74,233
TOTAL

Euro

17,991

6,122

Yen

TOTAL

11,756

0

17,878
0

b. Total deposits with:
b.i. Other central banks and BIS

10,356

3,970

14,325

10,230

3,958

14,189

b.n. Banks headquartered in the U.S.
b.iL Of which , banks located abroad

0
0

0
0

b.W. Banks headquartered outside the U.S.

0
0

0

19,841

19,612

11,645

11,511

11,044

11,044

0

0

b.iii. Of which, banks located in the U.S.

IMF Reserve Position
· Special Drawing Rights (SDRs)
· Gold Stock

2

3

· Other Reserve Assets

1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
Jalued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect
:arrying values.

2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
erms at the official SDR/dollar exchange rate for the reporting date. The entries in the table above for latest week (shown In Italics) reflect any
leCessary adjustments, including revaluation, by the US. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
:/ Gold stock IS valued monthly at 542.2222 per fine troy ounce.

)-3243

0

Ii

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
July 11,2002

Contact: Office of Financing
(202) 691-3550

TREASURY'S lO-YEAR INFLATION-INDEXED NOTES
JULY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and the daily
index ratios for the month of July for the 10-year Treasury inflation-indexed notes of Series C-2012. This
information is based on the non-seasonally adjusted U.S. City Average All Items Consumer Price Index
for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S. Department of
Labor.

In addition to the publication of the reference CPI numbers (Ref CPI' s) and index ratios, this
release provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated fax system
by calling 202-622-2040 and requesting document number 3244. The information is also available on the
Internet at Public Debt's website (http://www.publicdebttreas.gov).
The information for August is expected to be released on July 19, 2002.
000

Attachment

PO-3244

http://www.publicdebt.treas.gov

13% TREASURY 10-YEAR INFLATION-INDEXED NOTES
DESCRIPTION:
CUSIP NUMBER:
~UCTION DATE:
DATED DATE:
ORIGINAL ISSUE DATE:
MATURITY DATE:
Ref CPI on DATED DATE:
iTABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

Series C-2012
912828AF7
July 10, 2002
July 15, 2002
July 15, 2002
July 15, 20121
179.80000
July 2002
31
178.8
179.8
179.8

CPI-U (NSA) March 2002
CPI-U (NSA) April 2002
CPI-U (NSA) May 2002
Ref CPI and Index Ratios for July 2002:

Month

Calendar Day

Year

Ref CPI

July
July
July
July
July
July
July
July
July
July
July
July
July
July
July'
July
July
July
July
July
July
. July
July
July
July
July
July
July
July
July
July

1
2
3

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

Index Ratio

..

1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000

D' EPA R T MEN T

0 F

THE

T REA S (j R

Y

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.- 202:!O _ (202) 622-2960

FOR IMMEDIATE RELEASE
MONDAY, JULY 2, 2002

CONTACT: TONY FRATTO
(202) 622-2960

UNDER SECRET ARY JOHN B. TAYLOR VISIT TO EL SAL V ADOR

u.s. Treasury Under Secretary John B. Taylor met today with the Minister of Finance and
Technical Secretary of the President, Dr. Juan Jose Daboub, and with the President of the Central
Bank, Mr. Rafael Barraza, to discuss themes of common interest in the context of aid and
financing for development.
Dr. Taylor is touring Central America to discuss the importance ofthe private sector in
generating economic growth and raising standards of living. This visit also coincides with
internal discussions regarding the Bush Administration's Millennium Challenge Account, which
has the goal of encouraging the practices of ruling justly, investing in people, and economic
freedom in developing countries.
Dr. Taylor will also visit the export processing zone, Miramar, an Infocentro training center, and
a school, the Centro Escolar in the Milagro district in the city of San Marcos. The Under
Secretary will also meet with the country's principal business leaders during a working lunch.
The goal of these visits is to provide him with an integrated panorama ofthe reality and
challenges facing El Salvador. In his tour of the isthmus, Dr. Taylor will also visit Honduras and
Nicaragua.

-30PO-3245

For press releases, 'ifteeches. public schedules and official biographies, call our 24-hoor fax linerzt (202) 622-2040

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 2022H _ (2H2) 622-2960

FOR IMMEDIATE RELEASE
July 10,2002

CONT ACT: BETSY HOLAHAN
202-622-2960

AIR TRANSPORTATION STABILIZATION BOARD CONDITIONALLY
APPROVES APPLICATION BY US AIRWAYS, INC.
The Air Transportation Stabilization Board today announced its conditional approval of
the application by US Airways, Inc. for a loan guarantee under the Air Transportation
Safety and System Stabilization Act and implementing regulations promulgated by the
Office of Management and Budget. The Board's decision was unanimous. The Board's
approval is subject to several conditions set out in the Board's letter to US Airways,
which is attached.
The Board noted the disciplined and comprehensive approach that US Airways brought
to its restructuring, as reflected in its business plan. US Airways' proposal is based on
reasonable assumptions and includes substantial cost savings. The Board, however, has
notified US Airways that it requires more compensation than has been offered and will
continue discussions with the company.
Attachment:
Board's letter to US Airways, Inc. (2 pages)

-30-

PO-3246

_For press rele~, spooehBi, jmhlic ochechtles and official biographies, call our 24-Jwur fax line at (202) 622-2040
~

AIR TRANSPORTATION STABILIZATION BOARD

July 10, 2002
David N. Siegel
President and Chief Executive Officer
US Airways, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Re: Application for a Loan Guarantee Under the Air
Transportation Safety and System Stabilization Act
Dear Mr. Siegel:
We refer to the application of US Airways, Inc. (the "Applicant"), dated June 7, 2002
and supplemented on June 27, 2002 (the "Application"), for a Federal loan guarantee under
the Air Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, 115 Stat. 230
(the "Act") and the regulations promulgated thereunder, 14 CFR Part l300 (the
"Regulations"). The Applicant has requested a Federal guarantee in connection with a $1
billion financing. The Air Transportation Stabilization Board (the "Board") is asked to
participate by providing a Federal government guarantee of $900 million, representing 90
percent of the total financing.
'
The Board has carefully considered the Application under the standards set out in the
Act and Regulations. The Board's consideration has included a review and analysis of the
Application by the Board's staff and the Board's financial and industry consultants. Based on
its review, the Board has determined that, except as noted below, the Application meets the
requirements for a Federal loan guarantee under the Act and the Regulations. In particular,
the Board has determined that the Applicant has demonstrated a reasonable assurance that it
will be able to repay the loan according to its terms. Among other factors, the Board's
determination is based on the proposed achievement of substantial cost savings and the
reasonable assumptions that underlie the business plan submitted. In addition, the Board
notes favorably the Applicant's disciplined approach to executing its restructuring plan.
Relying upon the information set forth in the Application and infoID1ation conveyed to
Board staff during recent discussions with the Applicant, the Board has determined to extend
an offer of a guarantee, subject to satisfaction, as determined by the Board in its sole
discretion, of all the conditions in the Act and the Regulations and the following:
>

The Applicant must conclude legally binding agreements, satisfactory to the Board,
regarding the concessions and initiatives described in the business plan.

Mr. David N. Siegel
July 10, 2002
Page 2

>

The Board does not consider the stock purchase warrants described in the Application to
represent sufficient participation in the Applicant's potential future gains. The Board
must receive additional warrants in an amount and at a strike price acceptable to the
Board.

>

Certain issues as to collateral (including slots and gates) must be resolved.

>

Final loan documents, including related collateral security documents and filings, affiliate
guarantees, certifications, the warrant and registration rights agreement, and appropriate
opinions of counsel, all in form and substance satisfactory to the Board, remain to be
negotiated by the Board. We note that the Board may require control rights,
representations, warranties, covenants (including, without limitation, covenants relating to
the Applicant's financial ratios), anti-dilution protections and registration rights in
connection with the warrants, and other customary lending provisions which are different
from or in addition to those described in the Summary ofIndicative Terms and Conditions
included in the Application. All the conditions referred to in the Summary of Indicative
Terms and Conditions must be satisfied.

The Board will continue to perform business and legal due diligence as the transaction
progresses. The Board's willingness to issue the guarantee, and the specific terms it may
require in the loan documents, are subject, therefore, to on-going due diligence and the
Board's satisfaction with the results thereof. In the event that the Board discovers any
materially negative information concerning the Applicant not currently known to it, the Board
in its sole discretion may decline to issue its guarantee. The issuance of the Board's guarantee
is subject also to the absence, in the sole judgement of the Board, of any material adverse
change in the condition (financial or otherwise), business, property, operations, prospects,
assets or liabilities ofthe Applicant, or in the Applicant's ability to repay the loan, or in the
value ofthe collateral between the date of the Application and the date the guarantee is issued.
The Board and Board staff look forward to working with you toward the successful
completion of this transaction and are prepared to devote all of the resources necessary to
accomplish this end.
Sincerely,

Daniel G. Montgomery
Executive Director
Cc:

Edward Gramlich
Kirk Van Tine
Peter Fisher

DEPARTMENT

OF

THE

TREASURY

TREA:SURY

'NEWS

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N. W.• WASHINGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 10:00 a.m. EDT
Thursday, July 11,2002

Contact: Michele Davis
(202) 622-2920

STATEMENT OF PAUL H. O'NEILL
Secretary, Department of the Treasury
Before the Select Committee on Homeland Security
U.S. House of Representatives
Mr. Chairman, thank you for the opportunity to address the Select Committee today.
am pleased to address the Committee on behalf of the President's proposal to establish a new
Department of Homeland Security and to offer my wholehearted support for transforming our
government in order to fight terrorism more effectively and protect our nation.

During my tenure at Alcoa, we constantly sought to rethink the way we did business.
Throughout the company, we tried to adjust our methods and models to changing circumstances.
Companies that survive, decade after decade, do so through constant adaptation. In a sense, they
exemplify a deep-rooted corporate tradition-and, huly, a deep-rooted American tradition~of
questioning every tradition.
Change, of course, is often difficult, whether in a business or in government. Some people
worry that change will require too much from them, or that it will deprive them oftoo much clout.
President Truman faced such forces in 1947 when he set out to reorganize the military. The
entrenched interests argued that the American military had just defeated the Axis; why change what
worked? But President Truman recognized that the nature of warfare was changing. The intense and
relatively brief fighting of World War II was giving way to the Cold War, which entailed decades of
surrogate warfare, positioning for global supremacy, and the constant possibility oftotal war. Not all
of this was apparent in 1947, but President Truman recognized enough of it to realize that things had
to change: It was time for a joint or unified command. He was right.
Now, the nature of warfare has changed once again. The enemy is no longer necessarily
a state. Instead, we face individuals and small groups, sometimes aided by a state, but not
necessarily clad in its uniform or following its flag. Indeed, that is the great challenge of the new
form of warfare-knowing who our enemies are. As the investigation into the attacks of
September 11 has demonstrated, they walk among us.
PO-3247

!:1{Yf' press release~
speeches, public schedules and official biographies, rall our 24-hoVlr fax line .at (2(2) 622-2ft1-0
.
·11 S C;overnrnAnt PrmtlOUDfhce 1998 - -.0..19-5.5.9.

Only their violent and misguided ideology distinguishes them from our fellow citizens,
and, not surprisingly, they keep that ideology to themselves. Their weaponry, too, is different.
Before September 11, passenger jetliners had never been weapons of war.
But our weapons have also changed. Technology is giving us tools for tracking the possible
terrorists an10ng us. Flight manifest and passenger information, once recorded manually, now is
automated through APIS, the Advanced Passenger Information System. This provides a system for
tracking individuals entering our country. Technology also gives us the ability to integrate our
databases and rapidly communicate our information. Thanks to new powers that Congress provided
under the USA Patriot Act, Treasury's Financial Crin1es Enforcement Network can blast-fax
information about suspected terrorists to hundreds of financial institutions, which in tum can provide
any pertinent information back to us. An investigation that might have taken weeks a few decades ago
now takes hours.
September 11 has forced on us the sort of creative thinking that President Truman did in
1947. We have had to ask ourselves how this could have happened, what might happen next,
and how we can prevent any further attacks. And the conclusion is clear: We cannot fight this
war using structures designed for the Cold War, at the military level, and the varieties of
indigenous and foreign crimes, at the law-enforcement level. Now, as then, new threats require
new structures and new responses.
Today, responsibility for homeland security is scattered across the goverllll1ent. Lines of
communication are not always open; lines of authority are not always sharply defined; and
redundancies and inefficiencies are built in. One law-enforcement agency sometimes launches
an operation and then must step aside-not because it finds no evidence of criminality, but rather
because it finds evidence of the wrong sort of criminality. Last week, for example, the Customs
Service stopped a suspicious boat and searched it for illegal drugs and other contraband.
However, the Customs agents found illegal aliens. Customs transferred the aliens to the Coast
Guard - currently part of the Department of Transportation. The Coast Guard, upon reaching
land, then turned over the aliens to the Immigration and Naturalization Service - currently part
ofthe Department of Justice. Under the President's reorganization proposal, a single entity
would be responsible for all border issues.

The new Department will have homeland security as its primary mission. It will bring
together within one Department the key entities to fight the war on terrorism, and ensure that we
have a unified, coherent plan for protecting our citizens and our borders against the new breed of
threats. And, crucially, it will be accountable. Citizens and public servants will know where the
responsibility lies.

All the parts must work together at the same time and under the same direction to get
things done. We cannot respond to the terrorist threats simply by pledging more cooperation or
by making marginal changes.

2

We must be willing to make a dramatic transformation in light of the dramatic threats we
face. Indeed, this Select Committee provides a good example. Although many committees have
jurisdiction over the issues covered by the proposed new Department, you realized that
responsibility could not be parceled out as before. This Select Committee centralizes authority.
We must engage in this type of fresh thinking in order to respond to the new threats.

Yes, the challenge is great. To defend our freedom in this new era, we must work
together as never before. We must put aside notions of turf and tradition and the-way-we'vealways-done-it, and work collectively for the common security. In some cases, we must say
goodbye to valued colleagues. I have deeply enjoyed my time working alongside the fine public
servants in the Customs Service and the Secret Service, for example, two Treasury agencies that,
under the President's proposal, will be part of the new Department. But by and large, these hardworking people recognize the wisdom in centralizing responsibility for homeland security. They
are excited over the prospect of helping start the new Department.

We know that you in the Congress are faced with a exceedingly difficult task. We at the
Treasury Department pledge to do all we can to help, in accordance with our common
commitment to combat these new terrorist threats. During the past few weeks, we have worked
closely with several of the House Committees in drafting legislation to create a new Department
of Homeland Security. We have shared our concerns and provided our comments. We will
continue to provide our input to ensure that the final bill:
• leverages the strengths ofthe many component parts,
• provides clear and workable lines of authority, and
• creates the most efficient possible structure.
The importance of our work demands nothing less.
Thank you for your commitment to this fight, Mr. Chairman and members of this Select
Committee, and thank you for the opportunity to address you.

3

DEPARTMENT

OF

THE

TREA:SURt

'NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS - 1500 PENNSYLVANIA AVENUE, N. W .• WASHINGTON, D.C.- 20220 - (202) 622-2960

Contact: Michele Davis
(202) 622-2920

For immediate release
Wednesday, July 10,2002

Statement of Secretary Paul O'Neill following his meeting with Dr. Arminio Fraga,
Governor of the Central Bank of Brazil:

I welcomed the opportunity to have a full discussion of the economic situation and policy
strategy in Brazil. I remain convinced that Governor Fraga and the Brazilian
Government are pursuing sound, forward-looking policies that lay the basis for economic
and financial stability. Weare in full support of their efforts and intentions.
--30--

PO-3248

For press releases. ~echesjublic schedules and official biographies, call our 24-iwur fax line at (202) 622-2040
.
·u.s. Government Printing Office

1998· 619·559

0

federal financing
WASHINGTON, D.C.

20220

bonkNEWS

FEDERAL FINANCING BANK

June

20, 2002

Kerry Lanham, Secretary, Feder'al Financing Bank (FFB) ,
announced the following activity for the month of May 2002.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $37.2 billion on May 31, 2002,
posting a decrease of $463.9 million from the level on April 30,
2002.
This net change was the result of a decrease in holdings
of agency assets of $580.0 million and an increase in holdings of
government-guaranteed loans of $116.1 million. The FFB made 44
disbursements and received 12 prepayments during the month of
May.
Attached to this release are tables presenting FFB May loan
activity and FFB holdings as of May 31, 2002.

PO-3249

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Page 2
FEDERAL FINANCING BANK
MAY 2002 ACTIVITY
Date

Borrower

Amount
of Advance

Final
Maturity

InterestRate

-----------------------------------------------------------------GOVERNMENT-GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Atlanta CDC Lab
San Francisco OB
San Francisco OB

5/22
5/23
5/31

$50,834.23
$254,233.32
$98,529.25

1/30/31
8/01/05
8/01/05

5.796% S/A
3.997% S/A
3.923% S/A

5/01
5/02
5/13
5/14
5/31
5/31

$3,038,906.53
$146,600.53
$269,459.00
$373,969.20
$233,586.42
$360,400.74

1/02/32
3/01/30
3/01/30
1/02/32
3/01/30
7/01/31

5.595%
5.554%
5.622%
5.712%
5.584%
5.590%

S/A
8/A
S/A
8/A
8/A
8/A

5/01
5/01
5/02
5/03
5/03
5/03
5/07
5/07
5/07
5/09
5/10
5/10
5/10
5/15
5/15
5/15
5/15
5/16
5/16
5/17
5/17
5/21
5/22
5/22
5/23
5/23
5/23
5/29
5/29
5/29

$2,000,000.00
$350,000.00
$640,000.00
$785,000.00
$2,434,000.00
$804,000.00
$11,272,000.00
$750,000.00
$6,000,000.00
$2,857,000.00
$226,522.00
$5,000,000.00
$831,000.00
$25,000,000.00
$2,000,000.00
$1,000,000.00
$522,000.00
$3,713,000.00
$952,044.00
$525,000.00
$1,013,000.00
$62,228.00
$10,324,000.00
$10,324,000.00
$500,000.00
$450,000.00
$6,000,000.00
$6,240,000.00
$785,000.00
$3,961,030.00

7/02/07
9/30/09
12/31/35
12/31/35
12/31/36
1/02/35
12/31/25
1/03/34
1/02/35
6/30/03
7/02/12
12/31/35
9/30/05
12/31/31
12/31/36
10/01/07
1/03/33
12/31/13
1/02/24
1/02/35
1/02/35
9/30/02
9/30/04
9/30/05
1/02/35
9/30/04
9/30/02
12/31/35
7/02/12
12/31/36

4.504%
4.858%
5.558%
5.592%
5.602%
5.582%
5.404%
5.609%
5.542%
2.518%
5.026%
5.659%
3.943%
5. 743%
5. 777%
4.678%
5.747%
4.980%
6.083%
5.694%
5.694%
1. 959%
3.458%
3.921%
5.630%
3.404%
1.912%
5.674%
5.090%
5.682%

Otr
Otr
Otr
Otr
Otr
Otr
Otr
Otr
Qtr
Otr
Otr
Qtr
Qtr
Otr
Otr
Qtr
Qtr

DEPARTMENT OF EDUCATION
Virginia Union Univ.
Barber-Scotia College
Barber-Scotia College
Virginia Union Univ.
Barber-Scotia College
Livingstone College
RURAL UTILITIES SERVICE
Cherokee Electric #562
Thumb Electric #767
Comanche County Elec. #765
Lorain-Medina Electric #760
Sac Osage Electric Coop. #815
San Patricio Elec. #676
Alabama Electric #695
Bartlett Elec. #535
East Central Energy #660
Medina Electric #~22
Ellerby Telephone #635
French Broad Elec. #809
Scenic Rivers Energy #677
Arkansas Elec. #812
E. Iowa Coop. #807
Northern Neck Elec. #713
Tri-County Elec. TN #647
Council Grove Telephone #821
San Carlos Apache Tele. #729
Goodhue County #672
Meeker Cooperative #699
Upsala Coop. Tele. #429
Brazos Electric #561
Brazos Electric #561
Adams Rural Electric #706
Lynches River Elec. #634
Pennyrile Elec. #513
Ashley-Chicot Elec. #829
Duck River E.M.C. #656
Roanoke Electric Mem. #820

otr
otr
Qtr
Qtr
Qt~

Qtr
Qtr
Qtr
Qtr

Qcr
QC:

Q::
Q::

Page 3
FEDERAL FINANCING BANK
MAY 2002 ACTIVITY
Borrower
sangre De Cristo Elec. #732
Irwin Electric #715
Tri-State #808
)range County Elec. #771
30uthwestern Elec. #726

sf A is a Semiannual rate.
Qtr. is a Quarterly rate.

Date

Amount
of Advance

Final
Maturity

Interest
Rate

5/29
5/30
5/30
5/31
5/31

$500,000.00
$1,600,000.00
$20,173,000.00
$235,000.00
$700,000.00

7/02/07
1/02/35
12/31/31
12/31/35
12/31/35

4.433%
5.626%
5.599%
5.472%
5.470%

Qtr.
Qtr.
Qtr.
Qtr.
Qtr.

Page 4
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)

Program

May 31. 2002

Agency Debt:
U.S. Postal Service

April 30. 2002

Monthly
Net Change
5/1/02 - 5/31/02

Fiscal Year
Net Change
10/1/01- 5131/02

Subtotal*

$6.950.0
$6.950.0

$6.950.0
$6.950.0

$0_0
$0.0

-$4.363.0
-$4.363.0

Agency Assets:
FmHA-RDIF
FmHA-RHIF
Rural Utilities Service-CBO
Subtotal*

$1.440.0
$3.835.0
$4.270.2
$9.545_2

$1.730.0
$4.125.0
$4.270.2
$10.125.2

-$290.0
-$290.0
$0.0
-$580.0

-$995.0
-$540.0
$0.0
-$1.535.0

Government-Guaranteed Lending:
DOD-Foreign Military Sales
DoEd-HBCU+
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration+
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
Subtotal*

$2.024.0
$57.3
$6.6
$1.207.3
$2.233.1
$11. 9
$841.2
$14.183.8
$111.2
$3.3
$20.679.6

$2.036.9
$52.8
$6.7
$1.207.3
$2.236.4
$11.9
$841. 2
$14.053.3
$113.7

-$12.9
$4.4
-$0.1
$0.0
-$3.3
$0.0
$0.0
$130.5
-$2.5
$0.0
$116.1

-$132.7
$25.9
-$1. 2
-$71. 4
-$34.9
-$1.2
-$100.0
$584.6
-$20.8
-$0.1
$248.3

-$463.9

-$5.649.7

~

$20.563.5

===--===

Grand total*
* figures may not total due to rounding
+ does not include capitalized interest

$37.174.8

$37.638.7

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFI C E OF P U BLI C AF FAIR S - 1500 PE N N S YL VA N I A AV E NU E , N. W. - WAS HINGTO N, D. C. - 20 2 2{) _ ( 20 2) 6 22- 2960

EMBARGOED UNTIL 2:30 P.M.
July 11, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $33,000
million to refund an estimated $22,715 million of publicly held 13-week and 26-week
Treasury bills maturing July 18, 2002, and to raise new cash of approximately $10,285
million. Also maturing is an estimated $18,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced July 15, 2002.
The Federal Reserve System holds $10,817 million of the Treasury bills maturing
on July 18, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held July 16, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.

TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $950 million into the 13-week bill and $899 million into the 26-week
hill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about each of the new securities are given in the attached offering
ilighlights.
000

\ttacmnent

0-3250

"or press relea ses, sp eech es, public sch edules and official biographies, call Ollr 24-hou r fax line at (2 02) 622-2040

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED JULY 18, 2002
July 11, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . $ 3,300 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . .
CUSIP nwnber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . . . . . . . . . .
Minimum bid amount and multiples . . . . . . . . . . .

91-day bill
912795 LF 6
July 15, 2002
July 18, 2002
October 17, 2002
April 18,2002
$13,897 million
$1,000

$16,000 million
$16,000 million
None

182-day bill
912795 LU 3
July 15, 2002
July 18, 2002
January 16, 2003
July 18, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for rIMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt of
competitive tenders.
ximum Recognized Bid at a Single Rate . . . . . . . . 35% of public offering
ximurn Award . . . . . . . . . . . . '" . . . . . . . . . . . . . . . . • . . 35% of public offering
ceipt of Tenders:
Noncompetitive tenders . . . . . Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
;[yment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
·th tender.
TreasuryDirect customers can use the Pay D~rect feature which authorizes a charge to their account of
~cord at their financial institution on issue date.

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N. W. - WASHINGTON, D.C.- 20220 _ (202) 622-2960

Embargoed until 12:30 pm local time
July 12,2002

Contact:

Rob Nichols
(202) 415-2692

Remarks by United States Treasury Secretary Paul H. O'Neill
"Accelerating Growth in Eastern Europe and Central Asia"
Kiev, Ukraine

Good afternoon.
The nations that have emerged from the former Soviet Union are among the most
promising and dynamic in the world, teeming with human talent and economic potential. On my
tour this week through several of those nations - Ukraine, the Kyrgyz Republic, Uzbekistan, and
Georgia - I plan to see for myself the results of a decade of economic and political reform, and
see the considerable challenges that remain. I expect to see gains, and also disappointments.
By coming here, I hope to understand how the United States and our international
partners can best help your leadership to build on those gains, and overcome the great challenges
that remain, so that the people of Eastern Europe and Central Asia can enjoy the rewards of the
global economy, and build prosperity at last.
I am not here to write prescriptions, or give a "how-to" course on economic development
- there's no such thing, and I wouldn't presume to have the answers. I am here to listen, and
leam from your experience. At the same time, I want to share what we have learned from around
the world, and help apply those lessons to your unique situations. In particular, I want to
emphasize the key principles of economic development: just rule, economic freedom, and
investment in people.
Your nations - your people - are important to the United States. We hold a mutual
interest in international security, including the war on terrorism and the fight against weapons of
mass destruction. And true security depends on more than military might, intelligence, and arms
control- it depends on a shared stake in the future ofthe global economy, ties of trade,
investment, and enterprise. It depends on common values of political and economic freedom,
even as we respect diverse cultures and appreciate historical traditions.
There are many differences among our nations, and great differences among the many
nations of this part of the world. But in my travels to every part of this globe, as a private sector
leader and a government official, I have witnessed three common principles that are beyond
dispute.
PO-3251
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,

·u.s

Government Printing Office 1998 - 619-559

The first was best expressed in the American Declaration of Independence, which we
celebrated last week: all people are created equal. It is self-evident. People everywhere can do
great things when they have the tools and incentives for success.
The second is that with leadership - honest, accountable, and committed to progress everything is possible. Without leadership, nothing is possible.
The third is that a flourishing private sector drives sustainable growth, higher incomes,
and a rising standard of living for everyone. Governments can create environments for growth,
but the private sector drives it.
Knowing these principles, I can also say this: the gap between the enormous potential of
this region compared to real performance has been unacceptable. Goals can and should be set
high. A few points of growth each year or spurts of high growth interspersed with declines are
not enough to achieve prosperity.
The road from the former Soviet Union has been difficult. After more than ten years of
transition experience, this is the time to take stock, to look critically at what has worked and
what has not. This is the time for accountability and results. This is the time for leadership.
My visits this week and next will include meetings with national leaders. I will also visit
businesses, large and small, nongovernmental organizations, schools, banks, farms, and Peace
Corps projects. I will visit a village water project in the Kyrgyz Republic, a dam in Uzbekistan,
and a maternity hospital in Georgia.
In these visits and others, I will be looking for examples of just rule, economic freedom,
and human investment, especially in clean water, primary education, arid health care. I will also
look for examples of new private enterprise, which drives economic growth. I will look for civic
engagement which is fundamental to a vibrant democracy. These are the ingredients for success
that I saw in my recent trip to Africa and my previous trips to Russia and Romania, and while the
details will vary in Europe, Africa and Asia, the principles are constant.
Today I will focus my remarks on Ukraine's progress in these areas.
Governing JustIy

First, regarding just rule. Countries that want to unleash private sector productivity and
raise living standards practice good governance. They enforce law and contracts, respect human
rights and property rights, and they fight corruption. The facts show that low income, high
poverty rates, and low foreign direct investment correlate strongly with excessive regulation and
government intervention, and weak property rights.
In some areas, Ukraine has taken bold steps. A little more than two years ago, Ukraine's
government failed to pay for goods and services. Businesses followed that example and failed to
pay taxes.

2

The government bartered its obligations for taxes. The result was an impossibly opaque
and distorted economic system and low tax compliance, while wages and pensions went unpaid.
When the government took steps toward reducing barter and insisting on cash payments
for taxes and energy, we saw a huge response in the economy, which started to confront budget
constraints, market forces, and the need to create real value.
Ukraine's government is now pursuing the next items on the good governance agenda: a
fair, predictable tax system with low rates, uniformly applied, additional budget accountability,
and judicial reform and contract enforcement. The word "contract," incidentally, does not
appear in basic Ukrainian laws. Contracts must have meaning and courts must enforce them.
When businesses must rely on special actions from political leaders to solve disputes, the whole
country suffers.

Economic Freedom
Second, countries seeking economic growth must encourage and protect economic
freedom. This includes removing barriers to trade - both internal and external - and opening the
national economy to investment. It also includes allowing companies - especially small and
medium size companies - to compete without excessive government interference.
Surely, the fall of the Soviet Union proved the folly of putting central planning over
economic freedom, which is the heart of the free enterprise system.
Ukraine has made progress on improving the climate for the creation and growth of small
and medium enterprises through deregulation and reduced inspections. As a result, the number
of small businesses has grown by about 140,000 between 1999 and 2001 ~ an increase of31 %.
But Ukraine still has a long way to go in improving economic freedom throughout the country.
Two areas are especially critical to establishing a foundation for prosperity: land reform
and banking reform. A market-oriented banking system allocates capital based on
creditworthiness, far more efficient than allocation based on political connections. Ukraine has
made progress reducing state ownership ofland, and largely as a result agricultural production
has soared in recent years. Yet the potential is so much higher, here in the Bread Basket of
Europe.

Investing in People
The third essential component of development is investment in people. That means
targeting government spending where it can make the greatest difference for people, thereby
enabling them to achieve their potential in the free enterprise system. Governments need to
invest in clean water, primary education, and health care - especially the fight against AIDS.

3

These are the facts for Ukraine: The percentage of children completing primary education
in Ukraine is 58%, about the same as in Kenya. Health care is weak. Life expectancy for men
fell by three years between 1990 and 1999, and the rate of HIV infection is now 1.29%, already
above the global average, and soaring rapidly. Intervention right now could avert disastrous
infection levels.
Still, there is progress. Tomorrow I will visit a project to fight trafficking in women.
Projects like these are encouraging because it shows that the Ukrainian people are willing to
protect women and give them better alternatives so that they can achieve their potential.
In addition, through the Agency for International Development, the United States has
been working with the Ukrainian government and various nongovernmental organizations to
stem the rise of tuberculosis and HIV / AIDS. The fight against tuberculosis has focused on
identifying systemic problems in drug management and health care diagnostic systems. For
HIV / AIDS, we are helping to develop a national prevention program in Ukraine, which includes
new programs for reaching at-risk youths in cities and distant regions.

Challenges in the Caucasus and Central Asia
Tomorrow I will leave here to visit three more countries: the Kyrgyz Republic,
Uzbekistan and Georgia. While unique in culture and history, these countries share a Soviet past
with Ukraine, and know the social and economic challenges of charting a new, independent
course.
In the Kyrgyz Republic, 49% of the population lives on less than $2 per day; in Georgia
and Uzbekistan 24% and 22% do. In the Kyrgyz Republic, just 66% of the rural population has
access to clean water. In Georgia, secondary school enrollment has fallen sharply - by 30
percentage points between 1980 and 1998.
Each of these countries needs a healthy private sector, especially new small businesses
and foreign investment, to move ahead. Fonner state enterprises cannot drive an economy. And
without good governance, smaller businesses hide in the shadows, staying small to avoid
attention from corrupt officials. Weak rule of law, corruption, and poor enforcement of contracts
scare away domestic and foreign capital, and prevent individuals lacking political connections
from making their full contribution to economic growth. And these countries need to think
differently about water and energy. Refonns in these sectors will bring higher productivity and
regional integration.
When I visit these countries I will address those issues, as well as call attention to local
success stories.
But I will also point to Ukraine. Ukraine, at the nexus of Europe and Russia and on the
cusp of Central Asia, is an important country in the region, especially with respect to its
transition experience. Ukraine's successes and setbacks can be important lessons for these
countries to draw upon.

4

I will also emphasize how transition economies as different as China and Hungary have
relied on trade to grow. Not just trade with rich countries such as the United States, but regional
trade with their neighbors. Central Asia was once a crossroads for half the world, the center of
the old Silk Road, and a hub for trade in all directions. It must become so again.
What the U.S. is doing
Over the last decade, the United States has worked with the international community to
support the transition of Ukraine and all of the former Soviet states to market economies, with
market institutions, and representative, democratic governments. Multilateral and bilateral
assistance has helped put an end to hyperinflation, stabilize Ukraine's economy, and lay the
foundations for essential structural reform in agriculture, energy, banking, and the business
environment. But substantial work remains to be done.
The United States, our partners, and the multilateral institutions cannot dictate solutions
to local problems-not in Ukraine, or anywhere - we can only support dedicated local and
national leaders as they make difficult decisions - decisions that are in the interest of the
majority of the Ukrainian people, and not just for a privileged few.
I have long believed that small and medium businesses play an important role in this
process -- not just in creating jobs and generating growth, but also in building institutions and
shaping democracy.
It is for these reasons that official development aid and financial assistance programs
must target well-managed businesses that would not otherwise have access to capital. In
particular, the European Bank for Reconstruction and Development is supporting micro and
small lending operations in Ukraine, such as the creation of a dedicated micro finance bank in
2001. The U.S. has contributed $4 million to support the start-up of this bank and other partner
banks. In 18 months, the Microfinance Bank has extended loans totaling $111 million. I will
have the privilege of opening a branch ofthis bank tomorrow in Donetsk. By the end of 2003,
our hope is that this branch will have made 7,500 loans totaling $55 million. The United States
believes so strongly in this endeavor that it is mobilizing $3.4M for the expansion of these
operations elsewhere in the region - to Georgia, the Kyrgyz Republic, and Uzbekistan.

Other U.S. initiatives, like our enterprise fund in Ukraine, make direct investments in
business ventures and are making a big difference here. But success requires good corporate
governance and strong shareholder rights, which the government must address. And private
financial institutions in Ukraine have far more potential than they can realize today. This
country lacks a legal basis for asset-backed lending such as mortgages and equipment leases.
But just as concrete results require tough decisions and good leadership on the part of the
country, so too do they require responsibility on the part of the international community to insist
that aid makes a meaningful contribution to the lives of the people it serves.

5

Since I became Treasury Secretary, I have been determined to reform the way in which
the World Bank and the other multilateral development banks do business. They must improve
the effectiveness of their assistance. Rather than focusing on inputs, I want them to focus on
results. In Ukraine, the focus on results in recent years has in fact produced results. The
international community worked with Ukraine to set explicit targets for cash collections in
energy and for reducing wage and pension arrears. Reaching these targets brought real
improvements in Ukraine's budget and energy sector and set the stage for strong growth.

Conclusions
We know from simple observation that the people of Eastem Europe and Central Asia
have the potential to reach a level of fulfillment and economic prosperity that matches the
highest attainment in the world. But in the ten years since the break up of the Soviet Union the
transition to that condition has been painfully slow. In some places, democracy and private
enterprise are seedlings, their roots still shallow. Instability and extremism still threaten them.
But the attention of the world, and the United States, has turned to these regions, their
vast potential for growth, and our common security interests. Weare ready to help where
responsible, accountable leadership is committed to sound policies: ruling justly, encouraging
economic freedom, and investing in people. We also appreciate your efforts to fight the war
against terror.
I believe that Ukraine can again be the breadbasket of Europe; and Central Asia can again
be a hub for trade in all directions. Working together to achieve real results, we can unleash the
human potential - we will not be satisfied with anything less.
-30-

6

D EPA R T MEN T

0 F

THE

T REA S U

R~

'NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:'-IIA AVENtl':, N.W. - WASHINGTON, D.C.- 20220. (202) 622·2960

FOR IMMEIDATE RELEASE
Friday, July 12,2002

TREASURY SECRETARY PAUL O'NEILL TO VISIT
BRAZIL AND ARGENTINA

Treasury Secretary Paul O'Neill plans to visit Brazil and Argentina at the end of
this month. He will take this opportunity to meet with the governments of both
countries on their economic direction and prospects. He will also spend time on
this trip visiting businesses, schools, health clinics, infrastructure projects, and
grass roots organizations to develop a better understanding of the real economy,
social issues, and civil society. Further details will be forthcoming.

-30-

PO-32S2

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1

•

» EPA

R T MEN T

0 F

THE

NEWS

TREASURY
OFFICE OF PUBLIC AFFAIRS e1500

PENNSYLVA~IA

T REA S U Ri'

AVENCE, N.W. e WASHINGTON, D.C.e 20220 e (202) 622·2960

CONTACT:

FOR IMMEDIATE RELEASE
JULY 12,2002

BETSY HOLAHAN
202-622-2960

Statement of Treasury Secretary Paul H. O'Neill
on GSE Voluntary Disclosure Compliance

"I applaud today's announcement of Fannie Mae and Freddie Mac's self-initiated compliance
with the corporate disclosure requirements ofthe Securities Exchange Act of 1934. The
President has called on corporate leaders across the nation to examine their disclosure practices
and ensure that they are doing everything they can to provide investors with accurate, timely and
useful information consistent with best practices. Frank Raines and Leland Brendsel are
stepping up to that challenge.
"As a result of their actions, the Administration is not prepared to support repeal of the GSEs
exemption from the Securities Act of 1933 and the Office of Federal Housing Enterprise
Oversight is not pursuing a securities' registrationregime..Jm Fannie Mae and Fl eddie Mac.
"The Treasury, the Securities and Exchange Commission and the Office of Federal Housing
Enterprise Oversight will be conducting a joint study of disclosure regarding mortgage-backed
securities with a view to ensuring that investors in all mortgage-backed securities are provided
with the information that they should have."
-30PO-32S3

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NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA;-.IIA AVENtE, N.W.• WASHINGTON, D.C.- 20220. (202) 622·2960

EMBARGOED UNTIL 11:30 A.M.
July 15, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $20,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
July 18, 2002, and to raise new cash of approximately $2,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $10,817 million of the Treasury bills maturing
on July 18, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest. discount rate
-will be rounded up to the next hundredth of a whole percentage point Ie. g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3254

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OIIi"

24-I/Our fax line at (202) 622-2fJ40

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JULY 18, 2002
July 15, 2002
Offering Amount . . . . . . . . . . . . . . ·.···· .$20,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $20,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $10,700 million
Description of Offering:
Term and type of security . . . . . . . . . . . 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 KW 0
Auction date . . . . . . . . . . . . . . . . . , ...... July 16, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . July 18, 2002
Maturity date ... , . . . . . . . . . " ., ...... August 15, 2002
Original issue date . . . . . . . . . . . . . . . . . February 14, 2002
Currently outstanding ........ , ...... $42,413 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts.
Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million.
A single bid that
would cause the limit to be exceeded will be partially accepted ln
the amount that brings the aggregate award total to the $1,000
million limit.
However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maxim~~
MaximQ~

Recognized Bid at a Single Rate ... 35% of public offering
Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering

Receipt of Tenders:
Noncompetitive tenders:
Prl0r to 12:00 noon eastern daylight saving time on auction day
Ccmpeti ti -~-etenders :
Prior to 1:00 p.m. eastern daylight saving time on auction day
?a~-mer. t

Terms:
By c~arge to a funds account at a Federal Reserve Bank
on iss1.:e date.

-------------------------------------------.------------------------

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
July 15, 2002

CONTACT:

Peter Hollenbach
202/691-3502

TREASURY CALLS 7-7/8 PERCENT BONDS OF 2002-07
The Treasury today announced the call for redemption at par on November 15,2002, of the 77/8% Treasury Bonds of 2002-07, issued November 15, 1977, due November 15,2007 (CUSIP
No. 912810BZO). There are $1,495 million of these bonds outstanding, of which $1,022 million
are held by private investors. Securities not redeemed on November 15,2002, will stop earning
interest.
These bonds are being called to reduce the cost of debt financing. The 7-7/8% interest rate is
significantly above the current cost of securing financing for the five years remaining to their
maturity. In current market conditions, Treasury estimates that interest savings from the call and
refinancing will be about $150 million.
Payment will be made automatically by the Treasury for bonds in book-entry form, whether held
on the books of the Federal Reserve Banks or in TreasuryDirect accounts. Bonds held in coupon
or registered form should be presented for redemption to financial institutions or mailed directly
to the Bureau of the Public Debt, Definitives Section, P.O. Box 426, Parkersburg, WV 261060426.
000

PO-3255

FACT SHEET - TREASURY BOND CALLS
JULY 15,2002
What is a callable bond?
A callable bond is a security that may be redeemed prior to maturity at the option ofthe
issuer. A "call" feature is included in the bond indenture, and the "cost" of this feature is
included in the price of the security. Treasury began regularly issuing securities redeemable
prior to maturity in 1917 with the First Liberty Loan Bonds (3 Yz % of 6115/32 - 47). The last
callable Treasury bond was issued in November 1984. All 30-year bonds issued since then
are non-callable in -order to facilitate security stripping in Treasury's STRIPS Program.
Currently, only 15 Treasury bonds containing a call provision remain outstanding. The face
amount of these securities totals $70.5 billion (2.1 % of debt held by the public). The terms of
the call provision, contained in the offering circular released at the time each of these
securities was issued, allow Treasury to redeem these bonds (1) on a regular interest payment
date, (2) up to five years prior to maturity, (3) with four months' notice to investors.

Why are you announcing the call today?
Treasury must give investors 4 months' notice of its decision to call a bond. Today's
aImouncement is effective July 15, 2002, and fulfills our advance notice requirement in the
original offering circular.

When was the last time Treasury issued a bond call?
Treasury exercises call options whenever it is in Treasury's economic interest to do so.
Between October 15, 1991 and January 14,2001, Treasury exercised the cali option
contained in the offering circulars of eight outstanding Treasury bonds. The last time
Treasury issued a bond call was October 15,2001. Information regarding the past nine bond
calls follows.
Oct 15, 1991: announced the call of the 7 Yz% Treasury Bonds of 1988 - 93 on Feb 15,
1992
• Jan 13, 1993: announced the call of the 4 1/8% Treasury Bonds of 1989 - 94 on May 15,
1993
• Jan 13, 1993: announced the call of the 7% Treasury Bonds of 1993 - 98 on May 15,
1993
• Jan 11, 1994: announced the call of the 8 W% Treasury Bonds of 1994 - 99 on May 15,
1994
• Oct 12, 1994: announced the call of the 7 7/8% Treasury Bonds of 1995 - 00 on Feb 15,
1995
• Apr 11, 1995: announced the call ofthe 8 3/8% Treasury Bonds of 1995 - 00 on Aug 15,
1995
• Apr 11, 1996: announced the call of the 8% Treasury Bonds of 1996 - 01 on Aug 15,
1996
• Jan 14,2000: announced the call ofthe 8 ~% Treasury Bonds of2000 - 05 on May 15,
2000
•

•

Oct 15,2001: announced the call of the 7 5/8% Treasury Bonds of2002 - 07 on Feb 15,
2002

Prior to February 15,1992, Treasury had not called a bond since December 15, 1962.
Research shows that in this 30-year period, it was not in Treasury's economic interest to
exercise a call option.

When is the next time Treasury can call a bond?
The 8 3/8% Treasury Bonds of2003 - 08 will be eligible to be called on August 15,2003. If
Treasury decides to exercise the call option on these securities, its intentions must be
announced by April 15, 2003.

What is the difference between a bond call and a buy-back?
A bond call is simply Treasury exercising its contractual right to redeem a security at par
prior to maturity. Treasury has been routinely calling eligible issues since 1991. A call is not
voluntary to the holder of a called security. The called bond stops eaming interest as of the
date ofthe call, in this case November 15, 2002.
Participation in a buy-back operation is voluntary to the holder of a security. Treasury
announces its intention to buy-back, and the market determines the price. Investors have the
option of offering to sell all or part of their holdings. Callable bonds may also be eligible for
repurchase in a buy-back operation.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

'OR IMMEDIATE RELEASE
uly 15, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
July 18, 2002
October 17, 2002
912795LF6

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.680%

High Rate:

Investment Rate 1/:

1.712%

Price:

99.575

All noncompetitive and successful competitive bidders were awarded
:curities at the high rate.
Tenders at the high discount rate were
Llotted 26.88%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (no.!C0'iljJct.i.L.l.Ve)

$

31,469,505
1,383,318

$

190,000

4,663,389

4,663,389

Federal Reserve
$

37,706,212

15,426,825
1,383,318
190,000
17,000,143 2/

33,042,823

SUBTOTAL

TOTAL

Accepted

Tendered

Tender Type

$

21,663,532

Median rate
1.660%: 50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low rate
1.630%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
j-to-Cover Ratio = 33,042,823 / 17,000,143 = 1.94
Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,071,677,000

http://www.publicdebt.treas.gov

-3256

PUBLIC DEBT NEWS
Department or the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
July 15, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:

182 -Day Bill
July 18, 2002
January 16, 2003
912795LU3
1.675%

Investment Rate 1/:

1.713%

Price:

99.153

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 71.02%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetltive
FIMA (noncomp·eliti.ve)

$

30,409,250
1,270,167
50,000

$

5,492,353

5,492,353

Federal Reserve
$

37,221,770

14,679,860
1,270,167
50,000
16,000,027 2/

31,729,417

SUBTOTAL

TOTAL

Accepted

Tendered

Tender Type

$

21,492,380

Median rate
1.660%: 50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low rate
1.620%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
d-to-Cover Ratio = 31,729,417 / 16,000,027 = 1.98
EqUivalent coupon-issue yield.
Awards to TREASURY DIRECT = $981,587,000

http://www.publicdebt.treas.gov

3257

D E P :\ R T \1 E ~ T

0 F

THE

T REA SUR Y

NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - %0%%0 - (%0%) 6%%.%960

Embargoed Until 10:00 a.m. EDT
Tuesday, July 16,2002

Contact: Tasia Scolinos
(202) 622-2960

Statement of Deputy Secretary Kenneth Dam
Department of the Treasury
Before the
Senate Finance Committee
"The New Department of Homeland Defense"

Chairman Baucus, Ranking Member Grassley, and Members of the Committee. Thank
you for the opportunity to testify before you today on this matter of national urgency.
Last month, the President announced a comprehensive plan to create a Department of
Homeland Security to respond to the new and ominous threat of terrorism. Among other things,
President Bush's proposal would move, in their entirety, the U.S. Customs Service and the U.S.
Secret Service from the Department of Treasury into the new Department. As Secretary O'Neill
testified last week, we in the Treasury Department fully support the President's proposal.
Though it has been both an honor and a pleasure to serve alongside the dedicated Customs and
Secret Service employees, we believe that consolidation within the new Department of
Homeland Security will substantially enhance our ability to safeguard the American people.
The need for this new Department is clear. Today, responsibility for homeland security is
scattered among many different government agencies. Lines of communication are not always
open; lines of authority are not always sharply defined; and redundancies and inefficiencies are
built in. The new Department, however, will have primary responsibility for all homeland
security matters. It will consolidate within one Department the key entities for securing and
policing our borders, ports, airports, and territorial waters.
Such a Department must include the Customs Service -- an agency whose mission is
entirely border-related - and an agency who plays a front-line role in guarding our borders and
confiscating illegal contraband. By consolidating these entities within the new Department, we
can ensure that we have a unified, coherent plan for protecting our citizens and our borders
against the new breed of threats.
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But this consolidation must also be a matter of substance and not just form. I want to
echo Secretary O'Neill's statements before the House Select Committee last week: to make this
enterprise worthwhile, it is imperative that you grant the new Secretary substantial flexibility.
We need a Department that is both accountable and creative, and this requires a new structure
allowing flexibility. This structure needs to not only address the current threat, but must also be
capable of adjusting as necessary when new and as-yet unforeseen threats appear. Simply
rearranging current functions among departments will not capture the essential value-added that
is at the heart of the President's proposal. We need flexibility to respond quickly to changing
threats.
The necessity for the new Secretary to have that kind of flexibility becomes obvious
when we consider numerous changes that have been implemented within the Customs Service
since September 11. Customs has made averting terrorism its top priority, while still moving
goods and people efficiently across the border. With their existing statutory flexibility, Treasury
and Customs have been able to rearrange resources and engage in fresh thinking to address these
twin objectives.
This was especially true along the Northern Border. Because we had the flexibility to
reassign resources, Customs was able to immediately make nonpermanent redeployments of
personnel. This ability to move manpower and resources quickly, without restrictive
requirements, has been an essential element of our response effort to date, and will continue to be
so. It is crucial that the Secretary of Homeland Security have similar freedom to manage
throughout the new Department.
The flexibility also allowed us to develop new programs in response to the new threats.
th
On April 16 of this year, Governor Ridge, Secretary O'Neill, and Commissioner Bonner
announced the Customs-Trade Partnership Against Terrorism (C-TPAT) in Detroit. C-TPAT is
a unique partnership with U.S. importers, carriers, brokers, and others to improve security along
the entire supply chain while expediting the flow of legitimate commerce into the United States.
Over 300 companies currently participate in the program, including some of the nation's largest.
We are working to increase that number and have opened participation to air, sea, and rail
carriers. It makes a real difference. For example, at the Ambassador Bridge in Detroit, it can
take up to an average of 54 minutes for a non-participating importer to be cleared across the
bridge. Because of the existing flexibility to redesign processes, now, for a C-TP AT participant,
the average time is 17 seconds. This benefits the importers by allowing them to have their goods
processed more quickly, and benefits government by getting greater security and allowing
Customs to focus on higher-risk shipments.
With the Container Security Initiative (CSI), Customs is working with foreign seaports to
prescreen sea containers, targeting potentially risky containers before they are shipped to our
ports. Governments in the Netherlands, Belgium, and France have formally agreed to participate
in CSI. Singapore, which operates one of the largest ports in Asia, has indicated that it will also
participate. In four of the top 20 mega-ports -- Rotterdam, Antwerp, LeHavre, and Singapore -U.S. Customs and the host government soon will be prescreening all cargo containers bound for
the United States.

2

But this consolidation must also be a matter of substance and not just form. I want to
echo Secretary O'Neill's statements before the House Select Committee last week: to make this
enterprise worthwhile, it is imperative that you grant the new Secretary substantial flexibility.
We need a Department that is both accountable and creative, and this requires a new structure
allowing flexibility. This structure needs to not only address the current threat, but must also be
capable of adjusting as necessary when new and as-yet unforeseen threats appear. Simply
rearranging current functions among departments will not capture the essential value-added that
is at the heart of the President's proposal. We need flexibility to respond quickly to changing
threats.
The necessity for the new Secretary to have that kind of flexibility becomes obvious
when we consider numerous changes that have been implemented within the Customs Service
since September 11. Customs has made averting terrorism its top priority, while still moving
goods and people efficiently across the border. With their existing statutory flexibility, Treasury
and Customs have been able to rearrange resources and engage in fresh thinking to address these
twin objectives.
This was especially true along the Northern Border. Because we had the flexibility to
reassign resources, Customs was able to immediately make nonpermanent redeployments of
personnel. This ability to move manpower and resources quickly, without restrictive
requirements, has been an essential element of our response effort to date, and will continue to be
so. It is crucial that the Secretary of Homeland Security have similar freedom to manage
throughout the new Department.
The flexibility also allowed us to develop new programs in response to the new threats.
On April 16th of this year, Governor Ridge, Secretary O'Neill, and Commissioner Bonner
announced the Customs-Trade Partnership Against Terrorism (C-TPAT) in Detroit. C-TPAT is
a unique partnership with U.S. importers, carriers, brokers, and others to improve security along
the entire supply chain while expediting the flow of legitimate commerce into the United States.
Over 300 companies currently participate in the program, including some of the nation's largest.
We are working to increase that number and have opened participation to air, sea, and rail
carriers. It makes a real difference. For example, at the Ambassador Bridge in Detroit, it can
take up to an average of 54 minutes for a non-participating importer to be cleared across the
bridge. Because of the existing flexibility to redesign processes, now, for a C-TP AT participant,
the average time is 17 seconds. This benefits the importers by allowing them to have their goods
processed more quickly, and benefits government by getting greater security and allowing
Customs to focus on higher-risk shipments.
With the Container Security Initiative (CSn, Customs is working with foreign seaports to
prescreen sea containers, targeting potentially risky containers before they are shipped to our
ports. Governments in the Netherlands, Belgium, and France have formally agreed to participate
in CSI. Singapore, which operates one of the largest ports in Asia, has indicated that it will also
participate. In four of the top 20 mega-ports -- Rotterdam, Antwerp, LeHavre, and Singapore -U.S. Customs and the host government soon will be prescreening all cargo containers bound for
the United States.

2

I anticipate agreements with additional governments in the near future.

In both cases, Customs has leveraged its broad duties and flexibility to make immediate
changes. These programs underscore how Customs can make trade-offs and reach agreements
that increase security at the borders while facilitating the flow of trade into and out of the United
States.
These are important interim steps, but they are not enough for the long term. The new
Secretary, with the flexibility envisioned in the President's plan, needs to be able to create even
larger and more dynamic synergies to respond to the changing threats. This need is not be
limited to the Customs Service, but should extend to the entire approach to border security -- the
President's goal of "one face at the border" - one-stop shopping for shipments and people
seeking to enter the United States.
This illustrates the essential point behind creating a new cabinet Department. There is no
other option. We cannot respond to the terrorist threats simply by rearranging the deck chairs.
The dramatic reality requires a dramatic transformation in our homeland defense: one based on
flexibility, consolidation, and integration of functions.
Without question, major change is never easy. Some have suggested that critical
functions, particularly trade, ought to be walled off in the new Department and kept separate
from other functions. The worry is that, in a department dedicated to homeland security, trade
and other vital functions may get short shrift. And that's a healthy reminder for all of us: even as
we secure the home front, we must also guarantee the American people that the myriad current
tasks performed by the agencies moving to Homeland Security will continue.
I understand the instinct to wall off some of these vital non-security functions, or to keep
them out of the new Department altogether--but such approaches ultimately miss the mark.
Rather, such an approach would unduly limit the latitude and accountability of the new
Secretary's ability to manage the new Department. It would also diminish the effectiveness of
the non-security functions, trade or otherwise, that originally give rise to the concern, by locking
current inefficiencies into place. Clearly we must find some middle ground.
Customs' widely varied trade and enforcement functions remain broad, yet wholly
intertwined. Customs inspectors, import specialists, and special agents work closely together to
enforce trade and anti-smuggling laws.
The same is true in border-related enforcement matters. Collaboration between
inspectors on the border and special agents in the field operates more smoothly as a result of
Customs' dual missions. In intellectual property piracy, for instance, what begins as an
infringement identification often becomes an investigative effort.
Given this vast array of functional interconnectedness, we face the substantial danger of
undermining current synergies and successes if some Customs functions are split off from the
others.

3

Instead, to protect these working relationships, the President proposed that the entire
Customs Service be transferred into the new Department of Homeland Security. Such a transfer
will permit these close working relationships to continue and allow Customs to perform the tasks
it has carried out so ably over the years. It will protect our borders from terrorists, administer
and enforce our Customs laws, and assist the flow of legitimate commerce. No mission will be
left behind. The President's plan strikes the appropriate balance between enforcement and trade
facilitation, both of which are critical to our nation's economy and security.
We know that you in the Congress face an exceedingly difficult task under a tight
timeframe. We want to work closely with you as you develop the legislation. During the past
few weeks, we have worked with several House Committees. The President's proposal will
provide the Secretary of Homeland Security enough flexibility to leverage the strengths of the
many component parts, provide accountability through clear and workable lines of authority, and
create the most efficient possible structure. We will continue to offer our guidance, to share our
experience, and to provide any assistance we can.
Thank you again, Mr. Chairman and the members of the Committee, for this opportunity
to testify. I am happy to answer any questions you may have.
-30-

4

() E P :\ R T \1 E :\ T

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THE

T R E :\ SUR Y

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omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

Embargoed Until 2:00 P.M. EDT
July 16,2002

Contact: Betsy Holahan
202-622-2960

Testimony of Peter R. Fisher
Under Secretary for Domestic Finance
U.S. Department of the Treasury
Before the Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises
United States House of Representatives

GOVERNMENT SPONSORED ENTERPRISES
AND FINANCIAL DISCLOSURE

Mr. Chairman, Representative Kanjorski, and Members of the Committee, I appreciate
the opportunity to provide the Administration's views on government sponsored enterprises
(GSEs), in general, and H.R. 4071, the Uniform Securities Disclosure Act, in particular.
I want to commend you, Mr. Chairman, and Members of the Committee for your careful
consideration of GSE issues in recent years. You have recognized that, in a constantly changing
financial world, we need to pay continuous attention to ensure these organizations continue to
serve our objectives as effectively over the coming years as they have in the past.
We share the concerns of the authors ofH.R. 4071 about the importance of providing
investors with assurance as to the comparability, consistency and sufficiency of GSE financial
disclosures. But the Administration cannot support H.R. 4071 because it focuses too narrowly
on only two of the GSEs and because we are not prepared to support repeal of their exemptions
from the Securities Act of 1933.
The Administration believes that all GSEs should comply with the same corporate
disclosure requirements of the Securities Exchange Act of 1934, as interpreted and applied by
the Securities and Exchange Commission (SEC). The Administration believes that this can be
accomplished without the necessity of legislation.

PO-3259

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1998· 619-559

For this reason, the Administration is pleased that Fannie Mae and Freddie Mac agreed to
voluntarily register their common stock under Section 12(g) of the '34 Act, which will ensure
that they are required as a matter of federal law to meet current and future SEC requirements for
financial disclosure under the '34 Act. Their disclosures will be subject to the regulatory
framework established by the SEC and the Office of Federal Housing Enterprise Oversight
(OFHEO). We are requesting that other currently exempt GSEs make similar arrangements to
voluntarily register with the SEC under the '34 Act.
Last Friday's announcement was made possible by the leadership of Chairman Pitt and
Director Falcon and also by Frank Raines and Leland Brendsel. It seems to me though, that this
accomplishment would not have been possible without the leadership that you, Mr. Chairman,
and the members of this Subcommittee have shown over the last several years on GSE issues.

The Challenge of Multiple Objectives
This Administration is committed to the objective of affordable housing for all
Americans and, as a means to that end, to improving homeownership opportunities for
minorities. This Administration is also committed to the objective of a sound and resilient
financial system and, as a means to that end, to protecting investors by improving the clarity of
disclosures about the risks and the rewards to which their investments are exposed. The question
is not whether we are committed to either of these objectives but, rather, how we strive to
achieve them both simultaneously.
To do this we look to mobilize the private sector to bring even more capital to bear both
in creating housing opportunities and in the financial intermediation that supports and prices the
relevant risks and rewards. If we are going to rely on private capital to achieve these objectives
then we need to work even harder to improve the quality of the information that shareholders and
creditors receive. And if we are going to rely, in part, on the vehicle ofGSEs, we have no less of
a need to inspire confidence in the sufficiency and comparability of the disclosures by GSEs to
the investors whose capital we seek to employ.
The GSEs are privately owned but federally-chartered companies, created by Congress to
help overcome barriers to the flow of credit into certain segments of the economy - housing,
agriCUlture, and education. They are private companies that are not backed by the full faith and
credit of the federal government. Today, the largest GSEs - Fannie Mae, Freddie Mac, and the
Federal Home Loan Bank System - are focused on housing. Two other GSEs - Farmer Mac and
the Farm Credit System - are focused on agriculture. One GSE -the Student Loan Marketing
Association - is focused on education and is now in the process of a congressionally mandated
transition to full privatization.
Although GSEs were created to help bring the capital of private investors to bear on these
societal goals, only Farmer Mac - the most recently created GSE - is fully subject to the
disclosure regime that informs investors and is administered by the SEC under our nation's
securities laws.

Given the size and importance of each of the GSE's operations in our capital markets and
banking system, continued operation outside of the SEC-administered corporate disclosure
regime is inconsistent with our objective for investor protection and for a sound and resilient
financial system and will only hamper our efforts to bring even more capital to bear on the
objective of affordable housing and, more generally, on all the objectives served by GSEs.

In sum, the GSEs - and particularly the three housing GSEs - are no longer modest
experiments on the fringes of our financial system. They are large, rapidly growing and
important players in our capital markets and in our banking system. As such, they need to be
role models for our system of investor protection, not exceptions to it.

All GSEs Should Be In Compliance With the '34 Act
H.R 4071 - the Uniform Securities Disclosure Act - would repeal Fannie Mae's and
Freddie Mac's exemptions from both the Securities Act of 1933 and the Securities Exchange Act
of 1934. The '33 Act requires a public company to submit a registration statement and
prospectus when bringing new issues to market. Registration under the '34 Act triggers periodic
disclosure requirements about the financial condition and management of companies that issue
securities.
We do not see a basis for removing the '34 Act exemptions only for Fannie Mae and
Freddie Mac. Instead, we support the application of the '34 Act disclosure requirements to all
currently exempt GSEs, triggered by their voluntary registration under the '34 Act.
Fannie Mae and Freddie Mac are two well run companies that have done much in recent
years to provide their investors with high quality financial disclosures. However, as they have
recognized and the Administration has agreed, the time has come for their investors to be assured
that the level and quality of the corporate disclosures they receive are the same as those that are
made by any other company that actively participates in our capital markets.
The only way to achieve this assurance of comparability is to have each GSE agree to
comply with the disclosure requirements of the '34 Act as interpreted and applied by the SEC.
This ensures that investors will receive the benefit of knowing that GSE disclosures are
consistent with those of other companies as determined by the SEC, consistent with the changes
in disclosure requirements as they are implemented over time by the SEC, and that GSE
disclosures are available on a consistent basis through the SEC's EDGAR system. To
accomplish this, the Administration is requesting that each of the GSEs initiate a process with the
SEC that will result in the application of the disclosures required under the '34 Act.
The Administration is pleased that Fannie Mae and Freddie Mac reached agreement last
Friday with the SEC and the OFHEO to do exactly this - to establish a regulatory framework
that will ensure their complete compliance with the requirements of the '34 Act. As Secretary
O'Neill said, we applaud "Fannie Mae and Freddie Mac's self-initiated compliance with the
corporate disclosure requirements of the Securities Exchange Act of 1934.

The President has called on corporate leaders across the nation to examine their
disclosure practices and ensure that they are doing everything they can to provide investors with
accurate, timely and useful information consistent with best practices. Frank Raines and Leland
Brendsel are stepping up to that challenge. "
Under Section 12(g) of the '34 Act an issuer that is not otherwise subject to the
requirements of the Act may register its common stock with the SEC, thereby triggering
obligations under Section 13 of the Act to file periodic financial and material event disclosures
with the SEC on an ongoing basis. The Section 13 disclosure requirements include filing lO-K
annual reports, 10-Q quarterly reports, and 8-K material event reports.
Although the process begins at the initiative of the company, once the initial filing is
made, the issuer is henceforth required to make all the appropriate filings, reports and disclosures
in the same manner as any other company subject to the '34 Act. Fannie Mae and Freddie Mac
have agreed with the SEC to register their common stock under Section 12(g) of the '34 Act.
In addition, to ensure compliance with all of the provisions of the '34 Act, as part of the
regulatory framework agreed last week, OFHEO has agreed to promulgate a rule requiring that
Fannie Mae and Freddie Mac, and their respective officers and directors, file all statements,
reports and forms required by Sections 14 and 16 of the '34 Act with the SEC (and concurrently
with OFHEO). The effect of this rule will be that Fannie Mae and Freddie Mac will have to
comply with the SEC's requirements that officers and directors report any purchases or sales of
common stock of the companies, that the companies file with the SEC proxy statements relating
to annual or special shareholder meetings, and that their proxy statements be subject to review
and comment by the staff of the SEC. As SEC Chairman Pitt said on Friday, U[t]his agreement
also reflects a commitment to the goals the President has called upon us to meet, and toward
which we are working: exemplary corporate governance, complete transparency of financial
information and full and fair disclosure."

The SEC and OFHEO, and Fannie Mae and Freddie Mac, have worked hard so that this
framework can provide a role model for smart, efficient regulation. This arrangement reinforces
the principle of functional regulation, ensuring that the SEC administers and enforces our regime
for investor protection, that OFHEO maintains its responsibilities for the safety and soundness of
the housing enterprises' operations and that there will no duplication or overlap between them.
It should be noted that OFHEO, of course, retains its own authority to require such public
disclosures of Fannie Mae and Freddie Mac as it deems necessary or appropriate under its safety
and soundness mandate to regulate the enterprises. This is an area of some considerable interest
to me, having worked on several projects to develop enhanced risk disclosures for financial
intermediaries prior to my service at the Treasury. I look forward to working with Director
Falcon to consider whether and how enhanced risk disclosure concepts might be applied to the
housing enterprises.
We have requested the other GSEs to begin working with the SEC and their regulators to
achieve a comparable arrangement with the SEC that would subject them to the same set of
disclosure requirements.

A Study of Initial Offering Disclosures for All Issuers of Mortgage-Backed Securities
The Administration is not prepared to support repeal of the GSEs' exemptions from the
'33 Act, and the Office of Federal Housing Enterprise Oversight is not pursuing a securities
registration regime for Fannie Mae and Freddie Mac.
However, the Administration would like to promote a more level-playing field with
respect to initial offering disclosures between GSE and non-GSE mortgage-backed securities
(MBS) issuers and wants to ensure the adequacy of disclosures to investors in all mortgagebacked securities. As announced last Friday, the Treasury, SEC, and OFHEO will conduct a
study of how this can best be achieved consistent with the Administration's objectives for both
affordable housing and a sound and resilient financial system. The three agencies will study the
disclosures now provided by MBS issuers with a view to ensuring that our MBS market
continues to function smoothly, that investors receive the information they need to price these
instruments, and that issuers do not face duplicative requirements. We will study how we can
create a more level playing field and greater comparability of disclosures.
Requiring the GSEs to register their securities under the '33 Act could have certain
benefits, including uniformity and consistency of disclosures for new offerings. But such a
change has the potential for disrupting a large and well-functioning market and imposing
burdens and added costs. Consequently, application of the '33 Act to the GSEs mortgage-backed
market without much greater consideration of the costs of moving from one regime to the other
would likely, in the short run, compromise our objectives for both affordable housing and for a
sound and resilient financial system.
At present, out ofa total mortgage-backed market of$3.9 trillion, there are over $2.3
trillion in GSE issued mortgage-backed securities outstanding that have come into the market
completely outside of the requirements of the '33 Act. There are also, at present, $916 billion in
mortgage-backed securities issued by non-GSEs that are subject to some but not all of the
provisions of the '33 Act, under certain limited exemptions for "mortgage-related securities."
We would like to take a fresh look at the initial offering materials of mortgage-backed
securities. To do this, the Treasury, SEC, and OFHEO will conduct a joint study. Together we
will listen carefully to the securities industry, investors, Fannie Mae, Freddie Mac, Ginnie Mae,
private-label issuers and others in the regulatory community to gain a fuller understanding of the
market structure, the nature of competition, and the risks being priced and transferred. This will
serve as background to a fundamental reconsideration of the initial offering disclosures that
would best serve all of the participants in mortgage-backed markets and be most consistent with
our twin objectives for affordable housing and a sound and resilient financial system. Our
overall aim will be to recommend how investors can receive clear, concise and useful
information about the risks and rewards ofMBS.
We will complete our review of initial offering disclosures of all MBS issuers, and report
back to this Committee, and other interested congressional committees, early in the first session
of the next Congress.

Conclusion
Our system of regulating securities markets has served our country well for almost
seventy years. That does not mean that we can be content. Our financial markets and financial
institutions have evolved and expanded in ways that were unimaginable just a few decades ago.
Constant attention is necessary to ensure that our system of investor protection and our system of
government sponsored enterprises continues to serve us as well in the future as they have in the
past.
Thank you again for providing me with the opportunity to discuss these important issues
with the Committee today.
-30-

P·UBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 16, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28-Day Bill
July 18, 2002
August 15, 2002
912795KWO

Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:

1.695%

Investment Rate 1/:

1.723%

Price:

99.868

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 65.94%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

':;UBi0IAL
Federal Reserve
TOTAL

$

50,731,000
28,627

$

19,971,570
28,627

o

o

50,70::',02,

20,000,197

660,788

660,788

51,420,415

$

20,660,985

Median rate
1.685%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.660%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

=

50,759,627 /20,000,197

= 2.54

1/ Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov

)0-3260

n EPA

R T MEN T

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THE

T REA S U R=V

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA:--IIA AVENCE, N.W. e WASHINGTON, D.C.e 20220 e (202) 622·2960

Contact: Tasia Scolinos
(202) 622-2960

For Immediate Release
Wednesday, July 17,2002

Statement from Treasury Secretary Paul O'Neill in Support of
President Bush's National Strategy on Homeland Security
"Today President Bush outlined for the country a comprehensive strategy to protect our
country from future terrorist attacks. The strategy focuses on utilizing new technologies
and improving coordination between existing government resources to better protect
Americans. The President is already moving forward to implement these important goals,
proposing last month to integrate our border security agencies. Today's strategy
articulates specific steps to strengthen our nation's security by reducing the redundancy
and duplications which limit the efficiency and effectiveness of our current system."

-30PO-3261

For press releases, speeches, public $chedules and official biographies, cail our 24-hour fax line at (202) 622·2040
·u.s. Government PrlntlnQ Olhce

1998· 619·559

D EPA R T MEN T

0 F

THE

T REA S U Rtr

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS e1500 PENNSYLVA:'IIIA AVENl;E, N.W.• WASHINGTON, D.C.e 20220 e (202) 622·2960

For Immediate Release
Wednesday, July 17,2002

Contact: Tasia Scolinos
(202) 622-2960

Statement from Treasury Under Secretary Jimmy Gurule in Support of
President Bush's National Strategy on Homeland Security
"Today's strategy reinforces the importance of the President's proposed reorganization of
the security agencies tasked with protecting America's borders. By placing Customs, the
Coast Guard, INS and TSA under the same department we will be one step closer toward
creating the smart border of the future. Today's rollout makes it clear to the terrorists and
to the world that we have not forgotten September 11 tho We are more committed than
ever to protecting our borders and securing our citizens with every resource we have
available to us."

-30-

PO-3262

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U.S. Government Pnntlno Ofhr.p lQQR. h1Q·;J::,Q

D EPA R T MEN T

0 F

T REA S U R~

THE

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVA:'-IIA AVENtl':, N. W.• WASHINGTON, D.C.- 20220. (202) 622.2960

FOR IMlVIEDIATE RELEASE
WEDNESDAY, JULY 17,2002

CONTACT: BETSY HOLAHAN
202-622-2960

Treasury and Federal Financial Regulators Issue
Patriot Act Regulations on Customer Identification

The Department ofthe Treasury and seven federal financial regulators today issued
proposed rules that would require certain financial institutions to establish minimum procedures
for identifying and verifying the identity of customers seeking to open new financial accounts.
Written comments on the proposed rules may be submitted within 45 days of their publication in
the Federal Register, which is expected to occur later this week.
These proposed rules implement section 326 of the USA PATRIOT Act, which directs
the issuance of regulations requiring financial institutions to implement reasonable procedures
for (1) verifying the identity of any person seeking to open an account, to the extent reasonable
and practicable; (2) maintaining records of the information used to verify the person's identity
and; (3) determining whether the person appears on any list of known or suspected terrorists or
- -.- . . ·.-r+:-'-~ • 1'7;--".1
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The proposed rules seek to protect the U.S. financial system from money laundering and
terrorist financing. Additionally, by requiring identity verification procedures for all new
accounts opened after the effective date of the final rules, the rules could also protect consumers
against various forms of fraud, including identity theft.
The proposed rules were developed jointly by the Treasury Department, Treasury's
Financial Crimes Enforcement Network and seven federal financial regulators, including the
Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission,
Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the
Comptroller of the Currency, Office of Thrift Supervision, and Securities and Exchange
Commission.

PO-3263

FW"press releases, speeches, public schedules and official biographies, call our 24.Jto'Urfax .line at (202) 622-2040

The proposed rules outline requirements for the following financial institutions: banks
and trust companies, savings associations, credit unions, securities brokers and dealers, mutual
funds, futures commission merchants, and futures introducing brokers.
The financial institutions subject to the proposed rules would be required to establish
programs specifying procedures for obtaining identifying information from customers seeking to
open new accounts. This identifying information would be essentially the same information
currently obtained by most financial institutions and for individual customers generally,
including the customer's name, address, date of birth and an identification number (for U.S.
persons, a social security number and for non-U.S. persons, a similar number from a
government-issued document). Customers with signature authority over business accounts
\vould furnish substantially similar information.
A financial institution's program would also have to contain procedures to verify the
identity of customers within a reasonable period of time. The proposed rules contemplate that
financial institutions will generally use the same forms of identity verification that are already in
place, such as examining driver's licenses, passports, credit reports, and other similar means.
While every program must meet these minimum elements, the proposed rules give
financial institutions the flexibility to tailor their procedures as appropriate, taking into
consideration an individual institution's size, location, and type of business. In developing these
regulations, the importance of many factors was taken into account, including the need to guard
the U.S. financial system against terrorist financing and money laundering, the legitimate privacy
interests of customers, and the need for these regulations to be effectively integrated into the
daily operations of financial institutions.

-30-

D EPA R T MEN T

0 F

THE

T REA S U Rl'

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVA~IA AVENCE, N. W. _ WASHINC;TON, D.C.- 20220. (202) 622.2960

Embargoed Until 11 :45 A.M. EDT
WEDNESDAY, JULY 17,2002

CONTACT: BETSY HOLAHAN (TREASURY)
202-622-2960
JIM COURTNEY (SSA)
410-965-8904

Treasury Department and Social Security Administration Announce Plans
to Develop ID Verification System to Help Fight Identity Fraud

The Treasury Department and the Social Security Administration (SSA) today announced an
agreement to develop and implement a system by which financial institutions may access a
database to verify the authenticity of Social Security Numbers provided by customers at account
opemng.
!)::~.:::!~: ~ftflr· ~~'2tem ::re s~n.~-·k~i~6~'·?Q~!~~d ':'~~t ~~0 ~-::~f\~je<-:_rl~.!JJ.0 rJ?~'1310.r ~..~~'stem
where checks could be done through onlme access aiIel tile customer has consenled to such a
check.

Verifying the authenticity of a Social Security Number does not ensure that the person who
provided the infonnation is in fact that person. Guidelines would be set to detennine what proof
of identification would be required by financial institutions.
-30PO-3264

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

_e __

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

EMBARGOED UNTIL 2:30 P.M.
July 17, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 2-YEAR NOTES
The Treasury will auction $27,000 million of 2-year notes to refund $21,052
million of publicly held notes maturing July 31, 2002, and to raise new cash of
approximately $5,948 million.
In addition to the public holdings, Federal Reserve Banks hold $6,237 million
of the maturing notes for their own accounts, which may be refunded by issuing
an additional amount of the new security.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of the auction.
These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit of
$1,000 million.
TreasuryDirect customers requested that we reinvest their maturing holdings
of approximately $772 million into the 2-year note.
The auction will be conducted in the single-price auction format.
All competiaWrl.rds will -be- at the highAst- Y1Al-d nf. ;H.,(""';pt"'<'l--':';.~)'I'\petj.t:ive
tenders. The allocation percentage applied Lo bids awarded at the highest yield will
be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
t:ive <'Ind n(l~c('>m!,etitive

The notes being offered today are eligible for the STRIPS program.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about the new security are given in the attached offering highlights.

000

;,ttachment

PO-3265

'or press releases, speeches, public schedules and official biographies, cull our 24-llour fux line

lit

C02) 622-2040

HIGHLIGHTS OF TRE.. ,URY OFFEPIFS TO THE PUBLIC OF
2-YEAR NOTES nn BE !SSU~ ~7LY 31, 2002
July 17, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . ·····
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , ...
CUSIP ntunber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dated date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ··
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . · .. ·
Interest rate .. , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 -year notes
Q-2004
912828 AG 5
July 24, 2002
July 31, 2002
July 31, 2002
July 31, 2004
Determined based on the highest
accepted competitive bid
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . January 31 and July 31
Minimum bid amount and mUltiples ........ , ..... $1,000
Accrued interest payable by investor . . . . . . . . . . None
Premium or discount . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
STRIPS Information:
Minimum amount required . . . . . . . . . . . . . . . . . . . . . . . $1,000
Corpus CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . 912820 HD 2
Due date(s) and CUSIP number(s)
July 31, 2004 - - 912833 YX 2
for additional TINT(s)
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $5 million at the highest accepted yield.
Foreign and International Monetary Authority (FlMA) bids:
Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal
KeseX've bdllks a::;-'agents LOI: to .Ll'iA o.L:L:Uu..ll.. ., ... .Li1 uu(: exc..:ee<.l· $ ... , ':;00 milJ..ion. i.
single bid that would cause the limit to be exceeded will be partially accepted
in the amount that brings the aggregate award total to the $1,000 million limit.
However, if there are two or more bids of equal amounts that would cause the
limit to be exceeded, each will be prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a yield with three decimals, e.g., 7.123%.
(2) Net long position for each bidder must be reported when the sum of the total
bid amount, at all yields, and the net long position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the
closing time for receipt of competitive tenders.

Maximum Recognized Bid at a Single yield . . . . . . . . . . . 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day.
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day.
2a:~ent Terms:
By charge to a funds account at a Federal Reserve Bank on issue date,
or pa}~ent of full par amount with tender.
TreasuryDirect customers can use the Pay
Direct feature which authorizes a charge to their account of record at their
fi~ancial institution on issue date.

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

EMBARGOED UNTIL 2:30 P.M.
July 18, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $23,321 million of publicly held 13-week and 26-week
Treasury bills maturing July 25, 2002, and to raise new cash of approximately $8,679
million. Also maturing is an estimated $16,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced July 22, 2002.
The Federal Reserve System holds $11,219 million of the Treasury bills maturing
on July 25, 2002, in the System Open Market Account (SOMA).
This amount may be
refunde~ at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held July 23, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal,,~eserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
Tre~survDirect customers have requested tha.t we rejnVE'st their ll'2t,lJ'r~:,j!l(T h~lding,:::
of, approxiJ1l2;-<?1'\~ ·c.1 , Ot;? ~iUj n",-into' t.h-;; 1 ~- ...u;",,1c ri-ll a!ld $700 million ir..'::c ~~c 26week bill.

The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17,13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

0-3266

For press ,e/eases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2fJ40

HIGHLIGHTS O~ rREASURY OFFERINGS OF BILLS
TO BE,SSUED JULy 25, 2002
July 18, 2002
OfferLng Amouoe ....
Public Offering.
NLP ExclusJ..on Amount.
Descrlptl0n of Offering:
Term and type of security.
CUSIP number.
Auc tlon da te ,
Issue date, ..
Maturlty date.
Original issue date.
Currently outstanding.
Minimum bid amount and multiples.

· $16,000rnl11lon
$16,00') ,million
,$ 3,80" 'nillion

$16,000 mll1ion
$16,000 million
None

· 91-day 1: ill
.912795 18 4
· July 22, 2002
· July 25, 2002
.Octobe~ 24, 2002
· April 25, 2002
· $15,431 :nillion
· $1,000

182-day bill
912795 LV 1
July 22, 2002
July 25, 2002
January 23, 2003
July 25, 2002
$1,000

The followlng rules apply to all securltles mentioned above:
Submission of Bids:
Noncompeti tive bids:
Accepted in full up to $1. Il'illi6n at the highest discount rate of accepted competitive bids,.
Foreign and International Monetary Authority (F::;:LA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepte:i in order of size from smallest to largest with no more than $100
milll0n awarded per account.
The total non:;c mpeti tive amount awarded to Federal Reserve Banks as agents for FlMA
accounts will not exceed $1,000 million.
A ~ingle bid that would cause the limit to be exceeded will
However,
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate wit1 three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder 'Qust be reported when the sum of the total bid amount, at all
discount rates, and the net long posit~~~ is $1 billion or greater.
(3) Net long position must be determined as ~f one half-hour prior to the closing time for receipt of
competitive tenders.
Recognized Bid at a Sinole Rate.
35t, of public offering
aximum Award. . . . . . . . . . . . .
. .....
35% of public offering
eceipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon €astern daylight saving time on auction day
Competitive tenders.. .
Prior to 1:00 p.m. ,~astern daylight saving time on auction day
fayment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
~ith tender.
TreasuryDirect customers can use the P~y Direct feature which authorizes a charge to thelr account of
%ecord at their financial institution on issue date.

o

federal financing
WASHINGTON, DC

20220

bankNEWS

FEDERAL FINANCING BANK

July 31, 2002

Kerry Lanham, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of June 2002.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $37.1 billion on June 30, 2002,
posting a decrease of $84.2 million from the level on May 31,
2002.
This net change was the result of a decrease in holdings
of agency assets of $165.0 million and an increase in holdings of
government-guaranteed loans of $80.8 million. The FFB made 48
disbursements and received 14 prepayments during the month of
June.
Attached to this release are tables presenting FFB June loan
activity and FFB holdings as of June 30, 2002.

PO-3268

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Page 2
FEDERAL FINANCING BANK
JUNE 2002 ACTIVITY
Borrower

Date

Amount
of Advance

Final
Maturity

Interest
Rate

)VERNMENT-GUARANTEED LOANS
3ENERAL SERVICES ADMINISTRATION
l.tlanta CDC Lab
l.tlanta CDC Lab
l.tlanta CDC Lab
,an Francisco OB

6/05
6/13
6/19
6/24

$38,348.78
$21,377.35
$30,829.30
$50,674.62

1/30/31
1/30/31
1/30/31
8/01/05

5.705%
5.639%
5.556%
3.554%

S/A
S/A
S/A
S/A

6/07
6/10
6/17
6/17
6/21
6/21
6/21
6/24

$247,924.00
$1,738,872.86
$282,667.37
$1,380,379.03
$329,687.37
$61,100.16
$407,551.26
$603,814.71

3/01/30
1/02/32
7/01/31
1/02/32
1/02/15
7/01/31
7/01/31
1/02/32

5.592%
5.672%
5.393%
5.401%
4.608%
5.435%
5.435%
5.384%

S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A

6/04
6/04
6/06
6/07
6/11
6/12
6/12
6/12
6/12
6/13
6/13
6/14
6/14
6/14
6/17
6/18
6/18
6/20
6/21
6/25
6/26
6/26
6/27
6/27
6/27
6/27
6/27

$6,000,000.00
$2,500,000.00
$13,637,000.00
$1,000,000.00
$600,000.00
$5,000,000.00
$3,648,000.00
$5,000,000.00
$695,000.00
$723,000.00
$2,500,000.00
$5,931,000.00
$4,400,000.00
$1,010,000.00
$1,500,000.00
$7,000,000.00
$273,000.00
$2,500,000.00
$350,000.00
$1,172,000.00
$2,000,000.00
$6,759,000.00
$300,000.00
$2,380,000.00
$600,000.00
$3,792,000.00
$16,881,000.00

12/31/30
12/31/35
12/31/14
12/31/35
7/02/12
9/30/02
3/31/04
4/02/07
10/01/12
1/03/34
1/02/35
9/30/02
12/31/31
1/02/35
9/30/03
1/02/35
9/30/02
12/31/36
1/03/34
1/02/35
9/30/02
12/31/30
1/03/34
12/31/36
9/30/04
12/31/30
12/31/30

5.553%
5.614%
5.119%
5.609%
4.993%
1.756%
2.952%
4.176%
4.946%
5.512%
5.523%
1.725%
5.454%
5.492%
2.403%
5.327%
1.747%
5.394%
5.429%
5.443%
1.727%
5.406%
5.366%
5.407%
2.875%
5.174%
5.174%

Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.

)EPARTMENT OF EDUCATION
3arber-Scotia College
~uskegee Uni v .
.livingstone College
Tirginia Union Univ.
.lincoln Uni versi ty
Jivingstone College
Ji vingstone College
7irginia Union Uni v.
'.URAL UTILITIES SERVICE
:ast Kentucky Power #753
,outhside Electric #786
:reat River Energy #738
ictory Electric #782
ataula Electric #585
udson Valley Datanet #833
udson Valley Datanet #833
udson Valley Datanet #833
avalli #641
irelands Elec. #621
ri-County Elec. Coop. #646
tlantic Telephone Mem. #805
ho-Me Power #480
Illinois Power #792
orth Central Elec. #638
owie-Cass Electric Coop. #835
arien Telephone Co. #719
ittle Ocmulgee Electric #816
ohono O'odham Util. #597
rontier Power #667
~dson Valley Datanet #833
)uth Miss. Elec. #691
~rroll Elec. #618
.s. & 0 Rural Elec. #839
{nches River Elec. #634
~tional Power #788
~tional Power #789

Page 3
FEDERAL FINANCING BANK
JUNE 2002 ACTIVITY
Date

Borrower
~ashington Electric
~gralite Elec. #543

6/27
6/28
6/28
3asin Electric #425
3utler County Rural Elec. #832 6/28
6/28
:entral Elec. Power #424
6/28
:harles Mix Elec. #630
6/28
30utheastern Indiana #496
6/28
3ho-Me Power #480
6/28
~ild Rice Elec. #806
#655

S/A is a Semiannual rate.
Qtr. is a Quarterly rate.

Amount
of Advance

Final
Maturity

Interest
Rate

$1,000,000.00
$650,000.00
$13,550,000.00
$1,311,000.00
$425,000.00
$255,000.00
$950,000.00
$666,000.00
$350,000.00

1/02/35
1/03/34
9/30/02
9/30/02
1/03/28
12/31/30
1/03/33
12/31/31
12/31/35

5.380%
5.458%
1.826%
1.697%
5.341%
5.407%
5.417%
5.426%
5.485%

Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.

Page 4
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)

Program

June 30, 2002

Agency Debt:
U.S. Postal Service

May 31, 2002

Monthly
Net Change
6/1/02- 6130102

Fiscal Year
Net Change
10/1/01- 6130/02

Subtotal*

$6,950.0
$6,950.0

$6,950.0
$6,950.0

$0.0
$0.0

-$4,363.0
-$4,363.0

Agency Assets:
FmHA-RDIF
FmHA-RHIF
Rural Utilities Service-CBO
Subtotal*

$1,275.0
$3,835.0
$4,270.2
$9,380.2

$1,440.0
$3,835.0
$4,270.2
$9,545.2

-$165.0
$0.0
$0.0
-$165.0

-$1,160.0
-$540.0
$0.0
-$1, 700.0

Government-Guaranteed Lending:
DOD-Foreign Military Sales
DoEd-HBCU+
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration+
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
Subtotal *

$2,004.3
$62.3
$6.6
$1,207.3
$2,214.2
$11.9
$841.2
$14,301.1
$108.1
$3.3
$20,760.4

$2,024.0
$57.3
$6.6
$1,207.3
$2,233.1
$11. 9
$841. 2
$14,183.8
$111.2
$3.3
$20,679.6

-$19.6
$5.1
$0.0
$0.0
-$18.9
$0.0
$0.0
$117.3
-$3.1
$0.0
$80.8

-$152.3
$31. 0
-$1. 2
-$71. 4
-$53.8
-$1. 2
-$100.0
$701.9
-$23.8
-$0.1
$329.0

=======

=========

========

$37,090.6

$37,174.8

-$84.2

Grand total*
* figures may not total due to rounding
+ does not include capitalized interest

-$5,734.0

DEPARTMENT

OF

TREASURY

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 19,2002

Contact: Tasia Scolinos
(202) 622-2960

Treasury Under Secretary Jimmy Gurule Addresses NOBLE on the New Department of
Homeland Security

WHAT:

Treasury Under Secretary Jimmy Gurule will be delivering the keynote address to
the National Organization of Black Law Enforcement Executives (NOBLE) on
the new Department of Homeland Security and terrorist financing.

WHEN:

Monday, July 22, 12:00 p.m.

WHERE:

Tampa Convention Center 333 South Franklin Street Tampa, FL 33602

DETAILS:

The speech will be open to the press and the Under Secretary will be available
after the speech at the Convention Center's press room to answer any follow up
questions. Please call Tasia Scolinos at (202) 622-2960 or (202) 622- 1260 with
any follow up questions.
-30-

PO-3269

FQr press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Ojk8 1998

619-559

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. _ 20220 _ (202) 622-2960

FOR IMMEDIATE RELEASE
JULY 19, 2002

CONTACT: BETSY HOLAHAN
202-622-2960

Treasury Issues Guidance on the USA PATRI OT Act, Pending Issuance of Final Rule
The Department of the Treasury and Treasury's Financial Crimes Enforcement Network
(FinCEN) today issued an interim rule advising financial institutions on how to comply with the
statutory provisions of section 312 of the USA PATRIOT Act, pending issuance of the final rule
that will be published by October 25, 2002.
Section 312, which takes effect on July 23,2002, requires due diligence and enhanced
due diligence for correspondent and private banking accounts maintained for non-U.S. persons.
Under the interim rule, banks, savings associations, and credit unions must comply with the
terms of section 312. Securities brokers and dealers, futures commission merchants, and
introducing brokers will be required to'comply with section 312 with regard to private banking
accounts for non-U.S. persons. Finally, Treasury is deferring application of section 312 to all
other financial institutions until the Department outlines the extent of their obligations in the
final rule.
Iii.:-- iI., .:.rim rule cuntains guiuallce [or bailKs, .),lVings associations, crcdit U.i:'::'il'::',
securities brokers and dealers, futures commission merchants, and introducing brokers that must
comply with some or all provisions of section 312 prior to publication of a final rule. This
interim guidance will remain in effect until Treasury issues a final rule. The interim guidance
does not reflect the full range of due diligence procedures that will be required of financial
institutions by the final rule.

Treasury previously issued a proposed rule on May 30, 2002, proposing to apply the
broad statutory provisions contained in section 312 to a wide array of financial institutions. The
proposed requirements under that rule are significant, and public comments have raised
substantial and important concerns about the scope of the regulation, the types of financial
institutions to which it applies, and the major definitions applicable to this section. For example,
comments consistently noted that the definition of "correspondent account," which is central to
section 312, is overly broad and difficult to implement. Moreover, Treasury is responsible for
drafting definitions for key terms applicable to financial institutions other than banks. Additional
time is necessary to give proper consideration to these definitions and the text of the proposed
rule in light of the comments received.

PO-3270

Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (2(}2) 622-2040
°tJ

c:.

t-.nvprnrno::>nt Pr,nllnn (lH,rc.

1QQQ

~1n

;:::::n

Treasury is issuing this interim rule to clarify the obligations of financial institutions
pending issuance of a final rule.
-30-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
July 19, 2002

Contact: Office of Financing
202-691-3550

TREASURY'S INFLATION-INDEXED SECURITIES
AUGUST REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPO numbers and daily
index ratios for the month of August for the following Treasury inflation-indexed securities:
(1) 3-3/8% 10-year notes due January 15, 2007
(2) 3-5/8% 100year notes due January 15, 2008
(3) 3-5/8% 30-year bonds due April 15,2028
(4) 3-7/8% 10-year notes due January 15,2009
(5) 3-7/8% 30-year bonds due April 15,2029
(6) 4-114% 10-year notes due January 15,2010
(7) 3-1/2% 10-year notes due January 15,2011
(8) 3-3/8% 30-1I2-year bonds due April 15, 2032
(9) 3-3/8% 10-year notes due January 15,2012
(10) 3% 10-year notes due July 15,2012
This information is based on the non-seasonally adjusted u.S. City Average All Items Consumer Price
Index for AJl Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
In addition to the publication of the reference CPI's (Ref CPI) and index ratios, this release
provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated fax
system by caJling 202-622-2040 and requesting document number 3267. The information is also
available on the Internet at Public Debt's website (http://www.publicdebt.treas.gov).
The information for September is expected to be released on August 16, 2002.
000

Attachment
PA-567

PO-3271

http://www.publicdebt.treas.gov

TREASURV INFLATION-INDEXED SECURITIES
Ref CPI and Index RaUo. for
Augu.t2002

Securtty:
De.crlptlon:
CUSIP Number:
Dated Date:
Orlglnall.aue Date:
Addltlonallnue Date(a):

3-3111% U'..Vear Note.
Serle. A-2oo7
t1211272M3
January 15, 1tt7
February II, 1117
April 15, 1tt7

3-518% 1D-Ve., Note.
Serle. A·2ool1
t1211273TT
January 15, 1ttll
January 15, 1ttll
October 15, 1t111

3-518% 3D-Vear Bond.
Bonds of Aprtl 20211
t12110FD5
AprtI15, 1ttll
AprtI15,1t111
July 15, 1till

3-7/11% 1D-Ve., Note.
Serlea A-200t
t128274V5
January 15, 1m
January 15, 1m
July 15, 1m

Maturtty Date:
Ref CPI on Dated Date:

January 15, 2007
15U3548

January 15,20011
111.55484

AprtI15, 20211
111.74000

January 15, 200t
1....00000

RefCPI

Index Ratio

Indlx RatIo

Index RatIo

Index RatIo

171.110000
171.110323
171.110...5
171.110968
171.111210
171.111613
171.111935
171.1122511
171.1125111
171.112103
171.1132211
171.113548
179.113871
1Tt....194
171.114518
171.11483.
171.115181
179.115484
171.1151108
171.118121
171.111452
17t.1I8774
171.117097
171.117419
17t.II7742
17t.II085
171.1111387
179.11710
171.119032
179.1It355
17UHTT

1.13485
1.13487
1.1348t
1.134t1
1.13493
1.13495
1.13497
1.13499
1.13501
1.13503
1.13505
1.13507
1.13509
1.13511
1.13513
1.13515
1.13517
1.1351'
1.13521
1.13523
1.13525
1.13527
1.13521
1.13532
1.13534
1.13531
1.135311
1.13540
1.13542
1.13544
1.13548

1.11213
1.11215
1.11217
1.11211
1.11301
1.11303
1.11305
1.11307
1.11309
1.11311
1.11313
1.11315
1.11317
1.11319
1.11321
1.11323
1.11325
1.11327
1.11321
1.11331
1.11333
1.11335
1.11337
1.1133t
1.11341
1.11343
1.11345
1.11347
1.1134'
1.11351
1.11353

1.11111
1.11111
1.11170
1.11172
1.11174
1.11171
1.111711
1.111110
1.11182
1.111'"
1.111l1li
1.11111
1.111"
1.111'2
1.11194
1.111"
1.111111
1.11200
1.11202
1.11204
1.11208
1.112011
1.11210
1.11212
1.11214
1.112111
1.112111
1.11220
1.11222
1.11224
1.11221

1.09134
1.09136
1.09636
1.09140
1.09"'2
1.09M4
1.096411
1.09148
1.09650
1.09652
1.091154
1.098511
1.0911511
1.09880
1.09882
1.098'"
1.09118
1.09811
1.0"70
1.09872
1.09873
1.091175
1.09177
1.0917'
1.09111
1.09113
1.09115
1.09117
1.09119
1.09691
1.09693

Date
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.

1
2
3
4
5
6
7
II

•

10
11
12
13
14
15
18
17
111
1.
20
21
22
23
24
25
211
27
211
21
30
31

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

CPI-U (NSA) for :
-

--

Aprtl2oo2

17'.11

May 2002

171.11

June 2002

I
I

179.9
-

TREASURV INFLAnON-INDEXED SECURITIES
Ref CPI and Index RaUoa for
Auguat2002

I

3-718% 30-V.ar Bonda
Bond. of April 2029
1112810FH8
April 15, 1198
April 15, 1998
October is, 1m
October is, 2000
April 15, 2029
184.38333

4-1/4% 1O-V.... Notea
Serl•• A·2010
11128275W8
January 15,2000
January 11,2000
July is, 2000

3-112% 1O-V.... Notea
Serle, A·2011
.,28278RI
January is, 2001
January 18, 2001
July 18, 2001

3-318% 30-112·V.ar Bonda
Bonda of April 2032
.,2810FQ8
October is, 2001
October is, 2001

January is, 2010
188.24518

January is, 2011
174.04518

April 15, 2032
177.50000

RefCPI

Ind.x Ratio

Ind.x RatIo

Index RatIo

Index Ratio

171.80000
179.80323
179.80845
179.80988
171.81290
179.11813
171.81835
179.82258
179.82581
179.82903
179.83228
179.83548
1711.83871
179.84194
179.84518
171.84839
178.85181
179.85484
171.85808
179.88129
171.88452
171.88774
171.87017
179.87419
171.87742
171.88085
179.88387
179.88710
171.89032
171.89355
171.89877

1.01372
1.01374
1.01378
1.01378
1.01310
1.01382
1.01384
1.01388
1.01388
1.01389
1.01391
1.01393
1.01395
1.01397
1.01319
1.01401
1.01403
1.01405
1.01407
1.01409
1.09411
1.09413
1.09415
1.09417
1.09419
1.09421
1.09423
1.09425
1.09427
1.09429
1.01431

1.08888
1.08870
1.08872
1.08874
1.08878
1.08877
1.08871
1.08881
1.08883
1.08885
1.08887
1.08889
1.08891
1.08893
1.08895
1.08897
1.088"
1.08900
1.08902
1.08904
1.08908
1.08908
1.08810
1.08912
1.08914
1.08918
1.08918
1.08920
1.08922
1.08923
1.08925

1.03307
1.03308
1.03310
1.03312
1.03314
1.03318
1.03318
1.03319
1.03321
1.03323
1.03325
1.03327
1.03329
1.03331
1.03332
1.03334
1.03331
1.03338
1.03340
1.03342
1.03344
1.03345
1.03347
1.03348
1.03351
1.03353
1.03355
1.03357
1.03358
1.03360
1.03362

1.01298
1.01298
1.01298
1.01301
1.01303
1.01305
1.01307
1.01308
1.01310
1.01312
1.01314
1.01318
1.01318
1.01319
1.01321
1.01323
1.01325
1.01327
1.01321
1.01330
1.01332
1.01334
1.01336
1.01338
1.01339
1.01341
1.01343
1.01345
1.01347
1.01348
1.01350

Security:
D•• crlptlon:
CUSIP Number:
Dated Date:
Orlglnall..ue Oat.:
AddltlonalllSue Date(a):
Maturity Oat.:
Ref CPI on Dated Date:

Date
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.

1
2
3
4
5
8
7
8
II
10
11
12
13
14
15
18
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

CPI-U (NSA) for :
-~~

Aprt12002

171.8

May 2002

171.8

June 2002

I

I

179.9

TREASURY INFLAnON-INOEXEO SECURITIES
Ref CPI and Index Ratloa for
Augult2002

!

Security:
DelCl'fptlon:
CUSIP Number:
Dated Date:
Orlginalillue Date:
Addltlonalillue Oal8(l):

3-318% 10-Ye. Note.
Serle. A·2012
91282nJ5
January 15, 2002
January 15,2002

3% 10-Year Notel
Serle. Co2012
912828AF7
July 15, 2002
July 15, 2002

Maturity Date:
Ref CPI on Dated Date:

January 15, 2012
1n.5M52

July 15, 2012
179.80000

Date
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.
Aug.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
18
17
18
19
20

21
22
23
24
25
28
27
28
29
30
31

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

CPI-U (NSA) for :

Ref CPI

Index Ratio

Index RatIo

179.80000
179.80323
179.80845
179.80988
179.81290
179.81613
179.81935
179.82258
179.82581
179.82903
179.83228
179.83548
179.83871
179.84194
179.84516
179.84839
179.85161
179.85484
179.858Ot
179.86129
179.86452
179.88n4
179.87097
179.87419
179.8n42
179.88065
179.88387
179.88710
179.89032
179.89355
179.8Hn

1.01259
1.01281
1.01283
1.01284
1.01266
1.01268
1.01270
1.01272
1.01274
1.01275
1.012n
1.01279
1.01281
1.01283
1.01284
1.01286
1.01288
1.01290
1.01292
1.01293
1.01295
1.01297
1.01299
1.01301
1.01303
1.01304
1.01308
1.01308
1.01310
1.01312
1.01313

1.00000
1.00002
1.00004
1.00005
1.00007
1.00009
1.00011
1.00013
1.00014
1.00018
1.00018
1.00020
1.00022
1.00023
1.00025
1.00027
1.00029
1.00031
1.00032
1.00034
1.00038
1.00038
1.00039
1.00041
1.00043
1.00045
1.00047
1.00048
1.00050
1.00052
1.00054

April 2002
-

---

179.8

May200Z

I

179.8

June 2002
-

179.9

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS

'IREASURY

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

Contact: Tara Bradshaw
(202) 622-2014

For Immediate Release
July 22, 2002

UNITED STATES AND UNITED KINGDOM SIGN
PROTOCOL TO INCOME TAX CONVENTION
The Treasury Department announces that a Protocol to the Income Tax Convention
between the United States and the United Kingdom was signed at the State Department on July
19,2002.
The Protocol amends the income tax treaty signed last year between the United States and
the United Kingdom. The Protocol provides technical clarification of certain provisions of the
proposed treaty and reinstates the article ofthe existing income tax treaty that provides benefits
to teachers participating in cross-border exchange programs.
Following completion of ratification procedures in both countries, the proposed
Convention, as amended by the Protocol, will replace the existing tax treaty between the United
States and the United Killf;uom, which has been in effect since 1980. In the United States, the
proposed Convention and Frotocol are subject to the Senate's advice and consent to ratificaliulJ.

The text of the Protocol is attached.

-30-

PO-3272

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

-*

BILLING CODE 4810-02
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA29
Financial Crimes Enforcement Network; Anti-Money Laundering Programs; Special Due
Diligence Programs for Certain Foreign Accounts.
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Interim final rule.
SUMMARY: Treasury and FinCEN are issuing an interim final rule temporarily deferring for
certain financial institutions (as defined in the Bank Secrecy Act) the application of the requirements
contained in section 5318(i) of title 31, United States Code, added by section 312 of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act (USA PATRIOT Act) of2001 (the Act). Section 5318(i) requires U.S. financial
i;:stitu!!()ns to c:~~hli3h due diligence policies, pr0cc(hn~c;. and contro1<: rc~s0nilbly designed tc d~tect
and report money laundering through correspondent accounts and private banking accounts that U.S.
financial institutions establish or maintain for non-U.S. persons. Section 312 takes effect on July
23,2002, whether or not Treasury has issued a final rule implementing that provision. Additionally,
this interim final rule provides guidance, pending issuance of a final rule, to those financial
institutions for which compliance with section 5318(i) has not been deferred.

DATES: This interim final rule is effective July 23,2002. Written comments may be submitted on
or before [INSERT DATE THAT IS 30 DAYS AFTER PUBLICATION IN THE FEDERAL
REGISTER].

ADDRESSES: Submit comments (preferably an original and four copies) to FinCEN, P.O. Box 39,
Vienna, VA 22183, Attn: Section 312 Interim Regulations. Comments may also be submitted by
electronic mail to regcomments@fincen.treas.gov with the caption in the body of the text,
"Attention: Section 312 Interim Regulations." Comments may be inspected at FinCEN between 10
a.m. and 4 p.m. in the FinCEN Reading Room in Washington, D.C. Persons wishing to inspect the
comments submitted must request an appointment by telephoning (202) 354-6400 (not a toll-free
number).

FOR FURTHER INFORMATION CONTACT: Office of the Assistant General Counsel for
Banking & Finance (Treasury), (202) 622-0480; the Office of the Assistant General Counsel for
Enforcement (Treasury), (202) 622-1927; or the Office of the Chief Counsel (FinCEN), (703) 9053590 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: Treasury and FinCEN are exercising the authority under
31 U.S.c. 5318(a)(6) to temporarily defer the application of 31 U.S.c. 5318(i) to certain financial

duties, and obligations under that provision. Additionally, for those financial institutions for which
compliance with section 5318(i) has not been deferred entirely, interim guidance is provided for
compliance with the statute pending issuance of a final rule. Although this interim final rule and the
guidance contained herein may be relied upon by financial institutions until superseded by a final
regulation or subsequent guidance, no inference may be drawn from this rule concerning the scope
and substance of the final regulation that Treasury will issue concerning section 5318(i).

I. Background
Section 312 of the Act adds new subsection (i) to 31 U.S.c. 5318, the Bank Secrecy Act
(BSA).

This provision requires each U.S. financial institution that establishes, maintains,

2

administers, or manages a private banking account or a correspondent account in the United States
for a non-U.S. person to take certain anti-money laundering measures with respect to such accounts.
In particular, financial institutions must establish appropriate, specific, and, where necessary,

enhanced, due diligence policies, procedures and controls that are reasonably designed to enable the
financial institution to detect and report instances of money laundering through those accounts.

In addition to this general requirement, which applies to all correspondent and private
banking accounts for non-U.S. persons, section 312 of the Act specifies additional standards for
correspondent accounts maintained for certain foreign banks.

For a correspondent account

maintained for a foreign bank operating under an offshore license or a license granted by a
jurisdiction designated as being of concern for money laundering, a financial institution must take
reasonable steps to identify the owners of the foreign bank, to conduct enhanced scrutiny of the
correspondent account to guard against money laundering, and to ascertain whether the foreign bank
provides correspondent accounts to other foreign banks and, if so, to conduct appropriate related due

Section 312 also sets forth minimum standards for the due diligence requirements for a
private banking account for a non-U.S. person. Specifically, a financial institution must take
reasonable steps to ascertain the identity of the nominal and beneficial owners of, and the source of
funds deposited into, the private banking account, as necessary to guard against money laundering.
The institution must also conduct enhanced scrutiny of private banking accounts requested or
maintained by or on behalf of senior foreign political figures (or their family members or close
associates). Enhanced scrutiny must be reasonably designed to detect and report transactions that
may involve the proceeds of foreign corruption.
Section 312(b)(2) provides that subsection 5318(i) takes effect on July 23,2002, regardless of

3

whether Treasury has issued a final rule by that date. Furthennore, it indicates that subsection
5318(i) applies to all accounts, regardless of when they were opened.

1. The Proposed Rule
On May 30,2002, Treasury and FinCEN published in the Federal Register a proposed rule
implementing section 312. See 67 Fed. Reg. 37,736 (May 30, 2002). In that proposed rule, Treasury
sought to take the broad statutory mandate of section 312 and translate it into specific regulatory
directives for financial institutions to apply. Like the statute itself, the rule proposed by Treasury
is far reaching, seeking to require a wide range of U.S. financial institutions l to apply due diligence
and enhanced due diligence procedures to a diverse array of foreign financial institutions 2 that
maintain "correspondent accounts" or "private banking accounts" in the U.S. The proposed rule sets
forth a series of due diligence procedures that financial institutions covered by the rule may, and in
many cases must, apply to correspondent accounts and private banking accounts. Because section
5318(i) takes effect on July 23, 2002, regardless of whether Treasury has issued a final implementing

fc-gub.!ion, Treasury impos prl

~

30-day period in which pub!ir r0l11J11ents on the propmed rule WOll lei

be accepted.

2. The Final Rule
A final rule implementing section 312 cannot reasonably be completed by the statutory
effective date of July 23,2002. Without question, the proposed rule implementing section 312 is

1 Treasury proposed that the following financial institutions would be covered by the regulation: An insured bank (as
defined in section 3(h) of the Federal Deposit Insurance Act (12 U.s.c. lS13(h»); a commercial bank; an agency or
branch of a foreign bank in the United States; a federally insured credit union; a thrift institution; a corporation acting
under section 25A of the Federal Reserve Act (12 U.s.c. 611 et seq.); a broker or dealer registered, or required to
register, with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.c. 78a et
seq.); a futures commission merchant registered, or required to register, under, and an introducing broker as defined in
§ la23 of, the Commodity Exchange Act (7 U.S.c. 1 et seq.); a casino (as defined in § 103.II(n)(5»; a mutual fund (as
defined in § 103.130); a money services business (as defined in § 103.11(uu»; and an operator ofa credit card system
(as defined in § 103.135).
2 Foreign financial institutions include foreign banks and any other foreign person that, if organized in the United States,

4

the furthest reaching proposed regulation issued under Title III of the Act thus far. The requirements
placed on financial institutions under this provision are significant, and commenters have raised
substantial and important concerns about the scope of the regulation as well as the major definitions
applicable to this section. For example, commenters consistently noted that the definitions of
"correspondent account," "covered financial institution," and "foreign financial institution," were
overly broad and difficult to implement. Likewise, commenters expressed concerns regarding the
definition of "senior foreign political figure." Moreover, the statute does not define many important
terms with respect to financial institutions other than banks, leaving the task for Treasury and
FinCEN. Additional time is necessary to consider carefully these definitions and the text of the
proposed rule in light of comments received to determine whether these terms should be further
defined with respect to each financial institution.
Treasury anticipates issuing a final rule no later than October 25, 2002.
3.

Deferral of Application to Certain Financial Institutions

financial institutions, in particular, non-bank financial institutions, would not have clear notice of,
or guidance regarding, their compliance obligations. More pointedly, without regulations defining
key terms for financial institutions other than banks, these financial institutions would not have
sufficient guidance to comply with all facets of section 312. This situation necessarily stems from
the fact that the statute seeks to cover a diverse universe of financial institutions and seeks to address
a multitude of issues arising from the panoply of financial relationships that can exist with various
foreign financial institutions. Treasury's role in this process is to draft a regulation, after obtaining
public comment, that provides clear and unequivocal direction to financial institutions covered by

would be required to establish an anti-money laundering program pursuant to §§ 103.120 through 103.169 of this part.

5

the provision. Without clarifying appropriate terms for the various industries, enforcement of section
5318(i) against the full range of financial institutions proposed to be covered by section 312 will be
difficult. Therefore, deferral is necessary and appropriate.
Nor would it be appropriate for Treasury to insist on compliance with the terms of the
proposed rule pending the completion of a final rule. We are still reviewing and analyzing the
comments received and formulating the terms and scope of the final rule. Were Treasury to require
strict compliance with the proposed rule, not only would it undermine the administrative process,
but also it might require financial institutions to incur substantial costs to comply with provisions
of the proposed rule that may be altered or eliminated. 3 Without suggesting that such changes will
be made, such a result is untenable.
Accordingly, invoking the authority under section 5318(a)(6) of the BSA, this interim final
rule defers the application of all provisions of section 5318(i) to financial institutions other than
banks, securities brokers and dealers, futures commission merchants, and introducing brokers. 4

commission merchants, and introducing brokers must comply with the provisions of section 5318(i)
relating to due diligence and enhanced due diligence for "private banking accounts," but they are
exempted from provisions related to correspondent accounts. The reason for this distinction is a
practical one-the Act does not define a "correspondent account" for fmancial institutions other than
banks, and Treasury needs time to consider whether the definition in the proposed rule is appropriate.

In contrast, the definition of a private banking account in section 5318(i) is not limited to banks and
is both applicable and commonly understood with the securities and futures industries. Moreover,

Cf CFTC v. Schor, 478 U.S. 833,845 (I 986) (noting the important distinction between a proposed rule and a final
rule drafted based on a review of public comment).
4 "Introducing brokers" refers to those registered, or required to register, with the Commodity Futures Trading
3

6

to the extent these financial institutions offer this type of account, the risks of money laundering are
similar to the risks posed by banks offering such accounts. As a result, they will be required to
comply with the provisions of section 5318(i) regarding private banking accounts pending Treasury's
issuance of a final rule, consistent with the guidance set forth below.
In summary:
•

Banks must comply with section 5318(i) pending Treasury's issuance of a final rule. For the
purposes of this interim final rule, these include: An insured bank (as defined in section 3(h)
of the Federal Deposit Insurance Act (12 U.s.c. l813(h)))5; a commercial bank; an agency
or branch of a foreign bank in the United States; a federally insured credit union; a thrift
institution; and a corporation acting under section 25A of the Federal Reserve Act (12 U.S.c.
611 et seq.).6

•

Securities brokers and dealers registered, or required to register, with the Securities and
Exchange Commission (SEC), and futures commission merchants and introducing brokers

must comply with provisions relating to private banking accounts, but their compliance with
the remaining provisions of section 5318(i) is deferred.
•

Financial institutions subject to deferment of all obligations under section 5318(i) include:
Casinos; money services businesses; mutual funds; operators of credit 'card systems; and all
remaining financial institutions defined in the BSA that are not banks, securities brokers and

Commission.
This group of covered entities was drawn from the list of "covered financial institutions" in the proposed rule. Treasury
is evaluating whether to add uninsured national trust banks to this list at the final rule stage as these entities are currently
required to have anti-money laundering programs. See 12 CFR 21.21. Treasury also will consider whether non-federally
regulated, state chartered, uninsured trust companies and trust banks, and non-federally insured credit unions should be
added to the list to the extent that they maintain correspondent or private banking accounts for non-U.S. persons.
6 For purposes of complying with section 5318(i) pending Treasury's issuance of a final rule, foreign branches of
S

7

dealers, futures commission merchants, or introducing brokers. 7

II. Compliance Obligations Pending Publication of the Final Rule
Under the Act, Treasury is authorized to interpret and administer section 312. This interim
final rule provides guidance to those financial institutions for which the application of section
53l8(i) has not been deferred. Pending issuance of a final rule, Treasury expects compliance with
section 53l8(i) as set forth below. Treasury does not expect compliance with the tenus and
conditions of the proposed rule except to the extent they coincide with the express requirements of
the statute. However, the interim compliance measures set forth in this guidance should not be
construed as an indication of the obligations that will be imposed by the final rule.

1.

Due Diligence for Correspondent Accounts-Banks Only
With respect to correspondent accounts, section 53l8(i)(1) requires U.S. financial institutions

to establish due diligence policies, procedures, and controls reasonably designed to detect and report
money laundering through correspondent accounts established, maintained, administered, or

issuance of a final rule, a due diligence program under section 5318(i)(1) will be reasonable in
Treasury's view if it focuses compliance efforts on the correspondent accounts that pose a high risk
of money laundering based on an overall assessment of the money laundering risks posed by the
foreign correspondent institution. It is the expectation of Treasury that a bank will accord priority
to conducting due diligence on high-risk foreign banks for which it maintains correspondent deposit
accounts or their equivalents, and will focus foremost on correspondent accounts used to provide

insured banks are deemed to be foreign banks rather than covered financial institutions.
The remaining financial institutions include: dealers in precious metals, stones, or jewels; pawnbrokers; loan or finance
companies; private bankers; trust companies; state chartered credit unions that are not federally regulated; insurance
companies; travel agencies; telegraph companies; sellers of vehicles, including automobiles, airplanes, and boats; persons
engaged in real estate closings and settlements; investment companies; commodity pool operators; and commodity
7

8

services to third parties. Treasury also expects banks to give priority to conducting due diligence on
high-risk correspondent accounts maintained for foreign financial institutions other than foreign
banks, such as money transmitters. In all cases, Treasury expects that a bank will accord priority in
applying due diligence to accounts opened on or after July 23,2002.
Treasury acknowledges that, as a practical matter, banks will be unable to craft and
implement final comprehensive due diligence policies and procedures pursuant to the dictates of
section 5318(i)(1) until Treasury issues a final rule. However, in the interim, a reasonable due
diligence policy, in Treasury's view, is one that comports with existing best practices standards for
banks that maintain correspondent accounts for foreign banks,8 and evidences good faith efforts to
incorporate due diligence procedures for correspondent accounts maintained for foreign financial
institutions posing an increased risk of money laundering.

2. Enhanced Due Diligence for High Risk Foreign Banks-Banks Only
Section 5318(i)(2) requires U.S. financial institutions to establish enhanced due diligence

United States for certain foreign banks designated as high risk. Sections 5318(i)(2)(B)(i) through
(iii) further specify requirements that must be incorporated into a fmancial institution's enhanced due
diligence policies and procedures.

trading advisors.
See, e.g, New York Clearing House Association, L.L.c., "Guidelines for Counter Money Laundering Policies and
Procedures in Correspondent Banking," (March 2002) at www,nych,org; Basel Committee on Banking Supervision,
"Customer Due Diligence for Banks" (October 2001) at www,bis.org. A due diligence program that does not adopt all
of the best practices and standards described in industry and other available guidance also could be considered reasonable
if there is a justifiable basis for not adopting a particular best practice or standard, based on the particular type of
accounts held by the institution.
8

9

An enhanced due diligence program will be reasonable under section 5318(i)(2)(B), in
Treasury's view, if first, it comports with existing best practice standards for banks that maintain
correspondent accounts for foreign banks.

9

Second, the program must also focus enhanced due

diligence measures on those correspondent accounts that are maintained by a foreign correspondent
bank deemed high risk by section 5318(i)(2)(A) posing a particularly high risk of money laundering
based on the bank's overall assessment of the risk posed by the foreign correspondent bank. As with
the previous provision, it is the expectation of Treasury that a bank will accord priority in applying
enhanced due diligence to accounts opened on or after July 23,2002.
Within these priorities, as required by the statute, banks must take reasonable steps to comply
with directives described in sections 5318(i)(2)(B)(i) through (iii).

For purposes of section

5318(i)(2)(B)(i), an owner is deemed to be any person who directly or indirectly owns, controls, or
has voting power over 5 percent or more of any class of securities of a foreign bank, the shares of
which are not publicly traded.

3. . nll.~ DHi,,",en.l:e for Pdvate.B;H1kin~ ACCQ!!!'.ts:-c Banks, Sec!!rities Brokers ~~!f
Futures Commission Merchants, and Introducing Brokers

ne~Iers7

Sections 5318(i)(l) and (3) set forth due diligence requirements for U.S. financial institutions
that maintain private banking accounts in the United States for non-U.S. persons.

10

Under the Act,

a private banking account is an account (or any combination of accounts) that requires minimum
aggregate deposits of at least $1 million, that is established for one or more individuals, and that is
assigned to or administered or managed by, in whole or in part, an officer, employee, or agent of a
financial institution acting as liaison between the financial institution and the direct or beneficial
owner of the account. Section 5318(i)(3 )(A) requires financial institutions, as needed to guard

9

See supra note 7.
For purposes of this interim final rule, a non-U.S. person means an individual who is neither a United States citizen

10

10

against money laundering, to take reasonable steps to ascertain the identity of the nominal and
beneficial owners of, and the source of funds deposited into, the account. Additionally, the statute
requires enhanced scrutiny of private banking accounts maintained by or on behalf of senior foreign
political figures, an immediate family member, or close associate, to guard against laundering the
proceeds of foreign corruption.
As with the requirements for correspondent accounts, a private banking due diligence
program under sections 5318(i)( 1) and (3) must be reasonably designed to detect and report money
laundering and the existence of the proceeds of foreign corruption. Treasury believes that a due
diligence private banking program would be reasonable, pending adoption of final regulations to
implement section 5318(i), ifthe program is focused on those private banking accounts that present
a high risk of money laundering. A program that is consistent with applicable govenunent guidance
on private banking accounts, such as the guidance on sound practices for private banking issued by
the Federal Reserve (SR 97-19 (SUP) "Private Banking Activities" (June 30, 1997) at

the proceeds of foreign corruption issued jointly by Treasury, the bank regulators, and the State
Department in January 2001 (at http://www.treas.gov/press/reJeases/docs/guidance.htm) would be
reasonable, so long as it incorporates the requirements of section 5318(i)(3)." Treasury expects that
an institution will accord priority in applying enhanced due diligence to accounts opened on or after
July 23, 2002.

nor a lawful pennanent resident as defined in 26 U.S.c. 7701(b)(6).
II See also, Wolfsberg Group, "Global Anti-Money-Laundering Guidelines for Private Banking: Wolfsberg AML
Principles" (1 st Revision May 2002) at www.wolfsberg-principles.com. A program that does not follow all of the best
practices outlined in this government guidance would be reasonable ifthere is a justifiable basis, based on the particular
circumstances of the institution involved, for not following these practices.

11

III. Analysis of the Interim Final Rule
A. Banks, Savings Associations, and Credit Unions - Section 103.181
The following financial institutions are not subject to the deferral contained in this interim final
rule and must take steps, in light of the guidance provided above, to comply with the requirements
of section 5318(i) pending issuance of a final implementing regulation: An insured bank (as defined
in section 3(h) of the Federal Deposit Insurance Act (12 U.S.c. 1813(h»); a commercial bank; an
agency or branch of a foreign bank in the United States; a federally insured credit union; a thrift
institution; and a corporation acting under section 25A of the Federal Reserve Act (12 U.S.C. 611
et seq.).
B.

Securities Brokers and Dealers, Futures Commission Merchants, and Introducing
Brokers - Section 103.182
Securities brokers and dealers registered, or required to register, with the SEC, and futures

commission merchants and introducing brokers registered, or required to register, with the CFTC
under the Commodity Exchange Act (7 U.S.c. 1 et seq.) are subject to the requirements of section
5318(i) relating to due diligence and enhanced due diligence relating to private banking accounts.
They must take steps, in light of the guidance provided above, to comply with the requirements of
section 5318(i) relating to private banking accounts pending issuance of a final implementing
regUlation. Treasury and FinCEN are exercising the authority under BSA section 5318(a)(6) to
temporarily defer the application of all other requirements contained in section 5318(i) for securities
brokers and dealers, futures commission merchants, and introducing brokers.

C. All Other BSA Financial Institutions - Section 103.183
Treasury and FinCEN are exercising the authority under BSA section 5318(a)(6) to temporarily

12

defer the application of all requirements contained in section 5318(i) for all other financial
institutions. This tempora!)' deferment applies to casinos; money services businesses; mutual funds;
operators of credit card systems; dealers in precious metals, stones, or jewels; pawnbrokers; loan or
finance companies; private bankers; 12 trust companies; state chartered credit unions that are not
federally insured; insurance companies; travel agencies; telegraph companies; sellers of vehicles,
including automobiles, airplanes, and boats; persons engaged in real estate closings and settlements;
investment companies; commodity pool operators; and commodity trading advisors.
This tempora!), deferral does not in any way relieve any financial institution from compliance
with the existing anti-money laundering and anti-terrorism requirements imposed by law, regulation,
or rule of a self-regulato!), organization. Quite to the contrary, the obligations contemplated by
section 312 will serve to augment and improve the existing anti-money laundering activities of
financial institutions. To that end, Treasury and FinCEN expect financial institutions proposed to
be subject to the regulation implementing section 312 to begin immediately the process of evaluating

or maintained on behalf of non-U.S. persons.

IV. Administrative Procedure Act
The provisions of 31 U.S.C. 5318(i), requiring due diligence programs for certain foreign
accounts, become effective July 23, 2002. This interim rule exempts certain financial institutions
from these requirements and provides interim compliance guidance for those financial institutions
not exempted. Accordingly, good cause is found to dispense with notice and public procedure as
unnecessary and contrary to the public interest, pursuant to 5 U.S.c. 553(b)(8), and to make the

12 A private banker under the BSA refers to state chartered banking entities that are not organized as a corporation.
Generally, such entities are organized as partnerships. A private banker does not refer to those who offer private banking
accounts.

13

provisions of the interim rule effective in less than 30 days pursuant to 5 U.S.c. 553(d)(l) and (3).

V. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for this interim final rule, the provisions
of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.

VI. Executive Order 12866
This interim final rule is not a "significant regulatory action" as defined in Executive Order
12866. Accordingly, a regulatory assessment is not required.

List of Subjects in 31 CFR Part 103
Banks, banking, Brokers, Counter money laundering, Counter-terrorism, Currency, Foreign
banking, Reporting and recordkeeping requirements.

Authority and Issuance
For the

fP<lSOtlS

"pt forth in the

prcambk_~J l_CJ-.I~

Part 101 is ampndeoas tollows:

PART 103-FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is revised to read as follows:

Authority: 12 U.S.c. 1829b and 1951-1959; 31 U.S.c. 5311-5332; title Ill, sees. 312, 314, 352,
Pub. L. 107-56, 115 Stat. 307.
2. Add new undesignated centerheading "ANTI-MONEY LAUNDERING PROGRAMS" to
subpart I immediately before § 103.120.
3. Add new undesignated centerheading and §§103.181 through 103.183 to subpart I to read
as follows:

14

SPECIAL DUE DILIGENCE FOR CORRESPONDENT ACCOUNTS
AND PRIVATE BANKING ACCOUNTS
103.181

Special due diligence programs for banks, savings associations, and credit unions.

103.182

Special due diligence programs for securities brokers and dealers, futures
commission merchants, and introducing brokers.

103.183

Deferred due diligence programs for other financial institutions.
SPECIAL DUE DILIGENCE FOR CORRESPONDENT ACCOUNTS
AND PRIVATE BANKING ACCOUNTS

§ 103.181 Special due diligence programs for banks, savings associations, and credit unions.
The requirements of 31 U.S.c. 5318(i) shall apply, effective July 23, 2002, to a financial
institution that is:
(a) An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C.
1813(h)));

(c) An agency or branch of a foreign bank in the United States;
(d) A federally insured credit union;
(e) A thrift institution; or
(t) A corporation acting under section 25A of the Federal Reserve Act (12 U.S.c. 611 et seq.).

§ 103.182 Special due diligence programs for securities brokers and dealers, futures
commission merchants, and introducing brokers.
(a) Private banking accounts. The requirements of 31 U.S.C. 5318(i) relating to due diligence
and enhanced due diligence for private banking accounts shall apply, effective July 23, 2002, to a
financial institution that is:

15

(l) A broker or dealer registered, or required to register, with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); or
(2) A futures commission merchant or introducing broker registered, or required to register,
with the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C
1 et seq.).

(b) Correspondent accounts. A financial institution described in paragraph (a) of this section
is exempt from the requirements of 31 U.S.C. 53l8(i) relating to due diligence and enhanced due
diligence for certain correspondent accounts.
(c) Other compliance obligations of financial institutions unaffected. Nothing in this section
shall be construed to relieve a financial institution from its responsibility to comply with any other
applicable requirement of law or regulation, including title 31 of the United States Code and this
part.

§ 103.183 Deferred due diligence programs for other financial institutions.

institution defined in 31 U.S.C 5312(a)(2) and (c)(1) or § 103.l1(n) is exempt from the requirements
of31 U.S.C 5318(i).
(b) Other compliance obligations of financial institutions unaffected. Nothing in this section
shall be construed to relieve a financial institution from its responsibility to comply with any other
applicable requirement of law or regulation, including title 31 of the United States Code and this
part.

DATED: July 19, 2002

16

James F. Sloan
Director, Financial Crimes Enforcement Network

17

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

U.S. International Reserve Position

July 22

J

2002

The Treasury Department today released U.S. reserve assets data for the latest week A.s indicated in this table, 13.S. reserve
assets totaled $75,567 million at the end of the latest week, compared to $14,597 million at the end of the prior week

n

us millions)

Official U.S. Reserve Assets

TOTAL
. Foreign Currency Reserves
a. Securities

I

1

Euro

July 5, 2002

July 12. 2002

74,597

75,567

Yen

30ld Stock

2

3

)ther Reserve Assets

TOTAL

6,248

12,105

18,353
0

10,230

3,958

14,189
0
0

10,420

4,076

14,496
0
0
0
0

0
0
1S).0,,~ -1

Special Drawing Rights (SDRs)

Yen

17,878
0

b. Total deposits with:

b.iii. Banks headquartered outside the U.S.
b.iii. Of which, banks located in the US.

Euro

11,756

Of which, issuer headquartered in the U. S.

b.i. Other central banks and BIS
b.ii. Banks headquartered in the U. S.
b.ii. Of which, banks located abroad

TOTAL

6.122

!

11,637

11,044

11,044

0

0

rrying values.
The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SORs)," are based on data provided by the IfVlF and are valued in dollar
ms at the official SORJdollar exchange rate for the reporting date. The entries in the table above for latest week (shown In Italics) reilect any
:essary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.

-3273

IS

valued monthly at $42.2222 per fine troy ounce.

':FII

11,645

Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOrvIA),
lued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reilect

Gold stock

?(;.

Offical Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
5-Jul-02

Foreign Currency

5-Jul-02

This Week
12-Jul-02
Change

Euro Securities
Yen Securities

$6,121,853,066.78
$11,756,157,974.87

Sec. Total
Euro Deposits
Yen Deposits
Deposit Total
Total
Euro Rate
Yen Rate

12-Jul-02

Source: NY Fed (fax)

$6,248,188,573.30
$12,104,627,011.05

348,469,036

cOQ\( and Qasle data into last week
and put new data from fax

$17,878,011,041.66

$18,352,815,584.35

474,804,543

into right column

$10,230,497,555.58
$3,958,330,906.35

$10,419,973,654.99
$4,075,674,004.05

189,4 76,099

$14,188,828,461.92

$14,495,647,659.04

306,819,197

$32,066,839,503.58
$0.9730
120.19

$32,848,463,243.40
$0.9904
11673

781,623.740

IMF

5-Jul-02

126,335,507

117,343.098

12-Jul-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche

GAB
NAB
Total
SDR

19,840,939,336.09
0.00

20,037,377,176.14
0.00

0.00
19,840,939,336.09

0.00
20,037,377,176.14

196,437,84005

11,645,315,227.04

11,637,310,499.19

-8.004,72785

5-JId!=-.O.l

1.2:Ll!!:-02

11,043,723,652.64

11,043,707,102.46

5-JUI-0~1

12-JUI-0~1

196,437,84005
0.00
000

-16,550.18

as of 10/31/01

Gold

Source: FMS website
-16,550.18

http://www.fms.treas.gov/gold

o

IOther Res.Assets

ITOTAL

74,596,817,719.35

75,566,858,021.191

970,040,301.84

Adjustments to IMF and SDR data, translated at current exchange rates
lPrelin,~i~F-Ciata-------------IN-S(jRs----------------------------------------------------SD-R-ratE;f~r-------- -------------------:

ICalculation
I
Section
Reserve Tranche

GAB
NAB

5-Jul-02
15,070,792,645
0
0

SDRs

8,752,816.895

Adiustments
15,070,792,645
0
0
15,070,792,645
8,752,816,895

12-Jul-02
In USD
0752134
$20,037,377,176.14
$0.00
$0.00
Total$20,037,377,176.14
SDRs $11,637,310,499.19

Source:
http://www.imf.org/externallmap.htm. then go to "Exchange Rates in Terms of SDRs Daily"

i

D EPA R T :\1 E N T

0 F

'IREASURY

THE

T REA SUR Y

NEWS

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

EMBARGOED UNTIL 11: 30 A.M.
July 22, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The TreasuDI will auction 4-week Treasury bills totaling $20,000 million to
refund an estimated $16,000 million of publicly held 4-week Treasury bills maturing
July 25, 2002, and to raise new cash of approximately $4,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $11,219 million of the Treasury bills maturing
on July~25, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions.
Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign/?nd International
Xonetary Authority (FIMA) accoun~s bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 m~llion per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
Tr..G

allocrt"tio:-l psrccmtage

~·!ill })<:!'rat;'Jld~'d

up Le; tbe: nE.:xt

22~1 ~".cl
}n..u:d.ft_'dLh

t.O

bid.-: ::'''Jardrd

c:,f a

2.t".

t-he

whole parc..snt<:'igc->

h~

g:-:,cst disco"-nt Tate

POi(.iL,

e.g.,

17.13~.

This offering of Treasury secur~'ties is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Market~le Book.Entry Traasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about the new security are given in the attached offering highlights.

000

Attachment

)0-3274

For press releases, speeches, public schedules and official biographies, call

OllT

24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JULY 25, 2002
July 22, 2002
Offering Amount . . . . . . . . . . . . . . . ····· .$20,000 million
Public Offering . . . . . . . . . . . . . . . . ···· .$20,000 million
NLP Exclusion Amount . . . . . . . . . . . ·.·· .$10,800 million
Description of Offering:
Term and type of security .... , ...... 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . · .912795 KX 8
Auction date . . . . . . . . . . . . . , . . . . . . . . . . July 23, 2002
Issue date ....... , .
. ........ July 25, 2002
Maturity date......
. ........ August 22, 2002
Original issue date
......... February 21, 2002
Currently outstanding . . . . . . . . . . . . . . . $42,868 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids:
Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts.
Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will notftxceed $1,000 million.
A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1 .. 000
mi.lli.on limit.
l-!cfoJt=""'''''r, j f th'i?c~ are bvc or ::rrc:::e biGS of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ... 35% of public offering
Maximum Award..... .
...............
.35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day
Compet~tive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Pa:,-ltlent Terms:
By charge to a funds account at a Federal Reserve Bank
on issue date.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 22, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
July 25/ 2002
October 24, 2002
912795LG4

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.660%

High Rate:

Investment Rate 1/:

Price:

1.692%

99.580

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 91.23%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

37,713/800
1/466,813
271,000

$

16,000,684 2/

39,451,613

SUBTOTAL

$

TOTAL

4,820,509

4,820,509

Federal Reserve

44,272,122

14,262/871
1,466,813
271,000

$

20,821,193

Median rate
1.660%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.640%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

=

39,451,613 / 16,000,684

=

2.47

1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,172,827,000

bttp:llwww.publicdebt.treas.gov

)0-3275

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 22, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182 -Day Bill
July 25, 2002
January 23, 2003
912795LVl

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.675%

High Rate:

Investment Rate 1/:

Price:

1.713%

99.153

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 96.31%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

33,221,750
1,058,185

$

14,941,835
1,058,185

o

o

16,000,020 2/

34,279,935

SUBTOTAL

5,613,917

5,613,917

Federal Reserve
TOTAL

$

39,893,852

$

21,613,937

Median rate
1.660%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.620%:
5% of the amount
~f accepted competitive tenders was tendered at or below that rate.
3id-to-Cover Ratio = 34,279,935 / 16,000,020 = 2.14

l/ Equivalent coupon-issue yield.
~I

Awards to TREASURY DIRECT

=

$774,599,000

http;/Iwww.publicdebt.treas.gov

PO-3276

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960

For Immediate Release
Monday, July 22, 2002

Contact: Tasia Scolinos
(202) 622-2960

Under Secretary Jimmy Gurule
Speech Before National Organization of Black Law Enforcement Executives
Good afternoon and thank you for the opportunity to be here with you today. Mayor
Greco and Administrator Hutchinson it is a special honor to share the podium with you this
afternoon. The National Organization of Black Law Enforcement Executives (NOBLE) is an
organization that has stood united for 26 years with an unwavering commitment to bettering law
enforcement across the nation. Your membership is a testament to your hard work and
dedication to making our great nation a safer place. All that you do reflects your commitment to
your valued members. The name, "NOBLE," is most befitting.
Today, we gather to acknowledge your efforts and to give due recognition to those
chosen to receive scholarship awards. The students who will be honored are special indeed.
They have proven through their achievements that they are deserving. Entitled to both the praise
and support that comes with the pursuit of excellence.
I want to thank you, Ebony Ellis, Alicia Jane Johnson and Yvette Strong-Banks for
exemplifying the traits that have made this country strong: dedication, determination, and an
unbending spirit.
Ebony, your role as Vice President of the sophomore class and as a tutor of Project
Discovery, speaks to your concern for making a difference. Alicia, your desire to open forensic
labs in inner cities attests to your compassion and interest helping those disadvantaged
economically. Yvette, as a former award recipient of the Humanitarian National Concerned
Officers Organization, it is evident that your character is wealthy in kindness and a true concern
for others. I applaud all of you.
In this free society, your beginnings do not dictate your endings- hard work creates its
own rewards. This is simply your beginning. I encourage all of you to consider how, as
American citizens, you can contribute to the well being of your nation. Clearly m you have not
been fearful of being put to the test your accomplishments speak to thins. NOBLE has aided you
in your progress and supported your efforts.
PO-3277
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·u.s. Government Pnntlnq Olflce

1998 - 619-559

Just as you have been guided by caring public servants, so too must our country be
guided. We need the contributions of those tmly interested in this nation's well being. You can
continue the path of giving and providing service to your country.
You can do this individually or through organizations like the President's USA Freedom
Corps. Through the USA Freedom Corps the President wants to help every American answer to
the call to service. By strengthening and expanding service opportunities, the Freedom Corps
offers programs to Americans of all ages who are looking for ways to service their community,
our country and the world. The USA Freedom Corps fosters an American culture. The
opportunity to help our fellow citizens is the essence of the Corps. I encourage you to participate
in the effort and lend a hand in spreading American compassion around the globe.
Our country needs energetic and creative minds that can assist in the resolution of critical
national and domestic issues. It needs courageous and bright personalities to accomplish our
nation's objectives. It needs talent and people not afraid of challenge. As you transition form
high school into the collegiate environment, it is not too soon to begin thinking of your future
and all that you desire for it to hold. Deciding what it is you wish to do once you have
completed your education will undoubtedly be an item of much contemplation. As you begin
thinking about your future and what career you may wish to pursue, I ask that you consider
public service. The benefits of serving your country are many. The people who serve, the best
that our land has to offer- they are concerned, conscientious, and selfless.
Just take a look at our gracious hosts here today. There are heroes amongst us. These
officers personify those traits that I speak of. They are the courageous men and women of law
enforcement who risk their lives in order to protect us from danger and ensure domestic
tranquility. I want to thank all of our officers:. local, state and federal- for conducting your duties
with integrity and professionalism. Thank you for reaching out to your communities and giving
back. Thank you for remembering roads once walked while paving the way for those who
follow.
I know that since the attacks of September 11 th, your workloads intensified and the
burdens have grown. I want to recognize your efforts and commend your perseverance and
loyalty. On that horrific day when our peace and sense of safety were so viciously attacked, the
world changed forever in a fundamental way. Our national security is now under siege from a
stateless enemy willing to use catastrophic means to create terror.
The United States will not permit our enemies to prevail in their quest to destroy the
security of this country. Treasury Enforcement is dedicated to ensuring the dismption of terrorist
financing, both proactively and preventatively. We are not wait for more lives to be lost, we are
taking action now. We have gathered all of our experts in the intelligence, law enforcement,
regulatory and financial arenas together. We have called upon them to ferret out those who
support, facilitate, and fuel the activities of terrorist groups. With each passing day, we are
making it more difficult for them to operate.

While twisted ideology fuel their fanaticism, money is the lifeblood of their activities.
By freezing their funds we are striking at the heart of their operations. We must employ all of
our assets to track and disrupt the financing of al-Qaida and other terrorist groups. On September
23,2001, the President issued Executive Order 13224 granting the Secretary of the treasury
broad powers to freeze the assets of terrorist financiers and their supporters. This authority has
given us the ability to attack the financial substructure of terrorist groups- not with bombs or
prosecutions, but with financial actions based on the President's constitutional authorities.
We have acted judiciously. From taskforce to strike force, we have moved to swiftly
freeze the assets of 211 individuals and entities which comprise the support network for
terrorism. World-wide we have frozen over $112 million of terrorist related funds and have cut
channels of funding for future acts of violence and destruction. These blocking actions have
been the most purloin of our activities and we think they have proven effective. We have
received the support of nearly the entire world in this effort. Currently, 167 countries have
blocking order in effect. The United Nations, under Security Council Resolution 1373, has made
the freezing, without delay, of terrorist-related assets mandatory on all Member States. The
process of identifying and investigating targets is ongoing. Until the al-Qaida and other terrorist
factions are brought to justice, we cannot, and will not relent.
We live in perilous times which require new, creative strategies to secure our homeland.
A new chapter in government is about to be opened. Good governance is the foundation ofthe
President's proposed New Department of Homeland Security. It is a practical and necessary
appraoch to securing our borders with the full coordination of all of our assets. It is an important
and critical step toward protecting our country from future attacks.
As the President noted, the U.S. government has no more important mission than
protecting the homeland from future terrorist attacks. Yet the country has never had a
comprehensive and shared vision of how best to achieve this goal." In order to address the needs
th
of the country more effectively, the President announced June 6 the creation of a new
Department of Homeland Security.
The definition of "Homeland Security" is as follows: " concerted national effort to
prevent terrorist attacks within the United States, reduce America's vulnerability to terrorism,
and minimize the damage from attacks that do occur."
President Bush has been clear about what this means. "The terrorist threat to America takes
many forms, has many places to hide, and is often invisible. Yet the need for homeland security
is tied to our enduring vulnerability. Terrorists wish to attack us and exploit our vulnerabilities
because of the freedoms we hold dear ... We must rally our entire society to overcome a new
and very complex challenge. Homeland security is a shared responsibility.
To meet this challenge, the Office of Homeland Security, at the President's direction, has
developed a National Strategy.

The National Strategy is built on six critical mission areas. These areas are: 1) improving
our intelligence and warning capabilities; 2) toughening our border and transportation security;
3) strengthening our efforts to prevent domestic terrorism; 4) protecting our critical
infrastructure; 5) defending against weapons of mass destruction; and 6) improving our ability to
respond to emergencies.
The strategy highlights the importance of capitaliZing on the synergy between state, local
and federal resources. It also points out several key areas for long-term improvement, including
using new technologies to better protect our homeland and launching a new emphasis on
research and development in the fields ofbioterrorism and detection of weapons of mass
destruction.
The duplication of efforts will be eliminated, as will unnecessary jurisdictional disputes.
Information sharing, a critical component of our war on terrorism, will be fostered and open
communication will be a by-product of this new infrastructure. Enhanced cooperation and a oneteam approach will facilitate the ultimate goal -saving the lives of the American people.
Congress is working on a fast track bill for the President's signature as early as
September 11 th - the 151 year anniversary of the attacks. But enhancing homeland security cannot
be accomplished through legislation alone. Soon you will be called upon to meet the demands
that come with change and reorganization. I recognize that in these somewhat uncertain times,
many of you may feel a degree of anxiety but rest assured that change that leads to improved
government benefits all.
In order io ensure that this undertaking is successful, we must stand as a unified last
enforcement front- a front free of territorial strife and fragmentation. Crucial to the protection of
this great nation is cohesiveness and strength.

Each and everyone of us can playa role in securing our nation and caring for our society.
We must leave our children and generations to come with a country protected and safe. You are
men and women who have honorably chosen to dedicate yourselves to the protection of your
fellow man. I know that your will meet these new expectations with the fervor and skill that
your have always exemplified. The goal of this mission is the same as that of your prestigious
organization, "justice by action."
It is imperative that we remain a strong force- transcending all obstacles impeding
unification and therefore progress. We must not allow terrorist penetration into the fiber of
America. The cannot be allowed to join us as neighbors next door waiting to prey on our
weakness and bring ruin to our great country.

Again, I thanks you for the opportunity to be here with our today. It has truly been a
privilege. NOBLE has been, and I am confident will continue to be, a leading force in the
representation of law enforcement officers across our nation. I thank you for your efforts and I
wish you continued success.

-30-

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 23, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28 -Day Bill
July 25, 2002
August 22, 2002
912795KX8

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.695%

High Rate:

Investment Rate 1/:

Price:

1.723%

99.868

All noncompetitive and successful competitive bidders were awarded
;ecurities at the high rate.
Tenders at the high discount rate were
Illotted 53.74%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

47,181,600
35,700

$

19,964,435
35,700

°

°

SUBTOTAL
Federal Reserve
TOTAL

Accepted

Tendered

Tender Type

$

47,217,300

20,000,135

784,125

784,125

48,001,425

$

20,784,260

Median rate
1.685%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.660%:
5% of the amount
f accepted competitive tenders was tendered at or below that rate.

~s

Ld-to-Cover Ratio = 47,217,300 I 20,000,135 = 2.36
I

Equivalent coupon-issue yield.

http://www .pu blicdebt. treas.gov

PO-3278

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960

For Immediate Release
Wednesday, July 24, 2002

Contact: Tony Fratto
(202) 622-2960

Treasury Secretary Visit to South America Delayed
Secretary O'Neill's trip to Brazil, Uruguay and Argentina has been rescheduled
for August 5-7. The Secretary has decided to delay his trip by one week, as
Congress is at a critical juncture in completing work on corporate accountability,
Trade Promotion Authority, and homeland security - three important components
of the President's agenda to strengthen our economic recovery.
Because Brazil, Argentina, and Uruguay are important US partners, this delay is
as brief as possible.
-30PO-3279

Forpress releases, speeches, public schedules and ojJicitJl biographies, caU our 24.nour fax line at (202) 622-2040
·U.S. Government PrintIng Office 1998· 619-559

D EPA R T :\1 E 1\ T

() F

THE

T REA SUR Y

NEWS

'IREASURY

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - %0%%0 - (202) 622·2960

U.S. International Reserve Position

07/24/02

u.s.

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table,
reserve
assets totaled $69,870 million at the end of the latest week, compared to $69,681 million at the end of the prior week.

us millions)

;n

TOTAL
. Foreign Currency Reserves
a. Securities

r

j

June 7, 2002

May 31,2002
69,631

, Official U.S. Reserve Assets

Euro
5,814

Yen

11.383

69,870

TOTAL

Euro

17,197

b. Total deposits with:

b.iii. Banks headquartered outside the U.-S.
b.iii. Of which, banks located in the U.S.

IMF Reserve Position

2

Special Drawing Rights (SDRs)

2

Gold Stock 3
Other Reserve Assets

Yen

TOTAL

11,350

9,812

3,833

13,644

9,927

3,822

0
0
0

0
0

16,498

16,517

11,297

11,310

11,044

11,044

0

0

InclUdes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
:Jlued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect
3rrylog values .
. The items, "2. IMF Reserve position" and "3. SpeCial DraWing Rights (SORs)," are based on data provided by the IMF and are valued in dollar
rms at the official SDRJdoilar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
)cessary adjustments, Jncluding revaluation, by the U.S. Treasury to the pnor week's IMF data. The IMF data for the prior week are final.

-3281

13,749
0
0

0

I

Gold stock is valued monthly at $42.2222 per fine troy ounce.

17,250

o

o

Of which, issuer headquartered in the US.

bJ. Other central banks and BIS
b.ii. Banks headquartered in the U.S.
b.ii. Of-which, banks located abroad

5,900

Offical Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
31-May-02

This Week
7-Jun-02

Foreign Currency

31-May-02

7-Jun-02

Change

Euro Securities
Yen Securities

Sec. Total
Euro Deposits
Yen Deposits

Deposit Total
Total
Euro Rate
Yen Rate

$5,814,218,613.46
$11,383,070,748.41

$5,899,627,469.20
$11,349,963,209.90

$17,197,289,361.87
$9,811,892,586.91
$3,832,606,336.65

Source: NY Fed (fax)
85,408,856
-33,107,539

cogy and gasle data into last week
and put new data from fax

$17,249,590,679.09

52,301,317

into right column

$9,926,988,671.88
$3,821,534,996.07

115,096,085

$13,644,498,923.55

$13,748,523,667.95

104,024,744

$30,841,788,285.42
$0.9339
124.13

$30,998,114,347.04
$0.9449
124.49

156,326,062

IMF

31-May-02

-11,071,341

7-Jun-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche

16,497,842,197.20
0.00

16,517,412,439.91
0.00

0.00
16,497,842,197.20

0.00
16,517,412,439.91

19,570,24271

11,296,901,766.65

11,310,302,495.22

13,400,728.57

31-May-02

7-Jun-02

11,044,405,898.89

11,043,991,301.17

31-MaY-0~1

7-Jun-0~1

GAB
NAB
Total
SDR

put

JCfU21

dollar figures in for last week:

19,570,242.71
0.00
0.00

-414,597.72

as of 10/31/01

Gold

Source: FMS website
-414,597.72

http://www.fms.treas.gov/gold

a
IOther Res.Assets
/TOTAL

69,680,938,148.16

69,869,820,583.34/

188,882,43518

Adjustments to IMF and SDR data, translated at current exchange rates
lfireliITI.I~F-[jatii------------IN-S-DR:s---------------------------------------------------sD-R-riite;io~---------- -----------------1

,

,'Calculation Section
Reserve Tranche
GAB
NAB
SDRs

,

31-Mav-02
12.782,495,139
0
0

8,752,816,895

Adiustments
12,782.495,139
0
0
12,782,495,139
8,752,816,895

7-Jun-02
In USD
:
0.773880
$16,517,412,439.91

Total
SDRs

Source:
http://www.imf.org/externallmap.htm. then go to "Exchange Rates in Terms of SDRs Daily"

$0.00
$0.00
$16,517,412,439.91
$11,310,302,495.22

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

u.s. International Reserve Position

7/24/02

The Treasury Department today released US. reserve assets data for the latest week. l\s indicated in this table, u.s. reserve
assets totaled $69,931 million at the end of the latest week, compared to $69,759 million at the end of the prior week

n

us millions)
TOTAL

. Foreign Currency Reserves
a; Securities

L

1

Euro

Yen

2

Special Drawing Rights (SDRs)
Gold Stock

2

3

Other Reserve Assets

Yen

TOTAL

5,900

17,250
0

5,915

11,372

17,287
0

9,927

3,822

13,749
0
0

9,932

3,829

13,761
0
0

b;Total deposits with:
b:L Other central banks and BIS
b.ii. Banks headquartered in the U.S.
b.ii. Of which, banks located abroad
b.iii. Banks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.

Euro

TOTAL

11,350

Of which, issuer headquartered in the US.

IMF Reserve Position

June 14. 2002
69,931

June 7,2002
69,759

Official U.S. Reserve Assets

0
0

0
0

16,436

16,500

11,280

11,340

11,044

11,044

0

0

, Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
llued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect
lrrying values.
The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
rms at the official SORJdoliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
~cessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
Gold stocl< is valued monthly at .'542.2222 per fine troy ounce.

-3282

Offical Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
7-Jun-02

This Week
14-Jun-02

7-Jun-02

14-Jun-02

Change

Foreign Currency
Euro Securities
Yen Securities

Sec. Total
Euro Deposits
Yen Deposits

Oeposit Total
Total
Euro Rate
Yen Rate

Source: NY Fed (fax)

$5,899,627,469.20
$11,349,963,209.90

$5,915,376,655.44
$11,371,917,971.83

21,954.762

cOQY and Qaste data into last week
and put new data from fax

$17,249,590,679.09

$17,287,294,627.28

37,703,948

into right column

$9,926,988,671.88
$3,821,534,996.07

$9,931,697,224.66
$3,828,938,766.62

$13,748,523,667.95

$13,760,635,991.29

12.112.323

$30,998,114,347.04
$0.9449
124.49

$31,047,930,618.56
$0.9448
124.25

49,816,272

IMF

7-Jun-02

15,749,186

4,708.553
7,403,771

14-Jun-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche
GAB
NAB
Total
SDR

p'l! actual_dollar figures in for last week;

16,436,035,363.63
0.00

16,499,636,366.35
0.00

63,601.002.72

0.00
16,436,035,363.63

0.00
16,499,636,366.35

000
63.601,002.72

11,280,057,342.24

11,339,711,189.54

59,653,847.30

7-Jun-02

14-Jun-02

11,044,405,898.89

11,043,991,301.17

0.00

-414,597.72

as of 10/31/01

Gold

Source: FMS website
http://wwvv.fms.treas.gov/gold

-414,59772

o

7-JUn-0~!

14-JUn-O~1

IOther Res.Assets
[TOTAL

69,758,612,951.80

69,931,269,475.61 1

172,656,523.81

Adjustments to IMF and SOR data, translated at current exchange rates
lP~eiirn~I~F-[)ata-------------IN-sI5Rs------------------ ----------------------------------S[)R-rate-for---------------------------1

,
,'Calculation Section
Reserve Tranche
GAB
NAB

7-Jun -02
12,735,623,821
0
0

SDRs

8,752,816,895

,

Adjustments
12,735,623,821

0
0
12,735,623,821
8,752,816,895

14-Jun-02
In USD
:
0.771873
$16,499,636,366.35
$0.00
$0.00
$16,499,636,366.35
Total
$11,339,711,189.54
SDRs

=
=

Source:
http://www.imf.org/externallmap.htm. then go to "Exchange Rates

In

Terms of SDRs Daily"

D EPA R T :\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C.· 20220. (202) 622-2960

u.s. International Reserve Position

7/24/02

u.s.

The Treasury Department today released US. reserve assets data for the latest week As indicated in this table,
reserve
assets totaled $70,942 million at the end of the latest week, compared to $69,767 million at the end of the prior week

'n

us millions)
June 14) 2002
69,767

Official U.S. Reserve. Assets

TOTAL
. Foreign Currency Reserves
a; Securities

1

I

Euro
5,915

Yen
11,372

June 21) 2002

70,942
TOTAL

Euro

17,287

6,078

Yen

TOTAL

11,655

0

Of which, issuer headquartered in the U. S.

17,733

0

b, Total-depositswith:
h.i. Other central banks and BIS
b.ii. Banks headq.uartered in tile U.S.

9,932

3,829

13,761

10,209

3,924

0

14,133

0
0

b.iL Of which, banks located abroad

0

b.iii. Banks headquartered outside the U. S.
b.iii. Of which, banks located in the U.S.

0

0
0

IMF Reserve Position ~

16,383

16,594

Special Drawing Rights (SDRs) ~

11,292

11,437

Gold Stock 3

11,044

11,044

0

0

Other Reserve Assets

0

Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA).
llued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-lo-market values. and deposits reflect
lrrying values.
The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued In dollar
rms at the official SDR/dollar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
'cessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
Gold stock is valued monthly at $42.2222 per fine troy ounce.

·3283

Ottical Reserve Assets Worksheet
(actual US dollar amounts)
Last Week
14-Jun-02

Enter Dates Here

This Week
21-Jun-02
Change

Foreign Currency

14-Jun-02

21-Jun-02

Source: NY Fed (fax)

Euro Securities
Yen Securities

$5,915,376,655.44
$11,371,917,971.83

$6,078,212,484.29
$11,655,178,784.13

283,260,812

cO[lY and [laste data into last week
and put new data from fax

Sec. Total
Euro Deposits
Yen DepOSits

$17,287,294,627.28

$17,733,300,26842

446,005,641

into right column

$9,931,697,224.66
$3,828,938,766.62

$10,208,642,334.73
$3,924,348,072.63

276,945,110

Deposit Total

$13,760,635,991.29

$13,132,990,407.36

-627,645,584

$31,047,930,618.56
$0.9448
124.25

$31,866,290,675.78
$0.9705
121.23

818,360,057

Total
Euro Rate
Yen Rate

IMF

14-Jun-02

162,835,829

95.409,306

21-Jun-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche
GAB

NAB
Total
SDR

put actual dc:llar fiqures in for iast week:

16,383,228,134.08
0.00

16,594,414,554.85
0.00

211,186,420.77

0.00
16,383,228,134.08

0.00
16,594,414,554.85

000
211,186,420.77

11,291,582,409.12

11,437,135,462.26

145,553,053.14

14-Jun-02

21-Jun-02

11,044,405,898.89

11,043,723,652.64

0.00

-682,246.25

as of 10/31/01

Gold

14-JUn-0~1

21-JUn-0~1

Source: FMS website
-682,246.25

http://www.fms.treas.gov/gold

o

IOther Res.Assets

ITOTAL

69,767,147,060.65

70,941,564,345.54/

1,174,417,28489

Adjustments to IMF and SOR data, translated at current exchange rates

lPreiinn~I~F-D-atii------------iN-sJjRs------------------ ----------------------------------S[)R-ratEifor--------- ------------------l

,

,

'Calculation
I
Section
Reserve Tranche

GAB
NAB

14-Jun-02
12,699,672,270
0
0

SDRs

8,752,816,895

Adiustments
12,699,672,270
0
0
12,699,672,270
8,752,816,895

21-Jun-02
In USD
:
0.765298
$16,594,414,554.85
$0.00
$0.00
Total$16,594,414,554.85
SDRs
$11,437,135,462.26

Source:
http://www.imf.org/externaJ/map.htm. then go to "Exchange Rates in Terms of SDRs Daily"

D EPA R T :\1 E 1\ T

0 F

THE

T REA SUR \'

NEWS

'IREASURY

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960

u.s. International Reserve Position

7/24/02

u.s.

u.s.

The Tre:lSluy Depanment today released
reserve assets data for the latest week As indicated in this table,
reserve
assets totaled $74,846 million at the end of the latest week, compared to $73,737 million at the end of the prior week

in US

millions)

,Official

u.s. Reserve Assets

[

. Foreign Currency Reserves: 1
a\ Securities
Of which; issuer headquartered in the U. S.
b. Total deposits with:
b:[ Otheteentral banks and-SIS
b,ii.Banks headquartered in the U.S:
bji. Of which, banks located abroad
bJii. Banks headquartered outside the U.S.
b.iii. Of-which, banks located in the U.S.

JMF Reserve Position 2
Special Drawing Rights (SDRs)

June 28,.2002.
74,846

June21,2002
73,737

TOTAL

2

GoJdStoc\<: 3
:)ther Reserve Assets

Euro
6,078

Yen
11,655

TOTAL

Euro

17,733

6,201

Yen
11,790

TOTAL

10,209

3,924

14,133
0
0

10,356

3,970

0
0

19,430

19,841

11,396

11,645

11,044

11,044

0

0

lnying values.
The items "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
ms at the ~fficial SDRJdoJlar exchange rate for the reporting date. The en'iries in the table above for latest week (shown in italiCS) reflect any
cessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.

-3284

14,325
0
0

0
0

Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
Ilued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect

Gold stock is valued mont~ly at $42.2222 per fine troy ounce.

17,991

o

o

Offical Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
21-Jun-02

Foreign Currency

21-Jun-02

This Week
28-Jun-02
Change

28-Jun-02

Source: NY Fed (fax)

Euro Securities
Yen Securities

$6,078,212,484.29
$11,655,178,784.13

$6,201,247,365.30
$11,789,509,653.73

134.330.870

cOQ~ and Qaste data into last week
and put new data from fax

Sec. Total
Euro Deposits
Yen Deposits

$17,733,300,268.42

$17,990,757,019.04

257.456,751

into right column

$10,208,.642,334.73
$3,924,348,072.63

$10,355,929,341.33
$3,969,560,216.42

147.287,007

Deposit Total

$14,132,480,144.21

$14,325,489,557.75

193.009.414

$31,865,290,675.78
$0.9705
121.23

$32,316,246,576.79
$0.9856
119.85

450,955.901

Total
Euro Rate
Yen Rate

IMF

21-Jun-02

123,034.881

45,212.144

28-Jun-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche
GAB
NAB
Total
SDR

put actual dollar figures in for last week;

19.430,123,577.22
0.00

19,840,868,062.67
0.00

0.00
19,430,123,577.22

0.00
19,840,868,062.67

410,744.485.45

11,395,754,455.61

11,645,273,394.24

249,518,938.63

410,744.48545
0.00
0.00

-682,246.25

Source: FMS website
-682,246.25

http://www.fms.treas.gov/gold

a

1,110,537,078.84

Adjustments to IMF and SDR data, translated at current exchange rat~s

_________________________________________________________ _
SDR rate for
:

:Fjrellm-_-iMF-O-ata------------'N-S-ORs---------------------------- ---- I

'Calculation Section
Reserve Tranche
GAB
NAB
I

SDRs

-

21-Jun 02
14,912,787,301
0
0
8,752,816,895

I

Adjustments
14,912,787,301
0
0
14,912,787,301
8,752,816,895

28-Jun-02
In USD
:
0751620
$19,840,868,062.67
$0.00
$0.00
Total
$19,840,868,062.67
SDRs
$11,645,273,394.24

Source:
http://www.imf.org/externallmap.htrn, then go to "Exchange Rates in Terrns of SDRs Daily"

,

D EPA R T MEN T

0, F

THE

-

'It:: R;E

A; Si,Jj'

R,Y

EWS

TREASURY

omCE OF PUBUCAFFAIRS .. 1500 PENNSYLVANIA AVENUE, N.W." WASHINGTON, D.C." 20220

~

(202) 622·2960

MEDIA ADVISORY
The Department of Treasury Unveils New 2002 Money Laundering Strategy

What:

Treasury Deputy Secretary Ken Dam and Under Secretary for Enforcement
Jimmy Gurule will hold a press briefing to discuss the Administration's new 2002
National Money Laundering Strategy. They will be discussing the new terrorist
financing components of the Strategy and also the new metrics section.

Where:

The Treasury Department
rd
The Diplomatic Room, 3 Floor
Please enter at the Pennsylvania Street Entrance
Cameras please use the moat entrance. Contact the number below for an escort.

When:

Thursday, July 25th, 2002
3:00 PM

Contact:

Media without Treasury or White House press credentials planning to attend
Should contact Treasury's Office of Public Affairs at (202) 622-2960 with the
Following information: name, social security number and date of birth. This
Information may also be faxes to (202) 622-1999.

-30-

PO-3285

For press releases, speeches, public schedules ami official biographies, call aur 24·holJr fax line at (202) 622-2()4()
·U.S. Government Pnntlng Oltlce 1998· 619-559

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 24, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:

Issue Date:
Dated Date:
Maturity Date:

2 1/4%
Q-2004
912828AG5

High Yield:

Price:

2.270%

July 31, 2002
July 31, 2002
July 31, 2004

99.961

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 11.10%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

40,800,977
1,376,524

$

o

o

27,000,029 1/

42,177,501

SUBTOTAL

$

TOTAL

6,236,933

6,236,933

Federal Reserve

48,414,434

25,623,505
1,376,524

$

33.236.962

Median yield
2.220%:
50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low yield
2.100%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio

=

42,177,501 / 27,000,029

1. 56

1/ Awards to TREASURY DIRECT = $1,065,402,000

http://www.publicdebt.treas.gov

PO-3286

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 24, 2002

Office of Flnancing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:

Issue Date:
Dated Date:
Maturity Date:

2 1/4%
Q-2004
912828AG5

High Yield:

2.270%

Price:

July 31, 2002
July 31, 2002
July 31, 2004

99.961

All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 11.10%.
All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
$

Competitive
Noncompetitive
FIMA (noncompetitive)

40,800,977
1,376,524

$

o

o

27,000,029 1/

42,177,501

SUBTOTAL

6,236,933

6,236,933

Federal Reserve
$

TOTAL

48,414,434

25,623,505
1,376,524

$

33,236,962

Median yield
2.220%:
50% of the amount of accepted competitive tenders
'as tendered at or below that rate.
Low yield
2.100%:
5% of the amount
'f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio

=

42,177,501 / 27,000,029

/ Awards to TREASURY DIRECT

=

1. 56

$1,065,402,000

http://www.publicdebt.treas.gov

PO-3286

D E P :\ R T \, E ~ T

0 F

THE

T R E ,\ SUR Y

NEWS
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• %0%%0. (%0%) 6%%-%960

EMBARGOED UNTIL 3:00 P.M. EDT
Thursday, July 25, 2002

Contact: Tasia Scolinos
(202) 622-2960

Remarks of Under Secretary Jimmy Gurule
2002 National Money Laundering Strategy Roll Out
Thank you, Deputy Secretary Dam. I want to thank you and Secretary O'Neill for your
leadership and support in the development of the 2002 Money Laundering Strategy.
This is an important day and an important document.
The preparation of the National Money Laundering Strategy is an enormous undertaking.
The active support and participation of a number of federal agencies contributed to the final
project. I would like to thank the representatives here today of all the other bureaus and agencies
who have contributed to the 2002 Strategy. This is truly a collaborative process reflecting the
input of all the relevant players.
I would also like to thank Deputy Assistant Secretary for Money Laundering and
Financial Crimes, Julie Myers, for spearheading the preparation of this Strategy and the Treasury
Executive Office of Asset Forfeiture for the valuable role they played in assisting DAS Myers.
When I was sworn in as Under Secretary, I pledged to make anti-money laundering
enforcement one of my primary goals. I am here today to tell you that it has become a priority of
Treasury Enforcement for one critical reason. Attacking the financial structures of criminal
organizations - their lifeblood - is one of the best ways to dismantle sophisticated criminal
enterprises. Let me explain why.
If our law enforcement agents pick-Up a drug mule carrying narcotics across the border
that helps to fight crime but it doesn't leave a permanent impact on the criminal organization.
The criminal gang will simply go down the block and find another willing participant to take
their incarcerated colleague's place. But if you penetrate the financial underpinnings of a
criminal organization replacement is not so easy. The criminals can't just pick up the phone and
find another sophisticated accountant or professional money handler who understands global
banking systems and is willing risk their white collar lifestyle to tread into illegal waters. As
Treasury agents recognized long ago, if you get Al Capone's money, you get Al Capone.

P0-3287

For press releoses, speeches, public st:heduJes and ujfit:iD1 biographies, call our 24.Jwur fax line at (202) 622-2040
·u.s. GoYMnmenl Pnnttng Offoce

1998, 619-559

That rationale also applies to attacking the financial underpinnings of terrorist groups.
These networks of murderers are mercenaries who require hard money to finance their deadly
acts of terror. Ifwe can shut down their financial structures, we save innocent lives.
I am pleased to tell you that our efforts are making a difference. We have blocked the
assets of211 terrorist entities and individuals. $34.3 million has been blocked domestically and
$77.9 million has been blocked by our allies, for a total of over $112 million that is not going to
support terrorist training camps and to purchase weapons of death.
At the same time, we are making solid progress on our more traditional money
laundering case investigations. For the first time, the 2002 Strategy reports on some of the
significant money laundering cases that the federal government has investigated and prosecuted
in the last year.
For example, last month, Customs agents in New Jersey arrested an Assistant VicePresident of a bank who was operating an illegal money transmitting business that moved
approximately a half billion dollars in eight months. The Assistant VP maintained over 250
accounts at the bank, 44 of which were in the names of non-existent companies and people that
were fronts for currency exchange firms in Brazil. Customs received substantial assistance from
IRS-CI and DEA in the case, which is now being prosecuted by the U.S. Attorney's Office in
Newark.
I would also like to highlight a few other cases that illustrate the progress we are making on
the money-laundering front:
•

Last month, a jury in North Carolina convicted Mohamad Hammoud and his brother Chawki,
for providing material support to the terrorist group Hezbollah through racketeering,
conspiracy, and conspiracy to commit money laundering by funneling profits from a cigarette
smuggling operation to purchase military equipment for the Hezbollah terrorists. In March
2002, several of the Hammoud's co-defendants pled guilty to a number of charges including
conspiracy to commit money laundering. That case began when West Virginia State Police
seized a significant quantity of contraband cigarettes and notified Treasury agents at ATF.
The Financial Crimes Enforcement Network or FinCEN, from the early stages of this
investigation, supplied and networked over 300 Bank Secrecy Act leads to the FBI and ATF.
• A New York City policeman pled guilty in March to laundering between $6 and $10 million
obtained from the sale of drugs in the New York City metropolitan area. Colombian
narcotics traffickers shipped sixty tons of cocaine to the New York City area over a two-year
period. After the cocaine was sold, the defendants received instructions to pick up the drug
money, and would meet the drug dealers at various locations on the streets of New York City
where they received bags containing between $100,000 and $500,000 in cash. The
defendants rented cars and drove the drug proceeds to Miami, Florida. Once in Miami, the
defendants delivered the money to various Miami area businesses, which accepted the drug
money as payment for goods, such as video games, calculators, print cartridges, bicycle parts
and tires, which they subsequently exported to Colombia -- transactions consistent with the
operation of the trade-based BMPE laundering system frequently employed by Colombian
narcotics traffickers.

2

•

The Customs Service, in conjunction with DEA and Colombia's Departamento
Administrativo de Seguridad arrested 37 individuals in January 2002 as a result of Operation
Wire Cutter, a 2 112 year undercover investigation of Colombian peso brokers and their
money laundering organizations. These individuals are believed to have laundered money
for several Colombian narcotics cartels. The peso brokers contacted undercover Customs
agents and directed them to pick-up currency in New York, Miami, Chicago, Los Angeles,
and San Juan, Puerto Rico that had been generated from narcotics transactions. The brokers
subsequently directed the undercover agents to wire these proceeds to specified accounts in
U.S. financial institutions that were often in the name of Colombian companies or banks that
had a correspondent account with a U.S. bank. Laundered monies were subsequently
withdrawn from banks in Colombia in Colombian pesos. Investigators seized over $8
million in cash, 400 kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine
firearms, and six vehicles.

I should also note the long-standing "EI Dorado" Task Force, which is led by U.S. Customs
and IRS in New York. Comprised of 185 individuals from 29 federal, state, and local agencies,
the "El Dorado" Task Force is one of the nation's largest and most successful financial crimes
task forces, having seized $425 million and arrested 1,500 individuals since its inception in 1992.
In addition the HIFCA Task Forces (High Intensity Financial Crimes Areas) have also made
significant progress. They initiated over 100 new money laundering investigations during 2001
alone. Finally, in 2001, law enforcement agents of the Departments of Treasury and Justice
seized over $1 billion in criminal funds - about 38% of which was related to money laundering
investigations. The Departments forfeited over $241 million in criminal assets in FY 2001
relating to money laundering.
But we can and must do even better. Good government requires creative problem solving
to successfully address the problems this country faces today. The 2002 National Money
Laundering Strategy is a blueprint of how the Administration will address critical issues
surrounding the enforcement of fmancial crimes.
With that in mind, I would like to walk you through some of the key points of the 2002
Strategy and then take some of your questions.
Terrorist Financing
The 2002 Strategy calls on the Departments of State, Treasury, and Justice and the
intelligence community to enhance the level of cooperation currently received from our partners
abroad.
There is a special emphasis placed on continued involvement in multi-national bodies
such as FATF and also in joint designations with other countries. Furthermore we are also
working on agreements with our allies that would allow us to partner with law enforcement
agencies abroad to jointly investigate financial links to terrorists.

3

•

The Customs Service, in conjunction with DEA and Colombia's Departamento
Administrativo de Seguridad arrested 37 individuals in January 2002 as a result of Operation
Wire Cutter, a 2 112 year undercover investigation of Colombian peso brokers and their
money laundering organizations. These individuals are believed to have laundered money
for several Colombian narcotics cartels. The peso brokers contacted undercover Customs
agents and directed them to pick-up currency in New York, Miami, Chicago, Los Angeles,
and San Juan, Puerto Rico that had been generated from narcotics transactions. The brokers
subsequently directed the undercover agents to wire these proceeds to specified accounts in
U.S. financial institutions that were often in the name of Colombian companies or banks that
had a correspondent account with a U.S. bank. Laundered monies were subsequently
withdrawn from banks in Colombia in Colombian pesos. Investigators seized over $8
million in cash, 400 kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine
firearms, and six vehicles.

I should also note the long-standing "EI Dorado" Task Force, which is led by U.S. Customs
and IRS in New York. Comprised of185 individuals from 29 federal, state, and local agencies,
the "EI Dorado" Task Force is one of the nation's largest and most successful financial crimes
task forces, having seized $425 million and arrested 1,500 individuals since its inception in 1992.
In addition the HIFCA Task Forces (High Intensity Financial Crimes Areas) have also made
significant progress. They initiated over 100 new money laundering investigations during 2001
alone. Finally, in 2001, law enforcement agents of the Departments of Treasury and Justice
seized over $1 billion in criminal funds - about 38% of which was related to money laundering
investigations. The Departments forfeited over $241 million in criminal assets in FY 2001
relating to money laundering.
But we can and must do even better. Good government requires creative problem solving
to successfully address the problems this country faces today. The 2002 National Money
Laundering Strategy is a blueprint of how the Administration will address critical issues
surrounding the enforcement of financial crimes.
With that in mind, I would like to walk you through some of the key points of the 2002
Strategy and then take some of your questions.
Terrorist Financing
The 2002 Strategy calls on the Departments of State, Treasury, and Justice and the
intelligence community to enhance the level of cooperation currently received from our partners
abroad.
There is a special emphasis placed on continued involvement in multi-national bodies
such as FATF and also in joint designations with other countries. Furthermore we are also
working on agreements with our allies that would anow us to partner with law enforcement
agencies abroad to jointly investigate financial links to terrorists.

3

Charities and Improper Use ofNGOs
The 2002 Strategy focuses on "high impact" targets and systems, including corrupt
charities, the misuse of alternative remittancesystems, which include hawalas, and bulk-cash
smuggling. The enactment of the USA Patriot Act has made it more difficult for terrorist
fmanciers to transfer money through traditional Western banking system. Thus terrorists have
resorted to alternative means of moving and hiding money. FinCEN has been conducting a study
on the use of these alternative systems that will be completed in October.
Treasury will lead an interagency process to develop a set of internationally accepted
standards or "best practices" for the alternative remittance industry. This goal will be pursued in
the context of the Financial Action Task Force (FATF) Special Recommendations on Terrorist
Financing and the Asia Pacific Group (APG) recommendations on Alternative Remittance and
Underground Banking Systems, both of which call for enhanced regulatory oversight.
The use of non-governmental organizations (NGOs), including charities, to raise funds in
support of terrorist groups is an area that demands further attention from the U.S. Government.
Though these NGOs may be offering humanitarian services here or abroad, funds raised by
certain charities have been diverted to terrorist causes. This scheme is particularly troubling
because these funds are earmarked for good and they are being grossly perverted to fund acts of
evil against innocent civilians.
The United States will work to help develop international ''best practices" on how to
regulate charities to prevent their abuse and infiltration by terrorists and their supporters. At the
June 2002 FATF Plenary meeting, the United States presented a paper that will form the basis
for a discussion of international standards. As part of this effort, the U.S. government will
identify high-risk areas and deploy mUlti-agency teams to assist host governments in applying
charitable regulation ''best practices".
Creation of Targeting Team
Officials at both the Department of the Treasury and the Department of Justice recognize
that it is vitally important to cooperate and coordinate with one another to investigate priority
targets whenever it is possible to do so. The strategy addresses the importance of making joint
decisions about what major money laundering organizations and systems to target and how to
investigate and prosecute them before those investigations are initiated. To address this concern,
the Departments of the Treasury and Justice will co-lead an interagency effort to identify
potential money laundering-related targets, and then deploy the necessary assets to attack those
agreed upon targets.
We will establish an interagency targeting team to help focus our efforts and resources
against the most significant money laundering organizations and systems, such as individuals
who smuggle bulk cash and terrorist groups. In addition the Strategy calls for more jail time for
the money-laundering masterminds.

4

USA PATRlOT Act
Information is a critical weapon in the war against terrorist financing. The new
information-sharing provisions of the USA PATRIOT Act afford financial institutions greater
flexibility in evaluating potential risks and sharing their concerns with both the federal
government and amongst themselves. We are working with FinCEN to draft regulations to
implement some of the anti-money laundering provisions of the PATRIOT Act, and are
evaluating comments submitted to the regulations we proposed to implement other sections.
Highlights of our major accomplishments over the past nine months include:
•

Issuing customer identification and verification regulations jointly with the federal regulators
to ensure that all federally regulated financial institutions employ basic procedures to identify
and verify the identity of their customers.

•

Providing immediate guidance for complying with an important provision of the Act that cuts
unregulated foreign shell banks off from our financial system.

•

Expanding our basic anti-money laundering program requirement to the major financial
services sectors, such as broker-dealers, and

•

Developing a proposed rule to implement a comprehensive statutory provision that seeks to
minimize risks presented by correspondent banking and private banking accounts.

Metrics
The 2002 Strategy is a groundbreaking document. It provides, for the first time in a
National Money Laundering Strategy, baseline facts and figures that can help determine how
well the federal government is succeeding in its efforts to detect, prevent, and deter money
laundering - a major goal of Secretary O'Neill.
The 2002 Strategy publishes data collected by the U.S. Sentencing Commission in Fiscal
Year 2000 concerning defendants in federal cases that went to jail for committing a money
laundering offense. Although the Sentencing Commission data is incomplete by itself, analysis
of this data is instructive and provides a starting point for meaningful baselines and metrics.
•

We now know that over 80% of all money launderers that were sentenced did not receive a
leadership enhancement.

•

We now know that almost 80% of those sentenced laundered less than $1 million.

•

We know that some districts, even densely popUlated districts, prosecuted a limited number
of money laundering cases.

5

These statistics show that we can improve our ability to focus on major money laundering
prosecutions and target large organizations.
Of course, it is not enough merely to pledge to do better. We must have ways to
meaningfully quantify our efforts. With these articulated baselines, we will be able to develop
metrics to evaluate our progress. We are also seeking to develop new baselines within the
Strategy by measuring our investment in money laundering enforcement and developing a
uniform case reporting system. These efforts will take time, and, if done right, should show
some real results.
For instance by tracking the commission rate charged in money laundering transactions we
will be able to ascertain if our efforts are making a difference over a period of years.
FATFlInternational
On the ever important international front, we will continue to work with the international
financial institutions, such as the World Bank and International Monetary Fund, and the
multinational Financial Action Task Force to improve and monitor anti-money laundering
compliance efforts throughout the world. The Strategy reports on the efforts and results achieved
by all the countries that have appeared on the FATF list. FATF periodically revises the Forty
Recommendations to address new anti-money laundering challenges. The U.S., under Treasury
leadership, is playing an active role in this effort. In May 2002, FATF finalized a consultation
paper that presents options and seeks the views of non-F ATF members and the private sector on
these possible revisions.FinCEN has also been instrumental through the Egmont Group of
financial intelligence units (FIUs) in enhancing the exchange of financial information in support
of criminal investigations including terrorist-related financing.

I would be happy to answer any questions that you have on the 2002 Strategy.

6

»

E P .\ R T \1 E :\ T

0 F

THE

T R E :\ S V R Y

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIUNGTON, D.C. - 20220 - (202) 622·296(}

Embargoed Until 1:30 p.m. EDT
Thursday, July 25, 2002

Contact Tony Fratto
(202) 622-2960

TREASURY UNDER SECRETARY JOHN B. TAYLOR
TESTIMONY BEFORE THE SUBCOMMITTEE ON
INTERNATIONAL MONETARY POLICY AND TRADE OF THE
HOUSE COMMITTEE ON FINANCIAL SERVICES

Chairman Bereuter, Ranking Member Sanders, Members of the Subcommittee, thank you
for the opportunity to testify today on the achievements made to date on the Administration's
Multilateral Development Bank (MOB) reform agenda and our specific authorization requests.
Reform of the MOBs has been one of the highest priorities of the Bush Administration's
international economic agenda. The MOBs are important instruments in helping to raise
economic growth and prosperity around the world. But the effectiveness of the institutions in
making a difference in the lives of the poor can be substantially improved. The MOBs can and
must do a better job. From the start of the Administration, three hallmark reforms have been
pursued - a greater focus by the institutions on increasing productivity growth; an insistence on
measurable results; and an increased proportion of assistance to the poorest countries delivered
in the form of grants rather than loans.
Steady progress has been made on all these fronts since the start of the Administration, and
this progress provides the grounds for today's request for authorization to replenish the
International Development Association (IDA-l3) and the African Development Fund (AfDF-9).
An authorization request is pending for the replenishment of the Asian Development Fund
(AsDF-8) and negotiations are still underway for replenishment of the Global Environment
Facility (GEF-3), for which authorization is provided by prior legislation. The Administration is
also seeking authorization to implement certain reforms of the North American Development
Bank (NADBank), along the lines agreed by Presidents Bush and Fox.
President Bush's appropriations request for the MOBs in FY03 totals $1.437 billion. In
the case of the increment for IDA, the authorization request is an 18% increase over prior
replenishment requests. Importantly, the requested increase entails a new focus on measuring
and achieving results from IDA funding. In fact, for the first time ever, part of the replenishment
is contingent on achieving real results on the ground. Absent achievement of progress towards
stated objectives, the Administration will not seek appropriations for that additional funding.
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,

·u.s. Government Pnnling OffICe

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IDA-I3: Reforms to Raise Economic Growth in Poor Countries
Negotiations for the thirteenth replenishment of IDA concluded earlier this month. This
replenishment will enable the organization to provide a total of$23 billion in loans and grants to
the poorest countries over the next three years. The Administration is requesting authorization to
contribute up to $2.850 billion over the next three years. The FY03 appropriations request
consists of $850 million for the first payment under IDA-13 and $24 million to clear one-third of
u.s. arrears.
As part of the IDA replenishment, the United States achieved three sweeping reforms fully
reflective of the Bush Administration's MDB reform priorities:

•

A significant increase in grant funding for the poorest countries;

•

A contribution scheme that allows shareholders to link the contribution of additional
resources to the achievement of results; and

•

A greater focus of IDA resources on key productivity-driving activities, including private
sector development.

First, the IDA replenishment achieves the President's vision of last summer ..that up to 50
percent of the funds provided by the development banks to the poorest countries be provided as
grants for education, health, nutrition, water supply, sanitation and other human needs." In fact,
this landmark agreement means that IDA will provide nearly 100% of its assistance on grant
terms for education, health, nutrition, potable water and sanitation in countries whose people live
on less than a dollar a day. All of IDA's assistance for HIV/AlDS will be in grant form for all
IDA-only countries, and up to 25% of such assistance to blend countries (those eligible for both
ffiRD and IDA) will also be in the form of grants. All of IDA's assistance for natural disaster
reconstruction will be in grant form. And up to 40% of IDA's assistance to post-conflict
countries will now be delivered on grant terms.
This is a significant achievement in terms of meeting the Administration's policy objective
of helping poor countries make productive investments without saddling them with ever-larger
debt burdens. Equally important, this approach will make a real difference in meeting the basic
needs of poor people around the globe without significant costs to IDA.
While an increase in the amount of grants will mean a reduction in IDA repayments over
the next 40 years, it is important to note that for the recipient countries, these additional saved
"costs" - which are better referred to as "foregone debt repayments" - provide real and material
benefits. Even in terms of foregone repayments, the amounts are modest and spread out over an
extended period oftime. Given the grace period attached to regular IDA funding, there is
virtually no reduction in the amount of IDA resources available to support borrowing countries
over the first ten years.

2

It will not take much to offset these foregone repayments even after the first ten years. In
their recent study on IDA grants, the U.S. General Accounting Office (GAO) produced an
excellent analysis, which was very helpful. I referred to it many times as a way to explain the
fmancial impact of the grants proposal to other donors. It estimated that donors would have to
increase their contributions at an annual rate less than the rate of inflation to offset the costs of
grants - that is a decline in real terms.
Second, another key achievement in the IDA replenishment is a contribution structure
that allows donors to increase their levels of funding if concrete measurable results are achieved.
Donors and developing countries will benefit from routinely quantifying development
achievements and understanding the reasons for success and failure. This will increase learning
and accountability for development results.
Donors agreed to measure progress towards two sets of results. The first set is needed to
get the new measurable results system started. It requires that this system be established and that
other analytical underpinnings of IDA's work be expanded. Timely and high quality diagnostic
analyses, such as public expenditure reviews, financial accountability assessments, and
investment climate assessments, are important tools for identifying the strengths and weaknesses
in a country's ability to make the most effective use of IDA resources. The U.S. will provide an
additional $100 million if IDA makes concrete progress in this area.
The second set of results is in the areas of education, health, and private sector development.
After careful consideration of both measurability (do the data exist in most IDA countries?) and
relevance (do they reflect IDA's productivity growth and poverty reduction mandate?), progress
will be tracked toward the following results:
•

Education: Increase in aggregate primary school completion rates across IDA countries
as well as an increase in the number of countries that have raised their completion rates.

•

Health: Increase in measles immunization coverage across IDA countries as well as an
increase in the number of countries with 80 percent coverage.

•

Private Sector Development: Reductions in both the number of days and the official costs
required to start businesses in IDA countries.

Reflective of the importance of human capital investment and vibrant private sectors to
increasing productivity, the U.S. will provide an additional $200 million if satisfactory results are
achieved in the above areas.
It is important to keep in mind that this is just the start of a fundamental shift of focus
in the MOBs to measurable results. A new measurement system must be created to implement
the results approach; it will begin with a small but important set of indicators.

3

And it will evolve over time as the quality of data and evaluation systems in recipient
countries are strengthened and as the MDBs, other shareholders, and developing countries realize
that the U.S. priority on measuring results reflects a genuine desire to ensure that the lessonsboth successes and failures - of 50 years of development assistance result in more effective
assistance and less poverty around the world.
More broadly, pursuing a results-based approach in IDA and the other MDBs will require
real changes in operating style. It means stating in quantitative terms the expected results of
individual projects and overall country assistance before providing funding. It means measuring
progress towards stated results and assessing the reasons for success and failure. It means
structuring projects in a way that steps up or cuts back funding contingent on achieving results.
Third, IDA will devote significant resources over the next three years to projects and
programs that raise productivity. The logic behind this approach rests in the simple fact that
countries are poor because productivity is low. This requires concentrating IDA funding on
addressing the basic causes of low productivity such as inadequate education, low business
investment, and inadequate health care. For the first time, IDA funds can be used in the private
sector, including increased collaboration with the International Finance Corporation (IFC), the
arm of the World Bank Group that provides financial products to private sector projects in
developing countries.

African Development Fund
Negotiations for the ninth replenishment of the African Development Fund (AfDF-9) are
not yet complete. With strong U.S. leadership, the AfDF negotiators have already agreed on an
important set of policy reforms including an enhanced focus on measurable results, an improved
link between financial support and results, and deepened coordination with the World Bank and
bilateral donors. The AfDF has a good record of providing information, and Management has
committed to improving disclosure policies. The institution is also developing specific expertise
in the areas of regional integration and governance, and will be adopting a new private sector
strategy this year.
Two issues remain - the overall size of the replenishment and the proportion of assistance
to be provided as grants. The AfDF is expected to adopt a grants program which is similar to the
agreement on grants reached in IDA, with an emphasis on grants for urgent human needs such as
education, health, and water and sanitation, linked to country performance and commitment to
economic reforms. Discussions to date project a replenishment size of $2.9-3.2 billion to fund
AfDF operations over the next 3 years. The Administration is requesting authorization to
contribute $354 million over the next three years. This represents an IS percent increase in
funding over AfDF-S.
The AfDF has been using its comparative advantage as a regional MDB to participate
actively in the on-going elaboration of the New Partnership for African Development (NEPAD)
initiated by African Heads of State. The NEP AD framework contains a peer review mechanism
to assess individual country performance.

4

However, since the specific modalities of a performance·based or competitive ranking
system do not yet exist, they could not inform the AfDF replenishment negotiations.
Asian Development Fund
Important achievements were made during the last replenishment negotiations on the
Asian Development Fund (AsDF), including a performance-based system for allocating
resources and a Memorandum of Understanding with the World Bank to strengthen collaboration
and minimize duplication.
The AsDB, including the AsDF, has moved quickly to assist Afghanistan, by
participating in the multi-donor trust fund and by pledging support to finance the country's
urgent reconstruction needs. AsDB has approved $15 million in grants to support critical
capacity-building in key ministries, such as health, education, and agriculture, and to assist with
disaster preparedness.
The Bush Administration intends to implement its MDB reform agenda for the AsDF,
much as it has with IDA including the use of grants. Our ability to influence the policy direction
of the institution will be helped over time by a reduction in our arrears.
Global Environment Facility
Negotiations for the third replenishment of the Global Environment Facility (GEF) are
currently scheduled to conclude in Washington next month. As contained in the President's
Budget for FY2003, the United States is prepared to pledge $430 million over four years for the
replenishment, or $107.5 million per year, which is equal to our GEF-2 commitment. The FY03
budget request includes the first installment of this pledge. In addition, the Administration
proposed a three-year plan to clear $210.9 million in U.S. arrears to GEF, and requested $70.3
million for the first payment in FY03. The U.S. is the largest contributor to the GEF, but also the
only donor with substantial arrears to the institution, and it is very important to meet our
commitments in order to continue to exercise effective leadership and pursue our interests.
The GEF is an effective institution that fills an important niche. An independent review
concluded that the GEF has produced significant positive impacts and has laid the foundation for
even more substantial results in the future. The Administration is trying to improve the
effectiveness of GEF assistance, including agreement to establish a transparent performancebased allocation system that emphasizes country policies and institutional structures essential to
effective assistance. Currently, such an allocation system does not exist. Consensus has also
been reached on the use of measurable results over the replenishment period. There is also a
consensus in the negotiations on the need to develop a private sector strategy, create an
independent monitoring and evaluation unit, and open competition for GEF projects by
providing implementing agencies with direct access to GEF funding. Finally, agreement was
reached to fully segregate Kyoto Protocol funds from the regular GEF programs funded by U.S.
contributions.
5

These reforms, if fully implemented, will sharply improve the impact of GEF projects,
thereby providing donors with greater confidence that GEF funds are being used effectively.
North American Development Bank

In March, President Bush and President Fox agreed to reforms to improve the ability of
the North American Development Bank (NADBank), and its sister institution, the Border
Environment Cooperation Facility (BECC), to address the environmental infrastructure needs of
U.S. and Mexican communities along the shared border. These reforms were developed through
a broad consultation process and include measures to allow NADBank to increase its low interest
rate lending and grant-making activities, to expand the geographic scope for BECC-NADBank
operations in Mexico, and to replace the separate BECC and NADBank Boards of Directors with
a single board, including federal and non-federal representation. Both presidents also agreed that
a comprehensive ''business process review" should be conducted to identify ways to improve the
overall project design, certification, and implementation process.
These reforms will improve the performance of both institutions in several ways. The
financial reforms will make NADBank financing more affordable and thus promote an increase
in the Bank's project financing activities. The geographic expansion will give NADBank
opportunities to address a greater scope of important environmental issues that affect
communities on both sides of the border. The single Board of Directors should improve
coordination and accountability in NADBank and BECC.
Implementation of these reforms is moving forward. Congressional authorization is
needed to implement two key reforms - the ability to use NADBank's paid-in capital for grants
and expansion of the institutions' geographic scope of operations in Mexico. The Administration
hopes that the Congress will act on this legislation quickly to enable both governments to
implement the agr~ reforms and improve the ability ofBECC and NADBank to address the
serious environmental needs of the people of the border region.
Conclusion

MDB reform has been a priority of the Administration from the outset. I believe that
steady progress is being made in achieving our key objectives within each of the institutions and
that these reauthorizations will allow us to make further progress. Working with the
international affairs staff at Treasury, I will endeavor to be demanding and to set high standards
for the MDBs in order to make them more effective in raising living standards around the world.

6

D EPA R T \. E :\ T

0 F

T U E

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 202%0 • (202) 622.2960

EMBARGOED UNTIL 3:00 P.M. EDT
Thursday, July 25, 2002

Contact: Tasia Scolinos
(202) 622-2960

Remarks of Deputy Secretary Ken Dam
2002 National Money Laundering Strategy RoD Out

Thank you all for coming.
I am delighted to be here today with representatives from federal law enforcement and
the federal financial regulatory community to unveil the Administration's 2002 National Money
Laundering Strategy.
It is imperative that the federal government continue to vigorously pursue the financial
underpinnings of crime, including the financing of terrorist groups.

The 2002 Strategy is precedent setting. It lays out, for the first time, a comprehensive
national strategy to attack the financing of terrorist groups.
It sets another important precedent too, a precedent about accountability, and we have the
leadership of Secretary O'Neill to thank for this.
For the very first time, the Money Laundering Strategy presents some hard facts and
figures to help assess how the federal government is doing in its ongoing battle to combat money
laundering. You will hear more about what these figures say shortly.
Secretary O'Neill understands that we need more than anecdotal evidence to drive policy
making, and that the effective and efficient measurement of results is critical to make informed
decisions and to direct resources appropriately.
The Strategy also continues our multi-year effort to safeguard the integrity of the world's
financial system and to reduce the vulnerability of the U.S. financial institutions to criminal
activities. I am especially proud of our efforts to implement the anti-money laundering
provisions of the USA PATRIOT Act, which you will also hear more about shortly.

PO-3289

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·U.S. Government Pnnting Office 1998· 619-559

It is only by working cooperatively that we will be able to cut off the lifeblood that
criminals and terrorists rely on to finance their illegal acts. The 2002 Strategy is an important
step in this direction, and, on behalf of the President and his Administration, I am proud to
endorse its ambitious goals and objectives.
I would now like Treasury Under Secretary for Enforcement Jimmy Gurule to talk about
the specifics of the new 2002 Money Laundering Strategy.

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS -BOO PENNSYI.VA:-IIA AVENeE. N.W. - WASHINGTON. D.C .• 20220 _ (202) 622·2960

EMBARGOED UNTIL 2:30 P.M.
July 25, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $26,373 million of publicly held 13-~7eek and 26-week
Treasury bills maturing August 1, 2002, and to raise new cash of approximately $5,627
million. Also maturing is an estimated $18,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced July 29, 2002.
The Federal Reserve System holds $12,162 million of the Treasury bills maturing
on August 1, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held July 30, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,137 million into the 13-week bill and $995 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

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HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED AUGUST 1, 2002
July 25, 2002
Offering Amount ..... .
Public Offerin2 ..... .
NLP Exclusion Amount.
Description of Offerin9:
Term and type of security.
CUSIP number.
Auction date ..
Issue date ....
Maturity date.
Original issue date.
Currently outstanding . . . . . . . . . . .
Minimum bid amount and multiples

. ....... $16,000 million
. ....... $16,000 million
. ....... $ 4,500 million

· 91-day bill
· 912795 LH 2
· July 29, 2002
· August 1, 2002
. October 31, 2002
.. May 2, 2002
.. $18,253 million
.. $1,000

$16,000 million
$16,000 million
None

182-day bill
912795 LW 9
July 29, 2002
August 1, 2002
January 30, 2003
August 1, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:

35% of public offering
35% of public offering
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders ... " '" Prior to 1:00 p.m. eastern daylight saving time on auction day
Pjyment Terms:
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w th tender.
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NEWS

TREASURY
omCEOFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE. N.W.

For Immediate Release
July 26, 2002

It

WASHINGTON, D.C." 20220 .. (202) 622-2960

Contact: Tara Bradshaw
(202) 622-2014

TREASURY AND IRS PROPOSE CHANGES TO
THE TREATMENT OF COMPENSATORY STOCK OPTIONS
IN COST SHARING ARRANGEMENTS
Today, the Treasury Department and the IRS issued proposed regulations on the tax treatment of
compensatory stock options under the related party transfer pricing rules governing cost-sharing
arrangements.
"The proposed regulations address a significant international tax issue - the treatment of
compensatory stock options as a cost to be taken into account by related taxpayers participating
in a cost-sharing arrangement for the joint development of intangible assets," stated Acting
Assistant Secretary (Tax Policy) Pamela Olson. "The rules governing cost sharing arrangements
are critically important. The proposed regulations represent a first step in ensuring that the rules
regarding the treatment of cost-sharing arrangements reach appropriate results."
Participants in cost sharing arrangements are required to share an costs related to the
development of intangibles in the same proportion as they share the reasonably anticipated
benefits attributable to the intangible development. The proposed regulations clarify that
compensatory stock options, like other compensation, are taken into account in determining the
costs of a participant. The proposed regulations also provide rules for measuring the cost
associated with stock-based compensation, generally allowing taxpayers a choice of measuring
the cost based on the stock price at the date of exercise or the "fair value", as noted in financial
statements, at the date of grant.

The text of the proposed regulations is attached.

-30-

PO-3291

For press rel,eas.es., sp£eches, public schedules and official biographies, call our 24-hoor fax line ;a#; (202) 622-2040
·U.S. Government Printing 011lc8. 1998· 619·559

.

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[RE G-1 06359-02J
Rl N 1545-BA57
Compensatory Stock Options Under Section 482
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This document contains proposed regulations that provide guidance
regarding the application of the rules of section 482 governing qualified cost sharing
arrangements. These proposed regulations provide guidance regarding the treatment
of stock-based compensation for purposes of the rules governing qualified cost sharing
arrangements and for purposes of the comparability factors to be considered under the
comparable profits method. This document also provides notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments must be received by October 28,2002.
Requests to speak and outlines of topics to be discussed at the public hearing
scheduled for November 20,2002, must be received by October 30,2002.
ADDRESSES: Send submissions to: CC:ITA:RU (REG-106359-02), room 5226,
Internal Revenue Service, POS 7604, Ben Franklin Station, Washington, DC 20044.
Submissions may be hand-delivered between the hours of 8 a.m. and 5 p.m. to
CC:ITA:RU (REG-106359-02), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically directly to the IRS Internet site at www.irs.gov/regs. The public
hearing will be held in Room 4718, Internal Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Douglas
Giblen, (202) 874-1490; concerning submissions of comments, the hearing, and/or to be
placed on the building access list to attend the hearing, LaNita Van Dyke, (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION
Paperwork Reduction Act
The collection of information contained in this notice of proposed rulemaking has
been submitted to the Office of Management and Budget for review in accordance with
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection
of information should be sent to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on
the collection of information should be received by September 27, 2002. Comments are
specifically requested concerning:
Whether the proposed collection of information is necessary for the proper
performance of the functions of the Internal Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of the information to be collected may be
enhanced;
How the burden of complying with the proposed collection of information may be
minimized, including through the application of automated collection techniques or other
forms of information technology; and
Estimates of capital or start-up costs and costs of operation, maintenance, and
purchase of services to provide information.

The collection of information requirements are in proposed §§1.482-7(d)(2)(iii)(B)
and 1.482-7U)(2)(i)(F). This information is required by the IRS to monitor compliance
with the federal tax rules for determining stock-based compensation costs related to
intangible development to be shared among controlled participants in qualified cost
sharing arrangements. The likely respondents are taxpayers who enter into these
arrangements. Responses to this collection of information are required to determine
these taxpayers' proper shares of stock-based compensation costs incurred with
respect to these arrangements.
Section 1.482-7(d)(2)(iii){B) of the proposed regulations provides that controlled
participants may elect an alternative method of measurement of certain stock-based
compensation by clearly referring to the election in the written cost sharing agreement
required under existing regulations or by amending a cost sharing agreement already in
effect to refer to the election. Section 1.482-7U)(2)(i)(F) requires controlled participants
to maintain documentation necessary to establish the amount taken into account as
operating expenses attributable to stock-based compensation, including the method of
measurement and timing used in computing that amount, and the data, as of the date of
grant, used to identify stock-based compensation related to the development of
intangibles.
Estimated total annual reporting and/or recordkeeping burden: 2,000 hours.
Estimated average annual burden hours per respondent and/or recordkeeper:
The estimated annual burden per respondent varies from 2 hours to 7 hours, depending
on individual circumstances, with an estimated average of 4 hours.
Estimated number of respondents and/or recordkeepers: 500.
Estimated frequency of responses: Annually.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless it displays a valid control number assigned by the
Office of Management and Budget.

Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by 26
U.S.C.6103.
Background
Section 482 of the Internal Revenue Code generally provides that the Secretary
may allocate gross income, deductions and credits between or among two or more
taxpayers owned or controlled by the same interests in order to prevent evasion of
taxes or clearly to reflect income. On July 8, 1994, Treasury and the IRS published in
the Federal Register (59 FR 34988) final regulations (T.O. 8552, 1994-2 C.B. 93) under
section 482 in areas other than cost sharing. On December 20, 1995, Treasury and the
IRS published in the Federal Register (60 FR 65553) final cost sharing regulations
(T.O. 8632, 1996-1 C.B. 85), effective for taxable years beginning on or after January 1,
1996. Amendments to T.O. 8632 were published in the Federal Register on May 13,
1996, at 61 FR 21955 (T.O. 8670, 1996-1 C.B. 99), and on January3, 2001, at 66 FR
280 (T.O. 8930, 2001-1 I.R.B.433).
The 1994 final regulations under section 482 contain general provisions at
§1.482-1 describing the arm's length standard and the best method rule. The final cost
sharing regulations at §1.482-7 generally require that controlled participants in a
qualified cost sharing arrangement share intangible development costs in proportion to
their shares of the reasonably anticipated benefits attributable to the development of the
intangibles covered by the arrangement. These proposed regulations clarify that
stock-based compensation is taken into account in determining the operating expenses
treated as a controlled participant's intangible development costs for purposes of the
cost sharing provisions; provide rules for measuring the cost associated with
stock-based compensation; clarify that the utilization and treatment of stock-based
compensation is appropriately taken into account as a comparability factor for purposes

of the comparable profits method under § 1.482-5; and clarify the coordination of the
cost sharing rules of § 1.482-7 with the arm's length standard as set forth in § 1.482-1.

Explanation of Provisions
Overview
_ _ The Tax Reform Act of 1986, Public Law 99-514,100 Stat. 2085, 2561 et seq.
(reprinted at 1986-3 C.B. (Vol 1) 1,478) (the Act), amended section 482 to require that
consideration for intangible property transferred in a controlled transaction be
commensurate with the income attributable to the intangible. The legislative history of
the Act indicated that in adding this commensurate with income standard to section 482,
Congress did not intend to preclude the use of bona fide research and development
cost sharing arrangements as an appropriate method of allocating income attributable to
intangibles among related parties, "if and to the extent such agreements are consistent
with the purpose of this provision that the income allocated among the parties
reasonably reflect the actual economic activity undertaken by each. Under such a bona
fide cost-sharing arrangement, the cost-sharer would be expected to bear its portion of
all research and development costs .... " H.R. Rep. No. 99-841, at 11-638 (1986) (the
Conference Report).
The Conference Report recommended that the IRS conduct a comprehensive
study and consider whether the regulations under section 482 (issued in 1968) should
be modified in any respect. In response to this directive, on October 18, 1988, Treasury
and the IRS issued a study of intercompany pricing (the White Paper), published as
Notice 88-123, 1988-2 C.B. 458. With respect to cost sharing arrangements, the White
Paper observed that Congress intended such arrangements to produce results
consistent with the purposes of the commensurate with income standard in section 482,
and in particular that allocations of income among the participants reasonably reflect the
participants' respective economic activity. 1988-2 C.B. at 459,495. The White Paper
further observed that Congress intended that Treasury and the IRS apply and interpret

the commensurate with income standard consistently with the arm's length standard.
1988-2 C.B. at 458,477.
Section 1.482-1 of the 1994 final regulations provides that a controlled
transaction meets the arm's length standard if the results of the transaction are
consistent with the results that would have been realized if uncontrolled taxpayers had
engaged in the same transaction under the same circumstances. A method selected
under the best method rule is used to determine whether a controlled transaction
produces an arm's length result. The regulations reference §§ 1.482-2 through 1.482-6
as providing specific methods to be used in this determination.
Section 1.482-7 of the 1995 final regulations implements the commensurate with
income standard in the context of cost sharing arrangements. The final cost sharing
regulations require that controlled participants in a qualified cost sharing arrangement
share all costs incurred that are related to the development of intangibles in proportion
to their shares of the reasonably anticipated benefits attributable to that development.
Section 1.482-7(d)(1) defines these intangible development costs as including operating
expenses as defined in §1.482-5(d)(3), other than depreciation or amortization, plus an
arm's length rental charge determined under §1.482-2(c) for the use of any tangible
property made available to the qualified cost sharing arrangement. Section
1.482-5(d)(3) defines operating expenses, for purposes of the comparable profits
method under section 482, as including all expenses not included in cost of goods sold
except for interest expense, foreign and domestic income taxes, and any other
expenses not related to the operation of the relevant business activity. In the context of
cost sharing, the relevant business activity is the development of intangibles covered by
the cost sharing arrangement.
Since the promulgation of the final cost sharing regulations in 1995, the issue has
been raised whether operating expenses within the meaning of §1.482-7(d)(1) include
compensation provided by a controlled participant in the form of stock options. Related

questions have been posed in this context regarding the interaction between the arm's
length standard and the cost sharing regulations.
These proposed regulations amend the final regulations to clarify that
stock-based compensation must be taken into account in determining operating
expenses under §1.482-7(d)(1) and to provide rules for measuring stock-based
compensation costs. These proposed regulations also clarify that stock-based
compensation should be taken into account in comparability determinations pursuant to
the comparable profits method under §1.482-5. Finally, the proposed regulations
amend the final regulations to include express provisions to coordinate the cost sharing
rules of § 1.482-7 with the arm's length standard as set forth in § 1.482-1.
Inclusion of Stock-Based Compensation in Intangible Development Costs
___ The proposed regulations provide that in determining a controlled participant's
operating expenses within the meaning of §1.482-7(d)(1), all compensation, including
stock-based compensation, must be taken into account. The proposed regulations also
provide rules for measuring the operating expenses attributable to stock-based
compensation.
The definition of stock-based compensation for purposes of these proposed
regulations is broad, comprising any compensation provided by a controlled participant
to an employee or independent contractor in the form of equity instruments, stock
options, or rights in (or determined by reference to) such instruments or options,
regardless of whether the compensation ultimately is settled in the form of cash, stock,
or other property. Thus, these proposed regulations are intended to reach such forms
of compensation as restricted stock, nonstatutory stock options, statutory stock options
(incentive stock options described in section 422(b) and options granted under an
employee stock purchase plan described in section 423(b)), stock appreciation rights,
and phantom stock. Statutory stock options are within the scope of the definition

regardless of whether the employer is entitled to an income tax deduction with respect
to those options.
The proposed regulations provide that the determination of whether stock-based
compensation is related to the development of intangibles covered by the qualified cost
sharing arrangement is to be made as of the date the stock-based compensation is
granted. For example, controlled participants must share the costs attributable to
stock-based compensation that is granted to an employee who, at the time of grant, is
performing research services related to the qualified cost sharing arrangement.
Treasury and the IRS believe that this rule appropriately identifies the stock-based
compensation to be shared because the grant of compensation generally is the
economic event most closely associated in time with the services being compensated.
Because a controlled participant may choose whether to provide stock-based or cash
compensation, this rule also promotes neutrality of treatment as among various forms of
compensation. Finally, because the grant-date identification rule applies irrespective of
the method used by the controlled participant to measure or determine the timing of
inclusion of stock-based compensation in the intangible development costs to be
shared, the rule ensures that the same items of stock-based compensation will be taken
into account under any method, thus promoting neutrality in the choice of measurement
method afforded by the proposed regulations.
In applying the grant-date identification rule in cases where a stock option is
repriced or otherwise modified, the rules of section 424(h) and related regulations will
be used to determine whether the grant of a new stock option has occurred.
Treasury and the IRS recognize that tax and other accounting principles permit
the cost associated with stock-based compensation to be measured and taken into
account as of different points in time and under various methodologies for different
purposes. For example, for general income tax purposes, the amount of compensation
taxed to an employee and deductible by an employer upon exercise of a stock option

not governed by sections 421-424 (commonly referred to as a nonstatutory stock
option) generally is measured by the "spread" between the option price and the fair
market value of the underlying stock at the date of exercise. See §§ 83(a),83(h),
1.83-1(a)(1),1.83-6(a)(1).
For various other tax purposes, however, the IRS has adopted modified versions
of economic pricing models, such as the Black-Scholes model, for valuing stock options
at specific points in time prior to exercise. See Rev. Proc. 98-34, 1998-1 C.B. 983
(estate and gift tax valuation); Rev. Proc. 2002-13,2002-8 I.R.B. 549, as modified by
Rev. Proc. 2002-45, 2002-27 I.R.B. 40 (measurement of stock-option-based golden
parachute payments under sections 280G and 4999). Pricing models also have been
adopted in the context of financial accounting. The Financial Accounting Standards
Board (FASB) refers to pricing models for measurement of the stock-based
compensation expense that a company is required to report at "fair value," either as a
charge to income or, at the company's option, in a pro forma footnote disclosure. See
FASB Statement 123, Accounting for Stock-Based Compensation (October 1995).
Generally accepted pricing models can be applied at the date of grant to estimate
the economic cost of a stock option to the issuer. General support for the use of
economic measures of cost in the transfer pricing context may be found in the
legislative history of the commensurate with income standard and in the White Paper,
which state that to be consistent with the commensurate with income standard, cost
sharing arrangements must "reflect the actual economic activity" of participants.
Conference Report at 11-638 and White Paper at 1988-2 C.B. 495.
In establishing rules for measurement of the operating expenses attributable to
stock-based compensation for cost sharing purposes, Treasury and the IRS believe that
due regard must be given to the emphasis placed on economic factors in the legislative
history of the commensurate with income standard and in the White Paper. Treasury
and the IRS also recognize the importance of providing rules that are administrable.

The proposed regulations prescribe a general rule of measurement based
primarily on the amount and timing of the income tax deduction associated with
stock-based compensation, while in certain cases permitting controlled participants in a
qualified cost sharing arrangement to elect a rule of measurement with respect to stock
options based on the amount and timing of the fair value of the option that is required to
be computed for purposes of financial accounting in accordance with United States
generally accepted accounting principles (U.S. GAAP).
To provide for uniform measurement of the cost associated with both statutory
and nonstatutory stock options, the general deduction-based measurement rule is
applied as if section 421 did not apply upon the exercise of a statutory stock option.
Thus, although section 421 generally disallows compensation deductions with respect
to the exercise of statutory stock options except in the case of certain disqualifying
dispositions, the proposed regulations treat the exercise of a statutory stock option as
giving rise to a deduction for purposes of the deduction-based measurement rule.
Consequently, the operating expense with respect to all stock options, whether statutory
or nonstatutory, generally will be measured by the "spread" and taken into account as of
the date the stock option is exercised.
To place a foreign controlled participant on an equal footing with a United States
controlled participant, an amount is treated as deductible by a foreign controlled
participant, solely for purposes of the general deduction-based measurement rule, as if
the amount were paid or incurred by a United States taxpayer, even if the foreign
controlled participant is not subject to United States taxing jurisdiction and so would not
otherwise be entitled to a deduction under United States income tax law.
Solely for purposes of the general deduction-based measurement rule, any item
of stock-based compensation that is eligible to be exercised and that remains
outstanding on the expiration or termination of a qualified cost sharing arrangement will
be treated as being exercised immediately before the expiration or termination, provided

that the fair market value of the underlying stock at that time exceeds the price at which
the stock-based compensation is exercisable. The result of this treatment is that the
excess of the fair market value of the underlying stock over the price at which the
stock-based compensation is exercisable is taken into account as an operating expense
for the taxable year in which the qualified cost sharing arrangement expires or
terminates. This special rule would apply, for example, in the case of a currently
exercisable statutory stock option or a substantially vested nonstatutory stock option
where the fair market value of the underlying stock exceeds the option price at the time
the qualified cost sharing arrangement is terminated. The rule ensures that controlled
participants take into account for cost sharing purposes all stock-based compensation
that is attributable to the development of intangibles and has become exercisable during
the term of the cost sharing arrangement. In cases where significant amounts of
stock-based compensation have been granted, but are not exercisable at the time of the
termination of the arrangement, the IRS anticipates that factual issues regarding the
termination of the qualified cost sharing arrangement will arise if the arrangement is
reinstated.
A similar rule applies if, during the term of the qualified cost sharing arrangement,
a rlewly granted stock option is determined to result from a repricing or other
modification of another stock option and is not related to the development of intangibles
at the time of the modification. In this situation, an amount is taken into account for
purposes of the general deduction-based measurement rule as if the original stock
option had been exercised immediately before the modification.
The proposed regulations permit an elective method of measurement and timing
with respect to options on publicly traded stock of companies subject to financial
reporting under U.S. GAAP, provided that the stock is traded on a United States
securities market.

Under the election, the amount of the operating expense associated with
compensatory stock options is their "fair value," generally measured by reference to
economic pricing models as of the date of grant, as reflected either as a charge against
income or as a footnote disclosure in the company's audited financial statements, in
compliance with current U.S. GAAP. Where the election is made with respect to stock
in a company that does not take stock-based compensation expense as a charge
against income for financial accounting purposes but rather chooses, as permitted by
current U.S. GAAP (for example, FASB Statement 123), to disclose such compensation
in a footnote to the financial statements, stock-based compensation is taken into
account in the same amount, and as of the same time, as the pro forma fair value
figures reflected in the footnote.
The election to measure the operating expense associated with compensatory
stock options in accordance with financial accounting rules must be clearly referenced
in the written cost sharing agreement required under §1.482-7(b)(4) and must bind all
controlled participants. A transition rule permits controlled participants to amend
pre-existing cost sharing agreements not later than the latest due date (without regard
to extensions) for an income tax return of a controlled participant for the first taxable
year beginning after the effective date of final regulations incorporating this rule.
The proposed regulations contain consistency rules to ensure that all controlled
participants in a qualified cost sharing arrangement normally will use the same method
of measurement for all options on publicly traded stock with respect to that
arrangement. Once a method of measurement has been adopted with respect to stock
options granted in a taxable year following the effective date of the proposed
regulations, the method of measurement may not be changed for those stock options.
With respect to subsequently granted stock options to which the transition rule does not
apply, the proposed regulations provide that a method of measurement different from

that adopted following the effective date of the proposed regulations may be adopted
only with the consent of the Commissioner.
To ensure that taxpayers maintain documentation supporting all amounts taken
into account as operating expenses attributable to stock-based compensation, these
proposed regulations add to the documentation requirements of §1.482-7G)(2)(i) an item
specifically relating to stock-based compensation.
Treatment of Stock-Based Compensation Under Other Provisions
_ _ The treatment of stock-based compensation as a cost or operating expense for
purposes of the transfer pricing of services and for purposes of applying the comparable
profits method will be considered by Treasury and the iRS in a separate regulation
project. Accordingly, these regulations do not propose amendments to the definitions of
cost or operating expense in §1.482-2(b) or §1.482-5(d)(3). However, these proposed
regulations amend §1.482-5(c)(2)(iv) to clarify that in applying the comparable profits
method, material differences among the tested party and uncontrolled comparables with
respect to the utilization or treatment of stock-based compensation are an appropriate
basis for comparability adjustments.
Coordination of Cost Sharing With the Arm's Length Standard
_ _ These proposed regulations add express provisions coordinating the cost sharing
rules of § 1.482-7 with the arm's length standard as set forth in § 1.482-1. New
§1.482-7(a)(3) clarifies that in order for a qualified cost sharing arrangement to produce
results consistent with an arm's length result within the meaning of § 1.482-1 (b)( 1), all
requirements of § 1.482-7 must be met, including the requirement that each controlled
participant's share of intangible development costs equal its share of reasonably
anticipated benefits attributable to the development of intangibles. The proposed
regulations also make amendments to §1.482-1 to clarify that §1.482-7 provides the
specific method to be used to evaluate whether a qualified cost sharing arrangement
produces results consistent with an arm's length result, and to clarify that under the best

method rule, the provisions of §1.482-7 set forth the applicable method with respect to
qualified cost sharing arrangements.
Through these new provisions, Treasury and the IRS intend to clarify that all of
the specific rules necessary to the determination of costs, reasonably anticipated
benefits and other aspects of qualified cost sharing arrangements are either contained
or cross-referenced within §1.482-7. Thus, for example, regarding buy-in payments
with respect to pre-existing intangibles made available to qualified cost sharing
arrangements, §§1.482-7(a)(2) and 1.482-7(g) cross-reference various other sections of
the regulations under section 482. For the determination of reasonably anticipated
benefits, § 1.482-7(f)(3) expressly requires that certain comparability factors described
in §1.482-1 (c)(2)(ii) under the best method rule be considered. With respect to
identification of the costs to be shared, the rules are contained within §1.482-7(d)(1),
which refers to "all" intangible development costs and cross-references the definition of
operating expenses in §1.482-5(d)(3) and the provisions of §1.482-2(c) governing
determination of arm's length rental charges for tangible property. The §1.482-7(d)(1)
definition of intangible development costs is supplemented by the provisions of
§1.482-7(c)(2), which cross-references the provisions of §1.482-4(f)(3)(iii) to determine
arm's length consideration for research assistance performed by a controlled taxpayer
that is not a controlled participant.
Proposed Effective Date
These regulations are proposed to apply to stock-based compensation granted in
taxable years beginning on or after the date these regulations are published as a
Treasury Decision promulgating final regulations in the Federal Register.
Notwithstanding this prospective effective date, Treasury and the IRS intend that
taxpayers may rely on these proposed regulations until the effective date of the final
regulations. No inference is intended with respect to the treatment of stock-based

compensation granted in taxable years beginning before the effective date of the final
regulations.

Special Analyses
It has been determined that this notice of proposed rulemaking is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. It has also been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.
It is hereby certified that the collections of information in these regulations will not have
a significant economic impact on a substantial number of small entities. This
certification is based upon the fact that few small entities are expected to enter into
qualified cost sharing arrangements involving stock-based compensation, and that for
those who do, the burdens imposed under §§1.482-7(d)(2)(iii)(B) and 1.482-7U)(2)(i)(F)
will be minimal. Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), this
notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic or written comments (a signed original and
eight (8) copies) that are submitted timely to the IRS. Treasury and the IRS specifically
request comments on the clarity of the proposed regulations and how they may be
made easier to understand. All comments will be available for public inspection and
copying.
A public hearing has been scheduled for October 21,2002, at 10 a.m., in Room
4718, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
Because of access restrictions, visitors will not be admitted beyond the building lobby

more than 30 minutes before the hearing starts. For information about having your
name placed on the building access list to attend the hearing, see the "FOR FURTHER
INFORMATION CONTACT" section of this preamble.
The rules of 26 CFR 601.601 (a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must submit written comments and an outline of
the topics to be discussed and the time to be devoted to each topic (signed original and
eight (8) copies) by September 30,2002. A period of 10 minutes will be allotted to each
person for making comments.
An agenda showing the scheduling of the speakers will be prepared after the
deadline for receiving outlines has passed. Copies of the agenda will be available free
of charge at the hearing.

Drafting Information
The principal author of these proposed regulations is Douglas Giblen of the
Office of Associate Chief Counsel (International). However, other personnel from
Treasury and the IRS participated in their development.

List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations
Accordingly, 26 CFR Part 1 is proposed to be amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.482-1, 1.482-5 and 1.482-7 also issued under 26 U.S.C. 482. * * *
Par. 2. Section 1.482-0 is amended by:
1. Redesignating the entry for §1.482-7(a)(3) as the caption for §1.482-7(a)(4).
2. Adding a new entry for §1.482-7(a)(3).
3. Redesignating the entry for §1.482-7(d)(2) as the caption for §1.482-7(d)(3).

more than 30 minutes before the hearing starts. For information about having your
name placed on the building access list to attend the hearing, see the "FOR FURTHER
INFORMATION CONTACT" section of this preamble.
The rules of 26 CFR 601.601 (a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must submit written comments and an outline of
the topics to be discussed and the time to be devoted to each topic (signed original and
eight (8) copies) by September 30,2002. A period of 10 minutes will be allotted to each
person for making comments.
An agenda showing the scheduling of the speakers will be prepared after the
deadline for receiving outlines has passed. Copies of the agenda will be available free
of charge at the hearing.
Drafting Information

The principal author of these proposed regulations is Douglas Giblen of the
Office of Associate Chief Counsel (International). However, other personnel from
Treasury and the IRS participated in their development.
List of Subjects in 26 CFR Part 1

Income taxes, Reporting and record keeping requirements.
Proposed Amendments to the Regulations

Accordingly, 26 CFR Part 1 is proposed to be amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.482-1, 1.482-5 and 1.482-7 also issued under 26 U.S.C. 482. * * *
Par. 2. Section 1.482-0 is amended by:
1. Redesignating the entry for §1.482-7(a)(3) as the caption for §1.482-7(a)(4).
2. Adding a new entry for §1.482-7(a)(3).
3. Redesignatirg the entry for §1.482-7(d)(2) as the caption for §1.482-7(d)(3).

more than 30 minutes before the hearing starts. For information about having your
name placed on the building access list to attend the hearing, see the "FOR FURTHER
INFORMATION CONTACT" section of this preamble.
The rules of 26 CFR 601.601 (a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must submit written comments and an outline of
the topics to be discussed and the time to be devoted to each topic (signed original and
eight (8) copies) by September 30,2002. A period of 10 minutes will be allotted to each
person for making comments.
An agenda showing the scheduling of the speakers will be prepared after the
deadline for receiving outlines has passed. Copies of the agenda will be available free
of charge at the hearing.
Drafting Information

The principal author of these proposed regulations is Douglas Giblen of the
Office of Associate Chief Counsel (International). However, other personnel from
Treasury and the IRS participated in their development.
List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations

Accordingly, 26 CFR Part 1 is proposed to be amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.482-1, 1.482-5 and 1.482-7 also issued under 26 U.S.C. 482. * * *
Par. 2. Section 1.482-0 is amended by:
1. Redesignating the entry for §1.482-7(a)(3) as the caption for §1.482-7(a)(4).
2. Adding a new entry for §1.482-7(a)(3).
3. Redesignatirg the entry for §1.482-7(d)(2) as the caption for §1.482-7(d)(3).

4. Adding new entries for §1.482-7(d)(2).
The additions and revisions read as follows:
§1.482-0 Outline of regulations under section 482.
*****

§1.482-7 Sharing of costs.
(a)
In general.
*****

(3)
Coordination with § 1.482-1 .
(4)
Cross references.
*****
(d)
Costs.
*****
(2)
Stock-based compensation.
(i)
In general.
(ii)
Identification of stock-based compensation related to intangible development.
(iii)
Measurement and timing of stock-based compensation expense.
In general.
(A)
(1)
Transfers to which section 421 applies.
(£)
Deductions of foreign controlled participants.
Q)
Modification of stock option.
(1)
Expiration or termination of qualified cost sharing arrangement.
(8)
Election with respect to options on publicly traded stock.
(C)
Consistency.
(3)
Examples.
*****

Par. 3. Section 1.482-1 is amended by:
1. Revising the sixth sentence of paragraph (a)(1).
2. Adding a sentence following the sixth sentence of paragraph (a)(1).
3. Adding a sentence at the end of paragraph (b)(2)(i).
4. Adding a sentence at the end of paragraph (c)(1).
5. Adding paragraph 0)(5).
The additions and revisions read as follows:
§1.482-1 Allocation of income and deductions among taxpayers.
(a) * * *

(1) * * * Section 1.482-7T sets forth the cost sharing provisions applicable to
taxable years beginning on or after October 6, 1994, and before January 1, 1996.
Section 1.482-7 sets forth the cost sharing provisions applicable to taxable years
beginning on or after January 1, 1996. * * *
*****

(b) * * *

(2) * * *
(i) * * * Section 1.482-7 provides the specific method to be used to evaluate
whether a qualified cost sharing arrangement produces results consistent with an arm's
length result.
*****

(c) * * *
(1) * * * See §1.482-7 for the applicable method in the case of a qualified cost
sharing arrangement.
*****
(j)***

(5) The last sentences of paragraphs (b)(2)(i) and (c)(1) of this section and of
paragraph (c)(2)(iv) of § 1.482-5 are effective for taxable years beginning on or after the
date of publication of the Treasury Decision incorporating those sentences into final
regulations in the Federal Register.
Par. 4. Section 1.482-5 is amended by adding a sentence to paragraph (c)(2)(iv)
to read as follows:
§1.482-5 Comparable profits method.
*****

(c) * * *
(2) * * *

(iv) * * * As another example, it may be appropriate to adjust the operating profit
of a party to account for material differences in the utilization of or accounting for
stock-based compensation (as defined by §1.482-7(d)(2)(i» among the tested party and
comparable parties.

*****
Par. 5. Section 1.482-7 is amended by:
1. Redesignating paragraph (a)(3) as paragraph (a)(4).
2. Adding paragraph (a)(3).
3. Redesignating paragraph (d)(2) as paragraph (d)(3).
4. Adding paragraph (d)(2).
5. Removing the word "and" at the end of paragraph 0)(2)(i)(0).
6. Removing the period and adding a semicolon and adding the word
"and"
at the end of paragraph 0)(2)(i)(E).
7. Adding paragraph 0)(2)(i)(F).
8. Revising paragraph (k)..
The additions and revisions read as follows:
§1.482-7 Sharing of costs.
(a) * * *
(3) Coordination with § 1.482-1. A qualified cost sharing arrangement produces
results that are consistent with an arm's length result within the meaning of
§1.482-1 (b)(1) if, and only if, each controlled participant's share of the costs (as
determined under paragraph (d) of this section) of intangible development under the
qualified cost sharing arrangement equals its share of reasonably anticipated benefits
attributable to such development (as required by paragraph (a)(2) of this section) and all
other requirements of this section are satisfied.
(4) Cross references. * * *

*****
(d) * * *

(2) Stock-based compensation.--(i) In general. For purposes of this section, a
controlled participant's operating expenses include all costs attributable to
compensation, including stock-based compensation. As used in this section, the term
stock-based compensation means any compensation provided by a controlled
participant to an employee or independent contractor in the form of equity instruments,
options to acquire stock (stock options), or rights with respect to (or determined by
reference to) equity instruments or stock options, including but not limited to property to
which section 83 applies and stock options to which section 421 applies, regardless of
whether ultimately settled in the form of cash, stock, or other property.
(ii) Identification of stock-based compensation related to intangible development
The determination of whether stock-based compensation is related to the intangible
development area within the meaning of paragraph (d)(1) of this section is made as of
the date that the stock-based compensation is granted. Accordingly, all stock-based
compensation that is granted during the term of the qualified cost sharing arrangement
and is related at date of grant to the development of intangibles covered by the
arrangement is included as an intangible development cost under paragraph (d)( 1) of
this section. In the case of a repricing or other modification of a stock option, the
determination of whether the repricing or other modification constitutes the grant of a
new stock option for purposes of this paragraph (d)(2)(ii) will be made in accordance
with the rules of section 424(h) and related regulations.
(iii) Measurement and timing of stock-based compensation expense .--(A) In
general. Except as otherwise provided in this paragraph (d)(2)(iii), the operating
expense attributable to stock-based compensation is equal to the amount allowable to
the controlled participant as a deduction for federal income tax purposes with respect to
that stock-based compensation (for example, under section 83(h)) and is taken into

account as an operating expense under this section for the taxable year for which the
deduction is allowable.

UJ Transfers to which section 421

applies. Solely for purposes of this paragraph

(d)(2)(iii)(A), section 421 does not apply to the transfer of stock pursuant to the exercise
of an option that meets the requirements of section 422(a) or 423(a).
~) Deductions of foreign controlled participants. Solely for purposes of this

paragraph (d)(2)(iii)(A), an amount is treated as deductible by a foreign controlled
participant otherwise not entitled to a deduction under United States income tax law as
if the amount were paid or incurred by a United States taxpayer.
(~) Modification of stock option. Solely for purposes of this paragraph

(d)(2)(iii)(A), if the repricing or other modification of a stock option is determined, under
paragraph (d)(2)(ii) of this section, to constitute the grant of a new stock option not
related to the development of intangibles, the stock option that is repriced or otherwise
modified will be treated as being exercised immediately before the modification,
provided that the stock option is then substantially vested within the meaning of
§1.83-3(b) (or, in the case of stock options to which section 421 applies, exercisable)
and the fair market value of the underlying stock then exceeds the price at which the
stock option is exercisable. Accordingly, the amount of the deduction that would be
allowable (or treated as allowable under this paragraph (d)(2)(iii)(A) to the controlled
participant upon exercise of the stock option immediately before the modification must
be taken into account as an operating expense as of the date of the modification.
(1) Expiration or termination of gualified cost sharing arrangement. Solely for

purposes of this paragraph (d)(2)(iii)(A), if an item of stock-based compensation related
to the development of intangibles is not exercised during the term of a qualified cost
sharing arrangement, that item of stock-based compensation will be treated as being
exercised immediately before the expiration or termination of the qualified cost sharing
arrangement, provided that the stock-based compensation is then substantially vested

within the meaning of §1.83-3(b) (or, in the case of stock options to which section 421
applies, exercisable) and the fair market value of the underlying stock then exceeds the
price at which the stock-based compensation is exercisable. Accordingly, the amount of
the deduction that would be allowable (or treated as allowable under this paragraph
(d)(2)(iii)(A)) to the controlled participant upon exercise of the stock-based
compensation must be taken into account as an operating expense as of the date of the
expiration or termination of the qualified cost sharing arrangement.
(8) Election with respect to options on publicly traded stock. With respect to
stock-based compensation in the form of options on publicly traded stock, the controlled
participants in a qualified cost sharing arrangement may elect to take into account all
operating expenses attributable to those stock options in the same amount, and as of
the same time, as the fair value of the stock options reflected as a charge against
income in audited financial statements or disclosed in footnotes to such financial
statements, prepared in accordance with United States generally accepted accounting
prinCiples by or on behalf of the company issuing the publicly traded stock. As used in
this section, the term publicly traded stock means stock that is regularly traded on an
established United States securities market and is issued by a company whose financial
statements are prepared in accordance with United States generally accepted
accounting principles for the taxable year. The election described in this paragraph
(d)(2)(iii)(8) is made by an explicit reference to the election in the written cost sharing
agreement required by paragraph (b)(4) of this section or in a written amendment to the
cost sharing agreement entered into with the consent of the Commissioner pursuant to
paragraph (d)(2)(iii)(C) of this section. In the case of a qualified cost sharing
arrangement in existence on the effective date of this paragraph (d)(2)(iii)(8), the
election must be made by written amendment to the cost sharing agreement not later
than the latest due date (without regard to extensions) of a federal income tax return of

any controlled participant for the first taxable year beginning after the effective date of
this paragraph, and the consent of the Commissioner is not required.
(C) Consistency. Generally, all controlled participants in a qualified cost sharing
arrangement taking options on publicly traded stock into account under paragraph
(d)(2)(iii)(A) or (d)(2)(iii)(8) of this section must use that same method of measurement
and timing for all options on publicly traded stock with respect to that qualified cost
sharing arrangement. Controlled participants may change their method only with the
consent of the Commissioner and only with respect to stock options granted during
taxable years subsequent to the taxable year in which the Commissioner's consent is
obtained. All controlled participants in the qualified cost sharing arrangement must join
in requests for the Commissioner's consent under this paragraph. Thus, for example, if
the controlled participants make the election described in paragraph (d)(2)(iii)(8) of this
section upon the formation of the qualified cost sharing arrangement, the election may
be revoked only with the consent of the Commissioner, and the consent will apply only
to stock options granted in taxable years subsequent to the taxable year in which
consent is obtained. Similarly, if controlled participants already have granted stock
options that have been or will be taken into account under the general rule of paragraph
(d)(2)(iii)(A) of this section, then except in cases specified in the last sentence of
paragraph (d)(2)(iii)(8) of this section, the controlled participants may make the election
described in paragraph (d)(2)(iii)(8) of this section only with the consent of the
Commissioner, and the consent will apply only to stock options granted in taxable years
subsequent to the taxable year in which consent is obtained.
(3) Examples. * * *
*****

0) * * *
(2) * * *
(i) * * *

(F) The amount taken into account as operating expenses attributable to
stock-based compensation, including the method of measurement and timing used with
respect to that amount as well as the data, as of date of grant, used to identify
stock-based compensation related to the development of intangibles covered by the
qualified cost sharing arrangement.

*****

(k) Effective date. This section is generally effective for taxable years beginning
on or after January 1, 1996. However, paragraphs (a)(3), (d)(2) and U)(2)(i)(F) of this
section are effective for taxable years beginning on or after the date of publication of the
Treasury Decision adopting those rules as final regulations in the Federal Register.

Deputy Commissioner of Internal Revenue
Robert E. Wenzel

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OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 ~ (202) 622.2960

EMBARGOED UNTIL 3:00 P.M.
July 29, 2002

CONTACT: Betsy Holahan
(202) 622-2960

TREASURY ANNOUNCES MARKET FINANCING ESTIlVIATES

The Treasury Department announced today that it expects to borrow $76
billion in marketable debt during the July - September 2002 quarter and to
target a cash balance of $45 billion on September 30. In the quarterly
announcement on April 29, Treasury announced that it expected to borrow
$55 billion in marketable debt and to target an end-of-quarter cash balance
of $50 billion. The increase in financing is due to lower receipts and higher
outlays.
Treasury also announced that it expects to borrow $71 billion in marketable
debt during the October - December 2002 quarter and to target a cash
balance of $35 billion on December 31.
During the April - June 2002 quarter, Treasury borrowed $15 billion in
marketable debt and ended with a cash balance of $40 billion on June 30.
This included borrowing of $19 billion in marketable Treasury securities and
buybacks of $4 billion in outstanding marketable Treasury securities. On
April 29, Treasury announced that it expected to borrow $1 billion in
marketable debt and to target an end-of-quarter cash balance of $45 billion.
The increase in borrowing was primarily the result of lower receipts.
Additional financing details relating to Treasury's Quarterly Refunding will
be released at 9:00 A.M. on Wednesday, July 31.
PO-3292

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Pnn',na Oif,ce: 1998 - 619-559

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OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. " 20220" (202) 622.2960

Text as Prepared for Delivery
Tuesday, July 30, 2002

Contact: Betsy Holahan
(202) 622-2960

ASSISTANT SECRETARY RICHARD CLARIDA
REMARKS TO THE TREASURY BORROWING ADVISORY COMMITTEE
OF THE BOND MARKET ASSOCIATION

In the three months since we last met, the U.S. economy has, by all indications,
experienced continued solid growth. While in the second quarter the pace of activity seems to
have tapered off from the unsustainably rapid rate of growth in the first, the real economy
appears poised to continue a healthy expansion as we enter the third quarter.

At the same time, equity markets both here and abroad - have been highly volatile. The
drop in valuations has caused us in Treasury to put our 'real time' economic tools to work,
making phone call to expert industry contacts, and updating on a daily basis our tracking model
ofGDP, final sales, and investment. Our view, shared by most private forecasters, is that the
economy is on a solid growth path and the recovery is proceeding as expected.
The first half of the year is now history, and our focus is currently directed toward the
future. A number of indicators suggest a solid start to the third quarter. Average weekly
earnings rose 0.6 percent in real terms in June and were up 2.8 percent over the past twelve
months. Both auto and nonauto retail sales closed the second quarter on a high note. Evidence
for July suggests that consumers responded enthusiastically to the revival of the auto industry's
zero-percent financing programs, In June, new home sales broached the 1-million mark for the
first time in history, and industrial output rose 0.8 percent, a sixth straight increase and the largest
gain since October 1999. Inventory-sales ratios remain historically low, pointing to future
increases in industrial output.
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·U.S. Government Prmtlnq Office' 1998' 619,559

2
The news on labor markets is also becoming more encouraging. Payroll employment rose
for a second straight month in June and we are heartened by a drop in initial claims for
unemployment insurance in mid July to the lowest level since before the recession.
In addition, productivity and int1ation data are extremely positive. Productivity has
surged by 4.2 percent over the past year, helping to reduce unit costs, boost wages, and restore
growth in corporate profits. I note in particular that, as of last week, more than 85 percent of
S&P 500 companies reporting earnings met or beat expectations in the second quarter. These
indicators all suggest to me an economy on solid ground.

Finally, the unparalleled flexibility and resilience of U.S. capital markets was and is one
of the important sources of the economy's durability. After September 11, the Federal Reserve
continued to cut short-term interest rates. Then, long-term bond yields fell, reflecting a flight to
quality in response to increased uncertainty and financial volatility. Mortgage rates came down,
triggering a wave of refinancings that put billions of dollars into the hands of households. In this
low interest rate environment, auto companies were able to offer zero-percent financing which
boosted sales to near record levels.
It is important to note that a similar development is taking place today. In fact, in recent
weeks as stock prices have adjusted downward in the face concerns about corporate accounting
and earnings reports, the government bond market has rallied sharply. Domestic and foreign
funds previously held in equities appear to be flowing into US government bonds, pushing longterm rates lower. Last week, conventional 30-year mortgage rates reached a 30 year low of
6.3 percent. Applications for home equity loans shot upward, providing additional support for
consumption going forward.

All in all, it appears that the economy is well positioned to meet the Administration's
current forecast of2.6 percent real growth this year. That forecast, released two weeks ago as
part of the Mid-Session Budget Review, was much higher than expected in the February Budget
but still below private-sector forecasts. With the latest Budget Review, however, we found
ourselves in the unusual position of both announcing much stronger real growth expectations and
a deeper deficit. The estimate for the Federal deficit for FY -2002 was raised from $106 billion to
$165 billion, which represents a deficit of 1.6 percent ofGDP. As we discuss in our Mid Session
Review released July 15 t \
•

The reason for the wider deficit is that last year's recession and stock market weakness
took a much heavier toll on Federal revenues than previously thought. Non-withheld
incomes and capital gains realizations were reduced substantially.

•

The considerable change in circumstances from surpluses previously estimated to deficit
is largely the result of the recession. We estimate that it accounts for two-thirds of the
shift. Another 19 percent reduction was attributable to the vital needs of homeland
security and the war effort. Finally, the tax cuts enacted last year account for only
14 percent of the budget deterioration.

3

•

Even without the tax cut, the budget would still have been in deficit.

•

The combination of sustained economic growth and strong fiscal discipline can restore
the budget to balance by 2005. If we make the tough choices to slow spending in later
years, we project a return to growing unified surpluses thereafter.

The broad array of economic indicators that I regularly examine suggests to me that the
economy is on a path to sustained growth. The fundamentals - high productivity, low inflation,
low inventories - set the stage for a future of extended expansion. I am convinced that when
investors are able to return their attention to the economic fundamentals, those fundamentals will
be judged positively.

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OFFICE OF PUlBUC AFFAIRS .. 1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C .• 20220. (202) 622·2960

FOR IMMEDIATE RELEASE
JULY 30, 2002

CONTACT: BETSY HOLAHAN
202-622-2960

ATSB Decision On Vanguard Airlines
The Air Transportation Stabilization Board (ATSB) announced today that it has
denied the application of Vanguard Airlines, Inc. for a Federal guarantee ofa $8 million
financing pursuant to the Air Transportation Safety and System Stabilization Act (Act)
and implementing regulations promulgated by the Office of Management and Budget
(OMB). The Board concluded its review based on the standards set out in the Act and the
OMB regulations and determined that Vanguard's application did not meet the applicable
standards. The Board determined that Vanguard's proposal did not provide a reasonable
assurance that Vanguard will be able to repay the loan, one of the factors that the Board is
required to consider under the OMB regulations.
Additional information about the ATSB is available on its web site, www.treas.gov/atsb.

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/

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'u.s. Government PnnlinQ Office 1998 - G19-559

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960

Embargoed Until Delivery
July 30, 2002

Contact: Tara Bradshaw
(202) 622-2014

TESTIMONY OF KENNETH W. DAM
DEPUTY SECRETARY
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE SENATE COMMITTEE ON FINANCE
REGARDING THE WTO DECISION ON THE EXTRATERRITORIAL INCOME
EXCLUSION PROVISIONS AND INTERNATIONAL COMPETITIVENESS

Introduction
Mr. Chairman, Senator Grassley, and distinguished Members of the Committee, I
appreciate the opportunity to appear today at this hearing regarding the World Trade
Organization (WTO) decision with respect to the extraterritorial income exclusion (ETI)
provisions of U.S. tax law and the implications for international competitiveness. I commend the
Committee for holding this hearing on this matter of vital importance to U.S. workers and U.S.
businesses in today's global marketplace.
On January 29, 2002, the WTO Dispute Settlement Body adopted a final report finding
that the ETI provisions are inconsistent with the United States' obligations under the WTO. That
decision is the culmination of a challenge brought by the European Union in late 1997 against
the foreign sales corporation (FSC) provisions then contained in the U.S. tax law. However, the
origins of this dispute go back almost 30 years, predating the World Trade Organization itself.
The United States has vigorously pursued this matter and defended its laws because of the
importance of the provisions and principles at stake.
A WTO arbitration panel currently is considering the European Union's request for
authority from the WTO to impose trade sanctions on $4.043 billion worth of U.S. exports. The
arbitration panel is expected to issue its report on the appropriate level of trade sanctions in the
next few weeks. Following the issuance of that report, the European Union will be in a position
to receive authority to begin imposing trade sanctions on U.S. exports up to the level set by the
arbitrators and the authority for such sanctions will continue until the United States rectifies the
WTO violation.
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6

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'U 5 Government Printing Office 1998· 619-559

This is an urgent matter that requires our immediate attention. The threat of substantial
retaliatory sanctions against U.S. exports is not something that any of us takes lightly. Such
sanctions, if imposed, would do real damage to U.S. businesses and American workers. And the
imposition of such sanctions would have serious adverse consequences for the overall trade
relationship between the United States and the European Union beyond those sectors directly
targeted with sanctions, which would have a direct and detrimental effect on U.S. consumers. Of
course the urgency is not just about the critical need to avert costly retaliation. The WTO has
issued its final decision in this case, and we must comply with that decision. That is a matter of
principle.
The President has spoken on this and his message is clear. The United States will honor
its WTO obligations and will come into compliance with the recent WTO decision. To do so
will require legislation to change our tax law. The Administration is committed to working
closely with the Congress in the development and enactment of the legislation necessary to bring
the United States into compliance with WTO rules.
The analysis of the current WTO rules reflected in the decision in the FSCIETI case
makes it apparent that legislation attempting to replicate FSC or ETI benefits will not pass
muster in the WTO. Nor can we satisfy our WTO obligations and comply with WTO rules
through "tweaks" to the ETI provisions. The WTO Appellate Body made clear that a benefit tied
to export activity, such as is provided through the ETI provisions, is not permitted. Therefore, it
will not be fruitful to pursue again a replacement of the ETI provisions.
Addressing the WTO decision through the tax law will require real and meaningful
changes to our current international tax laws. While the WTO decision is a bitter pill, we must
look forward and take a fresh look at our tax laws and the extent to which they enhance or harm
the position of the U.S. in the global marketplace. As we evaluate the changes we might
consider, it is imperative that we make choices that will enhance - and not adversely affect - the
competitive position of American workers and U.S.-based businesses in today's global
marketplace.

In stating his commitment to compliance in this case, the President has said we must
focus on enhancing America's competitiveness in the global marketplace because that is the key
to protecting American jobs. At its core, this case raises fundamental questions regarding a level
global playing field with respect to tax policy. The ETI provisions, like the FSC provisions that
preceded them, represent an integral part of our larger system of international tax rules. These
provisions were designed to help level the global playing field for U.S.-based businesses that are
subject to those international tax rules. In modifying our tax laws to comply with this decision,
we must not lose sight of that objective and what it means: the health of the US economy andthe jobs of American workers.
Much can be done to rationalize our international tax rules through reforms both small
and large. The need for reform of our international tax rules is something I know you recognize,
Mr. Chairman. You have lead the way on a bipartisan basis with proposals to reform our
international tax rules.

2

The U.S. international tax rules can operate to impose a burden on U.S.-based companies
that is disproportionate to the tax burden imposed by our trading partners on the foreign
operations of their companies. The U.S. rules for the taxation of foreign-source income are
unique in their breadth of reach and degree of complexity. The recent activity involving socalled corporate inversion transactions is evidence that the competitive disadvantage caused by
our international tax rules is a serious issue with significant consequences for U.S. businesses
and the U.S. economy. Foreign acquisition of U.S. multinationals that arises out of distortions
created by our international tax system raises similar concerns. We must address these tax
disadvantages to reduce the tilt away from American workers and U.S.-based companies. And
as we consider appropriate reform of our system of international tax rules, we should not
underestimate the benefits to be gained from reducing the complexity of the current rules.
The bottom line is clear and simple. Our economy is truly global. U.S.-based companies
must be able to compete in today's global marketplace. Our system of international tax rules
should not disadvantage them in that competition. If we allow our international tax rules to act
as an impediment to successful competition, the cost will be measured in lost opportunities and
lost jobs here at home.
While we work toward the needed changes to our international tax rules, we must
continue a dialogue with the European Union. We must take every step needed to ensure that
this dispute does not further escalate to the detriment of the global trading environment. It is
essential that we achieve a resolution of this matter that is clear, fair and final- a resolution that
protects America's interests and satisfies our obligations under the WTO.
As I said in opening, resolving this case is an urgent matter that requires our immediate
attention. We must work toward enactment of legislation that will bring us into compliance with
the international WTO rules and protect the interests of American workers and businesses. On
this there can be no delay - we must make real progress now.
However, this case highlights significant issues requiring further consideration as the
discussions regarding WTO matters continue in the new round. As I said in my opening
statement in the WTO appellate proceeding in this case in Geneva last November, "few things
are as central to a country's sovereignty as how it raises revenue." The WTO Appellate Body in
its report in the FSC case stated that the WTO rules do not "compel Members to choose a
particular kind of tax system." That is a critically important point.
Compliance with the WTO decision in this case will require that we make meaningful
changes to our tax law. We have an obligation to U.S. workers and businesses not simply to
eliminate the ETl provisions. Our commitment to the American worker requires that we protect
the competitive position of our businesses. We must couple the changes needed to address the
WTO decision with needed reforms of our tax rules that will help level the playing field for U.S.based businesses that must compete in today's global marketplace. The reforms that are needed
address basic inequities in our international tax rules, rules that are out of step with those of our
major trading partners. Such reform to the U.S. international tax system is not a matter in which
there is any role for the WTO to play.

3

This case has been about the application of WTO rules to a particular aspect of the U.S.
income tax system. However, there is a much more fundamental question regarding the
treatment of taxes under the WTO rules that demands our careful consideration. The WTO rules
on prohibited export subsidies make a distinction between direct taxes, such as income taxes, and
indirect taxes, such as value added taxes. Under the WTO agreements, direct taxes are not
permitted to be border adjustable. Therefore, the U.S. income tax is not rebatable on export
under these rules. In contrast, indirect taxes are permitted to be border adjustable under the
WTO rules. Accordingly, the European value added taxes may be, and are, rebated at the border
consistent with WTO rules.
This disparity in treatment between direct and indirect taxes dates back formally to a
1960 GAIT working party and its informal origins date back even farther. Notwithstanding this
long history, there is no compelling rationale for disparate treatment of direct and indirect taxes.
Reconsideration of this distinction in the treatment of direct and indirect taxes under the WTO
rules will be part of the discussion of WTO matters in the new round. These negotiations,
however, are not a strategy for addressing the compliance obligation we face in this case today.
I would like to turn now to a brief history of the WTO case and our tax provisions that
have been the subject of this protracted litigation. I will conclude with a discussion of the
international competitiveness issues that must be a central focus in formulating the tax law
changes needed to satisfy our WTO obligations and protect the interests of U.S. businesses and
workers.

Overview of the History of the WTO Case
The FSC provisions were enacted in 1984. They provided an exemption from U.S. tax
for a portion of the income earned from export transactions. This partial exemption from tax was
intended to provide U.S. exporters with tax treatment that was more comparable to the treatment
provided to exporters under the tax systems common in other countries.
The FSC provisions were enacted to resolve a General Agreement on Tariffs and Trade
(GAIT) dispute involving a prior U.S. tax regime - the domestic international sales corporation
(DISC) provisions enacted in 1971. Following a challenge to the DISC provisions brought by
the European Union and a counter-challenge to several European tax regimes brought by the
United States, a GAIT panel in 1976 ruled against all the contested tax measures. This decision
led to a stalemate that was resolved with a GATT Council Understanding adopted in 1981 (the
"1981 Understanding"). Pursuant to this 1981 Understanding regarding the treatment of tax
measures under the trade agreements, the United States repealed the DISC provisions and
enacted the FSC provisions.
The European Union formally challenged the FSC provisions in the WTO in November
1997. Consultations to resolve the matter were unsuccessful, and the EU challenge was referred
to a WTO dispute resolution panel. In October 1999, the WTO panel issued a report finding that
the FSC provisions constituted a violation of WTO rules. The United States appealed the panel
report; the European Union also appealed the report. In February 2000, the WTO Appellate
Body issued its report substantially upholding the findings of the panel.

4

Although the United States argued forcefully that the FSC provisions were blessed by the
1981 Understanding, the WTO panel disagreed, concluding that the 1981 Understanding had no
continuing relevance in the interpretation of current WTO rules. The panel's analysis focused
mainly on the application of the WTO Agreement on Subsidies and Countervailing Measures.
The panel found that the FSC provisions constituted a prohibited export subsidy under the
Subsidies Agreement.
In response to the WTO decision against the FSC provisions, the FSC Repeal and
Extraterritorial Income Exclusion Act was enacted on November 15, 2000. The legislation
repealed the FSC provisions and adopted in their place the ETI provisions. The legislation was
intended to bring the United States into compliance with WTO rules by addressing the analysis
reflected in the WTO decision. At the same time, the legislation also was intended to ensure that
U.S. businesses not be foreclosed from opportunities in the global marketplace because of
differences in the U.S. tax laws as compared to the laws of other countries.
Immediately following the enactment of the ETI Act, the European Union brought a
challenge in the WTO. In August 2001, a WTO panel issued a report finding that the ETI
provisions also violate WTO rules. The panel report contained sweeping language and
conclusory statements that had broad implications beyond the case at hand. Because of the
importance of the issues involved and the troubling implications of the panel's analysis, the
United States appealed the panel report. The WTO Appellate Body generally affirmed the
panel's findings, although it modified and narrowed the panel's analysis in some respects. The
Dispute Settlement Body adopted the report as modified by the Appellate Body on January 29,
2002.
The Appellate Body report makes four main findings with respect to the ETI provisions:
(1) the ETI provisions constitute a prohibited export subsidy under the WTO Subsidies
Agreement; (2) the ETI provisions constitute a prohibited export subsidy under the WTO
Agriculture Agreement; (3) the limitation on foreign content contained in the ETI provisions
violate the national treatment provisions of Article 111:4 of GATT; and (4) the transition rules
contained in the ETJ Act violate the WTO's prior recommendation that the FSC subsidy be
withdrawn with effect from November 1, 2000.
When it challenged the ETI Act in November 2000, the European Union simultaneously
requested authority from the WTO to impose trade sanctions on $4.043 billion worth of U.S.
exports. The United States responded by initiating a WTO arbitration proceeding on the grounds
that the amount of trade sanctions requested by the European Union was excessive under WTO
standards. This arbitration was suspended pending the outcome of the European Union's
.
th
challenge to the WTO-consistency of the ETI Act, and resumed on January 29 with the Dispute
Settlement Body's adoption of its final report. As I noted at the outset, the arbitration panel is
expected to issue its report on the appropriate level of trade sanctions in the next few weeks and,
folIowing the issuance of that report, the European Union will be in a position to be authorized to
begin imposing trade sanctions on U.S. exports up to the level set by the arbitrators.

5

Competitiveness and U.S. Tax Policy
The U.S. international tax rules have developed in a patchwork fashion, beginning during
the 1950s and 1960s. They are founded on policies and principles developed during a time when
America's foreign direct investment was preeminent abroad, and competition from imports to the
United States was scant. Today, we have a truly global economy, in terms of both trade and
investment. The value of goods traded to and from the United States increased more than three
times faster than GDP between 1960 and 2000, rising to more than 20 percent ofGDP. The flow
of cross-border investment, both inflows and outflows, rose from a scant 1.1 percent of GDP in
1960 to 15.9 percent ofGDP in 2000.
Multinational corporations are a vital part of the United States economy. The ability of
U.S. multinational corporations to compete successfully abroad leads directly to their
employment of American workers at home. They employ over 20 million people in the United
States, or about one in every six American workers. Approximately one fourth of the output
produced by U.S. workers and U.S.-owned companies is produced by U.S. non-bank
multinationals, either at home or abroad. Multinationals in the manufacturing sector produce
over half of all U.S. gross manufactured product.
U.S. multinationals also participate substantially in international trade. Their
merchandise exports account for about two-thirds of overall U.S. merchandise exports. Their
merchandise imports account for about 40 percent of all U.S. merchandise imports. On balance,
the operations of these companies showed a net trade surplus of$64 billion in 1999.
Multinational companies compete abroad to increase their sales in foreign markets, which
increases their worldwide earnings. Much of their foreign activities are aimed at providing
services that cannot be exported and selling goods that are costly to export due to transportation
costs, tariffs, and local content requirements. About one third of the gross product of foreign
affiliates of U.S. multinationals is produced by affiliates in the service sector, including
distribution, marketing, and servicing U.S. exports. Foreign investment is also undertaken to
obtain access to natural resources abroad.
Among the most important assets of U.S. multinationals is their technical and scientific
expertise. Their foreign investments broaden the opportunities to benefit from such expertise
and thus encourage them to spend more on research and development.
Spending on research and development allows the United States to maintain its competitive
advantage in business and be unrivaled as the world leader in scientific and technological knowhow. In 1999, non-financial U.S. multinationals performed $142 billion of research and
development. Nearly 90 percent of this activity was located in the United States. It accounted
for more than two thirds of all research and development conducted by companies in the United
States.

6

At one time, the strength of America's economy was thought to be tied to its abundant
natural resources. Today, America's strength is its ability to innovate: to create new
technologies and to react faster and smarter to the commercialization of these technologies.
America's preeminent resource today is its knowledge base.
A feature of a knowledge-driven economy is that unlike physical capital, technological
know-how has the potential to be applied across the world without reducing the productive
capacity of the United States. For example, computer software designed to enhance the
efficiency of a manufacturing process may require substantial up front investment, but once
completed it can be employed around the world by its developer without diminishing the benefits
of the know-how within the United States. Foreign direct investment by companies in a
knowledge-driven economy provides opportunities to export this know-how at low cost and
provides incentives to undertake greater domestic investment in developing these sources of
competitive advantage.
There are many reasons to believe that the principles that guided U.S. international tax
policy in the past should be reconsidered in today's highly competitive, knowledge-driven
economy. In this regard, it is significant that the U.S. tax system differs in fundamental ways
from those of our major trading partners. In order to ensure that U.S. workers achieve higher
living standards, we must ensure the U.S. tax rules do not hinder the ability of the U.S.
businesses that employ them to compete on a global scale. If U.S. workers and businesses are to
succeed in the global economy, the U.S. tax system must not generate a bias against their ability
to compete effectively with foreign-based companies.
To understand the effect of U.S. tax policy on the competitiveness of U.S. business, we must
consider how U.S. businesses compete in today's global marketplace. A U.S. business operating
at home and abroad must compete in several ways for capital and customers. Competition may
be among:
•
•
•
•
•

U.S.-managed firms that produce within the United States;
U.S.-managed firms that produce abroad;
Foreign-managed firms that produce within the United States;
Foreign-managed firms that produce abroad within the foreign country in which they are
headquartered; and
Foreign-managed firms that produce abroad within a foreign country different from the
one in which they are headquartered.

These entities may be simultaneously competing for sales within the United States, within a
foreign country against local foreign production (either U.S., local, or other foreign managed); or
within a foreign country against non-local production. Globalization requires that U.S.
companies be competitive both in foreign markets and at home.

7

Other elements of competition among firms exist at the investor level: U.S.-managed firms
may have foreign investors and foreign-managed firms may have U.S. investors. Portfolio
investment accounts for approximately two-thirds of U.S. investment abroad and a similar
fraction of foreign investment in the United States. Firms compete in global capital markets as
well as global consumer markets.

In a world without taxes, competition among these different firms and different markets
would be determined by production costs. In a world with taxes, however, where countries make
different determinations with respect to tax rates and tax bases, these competitive decisions
inevitably are affected by taxes. Assuming other countries make sovereign decisions on how to
establish their own tax systems and tax rates, it simply is not possible for the United States to
establish a tax system that restores the same competitive decisions that would have existed in a
world without taxes.
The United States can, for example, attempt to equalize the taxation of income earned by
U.S. companies from their U.S. exports to that of U.S. companies producing abroad for the same
foreign market. However, in equalizing this tax burden, it may be the case that the U.S. tax
results in neither type of U.S. company being competitive against a foreign-based multinational
producing for sale in this foreign market.
The manner in which balance is achieved among these competitive concerns changes over
time as circumstances change. For example, as foreign multinationals have increased in their
worldwide position, the likelihood of a U.S. multinational company competing against a foreign
multinational in a foreign market has increased relative to the likelihood of U.S. export sales
competing against sales from a U.S. multinational producing abroad. The desire to restore
competitive decisions to those that would occur in the absence of taxation therefore may place
greater weight today on U.S. taxes not impeding the competitive position of U.S. multinationals
vis-a-vis foreign multinationals in the global marketplace. Similarly, while at one time U.S.
foreign production may have been thought to be largely substitutable with U.S. domestic
production for export, today it is understood that foreign production may provide the opportunity
for the export of firm-specific know-how and domestic exports may be enhanced by the
establishment of foreign production facilities through supply linkages and service arrangements.
Ensuring the ability of U.S. multinationals to compete in foreign markets thus provides direct
opportunities at home for American workers.
Given the significance today of competitiveness concerns, it is important to understand the
major features of the U.S. tax system and how they differ from those of our major trading
partners. The primary features of the U.S. tax system considered here are: (i) the taxation of
worldwide income; (ii) the current taxation of certain types of active foreign-source income; (iii)
the limitations placed on the use of foreign tax credits; and (iv) the unintegrated taxation of
corporate income at both the entity level and the individual level.

u.s. Worldwide Tax System

8

The United States, like about half of the OECD countries, including the United Kingdom
and Japan, operates a worldwide system ofincome taxation. Under this worldwide approach,
U.S. citizens and residents, including U.S. corporations, are taxed on all their income, regardless
of where it is earned. Income earned from foreign sources potentially is subject to taxation both
by the country where the income is earned, the country of source, and by the United States, the
country of residence. To provide relief from this potential double taxation, the United States
allows taxpayers a foreign tax credit that reduces the U.S. tax on foreign-source income by the
amount of foreign income and withholding taxes paid on such income.
The U.S. worldwide system of taxation is in contrast to the territorial tax systems
operated by the other half of the OECD countries, including Canada, Germany, France, and the
Netherlands. Under these territorial tax systems, domestic residents and corporations generally
are subject to tax only on their income from domestic sources. A domestic business is not
subject to domestic taxation on the active income earned abroad by a foreign branch or on
dividends paid from active income earned by a foreign subsidiary. A domestic corporation
generally is subject to tax on other investment-type income, such as royalties, rent, interest, and
portfolio dividends, without regard to where such income is earned; because this passive income
is taxed on a worldwide basis, relief from double taxation generally is provided through either a
foreign tax credit or a deduction allowed for foreign taxes imposed on such income. This type of
territorial tax system sometimes is referred to as a "dividend exemption" system because active
foreign business income repatriated in the form of a dividend is exempt from taxation. By
contrast, a pure territorial system would provide an exemption for all income received from
foreign sources, including investment-type income. Such pure territorial systems have existed
only in a few developing countries.
Differences between a worldwide tax system and a territorial system can affect the ability
of U.S.-based multinationals to compete for sales in foreign markets against foreign-based
multinationals. The key difference between the two systems is which tax rate - source country
or home country - applies to foreign-source income. Under a worldwide tax system, repatriated
foreign income is taxed at the higher of the source country rate or the residence country rate. In
contrast, foreign income under a territorial tax system is subject to tax at the source country rate.
The effect of this difference depends on how the tax rate in the country where the income is
earned compares to the tax rate in the company's home country. The effect on U.S.-based
businesses depends upon their mix of foreign-source income, but the imposition of residual U.S.
tax on income earned abroad can impose a cost for U.S. businesses that is not imposed on their
foreign competitors. Differences between these systems also can affect decisions about whether
and when to repatriate earnings, which in tum affect investment decisions in the United States.
It is important to note that both worldwide and territorial systems involve the taxation of
income. The complexities present in taxing income generally are heightened in determining the
taxation of income from multinational activities, where in addition to measuring the income one
must determine its source (foreign or domestic). This complexity affects both tax administrators
and taxpayers. Indeed, the U.S. international tax rules have been identified as one of the largest
sources of complexity facing U.S. corporate taxpayers.

9

Given the complexity of the task of taxing multinational income under a worldwide or
territorial system on top of the general complexity of the income tax system, some consideration
might be given to alternative tax bases other than income. Other OECD countries typically rely
on taxes on goods and services, such as under a value added tax, for a substantial share of tax
revenues. In the European OECD countries, for example, these taxes raise nearly five times the
amount of revenue as does the U.S. corporate income tax as a share ofGDP.

Comparison with Other Worldwide Tax Systems
As described above, about half of the OECD countries employ a worldwide tax system as
does the United States. However, the details of our system are such that U.S. multinationals may
be disadvantaged when competing abroad against multinational companies established in other
countries using a worldwide tax system. This is because the United States employs a worldwide
tax system that, unlike other worldwide systems, taxes active forms of business income earned
abroad before it has been repatriated and more strictly limits the use of the foreign tax credits
that prevent double taxation of income earned abroad.

Limitations on Deferral
Under the U.S. international tax rules, income earned abroad by a foreign subsidiary
generally is subject to U.S. tax at the U.S. parent corporation level only when such income is
distributed by the foreign subsidiary to the U.S. parent in the form of a dividend. An exception
to this general rule is provided with the rules of subpart F of the Code, under which a U.S. parent
is subject to current U.S. tax on certain income of its foreign subsidiaries, without regard to
whether that income is actually distributed to the U.S. parent. The focus of the subpart F rules is
on passive, investment-type income that is earned abroad through a foreign subsidiary.
However, the reach of the subpart F rules extends well beyond passive income to encompass
some forms of income from active foreign business operations. No other country has rules for
the immediate taxation of foreign-source income that are comparable to the U.S. rules in terms of
breadth and complexity. The effect of these rules is to force U.S.-based companies either to
structure their operations in a manner that is less than optimal from a business perspective or to
incur current U.S. tax in addition to the local tax. The foreign-based companies against which
our companies must compete do not face this same tradeoff.
Several categories of active business income are covered by the subpart F rules. Under
subpart F. a U.S. parent company is subject to current U.S. tax on income earned by a foreign
subsidiary from certain sales transactions. Accordingly, a U.S. company that uses a centralized
foreign distribution company to handle sales of its products in foreign markets is subject to
current U.S. tax on the income earned abroad by that foreign distribution subsidiary. In contrast,
a local competitor making sales in that market is subject only to the tax imposed by that country.
Moreover, a foreign competitor that similarly uses a centralized distribution company to make
sales into the same markets also generally will be subject only to the tax imposed by the local
country. This rule has the effect of imposing current U.S. tax on income from active marketing
operations abroad. U.S. companies that centralize their foreign distribution facilities therefore
face a tax penalty not imposed on their foreign competitors. This increases the cost of selling
goods that are produced in the United States.

10

The subpart F rules also impose current U.S. taxation on income from certain services
transactions performed abroad. In addition, a U.S. company with a foreign subsidiary engaged in
shipping activities or in certain oil-related activities, such as transportation of oil from the source
to the consumer, will be subject to current U.S. tax on the income earned abroad from such
activities. In contrast, a foreign competitor engaged in the same activities generally will not be
subject to current home-country tax on its income from these activities. These rules operate to
subject U.S.-based companies to an additional tax cost on some classes of income arising from
active business operations structured and located in a particular country for business reasons
wholly unrelated to any tax considerations.

Limitations on Foreign Tax Credits
Under the worldwide system of taxation, income earned abroad potentially is subject to
tax in two countries - the taxpayer's country of residence and the country where the income was
earned. Relief from this potential double taxation is provided through the mechanism of a
foreIgn tax credit, under which the tax that otherwise would be imposed by the country of
residence may be offset by tax imposed by the source country. The United States allows U.S.
taxpayers a foreign tax credit for taxes paid on income earned outside the United States.
The foreign tax credit may be used only to offset U.S. tax on foreign-source income and
not to offset U.S. tax on U.S.-source income. The rules for determining and applying this
limitation are detailed and complex and can have the effect of subjecting U.S.-based companies
to double taxation on their income earned abroad. The current U.S. foreign tax credit regime
also requires that the rules be applied separately to separate categories or "baskets" of income.
Foreign taxes paid with respect to income in a particular category may be used only to offset the
U.S. tax on income from that same category. Computations of foreign and domestic source
income, allocable expenses, and foreign taxes paid must be made separately for each of these
separate foreign tax credit baskets, further adding to the complexity of the system. Moreover,
the U.S. foreign tax credit regime requires the allocation of U.S. interest expense against foreignsource income in a manner that reduces the foreign tax credit limitation by understating foreign
income. The practical effect of these interest allocation rules can be the denial of a deduction for
interest expense incurred in the United States, which increases the cost of investment and
expansion here at home.
Other countries do not have restrictions and limitations on foreign tax credits that are
nearly as extensive as our rules. These rules can have the effect of denying U.S.-based
companies the full ability to credit foreign taxes paid on income earned abroad against the U.S.
tax liability with respect to that income. The result is that U.S.-based companies are subject to
just the double taxation that the foreign tax credit is intended to eliminate.

u.S. Corporate Taxation

11

While concern about the effects of the U.S. tax system on international competitiveness
may focus on the tax treatment of foreign-source income, competitiveness issues arise in very
much the same way in terms of the general manner in which corporate income is subject to tax in
the United States.
One aspect of the U.S. tax system is that the income from an equity-financed investment
in the corporate sector is taxed twice. Equity income, or profit, is taxed first under the corporate
income lax. Profit is taxed again under the individual income tax when received by the
shareholder as a dividend or as a capital gain on the appreciation of corporate shares. In contrast,
most other OECD countries offer some form of integration, under which corporate tax payments
are either partially or fully taken into consideration when assessing shareholder taxes on this
income, eliminating or reducing the double tax on corporate profits.
The non-integration of corporate and individual tax payments on corporate income
applies equally to domestically earned income or foreign-source income of a U.S. company.
This double tax increases the "hurdle" rate, or the minimum rate of return required on a
prospective investment. In order to yield a given after-tax return to an individual investor, the
pre-tax return must be sufficiently high to offset both the corporate level and individual level
taxes paid on this return. Whether competing at home against foreign imports or competing
abroad through exports from the United States or through foreign production, the double tax
makes it more difficult for the U.S. company to compete successfully against a foreign
competitor.
As noted above, most OECD countries offer some form of tax relief for corporate profits.
This integration typically is provided by reducing personal income tax payments on corporate
distributions rather than by reducing corporate level tax payments. International comparisons of
corporate tax burdens. however, sometimes fail to account for differences in integration across
countries and consider only corporate level tax payments. To be meaningful, comparisons
between the total tax burden faced on corporate investments by U.S. companies and those of
foreign multinational companies must take into account the total tax burden on corporate profits
at both the corporate and individual levels.

Closing Thoughts
The U.S. economy is an integral part of the global marketplace, and the activities of U.S.
businesses in the global marketplace are a critical part of America's economic success.
Accordingly, we must ensure that U.S. tax rules do not adversely impact the ability of American
workers and U.S. businesses to compete successfully around the world. Relative to the tax
systems of our major trading partners, the U.S. international tax rules can impose significantly
heavier burdens on domestically based companies. As we make the changes to our tax law that
are needed to comply with WTO rules, we must keep our focus on the objectives served by the
FSC and ETI provisions and look to removing biases against the ability of U.S. businesses to
compete in today's global economy. Such reforms will allow the United States to retain its
world economic leadership to the benefit of American workers.

12

The Administration is committed to working with Congress to satisfy the twin objectives
of meeting our WTO obligations and ensuring that we protect the competitive position of
American workers and businesses.

-30-

13

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 9:00AM
July 31, 2002

CONTACf: Betsy Holahan
or Tony Fratto
at (202) 622-2960

AssIstant Secretary for Finandal Markets
Brian C. Roseboro
August 2002 Quarterly RefundiDg Statement

The quarterly refunding process is an important part of our efforts to fulfill our mission of
financing government borrowing needs at the lowest cost over time. We believe that Treasury's
policy of issuing debt in a regular pattern and in predictable quantities fulfills this mission. The
risks to regular and predictable issuance are the result of unexpected changes in our borrowing
requirements, changes in the demand for our securities, and anything that inIn'bits timely sales of
our securities. To (educe these risks, we closely monitor economic conditions, fiscal policy and
market activity, and, when necessary, respond with changes in debt issuance that are based on
thorough analysis and discussions with market participants. We also seek to lower our
borrowing costs by ensuring timely, reliable sales of our securities through continuous
improvement in the auction process.
The Department of the Treasury announced its quarterly refunding needs and related
financing changes today. We are offering $40 billion of notes to refund approximately S18.8
billion of privately held notes maturing on August IS, raising approximately S21.2 billion. The
securities are:
1. A new S-year note in the amount ofS22 billion, maturing August 15,2007.
2. A new 10-year note in the amount ofS18 billion, maturing August 15,2012.

These securities will be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday,
August 6, and Wednesday, August 7, respectively. The balance of our financing requirements
will be met through 10-year inflation-indexed note, 2-year note and bill offerings.
In the current quarter, Treasury may issue an off-cycle cash management bill due to
seasonal cash swings in early September.
PO-3296

Re-opening Polley
Treasury is discontinuing the re-opening policy for 100year notes. Like the
discontinuation of the re-opening policy for 5-year notes announced on May I, this decision for
10-year notes is part of our longer term efforts to smooth the maturity distribution of our
issuance. In addition to smoothing the distribution of maturities, discontinuing the IO-year reopening policy allows for slightly larger auction sizes. Going fo~ our policy will be to
auction a new 100year note each quarter.
Changes to Auction AlmoUDcement Times
As part of Treasury's broader efforts to improve the auction process, all Treasury auction
announcements, except quarterly refunding announcements, wiD be released at 11:00 a.m
Eastern time. This policy will apply to all regular issues of Treasury bills, 2-year notes and
inflation-indexed securities. It will tate effect with regular weekly bill auction announcements
scheduled for August 8.

Treasury is also shortening the when-issued period for 2-year notes. Beginning with the
announcement of the August 2-year note, the auction announcement will be released two
business days prior to the scheduled auction. For details on auction and announcement dates, see
http://www.treas.gov/officesldomestic-financeidebt-managementlauctionslauctions.pdf.
Buyback Operations
Treasury will not be conducting buybacks this quarter.
Net Long POSitiOD Reporting
Following public comment on application of Net Long Position (NLP) reporting in
auctions, Treasury announced that the reporting threshold for NLP reporting will soon be raised
to 35 percent of the security's offering amount This change, which will be is$Ued as a final
amendment to the Uniform Offering Circular (31 CFR Part 356, also referred to as the auction
rules), will reduce the costs of complying with Treasury auction nll~ for some auction
participants. No other changes to NLP reporting are under active consideration at this time.
Treasury will continue to work to reduce the burden of complying with NLP reporting.
Once this change is implemented, Treasury will provide the specific dollar threshold OD
each offering announcement

Large Position Reportlag - Proposed Changes
Treasury also proposed changes to the large position rules (17 CFR Part 420) applying to
those who hold very large positions. These holders are subject to infrequent, on-demand
reporting requirements designed to provide regulators with information to assess whether a
market participant is exercising market power. Specifically. we propose to:
• separate reporting of certain components of "net trading position" and "gross financing
position"
• separate reporting by maturity classification of the par amount of securities delivered
through repurchase agreements as a memorandum item
• reporting of the gross par amount of "fails to deliver" as a new memorandum item, and
• eliminating the optional exclusion in the calculation of the amount of securities received
through certain financing transactions as part of "gross financing position."
Details of these proposed modifications are descnDed in todays FedenJl Register. The comment
period on this proposal ends September 16.
PoUey Issues UDder DiscusslOD
We are studying the advantages and disadvantages of moving auction times earlier in the
day. Previous announced policy issues that remain under discussion include Treasury's etforts
to:

•
•

promote investor interest in inflation-indexed securities.
reduce the costs associated with short-term fluctuations in cash balances.
• study the effects of heightened volatility on debt issuance.
Please send comments and suggestions on these subjects or others relating to debt management
to debtmanagement@do.treas.gov.
Auction Performaace Reportlag
We are committed to improving the auction process by simplifying bidding procedures
and speeding up auction results release times. As part of the chart package released Monday,
July 29, 2002, we have included information on progress towards our goal of consistently shorter
results release times.

PO-3297: Minute& Of1ft.e. Meeting Of The Treasury Borrowing Advisory Committee Ofl .. Page 1 of 3

FROM THE OFFICE OF PUBLIC AFFAIRS
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July 31, 2002
P0-3297
Minutes Of The Meeting Of The Treasury Borrowing Advisory Committee Of
The Bond Market Association

The Committee convened at 9:00 a.m. at the Treasury Department for the portion of
the meeting that was open to the public. All members were present except Mr
Anderson, Mr. Lyski and Mr. Marsico. The Federal Register announcement of the
meeting and a list of Committee members are attached.
The Committee was welcomed by Timothy Bitsberger, Deputy Assistant Secretary
for Federal Finance. Richard Clarida, Assistant Secretary for Economic Policy,
summarized the current state of the U.S. economy (statement attaChed). Fred
Pietrangeli, a senior economist for the Office of Market Finance, presented the
chart show, updating Treasury borrowing estimates, and debt statistics.
The public meeting ended at 9:25 a.m.
The Committee reconvened in closed session at the Madison Hotel at 12:20 p.m.
All members were present except Mr. Anderson, Mr. Lyski and Mr. Marsico. The
Chairman read the charge, which is also attached.
The Committee discussed the advantages and disadvantages of continuing the reopening policy for 10-year notes. The continuation or discontinuation of the reopening policy was discussed simulataneoulsy with increasing 10-year note
issuance.
Committee members supporting the re-opening policy cited the lack of long-term
financing needs in the recent administration forecast. Committee members
supporting discontinuation of the re-opening policy cited inaccuracies in past fiscal
forecasts, the value that single issue securities in smoothing the distribution of
outstanding Treasuries, the benefits of increased diversification from issuing larger
quantities of 10-year notes, and the likely demand for additional long-term Treasury
securities. It was pointed out that the 10-year note, while not as attractive to the
swaps market as the 5-year note, plays an increasingly important role in risk
transfer. Based on this attractiveness, the market would be receptive to greater
issuance of 10-year notes.
Some members noted Treasury's heavy reliance on bills and 2-year notes. There
is evidence that 2-year notes, in particular, have given up some of the premium that
new Treasury issues generally receive. Others argued that, given Treasury's longterm view, the Treasury should not be overly concerned with the small concession
paid for large 2-year note issue sizes.
A more general argument for additional issuance of 10-year notes, given the current
sizes of 2-year note auctions, was that additional diversification of coupon
borrowing would be prudent. In particular, it was noted that signs of a strong
economic recovery would be exceptionally costly for 2-year notes given auction
sizes and the current steepness of the yield curve.
The Committee voted 14 to 3 in favor of discontinuing the re-opening policy for the

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P0-3297: Minutes Of~ Meeting Of The Treasury Borrowing Advisory Committee Ofl .. Page 2 of3
1()..year note.
The Committee briefly discussed the status of the 1()..year inflation-indexed security
in light of the vote on the 10-year nominal note. Members noted that the liS is not a
hedging vehicle and changes in liS issuance are not expected by the market If
Treasury considers changes to the liS calendar, members said that Treasury
should review the Committee's advice on moving the liS to the quarterly cycle. In
addition, whatever the merits of adding additional liS CUSIPS, Committee members
stressed that there should be no change so soon after the establishment of the
current liS calendar.
The Committee then discussed the Treasury auction announcement and auction
times. Members cited the advantages of earlier times for European investors.
Members saw no downside risk for earlier announcement times but the advantage
of moving to earlier auction times was questioned.
Members cited greater convenience for European investors and greater activity in
the financing market as potential advantages in moving to earlier auction times.
Members generally felt that those advantages were outweighed by the potential
loss of dealer underwriting at earlier auction times. Less important, earlier auction
times could lead to greater volatility due to overlaps with data releases.
The Committee generally favored shortening the when-issued period for 2-year
notes. Members noted there has been a fall-off in WI trading and Treasury could
help to reduce volatility from speculative accounts with a shorter WI period.
Committee members were generally skeptical of the advantages of moving to
smaller, more frequent auctions in response to heightened volatility. The current
auction calendar gives Treasury securities an event premium and the current
calendar was viewed by some members as already well diversified.
The meeting adjourned at 1:20 p.m.
The Committee reconvened at the Madison Hotel at 5:35 p.m. All members were
present except Mr. Anderson, Mr. Lyski and Mr. Marsico. The Chairman presented
the Committee report to the Assistant Secretary for Financial Markets, Brian
Roseboro and Deputy Assistant Secretary for Federal Finance, Tim Bitsberger. A
brief discussion followed the Chairman's presentation, but did not raise significant
questions regarding the report's content.
The meeting adjourned at 6:15 p.m.

Paul F. Malvey
Director
Office of Market Finance
July 30,2002

Certified by:
Timothy W. Jay, Chairman
Treasury Borrowing Advisory Committee
of The Bond Market Association
July 30, 2002

July 30, 2002
Committee Charge

http://wwwpeas.gov/press/releases/p032.7.htm

08102/2002

PO-3297: MimItes Of The Meeting Of The Treasury Borrowing Advisory Committee Ofl... Page 3 of3

The Treasury Department would like the Committee's advice on the following:
• The composition of 5- and 10-year notes to refund $18.8 billion of privately
held notes maturing on August 15. What do you recommend regarding the
regular reopening policy for 10-year notes.
• The composition of Treasury marketable financing for the remainder of the
July-September quarter, including cash management bills if necessary.
• The composition of Treasury marketable financing for the OctoberDecember quarter.
• Treasury regularly announces auctions for marketable securities at 2:30
p.m. on a given day and conducts auctions at 1:00 p.m. a few days later.
Would it benefit Treasury to conduct announcements and auctions earlier in
the day? Also. would it benefit Treasury to reduce the time between
announcement and auction of any of its regularly scheduled securities? For
example, 2-year notes are announced on a Wednesday and auctioned the
following Wednesday_ In October, the 2-year note is scheduled to be
announced on October 16. auctioned on October 23, and settled on October
30.
• The Committee noted last April a higher level of volatility is probably a
permanent feature of the credit markets. In a higher volatility environment,
is Treasury's debt current issuance pattern and calendar well placed to
meet our objective of low cost borrowing over time? In particular. do the
sizes and frequencies of current coupon offerings adequately mitigate the
risks associated with episodes of high volatility? Should the Treasury offer
coupon securities more frequently or should it offer a wider range of
securities?
Related Documents:
~rd Quarter Financing Table
• 4th Quarter Financing Table

•

http://www.,tteas.gov/press/releases/p0329?.htm

08102/2002

PO-3298: l\epm1 To The Secretary Of The Treasury From The Treasury Borrowing Advis... Page 1 of 3

FROM THE OFFICE OF PUBLIC AFFAIRS
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July 31. 2002
P()"3298
Report To The Secretary Of The Treasury From The Treasury Borrowing
Advisory Committee

Dear Mr. Secretary:
Since the Committee's last meeting on April 30th. the economic recovery has
continued to unfold. but the risk of collateral damage from the stock market has
grown. Economic indicators remain positive. The labor market shows signs of
moderate growth. Consumer spending has remained solid. Spending on both
housing and motor vehicles remains at elevated levels. The pace of inventory
decline continues to slow. And there are even tentative signs of a pick-up in
business spending. However, financial conditions have worsened noticeably. Credit
markets continue to tighten, with wider spreads and reduced supply. The S&P 500
has fallen nearly 25% since mid-May, cutting household wealth by more than $3
trillion. This negative shock has been partially offset by a 10% or so decline in the
trade-weighted dollar and falling interest rates. Overall. the risks to second half
growth have increased, although there is considerable disagreement among
economiSts about the amount of collateral economic damage from the drop in the
stock market. Meanwhile, inflation indicators remain subdued.
Interest rates have fallen sharply since our last meeting. Despite improvements in
the economic data, ongoing weakness in the equity markets helped push 2-year
yields down roughly 100 basis points since April 30th while the 10-year note has
fallen roughly 75 over the same period.
In the credit markets there has been a flight to quality. Mortgage-backed option
adjusted spreads narrowed from 50 basis points on April 30th. to 45 basis points on
July 24th. Going down the credit spectrum spreads widened. Aa rated industrial
bond spreads widened marginally from 85 basis points to 100 basis points. Baa
spreads widened from 275 basis points to 330 basis points. High-yield spreads
widened from 692 basis points to 937 basis points. In this last. lowest rated class.
the arrival of large new downgraded issues was a particularly heavy burden.
The market focus on accounting issues has intensified further since April. Several
high-profile firms have acknowledged bookkeeping irregularities and sentiment in
the market has turned sharply negative despite healthy economic news. As a result,
equity market averages are down across the board. The Dow Jones Industrial
average has fallen 20%, the S&P 500 has fallen 25%. and the NASDAQ is down
27%.
The budget situation has continued to deteriorate as increased security-related
spending and decreased tax receipts should result in a budget deficit of $165 billion
in FY2002, almost double the estimate reported by this Committee in April. Deficit
estimates for FY2003 reflect the continued uncertainty regarding the true cost of
both the Administration's policy towards the war on terrorism and the recent equity
market downtum. At present. budget deficit estimates for FY2003 run between
$150 billion and $200 billion.
Against this economic and financial backdrop. the Committee began consideration

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PO-3298: Report To The SeePetaty Of The Treasury From The Treasury Borrowing Advis ... Page 2 of 3

of various debt management questions posed by Treasury including the
composition of financing to refund $18.8 billion of privately held notes maturing on
August 15.
Before tackling the broader refunding question, the Committee first addressed the
question regarding the regular reopening policy for 10-year notes. Some
Committee members felt that because Treasury forecasts are predicting a return to
budget surplus by 2005, Treasury would be premature to end the reopening policy.
Under most scenarios Treasury could borrow at least through the end of 2003,
without increasing their 10-year issuance. This could be achieved by continuing to
focus increased issuance in treasury bills, 2-year notes and 5-year notes. Some
members thought that a change in the 10-year reopening policy at this point would
lead some market participants to surmise that Treasury had pushed surplus
projections further into the future. Treasury securities might suffer under this
scenario as the market braced unnecessarily for added supply.
The majority of members, however, felt that ending the reopening now made sense
for a number of reasons. First, by many estimates incremental issuance in
maturities less than five years would be cosUy to Treasury on a relative value basis
as these sectors had moved to historically cheap levels versus other asset classes.
and against similar maturity off the run issues. Second. single cusip 10 years would
be a more attractive hedging vehicle as duration drift would prove less of an
obstacle. This in tum would probably lead to higher trading volumes, more
underlying repurchase agreement activity and more advantageous priCing for
Treasury. In addition, some members felt that given the questionable accuracy of
deficit forecasting as well as the somewhat asymmetric risk regarding higher
deficits over the next year, moving to single cusip 10-year issuance now would add
flexibility to Treasury debt management. In this light, the Committee voted 14 to 3
to recommend ending the automatic reopening in the 10-year note with the current
refunding announcement.
In response to Treasury's question regarding the minimum size of single cusip 10years, most members felt that from both the prospective of risk transferral at auction
and liquidity to support the benchmark status of the sector, $15 billion represented
the appropriate minimum size.
The Committee then turned to the question involving the composition of five and ten
year notes to refund $18.8 billion of privately held notes maturing August 15, the
compoSition of Treasury marketable finanCing for the remainder of the JulySeptember quarter, including cash management bills if necessary. and the
composition of the marketable financing for the October-December quarter.
The Committee recommends a new $24 billion 5-year note due August 15, 2007
and a new $15 billion 10-year note due August 15, 2012. For the remainder of the
quarter, the Committee recommends two $27 billion 2-year notes to be auctioned
on August 28 and September 25. The Committee does not recommend any cash
management bills projecting that any increased short-term cash needs be satisfied
by adjusting up the size of 4-week bills to a high of $25 billion in mid August as
shown on the attached table.
For the October-December quarter the Committee's recommended financing is
contained in the attached table. Relevant features indude three $28 billion 2-year
notes and one $25 billion 5-year note, all slightly larger than in the previous
quarter. The Committee further recommended a $15 billion single cusip 10-year
note and $6 billion of a reopened Treasury Inflation Protected Security due July 10,
2112 which follows Treasury's previous guidance regarding TIPS issuance. Again,
in this quarter no cash management bills are recommended.
Treasury currently announces auctions for marketable securities at 2:30 p.m. and
conducts auctions at 1:00 p.m. a few days later. The Treasury asked the
Committee if debt management would benefit from moving announcements and
auctions to earlier in the day and from reducing the time between announcements,
auctions and settlements.

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PO-3298: Report To The Set;JctaIy Of The Treasury From The Treasury Borrowing Advis ... Page 3 of 3

Regarding moving auction announcements forward, most members felt that
infonning as many partidpants as possible during active morning trading would lead
to increased liquidity. Additionally. it would benefit overseas partidpants without
significantly affecting domestic participants. As a result, the Committee felt there
was little downside to making the change and recommended moving the
announcement time forward to 11:00 a.m.
Members of the Committee were resistant to moving the timing of the auction
process forward. Some Committee members felt there was a dear value to
Treasury owning the 1:00 p.m. time slot for underwriting securities. Many
suggested that any move to a new time slot might undermine the underwriting
process most of which occurs on the actual auction day. Ultimately, the Committee
felt that the vast majority ot actual underwriting continues to be done by the primary
dealer community and as a result, Treasury auctions should remain in the 1 :OOp.m.
time slot.
A reduction in time between the announcement and the settlement of securities was
also discussed by the Committee. This is a topic the Committee has been in favor
of in the past, as it reduces systemic counterparty risk as a result of a narrower time
frame for the underwriting and auction processes. It was suggested that the
amount of when-issued trading volume (ex-rolls) has been contracting consistently
over the past several quarters, making this period less relevant. As a result a
shorter period could be considered. Wrth treasury bills, the time period between
announcement and auction has successfully been shortened, and the Committee
felt the announcement to auction period for coupons could be shortened as well.
The result would reduce systemic risk without sacrificing adequate underwriting
opportunity .
The Committee noted at their prior meeting in April that a higher level of volatility is
probably a pennanent feature of the credit markets. Treasury asked the Committee
if they felt Treasury's current issuance pattern and calendar was well placed to
meet their objective of low cost borrowing over time. Specifically, do sizes and
frequency of issuance mitigate the risks associated with episodes of high volatility,
and should Treasury consider offering coupon securities more frequently or in a
wider range of securities.
Committee members felt that the effect of smaller size and more frequent issuance
pattems could have a negative effect on coupon markets. By reducing the size of
auctions, the potential for less liquid benchmarks would exist possibly leading to
higher borrowing costs to Treasury. The Committee also felt the smaller issuance
size could have the effect of driving partidpants away from the auction process, as
issuance size would be less relevant to their portfolios. Additionally, by spreading
out their issuance across a wider set of auctions. Treasury might appear to be
timing the markets. which has not been the policy of the Treasury debt
management in the past. Finally. one member suggested that maintaining the
current issuance pattern left the calendar relatively free for other market participants
such as corporates. supranationals and federal agendes to access the primary
market. As a result the Committee recommends that Treasury maintain its current
policy of a larger. less frequent issuance calendar.
Respectfully submitted,
Timothy Jay
Chairman
Mark Werner
Vice Chairman
Related Documents:
• 3rd Quarter Financing Table
• 4th Quarter Financing Table

http://www.r.eas.gov/press/releases/po32~.htm

08/02/2002

D E P .\ R T \I E :\ T

0 F

T 1-1 E

T R E :\ SUR Y

NEWS
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON. D.C•• %0%%0. (%0%) 6%%-%960

For Immediate Release
Tuesday, July 30, 2002

Contact: Tasia Scolinos
(202) 622-2960

Remarks of Under Secretary Jimmy Gurule
2002 OCDETF Conference
Thank you for that gracious introduction. As a former federal prosecutor I am especially
pleased to be here with you today to commemorate OCDETF's Twentieth Anniversary. During
my years as an Assistant United States Attorney, and Deputy Chief of the Major Narcotics Unit
in Los Angeles, I worked with the task force on a number of different cases. I was impressed
with the expertise and professionalism that was the hallmark of OCDETF prosecutors and
agents. You are all to be commended for the important role you play in combating the scourge of
illicit drug trafficking.
When I was sworn in as Treasury Under Secretary for Enforcement last August, I
pledged to make anti-money laundering enforcement one of my primary goals. I am here today
to tell you that it has become the top priority of Treasury Enforcement for one critical reason.
Attacking the fmancial structures of criminal organizations - their lifeblood - is one of the best
ways to dismantle sophisticated criminal enterprises. The reasoning is straightforward and well
known to the crowd assembled here today. If you want to hit criminal organizations where it
hurts, go after the money. These complex criminal organizations exist for one purpose and one
purpose only: to make a profit.
If our law enforcement agents arrest a drug mule carrying narcotics across the border,
while it certainly cannot be ignored, it doesn't make a permanent impact on the criminal
organization. The drug gang will simply go down the block and find another willing participant
to take his place. This goes for leaders of the drug cartel. When a drug cartel leader is arrested,
prosecuted, and convicted, the victory is short-lived for there is always someone ready and
anxious to step forward and fill the void. In short, the members of the drug cartel are easily _
replaceable.
However, if you penetrate the financial underpinnings of a criminal organization the
impact can be profound. Simply stated, the members of the drug cartel cannot easily replace the
corrupt accountant or bank official with knowledge of the global banking systems who is able to
quickly disguise and move funds through a labyrinth of foreign bank accounts.
PO-3299

For J1ress releases, sPeeches. public schedules tmd oJJicUU biographies, call our 24.1wur fax line at (202) 622-2040
·u.s. Government Printing Offoce·

1998 - 619-559

My goal at the Treasury Department has been to implement a new philosophy with
respect to financial crimes. A philosophy that recognizes that shutting down the money flow
means shutting down the entire criminal enterprise.
I am pleased to tell you that our efforts thus far to refocus our priorities are making a
difference. In 2001, law enforcement agents of the Departments of Treasury and Justice seized
over $1 billion in criminal funds - about 38% of which was related to money laundering
investigations. The Departments forfeited over $241 million in criminal assets in FY 2001
relating to money laundering. In addition, several major money-laundering operations have been
dismantled through efforts such as Operation Wire Cutter and Operation Oasis. Between
October 2001 and February 2002, members of Treasury's Operation Green Quest made over 200
bulk cash seizures totaling over $10 million dollars. In addition, the Treasury Department has
established six "super" financial crime task forces (HIFCAs). These task forces have initiated
over 100 new money-laundering investigations during 2001 alone.

On the terrorist financing front, we have blocked the assets of211 terrorist entities and
individuals. $34.3 million has been blocked domestically and $77.9 million have been blocked
by our allies abroad. A total of over $112 million that is not going to support terrorist training
camps and to purchase weapons of death.
But we can and must do even better. With that in mind, I would like to summarize some
of the key points of the 2002 National Money Laundering Strategy.
TERRORIST FINANCING

The 2002 Strategy recognizes that our anti-money laundering efforts are making more
difficult for terrorist and terrorism sympathizers to move money through traditional financial
institutions. Thus terrorists are resorting to alternative means to transfer money globally. The
2002 Strategy is responsive to this challenge by emphasizing blocking the assets of "high
impact" targets such as corrupt charities that in the name of humanity raise money to support
terrorism. The Strategy also focuses on dismantling hawalas and other alternative remittance
systems.
CREATION OF TARGETING TEAM

The Strategy further addresses the importance of interagency coordination and making
joint decisions about what money laundering organizations to target. To address this concern, the
Departments of the Treasury and Justice will co-lead an interagency effort to identify "high- .
impact" money laundering-related targets. An interagency targeting team will focus our efforts
and resources against the most significant money laundering organizations and systems, such as
bulk cash smugglers and terrorist groups. In addition the Strategy calls for more jail time for the
money-laundering masterminds.
USA PATRIOT ACT

2

Infonnation is a critical weapon in the war against terrorist financing. The new
infonnation-sharing provisions of the USA PATRIOT Act afford financial institutions greater
flexibility in evaluating potential risks.
Highlights of our major accomplishments over the past nine months include:
•

Requiring securities brokers-dealers to file suspicious activity reports.

•

Requiring Banks to verify the identity of customers seeking to open new bank accounts. Such
names will also be compared against government ''watch lists."

•

Requiring a broad range of financial institutions to develop anti-money laundering programs.

•

Prohibiting banks from doing business with "shell" banks.

METRICS

The 2002 Strategy is a groundbreaking document. For the first time, it provides baseline
facts and figures that can help determine how well the federal government is succeeding in its
efforts to detect and deter money laundering.
For example, the 2002 Strategy publishes data collected by the U.S. Sentencing Commission
in Fiscal Year 2000. The data tracks defendants sentenced in federal court where money
laundering was the principal offense. Although the Sentencing Commission data is incomplete
by itself, analysis of this data is instructive and provides a starting point for meaningful baselines
and metrics. For example:
•

We now know that over 80% of all money launderers that were sentenced did not receive a
enhanced sentence for their leadership role in the offense.

•

We now know that almost 80% of those sentenced laundered less than $1 million.

•

We know that some districts, even densely populated districts, prosecuted a limited number
of money laundering cases.

•

We know that the median sentence imposed was 38 months.

These statistics show that we can improve our ability to focus on major money laundering
prosecutions and target large-scale organizations.
Of course, it is not enough merely to pledge to do better. We must have ways to
meaningfully evaluate our efforts. We are also seeking to develop new baselines within the
Strategy by measuring our investment in money laundering enforcement and developing a
uniform reporting system. These efforts will take time, and, if done right, should show some real
results.

3

For instance by tracking the commission rate charged in money laundering transactions, we
will be able to ascertain if our efforts are making a difference over a period of years.
Thank you again for the invitation to be with you here today. As you can tell I am
encouraged by the progress we have made thus far with respect to money-laundering
investigations. I thank you all in advance for your continued dedication to these important issues
in the coming months and years.

4

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
IMMEDIATE RELEASE
Y 30, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

28-Day Bill
August 01, 2002
August 29, 2002
912795KY6
1.700%

High Rate:

Investment Rate 1/:

1.723%

Price:

99.868

All noncompetitive and successful competitive bidders were awarded
trities at the high rate.
Tenders at the high discount rate were
,tted 91.10%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

38,039,000
38,906

$

19,961,444
38,906

°

°

SUBTOTAL

38,077,906

20,000,350

874,469

874,469

Federal Reserve
TOTAL

Accepted

Tendered

Tender Type

$

38,952,375

$

20,874,819

ledian rate
1.695%: 50% of the amount of accepted competitive tenders
endered at or below that rate.
Low rate
1.650%:
5% of the amount
cepted competitive tenders was tendered at or below that rate.
O-Cover Ratio = 38,077,906 / 20,000,350

=

1.90

uivalent coupon-issue yield.

http://www.publicdebt.treas.gov
l300

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622.2960

FOR IMMEDIATE RELEASE

Contact: Tara Bradshaw

July 30, 2002

(202) 622-2014

TREASURY WITHDRAWS AND REPROPOSES REGULATIONS ON REPORTING OF
BANK DEPOSIT INTEREST PAID TO NONRESIDENT ALIENS
Today the Treasury Department withdrew January 2001 proposed regulations that would have
required reporting to the IRS for bank deposit interest paid to all nonresident alien individuals
and issued new proposed regulations that will require reporting on a more limited basis.
Under the new proposed regulations, interest on bank deposits would be reported to the IRS only
for nonresident alien individuals who are residents of certain specified countries. The specified
countries are Australia, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom.
Existing regulations require similar reporting with respect to residents of Canada
"The prior proposed regulations were roundly criticized as being overly broad," stated Pam
Olson, Acting Assistant Secretary for Tax Policy. "We have taken the concerns expressed very
seriously. The new proposed regulations are carefully tailored to facilitate the goals of ensuring
compliance with U.S. tax laws by permitting appropriate information exchange in appropriate
circumstances without unduly burdening U.S. banks."
The regulation is being issued in proposed form, which will provide affected parties an
opportunity to comment before the regulation is finalized.

The text of the proposed regulations is attached.
-30-

PO-3301

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DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

~8~9. . . . . . . . . . . . . ._

. . . . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 30, 2002

Contact: Tara Bradshaw
(202) 622-2014

TREASURY WITHDRAWS AND REPROPOSES REGULATIONS ON REPORTING OF
BANK DEPOSIT INTEREST PAID TO NONRESIDENT ALIENS
Today the Treasury Department withdrew January 2001 proposed regulations that would have
required reporting to the IRS for bank deposit interest paid to all nonresident alien individuals
and issued new proposed regulations that will require reporting on a more limited basis.
Under the new proposed regulations, interest on bank deposits would be reported to the IRS only
for nonresident alien individuals who are residents of certain specified countries. The specified
countries are Australia, Canada, Denmark, Finland, France, Gennany, Greece, Ireland, Italy, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom.
Existing regulations require similar reporting with respect to residents of Canada
"The prior proposed regulations were roundly criticized as being overly broad," stated Pam
Olson, Acting Assistant Secretary for Tax Policy. "We have taken the concerns expressed very
seriously. The new proposed regulations are carefully tailored to facilitate the goals of ensuring
compliance with U.S. tax laws by pennitting appropriate infonnation exchange in appropriate
circumstances without unduly burdening U.S. banks."
The regulation is being issued in proposed fonn, which will provide affected parties an
opportunity to comment before the regulation is finalized.

The text of the proposed regulations is attached.
-30PO-3301

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178f9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

..............................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

CONT ACT: Tony Fratto
(202) 622-2960

FOR IMMEDIATE RELEASE
July 30, 2002

Treasury Department Statement Regarding Uruguay

The U.S. govenunent is in close consultation with the Uruguayan authorities and the
International Monetary Fund regarding a comprehensive solution to the recent economic
difficulties.
In furtherance of that solution, the U.S. govenunent stands ready to support additional assistance
for Uruguay from the IMF and other international financial institutions.
Uruguay has been a strong perfOlmer in Latin America and deserves the ongoing support of the
international financial community for its commitment to sound economic policy.

-30PO-3302

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

DEPAI~Ti\lENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS _1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- lOllO - (l0l) 6ll.l960

EMBARGOED UNTIL 9: 00 A. K.
July 31, 2002

CONTACT:

Office of Pinancing
202/691-3550

TREASURY AUGUST QUARTBRLY PDfANCIHG
The Treasury will auction $22,000 million of 5-year aotes and $18,000 million
of 10-year notes to refund $18,819 million of publicly held notes maturing August IS,
2002, and to raise about $21,181 million of new cash.
In addition to the public holdings, Pederal Reserve Banks, for their own
accounts, hold $5,040 million of the maturing notes, which may be refunded by issuing
additional amounts of the new securities.
Up to $1,000 million in noncompetitive bids from Poreign and International
Monetary Authority (PIKA) accounts bidding through the Pederal Reserve Bank of Hew
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
udllion.
TreasuryDirect customers requested that we reinvest their maturing holdings of
approximately $50 million into the 5-year note and $20 million into the 10-year note.
The auctions being announced today will be conducted in the Single-price auction
format. All competitive and noncompetitive awards will be at the highest yield of
accepted competitive tenders. The allocation percentage applied to bids awarded at
the highest yield will be rounded up to the next hundredth of a whole percentage
point, e.g., 17.13%.
The notes being offered today are eligible for the STRIPS program.
This offering of Treasury securities is governed by the ter.ms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CPR Part 356, as amended).
Details about the notes are given in the attached offering highlights.

000
~ttachment

"or press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

Jama.IGBTS OF TRBASURY OFFBRXNGS TO THE PUBLIC

AUGUST 2002 QUARTERLY FiNANCiNG

July 31, 2002
Offering Amount •.•••••••••••••••••••••••••••••••••• $22,000 million
Public Offering •.•••••••••••.•••••.•••••••••••••••• $22,000 million
HLP Ibtclusion Amount .••••••••••••.••••••••••••••••• Hone

$18.000 million
$18,000 million
Hone

Description of Offering,
T.rm and type of security •••••••••••••••••••••••••• 5-year notes
S.ries ............................................... -2007
COSIP number ••••. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• 912828 All 3
Auction date ••••••••••••••••••••••••••••••••••••••• August 6. 2002
I •• ue date ••••••••••••••••••••••••••••••••••••••••• August 15, 2002
Dat.d date ••••••••••••••••••••••••••••••••••••••••• August 15, 2002
Maturity date •••••••••••••••••••••••••••••••••••••• August 15, 2007
Interest rate •••••••••••••••••••••••••••••••••••••• Determined ba.ed on the highe.t
accepted competitive bid
Amount currently outstanding ••••••••••••••••••••••• Not applicable
Yi.ld •••••••••••••••••••••••••••••••••••••••••••••• Determined at auction
Intere.t payment dates ••••••••••••••••••••••••••••• Fabruary 15 and Augu.t 15
Nint.ua bid amount and multiples ••••••••••••••••••• $1,000
Accrued interest payable by inve.tor ••••••••••••••• None
PremJ.um or di.count •••••••••••••••••••••••••••••••• Determined at auction

10-year note.
D-2012
912828 AJ 9
August 7. 2002
August 15, 2002
Augu.t 15, 2002
Augu.t 15, 20U
Determined based On the highe.t
accepted competitive bid
Not applicable
Determined at auction
.. abruary 15 and August 15
$1,000
Hone
Determin.d at auction

STRIPS Information I
Nin1a.aD amount requir.d •••••••••••••••••••••••••••• $1,000
Corpus CUSIP number ••••••••••••••.••••••••••••••••• 912820 DB 0
Due date(s) and COSIP number(s)
for additional TINT(s) •••.•.•••••••••••••••••••• Hot applicable

$1,000
912820 HV 7
Not applicable

The following rules apply to all .ecurities mentioned above,
Submission of Bid8.
Noncompetitive bids. Accepted in full up to $5,000,000 at the highest accept.d yield.
roreign and International Monetary Authority (VINA) bids, Noncompetitiv. bid• • ubmitted through th. red.ral Reserve Banks as ag.nts tor rIMA account •.
Accepted in order of si.e from amellest to larg.st with no more than $100 million award.d p.r account. Th. total noncompetitive &mOunt award.d to
r.deral Re.erve Banks as agents for rIMA account. will not exceed $1,000 million. A .ingl. bid that would cau•• th. limit to b • •xc •• ded will b.
partially acc.pt.d in th. amount that bring. th. aggr.gat. award total to the $1,000 million limit. How.v.r, if th.r. ar. two or more bid. of equal
amounts that would cau.e th. liadt to b. exc ••d.d, each will be prorat.d to avoid exceeding the limit.
Comp.titiv. bids.
(1) Must be .xpr•••• d a. a yield with thr •• decimals, e.g., 7.123\.
(2) Net long po.ition (HLP) for .ach bidder mu.t be reported whan th• •um of the total bid amount, at all yi.ld., and th.
n.t long po.ition i. $2 billion or gr.at.r.
(3) H.t long po.ition must b. det.rmined a. ot on. half-hour prior to th. closing time for r.c.ipt of comp.titiv. tend.rs.
Nax1a.aD R.cognized Bid at a Single Yield, 35\ of public offering
Maximum Award •...•••..•.•..•..• 35\ of public off.ring
aeceipt of Tender.,
Noncompetitive tenders •.•.••..• Prior to 12,00 noon eastern daylight .aving ttm. on auction day
Competitive tend.rs •..•.••..... Prior to 1,00 p . • . •astern daylight .aving tt.. on auction day
Payment T.rma ••...•••...•••...• By charge to a funds account at a r.deral a ••• rve Bank on issu. date, or payment ot full par amount with tender.
Tr ••• ury.D1ract cu.tomers can u •• the Pay Direct f.ature which authori.e. a charg. to th.ir .ccount of r.cord .t th.ir
tinancial in.titution on i •• u. dat •.

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 31, 2002

Contact: Michele Davis
(202) 622-2960

Statement by Secretary O'Neill on Today's Second Quarter GDP Estimates

Today's numbers show that our economic recovery is continuing. We are still on track to reach a
growth rate of 3 to 3.5% by the end of this year.
The data show that the economy is on a solid growth path and the recovery is proceeding as
expected. Consumers continued to spend in the second quarter. Both auto and non-auto retail
sales closed the second quarter on a high note. New home sales and new home construction are
booming. And mortgage refinancing is again surging. Inventory-sales ratios remain historically
low, pointing to future increases in industrial output. According to today's new data, business
investment in equipment and software rose for the first time in nearly 2 years. And exports
increased by 11.7%.
Another indicator of future growth is that, as of last week, more than 85 percent of S&P 500
companies reporting earnings met or beat expectations in the second quarter.
The revisions to last year's numbers confirm what many Americans felt at the time in their
household budgets. Our economy was operating at very sluggish levels for the first three
quarters of2001. The combined efforts of the Federal Reserve in cutting interest rates and
President Bush in pressing Congress for quick action to cut taxes reversed the downturn and put
us on a path to renewed growth.
While our recovery is continuing, we are eager to quicken its pace. For months, President Bush
has been calling on Congress to give him Trade Promotion Authority, enact terrorism risk
insurance and pass his energy plan, all of which will create jobs and increase economic growth.
We'll continue to work with Congress to complete the President's economic growth agenda as
quickly as possible.
-30PO-3304

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnnllng Office 1998 - 6 t9-559

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 2:00 P.M. EDT

JULy 31,2002

CONTACf: BETSY HOLAHAN
202-622-2960

BACK TO BASICS: CREDIT MA'ITERS

BRIEF REMARKS OF
TREASURY UNDERSECRETARY PETER R. FISHER
TO THE FDIC SYMPOSIUM
THE RISE OF RISK MANAGEMENT: BASEL AND BEYOND
Credit Suisse First Boston
New York, New York
July 31, 2002

For most of the last twenty years, the rise of the science of risk management in banking
has ironically coincided with a corresponding decline in attention to the basics of credit analysis.
There are macro-economic reasons why this occurred and why these trends are now reversing
themselves.
The volatility of our capital markets over the last five years, and over the last five weeks,
should be serving as a wake up call to those who have paid too little attention to credit analysis to assessing the particular probabilities that individual borrowers may not be able to sustain the
cash flow necessary to meet their obligations.
Credit matters and it matters more now than it did just a few years ago. This is a natural
consequence of the transition we have been experiencing from a world of more volatile output
and inflation to a world of more stable output and more stable prices.
In a financial environment dominating by sharp swings in real output and in inflation
expectations money is made (or lost) in debt markets by anticipating (or failing to anticipate) the
PO-3305

corresponding changes in real and nominal interest rates. This is precisely the environment
experienced by the financial markets from the late 1970s to the early 1990s.
In that setting, the big macro-economic events were relatively more important than the
particular circumstances of individual borrowers. It was good enough for bankers and bond
traders to form a consensus on credit by using rough rules of thumb for spreads and for credit
rating categories, so long as they could hang on for the ride while the underlying interest rates

gyrated.
In a period of more stable output and prices, by definition, it becomes relatively less
important to anticipate the changes in underlying m.acro-economic conditions and relatively
more important to assess accurately the credit standing of individual borrowers. In the recent
downturn and recovery now underway, while we have seen some spectacular volatility in the
financial markets, we have seen much less volatility in real output and prices than most observers
expected.
In this environment we have aU discovered that the risks of lending money (or, I would
add, investing money) is a little bit less about I1l8CI'O.economics and a little bit more about microeconomics - about whether behind the balance sheet and the income statement, the borrower has
the cash flow to meet its payment obligations.

The science ofrisk management, developed in response to the macro-volatility of the
previous decades, has helped financial institutions control risks that were previously unidentified
or incompletely understood. The models, the simulations, the statistical and probabilistic
discipline that have been applied represent an extraordinary improvement in the management of
financial risk. However, this process has coincided with the outsourcing of basic credit analysis
either to the rating agencies or to the designers of the indexes used as benchmarks.
So as not to belabor the point, permit one anecdote to tell the story.
A money manager recently told one of my colleagues that duration shifts in his portfolio
are quickly flagged by risk management controls and require him to explain himself to
management up and down. However, ifhe were to fill a single credit category in his portfolio
solely with the bonds of a single company, nobody in risk management would even notice.
Since the Asian crisis of 1997, credit spreads been repeatedly shocked to wider and wider
levels and, most importantly, the "spread of spreads" has been widening as market participants
have come to differentiate more carefully among borrowers. The events of '97, '98, and of the
last two years have been mistakenly, in my view, seen through the prism of "market risk." as if.
they were exogenous shocks. I think they are better understood as a series of credit events in
which the quality of certain borrowers came to be better understood.
Whether sovereigns, central banks, foreign banking systems, hedge funds, or seemingly
blue chip companies, over the past five years we have been learning the importance of
differentiating between those with real cash flows and those without, between those that have
honestly and transparently disclosed their risks and those that have not

The challenge for policymakers now is to help the banking industry retool itself to deaJ
with an environment in which credit matters.
-30-

DEPARTMENT

OF

TREASURY

THE

TREASURY

NEWS

~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

......................................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 31, 2002

Contact: Tara Bradshaw
(202) 622-2960

Proposed New Agreement Allows 78 Million Americans to File Taxes Online at No Cost
O'Neill, Daniels Hail E-filing Partnership as Step in Right Direction
Washington, DC -As many as 78 million Americans will be able to file their taxes online at no
cost next year thanks to a proposed new agreement announced today by the Depaliment of the
Treasury and Office of Management and Budget (OMB). The agreement provides easier, secure,
and free opportunities for Americans to file their taxes via the Internet. The text of the proposed
agreement will be published in the Federal Register and is attached.
"Our current tax code is needlessly time consuming and confusing. We need to make it easier to
understand and easier to comply. This new e-filing partnership is one positive step forward.
We're taking advantage of technology to reduce the cost and the hassle of filing for millions of
taxpayers," stated Treasury Secretary Paul O'Neill.
"Paying taxes is burden enough. It's our duty to do anything we can to make the process simpler
and easier," said OMB Director Mitchell E. Daniels, Jr.
According to the proposed agreement, a consortium of private sector companies will work
together to offer free online tax filing services, an option that could benefit some 60 percent of
taxpayers. Taxpayers will find links to the online tax filing services through a single, centrallylocated Web portal at www.irs.gov and available through www.firstgov.gov.
The proposed agreement will produce significant advantages for both citizens and their
government.
•

•
•

78 million will no longer have to pay to file their tax returns online. Currently,
taxpayers who choose to file online can pay an average of $12.50 in filing fees in
addition to the cost of purchasing tax preparation software.
Taxpayers who file electronically will get their refund checks twice as fast on average
as those who file on paper.
Electronic filing reduces government processing costs and improves efficiency.

PO-3307

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

The terms of the proposed agreement will be published shortly for public comment. After a 30day comment period, all suggestions will be reviewed. The new free tax filing consortium Web
page is slated to be online by December 31, in anticipation of the 2003 filing season.
This project fulfills one of the President Bush's 24 E-government initiatives and was proposed in
his February 2002 budget. The President also proposed a 15 day filing extension for all
taxpayers who file electronically, including those under this initiative. That proposal awaits final
Congressional action.
E-government is an integral part of the President's Management Agenda to make it easier for
citizens and businesses to interact with the govenunent, save taxpayer dollars and streamline
citizen-to-government transactions. A copy of the president's E-government strategy, which
includes information on each of the 24 E-government initiatives, is available on the OMB Web
site at www.omb.gov.
Commissioner Rossotti' s statement is attached.
The text of the agreement is attached.
-30-

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

Contact: Office of Public Affairs
(202) 622-2960

FOR IMMEDIATE RELEASE
July 31, 2002

MEDIA ADVISORY
Treasury Secretary O'Neill to Discuss Trip to South American Nations
On Thursday, August 1, Treasury Secretary Paul O'Neill will host a press conference in advance
of his visits to Brazil, Uruguay, and Argentina next week. The press conference will be held at
the Department of the Treasury's Diplomatic Reception Room at 2:30 PM.
Members of the media not holding Treasury or White House press credentials should contact the
Office of Public Affairs at 202-622-2960 and provide full name, date of birth, and social security
number for security clearance to the Treasury Building.
-30PO-3308

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnnling Of lice 1998 - 619-559

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~178~9_ _ _ _ _ _ _ _ _ _ _ __ _

. . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Tasia Scolinos
(202) 622-1996

FOR IMMEDIATE RELEASE
Thursday, August 1, 2002

Connie Patrick Named as New Director of FLETC

Today the Treasury Department appointed Connie Patrick as the first woman director to
head the Federal Law Enforcement Training Center (FLETC). "Connie has accepted the position
during a critical juncture in FLETC's history," said Under Secretary Jimmy Gurule. "Her
extensive experience and commitment to law enforcement will be an invaluable asset to the
FLETC in the coming months and years."
Ms. Patrick has been with FLETC for six and a half years. She has served as Associate
Director in three capacities at FLETC including Training, Administration, and Planning and
Development. Ms. Patrick has also worked closely with the Department of Treasury in the
development of new training programs and has overseen the implementation of new FLETC
programs and technologies to advance consolidated law enforcement training for the Federal
government. Before joining FLETC in 1996, Ms. Patrick worked for the State of Florida's
Department of Law Enforcement for thirteen years, retiring as Director of the Division of Human
Resources and Training.
The FLETC, located in Glynco, Georgia, serves as an interagency law enforcement
training organization for more than 70 Federal agencies with personnel located throughout the
United States and its territories. This year, nearly 50,000 students will be trained in the principles
oflaw, investigation, ethics, financial crimes, and behavioral sciences. The Center also provides
training services to state, local, and international law enforcement agencies.
-30-

PO-3309

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government PnntlngOfilce 1998 - 619-559

D E J> .\ R T \1 E N T

,

() F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C.. 20m. (202) 622.2960

u.s. International Reserve Position

8/1/02

The Treasury Depa.m:nent today released u.s. reserve assets data for the latest week As indicated in this table, u.s. reserve
assets totaled $76,538 million at the end of the latest week, compared to $75,567 million at the end of the prior week.

,us millions)
July !2. 2002
75,567

Official U.s. Reserve Assets

TOTAL
Foreign Currency Reserves 1
iL Securities
Of which, issuer headquartered in the U. S.

I

Euro
6,248

Yen
12,105

July 19. 2002
76,538
TOTAl.
18,353

Euro
6,416

Yen
12,209

tOTAl.
18,62!:
C

4,111

14,803

o

). total deposits with:
b.l. Other centTal banks and'SIS
b.jj~ Sanks headquartered in the U.S.
bJi. Of which. banks located abroad
b.bi. Sanks headquartered outside-the U.S.
b.iii. Of which, banks located in the U.S.

~F Reserve Position

2

*ial Drawing Rights (SORs)

2

old Stock 3
:her Reserve Assets

10,420

4,076

14,496
0
0
0
0

10,692

(J

C

20,037

20,292

11,637

11.775

11,044

11,04A

0

(

Indudes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA).
ad at current market exchange rates. Foreign currency holdings fisted as securities reflect marked-to-market values, and deposits reflect
ling values.
he items. "2. IMF Reserve Position- and "3. Special Drawing Rights (SDRs): are based on data provided by the IMF and are valued in dollar
s at the official SDRldoUar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
ssary adjustments, induding revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
:lid stock is valued monthly at $42.2222 per fine troy ounce,

a
c

OffIcal Reserve Assets Worksheet

(actual US dollar amounts)
Last Week

Enter Dates Here

12-Jul-02

Foreign Currency

12-Jul-02
$6,248,188,573.30
$12,104,627,011.05

I
$6,415,820,962.28
$12,209,268,296.90

167,632.389
104,641,286

!O!I;!X and ~~ QS!m IntQ Ii!lit week
and put new data from fax

$18,352,815,584.35
$10,419,973,654.99
$4,075,674,004.05

$18,625,089,259.18
$10,691,804,833.17
$4,110,891,096.39

272,213,675
271,831.178
35,217,092

Into right column

Total

$14,495,647,659.04
$32,848,463.243.40

307,048,271
579,321,945

EureRate

SO.9904

$14,802,695,929.55
$33,427,785,188.73
$1.0156
115.73

Q!irm
Eure Securities
Yen Securities

Sec. Total
Eure DeposIts
Yen Deposits
Deposit Total

YenRste

IMF

116.73

12-Ju1..{)2

-"-'

Source: NY Fed (fax)

Source: IMF (email)

19-Ju1..{)2

(pteIim, with adjust)

Reserve Tranche
GAB

20,291,700,748.64
0.00

254,323,572.50

0.00
2Q,037,377,176.14

000
20,291,700.748.64

0.00
254.323,572.50

11,637,310,499.19

11,774,905,185.34

137,594.688.15

12-Jul-92

19-Jyl-Q2

11,043,707,102.45

11,043,707,102.45

12-~UI::Q~1

1~~!.!'-Q~1

NAB
Total
SOR

Put actual dollar figures In for last week;

20,037,377,176.14
0.00

0.00

0.00

as of 10131/01
Gold

IOther Res.Assets

75,566,858,021.18

ITOTAL

76,538,098,225.17 1

Source: FMS website
0.00

http:ltwww.fms.treas.gov/gold

o

971,240,203.99

1

Adjustments to IMF and SDR data. translated at current eXchange~ra~t;;;.es~ _ _ _ _ _ _-:::::-,-:-~ _ _ _ _ _ _ _ _~

!:'Im. IMF DatIl
Calculation SectIon
Reserve Tranche

IN SDRs
12.JjJ'.Q2

GAB
NAB

15,083,734,293
0
0

SORa

8,752,816,895

Adlustrnents

SDR rate for
19.Jul.02
15,083,734,293
0

0.743345

$20,291,700,748.64

SO.OO
SO.OO

2
15,083,734,293
8,752,8\6,895

InUSD

Total =
SDRs=

Source:
http://www.imf.orgIextemaVmap.htm. then go to "Exchange Rates In Terms of SDRs Dally"

$20,281,700.748.64
$11,774,905,185.34

f)

L P \

I{

I \ I L '\ I

() F

T II I-.

T I{ L \ S l

J{'

NEWS
...

-.....:~

orna OF PUBUC An"AIRS -1500 PENNSYLVANIAA.VENUE. N.W. - WASHINGTON. D.C. _ 2Ot2O. (102) 622.2960

u.s. International Reserve Position

8/1/02

The T~ Departmem todayrelcased U.s. reserve assets data fortbe latest week. As indiared in this ~ U.s. reserve
assetS totaled $75,511 rm]icm at the md of the latest Wl!ek, c:omp;aml to $76,538 rm1lion at the end of the prior week.

t

us 1rfIIIIoM)
76,538

JOTAL
FcnIga eun.ncy . ..".. t
L

SecurItiea
CXwhit:h, _ _ ~ltrtbe

a!!~2002

Ju~ 191,20U2

OffIcial U.S. Reserve Assets

1

u.s.

Eura.
6."16

Yen
12,209

75,511

am

1ODI:.. -18.825
0

6,281

1".803
0

10,"10

Yert
12.569

"I8fAL.
18.83Cl
(J

I. Teal """'wHh:

bJ. O#berCMlnllbMIIs MIll SIS

U. Banb~""'" u.s.
boi. Of which. talkS Iocmad abroad
b.IIl. 8ImIta ~ outside ... u.s.
b..i. Of which. banIca IocIdad in . . U.s.

10.692

".111

3.332

13.742
0

0
0

(i

0

(]

IF Reserve Po.ItIon 2

20.292

2O,1lU

pedal'Drawing Rights (SORa) I

11.ns

1.1.712

oIdStock S

11,()401

11.044

0

Jl

Includes haIdIngs d the Treasury's Elu:hange StabIImtIon F&n:I (ESF) and the Federal Reserve's System Open MIIrtcet AI::aurt (SOMA).
lid at Cl.lnlnt InII1cet

,;ng values,

exchange,..... Fcnign c:unency holdings listed as aeariIea refted marked-tI>marke - - . and depaslta rdec:t

he Items. "'2. IMF Res.-.. Poettion- and "'3. Special Drawing Rights (SORs),- .,. based an data prOIIkted by ... IMF and . . WIIuId in'daIIIr
• at . . oIIc:iaI SDRIdcIar a::haIlge ratalar the Alpo,tlllg daIB. The entries in the table CleM for latast week (shown in 1tIIc:t) Nftec::ltny
aary adJustments. induding I1MIfuation. by the U.S. Trusury 110 the prior week'a IMF data. The IMF data for . . prior week nlnll..
old SlOdc is valued momtdy at 142..2222 per fine troy aunc::e.

-,

912

Cl

OffIcal Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
19-Ju1-02

This Week
26-Jul-02

19-Jyl-02
$6,415,820,962.28
$12,209,268,296.90

26-Jul-02
$6,261,000,000.00
$12,569,000,000.00

-154,820,962
359,731,703

$18,625,089,259.18
$10,691,804,833.17
$4,110,891,096.39

$18,830,000,000.00
$10,410,000,000.00
$3,332,000,000.00

204,910,741
-281,804,833

$14,802,695,929.55
$33,427,785,188.73
$1.0156
115.73

$13,742,000,000.00
$32,572,000,000.00
$0.9882
118.78

~

Foreign Currency
Euro Securities
Yen Securities

Sec. Total
Euro Deposits
Yen Deposits
Deposit Total

Total
Euro Rate
Yen Rate

IMF

19-.)ul-02

Reserve Tranche

NAB
Total
SDR

-1,060,695,930
-855,785,189

26-Jul-02

Source: IMF (email)

Gold

20,183,552,995.47
0.00

-108,147,753.17
0.00

0.00
20,291,700,748.64

0.00
20,183,552,995.47

0.00
-108,147,753.17

11,n4,905,185.34

11,712,149,009.54

-62.756,175.80
0.00

19-Jul-02

26-Jul-02

11,043,707,102.45

11,043,707,102.45

1~JYI:Q~1

IOther Res.Assets

ITOTAL

Put actual dol/ar figures in for last week:

20,291,700,748.64
0.00

as of 10131/01

76,538,098,225.16

2§:~!.!i-0~1
76,367,194,296.19 1

Into right column

-n8,891,096

(prelim, with adjust.)
GAB

Source: NY Fed (fax)
9212l! and !;!aste data into last week
and put new data from fax

Source : FMS website
0.00

http://www.fms.treas.gov/gold

o

-170,903,928.97

Adjustments to IMF and SDR data, trans/ated at current exchange rates

iPreilm. IMF Data

IN SDRa

•

I

ICalcul8tlon SectIon
Reserve Tranche
GAB

NAB
SORa

1tk.1ul-02
15,083,734,293
0
0
8,752,816,895

Adlustments
15,083,734,293
0
Q
15,083,734,293
8,752,816,895

SDRratefor
2&Jul-02
InUSD
0.747328
$20,183,552,995,47
$0.00

$0,00
Total =
SDRs=

Source:
http://www.imf.orgIextemaVmap.htm. then go to "Exchange Rates in Terms of SDRs Dally"

$20,183,552,995.47
$11,712,149,009.54

DEPARTMENT

OF

'IREASURY

THE

TREASURY

NEWS

~8~9. . . . . . . . . . . . . .. .

. . . . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

For Immediate Releases
Thursday, August 1, 2002

Contact: Michele Davis
(202) 622-2920

Statement of Secretary Paul O'Neill on Upcoming Trip to Brazil, Uruguay and Argentina
I will be leaving on Sunday to travel to Brazil, Uruguay and Argentina. Each of these
nations is a close friend and ally of the United States. I look forward to talking with government
officials in Brazil, Uruguay and Argentina about their economic direction and prospects.
The United States has a long history of cooperation with the nations of Latin America.
President Bush is eager to build on that history, and with the passage of Trade Promotion
Authority we will forge ahead with a free trade agreement that would span the entire hemisphere.
Free trade binds us together and creates opportunity and prosperity. Together, we will use the
power of the market to improve standards of living for people throughout the hemisphere.
The future of our nation is closely tied to the success and the security of our closest
neighbors. Prosperity throughout the hemisphere benefits all the peoples of the Americas. As
President Bush has said, our Administration's central goal for the Americas is to continue the
momentum of progress, building a hemisphere that lives in liberty, trades in freedom and grows
in prosperity. No one wants to see successful, growing economies in this region more than
President Bush and this Administration. And these economies - these people - will succeed.
Having traveled often to Latin America in my 23 years in the private sector I witnessed first hand
the talented people and excellent resources there. With the right policies, they will succeed.

In Brazil, I look forward to meeting with President Cardoso, Minister Malan and
Governor Fraga. The economic team in Brazil has done a remarkable job of maintaining sound
fiscal and monetary policies. I continue to favor support for Brazil and other nations that take
appropriate policy steps to build sound, sustainable and growing economies. I will take the
opportunity in Brazil to visit with entrepreneurs to see first hand how the sound and forward·
looking policies adopted by the Brazilian Government have formed a strong foundation upon
which real economic activity has developed and will continue to flourish.
In Uruguay, the government is taking strong and difficult steps to rebuild the banking
sector in the wake of major external shocks.

PO-3313

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

I will meet with President BatIle and his economic team and reiterate my support for
additional assistance for Uruguay from the IMF and other international financial institutions as
part of a comprehensive solution to the recent economic difficulties there. Uruguay deserves the
ongoing support of the international financial community for its commitment to sound economic
policy.

In Argentina, I will visit with President Duhalde and Minister Lavagna to review the
government's progress in implementing a sustainable economic program. I will also visit
businesses and health facilities and talk with local entrepreneurs and employers to develop a
better understanding of the real economy, social issues and civil society. The people of
Argentina have suffered from the economic turmoil there, and we are eager to see that nation
return to a position of strength and stability..
-30-

DEPARTl\tIENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE (H' PUBLIC AI"FAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 _ (202) 622·2960

EMBARGOED UNTIL 2:30 P.M.
August 1, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $27,421 million of publicly held 13-week and 26-week
Treasury bills maturing August 8, 2002, and to raise new cash of approximately $4,579
million. Also maturing is an estimated $20,001 million of publicly held 4-week
Treasury bills, the disposition of which will be announced August 5, 2002.
The Federal Reserve System holds $11,863 million of the Treasury bills maturing
on August 8, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded.,at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held August 6, 2002.
Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal,~eserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.

TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,104 million into the 13-week bill and $725 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

PO-3314

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED AUGUST B, 2002
August 1, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 million
Description of Offering:
Term and type of security ................... 91-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912795 LJ B
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 5, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August B, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 7, 2002
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . . May 9, 2002
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . . $20,761 million
Minimum bid amount and multiples ............ $1,000

$16,000 million
$16,000 million
None
1B2-day bill
912795 LX 7
August 5, 2002
August B, 2002
February 6, 2003
August B, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 milli~n at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FlMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FlMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long positi~n is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt of
competitive tenders.
~ximum Recognized Bid at a Single Rate ........ 35% of public offering
~ximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
~ceipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders ........ Prior to 1:00 p.m. eastern daylight saving time on auction day
gayment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender.
TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
~ecord at their financial institution on issue date.

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
Testimony of
Kenneth W. Dam
Deputy Secretary, Department of the Treasury
before the
Senate Committee on Banking, Housing, and Urban Affairs
Subcommittee on International Trade and Finance
August 1, 2002
Chainnan Bayh and distinguished members of the Senate Subcommittee on International
Trade and Finance, thank you for inviting me to testify about the misuse of charities by terrorist
organizations to raise and move money. This is an important and complex issue. I applaud the
Subcommittee for focusing on it. And I appreciate the leadership you have provided, Mr.
Chairman, on this and related issues.
The financial front of the war on terror is a particularly important issue for the Treasury
Department. Secretary O'Neill is the Administration's principal spokesman for the financial
front of the war. As his Deputy, I chair a high-level interagency committee that sets strategic
priorities for the financial front. Our General Counsel, David Aufhauser, chairs the National
Security Council's interagency policy coordination committee on terrorist finance. Our Under
Secretary for Enforcement, Jimmy Gurule, leads our enforcement bureaus including the United
States Customs Service, the United States Secret Service, and FinCEN, as well as our Office of
Foreign Assets Control as they fight terrorist financing. Our Under Secretary for International
Affairs, John Taylor, works to build and maintain the international coalition against terrorist
finances. Our Under Secretary for Domestic Finance, Peter Fisher, also works to help implement
the USA PATRIOT Act, and to help protect our nation's critical financial infrastructure. And, of
course, we have many, many employees who are working hard and, in some cases, putting their
lives at risk to fight the financing of terror.
Our first actions after the tragedy of September 11 were to identify known terrorists and
terrorist entities, freeze their assets in the US, and work with our allies to extend those freezes
world wide. As you know, we have obtained significant results in this effort, blocking over $112
million dollars globally and forging a coalition of support that includes all but a handful of
countries.

PO-33IS

Since these first actions, our fight against the financing of terror has expanded to the
abuse of charities. As Secretary O'Neill has said, few actions are more reprehensible than
diverting money intended for charity and using it to support hatred and cruelty. Such abuse
corrupts the sanctity of charitable giving, diverts funds and resources from those in need, betrays
the trust and goodwill of donors, and is a danger to us all.
We are addressing this problem at several levels. We are stopping the flow of funds by
freezing the assets of charities that are supporting terrorist groups as well as aggressively
investigating suspected abuses of charities. We also work with countries around the world to
help raise standards of oversight and accountability for charities. In this work we are guided
always by two principles: (1) preventing the abuse of charities for terrorist purposes; and (2)
preserving the important role that charities play throughout the world.
Before I detail these efforts and address the specific topics raised in your invitation letter,
allow me to update you briefly on the efforts the Treasury Department has taken, in cooperation
with our sister agencies and departments, to combat terrorist financing.
ACHIEVEMENTS IN FINANCIAL ASPECTS OF U.S. ANTI-TERRORISM INmATIVES

As you know, our priority is to prevent terrorist attacks by disrupting terrorist finances.
As the President has said, we seek to "starve the terrorists of funding."

I just noted that, since September 11 th, the United States and other countries have frozen
more than $112 million in terrorist-related assets. More importantly, we have cut the flow of
terrorist money through funding pipelines, as in the case of Al-Barakaat's worldwide network
which was channeling as much as $15 to $20 million to al Qaida a year. Where warranted, we
have also unblocked funds. For example, $350 million in Mghan government assets that had
been protectively frozen in connection with the Taliban sanctions, mostly before September 11,
have now been returned to the legitimate Mghanistan government.
We have received strong international cooperation in this effort. All but a handful of
countries and jurisdictions have pledged support for our efforts, over 160 countries have
blocking orders in force, hundreds of accounts worth more than $70 million have been blocked
abroad, and foreign law enforcement have acted swiftly to shut down terrorist financing
networks. The United States has often led these efforts, but there have also been important
independent and shared initiatives. On March 11, 2002, the United States and Saudi Arabia
jointly designated two branches of a charity, and on April 19, 2002, the G7 jointly designated
nine individuals and one entity. These efforts have been bolstered by actions from the European
Union which has issued three lists of designated terrorists and terrorist groups for blocking.
In addition to these efforts, we work with countries daily to get more information about
their efforts and to ensure that the cooperation is as deep as it is broad. We are also providing
technical assistance to a number of countries to help them develop the legal and enforcement
infrastructure they need to find and freeze terrorist assets.
We have also had success pursuing international cooperation through multilateral forums
including the U.N., the G7. the G20, the Financial Action Task Force (FATF), the Egmont
Group, and the international financial institutions to combat terrorist financing on a global scale.
In particular, Treasury continues to playa strong leadership role in FATF, a 3 I-member
organization dedicated to the international fight against money laundering. As this Committee
knows, in late October 2001, the United States hosted an Extraordinary FATF Plenary session, at
which FATF established eight Special Recommendations on Terrorist Financing, including a
recommendation regarding the need to regulate non-profit organizations. These

recommendations quickly became the international standard on how countries can ensure that
their financial regimes are not being abused by terrorist financiers.
Our law enforcement efforts also have proven fruitful. Treasury's Operation Green Quest, a
multi-agency terrorist financing task force, was established in October 2001 to identify,
disrupt, and dismantle terrorist financing networks by bringing together the financial
expertise from Treasury and other branches of the government. Through their investigations,
Operation Green Quest agents have been targeting a wide variety of systems that may be
used by terrorists to raise and move funds. These systems include illegal enterprises, as well
as legitimate enterprises, and charity/relief organizations (in which donations may be
diverted to terrorist groups). Green Quest's wor~ in cooperation with the Department of
Justice, has led to 38 arrests, 26 indictments, the seizure of approximately $6.8 million
domestically, and seizures of over $16 million in outbound currency at the borders, including
more than $7 million in bulk cash being smuggled illegally to Middle Eastern destinations.
Recently, Customs, United States Secret Service, and FBI agents apprehended and
subsequently indicted Jordanian-born Omar Shishani in Detroit for smuggling $12 million in
forged cashier's checks into the United States. The detention and arrest of Shishani is highly
significant as it resulted from the Customs Service's cross-indexing of various databases,
including information obtained by the U.S. military in Afghanistan. That information was
entered into Custom's "watch list," which, when cross-checked against inbound flight
manifests, identified Shishani. In addition, Green Quest agents, along with the FBI and other
government agencies, have traveled abroad to follow leads and examine documents.
We are confident that our efforts are having real-world effects. What I can tell you in
open session is that we believe that al Qaida and other terrorist organizations are suffering
financially as a result of our actions. We also believe that potential donors are being more
cautious about giving money to organizations where they fear that the money might wind up in
the hands of terrorists. In addition, greater regulatory scrutiny in financial systems around the
world is further marginalizing those who would support terrorist groups and activities. This
deterrent effect, though perhaps not quantifiable, is an essential effect of our efforts.
At the same time, I must tell you that we have much to do. Although we believe we have
had a considerable impact on al Qaida's finances, we also believe that al Qaida's financial needs
are greatly reduced. They no longer bear the expenses of supporting the Taliban government or
of running training camps, for example. We have no reason to believe that al Qaida does not
have the financing it needs to conduct at least a substantial number of additional attacks. In
short, a great deal remains to be done.
The Misuse of Charities and Non-Profit Organizations
Your invitation letter requested my thoughts about the scope of the problem of terrorist
abuse of charities and non-profits. Unfortunately, this is not an issue on which precise
measurement is possible. We do know that the mechanism of charitable giving - i.e., the
collection of resources from willing donors and its redistribution to persons in need - has been
used to provide a cover for the financing of terror and that it has been a significant source of
funds. In certain instances the charity itself was a mere sham that existed simply to funnel
money to terrorists. However, the abuse often occurred without the knowledge of donors, or
even of some members of the management and staff of the charity itself. Allow me to provide
some examples.
Examples of Abuse of Charities by Terrorist Groups

Example 1: Afghan Support Committee (ASC)
On January 9,2002, the United States designated the Afghan Support Committee (AS C),
a purported charity, as an at Qaida supporting entity. The ASC operated by soliciting donations
from local charities in Arab countries, in addition to fundraising efforts conducted at its
headquarters in Jalalabad, Afghanistan, and subsequently in Pakistan. The ASC falsely asserted
that the funds collected were destined for widows and orphans. In fact, the financial chief of the
ASC served as the head of organized fundraising for Osama bin Laden. Rather than providing
support for widows and orphans, funds collected by the ASC were turned over to al Qaida
operatives. With our blocking action on January 9, 2002, we publicly identified the scheme
being used by ASC and disrupted this flow of funds to al Qaida.
Example 2: Revival of/slamic Heritage Societv (RIHS)
Also on January 9,2002, we designated the Pakistani and Afghan offices of the Revival
of Islamic Heritage Society (RllIS). The RllIS is an example of an entity whose charitable
intentions were subverted by terrorist financiers. The RllIS was a Kuwaiti-based charity with
offices in Pakistan and Afghanistan. The Peshawar, Pakistan office director for RllIS also
served as the ASC manager in Peshawar. The RllIS Peshawar office defrauded donors to fund
terrorism. In order to obtain additional funds from the Kuwait RllIS headquarters, the RllIS
Peshawar office padded the number of orphans it claimed to care for by providing names of
orphans that did not exist or who had died. Funds sent for the purpose of caring for the nonexistent or dead orphans were instead diverted to al Qaida terrorists. In this instance, we do not
currently have evidence that this financing was done with the knowledge ofRllIS headquarters
in Kuwait.
Example 3: Al-Haramain Islamic Foundation
On March 11,2002, the United States and Saudi Arabia jointly designated the Somali and
Bosnian offices of the Saudi-based Al-Haramain organization. Al-Haramain is a Saudi Arabianbased charity with offices in many countries. Prior to designation, we compiled evidence
showing clear links demonstrating that the Somali and Bosnian branch offices were supporting al
Qaida. For example, we uncovered a history of ties between Al-Haramain Somalia and al-Qaida,
the designated organization Al-Itihaad al-Islamiya (AlAI), and other associated entities and
individuals. Over the past few years, Al-Haramain Somalia has provided a means of funneling
money to AlAI by disguising funds allegedly intended to be used for orphanage projects or the
construction of Islamic schools and mosques. The organization has also employed AlAI
members. AI-Haramain Somalia has continued to provide financial support to AlAI even after
AlAI was designated as a terrorist organization by the United States and the United Nations. In
late-December 2001, Al-Haramain was facilitating the travel of AlAI members in Somalia to
Saudi Arabia. The joint action by the United States and Saudi Arabia exposed these operations.
Preserving and Safeguarding Charities and Charitable Giving
As I stated earlier, our goal is to guard charities against abuse without chilling legitimate
charitable works. Our strategic approach, as set forth in the recently published 2002 National
Money Laundering Strategy, involves domestic and international efforts to ensure that there is
proper oversight of charitable activities as well as transparency in the administration and
functioning of the charities. It also involves greater coordination with the private sector to
develop partnerships that include mechanisms for self-policing by the charitable and nongovernmental organization sectors.
Domestic Front

Here at home, we are working to stem the flow of funds to terrorists through all channels.
As mentioned above, we have issued blocking orders against charities and branches of charities

providing support to terrorists. The three examples I cited previously all represent such blocking
actions. In addition, we have blocked the assets of several other charities or groups that claimed
to be providing charitable services. For example, on December 4,2001, we blocked the assets of
the Holy Land Foundation for Relief and Development, which describes itself as the largest
Islamic charity in the United States. It operates as a U.S. fundraising arm of the Palestinian
terrorist organization Hamas. We have also designated as terrorist supporters the Makhtab alKhimamatlAI Kifah, a clearinghouse for Islamic charities financed directly by Usama bin Ladin
and party to the 1993 World Trade Center attack; the AI Rashid Trust; the Wafa Humanitarian
Organization; and the Rabita trust -- all Pakistan based al Qaida financier organizations; and the
Ummah Tameer E-Nau, a Pakistani NGO which provided nuclear, biological and chemical
weapons expertise to al Qaida.
In addition, we have blocked the assets of the Global Relief Foundation and the
Benevolence International Foundation, under the provisions of the USA PATRIOT Act to assist
the ongoing investigation of alleged links to terrorism.
Another aspect of our domestic strategy is to work within the U.S. regulatory system to
ensure that charities are transparent to the maximum extent practical. In the United States, the
transparency of the charitable sector is a concern of both federal and state officials, as well as of
private organizations representing donors and charitable organizations. As this committee well
knows, the Internal Revenue Service is the primary federal agency with oversight responsibility
for charities. The IRS's responsibilities have expanded as the tax law has changed to keep up
with the growth of the nonprofit sector, which now consists of more than 1.5 million tax-exempt
organizations, including nearly 800,000 charities and 350,000 religiously-affiliated organizations
that control $2 trillion in assets.
Under U.S. law, any person or group may establish an organization with charitable
purposes, and the creators of the organization are free to choose any charitable endeavor they
wish to pursue. If the organization applies to the IRS for recognition of tax-exempt status, and
shows that it meets the requirements of Section SOl(c)(3) of the Internal Revenue Code (lRC), it
will be recognized exempt until it ceases to exist or until the IRS determines it no longer meets
the requirements and revokes exempt status. A charity may have its Section 501 (c)(3)
application denied or its existing tax-exempt status revoked by the IRS ifit does not comply with
these standards. A ''revocation'' means that the organization becomes taxable and that donors
will receive no tax benefits from contributions to the organization. Revocation may also cause
the state in which the charity is organized to take action to ensure its assets are used for
charitable purposes.
While its primary functions in this sphere are to recognize and regulate tax-exempt status
and to implement those provisions of the tax code that derive from that status, the IRS also
performs a crucial role in the development and dissemination of information about those
charities that fall under its jurisdiction. Most IRC SOI(c) (3) organizations (except for churches
and certain small organizations) are required to file annual information returns showing the
income, expenses, assets, and liabilities of the organization, as well as information about its
programs. SOl(c) (3) organizations must make their returns available to anyone who asks
(except for the names of contributors) by publishing them in readily accessible electronic and
hard-copy formats. The availability of information about charities' operations helps stimulate
oversight by donors, the media, academia, and private organizations.

Also, State Attorneys General have statutory jurisdiction over the charitable assets of
these organizations and over fundraising activities of charities. Oversight responsibilities and
practices vary from state to state, but most states exercise regulatory oversight over all
organizations that raise money in their state, excluding churches, synagogues, and mosques,
regardless of where the charity is domiciled. State charities officials have formed a nationallevel organization, the National Association of State Charities Officials (NASCO www.nasconet.org). Among other things, NASCO has promoted hannonization in registration
requirements among the states, and has advanced a "Model Act Concerning the Solicitation of
Funds for Charitable Purposes."
The United States also has private, non-profit organizations that work to safeguard our
tradition of charitable giving. One such organization is Independent Sector, a coalition of more
that 700 national organizations, foundations, and corporate philanthropy programs that
collectively represent many thousands more organizations throughout the United States. Its
many research activities include defining and addressing ways to improve accountability in the
charitable sector. Other organizations focus on particular segments of the charitable sector. The
Council on Foundations focuses on issues affecting private foundations. The Evangelical
Council for Financial Accountability serves a major segment of the religious community as an
accreditation organization that either grants or withholds membership based on an examination
of the financial practices and accomplishments of charitable organizations that apply. It provides
public disclosure of its more than 900 members' financial practices and accomplishments,
including on its website, www.ecfa.org. ECFA is also the United States member of the
International Committee for Fundraising Organizations (ICFO), an umbrella organization that
links the accreditation organization of 10 countries (US, UK, Canada, Norway, Sweden, France,
Germany, Switzerland, Austria, and the Netherlands).
Other organizations promoting transparency include the Philanthropic Research Institute,
whose Guidestar organization maintains a database containing IRS filings and other financial
information of over 200,000 charities. Any interested individual can access the information
through its www.guidestar.orgwebsite. Another donor-information organization, the Better
Business Bureau (BBB) Wise Giving Alliance, focuses on organizations that conduct broadbased fund-raising appeals. It collects and distributes information about the programs,
governance, fundraising practices, and finances of hundreds of nationally soliciting charitable
organizations that are the subject of donor inquiries. It asks the selected organizations for
information about their programs, governance, fund raising practices, and finances, and measures
the results against general guidelines and standards it has developed for measuring organizational
efficiency and effectiveness. It publishes the results, including whether the selected organization
refused to supply information, on its website at www.give.org.
While we are continually assessing ways to attack terrorist finances, there is no current
Treasury Department proposal under consideration to modify the federal tax code for the purpose
of blocking terrorist finance through charities. However, we are working with state charities
officials and the private sector watchdog agencies to widen their horizons from the pursuit of
fraud to the fight against terrorist finance.

International Efforts
As on all issues related to terrorist financing, our efforts to prevent the abuse of charities
by terrorists can only be successful if we have international cooperation and support. As I have
stated before, we cannot bomb foreign bank: accounts. We need the cooperation of foreign

governments to investigate and block them. The blocking actions we have taken to date were not
isolated U.S. actions, as seen in the March 11, 2002,joint designation with Saudi Arabia. Each
of the blocking actions we have taken to combat the abuse of charities - with the exception of the
freezes in aid of US-based investigations - has been backed and echoed by our allies. I am very
proud of the work that has gone into building the international coalition against financial
terrorism, and would like to take this opportunity to give credit to the other agencies of the US
government - including the State Department, the intelligence community, the FBI and the
Department of Justice - that have helped us keep that coalition in place.
Moreover, we are working with other countries to strengthen their own internal charitable
regulation regimes so that they can feel confident that their charitable communities are not being
abused. We have pursued these discussions both bilaterally and multilaterally, in the Middle
East, South East Asia, and Europe, as well as in the G7 and G8 processes and especially through
the Financial Action Task Force (FATF). Secretary O'Neill has raised this issue directly with his
counterparts on his visits to the Persian Gulf and Europe. Other countries, especially those
whose cultures incorporate, encourage, and require charitable giving, are as concerned as we are
that the good deeds of well-intentioned donors should not be hijacked by terrorists.
They are making progress, as even a cursory review of foreign press reports indicates.
For example, on March 21, the Saudi press reported that the Saudi government had issued a
regulatory decision requiring charitable societies to submit to the Saudi Foreign Ministry the
details of projects they intend to finance abroad. Also in March, the Pakistani press reported on
the Pakistan Center for Philanthropy, an independent, non-profit organization dedicated to
improving philanthropic regulation. According to these reports, the Pakistani government asked
the center to develop recommendations for a new law governing charities, NGO's, and other
civil society organizations. In May, the Azerbaijani press reported that the government had
submitted to parliament a new law further regulating the funding of charities and other NGO's.
And in June, the Egyptian press reported that a draft law expanding government oversight of
non-governmental and charitable organizations was submitted to parliament.
There is not a single correct approach to ensuring appropriate transparency and oversight
of charitable organizations. Different countries attempt to do so using a variety of approaches.
In some, independent charity commissions have an oversight role. In other countries,
government ministries are directly involved. Moreover, in many jurisdictions, the focus of
oversight has been combating fraud rather than terrorist financing. Many of the same regimes
and mechanisms, however, can assist in the fight against terrorist finance as well.
We are attempting, bilaterally and multilaterally, to ensure that all jurisdictions treat the
regulation of charitable institutions with the seriousness it deserves. As I mentioned earlier, one
of the eight special counter-terrorism recommendations adopted at the October 2001 plenary
session of FATF specifically called on member countries to ensure that charities and other NGOs
should not be abused for the furtherance of terror, and the United States is taking the lead within
FATF to develop specific best practices to ensure transparency, accountability, and enforcement
of regulations over charities.

AoomONAL AUTHORITY TO PREVENT TIlE MISUSE OF CHARITIES

Mr. Chairman, your invitation letter inquires whether the Administration needs additional
authorities to prevent the abuse of charities. As you know, on December 20,2001, Congress
passed the "Victims of Terrorism Tax Relief Act of2001" in which there were revisions of some

elements of the tax code. An important change in the tax-related laws involved the expansion of
the availability of tax returns and return information under Section 6103 for pwposes of
investigating terrorist incidents, threats, or activities, and for analyzing intelligence concerning
terrorist incidents, threats, or activities. The ability to access and consolidate all relevant
financial information in order to uncover terrorist networks and support cells is crucial to our
overall efforts. In this context, it is important to our efforts to ensure that charities are not being
abused by terrorist groups and supporters.
Though we are exploring ways to make our efforts more efficient and effective, we do
not see a particularized need at this time to ask this Committee and Congress for additional
authority. We look forward to working with you when we identify necessary changes to make
our efforts most effective.
CONCLUSION

Mr. Chairman, this concludes my formal testimony. I would be pleased to answer any
questions that you, or members of the Committee, may have regarding the Administration's
goals and policies regarding the abuse of charities by terrorist organizations as well as other
issues related to terrorist financing.

PO-3316: Statement ofPamelZl P. Olson Before the Committee on Finance - United States ... Page 1 of2

FROM THE OFFICE OF PUBLIC AFFAIRS
August 1, 2002

P0-3316
PAMELA F. OLSON
NOMINEE FOR ASSISTANT SECRETARY OF THE TREASURY (TAX POLICy)
BEFORE THE COMMITTEE ON FINANCE
UNITED STATES SENATE
Mr. Chairman, Senator Grassley, and Members of the Senate Finance Committee:
I am honored to appear before this Committee as President Bush's nominee to
serve as Assistant Secretary of the Treasury for Tax Policy. I am humbled by the
confidence that the President and Secretary O'Neill have placed in me by giving me
the opportunity to serve my country in this capacity. I am especially grateful for the
courtesy extended to me by this Committee.
The Committee holds a special place for me because of my husband Grant
A1donas' service as Chief Trade Counsel for the Committee prior to his appointment
as Undersecretary of Commerce. His admiration and respect for the Members of
this Committee only increased as he observed first hand the difficult issues you
face, the tough decisions you make, and the grace with which you discuss your
differences and serve the country.
Eighteen months ago, I accepted Secretary O'Neill's offer to return to government
service as Deputy Assistant Secretary of the Treasury for Tax Policy. During the
past 18 months, I have had the opportunity to work with Committee Members and
staff. I want to compliment you on the talented staff you have assembled to assist
and advise you. The cooperative and bipartisan manner in which the Members and
the staff work benefits the country. I pledge to work with the Committee in the same
cooperative spirit if confirmed by the Senate.
Difficult issues are routine for this Committee, but I believe the tax system faces
several critical issues in the coming years. I hope to have the opportunity to assist
the Committee in addressing them. I want to mention just two of these important
issues - two that I believe are closely linked: tax complexity and tax compliance.
Emperor Joseph II once said of Mozart's composition, it has "too many notes, my
dear Mozart.• A similar observation may be fairly made of our tax laws.
Unfortunately, while we may reserve Mozart's compositions for talented and trained
musicians, being a virtuoso is not a prerequisite for complying with the tax law.
Rather ordinary folks must deal with it, and those ordinary folks can no longer
handle the complexity. Of course, much complexity may be attributed to the
complicated world in which we live and the difficulties inherent in properly defining
and measuring income. But that is not the sole source of complexity, and we have
not always done all we could to minimize it. Complexity burdens the economy,
hinders tax administration, leads to unintended results, feeds the proliferation of tax
shelters, and weakens our self-assessment system. I know complexity is a concern
of this Committee. and if I am confirmed. I pledge to make it a high priority during
my tenure.
This Committee has shown particular leadership in addressing tax compliance
concerns. In 1998. the Committee's work resulted in a significant restructuring of
the Internal Revenue Service. While the restructuring was painful even to the
outside observer of the organization. fundamental change was necessary. and I
believe we will see the fruits of that change in the years ahead in the form of

http://wwwireas.gov/press/releaseslpo33.16.htm

08102/2002

PO-3316: Statement ofPameia P. Olson Before the Committee on Finance - United States ... Page 2 of2

increased taxpayer service and better·focused compliance programs.
At the same time. there is much to be done on the compliance front. This
Committee has shown thoughtful leadership by keeping compliance front and
center. Chairman Baucus and Senator Grassley were among the first to shine the
light on the problem of tax shelters. During my 18 months at Treasury,l have been
pleased to work with Committee staff in considering many difficult compliance
questions, particularly issues related to abusive tax avoidance transactions. and the
most effective ways of addressing them. Working together with former Assistant
Secretary Mark Weinberger, Commissioner Rossotti. and Chief Counsel B. John
Williams, we have endeavored to resolve and remove from contention other issues
- issues more appropriately resolved with published guidance - that absorb too
many Internal Revenue Service enforcement resources and distract from far more
significant compliance issues.
I believe our self-assessment system is strong, but keeping it strong requires the
confidence of the citizenry. Complexity is an important component of compliance.
The belief that the tax laws bestow on certain taxpayers opportunities to minimize
their taxes has a corrosive effect on our tax system. It leads taxpayers to question
its fairness. The complexity in our tax laws and the many targeted provisions
contribute to taxpayers' concerns that somebody got something they didn't but
should have. It also creates crevices and shadows where those who would cut
comers can hide. This should concern us all. Research by social scientists
suggests that. when it comes to complying with the law, the belief that the laws are
legitimate and ought to be complied with has a stronger motivating effect than the
fear of being caught
I hope to have the opportunity to continue to work with the Committee on both of
these important issues and the many others that confront the tax system.
I look forward to continuing to serve in the Office of Tax Policy. The staff in the
Office of Tax Policy is an extraordinarily talented and dedicated team. Uke the staff
of this Committee, they have chosen the long hours of public service over the more
lucrative opportunities of the private sector.
Finally, I want to recognize the most important people in the wor1d to me, my family.
My husband. Grant needs no introduction to this Committee. He has been my
mentor. my coach, my compass, my best friend, and my partner in all for near1y 25
years. There is no one whose judgment I would rather have on any difficult issue.
My daughters Nicole and Kirsten and son Noah have put up with my long hours.
interrupted vacations. and missed dinners. I am so very grateful for their support
and the rarity of complaints. I also want to recognize my mother, Inga Olson, who is
here today and taught me life's most important lesson - the difference between
right and wrong and the importance of doing what's right.
I would be pleased to answer any questions.

http://www.treas.gov/presslreleases/poTI16.htm

08/02/2002

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
August 1, 2002

Contact: Office of Public Affairs
(202) 622-2960

STATEMENT BY TREASURY SECRETARY PAUL O'NEILL FOLLOWING SENATE
PASSAGE OF TRADE PROMOTION AUTHORITY
Today's bipartisan passage of Trade Promotion Authority (TPA) is a major victory on behalf of
working Americans. TPA will allow President Bush to open markets that will create high paying jobs
and provide new opportunities for America's farmers and workers to compete and win in international
trade.
Trade is a critical component of our economy and TPA will help quicken the pace of our recovery.
Trade now represents more than one quarter of our economy and trade has created millions of jobs that
pay above-average wages. It has fueled competition and innovation, and helped sustain growth with
little inflation. Just as important, it has help~p.romote the truly global growth and prosperity upon
which America's own growth and prosperity will ultimately depend.
I thank the House and Senate for passing TPA.

-30P0-3317

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
July 29, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
August 01, 2002
January 30, 2003
912795LW9

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.690%

High Rate:

Investment Rate 1/:

Price:

1.727%

99.146

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 34.36%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL

26,486,275
1,383,699
394,000

$

14,222,315
1,383,699
394,000

$

21,965,174

28,263,974

Federal Reserve
TOTAL

IS

Accepted

Tendered

Tender Type

5,965,160
$

34,229,134

Median rate
1.675%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.610%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.

d-to-Cover Ratio

=

28,263,974 / 16,000,014

=

1.77

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,081,472,000

http://www.publicdebt.treas.gov

-3318

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

fOR IMMEDIATE RELEASE
July 29, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
August 01, 2002
October 31, 2002
912795LH2

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.680%

High Rate:

Investment Rate 1/:

Price:

1.712%

99.575

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 48.08%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

27,121,994
1,587,967
307,000

$

16,000,021 2/

29,016,961

SUBTOTAL

TOTAL

5,322,068

5,322,068

Federal Reserve
$

34,339,029

l4,105,054
1,587,967
307,000

$

21,322,089

Median rate
1.660%: 50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low rate
1.630%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
d-to-Cover Ratio

=

29,016,961 / 16,000,021

=

1.81

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,286,475,000

http://www.publicdebt.treas.gov

)-3319

DEPART.MENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622.2960

EHSARGOED UNTIL 11:30 A.M.
July 29, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $20,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
August 1, 2002, and to raise new cash of approximately $2,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
will not be accepted.

Treasu~Direct

The Federal Reserve System holds $12,162 million of the Treasury bills maturing
on August 1, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3320

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED AUGUST 1, 2002
July 29, 2002
Offering Amount . . . . . . . . . . . . · · · · · · · · · $ 20,000 million
Public Offering •........•••.•.••.••. $20,000 million
NLP Exclusion Amount ..•.••.••••••••• $10,700 million

Description of Offering:
Term and type of security ••••.••••••
CUSIP number ......•....•••••••••••••
Auction date ••..•.••..•.•...••.••..•
Issue date .•••••...•..••.••••.••••••
Maturity date ....•••..•.••..••••••••
Original issue date •.••.•••••.••••••
Currently outstanding ••.•••.•••••.••
Minimum bid amount and multiples •..•

28-day bill
912795 KY 6
July 30, 2002
August 1, 2002
August 29, 2002
February 28, 2002
$43,282 million
$1,000

Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) MUst be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ••• 35% of public offering
Maximum Award·····.· .•..•••.••.••.•••.••.• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONT.lI..CT:

FOR IMMEDIATE RELEASE
July 24, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:

Issue Date:
Dated Date:
Maturity Date:

2 1/4%
Q-2004
912828AG5

High Yield:

Price:

2.270%

July 31, 2002
July 31, 2002
July 31, 2004

99.961

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 11.10%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

$

Competitive
Noncompetitive
FIMA (noncompetitive)

40,800,977
1,376,524

$

27,000,029 1/

42,177,501

6,236,933

6,236,933

Federal Reserve
$

TOTAL

48,414,434

25,623,505
1,376,524

o

o

SUBTOTAL

Median yield

Accepted

Tendered

Tender Type

$

2.220%:

33,236,962

50% of the amount of accepted competitive tenders
Low yield
2.100%:
5% of the amount
'f accepted competitive tenders was tendered at or below that rate.

~s tendered at or below that rate.

id-to-cover Ratio = 42,177,501 / 27,000,029
I Awards to TREASURY DIRECT

1. 56

$1. 065,402,000

0-3321
http://www.publicdebt.treas.gov

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
August 4, 2002

CONTACT: Tony Fratto
(202) 622-2016

STATEMENT OF SECRETARY PAUL O'NEILL
The United States Government strongly supports the recommendation to advance $1.5bn and to
increase to a total of$3.8bn financing for Uruguay from the IMF, World Bank, and InterAmerican Development Banle We are confident that this enhanced program will help Uruguay
address the intense external pressures it has faced in recent months. This confidence stems from
the extraordinary actions and commitments by the Uruguayan authorities to address these
pressures.
In order to provide rapid financing to the Uruguayan government in support of the banking
system, the United States government has agreed to provide up to $1.5 billion in short-term
bridge financing from the Exchange Stabilization Fund (ESF) to Uruguay's central bank during
the brief period until international financial institution loans are disbursed. This is consistent
with past use of the ESF.
100% of all dollar-denominated sight and savings deposits in both public and private domestic
banks will be fully backed with the help of these new funds. It is essential for the Uruguayan
people and business community to have access to these deposits to preserve the payments system
in the economy.
For some time, Uruguay has effectively implemented sound economic policies and embraced
free markets, liberalizing trade and maintaining low inflation. President Batlle's administration
has made courageous commitments to ensure that Uruguay remains a strong financial center.
These commitments include the difficult but necessary steps of closing unsustainable banks and
strengthening the supervisory and regulatory framework and bank management in the remaining
financial institutions. Uruguay's approach to bank reform should encourage confidence of
depositors in the financial system. Foreign banks have played an important role in the banking
system, and we expect that role to continue.
PO-3322

DEP ARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
August 4, 2002

CONTACT: Tony Fratto
(202) 622-2016

STATEMENT OF SECRETARY PAUL O'NEILL
The United States Government strongly supports the recommendation to advance $1.5bn and to
increase to a total of$3.8bn financing for Uruguay from the ITv1F, World Bank, and InterAmerican Development Bank. We are confident that this enhanced program will help Uruguay
address the intense external pressures it has faced in recent months. This confidence stems from
the extraordinary actions and commitments by the Uruguayan authorities to address these
pressures.
In order to provide rapid financing to the Uruguayan government in support of the banking
system, the United States government has agreed to provide up to $1.5 billion in short-term
bridge financing from the Exchange Stabilization Fund (ESF) to Uruguay's central bank during
the brief period until international financial institution loans are disbursed. This is consistent
with past use of the ESF.
100% of all dollar-denominated sight and savings deposits in both public and private domestic
banks will be fully backed with the help of these new funds. It is essential for the Uruguayan
people and business community to have access to these deposits to preserve the payments system
in the economy.
For some time, Uruguay has effectively implemented sound economic policies and embraced
free markets, liberalizing trade and maintaining low inflation. President Batlle's administration
has made courageous commitments to ensure that Uruguay remains a strong financial center.
These commitments include the difficult but necessary steps of closing unsustainable banks and
strengthening the supervisory and regulatory framework and bank management in the remaining
financial institutions. Uruguay's approach to bank reform should encourage confidence of
depositors in the financial system. Foreign banks have played an important role in the banking
system, and we expect that role to continue.
PO-3322

A government that puts in place and follows through on such strong economic policies merits the
consistent support of the international financial institutions and the United States.
I look forward to meeting with President BatlIe and his economic team next week in
Montevideo.
-30-

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
202-622-2960
FOR IMMEDIATE RELEASE
August 5, 2002

Contact: Tony Fratto
(202) 622-2960

Statement of Secretary Paul O'Neill following meeting with Brazilian President Cardoso
Let me thank President Cardoso for taking the time to meet with me today to share with
me his views on current economic and financial conditions and policy issues. This meeting, as
well as my meeting last night with Economy Minister Malan, Central Bank Governor Fraga and
Chief of Staff Parente, was cordial and very useful in understanding the challenges at hand and
the policies needed to address those challenges.
In both my meetings, I repeated President Bush's strong support for Brazil. Brazil has
the right economic policies in place to maintain stability so that the economy can continue to
grow. The United States stands ready to support Brazil as it continues to implement these
policies. We support the discussions Brazil's authorities are now having with the IMF.
As the largest economy in Latin America, Brazil's success is important to the economic
success of the entire hemisphere. Having traveled to Brazil often during my 23 years in the
private sector, I have seen this nation's progress firsthand. Brazil has invested in its people and
embraced economic freedom, expanding competition and opening trade, which has improved
living standards. In the last 10 years, infant mortality has fallen, literacy has improved, and
primary school enrollment has risen from just 80% of children starting primary school in 1990 to
96% starting in 2000. The people here have the ingenuity and the resources to succeed.
President Bush has said many times that the prosperity of all the people of the Americas
is inextricably linked. With passage of Trade Promotion Authority by our Congress, President
Bush and the Administration now have a crucial tool needed to complete the Free Trade Area of
the Americas, increasing the flow of goods and ideas between our citizens and improving
economic conditions throughout our hemisphere. The United States and Brazil assume cochairmanship of the FTAA negotiations beginning in November. We are eager to move forward
together, creating growth and opportunities for all our citizens.
--30-PO-3324

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
August 05, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
August 08, 2002
November 07, 2002
912795LJ8

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.600%

High Rate:

Investment Rate 1/:

Price:

1.627%

99.596

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 65.15%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type

------- --------

Competitive
Noncompetitive
FIMA (noncompetitive)

$

33,019,625
1,522,442
115,000

-------------

-

-------

$

--

34,657,067

SUBTOTAL

4,543,259

Federal Reserve

-------- -------

$

TOTAL

39,200,326

$

------

14,362,761
1,522,442
115,000
-------------16,000,203 2/
4,543,259
----------20,543,462

Median rate
1.580%: 50% of the amount of accepted competitive tenders
~as tendered at or below that rate.
Low rate
1.550%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
!id-to-Cover Ratio

=

34,657,067 / 16,000,203

=

2.17

./ Equivalent coupon-issue yield.
/ Awards to TREASURY DIRECT = $1,215,112,000

http://www.publicdebt.treas.gov

)-3326

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
August OS, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
August 08, 2002
February 06, 2003
912795LX7

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.555%

High Rate:

Investment Rate 1/:

Price:

1. 589%

99.214

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 48.09%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

34,368,264
1,084,653
150,000

$

150,000
16,000,507 2/
5,872,483

5,872,483

Federal Reserve
$

41,475,400

14,765,854
1,084,653

35,602,917

SUBTOTAL

TOTAL

Accepted

Tendered

Tender Type

$

21,872,990

Median rate
1.545%: 50% of the amount of accepted competitive tenders
'as tendered at or beloW that rate.
Low rate
1.520%:
5% of the amount
'f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio = 35,602,917 / 16,000,507

=

2.23

/ Equivalent coupon-issue yield.
/ Awards to TREASURY DIRECT = $810,763,000

http://www.publicdebt.treas.gov

PO-3327

DEPARTMENT

OF

THE

TREASURY

TREASURY

NEWS

OFFICE 0 ..' PUBLIC Al<'FAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 _ (202) 622-2960

EMBARGOED UNTIL 11:30 A.M.
August 5, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $22,000 million to
refund an estimated $20,001 million of publicly held 4-week Treasury bills maturing
August 8, 2002, and to raise new cash of approximately $1,999 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $11,863 million of the Treasury bills maturing
on August 8, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
Note: The closing times for receipt of noncompetitive and competitive tenders
will be at 11:00 a.m. and 11:30 a.m. eastern daylight saving time, respectively.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3328

For press releases, speeches, public schedules and official biographies, call our U-hour fax line at (102) 622-20.J0

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED AUGUST 8, 2002
August 5, 2002
Offering Amount . . . . . . . . . . . . . . . • . . . . $22,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . $22,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . $10,300 million
Description of Offering:
Term and type of security . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . • . . . . .
Auction date . . . . . . . . . . . . . . . . . . • . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . .
Ma turi ty date ...........•..••....•.
Original issue date ......•..•......
Currently outstanding . . . . . . . . . . . . . .
Minimum bid amount and multiples .•.

28-day bill
912795 KZ 3
August 6, 2002
August 8, 2002
September 5, 2002
March 7, 2002
$40,974 million
$1,000

Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ... 35% of public offering
Maximum Award· . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 11:00 a.m. eastern daylight saving time on auction day
Competitive tenders:
Prior to 11:30 a.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
AUGUST 6, 2002

CONTACT: ROB NICHOLS
202-622-2910

STATEMENT BY TREASURY SECRETARY PAUL O'NEILL ON PRESIDENT
BUSH SIGNING THE TRADE ACT OF 2002 WHICH GIVES THE PRESIDENT
TRADE PROMOTION AUTHORITY
Trade Promotion Authority (TPA) is a major victory on behalf of working Americans. TPA will
allow President Bush to open markets that will create higher paying jobs and provide new
opportunities for America's farmers and workers to compete and win in international trade. This
is yet another major accomplishment for the President's economic agenda.
Trade is a critical component of our economy and TP A will help quicken the pace of our
recovery. Trade now represents more than one quarter of our economy and trade has created
millions of jobs that pay above-average wages. It has fueled competition and innovation, and
helped sustain growth with little inflation. Just as important, it has helped promote the truly
global growth and prosperity upon which America's own growth and prosperity will ultimately
depend.
President Bush today said it best when he remarked, "Free trade is also a proven strategy for
building global prosperity and adding to the momentum of political freedom. Trade is an engine
of economic growth. It uses the power of markets to meet the needs of the poor. In our lifetime,
trade has helped lift millions of people, and whole nations, and entire regions, out of poverty and
put them on the path to prosperity."
-30-

PO-3329

DEPARTMENT

OF

TREASURY

THE

TREASURY

NEWS

____________..

~178~9--------------

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

August 6, 2002

U.s. International Reserve Position
u.s.

u.s.

The Treasury Depanment today released
reserve assets data for the latest week. &, indicated in this table,
reserve
assets totaled $75,296 million at the end of the latest week, compared to $75,504 million at the end of the prior week.

(in US millions)

I. Official U.S. Reserve Assets

1. Foreign Currency Reserves
a. Securities

I

1

August 2, 2002
75,296

July 26,2002
75,504

TOTAL
Euro
6,261

Yen
12,569

TOTAL
18,830

Euro
6,275

Yen

TOTAL

12,548

18,823

o

Of which, issuer headquartered in the U. S.

o

b. Total deposits with:
boi. Other central banks and BIS
boii. Banks headquartered in the U.S.
b.iL Of which, banks located abroad
b.m. Banks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.

~. IMF Reserve Position

2

1. Special Drawing Rights (SDRs)
k Gold Stock

2

3

i. Other Reserve Assets

10,410

3,332

13,742
0

10,416

3,326

13,7 43

0

0
0

0
0
0

20,176

20,048

11,712

11,638

11,044

11,044

0

0

0

1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-la-market values, and deposits reflect
carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
terms at the official SDR/doliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.

PO-3330

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619·559

Offical Reserve Assets Worksheet
(actual US dollar amounts)

Enter Dates Here

Last Week
26-Jul-02

Foreign Currency

26-Jul-02

2-Aug-02

Euro Securities
Yen Securities

$6,261,000,000.00
$12,569,000,000.00

$6,275,000,000.00
$12,548,000,000.00

Sec, Total
Euro Deposits
Yen Deposits

$18,830,000,000.00
$10,410,000,000,00
$3,332,000,000.00

$18,823,000,000.00
$10,416,000,000,00
$3,326,000,000.00

Deposit Total

$13,742,000,000.00

Total
Euro Rate
Yen Rate

$32,572,000,000.00
$0.9882
118.78

$13,743,000,000.00
$32,566,000,000.00
$0.9882
118.98

This Week
2-Aug-02
Change

IMF

26-Jul-02

Source: NY Fed (fax)
14.000,000
-21,000,000

cORY and Qasle data into last week
and put new data from fax

-7,000,000

into right column

6,000,000
-6,000,000
1,000,000
-6,000,000
0
0.2

2-Aug-02

Source: IMF (email)

(prelim, with adjust.)
Reserve Tranche
GAB
NAB
Total
SDR

20,176,..l85.16849
0.00

20,048,467,368.70
0.00

-128,017,79979

0.00
20,176,485,168.49

0.00
20,048,467,368.70

000
-128,017,79979

11,712,149,009.54

11,637,836,584.23

-74,312.425.31

000

000

Source: FMS website
000

http://www.fms.treas,gov/gold

o

-208,330,225.10

Adjustments to IMF and SDR data, translated_ at ~ur~~'.!!._e_x.c:.~~'.!p~_~~~e..s.. ______________________________________________________________,
IF;relim.-iMF-Dat·~:;------------iN-s-DRs---- -- -SDR rate for

!

a Icu IafIon 5 ectlon
:C
I
Reserve Tranche
GAB
NAB

SDRs

26 -J uI 02
15,078.452,308
0
0
8,752,816,895

Adjustments
15,078.452,308
0

a
15,078,452,308
8,752,816,895

2-Aug-02
In USD
:
0.752100
$20,048,467,368.70
$0.00
$0.00
Total :=
$20,048,467,368.70
SDRs
$11,637,836,584.23

Source:
http://www.imf.org/externaJlmap.htm. then go to "Exchange Rates in Terms of SDRs Daily"

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR RELEASE AT 3 :00 PM
August 6, 2002

Contact: Peter Hollenbach
(202) 691-3502

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JULY 2002

The Bureau of the Public Debt announced activity for the month of July 2002, of securities within the Separate
Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$2,125,437,329

Held in Unstripped Fonn

$1,954,852,546

Held in Stripped Fonn

$170,584,783

Reconstituted in July

$16,393,841

The accompanying table gives a breakdown of STRIPS activity by individual loan description. The balances in
this table are subject to audit and subsequent revision. These monthly figures are included in Table V of the
Monthly Statement of The Public Debt, entitled "Holdings of Treasury Securities in Stripped Fonn."
The Strips Table along with the new Monthly Statement of The Public Debt is available on Public Debt's
Internet site at: www.publicdebt.treas.gov.Awide range of infonnation about the public debt and Treasury
securities is also available at the site.
000

PA-568

www.publicdebt.treas.go v

PO-3331

TABLE V -HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM JULY 31 2002
I

Loan Description

Treasury Bonds:
CUSIP:
912810 DM7
D08
DR6
DU9
ON5
OPO
DS4
DT2
DV7
DW5
DX3
DYI
DZ8
EA2
EBO
EC8
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
EQ7
ES3
ETI
EV6
EW4
EX2
EYO
EZ7
FAI
FB9
FE3
FFO
FG8
FJ2
FM5
FP8
Total Treasury Bonds ..... ,

I

Corpus
STRIP
CUSIP

Interest Rate:
11-5/8
12
10-3/4
9-3/8
11-314
11-114
10-5/8
9·718
9·1~4

7-114
7·1/2
8-3/4
8-7/8
9·118
9
8·7/8
8-1/8
8·1/2
8-3/4

8·3/4
7-7/8
8·1/8
8-118
8
7-1/4
7·518
7-118
6-114
7-112
7-518
6·7/8
6
6-314
6·1/2
6-518
6·3/8
6-1/8
5-1/2
5·1/4
5-114
6-118
6-114
5-318

Amount Outstanding in Thousands
Maturity Date
Total
OutstandinQ

912803 AB9
ADS
AG8
AJ2
912800 AA7
912803AAI
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
AQ6
AR4
AS2
ATO
AU7
AV5
AW3

AXI
AY9
AZ6
BAD
BB8
BC6
BD4
BE2
BF9
BG7
BH5
BJl
BK8
Bl6
BM4
BP7
8V4
BW2
CG6
CH4
CK7

11/15/04
05/15/05
08/15/05
02115/06
11115/14
02/15/15
08/15/15
11115/15
02/15116
05115116
11115/16
05115/17
08115/17
05115/18
11/15/18
02115/19
08/15/19
02115120
05115/20
08115120
02115/21
05115121
08115/21
11/15/21
08115122
11115/22
02115/23
08115123
11115/24
02115125
08115125
02/15126
08115126
11115/26
02115127
08115/27
11115/27
08115/28
11115128
02115129
08115129
05115130
02115131

.. .......

Treasury Inflation-Indexed Notes:
Interest Rate:
Series:
CUSIP:
3-318
9128272M3
A
3-518
A
3T7
3-718
A
4Y5
4-114
A
5W8
3-112
6R8
A
3-3/8
7J5
A
3
912828AF7
C
Total Inflation-Indexed Notes .. ,,-.-

01115107
01115/08
01115/09
01115110
01115/11
01115112
07115/12

.,,'"

Treasury Inflation-Indexed Bonds:
Interest Rate:
CUSIP:
3-5/8
912810 FD5
3-718
FH6
3-318
F06
Total Inflation-Indexed Bonds ......

912820 BV9
CL9
DN4
EK9
GA9
GT8
HC4

912803 BN2
CF8
CL5

04/15128
04115/29
04115132

Portion Held in
Unstripped Form

Portion Held in
Stripped Form

Reconstituted
This Month

8,301,806
4,260,758
9,269,713
4,755,916
5,015,284
10,520,299
4,023,916
5,584,859
5,431,754
18,823,551
18,787,448
15,559,169
10,968,358
6,717,439
7,174,470
13,090,498
18,940,932
9,476,268
7,582,183
17,059,306
10,075,573
10,066,788
9,506,382
30,632,194
10,127,790
7,423,626
15,782,061
22,659,044
9,604,162
9,509,170
11,187,207
12,837,916
8,810,418
10,860,177
9,521,971
9,196,756
22,021,339
11,776,201
10,947,052
11,350,341
11,178,580
17,043,162
16,427,648

4,722,207
1,921,705
5,998,281
4,282,651
1,936,100
9,513,555
3,278,545
3,886,778
5,352,019
18,482,518
17,583,468
7,437,460
8,146,113
2,779,348
2,736,581
6,874,969
17,908,348
7,008,735
2,897,708
6,943,929
9,084,493
3,936,539
6,779,352
15,200,368
8,926,791
3,129,031
10,593,889
19,500,484
3,732,082
3,901,369
7,778,565
11,581,557
6,197,500
4,784,765
6,718,914
6,857,026
10,473,239
10,838,101
10,249,322
10,831,845
10,348,980
16,241,474
16,218,048

3,579,599
2,339,053
3,271,432
473,265
3,079,184
1,006,744
745,371
1,698,081
79,735
341,033
1,203,980
8,121,709
2,822,245
3,938,091
4,437,889
6,215,529
1,032,584
2,467,533
4,684,475
10,115,377
991,080
6,130,249
2,727,030
15,431,826
1,200,999
4,294,595
5,188,172
3,158,560
5,872,080
5,607,801
3,408,642
1,256,359
2,612,918
6,075,412
2,803,057
2,339,730
11,548,100
938,100
697,730
518,496
829,600
801,688
209,600

243,600
35,400
28,800
4,600
20,000
1,245,105
157,215
793,815
296,571
48,000
172,240
536,380
612,800
476,509
78,800
1,207,498
442,617
280,627
39,720
859,407
152,800
151,040
300,840
2,493,045
142,000
244,800
544,400
432,304
74,320
70,400
226,400
568,600
153,900
278,800
464,198
137,870
534,400
64,500
175,800
0
12,000
143,600
0

499,889,485

353,594,752

146,294,733

14,945,721

17,882,933
18,710,078
17,434,434
12,098,487
11,364,840
6,079,877
10,015,031

17,882,933
18,598,785
17,434,434
12,098,487
11,364,840
6,079,877
10,015,031

0
111,293
0
0
0
0
0

0
0
0
0
0
0
0

93,585,681

93,474,388

111,293

0

18,657,521
21,324,154
5,077,194

18,651,963
21,187,439
5,077,194

5,558
136,715
0

0
0
0

45,058,869

44,916,595

142,273

0

TABLE V • HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM,

J\Jl.Y..,.... C·""......

-- -Corpus
STRIP
CUSIP

Loan Descnptlon

-

1 rcZlSUry

Amount Outstanding in Thousands
Reconstituted

Maturity Date
Total
Outstandina

Portion Held in
UnstriPDed Form

Portion Held in
Stripped Form

This Month

~~--

~-----

Notc~

Senes
B
L

CVS:~'
912827 G55
3G5

Y

6K3
3J9

M

6ll

Z

3L4

N

3Cl3
6P2
:lS<)

P
AC

600
3V2
656
J78
323
6U1
4fl5
(,V9

AD
C
L
A
D
M
E
tJ

4D1
6W7
4H2

P
G

a

F

6Y3

a

4KS
6Z0
7M

H
R
S
B
J
T
U
V
K
W
X

LR3
4N9
7CO
7DB
7E6

4U3
7Gl
7H9
7K2
N81

J
A
E
K
L
M
B
F
N
P

SAG
71,18
912878 M8
AB6
912827
5C 5
912828 AD2
AEO
AG5
912827 038

rag

Q

C

Interest Rate
6·318
6·114
6·1'8
5·718
6
5-3'4
5-3.'4
5·518
5-5/8
5-118
5-1/2
4·314
6·114
5-112
4-518
5-1/2
4·1/4
5-314
4
5-112
4-114
5-3 C
'
3-7/8
3·7/8
5·314
5·1/4
3·518
2-314
2-314
4-114

3
3-114
3
5·718
4-314

3
3·518
3·318
7·114
5·114
3·114
2·718
2-114
7·114

SMO

G

6

Rf,7
5S7
Stl6

D
H
A
B
E
e
D
F
A
B
E
C
0
F
B
C
E
D
B
e
D
B
C
B
C
B
C
B

7·718
5-718
7·112
6·1'2
6·314
6·112
5·718
5·314
5·518
6-718
4-5/5
7
6-112
3-112
6·114
6·518
4·3'8
6·118
5·112
5·5/8
4·3:4
5·112
6
6-112
5·3/4
5
5
4·7;8

n:5
6U9
UR3
V82
6N7
1i/81
X80
6XS

Y55
Z62

7F3
2JO
2U5
912828 AC4
912827 3EO

3X8
4F6
4\,1
503

5N3
5'::1
6~!6

6TJ
7B2
7L0

T~:aj Trt::3SU'\
Gra"',c! T0t3

1

r-~:):~s

.-

912820 BE6
FSl
FU6
ee9
FV4
CE5
CH8
FY8
CKl
FZ5
CN5
GB7
BF3
eS4
GD3
CU9
GEl
CW5
GF8
DA2
GH4
DC8
GJO
GK7
BGl
DE4
GM3
GN1
GP6
DJ3
GR2
GSO
GUG
BH9
D07
GW1
GX9
GY7
BJ5
DU8
HAS
H86
HD2
BK2
DZ7
BlO
EE3
BM8
BN6
ER·\
BPl
Bag
FXO
BR7
BSS
GG6
BT3
BUO
G04
BW6
BX4
GZ4
CA3
C08
CY1
DKO
DV5
EA1
EMS
FT9
GC5
GL5
GV3

08/15/02
08131/02
08/31/02
09130/02
09/30/02
10131/02
11/30/02
11130102
12131102
12131102
01131/03
01131103
02115103
02128103
02128/03
03131103
03131103
04130103
04130/03
05131103
05131/03
06/30103
06130103
07131/03
08115103
08115103
08131/03
09130103
10131103
11115/03
11130103
12131/03
01/31104
02115104
02115104
02129104
03131/04
04130104
05115104
05115104
05131/04
06130/04
07/31104
08115/04
08115104
11115/04
11/15/04
02115/05
05115105
05115/05
08/15/05
11115/05
11115/05
02115/06
05115/06
05115/06
07115/06
10/15/06
11115/06
02115/07
05115/07
05115/07
08115/07
02115/08
05115/08
11/15/08
05115/09
08/15109
02115/10
08115/10
02115/11
08115/11
02115112

23,859,015
12.731,742
15,072.214
12.806.814
15,144,335
26,593,892
12,120,580
15,058,528
12,052.433
14,822,027
13,100,640
15,452,604
23,562,691
13,670,354
14,685,095
14,172,892
14,674,853
12,573,248
13,338,528
13,132,243
13,331,937
13,126.779
14,671.070
16,003.270
28,011,028
19,852,263
18,665,038
22,675,482
25,147,960
18,625,785
26,170.526
29,666,988
30,775,555
12,955,077
17,823,228
31,746,067
32,873,508
32.654,971
14,440,372
18,925,383
33,297,400
34,050,042
33,254,505
13,346,467
18,089,806
14,373,760
32,658,145
13,834,754
14,739,504
28,562,370
15,002,580
15,209,920
28,062.797
15,513,587
16,015,475
27,797,852
22,740,446
22,459,675
35,380,129
13.103,678
13,958,186
24,351,431
25,636,803
13,583,412
27,190,961
25,083,125
14,794,790
27,399.894
23,355,709
22.437,594
23.436,329
26,635,316
24,779,838

19,775,785
12,731.742
15,072.214
12}30,014
15,144,335
26.497,892
11,734.380
14,990,688
11,640,593
14,822.027
13,088,640
15,427,004
21,736,463
13,623,154
14,278,695
14,136,092
14,674,853
12,537,248
13,338,528
13,068,643
13,331,937
13.081,979
14,671,070
16,001,670
25,556,202
19,783,263
18,665,038
22,675,482
25,146.360
17,299,856
26,170,526
29,666,988
30,775,555
12,127,730
17,811,228
31,746.067
32,873,508
32,654,971
13,420,539
18,925,383
33,297,400
34,050,042
33,254,505
11,201,436
18,089,806
14,362,760
32,658,145
13,205,339
14,739,104
28,465,770
15,002,180
14,707,129
27,704,397
15,508,107
14,846,679
27,797,852
22,626,446
22,399.675
34,622,373
12,324,060
12,283,658
24,351,431
24,034,964
13,556,112
27,123,441
24,970,377
14,736,190
26.891,985
23,351,109
22,433,194
23,429,569
26,628,396
24,778,838

4,083,230
0
0
76,800
0
96,000
386,200
67,840
411,840
0
12,000
25,600
1,826,228
47.200
406.400
36,800
0
36,000
0
63,600
0
44,800
0
1,600
2,454,826
69,000
0
0
1,600
1,325,929
0
0
0
827,347
12,000
0
0
0
1,019,833
0
0
0
0
2,145,031
0
11,000
0
629,415
400
96,600
400
502,791
358,400
5,480
1,168,796
0
114,000
60,000
757,756
779,618
1,674,528
0
1,601,839
27,300
67,520
112,748
58,600
507,909
4,600
4,400
6,760
6,920
1,000

704,000
0
0
0
0
0
3,600
0
0
0
0
0
13,792
0
0
0
0
0
0
0
0
0
0
0
50,000
0
0
0
0
8,000
0
0
0
4,000
5,600
0
0
0
8,800
0
0
0
0
22,718
0
1,200
0
2,000
0
48,000
0
10,400
1,600
0
215,600
0
0
0
40,600
89,490
147,200
0
16,600
0
35,920
7,000
0
12,000
0
0
0
0
0

1.486,903,295

1,462,866,811

24,036,484

1,448,120

2,125.437,329

1,954,852.546

170,584,783

16,393,841

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
August 06, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:

28-Day Bill
August 08, 2002
September 05, 2002
912795KZ3
1.675%

Investment Rate 1/:

1.697%

Price:

99.870

All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 30.61%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL
Federal Reserve
TOTAL

Accepted

Tendered

Tender Type

$

53,339,543
38,043

$

21,961,993
38,043

o

o

53,377,586

22,000,036

1,446,764

1,446,764

54,824,350

$

23,446,800

Median rate
1.665%: 50% of the amount of accepted competitive tenders
las tendered at or below that rate.
Low rate
1.640%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
lid-to-Cover Ratio = 53,377,586 / 22,000,036

=

2.43

/ Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov

PO-3332

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
August 06, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Interest Rate:
Series:
CUSIP No:

3 1/4%
F-2007
912828AH3

High Yield:

Issue Date:
Dated Date:
Maturity Date:

3.348%

Price:

August 15, 2002
August 15, 2002
August 15, 2007

99.552

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 82.67%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

38,358,220
394,251

$

o

o

22,000,076 1/

38,752,471

SUBTOTAL

$

TOTAL

3,395,800

3,395,800

Federal Reserve

42,148,271

21,605,825
394,251

$

25,395,876

Median yield
3.319%:
50% of the amount of accepted competitive tenders
ras tendered at or below that rate.
Low yield
3.230%:
5% of the amount
'f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio

=

38,752,471 / 22,000,076

=

1.76

/ Awards to TREASURY DIRECT = $243,815,000

http://www.publicdebt.treas.gov

PO-3333

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178£9~. . . . . . . . . . . . . . . .. .

..................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 6, 2002

CONTACT: BETSY HOLAHAN
202-622-2960

Remarks by Rosario Marin
Treasurer of the United States
August 6, 2002
Nacional Financiera, Mexico City
Good afternoon.
Thank you, Senor Laborin, for hosting this important event. Thank you, Governor
Monreal, Governor Morales, and Governor Nunez for being with us today. Thank you all
for coming.
On September 6,2001, President Bush and President Fox launched the Partnership for
Prosperity to promote growth in the parts of Mexico where growth has lagged and fueled
migration. The two Presidents instructed us to come up with an action plan of concrete
proposals that would deepen the economic ties between our two countries in a way that
spreads prosperity to more and more of our people. They wanted real solutions for real
people.
Today, we celebrate real, common-sense solutions for real people.
Senor Laborin, NAFIN, and the state governors have been hard at work trying to make
sure that the hard earned wages of Mexicans in the United States find their way to
productive uses in Mexico. What could be better, than using the money to start small
business or to build a house.
For example, everyone knows that Mexico needs more houses. And, as more young
Mexicans start families of their own, still more new families will need houses.
But houses costs money. Where is the money to come from?
President Bush says that most money for development does not come from official aid. It
comes from savings, investment, and trade.
PO-3334

_For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

DEPARTMENT

OF

TREASURY~.

THE

TREASURY

NEWS

__----------..~17~------------OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FORlMMEDIATE RELEASE
August 6, 2002

CONT ACT: BETSY HOLAHAN
202-622-2960

Remarks by Rosario Marin
Treasurer of the United States
August 6, 2002
Naciollal Filtaltciera, Mexico City
Good afternoon.
Thank you, Senor Laborin, for hosting this important event. Thank you, Governor
Monreal, Governor Morales, and Governor Nunez for being with us today. Thank you all
for coming.
On September 6,2001, President Bush and President Fox launched the Partnership for
Prosperity to promote growth in the parts of Mexico where growth has lagged and fueled
migration. The two Presidents instructed us to come up with an action plan of concrete
proposals that would deepen the economic ties between our two countries in a way that
spreads prosperity to more and more of our people. They wanted real solutions for real
people.
Today, we celebrate real, common-sense solutions for real people.
Senor Laborin, NAFIN, and the state governors have been hard at work trying to make
sure that the hard earned wages of Mexicans in the United States find their way to
productive uses in Mexico. What could be better, than using the money to start small
business or to build a house.
For example, everyone knows that Mexico needs more houses. And, as more young
Mexicans start families of their own, still more new families will need houses.
But houses costs money. Where is the money to come from?
President Bush says that most money for development does not come from official aid. It
comes from savings, investment, and trade.
PO-3334

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

DEPARTMENT

TREASURY

_~~ _

OF

THE

TREASURY

NEWS

_ _ _ ~178~<)~ _ _ _ _ _ _

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 6, 2002

CONTACT: BETSY HOLAHAN
202-622-2960

Remarks by Rosario Marin
Treasurer of the United States
August 6, 2002
Naciollal Finallciera, Mexico City
Good afternoon.
Thank you, Senor Laborin, for hosting this important event. Thank you, Governor
Monreal, Governor Morales, and Governor Nunez for being with us today. Thank you all
for coming.
On September 6,2001, President Bush and President Fox launched the Partnership for
Prosperity to promote growth in the parts of Mexico where growth has lagged and fueled
migration. The two Presidents instructed us to come up with an action plan of concrete
proposals that would deepen the economic ties between our two countries in a way that
spreads prosperity to more and more of our people. They wanted real solutions for real
people.
Today, we celebrate real, common-sense solutions for real people.
Senor Laborin, NAFIN, and the state governors have been hard at work trying to make
sure that the hard earned wages of Mexicans in the United States find their way to
productive uses in Mexico. What could be better, than using the money to start small
business or to build a house.
For example, everyone knows that Mexico needs more houses. And, as more young
Mexicans start families of their own, still more new families will need houses.
But houses costs money. Where is the money to come from?
President Bush says that most money for development does not come from official aid. It
comes from savings, investment, and trade.

PO-3334

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~178~9_ _ _ _ _ _ _ _ _ _ _ __ _

. . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMlVIEDIA TE RELEASE
August 6, 2002

CONTACT: BETSY HOLAHAN
202-622-2960

Remarks by Rosario Marin
Treasurer of the United States
August 6, 2002
Nacional Financiera, Mexico City

Good afternoon.
Thank you, Senor Laborin, for hosting this important event. Thank you, Governor
Monreal, Governor Morales, and Governor Nunez for being with us today. Thank you all
for coming.
On September 6,2001, President Bush and President Fox launched the Partnership for
Prosperity to promote growth in the parts of Mexico where growth has lagged and fueled
migration. The two Presidents instructed us to come up with an action plan of concrete
proposals that would deepen the economic ties between our two countries in a way that
spreads prosperity to more and more of our people. They wanted real solutions for real
people.
Today, we celebrate real, common-sense solutions for real people.
Senor Laborin, NAFIN, and the state governors have been hard at work trying to make
sure that the hard earned wages of Mexicans in the United States find their way to
productive uses in Mexico. What could be better, than using the money to start small
business or to build a house.
For example, everyone knows that Mexico needs more houses. And, as more young
Mexicans start families of their own, still more new families will need houses.

But houses costs money. Where is the money to come from?
President Bush says that most money for development does not come from official aid. It
comes from savings, investment, and trade.
PO-3334

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government PnntlngOflice 1998 - 619-559

So where is the money for new houses to come from? We must look to savings,
investment, and trade.
Indeed, that's where the money is. According to the Inter-American Development Bank,
last year Mexicans in the United States sent $9.3 billion dollars back to friends and
family in Mexico. $9.3 billion dollars. I don't know about you, but to me that is a lot of
money.
Today, we are celebrating a new, easy way for Mexicans in the United States to take
some of that money and use it to pay for a house in Mexico.
I am very excited about this.
Now, no one pretends that this will meet all of Mexico's need for new houses. But it is a
step in the right direction. After all, you build a thousand houses the same way you build
a single house - brick by brick. Every brick counts.
Also, I am very excited with the Tres par Uno initiative, by which every remittance
dollar used for a productive project in Mexico, is matched by both, the Mexican Federal
Government and the state governments, multiplying by three community investment.
Definitely, this is a grate way to add up efforts.
So, today we celebrate exactly the sort of common sense solution that President Bush and
President Fox asked us to find when they launched the Partnership for Prosperity. We
still have much work to do, but I am very pleased to be here to celebrate this first step.
Thank you.
-30-

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
202-622-2960
FOR IMMEDIATE RELEASE
August 7, 2002

CONTACT: Tony Fratto
(202) 622-2960

Statement of Secretary Paul O'Neill after meeting with Economy Minister Lavagna:
I enjoyed meeting with Economy Minister Lavagna this morning for a detailed discussion
of the current economic conditions and challenges in Argentina. And I would like to thank
President Duhalde for spending time with me yesterday afternoon to discuss the challenges
Argentina faces and plans for overcoming them.
We in the United States have the highest hopes for success and prosperity throughout
Latin America, because it is good for all the people of our hemisphere. President Bush envisions
a hemisphere linked closely by shared commerce and shared ideas. Just yesterday, the President
signed Trade Promotion Authority, enabling him to proceed immediately to expand trade with all
the nations of Latin America, increasing our ties and creating opportunities for success for
people in all of our nations.
My hopes for the people of Argentina are high. I traveled to Buenos Aires and Patagonia
during my years in the private sector, and I know that with the right policies in place, the people
of Argentina will succeed. Following my discussions with Minister Lavagna, I am confident that
the government of Argentina recognizes the importance of resolving fiscal issues, establishing a
clear monetary policy and re-establishing a sound financial sector so that payments can flow
normally in the economy and fuel trade and growth.
We welcome Argentina's continued discussions with the IMF over policy steps necessary
to create a sustainable economic environment. We in the United States are glad to work through
the international financial institutions to support nations that embrace sustainable, growthcreating economic policies.
-30-

PO-3335

DEPARTMENT

OF

THE

TREASURY {~1

TREASURY

N EW S

1789~~"'''''''''''''''''''''''''''''''''''''

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 7, 2002

Contact Tony Fratto
(202) 622-2960

U.S. Pledges $500 Million for Fund to Combat Global Environmental Threats
The Bush Administration today pledged a significant increase in funding for a fund to help
developing countries mitigate environmental problems with potential global impact.
At replenishment talks that concluded today in Washington, the United States pledged $500
million over the next four years for the Global Environment Facility (GEF). The commitment is
a 16% increase over its contribution to the previous replenishment. This in tum will help
leverage about $2.2 billion in total new donor contributions.
The GEF, established in 1991, funds projects that promote clean and efficient energy use
(including reduction of greenhouse gases), conserve biodiversity, clean up international waters
and phase out ozone-depleting chemicals. New focal areas to be included in the upcoming
replenishment period will help combat problems caused by persistent organic pollutants, which
pose a particular threat in areas in the northern U.S., and fight land degradation with a focus on
desertification and deforestation in some of the world's poorest countries. The United States is
the largest contributor to GEF.
"President Bush wants to ensure that the Global Environmental Facility has the funding it needs
to meet its program priorities and the policies in place to use those funds effectively," said John
Taylor, Under Secretary of the Treasury. "This pledge, and the policy reforms and performance
targets that have been agreed by donors, are vitally important steps forward in meeting these
critical objectives.
II

The U.S. pledge includes $107.5 million per year for each of the four years of the replenishment
period, plus another $70 million in the fourth year if the GEF meets a set of performance
measurements agreed by donors. In addition, the Administration is requesting $70.3 million
from Congress annually for the next three years to pay off U.S. arrears accumulated during the
previous replenishment period.
PO-3336

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

During the replenishment negotiations, the Administration actively pursued measures to improve
the effectiveness of GEF assistance, and reached agreement to establish a transparent
performance-based allocation system that emphasizes country policies and institutional
structures essential to effective assistance. Consensus was also reached on projecting and
tracking measurable results, developing a private sector strategy, creating an independent
monitoring and evaluation unit, and opening up competition for GEF projects.
-30-

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

......................................~~17819:.......................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Tony Fratto
(202) 622-2960

FOR IMMEDIATE RELEASE
August 7, 2002

Treasury Statement Regarding Brazil
Brazil has the right economic policies in place to maintain stability so that the economy
can continue to grow. The United States stands ready to support Brazil as it continues to
implement these policies. We are pleased with today's announcement.
-30-

PO-3337

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Government Printing Of lice 1998 - 619-559

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

IMMEDIATE RELEASE
\ugust 07, 2002
~OR

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
:nterest Rate:
:eries:
~SIP No:

Issue Date:
Dated Date:
Maturity Date:

4 3/8%
D-2012
912828AJ9

High Yield:

4.390%

Price:

August 15, 2002
August 15, 2002
August 15, 2012

99.880

All noncompetitive and successful competitive bidders were awarded
ecurities at the high yield.
Tenders at the high yield were
llotted 49.47%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

23,017,281
190,474

$

o

18,000,024 1/
1,644,600

1,644,600

Federal Reserve
TOTAL

$

24,852,355

17,809,550
190,474

°

23,207,755

SUBTOTAL

.8

Accepted

Tendered

Tender Type

$

19,644,624

Median yield
4.300%:
50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low yield
4.250%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.

d-to-Cover Ratio

=

23,207,755 / 18,000,024

Awards to TREASURY DIRECT

=

=

1.29

$125,010,000

http://www.publicdebt.treas.gov
1-3338

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N. W. e WASHINGTON, D.C.e 20220. (202) 622-2960

EMBARGOED UNTIL 11:00 A.M.
August 8, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction l3-week and 26-week Treasury bills totaling $31,000
million to refund an estimated $30,533 million of publicly held 13-week and 26-week
Treasury bills maturing August 15, 2002, and to raise new cash of approximately $467
million. Also maturing is an estimated $20,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced August 12, 2002.
The Federal Reserve System holds $12,541 million of the Treasury bills maturing
on August 15, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held August 13, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FlMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,093 million into the 13-week bill and $922 million into the 26week bill.

The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about each of the new securities are given in the attached offering
b.ighlights.
000
~ttachment

PO-3339

"or press releases, speeches, public schedules and official biographies, call our 24-l1our fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED AUGUST 15, 2002
August 8, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
NLP Exclusion Amount ...........•........... $ 5,200 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date .............•..•.....••.......
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . • . . . . . . . . . .
Original issue date ..........•.............
Currently outstanding .......•..............
Minimum bid amount and multiples •.••.•••••.

91-day bill
912795 LK 5
August 12, 2002
August 15, 2002
November 14, 2002
May 16, 2002
$20,595 million
$1,000

$15,000 million
$15,000 million
None
182-day bill
912795 LY 5
August 12, 2002
August 15, 2002
February 13, 2003
August 15, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FlMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for FlMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt of
competitive tenders.
~aximum Recognized Bid at a Single Rate .•...•.. 35% of public offering
M!ximum Award ••.•..•..•....••••••....•..•..••.. 35% of public offering
Receipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders •.•.•••• Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender. TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
r~cord at their financial institution on issue date.

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Tasia Scolinos
(202 622-2960

FOR IlVIMEDIATE RELEASE
August 8, 2002

Treasury Department Statement in Response to Holy Land Foundation Court
Ruling

The Treasury Department is committed to exposing, isolating and incapacitating the
financial infrastructure of terrorist organizations worldwide. Today's decision once again
affirms the President's authority to freeze the assets of those who finance terrorism and is
a substantial victory in the continuing war against terrorism.
-30-

PO-3340

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
August 12,2002

Contact: Tara Bradshaw
(202) 622-2014

CATHERINE HUGHES JOINS TREASURY'S OFFICE OF TAX POLICY AS
ESTATE AND GIFT TAX ATTORNEY ADVISOR

Treasury Acting Assistant Secretary for Tax Policy Pam Olson today announced that Catherine
Veihmeyer Hughes has joined the Office of Tax Policy as the Estate and Gift Tax Attorney
Advisor.
"Cathy has more than 20 years of experience in estate and gift planning, and is the former Chair
of the ABA Tax Section Estate & Gift Tax Committee. Treasury is extremely fortunate to have
someone of her caliber join the Office of Tax Policy," stated Pam Olson, Acting Assistant
Secretary for Tax Policy.
Most recently, Ms. Hughes was a Partner in the McLean, Virginia, office of McGuireWoods
LLP, where she managed the firm's Estate Planning and Administration Practice in Northern
Virginia, Maryland, and the District of Columbia. She has broad and extensive experience
dealing with sophisticated estate planning, transfer tax issues, estate and trust administration, and
related fiduciary and tax matters.
Ms. Hughes is a Fellow of the American College of Trust and Estate Counsel, and (until her
acceptance of her position at Treasury) was serving as the Chair of the Estate and Gift Tax
Committee of the ABA Section of Taxation. She is a former Chair of the Estates, Trusts and
Probate Law Section of the D.C. Bar. Ms. Hughes is admitted to practice in Virginia, Maryland
and the District of Columbia.
Ms. Hughes received a B.A. in Mathematics from the University of Dayton and a J.D. from
Catholic University of America.

-30PO-3341

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
AIR TRANSPORTATION STABILZATION BOARD

FOR IMMEDIATE RELEASE
August 11, 2002

Contact: Betsy Holahan
202-622-2960

Air Transportation Stabilization Board's Statement
on US Airways' Plan for Chapter 11 Reorganization
US Airways, Inc. ("US Airways") has announced that it has filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On July 10,
2002, the Air Transportation Stabilization Board (the "Board") conditionally approved
the application by US Airways for a Federal loan guarantee under the Air Transportation
Safety and System Stabilization Act (the "Act"). The Board's guarantee would cover
$900 million of a proposed $1 billion loan. At the time the conditional approval was
granted, the Board recognized the possibility of a Chapter 11 filing by US Airways.
The Board's conditional approval of US Airways' application for a Federal loan
guarantee remains in effect subject to the conditions set forth in the Board's July 10 letter
to US Airways and to the bankruptcy court's confirmation of a plan of reorganization.
The Board will review the reorganization plan when presented and will determine
whether it meets the conditions for issuance of a guarantee.
The Board, established as part of the Act signed into law September 22, 2001,
consists of designees of Federal Reserve Board Chairman Alan Greenspan, Treasury
Secretary Paul O'Neill and Transportation Secretary Norman Mineta. The designees are
Federal Reserve Board Governor Edward M. Gramlich, Treasury Under Secretary for
Domestic Finance Peter R. Fisher and Department of Transportation General Counsel
Kirk K. Van Tine. David Walker, Comptroller General of the United States, is a nonvoting member of the Board.

-30PO-3342

DEP ARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
FOR IM1VIEDIATE RELEASE
August 12, 2002

Contact: Rob Nichols
(202) 622-2960

TREASURY SECRETARY PAUL O'NEILL TRAVELS TO WESTERN STATES TO
DISCUSS ECONOMY

On the heels of the President's Economic forum in Waco, Texas, Treasury Secretary Paul O'Neill
will travel to three Western States to discuss the economy.
During visits this week to Portland, OR, Seattle, W A, and Denver, CO, the Secretary will meet
with employers and workers to hear about local economic conditions and will discuss President
Bush's efforts to strengthen the economic recovery, from cutting taxes last year and enacting a
stimulus package this spring to advancing free trade now that the President has trade promotion
authority and repeating the President's call on Congress to enact terrorism risk insurance and
pension security.
The Secretary will depart on this three state swing directly from the President's Economic Forum
taking place on August 13, in Waco, TX. At the Forum, the Secretary will chair a panel titled,
"Economic Recovery & Job Creation" which will discuss the best ways to sustain economic
recovery, promote long-term growth and create new jobs. The Forum's objective is to meet with
people on the front lines of the American economy - small business owners, employees,
individual investors, business leaders, economists and farmers - to discuss where our economy
stands, the impact of the policies we have put in place, and the steps we are taking as we move
forward.

In all three Western States, the Secretary will meet with local employers and visit a local
business where he will speak to employees. This trip is one of several the Secretary has made
and will continue to make throughout the fall to gauge economic growth in localities across the
nation and discuss the President's agenda to strengthen the economic recovery and create jobs.
-30PO-3343

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OJiFlCE OJi PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N. W. - WASHINGTON, D.C.- 20220 _ (202) 622.2960

EMBARGOED UNTIL 11:00 A.M.
August 12, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $26,000 million to
refund an estimated $20,000 million of publicly held 4-week Treasury bills maturing
August 15, 2002, and to raise new cash of approximately $6,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $12,541 million of the Treasury bills maturing
on August 15, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3344
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pflntlng Office 1998 - 619-559

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED AUGUST IS, 2002
August 12, 2002

Offering Amount •..•.•.............. $26,000 million
Public Offering .•...............•.. $26,000 million
NLP Exclusion Amount .•.....•...•..• $ 9,900 million
Description of Offering:
Term and type of security .......•.•
CUSIP number ..•.•...•....•.........
Auction date .•......•..•...........
Issue date .•.•......•......•.••....
Maturi ty date •...............•.....
Original issue date . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . .
Minimum bid amount and multiples ...

28-day bill
912795 LA 7
August 13, 2002
August 15, 2002
September 12, 2002
March 14, 2002
$40,254 million
$1,000

Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ... 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . • . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS

FOR IMMEDIATE RELEASE
August 12, 2002

Contact: Rob Nichols
(202) 622-2910

TREASURY STATEMENT REGARDING URUGUAY

The United States was pleased to assist in the Government of Uruguay's backing of 100 percent
of dollar-denominated sight and savings deposits in public and private domestic banks. Timely
support enabling Uruguayan banks to open Monday, August 5, 2002, came through the
Exchange Stabilization Fund (ESF) in the form of a bridge loan to the disbursement of funds
from the IMF, the World Bank, and the Inter-American Development Bank. Uruguay drew
$1,466,000,000 on Monday, August 5, from the bridge loan and completed full repayment plus
$271,351 in interest payments on Friday, August 9. Support from the IMF, the IDB and the
World Bank, along with the reform commitment of the Uruguayan authorities, helped increase
confidence in Uruguay's financial sector.
-30-

PO-3345

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 10:00 am [Eastern]
August 13,2002

Contact: Rob Nichols
(202) 622-2960

Treasury Secretary Paul O'Neill
Remarks at the President's Economic Forum
During the Panel Discussion Chaired by the Secretary
Titled, "Economic Recovery and Job Creation"
Baylor University, Waco, Texas
August 13, 2002

[TEXT AS PREPARED]
Thank you all for coming out to the President's Economic Forum today. I want to be clear up
front: this session on the economic recovery is not about official Washington coming to preach.
That's not why any of us came here. This is a chance for us to listen, to have an open discussion
about our economy, and for Washington to get a dose of common sense from you. We want to
know what's been working and what hasn't, beyond the numbers. We want to hear it from the
people who really make things happen in our economy - people who get out there, make
decisions, and work every day - that's why all of us are here.
The past eighteen months have seen some tough times for the American economy. We've
suffered through a bursting stock market bubble, terrorist attacks on our financial and political
capitals, and revelations of corporate fraud. Some people have lost jobs, others have watched
their retirement accounts disappear. It's no wonder that Americans are concerned about
economic security.

PO-3346

President Bush had economic security at the forefront his agenda, before any of these shocks hit.
From the beginning of his Administration, he has embraced economic freedom and individual
accountability as the foundation for continuing prosperity. His economic plan creates jobs,
improves education and expands opportunities to save and invest.
Our job in Washington is to protect and ,expand Americans' ability to create a better life for
ourselves, our children, and our nation. And we will not be satisfied until every American who
wants a job, has a job.
That's what we've been working on, and we have some accomplishments to show for it. First,
the President's historic tax relief program last summer reduced taxes for the average family of
four by $1,040 a year. Then in March of this year, he signed the Job Creation Act to stimulate
investment in our economy, a second major accomplishment. By the end of 2002, these two tax
relief programs will have let Americans create nearly one million new jobs with resources that
would otherwise have gone to Washington. Our estimates now show that without that tax relief,
the recession would have been deeper and the recovery slower.
Our third victory for the economy has been new standards for corporate accountability. These
ensure that people saving for their future can get accurate information for sound investment
decisions. We are holding corporations accountable for telling the truth to investors and
employees, so Americans can save for college tuitions and comfortable retirements with greater
confidence.
Another major accomplishment for our nation's prosperity is winning Trade Promotion
Authority, which the President will use to open international markets to US exports, creating jobs
here at home. Nearly one in 11 working Americans - 12 million people - already works at ajob
that depends on exports. A stable, blossoming world economy, founded on freer trade, will
expand exports further while reducing costs for consumers, and will enhance our long-term
prosperity.
Today, key economic indicators such as inflation, real wages, productivity, interest rates,
business profits, and the housing sector are all strong because of the resilience and determination
of the American people. To a lot of folks out there, it doesn't feel like a recovery yet. But the
economists who study the numbers all say the recovery is underway. After last year's recession,
our country pulled together to do what we've always done - confront our problems, solve them,
and move forward.
There's more to be done. Since the attacks of September 11, the President has been asking
Congress to enact terrorism risk insurance. There are construction projects stalling out there
because the owners cannot get insurance protection against the risk of another attack. Some have
said that the lack of terrorism risk insurance is costing us a full percentage point in economic
growth - that's thousands of jobs. We also need to enact the President's energy plan to secure our
economy against possible energy price shocks. And we need President Bush's Homeland
Security plan, because the physical security of our nation is essential to prosperity.

We'll also work with Congress to restrain wasteful government spending, because overspending
in Washington burdens our economy. And the President has called on Congress to protect
individuals' control over their 401(k) holdings.
I think we're moving in the right direction. But we're not where we want to be - not yet. All
Americans deserve the greatest possible opportunity to live the life we dream of: pursuing our
chosen professions, owning a home, raising our children to be happy and successful, engaging in
our communities, and attaining financial independence. Working together, we can make that a
reality.
-30-

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~178~9_ _ _ _ _ _ _ _ _ _ _ __ _

. . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

August 13, 2002

u.s. International Reserve Position
u.s.

us.

The Treasury Department today released
reserve assets data for the latest week. & indicated in this table,
reserve
assets totaled $74,766 million at the end of the latest week, compared to $75,117 million at the end of the prior week.

n

us millions)
August 2, 2002

Official U.S. Reserve Assets
TOTAL
. Foreign Currency Reserves
a. Securities

I

1

August 9, 2002

75,117
Euro
6,275

Yen
12,548

74,766
TOTAL
18,823

Euro
6,177

Yen
12,426

TOTAL
18,603

o

Of which, issuer headquartered in the U. S.

o

b. Total deposits with:
b.i. Other central banks and SIS
b.ii. Banks headquartered in the U.S.
b.ii. Of which, banks located abroad
b.iii. Sanks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.

IMF Reserve Position

2

SpeCial Drawing Rights (SDRs)
Gold Stock

2

3

Jther Reserve Assets

10,416

3,326

13,743
0
0

10,246

3,294

13,540
0
0

0
0

0
0

19,870

20,064

11,638

11,517

11,044

11,044

0

0

Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
ilued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-Io-market values, and deposits reflect
Irrying values.
The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
ms at the official SDR/doilar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
cessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
Gold stock is valued monthly at $42.2222 per fine troy ounce.

PO-3347

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnntlng Otflce 1998 - 619-559

Offical Reserve Assets Worksheet
(actual US dollar amounts)
Last Week
2-Aug-02

Enter Dates Here

This Week
9-Aug-02
Change

Foreign Currency

2-Aug-02

9-Aug-02

Euro Securities
Yen Securities

$6,275,000,000.00
$12,548,000,000.00

$6,177 ,000,000.00
$12,426,000,000.00

Sec, Total
Euro Deposits
Yen Deposits

$18,823,000,000.00
$10,416,000,000.00
$3,326,000,000.00

Deposit Total

Total
Euro Rate
Yen Rate

Source: NY Fed (fax)
and Qas!e data into last week
and put new data from fax

$18,603,000,000.00
$10,246,000,000.00
$3,294,000,000.00

-220,000,000

into right column

$13,743,000,000.00
$32,566,000,000,00
$0.9882
118.98

$13,540,000,000.00
$32,142,000,000.00
$0,9714
120.15

-203,000,000

2-Aug-02

9-Aug-02

IMF

-170,000,000
-32,000,000

-424,000,000
-0.0168
1.17

Source: IMF (email)

(prelim, with adjust.)

Reserve Tranche
GAB
NAB
Total
SDR

cOQ~

-122,000,000

-98.000,000

put actual doliar tlqures in for iast wee,c

19,869,787,674.51
0.00

20,063,981,450.54
0.00

0,00
19,869,787,674,51

0.00
20,063,981,450.54

194,193,776.03

11,637,836,584,00

11,516,530,962.26

-121,305,621.74

2-Aug-02

9-Aug-02

11,043,707,102.46

11,043,707,102.46

2-AUg-0~1

9-AU9-0~1

194,193,776.03
0.00
0.00

0.00

as of 10/31/01
Gold

Source: FMS website
0.00

http://www.fms.treas.gov/gold

o

lather Res,Assets

ITOTAL

75,117,331,360.97

74,766,219,515.26 1

-351,111,845.71

Adjustments to IMF and SDR data, translated at current exchange rates

lFir~iin;:~F-D-ata-------------iN-si5R~----------------------------------------------------S[)R-rat~-for---------------------------1'
I

I

:Calculation Section
Reserve Tranche
GAB
NAB
SDRs

2-AuQ-02
14,944,067,310
0
0
8,752,816,895

Adiustments

305,000,000

15,249,067,310
0
0
15,249,067,310
8,752,816,895

9-Aug-02
In USD
:
0.760022
$20,063,981,450.54
$0.00
$0,00
$20,063,981,450,54
Total SDRs$11,516,530,962.26

Source:
http://www.imf.org/externallmap.htm. then go to "Exchange Rates in Terms of SDRs Daily"

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

IMMEDIATE RELEASE
\ugust 12, 2002

10R

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
August 15, 2002
November 14, 2002
912795LK5

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.630%

High Rate:

Investment Rate 1/:

Price:

1. 659%

99.588

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 75.47%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

27,548,850
1,505,369
100,000

$

16,000,114 2/

29,154,219

SUBTOTAL

TOTAL

5,868,389

5,868,389

Federal Reserve
$

35,022,608

14,394,745
1,505,369
100,000

$

21,868,503

Median rate
1.610%: 50% of the amount of accepted competitive tenders
.s tendered at or below that rate.
Low rate
1.560%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
d-to-Cover Ratio

=

29,154,219 / 16,000,114 = 1.82

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,214,821,000

http://www.pubJicdebt.treas.gov

PO-3348

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

lOR IMMEDIATE RELEASE
,ugust 12, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
August 15, 2002
February 13, 2003
912795LY5

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.590%

High Rate:

Investment Rate 1/:

Price:

1.625%

99.196

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 96.82%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

24,283,905
1,322,586
25,000

$

15,000,171 2/

25,631,491

SUBTOTAL

TOTAL

5,648,833

5,648,833

Federal Reserve
$

31,280,324

13,652,585
1,322,586
25,000

$

20,649,004

Median rate
1.570%: 50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low rate
1.520%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
j-to-Cover Ratio

=

25,631,491 / 15,000,171

=

1.71

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $992,457,000

http://www. pu blicdebt. treas.gov

PO-3349

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
~OR

IMMEDIATE RELEASE
13, 2002

CONTACT:

Office of Financing
202-691-3550

~ugust

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28-Day Bill
August 15, 2002
September 12, 2002
912795LA7

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.670%

High Rate:

Investment Rate 1/:

1.697%

Price:

99.870

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate. Tenders at the high discount rate were
llotted
2.66%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FlMA (noncompetitive)

$

SUBTOTAL
Federal Reserve
TOTAL

$

62,782,000
32,305

$

25,968,395
32,305

o

o

62,8l4,305

26,000,700

1,023,543

1,023,543

63,837,848

$

27,024,243

Median rate
1.650%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.620%:
5% of the amount
: accepted competitive tenders was tendered at or below that rate.

lS

d-to-Cover Ratio

=

62,814,305 / 26,000,700

=

2.42

Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov

DEPARTMENT

OF

THE

TREASURY

TREASURY

NEWS

~178£9~. . . . . . . . . . . . . . . .. .

....................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 1 :30 P.M. EST
August 14, 2002

Contact: Rob Nichols
(202) 622-2910

Treasury Secretary Paul H. O'Neill
Remarks to the Portland Business Alliance
Portland, Oregon
August 14, 2002
10:30 am pacific
Good morning. Thank you, Senator Smith, for that kind introduction. It is a pleasure to join the
Portland Business Alliance today. After too much time in Washington talking about the
economy, there's nothing more refreshing for me than meeting with the people who do more than
talk, and actually make our economy happen - people who get out there, make decisions, and
work every day.
I had a chance to do that with the President in Texas yesterday, and today it's Oregon. We're
traveling the country to get perspective on the economic recovery from outside Washington, to
tell you about what we've been doing to support your efforts on the front lines, and ask what we
can do better.
The past eighteen months have seen some tough times for the American economy. We've
suffered through a bursting stock market bubble, terrorist attacks on our financial and political
capitals, and revelations of corporate fraud. People have lost jobs, and some retirement accounts
are in the dumps. It's no wonder Americans are concerned about economic security.
President Bush had economic security at the forefront his agenda, before any ofthese shocks hit.
From the beginning of his Administration, he has embraced economic freedom and individual
accountability as the foundation for continuing prosperity. His economic plan creates jobs,
improves education and expands opportunities to save and invest.
PO-33S1

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Goyernment P(lntlng Ott,ce 1998 - 619-559

Our job in Washington is to protect and expand Americans' ability to create a better life for
ourselves, our children, and our nation. And we will not be satisfied until every American who
wants a job has a job.
That's what we've been working on, and we have four significant accomplishments to show for
it. First, the President's historic tax relief program last summer reduced taxes for the average
family of four by $1,040 a year.
Then in March, he signed the Job Creation Act to stimulate investment in our economy - a
second major accomplishment. By the end 0[2002, these two tax relief programs will have
allowed the private sector to create an additional one million jobs with resources that would
otherwise have gone to Washington. Our estimates now show that without that tax relief, the
recession would have been deeper, and the recovery slower.
Our third victory for the economy has been new standards for corporate accountability. These
ensure that people saving for their future can get accurate infonl1ation for sound investment
decisions. We are holding corporations accountable for telling the truth to investors and
employees, so Americans can save for college tuitions and comfortable retirements with greater
confidence.
And the most recent major accomplishment for our nation's prosperity is winning Trade
Promotion Authority, which the President will use to open international markets to US exports,
creating jobs here at home. One in eleven working Americans - 12 million people - already work
at jobs that depend on exports. A stable, blossoming world economy, founded on freer trade,
will expand exports further and will enhance our 10ng-ten11 prosperity.
World competition also spurs American companies to higher levels of productivity and
innovation, even as it reduces product costs and raises quality for American consumers. Lower
trade barTiers work the same way as any other tax cut - by one estimate, reducing trade barriers
by one-third would save $2,500 a year for every family of four in America.
Today, key economic fundamentals such as inflation, real wages, productivity, interest rates,
business profits, and the housing sector are all strong because of the resilience and detern1ination
of the American people. To a lot of folks out there watching, it doesn't feel like a recovery yet.
But the economists who study the numbers all say the recovery is underway.
There's more to be done. Since the attacks of September 11, the President has been asking
Congress to enact terrorism risk insurance. There are construction projects stalling out there
because they can't get insurance protection against the risk of another attack. We need to enact
the President's energy plan to secure our economy against possible energy price shocks.
And we need President Bush's Homeland Security plan, because the physical security of our
nation is essential to prosperity. The brief economic freeze immediately following September 11
demonstrated that reality all too well. We are working with congress to complete the new
Department of Homeland Security, which would better organize and deploy our resources
toward preventing further attacks.

2

We'll also work with Congress to restrain wasteful govemment spending, because overspending
in Washington burdens our economy with higher debts and taxes. And the President has called
on Congress to protect individuals' control over their 401 (k) holdings without undue constraints
from employers. Your retirement nest egg is yours alone - you eamed it, and you should have
full legal rights to control it.
As we emerge from the turbulence oflast year's recession, we're gaining new perspective on the
recent past, and we're applying that perspective to the decade still begiImillg. In short, we are
facing our problems, dealing with them as a nation, and moving forward.
The question for our new era is not whether we can or should continue the economic success we
enjoyed in the 1990s. The question is how leaders of business and govemment should
incorporate the best aspects of the 90s - growth, productivity, and innovation - into the emerging
decade, while actively working to make this new era a time of both personal responsibility and
public integrity. How can we reaffinn the link between value and values, and restore public
confidence in American enterprise?
In my view, the answer is simple: honest, accountable leadership. With leadership, everything is
possible; without it, nothing is possible. That is as true for American corporations, and the
American govenmlent, as it is for developing nations in Africa. In my experience, the example
from the top becomes the model for everyone below.
In the economic domain, I believe the connection between creating value and affim1ing values in
American business has always been strong. Far away from the headlines, most business leaders,
from mom and pop shop-owners to corporate chiefs, have always treated their shareholders and
employees with honesty and faimess. Today, however, doing your job with competence is not
enough. Leaders must stand up and set an example not just for their employees, but for the
general public as well. Honesty in business is the new patriotism. There is nothing better
business leaders can do for this country right now than restore faith in the system that has made it
great.
Let me give you an example from when I served as Chairman and CEO of Alcoa.
Over the course of my career in business and with the govemment, I have come to believe that
people everywhere need three things to be happy in their jobs. Each person needs to be treated
with dignity and respect at all times; Each needs the tools to make a meaningful contribution to
his or her organization; and each person needs to be recognized for the contributions that he or
she makes. With that in mind, my first priority at Alcoa was to improve safety for all our 55,000
employees. Not just improve it - I wanted to make it perfect. I didn't have a profit calculation in
mind - I just knew it was the right thing to do. Workplace safety is a key element of treating
people with dignity and respect.
By 2000, when I retired, our injury rate was one-tenth of what it was in 1987. And as we
improved safety, we nearly tripled in size, creating thousands of new jobs and increasing
shareholder value from $4 billion to $32 billion.

3

We didn't do that by managing quarterly earnings, abusing tax rules or playing accounting tricks.
Anyone who tried to sell me on those games twice was out of a job. We did it by focusing on
our people, making sure they had the tools and incentives to get their jobs done right, and done
safely. And when people have those tools and incentives, they can do anything. We focused on
the fundamentals: creating value and producing results. The rest followed. That's the truth in
every company, and that's the truth in our economy.
President Bush's economic policies parallel the rules I applied at Alcoa. We are focusing on the
fundamentals, because, given the right tools, the American people produce results. They always
have. And as President Bush has said, we trust the American people, which means strengthening
and expanding economic freedom, and treating them with the respect and dignity they deserve.
The President's policies for further reducing and simplifying taxes, strengthening security,
expanding trade, and restraining the growth of government will ensure that Americans have the
greatest possible opportunity to live the lives we dream of: pursuing our chosen professions,
owning a home, raising our children to be happy and successful, engaging in our communities,
and attaining financial independence. Working together, we can make that a reality.
Thank you.
-30-

4

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

1I....................................~~178~9:.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

CONTACT: BETSY HOLAHAN
202-622-2960

FOR IMMEDIATE RELEASE
AUGUST 14,2002

Secretary O'Neill Points to Key Indicator as Good News for Economy
Today after the yield on the 10 year note hit a 39 year low, Treasury Secretary Paul H. O'Neill
made the following comment:
"Low interest rates are fueling a housing boom in our country. Yesterday at the President's
economic forum, the head of a homebuilders association said he expected new home sales this
year to top last year's record level. And today in Portland, I met a housing developer who said he
expected record sales this year. Low interest rates will continue to keep housing strong, and will
enable owners to refinance so they have more cash in their pockets. Thaes good news for the US
economy."
-30-

PO-33S2

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Government Printing Of lice 1998 - 619-559

DEPARTMENT

OF

THE

TREASURY

NEWS

~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

..........................

OmCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C .• 20220. (202) 622·2960

Air Transportation Stabilization Board
Contact:

FOR IMMEDIATE RELEASE
August 14, 2002

Betsy Holahan
(202) 622-2960

ATSB Decision On National Airlines
WASHINGTON, DC - The Air Transportation Stabilization Board (Board) announced today
that it has denied the application of National Airlines, Inc. for a Federal guarantee of$50.5
million on a $60 million loan pursuant to the Air Transportation Safety and System Stabilization
Act (Act) and implementing regulations promulgated by the Office of Management and Budget
(Regulations). The Board concluded its review based on the standards set out in the Act and the
Regulations and determined that National's application did not meet the applicable standards for
the reasons described in the attached letter. The vote to deny the application was unanimous.
Additional information about the ATSB is available on its web site, www.treas.gov/atsb.
Attachment: National Decision Letter
-30-

PO-3353

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government P[lntlng Office 1998 - 619-559

NEWS

TREASURY

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 _ (202) 622.2960

Air Transportation Stabilization Board
FOR IMMEDIATE RELEASE
August 15, 2002

Contact: Betsy Holahan
(202) 622-2960

ATSB Decision On Spirit Airlines
WASHINGTON, DC - The Air Transportation Stabilization Board (Board) announced today
that it has denied the application of Spirit Airlines, Inc. for a Federal guarantee of $54.0 million
on a $60 million loan pursuant to the Air Transportation Safety and System Stabilization Act
(Act) and implementing regulations promulgated by the Office of Management and Budget
(Regulations). The Board concluded its review based on the standards set out in the Act and the
Regulations and determined that Spirit's application did not meet the applicable standards for the
reasons described in the attached letter. The vote to deny the application was 2-1, with
Department of Transportation General Counsel Kirk K. Van Tine dissenting.
Additional information about the ATSB is available on its web site, www.treas.gov/atsb.
Attachment: Spirit Airlines Decision Letter

-30-

PO-3354

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing OffICe 1998 - 619-559

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 15,2002

Contact: Tara Bradshaw
(202) 622-2960

SPELTZ SWORN IN AS U.S. EXECUTIVE DIRECTOR
ASIAN DEVELOPMENT BANK
Treasury Secretary Paul O'Neill swore Paul Speltz in August 9,2002 as U.S. Executive Director
of the Asian Development Bank. The Senate voted by unanimous consent to confirm Speltz on
August 1, 2002. President Bush nominated Speltz for this position on June 4, 2002.
The Asian Development Bank (ADB) is a multilateral development finance institution working
to increase economic growth and reduce poverty in 60 Asian and Pacific countries through
public sector lending. Speltz represents the United States as a voting member on the ADB Board
of Directors. This position carries the rank of Ambassador.
Paul Speltz has over 25 years experience as a prominent member and mentor to the international
business community. Mr. Speltz is a Senior Level corporate and entrepreneurial international
manager with a strong record in Asian business development, market strategy, and
implementation. After joining Bluestone Capital in March 2000, Mr. Speltz focused on building
out the Asia Pacific Group and launched the bank's successful online Wealth Management
System. He was then named Co-Executive Managing Director of Global Operations in
November. From late 1998-1999, he was a Senior Director and Advisor on Asian geopolitical
activities for the United Technologies Corporation, a Fortune "50" Multinational Leader in high
technology. In 1981 Mr. Speltz founded ATC International, an Asia-based marketing and
consulting company. He directed his company as Chairman and CEO for 17 years, inclusive of
managing the operations when it was sold and was a subsidiary of Citicorp from 1985 through
1987. In 1986 he co-founded the International Chamber of Commerce in Beijing, China, where
he served as president until 1989. Before starting his own company, he advised various firms on
Asian business affairs.
Prior to earning his BSBA from the University of Connecticut in 1969, Mr. Speltz founded the
university'S chapter of the National Business Fraternity, Delta Sigma Pi. While working for a
Japanese trading and consulting firm, he continued his education at Connecticut and graduated in
1971 with an MBA in International Business. He has sat on the Board of Directors for the
university'S School of Business since 1998 and also serves as an advisor on Asian affairs.

PO-3355

Forpress release$j ~tJ6. jnIblH; 6(;Hi'dlfU:$ and official biographies, call our 24-hour fax line at (202) 622-2040
·U.S. Government Pnntlno Olbee. 1998· 619·559

Mr. Speltz is a resident of Houston, Texas, temporarily based at his summer home in New
Hampshire with his wife Renee. He has three grown children: Matthew, Alec, and Jessica.
-30-

DEPARTMENT

OF

TREASURY

THE

TREASURY

NEWS

~8~9. . . . . . . . . . . . . ._

. . . . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
AUGUST 15,2002

Contact: Rob Nichols
(202) 622-2910

Treasury Secretary Paul H. O'Neill
Remarks to South Metro Denver Chamber of Commerce
Denver, Colorado
August 15, 2002
[TEXT AS PREPARED]
Good afternoon. It is a pleasure to join the South Metro Denver Chamber of Commerce today.
There's nothing more refreshing for me than getting away from Washington and meeting with
the people who actually make our economy happen - people who get out there, make decisions,
and work every day.
I had a chance to do that with the President in Texas on Tuesday, and today I'm in Denver, as I
continue to travel the country to see for myself how the economic recovery is progressing
outside Washington. I want to tell you about what we've been doing to support your efforts on
the front lines of our economy, and ask what we can do better.
The past eighteen months have seen some tough times for the American economy. We've
suffered through a bursting stock market bubble, terrorist attacks on our financial and political
capitals, and revelations of corporate fraud. People have lost jobs, and some retirement accounts
are ~n the dumps. It's no wonder Americans are concerned about economic security.
President Bush had economic security at the forefront his agenda, before any of these shocks hit.
From the beginning of his Administration, he has embraced economic freedom and individual
accountability as the foundation for continuing prosperity. His economic plan creates jobs,
improves education and expands opportunities to save and invest.
That's what we've been working on, and we have four significant accomplishments to show for
it. First, the President's historic tax relief program last summer reduced taxes for the average
family of four by $1,040 a year.
PO-3356

For press release~ sfRRche~ ihublic flchedzl.l~s and official biographies? call our 24-how-fax line at (202) 622-2040
{

"
·LJ S Governmenl Pnnllna Olflce 1998 - 619·559

Then in March, he signed the Job Creation Act to stimulate investment in our economy - a
second major accomplishment. By the end of 2002, these two tax relief programs will have
allowed the private sector to create an additional one million jobs with resources that would
otherwise have gone to Washington. Our estimates now show that without that tax relief, the
recession would have been deeper, and the recovery slower.
Our third victory for the economy has been new standards for corporate accountability. These
ensure that people saving for their future can get accurate information for sound investment
decisions. We are holding corporations accountable for telling the truth to investors and
employees, so Americans can save for college tuitions and comfortable retirements with greater
confidence.
And the most recent major accomplishment for our nation's prosperity is winning Trade
Promotion Authority, which the President will use to open international markets to US exports,
creating jobs here at home. One in eleven working Americans - 12 million people - already work
at jobs that depend on exports. World competition also spurs American companies to higher
levels of productivity and innovation, even as it reduces product costs and raises quality for
American consumers. Lower trade barriers work the same way as any other tax cut - by one
estimate, reducing trade barriers by one-third would save $2,500 a year for every family of four
in America.
Today, the economists who study the numbers all say our economic recovery is underway. Key
economic fundamentals such as inflation, real wages, productivity, interest rates, business
profits, and the housing sector are all strong because of the resilience and determination of the
American people. But to a lot of folks out there watching, it doesn't feel like a recovery yet.
And the President won't be satisfied until everyone who wants a job has a job. He's advancing
the rest of his economic agenda to strengthen the recovery.
Since the attacks of September 11, the President has been asking Congress to enact terrorism risk
insurance. At the President's Forum in Waco, the President of the Carpenter's Union told me that
$8 billion in construction projects are on hold because the financing is stalled for lack of
insurance against terrorist attacks. That's thousands of guys in hardhats who aren't working
because Congress hasn't passed that bill.
And we need President Bush's Homeland Security plan, because the physical security of our
nation is essential to prosperity. The brief economic freeze immediately following September 11
demonstrated that reality all too well. We are working with Congress to complete the new
Department of Homeland Security, which would better organize and deploy our resources
toward preventing further attacks.
We'll also work with Congress to restrain wasteful government spending, because overspending
in Washington burdens our economy with higher debts and taxes. The President took a stand on
that on Tuesday, when he said no to $5 billion of new spending sent to him by the Congress -- $5
billion he didn't ask for and couldn't justify at a time when we are determined to keep ourselves
on the path back to budget surpluses.

And the President has called on Congress to protect individuals' control over their 401(k)
holdings without undue constraints from employers. Your retirement nest egg is yours alone you earned it, and you should have full legal rights to control it.
As we emerge from the turbulence of last year's recession, we're gaining new perspective on the
recent past, and we're applying that perspective to the decade still beginning. In short, we are
facing our problems, dealing with them as a nation, and moving forward.
The question for our new era is not whether we can or should continue the economic success we
enjoyed in the 1990s. The question is how leaders of business and government should
incorporate the best aspects of the 90s - growth, productivity, and innovation - into the emerging
decade, while actively working to make this new era a time of both personal responsibility and
public integrity. How can we reaffirm the link between value and values, and restore public
confidence in American enterprise?
In my view, the answer is simple: honest, accountable leadership. With leadership, everything is
possible; without it, nothing is possible. That is as true for American corporations, and the
American government, as it is for developing nations in Africa. In my experience, the example
from the top becomes the model for everyone below.

In the economic domain, I believe the connection between creating value and affirming values in
American business has always been strong. Far away from the headlines, most business leaders,
from mom and pop shop-owners to corporate chiefs, have always treated their shareholders and
employees with honesty and fairness. Today, however, doing your job with competence is not
enough. Leaders must stand up and set an example not just for their employees, but for the
general public as well. Honesty in business is the new patriotism. There is nothing better
business leaders can do for this country right now than restore faith in the system that has made it
great.
Let me give you an example from when I served as Chairman and CEO of Alcoa.
Over the course of my career in business and with the government, I have come to believe that
people everywhere need three things to be happy in their jobs. Each person needs to be treated
with dignity and respect at all times; Each needs the tools to make a meaningful contribution to
his or her organization; and each person needs to be recognized for the contributions that he or
she makes. With that in mind, my first priority at Alcoa was to improve safety for all our 55,000
employees. Not just improve it - I wanted to make it perfect. I didn't have a profit calculation in
mind - Ijust knew it was the right thing to do. Workplace safety is a key element of treating
people with dignity and respect.
By 2000, when I retired, our injury rate was one-tenth of what it was in 1987. And as we
improved safety, we nearly tripled in size, creating thousands of new jobs and increasing
shareholder value from $4 billion to $32 billion.

We didn't do that by managing quarterly earnings, abusing tax rules or playing accounting tricks.
Anyone who tried to sell me on those games twice was out of a job. We did it by focusing on
our people, making sure they had the tools and incentives to get their jobs done right, and done
safely. And when people have those tools and incentives, they can do anything. We focused on
the fundamentals: creating value and producing results. The rest followed. That's the truth in
every company, and that's the truth in our economy.
President Bush's economic policies parallel the rules I applied at Alcoa. We are focusing on the
fundamentals, because, given the right tools, the American people produce results. They always
have. By expanding economic freedom, we treat all Americans with the respect and dignity they
deserve, and we expand Americans' ability to create a better life for ourselves, our children, and
our nation.
The President's policies for further reducing and simplifying taxes, strengthening security,
expanding trade, and restraining the growth of government will ensure that Americans have the
greatest possible opportunity to live the lives we dream of: pursuing our chosen professions,
owning a home, raising our children to be happy and successful, engaging in our communities,
and attaining financial independence.
Thank you.
-30-

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239

FOR IMMEDIATE RELEASE
August 16, 2002

Contact: Office of Financing
202-691-3550

TREASURY'S INFLATION-INDEXED SECURITIES
SEPTEMBER REFERENCE CPI ~ruMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and daily
index ratios for the month of September for the following Treasury inflation-indexed securities:
(1) 3-3/8% 10-year notes due January 15,2007
(2) 3-5/8% 1O-year notes due January 15, 2008
(3) 3-5/8% 30-year bonds due April 15, 2028
(4) 3-7/8% 1O-year notes due January 15,2009
(5) 3-7/8% 30-year bonds due April 15, 2029
(6) 4-114% 10-yearnotes due January 15,2010
(7) 3-1/2% 1O-year notes due January 15, 2011
(8) 3-3/8% 30-II2-year bonds due April 15, 2032
(9) 3-3/8% IO-year notes due January 15,2012
(10) 3% 10-year notes due July 15,2012
This mformation is based on the non-seasonally adjusted U.S. City Average All Items Consumer Price
Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
In addition to the publication of the reference CPl's (Ref CPI) and index ratios, this release
provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated fax
system by calling 202-622-2040 and requesting document number 3357. The information is also
available on the Internet at Public Debt's website (http://wvv'w.publicdebt.treas.gov).
The information for October is expected to be released on September 18, 2002.
000

Attachment
PA-569

http://www.publicdebt.treas.gov

PO-33S7

TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
September 2002

-----

-,--

Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):

3-3/6% 10-Year Notes
Series A-2007
9128272M3
January 15, 1997
February 6, 1997
April 15, 1997

3-518% 10-Year Notes
Series A-2008
9128273T7
January 15, 1998
January 15, 1998
October 15, 1998

3-518% 30-Year Bonds
Bonds of April 2026
912810FD5
April 15, 1998
April 15, 1998
July 15, 1998

3-7/6% 10-Year Notes
Series A-2009
9128274Y5
January 15, 1999
January 15, 1999
July 15, 1999

Maturity Date:
Ref CPI on Dated Date:

January 15, 2007
158.43548

January 15, 2008
161.55484

April 15, 2028
161.74000

January 15. 2009
164.00000

Ref CPI

Index Ratio

Index Ratio

Index Ratio

Index Ratio

179.90000
179.90667
179.91333
179.92000
179.92667
179.93333
179.94000
179.94667
179.95333
179.96000
179.96667
179.97333
179.98000
179.98667
179.99333
180.00000
180.00667
180.01333
180.02000
180.02667
180.03333
180.04000
180.04667
180.05333
180.06000
180.06667
180.07333
180.08000
180.08667
180.09333

1.13548
1.13552
1.13556
1.13560
1.13565
1.13569
1.13573
1.13577
1.13581
1.13586
1.13590
1.13594
1.13598
1.13603
1.13607
1.13611
1.13615
1.13619
1.13624
1.13628
1.13632
1.13636
1.13640
1.13645
1.13649
1.13653
1.13657
1.13661
1.13666
1.13670

1.11355
1.11360
1.11364
1.11368
1.11372
1.11376
1.11380
1.11384
1.11388
1.11393
1.11397
1.11401
1.11405
1.11409
1.11413
1.11417
1.11421
1.11426
1.11430
1.11434
1.11438
1.11442
1.11446
1.11450
1.11454
1.11459
1.11463
1.11467
1.11471
1.11475

1.11228
1.11232
1.11236
1.11240
1.11244
1.11249
1.11253
1.11257
1.11261
1.11265
1.11269
1.11273
1.11277
1.11281
1.11286
1.11290
1.11294
1.11298
1.11302
1.11306
1.11310
1.11314
1.11319
1.11323
1.11327
1.11331
1.11335
1.11339
1.11343
1.11347

1.09695
1.09699
1.09703
1.09707
1.09711
1.09715
1.09720
1.09724
1.09728
1.09732
1.09736
1.09740
1.09744
1.09748
1.09752
1.09756
1.09760
1.09764
1.09768
1.09772
1.09776
1.09780
1.09785
1.09789
1.09793
1.09797
1.09801
1.09805
1.09809
1.09813

Date
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept,
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.

1
2
3
4
5
6
7

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

•... ~-

-

i

CPI-U (NSA) for:

May 2002

179.8

June 2002

179.9

July 2002

180.1
._--_._--

TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
September 2002

-Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date{s):

3-7/8% 30-Year Bonds
Bonds of April 2029
912810FH6
April 15, 1999
April 15, 1999
October 15, 1999
October 15, 2000
April 15, 2029
164.39333

Maturity Date:
Ref CPI on Dated Date:

Date
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.

1
2
3
4
S

6
7
8
9
10
11
12
13
14
15
16

17
18
19
20
21
22

23
24
25
26
27
28
29
30

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

CPI-U (NSA) for:

4-114% 10-Year Notes
Series A·2010
9128275W8
January 15. 2000
January 18, :2000
July 15, 2000

3-1/2% 10-Year Notes
Series A-2011
9128276R8
January 15.2001
January 16, 2001
July 16, 2001

3-318% 30·112-Year Bonds
Bonds of April 2032
912810FQ6
October 15, 2001
October 15,2001

January 15, 2010
168.24516

January 15. 2011
174.04516

April 15, 2032
117.50000

Ref CPt

Index Ratio

Index Ratio

Index Ratio

Index Ratio

179.90000
179.90667
179.91333
179.92000
179.92667
179.93333
179.94000
179.94667
179.95333
179.96000
179.96667
179.97333
179.98000
179.98667
179.99333
180.00000
180.00667
180.01333
180.02000
180.02667
180.03333
180.04000
180.04667
180.05333
180.06000
180.06667
180.07333
180.08000
180.08667
180.09333

1.09433
1.09437
1.09441
1.09445
1.09449
1.09453
1.09457
1.09461
1.09465
1.09469
1.09473
1.09477
1.09481
1.09485
1.09489
1.09493
1.09498
1.09502
1.09506
1.09510
1.09514
1.09518
1.09522
1.09526
1.09530
1.09534
1.09538
1.09542
1.09546
1.09550

1.06927
1.06931
1.06935
1.06939
1.06943
1.06947
1.06951
1.06955
1.06959
1.06963
1.06967
1.06971
1.06975
1.06979
1.06983
1.06987
1.06991
1.06995
1.06999
1.07003
1.07007
1.07011
1.07014
1.07018
1.07022
1.07026
1.07030
1.07034
1.07038
1.07042

1.03364
1.03368
1.03372
1.03375
1.03379
1.03383
1.03387
1.03391
1.03395
1.03398
1.03402
1.03406
1.03410
1.03414
1.03418
1.03421
1.03425
1.03429
1.03433
1.03437
1.03441
1.03444
1.03448
1.03452
1.03456
1.03460
1.03464
1.03467
1.03471
1.03475

1.01352
1.01356
1.01360
1.01363
1.01367
1.01371
1.01375
1.01378
1.01382
1.01386
1.01390
1.01393
1.01397
1.01401
1.01405
1.01408
1.01412
1.01416
1.01420
1.01423
1.01427
1.01431
1.01435
1.01438
1.01442
1.01446
1.01450
1.01454
1.01457
1.01461

May 2002

179.8

June 2002

179.9

July 2002

180.1

--

TREASURY INFLATlON·INDEXED SECURITIES
Ref CPi and Index Ratios for
September 2002
- - _ _--_
..

Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):

3·316% 10·Year Notes
Series A·2012
9128277J5
January 15, 2002
January 15,2002

3% 10·Year Notes
Series C·2012
912828AF7
July 15, 2002
July 15, 2002

Maturity Date:
Ref CPI on Dated Date:

January 15, 2012
177.56452

July 15, 2012
179.80000

Date
Sept.
Sept.
Sept.
Sept.
Sept
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.

I
2
3

4
5
6
7
S

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002

CPI·U (NSA) for:

Ref CPt

Index Ratio

Index Ratio

179.90000
179.90667
179.91333
179.92000
179.92667
179.93333
179.94000
179.94667
179.95333
179.96000
179.96667
179.97333
179.98000
179.98667
179.99333
180.00000
180.00667
180.01333
180.02000
180.02667
180.03333
180.04000
180.04667
180.05333
180.06000
180.06667
180.07333
180.08000
180.08667
180.09333

1.01315
1.01319
1.01323
1.01327
1.01330
1.01334
1.01338
1.01342
1.01345
1.01349
1.01353
1.01357
1.01360
1.01364
1.01368
1.01372
1.01375
1.01379
1.01363
1.01387
1.01390
1.01394
1.01398
1.01402
1.01405
1.01409
1.01413
1.01417
1.01420
1.01424

1.00056
1.00059
1.00063
1.00067
1.00070
1.00074
1.00078
1.00082
1.00085
1.00089
1.00093
1.00096
1.00100
1.00104
1.00108
1.00111
1.00115
1.00119
1.00122
1.00126
1.00130
1.00133
1.00137
1.00141
1.00145
1.00148
1.00152
1.00156
1.00159
1.00163

May 2002

179.8

June 2002

179.9

July 2002

..•

180.1

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

....................................1i~~178~9:.......................................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 15, 2002

Contact: Tara Bradshaw
(202) 622-2014

TREASURY STATEMENT ON NEW JOHN DOE SUMMONS
Today the Internal Revenue Service announced additional actions that have been taken to combat
tax-evasion schemes involving credit cards issued by offshore banks. The IRS petitioned a
federal court in Miami for approval to serve a John Doe summons on MasterCard for records on
transactions using credit cards issued by banks in over 30 tax haven countries for 1999-2001.
"We support the IRS' continuing efforts to crack down on tax avoidance transactions through the
issuance of John Doe summonses that will identify US taxpayers who may be evading US
taxes," stated Pamela Olson, Acting Assistant Secretary for Tax Policy. "The information
obtained through these summonses will provide the IRS with the ability to pursue tax cheats.
Treasury and the IRS will continue to use all available resources to enforce our tax laws."

-30-

PO-3358

Far press release~ 6jHwches, public rochedub(s and official biographies, call our 24-hour fax line at (202) 622-2040
,/

'+

·u.s

Government Pnntlnq Ollice 1998 - 619-559

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE O}' PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 20220 e (202) 622-2%0

EMBARGOED UNTIL 11:00 A.M.
August 15, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $29,000
million to refund an estimated $30,756 million of publicly held 13-week and 26-week
Treasury bills maturing August 22, 2002, and to pay down approximately $1,756 million.
Also maturing is an estimated $20,000 million of publicly held 4-week Treasury bills,
the disposition of which will be announced August 19, 2002.
The Federal Reserve System holds $12,896 million of the Treasury bills maturing
on August 22, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held August 20, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.

TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,051 million into the 13-week bill and $685 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

PO-3359
for press releases, speeches, public schedules and official biographies, call Ollr 24-lwllr fax line

(It

(202) 622-2040

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED AUGUST 22, 2002
August 15, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 million
Public Offering •.......•......•....•....... $15,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . • . . . . . . . $5,000 million
Description of Offering:
Term and type of security ..•........•......
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . • . . . . • . . . . . . . . . . .
Maturi ty date . . . . . . . . . . . . . . . . . . . . • . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . . . . . . . . . .
Currently outstanding ....•.••......•.......
Minimum bid amount and multiples ...........

91-day bill
912795 LL 3
August 19, 2002
August 22, 2002
November 21, 2002
May 23, 2002
$20,850 million
$1,000

$14,000 million
$14,000 million
None
182-day bill
912795 LZ 2
August 19, 2002
August 22, 2002
February 20, 2003
August 22, 2002
$1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt of
competitive tenders.
Maximum Recognized Bid at a Single Rate .....•.. 35% of public offering
Maximum Award •.........•.....•.•...•..••...•..• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders ...•..•• Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender. TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
record at their financial institution on issue date.

DEPARTMENT

OF

THE

TREASURY

TREASURY
1i~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

....................................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 16, 2002

Contact: Tara Bradshaw
(202) 622-2014

TREASURY AND IRS CRACK DOWN ON INAPPROPRIATE
SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS
Today, the Treasury Department and the IRS issued Notice 2002-59 to stop the spread of an
abusive tax avoidance transaction using split-dollar life insurance.
A split-dollar life insurance arrangement involves two parties agreeing to split the premiums or
benefits, or both, of a life insurance policy. These arrangements are used to compensate
employees or to make gifts to one or more family members.
Notice 2002-59 deals with split-dollar life insurance arrangements (including so-called "reverse"
split-dollar) where the parties attempt to avoid taxes by using inappropriately high current term
insurance rates, prepayment of premiums, or other techniques to understate the value of taxable
policy benefits.
"The Notice makes clear that using any scheme to understate the value of benefits for income or
gift tax purposes won't be respected," according to Pamela F. Olson, Acting Assistant Secretary
of the Treasury for Tax Policy.
The text of Notice 2002-59 is attached.
-30-

PO-3360

For tJress release'L f'ilPoches,
hubiic schedules
and o.fhcial
biof!Yaphies,
call our 24-hour Fax Zin'i? at (202) 622-204fJ
r
1
~
-:JJ"
<.J""
1

/"

,

.

---------------------------.J

'U S. Government PrlrtlnqOfflca 1998 - Di9·SS9

DEPARl'~IENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C.

August 20, 2002

<9

20220 • (202) 622-2960

u.s. International Reserve Position

The Treasury Department today released US. reserve assets data for the latest week As indicated in this table, US. reserve
assets totaled $75,534 million at the end of the latest week, compared to $74,755 million at the end of the prior week

in US millions)

, Official U.S. Reserve Assets

August 9, 2002

TOTAL
. Foreign Currency Reserves
a. Securities

I

1

August 16, 2002

74,755
Euro
6,177

Yen
12,426

75,534
TOTAL
18,603

Euro
6,251

Yen

TOTAL

12,705

18,957

o

o

Of which, issuer headquartered in the U. S.

b. Total depOSits with:
b.i. Other central banks and B/S
b.ii. Banks headquartered in the U.S,
b.ii. Of which, banks located abroad
boiii, Banks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.

IMF Reserve Position

2

Special Drawing Rights (SDRs)
Gold Stock

2

3

::lther Reserve Assets

10,246

3,294

13,540
0
0
0
0

10,381

3,368

13,749
0
0

0
0

19,921

20,057

11,648

11,728

11,044

11,044

0

0

Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
Ilued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect
rrying values.
The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
ms at the official SDR/doliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italiCS) reflect any
cessary adjustments. including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
Gold stock is valued monthly at $42.2222 per fine troy ounce.

PO-3361

For press releas~~ speeches. public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·u S. Government Pnntlng Office

1998· 619-559

Offical Reserve Assets Worksheet
(actual US dollar amounts)
Last Week
9-Aug-02

Enter Dates Here

This Week
16-Aug-02
Change

Foreign Currency

9-Aug-02

16-Aug-02

Euro Securities
Yen Securities

$6,177.000,000.00
$12,426,000,000.00

$6.251.000,000.00
$12,705,000.000.00

Sec. Total
Euro Deposits
Yen Deposits

$18,603,000,000.00
$10,246.000,000.00
$3,294,000,000.00

$18,957,000,000.00
$10,381,000,000.00
$3,368,000.000.00

Deposit Total
Total
Euro Rate
Yen Rate

$13,540,000,000.00
$32,142,000,000.00
$0.9714
120.15

$13,749,000.000.00
$32,705,000,000.00
$0.9836
117.51

9-Aug-02

16-Aug-02

IMF

Source: NY Fed (fax)
74.000,000
279.000,000

and Qaste data into last week
and put new data from fax

354.000.000

into right column

135.000.000
74.000.000
209,000.000
563.000,000
0.0122
-2.64

Source: IMF (email)

(prelim, with adjust.)

Reserve Tranche
GAB
NAB
Total
SDR

cOQ~

put actual dollar figures in for fast I'leek:

19,921,251,984.81
0.00

20,057,193,493.96
0.00.

135.941,509.15

0.00
19,921,251,984.81

0.00
20,057,193,493.96

0.00
135.941.509.15

11,648,179,632.96

11,727,666,159.17

79,486,526.21

9-Aug-02

16-Aug-02

11,043.707.102.46

11.043.707.102.46

0.00

000

as of 10/31/01
Gold

Source: FMS website
0.00

http://www.fms.treas.gov/gold

o

9-AU9-O~1

16-AU9-O~1

IOther Res.Assets

ITOTAL

74,755,138,720.23

75,533,566,755.59 1

778,428.035.36

Adjustments to IMF and SDR data, translated at current exchange rates

:P-r~inn~-~F-D-at~------------iN-s-DRi;---------------------------------------------------Sj)-R-ratEtf~r---------------------------1
I

.

:Calculation Section
Reserve Tranche
GAB
NAB
SDRs

I

9-Aug-02
15,140,589,776
0
0
8,852,872,781

Adiustments
15,140,589,776
0
0
15,140.589,776
8,852,872,781

16-Aug-02
In USD
:
0.754871
$20.057.193,493.96
$0.00
$0.00
$20,057,193,493.96
Total =
$11,727,666,159.17
SDRs -

Source:
http://www.imf.org/extemallmap.htm. then go to "Exchange Rates in Terms of SDRs Daily"

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
1I.ugust 19, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
August 22, 2002
November 21, 2002
912795LL3

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1. 630%

High Rate:

Investment Rate 1/:

Price:

1. 659%

99.588

All noncompetitive and successful competitive bidders were awarded
at the high rate. Tenders at the high discount rate were
llotted 65.62%. All tenders at lower rates were accepted in full.

~ecurities

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

31,059,633
1,415,154
150,000

$

$

TOTAL

5,088,409

5,088,409

Federal Reserve

37,713,196

13,434,888
1,415,154
150,000
15,000,042 2/

32,624,787

SUBTOTAL

lS

Accepted

Tendered

Tender Type

$

20,088,451

Median rate
1.620%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.600%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.

d-to-Cover Ratio

=

32,624,787 / 15,000,042

=

2.17

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,155,311,000

http://www.publicdebt.treas.gov

PO-3362

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
August 19, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
August 22, 2002
February 20, 2003
912795LZ2

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.630%

High Rate:

Investment Rate 1/:

Price:

1. 666%

99.176

All noncompetitive and successful competitive bidders were awarded
;ecurities at the high rate. Tenders at the high discount rate were
lllotted 66.11%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

32,950,860
1,017,460
70,000

$

14,000,431 2/

34,038,320

SUBTOTAL

$

TOTAL

5,500,213

5,500,213

Federal Reserve

39,538,533

12,912,971
1,017,460
70,000

$

19,500,644

Median rate
1.610%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.590%:
5% of the amount
: accepted competitive tenders was tendered at or below that rate .
is

.d-to-Cover Ratio

=

34,038,320 / 14,000,431

=

2.43

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $752,225,000

http://www. pu blicdebt. treas.gov

PO-3363

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
August 19, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

182-Day Bill
August 22, 2002
February 20, 2003
912795LZ2

High Rate:

1.630%

Investment Rate 1/:

1.666%

Price:

99.176

All noncompetitive and successful competitive bidders were awarded
;ecurities at the high rate.
Tenders at the high discount rate were
llotted 66.11%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type

------------

Competitive
Noncompetitive
FIMA (noncompetitive)

$

5,500,213

5,500,213

$

1,017,460

70,000

SUBTOTAL
Federal Reserve
TOTAL

34,038,320

12,912,971
1,017,460
70,000
-----------14,000,431 2/

32,950,860

$

39,538,533

$

19,500,644

Median rate
1.610%: 50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low rate
1.590%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
d-to-Cover Ratio

=

34,038,320 / 14,000,431

=

2.43

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $752,225,000

http://www.publicdebt.treas.gov

PO-3363

- ,

~ D EPA R -1' MEN T
, -,,~} -"
- -", ',- ",

0 1;

TREASURY

T

-

HE,,- TR~'i~ A s. U -R-'y
~, ", "'~':/'. ,,<:~,~,",

c,'~~

,""-""<i\'"J

,_ ..:"',,

'::

NEWS

omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220. (202) 622.2960

FOR IMMEDIATE RELEASE
August 14, 2002

Contact: Betsy Holohan
(202) 622-2960

U.S. Treasurer Rosario Marin
Remarks for Junior Achievement of New Mexico
August 14,2002

Thank you Meredith Haney and Jay Heath for the beautiful introduction. And the all the
people who served the food thank you so much.
I also want to thank you Ric Matthews, the Board Chair, and Mario Burgos, the President
of Junior Achievement of New Mexico. I'd like to thank Julie, who is a teacher, for all of her
efforts. Jennifer Thomas, from Bank of America, my sincerest thank you for all that you do.
George Rivera, thank you ,- you will be a CEO one day. Mr. H, thank you and I definitely agree
with you that we make a living by what we get but we make a life by what we give.
I also want to thank all the sponsors of Junior Achievement of New Mexico and its board
of directors for inviting me to speak today and especially all the dedicated Junior Achievement
volunteers who go into the classrooms to teach financial literacy to America's youth.
I would like to especially thank Congresswoman Heather Wilson who helped make my
visit here possible. Her ardent support for financial education makes her a great friend of Junior
Achievement and now especially a great friend of mine. And she made sure that I visit your
chapter here in the great state of New Mexico because she knows how important it is to me.

PO-3364

For press releases, lpeeches, fJ'Id1ItC fthedules and official biographies, call our 24-nour fax line at (202) 622-2040
,

'1) S Government Pnntma Office, 1998 - 619.-559

I am delighted to be here at your board meeting. As many of you know, Junior
Achievement holds a very special place in my heart because your organization does one of the
most important jobs in this great nation. You have dedicated yourselves to educating young
people about personal finances, business and our economic system. Your excellent curriculum
and committed volunteers provide America's youth across the country with the tools they need to
become successful in their careers and in their personal lives through the wise management of
their personal finances. Financial literacy opens the door to their understanding of the many
opportunities this country has to offer. You are not only making basic education fun for our kids
to learn, but you are also putting in their hands the skill and knowledge that is the key to their
financial independence, freedom, and more importantly, security.
And I want to thank all the volunteers. Many people spend their lives building careers. I
know that as volunteers you spend your careers building lives. And I trust that you all experience
the sacred joy of knowing that what you do is profoundly helpful to those you care for.
As we all know, the key that opens the door of opportunity for our youth is education.
I can tell you from my own experience that this is the land of opportunity... and with my
education I was able to unlock it's magnificent doors.
In 10th grade, I was given an IQ test. Everybody had to take this test back when I attended
high school. A score of 100 being average, mine came back with a score of27. My friends and
even my teacher laughed at me. But I knew then that the only thing that low score represented
was the fact that I did not speak English. Far from making me angry or upset, it gave me resolve.
I would learn English to the best of my ability ... and so I did. Three years later, I graduated
from high school in the top 20 with honors.

2

Sadly, however, no one told me about scholarships or grants to attend college. Instead, I
worked full time to help my family. But even back then, I knew the importance of education, so I
attended ELAC part-time for four years to get my two-year degree and I spent three more years
at CSULA to finish my bachelors at night. I can tell you, I am very proud of my diploma.
At the same time that I was earning my degree, I was working my way up the ranks of
City National Bank where I had started as the assistant to the receptionist. I was about to be
promoted to Assistant Vice President and I had just started my Masters Degree. I thought that my
life was absolutely beautiful!
But God had other plans. My son Eric was born not just with Downs Syndrome but with
a series of other medical complications that are too numerous to state.
I gave up my career at the bank and my MBA to take care of him. I even sold my house
because we could no longer afford the mortgage.
The birth of my son led me down a path that I could not have imagined. To be an
advocate for those who could not help themselves. But without an education and the skills that I
had learned, I would not have been prepared for that path.
Eventually, my public advocacy led me to a career in public service.
I wanted to serve my community so I ran for public office and served on my local city
council and later as mayor of the City of Huntington Park. And all ofthat led President George
Bush to appoint me the 41 st Treasurer of the United States.
But I could not have been Treasurer, nor could I have helped my son without a diploma. I
credit my education with helping me to meet my challenges and preparing me for unimaginable
opportunities.

3

Now, as Treasurer of the United States, I want to tackle a new challenge by promoting
the importance of education, but more specifically, financial education. I want to make all
Americans aware of the skills and knowledge they need to secure a financial future.
Many Americans lack knowledge and don't understand how to conduct their financial
activities, which leads them to engage in ineffective and detrimental financial strategies. The cost
of these ineffective strategies is high. Too many people work too hard for too many years and at
the end of the day they do not reach the level of financial self-sufficiency that they deserve. What
really saddens me is that the people who work the hardest and earn the least often pay the highest
prices for financial services.
We have also seen that a poor grasp of personal finances can lead to bankruptcy,
inadequate planning for retirement, vulnerability to predatory credit arrangements and other
social problems such as divorce, depression and personal difficulties.
Here are some troubling facts that illustrate just how bad this problem is:
•

When a group of Americans was given a 14 question test of their financial literacy,
they scored an average of 42%. That means that they answered less than half the
questions correctly.

•

An average family carries $8,123 in credit card debt with double digit interest rates.
According to a recent article in The Dallas Morning News, if that family pays the
minimum amount, on a credit card with an 18% interest rate, it would take them
approximately 53 years to pay off that debt. (That's because most of the payment
goes toward interest.)

•

82% of high school seniors failed a 13 question quiz examining their knowledge of
issues like interest rates, savings, loans, credit cards and calculating net worth.

•

An estimated 10 million Americans have no relationship with a mainstream financial
services provider.

•

40% of these "unbanked" are Hispanics.

•

75% of Hispanics have not accumulated enough savings for retirement.

4

•

A major reason why millions of Americans do not set up checking or savings
accounts is that they do not have any knowledge about how banks and other financial
institutions work. So they just stay away.

These facts show a glimpse of why financial education is so important. That is why I am
making it my mission to help remedy this dire situation by bringing the need for personal
financial education to national attention.
At Treasury, we have already met with representatives from hundreds of private and
public organizations to discuss their efforts to educate Americans of all ages about financial
education.
Junior Achievement has been part of this discussion because you already have a
successful track record of going into our local schools and providing financial literacy education
to our youth.
I believe that we will have the most impact by providing financial education starting at an
early age.
To that end, financial education must begin with basic literacy. A person must have
reading skills to understand a credit card application or a Truth in Lending Disclosure form. A
person must have math skills or he will never be able to balance a checkbook or compare credit
card interest rates.
President Bush's "No Child Left Behind Act of2001" ensures that our schools focus on
those basics. The Bush Administration's support for financial education stems from our goals to
provide opportunities for all Americans to be part of America's shining promise.
Financial literacy truly is the rising tide that lifts all boats and the swift current that
guides them into the harbor of prosperity and success.

5

Of course, financial literacy and skills also greatly enhance opportunities to make wise
financial investments; however, we must make sure that companies provide accurate information
and honest financial statements to investors.
To achieve this and restore confidence in our investors, Congress passed and President
Bush signed into law corporate accountability legislation, which has put into effect the toughest
new restrictions on accounting practices since the 1930s. This legislation is one of the many
important changes that have taken place since the financial scandals came to light. The SEC, the
stock markets, and individual companies have taken steps to improve the timeliness and accuracy
of corporate financial disclosures. Holding CEOs accountable and strengthening our auditing
system will ensure investors that they have the necessary facts to make informed decisions.
President Bush and the U.S. Congress are united with the vast majority of reputable
business leaders in their determination to restore faith in our financial and economic system for
the reality is that the pillars of our economy are strong. As both Chairman ofthe Federal Reserve
Alan Greenspan and Treasury Secretary Paul O'Neill have reiterated, the fundamentals for
economic recovery are there. Interest rates and the inflation rate are low and the economy is
grOWIng.
We have the power to bring prosperity to our world, wealth to our nation and success to
ourselves. To do so, we need to make sure that our youth are educated to understand the
fundamentals of personal financial management, business and economics so that they can make
wise choices for their future. And we need you!! Executives who are role models of integrity and
responsibility and who are willing to instill those ideals and values into America's young
people. And who are the examples ofthe very best that corporations have to offer our nation.

6

Our economic system has created opportunities for us that are undreamed of elsewhere.
Our nation's strength and our economy's strength are one and the same. Both rely on the drive
and creativity of American citizens who are well educated in the fundamentals of personal
finances and sound business practices.
Weare the envy of the world because an educated citizenry is the engine that produces
freedom and prosperity in the world. Again, I would especially like to thank Junior Achievement
for dedicating themselves to the goal of educating our nation's youth to appreciate and
understand the importance of personal finances.
And I would like to thank Congresswoman Heather Wilson for her work in Congress to
pass education and corporate responsibility legislation. She has been a stalwart supporter of
financial education.
And thank you all for your efforts. I know that with your continued hard work to make
financial education in the classroom a reality, and with President Bush's leadership, no child will
be left behind when it comes to education and opportunity.
May God bless you. And may God bless the greatest country in the world, America.
-30-

7

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N. W.• WASHINGTON, B.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 11:00 A.M.
August 19, 2002

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $26,000 million to
refund an estimated $20,000 million of publicly held 4-week Treasury bills maturing
August 22, 2002, and to raise new cash of approximately $6,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $12,896 million of the Treasury bills maturing
on August 22, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3365
For press releases, speeches, public schedules and official biographies. call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED AUGUST 22, 2002
August 19, 2002
Offering Amount . . . . . . . . . . . . . • . . . . . . $26,000 million
Public Offering . . . . . . . • . . . . . . . . . . . . $26,000 million
NLP Exclusion Amount ......•.•..•.•. $10,100 million
Description of Offering:
Term and type of security . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . • . . .
Auction date ............•.•....•...
Issue date •..•..........•.•..•.•...
Maturi ty date ...........•.•.••.•...
Original issue date . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . .
Minimum bid amount and multiples ...

28-day bill
912795 LB 5
August 20, 2002
August 22, 2002
September 19, 2002
March 21, 2002
$40,439 million
$1,000

Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ••. 35% of public offering
Maximum Award ....•.•...............•...... 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank
on issue date.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
August 20, 2002

CONTACT:

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:

28-Day Bill
August 22, 2002
September 19, 2002
912795LB5
1.660%

Investment Rate 1/:

1.684%

Price:

99.871

All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 11.29%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

Tendered
$

68,494,900
37,800

$

25,962,470
37,800

°

°

SUBTOTAL
Federal Reserve
TOTAL

Accepted

$

68,532,700

26,000,270

2,307,823

2,307,823

70,840,523

$

28,308,093

Median rate
1.650%: 50% of the amount of accepted competitive tenders
ras tendered at or below that rate.
Low rate
1.620%:
5% of the amount
If accepted competitive tenders was tendered at or below that rate.
id-to-cover Ratio = 68,532,700 / 26,000,270 = 2.64
/ Equivalent coupon-issue yield.

http://www .publicdebt. treas.gov

PO-3366

DEPARTMENT

TREASURY
- - -_ _ _ _

OF

THE

TREASURY

NEWS

~178~<)_ _ _ _ _ _ __

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 20, 2002

Contact:
Juan Antonio Flores
(210) 231-8000
jatlores({iJ,nadb.org

NORTH AMERICAN DEVELOPMENT BANK AUTHORIZES $80
MILLION FOR WATER CONSERVATION FUND, APPROVES $11.8
MILLION FOR NEW PROJECT CONSTRUCTION

(San Antonio, Texas) At its meeting today, the Board of Directors of the North American
Development Bank (NADB) authorized the creation of an $80 million Water
Conservation Fund for financing of water conservation projects on both sides of the U.S.Mexico border. In other actions, the Board also authorized an additional $50 million for
the NADB's Low Interest Rate Lending Facility (LIRF) and approved $1l.8 million in
loans and grants for projects in Ciudad Acuna, Coahuila; San Luis Rio Colorado, Sonora;
and Fabens, Texas.
"Today, the NADB Board made substantial progress in fulfilling the goals of President
Bush and President Fox," stated John B. Taylor, Under Secretary of the Department of
the Treasury and chairman of the NADB Board. "The reforms, the provision of grants
for water conservation and the doubling of the size of the Low Interest Rate Lending
Facility will make a real difference for people, communities and farms on our border."
The Water Conservation Fund, which in part is expected to help finance infrastructure
improvement projects for irrigation districts impacting the Rio Grande, will be capitalized
with a portion of the NADB's retained earnings. Funds will be equally distributed for
projects on both sides ofthe border. The NADB Board of Directors proposed detailed
guidelines for operation of the grant fund.
In anticipation of increased lending demand, the NADB Board of Directors also made an
additional $50 million in capital available for lending under the NADB's Low Interest
Rate Lending Facility (LIRF). Under this program, border communities have access to
NADB loans at lower-than-market interest rates. In addition to the funding increase, the
Board also authorized the use of low interest rate loans for funding of water conservation
projects.

PO-3367

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'U S Government Printing Office 1998 - 619-559

"With these actions the governments of Mexico and the United States, through the
NADB, are seeking to promote a more efficient use of resources in the border region,
while at the same time contributing to the fulfillment of the water treaty between the two
countries," commented Dr. Agustin Carstens, Mexico's Under Secretary of Finance and
Public Credit and co-chair of the NADB Board. "The Mexican government expects that
the BECC will make a similar effort to achieve the results we are seeking."
At the meeting, the Board also approved three loans under the LIRF totaling $11.3
million, and a $500,000 grant from its Solid Waste Environmental Program (SWEP). The
communities receiving loans are Ciudad Acuna, Coahuila, for a municipal wastewater
project; San Luis Rio Colorado, Sonora, for a sanitary landfill project; and the EI Paso
County Water Control and Improvements District No.4 in Fabens, Texas, for water and
wastewater system improvements. The SWEP grant will go to the San Luis project.
In addition, th~ NADB Board implemented improvements to the NADB's teclmical
assistance programs, including turning the Solid Waste Project Development Program
(SWPD) into the Project Development Program, thus making it available to all sectors in
which the Bank operates. The NADB anticipates increasing its participation in these
sectors as it pursues project opportunities under its expanded mandate.

The North American Development Bank, created under the auspices of NAFTA, is a
financial institution established and capitalized in equal parts by the United States and
Nlexico for the purpose of financing environmental infrastructure projects along their
common border. As a pioneer institution in its field, the Bank is working to develop
integrated, sustainable and fiscally responsible projects with broad community support in
a framework of close cooperation and coordination between Mexico and the United
States.
-30-

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178£9~. . . . . . . . . . . . . . . .. .

..................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
August 22, 2002

Contact: Tara Bradshaw
(202) 622-2014

TREASURY AND IRS ISSUE HOME SALE EXCLUSION RULES FOR THOSE
AFFECTED BY THE SEPTEMBER 11 TH TERRORIST ATTACKS
Today the Treasury Department and the Internal Revenue Service announced that taxpayers
affected by the September 11 th terrorist attacks who sold a home before meeting the usual twoyear requirements will be able to exclude some or all of that gain.
"This guidance provides clarification, and reassurance, that those affected by the September 11 th
terrorist attacks are entitled to exclude the gain from the sale of their principle residence," stated
Pam Olson, Acting Treasury Assistant Secretary for Tax Policy.
A taxpayer is considered "affected" for this purpose if:
(1)
a spouse, home co-owner, or person living with the taxpayer was killed,
(2)
the taxpayer's principal residence was damaged,
(3)
the taxpayer or a person listed in (l) became eligible for unemployment
compensation, or
(4)
the taxpayer or a person listed in (1) had a change in employment or selfemployment that resulted in the taxpayer's inability to pay reasonable basic living
expenses for the household.
The tax law requires a person to own and use a home as a principal residence for two of
the five years before the sale in order to exclude any gain, and allows an exclusion only
once every two years. An exception applies if the sale is for reasons of health, change in
employment, or, to the extent provided in IRS regulations, "unforeseen circumstances."
Treasury and IRS expect to issue these regulations in the near future. The regulations will
consider the death ofthe taxpayer's spouse, man-made disasters, and acts of war as
unforeseen circumstances, and will give the IRS Commissioner the discretion to determine
other circumstances as unforeseen.

PO-3368

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

Under the exception, the maximum exclusion amount of$250,000 ($500,000 for a married
couple filing jointly) is reduced to the proportion of the two-year period that the taxpayer
fulfilled the law's requirements. Thus, a taxpayer who owns and occupies a home for one
year (half the usual two-year period) - and who has not excluded gain on another home in
that time - may exclude half the regular maximum amount, or up to $125,000 of gain
($250,000 for most joint returns). The proportion may be figured in days or months of use
and ownership.
The text of Notice 2002-60 follows:
Part III - Administrative, Procedural, and Miscellaneous
Reduced Maximum Exclusion of Gain from Sale or Exchange of Principal Residence for
Taxpayers Affected by the September 11, 2001, Terrorist Attacks
Notice 2002-60
This notice informs taxpayers affected by the September 11, 2001, terrorist attacks of the
circumstances under which they may qualify for the reduced maximum exclusion of gain on the
sale or exchange of a principal residence provided by § 121(c) of the Internal Revenue Code for
taxpayers who have not owned and used their principal residence for 2 of the 5 years preceding
the sale or exchange or who have applied § 121 to the sale or exchange of a principal residence
in the last 2 years. This treatment is consistent with the approach the Service intends to take in
final regulations under § 121.
Reduced Maximum Exclusion by Reason of Unforeseen Circumstances
Section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain joint
returns) of gain realized on the sale or exchange of the taxpayer's principal residence. For the
maximum exclusion to apply, § 121 (b) requires the taxpayer to have both owned and used the
property as the taxpayer's principal residence for at least 2 years during the 5-year period ending
on the date of the sale or exchange. Section 121(b)(3) allows the taxpayer to apply the maximum
exclusion to only one sale or exchange in every 2-year period ending on the date of the sale or
exchange. Section 121 (c) provides that a taxpayer who fails to meet any of these conditions by
reason of a change in place of employment, health, or, to the extent provided in regulations,
unforeseen circumstances, is entitled to an exclusion in a reduced maximum amount.
On October 10, 2000, a notice of proposed rulemaking (REG-I05235-99) under § 121
was published in the Federal Register (65 FR 60136). The proposed regulations requested
comments regarding what circumstances should qualify as unforeseen for purposes of the
reduced maximum exclusion. Comments suggested that, among others, the death of the
taxpayer's spouse, man-made disasters, and acts of war should be considered unforeseen
circumstances. The final regulations will adopt these comments. The final regulations will also
provide the Commissioner with the discretion to determine that other circumstances qualify as
unforeseen for purposes of the reduced maximum exclusion.

Recently, the Service has been asked whether taxpayers affected by the September 11,
2001, terrorist attacks are entitled to exclude the gain from the sale of a principal residence in a
reduced maximum amount by reason of unforeseen circumstances. In response, the
Commissioner has determined that taxpayers affected by the September 11, 2001, terrorist
attacks are entitled to the reduced maximum exclusion. Therefore, a taxpayer may claim a
reduced maximum exclusion of gain on a sale or exchange of the taxpayer's principal residence
by reason of unforeseen circumstances if the taxpayer sells or exchanges the residence as a
result of being affected by the attacks in one or more of the following ways:
(1) A qualified individual (as defined below) was killed,
(2) The taxpayer's principal residence was damaged (without regard to whether, under
the taxpayer's circumstances, the taxpayer is entitled to a casualty oss deduction
under § 165(h»,
(3) A qualified individual (as defined below) lost employment and became eligible for
unemployment compensation (as defined in § 85(b», or
(4) A qualified individual (as defined below) experienced a change in employment or
self-employment that resulted in the taxpayer's inability to pay reasonable basic
living expenses for the taxpayer's household (including amounts for food, clothing,
housing and related expenses, medical expenses, taxes, transportation, court-ordered
payments, and expenses reasonably necessary to production of income, but not for the
maintenance of an affluent or luxurious standard of living).
For purposes of the preceding sentence, the term "qualified individual" means, as of
September 11, 2001, (1) the taxpayer, (2) the taxpayer's spouse, (3) a co-owner of the residence,
or (4) a person whose principal place of abode is in the same household as the taxpayer.
Taxpayers who qualify to claim a reduced maximum exclusion under this notice and have
filed their returns for taxable year 2001 may file amended returns to claim the exclusion.
Computation of the Reduced Maximum Exclusion
The reduced maximum exclusion is computed by multiplying the maximum dollar
limitation of $250,000 ($500,000 for certain joint filers) by a fraction. The numerator ofthe
fraction is the shortest ofthe following periods: (1) the period of time that the taxpayer owned
the property during the 5-year period ending on the date of the sale or exchange, (2) the period of
time that the taxpayer used the property as the taxpayer's principal residence during the 5-year
period ending on the date of the sale or exchange, or (3) the period of time between the date of a
prior sale or exchange of property for which the taxpayer excluded gain under § 121 and the date
of the current sale or exchange. The numerator of the fraction may be expressed in days or
months. The denominator of the fraction is 730 days or 24 months (depending on the measure of
time used in the numerator).
-30-

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

~178~<)~

_ - - - - -. . . .

_ _ _ _ __

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Betsy Holahan
(202) 622-2960

FOR IMMEDIATE RELEASE
August 22, 2002

Letter from Under Secretary Peter Fisher to Sallie Mae
on Financial Disclosure
August 21, 2002
Ms. Marianne M. Keler
President and General Counsel
Student Loan Marketing Association
11600 Sallie Mae Drive
Reston, VA 20193
Dear Ms. Keler:
On July 16,2002, I testified before the House Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises (GSEs) to offer the Administration's
views on GSEs, and in particular on the subject of their financial disclosures. As I stated
in my testimony, the Administration believes that GSEs, through their financial
disclosures, should be "role models for our system of investor protection, not exceptions
to it." Given the size and importance of the GSEs' operations in our capital markets and
banking system, continued operations outside of the Securities and Exchange
Commission (SEC)-administered corporate disclosure regime is inconsistent with our
goal of a sound and resilient financial system.
The Administration strongly supports the recent agreement between Fannie Mae
and Freddie Mac, the SEC and the Office of Federal Housing Enterprise Oversight and
believes that the disclosure requirements of the Securities Exchange Act of 1934 (1934
Act), as interpreted and applied by the SEC, should apply to all GSEs. The mechanism of
voluntary registration of equity securities under section 12(g) of the 1934 Act is available
to the Student Loan Marketing Association and other GSEs. As you and the Office of
Sallie Mae Oversight discuss that and other disclosure initiatives, we trust that
compliance with all applicable sections of the 1934 Act can be achieved.

PO-3369

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Government Printing Of lice 1998 - 619-559

I encourage you to cooperate fully in making the Student Loan Marketing
Association a role model for financial disclosure and investor protection.
Sincerely,

Peter R. Fisher
Under Secretary for Domestic Finance
cc:

Colin Riley McMillan
Albert L. Lord
Thomas J. Fitzpatrick
John F. Remondi

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~178~<)_ _ _ _ _ _ __

_ - - - - -. . . .

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Betsy Holahan
(202) 622-2960

FOR IMMEDIATE RELEASE
August 22, 2002

Letter from Under Secretary Peter Fisher
to all Federal Home Loan Banks
on Financial Disclosure
August 21, 2002

Mr. Michael A. Jessee
Federal Home Bank of Boston
President and CEO
III Huntington Avenue, 24th Floor
Boston, MA 02199
Dear Mr. Jessee:
On July 16, 2002, I testified before the House Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises (GSEs) to offer the Administration's views on
GSEs, and in particular on the subject of their financial disclosures. As I stated in my testimony,
the Administration believes that GSEs, through their financial disclosures, should be "role
models for our system of investor protection, not exceptions to it." Given the size and
importance of the GSEs' operations in our capital markets and banking system, continued
operations outside of the Securities and Exchange Commission (SEC)-administered corporate
disclosure regime is inconsistent with our goal of a sound and resilient financial system.
I know that the Administration's goal is shared by the Federal Housing Finance Board
and that Chairman Korsmo has begun working with you to enhance financial disclosures by the
Federal Horne Loan Bank (FHLBank) System.
The Administration strongly supports the recent agreement between Fannie Mae and
Freddie Mac, the SEC and the Office of Federal Housing Enterprise Oversight and believes that
the disclosure requirements of the Securities Exchange Act of 1934 (1934 Act), as interpreted
and applied by the SEC, should apply to all GSEs. The mechanism of voluntary registration of
equity securities under section 12(g) of the 1934 Act is available to you and other GSEs. As you
and your regulator discuss that and other disclosure initiatives, we have asked Chairman Korsmo
to include compliance with other sections of the 1934 Act in the mlemaking agenda.
PO-3370
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Of lice 1998 - 619-559

Chairman Korsmo and I will continue to confer regularly on this matter and I encourage
you to cooperate fully in making the FHLBank System a role model for financial disclosure and
investor protection.
Sincerely,

Peter R. Fisher
Under Secretary for Domestic Finance

cc: Chainnan Korsmo, Federal Housing Finance Board

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

O"'f!'ICE Of!' PUBLIC An'AIRS .1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 11:00 A.M.
AUGUST 22, 2002

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $29,000
million to refund an estimated $30,536 million of publicly held 13-week and 26-week
Treasury bills maturing August 29, 2002, and to pay down approximately $1,536 million.
Also maturing is an estimated $20,000 million of publicly held 4-week Treasury bills,
the disposition of which will be announced August 26, 2002.
The Federal Reserve System holds $13,621 million of the Treasury bills maturing
on August 29, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held August 27, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.

TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,074 million into the 13-week bill and $1,071 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

PO-3371
For press releases, speeches, puhlic schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED AUGUST 29, 2002
August 22, 2002
Offering Amount .•.•..•.•..•.••.•.••..•••.•. $l5,OOO million
Public Offering ...................•.•...... $l5,OOO million
NLP Exclusion Amount ...•....•.•..•.•....... $ 5,300 million
Description of Offering:
Term and type of security ......•..........•
CUSIP number ....•....•.•••..•....••.••.•.•.
Auction date .................•.•..•..•••.•.
Issue date ..................•..•.......••..
Maturity date .....•....•.•..•..........•.•.
Original issue date ...•••.••••.••••••....••
Currently outstanding .....•••..•.•.•••.....
Minimum bid amount and multiples ...•••••...

92-day bill
912795 LM 1
August 26, 2002
August 29, 2002
November 29, 2002
May 30, 2002
$2l,022 million
$l,OOO

$14,000 million
$l4,OOO million
None
l82-day bill
912795 MA 6
August 26, 2002
August 29, 2002
February 27, 2003
August 29, 2002
$l,OOO

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $l million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts. Accepted in order of size from smallest to largest with no more than $lOO
million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $l,OOO million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $l,OOO million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount, at all
discount rates, and the net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt of
competitive tenders.
Maximum Recognized Bid at a Single Rate ..•••••• 35% of public offering
Maximum Award ...•.•..•.•......•.•.•.•.•.•.•.••• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders •.... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders ••••••.• Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender. TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
record at their financial institution on issue date.

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178~9~. . . . . . . . . . . . . . . .. .

..................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960

CONTACT:

EMBARGOED UNTIL 11:00 A.M.
AUgus t 26 t 2 002

Office of Financing
202/691-3550

TREASURY OFFERS 2-YEAR NOTES
The Treasury will auction $27,000 million of 2-year notes to refund $20,267
million of publicly held notes maturing August 31, 2002, and to raise new cash of
approximately $6,733 million.
In addition to the public holdings, Federal Reserve Banks hold $7,537 million
of the maturing notes for their own accounts, which may be refunded by issuing
an additional amount of the new security.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FlMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of the auction.
These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit of
$1,000 million.
TreasuryDirect customers requested that we reinvest their maturing holdings
of approximately $730 million into the 2-year note.

The auction will be conducted
tive and noncompetitive awards will
tenders. The allocation percentage
be rounded up to the next hundredth

in the single-price auction format.
All competibe at the highest yield of accepted competitive
applied to bids awarded at the highest yield will
of a whole percentage point, e.g·t 17.13%.

The notes being offered today are eligible for the STRIPS program.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3372

For press releases, speeches, public schedules and official biographies, call Ollr 24-hour fax line at (202) 622-2040

-

~

HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF
2-YEAR NOTES TO BE ISSUED SEPTEMBER 3, 2002
August 26, 2002
Offering Amount . . • • . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . . . .
Series .•..•....•......•..•....•... '" .•....•..
CUSIP number . . . . . . . . . . . . . . . . . . • . . . . . . . '" .....
Auction date . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . .
Dated date . . . • . . . . . . . . . . . . . . . . • . . . . . . . . . . • . . . .
Maturity date ..•.........•....•.........•..•..
Interest rate . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-year notes
R-2004
912828 Ale 6
August 28, 2002
September 3, 2002
August 31, 2002
August 31, 2004
Determined based on the highest
accepted competitive bid
Yield ..••••..•••..•.•....•....•............... Determined at auction
Interest payment dates . . . • . . . . • . . . . . . . . . . . . . . . The last day of February and August
Minimum bid amount and multiples . . . . . . . . . . . . . . $1,000
Accrued interest payable by investor . . . . . . . . . . Determined at auction
Premium or discount . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
STRIPS Information:
Minimum amount required •.........•............ $1,000
Corpus CUS IP number . . . . . . . . . . . . . . . . . . . . . . . . . . 912820 HG 5
Due date(s) and CUSIP number(s)
for additional TINT(s) . . . . . . . . . • . . . . . . . . . . . . August 31, 2004 - - 912833 YY 0
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $5 million at the highest accepted yield.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal
Reserve Banks as agents for FIMAaccounts will not exceed $1,000 million. A
single bid that would cause the limit to be exceeded will be partially accepted
in the amount that brings the aggregate award total to the $1,000 million limit.
However, if there are two or more bids of equal amounts that would cause the
limit to be exceeded, each will be prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a yield with three decimals, e.g., 7.123%.
(2) Net long position for each bidder must be reported when the sum of the total
bid amount, at all yields, and the net long position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the
closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Yield . . . . . . . . . . . 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day_
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day.
Payment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date
or payment of full par amount with tender.
TreasuryDirect customers can use the Pay
Direct feature which authorizes a charge to their account of record at their
financial institution on issue date.

l

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

OFFICE OF PUBLIC AFFAIRS e 1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 20220. (202) 622-2960

EMBARGOED UNTIL 11:00 A.M.

Contact:

August 26, 2002

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $25,000 million to
refund an estimated $20,000 million of publicly held 4-week Treasury bills maturing
August 29, 2002 and to raise new cash of approximately $5,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $13,621 million of the Treasury bills maturing
on August 29, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

000

Attachment

PO-3373

yor press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED AUGUST 29, 2002
August 26, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . $25,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . $25,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . $10,100 million
Description of Offering:
Term and type of security . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . • . . . . . . . . . . . . . . . . .
Issue date . . . . . . . • . . . . . . . . . . . . . . . . .
Maturity date . . . . • . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . .
Minimum bid amount and multiples ...

28-day bill
912795 LC 3
August 27, 2002
August 29, 2002
September 26, 2002
March 28, 2002
$40,008 million
$1,000

Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FlMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FlMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Rate ... 35% of public offering
Maximum Award . . . • . . • . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank
on issue date.

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

IMMEDIATE RELEASE
ugust 26, 2002

'OR

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
92 -Day Bill
August 29, 2002
November 29, 2002
912795LM1

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.630%

High Rate:

Investment Rate 1/:

Price:

1.661%

99.583

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 88.06%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

25,328,618
1,482,822
244,000

SUBTOTAL

27,055,440

Federal Reserve

5,755,423

TOTAL

Accepted

Tendered

Tender Type

$

32,810,863

$

13,273,179
1,482,822
244,000
15,000,001 2/

$

20,755,424

Median rate
1.615%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.595%:
5% of the amount
f accepted competitive tenders was tendered at or below that rate.
~s

id-to-Cover Ratio = 27,055,440 / 15,000,001 = 1.80

I Equivalent coupon-issue yield.
/ Awards to TREASURY DIRECT = $1,188,990,000

http://www.publicdebt.treas,goY

PO-3374

PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
Office of Financing
202-691-3550

CONTACT:

'OR IMMEDIATE RELEASE
ugust 26, 2002

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182 -Day Bill
August 29, 2002
February 27, 2003
912795MA6

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.635%

High Rate:

Investment Rate 1/:

Price:

1.672%

99.173

All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate. Tenders at the high discount rate were
llotted 69.85%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

23,106,408
1,590,330
316,000

$

$

TOTAL

5,490,949

5,490,949

Federal Reserve

30,503,687

12,093,708
1,590,330
316,000
14,000,038 2/

25,012,738

SUBTOTAL

IS

Accepted

Tendered

Tender Type

$

19,490,987

Median rate
1.610%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.580%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.

d-to-Cover Ratio

=

25,012,738 / 14,000,038

1.79

Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,136,814,000

http://www.pu blicdebt. treas.gov

PO-3375

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
August 27, 2002

Office of Financing
202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28-Day Bill
August 29, 2002
September 26, 2002
912795LC3

Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.685%

High Rate:

Investment Rate 1/:

Price:

1.710%

99.869

All noncompetitive and successful competitive bidders were awarded
lecurities at the high rate.
Tenders at the high discount rate were
tllotted 31.51%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive
FIMA (noncompetitive)

$

60,508,291
33,186

$

24,967,081
33,186

o

SUBTOTAL
Federal Reserve
TOTAL

Accepted

Tendered

Tender Type

$

°

60,541,477

25,000,267

2,374,885

2,374,885

62,916,362

$

27,375,152

Median rate
1.670%: 50% of the amount of accepted competitive tenders
as tendered at or below that rate.
Low rate
1.640%:
5% of the amount
f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio; 60,541,477 / 25,000,267 ; 2.42
I Equivalent coupon-issue yield.

http://www.publicdebt.treas.gov
PO-3376

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
Office of Financing
202-691-3550

CONTACT:

FOR IMMEDIATE RELEASE
August 28, 2002

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
:USIP No:

Issue Date:
Dated Date:
Maturity Date:

2 1/8%
R-2004
912828AK6

High Yield:

Price:

2.220%

September 03, 2002
August 31, 2002
August 31, 2004

99.816

All noncompetitive and successful competitive bidders were awarded
lecurities at the high yield.
Tenders at the high yield were
,1 lotted
6.14%. All tenders at lower yields were accepted in full.
Accrued interest of $ 0.17610 per $1,000 must be paid for the period
'rom August 31, 2002 to September 03, 2002.
AMOUNTS TENDERED AND ACCEPTED (in thousands)

$

Competitive
Noncompetitive
FIMA (noncompetitive)

59,742,200
1,151,194

$

27,000,197 1/

60,893,394

7,536,533

7,536,533

Federal Reserve
$

TOTAL

68,429,927

25,849,003
1,151,194

o

o

SUBTOTAL

Median yield

Accepted

Tendered

Tender Type

$

2.200%:

34,536,730

50% of the amount of accepted competitive tenders
Low yield
2.150%:
5% of the amount
E accepted competitive tenders was tendered at or below that rate.

~s tendered at or below that rate.

Ld-to-cover Ratio", 60,893,394 / 27,000,197 '" 2.26
I

Awards to TREASURY DIRECT", $904,030,000

1-3377

http://www.publicdebt.treas.gov

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178~9~. . . . . . . . . . . . . . . .. .

..................

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

For Immediate Release
August 28, 2002

Contact: Tony Fratto
(202) 622-2960

LORI FORMAN NAMED ALTERNATE EXECUTIVE DIRECTOR, ASIAN
DEVELOPMENT BANK

Treasury Secretary Paul O'Neill announced today the appointment of Lori A. Forman as
Alternate U.S. Executive Director of the Asian Development Bank, effective September 14.
"We are delighted to have Lori in this position. With her strong background in Asia and
development issues she will make an excellent contribution to the Administration's international
finance team."
The Asian Development Bank (ADB) is a multilateral development finance institution
working to increase economic growth and reduce poverty in 60 Asian and Pacific countries. The
ADB is based in Manila, Philippines.
Prior to this appointment, Forman served as the Assistant Administrator for Asia and the
Near East of the U.S. Agency for International Development (USAID). As head ofthe Bureau
for Asia and the Near East, Forman was responsible for USAID programs in more than 30
countries ranging from the Mediterranean to the South Pacific. Forman also served at USAID
from 1983 to 1990 in senior advisory positions in the Bureau for Asia and the Near East and the
Bureau for Food for Peace and Voluntary Assistance. She was the agency's coordinator of the
U.S.-Japan aid project from 1989 to 1990.
In between appointments at USAID, Fornlan was director of The Nature Conservancy's
Japan Program from 1990 to 2001 in Arlington, Va., and Tokyo, Japan, where she was also a
visiting professor on the Faculty of Law at Keio University. In early 1990, she was executive
vice president of Pacific Management Resources Inc. in Honolulu.
Forman has written and presented extensively on development assistance, humanitarian
aid, non-governmental organizations, and the environment.

PO-3378

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'U S Government Printing Of lice 1998 - 619-559

Among her awards are an Award of Appreciation, Asociacion Nacional para la
Conservacion de la Naturaleza, Panama (1999); selection as international advisor, Keidanren
Nature Conservation Committee, Tokyo (1995); and being named one ofTen Outstanding
Young People of the Year, Osaka Junior Chamber of Commerce, Osaka, Japan.

A native of South Dakota, Forman has a bachelor's degree in political science from
Augustana College in Sioux Falls and a master's of public policy from the John F. Kennedy
School of Government at Harvard University.

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~8~9_ _ _ _ _ _ _ _ _ _ _ __ _

. . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

For Immediate Release
Thursday, August 29, 2002

Contact: Tasia Scolinos
(202) 622-2960

Statement by U.S Treasury Secretary for Enforcement Jimmy Gurule in Support of
Today's New Terrorist Financing Designations
In a significant action in our ongoing campaign against terrorism, today, our two nations
_ the United States and Italy - are blocking the property of25 individuals and entities based on
their support for terrorism. This action furthers international efforts to shut down identified
terrorist financing networks using targeted freezing actions under domestic and international law.
In accordance with relevant United Nations procedures, we are submitting these names to the
United Nations for listing by the UN 1267 Sanctions Committee because of the connections
between these entities and individuals and Al Qaida.
Of the 25 new designations, the 11 individuals are related to the Salafist Group for Call
and Combat ("GSPC"), a separatist faction ofthe Gruppo Islamico Armato ("GIA"). The GSPC,
an Algerian-based terrorist organization that continues to operate in North Africa as well as Italy,
is a lethal terrorist group and its members support and finance terrorism around the globe. The
United States designated both the GSPC and the GIA on September 24,2001, and the United
Nations placed them both on the list of terrorist entities linked to Al-Qaida on October 8,2002.
Fourteen of the 25 entities designated today are owned or controlled by either Ahmed
Idris Nasreddin or YoussefNada. Both ofthese individuals have been previously designated as
supporters of terrorism and the Al Qaida network by the United States and the international
community under U.N. Security Council Resolutions 1267,1333 and 1390. Today's action is
another step toward shutting down the terrorist-financing network orchestrated by Nada and
Nasreddin. This designation of additional corporate holdings will further choke the flow of
funds that facilitate the financing of terrorism.
The simultaneous blocking of the assets of these individuals and entities by Italy and the
United States demonstrates the international commitment to choke off the sources of financing
for terrorist acts. This particular designation is also unique, in that it is the direct result of the
collaborative and cooperative efforts of not just two, but four nations - the United States, Italy,
the Bahamas, and Luxembourg - working together toward a common goal.
All four of those nations provided financial information, investigative assistance, or key
documents or support - which allowed us to make the case necessary for today's designation.

PO-3379
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Printing Office 1998 - 619-559

Today's action demonstrates the commitment of the international coalition to the fight
against terrorist financing.
We are confident that our efforts are having real-world effects. Al Qaida and other
terrorist organizations are suffering financially as a result of our actions. We also believe that
potential donors are being more cautious about giving money to organizations where they fear
that the money might wind up in the hands of terrorists. In addition, greater regulatory scrutiny in
financial systems around the world is further marginalizing those who would support terrorist
groups and activities.
Our top priority is to prevent terrorist attacks by disrupting terrorist finances. As
President Bush has said, we seek to "starve the terrorists of funding." Today's joint designation
with Italy demonstrates our commitment to exposing, isolating and incapacitating the financial
infrastructure of terrorist organizations worldwide. This action is one more measure that we and
the international community are taking to attack terrorist financing.
We have a strong history of international cooperation in freezing terrorist-related assets.
Over 160 countries have blocking orders in force, hundreds of accounts worth more than $70
million have been blocked abroad, and foreign law enforcement have acted swiftly to shut down
terrorist financing networks and arrest financiers. There have been other shared initiatives. On
March 11, 2002, the United States and Saudi Arabia jointly designated two branches of a charity,
and on April 19, 2002, the G7 jointly designated nine individuals and one entity. These efforts
have been bolstered by actions from the European Union which has issued three lists of
designated terrorists and terrorist groups for blocking. Since September 11 th, the United States
and other countries combined have frozen more than $112 million in terrorist-related assets. As a
result of our efforts - including today's action - 234 individuals and entities are currently
designated as financiers of terror.

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

. . . . . . . . . . . . . . . . . .~S178£9~. . . . . . . . . . . . . . . .. .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

For Immediate Release
Thursday, August 29, 2002

Contact: Tasia Scolinos
(202) 622-2960

The United States and Italy Designate Twenty-Five New Financiers of Terror

"The President's September 23 rd Executive Order made plain that those who underwrite violence bear
equal culpability to those who perpetrate it. Feigned indifference, willfttl blindness, and the
appearance of normalcy and status in the world of business or commerce will no longer provide cover
or safe harbor - here or abroad. Today's action makes clear that we are serious about shutting down
any company or organization that is in the business of Slipporting terrorism. "
Treasury Secretary Paul O'Neill

Today, in a significant action in our ongoing campaign against terrorism, our two nations
_ the United States and Italy - are blocking the assets of twenty-five individuals and entities
based on their support for terrorism. This action furthers international efforts to shut down
identified terrorist financing networks using targeted freezing actions under domestic and
international law. In accordance with relevant United Nations procedures, we are submitting
these names to the United Nations for listing by the UN 1267 Sanctions Committee because of
the connections between these entities and individuals and AI-Qaida.
Oftoday's twenty-five designations, all eleven individuals are related to the Salafist
Group for Call and Combat ("GSPC"), a separatist faction of the "Gruppo Islamico Armato
(GIA)." The GSPC, an Algerian-based terrorist organization that continues to operate in North
Afiica, Spain and Italy, is a lethal terrorist group whose members support and finance terrorism
around the globe. The United States designated both the GSPC and the GIA on September 24,
2001, and the United Nations placed them both on the list ofterrorist entities linked to AI-Qaida
on October 8, 200l.
Fourteen of the twenty-five are entities that are owned or controlled by either Ahmed
Idris Nasreddin or Youssef Nada, both of whom have been previously designated as supporters
of terrorism by the United States and the international community under U.N. Security Council
Resolutions 1267, 1333 and 1390. These entities are part of an extensive financial network
providing support to AI-Qaida and other terrorist related organizations.

PO-3380

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnntlng Office 1998 - 619-559

This designation of additional corporate holdings will further choke the flow of funds that
facilitate the financing of terrorism by disrupting the sources of their funding through their
financial network.
The simultaneous blocking of the assets of these individuals and entities by Italy and the
United States demonstrates the international commitment to choke off the sources of financing
for terrorist acts. This particular designation is also unique in that it is the direct result of the
collaborative and cooperative efforts of not just two, but four nations - the United States, Italy,
the Bahamas, and Luxembourg - working together toward a common purpose. All four of those
nations provided financial information, investigative assistance, or key documents or support which allowed us to make the case necessary for today's designation.
Since September 11 th, the United States and other countries have frozen more than $112
million in terrorist-related assets. As a result of our efforts - including today's action - 234
individuals and entities are currently designated as financiers of terror.

Information About the New Designations
I. Individuals Linked to the Salafist Group for Call and Combat
Italy and the United States have concluded that each of these eleven individuals are
related to the Salafist Group for Call and Combat ("GSPC"), which has supported AI-Qaida
activities. They are implicated in preparing or organizing terrorist acts in the following specific
ways:
1.

Adel Ben Soltane

Ben Soltane, a known member of the GSPC, has been convicted for criminal conspiracy on the
following counts: trafficking in arms, explosives, and chemical weapons, receiving stolen goods,
making and using false documents, and for facilitating the entry of illegal immigrants into Italy.
Ben Soltane was also involved in and arrested for the preparation of an attack against the U.S.
Embassy in Rome and for being in contact and communicating with other terrorist groups.
2.

Nabil Benattia

Nabil Benattia has been charged with conspiracy of involvement with a criminal association and
he is also under indictment for conspiracy to traffic in arms, explosives, chemical weapons and
identity papers, and also for receiving stolen goods and aiding illegal immigration.
3.

Yassine Chekkouri

Yassine Chekkouri has been charged with conspiracy of involvement with a criminal association
and he is currently under arrest for conspiracy to traffic in arms, explosives, chemical weapons
and identity papers, and also for receiving stolen goods and aiding illegal immigration. Italian
authorities report that Scotland Yard investigators believe Chekkouri is "one of the highest" men
in the Al Qaida organization.

4.

Riadh Jelassi

Riadh lelassi has been charged with conspiracy of involvement with a criminal association as a
member of the GSPc. He has been sentenced to 4 years and 6 months in prison for criminal
conspiracy to traffic in arms, receiving stolen goods, making and using false documents, and for
facilitating the entry of illegal immigrants into Italy.

5.

Mehdi Kammoun

Mehdi Kammoun has been charged with conspiracy of involvement with a criminal association
as a member of the GSPC, and has been sentenced to a 5 year and 10 month term for having
organized a cell in Gallarate tied to Al Qaida. Kammoun was also convicted for conspiracy to
traffic in arms, explosives, and chemical weapons, for receiving stolen goods, making and using
forged documents, and facilitating illegal immigration to Italy.
6.

Samir Kishk

Samir Kishk has been charged with conspiracy of involvement with criminal association as a
member of the GSPC. He has been indicted and is under arrest for participation in a criminal
conspiracy to traffic in arms, explosives, chemical weapons, identity papers, receiving stolen
goods and aiding illegal immigration.
7.

Tarek Ben Habib lVlaaroufi

Tarek Ben Habib Maaroufi has been charged with conspiracy of involvement with a criminal
association as a member of the GSPC, and is wanted by Italian authorities for participating in a
criminal conspiracy to traffic in arms, explosives, weapons and identity papers. He is under
arrest in Belgium for criminal conspiracy, criminal association (GSPC); counterfeiting identity
papers, and recruiting for a foreign army or armed force. Maaroufi is suspected of having
provided the counterfeit identity papers to one of the killers of anti-Taliban leader, Ahmed Shah
Massoud.
8.

Abdelhalim Remadna

Abdelhalim Remadna has been charged with conspiracy of involvement with criminal
association and is under arrest for participation in a criminal conspiracy to traffic in arms,
explosives, chemical weapons, identity papers, receiving stolen goods, and aiding illegal
immigration. Italian authorities have indicated that they have proof of direct telephone contact
between Remadna and Abu laafar, who is considered to be the number three leader within Al
Qaida. Remadna is also identified by the Italian authorities as being an aide to Es Sayed, a
previously designated SDGT.

9.

Mansour Thaer

Mansour Thaer has been charged with conspiracy of involvement with criminal association and
is under arrest in Germany. Thaer has been investigated in Italy for his links with a terrorist cell,
and for participation in a criminal conspiracy to traffic in arms, explosives, chemical weapons,
identity papers, receiving stolen goods and aiding illegal immigration.
10.

Lazhar Ben Mohammed Tlili

Lazhar Ben Mohammed Tlili has been charged with conspiracy of involvement with criminal
association and is wanted by Italian authorities for his participation in a criminal conspiracy to
traffic in arms, explosives, chemical weapons, identity papers, receiving stolen goods and aiding
illegal immigration.
11.

Habib Waddani

Habib Waddani has been charged with conspiracy of involvement with a criminal association as
a member of the GSPc. He has been indicted for participating in a criminal conspiracy to traffic
in arms, explosives, chemical weapons, identity papers, receiving stolen goods and aiding illegal
immigration.

II. Nada/Nasreddin Network
Based on information available to Italy and the United States, YoussefNada ("Nada") and
Aluned Idris Nasreddin ("Nasreddin"), through commercial holdings, operate an extensive
financial network providing support for terrorist related activities. In the case of Nada and
Nasreddin, this involves an extensive conglomeration of businesses from which they derive their
income or through which they conduct transactions. Based on evidence of their support of
terrorism, Nada and Nasreddin were previously designated by the international community as
financiers of terror. Nada was designated by the United States on November 7, 2001, and by the
United Nations on November 9,2001. Nasreddin was designated by the G7 on April 19,2002,
and by the United Nations on April 24, 2002. Nasreddin's corporate holdings and financial
network provide direct support for Nada and Bank Al Taqwa, which was also previously
designated by the United States on November 7,2001, and the United Nations on November 9,
2001. This designation of fourteen additional entities owned or controlled by either Nada or
Nasreddin will further restrict their assets and their network by precluding these companies from
being used to provide funding or support for terrorism.
Nasreddin and Nada, who have worked closely together for many years, are both directors of
Bank Al Taqwa and Akida Bank. Nada holds a controlling interest in Bank Al Taqwa and
Nasreddin holds a controlling interest in Akida Bank. Bank Al Taqwa and Akida Bank are not
functional banking institutions in the conventional sense. They are shell companies lacking a
physical presence and sharing the same address in the Bahamas where they were licensed. For
this reason the licenses of Bank Al Taqwa and Akida Bank have been revoked by the Bahamian
government.

Bank Al Taqwa, for which Nasreddin is a director, was established in 1988 with significant
backing from the Muslim Brotherhood. They have been involved in financing radical groups
such as the Palestinian Hamas, Algeria's Islamic Salvation Front and Armed Islamic Group,
Tunisia's An-Nahda, and Usama bin Laden and his Al Qaida organization. Bank Al Taqwa was
established in the Bahamas and is a close affiliate of the Al Taqwa Management Organization,
which changed its name in the spring of2000 to the Nada Management Organization. In 1997, it
was reported that the $60 million collected annually for Hamas was moved to Bank Al Taqwa
accounts. As of October 2000, Bank Al Taqwa appeared to be providing a clandestine line of
credit to a close associate of Usa rna bin Laden and as oflate September 2001, Usama bin Laden
and his Al Qaida organization received financial assistance from YoussefM. Nada.

Nada and Nasreddin own or control a number of business entities through direct ownership,
control, or in cooperation with each other. Fourteen of these entities are being designated in
furtherance of the prior designations of these two individuals to disrupt their use of assets under
their ownership or control that could be used to finance terrorist activities.
12. Akida Bank Private Limited
Nasreddin, who serves as Akida Bank's president, also serves on the board of directors of Akida
Bank along with YoussefNada. According to corporate documents, the Nasreddin Foundation,
an entity proposed for designation, owns an overwhelming majority of shares of Akida Bank,
affording Ahmed Idris Nasreddin and the Nasreddin Foundation ownership and control of Akida
Bank.
13. Akida Investment Co. Ltd.
Akida Investment Co. Ltd. was incorporated in the Bahamas in March 2001. Corporate
documents indicate that as of April 2001, all of the assets and liabilities of Akida Bank Private
Limited have been transferred to Akida Investment Company.

14. Nasreddin Group International Holding Limited
According to corporate documents, Ahmed Idris Nasreddin is the Chairman of the Board of
Directors of Nasreddin Group International Holding Limited. In addition, Nasreddin Group
International Holding Limited is one of the few entities with which Akida Bank conducts
business.

15. Nasco Nasreddin Holding A.S.
Fully 67.5 percent of the outstanding voting capital ofNasco Nasreddin Holding A.S. is owned
by Nasreddin International Group Limited Holding, an entity owned or controlled by Nasreddin.
In addition, Nasreddin also holds 1.875% of the voting capital in his own name. Nasco
Nasreddin Holding A.S. is an affiliate of Akida Bank.

16. N ascotex S.A.
Nasreddin is the Chief Executive of Nascotex S.A., which is also an affiliate of Akida Bank and
one of a few entities with which Akida Bank conducts business.

17. Nasreddin Foundation
According to corporate documents from 2000, the Nasreddin Foundation owns a vast majority of
shares of Akida Bank, affording Ahmed Idris Nasreddin and the Nasreddin Foundation
ownership and control of Akida Bank. Although the Nasreddin Foundation (a.k.a. Nasreddin
Stiftung) has been dissolved since at least 1993, the company, or at least its name, has been used
in business transactions as recently as 2000.
18. Ba Tagwa for Commerce and Real Estate Company Limited
Youssef Nada and Ali Ghaleb Himmat, both persons designated by the United States on
November 7, 2001, and by the United Nations on November 9,2001, are identified as principals
ofBa Taqwa for Commerce and Real Estate Company Limited.
19. Miga-Malavsian Swiss, Gulf and African Chamber
Ahmed Idris Nasreddin is identified as the President of Miga-Malaysian Swiss, Gulf and African
Chamber, and exercises sole signatory authority on behalf of the organization.
20. Gulf Center S.R.L.
Ahmed Idris Nasreddin is the Sole Administrator of Gulf Center S.R.L.

21. Nascoservice S.R.L.
Ahmed Idris Nasreddin is the Sole Administrator ofNascoservice S.R.L.
22. NASCO Business Residence Center SAS Di Nasreddin Ahmed Idris EC
Ahmed Idris Nasreddin is identified as the unlimited partner ofNASCO Business Residence
Center.
23. Nasreddin Company Nasco SAS Di Ahmed Idris Nasreddin EC
Ahmed Idris Nasreddin is the unlimited partner of Nasreddin Company Nasco SAS Di Ahmed
Idris Nasreddin EC.
24. Nada International Anstalt
YoussefNada and Ali Ghaleb Himmat, both persons designated by the United States on
November 7,2001, and by the United Nations on November 9,2001, are identified as principals
ofNada International Anstalt.

25. Nasreddin International Group Limited Holding

Ahmed Idris Nasreddin was an original member of the Board of Directors ofNasreddin
International Group Limited Holding when the company was founded in 1977. Since the late
1980's the company has been administered by a holding company, though the company still
bears Nasreddin's name. Nasreddin International Group Limited Holding is an affiliate of Akida

Ban1e

DEPARTMENT

TREASURY

__..

OF

THE

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TREASURY

NEWS
__............

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

For Immediate Release
Thursday, August 29,2002

Contact: Rob Nichols
(202) 622-2910

Treasury Statement on UN Terrorism Report
Since September 11 th, the United States has been working very closely with the
international community and the United Nations (UN)1390 Sanctions Committee on targeted
financial sanctions to freeze the assets of terrorists and their networks.
The United Nations and the Committee have taken this fight seriously, and it is again
encouraging to see the UN focus on the threat Al Qaida poses to the international community of
civilized nations. We agree with this sense of urgency and call on all countries, as we have done
consistently since 9111, to take preventative, proactive steps to attack the financial network of al
Qaida and other terrorist groups.
That being said, the monitoring report from the 1390 Committee is limited in scope
because it bases its analysis in large part on the reports submitted by countries pursuant to
UNSCR 1373 and on research done by members of that committee. These reports and the
committee's research, though very important, do not provide a complete picture of the success of
our overall campaign to date. The report cited by the Washington Post today does not focus on
other elements of the campaign against terrorist financing. As a result, it is an incomplete picture
of the financial war against terrorism.
International cooperation has been strong and consistent. Since September 11 th, the
United States and other countries have frozen more than $112 million in terrorist-related assets.
As a result of our efforts - including today's action adding 25 additional individuals and entities
to the list _ 234 individuals and entities are currently designated as financiers of terror and their
access to the international financial system is blocked. We have a strong history of international
cooperation in freezing terrorist-related assets. Over 160 countries have blocking orders in force,
hundreds of accounts worth more than $70 million have been blocked abroad, and foreign law
enforcement have acted swiftly to shut down terrorist financing networks and arrest financiers.

PO-3382

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnnllng Of lice 1998 - 619-559

Shutting down Al Qaida finances is not just about sanctions. We are pleased with the
success of the terrorist financing efforts, but dollars seized is the narrowest measure of success.
The point isn't grabbing dollars in bank accounts when freezing orders go into place, it is
destroying the financial infrastructure of terrorism. That means seizing money, but it also means
dismantling the channels of funding, deterring those who would give aid and support to
terrorists, and following the leads to terrorist cells. For example, the German government just
yesterday charged a money handler for the 9111 plots, and the U.S. government this week
announced the indictment of 6 individuals suspected of conspiring to provide material support to
terrorists. In addition, Operation Green Quest - a Treasury -led inner-agency task force - has
seized over $16 million in bulk cash being smuggled.
Our top priority is to prevent terrorist attacks by disrupting terrorist finances. We are
committed to exposing, isolating and incapacitating the financial infrastructure of terrorist
organizations worldwide. The President has made clear that this is a long, difficult struggle. The
effort to shut down financial support is very difficult. We have made much progress, and much
remains to be done.
We are confident that our efforts are having real-world effects. Al Qaida and other
terrorist organizations are suffering financially as a result of our actions. We also believe that
potential donors are being more cautious about giving money to organizations where they fear
that the money might wind up in the hands of terrorists. In addition, greater regulatory scrutiny in
financial systems around the world is further marginalizing those who would support terrorist
groups and activities.
Admittedly, there is much more work to do, and we must do so with urgency. Since 9/11,
the U.S. government and the world have been identifying gaps in our efforts and have been
working diligently to deal with these issues, like the abuse of charities and hawalas. Our
campaign against terrorist financing is a long term and complex endeavor that requires concrete
actions from the international community. The fight against Al Qaida and terrorism demands this
type of commitment.
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DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

~~178~9~. . . . . . . . . . . . . . . .. .

..................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Rob Nichols
(202) 622-2910

For Immediate Release
Friday, August 30, 2002

ST ATKMENT OF DEPUTY TREASURY SECRETARY KEN DAM
As the President has stated, the United States will comply with the WTO decision
in this case. Therefore, I am confident that today's findings regarding damages will be
rendered moot by our corning into compliance. We look forward to working with the
Congress to enact changes to our tax law that will preserve the competitiveness of U.S.
businesses and American workers while honoring our WTO obligations.

-30-

PO-3383

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnnling Of lice 1998 - 619-559