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These bonds have not been publicly offered but will be sold on a private placement basis. There has been no registration with the Securities and Exchange Commission. Internal Revenue Service has ruled that the interest on these bonds is exempt from Federal taxes.

(3) The basic security supporting the bonds is the lease to the County for the use of the pavilion. The pavilion is expected to be completed by November 1, 1964. Upon completion, the County will begin to make payments in the amount of $845,000 per year. These payments should be sufficient to cover the principal and interest on the bonds until their maturity. The bonds are further secured by all buildings, improvements machinery, etc., constructed on or placed on the land which is involved.

(4) These securities are not exempt from the limitations and restriction of 12 U.S.C. 24. They are not special revenue obligations of a state, municipal government, or duly constituted authority thereof, and thus do not fall within the exception for such securities contained in § 1.2(c). They must, therefore, meet the requirements contained in either paragraph (a) or (b) of § 1.2 in order to be eligible to be purchased for investment by national banks.

(5) Paragraph (a) of § 1.2 provides that in order to constitute an "investment security" within the meaning of paragraph seventh, 12 U.S.C. 24, the security must be a marketable obligation, saleable under ordinary circumstances with reasonable promptness at a fair value and, (i) a public distribution of such securities must have been provided for or made in a manner to protect or insure the marketability of the issue; or (ii) other existing securities of the obligor must have such a public distribution as to protect or insure the marketability of the issue under consideration.

(6) Paragraph (b) of § 1.2 provides that in the case of securities which do not meet the requirements of paragraph (a) of $1.2 but which are issued by established commercial or industrial businesses or enterprises that can demonstrate the ability to service such securities, the debt evidenced thereby must mature not later than ten years after date of issuance, be sound and secure, and 75 percent of the principal

must be extinguished by maturity date by substantial periodic payments.

(7) The securities under consideration will be sold on a private placement basis; there will be no public distribution. There are no other obligations of the issurer. The issuer cannot be considered to be an established commercial enterprise. Although it probably can demonstrate ability to service the debt which will be amortized to maturity, the final maturity in 1991, exceeds the maximum of ten years permissible under § 1.2(b).

(c) Ruling. We conclude that the subject bonds fail to meet the requirements of this part and accordingly are not "investment securities" within the meaning of 12 U.S.C. 24 and are not eligible for investment by national banks. There is, however, no legal prohibition against their being accepted by national banks as collateral for loans.

[27 F.R. 6924, July 21, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.114 Federal National Mortgage Association.

(a) Request. The Comptroller of the Currency has been requested to rule whether FNMA Short-Term Discount Notes are eligible for investment by national banks without limit.

(b) Opinion. In August of 1960 this office ruled that the FNMA Short-Term Discount Notes did not constitute investment securities within the meaning of paragraph seventh of R.S. 5136 (12 U.S.C. 24). This determination was based in part on the lack of a secondary market for these notes. Because of this lack, it was our belief that these obligations could not qualify as investment securities. At that time the sale of these notes had been proceeding for only four months. Our conclusion, therefore, was reached without benefit of knowing what the market reaction to these notes would be, and was aimed at protecting national banks against an investment which might prove unliquid. Experience under the program, however, indicates that there is, in fact, a ready market for the sale and resale of these notes. In addition, they compare favorably with the general obligations of municipalities, which may be purchased without limit.

(c) Ruling. We conclude that the subject notes are eligible for investment by national banks without limit.

[27 F.R. 6970, July 24, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.115 Dormitory authority of the State of New York.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $8,630,000 Dormitory Authority of the State of New York, 3.60 percent Dormitory Revenue Bonds of 1957 (State University of New York) for investment by national banks under the provisions of paragraph seventh, 12 U.S.C. 24.

(b) Opinion. (1) The authority is a public benefit corporation, created in 1944 to provide dormitories and related facilities at colleges in the State of New York. This issue was floated to help finance the construction of certain dormitory facilities at various colleges of the State University of New York. These dormitories have been completed and are now being utilized.

(2) The bonds mature serially from 1963 to 1984. They are payable solely from the revenues derived from the lease of the dormitory facilities by the Authority to the State University of New York. The lease agreement provides for an annual rental sufficient to cover debt service requirements, and all other necessary charges. To date the University has made all required rental payments when due. Occupancy rates for the facilities have been very high, and there appears little likelihood of a shortage of the necessary funds. The Authority has never defaulted in the payment of its bond obligations.

(c) Ruling. We conclude that the subject bonds are eligible for investment by national banks within the limitations of paragraph seventh of 12 U.S.C. 24. [27 F.R. 9377, Sept. 21, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.116 Massachusetts Turnpike Authority.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $180,000,000 Massachusetts Turnpike Authority, Boston Extension Series A and Series B Revenue Bonds of 1962, dated January 1, 1962, due January 1, 2002, for investment by national banks under paragraph seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Massachusetts Turnpike Authority was created in 1952 as a public instrumentality of the Commonwealth of Massachusetts to construct, maintain, repair, and operate the Massachusetts Turnpike. The Initial

Turnpike, opened for traffic on May 16, 1957, was financed by the $239,000,000, 3.30 percent Turnpike Revenue Bonds (Series 1954) due in 1994, In 1954, prior to the construction of the Initial Turnpike, this issue was ruled ineligible for purchase by national banks, under the Investment Securities Regulation of this Office.

(2) The instant issue is to finance the construction of the Boston Extension, a limited access toll expressway which will bridge the 12 miles from the eastern terminus of the Initial Turnpike to downtown Boston. Interest upon these Bonds will be payable solely from the net revenues derived from the operation of the Boston Extension until the 1954 Bonds are retired. Similarly, no redemption of the Extension Bonds is permitted until that time. The Enabling Act provides that neither the full faith and credit of the Commonwealth or its political subdivisions, or their taxing power, are pledged to the payment of either of these issues.

(3) The Initial Turnpike has been in operation for over five years. Net revenues have increased regularly. Bond interest on the 1954 issue was covered 1.18 times in 1959, 1.30, in 1960, and 1.41, in 1961. Average annual debt service has risen to 92 percent of coverage. Full coverage can be expected soon if the present trend continues. The construction of the Boston Extension, scheduled for completion in 1965, can be expected to result in a further favorable increase in revenues through the inducement of a larger traffic volume on the Turnpike. The Reserve Account at the end of 1961 equaled 17 months' interest on the Bonds. It is expected to reach the required two-year level next year.

(c) Ruling. We conclude that the $180,000,000 Massachusetts Turnpike Authority, Boston Extension Series A and Series B Revenue Bonds of 1962, do not at present qualify as "investment securities" within the meaning of Paragraph Seventh of 12 U.S.C. 24. However, the $239,000,000 Massachusetts Turnpike Authority, 3.30 percent Turnpike Revenue Bonds (Series 1954) do qualify as "investment securities," within the meaning of that section. Under 12 U.S.C. 335, this ruling is of applicability to state member banks.

[27 F.R. 10791, Nov. 6, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

1.117 City of London, Kentucky.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $1,150,000 City of London, Kentucky, Industrial Building Revenue Bonds, dated September 1, 1962, for investment by national banks under the provisions of Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. The subject issue consists of special revenue bonds due serially in various amounts beginning March 1, 1964, and with the final maturity on March 31, 1983. The proceeds of the bonds are to be used to construct and equip an industrial building, which the city will lease to Caron Spinning Company to provide additional facilities for the Company's wool processing and spinning business. The lease is noncancelable, and binds the Company to pay the city over a period of 20 years, amounts sufficient to pay the principal and interest on the bonds until they have been retired. In addition, provision is made for the establishment of a sinking fund reserve of one year's annual debt service requirement from the rentals. The credit quality of the issue clearly rests upon the financial responsibility and history of the lessee. The earnings records and financial statements of the Company warrant the conclusion that the subject bonds fall within section 2(c) of the Investment Securities Regulation of the Comptroller. However, bankers are reminded that they must determine on the basis of their own review whether securities are suitable for investment.

(c) Ruling. We conclude that the subject bonds are eligible for investment by national banks within the limitations of paragraph seventh of 12 U.S.C. 24.

[27 F.R. 9890, Oct. 6, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

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members by providing financial and technical assistance for development programs and projects. It was established by virtue of an agreement which has been ratified by the United States and all of the Latin American countries except Cuba. The Agreement establishing the Bank became effective on December 30, 1959, and it began operations on October 1, 1960.

(2) The authorized capital stock of the bank together with the initial authorized resources of the Fund for Special Operations total $1,000,000,000. The initial authorized resources of the Fund for Special Operations are $150,000,000, to be created from contributions from the member countries. Of this amount, $146,316,000 has actually been contributed. The Bank has an authorized capital stock of $850,000,000. Of the total capital stock actually subscribed ($813,160,000 since Cuba did not become a member), $381,580,000 is paid in capital, including $150,000,000 contributed by the United States, and $431,580,000 is callable capital, $200,000,000 of it subscribed by the United States. Provision has been made to increase callable capital by $500,000,000.

(3) The ordinary capital resources are used to make loans to private enterprise, to governments, to government agencies to help finance industrial, agricultural and mining development projects and to help expand and improve such needs as electric power, water supply, irrigation works and arable land. Loans thus made are for periods from ten to twenty years and bear interest at 534 percent. It is not the policy of the bank wholly to undertake the financing of large-scale projects. The Bank, however, will generally consider participation with other financial institutions in these projects. As a general rule, only those projects involving loans in excess of $100,000 will be considered. In addition to loaning directly, the Bank will also guarantee certain loans.

(4) Up to this time 55 loans aggregating $191,000,000 were made from the Bank's ordinary capital resources. Of this, $84,000,000 went to private enterprise, $34,000,000 for financing water supply and sewage projects and $72,000,000 for governments and government agencies and enterprises for farm settlement, colonization, mining devel

opment, irrigation, electric power expansion, etc.

(5) It will be the usual policy of the Bank to finance only projects in which the borrower makes a substantial investment. In loans to private borrowers, the Bank ordinarily will not advance more than 50 percent of the cost of the project. In the case of loans to governments, consideration is to be given to the individual country's contribution to the total development effort.

(6) In addition to the ordinary capital resources, the Bank has established a special operations fund which was created to deal with special circumstances and conditions. This fund consists of $146,316,000 and includes $100,000,000 which was contributed by the United States. Through mid-August of this year, 24 loans aggregating $76,000,000 were made out of this fund.

(7) A third source of funds available to the bank is the social progress trust fund of $500,000,000 which the United States Government has established for social development programs in Latin America as part of the Alliance for progress program. The Bank will administer $394,000,000 of this fund. To date 40 loans aggregating $243,000,000 have been made from this fund which were used for land improvement, agricultural credit, financing community water supply and sanitation projects, improvement of advanced education, etc.

(8) Thus, in a period of 18 months, the Inter-American Development Bank has committed about $500,000,000 as part of a program to improve the standard of living and productivity in all of its member countries in Latin America.

(9) At present, the Bank has one securities issue outstanding of $24,200,000 in Lire which it floated in the Italian market in April of this year. It is expected that the Bank will go into the United States market in the near future and the Bank desires our ruling as to the eligibility for investment of these securities. These securities are comparable to those issued by the World Bank.

(10) The Secretary of the Treasury has urged the States to enact legislation to make bonds of the Bank legal for investment by institutional and fiduciary investors in their respective jurisdictions, and many States have done so.

(c) Ruling. We conclude that securities issued by the Inter-American Devel

opment Bank are eligible for purchase by national banks. Under the provisions of 12 U.S.C. 24 specifically applying to obligations of the Bank, therefore, such securities are eligible for purchase, dealing in, or underwriting by national banks, provided that no such bank may so hold them in a total amount exceeding 10 percent of capital and surplus. For this purpose securities as to which a bank is under commitment to purchase are deemed to be held by it. Under 12 U.S.C. 335 the foregoing is applicable to state member banks.

[27 F.R. 10827, Nov. 7, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.119 Savings Banks Trust Company, New York, New York.

(a) Request. The Comptroller of the Currency has been requested to rule whether the Collateral Trust Notes of the Savings Banks Trust Company, New York, New York, constitute investment securities within the meaning of Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Savings Banks Trust Company proposes to issue notes under a Collateral Trust Indenture. The collateral to be pledged for the notes will be: notes of various New York savings banks which are secured by mortgages, obligations of the United States or its agencies or instrumentalities, or cash; mortgages insured by the Federal Housing Commissioner or guaranteed by the Veterans' Administration, constituting legal investments being held under short term repurchase agreements; cash; or obligations of the United States, its agencies or instrumentalities.

(2) The proposed obligations will be in the form of promissory notes, and will be issued in denominations of $1,000 or any multiple thereof. There is no aggregate limitation as to the amount of notes which may be issued under the indenture. They may be issued at any time, from time to time, carrying various dates, maturities and interest rates. It is anticipated that they will be of a short term nature. The proposed notes will be signed by an authorized officer of the Bank and need not be authenticated by the Indenture Trustee.

(c) Ruling. We conclude from the foregoing, and a study of the Collateral Trust Indenture, that the subject notes do not constitute investment securities within the meaning of 12 U.S.C. 24.

They are however, loans subject to the limitations of 12 U.S.C. 84.

(R.S. 5200; 12 U.S.C. 84) [27 F.R. 10674, Nov. 2, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.121 City of Opelika, Alabama.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $21,000,000 bond issue of The Industrial Development Board of the City of Opelika, Alabama, dated September 1, 1962, for investment by national banks under the provisions of Paragraph Seventh of 12 U.S.C. 24. (b) Opinion. The subject issue consists of special revenue bonds due serially in various amounts beginning September 1, 1964, and with the final maturity on September 1, 1987. The proceeds of the bonds are to be applied to the acquisition of a plant site and construction of a plant thereon including certain equipment which will be leased to the United States Rubber Company. The site will be used by the lessee in the manufacture of tires for passenger cars. The bonds are secured by a pledge and assignment of the Board's interest in the Lease Agreement and the revenues and receipts derived by the Board from the leasing. They will be additionally secured by a Mortgage Indenture and Deed of Trust covering the real estate, plant, and leased equipment. The obligation of the Company to make rental payments and all other payments provided for in the agreement is absolute and unconditional. Such payments will be sufficient to pay the principal and interest on the bonds as they become due. In the event of default, the Board may re-enter and take possession of the plant, rent the same to another, and hold the United States Rubber Company liable for any deficiency in payment created thereby. The credit quality of the issue clearly rests upon the financial responsibility and history of the lessee. The earnings of the company warrant the conclusion that the subject bonds fall within section 2(c) of the Investment Securities Regulation of the Comptroller. However, each individual bank must determine on the basis of its own review whether these securities are appropriate in all respects for its investment portfolio.

(c) Ruling. We conclude that the subJect bonds are eligible for investment by

national banks within the limitations of Paragraph Seventh of 12 U.S.C. 24. [27 FR. 12399, Dec. 14, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.122 Public Building Commission of Chicago.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $81,000,000 Public Building Revenue Bonds, Series of 1963, of Public Building Commission of Chicago, for purchase, dealing in, underwriting, and unlimited holding by national banks under the provisions of Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Public Building Commission of Chicago was organized under an Act of the General Assembly of the State of Illinois which provides for the creation of public building commissions on a county basis for various purposes including borrowing money and the construction and leasing of buildings primarily for the use of municipalities and branches of the State government located within the county. The constitutionality of the Act has been upheld by the Illinois Supreme Court. The Act recites that such a commission shall be a municipal corporation and a body corporate and politic separate and apart from any other public agency or municipal corporation. Under Illinois law the City of Chicago and the County of Cook have authority to lease real and personal property from the commission for corporate purposes.

(2) The proceeds from the sale of these bonds will be used to acquire a site and to construct and equip a 31story Civic Center Courthouse and Office Building. The rentable space in the building will be leased 31 percent to the City of Chicago and 68 percent to the County of Cook. The rentals payable by the city and county will be sufficient to carry fully the expenses of operating the building, to pay the accruing interest, and to pay the bonds at maturity as well as to meet all other debt service requirements. The bonds are, thus, supported by lease rental obligations which are general obligations of the City of Chicago and the County of Cook.

(c) Ruling. Following the principles applied in the ruling on the Georgia State Authorities, §1.111, we conclude that the bonds are general obligations of the City of Chicago and the County of

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