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(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)

$ 1.114

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 ger al ligations 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 dormintory facilities at various colleges of the State University of New York. These dormitories have been completed and are now being utilized.

$1.116 Massachusetts Turnpike Au

thority. (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

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. 127 F.R. 9890, Oct. 6, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963)

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 J.S.C. 335, this ruling is of applicability to state member banks. 127 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

§ 1.118 Inter-American Development

Bank. (a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the obligations of the Inter-American Development Bank for investment by national banks under the provisions of paragraph seventh of 12 U.S.C. 24.

(b) Opinion (1) The Inter-American Development Bank is an international banking organization established to promote the economic progress of its 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 au

thorized capital stock of $850,000,000. (7) A third source of funds available Of the total capital stock actually sub- to the bank is the social progress trust scribed ($813,160,000 since Cuba did not fund of $500,000,000 which the United become a member), $381,580,000 is paid States Government has established for in capital, including $150,000,000 con- social development programs in Latin tributed by the United States, and America as part of the Alliance for $431,580,000 is callable capital, $200,000,- progress program. The Bank will ad000 of it subscribed by the United States. minister $394,000,000 of this fund. To Provision has been made to increase call- date 40 loans aggregating $243,000,000 able capital by $500,000,000.

have been made from this fund which (3) The ordinary capital resources are were used for land improvement, agriused to make loans to private enter- cultural credit, financing community prise, to governments, to government water supply and sanitation projects, agencies to help finance industrial, improvement of advanced education, agricultural and mining development

etc. projects and to help expand and improve (8) Thus, in a period of 18 months, the such needs as electric power, water sup

Inter-American Development Bank has ply, irrigation works and arable land. committed about $500,000,000 as part of Loans thus made are for periods from a program to improve the standard of ten to twenty years and bear interest living and productivity in all of its memat 534 percent. It is not the policy of ber countries in Latin America. the bank wholly to undertake the financ- (9) At present, the Bank has one seing of large-scale projects. The Bank, curities issue outstanding of $24,200,000 however, will generally consider partici- in Lire which it floated in the Italian pation with other financial institutions market in April of this year. It is exin these projects. As a general rule, pected that the Bank will go into the only those projects involving loans in

United States market in the near future excess of $100,000 will be considered. In and the Bank desires our ruling as to the addition to loaning directly, the Bank eligibility for investment of these securiwill also guarantee certain loans.

ties. These securities are comparable to (4) Up to this time 55 loans aggregat- those issued by the World Bank. ing $191,000,000 were made from the (10) The Secretary of the Treasury Bank's ordinary capital resources. Of has urged the States to enact legislation this, $84,000,000 went to private enter- to make bonds of the Bank legal for inprise, $34,000,000 for financing water vestment by institutional and fiduciary supply and sewage projects and investors in their respective jurisdic$72,000,000 for governments and govern- tions, and many States have done so. ment agencies and enterprises for farm (c) Ruling. We conclude that securisettlement, colonization, mining devel- ties issued by the Inter-American Development, irrigation, electric power expan- opment Bank are eligible for purchase sion, etc.

by national banks. Under the provisions (5) It will be the usual policy of the

of 12 U.S.C. 24 specifically applying to Bank to finance only projects in which

obligations of the Bank, therefore, such the borrower makes a substantial invest

securities are eligible for purchase, dealment. In loans to private borrowers,

ing in, or underwriting by national the Bank ordinarily will not advance

banks, provided that no such bank may more than 50 percent of the cost of the

so hold them in a total amount exceeding project. In the case of loans to govern

10 per cent of capital and surplus. For ments, consideration is to be given to

this purpose securities as to which a the individual country's contribution to

bank is under commitment to purchase the total development effort.

are deemed to be held by it. Under 12 (6) In addition to the ordinary capital

U.S.C. 335 the foregoing is applicable to resources, the Bank has established a

state mem banks. special operations fund which was

(27 F.R. 10827, Nov. 7, 1962. Redesignated created to deal with special circum

28 F.R 8280, Aug. 13, 1963] stances and conditions. This fund consists $146,316,000 and includes

§ 1.119 Savings Banks Trust Company, $100,000,000 which was contributed by

New York, New York. the United States. Through mid-August (a) Request. The Comptroller of the of this year, 24 loans aggregating Currency has been requested to rule $76,000,000 were made out of this fund. whether the Collateral Trust Notes of the

of

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 F.R. 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 description of the Corporation's legal staof buildings primarily for the use of tus. The purpose of the Corporation is municipalities and branches of the State to develop the business prosperity and government located within the county. economic welfare of the State and its The constitutionality of the Act has been citizens by providing critically needed upheld by the Illinois Supreme Court.

development loans to all types of busiThe Act recites that such a commission

ness activity. It is expected that shall be a municipal corporation and a

$7,500,000 of the Class A Bonds and body corporate and politic separate and

$1,500,000 of Class B Revenue Bonds apart from any other public agency or

will be offered at public sale in municipal corporation. Under Illinois

June, 1963. The proceeds from the sale law the City of Chicago and the County

of both classes of bonds will be used to of Cook have authority to lease real

begin the lending activities of the Corpoand personal property from the commis

ration. Three of the seven directors of sion for corporate purposes.

the Corporation must be bankers and all (2) The proceeds from the sale of

loans must be made through a bank these bonds will be used to acquire a

which must retain a participation of at site and to construct and equip a 31

least 10 percent in each loan. Reserve story Civic Center Courthouse and Office

funds and funds not immediately reBuilding. The rentable space in the

quired for loans will be deposited in building will be leased 31 percent to the

banks or invested in obligations of the City of Chicago and 68 percent to the

United States, the State of Alaska or its County of Cook. The rentals payable

political subdivisions. Class A Bonds by the city and county will be sufficient

have specified priorities in the payment to carry fully the expenses of operating

of principal and interest over other oblithe building, to pay the accruing interest,

gations of the Corporation, and are adand to pay the bonds at maturity as well

ditionally protected by the requirement as to meet all other debt service require

that the amount of Class A Bonds outments. The bonds are, thus, supported

standing at any time may not exceed by lease rental obligations which are

five times the amount of Class B Bonds general obligations of the City of Chi

outstanding. cago and the County of Cook.

(2) The Class A Bonds to be offered (c) Ruling. Following the principles

are the result of a long and carefully deapplied in the ruling on the Georgia

veloped effort by the Alaskan authorities State Authorities, $ 1.111, we conclude

in conjunction with businessmen, comthat the bonds are general obligations of

mercial banks, and professional investthe City of Chicago and the County of

ment advisers, to find a reasonable Cook within the meaning of Paragraph vehicle for the provision of critically Seventh of 12 U.S.C. 24. Accordingly, needed business development capital in they are eligible for purchase, dealing the State of Alaska. It is apparent that in, underwriting and unlimited holding the State of Alaska and the Alaska State by National Banks.

Development Corporation will have an [28 FR. 8280, Aug. 13, 1963)

over-riding long-term responsibility for

the most prudent and businesslike man§ 1.123 Alaska State Development Cor- agement of this program in order to enporation.

courage investors within and without (a) Request. The Comptroller of the Alaska to continue to invest in the develCurrency has been requested to rule on

opment of the Alaskan economy. the eligibility of the $15,000,000 Alaska (3) There are obvious risks in loans to State Development Corporation Class A

new businesses in a State at the threshRevenue Bonds for purchase by national old of its economic development. The banks under Paragraph Seventh of 12 provisions of the enabling legislation, U.S.C. 24.

however, reflect the special reliance (b) Opinion. (1) The Alaska State which will be placed on Alaskan banks Development Corporation was created by

in processing loan applications to assure Acts of the Legislature of the State of that prudent banking judgment will be Alaska as a public corporation of the

exercised in the making of loans. In State: an instrumentality of the State addition, the required participation of with legal existence separate from the

the Alaska banks will insure that loans State. The Supreme Court of the State will be subject to all of the restrictions of Alaska has confirmed this legislative applicable to bank loans generally.

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