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fornia, for investment by national banks 12 U.S.C. 24. They are not special revunder the provisions of Paragraph enue obligations of a state, municipal Seventh, 12 U.S.C. 24.

government, or duly constituted author

ity thereof, and thus do not fall within (b) Opinion. (1) The Music Center

the exception for such securities conLease Company is a nonprofit corpora- tained in $ 1.2(c). They must, theretion acting for Los Angeles County and

fore, meet the requirements contained is not a municipal authority. Its prop- in either paragraph (a) or (b) of 1.2 in erty, assets, profits and net revenues are order to be eligible to be purchased for irrevocably dedicated to Los Angeles

investment by national banks. County except that all of its net revenues (5) Paragraph (a) of $ 1.2 provides will be used first to discharge its bonds, that in order to constitute an “investdebentures or other evidences of in- ment security” within the meaning of debtedness.

paragraph seventh, 12 U.S.C. 24, the (2) The County of Los Angeles owns

security must be a marketable obligacertain property in the Civic Center Area

tion, saleable under ordinary circumof downtown Los Angeles which it has stances with reasonable promptness at leased to The Music Center Lease Com

a fair value and, (i) a public distribution pany for a period of

years. The ese

of such securities must have been proCompany will construct, in accordance vided for or made in a manner to prowith plans and specifications furnished

tect or insure the marketability of the by the County, a pavilion and related

issue; or (ii) other existing securities of facilities which it will lease to the County

the obligor must have such a public for a period of 30 years. The pavilion distribution as to protect or insure the and facilities are for the use of the pub

marketability of the issue under conlic as an auditorium, opera house, music

sideration. hall and center. The cost of construc

(6) Paragraph (b) of $ 1.2 provides tion is estimated to be about $18,850,000.

that in the case of securities which do The Lease Company proposes to issue

not meet the requirements of paragraph $13,730,000 in Leasehold Mortgage

(a) of $ 1.2 but which are issued by Bonds to finance the construction of the

established commercial or industrial pavilion and facilities. It is expected

businesses or enterprises that can demthat contributions estimated at $6,000,

onstrate the ability to service such 000 will provide the remainder of the

securities, the debt evidenced thereby financing. The bonds will have serial

must mature not later than ten years maturities beginning with $300,000 due

after date of issuance, be sound and in 1965 and gradually increasing to

secure, and 75 percent of the principal $825,000 in 1991, the final maturity.

must be extinguished by maturity date These bonds have not been publicly

by substantial periodic payments. offered but will be sold on a private

(7) The securities under consideration placement basis. There has been no

will be sold on a private placement basis; registration with the Securities and Ex

there will be no public distribution. change Commission. Internal Revenue

There are no other obligations of the isService has ruled that the interest on

suer. The issuer cannot be considered these bonds is exempt from Federal

to be an established commerical entertaxes.

prise. Although it probably can demon(3) The basic security supporting the strate ability to service the debt which bonds is the lease to the County for the will be amortized to maturity, the final use of the pavilion. The pavilion is ex- maturity in 1991, exceeds the maximum pected to be completed by November 1, of ten years permissible under $ 1.2(b). 1964. Upon completion, the County will (c) Ruling. We conclude that the begin to make payments in the amount subject bonds fail to meet the requireof $845,000 per year. These payments ments of this part and accordingly are should be sufficient to cover the principal not “investment securities” within the and interest on the bonds until their meaning of 12 U.S.C. 24 and are not maturity. The bonds are further se- eligible for investment by national banks. cured by all buildings, improvements There is, however, no legal prohibition machinery, etc., constructed on or placed against their being accepted by national on the land which is involved.

banks as collateral for loans. (4) These securities are not exempt (27 F.R. 6924, July 21, 1962. Redesignated from the limitations and restrictions of 28 F.R. 8280, Aug. 13, 1963)

(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 As

sociation. (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 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

1954 Bonds are retired. Similarly, no the Company's wool processing and spinredemption of the Extension Bonds is ning business. The lease is noncancelpermitted until that time. The Enabling able, and binds the Company to pay the Act provides that neither the full faith city over a period of 20 years, amounts and credit of the Commonwealth or its sufficient to pay the principal and interpolitical subdivisions, or their taxing est on the bonds until they have been power, are pledged to the payment of retired. In addition, provision is made either of these issues.

for the establishment of a sinking fund (3) The Initial Turnpike has been in reserve of one year's annual debt service operation for over five years. Net rev- requirement from the rentals. The enues have increased regularly. Bond credit quality of the issue clearly rests interest on the 1954 issue was covered upon the financial responsibility and his1.18 times in 1959, 1.30, in 1960, and 1.41, tory of the lessee. The earnings records in 1961. Average annual debt service has and financial statements of the Company risen to 92 percent of coverage. Full warrant the conclusion that the subject coverage can be expected soon if the bonds fall within section 2(c) of the Inpresent trend continues. The construc- vestment Securities Regulation of the tion of the Boston Extension, scheduled Comptroller. However, bankers are refor completion in 1965, can be expected minded that they must determine on the to result in a further favorable increase basis of their own review whether secuin revenues through the inducement of a rities are suitable for investment. larger traffic volume on the Turnpike. (c) Ruling. We conclude that the subThe Reserve Account at the end of 1961 ject bonds are eligible for investment by equaled 17 months' interest on the national banks within the limitations of Bonds. It is expected to reach the re- paragraph seventh of 12 U.S.C. 24. quired two-year level next year.

(27 F.R. 9890, Oct. 6, 1962. Redesignated 28 (c) Ruling. We conclude that the

F.R. 8280, Aug. 13, 1963) $180,000,000 Massachusetts Turnpike

§ 1.118 Inter-American Development Authority, Boston Extension Series A

Bank. and Series B Revenue Bonds of 1962, do not at present qualify as “investment se- (a) Request. The Comptroller of the curities” within the meaning of Para- Currency has been requested to rule on graph Seventh of 12 U.S.C. 24. However, the eligibility of the obligations of the the $239,000,000 Massachusetts Turnpike Inter-American Development Bank for Authority, 3.30 percent Turnpike Rev

investment by national banks under the enue Bonds (Series 1954) do qualify as provisions of paragraph seventh of 12 “investment securities,” within the

U.S.C. 24. meaning of that section. Under 12 (b) Opinion (1) The Inter-AmeriJ.S.C. 335, this ruling is of applicability

can Development Bank is an internato state member banks.

tional banking organization established (27 F.R. 10791, Nov. 6, 1962. Redesignated

to promote the economic progress of its 28 F.R. 8280, Aug. 13, 1963 ]

members by providing financial and

technical assistance for development $ 1.117 City of London, Kentucky.

programs and projects. It was estab(a) Request. The Comptroller of the lished by virtue of an agreement which Currency has been requested to rule on has been ratified by the United States the eligibility of the $1,150,000 City of and all of the Latin American countries London, Kentucky, Industrial Building except Cuba. The Agreement establishRevenue Bonds, dated September 1, 1962, ing the Bank became effective on Decemfor investment by national banks under ber 30, 1959, and it began operations the provisions of Paragraph Seventh of on October 1, 1960. 12 U.S.C. 24.

(2) The authorized capital stock of (b) Opinion. The subject issue con- the bank together with the initial ausists of special revenue bonds due serially thorized resources of the Fund for in various amounts beginning March 1, Special Operations total $1,000,000,000. 1964, and with the final maturity on

The initial authorized resources of the March 31, 1983. The proceeds of the Fund for Special Operations are bonds are to be used to construct and $150,000,000, to be created from conequip an industrial building, which the tributions from the member countries. city will lease to Caron Spinning Com- Of this amount, $146,316,000 has actually pany to provide additional facilities for been contributed. The Bank has an au

thorized 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 development, 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 Development 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 per cent 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 th 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

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