§ 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 noncancellable, 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. [Oct. 1, 1962]

§ 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 InterAmerican 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 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 sewerage 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 re

spective 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. [Oct. 26, 1962]

§ 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 isused 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. [Nov. 1, 1962]

§ 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. [Dec. 10, 1962]

§ 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 31-story 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, 12 CFR 1.111, we conclude that the bonds are generally obligations of the City of Chicago and the County of Cook within the meaning of Paragraph Seventh of 12 U.S.C. 24. Accordingly, they are eligible for purchase, dealing in, underwriting and unlimited holding by National Banks.

[SOURCE: Comptroller's letter dated May 21, 1963.]

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $15,000,000 Alaska State Development Corporation Class A Revenue Bonds for purchase by national banks under Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Alaska State Development Corporation was created by Acts of the Legislature of the State of Alaska as a public corporation of the State: an instrumentality of the State with legal existence separate from the State. The Supreme Court of the State of Alaska has confirmed this legislative description of the Corporation's legal status. The purpose of the Corporation is to develop the business prosperity and economic welfare of the State and its citizens by providing critically needed development loans to all types of business activity. It is expected that $7,500,000 of the Class A Bonds and $1,500,000 of Class B Revenue Bonds will be offered at public sale in June, 1963. The proceeds from the sale of both classes of bonds will be used to begin the lending activities of the Corporation. Three of the seven directors of the Corporation must be bankers and all loans must be made through a bank which must retain a participation of at least 10 percent in each loan. Reserve funds and funds not immediately required for loans will be deposited in banks or invested in obligations of the United States, the State of Alaska or its political subdivisions. Class A Bonds have specified priorities in the payment of principal and interest over other obligations

of the Corporation, and are additionally protected by the requirement that the amount of Class A Bonds outstanding at any time may not exceed five times the amount of Class B Bonds outstanding.

(2) The Class A Bonds to be offered are the result of a long and carefully developed effort by the Alaskan authorities in conjunction with businessmen, commercial banks, and professional investment advisers, to find a reasonable vehicle for the provision of critically needed business development capital in the State of Alaska. It is apparent that the State of Alaska and the Alaska State Development Corporation will have an over-riding long-term responsibility for the most prudent and businesslike management of this program in order to encourage investors within and without Alaska to continue to invest in the development of the Alaskan economy.

(3) There are obvious risks in loans to new businesses in a State at the threshold of its economic development. The provisions of the enabling legislation, however, reflect the special reliance which will be placed on Alaskan banks in processing loan applications to assure that prudent banking judgment will be exercised in the making of loans. In addition, the required participation of the Alaska banks will insure that loans will be subject to all of the restrictions applicable to bank loans generally.

(c) Ruling. We conclude that the Class A Bonds of the Alaska State Development Corporation are eligible for purchase by national banks within the limitations of Paragraph Seventh of 12 U.S.C. 24, but that such purchases may not exceed 5 per centum of the purchasing bank's capital and surplus. These bonds will be under continuing review by this Office while the Corporation accumulates operating experience.

[SOURCE: Comptroller's letter dated June 3, 1963.]

§ 1.124 Virginia Public School Authority.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility.of the $15,000,000 Virginia Public School Authority, School Financing Bonds, Series 1963A, for purchase, dealing in, under

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writing and unlimited holding by national banks under Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Virginia Public School Authority was created by an Act of the General Assembly of Virginia as a public body corporate, a political subdivision, and an agency and instrumentality of the Commonwealth of Virginia. The purpose of the Authority is to facilitate and lessen the cost of financing the construction of public schools through the purchase of school bonds of counties, cities and towns in Virginia. In order to provide funds for this purpose the Authority is authorized to issue its bonds. The General Assembly of Virginia has provided for the Authority a reserve available for operating expenses and as security for its bonds by transferring to it assets having a value in excess of $50,000,000. These assets, consisting of school notes of counties, cities and towns in Virginia, were transferred from and represent loans made by the Literary Fund, a fund for school purposes provided for in the Constitution of Virginia. The Supreme Court of Appeals of Virginia has reviewed the Acts creating the authority and transferring assets of the Literary Fund and has found that they are not in conflict with any provision of the Constitution of Virginia.

(2) The proceeds from the sale of the bonds of the Authority will be used to begin its lending activities. The bonds of the Authority will be payable from all the resources of the Authority. There resources will consist principally of local school bonds purchased by the Authority, local school notes transferred to the Authority from the Literary Fund and the income accruing from these obligations. The local school bonds and notes will be general obligations of Virginia local governments possessing powers of general property taxation.

(3) Thus, the bonds of the Authority are general obligations of a political subdivision of the Commonwealth of Virginia, and are payable from resources which consist principally of general obligations of other political subdivisions of the Commonwealth of Virginia. The notes transferred from the Literary Fund provide a substantial reserve to assure that there will be funds sufficient to provide

for all payments required in connection with the bonds of the Authority.

(c) Ruling. We conclude that the subject bonds are eligible for purchase, dealing in, underwriting and unlimited holding by national banks under Paragraph Seventh of 12 U.S.C. 24.

[SOURCE: Comptroller's letter dated June 14, 1963].

§ 1.125 General State Authority of the Commonwealth of

Pennsylvania.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $50,000,000 Eighteenth Series, Bonds of the General State Authority of the Commonwealth of Pennsylvania 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 General State Authority was created in 1949, by an Act of the General Assembly of the Commonwealth of Pennsylvania, as a body corporate and politic, a public corporation and a governmental instrumentality. The purpose of the Authority is the acquisition, construction, and improvement of various public projects. In order to provide funds for this purpose the Authority is authorized to issue its bonds and to pledge, for the payment thereof, its revenues, receipts and its full faith and credit. It is not authorized, however, to pledge the credit or the taxing power of the Commonwealth.

(2) The proceeds from the sale of the Bonds of the Authority will be used for various projects which are to be leased to the Commonwealth. The leases will provide for payment, out of the current revenues of the Commonwealth, of annual rentals sufficient to meet the annual principal and interest requirements on the bonds. In the event the current revenues of the Commonwealth for any year are not sufficient to pay the entire rental, the balance of such rental will be paid out of the current revenue of succeeding years. The bonds will be direct and general obligations of the Authority and will be secured equally with all other bonds of the authority, issued or to be issued, by the full faith and credit of the Authority and by the