Bill or Regulation Background and Current Status

Urban Aid Legislation (HR 11) In the wake of unrest in Los

Angeles and other cities,

Congress has been trying to

craft legislation to provide

financial aid and tax relief to

urban areas. The House version,

passed on July 2, is HR 11,

which would create urban

enterprise zones. The plan

would allow tax-exempt

qualified redevelopment bonds

to be issued in the zones for a

number of uses, including loans

to small businesses. The bill

would also permanently extend

the tax exemptions for mortgage

revenue bonds and small-issue

industrial development bonds,

and the low-income housing tax

credit, which expired on June

30. In addition, the bill

contains several tax

simplification provisions that

would ease the arbitrage rebate

requirement and other tax law

bond curbs. But the bill also

includes a provision that would

require mark-to-market

accounting of municipal bonds

and other securities, which has

been widely criticized by the

securities industry.

The Senate Finance Committee,

meanwhile, approved enterprise

zone legislation on July 30

that also contains a bond

component. The bill would

create a new category of

exempt-facility bond that could

be used to purchase land,

buildings, and equipment used

by enterprise zone businesses.

It also would renew the

mortgage bond and IDB

exemptions and the low-income

housing tax credit and extend

them through Dec. 31,1993. The

bill also includes a different

set of simplification items

than the one found in the House

bill. The full Senate, which

started debating the bill just

before Congress left for its

August recess, is expected to

resume consideration of the

committee bill in September.

Energy Bill (HR 776) A comprehensive energy bill

passed by the House on May 27

contains two provisions added

by the House Ways and Means

Committee that would affect the

tax-exempt bond market. One

would remove investment

restriction on nuclear

decomissioning trust funds,

which under current law may

invest only in U.S. Treasury

securities and tax-exempt

municipal bonds. That provision

would also lower the funds '34%

tax rate to 20%. Another

provision, sponsored by Rep.

Beryl Anthony, D-Ark., would

increase the supply of

bank-qualified bonds and was

designed to offset any negative

impact on demand for municipals

that the nuclear trust fund

measure might cause. Under

current law, banks may deduct

80% of the cost of carrying

municipal bonds if they are

bought from issuers who expect

to sell no more than $10

million annually. Rep.

Anthony's provision would raise

that amount to $20 million.

On July 30, the Senate

approved its version of energy

legislation, which proposed

removing investment

restrictions on nuclear

decommissioning funds, but did

not propose lowering the tax

rate. The bill also does not

include the provision on

bank-qualified bonds. It does,

however, contain an amendment

offered by Sen. Steve Symms,

R-Idaho. that would remove

volume cap limitations on

high-speed rail bonds. A

conference committee to work

out differences between the two

bills is expected to most in

September.

Waxman Bill (HR 4848) Introduced on April 10 by Rep.

Henry Waxman, D-Calif., this

legislation would hurt the

municipal bond market by

imposing a 2.5% tax on unearned

income, including interest from

tax-exempt bonds, to fund a new

long-term health-care program

for the chronically ill and

disabled. Congress is not

expected to pass any

health-care legislation this

year, but hearings may be hold

on health-care reform later

this year and Rep. Waxman's

bill is expected to be at the

center of the discussion.

Mortgage Board Extension (HR Rep. Barbara B. Kennelly,

1067 and S 167) D-Conn., and Sen. Donald W.

Riegle, D-Mich., introduced

legislation last year to

permanently extend the tax

exemption for mortgage revenue

bonds, which expired June 30.

Congress is considered likely

to pass legislation later this

year that would grant a

short-term extension for the

mortgage bond exemption.

Small-Issue Industrial Rep. William Coyne, D-Pa., and

Development Bond Extension Sen. John B. Breaux, D-La.,

(HR 1186 and S 1357) introduced legislation last

year to extend the tax

exemption for small-issue IDBs,

which expired June 30. Rep.

Coyne's bill would extend IDB

use through 1996, and Sen.

Breaux's bill would make it

permanent. Congress is

considered likely to pass

legislation later this year

that would grant a short-term

extension for the IDB bond

exemption.

Bond Simplification (HR 2775, Rep. Dan Rostenkowski, D-III.,

HR 2777 and S 1394) and Sen. Lloyd Bentsen, D-Tex.,

teamed up last year to offer

broad tax simplification

legislation - HR 2777 and S

1394 - that includes a number

of minor provisions to make

bond rules more workable. In

addition, Rep. Rostenkowski

introduced HR 2775, which

included a few major bond

simplification provisions, such

as increasing the small-issuer

arbitrage exemption to $10

million. Some of the provisions

in all three bills were

included in the urban aid

measures passed by the House

and the Senate Finance

Committee.

Easing of Bond Curbs (HR 710 Along with easing the arbitrage

and S 913) rebate requirement and limits

on bank deductibility, the

legislation introduced last

year by Rep. Beryl Anthony,

D-Ark., and Sen. Max Baucus,

D-Mont., would modify several

other tax law bond curbs, such

as repealing the 5% unrelated

and disproportionate use test.

Some of the provisions in this

legislation found their way

into Rep. Rostenkowski's

simplification bill, HR 2775,

and into urban aid bills passed

by the House and the Senate

Finance Committee.

Expanding Demand for Rep. Tom McMillen, D-Md.,

Municipals (HR 5154) introduced legislation on May

14 designed to increase

purchases of municipal bonds in

two areas: pension funds and

individual retirement accounts.

Under Rep. McMillen's plan,

pension funds and IRAs would

receive 43 cents in federal

subsidies for every dollar

earned in interest income from

investments in tax-exempt

bonds. Rep. McMillen is not a

member of the House Ways and

Means Committee, and Congress

has taken no action yet on his

measure. Capitol Hill watchers

have said chances for passage

of his bill are slim, because

it would be difficult for

Congress to find the money

needed to pay the subsidies.

Environmental Finance (S 90 Sen. Pets Domenici, R-N.M., is

and HR 2172) the author of S 90, which would

reduce restrictions on

tax-exempt bonds used to help

clean up the environment that

benefit private firms by

classifying them as

"governmental," exempting them

from the private-activity

volume cap, and permitting

accelerated depreciation for

all privately owned

infrastructure facilities

financed with tax-exempt bonds.

Rep. Frank Guarini, D-N.J., is

the author of HR 2172, which

also reduces curbs on

private-activity bonds used for

environmental facilities but

does not permit expanded

depreciation. Neither measure

is expected to be considered

seriously this year, especially

in light of the current

stalemate over enacting a tax

bill. Sen. Domenici, however,

may attempt to offer his

proposal as an amendment

to the urban aid bill pending

in the Senate.

HHS Regulations on Medicaid Regulations are due out Oct. 1

Financing implementing changes to the

Medicaid program that sparked

an uproar among state and local

governments last year.

Originally, the Department of

Health and Human Services

proposed rules Sept. 12,1991,

that were slated to go into

effect Jan. 1, 1992, but they

caused so much controversy that

Congress passed legislation

delaying the rules until

October. The rules are designed

to prevent a state from

counting certain tax revenues

or donations from hospitals

toward the contributions it

makes to the Medicaid program

that are eligible for federal

matching funds. Department

officials have been meeting

with state and local lobbyists

to craft the upcoming rules.

HOME Program Legislation The National Affordable Housing

(HR5334 and S3031) and Act of 1990 known as the HOME

Regulations program, is up for

reauthorization this year.

Under the program, the federal

government matches

contributions that state and

local governments make to

rental housing and home

ownership programs for

low-income people. One of the

key issues during the

reauthorization debate will be

whether all forms of tax-exempt

debt should count toward the

match. The 1990 law is vague in

this area, and HUD has taken

the position that only general

obligation bonds should be

eligible for matching funds.

Housing industry officials,

meanwhile, say private-activity

bonds should count as well. In

August the House approved its

version of the reauthorization,

which would allow 100% of the

value of private-activity bond

issuances to be counted toward

the match and would fund HOME

at a level of $2.1 billion for

fiscal 1993. The Senate Banking

Committee approved a bill on

June 22 that would allow only

25% of the value of

private-activity bond issuances

to be eligible for federal

matching funds. HUD, meanwhile,

is still drafting the

regulations for the

two-year-old program and is

expected to publish them later

this year.

Student Loan Bonds (HR 3553 Congress gave final approval in

and S 1150) early July to a comprehensive

bill that would reauthorize the

Higher Education Act of 1965.

The bill contains a provision

that would set up a pilot

program to test the idea of

having colleges be directly

responsible for making and

servicing student loans. Under

present law, the federal

government guarantees loans

made to students by commercial

banks, which in turn sell the

loans to state higher education

authorities who often finance

their purchases with tax-exempt

bonds. Education officials have

warned that a direct-loan

program would obviate the need

for those authorities and, in

turn, for tax-exempt student

loan bonds.

Government Securities Act The Senate passed two

Reauthorization (S 1699, complementary and relatively

S 1247, and HR 3927) simple bills last year that

were introduced by Sen.

Christopher Dodd, D-Conn. S

1247, passed on July 31, 1991,

reauthorized the Government

Securities Act of

Bill or Regulation Background and Current Status

Government Securities Act (continued from previous page)

Reauthorization (S 1699, 1986 and indefinitely extended

S 1247, and HR 3927 the Treasury's rule-making

authority. S 1699, passed Sept.

25, 1991, in the wake of the

Salomon Brothers bidding

scandal, extended the

Treasury's rule-making

authority for one year, made it

illegal to provide false

information in connection with

bidding for government

securities, and extended the

SEC's antifraud authority to

the government securities

market. In the House, the

Energy and Commerce Committee

on June 2 approved HR 3927, a

more complex measure containing

several provisions that trouble

the securities industry.

Included is a provision giving

the Treasury authority to

identify large trading

positions in the government

securities market and backup

authority for the Securities

and Exchange Commission to

monitor prices and audit sales

transactions. The Treasury, the

Federal Reserve, and market

participants oppose the bill.

The Banking Committee Aug. 6

approved a rival bill that

would bar the SEC from writing

rules involving record keeping,

fraud, internal controls, or

record keeping for bank

dealers. instead, the rules

would have to come from the

appropriate bank regulatory

agencies. Such an approach is

opposed by the Commerce

Committee, which argues that it

could be confusing to the

market.

In addition, congressional

sources say the Ways and Means

Committee believes the Banking

Committee overstepped its

jurisdiction by including a

provision that would allow

Treasury to bar or suspend

dealers who violate auction

rules. Ways and Means claims

authority for legislation

involving Treasury debt

operations.

It is unclear when a bill

will come to the House floor

for a vote. Aides said the

three committees have to work

out their differences when

Congress returns from its

August recess.

Fiscal 1993 Budget Resolution The House and Senate gave final

(H Con.Res.287) approval to the fiscal 1993

budget plan on May 21, but the

vote in each chamber was much

closer than expected. The House

vote was 209 to 207, while the

Senate approved it 52 to 41

after a conference committee

approved the compromise measure

on May 20. The new budget sets

an overall cap on domestic

spending of $225.3 billion, the

level called for in the 1990

budget agreement. To comply

with the cap, the House and

Senate Appropriations

committees will have to cut

domestic programs by $6.4

billion. In addition, the

budget calls for cuts of $7

billion in defense spending

cuts.

Balanced Budget Amendment The amendment would require

to the U.S. Constitution (H J. U.S. receipts to equal outlays,

Res.290) unless waived by a three-fifths

majority of both houses of

Congress. The House defeated

the amendment by a vote of 280

to 153 on June 11, falling 9

votes short of the two-thirds

majority needed to pass. The

Senate also buried the

amendment on July 1 when it

failed to break off a

filibuster being waged by

opponents. President George

Bush and congressional sponsors

have vowed to force another

round of votes early next year,

when the new Congress arrives,

if the President is reelected.

Budget Fire Walls Bill Both bills would have

(S 2399, HR 3732) eliminated one year ahead of

schedule the fire walls between

defense, domestic, and

international spending

established by the 1990 budget

agreement. But the bills are in

limbo after the Senate version

failed in a March 26 test vote

and the House defeated its

measure March 31. Senate

leaders have no plans for

further action on their bill,

but House leaders say they may

bring the measure up again

later this year if the

political climate improves.

Superconducting Super Collider The House on June 17 voted to

Energy and Water kill the Super Collider science

Appropriations Bill project in Texas by stripping

(H.R. 5373) nearly all the $483 Energy and

Water million in federal

funding provided in a fiscal

1993 appropriations bill. The

Senate Appropriations Committee

countered on July 23 by

approving a $550 million

appropriation for the Collider

in a bill that the full Senate

passed after a heated debate

over the Collider on Aug. 3.

The House and Senate will try

to resolve their differences

over whether to continue the

project in a conference

committee scheduled to convene

after Congress returns from its

Labor Day recess.

MSRB Municipal Securities The primary market disclosure

Information Library Primary system of the Municipal

Market Disclosure System Securities Rulemaking Board's

Municipal Securities

Information Library went into

operation in late April, just

over 10 months after the SEC

approved it. Under the system,

official statements filed with

the board by underwriters are

put on high-capacity digital

audio tapes that can be sold

to information vendors who may

repackage the information and

resell it. The system allows

market participants to obtain

picture-perfect images of most

of the official statements

produced in the country.

Bloomberg Financial Markets

became the first vendor to

receive digital tapes in early

July.

MSRB Continuing Disclosure The Municipal Securities

Pilot Program Rulemaking Board's 18-month

experimental Continuing

Disclosure Information Pilot

system, which is the second

major element of the MSRB's

Municipal Securities

information Library, was

approved by the Securities and

Exchange Commission April 6.

When the voluntary pilot

program is launched in November

bond trustees will be able to

file three-page notices of

important events - such as

calls and draws on escrow

funds - affecting bonds they

oversee in the secondary

market. The notices can be

filed by fax machine or mail.

Six months after the pilot

system is started, issuers may

voluntarily start filing

similar notices. When the pilot

program ends about May 1994,

the SEC and MSRB will decide if

they want to make the program

permanent and whether and how

to expand it. The board's MSIL

facility, including its public

access facility, is being moved

from the board's Washington,

D.C., headquarters to nearby

Alexandria, Va., at 1640 King

St.

SEC Rule 2a-7 The unveiling of a new

Securities and Exchange

Commission rule governing

tax-exempt money market funds

continues to be delayed by

President Bush's 1992

moratorium on rule-making and

by election year politics. The

SEC in January issued now

standards for both taxable and

tax-exempt money market funds,

but most of the rigorous now

requirements governing the

kinds and variety of securities

that funds can hold do not

apply to tax-exempts. Interest

in the new rule was heightened

last winter when SEC

Commissioner Richard Roberts

recommended that the agency

restrict tax-exempt money

market funds from investing in

short-term paper of issuers

that do not pledge to make

secondary-market disclosure.

The investment Company

Institute, the industry

association representing mutual

funds, wrote Mr. Roberts Dec. 6

opposing the proposal. The group

began work this spring on

disclosure guidelines for

tax-exempt money market and

mutual funds in hopes of

heading off the commissioner's

plan.

SEC Rule for Assessment of The SEC adopted temporary rules

Risks Posed by Derivative in late July that require for

Products (Rules 17h-1T and 2T) the first time that holding

companies, affiliates and

subsidiaries of brokerage firms

report their holdings of

derivative products in

quarterly financial reports

they file with the SEC. The

rule takes effect Sept. 30 and

expires at the end of 1994 when

the SEC is to decide whether to

make it permanent. It is

designed to help the agency

estimate the risks involved in

the burgeoning derivatives

market, including tax-exempt

products. SEC Commissioner

Richard Roberts said in a

speech Aug. 24 that the SEC

should consider setting

reasonable limits on the

ability of tax-exempt money

market funds to invest in some

synthetic variable-rate demand

notes. But he added that many

of the issues surrounding

interest rate swaps should be

left up to the market and

issuers rather than federal

regulators.

MSRB Proposed Official The MSRB last month adopted its

Statement Collection Rule controversial plan to require

underwriters to send official

statements for short-term and

variable-rate demand note deals

to the board's Municipal

Securities information Library.

But the board backed away from

a proposal that would have

required dealers to send

documents for private

placements to MSIL. The move

means that official statements

for nearly all municipal

securities issued in the U.S.

will be available from MSIL's

primary market disclosure

section. The rule still must be

approved by the Securities and

Exchange Commission, which will

open it up for another round of

comment later this year. it

would not take effect until

January, at the earliest.

Financial Accounting Standards The Financial Accounting

Board Project on Market Value Standards Board agreed on July

Accounting 15 to move ahead with a

controversial proposal to Board

Project on Market Value require

banks to value their investment

securities, including some

municipal bonds, at their

current market value rather

than their original market

price. Banks could continue to

report those bonds at their

original purchase price that

they intend to hold to

maturity. For bonds that banks

do not plan to hold to

maturity, unrealized gains and

losses would not be included in

earnings, which according to a

FASB official, means that they

are shown as a separate

component of shareholders'

equity on balance sheets.

Municipal industry leaders warn

that the standard will have

grave effects on the market, by

weakening the demand by

financial institutions for

long-term debt securities. The

board is expected to vote on a

formal proposal for public

comment shortly.

Proposals for Streamlining Public comment is due Sept. 21

Clearance and Settlement on a report by a securities

industry task force that

recommended on May 26 that

Clearance and Settlement stock

and bond trades be settled in

three days instead of the

current five. The report,

however, signaled that such a

tight time frame may not be

possible for settlement of

municipal transactions.

Securities and Exchange

Commission Chairman Richard C.

Breeden, who originally

recommended the creation of

the task force, sought to allay

fears that the so-called "T

plus 3" concept will disrupt

the securities industry and

said it will probably take two

to three years to shift over to

the faster settlement system

rather than the original target

of 1993. The task force, headed

by John Bachmann, chairman of

St. Louis-based Edward D. Jones

& Co., was set up in November

1991 as an outgrowth of the

Group of 30, an international

panel examining how to

streamline clearance and

settlement of securities

worldwide.

Bill or Regulation Background and Current Status

Registration of Rating The SEC received numerous

Agencies comments in August from the

municipal industry on the

question whether nationally

recognized rating agencies

should be required to meet

minimum operating standards. A

number of law firms and dealers

opposed the idea, which has

been raised by SEC member

Richard Roberts in a series of

speeches this year. SEC

commissioners, meanwhile, are

split over the issue, according

to letters they sent recently

to Rep. John Dingell, D-Mich.,

who plans to introduce

legislation next year calling

for registration of rating

firms.

Registration of Conduit Bonds The Municipal Securities

Rulemaking Board, growing

increasingly concerned that

some brokers may be selling

unsuitable bonds to small

investors, voted in August to

launch a major study of whether

new rules are needed Securities

and Exchange Commissioner

Richard Roberts proposed in a

speech Feb. 29 that municipal

bond brokers be required to put

in writing why they think their

recommendations to retail

investors to buy unrated

conduit bonds are suitable.

Broker-Dealers currently are

required by law to make

suitability determinations, but

they do not have to put the

determination in writing. The

SEC's market regulation chief

William Heyman wrote the MSRS

early last month urging it to

take up the proposal or

consider other solutions.

Investment Advisers The House Energy and Commerce

Legislation (H.R. 5726, Committee approved broad

S 2266) legislation on Aug. 4 to

increase federal regulation of

financial advisers after easing

some requirements included in a

bill approved by its

subcommittee a week earlier.

The bill would raise the fees

advisers pay to register with

the SEC, direct the SEC to pay

particular attention in

inspections to new or

financially troubled advisers

and require the SEC to search

for unregistered advisers. The

bill also includes a provision

requiring advisers to supply

investors with brochures

describing their

background and practices as well

as their commissions or fees

for various transactions. The

panel watered

down a provision that would

have required advisers to

provide periodic summaries of

all charges to customers

and authorized the SEC to

designate an outside

organization to handle much of

the increased inspection activity

called for in the legislation.

The bill is much broader than a

bill approved earlier this year

by the Senate Banking

Committee, which would do

little more than require an

increase in fees to pay for

increased inspections by

regulators. Action by the full

House and Senate has not been

scheduled.

IRS Arbitrage Rebate The Internal Revenue Service on

Regulations May 12 finalized arbitrage

(Fl-91-86/1.148-0 to -9 and rebate rules that had been

1.149(d)(-1) and 1.150-0-1 and published in temporary

1.103.13T form in May 1989. The IRS set a

June 30,1993, expiration date

for the final rules, however,

and announced it

would rewrite and simplify them

before that date. The IRS said

it would integrate yield

restriction and rebate

requirements in the rewritten rules.

Meanwhile, the final rules

have the same effective dates

as the 1989 rules, which means

they are generally

effective for governmental

bonds issued after Aug. 31,

1986, and for some

nongovernmental bonds issued

after

Aug. 15,1986.

The IRS also extended the

effective date of the 1989

rules until June 17 so that

market participants with bond

deals in the works could elect

to comply with either the old

or the new rules during a

one-month period. The final

rules only slightly modified

the 1989 rules, mostly in the

area of refundings.

IRS Allocation and Accounting On May 12 the IRS issued final

Rules for Rebate Purposes allocation and accounting

(Fl-66-89/1.148-4) rules for rebate purposes. The

rules, which tell issuers

how to allocate and account for

the expenditures and

investments of their bond

proceeds, generally take effect

on June 17. However, the IRS

gave market participants the

option of electing to comply

with the final rules for

bonds issued after May 18, the

date the rules were published

in The Federal Register.

The final rules contain many

modifications to the rules that

had been proposed in January.

The final rules

eliminate or loosen many of the

restriction that had been

proposed for investment

contracts, but require fees

paid to investment contract

brokers to be added to issuers'

investment income, even if the

fees are paid by

contract providers rather than

the issuers. The final rules

also ease restrictions on

commingled bond and

nonbond funds.

IRS Transferred Proceeds On May 12 the IRS issued final

Rules For Refundings rules governing transferred

(Fl-90-91/1.148-11) proceeds for refundings. The

rules generally take

effect on June 17. However, the

IRS gave market participants

the option of electing to

comply with these rules

for bonds issued after May 18,

the date the rules were

published in The Federal

Register, or retroactively to the

same dates the transferred

proceeds provisions of the May

1989 arbitrage rebate rules

became effective. Those

1989 provisions generally

became effective for bonds sold

after May 15,1989, or issued

after June 14,1989.

There is one caveat: if the

transferred proceeds rules are

applied to bonds retroactively,

the savings that are

associated with the retroactive

application of them must be

used to redeem the bonds of the

refunding issue.

The final rules make few

modifications to the rules that

had been proposed in February

to simplify transferred

proceeds computations and to

provide relief from the

so-called killer suck-up

requirements that had

discouraged issuers from

partially refunding bond

issues. In one change in the

final rules, however, the IRS

said

it would allow a 90-day

temporary period for current

refundings during which

proceeds are not subject to

yield

restriction.

IRS Rules on the The IRS on May 12 issued final

Two-Year Rebate Relief Law rules telling issuers how to

(Fl-1-90/1.148-6) comply with the two-year

rebate relief law Congress

enacted in 1989 and revised in

1990. The rules are generally

effective on June 17. The IRS,

however, gave

issuers the option of complying

with these rules for bonds

issued after May 18, the date

the rules were published

in The Federal Register.

The rules contain some

modifications of rules that

were proposed in early

February. The rebate relief law

generally exempts issuers of

501 (c)(3) and governmental

bonds financing construction

from arbitrage rebate

requirements if they spend most

of their bond proceeds in two

years, according to six-month

spending targets.

The law applies only when at

least 75% of the bond proceeds

are used for construction.

The final rules clarity what

kinds of expenditures would

qualify as construction

expenditures and ease the

definition of construction to

include some kinds of software.

The rules also clarify that an

issuer must reasonably

expect to spend, rather than

actually spend, 75% of proceeds

on construction to quality for

rebate relief under

the law.

IRS Rule on Rebate and On May 12 the IRS issued a new

Yield Restriction Requirements temporary and proposed rule

(Fl-91-86/1.148-12T) allowing issuers subject to

rebate to be exempt

from yield restrictions under

certain circumstances.

The rule, which is effective

for bonds issued after May 18

but is also subject to

revision, generally applies to

bond issues that are subject to

both yield restriction and

rebate requirements but that do

not qualify for an

exemption to rebate. The rule

does not apply to certain bond

proceeds from refundings or

pools or to bonds that

are subject to a penalty under

the two-year rebate relief law.

Requests for a public hearing

on the new rule must be

submitted by July 17.

IRS Rule on Refunds The IRS on May 12 issued a new

of Overpayments of Arbitrage temporary and proposed rule

(Fl-67-89/1.148-13T) allowing issuers to obtain

refunds for legitimate

overpayments of arbitrage that

was rebated to the federal

government. The rule is

effective but subject to

revision. The new rule says

that while issuers may request

such refunds now, the IRS

commissioner will not be

required to consider the

requests until Sept. 15. Agency

officials said the delay wilI

give them time to issue

procedures to implement this

rule.

IRS Arbitrage Rules The IRS on May 12 issued final

on Student Loan Bonds rules on arbitrage restrictions

(Fl-75-89/1.148-10) for student loan bonds. The

rules are effective for

student loan bonds issued after

Jan. 5,1990.

IRS Proposed Rules on The IRS proposed rules last

Notional Principal Contracts year that affect interest rate

(Fl-16-89) swaps and other transactions

in which parties make

payments to each other based on

a principal amount that is

called notional because it is

never actually

exchanged. The rules would

govern when income and

deduction from these

transactions are recognized for

tax purposes. The IRS is

expected to issue final rules

later this year or next year.

force, headed by John Bachmann, chairman of St. Louis-based Edward D. Jones & Co., was set up in November 1991 as an outgrowth of the Group of 30, an international panel examining how to streamline clearance and seftlement of securities worldwide.

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