TREASURY SECURITIES The underlying debt securities of price-based op- tions and the debt securities from which the underlying yields of yield-based options are derived are all Trea- sury securities--e.g.. 30-year Treasury bonds. 10-year Treasury notes. 5-year Treasury notes and Treasury bills. Treasury bonds and notes are direct obligations of the United States that pay a fixed rate of interest semi- annually. Bonds are issued for maturities of more than ten years (although many issues are callable prior to maturity). Notes are issued for maturities of one to ten years, and are non-callable. New issues of bonds and notes are sold periodically by the Treasury, usually on an auction basis. The auction price is established by bidding and may be above or below par value. 0cca- sionally the Treasury will "reopen" an outstanding is- sue by auctioning additional principal amounts. Government securities dealers make secondary mar- kets in virtually all outstanding issues, but market activ- ity and liquidity tend to center on the most recently auctioned issues. Unlike Treasury bonds and notes, Treasury bills do not pay interest. Instead, the Treasury sells bills at a discount from their principal amount (par value). The investment return consists of the difference between the discounted purchase price and the principal amount payable at maturity. Treasury bills are issued in maturities of 13. 26 or 52 weeks. Return on Treasury bills is commonly expressed in terms of a discount rate which represents an annuali- zation (based on a 360-day year) of the percentage discount at which the bills are sold. EXAMPLE: If a 13-week (91-day) Treasury bill with a principal amount of $1.000.000 is sold for $970,000, the actual discount would be $30,000 or 3% and the discount rate would be approximately 11.9% (360/91 times 3%). Bills are auctioned by the Treasury on a regular ba- sis, typically at weekly intervals for 13-week and 26- week bills and every four we