Demand bonds are long-term debt issuances with demand ("put") provisions that require the issuer to repurchase the bonds upon notice from the bondholder at a price equal to the principal plus accrued interest. To assure its ability to redeem the bonds, issuers of demand bonds frequently enter into short-term standby liquidity agreements and long-term "take out" agreements. This Interpretation provides that demand bonds should be reported by state and local governmental entities as general long-term debt, or excluded from current liabilities of proprietary funds, provided the issuer has entered into a valid financing agreement to convert bonds that have been "put" but cannot be resold into some other form of long-term obligation. In the absence of such an agreement, demand bonds should be classified as fund liabilities, or as current liabilities of proprietary funds. Note disclosure of the details of demand bond arrangements is also required.