PUBLIC LAW 99-514—OCT. 22, 1986
100 STAT. 2641
"SEC. 148. ARBITR.4GE. "(a) ARBITRAGE B O N D D E F I N E D. — For purposes of section 103, the
term 'arbitrage bond' means any bond issufed as part of a n issue any portion of the proceeds of which a r e reasonably expected (at the t i m e of issuance of the bond) to be used directly or indirectly— "(1) to acquire higher yielding investments, or "(2) to replace funds which were used directly or indirectly to acquire higher yielding investments. For purposes of this subsection, a bond shall be t r e a t e d a s a n a r b i t r a g e bond if the issuer intentionally uses any portion of the proceeds of the issue of which such bond is a part in a m a n n e r described in paragraph (1) or (2). "(h) H I G H E R YIELDING INVESTMENTS. — For purposes of t h i s sec-
tion— "(1) IN GENERAL.—The term 'higher yielding investments' means any investment property which produces a yield over the term of the issue which is m a t e r i a l l y higher than the yield on the issue. "(2) INVESTMENT PROPERTY.—The term ' investment property '
means— "(A) any security (within the m e a n i n g of section 165(g)(2) (A) or (B)), "(B) any obligation, "(C) any a n n u i t y contract, or "(D) any investment-type property. Such term shall not include any tax-exempt bond.
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"(c) TEMPORARY P E R I O D EXCEPTION. —
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"(1) IN GENERAL.—For purposes of subsection (a), a bond shall not be t r e a t e d a s a n a r b i t r a g e bond solely by reason of the fact that the proceeds of the issue of which such bond is a part may be invested in higher yielding investments for a reasonable temporary period until such proceeds a r e needed for the purpose for which such issue was issued. "(2) LIMITATION FINANCINGS.—
ON
TEMPORARY
PERIOD
FOR
POOLED
"(A) IN GENERAL.—The temporary period referred to in paragraph (1) shall not exceed 6 months with respect to the proceeds of an issue which a r e to be used to m a k e or finance loans (other than nonpurpose investments) to 2 or more persons. "(B) SPECIAL RULE FOR CERTAIN STUDENT LOAN POOLS.—In
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the case of the proceeds of a n issue to be used to m a k e or finance loans under a program described in section 144(b)(1)(A), subparagraph (A) shall be applied by substituting '18 months ' for '6 months'. The preceding sentence shall not apply to any bond issued after December 31, 1988. "(C) SHORTER TEMPORARY PERIOD FOR LOAN REPAYMENTS,
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ETC.—Subparagraph (A) shall be applied by substituting '3 months ' for '6 months ' with respect to the proceeds from the sale or r e payment of any loan which a r e to be used to m a k e or finance any loan. For purposes of the preceding sentence, a nonpurpose investment shall not be t r e a t e d a s a loan.
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