Page:United States Statutes at Large Volume 100 Part 3.djvu/834

 100 STAT. 2642

PUBLIC LAW 99-514—OCT. 22, 1986 "(D) EXCEPTION FOR MORTGAGE REVENUE BONDS.—This

paragraph shall not apply to any qualified mortgage bond or qualified veterans' mortgage bond. "(d) SPECIAL RULES FOR REASONABLY REQUIRED RESERVE OR REPLACEMENT FUND.—

"(1) IN GENERAL.—For purposes of subsection (a), a bond shall not be treated as an arbitrage bond solely by reason of the fact that an amount of the proceeds of the issue of which such bond is a part may be invested in higher yielding investments which are part of a reasonably required reserve or replacement fund. The amount referred to in the preceding sentence shall not exceed 10 percent of the proceeds of such issue unless the issuer establishes to the satisfaction of the Secretary that a higher amount is necessary. "(2) LIMITATION ON AMOUNT IN RESERVE OR REPLACEMENT FUND WHICH MAY BE FINANCED BY ISSUE.—A bond issued as part

of an issue shall be treated as an arbitrage bond if the amount of the proceeds from the sale of such issue which is part of any fund described in paragraph (1) exceeds 10 percent of the proceeds of the issue (or such higher amount which the issuer establishes is necessary to the satisfaction of the Secretary). "(3) LIMITATION MENTS.—

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ON INVESTMENT IN NONPURPOSE

INVEST-

"(A) IN GENERAL.—A bond which is part of an issue which does not meet the requirements of subparagraph (B) shall be treated as an arbitrage bond. "(B) REQUIREMENTS.—An issue meets the requirements of this subparagraph only if— "(i) at no time during any bond year may the amount invested in nonpurpose investments with a yield materially higher than the yield on the issue exceed 150 percent of the debt service on the issue for the bond year, and "(ii) the aggregate amount invested as provided in clause (i) is promptly and appropriately reduced as the amount of outstanding bonds of the issue is reduced (or, in the case of a qualified mortgage bond or a qualified veterans' mortgage bond, as the mortgages are repaid).

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"(C) EXCEPTIONS FOR TEMPORARY PERIOD.—Subparagraph

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(B) shall not apply to— "(i) proceeds of the issue invested for an initial temporary period until such proceeds are needed for the governmental purpose of the issue, and "(ii) temporary investment periods related to debt service. "(D) DEBT SERVICE DEFINED.—For purposes of this paragraph, the debt service on the issue for any bond year is the scheduled amount of interest and amortization of principal payable for such year with respect to such issue. For purposes of the preceding sentence, there shall not be taken into account amounts scheduled with respect to any bond which has been redeemed before the beginning of the bond year. "(E) No DISPOSITION IN CASE OF LOSS.—This paragraph shall not require the sale or disposition of any investment if such sale or disposition would result in a loss which exceeds




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