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Two key requirements for the application of the arbitrage
provisions of section 148 are that there must be an acquisition
of investment property, which produces a materially higher yield.
Sec. 148(a) and (b), supra p. 10. We turn first to the question
of whether the prepayment was used to acquire investment
property. Petitioner argues initially that, at no time, was
there any acquisition of investment property because, in 1967,
there was simply an exchange of liabilities, i.e., the obligation
of the City Fund for the obligation of the State Fund. This
position is utterly without merit. The obligation of the State
Fund was clearly property in the hands of the City and was a
specific type of property that Congress had in mind, i.e., the
equivalent of a funding of the pension obligation of the City.
See supra p. 11.
Petitioner goes on to argue that, at the time of the
prepayment in 1994, the City was doing nothing more than
discharging the City Obligation and that one does not acquire
property when it acquires its own indebtedness. Leaving aside
the question whether the acquisition of one's own indebtedness
constitutes the acquisition of "property", we think petitioner
overstates the proposition in the context of the situation
herein. The City Obligation represented the payment for the
obligation of the State Fund in 1967, and we think that nexus
remained extant at the time of the 1994 prepayment. In short,
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