Harbor Bancorp & Subsidiaries - Page 38

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               The statutory context of section 148(f) also supports a                
          literal application of its terms.  The general definition of an             
          "arbitrage bond" is contained in section 103(c)(2).  An                     
          "arbitrage bond", within the meaning of that section, is one that           
          the issuer "reasonably expected" to produce arbitrage.  If an               
          issuer "reasonably expected" to earn arbitrage with bond                    
          proceeds, the bonds are not tax exempt.  Section 148(f) is an               
          additional arbitrage restriction.  It was intended to restrict              
          arbitrage even further than the historic reasonable expectation             
          test.  In its explanation of the new section 148(f) provisions,             
          the Senate Finance Committee report states:                                 

                    The bill generally extends to all tax-exempt bonds                
               (including refunding issues) additional arbitrage                      
               restrictions similar to those presently applicable to                  
               most IDBs and to qualified mortgage bonds.  These                      
               restrictions, requiring the rebate of certain arbitrage                
               profits and limiting investment of bond proceeds in                    
               nonpurpose obligations, are in addition to the general                 
               arbitrage restrictions for all tax-exempt bonds.  [S.                  
               Rept. 99-313, supra at 845, 1986-3 C.B. (Vol. 3) at                    
               845; emphasis added.]                                                  

          See also H. Rept. 99-426 (1985), 1986-3 C.B. (Vol. 2) 1, 555.               
          There is no indication in the statute or legislative history that           
          Congress wanted to limit section 148(f) to situations where the             
          issuer intended, or reasonably expected, to earn arbitrage.                 
               Were we to superimpose an intent requirement onto section              
          148(f), that section would become redundant.  Section 103(c)                
          already defined arbitrage bonds as those whose proceeds the                 
          issuer reasonably expected, at the time of issue, would be used             



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