4.8.4.4 Other Exceptions

Investment earnings on proceeds generally qualify for a 1 year temporary period beginning on the date the proceeds are received.

The exceptions to arbitrage yield restrictions only apply to “non purpose investments,” which are investment securities purchased with bond proceeds before expenditure of the proceeds on their ultimate use. In contrast, “purpose investments” are investments acquired in order to carry out the governmental purpose of the bond issue, such as the acquisition of a conduit loan. Purpose investments are allowed to have a yield of either 1/8% or 1.5% higher than the yield on the bonds depending on certain factors. Furthermore, purpose investments are not subject to the rebate requirements, so that issuers may retain any excess investment return derived from the allowable 1/8% or 1.5% spread.

Regardless of the availability of any of the arbitrage yield restriction exceptions described here, gross proceeds generally may be invested in other tax exempt bonds without regard to the yield on the tax exempt investments.