Rev. & Tax. Code, § 17639

For purposes of subdivision (a) of Section 17637, a bond, debenture, note, or certificate or other evidence of indebtedness (hereinafter in this section referred to as “obligation”) acquired by a trust described in Section 401(a) of the Internal Revenue Code shall not be treated as a loan made without the receipt of adequate security if—

(a) The obligation is acquired—

(1) On the market, either (i) at the price of the obligation prevailing on a national securities exchange which is registered with the Securities and Exchange Commission, or (ii) if the obligation is not traded on such a national securities exchange, at a price not less favorable to the trust than the offering price for the obligation as established by current bid and asked prices quoted by persons independent of the issuer;

(2) From an underwriter, at a price (i) not in excess of the public offering price for the obligation as set forth in a prospectus or offering circular filed with the Securities and Exchange Commission, and (ii) at which a substantial portion of the same issue is acquired by persons independent of the issuer; or

(3) Directly from the issuer, at a price not less favorable to the trust than the price paid currently for a substantial portion of the same issue by persons independent of the issuer;

(b) Immediately following acquisition of the obligation—

(1) Not more than 25 percent of the aggregate amount of obligations issued in the issue and outstanding at the time of acquisition is held by the trust, and

(2) At least 50 percent of the aggregate amount referred to in paragraph (1) is held by persons independent of the issuer; and

(c) Immediately following acquisition of the obligation, not more than 25 percent of the assets of the trust is invested in obligations of persons described in Section 17637.