March 2, 1978

In your letter of January 20, 1978 you request a ruling as to the Massachusetts tax consequence with relation to a proposed municipal bond fund. The Fund is more fully described in your letter of February 22, 1978. Both said letters are hereby incorporated by reference.

The Fund would be organized as a Massachusetts corporate trust with its principal office located in Boston. It would for Federal tax purposes, elect to be taxed as a regulated investment company. The Fund would be entitled, pursuant to Section 852(b)(5) of the Internal Revenue Code, to pay "exempt interest dividends" as they are there defined.

The Fund would be registered under the Federal Investment Company Act. The Fund would establish separate trust funds for the investors of each state participating. "Series Securities" would be issued. Massachusetts investors would receive, share certificates denominated **********. The funds of the Massachusetts Series would be invested either exclusively, or at least very largely, in Massachusetts securities. Funds of other state series would be invested either exclusively, or at least very largely, in securities of such other participating states.

To give the investors the benefit of the diversification of risk normally expected from a mutual fund, there will be an Investment Contribution Agreement among the various State Series. Under this agreement, if the rate of interest earned by a particular Series is below that of the average of all Series, those Series with above average interest would contribute proportionately to those with below average interest, so that the total rate of return on invested money will be the same for each Series.

The Investment Contribution Agreement would apply also to capital gains and losses so that if, for instance, one Series has above average capital losses, such capital losses will be borne in part by other Series which had lower losses. Conversely, if a particular Series had above average capital gains, under the Investment Contribution Agreement, a part of such gains would be allocated to the other Series.

Based on the foregoing it is ruled:

1. The Fund would be exempt from taxation pursuant to the provisions of M.G.L., Chapter 62, Section 8(b).

2. A dividend paid by the Massachusetts Series to a Massachusetts resident would be exempt from taxation to the extent that such dividend would constitute exempt interest earned by the Massachusetts Series on its portfolio of Massachusetts bonds.

3. That portion of a dividend paid by the Massachusetts Series to a Massachusetts resident which is derived from capital gain, or from another Series pursuant to the Investment Contribution Agreement will be includible in the Massachusetts gross income of the recipient.

Very truly yours,

/s/Laurence D. Fitzmaurice

Laurence D. Fitzmaurice
Commissioner of Corporations
and Taxation

LR 78-5