PUBLIC
 

26 MAY 1994
 

Our Ref. No. 93-366-CC
 

Donaldson, Lufkin &
 

Jenrette Securities
 

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
 Corporation DIVISION OF INVESTMENT MANAGEMENT
 File No. 132-3
 

Your letter of April 22, 1994 requests that we concur in
 

your opinion that (1) a trust ("Trust") to be formed by
 

Donaldson, Lufkin & Jenrette Securities Corporation or an
 

affiliate thereof ("DLJ") need not register as an investment
 

company under the Investment Company Act of 1940 ("1940 Act") in
 

reliance on Rule 3a-7 thereunder, 1/ and (2) money market funds
 

relying on Rule 2a-7 under the 1940 Act may purchase certificates
 issued by the Trust ("Certificates"). y 

The Trust will purchase auction rate preferred stock
 

("Preferred Stock") issued by a registered closed-end investment


company ("Fund") that invests primarily in tax-exempt municipal
 

obligations. di The Trust will invest only in Preferred Stock
 

that is rated in the highest rating category for preferred stock
 

by at least one nationally recognized statistical rating
 

organization ("NRSRO"). The Trust proposes to issue Certificates
 

intended for sale to institutional investors, including money
 market funds, in an offering under Section 4 (2) of the Securities 

Act of 1933. The Certificates, too, will be rated by an NRSRO in
 

the highest category for preferred stock, and also will be rated
 

in the highest category for short-term debt obligations.
 

The Fund will pay dividends on the Preferred Stock at a rate
 

determined at periodic auctions, which will occur at annual or
 

longer intervals. The trustee will use the Preferred Stock
 

dividends to pay distributions on the Certificates. DLJ, in its
 

capacity as remarketing agent for the Certificates, will adjust
 

the distribution rate on a periodic basis, depending on market
 

condi tions. The Trust will terminate on or before the next
 

.l Rule 3a-7 excludes from the definition of "investment
 

company" any issuer that pools certain financial assets and
 

issues securities backed by those assets.
 

y Rule 2a-7 requires all open-end management investment
 

companies that hold themselves out as money market funds to
 

meet certain maturity, quality, currency, and
 

diversification requirements. Under Rule 2a-7, money market
 

funds may use the amortized cost method of valuation or the
 

penny-rounding method of pricing to value their assets if
 

they ~eet the rule's risk-limiting conditions.
 

di You state that, under Section 852 (b) (5) of the Internal
 

Revenue Code, the Fund thus would be eligible to pay exempt-
 interest dividends. . 
- 2 ­

auction of the Preferred stock following creation of the Trust.
 

When the Trust terminates, the trustee will sell the Preferred
 

stock at auction and use the proceeds to pay the Certificate
 

holders the stated amount of the Certificates plus accumulated
 distributions. 

A bank unaffiliated with DLJ ("Bank") will issue a tender
 

option pursuant to which Certificate holders may tender their
 

Certificates to the Bank at periodic intervals (weekly, monthly,
 

quarterly, or semi-annually) at a price equal to the stated


amount of the Certificate plus accumulated distributions. The
 

remarketing agent will use its best efforts to resell in the
 

secondary market all Certificates tendered to the Bank. In
 

addition to issuing the tender option, the Bank will operate a
 

credit facility for the benefit of the Certificate holders, which
 

will run to (a) the remarketing agent to secure payments due upon
 

exercise of a tender option, and (b) the trustee to secure
 

payments due when the Certificates mature. lj
 

To qualify under Rule 3a-7, an issuer may not issue
 redeemable securities. Section 2 (a) (32) of the 1940 Act defines 

redeemable security as any security, other than short-term paper,
 

under the terms of which the holder, upon its presentation to the
 

issuer or to a person designated by the issuer, is entitled to
 receive approximately his proportionate share of the issuer l s 

current net assets, or the cash equivalent thereof. You assert
 

that the Certificates are not redeemable securities because the
 

Certificates may not be tendered to the Trust, but only to the
 

Bank, which is not a person designated by the issuer within the


meaning of Section 2 (a) (32). We agree. 2J 

lj The credit facility will terminate if any of the following
 events occur: (a) the Fund l s board of directors fails to 

declare a regular dividend on the Preferred stock at a rate
 

determined at the previous auction, (b) the Fund fails to
 

pay any declared dividend on the Preferred stock, (c) the
 

Preferred Stock is substantially downgraded by an NRSRO, or
 

(d) it is determined that any portion of the dividends on


the Preferred Stock does not qualify as tax-exempt.
 

2J You also state that the Certificates should not be 

considered redeemable because the tender option entitles the
 

holder to the face amount of the Certificate plus


accumulated distributions, as opposed to the holder l s

proportionate share of the Trust i s net assets or the cash 

equivalent thereof. We believe, however, that the
 

Certificates i net asset value (or its equivalent) can be
 

calculated by reference to their face amount plus
 

accumulated distributions. See United states Property
 

(continued. . . ) 
- 3 ­

Rule 3a-7 (a) also requires an is~uer to engage in the
 

business of purchasing, or otherwise acquiring, and holding
 

"eligible assets." Paragraph (b) (1) of the rule defines eligible
 

assets as "financial assets, either fixed or revolving, that by
 

their terms convert into cash within a finite time. period ...."
 

You believe that the Preferred stock qualifies as an eligible
 

asset because Preferred stock holders can obtain the liquidation
 

preference or the stated amount of their stock through the
 

auction process, thus enabling them to receive a specific amount
 

of cash on a specific date. The auction feature, however, does
 

not transform the Preferred stock into a self-liquidating asset
 

because the Preferred stock remains outstanding after it is sold
 

at auction. We do not agree, therefore, that the Preferred stock
 

qualifies as an eligible asset for purposes of Rule 3a-7. ~
 

Rule 2a-7 requires that a money market fund limit its
 

investments to those "eligible securities," as defined in the
 rule, that present minimal credit risks.. Paragraph (c) (3) (ii) of 

Rule 2a-7 states that the eligibility of a demand instrument
 

subj ect to a conditional demand feature is determined by
 

reference to both the short-term ratings of the demand instrument
 

(the Certificates) and the long-term debt ratings of either the


demand instrument or the securities underlying the demand
 

instrument (the Preferred Stock). You represent that the
 

2J ( . . . continued) Investments, NV (pub. avail. May 1, 1989) (the net asset
 

value of bonds can be ascertained by reference to their face
 

value plus accrued and unpaid interest); American Home
 

Finance Corp. (pub. avail. May 11, 1981) (bonds considered
 

non-redeemable because investors faced substantial
 

restrictions on obtaining their principal plus accrued
 interest) . 

Nor do we agree with your assertion that the Certificates
 

should be excluded from the definition of redeemable
 

security because they are similar to short-term paper. The
 

Certificates do not meet the definition of short-term paper
 under Section 2 (a) (38) of the 1940 Act. They are not notes, 

drafts, bills of exchange, or banker i s acceptances, and, in
 

any event, are of an investment (not a commercial)
 

character. See Bank of Oregon (pub. avail. Dec. 20, 1979)
 

(Section 2 (a) (38) suggests that the definition of short-


term paper is limited to securities of a commercial rather


than an investment character). 

~ See Brown & Wood (pub. avail. Feb. 24, 1994) (cumulative
 

preferred stock with no predetermined liquidation date is
 not an eligible asset). 
- 4 -


Certificàtes will receive "the highest preferred stock rating."
 

You acknowledge, however, that, unlike a long-term debt rating, a
 

preferred stock rating does not reflect the issuer iS capacity to
 

repay principal when due. The certificates thus will not carry
 

the requisite debt ratings. 1/ Therefore, we do not agree that
 

the Certificates qualify as eligible securities for purposes of


Rule 2a-7. 

For the reasons discussed above, we do not believe that the
 

Trust may rely on Rule 3a-7, or that money market funds relying
 

on Rule 2a-7 may purchase Certificates issued by the Trust.
 

Finally, your request for confidential treatment under 17
 

C.F.R. 81(b) has been granted until the earlier of 120 days from
 

the date of this letter or the date of any disclosure of facts
 

sufficient to reveal the essence of the no-action request or this
 

response. Please inform this office if this information is made
 

public in any fashion prior to the expiration of the 120-day


period. 

~tM~ (1~~ À~ Barbara Chretien-Dar 

Attorney 

1/ Nor do we believe that the certificates could be considered


to be of comparable quality to eligible securities that have


been rated based on. the issuer i s capacity to repay principal. 
Law Offices of 

--.--APMAN AND CUTLER
 

re S. Chapman

.:ß 

henry E. Cutler 

1879-1959 

111 West Monroe Street, Chicago, ilinois 60603-4080 

TWX 910-221-2103 Telex 206281 

FAX (312) 701-2361 

2 North Central Avenue 

Phoeni, Ariona 8500 

(602) 256-060 

Telephone (312) 845-3000 

50 South Mai Street 

Salt Lake City, Utah 84144 

April 22, 1994 (801) 533-0066 

Investment Company Act of 1940:
 

Rule 2a- 7
 

Rule 3a- 7
 

Section 2(a) (32)
 

Securties and Exchange Commssion ACT :teA 

450 Fifth Street, N.W. SECTION Washington, D.C. 20549
 

RULE ~ Co - t. .,
 l- ~
 

Attention: Office of Chief Counsel
 PUBLIC 

Division of Investment Management AVAILABILIT Q-J3-c¡tj. 

Re: Donaldson, Lufkin & Jenrette Securities Corporation 

Ladies/Gentlemen: 

On behalf of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), we 

hereby request that the staff of the Division of Investment Management concur in our 

opinion that: 

(i) certificates (the "Certificates") representing interests in a trust (the
 

"Trust") to be formed by DLJ or an affiiate of DLJ may be offered and sold, and the 

Trust may be organized and operated, without registration under the Investment 

Company Act of 1940, as amended (the "Investment Company Act"), by virue of 

Rule 3a-7 thereunder; and 

(ii) the Certificates may be purchased by money market funds which rely on
 

Rule 2a-7 under the Investment Company Act to use the amortized cost method of 

valuation or the penny-rounding method of pricing to compute price per share. 

THE PROPOSED TRANSACTION 

A. TH TRUST
 

DLJ proposes to establish the Trust pursuant to a trust agreement --(the "Trust 

Agreement") between DLJ or an affiliate of DLJ, as sponsor of the Trust and remarketing 

agent, and an unaffiliated trstee, for the purpose of issuing the Certificates which represent 

interests in preferred stock (the "Preferred Stock") issued by a closed-end management 

investment company (the "Fund") wh:,.... is reg";~.-t.ed under the Investment Company Act

119453.01.29 COP y

Law Offices of 

CHAPMAN AND CUTLER 

and which invests primarly in tax-exempt municipal obligations and, accordingly, is eligible 

to pay exempt-interest dividends, as defined in Section 852(b)(5) of the Internal Revenue 

Code of 1986 (the "Code"), to its shareholders. The Preferred Stock wil be sold to the 

Trust by DLJ or directly by the Fund at a price which is expected to be equal to the 

liquidation preference or stated amount thereof, plus any accumulated dividends thereon. In 

connection with the establishment of the Trust, the Preferred Stock wil be transferred into 

the Trust and the Certcates wil be issued and sold to institutional investors in an offering 

exempt from the registration requirements of the Securities Act pursuant to Section 4(2) 

thereof. The trstee wil be a bank or trust company which is not affilated with DLJ or the
 

Bank (as hereinafter defined). 

The Trust wil be a passive, fixed investment trust. The selection of Preferred Stock 

to be sold to the Trust wil be made before the Trust comes into existence. The Trust wil 

serve solely as a means of holding the Preferred Stock on behalf of the holders of the 

Certificates (the "Holders") and the Trustee wil have no discretionary authority as to the 

liquidation of the Preferred Stock, the acquisition of additional Preferred Stock or any other 

assets after the Trust comes into existence, or the reinvestment of moneys held in the Trust. 

The Trust wil not engage in any investment activity with respect to the Preferred Stock or 

any of the proceeds thereof or otherwise (except that the Trustee wil be directed in the 

governing trust instrument to temporarily invest payments received on the Preferred Stock 

in short-term tax-exempt securities until they are passed through to the Holders on the next 

succeeding Ce.rtificate Distrbution Date, as hereinafter defined). Payments and collections 

with respect to the Preferred Stock wil be passed through to the Holders periodically as 

described herein. 

DLJ or an affiliate of DLJ, as sponsor of the Trust (the "Sponsor"), wil purchase a 

certificate (the "Sponsor Certifcate") with a face amount equal to approximately 1% of the 

total liquidation preference or stated amount of the Preferred Stock in the Trust. The 

Sponsor wil purchase the Sponsor Certificate concurently with the formation of the Trust 

and the deposit of the Preferred Stock into the Trust. Any transfer of an interest in a 

Certificate wil be subject to the prior consent of the Sponsor. 

The Trust wil ter1lnate upon the occurence of certain events including the failure of 

the Fund's board of directors to declare a regular dividend on the Preferred Stock, the 

failure of the Fund to pay any declared dividend on the related dividend payment date, the 

resignation of the Sponsor as sponsor of the Trust if no successor sponsor is appointed, or 

certain bankptcy events relating to the Sponsor. In any event, the Trust wil ter1lnate on 

or prior to the auction date with respect to the Preferred Stock next succeeding the date on 

which the Trust is created. 

As discussed above, because the Fund primarly invests in tax-exempt municipal 

obligations, it is anticipated that the dividends paid by the Fund wil generally qualify as 

exempt-interest dividends pursuant to Section 852(b)(5) of the Code and wil be excludible 

from gross income by the recipient of such dividends for that reason. Section 852(b)(5) of 

the Code provides that a regulated investment company may designate a dividend paid by it, 

or part of such dividend, as an exempt-interest dividend and that an exempt-interest dividend 

C 0-2- P Y
 
law Offices of 

CHAPMAN AND CUTLER 

shall be treated by the shareholders of the regulated investment company as an item of 

interest excludable from gross income. Some portion of the dividends of the Fund may be 

characterized as taxable ordinary dividends or capital gain dividends (to the extent the Fund 

generates taxable income or capital gains). The Trust is intended to qualify as a partnership 

for federal income tax purposes and the Certificates are intended to be classified as 

parnership interests for federal income tax purposes. Under the partnership rules of the 

Code, a parner's distrbutive share of income of the parnership retains its character in the 

hands of its partners. Thus, pursuant to the partnership rules of the Code, a holder of a 

Certificate wil be alocated its distrbutive share of the dividends paid by the Fund that are 

characterized as exempt-interest dividends. As a result, the tax-exempt income distributed to 

investors holding Certifcates should retain its tax-exempt character. 

B. TH PRFED STOCK
 

The Preferred Stock which wil be sold to the Trust wil be auction rate preferred 

stock issued by the Fund. Typically, such Preferred Stock entitles the holder thereof to 

participate with prospective purchasers in an auction of the Preferred Stock on dates (the 

"Auction Dates") which occur at specified intervals (e.g., weekly). The rate at which 

dividends accumulate (the "Dividend Rate") on the Preferred Stock for the period (the "Rate 

Period") commencing on any Auction Date is determined through the auction process on 

such Auction Date and continues in effect until the Dividend Rate is determined on the next 

succeeding Auction Date. Dividends which qualify under the Code as exempt-interest 

dividends are tyically paid on such Preferred Stock on a weekly basis. The Preferred Stock
 

which is deposited into the Trust wil be rated in the highest rating category for preferred 

stock by at least one nationally recognized statistical rating organization. 

The Fund document which establishes the rights and preferences of the Preferred 

Stock wil permit the Fund to designate that a Rate Period with respect to the Preferred 

Stock is longer than the standard weekly period. In many cases, the document with respect 

to a particular Fund provides that this period may be as long as five years. The Dividend 

Rate for Preferred Stock in such a mode is typically set at a rate which is higher than the 

current rate ort Preferred Stock would be in a weekly mode. Dividends on Preferred Stock 

in a longer mode may be paid on a quarterly basis. The Preferred Stock which wil be 

deposited in the Trust wil be Preferred Stock which is in a Rate Period mode of one year or 

longer. 

Municipal obligations generally bear lower interest rates than taxable debt obligations 

because holders of municipal obligations are not subject to regular federal income tax on the 

interest earned on such obligations. Only interest with respect to obligations issued by states 

or political subdivisions thereof, so-called "on behalf of' organizations and political 

subdivisions of certain U.S. possessions can qualify as tax-exempt for federal income tax 

puroses. Thus, interest paid on an obligation issued by any other entity, including a closedend fund, is subject to tax (although dividends payable with respect to shares of stock in a 

mutual fund which qualify as exempt-interest dividends as discussed above and distrbutions 

with respect to pass-through entities such as parnerships, grantor trusts and S corporations 

can qualify as tax-exempt). As a result, interest paid with respect to debt issued by a closedC 0-3- P Y
 
Law Offices of 

CHAPMAN AND CUTLER 

end fund would be taxable. Because the interest rates on taxable debt are, as a general 

matter, higher than the interest rates on tax-exempt obligations, it would not ordinarly be 

economically advantageous for a closed-end fund holding tax-exempt municipal obligations 

to issue taxable debt to finance such holdings. In any event, the Trust wil not hold
 

Preferred Stock issued by a closed-end fund which has long-term debt outstanding. 

C. TH CETICATES 

The Certificates wil be offered in denominations of $100,000 and integral multiples 

thereof and wil evidence the right to receive payments made on in the corpus of the Trust, 

which wil be comprised of the Preferred Stock. The aggregate face amount of all 

Certificates and the Sponsor Certificate issued by the Trust wil be equal to the total
 

liquidation preference or stated amount of the Preferred Stock in the Trust. 

Distributions on the Certificates (the "Certifcate Distributions") wil be payable out of 

amounts received by the Trustee on the. Preferred Stock. Certificate Distrbutions wil be
 

paid to Holders on periodic dates which wil approximately correspond to the dates on which 

dividends are paid on the Preferred Stock (each such date being a "Certifcate Distribution
 

Date"), possibly adjusted by a few days for practical administrative reasons. The 

Certificates wil evidence the right to receive Certificate Distrbutions in an amount equal to 

interest on the face amount of the Certficates at a rate (the "Distribution Rate") which wil 

be adjusted on.periodic (e.g., weekly, monthly, quarterly, or semi-annually) dates (each such 

date being a "Rate Determination Date"). It is expected that the Distribution Rate wil 

approximate the rate of interest paid on tax-exempt debt instruments with a short-term 

credit rating similar to the ratings on the Certificates. The Distrbution Rate for the initial 

distrbution period wil be established by DLJ or an affiiate of DLJ upon pricing of the 

Certificates. Thereafter, the Distribution Rate for each period (the "Certificate Rate 

Periods") between the dates upon whic;1 the Certificates may be tendered for purchase (each 

a "Purchase Date"), as described below, wil be determined by DLJ or an affliate of DLJ, in 

its capacity as Remarketing Agent, a specified number of days (in no event less than seven 

days) prior to each such purchase date for such Certficate Rate Period. The Remarketing 

Agent wil establish the Distrbution Rate at the rate which wil be necessary, in the view of 

the Remarketing Agent, for the Certificates to be sold at the face amount thereof plus any 

accumulated Certificate Distrbutions thereon on the applicable Purchase Date. In no event, 

however, wil the Distribution Rate exceed the dividend rate on the Preferred Stock less the 

expenses of the Trust. 

The Certificates wil be redeemed, in whole or in part, in the event the Preferred 

Stock is redeemed by the Fund. The redemption price of the Certificates wil be equal to the 

face amount thereof plus any accumulated Certificate Distributions thereon to the date of 

redemption. In the event the Certificates are redeemed only in part, the Certificates to be 

redeemed wil be selected by the Trustee by lot. Certficate Holders wil have the option to 

receive a specified percentage (e.g. 5%) of any redemption premium received by the Trust 

upon the redemption of any Preferred Stock. 

-4­ COP y
 
Law Offices of 

CHAPMAN AND CUTLER 

The Certficates wil mature, and the face amount thereof wil be payable, on a date
 

(the "Maturity Date") which is on or prior to the Auction Date with respect to the Preferred 

Stock next succeeding the date on which the Trust is created. On or prior to the Maturity 

Date, the Trustee wil 
 liquidate the Preferred Stock to provide funds to pay the face amount 

of the Certficates, plus any accumulated Certficate Distrbutions thereon, on the Maturity 

Date. To the extent that the proceeds of such sale are insufficient to pay such amounts on the 

Maturity Date and a Credit Facilty and Tender Option Termination Event (as described
 

below) has not occured, such amounts wil be provided by the Bank pursuant to the Credit 

Facilty described below. Certificate Holders wil have the option to receive a specified 

percentage (e.g. 5%) of any gain received by the Trust upon the sale of the Preferred Stock. 

D. THCRDITFACILITY 

Payments of the purchase price of any Certificates tendered for purchase as described 

below and payments on the Certficates on the Maturity Date wil be secured by a bank (the 

"B ank") pursuant to a credit facilty (the "Credit Facilty") issued by the Bank under 

conditions that wil result in the Certificates being rated by a nationally recognized statistical 

rating organization in the highest rating category for short-term debt obligations. The 

Certificates wil also be rated in the highest rating category for preferred stock by a 

nationally recognized statistical rating organization. The Bank wil not be affilated with 

DLJ or the Trust. For providing the Credit Facilty the Bank wil be paid a fee, equal to a 

percentage of the face amount of the outstanding Certificates, out of the assets of the Trust. 

The Credit Facilty wil be directed (i) to the Trustee for the benefit of the Holders to 

secure all payments on the Maturity Date with respect to the Certificates and (ii) to the 

Remarketing Agent for the benefit of the holders of the Certficates to secure the payment of 

the purchase price of the Certificates upon exercise of a Tender Option (as hereinafter 

described), provided thai: a Credit Facilty and Tender Option Termination Event has not 

occurred. The Credit Facilty wil be available to pay the purchase price of tendered 

Certificates only to the extent that such Certificates have not been remarketed by the 

Remarketing Agent on or prior to the date of purchase. In the event the Credit Facilty is 

drawn upon to pay the purchase price of tendered Certificates, the Bank wil become the 

owner of the Certificates which were the subject of the drawing at the time of such drawing. 

Amounts paid pursuant to a drawing under the Credit Facilty to provide the purchase price 

of tendered Certificates wil be required to be reimbursed by the Sponsor to the Bank from 

its own funds within a specified period of time pursuant to a reimbursement agreement. 

Upon the reimbursement to the Bank by the Sponsor of amounts drawn under the Credit 

Facilty, the Sponsor wil become the owner of the Certifcates which were the subject of 

such drawing. Consequently, the Certificates wil remain outstanding in the event of a 

drawing under the Credit Facilty and the subsequent reimbursement of the amount of such
 

drawing by the Sponsor. The Remarketing Agent wil continue to attempt to remarket any 

Certificates held by the Bank or the Sponsor as a result of a drawing under the Credit 

Facilty. 

Upon the termination of the Trust, the Certificates wil be subject to mandatory 

purchase by the Trust. As a result of the mandatory purchase of Certicates in connection 

C O-S-p y
 
Law Offices of 

CHAPMAN AND CUTLER 

with the termination of the Trust, the Certficates wil be canceled. The Credit Facilty wil 

be available to pay the purchase price of Certificates subject to mandatory purchase,
 

provided that a Credit Facilty and Tender Option Termnation Event has not occurred. In 

the event the Credit Facilty is drawn upon to pay the purchase price of Certificates subject 

to mandatory purchase, the amount of such drawing wil be required to be reimbursed by 

the Sponsor to the Bank from its own funds pursuant to the reimbursement agreement.
 

Consequently, in the absence of a Credit Facilty and Tender Option Termination Event, the 

Sponsor, and not the holders of the Certficates, wil bear the risk that the market value of 

the Preferred Stock at the time of the termination of the Trust wil be below the amount 

necessar to retun the face amount of the Certcates to the holders thereof. 

The obligations of the Bank under the Credit Facility wil be "conditional" in the sense 

that upon the occurrence of certain events, the Credit Facilty wil terminate. The events 

upon which the Credit Facilty wil terminate ("Credit Facility and Tender Option 

Termination Events") are: (i) the failure of the board of directors of the Fund to declare a 

regular dividend on the Preferred Stock at the dividend rate determined in the previous 

auction of the Preferred Stock; (ii) the failure of the Fund to pay any declared dividend on 

the Preferred Stock on the related dividend payment date; (ii) a substantial downgrading in 

the rating of the Preferred Stock by a nationally recognized statistical rating organization; 

and (iv) a determination that any porton of the dividends paid on the Preferred Stock which 

are designated by the Fund to its shareholders as exempt-interest dividends do not qualify as 

such for Federal income tax puroses. Upon the occurence of any such specified event, the 

Certificates wiii remain outstanding, without the benefit of the Credit Facilty. Upon any 

redemption of the Certficates subsequent to the occurrence of a Credit Facilty and Tender 

Option Termination Event, the source of funds available to pay the redemption price of the 

Certificates wil not include the Credit Facilty. If a Credit Facility and Tender Option
 

Termination Event has occurred prior to the Maturty Date, the source of funds available to 

pay the face amount of, and any accumulated Certificate Distrbutions on, the Certficates 

wil not include the Credit Facilty.
 

E. THE TENDER OPTION AND THE REMAKETING AGREEMENT 

While the Holders wil not have the right to present Certificates for redemption by the 

Trust, the Bank wil agree, subject to the conditions set forth below, to purchase Certicates 

at a price equal to the face amount thereof plus any accumulated Certificate Distrbutions, on 

each Purchase Date pursuant to a tender option (the "Tender Option") issued by the Bank to 

the Holders. If a Rate Determnation Date does not coincide with a Distrbution Date, then 

the purchase price of Certficates which are sold pursuant to the Tender Option wil include 

any accumulated but unpaid Certcate Distrbutions thereon. The agreement of the Bank to 

purchase Certifcates pursuant to the Tender Option wil be secured by the Credit Facilty, 

will run to the Remarketing Agent for the benefit of the Holders and wil be separate from, 

and wil not be a part of, the obligations of the Trust and the Trustee to the Holders. 

Pursuant to the Reimbursement Agreement, the Sponsor wil be obligated to reimburse the 

Bank for amounts paid out under the Credit Facility to fund the Tender Option. 

C 0-6-p Y
 
law Offices of 

CHAPMAN AND CUTLER
 

It is anticipated by the Remarketing Agent that, if the Distribution Rate on the 

Certificates for any forthcoming Certificate Rate Period is not competitive with tax-exempt 

debt obligations of similar maturity and comparable credit in the market, Holders wil tend 

to exercise their Tender Option prior to the commencement of such Certificate Rate Period. 

The Remarketing Agent wil determine and announce each new Distrbution Rate on a date 

which is sufficiently in advance of the commencement of each Certficate Rate Period to 

allow the Holders time to exercise the Tender Option if they are not satisfied with the new 

Distrbution Rate. 

If a Holder exercises its Tender Option, the Remarketing Agent wil use its best 

efforts to resell tendered Certficates bearing the new Certificate Distrbution Rate in the 

secondary market at the face amount thereof plus accumulated Distributions thereon for 

settlement on the Purchase Date with respect to which the Certificates shall have been 

tendered for purchase. The Holders who sell their Certificates pursuant to an exercise of the 

Tender Option wil receive the face amount of the Certificate sold plus any accumulated 

Certificate Distrbutions thereon. 

In the event that the Remarketing Agent is not succ~ssful in resellng in the secondary 

market any Certificate with respect to which the Tender Option is exercised, the purchase 

price of those Certificates wil be paid by the Bank in an amount equal to the face amount 

thereof plus any accumulated Certificate Distributions thereon. The Remarketing Agent's 

experience with tax-exempt securities bearing interest at rates comparable to the Distribution 

Rate which thë Certificates wil bear is such that the Remarketing Agent expects to be able to 

remarket the Certificates at one hundred percent of their face amount, plus any accumulated 

Certiicate Distributions thereon, without the necessity for utiization of the obligation of the 

Bank to repurchase the Certificates. Moreover, in its capacity as a registered broker-dealer, 

the Remarketing Agent, may, but wil not be obligated to, acquire for its own account any 

Certificates which are delivered to it but are not resold. 

The Tender Option wil be "conditional" in the sense that it wil terminate upon the 

occurence of a Credit Facilty and Tender Option Termination Event. Upon the occurrence
 

of any such event, the Tender Option wil immediately terminate without any right of a 

Holder to exercise its Tender Option upon such termination. If the Certificates are not yet 

subject to redemption, they wil remain outstanding, without the benefit of the Tender 

Option, and the Distrbution Rate wil be reset periodically (e.g., weekly, monthly, quarterly

or semi-annually) at a rate equal to a predetermined index rate set forth in the Trust 

Agreement. 

F. TRUSTEE, BANK AND REMATING AGENT FEES AND SPONSOR DISTRIBUTION
 

The positive rate differential between the dividend rate on the Preferred Stock and the 

Distrbution Rate wil, after deducting the Trustee's fees, the Remarketing Agent's fees and 

the Bank's fees, and any other expenses of the Trust, be paid to the Sponsor as a distribution 

on the Sponsor Certificate (such amount being hereinafter referred to as the "Sponsor 

Distribution"). In no event wil the Distrbution Rate on the Certficates exceed the dividend
 

c a -7p y
 
Law Offices of 

CHAPMAN AND CUTLER 

rate on the Preferred Stock, less the fees of the Trustee, the Remarketing Agent, the Bank 

and any other expenses of the Trust. 

G. INITI MATING OF THE CERTIFCATES
 

It is anticipated that the Certificates wil be offered and sold to institutional investors 

in an offering exempt from the registration requirements of the Securities Act pursuant to 

Section 4(2) thereof. Investors wil pay the purchase price for the Certificates in full at the 

time of their purchase. The offering and sale wil be made pursuant to an offering
 

document which wil be given to each offeree and each purchaser and which wil contain 

appropriate disclosures regarding the transaction, the Trust, the Certficates, the Distrbution 

Rate, the Preferred Stock, the Fund, the Bank, the Credit Facilty, the Tender Option, DLJ 

and any applicable affiliates and other matters material to the transaction. 

The Certificates wil be marketed on the basis of the abilty of the Bank to provide for 

payment of all payments on the Maturity Date with respect to the Certificates and the 

payment of all obligations pursuant to the Tender Option. It is anticipated that, in making 

investment decisions with respect to the Certificates, purchasers of the Certificates wil rely 

on the creditworthiness of the Bank, as well as the Trust's and the Fund's financial condition. 

DLJ anticipates that the primary market for the Certificates wil be institutional investors 

that have a need for short-term, high quality, tax-exempt obligations, including tax-exempt 

money market. funds. 

LEGAL ANALYSIS
 

A. RULE 3a-7
 

Rule 3a-7 promulgated under the Investment Company Act provides that any issuer 

who is engaged in the business of purchasing, or otherwise acquiring, and holding eligible 

assets and who does not issue redeemable securities, wil not be deemed to be an investment 

company, provided that certain other specified conditions are met. For the reasons set forth 

below, we believe that the Trust wil fall within the exception from the definition of an 

investment company contaned in Rule 3a-7. 

Redeemable Securities. Section 2(a)(32) of the Investment Company Act defines 

"redeemable security" as any security, other than short-term paper, under the terms of 

which the holder, upon its presentation to the issuer or a person designated by the issuer, is 

entitled (whether absolutely or only out of surplus) to receive approximately his 

proportionate share of the issuer's current net assets, or the cash equivalent thereof. In 

footnote 24 of the release which adopted Rule 3a-7 (the "Adopting Release") the Commssion 

indicated that counsel concerned about whether a security would be a redeemable security 

under Rule 3a-7 should examine the no-action letters under Section 3(c)(5) of the 

Investment Company Act for guidance. In a series of no-action letters under 

Section 3(c)(5), the staff of the Division of Investment Management has concluded that 

securties subject to liquidity puts similar to the Tender Option are not redeemable securties 

c O-S-p y
 
Law Offices of 

CHAPMAN AND CUTLER 

for purposes of Section 3(c)(5). See LaQuinta Motor Inns (avaiL. January 4, 1989); 

Shearson Lehman/American Express Inc. (avaiL. March 20, 1985); McDonald and Company 

Securities (avaiL. December 14, 1983). The Certificates are similar in all material respects 

to the securties which were the subject of such letters. 

In this regard, we note that: 

(i) the purchase price payable upon the exercise of the Tender Option wil be
 

the face amount of the Certificates plus any accumulated Certificate Distributions 

thereon, rather than the Holder's proportionate share of the Trust's net assets, or the 

cash equivalent thereof, as is contemplated in the definition of redeemable securities; 

(ii) the Tender Option wil not be issued by the Trust or the Trustee, but


rather wil be an obligation of the Bank, which wil not be the issuer, or a person 

designated by the issuer, of the Certificates; 

(iii) the Certificates wil not be redeemed pursuant to exercise of the Tender
 

Option, and, therefore, the activities associated with the exercise of the Tender Option 

wil leave the Certificates outstanding; and
 

(iv) the Certificates wil be purchased and remarketed pursuant to the
 

obligati(:ms of the Remarketing Agent and the Bank only at certain designated times 

(e.g., the first business day of each week, month, calendar quarter or six months) and 

not at any specific time after "presentation" by the Holder as is contemplated in the 

definition of redeemable securities in Section 2(a)(32) of the Investment Company 

Act. 

For these reasons we believe that the Certificates clearly lack certain of the essential 

elements contained in the definition of "redeemable security". In addition, the manner in 

which the Distribution Rate wil be determined and the periodic right of the Holders, 

through exercise of the Tender Option, to require the purchase of the Certificates on each 

Purchase Date wil give the Certificates effective characten-stics of "short-term paper," "­

which is excluded from the definition of redeemable securities. Accordingly, we do not 

believe that the Certificates should be deemed to be redeemable securities for purposes of 

Rile 3a-7.
 

Eligible Assets. The exception from the definition of an investment company
 

provided by Rule 3a-7 is available only to issuers which are "engaged in the business of 

purchasing, or otherwise acquiring and holding eligible assets. .." "Eligible assets" is 

defined in Rule 3a-7 as "financial assets, either fixed or revolving, that by their terms 

convert into cash within a definite time period plus any rights or other assets designed to 

assure the servicing or timely distrbution of proceeds to security holders." The Preferred 

Stock wil, by its terms, convert into cash within a definite period of time. Dividends wil 

be payable on the Preferred Stock on each Dividend Payment Date. The liquidation 

preference or stated amount of the Preferred Stock can be recovered by a holder thereof at 

the end of each Rate Period through the auction process. The Fund instrment establishing 

C 0-9- P Y
 
Law Offices of 

CHAPMAN AND CUTLER 

the Preferred Stock wil provide that the holder thereof is entitled to parucipate in an 

auction at the end of each Rate Period for such Preferred Stock. In an auction, a holder of 

Preferred Sto~k (i.e., the Trust) may submit an order to the auction agent to sell the 

Preferred Stock in the auction without regard to the Dividend Rate for the next succeeding 

Rate Period which is determined through the auction procedure. Sales of Preferred Stock in 

the auction wil be effected at a price which is equal to the liquidation preference or stated 

amount of the Preferred Stock. Accordingly, the terms of the Preferred Stock provide a 

mechanism whereby a holder may receive a specific amount of cash for its Preferred Stock 

on a specific date. 

While the definition of eligible assets does not specifically identify particular types of 

assets, the Commission stated in the Adopting Release that the definition is intended to 

include all of the assets provided as examples in Rule 3a-7 as originally proposed, including 

notes, bonds, debentures, evidences of indebtedness, certificates of deposit, leases, 

installment contracts, interest rate swaps, repurchase agreements, guaranteed investment 

contracts, accounts receivables, chattel paper, cumulative preferred stock, guarantees, 

annuities, and participation's, or beneficial interest in any of the foregoing, and any other 

assets that serve solely to support the credit of the issuer's securities, such as letters of credit, 

guarantees and cash collateral accounts. The Commission also stated that the definition 

includes liquidity arrangements that support the payment of the securities and the underlying 

assets. In a recent interpretive letter, the staff of the Division of Investment Management 

took the position that cumulative preferred stock that has no predetermined liquidation date 

is not an eligible asset under rule 3a-7. See Kenneth T. Cole (avaiL. February 24, 1994). 

The Preferred Stock which wil be deposited in the Trust is distinguishable from the 

preferred stock which was the subject of such letter because, by its terms, it converts into 

cash within a definite time period through the auction mechanism described above.
 

Accordingly, we believe that the Preferred Stock is an "eligible asset" as defined in Rule 

3a-7. Additionally, should the Credit Facilty be deemed to be an asset of the Trust, we 

believe that it is an asset that serves solely to support the credit of the Trust and a liquidity 

arangement that supports the payment of the Certificates and, therefore, an "eligible asset" 

as defined in Rule 3a-7. 

Fixed-Income Securities. Subparagraph (a)(1) of Rule 3a-7 requires an issuer relying 

on Rule 3a-7 to issue fixed-income securities or other securities which entitle their holders 

to receive payments that depend primarly on the cash flow from eligible assets. The 

definition of "fixed-income securities" includes any security that entitles the holder thereof 

to receive a stated principal amount and interest on a principal amount calculated through 

remarketing of the security. The Ceruficates entitle the Holders to receive the face amount 

thereof plus any accumulated Certificate Distrbuuons thereon upon exercise of the Tender 

Option by the Holders, provided that a Credit Facilty and Tender Option Termination Event 

has not occured. The Distrbution Rate at which Certificate Distributions accumulate on the 

Certficates is determined by the Remarketing Agent in connection with the remarketing of 

any tendered Certificates or, in the absence of the tender of any Certificates for purchase on 

a given Purchase Date, by reference to remarketings of similar securities. Upon the 

occurence of a Credit Facilty and Tender Option Termnation Event, the Distribution Rate 

wil be set by reference to a predetermined index rate. The index rate wil not reference
 

C O-io-p y
 
Law Offces of 

CHAPMAN AND CUTLER
 

any change in the market value or fair value of the Preferred Stock. The definition of 

"fixed-income securities" also includes any securty that entitles the holder thereof to receive 

a stated principal amount and interest on a principal amount calculated by reference to a 

"standard" which does not reference any change in the market value or fai value of eligible 

assets. Accordingly, we believe that the Certificates are "fixed-income securities" as that 

term is defined in Rule 3a-7 and, consequently, the Trust wil comply with subparagraph 

(a)(1) of Rule 3a-7. 

Rating Requirements. Subparagraph (a)(2) of Rule 3a-7 requires that, with certain 

exceptions, securities sold by an issuer relying on Rule 3a-7 or any underwrter thereof are 

fixed income securities rated, at the time of initial sale, in one of the four highest rating 

categories of long-term debt or in an equivalent short-term category by at least one
 

nationally recognized statistical rating organization that is not an affiiate of the issuer or any 

person involved in the organization or operation of the issuer. The Certificates wil be rated 

in the highest short-term debt rating category by an unaffilated nationally recognized
 

statistical rating organization. One of the exceptions to the rating requirement is that any 

securities may be sold to persons involved in the organization or operation of the issuer. 

DLJ, as sponsor of the Trust, wil be involved in all aspects of the organization of the Trust. 

Accordingly, the sale of an unrated Sponsor Certificate to the Sponsor wil fall within the 

aforementioned exception to the rating requirement. 

Acquisi!ton/Disposition of Eligible Assets. Subparagraph (a)(3) of Rule 3a-7 prohibits 

any issuer relying on Rule 3a-7 from acquiring additional eligible assets, or disposing of 

eligible assets, unless: 

(i) the assets are acquired or disposed of in accordance with the terms and
 

conditions set forth in the agreements, indentures, or other instruments pursuant to
 

which the issuer's securities are issued; 

(ii) the acquisition or disposition of the assets does not result in a
 

downgrading in the rating of the issuer's outstanding fixed-income securities; and 

(iü) the assets are not acquired or disposed of for the primary purpose of
 

recognizing gains or decreasing losses resulting from market value changes. 

The trust wil not acquire any Preferred Stock subsequent to the initial deposit of Preferred 

Stock in connection with the formation of the Trust. The Trust wil only dispose of 

Preferred Stock in connection with the termination of the Trust or the redemption of 

Preferred Stock by the Fund. The Trust may temporarily invest payments received on the 

Preferred Stock in short-term tax-exempt securities which fall within the definition of 

eligible assets. However, any disposition of Preferred Stock and any acquisition or 

disposition of short-term tax-exempt securities wil be effected in accordance with the terms 

and conditions of the Trust Agreement, will not result in a downgrading of the Certificates, 

and wil not be effected for the primary purpose of recognizing gains or decreasing losses 

resulting from market value changes. Accordingly, we believe that the Trust wil be in 

compliance with the requirements of subparagraph (a)(3) of Rule 3a-7. 

C o-ii-p y
 
Law Offices of 

CHAPMAN AND CUTLER
 

The Trustee. Subparagraph (a)(4) of Rule 3a-7 imposes certain requirements with 

respect to the appointment of a trustee by any issuer which relies on Rule 3a-7. For 

purposes of this no-action request, you may assume that the Trust wil comply with the 

provisions of subparagraph (a)( 4) of Rule 3a-7. 

B. RULE 2a-7
 

Rule 2a-7 under the Investment Company Act generally provides that an investment 

company may utilize the amortized cost method of valuing its portfolio securities or the 

penny-rounding method of pricing its shares if, among other requirements, it does not 

purchase any instrment with a remaining maturty of greater than 397 calendar days and 

maintains a dollar-weighted average portfolio maturity of not more than 90 days. The 

matuity of a portfolio instrument is generally deemed to be the period remaining until the 

date noted on the face of the instrment as the date on which the principal amount must be 

paid. However, a "varable rate instrment" that is subject to a "demand featue" is deemed 

to have a maturity equal to the longer of the period remaining until the next readjustment of 

the interest rate or the period remaining until the principal amount can be recovered 

through demand. 

Under Rule 2a-7, a "variable rate instrument" is a security the terms of which 

provide for the adjustment of its interest rate on set dates (such as the last day of a month or 

calendar quarter) and which, upon such adjustment, can reasonably be expected to have a 

market value that approximates its par value. The Trust Agreement wil provide that 

Certificate Distributions accumulate on the Certificates at the Certificate Rate. The 

Certificate Rate wil be reset periodically (e.g., weekly, monthly, quarterly or semiannually) by the Remarketing Agent at the rate which wil be necessary, in the view of the 

Remarketing Agent, for the Certificates to be sold at the face amount thereof (plus any 

accumulated Certificate Distrbutions thereon) on the applicable Purchase Date. 

Under Rule 2a-7, a "demand feature" is a put that entitles the holder of a security to 

receive the principal amount of the underlying security or securities and that may be 

exercised either (1) at any time on no more than 30 days' notice or (2) at specified intervals 

not exceeding 397 calendar days and upon no more than 30 days' notice. Each Holder of a 

Certicate wil have the right, through exercise of the Tender Option, to have its Certificate 

purchased on any Purchase Date at the face amount thereof, plus any accumulated Certificate 

Distrbutions thereon. The purchase price of any tendered Certificate wil be paid from the 

proceeds of the remarketing of such Certificate or, in the absence of a successful 

remarketing, from funds provided by the Bank pursuant to the Credit Facilty. The right to 

tender a Certificate for purchase pursuant to the Tender Option wil be exercisable on 

periodic dates (e.g., weekly, monthly, quarterly or semi-annually) which wil in no event be 

greater than 397 calendar days. The notice required prior to the purchase of any Certificate 

on any Purchase Date wil be at least seven, but in no event greater than 30, calendar days. 

The staff of the Division of Investment Management has acknowledged that a bond 

subject to a tender option which is subject to certain conditions may be treated as a "variable 

rate instrment" subject to a "demand feature" under the maturity shortening provisions of 

C 012-p Y
 
Law Offices of 

CHAPMAN AND CUTLER
 

Rule 2a-7. See Nuveen Advisory Corp. (avail. September 4, 1990). However, under the 

Nuveen Advisory Corp. letter, in order for a money market fund to treat such a tender 

option bond as a varable rate instrument subject to a demand feature, the money market 

fund must satisfy certin conditions: 

(i) the fund must not purchase any security subject to such a tender option
 

unless the tender option is exercisable by the fund within one year of the date of such 

purchase upon no more than 30 days' notice and thereafter exercisable by the fund no 

less frequently than annually upon no more than 30 days' notice; 

(ii) the fund must not purchase any security subject to such a tender option
 

unless, at the time of such purchase, the fund's investment adviser reasonably expects 

(a) based upon its assessment of current and historical interest rate trends, that 

prevailng short-term, t~-exempt rates wil not exceed the maximum interest rate on 

such security at the time of the next rate adjustment on the security subject to the 

tender option, and (b) that the circumstances that would result in the termination of 

the tender option would not occur prior to the time of the next tender opportunity; 

(iii) at the time of each tender opportunity, the fund must exercise the tender
 

option with respect to the security unless the fund's investment adviser reasonably 

believes (a) based upon its assessment of current and historical interest rate trends, 

that short-term, tax-exempt rates wil not exceed the maximum interest rate on such 

security. at the time of the next rate adjustment on the security subject to the tender 

option, and (b) that the circumstances that would result in the termination of the 

tender option would not occur prior to the time of the next tender opportunity; 

(iv) the fund must exercise the tender option with respect to the security, or 

otherwise dispose of the securty, prior to the time the tender option Üì scheduled to
 

expire pursuant to the terms of the agreement under which the tender option is 

granted; 

(v) the fund must otherwise comply with the provisions of Rule 2a-7 in
 

connection with the purchase of the security subject to the tender option, including, 

without limitation, the requisite determinations in connection with the purchase of the 

security subject to the tender option, including, without limitation, the requisite 

determinations by the fund's board of directors with respect to the quality of such 

securty; and
 

(vi) in the event of a default on the underlying securty, or the termination of
 

the tender option agreement, the fund must look to the maturity date of the underlying 

security for purposes of compliance with Rule 2a-7. 

We believe that money market funds could reasonably make comparable
 

determinations in connection with an investment in the Certificates. For the foregoing 

reasons, we believe that the Certificates should be treated as "variable rate instruments" 

subject to a "demand feature" for puroses of Rule 2a-7. 

C 013-p Y
 
Law Offces of 

CHAMAN AND CUTLER 

Rule 2a-7 provides that an investment company utilizing the amortized cost method of 

valuing its portfolio securities or the penny-rounding method of pricing its shares must linut 

its portfolio investments to those United States dollar-denonunated instrments that its board 

of directors deternunes present miimal credit risks and which at the time of acquisition are 

"eligible securties." The definition of "eligible securty" contained in Rule 2a-7 includes a 

security with a remaining maturity of 397 days or less that is rated by a nationally 

recognized statistical rating organization (if only one such organization is rating such 

security) in one of the two highest rating categories for short-term debt obligations. 

Rule 2a-7(c)(3)(ii) provides that a demand instrument that does not have an 

"unconditional demand feature" is not an "eligible securty" unless it meets the requirements 

for being an eligible security, and, in addition, the demand instrument has been rated in one 

of the two highest rating categories for long-term debt obligations. An unconditional 

demand feature is a demand feature that by its terms would be readily exercisable in the 

event of a default in payment of principal or interest on the underlying security. We believe 

that the Tender Option would not be deemed to be an unconditional demand feature because 

of the circumstances in which the Tender Option wil terminate (e.g., the failure of the 

fund's board of directors to declare a regular dividend on the Preferred Stock or the failure 

of the fund to pay any declared dividend on the related distribution date). Consequently, it 

appears to be necessary that the Certificates (i.e., the "demand instrument" being purchased 

by funds relying on Rule 2a-7) have received a long-term rating by a nationally recognized 

statistical rating organization. Therefore, it wil be a condition precedent to the issuance of 

the Certificates that they receive the highest preferred stock rating by a nationally 

recognized statistical rating organization. 

A preferred stock rating differs from a long-term debt rating in that the former rates 

an issuer's willngness and capacity to declare and pay dividends on the securty in question 

whereas the latter rates an issuer's wilingness and capacity to pay principal and interest on 

the securty. Thus, the long-term rating on the Certificates would rate the Trust's ability to 

make Certificate Distribution payments on the Certificates but" would not rate the Trust's 

abilty to repay the Certificates' face amount on the Maturity Date. However, the Credit 

Facility would be available to pay such. amounts, provided that a Credit Facility and Tender 

Option Ternunation Event had not occurred prior to the Maturity Date. 

In the event that a Credit Facilty and Tender Option Ternunation Event occurs, the 

Trustee wil be required to liquidate the Preferred Stock and distribute the proceeds to the 

Holders of the Certificates. It is unlikely that the Trustee wil be able to liquidate the 

Preferred Stock at a price at least equal to the liquidation preference or stated amount 

thereof. Thus, upon the occurrence of a Credit Facilty and Tender Option Termination 

Event, a money market fund which owns Certificates could receive less than the face amount 

of its Certificates in connection with the redemption thereof. However, this is sinular to the 

situation faced by a money market fund which owns tender option bonds upon the 

occurence of an event which could result in the ternunation of the tender option. In such a 

situation it is unlikely that the bond held by the money market fund would continue to be an 

"eligible security." As a result, the money market fund would be required to dispose of the 

bond pursuant to paragraph (c)(5)(ii) of Rule 2a-7, absent a finding by the fund's board of 

C 0-14-p Y
 
Law Offces of 

CHAPMAN AND CUTLER
 

directors that disposal of the bond would not be in the best interests of the fund. It is 

unlikely that the fund would be able to liquidate the bond at a price at least equal to the 

principal amount thereof. Thus, upon the occurence of an event which could result in the 

termination of the tender option, a money market fund which owns a tender option bond 

could receive less than the principal amount of such bond in connection with the liquidation 

thereof. 

It appears to us that the staff's response in Nuveen Advisory Corp. was premised, in 

part, upon the conclusion that a money market fund can monitor the likelihood that an event 

which can result in the termination of a tender option wil occur and exercise the tender 

option or otherwise dispose of the securty if, in the money market fund's judgment, such an 

event could occur prior to the time of the next tender opportunity. It does not appear that 

the staff's position was based upon the position that upon the occurence of such an event, a 

money market fund could eventually recover the principal amount of the security at 

maturity. Accordingly, it is .our view that an issuer's abilty to repay the principal amount 

of a securty at maturty should not be essential to the long-term credit analysis of a demand 

instrment subject to a conditional demand feature if such securty would not be an eligible 

security upon the termination of the demand feature. Rather, it is the issuer's capacity to 

make ongoing payments on the securty in question. which is relevant. The preferred stock 

rating assigned to the Certificates wil rate the Trust's capacity to make scheduled payments 

on the Certificates, based primarily upon the Fund's capacity to make scheduled dividend 

payments on the Preferred Stock. For these reasons, we believe that the Certificates should 

qualify as eligible securities for purposes of Rule 2a-7. 

CONCLUSION 

On the basis of the foregoing, we respectfully request that the staff of the Division of 

Investment Management concur in our opinion that: 

(i) the Certificates may be offered and sold, and the Trust may be organized
 

and operated, without registration under the Investment Company Act by virtue of 

Rule 3a-7 thereunder; and 

(ii) the Certificates may be purchased by money market funds which rely on
 

Rule 2a- 7 under the Investment Company Act to use the amortized cost method of 

valuation or the penny-rounding method of pricing to compute price per share. 

Because DLJ is anxious to proceed with the offering of the Certifcates, we would 

appreciate a response to the request made herein as promptly as may be practicable. If for 

any reason the response to such request may be unfavorable, we respectfully request the 

opportnity to discuss with the staff the reasons for such response prior to the issuance by 

the staff of a formal response. Pursuant to 17 C.F.R. Section 200.81(b), we respectfully 

request confidential treatment of this request and the staff's response thereto until 120 days 

after the date of the staff's response, or such earlier date that the staff is advised that the 

information in this letter (and the staff's response thereto) has been made public. In 

accordance with your request, this letter is intended to restate our prior letter to the Division 

C O-15-p y
 
Law Offices of 

CHAPMAN AND CUTLER
 

of Investment Management. If you require additional facts or wish to discuss this matter 

further, please do not hesitate to call the undersigned collect at (312) 845-2976 or in my 

absence, Vincent M. Aquilno of this offce at (312) 845-3702. 

Very truly yours, 

CHAMAN AND CUR 

By: L Su?~. '~

Scott Jardine 

WSJ/maz 

cc: Vincent M. Aquilno
 

Michael Hannah 

C 016- P Y