EXHIBIT 3.2
XXXXXXX AND XXXXXX
000 XXXX XXXXXX XXXXXX
XXXXXXX, XXXXXXXX 00000
June 2, 1998
Xxx Xxxxxx American Capital Distributors, Inc.
Xxx Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
The Bank of New York
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Re: XXX XXXXXX AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST, SERIES 102
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Gentlemen:
We have acted as counsel for Xxx Xxxxxx American Capital Distributors,
Inc., Depositor of Xxx Xxxxxx American Capital Equity Opportunity Trust, Series
102 (the "Fund"), in connection with the issuance of Units of fractional
undivided interest in the Fund, under a Trust Agreement dated June 2, 1998 (the
"Indenture") between Xxx Xxxxxx American Capital Distributors, Inc., as
Depositor, Xxx Xxxxxx American Capital Investment Advisory Corp., as Evaluator,
Xxx Xxxxxx American Capital Investment Advisory Corp., as Supervisory Servicer,
and The Bank of New York, as Trustee. The Fund is comprised of two separate unit
investment trusts, Blue Chip Opportunity and Treasury Trust, Series 6 and Blue
Chip Opportunity Trust, Series 4. The following discussion applies only to Xxx
Xxxxxx American Capital Blue Chip Opportunity and Treasury Trust, Series 6 (the
"Trust").
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust will consist of a portfolio of equity
securities (the "Equity Securities") and "Zero coupon" U.S. Treasury bonds (the
"Treasury Obligations") (collectively, the "Securities") as set forth in the
Prospectus. For purposes of the following discussion and opinion, it is assumed
that the Equity Securities are equity for Federal income tax purposes, the
interest on the Treasury Obligations is included in gross income for Federal
income tax purposes and that the Treasury Obligations are debt for Federal
income tax purposes.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trust is not an association taxable as a corporation
for Federal income tax purposes; each Unitholder will be treated as the
owner of a pro rata portion of each asset of the Trust under the
Internal Revenue Code of 1986, as amended (the "Code"); the income of
the Trust will be treated as income of each Unitholder thereof under
the Code, and an item of Trust income will have the same character in
the hands of a Unitholder as it would have in the hands of the Trustee.
Each Unitholder will be considered to have received his pro rata share
of income derived from each Trust asset when such income is considered
to be received by the Trust.
(ii) Each Unitholder will have a taxable event when the Trust
disposes of a Security (whether by sale, exchange, liquidation,
redemption, payment at maturity or otherwise) or upon the sale or
redemption of Units by such Unitholder. The price a Unitholder pays for
his Units, generally including sales charges, is allocated among his
pro rata portion of each Security held by the Trust (in proportion to
the fair market values thereof on the valuation date closest to the
date the Unitholder purchases his Units) in order to determine his tax
basis for his pro rata portion of each Security held by the Trust. The
Treasury Obligations are treated as stripped bonds and may be treated
as bonds issued at an original issue discount as of the date a
Unitholder purchases his Units. Because the Treasury Obligations
represent interests in "stripped" U.S. Treasury bonds, a Unitholder's
tax basis for his pro rata portion of each Treasury Obligation held by
the Trust (determined at the time he acquires his Units, in the manner
described above) shall be treated as its "purchase price" by the
Unitholder. Original issue discount is effectively treated as interest
for federal income tax purposes and the amount of original issue
discount in this case is generally the difference between the bond's
purchase price and its stated redemption price at maturity. A
Unitholder will be required to include in gross income for each taxable
year the sum of his daily portions of original issue discount
attributable to the Treasury Obligations held by the Trust as such
original issue discount accrues and will in general be subject to
federal income tax with respect to the total amount of such original
issue discount that accrues for such year even though the income is not
distributed to the Unitholders during such year to the extent it is not
less than a "de minimis" amount as determined under Treasury
Regulations relating to stripped bonds. To the extent the amount of
such discount is less than the respective "de minimis" amount, such
discount is generally treated as zero. In general, original issue
discount accrues daily under a constant interest rate method which
takes into account the semi-annual compounding of accrued interest. In
the case of the Treasury Obligations, this method will generally result
in an increasing amount of income to the Unitholders each year. For
federal income tax purposes, a Unitholder's pro rata portion of
dividends as defined by Section 316 of the Code paid by a corporation
with respect to an Equity Security held by the Trust are taxable as
ordinary income to the extent of such corporation's current and
accumulated "earnings and profits". A Unitholder's pro rata portion of
dividends paid on such Equity Security which exceed such current and
accumulated earnings and profits will first reduce a Unitholder's tax
basis in such Equity Security, and to the extent that such dividends
exceed a Unitholder's tax basis in such Equity Security shall generally
be treated as capital gain. In general, the holding period of such
capital gain will be determined by the period of time a Unitholder has
held his Units.
(iii) A Unitholder's portion of gain, if any, upon the sale or
redemption of Units or the disposition of Securities held by the Trust
will generally be considered a capital gain, except in the case of a
dealer or a financial institution. A Unitholder's portion of loss, if
any, upon the sale or redemption of Units or the disposition of
Securities held by the Trust will generally be considered a capital
loss, except in the case of a dealer or a financial institution.
(iv) Under the Indenture, under certain circumstances, a
Unitholder tendering Units for redemption may request an in kind
distribution of Equity Securities upon the redemption of Units or upon
the termination of the Trust. As previously discussed, prior to the
redemption of Units or the termination of the Trust, a Unitholder is
considered as owning a pro rata portion of each of the Trust's assets.
The receipt of an in kind distribution will result in Unitholders
receiving an undivided interest in whole shares of stock and possibly
cash. The potential federal income tax consequences which may occur
under an in kind distribution with respect to each Equity Security
owned by the Trust will depend upon whether or not a Unitholder
receives cash in addition to Equity Securities. An "Equity Security"
for this purpose is a particular class of stock issued by a particular
corporation. A Unitholder will not recognize gain or loss with respect
to an Equity Security if a Unitholder only receives Equity Securities
in exchange for his pro rata portion of the Equity Securities held by
the Trust. However, if a Unitholder also receives cash in exchange for
a fractional share of an Equity Security held by the Trust, such
Unitholder will generally recognize gain or loss based upon the
difference between the amount of cash received for the fractional share
by the Unitholder and his tax basis in such fractional share of an
Equity Security held by the Trust. In either case, a Unitholder who
receives cash in exchange for his interest in the Treasury Obligations
will generally recognize gain or loss based upon the difference between
the amount of cash received by the Unitholder for the Treasury
Obligations and his tax basis in such Treasury Obligations. The total
amount of taxable gains (or losses) recognized upon such redemption
will generally equal the sum of the gain (or loss) recognized under the
rules described above by the redeeming Unitholder with respect to each
Equity Security owned by a Trust.
A domestic corporation owning Units in the Trust may be eligible for
the 70% dividends received deduction pursuant to Section 243(a) of the Code with
respect to such Unitholders, pro rata portion of dividends received by the Trust
(to the extent such dividends are taxable as ordinary income, as discussed
above, and are attributable to domestic corporations), subject to the
limitations imposed by Sections 246 and 246A of the Code.
Section 67 of the Code provides that certain miscellaneous itemized
deductions, such as investment expenses, tax return preparation fees and
employee business expenses will be deductible by individuals only to the extent
they exceed 2% of such individual's adjusted gross income. Unitholders may be
required to treat some or all of the expenses of the Trust as miscellaneous
itemized deductions subject to this limitation.
A Unitholder will recognize taxable gain (or loss) when all or part of
the pro rata interest in a Security is either sold by the Trust or redeemed or
when a Unitholder disposes of his Units in a taxable transaction, in each case
for an amount greater (or less) than his tax basis therefor subject to various
non-recognition provisions of the Code.
Any gain or loss recognized on a sale or exchange will, under current
law, generally be capital gain or loss.
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including state or local taxes or collateral tax
consequences with respect to the purchase, ownership and disposition of Units.
Very truly yours
XXXXXXX AND XXXXXX
