FORM OF TAX OPINION
November 20, 1998
Board of Trustees
Xxxxx Xxxxxxx Investment Company
000 X Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Re: Agreement and Plan of Reorganization made as of November 20, 1998
by Xxxxx Xxxxxxx Investment Company, a Massachusetts business trust
(the "Trust"), on behalf of the Volatility Constrained Bond Fund
(the "Acquired Portfolio") of the Trust, and on behalf of the Fixed
Income II Fund (the "Acquiring Portfolio") of the Trust
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of the Acquired Portfolio and the Acquiring
Portfolio (the "Reorganization"). The Reorganization will involve the transfer
of all the assets of the Acquired Portfolio to the Acquiring Portfolio, and the
assumption of the liabilities of the Acquired Portfolio by the Acquiring
Portfolio. In exchange for the foregoing, Class S shares of the Acquiring
Portfolio will be distributed to shareholders of the Acquired Portfolio,
following which the Acquired Portfolio will be dissolved.
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, made as of November 20, 1998, by and
between the Acquired Portfolio and the Acquiring Portfolio (the "Agreement"),
(b) the Form N-14 Registration Statement and Proxy Statement provided to
stockholders of the Acquired Portfolio in connection with the Special Meeting in
Lieu of Annual Meeting of Stockholders of the Acquired Portfolio held November
20, 1998, (c) certain representations concerning the Reorganization made to us
by the Acquired Portfolio and the Acquiring Portfolio in a letter dated as of
November 20, 1998 (the "Representation Letter"), (d) all other documents,
financial and other reports and corporate minutes which we deemed relevant or
appropriate, and (e) such statutes, regulations, rulings and decisions as we
deemed material to the rendition of this opinion. All terms used herein, unless
otherwise defined, are used as defined in the Agreement.
For purposes of this opinion, we have assumed that the Acquired
Portfolio on the effective date of the Reorganization satisfies, and following
the Reorganization, the Acquiring Portfolio will continue to satisfy, the
requirements of subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury under
Section 1276(d) of the Code, certain transfers of market discount bonds will be
excepted from the requirement that accrued market discount be recognized on
disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried out
in accordance with the applicable laws of the Commonwealth of Massachusetts, the
Agreement and the Representation Letter, it is our opinion that:
1. The Reorganization with respect to the Acquired Portfolio and the
Acquiring Portfolio will constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(C) of the Code and both the Acquired Portfolio and the
Acquiring Portfolio will be a party to the reorganization within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized by the Acquired Portfolio upon the
transfer of all of its assets to and assumption of the liabilities by the
Acquiring Portfolio in exchange solely for Class S shares of the Acquiring
Portfolio pursuant to Section 361(a) and Section 357(a) of the Code. We express
no opinion as to whether any accrued market discount will be required to be
recognized as ordinary income pursuant to Section 1276 of the Code.
3. No gain or loss will be recognized by the Acquiring Portfolio upon the
receipt by it of all of the assets of the Acquired Portfolio in exchange solely
for Class S shares of the Acquiring Portfolio pursuant to Section 1032(a) of the
Code.
4. The basis of the assets of the Acquired Portfolio received by the
Acquiring Portfolio will be the same as the basis of such assets to the Acquired
Portfolio immediately prior to the exchange pursuant to Section 362(b) of the
Code.
5. The holding period of the assets of the Acquired Portfolio received by
the Acquiring Portfolio will include the period during which such assets were
held by the Acquired Portfolio pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the shareholders of the Acquired
Portfolio upon the exchange of their shares in the Acquired Portfolio for Class
S shares of the Acquiring Portfolio (including fractional shares to which they
may be entitled), pursuant to Section 354(a) of the Code.
7. The basis of the Class S shares in the Acquiring Portfolio received by
the shareholders of the Acquired Portfolio (including fractional shares to which
they may be entitled) will be the same as the basis of the shares of the
Acquired Portfolio exchanged therefor pursuant to Section 358(a)(1) of the Code.
8. The holding period of the Class S shares of the Acquiring Portfolio
received by the shareholders of the Acquired Portfolio (including fractional
shares to which they may be entitled) will include the holding period of the
shares of the Acquired Portfolio surrendered in exchange therefor, provided that
the shares of the Acquired Portfolio were held as a capital asset on the
effective date of the Reorganization, pursuant to Section 1223(1) of the Code.
9. The Acquiring Portfolio will succeed to and take into account as of the
date of the proposed transfer the items of the Acquired Portfolio described in
Section 381(c) of the Code as provided in Section 1.381(b)-1(a)(2) of the Income
Tax Regulations.
Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service as
set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing judicial
decisions, all of which are subject to change either prospectively or
retroactively. We do not undertake to make any continuing analysis of the facts
or relevant law following the date of this opinion.
Our opinion is conditioned upon the performance by the Acquired
Portfolio and the Acquiring Portfolio of their undertakings in the
Representation Letter.
This opinion is being rendered to the Acquired Portfolio and the
Acquiring Portfolio and may be relied upon only by the Acquired Portfolio and
the Acquiring Portfolio and the shareholders of each.
Very truly yours,
XXXXXXXX, XXXXX, XXXXXXX & XXXXX, LLP
By: Xxxxxxx X. Xxxxxxxxx, a Partner
