EXHIBIT 12
March __, 0000
Xxxxxxxxxxxx Xxxxxx Income Securities, Inc.
Xxx Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Blackrock Funds(SM)
Bellevue Park Corporate Center
000 Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000
Re: Agreement and Plan of Reorganization by and between
Independence Square Income Securities, Inc. and Blackrock Funds(SM)
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Dear Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions contemplated in the above-referenced Agreement
and Plan of Reorganization (the "Reorganization Agreement").
Background
----------
Independence Square Income Securities, Inc. (the "Transferor Fund") is
a closed-end management investment company registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended (the "Act"). Blackrock Funds(SM) ("Blackrock") is an open-end management
investment company registered with the SEC under the Act. Blackrock has several
portfolios, one of which is the High Yield Bond Portfolio (the "Surviving
Fund").
At the Effective Time of the Reorganization (as defined in the
Reorganization Agreement), it is contemplated that the Transferor Fund will
transfer all of its assets and liabilities to the Surviving Fund in exchange for
Series B Investor Shares of the Surviving Fund. The Transferor Fund will then
distribute the Series B Investor Shares to the shareholders of the Transferor
Fund in exchange for all outstanding shares of the Transferor Fund, and the
existence of the Transferor Fund will be terminated. All of the above steps
constitute the "Transactions."
For purposes of this opinion, we have relied on certain written
representations of Officers of the Transferor Fund and Blackrock, copies of
which are attached hereto, and have assumed such representations to be true. We
have also assumed that the Reorganization Agreement substantially in the form
included as Appendix A to the Combined Proxy Statement/Prospectus (the "Proxy
Statement"), a draft of which is part of the Registration Statement (the
"Registration Statement") being filed this day with the SEC on Form N-14, will
be duly authorized by the parties and approved by the shareholders of the
Transferor Fund, and the appropriate documents will be filed with the
appropriate government agencies.
Conclusions
-----------
Based upon the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Department regulations in effect as of the date hereof,
current published administrative positions of the Internal Revenue Service
contained in revenue rulings and procedures, and judicial decisions, and upon
the assumptions and representations referred to herein and the documents
provided to us by you (including the Proxy Statement and the Reorganization
Agreement), it is our opinion for Federal income tax purposes that:
(i) the acquisition of the assets and assumption of the liabilities
of the Transferor Fund by the Surviving Fund in return for Series B Investor
Shares of the Surviving Fund followed by the distribution of such shares to the
shareholders of the Transferor Fund, as provided in the Reorganization
Agreement, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) or 368(a)(1)(D) of the Code, and each such Fund will be "a party to
the reorganization" within the meaning of section 368(b) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by the Transferor Fund as a result of
the Transactions;
(iii) in accordance with section 1032(a) of the Code, no gain or loss
will be recognized by the Surviving Fund as a result of the Transactions;
(iv) in accordance with section 354(a)(1) of the Code, no gain or
loss will be recognized by the shareholders of the Transferor Fund upon the
receipt of the Series B Investor Shares of the Surviving Fund in exchange for
their shares of the Transferor Fund;
(v) in accordance with section 358(a)(1) of the Code, the tax basis
of the Series B Investor Shares of the Surviving Fund received by the
shareholders of the Transferor Fund will be the same as the tax basis of the
shares of the Transferor Fund exchanged therefor in the Transactions;
(vi) in accordance with section 362(b) of the Code, the tax basis of
the assets received by the Surviving Fund in the Transactions will be the same
as the tax basis of such assets in the hands of the Transferor Fund immediately
before the Transactions;
(vii) in accordance with section 1223(1) of the Code, the holding
period of the Series B Investor Shares of the Surviving Fund received by the
shareholders of the Transferor Fund will include the holding period of the
shares of the Transferor Fund exchanged therefor, provided that at the time of
the exchange the shares of the Transferor Fund were held as capital assets;
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(viii) in accordance with section 1223(2) of the Code, the holding
period of the Surviving Fund with respect to the assets acquired in the
Transactions will include the period during which such assets were held by the
Transferor Fund; and
(ix) in accordance with section 381(a) of the Code, the Surviving
Fund will succeed to the tax attributes of the Transferor Fund described in
section 381(c) of the Code.
This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the Internal Revenue Service or a court
concerning the issues. We express no opinion relating to any Federal income tax
matter except on the basis of the facts described above. Additionally, we
express no opinion on the tax consequences under foreign, state or local laws.
In issuing our opinion, we have relied solely upon existing provisions of the
Code, existing and proposed regulations thereunder, and current administrative
positions and judicial decisions. Such laws, regulations, administrative
positions and judicial decisions are subject to change at any time. Any such
change could affect the validity of the opinion set forth above. Also, future
changes in Federal income tax laws and the interpretation thereof can have
retroactive effect.
We hereby consent to the filing of this opinion with the SEC as an
exhibit to the Registration Statement. We also consent to the references to our
firm under the captions "Summary--Federal Income Tax Consequences" and
"Information Relating to the Proposed Reorganization--Federal Income Tax
Consequences" in the Proxy Statement. In furnishing these consents, we do not
concede that we come within the categories of persons whose consent is required
under section 7 of the Securities Act of 1933 or under the rules and regulations
of the SEC issued thereunder.
Very truly yours,
DRINKER XXXXXX & XXXXX LLP
WMG:SDDH:FCM
-0-
XXXXXXXXXXXX XXXXXX INCOME SECURITIES, INC.
Xxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxx 00000
March __, 2000
Drinker Xxxxxx & Xxxxx LLP
One Xxxxx Square
00/xx/ & Xxxxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Re: Agreement and Plan of Reorganization by and between
Independence Square Income Securities, Inc. And Blackrock Funds(SM)
-------------------------------------------------------------------
Dear Ladies and Gentlemen:
Blackrock Funds(SM) ("Blackrock") and we have requested your opinion as
to certain Federal income tax matters in connection with the proposed
reorganization (the "Reorganization") of Independence Square Income Securities,
Inc. (the "Transferor Fund") into the High Yield Bond Portfolio of Blackrock
(the "Surviving Fund") pursuant to the above-referenced Agreement and Plan of
Reorganization (the "Reorganization Agreement") by and between the Transferor
Fund and Blackrock. At the Effective Time of the Reorganization (as defined in
the "Reorganization Agreement"), it is contemplated that the Transferor Fund
will transfer all of its assets and liabilities to the Surviving Fund in
exchange for Series B Investor Shares of the Surviving Fund. The Transferor Fund
will then distribute the Series B Investor Shares of the Surviving Fund to the
shareholders of the Transferor Fund in exchange for all outstanding shares of
the Transferor Fund, and the existence of the Transferor Fund will be
terminated. All of the above steps constitute the "Transactions." To enable you
to render such opinion, we are furnishing the following representations:
1. The Transferor Fund qualified as a "regulated investment company"
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue
Code of 1986, as amended, for its most recently ended taxable year and will so
qualify for its current taxable year.
2. The Transferor Fund will transfer to the Surviving Fund assets
consisting of at least 90% of the fair market value of the Transferor Fund's net
assets and at least 70% of the fair market value of its gross assets immediately
prior to the Transactions. For purposes of this assumption, all of the following
shall be considered as assets of the Transferor Fund held immediately prior to
the Transactions: (a) amounts used by the Transferor Fund to pay its expenses in
connection with the Transactions and (b) all amounts used to make redemptions of
or distributions on such Transferor Fund's shares (except for distributions of
net investment company taxable income and net capital gains, other than net
capital gains resulting from sales of
assets for the purpose of satisfying investment objectives of the Surviving
Fund, if any, that differ from the existing investment objectives of the
Transferor Fund).
3. The Transferor Fund will, as of the Effective Time, distribute
the Series B Investor Shares of the Surviving Fund received in the Transactions
to the Transferor Fund's shareholders in complete liquidation of the Transferor
Fund and, having made such distributions, will take all necessary steps to
terminate its existence.
4. Prior to the Transactions, the Transferor Fund will continue its
historic business within the meaning of Treasury Regulations section 1.368-1(d)
and will not dispose of more than fifty percent (50%) of the fair market value
of its assets for the purpose of satisfying investment objectives of the
Surviving Fund, if any, that differ from the existing investment objectives of
the Transferor Fund.
5. At the time of the Transactions, the adjusted income tax basis
and the fair market value of the assets to be transferred by the Transferor Fund
to the Surviving Fund will each equal or exceed the sum of the liabilities to be
assumed by such Surviving Fund or to which such transferred assets are subject.
6. At the time of the Transactions, there will be no plan or
intention by the shareholders of the Transferor Fund who own five percent (5%)
or more of the Transferor Fund's stock and, to the best of the knowledge of the
management of the Transferor Fund, no plan or intention on the part of the
remaining shareholders of the Transferor Fund, to redeem or exchange a number of
Series B Investor Shares of the Surviving Fund's stock to be received in the
Transactions that would reduce the Transferor Fund shareholders' ownership of
Surviving Fund stock to a number of shares having a value, as of the time of the
Transactions, of less than fifty percent (50%) of the value of all of the
formerly outstanding stock of the Transferor Fund immediately prior to the
Transactions. For purposes of this assumption, (a) shares of the Transferor Fund
surrendered by dissenters will be treated as outstanding Transferor Fund stock
immediately prior to the Transactions, and (b) shares of the Transferor Fund and
the Surviving Fund held by Transferor Fund shareholders and otherwise redeemed
(except for redemptions occurring in the ordinary course of the Surviving Fund's
business as an open-end investment company) in anticipation of the Transactions,
or subsequent to the Transactions pursuant to a plan or intention that existed
at the time of the Transactions, also will be taken into account.
7. The Transferor Fund is not and will not be under the jurisdiction
of a court in a case under Title 11 of the United States Code or a receivership,
foreclosure or similar proceeding in any Federal or State court.
8. The liabilities of the Transferor Fund that will be assumed by
the Surviving Fund and the liabilities, if any, to which the transferred assets
will be subject were incurred by the Transferor Fund in the ordinary course of
its business.
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9. The Transactions have been proposed for the purposes set forth in
the Combined Proxy Statement/Prospectus, a draft of which is part of the
Registration Statement being filed this day with the Securities and Exchange
Commission.
We understand that you will, and expressly authorize you to, rely upon
each of the foregoing representations in rendering your opinion of even date
herewith. We undertake to advise you promptly if we become aware of any facts or
circumstances that would cause any representation that we have given to be
incorrect.
Very truly yours,
INDEPENDENCE SQUARE INCOME
SECURITIES, INC.
By: _______________________________
Title:
-3-
BLACKROCK FUNDS(SM)
Bellevue Park Corporate Center
000 Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
March __, 2000
Drinker Xxxxxx & Xxxxx LLP
One Xxxxx Square
00/xx/ & Xxxxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Re: Agreement and Plan of Reorganization by and between
Independence Square Income Securities, Inc. and Blackrock Funds(SM)
-------------------------------------------------------------------
Dear Ladies and Gentlemen:
Independence Square Income Securities, Inc. (the "Transferor Fund") and
we have requested your opinion as to certain Federal income tax matters in
connection with the proposed reorganization (the "Reorganization") of the
Transferor Fund into the High Yield Bond Portfolio (the "Surviving Fund") of
Blackrock Funds(SM) ("Blackrock") pursuant to the above-referenced Agreement and
Plan of Reorganization (the "Reorganization Agreement") by and between the
Transferor Fund and Blackrock. At the Effective Time of the Reorganization (as
defined in the Reorganization Agreement), it is contemplated that the Transferor
Fund will transfer all of its assets and liabilities to the Surviving Fund in
exchange for Series B Investor Shares of the Surviving Fund. The Transferor Fund
will then distribute the Series B Investor Shares of the Surviving Fund to the
shareholders of the Transferor Fund in exchange for all outstanding shares of
the Transferor Fund, and the existence of the Transferor Fund will be
terminated. All of the above steps constitute the "Transactions." To enable you
to render such opinion, we are furnishing the following representations:
1. The Surviving Fund qualified as a "regulated investment company"
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue
Code of 1986, as amended, for its most recently ended taxable year and will so
qualify for its current taxable year.
2. Following the Transactions, the Surviving Fund will continue the
historic business of the Transferor Fund or will use a significant portion of
the Transferor Fund's historic business assets in a business. In particular, the
Surviving Fund will retain at least fifty percent (50%) of the assets of the
Transferor Fund immediately after the Transactions, and will retain at least
thirty-three and one-third percent (33-1/3%) of the assets of the Transferor
Fund for at least twelve months after the Transactions.
3. At the time of the Transactions, the Surviving Fund will not have
any plan or intention to reacquire any of its Series B Investor Shares issued in
the Transactions, except in the ordinary course of business.
4. At the time of the Transactions, the Surviving Fund will not have
any plan or intention to sell or otherwise to dispose of any of the assets of
the Transferor Fund acquired in the Transactions, except for dispositions made
in the ordinary course of business.
5. There is and will be no intercorporate indebtedness between the
Surviving Fund and the Transferor Fund that was issued, acquired or will be
settled at a discount.
6. The Surviving Fund does not own, will not own and has not owned
during the past five years, directly or indirectly, any stock of the Transferor
Fund.
7. The Transactions will be accomplished for the purposes set forth
in the Combined Proxy Statement/Prospectus, a draft of which is part of the
Registration Statement being filed this day with the Securities and Exchange
Commission.
We understand that you will, and expressly authorize you to, rely upon
each of the foregoing representations in rendering your opinion of even date
herewith. We undertake to advise you promptly if we become aware of any facts or
circumstances that would cause any representation that we have given to be
incorrect.
Very truly yours,
BLACKROCK FUNDS(SM)
By: ___________________________
Title:
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