1
EXHIBIT (12)
October 6, 1995
The PNC Fund
c/o Xxxxx Xxxxxx
BlackRock Financial Management, Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
The Compass Capital Group of Funds
000 X. Xxxxxxxxxx Xxxx
Xxxxx, XX 00000
The BFM Institutional Trust Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Re: Asset Purchase Agreement by and between The PNC Fund
and The Compass Capital Group of Funds
Asset Purchase Agreement by and between The PNC Fund
and The BFM Institutional Trust Inc.
Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the
above Asset Purchase Agreement between The PNC Fund and The Compass Capital
Group of Funds (the "Compass Agreement") and the above Asset Purchase Agreement
by and between The PNC Fund and The BFM Institutional Trust Inc. (the "BIT
Agreement" and together with the Compass Agreement, the "Agreements"), as to
certain Federal income tax consequences of the transactions contemplated in
those agreements.
Background
The PNC Fund ("PNC") is a Massachusetts business trust
consisting of multiple investment portfolios, including the Municipal Money
Market Portfolio, New Jersey Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, Money Market Portfolio, Government Money
Market Portfolio, Tax-Free Income Portfolio, New Jersey Tax-Free Income
Portfolio, Pennsylvania Tax-Free Income Portfolio, Value Equity Portfolio,
Growth Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, Balanced Portfolio, Short-Term
2
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 2
Bond Portfolio, Core Fixed Income Portfolio, International Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III (individually, an
"Acquiring Fund" and collectively, the "Acquiring Funds"). The Compass Capital
Group of Funds ("Compass") is a Massachusetts business trust consisting of
sixteen investment portfolios named the Municipal Money Fund, New Jersey
Municipal Money Fund, Pennsylvania Municipal Money Fund, Cash Reserve Fund,
U.S. Treasury Fund, Municipal Bond Fund, New Jersey Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, Equity Income Fund, Growth Fund, Small
Company Fund, International Equity Fund, Balanced Fund, Short/Intermediate
Fund, Fixed Income Fund and International Fixed Income Fund (individually, a
"Compass Fund" and collectively, the "Compass Funds"). The BFM Institutional
Trust Inc. ("BIT") is a Maryland corporation consisting of three operating
investment portfolios named the Short Duration Portfolio, Core Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III (individually, a
"BIT Fund" and collectively, the "BIT Funds"). Hereinafter, the Compass Funds
and the BIT Funds may be referred to individually as an "Acquired Fund" or
collectively as the "Acquired Funds." PNC, Compass and BIT are all open-end
management investment companies registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended
(the "1940 Act").
At the Effective Time of the Compass Transaction (as defined
in the Compass Agreement), it is contemplated that each Compass Fund will
transfer all of its assets and liabilities to a corresponding Acquiring Fund in
exchange for shares of the Acquiring Fund. Compass will then distribute the
shares of each Acquiring Fund to the shareholders of the corresponding Compass
Fund in cancellation of all outstanding shares of the Compass Fund, and the
existence of Compass will be terminated. Similarly, at the Effective Time of
the BIT Transaction (as defined in the BIT Agreement), it is contemplated that
each BIT Fund will transfer all of its assets and liabilities to a
corresponding Acquiring Fund in exchange for shares of the Acquiring Fund. BIT
will then distribute the shares of each Acquiring Fund to the shareholders of
the corresponding BIT Fund, and the existence of BIT will be terminated. All
of the above steps constitute the "Transactions." After the Transactions,
3
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 3
each Acquiring Fund will continue the investment operations of the
corresponding Acquired Fund or Acquired Funds.
Assumptions
For purposes of this opinion, we have made certain
assumptions. Please advise us if you are aware of any facts inconsistent with
any of these assumptions:
First, each of the Acquired Funds and each of the pre-existing
Acquiring Funds 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 (the "Code"), for its most recently ended fiscal year and all of the
Acquired Funds and Acquiring Funds will so qualify for their current fiscal
years.
Second, each Acquired Fund will tender for acquisition by the
corresponding Acquiring Fund assets consisting of at least 90% of the fair
market value of the net assets of the Acquired Fund 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 such Acquired Fund held immediately prior to the Transactions: (a)
amounts used by the Acquired Fund to pay its expenses in connection with the
transactions contemplated hereby and (b) all amounts used to make redemptions
of or distributions on such Acquired Fund's shares (except for redemptions in
the ordinary course of its business as required by section 22(e) of the 1940
Act pursuant to a demand for redemption by a shareholder of the Acquired Fund,
and distributions of net investment income and net capital gains other than net
capital gains resulting from sales of assets for the purpose of satisfying
investment objectives of the Acquiring Fund, if any, that differ from the
existing investment objectives of the Acquired Fund).
Third, each Acquired Fund will distribute to its shareholders
in complete liquidation of the Acquired Fund the corresponding Acquiring Fund
shares that it will receive in the Transactions as promptly as practicable and
having made such distributions will take all necessary steps to terminate its
existence.
4
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 4
Fourth, prior to the Transactions, each Acquired 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 corresponding Acquiring Fund, if any, that differ from the
existing investment objectives of the Acquired Fund.
Fifth, following the Transactions, each Acquiring Fund will
continue the historic business of the corresponding Acquired Fund or Acquired
Funds or will use a significant portion of the Acquired Fund's or Acquired
Funds' historic business assets in a business.
Sixth, at the time of the Transactions, the adjusted income
tax basis and the fair market value of the assets to be transferred by each
Acquired Fund to the corresponding Acquiring Fund will each equal or exceed the
sum of the liabilities to be assumed by such Acquiring Fund or to which such
transferred assets are subject.
Seventh, at the time of the Transactions, there will be no
plan or intention by the shareholders of any Acquired Fund who own five percent
(5%) or more of the Acquired Fund's stock and, to the best of the knowledge of
the management of Compass or BIT, no current plan or intention on the part of
the remaining shareholders of the Acquired Fund, to sell, exchange or otherwise
dispose of a number of shares of the corresponding Acquiring Fund's stock to be
received in the Transactions that would reduce the Acquired Fund shareholders'
ownership of Acquiring 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 Acquired Fund immediately prior to
the Transactions. For purposes of this assumption, (a) shares of the Acquired
Fund surrendered by dissenters will be treated as outstanding Acquired Fund
stock immediately prior to the Transactions, and (b) shares of the Acquired
Fund and the Acquiring Fund held by Acquired Fund shareholders and otherwise
sold, redeemed or disposed of 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.
5
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 5
Eighth, at the time of the Transactions, no Acquiring Fund
will have any plan or intention to reacquire any of its shares issued in the
Transactions, except in the ordinary course of business.
Ninth, at the time of the Transactions, no Acquiring Fund will
have any plan or intention to sell or otherwise to dispose of any of the assets
of the corresponding Acquired Fund acquired in the Transactions, except for
dispositions made in the ordinary course of business.
Tenth, there is and will be no intercorporate indebtedness
between any Acquiring Fund and its corresponding Acquired Fund or Acquired
Funds that was issued, acquired or will be settled at a discount.
Eleventh, no Acquiring Fund owns or will own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any stock of the corresponding Acquired Fund or Acquired Funds.
Twelfth, no Acquired Fund is or will 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.
Thirteenth, the liabilities of each Acquired Fund that will be
assumed by the corresponding Acquiring Fund and the liabilities, if any, to
which the transferred assets will be subject were incurred by the Acquired Fund
in the ordinary course of its business.
Fourteenth, the Transactions will be accomplished for the
purposes set forth in 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.
Fifteenth, the Agreements substantially in the form included
as exhibits in the Proxy Statement will be duly authorized by the parties and
approved by the shareholders of
6
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 6
each Acquired Fund, and the appropriate documents will be filed with the
appropriate government agencies.
Conclusions
Based upon 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 information, representations
and assumptions contained herein and in the documents provided to us by you
(including the Proxy Statement and the Agreements), it is our opinion for
Federal income tax purposes that:
(i) the transfer by each Acquired Fund of all of its
assets and liabilities to the corresponding Acquiring Fund in exchange for
shares of the corresponding Acquiring Fund, and the distribution of said shares
to the shareholders of the Acquired Fund, as provided in the Agreements, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
368(a)(1)(D) or 368(a)(1)(F) 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 any Acquired 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 any Acquiring 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 any Acquired Fund on the
distribution to them by the Acquired Fund of shares of the corresponding
Acquiring Fund in exchange for their shares of the Acquired Fund;
(v) in accordance with section 358(a)(1) of the Code, the
aggregate basis of the Acquiring Fund shares received by each shareholder of an
Acquired Fund will be the same as the aggregate basis of the shareholder's
Acquired Fund shares exchanged therefor in the Transactions;
7
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 7
(vi) in accordance with section 362(b) of the Code, the
basis of the assets received by each Acquiring Fund in the Transactions will be
the same as the basis of such assets in the hands of the corresponding Acquired
Fund immediately before the Transactions;
(vii) in accordance with section 1223(1) of the Code, a
shareholder's holding period for Acquiring Fund shares will be determined by
including the period for which the shareholder held the shares of the Acquired
Fund exchanged therefor, provided that the shareholder held such shares of the
Acquired Fund as a capital asset;
(viii) in accordance with section 1223(2) of the Code, the
holding period of each Acquiring Fund with respect to the assets acquired in
the Transactions will include the period for which such assets were held by the
corresponding Acquired Fund; and
(ix) in accordance with section 381(a) of the Code, each
Acquiring Fund will succeed to the tax attributes of the corresponding Acquired
Fund described in section 381(c) of the Code.
We express no opinion relating to any Federal income tax
matter except on the basis of the documents and assumptions described above.
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.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to our firm under the
caption "Information Relating to the Proposed Transactions -- Federal Income
Tax Consequences" in the Proxy Statement. This does not constitute a consent
under section 7 of the Securities Act of 1933, and in consenting to such
references to our firm we have not certified any part of the Registration
8
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 8
Statement and do not otherwise come within the categories of persons whose
consent is required under section 7 or under the rules and regulations of the
SEC issued thereunder.
Very truly yours,
/s/ DRINKER XXXXXX & XXXXX
DRINKER XXXXXX & XXXXX
