EXHIBIT 12 March __, 2000 Independence Square Income Securities, Inc. One Aldwyn Center Villanova, PA 19085 Blackrock Funds(SM) Bellevue Park Corporate Center 400 Bellevue Parkway Wilmington, DE 19809 Re: Agreement and Plan of Reorganization by and between Independence Square Income Securities, Inc. and Blackrock Funds(SM) ------------------------------------------------------------------- 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; -2- (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 BIDDLE & REATH LLP WMG:SDDH:FCM -3- INDEPENDENCE SQUARE INCOME SECURITIES, INC. One Aldwyn Center Villanova, Pennsylvania 19085 March __, 2000 Drinker Biddle & Reath LLP One Logan Square 18/th/ & Cherry Streets Philadelphia, PA 19103-6996 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. -2- 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 400 Bellevue Parkway Wilmington, Delaware 19809 March __, 2000 Drinker Biddle & Reath LLP One Logan Square 18/th/ & Cherry Streets Philadelphia, PA 19103-6996 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: -2-