ALSTON&BIRD LLP
ALSTON&BIRD LLP
000 X Xxxxxx, X.X.
The Atlantic Building
Washington, DC 20004
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Fax: 000-000-0000
xxx.xxxxxx.xxx
July [ ], 2011
Northern Lights Fund Trust, II
0000 Xxxxx 000xx Xxxxxx
Omaha, NE 68137
Santa Xxxxxxx Group of Mutual Funds
0000 Xxxxxxxx Xxxxxx
Pasadena, CA 91106
Re:
Agreement and Plan of Reorganization by and among Northern Lights Fund Trust II, on behalf of its series, the Two Oaks Diversified Income Fund, Santa Xxxxxxx Group of Mutual Funds, on behalf of its series, The Montecito Fund, and Two Oaks Investment Management, LLC as of ____ __, 2011
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax consequences of transactions contemplated in the above-referenced Agreement and Plan of Reorganization (the “Reorganization Agreement”).
Background
Santa Xxxxxxx Group of Mutual Funds (“Santa Xxxxxxx Funds”) is a Maryland corporation consisting of separate series, including The Montecito Fund (the “Acquired Fund”). Northern Lights Fund Trust II (“Northern Lights II”) is a Delaware statutory trust consisting of separate series, including the Two Oaks Diversified Growth and Income Fund (the “Acquiring Fund”). Northern Lights II and Santa Xxxxxxx Funds are open-ended management investment companies registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Acquiring Fund is a newly created series and has no existing shareholders or assets other than a holder of nominal shares and other than nominal assets to facilitate the organization of the Acquiring Fund. The Acquired Fund and the Acquiring Fund possess identical investment strategies and are managed by the same portfolio manager.
At the Effective Time (as defined in the Reorganization Agreement), the Acquired Fund will transfer all of its assets to the Acquiring Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund. The Acquired Fund will then distribute Acquiring Fund shares to the holders of Acquired Fund shares in exchange for those Acquired Fund shares, in liquidation of the Acquired Fund, and the existence of the Acquired Fund will be terminated. All of the above steps will constitute the “Transaction.” Thereafter, the Acquiring Fund will continue the investment operations of the Acquired Fund.
For purposes of this opinion, we have relied on certain written representations of officers of Northern Lights II and Santa Xxxxxxx Funds, and have assumed those representations to be true. We have also assumed that the Reorganization Agreement has been duly authorized by the parties and approved by the shareholders of the Acquired Fund, and the appropriate documents have been 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 dated July [ ], 2011, and the Reorganization Agreement), it is our opinion for Federal income tax purposes that:
1)
The Transaction will constitute a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code, and the Acquiring Fund and the Acquired Fund will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code.
2)
No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund.
3)
No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund’s assets to the Acquiring Fund solely in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund or upon the distribution (whether actual or constructive) of Acquiring Fund shares to the Acquired Fund’s shareholders in exchange for such shareholders’ shares of the Acquired Fund.
4)
No gain or loss will be recognized by the Acquired Fund’s shareholders upon the exchange of their shares of the Acquired Fund’s for Acquiring Fund shares in the Reorganization.
5)
The adjusted tax basis of Acquiring Fund shares received by each of the Acquired Fund’s shareholders pursuant to the Reorganization will be the same as the adjusted tax basis of the Acquired Fund shares exchanged therefore by such shareholder. The holding period of Acquiring Fund shares to be received by each of the Acquired Fund’s shareholders will include the period during which the Acquired Fund shares exchanged therefore were held by such shareholder, provided the Acquired Fund shares are held as capital assets at the time of the Reorganization.
6)
The tax basis of the Acquired Fund’s assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization. The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund.
7)
For purposes of Section 381 of the Code, the Acquiring Fund will be treated as the same corporation as the Acquired Fund and the tax attributes of the Acquired Fund described in Section 381(c) of the Code shall be taken into account by the Acquiring Fund as if there had been no Reorganization.
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. We also express no opinion regarding any costs relating to the Transaction. 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.
Very truly yours,
XXXXXX & BIRD LLP
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