Exhibit (i)(2)
Drinker Xxxxxx & Xxxxx LLP
One Xxxxx Square
00xx xxx Xxxxxx Xxxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Fax: (000) 000-0000
xxx.xxxxxxxxxxxxx.xxx
December 31, 2009
Allegiant Funds (a Massachusetts business trust)
Allegiant Funds (a Delaware statutory trust)
000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxx, Xxxx 00000
Re: Agreement and Plan of Reorganization, Conversion and Termination
Dated October 1, 2009, by and between Allegiant Funds, a
Massachusetts Business Trust, and Allegiant Funds, a Delaware
Statutory Trust
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Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the
above Agreement and Plan of Reorganization, Conversion and Termination (the
"Agreement"), by and between Allegiant Funds, a Massachusetts business trust
(the "Registrant"), on behalf of each of its series (each a "Predecessor Fund"
and collectively the "Predecessor Funds"), and Allegiant Funds, a Delaware
statutory trust (the "Trust"), as to certain Federal income tax consequences of
the transactions contemplated in the Agreement.
Background
On this date, it is contemplated that each Predecessor Fund
will transfer all of its assets and liabilities to a corresponding new series of
the Trust (each a "Successor Fund" and collectively the "Successor Funds") in
exchange for the assumption by the Successor Fund of all liabilities of the
Predecessor Fund and the issuance by the Trust to the Predecessor Fund of shares
of beneficial interest ("Successor Fund Shares") of the Successor Fund. The
aggregate number of Successor Fund Shares of each Successor Fund issued to a
corresponding Predecessor Fund will be equal to the number of shares of
beneficial interest ("Shares") of the corresponding Predecessor Fund outstanding
immediately before the Closing (as defined in the Agreement). Each Predecessor
Fund will then distribute the Successor Fund Shares it received to the holders
of corresponding Shares in exchange for those Shares, in liquidation of each
Predecessor Fund, and the existence of the Predecessor Funds will be terminated.
All of the above steps constitute the "Transactions." After the Transactions,
each Successor Fund will continue the investment operations of the corresponding
Predecessor Fund.
Allegiant Funds (a Massachusetts business trust)
Allegiant Funds (a Delaware statutory trust)
December 31, 2009
Page 2
On or around February 1, 2010, each of the PNC Capital
Opportunities, Government Money Market, International Equity, Limited Maturity
Bond, National Tax-Exempt Bond, Prime Money Market, Tax-Exempt Money Market and
Total Return Bond Funds (the "PNC Funds") will transfer all of its assets to the
Allegiant Government Money Market, International Equity Limited Maturity Bond,
Intermediate Tax-Exempt Bond, Money Market, Tax-Exempt Money Market and Total
Return Advantage Funds (the "Acquiring Allegiant Funds") in exchange for the
assumption by each Acquiring Allegiant Fund of all liabilities of the
corresponding PNC Fund and the issuance by the Trust to the PNC Funds of shares
of beneficial interest of the corresponding Acquiring Allegiant Funds, which
will then be distributed to the shareholders of the PNC Funds in liquidation of
those Funds. In addition, on or around February 8, 2010, the PNC Maryland
Tax-Exempt Bond and Tax-Exempt Limited Maturity Bond Funds (the "PNC Funds")
will transfer all of their assets to the Allegiant Maryland Tax Exempt Bond and
Tax Exempt Limited Maturity Bond Funds (the "Acquiring Allegiant Funds") in
exchange for the assumption by each Acquiring Allegiant Fund of all liabilities
of the corresponding PNC Fund and the issuance by the Trust to the PNC Funds of
shares of beneficial interest of the corresponding Acquiring Allegiant Funds,
which will then be distributed to the shareholders of the PNC Funds in
liquidation of those Funds. These transactions (the "Allegiant/PNC
Reorganizations") will be completed pursuant to the Agreement and Plan of
Reorganization by and between PNC Funds, Inc. and the Registrant dated August
13, 2009. It has been represented to us that the Transactions would have been
entered into regardless of the Allegiant/PNC Reorganizations. The Transactions
include certain Funds that are not part of the Allegiant/PNC Reorganizations.
For purposes of this opinion, we have relied on certain
written representations of officers of the Registrant and the Trust, copies of
which are attached hereto, and have assumed such representations to be true. We
have also assumed that there is no plan or intention by the shareholders of any
Predecessor Fund to, by reason of the Transactions, sell, exchange or otherwise
dispose of an aggregate of one percent (1%) or more of the Successor Fund Shares
received in the Transactions. We have also assumed that the Agreement included
as an exhibit in the proxy materials (the "Proxy Statement") that has been filed
with the Securities and Exchange Commission in connection with the Transactions
has been duly authorized by the parties and approved by the Shareholders of the
Registrant.
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 distributed to the
Predecessor Fund shareholders and the Agreement), and subject to the limitations
set forth below, it is our opinion for Federal income tax purposes that:
Allegiant Funds (a Massachusetts business trust)
Allegiant Funds (a Delaware statutory trust)
December 31, 2009
Page 3
(i) the acquisition of all of the assets of each Predecessor
Fund by its corresponding Successor Fund solely in exchange for the issuance of
Successor Fund Shares to the Predecessor Fund and the assumption by the
Successor Fund of all of the liabilities of the Predecessor Fund, followed by
the distribution in liquidation by the Predecessor Fund of such Successor Fund
Shares to the Predecessor Fund shareholders in exchange for their Shares and the
termination of the Predecessor Fund, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and the Predecessor Fund and the
Successor Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code;
(ii) no gain or loss will be recognized by any Predecessor
Fund upon (a) the transfer of all of its assets to its corresponding Successor
Fund solely in exchange for the issuance of Successor Fund Shares to the
Predecessor Fund and the assumption by the Successor Fund of the Predecessor
Fund's liabilities and (b) the distribution by the Predecessor Fund of such
Successor Fund Shares to the Predecessor Fund shareholders;
(iii) no gain or loss will be recognized by any Successor Fund
upon its receipt of all of the corresponding Predecessor Fund's assets solely in
exchange for the issuance of the Successor Fund Shares to the Predecessor Fund
and the assumption by the Successor Fund of all of the liabilities of the
Predecessor Fund;
(iv) the tax basis of the assets acquired by a Successor Fund
from its corresponding Predecessor Fund will be, in each instance, the same as
the tax basis of those assets in the Predecessor Fund's hands immediately prior
to the transfer;
(v) the holding period of the assets of each Predecessor Fund
in the hands of its corresponding Successor Fund will, in each instance, include
the Predecessor Fund's holding period for those assets;
(vi) each Predecessor Fund's shareholders will not recognize
gain or loss upon the exchange of all of their Shares solely for Successor Fund
Shares as part of the Transactions;
Allegiant Funds (a Massachusetts business trust)
Allegiant Funds (a Delaware statutory trust)
December 31, 2009
Page 4
(vii) the tax basis of the Successor Fund Shares received by
Predecessor Fund shareholders in the Transactions will be, for each shareholder,
the same as the tax basis of the Shares surrendered in exchange therefor; and
(viii) the holding period of the Successor Fund Shares
received by Predecessor Fund shareholders will include, for each shareholder,
the holding period for the Shares surrendered in exchange therefor, provided
that such Shares were held as capital assets on the date of the exchange.
Discussion of Step-Transaction Doctrine
The step-transaction doctrine generally permits a series of
formally separate steps to be treated as a single transaction if they are in
substance integrated, interdependent, and focused toward a particular end
result. See, e.g., Xxxxxx v. Comm'r, 88 T.C. 1415 (1987); Rev. Rul. 2004-83,
2004-2 C.B. 157. However, the IRS has ruled that a reincorporation that was
either (i) followed by a public offering or (ii) preceded by a reverse
subsidiary merger would qualify as a reorganization under Section 368(a)(1)(F)
of the Code, notwithstanding the other transactions that were part of a single
plan. See Rev. Rul. 96-29, 1996-1 C.B. 50; Rev. Rul. 79-250, 1979-2 C.B. 156. In
Rev. Rul. 96-29, the IRS noted that the unique status of reorganizations under
ss.368(a)(1)(F) was central to that holding. In addition, Prop. Reg.
ss.1.368-2(m)(3)(ii), states that:
A reorganization under section 368(a)(1)(F) may occur
within a larger transaction that effects more than a mere
change. Related events that precede or follow the transaction
or series of transactions that constitute a mere change will
not cause that transaction or series of transactions to fail
to qualify as a reorganization under section 368(a)(1)(F).
Qualification of the mere change as a reorganization under
section 368(a)(1)(F) will not alter the treatment of the
larger transaction.
The proposed regulations also provide an example of a merger to change a
corporation's place of incorporation followed by a sale of the stock of the
corporation as part of the same plan. The change in place of incorporation is
respected as a reorganization under Section 368(a)(1)(F). Prop. Reg.
ss.1.368-2(m)(5), EXAMPLE 6.
If the Transactions and the Allegiant/PNC Reorganizations were
to be considered together under the step-transaction doctrine, the Transactions
involving the Acquiring Allegiant Funds would no longer constitute
reorganizations under Section 368(a)(1)(F), but instead would qualify as
reorganizations under Section 368(a)(1)(D), in which each such Predecessor Fund
contributes its assets to the corresponding Successor Fund in exchange for
shares of that Successor Fund and then distributes those shares in liquidation,
as part of a larger transaction in which the corresponding PNC Fund is also
participating. Most of the tax considerations of such a "D" reorganization would
be the same as an "F" reorganization. The principal difference would be that the
taxable year of each Predecessor Fund would end on the day of the "D"
reorganization.
Allegiant Funds (a Massachusetts business trust)
Allegiant Funds (a Delaware statutory trust)
December 31, 2009
Page 5
Under the principles of Rev. Rul. 96-29 and Prop. Reg.
ss.1.368-2(m)(3)(ii), each of the Transactions, being a simple redomestication,
will qualify as a reorganization under Section 368(a)(1)(F), notwithstanding the
subsequent step. In this regard, we note that the Transactions would have been
entered into regardless of the Allegiant/PNC Reorganizations. Indeed,
redomestication transactions are occurring for some other Allegiant Funds that
are not involved in the Allegiant/PNC Reorganizations at all. This provides
evidence that the Transactions and the Allegiant/PNC Reorganizations are not
integrated, interdependent, or focused toward a particular end result and, thus,
further supports the conclusion that the step-transaction doctrine should not be
applied to treat the Transactions and the Allegiant/PNC Reorganizations as
combined transactions for Federal income tax purposes
Limitations on Opinions
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 that considers these issues. We express no opinion relating to any Federal
income tax matter except on the basis of the facts described above. We express
no opinion regarding tax consequences of any payment of expenses relating to the
Transactions. 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,
/s/ Drinker Xxxxxx & Xxxxx LLP
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DRINKER XXXXXX & XXXXX LLP
