Xxxxxxxxxxx Main Street Funds, Inc. on behalf
of Xxxxxxxxxxx Main Street Growth & Income Fund
Xxxxxxxxxxx Series Fund, Inc.
on behalf of Xxxxxxxxxxx Disciplined Value Fund
Two World Trade Center
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0203
, 2000
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Xxxxxxxxxxx Main Street Growth & Income Fund ("Acquiring"), a series of
Xxxxxxxxxxx Main Street Funds, Inc. and a Maryland corporation, and Xxxxxxxxxxx
Disciplined Value Fund ("Target"), a series of Xxxxxxxxxxx Series Fund, Inc. and
a Maryland corporation, have requested our opinion regarding certain Federal
income tax consequences resulting from several proposed transactions as part of
a reorganization involving Acquiring and Target, and pursuant to an Agreement
and Plan of Reorganization dated as of June 23, 2000, (the "Agreement") by and
between Acquiring and the Trust, on behalf of Target.
In connection with the rendering of our opinion, we have reviewed:
1. the Registration Statement on Form N-14 filed with the Securities and
Exchange Commission on June 2, 2000 by Acquiring (the "Registration
Statement");
2. the Proxy Statement for Target dated July 5, 2000 (the "Proxy Statement");
3. the Prospectus for Acquiring; and
4. the Agreement.
In addition, we have relied upon representations made by Acquiring and Target in
their representation letters dated , 2000 (the "Representations").
We have assumed that all documents furnished to us are authentic and legally
enforceable, and that all copies are true and complete reproductions of the
originals.
Capitalized terms not otherwise defined in this letter shall have the meaning
set out in the Registration Statement or the Agreement.
Background
Acquiring is an open-end, diversified management investment company within the
meaning of the Investment Company Act of 1940 (the "1940 Act") organized as a
Maryland corporation. At the Closing Date, Acquiring has authorized and issued
four classes of voting shares of beneficial interest ("shares"). Class A, Class
B, Class C and Class Y shares are all publicly traded. Each class has its own
dividends and distributions and pays certain expenses that may be different for
the different classes. The differences among the classes principally relate to
the amount and timing of sales charges in connection with share purchases.
Target is an open-end, diversified management investment company within the
meaning of the 1940 Act, organized as a Maryland corporation. At the Closing
Date Target has authorized and issued four classes of voting common stock, Class
A, Class B, Class C and Class Y, and the shares of all three classes are
publicly traded. Each class has its own dividends and distributions and pays
certain expenses that may be different for the different classes. The
differences among the classes principally relate to the amount and timing of
sales charges in connection with share purchases.
Acquiring and Target are each a "regulated investment company" ("RIC") within
the meaning of section 851 of the Internal Revenue Code of 1986, as amended (the
"Code"), for the current and all prior years. It is intended that Acquiring, as
the survivor, will continue to qualify as a RIC for all subsequent years.
Target's investment objective is to seek long-term growth of capital. Acquiring
also seeks high total return, including capital appreciation. In seeking their
investment objectives, both Target and Acquiring invest primarily in equity
securities of U.S. companies. Although permitted to invest in debt securities,
neither fund currently invests in debt securities to a significant degree.
Proposed Reorganization
For what are represented to be valid business reasons, Acquiring and Target wish
to reorganize Target with and into Acquiring pursuant to the Agreement. The
represented reasons for the Reorganization include:
1. So that the shareholders of Target may become shareholders of a
substantially larger fund, advised by the same investment adviser with a
similar investment objective, and focus on U.S. equity securities, but
with the potential for lower overall operating expenses.
2. Xxxxxxxxx's historical performance is superior to that of Target.
3. Acquiring's substantially lower management fee.
Accordingly, the Board of Directors of Target, including the independent
directors, and the Board of Directors of Acquiring unanimously approved the
Reorganization and the Agreement and voted to recommend its approval to the
shareholders of Target. Both Boards of Directors have also determined that the
interests of shareholders of each of Target and Acquiring will not be diluted as
a result of the Reorganization.
As set forth in the Agreement, the following transactions will occur on the
Closing Date:
1. Target will transfer all of its assets, excluding a cash reserve (the "Cash
Reserve"), to Acquiring in exchange solely for voting shares of beneficial
interest of Acquiring, consisting of Class A, Class B, and Class C shares;
2. Target will retain the Cash Reserve sufficient in amount, in Target's
discretion, for the payment of (a) the expenses of Target's dissolution, and
(b) Target's liabilities other than those liabilities assumed by Acquiring;
however, the Cash Reserve shall not exceed 10% of the value of Target's net
assets, nor 30% of Target's gross assets, determined as of the close of
business on the day preceding the Closing Date;
3. Acquiring will assume certain identified and agreed-to liabilities of Target
incurred in the ordinary course of Target's business;
4. In complete liquidation of Target and in conjunction with the Closing, Target
will distribute on a pro rata basis to its shareholders, in exchange for
their Target shares, the shares of Acquiring received by Target on the
Closing Date in exchange for its assets.
There will be no right of dissenters and no shares of Target stock will be
exchanged for cash or other property, or exchanged for cash in lieu of
fractional shares.
It is not expected that the shareholders of Target will hold 50 percent or more
of the Acquiring stock immediately after the Reorganization.
Within one year after the Closing Date, Target will (a) pay or make provision
for payment of all its liabilities and taxes, and (b) either transfer the
remaining amount (if not material) of the Cash Reserve to Acquiring, or
distribute such remaining amount (if material) to Target's shareholders as of
the day preceding the Closing Date.
Representations
You have made the following representations in connection with the proposed
Reorganization:
1. Each shareholder of Target who exchanges his shares pursuant to the
Reorganization will receive, in exchange therefor, solely voting common
shares of beneficial interest of Acquiring.
2. Other than as may result from redemption of Target shares in the ordinary
course of its business, there has not been a significant change in the
ownership of Target prior to the Reorganization.
3. Acquiring has no plan or intention to sell or otherwise dispose of the
assets of Target acquired in the Reorganization, except for dispositions
made in the ordinary course of its business.
4. The fair market value of the Acquiring shares of beneficial interest
received by each shareholder of Target will be approximately equal to the
fair market value of the Target stock surrendered in the exchange.
5. Any liabilities of Target assumed by Acquiring and the liabilities, if
any, to which the transferred assets of Target are subject were incurred
by Target in the ordinary course of its business.
6. There is no plan or intention by any shareholder of Target who owns 5%
or more of Target's outstanding shares, and to the best knowledge of
Target, there is no plan or intention on the part of the remaining
shareholders of Target, to redeem, sell, exchange, or otherwise dispose of
a number of shares of beneficial interest of Acquiring received in the
Reorganization that would reduce the ownership of shares of Acquiring by
shareholders of Target to a number of shares having a value, as of the
Closing Date, of less than 50 percent of the value of all the formerly
outstanding stock of Target as of the same date.
7. Acquiring will acquire at least 90 percent of the fair market value of
the net assets and at least 70 percent of the fair market value of the
gross assets held by Target immediately prior to the Reorganization. For
purposes of this representation, (1) amounts used by Target to pay its
reorganization expenses, (2) amounts, if any, paid by Target to
shareholders, and (3) all redemptions and distributions (except for
redemptions in the ordinary course of Target's business as an open-end
investment company as required by section 22(e) of the 1940 Act pursuant to
the demand of a shareholder, and regular, normal dividends) made by Target
immediately preceding the transfer will be included as assets of Target
held immediately prior to the Reorganization.
8. Acquiring has no plan or intention to reacquire any of its stock issued
pursuant to the Reorganization, except that Acquiring, as an open-end
investment company, will redeem any of its shares presented to it for
redemption in the ordinary course of its business.
9. Following the Reorganization, Acquiring will continue the historic
business of Target or use a significant portion of Target's historical
business assets in a business.
10. Acquiring, Target and the shareholders of Target will each pay their
respective expenses in connection with the Reorganization.
11. There is no intercorporate indebtedness existing between Acquiring and
Target that was issued, acquired, or will be settled at a discount.
12. Acquiring and Target each (a) are regulated investment companies within
the meaning of section 851of the Code, or (b) meet the requirements
described in section 368(a)(2)(F)(ii) of the Code.
13. Acquiring does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any stock of Target.
14. Target is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of section 368(a)(3)(A) of the Code.
15. Target will distribute the stock, securities, and any other property it
receives in the Reorganization, and its other properties, in pursuance of
the Reorganization.
16. The fair market value of the assets of Target transferred to Acquiring in
pursuance of the Reorganization equals or exceeds the sum of (a) the
liabilities assumed by Acquiring, plus (b) the amount of liabilities, if
any, to which the transferred assets are subject.
17. The total adjusted basis of the assets transferred by Target to Acquiring
will equal or exceed the sum of the liabilities to be assumed and the
liabilities, if any, to which the transferred assets are subject.
18. Acquiring and Target have, for all of their tax years, elected to be
taxed as RICs as defined in section 851 of the Code, and after the
Reorganization, Acquiring intends to continue to elect to be taxed as a
RIC.
19. Xxxxxxxxx meets, and has met for years, the definition of a fund set
-------- forth in Section 851(g) of the Code.
Opinions
On the basis of the facts and representations set forth above, it is our opinion
that:
1. The transactions contemplated by the Agreement, as described above (the
transfer of substantially all of Target's assets in exchange for Acquiring
voting common shares and the assumption by Acquiring of certain identified
liabilities of Target, followed by the distribution by Target, in complete
liquidation, of the Acquiring shares to Target shareholders in exchange
for their Target shares) will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code;
2. Target and Acquiring will each be a "party to a reorganization" within the
meaning of section 368(b) of the Code;
3. Pursuant to section 354(a) of the Code, no gain or loss will be
recognized by Target shareholders upon the exchange of the Target shares
for the Acquiring shares;
4. Pursuant to section 361 of the Code, no gain or loss will be recognized by
Target upon the transfer of its assets to Acquiring in exchange for
Acquiring shares and the assumption by Acquiring of the identified
liabilities of Target, or upon the distribution by Target of Acquiring
shares to Target shareholders in exchange for the Target shares;
5. Pursuant to section 1032 of the Code, no gain or loss will be recognized
by Acquiring upon the receipt of the assets of Target solely in exchange
for Acquiring shares and the assumption by Acquiring of the identified
liabilities of Target;
6. Pursuant to section 358 of the Code, the aggregate tax basis for Acquiring
shares received by each Target shareholder pursuant to the Reorganization
will be the same as the aggregate tax basis of the Target shares held by
each such Target shareholder immediately prior to the Reorganization;
7. Pursuant to section 1223 of the Code, the holding period of Acquiring
shares received by each Target shareholder as part of the Reorganization
will include the period during which the Target shares surrendered in
exchange therefor were held (provided such Target shares were held as
capital assets on the date of the Reorganization);
8. Pursuant to section 362(b) of the Code, the tax basis of the assets of
Target acquired by Acquiring will be the same as the tax basis of such
assets in the hands of Target immediately prior to the Reorganization;
9. Pursuant to section 1223 of the Code, the holding period of the assets
of Target in the hands of Acquiring will include the period during which
those assets were held by Target; and
10. Acquiring will succeed to and take into account the items of Target
described in section 381(c) of the Code, including the earnings and
profits (or deficit in earnings and profits), of Target as of the date of
the Reorganization, subject to the conditions and limitations specified in
sections 381, 382, 383 and 384 of the Code and applicable Treasury
Regulations.
Substantial Authority
Provided that the facts, assumptions, and representations contained herein are
correct, substantial authority, within the meaning of section 6662 of the Code,
exists for the opinions expressed herein.
Caveats
Our opinions are not binding on any court or on the Internal Revenue Service
("IRS"). The IRS may examine the transactions discussed above and contemplated
by the Agreement. In doing so, the IRS is not bound by the factual
representations made to us, and may reach conclusions contrary to our opinions.
The conclusions expressed herein are based upon the facts, assumptions and
representations as set forth above. Such conclusions could change if these
facts, assumptions or representations are incorrect, or if any facts have been
omitted.
The conclusions expressed herein are based upon the Code, the Regulations
thereunder, the applicable and currently publicly available administrative
positions of the IRS, and existing court decisions, all as publicly available on
the date of this letter. No assurance can be given that legislative or
administrative changes or court decisions may not be forthcoming which could
significantly modify the conclusions expressed herein. Any such changes may or
may not be retroactive with respect to the Reorganization described above and,
as a result, could adversely affect the tax consequences as set forth above.
PricewaterhouseCoopers LLP will have no duty to update this letter unless so
requested.
This opinion is limited solely to the Federal income tax consequences as
expressed above, and no opinion is expressed concerning state, local, or foreign
tax considerations. No opinion is expressed concerning the Federal income tax
treatment under other provisions of the Code and Regulations, or concerning the
tax treatment of any conditions existing at the time of, or effects resulting
from, the Reorganization or the tax consequences of the Reorganization with
respect to any other taxpayers that are not specifically covered by the opinions
expressed in this letter. Therefore, such taxpayers should consult with their
own tax advisers as to the potential tax risks involved.
Deloitte & Touche LLP
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