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Law Offices
Drinker Xxxxxx & Xxxxx LLP
Philadelphia National Bank Building
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Telex: 834684
Fax: (000) 000-0000
August 6, 1997
The Arch Fund, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000-0000
Arrow Funds
00xx Xxxxx
0000 Xxxxxxx Xxxxxx
Federated Investors Towers
Xxxxxxxxxx, XX 00000-0000
Re: Agreement and Plan of Reorganization
by and between Arrow Funds and The Arch Fund, Inc.
Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the
above proposed Agreement and Plan of Reorganization (the "Plan"), by and between
Arrow Funds ("Arrow") and the Arch Fund, Inc. ("Arch"), as to certain Federal
income tax consequences of the transactions contemplated in the Plan.
Background
Arrow consists of three investment portfolios: Fixed Income
Portfolio, Municipal Income Portfolio and Equity Portfolio (individually, a
"Transferor Fund" and collectively, the "Transferor Funds"). Among Arch's
portfolios are two existing investment portfolios, the Government & Corporate
Bond Portfolio and the National Municipal Bond Portfolio, and one newly-
organized portfolio, the Growth Equity Portfolio (individually, a "Surviving
Fund" and collectively, the "Surviving Funds"). Arrow
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The Arch Fund, Inc.
Arrow Funds
August 6, 1997
Page 2
and Arch are open-end management investment companies registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended.
At the Closing (as defined in the Plan), it is contemplated
that each Transferor Fund will transfer all of its assets and liabilities to a
corresponding Surviving Fund in exchange for shares of the Surviving Fund. Arch
will then distribute the shares of each Surviving Fund to the shareholders of
the corresponding Transferor Fund in exchange for all outstanding shares of the
Transferor Fund, and the existence of the Transferor Funds will be terminated.
All of the above steps constitute the "Transactions." After the Transactions,
each Surviving Fund will continue the investment operations of the corresponding
Transferor Fund.
For purposes of this opinion, we have relied on certain
written representations of officers of Arrow and Arch, copies of which are
attached hereto, and have assumed such representations to be true. We have also
assumed that the Plan substantially in the form included as an exhibit in the
Combined Proxy Statement/Prospectus ("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 each 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 Plan), it is our
opinion for Federal income tax purposes that:
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The Arch Fund, Inc.
Arrow Funds
August 6, 1997
Page 3
(i) the transfer by each Transferor Fund of all of its assets
and liabilities to the corresponding Surviving Fund in exchange for shares of
the corresponding Surviving Fund, and the distribution of said shares to the
shareholders of the Transferor Fund, as provided in the Plan, 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, 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 any 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 any 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 any Transferor Fund on the
distribution to them by the Transferor Fund of 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
aggregate basis of the shares of the Surviving Fund received by each shareholder
of a Transferor Fund will be the same as the aggregate basis of the
shareholder's Transferor Fund shares exchanged therefor in the Transactions;
(vi) in accordance with section 362(b) of the Code, the basis
of the assets received by each Surviving Fund in the Transactions will be the
same as the basis of such assets in the hands of the corresponding Transferor
Fund immediately before the Transactions;
(vii) in accordance with section 1223(1) of the Code, a
Transferor Fund shareholder's holding period for shares of the Surviving Fund
will be determined by including the period for which the shareholder held the
shares of the Transferor Fund exchanged therefor, provided that the shareholder
held such shares of the Transferor Fund as a capital asset;
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The Arch Fund, Inc.
Arrow Funds
August 6, 1997
Page 4
(viii) in accordance with section 1223(2) of the Code, the
holding period of each Surviving Fund with respect to the assets acquired in the
Transactions will include the period for which such assets were held by the
corresponding Transferor Fund; and
(ix) in accordance with section 381(a) of the Code, each
Surviving Fund will succeed to the tax attributes of the corresponding
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 Proxy Statement. We also consent to the references to our
firm under the caption "Information Relating to the Proposed Reorganization --
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 Statement and do not otherwise come
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The Arch Fund, Inc.
Arrow Funds
August 6, 1997
Page 5
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 LLP
SDDH:EMM:JGV
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THE ARCH FUND, INC.
0000 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000-0000
August 6, 1997
Drinker Xxxxxx & Xxxxx LLP
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Re: Agreement and Plan of Reorganization by and between
Arrow Funds and The Arch Fund, Inc.
Gentlemen:
Arrow Funds ("Arrow") and we have requested your opinion as to
certain Federal income tax matters in connection with the proposed
reorganization (the "Reorganization") of three investment portfolios of Arrow
Funds ("Arrow") (the "Transferor Funds") into two existing investment portfolios
and one newly created investment portfolio of The Arch Fund, Inc. ("Arch") (the
"Surviving Funds") pursuant to the Agreement and Plan of Reorganization (the
"Plan") by and among Arch and Arrow. At the Effective Time of the Reorganization
(as defined in the Plan), it is contemplated that each Transferor Fund will
transfer all of its assets and liabilities to a corresponding Surviving Fund in
exchange for shares of the Surviving Fund. Arch will then distribute the shares
of each Surviving Fund to the shareholders of the corresponding Transferor Fund
in exchange for all outstanding shares of the Transferor Fund, and the existence
of the Transferor Funds will be terminated. All of the above steps constitute
the "Transactions." After the Transactions, each Surviving Fund will continue
the investment operations of the corresponding Transferor Fund. To enable you to
render such opinion, we are furnishing the following representations:
1. Each of the two previously existing investment portfolios,
Government & Corporate Bond Portfolio and National Municipal Bond Portfolio,
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 will so qualify for its
current fiscal year. The newly created investment portfolio, Growth Equity
Portfolio, will qualify as a regulated investment company under Part I of
Subchapter M of Subtitle A of Chapter 1 of the Code.
2. Following the Transactions, each Surviving Fund will
continue the historic business of the corresponding
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Transferor Fund or will use a significant portion of the Transferor Fund's
historic business assets in a business.
3. At the time of the Transactions, no Surviving Fund will
have any plan or intention to reacquire any of its shares issued in the
Transactions, except in the ordinary course of business.
4. At the time of the Transactions, no Surviving Fund will
have any plan or intention to sell or otherwise to dispose of any of the assets
of the corresponding 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
any Surviving Fund and its corresponding Transferor Fund that was issued,
acquired or will be settled at a discount.
6. No Surviving Fund owns, will own or has owned during the
past five years, directly or indirectly, any stock of the corresponding
Transferor Fund.
7. 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.
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,
THE ARCH FUND, INC.
By: /s/ Xxxxx Xxxxxxxx
------------------
Title: Assistant Secretary
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ARROW FUNDS
19th Floor
0000 Xxxxxxx Xxxxxx
Federated Investors Tower
Xxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
August 6, 1997
Drinker Xxxxxx & Xxxxx LLP
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Re: Proposed Agreement and Plan of Reorganization by and
between Arrow Funds and The Arch Fund, Inc.
Gentlemen:
The Arch Fund, Inc. ("Arch") and we have requested your
opinion as to certain Federal income tax matters in connection with the proposed
reorganization (the "Reorganization") of three investment portfolios of Arrow
Funds ("Arrow") (the "Transferor Funds") into two existing investment portfolios
and one newly created Arch investment portfolio (the "Surviving Funds") pursuant
to the above-referenced Agreement and Plan of Reorganization (the "Plan") by and
among Arch and Arrow. At the Closing (as defined in the Plan), it is
contemplated that each Transferor Fund will transfer all of its assets and
liabilities to a corresponding Surviving Fund in exchange for shares of the
Surviving Fund. Arch will then distribute the shares of each Surviving Fund to
the shareholders of the corresponding Transferor Fund in exchange for all
outstanding shares of the Transferor Fund, and the existence of the Transferor
Funds will be terminated. All of the above steps constitute the "Transactions."
After the Transactions, each Surviving Fund will continue the investment
operations of the corresponding Transferor Fund. To enable you to render such
opinion, we are furnishing the following representations:
1. Each of the Transferor 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 will so qualify for its current fiscal year.
2. Each Transferor Fund will transfer to the corresponding
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
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assumption, all of the following shall be considered as assets of such
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 redemptions in the ordinary course of its business, as
required by section 22(e) of the Investment Company Act of 1940, as amended,
pursuant to a demand for redemption by a shareholder of the Transferor 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 Surviving Fund, if any, that differ from the
existing investment objectives of the Transferor Fund).
3. Each Transferor Fund, as promptly as practicable, will
distribute the Surviving Fund shares received in the Transactions to its
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, each 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 corresponding 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 each
Transferor Fund to the corresponding 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 any 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 Trust, no plan or intention on the part of the remaining
shareholders of the Transferor Fund, to sell, exchange or otherwise dispose of a
number of shares of the corresponding 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
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Surviving Fund held by Transferor 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.
7. No Transferor 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.
8. The liabilities of each Transferor Fund that will be
assumed by the corresponding 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.
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 SEC.
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,
ARROW FUNDS
By: /s/ Xxxxxxx X. Xxxxx, Xx.
------------------------
Title: Vice President &
Asst. Treasurer
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