PART C EXHIBIT (12)(b)
DRAFT TAX OPINION
September __, 2001
Davis New York Venture Fund, Inc.
c/o Davis Selected Advisers, L.P.
2949 East Elvira Road
Tucson, Arizona 85706
Ladies & Gentlemen:
REORGANIZATION OF DAVIS GROWTH & INCOME FUND INTO DAVIS NEW YORK VENTURE FUND -
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
You have requested the opinion of KPMG LLP ("KPMG") as to certain U.S. federal
income tax consequences in connection with the Agreement and Plan of
Reorganization, dated September 14, 2001 (the "Plan"), between Davis New York
Venture Fund, Inc., on behalf of its series Davis Growth & Income Fund (the
"Target Fund"), and Davis New York Venture Fund, the sole other series of Davis
New York Venture Fund, Inc. (the "Acquiring Fund") pursuant to which: (i) Target
Fund will transfer all of its assets to Acquiring Fund solely in exchange for
voting shares of Acquiring Fund; (ii) Acquiring Fund will assume the identified
liabilities of Target Fund as listed on Target Fund's Statement of Net Assets as
of September 14, 2001 (i.e., the "Closing Date" of this transaction); (iii)
Target Fund will distribute to its shareholders all of the voting shares
received from Acquiring Fund; and (iv) Target Fund will be liquidated (the
aforementioned items (i), (ii), (iii), and (iv) hereinafter collectively
referred to as the "Transaction"). Except as otherwise provided, all terms not
defined herein shall have the meanings ascribed to them (or defined by
reference) in the Plan in connection with the rendering of this opinion KPMG
relating to the Transaction (the "Registration Statement") and the Plan. In
addition, KPMG has reviewed and relied upon the representations made by Target
Fund, and Acquiring Fund in their respective Representation Letters, dated
September 12, 2001 (collectively, the "Representations").
FACTS AND ASSUMPTIONS
Davis New York Venture Fund, Inc. is an open-end, diversified, series management
investment company, incorporated in Maryland under the name New York Venture
Fund, Inc. on February 5, 1968, and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). On November 1, 1995, New York Venture
Fund, Inc. changed its name to Davis New York Venture Fund, Inc. Both Target
Fund and Acquiring Fund are individual series Davis New York
Venture Fund, Inc., each of which represents an equity interest in individual
designated pool of assets held by Davis New York Venture Fund, Inc. Target Fund
commenced operations on May 1, 1998. Acquiring Fund commenced operations on
February 5, 1968. Both Target Fund and Acquiring Fund have individually
qualified and are expected to individually qualify as regulated investment
companies ("RICs") within the meaning of Section 851 of the Internal Revenue
Code of 1986, as amended (the "Code") for all prior years and the current year
in accordance with Section 851(g) of the Code.
Both Target Fund and Acquiring Fund currently maintain four classes of common
shares. Neither Target Fund nor Acquiring Fund permit cumulative voting. Class A
shares of Target Fund are subject to a 4.75% front-end sales charge and 12b-1
service plan fees equal to 0.25% of average annual net assets of Class A shares.
Class B shares of Target Fund are subject to a maximum contingent deferred sales
charge of 4.00% as well as an annual 1.00% asset-based sales charge. Class C
shares of Target Fund are subject to a maximum contingent deferred sales charge
of 1.00% as well an annual 1.00% asset-based sales charge. Finally, Class Y
shares of Target Fund are not subject to any sales charges, and are offered to
certain institutional investors under special agreement with the distributor of
the Target Fund's shares.
Class A shares of Acquiring Fund are subject to a 4.75% front-end sales charge
and 12b-1 service plan fees equal to 0.25% of average annual net assets of Class
A shares. Class B shares of Acquiring Fund are subject to a maximum contingent
deferred sales charge of 4.00% as well as an annual 1.00% asset-based sales
charge. Class C shares of Acquiring Fund are subject to a maximum contingent
deferred sales charge of 1.00% as well an annual 1.00% asset-based sales charge.
Finally, Class Y shares of Acquiring Fund are not subject to any sales charges,
and are offered to certain institutional investors under special agreement with
the distributor of the Acquiring Fund's shares.
For what has been represented by Target Fund and Acquiring Fund to be valid
business reasons, the following transaction is proposed:
1. Target Fund will transfer all of its assets to Acquiring Fund solely in
exchange for voting shares of Acquiring Fund and the assumption by
Acquiring Fund of the liabilities of Target Fund;
2. Target Fund will distribute the voting shares of Acquiring Fund received in
the exchange to its shareholders in exchange for their shares in Target
Fund; and
3. Target Fund will liquidate and dissolve in accordance with the laws of
Maryland.
Acquiring Fund may sell up to 66 percent of the assets received in the
Transaction to unrelated purchasers and will reinvest any proceeds of such sales
consistent with its investment objectives and policies.
REPRESENTATIONS
The following representations have been made in connection with the Transaction:
(a) Target Fund and Acquiring Fund are separate series of Davis New York
Venture Fund, Inc., and Target Fund and Acquiring Fund are treated as
separate corporations for federal income tax purposes pursuant to Section
851(g) of the Code.
(b) Each shareholder of Target Fund will receive in the Transaction solely
voting shares of Acquiring Fund in exchange for shares of Target Fund.
(c) The fair market value of the voting shares of Acquiring Fund received by
each shareholder of Target Fund will be approximately equal to the fair
market value of the shares of Target Fund exchanged therefor.
(d) Neither Acquiring Fund (in its capacity as the issuing corporation as
defined in Section 1.368-1(b) of the Income Tax Regulations (the
"Regulations")) nor any person related to Acquiring Fund, as defined in
Section 1.368-1(e)(3) of the Regulations, has or will have (at the time of
the Transaction) a plan or intention to acquire, during the five year
period beginning on the date of the Transaction with consideration other
than Acquiring Fund shares, or redeem any of the Acquiring Fund shares
issued in the Transaction either directly or through any transaction,
agreement, or arrangement with any other person (other than redemptions
made pursuant to Section 22(e) of 1940 Act.
(e) During the five-year period ending on the date of the Transaction, neither
Target Fund nor any person related to Target Fund (as defined in Section
1.368-1(e)(3) of the Regulations and without regard to Section
1.368-1(e)(3)(i)(A) of the Regulations) will have directly or through any
transaction, agreement or arrangement with any other person, (1) acquired
Target Fund shares with consideration other than solely voting shares of
Acquiring Fund or Target Fund (other than redemptions of Target Fund shares
made pursuant to Section 22(e) of the 1940 Act), or (2) made distributions
with respect to Target Fund shares (other than distributions made in the
ordinary course of business by Target Fund pursuant to the 1940 Act) except
for distributions described in Sections 852 and 4982 of the Code, as
required for the Target Fund's tax treatment as a RIC. Therefore, Target
Fund shareholders will not have received consideration before the
Transaction (either in redemption of, or a distribution with respect to,
Target Fund shares) that would be treated as other property or money
received in the Transaction for purposes of Section 356 of the Code (or
would be so treated if Target Fund shareholders had received Acquiring Fund
shares in exchange for Target Fund shares).
(f) During the five-year period ending on the date of the Transaction, neither
Acquiring Fund nor any person related to Acquiring Fund (as defined in
Section 1.368-1(e)(3) of the Regulations) will have acquired, directly or
through any transaction, agreement or arrangement with any other person,
Target Fund shares with consideration other than voting shares of Acquiring
Fund.
(g) To the best of Target Fund management's and Acquiring Fund management's
knowledge, the aggregate value of acquisitions, redemptions, and
distributions described in paragraphs (c), (d), and (e), above will not
exceed 50 percent of the value (without giving effect to the
acquisitions, redemptions, and distributions) of the proprietary interest
in Target Fund on the effective date of the Transaction.
(h) The four classes of common shares issued by Acquiring Fund are
substantially similar to the corresponding four classes of common shares
issued by Target Fund.
(i) Acquiring Fund 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 Fund immediately prior to the Transaction. For
purposes of this representation, (1) amounts paid by Target Fund out of the
assets of Target Fund to Target Fund shareholders in redemption of Target
Fund shares (other than redemptions made pursuant to Section 22(e) of the
1940 Act), or as distributions with respect to Target Fund shares (other
than distributions made in the ordinary course of business by Target Fund
pursuant to the 1940 Act) either directly or indirectly through any
transaction, except for distributions described in Sections 852 and 4982 of
the Code, as required for Target Fund's tax treatment as a RIC, and
regular, normal dividends), and (2) amounts used by Target Fund to pay its
Transaction expenses will be included as assets of Target Fund held
immediately prior to the Transaction.
(j) Target Fund will distribute the voting shares of Acquiring Fund it receives
in the Transaction in pursuance of the Plan.
(k) After the Transaction, Acquiring Fund will use the assets acquired from the
Target Fund in its business, except that a portion of these assets may be
sold or otherwise disposed of in the ordinary course of Acquiring Fund's
business. Any proceeds will be invested in accordance with Acquiring Fund's
investment objectives. Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the assets of the Target Fund acquired in the
Transaction, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
(l) Acquiring Fund will assume all of Target Fund's specified liabilities
identified on Target Fund's Statement of Net Assets as of the Closing Date,
and such liabilities were or will have been incurred by Target Fund in the
ordinary course of business. No other person related to Acquiring Fund will
assume any Target Fund liability in the Transaction.
(m) The liabilities of Target Fund to be assumed by Acquiring Fund and the
liabilities to which the transferred assets of the Target Fund will be
subject will have been incurred by Target Fund in the ordinary course of
its business.
(n) Following the Transaction, Acquiring Fund will continue the historical
business of Target Fund or use a significant portion of the Target Fund's
historical business assets in a business.
(o) Target Fund and Target Fund shareholders, respectively, will pay their own
expenses that are solely and directly related to the Transaction, if any,
incurred in connection with the Transaction whether or not the Transaction
is consummated. Acquiring Fund will pay its expenses that are solely and
directly related to the Transaction, if any, incurred in connection with
the Transaction whether or not the Transaction is consummated. Neither
Acquiring Fund nor Acquiring Fund
shareholders will pay the expenses of either Target Fund or of Target Fund
shareholders. For purposes of this representation, the term "expenses that
are solely and directly related to the Transaction" include, but are not
limited to legal and accounting expenses, appraisal fees, administrative
costs directly related to the Transaction (such as those incurred for
printing, clerical work, telephone and telegraph), security underwriting
and registration fees and expenses, transfer taxes, and transfer agent fees
and expenses. The same term will not include any expense which, if paid,
would prohibit the Transaction from being solely for voting shares of
Acquiring Fund as described in Rev. Rul. 73-54, 1973-1 C.B. 187. Examples
of such prohibited expenses are fees incurred for investment or estate
planning advice and those incurred by an individual shareholder, or group
of shareholders, for legal, accounting or investment advice or counsel
pertaining to participation in, or action with respect to, the Transaction.
(p) There will be no intercorporate indebtedness existing at the time of the
Transaction between Acquiring Fund and Target Fund that will have been
issued, acquired, or settled at a discount.
(q) The fair market value of the assets of Target Fund transferred to Acquiring
Fund will equal or exceed the sum of the liabilities assumed by Acquiring
Fund plus the amount of liabilities, if any, to which the transferred
assets are subject.
(r) Acquiring Fund and Target Fund have each qualified, and will qualify at the
time of the Transaction, as a regulated investment company within the
meaning of Sections 368(a)(2)(F) and 851 of the Code. After the
Transaction, Acquiring Fund intends to continue to so qualify.
(s) Neither Acquiring Fund nor Target Fund will have acquired any options,
warrants, or rights with respect to Target Fund shares pursuant to the
Transaction.
(t) Target Fund is not and will not be 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.
(u) Target Fund will have at the time of the Transaction no options, warrants
or rights outstanding with respect to its shares. Target Fund will not have
redeemed any options, warrants, or rights with respect to its shares
pursuant to the Transaction.
(v) Target Fund has not filed an election pursuant to Notice 88-19, 1988-1 C.B.
486, or Section 1.337(d)-5T of the Temporary Income Tax Regulations, to be
subject to rules similar to the rules of Section 1374 of the Code with
respect to any net built-in gain on any assets acquired from another
corporation.
SCOPE OF OPINIONS
The opinions expressed herein are rendered only with respect to the specific
matters discussed herein. We express no opinion with respect to any other
federal or state income tax or legal aspect
of the Transaction and no inference should be drawn with respect to any matter
not expressly opined upon.
Our opinions are based upon the FACTS AND ASSUMPTIONS and REPRESENTATIONS set
forth above. If any of the above-stated facts, assumptions, or Representations
are not entirely complete or accurate, it is imperative that we be informed
immediately, as the inaccuracy or incompleteness could have a material effect on
our conclusions. In rendering our opinions, we are relying upon the relevant
provisions of the Code, the regulations thereunder, and judicial and
administrative interpretations thereof, all as of the date of this letter.
However, all the foregoing authorities are subject to change or modification by
subsequent legislative, regulatory, administrative, or judicial decisions that
can be retroactive in effect and, therefore, could also affect our opinions. We
assume no responsibility to update our opinions for any such change or
modification. The opinions contained herein are not binding upon the Internal
Revenue Service, any other tax authority or any court, and no assurance can be
given that a position contrary to that expressed herein will not be asserted by
a tax authority and ultimately sustained by a court.
To the best of our knowledge (including such due diligence as we have
performed), our opinions are not based on unreasonable factual or legal
assumptions (including assumptions as to future events) and we have not
unreasonably relied on the REPRESENTATIONS, statements, findings, or agreements
of any person.
In connection with the rendering of these opinions we have reviewed the
Registration Statement including the Plan. We have not made any independent
investigation of the FACTS AND ASSUMPTIONS or the REPRESENTATIONS involved in
the Transaction discussed herein. We have not examined any agreement to
determine whether it complies with applicable federal, state, or local law. We
have assumed that all actions required to effect the Transaction have been, are,
and will be effectuated in accordance with applicable federal, state, and local
law and the terms of any relevant agreements.
The opinions expressed herein are for the exclusive benefit of Target Fund,
Acquiring Fund, and their respective shareholders and may not be relied upon for
any other purpose, or used, circulated, quoted or relied upon by any other
person or entity without our prior written consent.
OPINIONS
Based upon the FACTS AND ASSUMPTIONS and REPRESENTATIONS as set forth above, and
subject to the conditions and limitations included in the portion of this letter
entitled SCOPE OF OPINION, it is the opinion of KPMG that the following federal
income tax consequences will result from the Transaction:
(1) The acquisition by Acquiring Fund of substantially all of the assets of
Target Fund, solely in exchange for the voting shares of Acquiring Fund
and the assumption of the identified liabilities of Target Fund by
Acquiring Fund, followed by the distribution by Target Fund of the
shares of Acquiring Fund in complete liquidation to the shareholders of
Target Fund in exchange for their Target Fund shares, will constitute a
reorganization within the
meaning of Section 368(a)(1)(C) of the Code. Target Fund and Acquiring
Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(2) Target Fund's shareholders will not recognize gain or loss on their
receipt of solely voting shares of Acquiring Fund in exchange for the
voting shares of Target Fund pursuant to the Transaction in accordance
with Section 354(a)(1) of the Code.
(3) Target Fund will not recognize gain or loss on the transfer of all of
its assets to Acquiring Fund solely in exchange for voting shares of
Acquiring Fund and the assumption by Acquiring Fund of Target Fund
liabilities pursuant to the Transaction in accordance with Sections
361(a) and 357(a) of the Code.
(4) Target Fund will not recognize gain or loss on its distribution of
voting shares of Acquiring Fund to its shareholders pursuant to the
liquidation of Target Fund in accordance with Section 361(c) of the
Code.
(5) Acquiring Fund will not recognize gain or loss on its acquisition of
all of the assets of Target Fund solely in exchange for voting shares
of Acquiring Fund and the assumption by Acquiring Fund of Target Fund's
liabilities in accordance with Section 1032(a) of the Code.
(6) The basis of the voting shares of Acquiring Fund received by Target
Fund's shareholders pursuant to the Transaction will equal the basis of
the voting shares of Target Fund surrendered in exchange therefor in
accordance with Section 358(a)(1) of the Code.
(7) The holding period of the voting shares of Acquiring Fund received by a
Target Fund shareholder pursuant to the Transaction will include the
period that the shareholder held the voting shares of Target Fund
exchanged therefor, provided that the shareholder held such shares as a
capital asset on the date of the Transaction in accordance with Section
1223(1) of the Code.
(8) Acquiring Fund's basis in the assets of Target Fund received pursuant
to the Transaction will equal Target Fund's basis in the assets
immediately before the Transaction in accordance with Section 362(b) of
the Code.
(9) Acquiring Fund's holding period in Target Fund assets received pursuant
to the Transaction will include the period during which Target Fund
held the assets in accordance with Section 1223(2) of the Code.
(10) Acquiring Fund will succeed to and take into account the items of
Target Fund described in Section 381(c) of the Code, including the
earnings and profits, or deficit in earnings and profits, of Target
Fund as of the date of the Transaction. Acquiring Fund will take these
items into account subject to the conditions and limitations specified
in Sections 381, 382, 383 and 384 of the Code and applicable
Regulations thereunder.
Very truly yours,
KPMG LLP
Jeffrey S. Sion
Managing Director