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Exhibit No. 16(12)
January 27, 1999
The Kent Funds
P.O. Box 182201
Columbia, OH 43218-2201
Re: Plan of Reorganization, dated November 19, 1998
with respect to The Kent Limited Term Tax-Free
Fund and The Kent Intermediate Tax-Free Fund
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Dear Ladies and Gentlemen:
We have been asked to give our opinion as to certain Federal
income tax consequences of the transactions contemplated in the Plan of
Reorganization (the "Plan").
Background
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The Kent Funds (the "Trust") is an open-end management
investment company registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended. The Trust currently
offers shares in fifteen investment portfolios, including The Kent Limited Term
Tax-Free Fund (the "Transferor Fund") and The Kent Intermediate Tax-Free Fund
(the "Surviving Fund").
At the Closing (as defined in the Plan), it is contemplated
that the Transferor Fund will transfer all of its assets and liabilities to the
Surviving Fund in exchange for shares of the Surviving Fund. The shares of the
Surviving Fund will then be distributed to the shareholders of the Transferor
Fund in exchange for all outstanding shares of the Transferor Fund, and the
existence of the Transferor Fund will be terminated. All of the above steps
constitute the "Transactions."
For purposes of this opinion, we have relied on certain
written representations of an officer of the Trust, a copy of which is attached
hereto, and have assumed such representations to be true. We have also assumed
that the Plan substantially in the form included as an appendix to the Combined
Proxy Statement/Prospectus ("Proxy Statement") which is part of the Registration
Statement (the "Registration Statement") being filed this day with the SEC on
Form N-14, will be approved by the shareholders of the Transferor Fund, and the
appropriate documents will be filed with the appropriate government agencies.
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Conclusions
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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:
(i) the transfer by the Transferor Fund of all of its assets
and liabilities to the Surviving Fund in exchange for shares of the 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), or 368(a)(1)(D) 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 the 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 the 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 the 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 the 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 the Surviving Fund in the Transactions will be the
same as the basis of such assets in the hands of the 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;
(viii) in accordance with section 1223(2) of the Code, the
holding period of the Surviving Fund with respect to the assets acquired in the
Transactions will include the period for which such assets were held by the
Transferor Fund; and
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(ix) in accordance with section 381(a) of the Code, the
Surviving Fund will succeed to the tax attributes of the 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. In consenting to such
references to our firm, we have not certified any part of the Registration
Statement, and such consent does not establish that we come within the
categories of persons whose consent is required under section 7 of the
Securities Act of 1933 or under the rules and regulations of the SEC issued
thereunder.
Very truly yours,
/s/DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
SDDH:EMM:FCM
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APPENDIX
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KENT FUNDS
P.O. Box 182201
Columbus, Ohio 43218-2201
January 27, 1999
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
Re: Plan of Reorganization dated November 19, 1998,
with respect to The Kent Limited Term Tax-Free
Fund and The Kent Intermediate Tax-Free Fund
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Gentlemen:
We have requested your opinion as to certain federal income tax matters
in connection with the proposed reorganization (the "Reorganization") of The
Kent Limited Term Tax-Free Fund (the "Transferor Fund") into The Kent
Intermediate Tax-Free Fund (the "Surviving Fund") pursuant to the
above-referenced Plan of Reorganization (the "Plan"). At the Closing (as defined
in the Plan), it is contemplated that the Transferor Fund will transfer all of
its assets and liabilities to the Surviving Fund in exchange for shares of the
Surviving Fund. The shares of the Surviving Fund will then be distributed to the
shareholders of the Transferor Fund in exchange for all outstanding shares of
the Transferor Fund, and the existence of the Transferor Fund will be
terminated. All of the above steps constitute the "Transactions." After the
Transactions, the Surviving Fund will continue the investment operations of the
Transferor Fund. To enable you to render such opinion, we are furnishing the
following representations:
1. Both the Transferor Fund and the Surviving Fund 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, for their most
recently ended fiscal year and will so qualify for their current fiscal year.
2. The Transferor Fund will transfer to the 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 assumption, all of the following
shall be considered as assets of the 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,
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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. The 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, the 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
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 the Transferor Fund to
the Surviving Fund will each equal or exceed the sum of the liabilities to be
assumed by the 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 the 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 the 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 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 Surviving Fund held
by Transferor Fund shareholders and otherwise sold, redeemed (except for
redemptions occurring in the ordinary course of the Transferor Fund's business
as an investment company) 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. The Transferor Fund is not and will not 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. Following the Transactions, the Surviving Fund will continue the
historic business of the Transferor Fund or will use a significant portion of
the Transferor Fund's historic business assets in a business.
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9. At the time of the Transactions, the Surviving Fund will not have
any plan or intention to reacquire any of its shares issued in the Transactions,
except in the ordinary course of business.
10. At the time of the Transactions, the Surviving Fund will not have
any plan or intention to sell or otherwise to dispose of any of the assets of
the Transferor Fund acquired in the Transactions, except for dispositions made
in the ordinary course of business.
11. The liabilities of the Transferor Fund that will be assumed by the
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.
12. There is and will be no interfund indebtedness between the
Surviving Fund and the Transferor Fund that was issued, acquired or will be
settled at a discount.
13. The Surviving Fund does not own, has not owned during the past five
years, and will not own, any stock of the Transferor Fund, directly or
indirectly.
14. 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,
KENT FUNDS
By: /s/ James F. Duca II
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James F. Duca II
President
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