<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1998
Registration No. 333-36941
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No. __
[X] Post-Effective Amendment No. 1
WM TRUST I
(Exact name of Registrant as Specified in Charter)
601 West Main Avenue, Suite 300
Spokane, Washington 99201
(Address of Principal Executive Offices)
(509) 353-3401
(Area Code and Telephone Number)
____________
William G. Papesh, President
WM Advisors, Inc.
1201 Third Avenue, Suite 1400
Seattle, Washington 98101
(Name and Address of Agent for Service)
Copies to:
Joseph B. Kittredge, Esq. Lawrence R. Small, Esq.
Ropes & Gray Paine, Hamblen, Coffin,
One International Place Brooke & Miller LLP
Boston, MA 02110 717 West Sprague Avenue, Suite 1200
Spokane, WA 99201
____________
It is proposed that this filing will become effective immediately upon filing
pursuant to Rule 485(b).
<PAGE>
File No. 333-36941
WM TRUST I
(Formerly known as The Composite Funds)
GROWTH & INCOME FUND, INCOME FUND,
MONEY MARKET FUND, TAX-EXEMPT BOND FUND
AND U.S. GOVERNMENT SECURITIES FUND
Form N-14
PART C
OTHER INFORMATION
Item 16. Exhibits
(12) The following opinions of counsel as to tax matters and consents
of counsel are filed herewith:
(a) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Growth and Income Fund into the Growth
& Income Fund (formerly known as the Composite Growth &
Income Fund).
(b) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Income Fund into the Income Fund
(formerly known as the Composite Income Fund).
(c) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Global Money Fund and the Sierra
Government Money Fund into the Money Market Fund (formerly
known as the Composite Money Market Fund).
(d) Opinion of counsel as to certain tax matters related to the
merger of the Sierra National Municipal Fund into the Tax-
Exempt Bond Fund (formerly known as the Composite Tax-Exempt
Bond Fund).
(e) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Government Fund into the U.S.
Government Securities Fund (formerly known as the Composite
U.S. Government Securities Fund).
(f) Consent of counsel.
(16) Powers of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as Trustees, and where applicable, officers of WM
Trust I: Wayne L. Attwood, Arthur H. Bernstein, Kristianne Blake,
Edward R. Davis, John W. English, Michael K. Murphy, Alfred E.
Osborne, William G. Papesh, Daniel L. Pavelich and Jay Rockey are
incorporated by reference to WM Variable Trust's Post -Effective
Amendment No. 14 on Form N-1A, filed on March 26, 1998. Powers of
Attorney with respect to Registration Statements and Amendments
thereto signed by the following persons in their capacities as
Trustees of WM Trust I: David E. Anderson, Anne V. Farrell and
Richard C. Yancey are incorporated by reference to WM Variable
Trust's Post-Effective Amendment No. 15 on Form N-1A, filed on
April 1, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all the requirements for effectiveness of this Post-
Effective Amendment No. 1 to its Registration Statement on Form N-14 pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 1 to its Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston in the State of Massachusetts on the 16th day of April, 1998.
WM Trust I
By: WILLIAM G. PAPESH*
------------------
William G. Papesh, President
*By: /s/ John T. West
---------------------------------------
John T. West, as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
WILLIAM G. PAPESH* President and Trustee April 16, 1998
- ------------------------
William G. Papesh
/s/ John T. West Vice President and Secretary April 16, 1998
- ------------------------
John T. West
DAVID E. ANDERSON* Trustee April 16, 1998
- ------------------------
David E. Anderson
WAYNE L. ATTWOOD, M.D.* Trustee April 16, 1998
- ------------------------
Wayne L. Attwood, M.D.
ARTHUR H. BERNSTEIN, ESQ*. Trustee April 16, 1998
- ------------------------
Arthur H. Bernstein, Esq.
KRISTIANNE BLAKE* Trustee April 16, 1998
- ------------------------
Kristianne Blake
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
EDWARD R. DAVIS* Trustee April 16, 1998
- ------------------------
Edward R. Davis
JOHN W. ENGLISH* Trustee April 16, 1998
- ------------------------
John W. English
ANNE V. FARRELL* Trustee April 16, 1998
- ------------------------
Anne V. Farrell
MICHAEL K. MURPHY* Trustee April 16, 1998
- -----------------------------------
Michael K. Murphy
Trustee April 16, 1998
ALFRED E.OSBORNE, JR.PH.D*
- -----------------------------------
Alfred E. Osborne, Jr. Ph.D Trustee April 16, 1998
DANIEL L. PAVELICH*
- ----------------------------------- Trustee April 16, 1998
Daniel L. Pavelich
JAY ROCKEY*
- ----------------------------------- Trustee April 16, 1998
Jay Rockey
RICHARD C. YANCEY*
- ----------------------------------- Trustee April 16, 1998
Richard C. Yancey
*By: /s/ John T. West
----------------------------
John T. West, as Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
12 (a) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Growth and Income Fund into the Growth
& Income Fund (formerly known as the Composite Growth &
Income Fund).
12 (b) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Income Fund into the Income Fund
(formerly known as the Composite Income Fund).
12 (c) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Global Money Fund and the Sierra
Government Money Fund into the Money Market Fund (formerly
known as the Composite Money Market Fund).
12 (d) Opinion of counsel as to certain tax matters related to the
merger of the Sierra National Municipal Fund into the Tax-
Exempt Bond Fund (formerly known as the Composite Tax-Exempt
Bond Fund).
12 (e) Opinion of counsel as to certain tax matters related to the
merger of the Sierra Government Fund into the U.S.
Government Securities Fund (formerly known as the Composite
U.S. Government Securities Fund).
12 (f) Consent of counsel.
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
March 20, 1998
Composite Growth & Income Fund
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Composite Growth & Income Fund
The Composite Funds
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Growth and Income Fund
Sierra Trust Funds
P.O. Box 5118
Westboro, Massachusetts 01581
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated November 14, 1997 (the "First Agreement") between Composite
Growth & Income Fund, a Washington corporation (the "Fund"), and The Composite
Funds, a Massachusetts business trust (the "Composite Trust"), on behalf of one
of its separate series, the Composite Growth & Income Fund (the "New Fund").
The First Agreement describes a proposed transaction (the "First Transaction")
to occur on March 20, 1998 (the "Exchange Date"), pursuant to which the form of
organization of the Fund will be changed from a Washington corporation to a
series of the Composite Trust, which will assume the registration of the Fund.
To effect the First Transaction, the Fund will transfer all of its assets to the
New Fund in exchange for the assumption of all of the Fund's liabilities by the
New Fund and the issuance by the New Fund of shares of beneficial interest in
the New Fund, which shares will be distributed by the Fund to its shareholders
in complete liquidation and termination of the Fund. This opinion as to certain
federal income tax consequences of the First Transaction is furnished to the
Fund pursuant to Section 9(g) of the First Agreement and is furnished to the New
Fund pursuant to Section 8(h) of the First Agreement. This letter also contains
an opinion in connection with a second transaction between Composite Growth &
Income Fund and the Growth and Income Fund (see below, starting at page 8).
<PAGE>
-2-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Shares of the
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option.
The Composite Trust, of which the New Fund is a separate series, was
organized under an Agreement and Declaration of Trust under the laws of The
Commonwealth of Massachusetts. The Composite Trust will assume the registration
of the Fund. Shares of the New Fund are redeemable at net asset value (less any
applicable contingent deferred sales charge) at each shareholder's option.
For purposes of this opinion, we have examined the First Agreement, a
Combined Proxy Statement, dated November 7, 1997 and relating to the First
Transaction, which has been furnished to the Fund's shareholders in connection
with the First Transaction (including any items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated that we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. The New Fund will acquire on the Exchange Date all of the assets of
the Fund, and will assume all liabilities of the Fund.
2. The purpose and effect of the First Transaction is to change the form
of organization of the Fund from a Washington corporation to a series of the
Composite Trust, which will be a "series company" under Rule 18f-2 under the
1940 Act. It is anticipated that such a change in the form of organization will
align the Fund's form of organization with the general practice in the mutual
fund industry, provide the Fund with added flexibility, generate fee savings on
certain regulatory filings and facilitate the consolidation of the Composite
family of funds and the Sierra family of funds.
3. The New Fund was formed for the purpose of effecting the First
Transaction and has not engaged in any business prior to the First Transaction,
and neither the New Fund nor the Fund has ever held, directly or indirectly, any
shares in the other, except for the initial New Fund shares acquired by the Fund
prior to the First Transaction.
4. Upon filing its first income tax return at the completion of its first
taxable year, the New Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for
<PAGE>
-3-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
taxation as a "regulated investment company" under Sections 851 and 852 of the
Internal Revenue Code of 1986, as amended (the "Code").
5. There is no plan or intention to liquidate the New Fund or to merge
the New Fund into any other corporation or business trust.
6. The fair market value of the shares of the New Fund to be received by
each shareholder of the Fund in the First Transaction will, in each instance, be
equal to the fair market value of the shares of the Fund to be surrendered in
exchange therefor. The shareholders of Fund will receive no consideration other
than shares of the New Fund in exchange for their Fund shares.
7. Immediately following consummation of the First Transaction, all of
the outstanding shares of the New Fund will be owned by the former shareholders
of the Fund, who will own such shares solely by reason of their ownership of
shares of the Fund immediately prior to the First Transaction.
8. There is no plan or intention by any shareholder of the Fund who owns
five percent or more of the outstanding Fund shares, and neither the management
of the Composite Trust (on behalf of the New Fund), nor the management of the
Fund, is aware of any plan or intention on the part of any other shareholder of
the Fund, in connection with or as a result of the First Agreement or the First
Transaction, to sell, exchange or otherwise dispose of any shares of the New
Fund received by them in the First Transaction or to sell, exchange or otherwise
dispose of any shares of the Fund prior to the exchange of such shares for
shares of the New Fund.
9. The New Fund has no plan or intention to issue additional shares
following the First Transaction, as part of the First Transaction. However, as
an open-end investment company, the New Fund will issue additional shares in the
ordinary course of its business.
10. The New Fund has no plan or intention to reacquire any of its shares
issued in the First Transaction, except for New Fund shares reacquired (i.e.,
redeemed) in the ordinary course of its business as an open-end investment
company.
11. Immediately following the consummation of the First Transaction, the
New Fund will possess the same assets and liabilities as those possessed by the
Fund immediately prior to the First Transaction, except for (i) assets used to
make payments in redemption of shares of the Fund or the New Fund where such
redemptions, if any, appear to be initiated by
<PAGE>
-4-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
shareholders in connection with or as a result of the First Agreement or the
First Transaction, (ii) assets used to pay expenses incurred in connection with
the First Transaction, if any, and (iii) assets used to distribute dividends or
make redemptions in the ordinary course of the New Fund's operations as an open-
end investment company, as more fully described in paragraph 12 below. Payments
of expenses of the First Transaction and payments in redemption of shares of the
Fund or the New Fund where such redemptions, if any, appear to be initiated by
shareholders in connection with or as a result of the First Agreement or the
First Transaction will, in the aggregate, be less than one percent of the net
assets of the Fund immediately prior to the Exchange Date.
12. Except for the payments in redemption of Fund or New Fund shares where
such redemptions, if any, appear to be initiated by shareholders in connection
with or as a result of the First Agreement or the First Transaction, no payments
will be made by the Fund or the New Fund to its shareholders in connection with
or as a result of the First Agreement or the First Transaction. However, the
Fund and the New Fund will, in the ordinary course of their business as open-end
investment companies, make distributions of dividends paying out investment
income or capital gains, and distributions in redemption of shares; the Fund and
the Composite Trust, on behalf of the New Fund, have no reason to believe that
redemptions or possible future redemptions are occurring or will occur on
account of the First Agreement or the First Transaction (other than those
referred to above and in paragraph 11).
13. The Composite Trust, on behalf of the New Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Fund except for dispositions made in the ordinary course of the New Fund's
business as an open-end investment company (i.e, dispositions resulting from
investment decisions made in the ordinary course of business and independent of
the First Transaction).
14. For federal income tax purposes, the Fund qualifies as a regulated
investment company, and the provisions of Sections 851 through 855 of the Code
apply to the Fund for its current taxable year beginning November 1, 1997, and
will continue to apply to it through the Exchange Date. Prior to the Exchange
Date, the Fund will have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Fund (i) all of the excess of (x) the Fund's investment
income excludable from gross income under Section 103(a) of the Code, over (y)
the Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Fund's investment company taxable income (as defined in Section
852 of the Code) for its taxable years ending on October 31, 1997 and the short
taxable period beginning on November 1, 1997 and ending on the Exchange Date
(computed in each case without regard to any deduction
<PAGE>
-5-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
for dividends paid), and (iii) all of the Fund's net capital gain realized
(after reduction for any capital loss carryover), in each case for both the
taxable year ending on October 31, 1997 and the short taxable period beginning
on November 1, 1997 and ending on the Exchange Date.
15. The New Fund will use a significant portion (in this case at least 99
percent) of the Fund's historic business assets in its business. For this
purpose, the New Fund will be deemed to have used such significant portion of
the Fund's historic business assets in its business by continuing to hold the
assets transferred to it by the Fund, except for dispositions made in the
ordinary course of business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made in the ordinary course of
business and independent of the First Transaction). That is, the New Fund will
continue to hold the historic business assets of the Fund, defined for purposes
of this opinion as those assets transferred to it on the Exchange Date which
were either (i) acquired by the Fund prior to its management's decision to
propose to its Directors that it transfer any or all of its assets to the New
Fund, or (ii) acquired subsequent to such decision but not with a view to the
First Agreement or the First Transaction, in an amount equal to at least 99
percent of the assets in the Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the First
Agreement or First Transaction.
16. The liabilities of the Fund to be assumed by the New Fund were
incurred by the Fund in the ordinary course of its business and are associated
with the assets of the Fund to be transferred to the New Fund. For purposes of
this paragraph, expenses of the First Transaction are not treated as
liabilities.
17. The sum of the liabilities to be assumed by the New Fund will not
exceed the fair market value or the adjusted basis of the assets of the Fund
immediately prior to the Exchange Date.
18. The costs of the First Transaction are being borne by Composite
Research & Management Co. or its affiliates. However, expenses will in any
event be paid by the party directly incurring them if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a regulated investment company. The shareholders of the Fund
will pay their own expenses, if any, related to the First Transaction.
19. There is no indebtedness existing between the New Fund and the Fund.
<PAGE>
-6-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
20. At the time of the First Transaction, the Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the Fund).
21. At the time of the First Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the New Fund).
22. The Fund 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.
23. None of the compensation received by any shareholder-employees of the
Fund, if any, will be separate consideration for, or allocable to, any of their
Fund shares; none of the New Fund shares received by the Fund shareholder-
employees will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to New Fund or Fund shareholder-employees,
if any, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the New Fund upon the
receipt of assets of the Fund in exchange for shares of the New
Fund and the assumption by the New Fund of the liabilities of the
Fund;
(ii) The basis in the hands of the New Fund of the assets of the Fund
transferred to the New Fund will be the same as the basis of such
assets in the hands of the Fund immediately prior to the transfer;
(iii) The holding periods of the assets of the Fund in the hands of the
New Fund will include the periods during which such assets were
held by the Fund;
(iv) No gain or loss will be recognized by the Fund upon the transfer
of its assets and the assumption of its liabilities by the New
Fund or upon the distribution of shares of the New Fund to Fund
shareholders in liquidation of the Fund;
<PAGE>
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Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
(v) No gain or loss will be recognized by the shareholders of the Fund
upon the exchange of their shares of the Fund for shares of the
New Fund;
(vi) The basis of the shares of the New Fund received by the
shareholders of the Fund will be the same as the basis of the
shares of the Fund exchanged therefor; and
(vii) The holding periods of the shares of the New Fund received by the
shareholders of the Fund will include the holding periods of the
shares of the Fund exchanged therefor, provided that at the time
of the First Transaction the shares of the Fund are held by such
shareholders as capital assets.
In addition, we have also acted as counsel in connection with a second
Agreement and Plan of Reorganization (the "Second Agreement") dated November 3,
1997 between the Composite Growth & Income Fund (referred to in the First
Agreement as "New Fund", but hereinafter referred to as the "Acquiring Fund"), a
series of the Composite Trust, and the Growth and Income Fund (the "Acquired
Fund"), a series of the Sierra Trust Funds, a Massachusetts business trust (the
"Sierra Trust"). The Second Agreement describes a proposed transaction (the
"Second Transaction") to occur on the Exchange Date, pursuant to which Acquiring
Fund will acquire substantially all of the assets of Acquired Fund in exchange
for shares of beneficial interest in Acquiring Fund (the "Merger Shares") and
the assumption by Acquiring Fund of all of the liabilities of Acquired Fund
following which the Merger Shares received by Acquired Fund will be distributed
by Acquired Fund to its shareholders in liquidation and termination of Acquired
Fund. This opinion as to certain federal income tax consequences of the Second
Transaction is furnished to the Composite Growth & Income Fund pursuant to
Section 8(h) of the Second Agreement and to the Growth and Income Fund pursuant
to Section 9(f) of the Second Agreement. Capitalized terms not defined herein
are defined in the Second Agreement.
The Sierra Trust, of which Acquired Fund is a series, is registered under
the 1940 Act as an open-end management investment company. Shares of Acquired
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option. Acquired Fund qualifies as a
regulated investment company for federal income tax purposes under Section 851
of the Code.
The Composite Trust, of which Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are
<PAGE>
-8-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
redeemable at net asset value (less any applicable contingent deferred sales
charge) at each shareholder's option.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Second
Transaction, which has been furnished to the Acquired Fund shareholders in
connection with the Second Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Upon filing its first income tax return at the completion of its first
taxable year, the Acquiring Fund will elect (or have in effect an election) to
be a "regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
2. Acquired Fund will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Acquired Fund, on the
Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund shareholder will be approximately equal to the fair market value of the
Acquired Fund shares surrendered in exchange therefor. The Acquired Fund
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in Acquired Fund (the "Acquired Fund Shares").
4. None of the compensation received by any shareholder-employees of
Acquired Fund, if any, will be separate consideration for, or allocable to, any
of their Acquired Fund Shares; none of the Merger Shares received by any
Acquired Fund shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Acquired Fund shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund shareholder who
owns 5 percent or more of the total outstanding Acquired Fund Shares, and to the
best of the knowledge of the management of Acquired Fund, there is no plan or
intention on the part of the remaining Acquired Fund shareholders to sell,
exchange, or otherwise dispose of a number
<PAGE>
-9-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
of Merger Shares received in the Second Transaction that would reduce Acquired
Fund shareholders' ownership of Merger Shares to a number of Merger Shares
having a value, as of the date of the Second Transaction, of less than 50
percent of the value of all of the formerly outstanding Acquired Fund Shares as
of the same date. For purposes of this representation, Merger Shares or Acquired
Fund Shares surrendered by Acquired Fund shareholders in redemption or otherwise
disposed of, where such dispositions, if any, appear to be initiated by Acquired
Fund shareholders in connection with or as a result of the Second Agreement or
the Second Transaction, will be treated as outstanding Acquired Fund Shares on
the date of the Second Transaction.
6. Acquiring Fund has no plan or intention to reacquire any of the Merger
Shares issued in the Second Transaction, except for Merger Shares reacquired
(i.e., redeemed) in the ordinary course of its business as an open-end
investment company.
7. 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 Acquired Fund immediately prior to the Second Transaction.
For purposes of this representation, (a) amounts paid by Acquired Fund, out of
the assets of Acquired Fund, to Acquired Fund shareholders in redemption of
Acquired Fund Shares, where such redemptions, if any, appear to be initiated by
Acquired Fund shareholders in connection with or as a result of the Second
Agreement or the Second Transaction, (b) amounts used by Acquired Fund to pay
expenses of the Second Transaction, and (c) amounts used to effect all
redemptions and distributions (except for regular, normal dividends declared and
paid in order to ensure Acquired Fund's continued qualification as a regulated
investment company and to avoid fund-level tax (including for this purpose any
final dividend or dividends declared by the Acquired Fund to ensure continued
qualification of the Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax)) made by Acquired Fund immediately
preceding the transfer will be included as assets of Acquired Fund held
immediately prior to the Second Transaction. Further, to the best of the
knowledge of the managements of each of Acquiring Fund and Acquired Fund, this
representation will remain true even if the amounts, if any, that Acquiring Fund
pays after the Second Transaction to Acquiring Fund shareholders who are former
Acquired Fund shareholders in redemption of Merger Shares received in exchange
for Acquired Fund Shares, where such redemptions, if any, appear to be initiated
by such shareholders in connection with or as a result of the Second Agreement
or the Second Transaction, are considered to be assets of Acquired Fund that
were not transferred to Acquiring Fund.
<PAGE>
-10-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
8. Immediately after the Second Transaction, the shareholders of Acquired
Fund will be in control of Acquiring Fund within the meaning of Section 304(c)
of the Code; that is, the shareholders of Acquired Fund will own Acquiring Fund
shares possessing at least 50 percent of the total combined voting power of all
classes of Acquiring Fund stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of Acquiring Fund stock.
9. The fair market value of the assets transferred to Acquiring Fund by
Acquired Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
10. The total adjusted basis of the assets of Acquired Fund transferred to
Acquiring Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
11. For federal income tax purposes, Acquired Fund qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Acquired Fund for its current taxable year beginning July 1,
1997 and will continue to apply to it through the Exchange Date.
In that regard, Acquired Fund will declare to Acquired Fund shareholders of
record on or prior to the Exchange Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing (i) all
of the excess of (x) Acquired Fund's investment income excludable from gross
income under Section 103(a) of the Code over (y) Acquired Fund's deductions
disallowed under Sections 265 and 171(a)(2) of the Code, (ii) all of Acquired
Fund's investment company taxable income (as defined in Code Section 852)
(computed in each case without regard to any deduction for dividends paid) and
(iii) all of Acquired Fund's net realized capital gain (after reduction for any
capital loss carryover), in each case for both the taxable year ending on June
30, 1997 and the short taxable period beginning on July 1, 1997 and ending on
the Exchange Date. Such dividends will be made to ensure continued
qualification of Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax.
12. In the Second Transaction, Acquired Fund will transfer to Acquiring
Fund a significant portion of its historic business assets. Following the Second
Transaction, Acquiring Fund will continue the historic business of Acquired Fund
as an open-end investment company that seeks to provide long-term capital growth
and current income by, among other things, investing in a diversified portfolio
of dividend-paying and nondividend-paying common stock, preferred stock,
treasury bills, certificates of deposit, debt securities of any maturity and
<PAGE>
-11-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
mortgage-backed securities. Acquiring Fund will also continue to invest in all
or substantially all of the market sectors (such as aerospace/defense,
banks/savings & loans, basic industry, beverages, capital goods, chemicals,
etc.) in which Acquired Fund is currently invested. In addition, Acquiring Fund
will continue to use a significant portion of the historic business assets of
Acquired Fund. For purposes of this opinion, "historic business assets" of the
Acquired Fund are those assets transferred to the Acquiring Fund on the Exchange
Date which were either (i) acquired by Acquired Fund prior to its management's
decision to propose to its Directors that it transfer any or all of its assets
to Acquiring Fund, or (ii) acquired subsequent to such decision but not with a
view to the Second Agreement or the Second Transaction. Dispositions made in the
ordinary course of Acquiring Fund's business as an open-end investment company
(i.e., dispositions made in the ordinary course of business and independent of
the Second Transaction) shall not be taken into account.
13. At the time of the Second Transaction, Acquiring Fund will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Acquiring Fund (not
including any dividend reinvestment plan or systematic investment program
offered by Acquiring Fund) that, if exercised or converted, would affect the
Acquired Fund shareholders' acquisition or retention of control of Acquiring
Fund as defined in Section 304(c) of the Code.
14. Acquiring Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Acquired Fund acquired in the Second Transaction, except
for (i) dispositions made in the ordinary course of its business as a series of
an open-end investment company (i.e., dispositions made in the ordinary course
of business and independent of the Second Transaction) and (ii) dispositions
made by Acquiring Fund to realign its portfolio in order to reflect its
investment objective and conform to its investment restrictions and/or to
maintain its qualification as a "regulated investment company" for federal
income tax purposes under Section 851 of the Code ("Realignment Dispositions"),
which Realignment Dispositions shall be limited to the extent required by the
above representation relating to the continued use by Acquiring Fund of the
historic business assets of Acquired Fund. For purposes of this representation,
Realignment Dispositions made by Acquired Fund, if any, will be considered to
have been made by Acquiring Fund.
15. The liabilities of Acquired Fund to be assumed by Acquiring Fund were
incurred by Acquired Fund in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Second Transaction are not treated as liabilities.
<PAGE>
-12-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
16. The Second Transaction will offer shareholders of the Acquired Fund an
opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that are
expected at least initially to be lower than those currently borne by the
Acquired Fund.
17. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a regulated investment company. Acquired Fund shareholders will pay
their respective expenses, if any, incurred in connection with the Second
Transaction.
18. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Acquired Fund Shares.
19. There is no indebtedness existing between Acquired Fund and Acquiring
Fund.
20. Acquired Fund will distribute the Merger Shares it receives in the
Second Transaction to its shareholders as provided in the Second Agreement.
21. Acquired Fund 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquired Fund upon the
transfer of Acquired Fund's assets to Acquiring Fund in exchange
for Merger Shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund, or upon the distribution of Merger
Shares by Acquired Fund to its shareholders in liquidation;
(ii) No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund Shares for
Merger Shares;
<PAGE>
-13-
Composite Growth & Income Fund
Composite Growth & Income Fund
Growth and Income Fund March 20, 1998
(iii) The basis of Merger Shares an Acquired Fund shareholder receives
in connection with the Second Transaction will be the same as the
basis of his or her Acquired Fund Shares exchanged therefor;
(iv) An Acquired Fund shareholder's holding period for his or her
Merger Shares received pursuant to the Second Agreement will be
determined by including the period for which he or she held the
Acquired Fund Shares exchanged therefor, provided that he or she
held such Acquired Fund Shares as capital assets;
(v) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund in exchange for Merger
Shares and the assumption by Acquiring Fund of the liabilities of
Acquired Fund;
(vi) The basis in the hands of Acquiring Fund of the assets of
Acquired Fund transferred to Acquiring Fund in the Second
Transaction will be the same as the basis of such assets in the
hands of Acquired Fund immediately prior to the transfer; and
(vii) The holding periods of the assets of Acquired Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Acquired Fund.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
BRB/ljm
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
March 20, 1998
Composite Income Fund, Inc.
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Composite Income Fund
The Composite Funds
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Corporate Income Fund
Sierra Trust Funds
P.O. Box 5118
Westboro, Massachusetts 01581
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated November 14, 1997 (the "First Agreement") between Composite
Income Fund, Inc., a Washington corporation (the "Fund"), and The Composite
Funds, a Massachusetts business trust (the "Composite Trust"), on behalf of one
of its separate series, the Composite Income Fund (the "New Fund"). The First
Agreement describes a proposed transaction (the "First Transaction") to occur on
March 20, 1998 (the "Exchange Date"), pursuant to which the form of organization
of the Fund will be changed from a Washington corporation to a series of the
Composite Trust, which will assume the registration of the Fund. To effect the
First Transaction, the Fund will transfer all of its assets to the New Fund in
exchange for the assumption of all of the Fund's liabilities by the New Fund and
the issuance by the New Fund of shares of beneficial interest in the New Fund,
which shares will be distributed by the Fund to its shareholders in complete
liquidation and termination of the Fund. This opinion as to certain federal
income tax consequences of the First Transaction is furnished to the Fund
pursuant to Section 9(g) of the First Agreement and is furnished to the New Fund
pursuant to Section 8(h) of the First Agreement. This letter also contains an
opinion in connection with a second transaction between Composite Income Fund
and the Corporate Income Fund (see below, starting at page 8).
<PAGE>
-2-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Shares of the
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option.
The Composite Trust, of which the New Fund is a separate series, was
organized under an Agreement and Declaration of Trust under the laws of The
Commonwealth of Massachusetts. The Composite Trust will assume the registration
of the Fund. Shares of the New Fund are redeemable at net asset value (less any
applicable contingent deferred sales charge) at each shareholder's option.
For purposes of this opinion, we have examined the First Agreement, a
Combined Proxy Statement, dated November 7, 1997 and relating to the First
Transaction, which has been furnished to the Fund's shareholders in connection
with the First Transaction (including any items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated that we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. The New Fund will acquire on the Exchange Date all of the assets of
the Fund, and will assume all liabilities of the Fund.
2. The purpose and effect of the First Transaction is to change the form
of organization of the Fund from a Washington corporation to a series of the
Composite Trust, which will be a "series company" under Rule 18f-2 under the
1940 Act. It is anticipated that such a change in the form of organization will
align the Fund's form of organization with the general practice in the mutual
fund industry, provide the Fund with added flexibility, generate fee savings on
certain regulatory filings and facilitate the consolidation of the Composite
family of funds and the Sierra family of funds.
3. The New Fund was formed for the purpose of effecting the First
Transaction and has not engaged in any business prior to the First Transaction,
and neither the New Fund nor the Fund has ever held, directly or indirectly, any
shares in the other, except for the initial New Fund shares acquired by the Fund
prior to the First Transaction.
4. Upon filing its first income tax return at the completion of its first
taxable year, the New Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for
<PAGE>
-3-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
taxation as a "regulated investment company" under Sections 851 and 852 of the
Internal Revenue Code of 1986, as amended (the "Code").
5. There is no plan or intention to liquidate the New Fund or to merge
the New Fund into any other corporation or business trust.
6. The fair market value of the shares of the New Fund to be received by
each shareholder of the Fund in the First Transaction will, in each instance, be
equal to the fair market value of the shares of the Fund to be surrendered in
exchange therefor. The shareholders of Fund will receive no consideration other
than shares of the New Fund in exchange for their Fund shares.
7. Immediately following consummation of the First Transaction, all of
the outstanding shares of the New Fund will be owned by the former shareholders
of the Fund, who will own such shares solely by reason of their ownership of
shares of the Fund immediately prior to the First Transaction.
8. There is no plan or intention by any shareholder of the Fund who owns
five percent or more of the outstanding Fund shares, and neither the management
of the Composite Trust (on behalf of the New Fund), nor the management of the
Fund, is aware of any plan or intention on the part of any other shareholder of
the Fund, in connection with or as a result of the First Agreement or the First
Transaction, to sell, exchange or otherwise dispose of any shares of the New
Fund received by them in the First Transaction or to sell, exchange or otherwise
dispose of any shares of the Fund prior to the exchange of such shares for
shares of the New Fund.
9. The New Fund has no plan or intention to issue additional shares
following the First Transaction, as part of the First Transaction. However, as
an open-end investment company, the New Fund will issue additional shares in the
ordinary course of its business.
10. The New Fund has no plan or intention to reacquire any of its shares
issued in the First Transaction, except for New Fund shares reacquired (i.e.,
redeemed) in the ordinary course of its business as an open-end investment
company.
11. Immediately following the consummation of the First Transaction, the
New Fund will possess the same assets and liabilities as those possessed by the
Fund immediately prior to the First Transaction, except for (i) assets used to
make payments in redemption of shares of the Fund or the New Fund where such
redemptions, if any, appear to be initiated by
<PAGE>
-4-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
shareholders in connection with or as a result of the First Agreement or the
First Transaction, (ii) assets used to pay expenses incurred in connection with
the First Transaction, if any, and (iii) assets used to distribute dividends or
make redemptions in the ordinary course of the New Fund's operations as an open-
end investment company, as more fully described in paragraph 12 below. Payments
of expenses of the First Transaction and payments in redemption of shares of the
Fund or the New Fund where such redemptions, if any, appear to be initiated by
shareholders in connection with or as a result of the First Agreement or the
First Transaction will, in the aggregate, be less than one percent of the net
assets of the Fund immediately prior to the Exchange Date.
12. Except for the payments in redemption of Fund or New Fund shares where
such redemptions, if any, appear to be initiated by shareholders in connection
with or as a result of the First Agreement or the First Transaction, no payments
will be made by the Fund or the New Fund to its shareholders in connection with
or as a result of the First Agreement or the First Transaction. However, the
Fund and the New Fund will, in the ordinary course of their business as open-end
investment companies, make distributions of dividends paying out investment
income or capital gains, and distributions in redemption of shares; the Fund and
the Composite Trust, on behalf of the New Fund, have no reason to believe that
redemptions or possible future redemptions are occurring or will occur on
account of the First Agreement or the First Transaction (other than those
referred to above and in paragraph 11).
13. The Composite Trust, on behalf of the New Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Fund except for dispositions made in the ordinary course of the New Fund's
business as an open-end investment company (i.e, dispositions resulting from
investment decisions made in the ordinary course of business and independent of
the First Transaction).
14. For federal income tax purposes, the Fund qualifies as a regulated
investment company, and the provisions of Sections 851 through 855 of the Code
apply to the Fund for its current taxable year beginning January 1, 1998, and
will continue to apply to it through the Exchange Date. Prior to the Exchange
Date, the Fund will have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Fund (i) all of the excess of (x) the Fund's investment
income excludable from gross income under Section 103(a) of the Code, over (y)
the Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Fund's investment company taxable income (as defined in Section
852 of the Code) for its taxable years ending on December 31, 1997 and the short
taxable period beginning on January 1, 1998 and ending on the Exchange Date
(computed in each case without regard to any deduction for
<PAGE>
-5-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
dividends paid), and (iii) all of the Fund's net capital gain realized (after
reduction for any capital loss carryover), in each case for both the taxable
year ending on December 31, 1997 and the short taxable period beginning on
January 1, 1998 and ending on the Exchange Date.
15. The New Fund will use a significant portion (in this case at least 99
percent) of the Fund's historic business assets in its business. For this
purpose, the New Fund will be deemed to have used such significant portion of
the Fund's historic business assets in its business by continuing to hold the
assets transferred to it by the Fund, except for dispositions made in the
ordinary course of business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made in the ordinary course of
business and independent of the First Transaction). That is, the New Fund will
continue to hold the historic business assets of the Fund, defined for purposes
of this opinion as those assets transferred to it on the Exchange Date which
were either (i) acquired by the Fund prior to its management's decision to
propose to its Directors that it transfer any or all of its assets to the New
Fund, or (ii) acquired subsequent to such decision but not with a view to the
First Agreement or the First Transaction, in an amount equal to at least 99
percent of the assets in the Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the First
Agreement or First Transaction.
16. The liabilities of the Fund to be assumed by the New Fund were
incurred by the Fund in the ordinary course of its business and are associated
with the assets of the Fund to be transferred to the New Fund. For purposes of
this paragraph, expenses of the First Transaction are not treated as
liabilities.
17. The sum of the liabilities to be assumed by the New Fund will not
exceed the fair market value or the adjusted basis of the assets of the Fund
immediately prior to the Exchange Date.
18. The costs of the First Transaction are being borne by Composite
Research & Management Co. or its affiliates. However, expenses will in any
event be paid by the party directly incurring them if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a regulated investment company. The shareholders of the Fund
will pay their own expenses, if any, related to the First Transaction.
19. There is no indebtedness existing between the New Fund and the Fund.
<PAGE>
-6-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
20. At the time of the First Transaction, the Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the Fund).
21. At the time of the First Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the New Fund).
22. The Fund 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.
23. None of the compensation received by any shareholder-employees of the
Fund, if any, will be separate consideration for, or allocable to, any of their
Fund shares; none of the New Fund shares received by the Fund shareholder-
employees will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to New Fund or Fund shareholder-employees,
if any, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the New Fund upon the
receipt of assets of the Fund in exchange for shares of the New
Fund and the assumption by the New Fund of the liabilities of the
Fund;
(ii) The basis in the hands of the New Fund of the assets of the Fund
transferred to the New Fund will be the same as the basis of such
assets in the hands of the Fund immediately prior to the
transfer;
(iii) The holding periods of the assets of the Fund in the hands of the
New Fund will include the periods during which such assets were
held by the Fund;
(iv) No gain or loss will be recognized by the Fund upon the transfer
of its assets and the assumption of its liabilities by the New
Fund or upon the distribution of shares of the New Fund to Fund
shareholders in liquidation of the Fund;
<PAGE>
-7-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
(v) No gain or loss will be recognized by the shareholders of the
Fund upon the exchange of their shares of the Fund for shares of
the New Fund;
(vi) The basis of the shares of the New Fund received by the
shareholders of the Fund will be the same as the basis of the
shares of the Fund exchanged therefor; and
(vii) The holding periods of the shares of the New Fund received by the
shareholders of the Fund will include the holding periods of the
shares of the Fund exchanged therefor, provided that at the time
of the First Transaction the shares of the Fund are held by such
shareholders as capital assets.
In addition, we have also acted as counsel in connection with a second
Agreement and Plan of Reorganization (the "Second Agreement") dated November 3,
1997 between the Composite Income Fund (referred to in the First Agreement as
"New Fund", but hereinafter referred to as the "Acquiring Fund"), a series of
the Composite Trust, and the Corporate Income Fund (the "Acquired Fund"), a
series of the Sierra Trust Funds, a Massachusetts business trust (the "Sierra
Trust"). The Second Agreement describes a proposed transaction (the "Second
Transaction") to occur on the Exchange Date, pursuant to which Acquiring Fund
will acquire substantially all of the assets of Acquired Fund in exchange for
shares of beneficial interest in Acquiring Fund (the "Merger Shares") and the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund
following which the Merger Shares received by Acquired Fund will be distributed
by Acquired Fund to its shareholders in liquidation and termination of Acquired
Fund. This opinion as to certain federal income tax consequences of the Second
Transaction is furnished to the Composite Income Fund pursuant to Section 8(h)
of the Second Agreement and to the Corporate Income Fund pursuant to Section
9(f) of the Second Agreement. Capitalized terms not defined herein are defined
in the Second Agreement.
The Sierra Trust, of which Acquired Fund is a series, is registered under
the 1940 Act as an open-end management investment company. Shares of Acquired
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option. Acquired Fund qualifies as a
regulated investment company for federal income tax purposes under Section 851
of the Code.
The Composite Trust, of which Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are
<PAGE>
-8-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
redeemable at net asset value (less any applicable contingent deferred sales
charge) at each shareholder's option.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Second
Transaction, which has been furnished to the Acquired Fund shareholders in
connection with the Second Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Upon filing its first income tax return at the completion of its first
taxable year, the Acquiring Fund will elect (or have in effect an election) to
be a "regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
2. Acquired Fund will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Acquired Fund, on the
Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund shareholder will be approximately equal to the fair market value of the
Acquired Fund shares surrendered in exchange therefor. The Acquired Fund
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in Acquired Fund (the "Acquired Fund Shares").
4. None of the compensation received by any shareholder-employees of
Acquired Fund, if any, will be separate consideration for, or allocable to, any
of their Acquired Fund Shares; none of the Merger Shares received by any
Acquired Fund shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Acquired Fund shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund shareholder who
owns 5 percent or more of the total outstanding Acquired Fund Shares, and to the
best of the knowledge of the management of Acquired Fund, there is no plan or
intention on the part of the remaining Acquired Fund shareholders to sell,
exchange, or otherwise dispose of a number
<PAGE>
-9-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
of Merger Shares received in the Second Transaction that would reduce Acquired
Fund shareholders' ownership of Merger Shares to a number of Merger Shares
having a value, as of the date of the Second Transaction, of less than 50
percent of the value of all of the formerly outstanding Acquired Fund Shares as
of the same date. For purposes of this representation, Merger Shares or Acquired
Fund Shares surrendered by Acquired Fund shareholders in redemption or otherwise
disposed of, where such dispositions, if any, appear to be initiated by Acquired
Fund shareholders in connection with or as a result of the Second Agreement or
the Second Transaction, will be treated as outstanding Acquired Fund Shares on
the date of the Second Transaction.
6. Acquiring Fund has no plan or intention to reacquire any of the Merger
Shares issued in the Second Transaction, except for Merger Shares reacquired
(i.e., redeemed) in the ordinary course of its business as an open-end
investment company.
7. 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 Acquired Fund immediately prior to the Second Transaction.
For purposes of this representation, (a) amounts paid by Acquired Fund, out of
the assets of Acquired Fund, to Acquired Fund shareholders in redemption of
Acquired Fund Shares, where such redemptions, if any, appear to be initiated by
Acquired Fund shareholders in connection with or as a result of the Second
Agreement or the Second Transaction, (b) amounts used by Acquired Fund to pay
expenses of the Second Transaction, and (c) amounts used to effect all
redemptions and distributions (except for regular, normal dividends declared and
paid in order to ensure Acquired Fund's continued qualification as a regulated
investment company and to avoid fund-level tax (including for this purpose any
final dividend or dividends declared by the Acquired Fund to ensure continued
qualification of the Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax)) made by Acquired Fund immediately
preceding the transfer will be included as assets of Acquired Fund held
immediately prior to the Second Transaction. Further, to the best of the
knowledge of the managements of each of Acquiring Fund and Acquired Fund, this
representation will remain true even if the amounts, if any, that Acquiring Fund
pays after the Second Transaction to Acquiring Fund shareholders who are former
Acquired Fund shareholders in redemption of Merger Shares received in exchange
for Acquired Fund Shares, where such redemptions, if any, appear to be initiated
by such shareholders in connection with or as a result of the Second Agreement
or the Second Transaction, are considered to be assets of Acquired Fund that
were not transferred to Acquiring Fund.
<PAGE>
-10-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
8. Immediately after the Second Transaction, the shareholders of Acquired
Fund will be in control of Acquiring Fund within the meaning of Section 304(c)
of the Code; that is, the shareholders of Acquired Fund will own Acquiring Fund
shares possessing at least 50 percent of the total combined voting power of all
classes of Acquiring Fund stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of Acquiring Fund stock.
9. The fair market value of the assets transferred to Acquiring Fund by
Acquired Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
10. The total adjusted basis of the assets of Acquired Fund transferred to
Acquiring Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
11. For federal income tax purposes, Acquired Fund qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Acquired Fund for its current taxable year beginning July 1,
1997 and will continue to apply to it through the Exchange Date.
In that regard, Acquired Fund will declare to Acquired Fund shareholders of
record on or prior to the Exchange Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing (i) all
of the excess of (x) Acquired Fund's investment income excludable from gross
income under Section 103(a) of the Code over (y) Acquired Fund's deductions
disallowed under Sections 265 and 171(a)(2) of the Code, (ii) all of Acquired
Fund's investment company taxable income (as defined in Code Section 852)
(computed in each case without regard to any deduction for dividends paid) and
(iii) all of Acquired Fund's net realized capital gain (after reduction for any
capital loss carryover), in each case for both the taxable year ending on June
30, 1997 and the short taxable period beginning on July 1, 1997 and ending on
the Exchange Date. Such dividends will be made to ensure continued
qualification of Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax.
12. In the Second Transaction, Acquired Fund will transfer to Acquiring
Fund a significant portion of its historic business assets. Following the
Second Transaction, Acquiring Fund will continue the historic business of
Acquired Fund as an open-end investment company that seeks to provide a high
level of current income, consistent with preservation of capital, by, among
other things, investing in U.S. dollar-denominated debt and convertible debt
securities rated within the four highest grades as determined by Standard &
Poor's or Moody's Investors
<PAGE>
-11-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
Service, Inc. Acquiring Fund will also continue to invest in debt securities
from all or substantially all of the market sectors (such as manufacturing,
transportation, energy, industrial, financial, electric, etc.) in which Acquired
Fund is currently invested, and the average maturities of these debt securities
will be the same or substantially the same as for the Acquired Fund's current
portfolio. In addition, Acquiring Fund will continue to use a significant
portion of the historic business assets of Acquired Fund. For purposes of this
opinion, "historic business assets" of the Acquired Fund are those assets
transferred to the Acquiring Fund on the Exchange Date which were either (i)
acquired by Acquired Fund prior to its management's decision to propose to its
Directors that it transfer any or all of its assets to Acquiring Fund, or (ii)
acquired subsequent to such decision but not with a view to the Second Agreement
or the Second Transaction. Dispositions made in the ordinary course of Acquiring
Fund's business as an open-end investment company (i.e., dispositions made in
the ordinary course of business and independent of the Second Transaction) shall
not be taken into account.
13. At the time of the Second Transaction, Acquiring Fund will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Acquiring Fund (not
including any dividend reinvestment plan or systematic investment program
offered by Acquiring Fund) that, if exercised or converted, would affect the
Acquired Fund shareholders' acquisition or retention of control of Acquiring
Fund as defined in Section 304(c) of the Code.
14. Acquiring Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Acquired Fund acquired in the Second Transaction, except
for (i) dispositions made in the ordinary course of its business as a series of
an open-end investment company (i.e., dispositions made in the ordinary course
of business and independent of the Second Transaction) and (ii) dispositions
made by Acquiring Fund to realign its portfolio in order to reflect its
investment objective and conform to its investment restrictions and/or to
maintain its qualification as a "regulated investment company" for federal
income tax purposes under Section 851 of the Code ("Realignment Dispositions"),
which Realignment Dispositions shall be limited to the extent required by the
above representation relating to the continued use by Acquiring Fund of the
historic business assets of Acquired Fund. For purposes of this representation,
Realignment Dispositions made by Acquired Fund, if any, will be considered to
have been made by Acquiring Fund.
15. The liabilities of Acquired Fund to be assumed by Acquiring Fund were
incurred by Acquired Fund in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Second Transaction are not treated as liabilities.
<PAGE>
-12-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
16. The Second Transaction will offer shareholders of the Acquired Fund an
opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that are
expected at least initially to be lower than those currently borne by the
Acquired Fund.
17. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a regulated investment company. Acquired Fund shareholders will pay
their respective expenses, if any, incurred in connection with the Second
Transaction.
18. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Acquired Fund Shares.
19. There is no indebtedness existing between Acquired Fund and Acquiring
Fund.
20. Acquired Fund will distribute the Merger Shares it receives in the
Second Transaction to its shareholders as provided in the Second Agreement.
21. Acquired Fund 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquired Fund upon the
transfer of Acquired Fund's assets to Acquiring Fund in exchange
for Merger Shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund, or upon the distribution of Merger
Shares by Acquired Fund to its shareholders in liquidation;
(ii) No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund Shares for
Merger Shares;
<PAGE>
-13-
Composite Income Fund, Inc.
Composite Income Fund
Corporate Income Fund March 20, 1998
(iii) The basis of Merger Shares an Acquired Fund shareholder receives
in connection with the Second Transaction will be the same as the
basis of his or her Acquired Fund Shares exchanged therefor;
(iv) An Acquired Fund shareholder's holding period for his or her
Merger Shares received pursuant to the Second Agreement will be
determined by including the period for which he or she held the
Acquired Fund Shares exchanged therefor, provided that he or she
held such Acquired Fund Shares as capital assets;
(v) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund in exchange for Merger
Shares and the assumption by Acquiring Fund of the liabilities of
Acquired Fund;
(vi) The basis in the hands of Acquiring Fund of the assets of Acquired
Fund transferred to Acquiring Fund in the Second Transaction will
be the same as the basis of such assets in the hands of Acquired
Fund immediately prior to the transfer; and
(vii) The holding periods of the assets of Acquired Fund in the hands of
Acquiring Fund will include the periods during which such assets
were held by Acquired Fund.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
BRB/ljm
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
March 20, 1998
Composite Cash Management Company - Money Market Portfolio
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Composite Money Market Fund
The Composite Funds
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Global Money Fund
U.S. Government Money Fund
Sierra Trust Funds
P.O. Box 5118
Westboro, Massachusetts 01581
Ladies and Gentlemen:
We have acted as counsel in connection with an Agreement and Plan of
Reorganization dated November 14, 1997 (the "First Agreement") between Composite
Cash Management Company, a Washington corporation on behalf of its Money Market
Portfolio series (the "Fund"), and The Composite Funds, a Massachusetts business
trust (the "Composite Trust"), on behalf of one of its separate series, the
Composite Money Market Fund (the "New Fund"). The First Agreement describes a
proposed transaction (the "First Transaction") to occur on March 20, 1998 (the
"Exchange Date"), pursuant to which the form of organization of the Fund will be
changed from a series of a Washington corporation to a series of the Composite
Trust, which will assume the registration of the Fund. To effect the First
Transaction, the Fund will transfer all of its assets to the New Fund in
exchange for the assumption of all of the Fund's liabilities by the New Fund and
the issuance by the New Fund of shares of beneficial interest in the New Fund,
which shares will be distributed by the Fund to its shareholders in complete
liquidation and termination of the Fund. This opinion as to certain federal
income tax consequences of the First Transaction is furnished to the Fund
pursuant to Section 9(g) of the First Agreement and is furnished to the New Fund
pursuant to Section 8(h) of the First Agreement. This letter also contains
opinions in connection with a second transaction between Composite Money Market
Fund and the Global Money Fund (see below, starting at page 8)
<PAGE>
-2-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
and in connection with a third transaction between Composite Money Market Fund
and the U.S. Government Money Fund (see below, starting at page 15).
The Composite Cash Management Company is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. Shares of the Fund are redeemable at net asset value (less
any applicable contingent deferred sales charge) at each shareholder's option.
The Composite Trust, of which the New Fund is a separate series, was
organized under an Agreement and Declaration of Trust under the laws of The
Commonwealth of Massachusetts. The Composite Trust will assume the registration
of the Fund. Shares of the New Fund are redeemable at net asset value at each
shareholder's option.
For purposes of this opinion, we have examined the First Agreement, a
Combined Proxy Statement, dated November 7, 1997 and relating to the First
Transaction, which has been furnished to the Fund's shareholders in connection
with the First Transaction (including any items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated that we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. The New Fund will acquire on the Exchange Date all of the assets of
the Fund, and will assume all liabilities of the Fund.
2. The purpose and effect of the First Transaction is to change the form
of organization of the Fund from a series of a Washington corporation to a
series of the Composite Trust, which will be a "series company" under Rule 18f-2
under the 1940 Act. It is anticipated that such a change in the form of
organization will align the Fund's form of organization with the general
practice in the mutual fund industry, provide the Fund with added flexibility,
generate fee savings on certain regulatory filings and facilitate the
consolidation of the Composite family of funds and the Sierra family of funds.
3. The New Fund was formed for the purpose of effecting the First
Transaction and has not engaged in any business prior to the First Transaction,
and neither the New Fund nor the Fund has ever held, directly or indirectly, any
shares in the other, except for the initial New Fund shares acquired by the Fund
prior to the First Transaction.
<PAGE>
-3-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
4. Upon filing its first income tax return at the completion of its first
taxable year, the New Fund will elect (or will have in effect an election) to be
a "regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Internal Revenue Code of 1986, as
amended (the "Code").
5. There is no plan or intention to liquidate the New Fund or to merge
the New Fund into any other corporation or business trust.
6. The fair market value of the shares of the New Fund to be received by
each shareholder of the Fund in the First Transaction will, in each instance, be
equal to the fair market value of the shares of the Fund to be surrendered in
exchange therefor. The shareholders of Fund will receive no consideration other
than shares of the New Fund in exchange for their Fund shares.
7. Immediately following consummation of the First Transaction, all of
the outstanding shares of the New Fund will be owned by the former shareholders
of the Fund, who will own such shares solely by reason of their ownership of
shares of the Fund immediately prior to the First Transaction.
8. There is no plan or intention by any shareholder of the Fund who owns
five percent or more of the outstanding Fund shares, and neither the management
of the Composite Trust (on behalf of the New Fund), nor the management of the
Fund, is aware of any plan or intention on the part of any other shareholder of
the Fund, in connection with or as a result of the First Agreement or the First
Transaction, to sell, exchange or otherwise dispose of any shares of the New
Fund received by them in the First Transaction or to sell, exchange or otherwise
dispose of any shares of the Fund prior to the exchange of such shares for
shares of the New Fund.
9. The New Fund has no plan or intention to issue additional shares
following the First Transaction, as part of the First Transaction. However, as
an open-end investment company, the New Fund will issue additional shares in the
ordinary course of its business.
<PAGE>
-4-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
10. The New Fund has no plan or intention to reacquire any of its shares
issued in the First Transaction, except for New Fund shares reacquired (i.e.,
redeemed) in the ordinary course of its business as an open-end investment
company.
11. Immediately following the consummation of the First Transaction, the
New Fund will possess the same assets and liabilities as those possessed by the
Fund immediately prior to the First Transaction, except for (i) assets used to
make payments in redemption of shares of the Fund or the New Fund where such
redemptions, if any, appear to be initiated by shareholders in connection with
or as a result of the First Agreement or the First Transaction, (ii) assets used
to pay expenses incurred in connection with the First Transaction, if any, and
(iii) assets used to distribute dividends or make redemptions in the ordinary
course of the New Fund's operations as an open-end investment company, as more
fully described in paragraph 12 below. Payments of expenses of the First
Transaction and payments in redemption of shares of the Fund or the New Fund
where such redemptions, if any, appear to be initiated by shareholders in
connection with or as a result of the First Agreement or the First Transaction
will, in the aggregate, be less than one percent of the net assets of the Fund
immediately prior to the Exchange Date.
12. Except for the payments in redemption of Fund or New Fund shares where
such redemptions, if any, appear to be initiated by shareholders in connection
with or as a result of the First Agreement or the First Transaction, no payments
will be made by the Fund or the New Fund to its shareholders in connection with
or as a result of the First Agreement or the First Transaction. However, the
Fund and the New Fund will, in the ordinary course of their business as open-end
investment companies, make distributions of dividends paying out investment
income or capital gains, and distributions in redemption of shares; the Fund and
the Composite Trust, on behalf of the New Fund, have no reason to believe that
redemptions or possible future redemptions are occurring or will occur on
account of the First Agreement or the First Transaction (other than those
referred to above and in paragraph 11).
13. The Composite Trust, on behalf of the New Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Fund except for dispositions made in the ordinary course of the New Fund's
business as an open-end investment company (i.e, dispositions resulting from
investment decisions made in the ordinary course of business and independent of
the First Transaction).
<PAGE>
-5-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
14. For federal income tax purposes, the Fund qualifies as a regulated
investment company, and the provisions of Sections 851 through 855 of the Code
apply to the Fund for its current taxable year beginning January 1, 1998, and
will continue to apply to it through the Exchange Date. Prior to the Exchange
Date, the Fund will have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Fund (i) all of the excess of (x) the Fund's investment
income excludable from gross income under Section 103(a) of the Code, over (y)
the Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Fund's investment company taxable income (as defined in Section
852 of the Code) for its taxable years ending on December 31, 1997 and the short
taxable period beginning on January 1, 1998 and ending on the Exchange Date
(computed in each case without regard to any deduction for dividends paid), and
(iii) all of the Fund's net capital gain realized (after reduction for any
capital loss carryover), in each case for both the taxable year ending on
December 31, 1997 and the short taxable period beginning on January 1, 1998 and
ending on the Exchange Date.
15. The New Fund will use a significant portion (in this case at least 99
percent) of the Fund's historic business assets in its business. For this
purpose, the New Fund will be deemed to have used such significant portion of
the Fund's historic business assets in its business by continuing to hold the
assets transferred to it by the Fund, except for dispositions made in the
ordinary course of business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made in the ordinary course of
business and independent of the First Transaction). That is, the New Fund will
continue to hold the historic business assets of the Fund, defined for purposes
of this opinion as those assets transferred to it on the Exchange Date which
were either (i) acquired by the Fund prior to its management's decision to
propose to its Directors that it transfer any or all of its assets to the New
Fund, or (ii) acquired subsequent to such decision but not with a view to the
First Agreement or the First Transaction, in an amount equal to at least 99
percent of the assets in the Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the First
Agreement or First Transaction.
16. The liabilities of the Fund to be assumed by the New Fund were
incurred by the Fund in the ordinary course of its business and are associated
with the assets of the Fund to be transferred to the New Fund. For purposes of
this paragraph, expenses of the First Transaction are not treated as
liabilities.
<PAGE>
-6-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
17. The sum of the liabilities to be assumed by the New Fund will not
exceed the fair market value or the adjusted basis of the assets of the Fund
immediately prior to the Exchange Date.
18. The costs of the First Transaction are being borne by Composite
Research & Management Co. or its affiliates. However, expenses will in any
event be paid by the party directly incurring them if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a regulated investment company. The shareholders of the Fund
will pay their own expenses, if any, related to the First Transaction.
19. There is no indebtedness existing between the New Fund and the Fund.
20. At the time of the First Transaction, the Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the Fund).
21. At the time of the First Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the New Fund).
22. The Fund 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.
23. None of the compensation received by any shareholder-employees of the
Fund, if any, will be separate consideration for, or allocable to, any of their
Fund shares; none of the New Fund shares received by the Fund shareholder-
employees will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to New Fund or Fund shareholder-employees,
if any, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
<PAGE>
-7-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the New Fund upon the
receipt of assets of the Fund in exchange for shares of the New
Fund and the assumption by the New Fund of the liabilities of the
Fund;
(ii) The basis in the hands of the New Fund of the assets of the Fund
transferred to the New Fund will be the same as the basis of such
assets in the hands of the Fund immediately prior to the transfer;
(iii) The holding periods of the assets of the Fund in the hands of the
New Fund will include the periods during which such assets were
held by the Fund;
(iv) No gain or loss will be recognized by the Fund upon the transfer
of its assets and the assumption of its liabilities by the New
Fund or upon the distribution of shares of the New Fund to Fund
shareholders in liquidation of the Fund;
(v) No gain or loss will be recognized by the shareholders of the Fund
upon the exchange of their shares of the Fund for shares of the
New Fund;
(vi) The basis of the shares of the New Fund received by the
shareholders of the Fund will be the same as the basis of the
shares of the Fund exchanged therefor; and
(vii) The holding periods of the shares of the New Fund received by the
shareholders of the Fund will include the holding periods of the
shares of the Fund exchanged therefor, provided that at the time
of the First Transaction the shares of the Fund are held by such
shareholders as capital assets.
<PAGE>
-8-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
In addition, we have also acted as counsel in connection with a second
Agreement and Plan of Reorganization (the "Second Agreement") dated November 3,
1997, between the Composite Money Market Fund (referred to in the First
Agreement as "New Fund", but hereinafter referred to as the "Acquiring Fund"), a
series of the Composite Trust, and the Global Money Fund (the "Acquired Fund
A"), a series of the Sierra Trust Funds, a Massachusetts business trust (the
"Sierra Trust"). The Second Agreement describes a proposed transaction (the
"Second Transaction") to occur on the Exchange Date, pursuant to which Acquiring
Fund will acquire substantially all of the assets of Acquired Fund A in exchange
for shares of beneficial interest in Acquiring Fund (the "Merger Shares") and
the assumption by Acquiring Fund of all of the liabilities of Acquired Fund A
following which the Merger Shares received by Acquired Fund A will be
distributed by Acquired Fund A to its shareholders in liquidation and
termination of Acquired Fund A. This opinion as to certain federal income tax
consequences of the Second Transaction is furnished to the Composite Money
Market Fund pursuant to Section 8(h) of the Second Agreement and to the Global
Money Fund pursuant to Section 9(f) of the Second Agreement. Capitalized terms
not defined herein are used herein as defined in the Second Agreement.
The Sierra Trust, of which Acquired Fund A is a series, is registered under
the 1940 Act as an open-end management investment company. Shares of Acquired
Fund A are redeemable at net asset value at each shareholder's option. Acquired
Fund A qualifies as a regulated investment company for federal income tax
purposes under Section 851 of the Code.
The Composite Trust, of which Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Second
Transaction, which has been furnished to the Acquired Fund A shareholders in
connection with the Second Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
<PAGE>
-9-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
1. Upon filing its first income tax return at the completion of its first
taxable year, Acquiring Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
2. Acquired Fund A will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Acquired Fund A, on the
Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund A shareholder will be approximately equal to the fair market value of the
Acquired Fund A shares surrendered in exchange therefor. The Acquired Fund A
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in Acquired Fund A ("Acquired Fund A Shares").
4. None of the compensation received by any shareholder-employees of
Acquired Fund A, if any, will be separate consideration for, or allocable to,
any of their Acquired Fund A Shares; none of the Merger Shares received by any
Acquired Fund A shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Acquired Fund A shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund A shareholder who
owns 5 percent or more of the total outstanding Acquired Fund A Shares, and to
the best of the knowledge of the management of Acquired Fund A, there is no plan
or intention on the part of the remaining Acquired Fund A shareholders to sell,
exchange, or otherwise dispose of a number of Merger Shares received in the
Second Transaction that would reduce Acquired Fund A shareholders' ownership of
Merger Shares to a number of Merger Shares having a value, as of the date of the
Second Transaction, of less than 50 percent of the value of all of the formerly
outstanding Acquired Fund A Shares as of the same date. For purposes of this
representation, Merger Shares or Acquired Fund A Shares surrendered by Acquired
Fund A shareholders in redemption or otherwise disposed of, where such
dispositions, if any, appear to be initiated by Acquired Fund A shareholders in
connection with or as a result of the Second Agreement or the Second
Transaction, will be treated as outstanding Acquired Fund A Shares on the date
of the Second Transaction.
<PAGE>
-10-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
6. Acquiring Fund has no plan or intention to reacquire any of the Merger
Shares issued in the Second Transaction, except for Merger Shares reacquired
(i.e., redeemed) in the ordinary course of its business as an open-end
investment company.
7. 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 Acquired Fund A immediately prior to the Second
Transaction. For purposes of this representation, (a) amounts paid by Acquired
Fund A, out of the assets of Acquired Fund A, to Acquired Fund A shareholders in
redemption of Acquired Fund A Shares, where such redemptions, if any, appear to
be initiated by Acquired Fund A shareholders in connection with or as a result
of the Second Agreement or the Second Transaction, (b) amounts used by Acquired
Fund A to pay expenses of the Second Transaction, and (c) amounts used to effect
all redemptions and distributions (except for regular, normal dividends declared
and paid in order to ensure Acquired Fund A's continued qualification as a
regulated investment company and to avoid fund-level tax (including for this
purpose any final dividend or dividends declared by Acquired Fund A to ensure
continued qualification of Acquired Fund A as a regulated investment company for
tax purposes and to eliminate fund-level tax)) made by Acquired Fund A
immediately preceding the transfer will be included as assets of Acquired Fund A
held immediately prior to the Second Transaction. Further, to the best of the
knowledge of the managements of each of Acquiring Fund and Acquired Fund A, this
representation will remain true even if the amounts, if any, that Acquiring Fund
pays after the Second Transaction to Acquiring Fund shareholders who are former
Acquired Fund A shareholders in redemption of Merger Shares received in exchange
for Acquired Fund A Shares, where such redemptions, if any, appear to be
initiated by such shareholders in connection with or as a result of the Second
Agreement or the Second Transaction, are considered to be assets of Acquired
Fund A that were not transferred to Acquiring Fund.
8. The fair market value of the assets transferred to Acquiring Fund by
Acquired Fund A will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
9. For federal income tax purposes, Acquired Fund A qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Acquired Fund A for its current taxable year beginning July 1,
1997 and will continue to apply to it through the Exchange Date.
<PAGE>
-11-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
In that regard, Acquired Fund A will declare to Acquired Fund A
shareholders of record on or prior to the Exchange Date a dividend or dividends
which together with all previous such dividends shall have the effect of
distributing (i) all of the excess of (x) Acquired Fund A's investment income
excludable from gross income under Section 103(a) of the Code over (y) Acquired
Fund A's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of Acquired Fund A's investment company taxable income (as defined in
Code Section 852) (computed in each case without regard to any deduction for
dividends paid) and (iii) all of Acquired Fund A's net realized capital gain
(after reduction for any capital loss carryover), in each case for both the
taxable year ending on June 30, 1997 and the short taxable period beginning on
July 1, 1997 and ending on the Exchange Date. Such dividends will be made to
ensure continued qualification of Acquired Fund A as a regulated investment
company for tax purposes and to eliminate fund-level tax.
10. In the Second Transaction, Acquired Fund A will transfer to Acquiring
Fund at least 50 percent of its historic business assets. Following the Second
Transaction, Acquiring Fund will continue to use a significant portion (in this
case, at least 50 percent) of the historic business assets of Acquired Fund A.
Specifically, Acquiring Fund will use such significant portion of Acquired Fund
A's historic business assets in its business by continuing to hold at least such
portion of the total assets transferred to it by Acquired Fund A. That is,
Acquiring Fund will continue to hold historic business assets of Acquired Fund
A, defined for purposes of this opinion as those assets transferred to it on the
Exchange Date which were either (i) acquired by Acquired Fund A prior to its
management's decision to propose to its Directors that it transfer any or all of
its assets to Acquiring Fund, or (ii) acquired subsequent to such decision but
not with a view to the Second Agreement or the Second Transaction, in an amount
equal to at least 50 percent of the assets in Acquired Fund A's portfolio held
on the Exchange Date, as increased by the amounts, if any, that Acquired Fund A
paid to its shareholders in redemption of its shares, where such redemptions, if
any, appear to have been initiated by such shareholders in connection with or as
a result of the Second Agreement or Second Transaction. In making this
determination, dispositions made in the ordinary course of Acquiring Fund's
business as an open-end investment company (i.e., dispositions made in the
ordinary course of business and independent of the Second Transaction) shall not
be taken into account. In addition, following the Second Transaction Acquiring
Fund will continue the historic business of Acquired Fund A as an open-end
investment company that seeks (i) to provide maximum current income while
preserving capital and maintaining liquidity and (ii) to maintain a constant per
share net asset value of $1.00 by, among other things, investing in U.S. dollar-
<PAGE>
-12-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
denominated, high-quality money market securities that present minimal credit
risks and mature within 397 days from the time of purchase.
11. Acquiring Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Acquired Fund A acquired in the Second Transaction,
except for (i) dispositions made in the ordinary course of its business as a
series of an open-end investment company (i.e., dispositions made in the
ordinary course of business and independent of the Second Transaction) and (ii)
dispositions made by Acquiring Fund to realign its portfolio in order to reflect
its investment objective and conform to its investment restrictions and/or to
maintain its qualification as a "regulated investment company" for federal
income tax purposes under Section 851 of the Code ("Realignment Dispositions"),
which Realignment Dispositions shall be limited to the extent required by the
above representation relating to the continued use by Acquiring Fund of the
historic business assets of Acquired Fund A. For purposes of this
representation, Realignment Dispositions made by Acquired Fund A, if any, will
be considered to have been made by Acquiring Fund.
12. The liabilities of Acquired Fund A to be assumed by Acquiring Fund
were incurred by Acquired Fund A in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Second Transaction are not treated as liabilities.
13. The Second Transaction will offer shareholders of the Acquired Fund A
an opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that are
expected at least initially to be lower than those currently borne by the
Acquired Fund.
14. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a regulated investment company. Acquired Fund A shareholders will pay
their respective expenses, if any, incurred in connection with the Second
Transaction.
<PAGE>
-13-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
15. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Acquired Fund A Shares.
16. There is no indebtedness existing between Acquired Fund A and
Acquiring Fund.
17. Acquired Fund A will distribute the Merger Shares it receives in the
Second Transaction to its shareholders as provided in the Second Agreement.
18. Acquired Fund A 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquiring Fund upon receipt
of the assets of Acquired Fund A in exchange for Merger Shares and
the assumption by Acquiring Fund of the liabilities of Acquired
Fund A;
(ii) The basis in the hands of Acquiring Fund of the assets of Acquired
Fund A transferred to Acquiring Fund in the Second Transaction
will be the same as the basis of such assets in the hands of
Acquired Fund A immediately prior to the transfer;
(iii) The holding periods of the assets of Acquired Fund A in the hands
of Acquiring Fund will include the periods during which such
assets were held by Acquired Fund A;
(iv) No gain or loss will be recognized by Acquired Fund A upon the
transfer of Acquired Fund A's assets to Acquiring Fund in exchange
for Merger Shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund A, or upon the distribution of Merger
Shares by Acquired Fund A to its shareholders in liquidation;
(v) No gain or loss will be recognized by the Acquired Fund A
shareholders upon the exchange of their Acquired Fund A Shares for
Merger Shares;
<PAGE>
-14-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
(vi) The basis of Merger Shares an Acquired Fund A shareholder receives
in connection with the Second Transaction will be the same as the
basis of his or her Acquired Fund A Shares exchanged therefor; and
(vii) An Acquired Fund A shareholder's holding period for his or her
Merger Shares received pursuant to the Second Agreement will be
determined by including the period for which he or she held the
Acquired Fund A Shares exchanged therefor, provided that he or she
held such Acquired Fund A Shares as capital assets.
<PAGE>
-15-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
Finally, we have also acted as counsel in connection with a proposed
transaction (the "Third Transaction") described in the Second Agreement. In the
Third Transaction, to occur on the Exchange Date, Acquiring Fund will acquire
substantially all of the assets of the U.S. Government Money Fund (the "Acquired
Fund B"), a series of the Sierra Trust, in exchange for shares of beneficial
interest in Acquiring Fund (the "Merger Shares") and the assumption by Acquiring
Fund of all of the liabilities of Acquired Fund B, following which the Merger
Shares received by Acquired Fund B will be distributed by Acquired Fund B to its
shareholders in liquidation and termination of Acquired Fund B. This opinion as
to certain federal income tax consequences of the Third Transaction is furnished
to the Composite Money Market Fund pursuant to Section 8(h) of the Second
Agreement and to the U.S. Government Money Fund pursuant to Section 9(f) of the
Second Agreement. Capitalized terms not defined herein are used herein as
defined in the Second Agreement.
The Sierra Trust, of which Acquired Fund B is a series, is registered under
the 1940 Act as an open-end management investment company. Shares of Acquired
Fund B are redeemable at net asset value at each shareholder's option. Acquired
Fund B qualifies as a regulated investment company for federal income tax
purposes under Section 851 of the Code.
The Composite Trust, of which Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
Acquiring Fund qualifies as a regulated investment company for federal income
tax purposes under Section 851 of the Code.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Third
Transaction, which has been furnished to the Acquired Fund B shareholders in
connection with the Third Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Upon filing its first income tax return at the completion of its first
taxable year, Acquiring Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
<PAGE>
-16-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
2. Acquired Fund B will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Acquired Fund B, on the
Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund B shareholder will be approximately equal to the fair market value of the
Acquired Fund B shares surrendered in exchange therefor. The Acquired Fund B
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in Acquired Fund B ("Acquired Fund B Shares").
4. None of the compensation received by any shareholder-employees of
Acquired Fund B, if any, will be separate consideration for, or allocable to,
any of their Acquired Fund B Shares; none of the Merger Shares received by any
Acquired Fund B shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Acquired Fund B shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund B shareholder who
owns 5 percent or more of the total outstanding Acquired Fund B Shares, and to
the best of the knowledge of the management of Acquired Fund B, there is no plan
or intention on the part of the remaining Acquired Fund B shareholders to sell,
exchange, or otherwise dispose of a number of Merger Shares received in the
Third Transaction that would reduce Acquired Fund B shareholders' ownership of
Merger Shares to a number of Merger Shares having a value, as of the date of the
Third Transaction, of less than 50 percent of the value of all of the formerly
outstanding Acquired Fund B Shares as of the same date. For purposes of this
representation, Merger Shares or Acquired Fund B Shares surrendered by Acquired
Fund B shareholders in redemption or otherwise disposed of, where such
dispositions, if any, appear to be initiated by Acquired Fund B shareholders in
connection with or as a result of the Second Agreement or the Third Transaction,
will be treated as outstanding Acquired Fund B Shares on the date of the Third
Transaction.
6. Acquiring Fund has no plan or intention to reacquire any of the Merger
Shares issued in the Third Transaction, except for Merger Shares reacquired
(i.e., redeemed) in the ordinary course of its business as an open-end
investment company.
<PAGE>
-17-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
7. 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 Acquired Fund B immediately prior to the Third Transaction.
For purposes of this representation, (a) amounts paid by Acquired Fund B, out of
the assets of Acquired Fund B, to Acquired Fund B shareholders in redemption of
Acquired Fund B Shares, where such redemptions, if any, appear to be initiated
by Acquired Fund B shareholders in connection with or as a result of the Second
Agreement or the Third Transaction, (b) amounts used by Acquired Fund B to pay
expenses of the Third Transaction, and (c) amounts used to effect all
redemptions and distributions (except for regular, normal dividends declared and
paid in order to ensure Acquired Fund B's continued qualification as a regulated
investment company and to avoid fund-level tax (including for this purpose any
final dividend or dividends declared by Acquired Fund B to ensure continued
qualification of Acquired Fund B as a regulated investment company for tax
purposes and to eliminate fund-level tax)) made by Acquired Fund B immediately
preceding the transfer will be included as assets of Acquired Fund B held
immediately prior to the Third Transaction. Further, to the best of the
knowledge of the managements of each of Acquiring Fund and Acquired Fund B, this
representation will remain true even if the amounts, if any, that Acquiring Fund
pays after the Third Transaction to Acquiring Fund shareholders who are former
Acquired Fund B shareholders in redemption of Merger Shares received in exchange
for Acquired Fund B Shares, where such redemptions, if any, appear to be
initiated by such shareholders in connection with or as a result of the Second
Agreement or the Third Transaction, are considered to be assets of Acquired Fund
B that were not transferred to Acquiring Fund.
8. The fair market value of the assets transferred to Acquiring Fund by
Acquired Fund B will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
9. For federal income tax purposes, Acquired Fund B qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Acquired Fund B for its current taxable year beginning July 1,
1997 and will continue to apply to it through the Exchange Date.
In that regard, Acquired Fund B will declare to Acquired Fund B
shareholders of record on or prior to the Exchange Date a dividend or dividends
which together with all previous such dividends shall have the effect of
distributing (i) all of the excess of (x) Acquired Fund B's investment income
excludable from gross income under Section 103(a) of the Code
<PAGE>
-18-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
over (y) Acquired Fund B's deductions disallowed under Sections 265 and
171(a)(2) of the Code, (ii) all of Acquired Fund B's investment company taxable
income (as defined in Code Section 852) (computed in each case without regard to
any deduction for dividends paid) and (iii) all of Acquired Fund B's net
realized capital gain (after reduction for any capital loss carryover), in each
case for both the taxable year ending on June 30, 1997 and the short taxable
period beginning on July 1, 1997 and ending on the Exchange Date. Such dividends
will be made to ensure continued qualification of Acquired Fund B as a regulated
investment company for tax purposes and to eliminate fund-level tax.
10. In the Third Transaction, Acquired Fund B will transfer to Acquiring
Fund at least 50 percent of its historic business assets. Following the Third
Transaction, Acquiring Fund will continue to use a significant portion (in this
case, at least 50 percent) of the historic business assets of Acquired Fund B.
Specifically, Acquiring Fund will use such significant portion of Acquired Fund
B's historic business assets in its business by continuing to hold at least such
portion of the total assets transferred to it by Acquired Fund B. That is,
Acquiring Fund will continue to hold historic business assets of Acquired Fund
B, defined for purposes of this opinion as those assets transferred to it on the
Exchange Date which were either (i) acquired by Acquired Fund B prior to its
management's decision to propose to its Directors that it transfer any or all of
its assets to Acquiring Fund, or (ii) acquired subsequent to such decision but
not with a view to the Second Agreement or the Third Transaction, in an amount
equal to at least 50 percent of the assets in Acquired Fund B's portfolio held
on the Exchange Date, as increased by the amounts, if any, that Acquired Fund B
paid to its shareholders in redemption of its shares, where such redemptions, if
any, appear to have been initiated by such shareholders in connection with or as
a result of the Second Agreement or Third Transaction. In making this
determination, dispositions made in the ordinary course of Acquiring Fund's
business as an open-end investment company (i.e., dispositions made in the
ordinary course of business and independent of the Third Transaction) shall not
be taken into account. In addition, following the Third Transaction Acquiring
Fund will continue the historic business of Acquired Fund B as an open-end
investment company that seeks (i) to provide maximum current income while
preserving capital and maintaining liquidity and (ii) to maintain a constant per
share net asset value of $1.00 by, among other things, investing in U.S. dollar-
denominated, high-quality money market securities that present minimal credit
risks and mature within 397 days from the time of purchase.
11. Acquiring Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Acquired Fund B acquired in the Third Transaction,
except for (i) dispositions
<PAGE>
-19-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
made in the ordinary course of its business as a series of an open-end
investment company (i.e., dispositions made in the ordinary course of business
and independent of the Third Transaction) and (ii) dispositions made by
Acquiring Fund to realign its portfolio in order to reflect its investment
objective and conform to its investment restrictions and/or to maintain its
qualification as a "regulated investment company" for federal income tax
purposes under Section 851 of the Code ("Realignment Dispositions"), which
Realignment Dispositions shall be limited to the extent required by the above
representation relating to the continued use by Acquiring Fund of the historic
business assets of Acquired Fund B. For purposes of this representation,
Realignment Dispositions made by Acquired Fund B, if any, will be considered to
have been made by Acquiring Fund.
12. The liabilities of Acquired Fund B to be assumed by Acquiring Fund
were incurred by Acquired Fund B in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Third Transaction are not treated as liabilities.
13. The Third Transaction will offer shareholders of the Acquired Fund B
an opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that would
initially be lower than those currently borne by the Acquired Fund.
14. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a regulated investment company. Acquired Fund B shareholders will pay
their respective expenses, if any, incurred in connection with the Third
Transaction.
15. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Acquired Fund B Shares.
16. There is no indebtedness existing between Acquired Fund B and
Acquiring Fund.
<PAGE>
-20-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
17. Acquired Fund B will distribute the Merger Shares it receives in the
Third Transaction to its shareholders as provided in the Second Agreement.
18. Acquired Fund B 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquiring Fund upon receipt
of the assets of Acquired Fund B in exchange for Merger Shares and
the assumption by Acquiring Fund of the liabilities of Acquired
Fund B;
(ii) The basis in the hands of Acquiring Fund of the assets of Acquired
Fund B transferred to Acquiring Fund in the Third Transaction will
be the same as the basis of such assets in the hands of Acquired
Fund B immediately prior to the transfer;
(iii) The holding periods of the assets of Acquired Fund B in the hands
of Acquiring Fund will include the periods during which such
assets were held by Acquired Fund B;
(iv) No gain or loss will be recognized by Acquired Fund B upon the
transfer of Acquired Fund B's assets to Acquiring Fund in exchange
for Merger Shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund B, or upon the distribution of Merger
Shares by Acquired Fund B to its shareholders in liquidation;
(v) No gain or loss will be recognized by the Acquired Fund B
shareholders upon the exchange of their Acquired Fund B Shares for
Merger Shares;
(vi) The basis of Merger Shares an Acquired Fund B shareholder receives
in connection with the Third Transaction will be the same as the
basis of his or her Acquired Fund B Shares exchanged therefor; and
<PAGE>
-21-
Composite Cash Management Company - Money Market Portfolio
Composite Money Market Fund
Global Money Fund
U.S. Government Money Fund March 20, 1998
(vii) An Acquired Fund B shareholder's holding period for his or her
Merger Shares received pursuant to the Second Agreement will be
determined by including the period for which he or she held the
Acquired Fund B Shares exchanged therefor, provided that he or she
held such Acquired Fund B Shares as capital assets.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
BRB/ljm
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
March 20, 1998
Composite Tax-Exempt Bond Fund, Inc.
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Composite Tax-Exempt Bond Fund
The Composite Funds
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
National Municipal Fund
Sierra Trust Funds
P.O. Box 5118
Westboro, Massachusetts 01581
Ladies and Gentlemen:
We have acted as counsel in connection with an Agreement and Plan of
Reorganization dated November 14, 1997 (the "First Agreement") between Composite
Tax-Exempt Bond Fund, Inc., a Washington corporation (the "Fund"), and The
Composite Funds, a Massachusetts business trust (the "Composite Trust"), on
behalf of one of its separate series, the Composite Tax-Exempt Bond Fund (the
"New Fund"). The First Agreement describes a proposed transaction (the "First
Transaction") to occur on March 20, 1998 (the "Exchange Date"), pursuant to
which the form of organization of the Fund will be changed from a Washington
corporation to a series of the Composite Trust, which will assume the
registration of the Fund. To effect the First Transaction, the Fund will
transfer all of its assets to the New Fund in exchange for the assumption of all
of the Fund's liabilities by the New Fund and the issuance by the New Fund of
shares of beneficial interest in the New Fund, which shares will be distributed
by the Fund to its shareholders in complete liquidation and termination of the
Fund. This opinion as to certain federal income tax consequences of the First
Transaction is furnished to the Fund pursuant to Section 9(g) of the First
Agreement and is furnished to the New Fund pursuant to Section 8(h) of the First
Agreement. This letter also contains an opinion in connection with a second
transaction between Composite Tax-Exempt Bond Fund and the National Municipal
Fund (see below, starting at page 8).
<PAGE>
-2-
Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Shares of the
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option.
The Composite Trust, of which the New Fund is a separate series, was
organized under an Agreement and Declaration of Trust under the laws of The
Commonwealth of Massachusetts. The Composite Trust will assume the registration
of the Fund. Shares of the New Fund are redeemable at net asset value (less any
applicable contingent deferred sales charge) at each shareholder's option.
For purposes of this opinion, we have examined the First Agreement, a
Combined Proxy Statement, dated November 7, 1997 and relating to the First
Transaction, which has been furnished to the Fund shareholders in connection
with the First Transaction (including the items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated that we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. The New Fund will acquire on the Exchange Date all of the assets of
the Fund, and will assume all liabilities of the Fund.
2. The purpose and effect of the First Transaction is to change the form
of organization of the Fund from a Washington corporation to a series of the
Composite Trust, which will be a "series company" under Rule 18f-2 under the
1940 Act. It is anticipated that such a change in the form of organization will
align the Fund's form of organization with the general practice in the mutual
fund industry, provide the Fund with added flexibility, generate fee savings on
certain regulatory filings and facilitate the consolidation of the Composite
family of funds and the Sierra family of funds.
3. The New Fund was formed for the purpose of effecting the First
Transaction and has not engaged in any business prior to the First Transaction,
and neither the New Fund nor the Fund has ever held, directly or indirectly, any
shares in the other, except for the initial New Fund shares acquired by the Fund
prior to the First Transaction.
4. Upon filing its first income tax return at the completion of its first
taxable year, the New Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for
<PAGE>
-3-
Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
taxation as a "regulated investment company" under Sections 851 and 852 of the
Internal Revenue Code of 1986, as amended (the "Code").
5. There is no plan or intention to liquidate the New Fund or to merge
the New Fund into any other corporation or business trust.
6. The fair market value of the shares of the New Fund to be received by
each shareholder of the Fund in the First Transaction will, in each instance, be
equal to the fair market value of the shares of the Fund to be surrendered in
exchange therefor. The shareholders of Fund will receive no consideration other
than shares of the New Fund in exchange for their Fund shares.
7. Immediately following consummation of the First Transaction, all of
the outstanding shares of the New Fund will be owned by the former shareholders
of the Fund, who will own such shares solely by reason of their ownership of
shares of the Fund immediately prior to the First Transaction.
8. There is no plan or intention by any shareholder of the Fund who owns
five percent or more of the outstanding Fund shares, and neither the management
of the Composite Trust (on behalf of the New Fund), nor the management of the
Fund, is aware of any plan or intention on the part of any other shareholder of
the Fund, in connection with or as a result of the First Agreement or the First
Transaction, to sell, exchange or otherwise dispose of any shares of the New
Fund received by them in the First Transaction or to sell, exchange or otherwise
dispose of any shares of the Fund prior to the exchange of such shares for
shares of the New Fund.
9. The New Fund has no plan or intention to issue additional shares
following the First Transaction, as part of the First Transaction. However, as
an open-end investment company, the New Fund will issue additional shares in the
ordinary course of its business.
10. The New Fund has no plan or intention to reacquire any of its shares
issued in the First Transaction, except for New Fund shares reacquired (i.e.,
redeemed) in the ordinary course of its business as an open-end investment
company.
11. Immediately following the consummation of the First Transaction, the
New Fund will possess the same assets and liabilities as those possessed by the
Fund immediately prior to the First Transaction, except for (i) assets used to
make payments in redemption of shares of the Fund or the New Fund where such
redemptions, if any, appear to be initiated by
<PAGE>
-4-
Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
shareholders in connection with or as a result of the First Agreement or the
First Transaction, (ii) assets used to pay expenses incurred in connection with
the First Transaction, if any, and (iii) assets used to distribute dividends or
make redemptions in the ordinary course of the New Fund's operations as an open-
end investment company, as more fully described in paragraph 12 below. Payments
of expenses of the First Transaction and payments in redemption of shares of the
Fund or the New Fund where such redemptions, if any, appear to be initiated by
shareholders in connection with or as a result of the First Agreement or the
First Transaction will, in the aggregate, be less than one percent of the net
assets of the Fund immediately prior to the Exchange Date.
12. Except for the payments in redemption of Fund or New Fund shares where
such redemptions, if any, appear to be initiated by shareholders in connection
with or as a result of the First Agreement or the First Transaction, no payments
will be made by the Fund or the New Fund to its shareholders in connection with
or as a result of the First Agreement or the First Transaction. However, the
Fund and the New Fund will, in the ordinary course of their business as open-end
investment companies, make distributions of dividends paying out investment
income or capital gains, and distributions in redemption of shares; the Fund and
the Composite Trust, on behalf of the New Fund, have no reason to believe that
redemptions or possible future redemptions are occurring or will occur on
account of the First Agreement or the First Transaction (other than those
referred to above and in paragraph 11).
13. The Composite Trust, on behalf of the New Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Fund except for dispositions made in the ordinary course of the New Fund's
business as an open-end investment company (i.e, dispositions resulting from
investment decisions made in the ordinary course of business and independent of
the First Transaction).
14. For federal income tax purposes, the Fund qualifies as a regulated
investment company, and the provisions of Sections 851 through 855 of the Code
apply to the Fund for its current taxable year beginning January 1, 1998, and
will continue to apply to it through the Exchange Date. Prior to the Exchange
Date, the Fund will have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Fund (i) all of the excess of (x) the Fund's investment
income excludable from gross income under Section 103(a) of the Code, over (y)
the Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Fund's investment company taxable income (as defined in Section
852 of the Code) for its taxable years ending on December 31, 1997 and the short
taxable period beginning on January 1, 1998 and ending on the Exchange Date
(computed in each case without regard to any deduction for
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
dividends paid), and (iii) all of the Fund's net capital gain realized (after
reduction for any capital loss carryover), in each case for both the taxable
year ending on December 31, 1997 and the short taxable period beginning on
January 1, 1998 and ending on the Exchange Date.
15. The New Fund will use a significant portion (in this case at least 99
percent) of the Fund's historic business assets in its business. For this
purpose, the New Fund will be deemed to have used such significant portion of
the Fund's historic business assets in its business by continuing to hold the
assets transferred to it by the Fund, except for dispositions made in the
ordinary course of business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made in the ordinary course of
business and independent of the First Transaction). That is, the New Fund will
continue to hold the historic business assets of the Fund, defined for purposes
of this opinion as those assets transferred to it on the Exchange Date which
were either (i) acquired by the Fund prior to its management's decision to
propose to its Directors that it transfer any or all of its assets to the New
Fund, or (ii) acquired subsequent to such decision but not with a view to the
First Agreement or the First Transaction, in an amount equal to at least 99
percent of the assets in the Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the First
Agreement or First Transaction.
16. The liabilities of the Fund to be assumed by the New Fund were
incurred by the Fund in the ordinary course of its business and are associated
with the assets of the Fund to be transferred to the New Fund. For purposes of
this paragraph, expenses of the First Transaction are not treated as
liabilities.
17. The sum of the liabilities to be assumed by the New Fund will not
exceed the fair market value or the adjusted basis of the assets of the Fund
immediately prior to the Exchange Date.
18. The costs of the First Transaction are being borne by Composite
Research & Management Co. or its affiliates. However, expenses will in any
event be paid by the party directly incurring them if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a regulated investment company. The shareholders of the Fund
will pay their own expenses, if any, related to the First Transaction.
19. There is no indebtedness existing between the New Fund and the Fund.
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
20. At the time of the First Transaction, the Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the Fund).
21. At the time of the First Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the New Fund).
22. The Fund 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.
23. None of the compensation received by any shareholder-employees of the
Fund, if any, will be separate consideration for, or allocable to, any of their
Fund shares; none of the New Fund shares received by the Fund shareholder-
employees will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to New Fund or Fund shareholder-employees,
if any, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the New Fund upon the
receipt of assets of the Fund in exchange for shares of the New
Fund and the assumption by the New Fund of the liabilities of the
Fund;
(ii) The basis in the hands of the New Fund of the assets of the Fund
transferred to the New Fund will be the same as the basis of such
assets in the hands of the Fund immediately prior to the transfer;
(iii) The holding periods of the assets of the Fund in the hands of the
New Fund will include the periods during which such assets were
held by the Fund;
(iv) No gain or loss will be recognized by the Fund upon the transfer
of its assets and the assumption of its liabilities by the New
Fund or upon the distribution of shares of the New Fund to Fund
shareholders in liquidation of the Fund;
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
(v) No gain or loss will be recognized by the shareholders of the Fund
upon the exchange of their shares of the Fund for shares of the
New Fund;
(vi) The basis of the shares of the New Fund received by the
shareholders of the Fund will be the same as the basis of the
shares of the Fund exchanged therefor; and
(vii) The holding periods of the shares of the New Fund received by the
shareholders of the Fund will include the holding periods of the
shares of the Fund exchanged therefor, provided that at the time
of the First Transaction the shares of the Fund are held by such
shareholders as capital assets.
In addition, we have also acted as counsel in connection with a second
Agreement and Plan of Reorganization (the "Second Agreement") dated November 3,
1997, between the Composite Tax-Exempt Bond Fund (referred to in the First
Agreement as "New Fund", but hereinafter referred to as the "Acquiring Fund"), a
series of the Composite Trust, and the National Municipal Fund (the "Acquired
Fund"), a series of the Sierra Trust Funds, a Massachusetts business trust (the
"Sierra Trust"). The Second Agreement describes a proposed transaction (the
"Second Transaction") to occur on the Exchange Date, pursuant to which the
Acquiring Fund will acquire substantially all of the assets of the Acquired Fund
in exchange for shares of beneficial interest in the Acquiring Fund (the "Merger
Shares") and the assumption by the Acquiring Fund of all of the liabilities of
the Acquired Fund following which the Merger Shares received by the Acquired
Fund will be distributed by the Acquired Fund to its shareholders in liquidation
and termination of the Acquired Fund. This opinion as to certain federal income
tax consequences of the Second Transaction is furnished to the Composite Tax-
Exempt Bond Fund pursuant to Section 8(h) of the Second Agreement and to the
National Municipal Fund pursuant to Section 9(f) of the Second Agreement.
Capitalized terms not defined herein are used herein as defined in the Second
Agreement.
The Sierra Trust, of which the Acquired Fund is a series, is registered
under 1940 Act as an open-end management investment company. Shares of the
Acquired Fund are redeemable at net asset value (less any applicable contingent
deferred sales charge) at each shareholder's option. The Acquired Fund
qualifies as a regulated investment company for federal income tax purposes
under Section 851 of the Code.
The Composite Trust, of which the Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of the
Acquiring Fund are
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
redeemable at net asset value (less any applicable contingent deferred sales
charge) at each shareholder's option.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Second
Transaction, which has been furnished to Acquired Fund shareholders in
connection with the Second Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Upon filing its first income tax return at the completion of its first
taxable year, the Acquiring Fund will elect (or have in effect an election) to
be a "regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
2. The Acquired Fund will transfer to the Acquiring Fund all of its
assets, and the Acquiring Fund will assume all of the liabilities of the
Acquired Fund, on the Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund shareholder will be approximately equal to the fair market value of the
Acquired Fund shares surrendered in exchange therefor. Acquired Fund
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in the Acquired Fund ("Acquired Fund Shares").
4. None of the compensation received by any shareholder-employees of the
Acquired Fund, if any, will be separate consideration for, or allocable to, any
of their Acquired Fund Shares; none of the Merger Shares received by any
Acquired Fund shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any the
Acquiring Fund or the Acquired Fund's shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund shareholder who
owns 5 percent or more of the total outstanding Acquired Fund Shares, and to the
best of the knowledge of the management of the Acquired Fund, there is no plan
or intention on the part of the remaining Acquired Fund shareholders to sell,
exchange, or otherwise dispose of a
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
number of Merger Shares received in the Second Transaction that would reduce the
Acquired Fund shareholders' ownership of Merger Shares to a number of Merger
Shares having a value, as of the date of the Second Transaction, of less than 50
percent of the value of all of the formerly outstanding Acquired Fund Shares as
of the same date. For purposes of this representation, Merger Shares or Acquired
Fund Shares surrendered by the Acquired Fund's shareholders in redemption or
otherwise disposed of, where such dispositions, if any, appear to be initiated
by Acquired Fund shareholders in connection with or as a result of the Second
Agreement or the Second Transaction, will be treated as outstanding Acquired
Fund Shares on the date of the Second Transaction.
6. The Acquiring Fund has no plan or intention to reacquire any of the
Merger Shares issued in the Second Transaction, except for Merger Shares
reacquired (i.e., redeemed) in the ordinary course of its business as an open-
end investment company.
7. The 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 the Acquired Fund immediately prior to the Second
Transaction. For purposes of this representation, (a) amounts paid by the
Acquired Fund, out of the assets of the Acquired Fund, to Acquired Fund
shareholders in redemption of Acquired Fund Shares, where such redemptions, if
any, appear to be initiated by Acquired Fund shareholders in connection with or
as a result of the Second Agreement or the Second Transaction, (b) amounts used
by the Acquired Fund to pay expenses of the Second Transaction, and (c) amounts
used to effect all redemptions and distributions (except for regular, normal
dividends declared and paid in order to ensure the Acquired Fund's continued
qualification as a regulated investment company and to avoid fund-level tax
(including for this purpose any final dividend or dividends declared by the
Acquired Fund to ensure continued qualification of the Acquired Fund as a
regulated investment company for tax purposes and to eliminate fund-level tax))
made by the Acquired Fund immediately preceding the transfer will be included as
assets of the Acquired Fund held immediately prior to the Second Transaction.
Further, to the best of the knowledge of the managements of each of the
Acquiring Fund and the Acquired Fund, this representation will remain true even
if the amounts, if any, that the Acquiring Fund pays after the Second
Transaction to the Acquiring Fund shareholders who are former Acquired Fund
shareholders in redemption of Merger Shares received in exchange for Acquired
Fund Shares, where such redemptions, if any, appear to be initiated by such
shareholders in connection with or as a result of the Second Agreement or the
Second Transaction, are considered to be assets of the Acquired Fund that were
not transferred to the Acquiring Fund.
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
8. The fair market value of the assets transferred to the Acquiring Fund
by the Acquired Fund will equal or exceed the sum of the liabilities to be
assumed by the Acquiring Fund, plus the amount of liabilities, if any, to which
the transferred assets are subject.
9. For federal income tax purposes, the Acquired Fund qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to the Acquired Fund for its current taxable year beginning July
1, 1997 and will continue to apply to it through the Exchange Date.
In that regard, the Acquired Fund will declare to Acquired Fund
shareholders of record on or prior to the Exchange Date a dividend or dividends
which together with all previous such dividends shall have the effect of
distributing (i) all of the excess of (x) the Acquired Fund's investment income
excludable from gross income under Section 103(a) of the Code over (y) the
Acquired Fund's deductions disallowed under Sections 265 and 171(a)(2) of the
Code, (ii) all of the Acquired Fund's investment company taxable income (as
defined in Code Section 852) (computed in each case without regard to any
deduction for dividends paid) and (iii) all of the Acquired Fund's net realized
capital gain (after reduction for any capital loss carryover), in each case for
both the taxable year ending on June 30, 1997 and the short taxable period
beginning on July 1, 1997 and ending on the Exchange Date. Such dividends will
be made to ensure continued qualification of the Acquired Fund as a regulated
investment company for tax purposes and to eliminate fund-level tax.
10. In the Second Transaction, the Acquired Fund will transfer to the
Acquiring Fund at least 50 percent of its historic business assets. Following
the Second Transaction, the Acquiring Fund will continue to use a significant
portion (in this case, at least 50 percent) of the historic business assets of
the Acquired Fund. Specifically, the Acquiring Fund will use such significant
portion of the Acquired Fund's historic business assets in its business by
continuing to hold at least such portion of the total assets transferred to it
by the Acquired Fund. That is, the Acquiring Fund will continue to hold historic
business assets of the Acquired Fund, defined for purposes of this opinion as
those assets transferred to it on the Exchange Date which were either (i)
acquired by the Acquired Fund prior to its management's decision to propose to
its Directors that it transfer any or all of its assets to the Acquiring Fund,
or (ii) acquired subsequent to such decision but not with a view to the Second
Agreement or the Second Transaction, in an amount equal to at least 50 percent
of the assets in the Acquired Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Acquired Fund paid to its
shareholders in redemption of its shares, where such redemptions, if any, appear
to have been initiated by such shareholders in connection with or as a result of
the Second Agreement or Second Transaction. In making this determination,
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
dispositions made in the ordinary course of the Acquiring Fund's business as an
open-end investment company (i.e., dispositions made in the ordinary course of
business and independent of the Second Transaction) shall not be taken into
account. In addition, following the Second Transaction the Acquiring Fund will
continue the historic business of Acquired Fund as an open-end investment
company that seeks to provide a high level of federal tax-exempt income while at
the same time protecting investors' capital by, among other things, investing at
least 80 percent of its assets in debt securities issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, the interest on which is tax-exempt.
11. The Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the assets of the Acquired Fund acquired in the Second
Transaction, except for (i) dispositions made in the ordinary course of its
business as a series of an open-end investment company (i.e., dispositions made
in the ordinary course of business and independent of the Second Transaction)
and (ii) dispositions made by the Acquiring Fund to realign its portfolio in
order to reflect its investment objective and conform to its investment
restrictions and/or to maintain its qualification as a "regulated investment
company" for federal income tax purposes under Section 851 of the Code
("Realignment Dispositions"), which Realignment Dispositions shall be limited to
the extent required by the above representation relating to the continued use by
the Acquiring Fund of the historic business assets of the Acquired Fund. For
purposes of this representation, Realignment Dispositions made by the Acquired
Fund, if any, will be considered to have been made by the Acquiring Fund.
12. The liabilities of the Acquired Fund to be assumed by the Acquiring
Fund were incurred by the Acquired Fund in the ordinary course of its business
and are associated with the assets transferred to the Acquiring Fund. For
purposes of this paragraph, expenses of the Second Transaction are not treated
as liabilities.
13. The Second Transaction will offer shareholders of the Acquired Fund an
opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that are
expected at least initially to be lower than those currently borne by the
Acquired Fund.
14. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
expenses would result in the disqualification of such party as a regulated
investment company. Acquired Fund shareholders will pay their respective
expenses, if any, incurred in connection with the Second Transaction.
15. The Acquiring Fund does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any Acquired Fund
Shares.
16. There is no indebtedness existing between the Acquired Fund and the
Acquiring Fund.
17. The Acquired Fund will distribute the Merger Shares it receives in the
Second Transaction to its shareholders as provided in the Second Agreement.
18. The Acquired Fund 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the Acquiring Fund upon
receipt of the assets of the Acquired Fund in exchange for Merger
Shares and the assumption by the Acquiring Fund of the liabilities
of the Acquired Fund;
(ii) The basis in the hands of the Acquiring Fund of the assets of the
Acquired Fund transferred to the Acquiring Fund in the Second
Transaction will be the same as the basis of such assets in the
hands of the Acquired Fund immediately prior to the transfer;
(iii) The holding periods of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the periods during which
such assets were held by the Acquired Fund;
(iv) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for Merger Shares and the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund, or upon the
distribution of Merger Shares by the Acquired Fund to its
shareholders in liquidation;
<PAGE>
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Composite Tax-Exempt Bond Fund, Inc.
Composite Tax-Exempt Bond Fund
National Municipal Fund March 20, 1998
(v) No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund Shares for
Merger Shares;
(vi) The basis of Merger Shares an Acquired Fund shareholder receives
in connection with the Second Transaction will be the same as the
basis of his or her Acquired Fund Shares exchanged therefor; and
(vii) An Acquired Fund shareholder's holding period for his or her
Merger Shares received pursuant to the Second Agreement will be
determined by including the period for which he or she held the
Acquired Fund Shares exchanged therefor, provided that he or she
held such Acquired Fund Shares as capital assets.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
BRB/ljm
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
March 20, 1998
Composite U.S. Government Securities, Inc.
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Composite U.S. Government Securities Fund
The Composite Funds
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
U.S. Government Fund
Sierra Trust Funds
P.O. Box 5118
Westboro, Massachusetts 01581
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated November 14, 1997 (the "First Agreement") between Composite
U.S. Government Securities, Inc., a Washington corporation (the "Fund"), and The
Composite Funds, a Massachusetts business trust (the "Composite Trust"), on
behalf of one of its separate series, the Composite U.S. Government Securities
Fund (the "New Fund"). The First Agreement describes a proposed transaction
(the "First Transaction") to occur on March 20, 1998 (the "Exchange Date"),
pursuant to which the form of organization of the Fund will be changed from a
Washington corporation to a series of the Composite Trust, which will assume the
registration of the Fund. To effect the First Transaction, the Fund will
transfer all of its assets to the New Fund in exchange for the assumption of all
of the Fund's liabilities by the New Fund and the issuance by the New Fund of
shares of beneficial interest in the New Fund, which shares will be distributed
by the Fund to its shareholders in complete liquidation and termination of the
Fund. This opinion as to certain federal income tax consequences of the First
Transaction is furnished to the Fund pursuant to Section 9(g) of the First
Agreement and is furnished to the New Fund pursuant to Section 8(h) of the First
Agreement. This letter also contains an opinion in connection with a second
transaction between Composite U.S. Government Securities Fund and the U.S.
Government Fund (see below, starting at page 8).
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. Shares of the
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option.
The Composite Trust, of which the New Fund is a separate series, was
organized under an Agreement and Declaration of Trust under the laws of The
Commonwealth of Massachusetts. The Composite Trust will assume the registration
of the Fund. Shares of the New Fund are redeemable at net asset value (less any
applicable contingent deferred sales charge) at each shareholder's option.
For purposes of this opinion, we have examined the First Agreement, a
Combined Proxy Statement, dated November 7, 1997 and relating to the First
Transaction, which has been furnished to the Fund's shareholders in connection
with the First Transaction (including any items incorporated by reference
therein), and such other items as we have deemed necessary to render this
opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated that we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. The New Fund will acquire on the Exchange Date all of the assets of
the Fund, and will assume all liabilities of the Fund.
2. The purpose and effect of the First Transaction is to change the form
of organization of the Fund from a Washington corporation to a series of the
Composite Trust, which will be a "series company" under Rule 18f-2 under the
1940 Act. It is anticipated that such a change in the form of organization will
align the Fund's form of organization with the general practice in the mutual
fund industry, provide the Fund with added flexibility, generate fee savings on
certain regulatory filings and facilitate the consolidation of the Composite
family of funds and the Sierra family of funds.
3. The New Fund was formed for the purpose of effecting the First
Transaction and has not engaged in any business prior to the First Transaction,
and neither the New Fund nor the Fund has ever held, directly or indirectly, any
shares in the other, except for the initial New Fund shares acquired by the Fund
prior to the First Transaction.
4. Upon filing its first income tax return at the completion of its first
taxable year, the New Fund will elect (or have in effect an election) to be a
"regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
taxation as a "regulated investment company" under Sections 851 and 852 of the
Internal Revenue Code of 1986, as amended (the "Code").
5. There is no plan or intention to liquidate the New Fund or to merge
the New Fund into any other corporation or business trust.
6. The fair market value of the shares of the New Fund to be received by
each shareholder of the Fund in the First Transaction will, in each instance, be
equal to the fair market value of the shares of the Fund to be surrendered in
exchange therefor. The shareholders of Fund will receive no consideration other
than shares of the New Fund in exchange for their Fund shares.
7. Immediately following consummation of the First Transaction, all of
the outstanding shares of the New Fund will be owned by the former shareholders
of the Fund, who will own such shares solely by reason of their ownership of
shares of the Fund immediately prior to the First Transaction.
8. There is no plan or intention by any shareholder of the Fund who owns
five percent or more of the outstanding Fund shares, and neither the management
of the Composite Trust (on behalf of the New Fund), nor the management of the
Fund, is aware of any plan or intention on the part of any other shareholder of
the Fund, in connection with or as a result of the First Agreement or the First
Transaction, to sell, exchange or otherwise dispose of any shares of the New
Fund received by them in the First Transaction or to sell, exchange or otherwise
dispose of any shares of the Fund prior to the exchange of such shares for
shares of the New Fund.
9. The New Fund has no plan or intention to issue additional shares
following the First Transaction, as part of the First Transaction. However, as
an open-end investment company, the New Fund will issue additional shares in the
ordinary course of its business.
10. The New Fund has no plan or intention to reacquire any of its shares
issued in the First Transaction, except for New Fund shares reacquired (i.e.,
redeemed) in the ordinary course of its business as an open-end investment
company.
11. Immediately following the consummation of the First Transaction, the
New Fund will possess the same assets and liabilities as those possessed by the
Fund immediately prior to the First Transaction, except for (i) assets used to
make payments in redemption of shares of the Fund or the New Fund where such
redemptions, if any, appear to be initiated by
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
shareholders in connection with or as a result of the First Agreement or the
First Transaction, (ii) assets used to pay expenses incurred in connection with
the First Transaction, if any, and (iii) assets used to distribute dividends or
make redemptions in the ordinary course of the New Fund's operations as an open-
end investment company, as more fully described in paragraph 12 below. Payments
of expenses of the First Transaction and payments in redemption of shares of the
Fund or the New Fund where such redemptions, if any, appear to be initiated by
shareholders in connection with or as a result of the First Agreement or the
First Transaction will, in the aggregate, be less than one percent of the net
assets of the Fund immediately prior to the Exchange Date.
12. Except for the payments in redemption of Fund or New Fund shares where
such redemptions, if any, appear to be initiated by shareholders in connection
with or as a result of the First Agreement or the First Transaction, no payments
will be made by the Fund or the New Fund to its shareholders in connection with
or as a result of the First Agreement or the First Transaction. However, the
Fund and the New Fund will, in the ordinary course of their business as open-end
investment companies, make distributions of dividends paying out investment
income or capital gains, and distributions in redemption of shares; the Fund and
the Composite Trust, on behalf of the New Fund, have no reason to believe that
redemptions or possible future redemptions are occurring or will occur on
account of the First Agreement or the First Transaction (other than those
referred to above and in paragraph 11).
13. The Composite Trust, on behalf of the New Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Fund except for dispositions made in the ordinary course of the New Fund's
business as an open-end investment company (i.e, dispositions resulting from
---
investment decisions made in the ordinary course of business and independent of
the First Transaction).
14. For federal income tax purposes, the Fund qualifies as a regulated
investment company, and the provisions of Sections 851 through 855 of the Code
apply to the Fund for its current taxable year beginning January 1, 1998, and
will continue to apply to it through the Exchange Date. Prior to the Exchange
Date, the Fund will have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Fund (i) all of the excess of (x) the Fund's investment
income excludable from gross income under Section 103(a) of the Code, over (y)
the Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Fund's investment company taxable income (as defined in Section
852 of the Code) for its taxable years ending on December 31, 1997 and the short
taxable period beginning on January 1, 1998 and ending on the Exchange Date
(computed in each case without regard to any deduction for
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
dividends paid), and (iii) all of the Fund's net capital gain realized (after
reduction for any capital loss carryover), in each case for both the taxable
year ending on December 31, 1997 and the short taxable period beginning on
January 1, 1998 and ending on the Exchange Date.
15. The New Fund will use a significant portion (in this case at least 99
percent) of the Fund's historic business assets in its business. For this
purpose, the New Fund will be deemed to have used such significant portion of
the Fund's historic business assets in its business by continuing to hold the
assets transferred to it by the Fund, except for dispositions made in the
ordinary course of business as an open-end investment company (i.e.,
----
dispositions resulting from investment decisions made in the ordinary course of
business and independent of the First Transaction). That is, the New Fund will
continue to hold the historic business assets of the Fund, defined for purposes
of this opinion as those assets transferred to it on the Exchange Date which
were either (i) acquired by the Fund prior to its management's decision to
propose to its Directors that it transfer any or all of its assets to the New
Fund, or (ii) acquired subsequent to such decision but not with a view to the
First Agreement or the First Transaction, in an amount equal to at least 99
percent of the assets in the Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that the Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the First
Agreement or First Transaction.
16. The liabilities of the Fund to be assumed by the New Fund were
incurred by the Fund in the ordinary course of its business and are associated
with the assets of the Fund to be transferred to the New Fund. For purposes of
this paragraph, expenses of the First Transaction are not treated as
liabilities.
17. The sum of the liabilities to be assumed by the New Fund will not
exceed the fair market value or the adjusted basis of the assets of the Fund
immediately prior to the Exchange Date.
18. The costs of the First Transaction are being borne by Composite
Research & Management Co. or its affiliates. However, expenses will in any
event be paid by the party directly incurring them if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a regulated investment company. The shareholders of the Fund
will pay their own expenses, if any, related to the First Transaction.
19. There is no indebtedness existing between the New Fund and the Fund.
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
20. At the time of the First Transaction, the Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the Fund).
21. At the time of the First Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund (not
including any dividend reinvestment plan or systematic investment program
offered by the New Fund).
22. The Fund 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.
23. None of the compensation received by any shareholder-employees of the
Fund, if any, will be separate consideration for, or allocable to, any of their
Fund shares; none of the New Fund shares received by the Fund shareholder-
employees will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to New Fund or Fund shareholder-employees,
if any, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by the New Fund upon the receipt
of assets of the Fund in exchange for shares of the New Fund and the
assumption by the New Fund of the liabilities of the Fund;
(ii) The basis in the hands of the New Fund of the assets of the Fund
transferred to the New Fund will be the same as the basis of such
assets in the hands of the Fund immediately prior to the transfer;
(iii) The holding periods of the assets of the Fund in the hands of the
New Fund will include the periods during which such assets were held
by the Fund;
(iv) No gain or loss will be recognized by the Fund upon the transfer of
its assets and the assumption of its liabilities by the New Fund or
upon the distribution of shares of the New Fund to Fund shareholders
in liquidation of the Fund;
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
(v) No gain or loss will be recognized by the shareholders of the Fund
upon the exchange of their shares of the Fund for shares of the New
Fund;
(vi) The basis of the shares of the New Fund received by the shareholders
of the Fund will be the same as the basis of the shares of the Fund
exchanged therefor; and
(vii) The holding periods of the shares of the New Fund received by the
shareholders of the Fund will include the holding periods of the
shares of the Fund exchanged therefor, provided that at the time of
the First Transaction the shares of the Fund are held by such
shareholders as capital assets.
In addition, we have also acted as counsel in connection with a second
Agreement and Plan of Reorganization (the "Second Agreement") dated November 3,
1997 between the Composite U.S. Government Securities Fund (referred to in the
First Agreement as "New Fund", but hereinafter referred to as the "Acquiring
Fund"), a series of the Composite Trust, and the U.S. Government Fund (the
"Acquired Fund"), a series of the Sierra Trust Funds, a Massachusetts business
trust (the "Sierra Trust"). The Second Agreement describes a proposed
transaction (the "Second Transaction") to occur on the Exchange Date, pursuant
to which Acquiring Fund will acquire substantially all of the assets of Acquired
Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Merger Shares") and the assumption by Acquiring Fund of all of the liabilities
of Acquired Fund following which the Merger Shares received by Acquired Fund
will be distributed by Acquired Fund to its shareholders in liquidation and
termination of Acquired Fund. This opinion as to certain federal income tax
consequences of the Second Transaction is furnished to the Composite U.S.
Government Securities Fund pursuant to Section 8(h) of the Second Agreement and
to the U.S. Government Fund pursuant to Section 9(f) of the Second Agreement.
Capitalized terms not defined herein are defined in the Second Agreement.
The Sierra Trust, of which Acquired Fund is a series, is registered under
the 1940 Act as an open-end management investment company. Shares of Acquired
Fund are redeemable at net asset value (less any applicable contingent deferred
sales charge) at each shareholder's option. Acquired Fund qualifies as a
regulated investment company for federal income tax purposes under Section 851
of the Code.
The Composite Trust, of which Acquiring Fund is a series, is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
redeemable at net asset value (less any applicable contingent deferred sales
charge) at each shareholder's option.
For purposes of this opinion, we have considered the Second Agreement, a
Prospectus/Proxy Statement, dated November 7, 1997 and relating to the Second
Transaction, which has been furnished to the Acquired Fund shareholders in
connection with the Second Transaction (including any items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Upon filing its first income tax return at the completion of its first
taxable year, the Acquiring Fund will elect (or have in effect an election) to
be a "regulated investment company," and until such time will take all steps
necessary to ensure that it qualifies for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
2. Acquired Fund will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Acquired Fund, on the
Exchange Date.
3. The fair market value of the Merger Shares received by each Acquired
Fund shareholder will be approximately equal to the fair market value of the
Acquired Fund shares surrendered in exchange therefor. The Acquired Fund
shareholders will receive no consideration other than Merger Shares (which may
include fractional shares) in exchange for their shares of beneficial interest
in Acquired Fund (the "Acquired Fund Shares").
4. None of the compensation received by any shareholder-employees of
Acquired Fund, if any, will be separate consideration for, or allocable to, any
of their Acquired Fund Shares; none of the Merger Shares received by any
Acquired Fund shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
Acquiring Fund or Acquired Fund shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
5. There is no plan or intention by any Acquired Fund shareholder who
owns 5 percent or more of the total outstanding Acquired Fund Shares, and to the
best of the knowledge of the management of Acquired Fund, there is no plan or
intention on the part of the remaining Acquired Fund shareholders to sell,
exchange, or otherwise dispose of a number
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
of Merger Shares received in the Second Transaction that would reduce Acquired
Fund shareholders' ownership of Merger Shares to a number of Merger Shares
having a value, as of the date of the Second Transaction, of less than 50
percent of the value of all of the formerly outstanding Acquired Fund Shares as
of the same date. For purposes of this representation, Merger Shares or Acquired
Fund Shares surrendered by Acquired Fund shareholders in redemption or otherwise
disposed of, where such dispositions, if any, appear to be initiated by Acquired
Fund shareholders in connection with or as a result of the Second Agreement or
the Second Transaction, will be treated as outstanding Acquired Fund Shares on
the date of the Second Transaction.
6. Acquiring Fund has no plan or intention to reacquire any of the Merger
Shares issued in the Second Transaction, except for Merger Shares reacquired
(i.e., redeemed) in the ordinary course of its business as an open-end
investment company.
7. 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 Acquired Fund immediately prior to the Second Transaction.
For purposes of this representation, (a) amounts paid by Acquired Fund, out of
the assets of Acquired Fund, to Acquired Fund shareholders in redemption of
Acquired Fund Shares, where such redemptions, if any, appear to be initiated by
Acquired Fund shareholders in connection with or as a result of the Second
Agreement or the Second Transaction, (b) amounts used by Acquired Fund to pay
expenses of the Second Transaction, and (c) amounts used to effect all
redemptions and distributions (except for regular, normal dividends declared and
paid in order to ensure Acquired Fund's continued qualification as a regulated
investment company and to avoid fund-level tax (including for this purpose any
final dividend or dividends declared by the Acquired Fund to ensure continued
qualification of the Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax)) made by Acquired Fund immediately
preceding the transfer will be included as assets of Acquired Fund held
immediately prior to the Second Transaction. Further, to the best of the
knowledge of the managements of each of Acquiring Fund and Acquired Fund, this
representation will remain true even if the amounts, if any, that Acquiring Fund
pays after the Second Transaction to Acquiring Fund shareholders who are former
Acquired Fund shareholders in redemption of Merger Shares received in exchange
for Acquired Fund Shares, where such redemptions, if any, appear to be initiated
by such shareholders in connection with or as a result of the Second Agreement
or the Second Transaction, are considered to be assets of Acquired Fund that
were not transferred to Acquiring Fund.
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
8. Immediately after the Second Transaction, the shareholders of Acquired
Fund will be in control of Acquiring Fund within the meaning of Section 304(c)
of the Code; that is, the shareholders of Acquired Fund will own Acquiring Fund
shares possessing at least 50 percent of the total combined voting power of all
classes of Acquiring Fund stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of Acquiring Fund stock.
9. The fair market value of the assets transferred to Acquiring Fund by
Acquired Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
10. The total adjusted basis of the assets of Acquired Fund transferred to
Acquiring Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
11. For federal income tax purposes, Acquired Fund qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Acquired Fund for its current taxable year beginning July 1,
1997 and will continue to apply to it through the Exchange Date.
In that regard, Acquired Fund will declare to Acquired Fund shareholders of
record on or prior to the Exchange Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing (i) all
of the excess of (x) Acquired Fund's investment income excludable from gross
income under Section 103(a) of the Code over (y) Acquired Fund's deductions
disallowed under Sections 265 and 171(a)(2) of the Code, (ii) all of Acquired
Fund's investment company taxable income (as defined in Code Section 852)
(computed in each case without regard to any deduction for dividends paid) and
(iii) all of Acquired Fund's net realized capital gain (after reduction for any
capital loss carryover), in each case for both the taxable year ending on June
30, 1997 and the short taxable period beginning on July 1, 1997 and ending on
the Exchange Date. Such dividends will be made to ensure continued
qualification of Acquired Fund as a regulated investment company for tax
purposes and to eliminate fund-level tax.
12. In the Second Transaction, Acquired Fund will transfer to Acquiring
Fund at least 50 percent of its historic business assets. Following the Second
Transaction, Acquiring Fund will continue to use a significant portion (in this
case, at least 50 percent) of the historic business assets of Acquired Fund.
Specifically, Acquiring Fund will use such significant portion of Acquired
Fund's historic business assets in its business by continuing to hold at least
such portion of the total assets transferred to it by Acquired Fund. That is,
Acquiring Fund
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
will continue to hold historic business assets of Acquired Fund, defined for
purposes of this opinion as those assets transferred to it on the Exchange Date
which were either (i) acquired by Acquired Fund prior to its management's
decision to propose to its Directors that it transfer any or all of its assets
to Acquiring Fund, or (ii) acquired subsequent to such decision but not with a
view to the Second Agreement or the Second Transaction, in an amount equal to at
least 50 percent of the assets in Acquired Fund's portfolio held on the Exchange
Date, as increased by the amounts, if any, that Acquired Fund paid to its
shareholders in redemption of its shares, where such redemptions, if any, appear
to have been initiated by such shareholders in connection with or as a result of
the Second Agreement or Second Transaction. In making this determination,
dispositions made in the ordinary course of Acquiring Fund's business as an
open-end investment company (i.e., dispositions made in the ordinary course of
- -
business and independent of the Second Transaction) shall not be taken into
account. In addition, following the Second Transaction, Acquiring Fund will
continue the historic business of Acquired Fund as an open-end investment
company that seeks to maintain a high level of current income, consistent with
safety and liquidity by, among other things, investing at least 80 percent of
its assets in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or in repurchase agreements or collateralized
mortgage obligations ("CMOs") secured by these obligations.
13. At the time of the Second Transaction, Acquiring Fund will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Acquiring Fund (not
including any dividend reinvestment plan or systematic investment program
offered by Acquiring Fund) that, if exercised or converted, would affect the
Acquired Fund shareholders' acquisition or retention of control of Acquiring
Fund as defined in Section 304(c) of the Code.
14. Acquiring Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Acquired Fund acquired in the Second Transaction, except
for (i) dispositions made in the ordinary course of its business as a series of
an open-end investment company (i.e., dispositions made in the ordinary course
- -
of business and independent of the Second Transaction) and (ii) dispositions
made by Acquiring Fund to realign its portfolio in order to reflect its
investment objective and conform to its investment restrictions and/or to
maintain its qualification as a "regulated investment company" for federal
income tax purposes under Section 851 of the Code ("Realignment Dispositions"),
which Realignment Dispositions shall be limited to the extent required by the
above representation relating to the continued use by Acquiring Fund of the
historic business assets of Acquired Fund. For purposes of this representation,
Realignment Dispositions made by Acquired Fund, if any, will be considered to
have been made by Acquiring Fund.
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
15. The liabilities of Acquired Fund to be assumed by Acquiring Fund were
incurred by Acquired Fund in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Second Transaction are not treated as liabilities.
16. The Second Transaction will offer shareholders of the Acquired Fund an
opportunity to pursue a substantially similar investment program in a larger
fund and fund complex, which should offer opportunities for economies of scale,
greater diversification of risk and broader exchange privileges. Moreover, the
Acquiring Fund offers the benefit of aggregate operating expenses that are
expected at least initially to be lower than those currently borne by the
Acquired Fund.
17. The costs of the Transaction are being borne by Composite Research &
Management Co. or its affiliates. However, expenses will in any event be paid
by the party directly incurring them if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a regulated investment company. Acquired Fund shareholders will pay
their respective expenses, if any, incurred in connection with the Second
Transaction.
18. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Acquired Fund Shares.
19. There is no indebtedness existing between Acquired Fund and Acquiring
Fund.
20. Acquired Fund will distribute the Merger Shares it receives in the
Second Transaction to its shareholders as provided in the Second Agreement.
21. Acquired Fund 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.
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquired Fund upon the
transfer of Acquired Fund's assets to Acquiring Fund in exchange for
Merger Shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund, or upon the distribution of Merger
Shares by Acquired Fund to its shareholders in liquidation;
<PAGE>
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Composite U.S. Government Securities, Inc.
Composite U.S. Government Securities Fund
U.S. Government Fund March 20, 1998
(ii) No gain or loss will be recognized by the Acquired Fund shareholders
upon the exchange of their Acquired Fund Shares for Merger Shares;
(iii) The basis of Merger Shares an Acquired Fund shareholder receives in
connection with the Second Transaction will be the same as the basis
of his or her Acquired Fund Shares exchanged therefor;
(iv) An Acquired Fund shareholder's holding period for his or her Merger
Shares received pursuant to the Second Agreement will be determined
by including the period for which he or she held the Acquired Fund
Shares exchanged therefor, provided that he or she held such
Acquired Fund Shares as capital assets;
(v) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund in exchange for Merger Shares
and the assumption by Acquiring Fund of the liabilities of Acquired
Fund;
(vi) The basis in the hands of Acquiring Fund of the assets of Acquired
Fund transferred to Acquiring Fund in the Second Transaction will be
the same as the basis of such assets in the hands of Acquired Fund
immediately prior to the transfer; and
(vii) The holding periods of the assets of Acquired Fund in the hands of
Acquiring Fund will include the periods during which such assets
were held by Acquired Fund.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
30 KENNEDY PLAZA FAX: (617) 951-7050 ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N. W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
April 16, 1998
WM Trust I (formerly known as The Composite Funds)
601 West Main Avenue, Suite 300
Spokane, Washington 99201-0613
Ladies and Gentlemen:
We hereby consent to the filing as exhibits to your Registration Statement
on Form N-14 (File No. 333-36941) of our five opinions, each dated March 20,
1998 and each addressed to you, as to certain tax matters related to the
transactions carried out pursuant to such Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
