When investment companies seek to merge, the acquiring fund registers the shares to be issued in the merger with the SEC on Form N-14. The N-14 also seeks the approval of the acquired fund's shareholders for the completion of the transaction. Part A of the N-14 is a proxy statement and prospectus combined. The prospectus/proxy statement is the key document that describes the transaction and compares the two funds. It is a prospectus in that it describes the attributes of the acquiring fund, and a proxy in that it seeks a vote from the shareholders of the acquired fund to approve the transaction. Part B is a statement of additional information, which typically contains little other than the funds' statements of additional information on Form N-1A. Form N-14 may also require pro forma financial statements of the merged entity, including a statement of assets and liabilities, statement of operations, portfolio of investments and notes regarding the pro forma financial statements.

The merger itself is completed under the terms of a merger agreement. Many merger agreements call for the fund's independent accountants to report as to the net asset value computation, tax compliance or other matters relating to a fund as of the closing date or a date close to the merger. We should request the opportunity to review any language relating to such reports prior to the execution of a merger agreement. Normally, merger agreements are included as an exhibit to the prospectus/proxy statement. A reference to the Firm in a merger agreement does not require reference in our consent included with the filing.

A typical structure for the fund merger is that the acquired fund transfers to the acquiring fund its assets in exchange for shares of the acquiring fund. The acquired fund then distributes shares of the acquiring fund to the acquired fund's shareholders and the acquired fund is liquidated, after paying any remaining liabilities. As noted in TIS Section 6910.33, a merger is generally viewed as a business combination and disclosure by the acquirer is required in order to enable the users of the financial statements to evaluate the nature and financial effect of a business combination that occurs during the current reporting period. In some cases, the acquiring fund agrees to assume all liabilities. The views of counsel should be sought in such circumstances to address risks related to unidentified liabilities. The usual form of the transaction for tax purposes is a "C reorganization," completed tax-free under Section 368(a)(1)(C) of the Internal Revenue Code. Upon the completion of the merger in a "C" reorganization, the old fund ceases to exist. Reorganization of the third type enumerated above, acquisitions by a shell, can sometimes be completed through an "F" reorganization (Section 368(a)(1)(F)), which is merely a change of "identity, form, or place of organization," however effected. In an "F" reorganization, the entity continues, for tax purposes, in its prior form after the merger.