_________________, 2002
Board of Trustees
Vanguard Whitehall Funds
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Board of Trustees
Xxxxxxxx Capital Funds
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
RE: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE ___ OF ___________,
2002 (THE "AGREEMENT"), BY AND BETWEEN VANGUARD WHITEHALL FUNDS, A DELAWARE
BUSINESS TRUST, (THE "VANGUARD TRUST") ON BEHALF OF ITS SERIES, VANGUARD
INTERNATIONAL EXPLORER FUND (THE "VANGUARD FUND"), AND XXXXXXXX CAPITAL
FUNDS (DELAWARE), A DELAWARE BUSINESS TRUST (THE "XXXXXXXX TRUST"), ON
BEHALF OF ITS SERIES, XXXXXXXX INTERNATIONAL SMALLER COMPANIES FUND (THE
"XXXXXXXX FUND")
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Xxxxxxxx Fund which will consist of (i)
the transfer of all or substantially all of the assets of the Xxxxxxxx Fund to
the Vanguard Fund, in exchange solely for shares of beneficial interest of the
Vanguard Fund (the "Vanguard Fund Shares"); (ii) the assumption by the Vanguard
Fund of the liabilities of the Xxxxxxxx Fund; and (iii) the distribution of the
Vanguard Fund Shares to the shareholders of the Xxxxxxxx Fund in complete
liquidation of the Xxxxxxxx Fund as provided herein, all upon the terms and
conditions hereinafter set forth in the Agreement (the "Reorganization").
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, dated as of the __ day of ___________,
2002, by and between the Vanguard Trust and the Xxxxxxxx Trust, (b) the proxy
materials provided to stockholders of the Xxxxxxxx Fund in connection with the
Special Meeting of Stockholders of the Xxxxxxxx Fund held on _____________,
2002, (c) certain representations concerning the Reorganization made
to us by the Vanguard Trust and the Xxxxxxxx Trust in a letter dated
_____________, 2002 (the "Representation Letter"), (d) all other documents,
financial and other reports and corporate minutes which we deemed relevant or
appropriate, and (e) such statutes, regulations, rulings and decisions as we
deemed material to the rendition of this opinion. All terms used herein, unless
otherwise defined, are used as defined in the Agreement.
For purposes of this opinion, we have assumed that the Xxxxxxxx Fund
and the Vanguard Fund on the effective date of the Reorganization satisfies, and
following the Reorganization, the Vanguard Fund will continue to satisfy, the
requirements of subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury
under Section 1276(d) of the Code, certain transfers of market discount bonds
will be excepted from the requirement that accrued market discount be recognized
on disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried
out in accordance with the applicable laws of the State of Delaware, the
Agreement and the Representation Letter, it is our opinion that:
1. The Reorganization will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(F) of the Code, and Xxxxxxxx Fund and
Vanguard Fund will each be a party to a reorganization within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized by Xxxxxxxx Fund upon the
transfer of all of its assets to Vanguard Fund in exchange solely for Vanguard
Fund Shares or upon the distribution of the Vanguard Fund Shares to the Xxxxxxxx
Fund's shareholders in exchange for their shares of the Xxxxxxxx Fund. We
express no opinion as to whether any accrued market discount will be required to
be recognized as ordinary income.
3. No gain or loss will be recognized by Vanguard Fund upon the
receipt by it of all of the assets of Xxxxxxxx Fund in exchange solely for
Vanguard Fund Shares and the assumption by the Vanguard Fund of the liabilities
of the Xxxxxxxx Fund.
4. The tax basis of the assets of Xxxxxxxx Fund received by Vanguard
Fund will be the same as the tax basis of such assets to Xxxxxxxx Fund
immediately prior to the Reorganization.
5. The holding period of the assets of Xxxxxxxx Fund received by
Vanguard Fund will include the period during which such assets were held by
Xxxxxxxx Fund.
6. No gain or loss will be recognized by the stockholders of
Xxxxxxxx Fund upon the exchange of their Xxxxxxxx Fund Shares for Vanguard Fund
Shares (including fractional shares to which they may be entitled) and the
assumption by the Vanguard Fund of the liabilities of the Xxxxxxxx Fund.
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7. The aggregate tax basis of the Vanguard Fund Shares received by
the stockholders of Xxxxxxxx Fund (including fractional shares to which they may
be entitled) pursuant to the Reorganization will be the same as the basis of the
Xxxxxxxx Fund Shares held by the Xxxxxxxx shareholder's immediately prior to the
Reorganization.
8. The holding period of the Vanguard Fund Shares received by the
stockholders of Xxxxxxxx Fund (including fractional shares to which they may be
entitled) will include the holding period of the Xxxxxxxx Fund Shares
surrendered in exchange therefor, provided that the Xxxxxxxx Fund Shares were
held as a capital asset on the effective date of the Reorganization.
9. Vanguard Fund will succeed to and take into account as of the
date of the proposed transfer (as defined in Section 1.381(b)-1(b) of the Income
Tax Regulations) the items of Xxxxxxxx Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in Sections 381(b) and
(c), 382, 383 and 384 of the Code.
This opinion letter expresses our views only as to U.S. federal
income tax laws in effect as of the date hereof. It represents our best legal
judgment as to the matters addressed herein, but is not binding on the Internal
Revenue Service or the courts. Accordingly, no assurance can be given that the
opinions and analysis expressed herein, if contested, would be sustained by a
court. Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service as
set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing judicial
decisions, all of which are subject to change either prospectively or
retroactively. We do not undertake to make any continuing analysis of the facts
or relevant law following the date of this letter.
Our opinion is conditioned upon the performance by the Vanguard
Trust and the Xxxxxxxx Trust of their undertakings in the Agreement and the
Representation Letter.
This opinion is being rendered to Vanguard Fund and Xxxxxxxx Fund
and may be relied upon only by such funds and the shareholders of each fund.
Very truly yours,
XXXXXX, XXXXX & BOCKIUS, LLP
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FOR MLB INTERNAL USE ONLY
Prepared By:
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Signed By:
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Reviewed By:
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