January 24, 2001
Board of Trustees
Vanguard Fixed Income Securities Funds
000 Xxxxxxxx Xxxxxxxxx
Malvern, PA 19355
Board of Trustees
Vanguard Admiral Funds
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Re: Agreement and Plan of Reorganization, Dated as of the ____ of _______,
2001 (the "Agreement"), By and Between Vanguard Fixed Income Securities
Fund, a Delaware business trust ("Acquiring Fund"), on behalf of its
series, Vanguard Short-Term Treasury Fund, Vanguard Intermediate-Term
Treasury Fund, and Vanguard Long-Term Treasury Fund, and Vanguard Admiral
Funds, a Delaware business trust ("Acquired Fund"), on behalf of its
series, Vanguard Admiral Short-Term Treasury Fund, Vanguard Admiral
Intermediate-Term Treasury Fund, and Vanguard Admiral Long-Term Treasury
Fund
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund which will consist of (i)
the transfer of all or substantially all of the assets of each series of the
Acquired Fund to the corresponding series of the Acquiring Fund (as set forth on
Appendix A), in exchange solely for Admiral Shares of beneficial interest of the
corresponding series of the Acquiring Fund (the "Acquiring Fund Shares"); (ii)
the assumption by each series of the Acquiring Fund of the liabilities of the
corresponding series of the Acquired Fund; and (iii) the distribution of the
Acquiring Fund Shares to the shareholders of the corresponding Acquired Fund (as
set forth on Appendix A) in complete liquidation of each Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
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 _____ , by and
between the Acquiring Fund and the Acquired Fund ("Agreement"), (b) the proxy
materials provided to stockholders of each series of the Acquired Fund in
connection with the Special Meeting of Stockholders of the Acquired Fund held on
______, (c) certain representations concerning the Reorganization made to us by
the Acquiring Fund and the Acquired Fund in a letter dated (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 each series of the
Acquired Fund and the Acquiring Fund on the effective date of the Reorganization
satisfies, and following the Reorganization, the Acquiring 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) of the Code, and Acquired Fund and Acquiring Fund will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code.
2. No gain or loss will be recognized by Acquired Fund upon the transfer of
all of its assets to Acquiring Fund in exchange solely for Acquiring Fund Shares
pursuant to Section 361(a) and Section 357(a) of the Code. We express no opinion
as to whether any accrued market discount will be required to be recognized as
ordinary income pursuant to Section 1276 of the Code.
3. No gain or loss will be recognized by Acquiring Fund upon the receipt by
it of all of the assets of Acquired Fund in exchange solely for Acquiring Fund
Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by Acquiring Fund will
be the same as the basis of such assets to Acquired Fund immediately prior to
the exchange pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquired Fund received by Acquiring
Fund will include the period during which such assets were held by Acquired Fund
pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of Acquired Fund
upon the exchange of their Acquired Fund Shares for Acquiring Fund Shares
(including fractional shares to which they may be entitled), pursuant to Section
354(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the stockholders of
Acquired Fund (including fractional shares to which they may be entitled) will
be the same as the basis of the Acquired Fund Shares exchanged
therefor pursuant to Section 358(a)(1) of the Code.
8. The holding period of the Acquiring Fund Shares received by the
stockholders of Acquired Fund (including fractional shares to which they may be
entitled) will include the holding period of the Acquired Fund Shares
surrendered in exchange therefor, provided that the Acquired Fund Shares were
held as a capital asset on the effective date of the Reorganization, pursuant to
Section 1223(1) of the Code.
9. Acquiring 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 Acquired 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 Acquiring Fund and
Acquired Fund of their undertakings in the Agreement and the Representation
Letter.
This opinion is being rendered to Acquiring Fund and Acquired Fund and may
be relied upon only by the series of such funds and the stockholders of each
series.
Very truly yours,
XXXXXX. XXXXX & XXXXXXX, LLP
APPENDIX A
Corresponding Series
Series of Acquired Fund of Acquiring Fund
--------------------------- --------------------
Vanguard Admiral Short-Term Vanguard Short-Term Treasury Fund
Treasury Fund
Vanguard Admiral Intermediate-Term Vanguard Intermediate-Term
Treasury Fund Treasury Fund
Vanguard Admiral Long-Term Vanguard Long-Term Treasury Fund
Treasury Fund
